UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2008
Commission file no: 1-4121
DEERE & COMPANY
Delaware
|
|
36-2382580
|
One John Deere Place
Moline, Illinois 61265
(Address of principal executive offices)
Telephone Number: (309) 765-8000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x |
Accelerated Filer o |
Non-Accelerated Filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
At January 31, 2008, 436,035,942 shares of common stock, $1 par value, of the registrant were outstanding.
Index to Exhibits: Page 31
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Three Months Ended January 31, 2008 and 2007
(In millions of dollars and shares except per share amounts) Unaudited
|
|
|
|
|
|
||
|
|
2008 |
|
2007 |
|
||
Net Sales and Revenues |
|
|
|
|
|
||
Net sales |
|
$ |
4,530.6 |
|
$ |
3,814.9 |
|
Finance and interest income |
|
527.9 |
|
482.4 |
|
||
Other income |
|
142.5 |
|
127.9 |
|
||
Total |
|
5,201.0 |
|
4,425.2 |
|
||
|
|
|
|
|
|
||
Costs and Expenses |
|
|
|
|
|
||
Cost of sales |
|
3,361.8 |
|
2,950.2 |
|
||
Research and development expenses |
|
204.3 |
|
176.8 |
|
||
Selling, administrative and general expenses |
|
652.8 |
|
543.5 |
|
||
Interest expense |
|
295.1 |
|
267.1 |
|
||
Other operating expenses |
|
155.5 |
|
122.2 |
|
||
Total |
|
4,669.5 |
|
4,059.8 |
|
||
|
|
|
|
|
|
||
Income of Consolidated Group Before Income Taxes |
|
531.5 |
|
365.4 |
|
||
Provision for income taxes |
|
170.0 |
|
128.1 |
|
||
Income of Consolidated Group |
|
361.5 |
|
237.3 |
|
||
Equity in income of unconsolidated affiliates |
|
7.6 |
|
1.4 |
|
||
Net Income |
|
$ |
369.1 |
|
$ |
238.7 |
|
|
|
|
|
|
|
||
Per Share Data |
|
|
|
|
|
||
Net income - basic |
|
$ |
.84 |
|
$ |
.53 |
|
Net income - diluted |
|
$ |
.83 |
|
$ |
.52 |
|
|
|
|
|
|
|
||
Average Shares Outstanding: |
|
|
|
|
|
||
Basic |
|
437.7 |
|
454.5 |
|
||
Diluted |
|
444.2 |
|
459.7 |
|
||
|
|
|
|
|
|
See Notes to Interim Financial Statements. |
2
DEERE & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions of dollars) Unaudited
|
|
|
|
|
|
|
|
|||
|
|
January 31 |
|
October 31 |
|
January 31 |
|
|||
|
|
2008 |
|
2007 |
|
2007 |
|
|||
Assets |
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
1,496.3 |
|
$ |
2,278.6 |
|
$ |
1,341.1 |
|
Marketable securities |
|
1,153.6 |
|
1,623.3 |
|
1,410.0 |
|
|||
Receivables from unconsolidated affiliates |
|
39.2 |
|
29.6 |
|
24.1 |
|
|||
Trade accounts and notes receivable - net |
|
3,199.3 |
|
3,055.0 |
|
3,188.2 |
|
|||
Financing receivables - net |
|
15,233.1 |
|
15,631.2 |
|
13,683.7 |
|
|||
Restricted financing receivables - net |
|
1,960.6 |
|
2,289.0 |
|
2,066.7 |
|
|||
Other receivables |
|
648.7 |
|
596.3 |
|
408.2 |
|
|||
Equipment on operating leases - net |
|
1,628.4 |
|
1,705.3 |
|
1,420.8 |
|
|||
Inventories |
|
3,288.8 |
|
2,337.3 |
|
2,484.1 |
|
|||
Property and equipment - net |
|
3,651.7 |
|
3,534.0 |
|
2,951.0 |
|
|||
Investments in unconsolidated affiliates |
|
157.1 |
|
149.5 |
|
124.9 |
|
|||
Goodwill |
|
1,248.3 |
|
1,234.3 |
|
1,115.7 |
|
|||
Other intangible assets - net |
|
131.2 |
|
131.0 |
|
54.4 |
|
|||
Retirement benefits |
|
2,016.5 |
|
1,976.0 |
|
2,635.3 |
|
|||
Deferred income taxes |
|
1,451.4 |
|
1,399.5 |
|
585.2 |
|
|||
Other assets |
|
911.1 |
|
605.8 |
|
653.7 |
|
|||
Total Assets |
|
$ |
38,215.3 |
|
$ |
38,575.7 |
|
$ |
34,147.1 |
|
|
|
|
|
|
|
|
|
|||
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|||
Short-term borrowings |
|
$ |
9,461.6 |
|
$ |
9,969.4 |
|
$ |
9,053.1 |
|
Payables to unconsolidated affiliates |
|
174.4 |
|
136.5 |
|
72.8 |
|
|||
Accounts payable and accrued expenses |
|
5,019.2 |
|
5,357.9 |
|
4,027.0 |
|
|||
Accrued taxes |
|
500.1 |
|
274.3 |
|
150.4 |
|
|||
Deferred income taxes |
|
188.4 |
|
183.4 |
|
60.0 |
|
|||
Long-term borrowings |
|
12,344.4 |
|
11,798.2 |
|
10,571.1 |
|
|||
Retirement benefit accruals and other liabilities |
|
3,488.8 |
|
3,700.2 |
|
2,636.8 |
|
|||
Total liabilities |
|
31,176.9 |
|
31,419.9 |
|
26,571.2 |
|
|||
Common stock, $1
par value (issued shares at
|
|
2,882.4 |
|
2,777.0 |
|
2,299.6 |
|
|||
Common stock in treasury |
|
(4,449.4 |
) |
(4,015.4 |
) |
(2,817.6 |
) |
|||
Retained earnings |
|
9,243.4 |
|
9,031.7 |
|
8,025.3 |
|
|||
Total |
|
7,676.4 |
|
7,793.3 |
|
7,507.3 |
|
|||
Accumulated other comprehensive income (loss) |
|
(638.0 |
) |
(637.5 |
) |
68.6 |
|
|||
Stockholders equity |
|
7,038.4 |
|
7,155.8 |
|
7,575.9 |
|
|||
Total Liabilities and Stockholders Equity |
|
$ |
38,215.3 |
|
$ |
38,575.7 |
|
$ |
34,147.1 |
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Financial Statements. |
|
|
|
|
|
|
|
3
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Three Months Ended January 31, 2008 and 2007
(In millions of dollars) Unaudited
|
|
|
|
|
|
||
|
|
2008 |
|
2007 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
||
Net income |
|
$ |
369.1 |
|
$ |
238.7 |
|
Adjustments to reconcile net income to net cash used for operating activities: |
|
|
|
|
|
||
Provision for doubtful receivables |
|
17.4 |
|
14.8 |
|
||
Provision for depreciation and amortization |
|
199.7 |
|
185.7 |
|
||
Share-based compensation expense |
|
45.5 |
|
42.6 |
|
||
Undistributed earnings of unconsolidated affiliates |
|
(5.8 |
) |
(.3 |
) |
||
Credit for deferred income taxes |
|
(20.2 |
) |
(3.9 |
) |
||
Changes in assets and liabilities: |
|
|
|
|
|
||
Trade, notes and financing receivables related to sales of equipment |
|
53.0 |
|
(30.7 |
) |
||
Inventories |
|
(1,013.0 |
) |
(579.8 |
) |
||
Accounts payable and accrued expenses |
|
(378.8 |
) |
(418.5 |
) |
||
Accrued income taxes payable/receivable |
|
183.1 |
|
19.6 |
|
||
Retirement benefits |
|
(195.2 |
) |
(159.4 |
) |
||
Other |
|
(79.8 |
) |
5.2 |
|
||
Net cash used for operating activities |
|
(825.0 |
) |
(686.0 |
) |
||
Cash Flows from Investing Activities |
|
|
|
|
|
||
Collections of financing receivables |
|
3,118.3 |
|
2,859.0 |
|
||
Proceeds from sales of financing receivables |
|
6.6 |
|
22.6 |
|
||
Proceeds from maturities and sales of marketable securities |
|
692.8 |
|
801.5 |
|
||
Proceeds from sales of equipment on operating leases |
|
125.2 |
|
94.8 |
|
||
Proceeds from sales of businesses, net of cash sold |
|
18.4 |
|
|
|
||
Cost of financing receivables acquired |
|
(2,723.8 |
) |
(2,429.2 |
) |
||
Purchases of marketable securities |
|
(220.4 |
) |
(392.9 |
) |
||
Purchases of property and equipment |
|
(233.1 |
) |
(323.7 |
) |
||
Cost of equipment on operating leases acquired |
|
(79.2 |
) |
(73.1 |
) |
||
Acquisitions of businesses, net of cash acquired |
|
(34.0 |
) |
|
|
||
Other |
|
(14.0 |
) |
(6.7 |
) |
||
Net cash provided by investing activities |
|
656.8 |
|
552.3 |
|
||
Cash Flows from Financing Activities |
|
|
|
|
|
||
Increase (decrease) in short-term borrowings |
|
(116.2 |
) |
4.9 |
|
||
Proceeds from long-term borrowings |
|
1,037.7 |
|
12.8 |
|
||
Payments of long-term borrowings |
|
(1,039.9 |
) |
(52.1 |
) |
||
Proceeds from issuance of common stock |
|
68.7 |
|
81.1 |
|
||
Repurchases of common stock |
|
(481.5 |
) |
(202.6 |
) |
||
Dividends paid |
|
(110.4 |
) |
(88.7 |
) |
||
Excess tax benefits from share-based compensation |
|
35.1 |
|
25.7 |
|
||
Other |
|
(1.2 |
) |
(2.4 |
) |
||
Net cash used for financing activities |
|
(607.7 |
) |
(221.3 |
) |
||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
(6.4 |
) |
8.6 |
|
||
Net Decrease in Cash and Cash Equivalents |
|
(782.3 |
) |
(346.4 |
) |
||
Cash and Cash Equivalents at Beginning of Period |
|
2,278.6 |
|
1,687.5 |
|
||
Cash and Cash Equivalents at End of Period |
|
$ |
1,496.3 |
|
$ |
1,341.1 |
|
|
|
|
|
|
|
||
See Notes to Interim Financial Statements. |
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
4
|
|
Notes to Interim Financial Statements (Unaudited) |
|
|
|
(1) |
|
The consolidated financial statements of Deere & Company and consolidated subsidiaries have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Companys latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. |
|
|
|
|
|
On November 14, 2007, a special meeting of stockholders was held authorizing a two-for-one stock split effected in the form of a 100 percent stock dividend to holders of record on November 26, 2007, distributed on December 3, 2007. All share and per share data (except par value) have been adjusted to reflect the effect of the stock split for all periods presented. The number of shares of common stock issuable upon exercise of outstanding stock options, vesting of other stock awards, and the number of shares reserved for issuance under various employee benefit plans were proportionately increased in accordance with terms of the respective plans. |
|
|
|
|
|
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. |
|
|
|
|
|
All cash flows from the changes in trade accounts and notes receivable are classified as operating activities in the Statement of Consolidated Cash Flows as these receivables arise from sales to the Companys customers. Cash flows from financing receivables that are related to sales to the Companys customers are also included in operating activities. The remaining financing receivables are related to the financing of equipment sold by independent dealers and are included in investing activities. |
|
|
|
|
|
The Company had the following non-cash operating and investing activities that were not included in the Statement of Consolidated Cash Flows. The Company transferred inventory to equipment on operating leases of approximately $57 million and $51 million in the first three months of 2008 and 2007, respectively. The Company also had non-cash transactions for accounts payable related to purchases of property and equipment of approximately $83 million and $47 million at January 31, 2008 and 2007, respectively. |
|
|
|
(2) |
|
The information in the notes and related commentary are presented in a format which includes data grouped as follows: |
|
|
|
|
|
Equipment Operations Includes the Companys agricultural equipment, commercial and consumer equipment and construction and forestry operations with Financial Services reflected on the equity basis. |
|
|
|
|
|
Financial Services Includes the Companys credit and certain miscellaneous service operations. |
|
|
|
|
|
Consolidated Represents the consolidation of the Equipment Operations and Financial Services. References to Deere & Company or the Company refer to the entire enterprise. |
|
|
|
5
(3) |
|
An analysis of the Companys retained earnings in millions of dollars follows: |
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
|
|
|
|
|
|
||
Balance, beginning of period |
|
$ |
9,031.7 |
|
$ |
7,886.8 |
|
Net income |
|
369.1 |
|
238.7 |
|
||
Dividends declared |
|
(109.3 |
) |
(100.2 |
) |
||
Adoption of FASB Interpretation No. 48 (see Note 14) |
|
(48.0 |
) |
|
|
||
Other |
|
(.1 |
) |
|
|
||
Balance, end of period |
|
$ |
9,243.4 |
|
$ |
8,025.3 |
|
|
|
|
|
|
|
(4) |
|
Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost on the last-in, first-out (LIFO) method. If all of the Companys inventories had been valued on a first-in, first-out (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows: |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
January 31 2008 |
|
October 31 2007 |
|
January 31 2007 |
|
|||
Raw materials and supplies |
|
$ |
1,052 |
|
$ |
882 |
|
$ |
816 |
|
Work-in-process |
|
543 |
|
425 |
|
448 |
|
|||
Finished goods and parts |
|
2,941 |
|
2,263 |
|
2,368 |
|
|||
Total FIFO value |
|
4,536 |
|
3,570 |
|
3,632 |
|
|||
Less adjustment to LIFO basis |
|
1,247 |
|
1,233 |
|
1,148 |
|
|||
Inventories |
|
$ |
3,289 |
|
$ |
2,337 |
|
$ |
2,484 |
|
|
|
|
|
|
|
|
|
(5) |
|
Contingencies and commitments: |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Company generally determines its total warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments. |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
The premiums for the Equipment Operations extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized warranty premiums (deferred revenue) included in the following table totaled $79 million and $46 million at January 31, 2008 and 2007, respectively. |
6
|
|
A reconciliation of the changes in the warranty liability in millions of dollars follows: |
7
(6) |
|
Securitization of financing receivables: |
|
|
|
|
|
The Company, as a part of its overall funding strategy, periodically transfers certain financing receivables (retail notes) into special purpose entities (SPEs) as part of its asset-backed securities programs (securitizations). For securitizations entered into prior to 2005, the structure of these transactions is such that the transfer of the retail notes met the criteria of sales in accordance with FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. Beginning in 2005, the transfer of retail notes into new securitization transactions did not meet the sales criteria of FASB Statement No. 140 and are, therefore, accounted for as secured borrowings. SPEs utilized in securitizations of retail notes differ from other entities included in the Companys consolidated statements because the assets they hold are legally isolated. For bankruptcy analysis purposes, the Company has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Use of the assets held by the SPEs is restricted by terms of the documents governing the securitization transaction. Further information related to the secured borrowings and sales of retail notes is provided below. |
|
|
|
|
|
Secured borrowings |
|
|
|
|
|
In securitizations of retail notes related to secured borrowings, the retail notes are transferred to certain SPEs which in turn issue debt to investors. The resulting secured borrowings are included in short-term borrowings on the balance sheet as shown in the following table. The securitized retail notes are recorded as Restricted financing receivables net on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the restricted financing receivables less an allowance for credit losses, and other assets representing restricted cash as shown in the following table. The SPEs supporting the secured borrowings to which the retail notes are transferred are consolidated unless the Company is not the primary beneficiary or the SPE is a qualified special purpose entity as defined in FASB Statement No. 140. |
|
|
|
|
|
The components of consolidated restricted assets related to secured borrowings in securitization transactions follow in millions of dollars: |
|
|
January 31
|
|
October 31
|
|
January 31
|
|
|||
Restricted financing receivables (retail notes) |
|
$ |
1,972 |
|
$ |
2,301 |
|
$ |
2,078 |
|
Allowance for credit losses |
|
(11 |
) |
(12 |
) |
(11 |
) |
|||
Other assets |
|
44 |
|
45 |
|
93 |
|
|||
Total restricted securitized assets |
|
$ |
2,005 |
|
$ |
2,334 |
|
$ |
2,160 |
|
|
|
|
|
|
|
|
|
|
|
The components of consolidated secured borrowings and other liabilities related to securitizations follow in millions of dollars: |
|
|
January 31
|
|
October 31
|
|
January 31
|
|
|||
Short-term borrowings |
|
$ |
2,050 |
|
$ |
2,344 |
|
$ |
2,142 |
|
Accrued interest on borrowings |
|
3 |
|
5 |
|
3 |
|
|||
Total liabilities related to restricted securitized assets |
|
$ |
2,053 |
|
$ |
2,349 |
|
$ |
2,145 |
|
|
|
|
|
|
|
|
|
8
|
|
The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Companys short-term credit rating, cash collections from these restricted assets are not required to be placed into a restricted collection account until immediately prior to the time payment is required to the secured creditors. Under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an SPE was consolidated that included assets (restricted retail notes) of $1,291 million, $1,494 million and $1,020 million at January 31, 2008, October 31, 2007 and January 31, 2007, respectively. These restricted retail notes are included in the restricted financing receivables related to securitizations shown in the table above. At January 31, 2008, the maximum remaining term of all restricted receivables was approximately five years. |
|
|
|
|
|
Sales of receivables |
|
|
|
|
|
The Company has certain recourse obligations on financing receivables that it has previously sold. If the receivables sold are not collected, the Company would be required to cover those losses up to the amount of its recourse obligation. At January 31, 2008, the maximum amount of exposure to losses under these agreements was $29 million. The estimated credit risk associated with sold receivables totaled $.4 million at January 31, 2008. This risk of loss is recognized primarily in the interests that continue to be held by the Company and recorded on its balance sheet. These interests are related to assets held by unconsolidated SPEs. At January 31, 2008, the assets of these SPEs related to the Companys securitization and sale of retail notes totaled approximately $90 million. The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At January 31, 2008, the maximum remaining term of the receivables sold was approximately three years. |
|
|
|
(7) |
|
Dividends declared and paid on a per share basis were as follows: |
|
|
|
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 * |
|
||
Dividends declared |
|
$ |
.25 |
|
$ |
.22 |
|
Dividends paid |
|
$ |
.25 |
|
$ |
.19 |
½ |
|
|
|
|
|
|
* Adjusted for two-for-one stock split (see Note 1).
9
(8) |
|
Worldwide net sales and revenues, operating profit and identifiable assets by segment in millions of dollars follow: |
|
|
Three Months Ended January 31 |
|
||||||
|
|
|
|
|
|
% |
|
||
|
|
2008 |
|
2007 |
|
Change |
|
||
Net sales and revenues: |
|
|
|
|
|
|
|
||
Agricultural equipment* |
|
$ |
2,758 |
|
$ |
2,081 |
|
+33 |
|
Commercial and consumer equipment |
|
743 |
|
641 |
|
+16 |
|
||
Construction and forestry* |
|
1,030 |
|
1,093 |
|
-6 |
|
||
Total net sales** |
|
4,531 |
|
3,815 |
|
+19 |
|
||
Credit revenues* |
|
550 |
|
493 |
|
+12 |
|
||
Other revenues |
|
120 |
|
117 |
|
+3 |
|
||
Total net sales and revenues** |
|
$ |
5,201 |
|
$ |
4,425 |
|
+18 |
|
|
|
|
|
|
|
|
|
||
Operating profit:*** |
|
|
|
|
|
|
|
||
Agricultural equipment |
|
$ |
332 |
|
$ |
137 |
|
+142 |
|
Commercial and consumer equipment |
|
8 |
|
38 |
|
-79 |
|
||
Construction and forestry |
|
117 |
|
95 |
|
+23 |
|
||
Credit |
|
133 |
|
132 |
|
+1 |
|
||
Other |
|
3 |
|
2 |
|
+50 |
|
||
Total operating profit** |
|
593 |
|
404 |
|
+47 |
|
||
Interest, corporate expenses - net and income taxes |
|
(224 |
) |
(165) |
|
+36 |
|
||
Net income |
|
$ |
369 |
|
$ |
239 |
|
+54 |
|
|
|
|
|
|
|
|
|
||
Identifiable assets: |
|
|
|
|
|
|
|
||
Agricultural equipment |
|
$ |
4,962 |
|
$ |
3,758 |
|
+32 |
|
Commercial and consumer equipment |
|
1,865 |
|
1,568 |
|
+19 |
|
||
Construction and forestry |
|
2,430 |
|
2,355 |
|
+3 |
|
||
Credit |
|
23,309 |
|
20,965 |
|
+11 |
|
||
Other |
|
210 |
|
172 |
|
+22 |
|
||
Corporate |
|
5,439 |
|
5,329 |
|
+2 |
|
||
Total assets |
|
$ |
38,215 |
|
$ |
34,147 |
|
+12 |
|
10
(9) |
|
A reconciliation of basic and diluted net income per share in millions, except per share amounts, follows: |
|
|
|
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 * |
|
||
Net income |
|
$ |
369.1 |
|
$ |
238.7 |
|
Average shares outstanding |
|
437.7 |
|
454.5 |
|
||
Basic income per share |
|
$ |
.84 |
|
$ |
.53 |
|
|
|
|
|
|
|
||
Average shares outstanding |
|
437.7 |
|
454.5 |
|
||
Effect of dilutive stock options |
|
6.5 |
|
5.2 |
|
||
Total potential shares outstanding |
|
444.2 |
|
459.7 |
|
||
Diluted net income per share |
|
$ |
.83 |
|
$ |
.52 |
|
* Adjusted for two-for-one stock split (see Note 1).
|
|
|
|
|
Out of the total stock options outstanding during the first quarter of 2008 and 2007, options to purchase 2.0 million shares and 3.3 million shares, respectively, were excluded from the above diluted per share computation because the incremental shares under the treasury stock method for the exercise of these options would have caused an antidilutive effect on net income per share. |
|
|
|
(10) |
|
Comprehensive income, which includes all changes in the Companys equity during the period except transactions with stockholders, was as follows in millions of dollars: |
|
|
|
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
Net income |
|
$ |
369.1 |
|
$ |
238.7 |
|
|
|
|
|
|
|
||
Other comprehensive income, net of tax: |
|
|
|
|
|
||
Retirement benefits adjustment |
|
30.5 |
|
|
|
||
Cumulative translation adjustment |
|
(.7 |
) |
(5.2 |
) |
||
Unrealized gain (loss) on investments |
|
3.2 |
|
(1.7 |
) |
||
Unrealized gain (loss) on derivatives |
|
(33.5 |
) |
1.2 |
|
||
Comprehensive income |
|
$ |
368.6 |
|
$ |
233.0 |
|
|
|
|
|
|
|
(11) |
|
The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos related liability), retail credit, software licensing, patent and trademark matters. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its consolidated financial statements. |
|
|
|
11
(12) |
|
The Company has several defined benefit pension plans covering its U.S. employees and employees in certain foreign countries. The Company also has several defined benefit postretirement health care and life insurance plans for employees in the U.S. and Canada. |
|
|
|
|
|
The worldwide components of net periodic pension cost consisted of the following in millions of dollars: |
|
|
|
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
Service cost |
|
$ |
41 |
|
$ |
39 |
|
Interest cost |
|
128 |
|
121 |
|
||
Expected return on plan assets |
|
(186 |
) |
(169 |
) |
||
Amortization of actuarial loss |
|
11 |
|
28 |
|
||
Amortization of prior service cost |
|
7 |
|
7 |
|
||
Net cost |
|
$ |
1 |
|
$ |
26 |
|
|
|
|
|
|
|
|
|
The worldwide components of net periodic postretirement benefits cost (health care and life insurance) consisted of the following in millions of dollars: |
|
|
|
|
|
Three Months Ended
|
|
||||
|
|
2008 |
|
2007 |
|
||
Service cost |
|
$ |
14 |
|
$ |
17 |
|
Interest cost |
|
81 |
|
81 |
|
||
Expected return on plan assets |
|
(44 |
) |
(39 |
) |
||
Amortization of actuarial loss |
|
23 |
|
58 |
|
||
Amortization of prior service credit |
|
(4 |
) |
(33 |
) |
||
Net cost |
|
$ |
70 |
|
$ |
84 |
|
|
|
|
|
|
|
|
|
During the first quarter of 2008, the Company contributed approximately $18 million to its pension plans and $230 million to its other postretirement benefit plans. The Company presently anticipates contributing an additional $122 million to its pension plans and $64 million to its other postretirement benefit plans during the remainder of fiscal year 2008. These contributions include payments from Company funds to either increase plan assets or make direct payments to plan participants. |
|
|
|
(13) |
|
In December 2007, the Company granted options to employees for the purchase of 2.0 million shares of common stock at an exercise price of $88.82 per share and a binomial lattice model fair value of $27.90 per share. At January 31, 2008, options for 18.2 million shares were outstanding with a weighted-average exercise price of $39.31 per share. The Company also granted .2 million units of restricted stock with a weighted-average fair value of $88.82 per share in the first quarter of 2008. A total of 16.2 million shares remained available for the granting of future options and restricted stock. |
|
|
|
12
(14) |
|
New accounting standard adopted in the first quarter of 2008 was as follows: |
|
|
|
|
|
The Company adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, at the beginning of the first fiscal quarter of 2008. This Interpretation clarifies that the recognition for uncertain tax positions should be based on a more-likely-than-not threshold that the tax position will be sustained upon audit. The tax position is measured as the largest amount of benefit that has a greater than 50 percent probability of being realized upon settlement. As a result of adoption, the Company recorded an increase in its liability for unrecognized tax benefits of $170 million, an increase in accrued interest and penalties payable of $30 million, an increase in deferred tax liabilities of $6 million, a reduction in the beginning retained earnings balance of $48 million, an increase in tax receivables of $136 million, an increase in deferred tax assets of $11 million and an increase in interest receivable of $11 million. |
|
|
|
|
|
After adoption at the beginning of the first quarter, the Company had a total liability for unrecognized tax benefits of $207 million. Approximately $65 million of this balance would affect the effective tax rate if the tax benefits were recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. These items would not affect the effective tax rate due to offsetting changes to the receivables or deferred taxes. The liability for unrecognized tax benefits at January 31, 2008 was not materially different from the liability at the date of adoption. At the date of adoption, the Company did not have any tax positions for which it expected that the liability for unrecognized tax benefits would change significantly within the next 12 months. |
|
|
|
|
|
The Companys continuing policy is to recognize interest related to uncertain tax positions in interest expense and interest income, and recognize penalties in selling, administrative and general expenses. After adoption at the beginning of the first quarter of 2008, the liability for accrued interest and penalties totaled $33 million and the receivable for interest was $14 million, which have not changed materially during the first quarter. |
|
|
|
|
|
The Company files its tax returns according to the tax laws of the jurisdictions in which it operates, which includes the U.S. federal jurisdiction, and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed its examination of the Companys federal income tax returns for periods prior to 2001, and for the years 2002, 2003 and 2004. The year 2001, and 2005 through 2007 federal income tax returns are either currently under examination or remain subject to examination. Various state and foreign income tax returns, including major tax jurisdictions in Canada and Germany, also remain subject to examination by taxing authorities. |
|
|
|
|
|
New accounting standards to be adopted are as follows: |
|
|
|
|
|
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations, and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. Statement No. 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. Statement No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The effective date for both Statements is the beginning of fiscal year 2010. The Company has currently not determined the potential effects on the consolidated financial statements. |
|
|
|
13
|
|
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. This Statement defines fair value and expands disclosures about fair value measurements. These definitions will apply to other accounting standards that use fair value measurements and may change the application of certain measurements used in current practice. The effective date is the beginning of fiscal year 2009 for financial assets and liabilities. For nonfinancial assets and liabilities, the effective date is the beginning of fiscal year 2010, except items that are recognized or disclosed on a recurring basis (at least annually).The adoption is not expected to have a material effect on the Companys consolidated financial statements. |
|
|
|
|
|
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to measure most financial instruments at fair value. It may be applied on a contract by contract basis and is irrevocable once applied to those contracts. The standard may be applied at the time of adoption for existing eligible items, or at initial recognition of eligible items. After election of this option, changes in fair value are reported in earnings. The items measured at fair value must be shown separately on the balance sheet. The effective date is the beginning of fiscal year 2009. The cumulative effect of adoption would be reported as an adjustment to beginning retained earnings. The Company has currently not determined the potential effect on the consolidated financial statements. |
|
|
|
14
(15) SUPPLEMENTAL
CONSOLIDATING DATA
|
(In millions of dollars) Unaudited |
|
EQUIPMENT OPERATIONS* |
|
FINANCIAL SERVICES |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Net Sales and Revenues |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
4,530.6 |
|
$ |
3,814.9 |
|
|
|
|
|
||
Finance and interest income |
|
26.0 |
|
22.2 |
|
$ |
568.1 |
|
$ |
521.0 |
|
||
Other income |
|
103.6 |
|
103.9 |
|
65.0 |
|
43.0 |
|
||||
Total |
|
4,660.2 |
|
3,941.0 |
|
633.1 |
|
564.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Costs and Expenses |
|
|
|
|
|
|
|
|
|
||||
Cost of sales |
|
3,362.2 |
|
2,950.6 |
|
|
|
|
|
||||
Research and development expenses |
|
204.3 |
|
176.8 |
|
|
|
|
|
||||
Selling, administrative and general expenses |
|
550.1 |
|
456.8 |
|
104.9 |
|
88.4 |
|
||||
Interest expense |
|
46.0 |
|
42.5 |
|
261.6 |
|
235.0 |
|
||||
Interest compensation to Financial Services |
|
53.6 |
|
50.5 |
|
|
|
|
|
||||
Other operating expenses |
|
47.8 |
|
32.4 |
|
131.4 |
|
106.6 |
|
||||
Total |
|
4,264.0 |
|
3,709.6 |
|
497.9 |
|
430.0 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income of Consolidated Group Before Income Taxes |
|
396.2 |
|
231.4 |
|
135.2 |
|
134.0 |
|
||||
Provision for income taxes |
|
132.2 |
|
82.2 |
|
37.7 |
|
45.9 |
|
||||
Income of Consolidated Group |
|
264.0 |
|
149.2 |
|
97.5 |
|
88.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Equity in Income of Unconsolidated Subsidiaries and Affiliates |
|
|
|
|
|
|
|
|
|
||||
Credit |
|
95.8 |
|
87.1 |
|
.2 |
|
.1 |
|
||||
Other |
|
9.3 |
|
2.4 |
|
|
|
|
|
||||
Total |
|
105.1 |
|
89.5 |
|
.2 |
|
.1 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net Income |
|
$ |
369.1 |
|
$ |
238.7 |
|
$ |
97.7 |
|
$ |
88.2 |
|
|
|
|
|
|
|
|
|
|
|
* Deere & Company with Financial Services on the equity basis. |
||
|
|
|
The supplemental consolidating data is presented for informational purposes. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements. |
15
SUPPLEMENTAL CONSOLIDATING DATA (Continued)
CONDENSED BALANCE SHEET
(In millions of dollars) Unaudited |
|
EQUIPMENT OPERATIONS * |
|
FINANCIAL SERVICES |
|
||||||||||||||
|
|
January 31 2008 |
|
October 31 2007 |
|
January 31 2007 |
|
January 31 2008 |
|
October 31 2007 |
|
January 31 2007 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash and cash equivalents |
|
$ |
1,199.0 |
|
$ |
2,019.6 |
|
$ |
1,199.0 |
|
$ |
297.3 |
|
$ |
259.1 |
|
$ |
142.1 |
|
Marketable securities |
|
1,004.0 |
|
1,468.2 |
|
1,280.3 |
|
149.5 |
|
155.1 |
|
129.7 |
|
||||||
Receivables from unconsolidated subsidiaries and affiliates |
|
376.3 |
|
437.0 |
|
246.3 |
|
1.1 |
|
.2 |
|
.1 |
|
||||||
Trade accounts and notes receivable - net |
|
1,002.6 |
|
1,028.8 |
|
949.2 |
|
2,691.9 |
|
2,475.9 |
|
2,716.5 |
|
||||||
Financing receivables - net |
|
4.4 |
|
11.0 |
|
3.3 |
|
15,228.6 |
|
15,620.2 |
|
13,680.4 |
|
||||||
Restricted financing receivables - net |
|
|
|
|
|
|
|
1,960.6 |
|
2,289.0 |
|
2,066.7 |
|
||||||
Other receivables |
|
575.1 |
|
524.0 |
|
285.0 |
|
76.1 |
|
74.2 |
|
123.1 |
|
||||||
Equipment on operating leases - net |
|
|
|
|
|
|
|
1,628.4 |
|
1,705.3 |
|
1,420.8 |
|
||||||
Inventories |
|
3,288.8 |
|
2,337.3 |
|
2,484.1 |
|
|
|
|
|
|
|
||||||
Property and equipment - net |
|
2,716.9 |
|
2,721.4 |
|
2,459.2 |
|
934.8 |
|
812.6 |
|
491.8 |
|
||||||
Investments in unconsolidated subsidiaries and affiliates |
|
2,586.8 |
|
2,643.4 |
|
2,714.4 |
|
5.8 |
|
5.1 |
|
5.0 |
|
||||||
Goodwill |
|
1,248.3 |
|
1,234.3 |
|
1,115.7 |
|
|
|
|
|
|
|
||||||
Other intangible assets - net |
|
131.2 |
|
131.0 |
|
54.4 |
|
|
|
|
|
|
|
||||||
Retirement benefits |
|
2,008.9 |
|
1,967.6 |
|
2,624.0 |
|
8.5 |
|
9.0 |
|
11.3 |
|
||||||
Deferred income taxes |
|
1,445.1 |
|
1,418.5 |
|
681.7 |
|
58.3 |
|
46.1 |
|
11.8 |
|
||||||
Other assets |
|
434.5 |
|
347.6 |
|
316.8 |
|
478.4 |
|
259.3 |
|
338.4 |
|
||||||
Total Assets |
|
$ |
18,021.9 |
|
$ |
18,289.7 |
|
$ |
16,413.4 |
|
$ |
23,519.3 |
|
$ |
23,711.1 |
|
$ |
21,137.7 |
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Short-term borrowings |
|
$ |
274.5 |
|
$ |
129.8 |
|
$ |
339.0 |
|
$ |
9,187.1 |
|
$ |
9,839.7 |
|
$ |
8,714.1 |
|
Payables to unconsolidated subsidiaries and affiliates |
|
174.5 |
|
136.5 |
|
72.6 |
|
337.8 |
|
407.4 |
|
222.3 |
|
||||||
Accounts payable and accrued expenses |
|
4,515.9 |
|
4,884.4 |
|
3,726.8 |
|
1,000.6 |
|
924.2 |
|
779.1 |
|
||||||
Accrued taxes |
|
443.2 |
|
242.4 |
|
115.9 |
|
59.4 |
|
33.7 |
|
34.5 |
|
||||||
Deferred income taxes |
|
107.2 |
|
99.8 |
|
16.0 |
|
133.2 |
|
148.8 |
|
152.4 |
|
||||||
Long-term borrowings |
|
2,012.6 |
|
1,973.2 |
|
1,958.8 |
|
10,331.8 |
|
9,825.0 |
|
8,612.4 |
|
||||||
Retirement benefit accruals and other liabilities |
|
3,455.6 |
|
3,667.8 |
|
2,608.4 |
|
34.3 |
|
33.1 |
|
28.5 |
|
||||||
Total liabilities |
|
10,983.5 |
|
11,133.9 |
|
8,837.5 |
|
21,084.2 |
|
21,211.9 |
|
18,543.3 |
|
||||||
Common Stock, $1 par value (issued shares at January 31, 2008 536,431,204) |
|
2,882.4 |
|
2,777.0 |
|
2,299.6 |
|
1,162.4 |
|
1,122.4 |
|
1,039.0 |
|
||||||
Common stock in treasury |
|
(4,449.4 |
) |
(4,015.4 |
) |
(2,817.6 |
) |
|
|
|
|
|
|
||||||
Retained earnings |
|
9,243.4 |
|
9,031.7 |
|
8,025.3 |
|
1,165.0 |
|
1,228.8 |
|
1,482.8 |
|
||||||
Total |
|
7,676.4 |
|
7,793.3 |
|
7,507.3 |
|
2,327.4 |
|
2,351.2 |
|
2,521.8 |
|
||||||
Accumulated other comprehensive income (loss) |
|
(638.0 |
) |
(637.5 |
) |
68.6 |
|
107.7 |
|
148.0 |
|
72.6 |
|
||||||
Stockholders equity |
|
7,038.4 |
|
7,155.8 |
|
7,575.9 |
|
2,435.1 |
|
2,499.2 |
|
2,594.4 |
|
||||||
Total Liabilities and Stockholders Equity |
|
$ |
18,021.9 |
|
$ |
18,289.7 |
|
$ |
16,413.4 |
|
$ |
23,519.3 |
|
$ |
23,711.1 |
|
$ |
21,137.7 |
|
* Deere & Company with Financial Services on the equity basis. |
|
The supplemental consolidating data is presented for informational purposes. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements. |
16
SUPPLEMENTAL
CONSOLIDATING DATA (Continued)
STATEMENT OF CASH FLOWS
For the Three Months Ended January 31, 2008 and 2007
(In millions of dollars) Unaudited |
|
EQUIPMENT OPERATIONS* |
|
FINANCIAL SERVICES |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
369.1 |
|
$ |
238.7 |
|
$ |
97.7 |
|
$ |
88.2 |
|
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
|
|
|
||||
Provision (credit) for doubtful receivables |
|
(.3 |
) |
1.4 |
|
17.7 |
|
13.3 |
|
||||
Provision for depreciation and amortization |
|
117.2 |
|
111.4 |
|
101.2 |
|
89.6 |
|
||||
Undistributed earnings of unconsolidated subsidiaries and affiliates |
|
36.7 |
|
(29.7 |
) |
(.2 |
) |
(.1 |
) |
||||
Provision (credit) for deferred income taxes |
|
(23.6 |
) |
(.4 |
) |
3.4 |
|
(3.6 |
) |
||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
||||
Receivables |
|
2.1 |
|
2.2 |
|
.4 |
|
2.2 |
|
||||
Inventories |
|
(956.3 |
) |
(529.1 |
) |
|
|
|
|
||||
Accounts payable and accrued expenses |
|
(332.8 |
) |
(378.9 |
) |
.3 |
|
3.8 |
|
||||
Accrued income taxes payable/receivable |
|
182.0 |
|
47.3 |
|
1.1 |
|
(27.7 |
) |
||||
Retirement benefits |
|
(196.9 |
) |
(162.1 |
) |
1.8 |
|
2.7 |
|
||||
Other |
|
10.5 |
|
38.9 |
|
(44.4 |
) |
10.8 |
|
||||
Net cash provided by (used for) operating activities |
|
(792.3 |
) |
(660.3 |
) |
179.0 |
|
179.2 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
||||
Collections of receivables |
|
|
|
|
|
7,041.6 |
|
6,456.1 |
|
||||
Proceeds from sales of financing receivables |
|
|
|
|
|
15.5 |
|
62.8 |
|
||||
Proceeds from maturities and sales of marketable securities |
|
679.1 |
|
801.5 |
|
13.7 |
|
|
|
||||
Proceeds from sales of equipment on operating leases |
|
|
|
|
|
125.2 |
|
94.8 |
|
||||
Proceeds from sales of businesses, net of cash sold |
|
18.4 |
|
|
|
|
|
|
|
||||
Cost of receivables acquired |
|
|
|
|
|
(6,633.0 |
) |
(6,144.4 |
) |
||||
Purchases of marketable securities |
|
(216.3 |
) |
(369.9 |
) |
(4.0 |
) |
(23.1 |
) |
||||
Purchases of property and equipment |
|
(132.5 |
) |
(173.1 |
) |
(100.6 |
) |
(150.7 |
) |
||||
Cost of operating leases acquired |
|
|
|
|
|
(156.0 |
) |
(141.6 |
) |
||||
Acquisitions of businesses, net of cash acquired |
|
(34.0 |
) |
|
|
|
|
|
|
||||
Other |
|
(72.9 |
) |
(19.7 |
) |
.7 |
|
(11.6 |
) |
||||
Net cash provided by investing activities |
|
241.8 |
|
238.8 |
|
303.1 |
|
142.3 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
|
||||
Increase (decrease) in short-term borrowings |
|
146.3 |
|
60.9 |
|
(262.4 |
) |
(56.0 |
) |
||||
Change in intercompany receivables/payables |
|
79.8 |
|
256.9 |
|
(79.8 |
) |
(256.9 |
) |
||||
Proceeds from long-term borrowings |
|
|
|
3.7 |
|
1,037.7 |
|
9.1 |
|
||||
Payments of long-term borrowings |
|
(3.2 |
) |
(1.1 |
) |
(1,036.7 |
) |
(50.9 |
) |
||||
Proceeds from issuance of common stock |
|
68.7 |
|
81.1 |
|
|
|
|
|
||||
Repurchases of common stock |
|
(481.5 |
) |
(202.6 |
) |
|
|
|
|
||||
Dividends paid |
|
(110.4 |
) |
(88.7 |
) |
(140.0 |
) |
(58.6 |
) |
||||
Excess tax benefits from share-based compensation |
|
35.1 |
|
25.7 |
|
|
|
|
|
||||
Other |
|
2.9 |
|
(.2 |
) |
35.8 |
|
22.6 |
|
||||
Net cash provided by (used for) financing activities |
|
(262.3 |
) |
135.7 |
|
(445.4 |
) |
(390.7 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
(7.8 |
) |
8.1 |
|
1.5 |
|
.5 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net Increase (Decrease) in Cash and Cash Equivalents |
|
(820.6 |
) |
(277.7 |
) |
38.2 |
|
(68.7 |
) |
||||
Cash and Cash Equivalents at Beginning of Period |
|
2,019.6 |
|
1,476.7 |
|
259.1 |
|
210.8 |
|
||||
Cash and Cash Equivalents at End of Period |
|
$ |
1,199.0 |
|
$ |
1,199.0 |
|
$ |
297.3 |
|
$ |
142.1 |
|
* Deere & Company with Financial Services on the equity basis.
The supplemental consolidating data is presented for informational purposes. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements.
17
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
Organization
The Companys Equipment Operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The Equipment Operations manufacture and distribute a full line of agricultural equipment; a variety of commercial, consumer and landscapes equipment and products; and a broad range of equipment for construction and forestry. The Companys Financial Services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the Equipment Operations. In addition, Financial Services offer certain crop risk mitigation products and invest in wind energy generation. The information in the following discussion is presented in a format that includes information grouped as consolidated, Equipment Operations and Financial Services. The Company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada.
Trends and Economic Conditions
Farm conditions throughout the world remain quite positive, benefiting from healthy commodity prices and demand for renewable fuels. Industry sales for 2008 are forecast to be up 15 to 20 percent for the year in the U.S. & Canada. Industry sales in Western Europe are forecast to be up 3 to 5 percent for the year. Greater increases are expected in Eastern Europe and the CIS (Commonwealth of Independent States) countries, including Russia, where demand for productive farm machinery is experiencing rapid growth. South American markets are expected to show further improvement in 2008, with industry sales forecast to increase by 15 percent or more. The Companys agricultural equipment sales were up 33 percent for the first quarter of 2008 and are forecast to increase about 28 percent for the year, including about 4 percent related to currency translation. The Companys commercial and consumer equipment sales increased 16 percent for the first quarter, including 14 percent from LESCO, Inc. (LESCO), which was acquired in the third quarter of 2007. Commercial and consumer equipment sales are projected to increase about 8 percent for the year, including about 7 percent from a full year of LESCO sales. U.S. markets for construction and forestry equipment are forecast to remain under continued pressure due in large part to a continuing slump in housing starts. The Companys construction and forestry sales declined 6 percent in the first quarter of 2008, and for the year are expected to be approximately equal to the prior year. The Companys credit operations net income in 2008 is forecast to be approximately $365 million.
Items of concern include the price of raw materials and certain supply constraints, which have an impact on the results of the Companys equipment operations. The slowdown in the economy and credit issues, which have affected the housing market, are also a concern. Producing engines that continue to meet high performance standards, yet also comply with increasingly stringent emissions regulations is one of the Companys major priorities. In this regard, the Company is making and intends to continue to make the financial and technical investment needed to produce engines in conformance with global emissions rules for off-road diesel engines. Potential changes in government sponsored farmer financing programs in Brazil are a concern, as is the uncertainty over the direction of U.S. farm legislation. Additionally, there is uncertainty regarding the impact of drought conditions in the southeastern U.S. on the Companys commercial and consumer equipment segment sales.
18
Strongly favorable conditions throughout the global farm sector, coupled with a positive customer response to the Companys product lineup, are continuing to drive results. Further, the Companys non-agricultural operations remain on a profitable course in spite of weakening economic conditions in the U.S. The Company believes it remains in a prime position to benefit from positive global economic factors such as growing affluence, increasing demand for food and infrastructure, and the rising use of biofuels.
2008 Compared with 2007
Deere & Companys net income was $369.1 million, or $.83 per share for the first quarter of 2008, compared with $238.7 million, or $.52 per share, for the same period last year.
Worldwide net sales and revenues increased 18 percent to $5,201 million for the first quarter, compared with $4,425 million a year ago. Net sales of the Equipment Operations increased 19 percent to $4,531 million for the first quarter, compared with $3,815 million last year. Included in these sales were positive effects for currency translation and price changes totaling 6 percent. Equipment sales in the U.S. and Canada were up 9 percent for the first quarter. Net sales outside the U.S. and Canada increased by 37 percent for the quarter, which included a positive currency translation effect of 11 percent.
The Companys Equipment Operations reported operating profit of $457 million for the first quarter, compared with $270 million last year. The improvement was largely due to the favorable impact of higher sales and production volumes and improved price realization, partially offset by higher selling, administrative and general expenses and raw material costs. The Equipment Operations had net income of $264.0 million for the first quarter of 2008, compared with $149.2 million last year. The same factors mentioned above in addition to a lower effective tax rate this year affected these results.
Trade receivables and inventories at the end of the first quarter were $6,488 million, or 29 percent of the last 12 months net sales, compared with $5,672 million, or 28 percent of net sales, a year ago.
Net income of the Companys Financial Services operations for the first quarter of 2008 was $97.7 million, compared with $88.2 million last year. The increase was primarily due to growth in the credit portfolio, higher crop insurance income and a lower effective tax rate. See the following discussion for the credit operations.
Business Segment Results
· Agricultural Equipment. Sales increased 33 percent for the first quarter, primarily as a result of higher volumes, the favorable effects of currency translation and improved price realization. Operating profit was $332 million for the quarter, compared with $137 million in the same period last year. The operating profit increase was primarily due to the favorable impact of higher sales and production volumes and improved prize realization, partially offset by higher selling, administrative and general expenses attributable in large part to currency translation. Also affecting the quarters results were increased research and development expenses.
· Commercial and Consumer Equipment. Segment sales were up 16 percent for the quarter. LESCO operations accounted for 14 percent of the sales increase. The segment had operating profit of $8 million for the quarter, compared with $38 million a year ago. The operating profit decline was primarily due to higher selling, administrative and general expenses from LESCO, partially offset by higher sales volumes.
· Construction and Forestry. Sales declined 6 percent, while operating profit rose to $117 million for the first quarter, versus $95 million a year ago. The operating profit increase was mainly due to improved price realization and the positive effect of production levels in closer alignment with retail demand, partially offset by higher raw material costs and lower sales volumes.
19
· Credit. The credit segment had an operating profit of $133 million for the first quarter, compared with $132 million in the same period last year. The improvement was primarily due to growth in the credit portfolio and higher crop insurance income. Higher interest expense resulting from increased leverage, higher selling, administrative and general expenses, and an increase in the provision for credit losses partially offset the improvements. Total revenues of the credit operations, including intercompany revenues, increased 12 percent to $614 million in the current quarter from $549 million in the first quarter of 2007. The average balance of receivables and leases financed was 8 percent higher in the first quarter, compared with the same period last year. Interest expense increased 11 percent in the current quarter, compared with last year, as a result of higher average borrowings. The credit operations consolidated ratio of earnings to fixed charges was 1.52 to 1 for the first quarter this year, compared with 1.58 to 1 in the same period last year.
The cost of sales to net sales ratios for the first quarter of 2008 and 2007 were 74.2 percent and 77.3 percent, respectively. The improvement was primarily due to higher sales and production volumes and improved price realization, partially offset by higher raw material costs.
Finance and interest income, and interest expense increased in the first quarter this year due to growth in the credit operations portfolio and higher average borrowings. Other income increased this year primarily due to higher crop insurance commissions. Research and development expenses increased primarily as a result of increased spending in support of new products and the effect of currency translation. Selling, administrative and general expenses increased primarily due to acquisitions made in the last half of fiscal year 2007 and the effect of currency translation. Other operating expenses were higher primarily due to an increase in depreciation for equipment on operating leases, increased costs related to crop insurance and foreign exchange transactions. The effective tax rate decreased, compared to last year, primarily due to various discrete items affecting the first quarter this year.
Market Conditions and Outlook
The Companys equipment sales are projected to increase by about 17 percent for fiscal year 2008 and to be up approximately 23 percent for the second quarter, compared to the same periods last year. Currency translation accounts for approximately 3 percent of the forecasted sales increase for both periods. Net income is forecast to be about $2.2 billion for the year and in a range of $700 million to $725 million for the second quarter.
· Agricultural Equipment. With support from continuing strength in the global farm sector, worldwide sales of the Companys agricultural equipment are expected to increase by about 28 percent for fiscal year 2008. This includes about 4 percent related to currency translation.
Farm conditions throughout the world remain quite positive, benefiting from healthy commodity prices and demand for renewable fuels. Recently enacted energy legislation in the U.S. requires a significant increase in renewable fuel production through 2022. Relative to consumption, global grain stocks such as wheat and corn are forecast to remain at or near 30-year lows. In addition, a large number of advanced new Company products coming to market in 2008 are expected to lend support to sales of agricultural equipment.
On an industry basis, farm machinery sales in the U.S. and Canada are forecast to be up 15 to 20 percent for the year. Large tractors and combines are expected to lead the improvement while demand for cotton equipment is projected to be down. Overall farm machinery sales are expected to benefit from a significant increase in farm cash receipts, related in large part to higher crop prices.
20
Industry sales in Western Europe are forecast to be up 3 to 5 percent for the year. Greater increases are expected in Eastern Europe and the CIS (Commonwealth of Independent States) countries, including Russia, where demand for productive farm machinery is experiencing rapid growth. South American markets are expected to show further improvement in 2008, with industry sales forecast to increase by 15 percent or more. Despite strong commodity price support, however, farm machinery demand in Brazil could be affected by uncertainties over government-backed financing programs. The Companys sales are expected to be helped by an expanded product line and additional capacity associated with the start-up of a world class tractor manufacturing facility in Brazil and by higher demand for the Companys innovative sugarcane harvesting equipment.
· Commercial and Consumer Equipment. The Companys commercial and consumer equipment sales are projected to be up about 8 percent for the year, including about 7 percent from a full year of LESCO sales. Sales gains from new products, such as an expanded line of innovative commercial mowing equipment, are expected to more than offset market weakness related to the U.S. housing slowdown and rising costs for fertilizer and other lawn maintenance supplies.
· Construction and Forestry. U.S. markets for construction and forestry equipment are forecast to remain under continued pressure due in large part to a continuing slump in housing starts. It is expected that housing activity in 2008 will remain far below last year in spite of recent interest rate reductions. Nonresidential construction is expected to remain in line with last years relatively strong levels. Although the U.S. housing sector is negatively affecting forestry equipment markets in the U.S. and Canada, forestry sales on a worldwide basis are projected to rise in 2008 due to economic growth in other regions.
Despite a generally weak environment, the Companys sales are expected to benefit from new products and factory production levels in closer alignment with retail demand. For 2008, the Companys worldwide sales of construction and forestry equipment are forecast to be approximately equal to the prior year.
· Credit. Net income for the Companys credit operations is forecast to be approximately $365 million for fiscal year 2008. The improvement is expected to be driven by growth in the credit portfolio and higher crop insurance income, partially offset by increased interest expense resulting from higher leverage.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in the Overview, Market Conditions & Outlook, and other statements herein that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Companys businesses.
Forward-looking statements involve certain factors that are subject to change, including for the Companys agricultural equipment segment the many interrelated factors that affect farmers confidence. These factors include worldwide demand for agricultural products, world grain stocks, weather conditions, soil conditions, harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, the growth of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of various governments, changes in government farm programs (including those in the U.S. and Brazil), international reaction to such programs, global trade agreements, animal diseases and their effects on poultry and beef consumption and prices (including avian flu and bovine spongiform encephalopathy, commonly known as mad cow disease, crop pests and diseases (including Asian rust), and the level of farm product exports (including concerns about genetically modified organisms).
21
Factors affecting the outlook for the Companys commercial and consumer equipment segment include weather conditions, general economic conditions, customer profitability, consumer confidence, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.
General economic conditions, consumer spending patterns, the number of housing starts, and interest rates are especially important to sales of the Companys construction equipment. The levels of public and non-residential construction also impact the results of the Companys construction and forestry segment. Prices for pulp, lumber and structural panels are important to sales of forestry equipment.
All of the Companys businesses and its reported results are affected by general economic conditions in, and the political and social stability of, the global markets in which the Company operates; production, design and technological difficulties, including capacity and supply constraints and prices, including for supply commodities such as steel, rubber and fuel; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Companys supply chain due to weather or natural disasters; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; oil and energy prices and supplies; inflation and deflation rates, interest rate levels and foreign currency exchange rates; the availability and cost of freight; trade, monetary and fiscal policies of various countries; wars and other international conflicts and the threat thereof; actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission; actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies; actions by rating agencies; capital market disruptions; customer borrowing and repayment practices, the number and size of customer loan delinquencies and defaults, and the sub-prime credit market crises; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; changes to accounting standards; changes in tax rates; the effects of, or response to, terrorism; and changes in laws and regulations affecting the sectors in which the Company operates. The spread of major epidemics (including influenza, SARS, fevers and other viruses) also could affect Company results. Company results are also affected by changes in the level of employee retirement benefits, changes in market values of investment assets and the level of interest rates, which impact retirement benefit costs, and significant changes in health care costs. Other factors that could affect results are changes in Company declared dividends, acquisitions and divestitures of businesses and common stock issuances and repurchases.
The Companys outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government 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 information concerning the Company and its businesses, including factors that potentially could materially affect the Companys financial results, is included in the Companys most recent annual report on Form 10-K (including the factors discussed in Item 1A. Risk Factors) and other filings with the U.S. Securities and Exchange Commission.
Critical Accounting Policies
See the Companys critical accounting policies discussed in the Managements Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Companys consolidated totals, Equipment Operations and Financial Services operations.
22
Consolidated
Negative cash flows from consolidated operating activities in the first three months of 2008 were $825 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses, and a decrease in retirement benefit accruals, which were partially offset by net income adjusted for non-cash provisions and the change in accrued income taxes payable/receivable. Cash inflows from investing activities were $657 million in the first three months of this year, primarily due to the proceeds from the maturities and sales of marketable securities exceeding the cost of these securities by $472 million and collections of financing receivables and proceeds from sales of equipment on operating leases exceeding the cost of financing receivables and equipment on operating leases acquired by $441 million, which were partially offset by purchases of property and equipment of $233 million. Cash outflows from financing activities were $608 million in the first three months of 2008, primarily due to the repurchases of common stock of $482 million, a decrease in borrowings of $118 million and dividends paid of $110 million, which were partially offset by issuances of common stock of $69 million (resulting from the exercise of stock options). Cash and cash equivalents also decreased $782 million during the current quarter.
Negative cash flows from consolidated operating activities in the first three months of 2007 were $686 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses, and a decrease in retirement benefit accruals, which were partially offset by net income adjusted for non-cash provisions. Cash inflows from investing activities were $552 million in the first three months of 2007, primarily due to the collections of financing receivables exceeding the cost of these receivables by $430 million, and the proceeds from the maturities and sales of marketable securities exceeding the cost of these securities by $409 million, which were partially offset by purchases of property and equipment of $324 million. Cash outflows from financing activities were $221 million in the first three months of 2007, primarily due to the repurchases of common stock of $203 million, dividends paid of $89 million and a decrease in borrowings of $34 million, which were partially offset by issuances of common stock of $81 million (resulting from the exercise of stock options). Cash and cash equivalents also decreased $346 million during the first quarter of 2007.
Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes and committed and uncommitted bank lines of credit.
Because of the multiple funding sources that have been and continue to be available, the Company expects to have sufficient sources of liquidity to meet its ongoing funding needs. The Companys commercial paper outstanding at January 31, 2008, October 31, 2007 and January 31, 2007 was approximately $3.0 billion, $2.8 billion and $2.9 billion, respectively, while the total cash and cash equivalents and marketable securities position was approximately $2.6 billion, $3.9 billion and $2.8 billion, respectively. The Company has for many years accessed diverse funding sources, including short-term and long-term unsecured global debt capital markets, as well as public and private securitization markets in the U.S. and Canada.
Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Some of the lines are available to both Deere & Company and John Deere Capital Corporation (Capital Corporation). Worldwide lines of credit totaled $3,855 million at January 31, 2008, $731 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were considered to constitute utilization. Included in the total credit lines at January 31, 2008 was a long-term credit facility agreement of $3.75 billion, expiring in February 2012. The credit agreement requires the Capital Corporation to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholders equity excluding accumulated other comprehensive income (loss)) at not more than 9.5 to 1 at the end of any fiscal quarter. The credit agreement also requires the Equipment Operations to maintain a ratio of total debt to total capital (total debt and stockholders equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter
23
according to accounting principles generally accepted in the U.S. in effect at October 31, 2006. Under this provision, the Companys excess equity capacity and retained earnings balance free of restriction at January 31, 2008 was $6,445 million. Alternatively under this provision, the Equipment Operations had the capacity to incur additional debt of $11,969 million at January 31, 2008. All of these requirements of the credit agreement have been met during the periods included in the consolidated financial statements.
Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Companys securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Companys current and future ability to meet interest and principal repayment obligations. Each agencys rating should be evaluated independently. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:
|
|
Senior |
|
|
|
|
|
|
|
Long-Term |
|
Short-Term |
|
Outlook |
|
Moodys Investors Service, Inc. |
|
A2 |
|
Prime-1 |
|
Stable |
|
Standard & Poors |
|
A |
|
A-1 |
|
Stable |
|
Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables increased $144 million during the first three months of 2008 due to seasonal increases, and $11 million, compared to a year ago. The ratios of worldwide trade accounts and notes receivable to the last 12 months net sales were 14 percent at January 31, 2008, compared to 14 percent at October 31, 2007 and 16 percent at January 31, 2007. Agricultural equipment trade receivables increased $217 million, commercial and consumer equipment receivables decreased $78 million and construction and forestry receivables decreased $128 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 3 percent at January 31, 2008, October 31, 2007 and January 31, 2007.
Stockholders equity was $7,038 million at January 31, 2008, compared with $7,156 million at October 31, 2007 and $7,576 million at January 31, 2007. The decrease of $118 million during the first quarter of 2008 resulted primarily from an increase in treasury stock of $434 million, dividends declared of $109 million and a reduction of retained earnings of $48 million resulting from the adoption of FIN No. 48, Accounting for Uncertainty in Income Taxes, which were partially offset by net income of $369 million and an increase in common stock of $105 million.
Equipment Operations
The Companys equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The Equipment Operations sell most of their trade receivables to the Companys credit operations. As a result, there are relatively small seasonal variations in the financing requirements of the Equipment Operations. To the extent necessary, funds provided from operations are supplemented by external financing sources.
Cash used for operating activities of the Equipment Operations, including intercompany cash flows, in the first three months of 2008 were $792 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses and a decrease in retirement benefit accruals. Partially offsetting these operating cash outflows were positive cash flows from net income adjusted for non-cash provisions and the change in accrued income taxes payable/receivable.
Cash used for operating activities of the Equipment Operations, including intercompany cash flows, in the first three months of 2007 were $660 million. This resulted primarily from a seasonal increase in inventories, a decrease in accounts payable and accrued expenses, and a decrease in retirement benefit
24
accruals. Partially offsetting these operating cash outflows were positive cash flows from net income adjusted for non-cash provisions.
Trade receivables held by the Equipment Operations decreased $26 million during the first quarter and increased $53 million from a year ago. The Equipment Operations sell a significant portion of their trade receivables to the credit operations. See the previous consolidated discussion of trade receivables.
Inventories increased by $952 million during the first three months, primarily reflecting an increase in agricultural finished goods in order to meet increased demand. Inventories increased $805 million, compared to a year ago, primarily due to the increase in agricultural finished goods, currency translation and acquisitions. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 4), which approximates current cost, to the last 12 months cost of sales were 27 percent at January 31, 2008 compared to 22 percent at October 31, 2007 and 24 percent at January 31, 2007.
Total interest-bearing debt of the Equipment Operations was $2,287 million at January 31, 2008, compared with $2,103 million at the end of fiscal year 2007 and $2,298 million at January 31, 2007. The ratios of debt to total capital (total interest-bearing debt and stockholders equity) were 25 percent, 23 percent and 23 percent at January 31, 2008, October 31, 2007 and January 31, 2007, respectively.
Purchases of property and equipment for the Equipment Operations in the first three months of 2008 were $133 million, compared with $173 million in the first quarter last year. Capital expenditures for the Equipment Operations in 2008 are estimated to be approximately $750 million.
Financial Services
The Financial Services credit operations rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of commercial paper, term debt, securitization of retail notes and equity capital.
During the first quarter of 2008, the cash provided by operating and investing activities was used primarily for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $179 million in the current quarter. Cash provided by investing activities totaled $303 million in the first three months of 2008 primarily due to collections of financing receivables and proceeds from sales of equipment on operating leases exceeding the cost of financing receivables and equipment on operating leases acquired by $378 million, partially offset by the purchases of property and equipment of $101 million. Cash used for financing activities totaled $445 million, resulting primarily from a decrease in short-term and long-term borrowings of $261 million, payments of dividends to Deere & Company of $140 million and a decrease in payables to the Equipment Operations of $80 million. Cash and cash equivalents increased $38 million in the current quarter.
During the first quarter of 2007, the cash provided by operating and investing activities was used primarily for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $179 million in the first quarter of 2007. Cash provided by investing activities totaled $142 million in the first three months of 2007 primarily due to collections of receivables exceeding the cost of these receivables by $312 million, partially offset by the purchases of property and equipment of $151 million. Cash used for financing activities totaled $391 million, resulting primarily from a decrease in payables to the Equipment Operations of $257 million, a decrease in long-term and short-term borrowings of $98 million and payment of dividends to Deere & Company of $59 million. Cash and cash equivalents decreased $69 million in the first quarter of 2007.
25
Receivables and leases held by the credit operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere equipment customers, trade receivables, wholesale note receivables, revolving charge accounts, operating loans, insured international export financing generally involving John Deere products, and financing and operating leases. During the first quarter of 2008 and the past 12 months, these receivables and leases decreased $581 million and increased $1,625 million, respectively. Total acquisitions of receivables and leases were 8 percent higher in the first three months of 2008, compared with the same period last year. In the first three months of 2008, revolving charge accounts, acquisition volumes of leases, wholesale notes, retail notes and trade receivables were all higher, while operating loans were lower, compared to the same period last year. Total receivables and leases administered by the credit operations, which include receivables previously sold, amounted to $21,948 million at January 31, 2008, compared with $22,543 million at October 31, 2007 and $20,924 million at January 31, 2007. At January 31, 2008, the unpaid balance of all receivables previously sold was $438 million, compared with $453 million at October 31, 2007 and $1,039 million at January 31, 2007.
Total external interest-bearing debt of the credit operations was $19,519 million at January 31, 2008, compared with $19,665 million at the end of fiscal year 2007 and $17,327 million at January 31, 2007. Included in this debt are secured borrowings of $2,050 million at January 31, 2008, $2,344 million at October 31, 2007 and $2,142 million at January 31, 2007 (see Note 6). Total external borrowings decreased during the first three months of 2008 and increased in the past 12 months, generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents and the change in payables owed to the Equipment Operations. The credit operations ratio of interest-bearing debt to stockholders equity was 8.3 to 1 at January 31, 2008, compared with 8.2 to 1 at October 31, 2007 and 6.9 to 1 at January 31, 2007.
During the first quarter of 2008, the credit operations issued $1,038 million and retired $1,037 million of long-term borrowings, which were primarily medium-term notes.
Purchases of property and equipment for Financial Services in the first three months of 2008 were $101 million, compared with $151 million in the first quarter last year primarily related to the wind energy entities. Capital expenditures for Financial Services in 2008 are estimated to be approximately $450 million also primarily related to the wind energy entities.
Contractual Obligations
The following is an update to the Contractual Obligations table in Managements Discussion and Analysis for the Companys most recent annual report on Form 10-K. The liability for unrecognized tax benefits after the adoption of FIN No. 48, Accounting for Uncertainty in Income Taxes, at the beginning of the first quarter of fiscal year 2008 totaled $207 million (see Note 14). The timing of future payments related to this liability is not reasonably estimable at this time. The liability at January 31, 2008 was not materially different from the liability at date of adoption.
Dividend and Other Events
The Companys Board of Directors at its meeting on February 27, 2008 declared a quarterly dividend of $.25 per share payable May 1, 2008, to stockholders of record on March 31, 2008.
During February 2008, the Companys credit operations issued $675 million of floating rate medium-term notes due in 2010 to 2011 and entered into interest rate swaps related to $500 million of these notes, which swapped the floating rate to a fixed rate of 3.30%.
26
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
See the Companys most recent annual report filed on Form 10-K (Item 7A). There has been no material change in this information.
Item 4. |
CONTROLS AND PROCEDURES |
The Companys principal executive officer and its principal financial officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Act)) were effective as of January 31, 2008, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act.
27
PART II. OTHER INFORMATION
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Maximum Number of |
|
|
|
|
|
|
|
|
as Part of Publicly |
|
Shares that May Yet |
|
|
|
|
Total Number of |
|
|
|
Announced Plans |
|
Be Purchased under |
|
|
|
|
Shares Purchased (2) |
|
Average Price |
|
or Programs (1) |
|
the Plans or Programs (1) |
|
|
Period |
|
(thousands) |
|
Paid Per Share |
|
(thousands) |
|
(millions) |
|
|
Nov 1 to Nov 30 |
|
1,898 |
|
$ |
74.86 |
|
1,898 |
|
33.0 |
|
Dec 1 to Dec 31 |
|
2,160 |
|
85.97 |
|
2,157 |
|
30.8 |
|
|
Jan 1 to Jan 31 |
|
1,760 |
|
87.33 |
|
1,760 |
|
29.1 |
|
|
Total |
|
5,818 |
|
|
|
5,815 |
|
|
|
|
28
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
DEERE & COMPANY |
|
|
|
|
|
|
|
|
|
|
|
Date: |
February 28, 2008 |
|
By: |
/s/ M. J. Mack, Jr. |
|
|
|
|
M. J. Mack, Jr. |
|
|
|
|
Senior Vice President, |
|
|
|
|
Principal Financial Officer |
|
|
|
|
and Principal Accounting Officer |
30
INDEX TO EXHIBITS
Number |
|
|
2 |
|
Not applicable |
|
|
|
3.1 |
|
Certificate of Incorporation, as amended (Exhibit 3.2 to Form 10-K of registrant for the year ended October 31, 1999, Securities and Exchange Commission File Number 1-4121*) |
|
|
|
3.2 |
|
Bylaws , as amended (Exhibit 3 to Form 8-K of registrant dated November 29, 2006*) |
|
|
|
4 |
|
Not applicable |
|
|
|
|
John Deere Defined Contribution Restoration Plan as amended December 2007 |
|
|
|
|
|
Deere & Company Nonemployee Director Stock Ownership Plan as amended November 2007 |
|
|
|
|
|
John Deere Supplemental Pension Benefit Plan as amended December 2007 |
|
|
|
|
|
John Deere ERISA Supplementary Pension Benefit Plan as amended December 2007 |
|
|
|
|
|
John Deere Senior Supplementary Pension Benefit Plan as amended December 2007 |
|
|
|
|
|
||
|
|
|
|
Deere & Company Voluntary Deferred Compensation Plan as amended December 2007 |
|
|
|
|
|
||
|
|
|
|
||
|
|
|
11 |
|
Not applicable |
|
|
|
|
||
|
|
|
15 |
|
Not applicable |
|
|
|
18 |
|
Not applicable |
|
|
|
19 |
|
Not applicable |
|
|
|
22 |
|
Not applicable |
|
|
|
23 |
|
Not applicable |
|
|
|
24 |
|
Not applicable |
|
|
|
|
||
|
|
|
|
||
|
|
|
|
* Incorporated by reference. Copies of these exhibits are available from the Company upon request.
31
JOHN DEERE DEFINED CONTRIBUTION RESTORATION PLAN
EFFECTIVE 1 JANUARY 1997
AMENDED: 12 January 2000
EFFECTIVE: 1 January 2000
AMENDED: 28 November 2000
EFFECTIVE: 1 January 2001
AMENDED: 1 DECEMBER
2005
EFFECTIVE: 1 JANUARY 2005
AMENDED: 13 DECEMBER
2007
EFFECTIVE: 1 JANUARY 2008
TABLE OF CONTENTS |
|
|
|
|
Page |
|
|
ARTICLE I. ESTABLISHMENT, PURPOSE AND CONSTRUCTION |
|
|
|
1.1 Establishment |
1 |
1.2 Purpose |
1 |
1.3 Effective Date and Plan Year |
1 |
1.4 Application of Plan |
2 |
1.5 Construction |
2 |
|
|
ARTICLE II. PARTICIPATION |
|
|
|
2.1 Eligibility to Participate |
3 |
2.2 Effect of Transfer |
3 |
2.3 Beneficiaries |
3 |
|
|
ARTICLE III. CONTRIBUTIONS |
|
|
|
3.1 Salary Deferral Allocations |
4 |
3.2 Employer Matching Allocations |
5 |
3.3 Deferral Elections |
5 |
3.4 No Hardship Withdrawals |
6 |
3.5 FICA Tax |
6 |
|
|
ARTICLE IV. ACCOUNTS AND RATE OF RETURN |
|
|
|
4.1 Participant Accounts |
7 |
4.2 Rate of Return |
7 |
4.3 Electing a Rate of Return |
7 |
4.4 Qualified Domestic Relations Orders |
7 |
|
|
ARTICLE V. VESTING |
|
|
|
5.1 Vested Interest |
8 |
5.2 Forfeiture of Non-Vested Balances |
8 |
|
|
ARTICLE VI. DISTRIBUTIONS |
|
|
|
6.1 Distributions for Separation from Service On and After 1 January 2006 |
9 |
6.2 Distributions for Separation from Service from 1 January 2005 to 31 December 2005 |
10 |
6.3 Distributions Prior to 1 January 2005 |
11 |
6.4 Death |
12 |
6.5 Disability |
12 |
6.6 Six-Month Delay |
12 |
i
ii
JOHN DEERE DEFINED CONTRIBUTION RESTORATION PLAN
1.1 Establishment . Effective 1 January 1997, Deere & Company established the John Deere Defined Contribution Restoration Plan (the Plan ) for the benefit of the salaried employees on its United States payroll and the salaried employees of its United States subsidiaries or affiliates that have adopted the John Deere Savings and Investment Plan (the SIP ). Deere & Company and its United States subsidiaries and affiliates that have adopted the SIP (jointly the Company ) are also deemed to have adopted this Plan.
Effective as of 1 January 2007 (unless otherwise provided herein), the Plan is amended pursuant to Section 409A of the Code. Amendments to the Plan adopted in 2007 are intended to align Plan provisions with prior operational changes and avoid the imposition on any Participant of taxes and interest pursuant to Section 409A of the Code.
1.2 Purpose . The Company maintains a defined contribution plan, known as the John Deere Savings and Investment Plan (the SIP ), which is intended to be a qualified defined contribution plan which meets the requirements of Section 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended and the rulings and regulations thereunder (the Code ). Section 401(a)(17) of the Code limits the amount of compensation paid to a participant in a qualified defined contribution plan which may be taken into account in determining contributions under such a plan. Section 402(g) of the Code limits the amount of compensation a participant may defer in a qualified defined contribution plan. Section 415 of the Code limits the amount which may be contributed under a qualified defined contribution plan. Effective as of 1 January, 2007, this Plan is intended to provide contributions which, are reasonably comparable to the contributions which participants could have received under the SIP if they participated in the SIP and if there were no limitations imposed by Sections 401(a)(17), 402(g) and 415 of the Code. Prior to 2007, the Plan was intended to restore contributions which, when combined with the amount actually contributed under the SIP, are reasonably comparable to the contributions which participants in the SIP would have received under such plan if there were no limitations imposed by Sections 401(a)(17), 402(g) and 415 of the Code.
The Plan is intended to qualify as an unfunded deferred compensation plan for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended, and the rulings and regulations thereunder ( ERISA ).
1.3 Effective Date and Plan Year . The Plan was first effective 1 January 1997. The Plan Year shall be the twelve-month period beginning on 1 November of each year and ending on 31 October of the following year with the exception of the first Plan Year which will start 1 January 1997 and end 31 October 1997.
1.4 Application of Plan . The terms of this Plan are applicable only to eligible employees of the Company as described in Section 2.1 below who become eligible to defer compensation hereunder on or after 1 January 1997.
1.5 Construction . Unless the context clearly indicates otherwise or unless specifically defined herein, all operative terms used in this Plan shall have the meanings specified in the SIP and the words in the masculine gender shall be deemed to include the feminine and neuter genders and the singular shall be deemed to include the plural and vice versa. References to Sections are references to sections in the Plan, unless otherwise provided.
2
2.1 Eligibility to Participate .
2.2 Effect of Transfer . An Employee who is a Participant in this Plan and who ceases to be an eligible Employee as described in Section 2.1 above shall cease participation in the Plan; however, any past contributions and applicable matching contributions will continue to be accounted for as elected by the employee subject to Section 4.2 of this Plan.
2.3 Beneficiaries . Beneficiaries under this Plan shall be determined in accordance with Section 8.6 of the SIP; however, beneficiaries for this Plan shall be designated on a separate form and may be an individual or individuals other than beneficiaries designated under the SIP.
3
3.1 Salary Deferral Allocations .
A Participants deferrals under the Plan shall not commence until such Participants Compensation from such calendar year exceeds the amount determined pursuant to Section 3.1(a)(ii).
4
3.2 Employer Matching Allocations . Employer matching contributions, if any, corresponding to Deferral allocations (as defined in Section 3.3 hereof) under Section 3.1 above shall be allocated to a matching account under this Plan. Employer matching contributions under this Plan will be determined as described in Article IV, Section 4.1(b) of the SIP.
3.3 Deferral Elections .
5
With respect to the calendar year beginning 1 January 2005 and the Plan Year beginning 1 November 2004, a Participant shall be permitted, through 15 March 2005, pursuant to Q&A 21 in Notice 2005-1, to make a new Deferral Allocation election or increase an existing Deferral Allocation with respect to amounts that have not been paid or that have not become payable at the time of such election; provided that the Participants deferral agreement under the SIP in effect as of 15 March 2005 shall determine such Participants Deferral Allocations under the Plan for the remainder of the 2005 calendar year; and provided further that such election with respect to the Plan shall not exceed 6% of the Participants Compensation and shall be in accordance with procedures established by the Plan Administrator.
3.4 No Hardship Withdrawals . Hardship withdrawals from a Participants Account under the Plan shall not be permitted. Effective as of 1 January 2006, if a Participant receives a distribution of a Hardship Withdrawal from the SIP, his Deferral Allocation for purposes of the Plan shall cease and his election under the Plan shall be cancelled. A new Deferral Allocation with respect to the Plan following the cancellation of a prior Deferral Allocation due to a Hardship Withdrawal under the SIP shall be subject to the timing requirements of Section 3.3 and Section 409A.
3.5 FICA Tax . All Deferral Allocations are subject to FICA tax in the payroll period in which they are deferred. Such FICA taxes will be withheld only as necessary from the Participants Compensation prior to any deferral under this Plan.
6
4.1 Participant Accounts . Bookkeeping accounts will be maintained for each participant under the Plan and shall be credited with a rate of return as provided in Section 4.2 below. Such rate of return shall be credited as of the end of each business day.
4.2 Rate of Return . The rate of return for a Participants account shall be the average of Prime Rate plus two percent as determined by the Federal Reserve statistical release for the month immediately preceding the month for which such rate shall be credited to account balances for deferrals and Employer matching contributions under this Plan.
Alternatively, a Participant may elect a rate of return equal to the average of the S&P 500 Index for the month immediately preceding the month for which such rate shall be credited to account balances for deferrals and Employer matching contributions under this Plan.
4.3 Electing a Rate of Return . A Participant shall be permitted to make an annual election regarding the rate of return applicable to existing and future account balances; provided that such election is submitted to the Recordkeeper by 31 October of the prior calendar year. As of 31 October of a calendar year, a Participants election for purposes of this Section 4.3 shall be irrevocable with respect to the following calendar year. Any change to an election with respect to the rate of return shall not become effective until 1 January of the calendar year following the calendar year in which such change is submitted to the Recordkeeper. A Participant may elect either of the above rates of return for any portion of the account in whole percentage increments (as long as the minimum value of transfer is $250 or more). The sum of all such portions must equal 100%. If a Participant submits a Deferral Allocation to the Recordkeeper, but fails to submit an election regarding the rate of return, the rate of return for such Participants existing and future account balances shall be the S&P 500 Index, until modified by the Participant in accordance with this Section 4.3.
4.4 Qualified Domestic Relations Orders . In the event of a Qualified Domestic Relations Order, a separate account will be established for any qualified alternate payee subject to Article V. No portion of the non-vested Employer matching contributions or earnings thereon may be assigned to the Alternate Payee. The distribution option for an Alternate Payee generally will be a single lump sum payment paid 180 days following qualification by the Administrator of a domestic relations order as a Qualified Domestic Relations Order in place of the Distribution Options shown in Article VI, unless the Qualified Domestic Relations Order provides otherwise. The Administrator may accelerate the time or schedule of payment under the Plan to an alternate payee to the extent necessary to fulfill a Qualified Domestic Relations Order.
7
5.1 Vested Interest . A Participant shall be fully vested in the portion of the account comprised of Deferral Allocations and gains or losses thereon. Furthermore, the Participant shall be 100% vested after attaining three years of service credit on the Employer matching contributions and the gains or losses thereon. In the event of a Qualified Domestic Relations Order, no portion of non-vested Employer matching contributions or the gains or losses thereon may be assigned to the alternate payee.
5.2 Forfeiture of Non-Vested Balances . The Participant who incurs a Separation from Service prior to three years of service credit shall forfeit all Employer matching contributions and the earnings thereon. In the event a Participant is rehired by the Company within five (5) years following such Separation from Service with the Company and, in accordance with the applicable provisions of the SIP, such Participant earns three years of service credit (including any service credit earned prior to the initial Separation from Service), all forfeited Employer matching contributions and growth additions up to the date of the Participants Separation from Service with the Company shall be restored to the Participants account.
8
6.1 Distributions for Separation from Service On and After 1 January 2006 .
9
is the first anniversary of the Measurement Date, and shall be paid on the last day of the month following the month which contains the first anniversary of the Measurement Date.
6.2 Distributions for Separation from Service from 1 January 2005 to 31 December 2005 .
10
6.3 Distributions Prior to 1 January 2005 .
11
In the event of the death of the Participant or a Qualified Domestic Relations Order, such beneficiaries or the Alternate Payee must take distribution as a single lump sum payment within 180 days following the event
6.4 Death . Upon the death of a Participant, his 409A Account, if the death occurs in calendar year 2005, and, notwithstanding anything to the contrary in Section 6.1, 6.2 or 6.5 regarding the time or form of payment, his Account (or the remainder of his Account, if benefits have already commenced), if the death occurs on or after 1 January 2006, shall be paid to his beneficiaries in a lump sum on the first day of the month following the date of the Participants death.
6.5 Disability . A Participant who incurs a Separation from Service due to a Disability on or after January 1, 2006 shall receive a distribution of his Account in accordance with Section 6.1(b) or (c), as applicable. A Participants Separation from Service due to Disability shall be deemed to occur on the date that is 29 months after the first day of Participants absence from work due to Disability.
6.6 Six-Month Delay . Distributions on or after 1 January 2005 of a Participants 409A Account and on or after 1 January 2006 of a Participants Account shall be made in accordance with the provisions of Section 409A. To the extent such distributions are made in connection with a Participants Separation from Service for any reason other than death and the Participant is a specified employee for purposes of Section 409A, as determined under the Companys established methodology for determining specified employees, on the date on his Separation from Service, such distributions shall not commence to be paid on any date prior to the first business day after the date that is six months following the Participants Separation from Service.
6.7 Distribution of Net Gains Realized from Rate of Return Elections . Any net gain credited to a Participants Account pursuant to an election made pursuant to Section 4.3 hereof shall be distributed at the same time and in the same manner as the remainder of his Account is distributed in accordance with Sections 6.1 through 6.6.
12
7.1 Employment Rights . Nothing under this Plan shall be construed to give any employee the right to continue employment with the Company or to any benefits not specifically provided herein.
7.2 Applicable Law . This Plan, to the extent it is not exempt therefrom, shall be governed and construed in accordance with the applicable provisions of ERISA. To the extent not governed by ERISA, this Plan shall be governed and construed in accordance with the laws of the State of Illinois, exclusive of conflict laws.
7.3 Non-Alienation . Except as provided in Section 10.5 of the SIP and Section 4.4 of this Plan, no right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. No right or benefit under this Plan shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits except for such claims as may be made by the Company.
7.4 Withholding of Taxes . The Company, or its designee, may withhold from any payment of benefits under this Plan any income, employment or other taxes required to be withheld, including any taxes for which the Company or its designee may be liable with respect to the payment of such benefits.
7.5 Unsecured Interest, Funding and Rights Against Assets . No participant, surviving spouse, beneficiaries, or qualified alternate payee shall have any interest whatsoever in any specific asset of the Company. To the extent that any person acquires a right to receive payments under this Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. Account balances shall not be financed through a trust fund or insurance contracts or otherwise unless owned by the Company. Payment of account balances shall be paid in cash from the general funds of the Company. All expenses of administering this Plan shall be borne by the Company.
7.6 Effect on Other Benefit Plans . Amounts payable under this Plan, including Employer matching allocations and growth additions, shall not be considered compensation for purpose of any qualified or non-qualified retirement plan maintained by the Company. The treatment of such amounts under any other plan of the Company shall be determined under the provisions of such plan.
13
7.8 Amendment, Modification or Termination . The Board of Directors of the Company, or, the Management Compensation Committee of the Company, may at any time amend or modify this Plan in their sole discretion, provided that this Plan shall not be amended or modified so as to reduce or diminish the accounts of participants or benefits then currently being paid to any participant, surviving spouse, beneficiary, or former participant without such persons consent. The power to terminate this Plan shall be reserved to the Board of Directors of Deere & Company. The procedure for amendment or modification of the Plan by either the Board of Directors, or, to the extent so authorized, the Management Compensation Committee of the Company, as the case may be, shall consist of the lawful adoption of a written amendment or modification to the Plan by majority vote at a validly held meeting or by unanimous written consent, followed by the filing of such duly adopted amendment or modification by the Secretary with the official records of the Company.
7.9 409A Amendments and Modifications . Notwithstanding anything in Section 7.8 to the contrary, the Vice President of Human Resources of the Company and any successor thereof shall have the unilateral right to amend or modify the Plan to the extent the Vice President of Human Resources and any successor thereof deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A. Any determinations of the Vice President, Human Resources or the successor thereof pursuant to this Section 7.9 shall be final, conclusive and binding on all persons.
7.10 Distribution Upon Plan Termination; Withdrawal from the Plan .
7.11 Withdrawal from Plan . If an adopting subsidiary or affiliate which is participating in this Plan subsequently determines that it no longer wants to participate in this Plan or have its employees participate in this Plan, that subsidiary or affiliate must request permission from Deere & Company to withdraw from participating in this Plan. If the
14
Company grants such permission, such subsidiary or affiliate will immediately thereafter cease to participate in this Plan and its employees will cease to be participants in this Plan unless and until such subsidiary or affiliate thereafter requests permission to again participate in this Plan.
7.12 Definition of Subsidiary or Affiliate . In order for a subsidiary or affiliate of the Company to participate in this Plan, Deere & Company must own, directly or indirectly, at least 80 percent of the outstanding stock of such subsidiary or affiliate.
If during its affiliation with the Plan, a subsidiary or an affiliates ownership by the Company falls below the 80 percent required level, such subsidiary or affiliate is automatically dropped from participation in this Plan and its employees are similarly dropped from being participants in this Plan.
If a subsidiary or affiliate of Deere & Company which is covered by this Plan ceases to be a subsidiary or affiliate, the participation in this Plan by the employees of such subsidiary or affiliate shall terminate, and no employees of such former affiliate or subsidiary shall accrue or be entitled to a benefit under this Plan on and after the date such company ceases to be a subsidiary or affiliate of Deere & Company (other than former employees who were receiving benefit payments as of such date).
15
8.1 Section References . All references to sections are, unless otherwise indicated, references to sections of the Plan.
8.2 Terms Defined . Whenever used in the Plan, the following terms shall have the meanings set forth below:
409A Account means the portion of a Participants account under the Plan the right to which is not both earned and vested on December 31, 2004.
Account means, effective as January 1, 2006, a Participants Grandfathered Account and 409A Account.
Administrator means the Company.
Deferral Allocation means, with respect to a Participant, the deferral allocation election under the Plan applicable to Performance-Based Compensation and all other Eligible Compensation.
Disability means an absence from work due to a disability as determined under the long-term disability plan or practice of the Company for 12 months or longer, or, if earlier, the date on which a Participants reemployment with the Company ceases to be guaranteed.
Grandfathered Account means the portion of a Participants account under the Plan the right to which is both earned and vested on December 31, 2004. The Grandfathered Account shall be subject to the Prior Plan.
Notice 2005-1 means Notice-2005-1 promulgated by the U.S. Treasury Department and the Internal Revenue Service., as clarified and expanded by Final Regulations under Section 409A and Notice 2006-79.
Performance-Based Compensation means performance-based compensation within the meaning of Section 409A.
Prior Plan means the terms of the Plan in effect immediately prior to 1 January 2005, as set forth in the Companys written documents, rules, practices and procedures applicable to this Plan (but without regard to any amendments thereto after 3 October 2004 that would result in any material modification, within the meaning of Section 409A and Notice 2005-1, of the Grandfathered Benefit).
Retirement Eligible means eligible for a normal retirement benefit or an early retirement benefit within the meaning of the terms of the John Deere Pension Plan for Salaried EmployeesContemporary Option in effect as of 1 January 2007.
Section 409A means Section 409A of the Internal Revenue Code of 1986, as amended, and the rulings and regulations thereunder.
16
Separation from Service means, with respect to a Participant, a separation from service within the meaning of the default rules of Section 409A; provided , however , that, notwithstanding anything in Section 7.12 to the contrary, for purposes of determining which entities are treated as a single service recipient with the Company, the phrase at least 20 percent shall be substituted for the phrase at least 80 percent each place it appears in Sections 1563(a)(1), (2) and (3) of the Code and Section 1.414(c)-2 of the Treasury Regulations, as permitted under Section 1.409A-1(h)(3) of the Treasury Regulations; and provided further that, solely for purposes of the Grandfathered Account, Separation from Service shall be determined in accordance with the terms of the Prior Plan.
Vacation means one or more days, as the case may be, of such vacation to which the Participant is entitled pursuant to the policies and practices of the Company then in effect and (i) as of the date of the Participants Separation from Service, deferred from a prior anniversary year and unused as of such Separation from Service, (ii) earned in the current anniversary year and unused as of such Separation from Service and (iii) if a Participants Vacation described in clause (i) or (ii) of this definition is used in the anniversary year following the anniversary year in which such Separation from Service occurs, earned in such following anniversary year, whether or not used by the Participant.
17
DEERE & COMPANY
Nonemployee Director
Stock Ownership Plan
Effective February 27, 2002
Amended August 28, 2002
Amended May 25, 2005
Amended November 29, 2006
Amended November 28, 2007
DEERE & COMPANY NONEMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN
____________________________________________________________________________________________________________
Deere & Company, a Delaware corporation, hereby establishes an incentive compensation plan to be known as the Deere & Company Nonemployee Director Stock Ownership Plan (the Plan ), as set forth in this document. The Plan provides for the grant of Restricted Stock to Nonemployee Directors, subject to the terms and provisions set forth herein.
Upon approval by the Board of Directors of the Company, subject to ratification within six (6) months by an affirmative vote of a majority of Shares, the Plan shall become effective as of February 27, 2002 (the Effective Date ), and shall remain in effect as provided in Section 1.3 herein. Each amendment to the Plan shall become effective as of the date set forth in such amendment.
The purpose of the Plan is to further the growth, development, and financial success of the Company by strengthening the Companys ability to attract and retain the services of experienced and knowledgeable Nonemployee Directors by enabling them to participate in the Companys growth and by linking the personal interests of Nonemployee Directors to those of Company shareholders.
The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board of Directors to terminate the Plan at any time pursuant to Article 8 herein, until all Shares subject to it have been acquired according to the Plans provisions. However, in no event may an Award be granted under the Plan on or after March 8, 2012.
Whenever used in the Plan, the following terms shall have the meaning set forth below:
2
The Plan shall be administered by the Board, subject to the restrictions set forth in the Plan.
The Board shall have the full power, discretion, and authority to interpret and administer the Plan in a manner which is consistent with the Plans provisions. However, in no event shall the Board have the power to determine Plan eligibility, or to determine the amount, the price, or the timing of Awards to be made under the Plan (all such determinations are automatic pursuant to the provisions of the Plan). Any action taken by the Board with respect to the administration of the Plan which would result in any Nonemployee Director ceasing to be a nonemployee director within the meaning of Rule 16b-3 under the Exchange Act shall be null and void.
All determinations and decisions made by the Board pursuant to the provisions of the Plan and all related orders or resolutions of the Board of Directors shall be final, conclusive, and binding on all persons, including the Company, its shareholders, Employees, Nonemployee Directors, and their estates and beneficiaries.
Subject to adjustment as provided in Section 4.3 herein, the total number of Shares available for grant under the Plan (whether in the form of Restricted Stock or as Shares underlying Restricted Stock Units) may not exceed 500,000.
If any Shares or Restricted Stock Units granted under this Plan terminate, expire, or lapse for any reason, such Shares and the Shares underlying such Restricted Stock Units again shall be available for grant under the Plan. However, in the event that prior to an Awards termination, expiration, or lapse, the holder of the Award at any time received one or more benefits of ownership pursuant to such Award (as defined by the Securities and Exchange Commission, pursuant to any rule or interpretation promulgated under Section 16 of the Exchange Act), the Shares subject to such Award shall not be made available for regrant under the Plan.
4.3. Adjustments in Authorized Shares
In the event of any merger, reorganization, consolidation, recapitalization, liquidation, stock dividend, split-up, Share combination, or other change in the corporate structure of the Company affecting the Shares, the Board shall make such adjustments in the number and type of shares authorized by the Plan and to outstanding Awards to prevent dilution or enlargement of rights. The Boards determination as to what adjustments shall be made, and the extent thereof, shall be final.
3
Persons participating in the Plan shall include, and be limited to, all Nonemployee Directors.
An annual Award of Restricted Shares to each Nonemployee Director will be made automatically as of the date one week following the date of the Annual Meeting in an amount recommended by the Corporate Governance committee and approved by the Board. The number of Restricted Shares will be based on the Fair Market Value on the grant date of Deere common stock, provided , however , that unless the Board determines otherwise as provided in Section 7.1, no further Awards of Restricted Shares shall be made on or after the Transition Date. Although the period of service shall run from the date of the Annual Meeting, the grant date shall be one week following the Annual Meeting to permit the dissemination to the market of information coming out of such meeting.
Upon the effective date of any amendment in the amount of any Award, each Nonemployee Director shall receive a partial Award calculated as if the Nonemployee Director were serving a partial term as provided in Section 6.3, below, provided that the Fair Market Value shall be determined as of the grant date one week following the effective date of the Award. Restricted shares previously granted to the Nonemployee Director for the same period shall be deducted from such Award.
A Nonemployee Director who is elected by the Board to fill a vacancy between Annual Meetings shall automatically be granted a pro rata portion of the number of Restricted Shares awarded to Nonemployee Directors as of the date of the most recent Annual Meeting. Such prorated number of shares shall be determined by multiplying the number of Restricted Shares awarded as of the date of the most recent Annual Meeting by a fraction, the numerator of which is the number of days remaining until the first anniversary of such most recent Annual Meeting, and the denominator of which is 365.
The Shares awarded to a Nonemployee Director may not be sold, pledged, assigned, transferred, gifted, or otherwise alienated or hypothecated until such time as the restrictions with respect to such Shares have lapsed as provided herein. At the time Restricted Shares are awarded to a Nonemployee Director, shares representing the appropriate number of Restricted Shares shall be registered in the name of the Nonemployee Director but shall be held by the Company in custody for the account of such person. As Restrictions lapse on Shares upon death, Disability or retirement as contemplated by Section 6.8, certificates therefore will be delivered to the Participant.
The Company may impose such other restrictions on any Shares granted pursuant to the Plan as it may deem advisable including, without limitation, restrictions intended to achieve compliance with the Securities Act of 1933, as amended, with the requirements of any stock exchange upon which such Shares or Shares of the same class are then listed, and with any blue sky or securities laws applicable to such Shares. Shares delivered upon death, Disability or retirement as contemplated by Section 6.8 may bear such legends, if any, as the Board shall specify.
Participants granted Restricted Stock hereunder shall have full voting rights on such Shares.
4
Participants granted Restricted Stock hereunder shall have full dividend rights, with such dividends being paid to Participants. If all or part of a dividend is paid in Shares, the Shares shall be held by the Company subject to the same restrictions as the Restricted Stock that is the basis for the dividend.
The restrictions provided for in Sections 6.4 and 6.5 shall remain in effect until, and shall lapse only upon, the termination of a Nonemployee Directors service as a Director by reason of death, Disability, or retirement from the board, and the Shares shall thereafter be delivered to the Nonemployee Director or the decedents beneficiary as designated pursuant to Section 10.3.
In the event the Nonemployee Directors service as a Director is terminated for any other reason, including, without limitation, any involuntary termination on account of (a) fraud or intentional misrepresentation, or (b) embezzlement, misappropriation, or conversion of assets or opportunities of the Company, all Restricted Shares awarded to such Nonemployee Director prior to the date of termination shall be immediately forfeited and returned to the Company.
The Company shall have the right under this Plan to collect cash from Nonemployee Directors in an amount necessary to satisfy any Federal, state or local withholding tax requirements. Any Nonemployee Director may elect to satisfy withholding, in whole or in part, by having the Company withhold shares of common stock having a value equal to the amount required to be withheld.
Effective as of the Transition Date, an annual Award of Restricted Stock Units will be made to each Nonemployee Director automatically as of the date one week following the date of the Annual Meeting in an amount recommended by the Corporate Governance Committee and approved by the Board. The number of Restricted Stock Units will be based on the Fair Market Value on the grant date of Deere common stock. Although the period of service shall run from the date of the Annual Meeting, the grant date shall be one week following the Annual Meeting to permit the dissemination to the market of information coming out of such meeting. Notwithstanding the preceding two sentences, the Board shall have the discretion to determine, prior to any annual Award date, that Awards to be made as of that annual Award date to some or all Nonemployee Directors shall consist of Restricted Shares rather than Restricted Stock Units, and in such case the Restricted Shares so awarded shall have the terms and conditions set forth in Article 6.
Upon the effective date of any amendment in the amount of any Award, each Nonemployee Director shall receive a partial Award calculated as if the Nonemployee Director were serving a partial term as provided in Section 7.3, below, provided that the Fair Market Value shall be determined as of the grant date one week following the effective date of the Award. RSUs previously granted to the Nonemployee Director for the same period shall be deducted from such Award.
A Nonemployee Director who is elected by the Board to fill a vacancy between Annual Meetings shall automatically be granted a pro rata portion of the number of RSUs awarded to Nonemployee Directors as of the date of the most recent Annual Meeting. Such prorated number of RSUs shall be determined by multiplying the number of RSUs awarded as of the date of the most recent Annual Meeting by a fraction, the numerator of which is the number of days remaining until the first anniversary of such most recent Annual Meeting, and the denominator of which is 365.
5
If a Nonemployee Director fails to designate one of the foregoing alternatives as the settlement date for an Award of RSUs, such Nonemployee Director shall be deemed to have designated alternative (A). Notwithstanding any election made by a Nonemployee Director on any election Form or any other provision of the Plan, in the event of such Nonemployee Directors death, all RSUs held by such Nonemployee Director will be paid in Shares to such Nonemployee Directors beneficiary (or if no beneficiary has been designated, to such Nonemployee Directors estate) as soon as administratively practicable, and in any event within 90 days, following the date of such Nonemployee Directors death.
Restricted Stock Units shall not confer on a Nonemployee Director any rights as a stockholder of the Company (including without limitation voting rights) until Shares have been issued to such Nonemployee Director in settlement of such Restricted Stock Units.
Until a Nonemployee Directors Restricted Stock Units convert to Shares, if Deere pays a regular or ordinary dividend on its common stock, the Nonemployee Director will be paid a dividend equivalent for his or her RSUs. Deere will pay the dividend equivalent on the same day as Deere pays the corresponding dividend on its common stock. If
6
Deere pays a dividend in Shares, Nonemployee Directors holding RSUs will receive additional RSUs equal to the number of Shares paid with respect to the corresponding number of Shares, and such additional RSUs shall be subject to the same terms and conditions, and shall be settled at the same time, as the RSUs to which they relate.
The Company shall have the right under this Plan to collect cash from Nonemployee Directors in an amount necessary to satisfy any Federal, state or local withholding tax requirements arising from settlement of RSUs or payment of dividend equivalents prior to settlement. A Nonemployee Director may elect to satisfy withholding tax obligations, in whole or in part, by having the Company withhold shares of common stock having a value equal to the amount required to be withheld.
The RSUs awarded to a Nonemployee Director may not be sold, pledged, assigned, transferred, gifted or otherwise alienated or hypothecated. Shares delivered in settlement of RSUs shall not be subject to any such restrictions, except for any restrictions that may be imposed under applicable securities laws or policies of the Company.
Subject to the terms set forth in this Section 9.1 and Section 9.2, the Board may terminate, amend, or modify the Plan at any time and from time to time; provided , however , that the provisions set forth in the Plan regarding the amount, the price or the timing of Awards to Nonemployee Directors may not be amended more than once every six (6) months, other than to comport with changes in laws and regulations.
Without such approval of the shareholders of the Company as may be required by the Code, by the rules of Section 16 of the Exchange Act, by any national securities exchange or system on which the Shares are then listed or reported, or by a regulatory body having jurisdiction with respect hereto, no such termination, amendment or modification may:
7
Unless required by law, no termination, amendment or modification of the Plan shall materially affect, in an adverse manner, any Award previously granted under the Plan, without the consent of the Nonemployee Director holding the Award.
Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.
In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
Each Nonemployee Director under the Plan may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the event of his or her death. Each designation will revoke all prior designations by the same Nonemployee Director, and will be effective only when filed by the Nonemployee Director in writing with the Company during his or her lifetime. In the absence of any such designation, benefits remaining unpaid at the Nonemployee Directors death shall be paid to the Nonemployee Directors estate.
Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Nonemployee Director for reelection by the Companys shareholders.
The Shares made available pursuant to Awards under the Plan may be either authorized but unissued Shares, or Shares which have been or may be reacquired by the Company, as determined from time to time by the Board.
Shares and RSUs granted under the Plan shall be in addition to any annual retainer, attendance fees, or other compensation payable to each Nonemployee Director as a result of his or her service on the Board.
All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
The granting of Awards under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.
8
Transactions under the Plan are intended to be exempt from Section 16(b) of the Exchange Act by virtue Rule 16b-3 (including any successor provision). To the extent any provision of the Plan or action by the Board fails to comply with the requirements of Rule 16b-3, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board.
Restricted Stock Units awarded under the Plan shall constitute an unsecured promise of Deere to deliver Shares on the applicable settlement date, subject to the terms and conditions of the Plan. The Plan is unfunded, and the Company shall not be required to reserve or otherwise set aside funds or Shares for the payment of its obligations hereunder. As a holder of RSUs, a Nonemployee Director has only the rights of a general unsecured creditor of the Company. The Plan does not confer on any Nonemployee Director or beneficiary of a Nonemployee Director any interest whatsoever in any specific asset of the Company.
9
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
AMENDED: 1 November 1987
AMENDED: 24 February 1988
AMENDED: 28 February 1990
AMENDED: 27 February 1991
AMENDED: 29 May 1991
AMENDED: 26 August 1992
AMENDED: 09 December 1992
AMENDED: May 1993 Effective: 01 July 1993
AMENDED: 08 December 1993 Effective: 01 July 1993
AMENDED: 07 December 1994
AMENDED: May 1995 Effective: 01 January 1995
AMENDED: 13 December 1995 Effective: 01 January 1995
AMENDED: 04 December 1996 Effective: 01 January 1997
AMENDED: 07 January 1998 Effective: 01 January 1998
AMENDED: 26 May 1999 - Effective: 26 May 1999
AMENDED: 19 July 1999 - Effective: 01 July 1999
AMENDED: 06 August 1999 Effective: 01 August 1999
AMENDED: 02 November 1999 Effective: 01 November 1999
AMENDED: 31 July 2000 Effective: 01 Jan 2000
(Item (1&2) 01 Apr 2000 (Item (3)
(See
Resolution for Item explanation)
AMENDED: 29 January 2002 - Effective: 01 January 2002
AMENDED: 1 December 2005 Effective: 1 January 2005
AMENDED: 13 December 2007 Effective: 1 January 2007
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
TABLE OF CONTENTS
Table of Contents
Section |
|
|
Page |
||||
|
|
|
|
||||
Table of Contents |
|
||||||
|
|
||||||
Page |
|
|
|
||||
|
|
|
|
||||
Section 1. |
Purpose and Establishment |
|
|||||
|
1.1 |
Establishment and Amendment of the Plan |
1 |
||||
|
1.2 |
Purpose |
1 |
||||
|
1.3 |
Cost of Benefits |
1 |
||||
|
1.4 |
Application of Plan |
1 |
||||
|
1.5 |
Administration, Amendment and Termination |
1 |
||||
|
1.6 |
Nonencumbrance of Benefits |
2 |
||||
|
1.7 |
Employment Rights |
2 |
||||
|
1.8 |
Severability |
2 |
||||
|
1.9 |
Applicable Law |
3 |
||||
|
|
|
|
||||
Section 2. |
Definitions |
3 |
|||||
|
2.1 |
Definitions |
3 |
||||
|
2.2 |
Gender and Number |
6 |
||||
|
|
|
|
||||
Section 3. |
Supplemental Pension Benefit |
|
|||||
|
3.1 |
Eligibility |
7 |
||||
|
3.2 |
Amount |
7 |
||||
|
3.3 |
Limitations |
8 |
||||
|
3.4 |
Reduction for Early Retirement under Contemporary Pension Option |
8 |
||||
|
3.5 |
Commencement and Duration |
8 |
||||
|
3.6 |
Death Prior to Receipt of Lump Sum |
9 |
||||
|
3.7 |
Qualified Domestic Relations Order |
10 |
||||
|
|
|
|
||||
Section 4. |
Disability Benefit |
|
|||||
|
4.1 |
Eligibility |
11 |
||||
|
4.2 |
Amount |
11 |
||||
|
4.3 |
Commencement and Duration |
11 |
||||
|
|
|
|
||||
Section 5. |
Change in Control of Company |
|
|||||
|
5.1 |
Eligibility |
12 |
||||
|
5.2 |
Change in Control of the Company |
12 |
||||
|
5.3 |
Cause |
13 |
||||
|
5.4 |
Good Reason |
13 |
||||
|
5.5 |
Amount |
14 |
||||
|
5.6 |
Commencement and Duration |
14 |
|
5.7 |
Deere & Company Severance Protection Agreement |
14 |
|
|
|
|
Section 6. |
Survivor Benefits |
|
|
|
6.1 |
Death of an Active or Disabled Participant |
15 |
|
6.2 |
Death of a Retired Participant |
15 |
|
6.3 |
Commencement and Duration |
16 |
|
6.4 |
Survivor Benefit Election After Retirement. |
16 |
|
|
|
|
Section 7. |
Financing of Benefits |
17 |
|
|
7.1 |
Contractual Obligation |
17 |
|
7.2 |
Unsecured General Creditor |
17 |
|
7.3 |
Funding |
17 |
|
7.4 |
Vesting |
17 |
|
7.5 |
Administration |
17 |
|
7.6 |
Expenses |
17 |
|
7.7 |
Indemnification and Exculpation |
17 |
|
7.8 |
Effect on Other Benefit Plans |
18 |
|
7.9 |
Tax Liability |
18 |
APPENDIX A |
|
|
|
Article A-1 APPLICATION; PAYMENT OF PLAN BENEFIT AFTER 2006 |
1 |
||
A-1.1 |
Application of this Article |
1 |
|
A-1.2 |
Retirement During Calendar Year 2007 or Later |
1 |
|
A-1.3 |
Termination During Calendar Year 2005 or Later |
1 |
|
Article A-2 DEATH and DISABILITY BENEFITS |
2 |
||
A-2.1 |
Application of Article A-2 |
2 |
|
A-2.2 |
No Additional Rights Because of Death |
2 |
|
A-2.3 |
Rules Based on Timing of Death |
2 |
|
A-2.4 |
Separation from Service Due to Disability |
3 |
|
A-2.5 |
Return to Work Following Disability |
4 |
|
|
|
|
|
APPENDIX B |
|
|
|
Article B-1 MISCELLANEOUS PROVISIONS |
1 |
||
B-1.1 |
Application of this Article |
1 |
|
B-1.2 |
Impact of Vacation |
1 |
|
B-1.3 |
Impact of Leave of Absence and Special Paid Leave of Absence |
1 |
|
B-1.4 |
No Acceleration or Delay |
2 |
|
Article B-2 A MENDMENT AND TERMINATION |
2 |
||
B-2.1 |
Amendment and Termination |
2 |
|
B-2.2 |
Plan Benefit in the Event of Termination |
2 |
|
Article B-3 DEFINITIONS |
2 |
||
B-3.1 |
Section References |
2 |
|
B-3.2 |
Terms Defined |
2 |
|
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
1.1 Establishment and Amendment of the Plan . Deere & Company (the Company) established and presently maintains the John Deere Supplemental Pension Benefit Plan (the Plan), an unfunded supplemental retirement plan for the benefit of its eligible employees, on 1 November 1978. Said plan is hereby further amended and restated as set forth herein effective as of 1 January 1997. Effective as of 1 January 2007, the Plan is amended pursuant to Section 409A of the Code as set forth in Appendices A and B, which form part of the Plan. Amendments to the Plan adopted in 2006 and 2007 are intended to align Plan provisions with prior operational changes and avoid the imposition on any Participant of taxes and interest pursuant to Section 409A of the Code.
1.2 Purpose . The purpose of this Plan is to promote the mutual interests of Deere & Company and its Officers and Executives.
1.3 Cost of Benefits . Cost of providing benefits under the Plan will be borne by the Company.
1.4 Application of Plan . The provisions of this Plan as set forth herein are applicable only to the employees of the Company in current employment on or after 1 November 1987, except as specifically provided herein. Except as so provided, any person who was covered under the Plan as in effect on 31 October 1987 and who was entitled to benefits under the provisions of the Plan shall continue to be entitled to the same amount of benefits without change under this Plan. Any person covered under the Plan as in effect 1 November 1987 who is age 55 or above on 1 November 1987 shall be entitled to the larger of the benefit amount in Section 3.2 below or the benefit provided under the John Deere Supplemental Pension Benefit Plan effective prior to 1 November 1987.
Notwithstanding any provision of this Plan to the contrary, the provisions of Appendices A and B shall apply to payment of benefits on or after 31 December 2006 and such appendices shall supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between such Appendices and such other provisions of the Plan.
1.5 Administration, Amendment and Termination . The Plan is administered by and shall be interpreted by the Company. The Board of Directors of the Company or the Pension Plan Oversight Committee of the Board may at any time amend, modify or terminate this Plan in their sole discretion. In addition, the Deere & Company Compensation Committee shall have the authority to approve all amendments or modifications that:
a. in the Compensation Committees judgment are procedural, technical or administrative, but do not result in changes in the control and management of the Plan assets; or
1
b. in the Compensation Committees judgment are necessary or advisable to comply with any changes in the laws or regulations applicable to the Plan; or
c. in the Compensation Committees judgment are necessary or advisable to implement provisions conforming to a collective bargaining agreement which has been approved by the Board of Directors; or
d. in the Compensation Committees judgment will not result in changes to benefit levels exceeding $5 million dollars per amendment or modification during the first full fiscal year that such changes are effective for the Plan; or
e. are the subject of a specific delegation of authority from the Board of Directors.
Provided, however, that this Plan shall not be amended or modified so as to reduce or diminish the benefit then currently being paid to any employee or Surviving Spouse of any former employee without such persons consent. The power to terminate this Plan shall be reserved to the Board of Directors of Deere & Company. The procedure for amendment or modification of the Plan by either the Board of Directors, or, to the extent so authorized, the Pension Plan Oversight Committee, as the case may be, shall consist of: the lawful adoption of a written amendment or modification to the Plan by majority vote at a validly held meeting or by unanimous written consent, followed by the filing of such duly adopted amendment or modification by the Secretary with the official records of the Company.
1.6 Nonencumbrance of Benefits . Except as provided in Article VIII, Section 8 of the John Deere Pension Plan for Salaried Employees, no employee, retired employee, or other beneficiary hereunder shall have any right to assign, alienate, pledge, hypothecate, anticipate, or in any way create a lien upon any part of this Plan, nor shall the interest of any beneficiary or any distributions due or accruing to such beneficiary be liable in any way for the debts, defaults, or obligations of such beneficiary, whether such obligations arise out of contract or tort, or out of duty to pay alimony or to support dependents, or otherwise.
1.7 Employment Rights . Establishment of this Plan shall not be construed to give any Participant the right to be retained by the Company or to any benefits not specifically provided by the Plan.
1.8 Severability . In the event any provision of the Plan shall be held invalid or illegal for any reason, any invalidity or illegality shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the invalid or illegal provision had never been inserted, and the Company shall have the privilege and
2
opportunity to correct and remedy such questions of invalidity or illegality by amendment as provided in the Plan.
1.9 Applicable Law . This Plan is fully exempt from Titles II, III, and IV of ERISA. The Plan shall be governed and construed in accordance with Title I of ERISA and other applicable law (including, to the extent not preempted by federal law, the laws of the State of Illinois).
2.1 Definitions . Whenever used in this Plan, it is intended that the following terms have the meanings set forth below. Defined terms used in Appendix A or B have the meanings set forth in Appendix B.
3
(d.1) Career Average Pay of the Contemporary Pension Option means the following for those Officers listed in Exhibit 1:
plus
The amounts of all salary, short-term bonus, or other pay received as described in (1) and (2) above will be divided by the number of pay periods in which base pay was received to determine the Career Average Pay.
(d.2) Career Average Pay of the Contemporary Pension Option means the following for newly eligible Participants effective the latter of 1 January 1997 or entering Base Salary Grade 13 or above:
plus
4
plus
The amounts of salary and bonus derived from (d.2)(1) plus (2) plus (3) above are divided by the number of pay periods in which base pay was received to determine the career average pay. This amount multiplied times 2 transforms career average pay to a monthly equivalent.
5
2.2 Gender and Number . Except when otherwise indicated by the context, any masculine term used herein shall also include the feminine, and the singular shall also include the plural.
6
3.1 Eligibility . A Participant shall be eligible for benefits under the provisions of this Plan if such Participant is (1) entitled to a Vested Plan Benefit under the Qualified Retirement Plan and (2) has attained (a) age 60 under the Traditional Pension Option; (b) any age under the Contemporary Pension Option; or (c) any age, if eligible to retire on 1 January 1997.
3.2 Amount . Upon termination of employment an eligible Participant pursuant to 3.1 above, shall be entitled to a monthly Retirement Benefit as follows:
or
This amount determined in Section 3.2(1) or 3.2(2), as applicable, shall be subject to any reductions for
7
Notwithstanding the foregoing, effective 1 January 2007, an Eligible Participant pursuant to Section 3.1 above shall become entitled to the monthly Retirement Benefit described in this Section 3.2 upon his or her Separation from Service (as defined in Article B-3 of Appendix B); provided , however , that Section B-1.2, if applicable, shall apply in calculating the amount of the Participants benefit under the Plan, and the time and form of payment shall be determined in accordance with Appendix A.
3.3 Limitations .
3.4 Reduction for Early Retirement under Contemporary Pension Option . The amount determined in 3.2 above shall be reduced 1/3% per month from the unreduced full benefit age, as defined under the terms of the Contemporary Pension Option of the Qualified Retirement Plan in effect as of 1 January 2007, as of the date benefits commence.
3.5 Commencement and Duration . Payment of monthly retirement benefits provided under this Plan shall commence on the first day of any calendar month following the date of retirement as elected under the Qualified Retirement Plan. Benefit payments will be made on the first day of each calendar month thereafter. The last payment will be made the first day of the calendar month in which the Participant dies, subject to the provisions of Section 5.
Alternatively, the Participant may elect to receive a lump sum payment for all or a portion (in 10% increments from 10% to 90%) of the Retirement Benefits payable under this Plan including the 55% joint and survivor annuity equal to 11% of the supplemental benefit payable, adjusted for service accrued through 30 June 1993, or 31 December 1993 in the case of employees of John Deere Credit Company, John Deere Health Care, Inc., or John Deere Insurance Group. Written
8
notice of the Participants election to receive a lump sum payment shall be irrevocable, and must be received by the Company within the twelve (12) months prior to payment, but in no event subsequent to the Participants date of retirement. The lump sum payment shall be made to Participant twelve (12) months after receipt of notice by the Company but in no event prior to the Participants retirement.
Notwithstanding the above, a Section 162(m) Participant whose retirement date coincides with the Companys fiscal year-end date will not be paid the previously elected lump-sum payment until he is no longer a Section 162(m) Participant.
Effective beginning 1 January 2002 and thereafter, the lump sum will be calculated using an interest rate assumption equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as published in October by the Internal Revenue Service) and the mortality table shall be based upon a fixed blend of 50% male mortality rates and 50% female mortality rates from the Group Annuity Reserving Table (GAR) , as set forth in Revenue Ruling 2001-62, in effect at the beginning of the plan year in which payment is made. The age used in the calculation will be the age of the Participant.
Monthly retirement benefits will be redetermined as soon as practicable and increased benefits paid retroactive to the Participants date of retirement for:
or
Effective 1 January 2008, monthly retirement benefits determined as described above shall be paid upon the later of (i) the date specified for payment in accordance with Section A-1.2 or A-1.3, as applicable, or (ii) on the first day of the calendar month following vesting of the bonus giving rise to the adjustment.
3.6 Death Prior to Receipt of Lump Sum . If an active Participant or a Participant on Permanent and Total Disability dies after receipt of notice by the Company pursuant to Section 3.5 of Participants irrevocable election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a Surviving Spouse of the Participant who is eligible for a survivor benefit under Section 6 will receive a lump sum survivors benefit under Section 6.1 of this Plan. The 55% Surviving Spouse lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the
9
Company of the deceased Participants irrevocable election but not before the first day of the month following eligibility for a Surviving Spouse benefit under the Qualified Retirement Plan.
If a retired Participant or a Participant on Permanent and Total Disability subsequently retires under Normal Retirement and dies after receipt of notice by the Company pursuant to Section 3.5 of Participants irrevocable election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a Surviving Spouse of the Participant who is eligible for a survivor benefit under Section 6 will receive the Participants full lump sum benefit under Section 3.5 of this Plan in lieu of Surviving Spouse benefits under Section 6. In the event the retired Participant is unmarried at the date of death or the Surviving Spouse of the deceased Participant is not eligible for survivor benefits under Section 6, the Participants full lump sum benefit will be paid to the deceased Participants estate. The lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the Company of the deceased Participants irrevocable election.
3.7 Qualified Domestic Relations Order .
Distribution is prohibited under the Plan prior to the Participants retirement and, in the event of a Qualified Domestic Relations Order, the Alternate Payee must take distribution as a single lump sum payment within 180 days following the Participants retirement under the Plan.
10
4.1 Eligibility . An employee who qualifies for a Disability benefit in accordance with the provisions of the Qualified Retirement Plan or John Deere Long Term Disability Plan for Salaried Employees shall be entitled to a benefit under this Plan upon retirement under a normal retirement under the Qualified Retirement Plan.
4.2 Amount . The amount shall be determined in accordance with 3.2 except that service as an Officer shall be determined for the period of time prior to total and permanent disability as defined in the Qualified Retirement Plan or John Deere Long Term Disability Plan for Salaried Employees.
4.3 Commencement and Duration . In the event of Disability, the payment method shall be the same as that elected pursuant to Section 3.5 of this Plan. In the event of Disability, payments of Retirement Benefits provided under this section shall be made or commence on the same date as Retirement Benefits commence under the normal Retirement Provisions under the Qualified Retirement Plan.
11
5.1 Eligibility . If a Change in Control of the Company (as defined in 5.2 below) shall have occurred, and a Participant who has not attained age 60 ceases to be an employee of the Company, such Participant shall be eligible for benefits under the provisions of this Plan notwithstanding his age at the time of such cessation of employment, unless such cessation of employment is (i) by the Company for Cause (as defined in 5.3 below), or (ii) by the participant for other than Good Reason (as defined in 5.4 below). If the Participant s cessation of employment is by reason of Death or Permanent Disability, the Participant s rights under this Plan shall be governed by Section 4 and 6 of this Plan, despite the occurrence of a change in control. References in this Section 5.1 to cessation of employment shall be references to a Separation from Service, as defined in Article B-3 of Appendix B.
5.2 Change in Control of the Company . A change in control of the Company shall mean a change in control of a nature that would be required to be reported in response to Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as now or hereafter amended (the Exchange Act), whether or not the Company is then subject to such reporting requirement; provided, that, without limitation, such a Change in Control shall be deemed to have occurred if:
12
5.3 Cause . Termination of employment by the Company for Cause shall mean termination pursuant to notice of termination setting out the reason for termination upon (i) the willful and continued failure by the participant to substantially perform his duties with the Company after a specific, written demand is developed; (ii) the willful engaging by the participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise or (iii) the participants conviction of a felony which impairs the participants ability substantially to perform his duties with the Company.
An act, or failure to act, shall be deemed willful if it is done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Company.
5.4 Good Reason . Good Reason shall mean the occurrence, without the participants express written consent, within 24 months following a Change in Control of the Company, of any one or more of the following:
13
or her participation relative to other participants, as existed prior to the Change in Control;
If Good Reason exists, the participants right to terminate his or her employment pursuant to this Subsection shall not be affected by temporary or subsequent incapacity due to physical or mental illness. Continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. Retirement at less than normal retirement age as defined in the John Deere Pension Plan for Salaried Employees constitutes a termination for purposes of this Subsection.
5.5 Amount . The amount of the benefit payable under this section shall be determined in accordance with Section 3.2.
5.6 Commencement and Duration . Retirement Benefits provided under this section shall be made in a lump sum on the first day of the calendar month following the date the Participant ceases employment with the Company, except as noted in Section 3.5. Calculation of the lump sum payment shall be made in accordance with the terms set forth in Section 3.5
5.7 Deere & Company Severance Protection Agreement .
The change in control of Company provisions shown above do not apply in the event a Participant has received and executed a personal Severance Protection Agreement issued by Deere & Company. In order for the Severance Protection Agreement to apply in lieu of the provisions shown in Section 5 above the Agreement must be effective as shown in Article I. Establishment, Term and Purpose of the Deere & Company Severance Protection Agreement.
14
6.1 Death of an Active or Disabled Participant . In the event of the death of an active Participant or a Participant on Disability, notwithstanding Section 3.1 of this Plan, the Surviving Spouse shall be eligible for a monthly survivor benefit provided the Participant:
The Surviving Spouse benefit under this Plan for a Participant who died prior to retirement as specified in 6.1 will be in the same proportion of the Participants benefit under Section 3 of this Plan as the Surviving Spouse benefit under the Qualified Retirement Plan bears to the Participants benefit under Article IV, Section 1 of the Qualified Retirement Plan. The Surviving Spouse benefit will be payable as a monthly annuity or as a lump sum as of the first of the month following eligibility for a Surviving Spouse benefit under the Qualified Retirement Plan.
6.2 Death of a Retired Participant . The Surviving Spouse shall be eligible for a monthly survivor benefit provided:
15
The survivor benefit option elected by the retired Participant under Article IV, Section 1 of the Qualified Retirement Plan shall apply to the survivor benefit payable under this Plan. Any formula used to calculate the reduction in the retirees monthly benefit under the Qualified Retirement Plan shall also apply under this Plan.
6.3 Commencement and Duration . Payment of monthly death benefits provided under this section shall commence on the same date that Surviving Spouse benefits commence under the Qualified Retirement Plan. The last payment will be made on the first day of the month of the Surviving Spouses death.
6.4 Survivor Benefit Election After Retirement. A Participant who retired and is receiving benefits under this Plan, for whom no survivor benefit is in effect, may elect a survivor benefit by filing a written application with the Company provided:
The Survivor Benefit under this paragraph and any applicable reduction to the retired Participants benefit shall be effective with respect to benefits falling due for months commencing with the first day of the month following the month in which the Company receives an application, but in no event before the first day of the month following the month in which the retired Participant has been married to the designated spouse for one year.
On or after 1 July 1999, if the Company is notified of a designated spouse following the first day of the month in which the retired employee has been married to the designated spouse for one year, retroactive reductions and benefit adjustments will be made to the retired Participants pension benefit or the survivors benefit, in the event of a retired Participants death for such late notice. These retroactive reductions will become payable for the period of time based on the date the survivor benefit would have become effective (the first day of the month following the month in which the retired Participant had been married to the designated spouse for one year).
Any Surviving Spouse benefit election by the retired Participant under Article IV, Section 1 of the Qualified Retirement Plan shall apply to the survivor benefit payable under this Plan. Any formula used to calculate the reduction in the retired Participants monthly benefit under the Qualified Retirement Plan and Sections 3.2, 3.3, and 3.4 of this Plan will also apply.
16
7.1 Contractual Obligation . It is intended that the Company is under a contractual obligation to make the payments under this Plan when due. No benefits under this Plan shall be financed through a trust fund or insurance contracts or otherwise. Benefits shall be paid out of the general funds of the Company.
7.2 Unsecured General Creditor . Neither the Participant nor the Surviving Spouse shall have any interest whatsoever in any specific asset of the Company on account of any benefits provided under this Plan. The Participants (or Surviving Spouses) right to receive benefit payments under this Plan shall be no greater than the right of any unsecured general creditor of the Company.
7.3 Funding . All amounts paid under this Plan shall be paid in cash from the general assets of the Company. Such amounts shall be reflected on the accounting records of the Company, but shall not be construed to create, or require the creation of, a trust, custodial or escrow account. No Participant shall have any right, title or interest whatever in or to any investment reserves, accounts or funds that the Company may purchase, establish or accumulate to aid in providing the benefits under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create a trust or fiduciary relationship of any kind between the Company and a Participant or any other person. Neither shall an employee acquire any interest greater than that of an unsecured creditor.
7.4 Vesting . Benefits under this Plan shall become nonforfeitable at the earlier of Disability, or Retirement under the Traditional Pension Option of the Qualified Retirement Plan after reaching age 60 or after five years of service credit and Termination or Retirement under the Qualified Retirement Plan Contemporary Pension Option. Notwithstanding the preceding sentence, a Participant or his beneficiary shall have no right to benefits hereunder if the Company determines that he engaged in a willful, deliberate or gross act of commission or omission which is substantially injurious to the finances or reputation of the Company.
7.5 Administration . This Plan shall be administered by the Company which shall have, to the extent appropriate, the same powers, rights, duties and obligations with respect to this Plan as it does with respect to the Qualified Retirement Plan; provided, however, that the determination of the Company as to any questions arising under this Plan, including questions of construction and interpretation shall be final, binding, and conclusive upon all persons.
7.6 Expenses . The expenses of administering the Plan shall be borne by the Company.
7.7 Indemnification and Exculpation . The agents, officers, directors, and employees of the Company and its affiliates shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability, or expenses that may be imposed upon or reasonably incurred by them in connection with or resulting from
17
any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by them in settlement (with the Companys written approval) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability, or expense is due to such persons gross negligence of willful misconduct.
7.8 Effect on Other Benefit Plans . Amounts credited or paid under this Plan shall not be considered to be compensation for the purposes of a qualified pension plan or any other benefit plan maintained by the Company. The treatment of such amounts under other employee benefit plans shall be pursuant to the provisions of such plans.
7.9 Tax Liability . Pursuant to Section B-1.4, the Company may withhold from any payment of benefits hereunder an amount equal to the federal employment taxes (FICA) and federal, state local and foreign income tax obligations arising from a Participants participation and accrual of benefits under the Plan.
18
ARTICLE A-1
APPLICATION; PAYMENT OF PLAN BENEFIT AFTER 2006
A-1.1 Application of this Article . Notwithstanding anything in the Plan to the contrary, the rules applicable to payment of Plan Benefits for Participants who, as of 31 December 2006, have not commenced payment are set forth in this Appendix A.
A-1.2 Retirement During Calendar Year 2007 or Later . If a Participant Retires after 31 December 2006, his Vested Plan Benefit shall be distributed in a Lump Sum with a Payment Date that is the 15 th day of the month following the date that is (a) six months and one day following the date of his Retirement plus (b) one day for every day of Vacation. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to an immediate Single Life Annuity payable on the date determined in accordance with clauses (a) and (b) of this Section A-1.2 and shall be based on the Participants age on the date the Participant Retires plus one day for every day of Vacation.
A-1.3 Termination During Calendar Year 2005 or Later . If a Participant incurs a Termination during calendar year 2005 or thereafter, his Vested Plan Benefit shall be distributed in the form of a Lump Sum with a Payment Date that is the later of (a) 31 January 2007 and (b) the 15 th day of the month following the date that is six months and one day after the date on which the Participant incurred a Termination. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest date the Participant would be eligible to receive unreduced benefits under the Qualified Retirement Plan and based on the Participants age on the date of payment.
A-1.4 Termination Prior to 1 January 2005 . If a Participant incurred a Termination prior to 1 January 2005, but as of 31 December 2006 had not yet commenced payment of his Vested Plan Benefit, such Vested Plan Benefit shall be paid in a Lump Sum on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Sections 3.2 and 3.5.
A-1.5 Separation from Service Following a Change in Control . If a Participant incurs a Separation from Service after 31 December 2006 and following a Change in Control, and such Separation from Service is (i) by the Company for Cause (as defined in Section 5.3), or (ii) by the Participant for other than Good Reason (as defined in Section 5.4), then, notwithstanding anything herein to the contrary, such Participants Vested Plan Benefit shall be forfeited.
A-1.6 One-Time Lump Sum . Effective 1 January 2008, Participants shall receive an amount equal to the interest that would be credited on their Account for the period beginning on the date of Separation from Service and ending on the sixth-month anniversary thereof, determined by using an interest rate equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as
A-1
published in October by the Internal Revenue Service). This one-time lump sum payment shall be paid at the same time as the first distribution of the Participants Vested Plan Benefit under the Plan.
Participants who Separated from Service after 31 December 2004 and before 1 January 2008 shall also receive a one-time lump sum cash payment equal to the amount that such Participants would have been paid had the preceding paragraph been effective on the date of their Separation from Service, provided that the average yield in September 2007 on 30-year Treasury Constant Maturities (as published in October 2007 by the Internal Revenue Service) shall be used in determining the amount of such one-time lump sum payment. This one-time lump sum payment shall be paid on or before 29 February 2008, but in no event earlier than the date that is six months and one day after the date of the Participants Separation from Service.
ARTICLE A-2
DEATH AND DISABILITY BENEFITS
A-2.1 Application of Article A-2 .
(a) Death . This Article A-2 addresses the survivor benefit or death benefit (in each case, if any) under this Plan with respect to a Participant who incurs a Separation from Service due to his death on or after 1 January 2007.
(b) Disability . This Article A-2 addresses the Payment Date and the Plan Benefit of a Participant who incurs a Separation from Service due to his Disability on or after 1 January 2007.
A-2.2 No Additional Rights Because of Death . No Vesting Solely as a Result of Death. No survivor or death benefit shall be payable to any person under this Article A-2 in respect of a Participant unless the Participant had a Vested Plan Benefit on the date of death.
A-2.3 Rules Based on Timing of Death.
(a) Survivor or Death Benefits to Unmarried Participants . If a Participant is not married to a Surviving Spouse:
(1) as of the date of his Separation from Service and (i) he is an active employee (i.e., has not incurred a Separation from Service) of the Company as of the date immediately preceding his Separation from Service and (ii) such Separation from Service is by reason of the Participants death, no survivor benefit or death benefit with respect to such Participants Vested Plan Benefit, if any, shall be payable to any person and such Plan Benefit shall be forfeited as of the date of death; or
(2) as of the date of his death and his Separation from Service occurs prior to the date of death, the survivor benefit or death benefit with respect to
A-2
such Participants Vested Plan Benefit, if any, shall be payable to such Participants estate in accordance with the time and form of payment set forth in Section A-2.3(c).
(b) Separation From Service Due to Death .
(1) If an active Participant (i.e., a Participant who has not incurred a Separation from Service) who is Retirement Eligible and who satisfies the requirements of Section 6.1 incurs a Separation from Service due to his death and, as of the date of death, has been married to a Spouse for at least one year immediately prior to the date of death, the Surviving Spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant Retired on the date of his death. Such Lump Sum shall be calculated using lump sum equivalency factors for a Single Life Annuity payable immediately based on the Participants age at the date of death. Notwithstanding anything in Section A-1.1, A-1.2 or A-1.3 to the contrary regarding the time or form of payment, such lump sum distribution to the Surviving Spouse shall be made on the 15 th day of the month following the month in which the Participant dies.
(2) If an active Participant who is not Retirement Eligible and who, as of the date of death, satisfies Section 6.1 incurs a Separation from Service by reason of his death and, as of the date of death, has been married to a Spouse for at least one year immediately prior to the date of death, the Surviving Spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant lived until the earliest date on which he would be eligible for an unreduced benefit under the Qualified Retirement Plan and then Retired. Such lump sum payable to the Surviving Spouse shall be calculated using the lump sum equivalency factors for a Lump Sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest unreduced benefits date under the Qualified Retirement Plan had the Participant lived to Retire and based on the Participants age at the date of death. The Lump Sum payable pursuant to this Section A-2.3(b)(2) shall be paid on the 15 th day of the month following the month in which the Participant dies, notwithstanding anything to the contrary in Section A-1.1, A-1.2 or A-1.3 regarding the time or form of payment.
(c) Death After Separation from Service and Prior to Payment of Lump Sum . If a Participant dies after his Separation from Service but prior to the receipt of the Lump Sum distribution, such Lump Sum shall be determined and paid in accordance with Section A-1.2 or A-1.3, as applicable.
A-2.4 Separation from Service Due to Disability .
(a) Separation from Service on or After 1 January 2007 . A Participant who incurs a Separation from Service due to a Disability on or after 1 January 2007, shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.2 or A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.5, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until the first day of the calendar month following his or her 65 th birthday,
A-3
(ii) received Average Pensionable Pay or Career Average Pay, as the case may be, determined as of the end of the elimination period under the John Deere Long Term Disability Plan for Salaried Employees, and (iii) then incurred a Separation from Service with the Company, except that service as an Officer shall be determined for the period of time prior to the Disability.
(b) Separation From Service Prior to 1 January 2005 . If a Participant incurred a Separation from Service due to Disability prior to 1 January 2005, is entitled to a Plan Benefit based in part on credit for service with the Company after 31 December 2004 and, as of 1 January 2005, has not commenced payment of his Plan Benefit, such Plan Benefit shall be paid in a Lump Sum in accordance with Section A-1.2 or A-1.3; provided, however, that if the date specified for payment under Section A-1.2 or A-1.3 is prior to 30 November 2007, such Lump Sum shall be paid on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Section 3.2 and Section A-2.4(a).
(c) The provisions of this Section A-2.4 shall be superseded by Section A-2.3 in the event that a Participants death occurs prior to payment of his entire Plan Benefit.
A-2.5 Return to Work Following Disability . If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to Disability and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. The determination of such Participants new Plan Benefit shall include the period beginning on the date of such Participants initial Separation from Service and ending on his subsequent Separation from Service following his return to work. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Lump Sum value of the Plan Benefit which the Participant previously received with interest credited from the date of receipt through the date of subsequent payment using the interest rate described in Section 3.5, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section A-2.5, the Participants Aggregate Plan Benefit means the Plan Benefit the Participant would be entitled to receive had he or she remained continuously employed with the Company from his initial date of hire through the date of the Participants subsequent Separation from Service, recalculated pursuant to Sections 3.2-3.4 based on all service as an Officer and a non-Officer and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Traditional Pension Option or the Contemporary Pension Option, as applicable.
A-4
ARTICLE B-1
B-1.1 Application of this Article . For purposes of clarification, the provisions in this Appendix B supplement the provisions in Appendix A, and are effective 1 January 2007 unless otherwise provided.
B-1.2 Impact of Vacation . If a Participants Retirement occurs immediately prior to or during such Participants Vacation, then, solely for purposes of determining the amount of the Plan Benefit for a Participant, such Participants Separation from Service shall be determined in accordance with the Prior Plan and the Participant shall be eligible to accrue benefits in accordance with the Plan until such Separation from Service; provided , however , that solely for purposes of this Section B-1.2, Vacation shall exclude any day of vacation not used by the Participant to extend his service under the Qualified Retirement Plan.
B-1.3 Impact of Leave of Absence and Special Paid Leave of Absence .
(a) Leave of Absence . If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to an approved Leave of Absence and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Plan Benefit which the Participant previously received with interest credited annually using the interest rate described in Section 3.5, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section B-1.3, the Participants Aggregate Plan Benefit means the Participants Plan Benefit determined as though the Participant had never commenced payment of his Plan Benefit upon the original Separation from Service, recalculated pursuant to Sections 3.2-3.4 based on all service as an Officer or Executive and a non-Officer and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Traditional Pension Option or the Contemporary Pension Option, as applicable.
(b) Special Paid Leave of Absence . Solely for purposes of determining the amount of such Participants Vested Plan Benefit, a Participant who incurs a Separation from Service by reason of a Special Paid Leave of Absence shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.5, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until the expiration of such Participants Special Paid Leave of Absence, (ii) received Average Pensionable Pay or Career Average Pay, as the case may be, determined as of the date of the Participants
B-1
commencement of the Special Paid Leave of Absence, and (iii) then incurred a Separation from Service with the Company.
B-1.4 No Acceleration or Delay . The Administrator shall not accelerate or delay payment under the Plan except to the extent that such acceleration (including as a result of a change in control within the meaning of the default provisions of Section 409A) or delay shall not cause any person to incur additional taxes, interest or penalties under Section 409A (Section 409A Compliance).
ARTICLE B-2
B-2.1 Amendment and Termination . Notwithstanding any provision in this Plan to the contrary, the Board of Directors, the Committee, or the Deere & Company Management Compensation Committee shall have the unilateral right to amend, modify or terminate the Plan at any time. The Vice President of Human Resources of the Company shall have the unilateral right to amend or modify the Plan to the extent the Vice President of Human Resources of the Company deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A. Any determinations made by the Board of Directors, the Committee, the Management Compensation Committee, or the Vice President of Human Resources of the Company under this Section B-2.1 shall be final, conclusive and binding on all persons.
B-2.2 Plan Benefit in the Event of Termination . With respect to a Participants Plan Benefit, if the Plan is terminated, Plan Benefits shall be paid in accordance with Appendix A, unless the Board of Directors or the Committee, in its discretion and in full and complete settlement of the Companys obligations under this Plan, causes the Company to distribute the full amount of a Participants then accrued and Vested Plan Benefit to the Participant in a Lump Sum; provided , that such distribution may be effected in a manner that will result in Section 409A Compliance.
ARTICLE B-3
B-3.1 Section References . All references to sections are, unless otherwise indicated, references to sections of the Plan, including the appendices.
B-3.2 Terms Defined . Except as otherwise provided, whenever used in Appendix A, the following terms shall have the meanings set forth below:
B-2
B-3
B-4
EXHIBIT I
|
|
TITLES AS OF
1 NOVEMBER 1996 |
|
OFFICER SINCE |
|
|
|
|
|
Hans W. Becherer |
|
Chairman & COO & CEO |
|
26 Apr 1977 (Retired) |
|
|
|
|
|
Bernard L. Hardiek |
|
President, Worldwide Ag. Equipment Division |
|
26 Aug 1987 (Retired) |
|
|
|
|
|
Ferdinand F. Korndorf |
|
President, Worldwide Commercial & Consumer Equipment Division |
|
23 Sep 1991 (Retired) |
|
|
|
|
|
John K. Lawson |
|
Sr. VP, Engineering, Information & Technology |
|
27 Feb 1985 (Retired) |
|
|
|
|
|
Eugene L. Schotanus |
|
Executive VP Financial Services |
|
29 Jan 1974 (Retired) |
|
|
|
|
|
Joseph W. England |
|
Sr. VP, Worldwide Parts & Corp. Administration |
|
29 Jan 1974 (Retired) |
|
|
|
|
|
Pierre E. Leroy |
|
President, Worldwide Industrial Equipment Div. |
|
12 Dec 1985 (Retired) |
|
|
|
|
|
Michael S. Plunkett |
|
Sr., VP, Engineering, Technology & HR |
|
29 Jan 1980 (Retired) |
|
|
|
|
|
Frank S. Cottrell |
|
VP, General Counsel & Corporate Secretary |
|
26 Aug 1987 (Retired) |
|
|
|
|
|
Robert W. Lane |
|
Chairman & CEO |
|
16 Jan 1996 |
|
|
|
|
|
John S. Gault |
|
former VP, Engr., Info, & Tech. GM, Harvester |
|
01 Jan 1994 (Retired) |
I-1
|
|
TITLES AS OF
1 NOVEMBER 1996 |
|
OFFICER SINCE |
|
|
|
|
|
Glen D. Gustafson |
|
former Comptroller Dir., Bus. Planning |
|
28 Jul 1981 (Retired) |
|
|
|
|
|
Robert W. Porter |
|
Sr. VP, North American Ag. Marketing |
|
16 Nov 1994 (Retired) |
|
|
|
|
|
Adel A. Zakaria |
|
Executive VP, Global Tractor & Implement Sourcing |
|
01 Apr 1992 |
|
|
|
|
|
James D. White |
|
Sr. VP, Manufacturing |
|
26 Aug 1987 (Retired) |
|
|
|
|
|
Mark C. Rostvold |
|
Sr. VP, Worldwide Commercial & Consumer Equip. Division |
|
26 Aug 1987 (Retired) |
|
|
|
|
|
Dennis E. Hoffmann |
|
President John Deere Insurance |
|
05 Dec 1990 (Retired) |
|
|
|
|
|
Michael P. Orr |
|
President John Deere Credit Company |
|
05 Dec 1990 (Retired) |
|
|
|
|
|
Richard J. VanBell |
|
President John Deere Health Care |
|
16 Jan 1994 (Retired) |
I-2
JOHN DEERE
ERISA SUPPLEMENTARY PENSION BENEFIT PLAN
AS AMENDED AND RESTATED EFFECTIVE: 1 NOVEMBER 1992
AS AMENDED 8 DECEMBER 1993: EFFECTIVE 1 JULY 1993
AS AMENDED: 7 DECEMBER 1994
AS AMENDED MAY 1995 EFFECTIVE 1 JANUARY 1995
AS AMENDED 4 DECEMBER 1996 EFFECTIVE 1 JANUARY 1997
AS AMENDED 26 MAY 1999 EFFECTIVE 26 MAY 1999
AS AMENDED 19 JULY 1999 EFFECTIVE 1 JULY 1999
AS AMENDED 12 JANUARY 2000 EFFECTIVE 1 JANUARY 2000
AS AMENDED 31 JULY 2000 EFFECTIVE 1 JANUARY 2000
AMENDED: 29 JANUARY 2002 EFFECTIVE 1 JANUARY 2002
AMENDED: 1 DECEMBER 2005 EFFECTIVE 1 JANUARY 2005
AMENDED: 13 DECEMBER 2007 EFFECTIVE 1 JANUARY 2007
Table of Contents
|
|
Page |
|||
|
|
|
|||
ARTICLE I ESTABLISHMENT, PURPOSE AND CONSTRUCTION |
1 |
||||
|
|
|
|||
|
1.1 |
Establishment |
1 |
||
|
1.2 |
Purpose |
1 |
||
|
1.3 |
Effective Date and Plan Year |
1 |
||
|
1.4 |
Application of Plan |
2 |
||
|
1.5 |
Construction |
2 |
||
|
|
|
|
||
ARTICLE II PARTICIPATION |
3 |
||||
|
|
|
|||
|
2.1 |
Eligibility to Participate |
3 |
||
|
2.2 |
Effect of Transfer |
3 |
||
|
|
|
|
||
ARTICLE III SUPPLEMENTARY BENEFITS |
4 |
||||
|
|
|
|||
|
3.1 |
Eligibility for Benefit |
4 |
||
|
3.2 |
Amount of Benefit |
4 |
||
|
3.3 |
Form of Payment and Commencement Date |
4 |
||
|
3.4 |
Death Prior to Receipt of Lump Sum |
5 |
||
|
3.5 |
Qualified Domestic Relations Order |
5 |
||
|
|
|
|
||
ARTICLE IV ADMINISTRATION OF PLAN |
7 |
||||
|
|
|
|||
|
4.1 |
Administration |
7 |
||
|
4.2 |
Amendment, Modification or Termination |
7 |
||
|
|
|
|
||
ARTICLE V MISCELLANEOUS |
|
9 |
|||
|
|
|
|||
|
5.1 |
Employment Rights |
9 |
||
|
5.2 |
Applicable Law |
9 |
||
|
5.3 |
Non-Alienation |
9 |
||
|
5.4 |
Withholding of Taxes |
9 |
||
|
5.5 |
Funding and Rights Against Assets |
9 |
||
|
5.6 |
Effect on Other Benefit Plans |
9 |
||
|
|
|
|
||
APPENDIX A |
|
||||
|
Article A-1 APPLICATION; PAYMENT OF PLAN BENEFIT AFTER 2006 |
A-1 |
|||
|
A-1.1 |
Application of this Article |
A-1 |
||
|
A-1.2 |
Retirement During Calendar Year 2007 or Later |
A-1 |
||
|
A-1.3 |
Termination During Calendar Year 2005 or Later |
A-1 |
||
|
A-1.4 |
Termination Prior to 1 January 2005 |
A-1 |
||
|
A-1.5 |
One-Time Lump Sum. |
A-1 |
||
|
Article A-2 DEATH and DISABILITY BENEFITS |
A-2 |
|||
|
A-2.1 |
Application of Article A-2 |
A-2 |
||
|
A-2.2 |
No Additional Rights Because of Death |
A-2 |
||
|
A-2.3 |
Rules Based on Timing of Death |
A-2 |
||
|
A-2.4 |
Separation from Service Due to Disability |
A-3 |
||
|
A-2.5 |
Return to Work Following Disability |
A-4 |
||
i
APPENDIX B |
|
|||
|
Article |
B-1 MISCELLANEOUS PROVISIONS |
B-1 |
|
|
B-1.1 |
Application of this Article |
B-1 |
|
|
B-1.2 |
Impact of Vacation |
B-1 |
|
|
B-1.3 |
Impact of Leave of Absence and Special Paid Leave of Absence |
B-1 |
|
|
B-1.4 |
No Acceleration or Delay |
B-2 |
|
|
Article |
B-2 AMENDMENT AND TERMINATION |
B-2 |
|
|
B-2.1 |
Amendment and Termination |
B-2 |
|
|
B-2.2 |
Plan Benefit in the Event of Termination |
B-2 |
|
|
Article |
B-3 DEFINITIONS |
B-2 |
|
|
B-3.1 |
Section References |
B-2 |
|
|
B-3.2 |
Terms Defined |
B-2 |
ii
JOHN DEERE ERISA
SUPPLEMENTARY
PENSION BENEFIT PLAN
ARTICLE I ESTABLISHMENT, PURPOSE AND CONSTRUCTION
1.1 Establishment . Effective 1 November 1985, Deere & Company established the John Deere Supplementary Pension Benefit Plan (the Former Plan) for the benefit of the salaried employees on its United States payroll and the salaried employees of its United States subsidiaries or affiliates that chose to adopt the John Deere Pension Plan for Salaried Employees (Salaried Pension Plan). Deere & Company and its United States subsidiaries and affiliates that have adopted the Salaried Pension Plan (jointly the Company) are also deemed to have adopted the Former Plan. The Company amended and restated the Former Plan, and divided it into two separate plans, effective 1 November 1992. This John Deere ERISA Supplementary Pension Benefit Plan (the Plan) is one of the two plans which replaced the Former Plan. Effective as of 1 January, 2007, the Plan is amended pursuant to Section 409A of the Code as set forth in Appendices A and B, which form part of the Plan. Amendments to the Plan adopted in 2006 and 2007 are intended to align Plan provisions with prior operational changes and avoid the imposition on any Participant of taxes and interest pursuant to Section 409A of the Code.
1.2 Purpose . The Company maintains a defined benefit pension plan, known as the John Deere Pension Plan for Salaried Employees (Salaried Pension Plan), which is intended to be a qualified defined benefit pension plan which meets the requirements of section 401(a) of the Internal Revenue Code of 1986 (Code). Section 415 of the Code limits the benefit which may be paid under a qualified defined benefit pension plan. This Plan is intended to provide benefits which, when combined with the benefit actually payable under the Salaried Pension Plan, are reasonably comparable to the benefits which participants in the Salaried Pension Plan would have received under such plan if there were no limitations imposed by section 415 of the Code. This Plan is intended to qualify as an unfunded excess benefit plan, as defined in section 3(36) of the Employee Retirement Income Security Act of 1974 (ERISA).
1.3 Effective Date and Plan Year . This Plan shall be effective 1 November 1992. Participants in the Former Plan who were receiving benefits under the Former Plan as of 31 October 1992, and who are eligible employees as defined in section 2.1 below, shall receive the same benefit payments under this Plan as they were receiving under the Former Plan as of 31 October 1992. Participants in the Former Plan who were not receiving benefits as of 31 October 1992, and who are eligible employees as defined in section 2.1 below, shall have no further rights under the Former Plan, but shall be entitled to supplementary pension benefits, if any, only under the terms of this Plan. The Plan Year shall be the twelve-month period beginning on 1 November of each year and ending on 31 October of the following year.
1.4 Application of Plan . The terms of this Plan are applicable only to eligible employees as described in Section 2.1 below who (i) become eligible to receive benefit payments hereunder on or after 1 November 1992, or (ii) were receiving benefit payments under the Former Plan as of 31 October 1992.
Notwithstanding any provision of this Plan to the contrary, the provisions of Appendices A and B shall apply to payment of benefits on or after 31 December 2006 and such appendices shall supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between such Appendices and such other provisions of the Plan.
1.5 Construction . Unless the context clearly indicates otherwise or unless specifically defined herein, all operative terms used in this Plan shall have the meanings specified in the Salaried Pension Plan, and words in the masculine gender shall be deemed to include the feminine and neuter genders and the singular shall be deemed to include the plural and vice versa.
2
ARTICLE II PARTICIPATION
2.1 Eligibility to Participate . Any employee participating in the Salaried Pension Plan (or a surviving spouse of such employee) whose retirement benefit upon termination from employment or death under such plan is reduced by application of Article I, Section 14, of the Salaried Pension Plan (or any other provision of the Salaried Pension Plan which limits benefits under such plan as required by Section 415 of the Code) and who is not a participant in the John Deere Senior Supplementary Pension Benefit Plan shall be eligible to participate in this Plan (each such eligible employee referred to herein as a Participant).
2.2 Effect of Transfer . Any employee who is a Participant in this Plan and who becomes eligible to participate in the John Deere Senior Supplementary Pension Benefit Plan shall cease to be a Participant in this Plan upon becoming a participant in the John Deere Senior Supplementary Pension Benefit Plan.
3
ARTICLE III SUPPLEMENTARY BENEFITS
3.1 Eligibility for Benefit . An eligible employee shall be entitled to a benefit under this Plan in the event that such eligible employees employment with the Company terminates by reason of death or retirement, including deferred vested retirement, under the terms of the Salaried Pension Plan.
3.2 Amount of Benefit . The amount of the supplementary benefit payable under this Plan shall be the amount by which (A) exceeds (B) where:
The determinations of the amount of (A) and (B) above shall be made using a single life annuity form.
Notwithstanding the foregoing, effective 1 January 2007, an eligible employee pursuant to Section 3.1 above shall become entitled to the monthly retirement benefit described in this Section 3.2 upon his or her Separation from Service (as defined in Article B-3 of Appendix B); provided, however, that Section B-1.2, if applicable, shall apply in calculating the amount of the Participants benefit under the Plan, and the time and form of payment shall be determined in accordance with Appendix A.
3.3 Form of Payment and Commencement Date . The supplementary benefit payable under this Plan shall be payable in the same manner and form as the benefit paid to or with respect to an employee under the Salaried Pension Plan, and shall automatically commence on or about the same date as payments under the Salaried Pension Plan. Such benefits payable under this Plan shall continue as long as benefits are payable under the Salaried Pension Plan.
Alternatively, the Participant may elect to receive a lump sum payment for all or a portion (in 10% increments from 10% to 90%) of the Retirement benefits payable under this Plan including the 55% joint and survivor annuity equal to 11% of the supplementary benefit payable, adjusted for service accrued through 30 June 1993, or 31 December 1993 in the case of employees of John Deere Credit Company, John Deere Health Care, Inc., or John Deere Insurance Group. Written notice of the Participants election to receive a lump sum payment shall be irrevocable, and must be received by the Company within the twelve (12)
4
months prior to payment, but in no event subsequent to the Participants date of retirement. The lump sum payment shall be made to Participant twelve (12) months after receipt of notice by the Company but in no event prior to the Participants retirement.
Effective beginning 1 January 2002 and thereafter, the lump sum will be calculated using an interest rate assumption equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as published in October by the Internal Revenue Service) and the mortality table shall be based upon a fixed blend of 50% male mortality rates and 50% female mortality rates from the Group Annuity Reserving Table (GAR), as set forth in Revenue Ruling 2001-62, in effect at the beginning of the plan year in which payment is made. The age used in the calculation will be the age of the Participant.
3.4 Death Prior to Receipt of Lump Sum .
If an active Participant or a Participant on Permanent and Total Disability dies after receipt of notice by the Company pursuant to Section 3.3 of Participants irrevocable election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a surviving spouse of the Participant who is eligible for a survivor benefit under the Salaried Pension Plan will receive a lump sum survivors benefit under this Plan. The 55% surviving spouse lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the Company of the deceased Participants irrevocable election but not before the first day of the month following eligibility for a surviving spouse benefit under the Salaried Pension Plan.
If a retired Participant or a Participant on Permanent and Total Disability subsequently retires under Normal Retirement and dies after receipt of notice by the Company pursuant to Section 3.3 of Participants irrevocable election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a surviving spouse of the Participant who is eligible for a survivor benefit under the Salaried Pension Plan will receive the Participants full lump sum benefit under Section 3.3 of this Plan. In the event the retired Participant is unmarried at the date of death or the surviving spouse of the deceased Participant is not eligible for survivor benefits under the Salaried Pension Plan, the Participants full lump sum benefit will be paid to the deceased Participants estate. The lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the Company of the deceased Participants irrevocable election.
3.5 Qualified Domestic Relations Order .
Distribution is prohibited under this Plan prior to the Participants retirement and, in the event of a Qualified Domestic Relations Order, the Alternate Payee must
5
take distribution as a single lump sum payment within 180 days following the Participants retirement under this Plan.
6
ARTICLE IV ADMINISTRATION OF PLAN
4.1 Administration . This Plan shall be administered by the Company (the Administrator). The Administrator shall have the power to construe and interpret this Plan, decide questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder. All determinations of the Administrator shall be final, binding and conclusive on all persons.
4.2 Amendment, Modification or Termination . The Board of Directors of the Company, or, the Pension Plan Oversight Committee of the Board may at any time amend or modify this Plan in their sole discretion. In addition, the Deere & Company Management Compensation Committee (Compensation Committee) shall have the authority to approve all amendments or modifications that:
provided , however , that this Plan shall not be amended or modified so as to reduce or diminish the benefit then currently being paid to any employee or surviving spouse of any former employee without such persons consent. The power to terminate this Plan shall be reserved to the Board of Directors of Deere & Company. The procedure for amendment or modification of this Plan by either the Board of Directors, or, to the extent so authorized, the Pension Plan Oversight Committee, as the case may be, shall consist of: the lawful adoption of a written amendment or modification to this Plan by majority vote at a validly held meeting or by unanimous written consent, followed by the filing of such duly adopted amendment or modification by the Secretary with the official records of the Company. If a subsidiary or affiliate of Deere & Company that has adopted this Plan ceases to be a subsidiary or affiliate, the participation in this Plan by the employees of such subsidiary or affiliate shall terminate, and no employees of such former affiliate or subsidiary shall accrue or be entitled to a benefit under
7
this Plan on and after the date such company ceases to be a subsidiary or affiliate of Deere & Company (other than former employees who were receiving benefit payments as of such date).
8
ARTICLE V MISCELLANEOUS
5.1 Employment Rights . Nothing under this Plan shall be construed to give any employee the right to continue in employment with the Company or to any benefits not specifically provided herein.
5.2 Applicable Law . This Plan, to the extent it is not exempt therefrom, shall be governed and construed in accordance with the applicable provisions of ERISA. To the extent not governed by ERISA, this Plan shall be governed and construed in accordance with the laws of the State of Illinois, exclusive of conflict laws.
5.3 Non-Alienation . Except as provided in Article VIII, Section 8 of the John Deere Pension Plan for Salaried Employees no right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be null and void. No right or benefit under this Plan shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits except for such claims as may be made by the Company.
5.4 Withholding of Taxes . The Company, or its designee, may withhold from any payment of benefits under this Plan any income, employment or other taxes required to be withheld, including any taxes for which the Company or its designee may be liable with respect to the payment of such benefits.
5.5 Funding and Rights Against Assets . The Company shall make all payments due under this Plan in cash from its general assets and benefits payable under this Plan shall not be funded through the use of a trust, insurance contracts or otherwise. All expenses of administering this Plan shall also be borne by the Company. Neither participating employees, nor their surviving spouses, shall have any interest whatsoever in any specific assets of the Company on account of any benefits payable under this Plan and their rights to receive such benefits shall be no greater than the rights of any other unsecured creditor of the Company.
5.6 Effect on Other Benefit Plans . Amounts credited or payable under this Plan shall not be considered compensation for purposes of any qualified retirement plan maintained by the Company. The treatment of such amounts under any other plan of the Company shall be determined under the provisions of such plan.
9
APPENDIX A
ARTICLE A-1
APPLICATION; PAYMENT OF PLAN BENEFIT AFTER 2006
A-1.1 Application of this Article . Notwithstanding anything in the Plan to the contrary, the rules applicable to payment of Plan Benefits for Participants who, as of 31 December 2006, have not commenced payment are set forth in this Appendix A.
A-1.2 Retirement During Calendar Year 2007 or Later . If a Participant Retires after 31 December 2006, his Vested Plan Benefit shall be distributed in a Lump Sum with a Payment Date that is the 15 th day of the month following the date that is (a) six months and one day following the date of his Retirement plus (b) one day for every day of Vacation. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to an immediate Single Life Annuity payable on the date determined in accordance with clauses (a) and (b) of this Section A-1.2 and shall be based on the Participants age on the date the Participant Retires plus one day for every day of Vacation.
A-1.3 Termination During Calendar Year 2005 or Later . If a Participant incurs a Termination during calendar year 2005 or thereafter, his Vested Plan Benefit shall be distributed in the form of a Lump Sum with a Payment Date that is the later of (a) 31 January 2007 and (b) the 15 th day of the month following the date that is six months and one day after the date on which the Participant incurred a Termination. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest date the Participant would be eligible to receive unreduced benefits under the Salaried Pension Plan and based on the Participants age on the date of payment.
A-1.4 Termination Prior to 1 January 2005 . If a Participant incurred a Termination prior to 1 January 2005, but as of 31 December 2006 had not yet commenced payment of his Vested Plan Benefit, such Vested Plan Benefit shall be paid in a Lump Sum on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Sections 3.2 and 3.3.
A-1.5 One-Time Lump Sum . Effective 1 January 2008, Participants shall receive an amount equal to the interest that would be credited on their Account for the period beginning on the date of Separation from Service and ending on the sixth-month anniversary thereof, determined by using an interest rate equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as published in October by the Internal Revenue Service). This one-time lump sum payment shall be paid at the same time as the first distribution of the Participants Vested Plan Benefit under the Plan.
Participants who Separated from Service after 31 December 2004 and before 1 January 2008 shall also receive a one-time lump sum cash payment equal to the amount that such Participants would have been paid had the preceding paragraph been effective on
A-1
the date of their Separation from Service, provided that the average yield in September 2007 on 30-year Treasury Constant Maturities (as published in October 2007 by the Internal Revenue Service) shall be used in determining the amount of such one-time lump sum payment. This one-time lump sum payment shall be paid on or before 29 February 2008, but in no event earlier than the date that is six months and one day after the date of the Participants Separation from Service.
ARTICLE A-2
DEATH AND DISABILITY BENEFITS
A-2.1 Application of Article A-2 .
(A) Death . This Article A-2 addresses the survivor benefit or death benefit (in each case, if any) under this Plan with respect to a Participant who incurs a Separation from Service due to his death on or after 1 January 2007.
(B) Disability . This Article A-2 addresses the Payment Date and the Plan Benefit of a Participant who incurs a Separation from Service due to his Disability on or after 1 January 2007.
A-2.2 No Additional Rights Because of Death . No survivor or death benefit shall be payable to any person under this Article A-2 in respect of a Participant unless the Participant had a Vested Plan Benefit on the date of death.
A-2.3 Rules Based on Timing of Death.
(A) Survivor or Death Benefits to Unmarried Participants . If a Participant is not married to a surviving spouse:
(i) as of the date of his Separation from Service and (a) he is an active employee (i.e., has not incurred a Separation from Service) of the Company as of the date immediately preceding his Separation from Service and (b) such Separation from Service is by reason of the Participants death, no survivor benefit or death benefit with respect to such Participants Vested Plan Benefit, if any, shall be payable to any person and such Plan Benefit shall be forfeited as of the date of death; or
(ii) as of the date of his death and his Separation from Service occurs prior to the date of death, the survivor benefit or death benefit with respect to such Participants Vested Plan Benefit, if any, shall be payable to such Participants estate in accordance with the time and form of payment set forth in Section A-2.3(C).
(B) Separation From Service Due to Death .
(i) If an active Participant ( i.e ., a Participant who has not incurred a Separation from Service) who is Retirement Eligible incurs a Separation from Service due to his death and, as of the date of death, has been married to a Spouse for at least
A-2
one year immediately prior to the date of death, the surviving spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant Retired on the date of his death. Such Lump Sum shall be calculated using lump sum equivalency factors for a Single Life Annuity payable immediately based on the Participants age at the date of death. Notwithstanding anything in Section A-1.1, A-1.2 or A-1.3 to the contrary regarding the time or form of payment, such lump sum distribution to the surviving spouse shall be made on the 15 th day of the month following the month in which the Participant dies .
(ii) If an active Participant who is not Retirement Eligible incurs a Separation from Service by reason of his death and, as of the date of death, has been married to a Spouse for at least one year immediately prior to the date of death, the surviving spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant lived until the earliest date on which he would be eligible for an unreduced benefit under the Salaried Pension Plan and then Retired. Such lump sum payable to the surviving spouse shall be calculated using the lump sum equivalency factors for a Lump Sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest unreduced benefits date under the Salaried Pension Plan had the Participant lived to Retire and based on the Participants age at the date of death. The Lump Sum payable pursuant to this Section A-2.3(B)(ii) shall be paid on the 15 th day of the month following the month in which the Participant dies, notwithstanding anything to the contrary in Section A-1.1, A-1.2 or A-1.3 regarding the time or form of payment.
(C) Death After Separation from Service and Prior to Payment of Lump Sum . If a Participant dies after his Separation from Service but prior to the receipt of the Lump Sum distribution, such Lump Sum shall be determined and paid in accordance with Section A-1.2 or A-1.3, as applicable.
A-2.4 Separation from Service Due to Disability .
(A) Separation from Service on or After 1 January 2007 . A Participant who incurs a Separation from Service due to a Disability on or after 1 January 2007 shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.2 or A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.3, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until the first day of the calendar month following his or her 65 th birthday, (ii) received pay, determined as of the end of the elimination period under the John Deere Long-Term Disability Plan for Salaried Employees, until the date in (i) above, and (iii) then incurred a Separation from Service with the Company.
(B) Separation From Service Prior to 1 January 2005 . If a Participant incurred a Separation from Service due to Disability prior to 1 January 2005, is entitled to a Plan Benefit based in part on credit for service with the Company after 31 December 2004 and, as of 1 January 2005, has not commenced payment of his Plan Benefit, such Plan Benefit shall be paid in a Lump Sum in accordance with Section A-
A-3
1.2 or A-1.3; provided however, that if the date specified for payment under Section A-1.2 or A-1.3 is prior to 30 November 2007, such Lump Sum shall be paid on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Section 3.2 and Section A-2.4(A).
(C) The provisions of this Section A-2.4 shall be superseded by Section A-2.3 in the event that a Participants death occurs prior to payment of his entire Plan Benefit.
A-2.5 Return to Work Following Disability . If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to Disability and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. The determination of such Participants new Plan Benefit shall include the period beginning on the date of such Participants initial Separation from Service and ending on his subsequent Separation from Service following his return to work. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Lump Sum value of the Plan Benefit which the Participant previously received with interest credited from the date of receipt through the date of subsequent payment using the interest rate described in Section 3.3, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section A-2.5, the Participants Aggregate Plan Benefit means the Plan Benefit the Participant would be entitled to receive had he or she remained continuously employed with the Company from his initial date of hire through the date of the Participants subsequent Separation from Service, recalculated pursuant to Section 3.2 based on all service with the Company and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Salaried Pension Plan.
A-4
APPENDIX B
ARTICLE B-1
MISCELLANEOUS PROVISIONS
B-1.1 Application of this Article . For purposes of clarification, the provisions in this Appendix B supplement the provisions in Appendix A, and are effective 1 January 2007 unless otherwise provided.
B-1.2 Impact of Vacation . If a Participants Retirement occurs immediately prior to or during such Participants Vacation, then, solely for purposes of determining the amount of the Plan Benefit for a Participant, such Participants Separation from Service shall be determined in accordance with the Prior Plan and the Participant shall be eligible to accrue benefits in accordance with the Plan until such Separation from Service; provided , however , that solely for purposes of this Section B-1.2, Vacation shall exclude any day of vacation not used by the Participant to extend his service under the Salaried Pension Plan.
B-1.3 Impact of Leave of Absence and Special Paid Leave of Absence .
(A) Leave of Absence . If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to an approved Leave of Absence and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Plan Benefit which the Participant previously received with interest credited annually using the interest rate described in Section 3.3, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section B-1.3, the Participants Aggregate Plan Benefit means the Participants Plan Benefit determined as though the Participant had never commenced payment of his Plan Benefit upon the original Separation from Service, recalculated pursuant to Section 3.2 based on all service with the Company and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Salaried Pension Plan.
(B) Special Paid Leave of Absence . Solely for purposes of determining the amount of such Participants Vested Plan Benefit, a Participant who incurs a Separation from Service by reason of a Special Paid Leave of Absence shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.3, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until expiration of such Participants Special Paid Leave
B-1
of Absence (ii) received pay, determined as of the date of the Participants commencement of the Special Paid Leave of Absence, until the date in (i) above, and (iii) then incurred a Separation from Service with the Company.
B-1.4 No Acceleration or Delay . The Administrator shall not accelerate or delay payment under the Plan except to the extent that such acceleration or delay shall not cause any person to incur additional taxes, interest or penalties under Section 409A (Section 409A Compliance).
ARTICLE B-2
AMENDMENT AND TERMINATION
B-2.1 Amendment and Termination . Notwithstanding any provision in this Plan to the contrary, the Board of Directors, the Committee, or the Deere & Company Management Compensation Committee shall have the unilateral right to amend, modify or terminate the Plan at any time. The Vice President of Human Resources of the Company shall have the unilateral right to amend or modify the Plan to the extent the Vice President of Human Resources of the Company deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A. Any determinations made by the Board of Directors, the Committee, the Management Compensation Committee, or the Vice President of Human Resources of the Company under this Section B-2.1 shall be final, conclusive and binding on all persons.
B-2.2 Plan Benefit in the Event of Termination . With respect to a Participants Plan Benefit, if the Plan is terminated, Plan Benefits shall be paid in accordance with Appendix A, unless the Board of Directors or the Committee, in its discretion and in full and complete settlement of the Companys obligations under this Plan, causes the Company to distribute the full amount of a Participants then accrued and Vested Plan Benefit to the Participant in a Lump Sum; provided, that such distribution may be effected in a manner that will result in Section 409A Compliance.
ARTICLE B-3
DEFINITIONS
B-3.1 Section References . All references to sections are, unless otherwise indicated, references to sections of the Plan, including the appendices.
B-3.2 Terms Defined . Except as otherwise provided, whenever used in Appendix A, the following terms shall have the meanings set forth below:
Disability shall have the same meaning as under the Salaried Pension Plan or the John Deere Long-Term Disability Plan for Salaried Employees.
B-2
B-3
B-4
JOHN DEERE
SENIOR SUPPLEMENTARY PENSION BENEFIT PLAN
AS AMENDED AND RESTATED EFFECTIVE: 1 NOVEMBER 1992
AMENDED MAY 1993 - EFFECTIVE 1 JULY 1993
AMENDED 8 DECEMBER 1993 - EFFECTIVE 1 JULY 1993
AMENDED 7 DECEMBER 1994
AMENDED MAY 1995 - EFFECTIVE 1 JANUARY 1995
AMENDED 4 DECEMBER 1996 - EFFECTIVE 1 JANUARY 1997
AMENDED 26 MAY 1999 EFFECTIVE 26 MAY 1999
AMENDED 19 JULY 1999 EFFECTIVE 1 JULY 1999
AMENDED 12 JANUARY 2000 - EFFECTIVE 1 JANUARY 2000
AMENDED 31 JULY 2000 -EFFECTIVE 1 JANUARY 2000
AMENDED: 29 JANUARY 2002 - EFFECTIVE: 1 JANUARY 2002
AMENDED: 1 DECEMBER 2005 EFFECTIVE: 1 JANUARY 2005
AMENDED: 13 DECEMBER 2007 Effective: 1 January 2007
JOHN DEERE
SENIOR SUPPLEMENTARY PENSION BENEFIT PLAN
TABLE OF CONTENTS
Article |
|
|
Page |
|
|
|
|
I. |
ESTABLISHMENT, PURPOSE AND CONSTRUCTION |
|
|
|
|
|
|
|
1.1 |
Establishment |
1 |
|
1.2 |
Purpose |
1 |
|
1.3 |
Effective Date and Plan Year |
1 |
|
1.4 |
Application of Plan |
2 |
|
1.5 |
Construction |
2 |
|
|
|
|
II. |
PARTICIPATION |
|
|
|
|
|
|
|
2.1 |
Eligibility to Participate |
3 |
|
2.2 |
Effect of Transfer |
3 |
|
|
|
|
III. |
SUPPLEMENTARY BENEFITS |
|
|
|
|
|
|
|
3.1 |
Eligibility for Benefit |
4 |
|
3.2 |
Amount of Benefit |
4 |
|
3.3 |
Form of Payment and Commencement Date |
4 |
|
3.4 |
Death Prior to Receipt of Lump Sum |
5 |
|
3.5 |
Qualified Domestic Relations Order |
6 |
|
|
|
|
IV. |
ADMINISTRATION OF PLAN |
|
|
|
|
|
|
|
4.1 |
Administration |
7 |
|
4.2 |
Amendment, Modification or Termination |
7 |
|
|
|
|
V. |
MISCELLANEOUS |
|
|
|
|
|
|
|
5.1 |
Employment Rights |
9 |
|
5.2 |
Applicable Law |
9 |
|
5.3 |
Non-Alienation |
9 |
|
5.4 |
Withholding of Taxes |
9 |
|
5.5 |
Funding and Rights Against Assets |
9 |
|
5.6 |
Effect on Other Benefit Plans |
9 |
i
APPENDIX A |
|
||
Article |
A-1 APPLICATION; PAYMENT OF PLAN BENEFIT AFTER 2006 |
A-1 |
|
|
A-1.1 |
Application of this Article |
A-1 |
|
A-1.2 |
Retirement During Calendar Year 2007 or Later |
A-1 |
|
A-1.3 |
Termination During Calendar Year 2005 or Later |
A-1 |
|
A-1.4 |
Termination Prior to 1 January 2005 |
A-1 |
|
A-1.5 |
One-Time Lump Sum. |
A-1 |
Article |
A-2 DEATH and DISABILITY BENEFITS |
A-2 |
|
|
A-2.1 |
Application of Article A-2 |
A-2 |
|
A-2.2 |
No Additional Rights Because of Death |
A-2 |
|
A-2.3 |
Rules Based on Timing of Death |
A-3 |
|
A-2.4 |
Separation from Service Due to Disability |
A-3 |
|
A-2.5 |
Return to Work Following Disability |
A-4 |
|
|
|
|
APPENDIX B |
|
|
|
Article |
B-1 MISCELLANEOUS PROVISIONS |
B-1 |
|
|
B-1.1 |
Application of this Article |
B-1 |
|
B-1.2 |
Impact of Vacation |
B-1 |
|
B-1.3 |
Impact of Leave of Absence and Special Paid Leave of Absence |
B-1 |
|
B-1.4 |
No Acceleration or Delay |
B-2 |
Article |
B-2 AMENDMENT AND TERMINATION |
B-2 |
|
|
B-2.1 |
Amendment and Termination |
B-2 |
|
B-2.2 |
Plan Benefit in the Event of Termination |
B-2 |
Article |
B-3 DEFINITIONS |
B-2 |
|
|
B-3.1 |
Section References |
B-2 |
|
B-3.2 |
Terms Defined |
B-2 |
ii
JOHN DEERE SENIOR SUPPLEMENTARY
PENSION BENEFIT PLAN
Article I. Establishment, Purpose and Construction
1.1 Establishment. Effective 1 November 1985, Deere & Company established the John Deere Supplementary Pension Benefit Plan (the Former Plan) for the benefit of the salaried employees on its United States payroll and the salaried employees of its United States subsidiaries or affiliates that chose to adopt the John Deere Pension Plan for Salaried Employees (Salaried Pension Plan). Deere & Company and its United States subsidiaries and affiliates that have adopted the Salaried Pension Plan (jointly the Company) are also deemed to have adopted the Former Plan. The Company amended and restated the Former Plan, and divided it into two separate plans, effective 1 November 1992. This John Deere Senior Supplementary Pension Benefit Plan (the Plan) is one of the two plans which replaced the Former Plan. Effective as of 1 January 2007, the Plan is amended pursuant to Section 409A of the Code, as set forth in Appendices A and B, which form part of the Plan. Amendments to the Plan adopted in 2006 and 2007 are intended to align Plan provisions with prior operational changes and avoid the imposition or any Participant of taxes and interest pursuant to Section 409A of the Code.
1.2 Purpose. The Company maintains a defined benefit pension plan, known as the Salaried Pension Plan, which is intended to be a qualified defined benefit pension plan which meets the requirements of Section 401(a) of the Internal Revenue Code of 1986 (Code). Section 401(a)(17) of the Code limits the amount of compensation paid to a participant in a qualified defined benefit pension plan which may be taken into account in determining benefits under such a plan. Section 415 of the Code limits the benefit which may be paid under a qualified defined benefit pension plan. This Plan is intended to provide benefits which, when combined with the benefit actually payable under the Salaried Pension Plan, are reasonably comparable to the benefits which participants in the Salaried Pension Plan would have received under such plan if there were no limitations imposed by Sections 401(a)(17) and 415 of the Code. This Plan is intended to qualify as an unfunded deferred compensation plan for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974 (ERISA).
1.3 Effective Date and Plan Year. This Plan shall be effective 1 November 1992. Participants in the Former Plan who were receiving benefits under the Former Plan as of 31 October 1992, and who are eligible employees as defined in Section 2.1 below, shall receive the same benefit payments under this Plan as they were receiving under the Former Plan as of 31 October 1992. Participants
1
in the Former Plan who were not receiving benefits as of 31 October 1992, and who are eligible employees as defined in Section 2.1 below, shall have no further rights under the Former Plan, but shall be entitled to benefits, if any, only under the terms of this Plan. The Plan Year shall be the twelve-month period beginning on 1 November of each year and ending on 31 October of the following year.
1.4 Application of Plan. The terms of this Plan are applicable only to eligible employees of the Company as described in Section 2.1 below who (i) become eligible to receive benefit payments hereunder on or after 1 November 1992 or (ii) were receiving benefit payments under the Former Plan as of 31 October 1992.
Notwithstanding any provision of this Plan to the contrary, the provisions of Appendices A and B shall apply to payment of benefits on or after 31 December 2006 and such appendices shall supersede the other provisions of the Plan to the extent necessary to eliminate inconsistencies between such Appendices and such other provisions of the Plan.
1.5 Construction. Unless the context clearly indicates otherwise or unless specifically defined herein, all operative terms used in this Plan shall have the meanings specified in the Salaried Pension Plan and words in the masculine gender shall be deemed to include the feminine and neuter genders and the singular shall be deemed to include the plural and vice versa.
2
Article II. Participation
2.1 Eligibility to Participate. Any employee participating in the Salaried Pension Plan (or a surviving spouse of such employee) whose retirement benefit upon termination from employment or death under such plan is reduced by application of Article I, Section 14, of the Salaried Pension Plan (or any other provision of the Salaried Pension Plan which limits benefits under the plan as required by Section 415 of the Code) or the limitation on the amount of annual compensation used for determining benefits under the Salaried Pension Plan contained in Article III, Section 2, Paragraph C or Section 2.1, Paragraph B of such plan (or any other provision which limits compensation used in determining benefits under the Salaried Pension Plan as required by Section 401(a)(17) of the Code) shall be eligible to participate in this Plan if the compensation used in any year to calculate the employees benefit under the Salaried Pension Plan is equal to or greater than the maximum amount of compensation which can be taken into account under Section 401(a)(17) of the Code for purposes of determining such employees benefit under the Salaried Pension Plan.
2.2 Effect of Transfer. An employee who is a participant in this Plan and who ceases to be an eligible employee as described in Section 2.1 above shall cease to be a participant in this Plan upon such employee ceasing to be an eligible employee and shall thereafter be eligible to participate in the John Deere ERISA Supplementary Pension Benefit Plan, provided that such employee continues as a salaried employee on the United States payroll of the Company.
3
Article III. Supplementary Benefits
3.1 Eligibility for Benefit. An eligible employee shall be entitled to a benefit under this Plan in the event that such eligible employees employment with the Company terminates by reason of death or retirement, including deferred vested retirement, under the terms of the Salaried Pension Plan.
3.2 Amount of Benefit. The amount of the supplementary benefit payable under this Plan shall be the amount by which (A) exceeds (B) where:
(A) equals the amount of an employees monthly pension benefit or survivor benefit payable under the terms of the Salaried Pension Plan as in effect on the date of the employees termination, retirement or death, but determined without regard to any limitation on such benefit imposed in order to comply with the limitation on benefits contained in Sections 401(a)(17) or 415 of the Code and based on the employees total salary from the Company before the effect of any salary deferral or reduction resulting from an election by the employee under any Company sponsored plan or program; but excluding any matching and/or growth factor Company contributions and/or flexible credits provided by the Company under any such plan or program; and
(B) equals such employees actual monthly pension benefit or survivor benefit payable under the Salaried Pension Plan as in effect on the date of such employees termination, retirement or death.
The determinations of the amount of (A) and (B) above shall be made using a straight life annuity form.
Notwithstanding the foregoing, effective 1 January 2007, an eligible employee pursuant to Section 3.1 above shall become entitled to the monthly retirement benefit described in this Section 3.2 upon his or her Separation from Service (as defined in Article B-3 of Appendix B); provided, however, that Section B-1.2, if applicable, shall apply in calculating the amount of the Participants benefit under the Plan, and the time and form of payment shall be determined in accordance with Appendix A.
3.3 Form of Payment and Commencement Date. The supplementary benefit payable under this Plan shall be payable in the same manner and form as the benefit paid to or with respect to an employee under the Salaried Pension Plan and shall automatically commence on or about the same date as payments under the Salaried Pension Plan and shall continue as long as benefits are payable under the Salaried Pension Plan.
4
Alternatively, the participant may elect to receive a lump sum payment for all or a portion (in 10% increments from 10% to 90%) of the Retirement benefits payable under this Plan including the 55% joint and survivor annuity with a flat 11% load, adjusted for service accrued through 30 June 1993, or 31 December 1993 in the case of the employees of John Deere Credit Company, John Deere Health Care, Inc., or John Deere Insurance Group. Written notice of the participants election to receive a lump sum payment shall be irrevocable, and must be received by the Company within the twelve (12) months prior to payment, but in no event subsequent to the participants date of retirement. The lump sum payment shall be made to participant twelve (12) months after receipt of notice by the Company but in no event prior to the participants retirement.
Effective beginning 1 January 2002 and thereafter, the lump sum will be calculated using an interest rate assumption equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as published in October by the Internal Revenue Service) and the mortality table shall be based upon a fixed blend of 50% male mortality rates and 50% female mortality rates from the Group Annuity Reserving Table (GAR), as set forth in Revenue Ruling 2001-62, in effect at the beginning of the plan year in which payment is made. The age used in the calculation will be the age of the Participant.
3.4 Death Prior to Receipt of Lump Sum
If an active Participant or a Participant on Permanent and Total Disability dies after receipt of notice by the Company pursuant to Section 3.3 of Participants irrevocable election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a surviving spouse of the Participant who is eligible for a survivor benefit under the Salaried Pension Plan will receive a lump sum survivors benefit under this Plan. The 55% surviving spouse lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the Company of the deceased Participants irrevocable election but not before the first day of the month following eligibility for a surviving spouse benefit under the Salaried Pension Plan.
If a retired Participant or a Participant on Permanent and Total Disability subsequently retires under Normal Retirement and dies after receipt of notice by the Company pursuant to Section 3.3 election to receive a lump sum payment, but before the expiration of twelve (12) months after receipt by the Company of such election, a surviving spouse of the Participant who is eligible for a survivor benefit under the Salaried Pension Plan will receive the Participants full lump sum benefit under Section 3.3 of this Plan. In the event the retired Participant is unmarried at the date of death or the surviving spouse of the deceased Participant is not eligible for survivor benefits under the
5
Salaried Pension Plan, the Participants full lump sum benefit will be paid to the deceased Participants estate. The lump sum benefit will be payable no earlier than twelve (12) months following receipt of notice by the Company of the deceased Participants irrevocable election.
3.5 Qualified Domestic Relations Order
Distribution is prohibited under the Plan prior to the Participants retirement and, in the event of a Qualified Domestic Relations Order, the Alternate Payee must take distribution as a single lump sum payment within 180 days following the Participants retirement under the Plan.
6
Article IV. Administration of Plan
4.1 Administration. This Plan shall be administered by the Company (the Administrator). The Administrator shall have the power to construe and interpret this Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder. All determinations of the Administrator shall be final, binding and conclusive on all persons.
4.2 Amendment, Modification or Termination. The Board of Directors of the Company, or, the Pension Plan Oversight Committee of the Board may at any time amend or modify this Plan in their sole discretion, In addition, the Deere & Company Management Compensation Committee (Compensation Committee) shall have the authority to approve all amendments or modifications that:
a. in the Compensation Committees judgment are procedural, technical or administrative, but do not result in changes in the control and management of the Plan assets; or
b. in the Compensation Committees judgment are necessary or advisable to comply with any changes in the laws or regulations applicable to the Plan; or
c. in the Compensation Committees judgment are necessary or advisable to implement provisions conforming to a collective bargaining agreement which has been approved by the Board of Directors; or
d. in the Compensation Committees judgment will not result in changes to benefit levels exceeding $5 million dollars per amendment or modification during the first full fiscal year that such changes are effective for the Plan; or
e. are the subject of a specific delegation of authority from the Board of Directors.
Provided, however, that this Plan shall not be amended or modified so as to reduce or diminish the benefit then currently being paid to any employee or surviving spouse of any former employee without such persons consent. The power to terminate this Plan shall be reserved to the Board of Directors of Deere & Company. The procedure for amendment or modification of the Plan by either the Board of Directors, or, to the extent so authorized, the Pension Plan Oversight Committee, as the case may be, shall consist of: the lawful adoption of a written amendment or modification to the Plan by majority vote at a validly held meeting or by unanimous written consent, followed by the filing of such duly adopted amendment or modification by the Secretary with the
7
official records of the Company. If a subsidiary or affiliate of Deere & Company that has adopted this Plan ceases to be a subsidiary or affiliate, the participation in this Plan by the employees of such subsidiary or affiliate shall terminate, and no employees of such former affiliate or subsidiary shall accrue or be entitled to a benefit under this Plan on and after the date such company ceases to be a subsidiary or affiliate of Deere & Company (other than former employees who were receiving benefit payments as of such date).
8
ARTICLE V. Miscellaneous
5.1 Employment Rights. Nothing under this Plan shall be construed to give any employee the right to continue in employment with the Company or to any benefits not specifically provided herein.
5.2 Applicable Law. This Plan, to the extent it is not exempt therefrom, shall be governed and construed in accordance with the applicable provisions of ERISA. To the extent not governed by ERISA, this Plan shall be governed and construed in accordance with the laws of the State of Illinois, exclusive of conflict laws.
5.3 Non-Alienation. Except as provided in Article VIII, Section 8 of the John Deere Pension Plan for Salaried Employees, no right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be null and void. No right or benefit under this Plan shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits except for such claims as may be made by the Company.
5.4 Withholding of Taxes. The Company, or its designee, may withhold from any amounts credited to or from any payment of benefits under this Plan any income, employment or other taxes required to be withheld, including any taxes for which the Company or its designee may be liable with respect to the payment of such benefits.
5.5 Funding and Rights Against Assets . The Company shall make all payments due under this Plan in cash from its general assets and benefits payable under this Plan shall not be funded through the use of a trust, insurance contracts or otherwise. All expenses of administering this Plan shall also be borne by the Company. Neither participating employees, nor their surviving spouses, shall have any interest whatsoever in any specific assets of the Company on account of any benefits payable under this Plan and their rights to receive such benefits shall be no greater than the rights of any other unsecured creditor of the Company.
5.6 Effect on Other Benefit Plans . Amounts credited or payable under this Plan shall not be considered compensation for purposes of any qualified retirement plan maintained by the Company. The treatment of such amounts under any other plan of the Company shall be determined under the provisions of such plan.
9
APPENDIX A
ARTICLE A-1
APPLICATION; PAYMENT OF
PLAN BENEFIT AFTER 2006
A-1.1 Application of this Article . Notwithstanding anything in the Plan to the contrary, the rules applicable to payment of Plan Benefits for Participants who, as of 31 December 2006, have not commenced payment are set forth in this Appendix A.
A-1.2 Retirement During Calendar Year 2007 or Later. If a Participant Retires after 31 December 2006, his Vested Plan Benefit shall be distributed in a Lump Sum with a Payment Date that is the 15 th day of the month following the date that is (a) six months and one day following the date of his Retirement plus (b) one day for every day of Vacation. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to an immediate Single Life Annuity payable on the date determined in accordance with clauses (a) and (b) of this Section A-1.2 and shall be based on the Participants age on the date the Participant Retires plus one day for every day of Vacation.
A-1.3 Termination During Calendar Year 2005 or Later. If a Participant incurs a Termination during calendar year 2005 or thereafter, his Vested Plan Benefit shall be distributed in the form of a Lump Sum with a Payment Date that is the later of (a) 31 January 2007 and (b) the 15 th day of the month following the date that is six months and one day after the date on which the Participant incurred a Termination. Such Lump Sum shall be calculated using lump sum equivalency factors for a lump sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest date the Participant would be eligible to receive unreduced benefits under the Salaried Pension Plan and based on the Participants age on the date of payment.
A-1.4 Termination Prior to 1 January 2005. If a Participant incurred a Termination prior to 1 January 2005, but as of 31 December 2006 had not yet commenced payment of his Vested Plan Benefit, such Vested Plan Benefit shall be paid in a Lump Sum on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Sections 3.2 and 3.3.
A-1.5 One-Time Lump Sum. Effective 1 January 2008, Participants shall receive an amount equal to the interest that would be credited on their Account for the period beginning on the date of Separation from Service and ending on the sixth-month anniversary thereof, determined by using an interest rate equal to the average yield in September of the preceding Plan Year on 30-year Treasury Constant Maturities (as published in October by the Internal Revenue Service). This one-time lump sum payment shall be paid at the same time as the first distribution of the Participants Vested Plan Benefit under the Plan.
Participants who Separated from Service after 31 December 2004 and before 1 January 2008 shall also receive a one-time lump sum cash payment equal to
A-1
the amount that such Participants would have been paid had the preceding paragraph been effective on the date of their Separation from Service, provided that the average yield in September 2007 on 30-year Treasury Constant Maturities (as published in October 2007 by the Internal Revenue Service) shall be used in determining the amount of such one-time lump sum payment. This one-time lump sum payment shall be paid on or before 29 February 2008, but in no event earlier than the date that is six months and one day after the date of the Participants Separation from Service.
ARTICLE A-2
DEATH AND DISABILITY BENEFITS
A-2.1 Application of Article A-2 .
(a) Death. This Article A-2 addresses the survivor benefit or death benefit (in each case, if any) under this Plan with respect to a Participant who incurs a Separation from Service due to his death on or after 1 January 2007.
(b) Disability. This Article A-2 addresses the Payment Date and the Plan Benefit of a Participant who incurs a Separation from Service due to his Disability on or after 1 January 2007.
A-2.2 No Additional Rights Because of Death. No Vesting Solely as a Result of Death. No survivor or death benefit shall be payable to any person under this Article A-2 in respect of a Participant unless the Participant had a Vested Plan Benefit on the date of death.
A-2.3 Rules Based on Timing of Death.
(a) Survivor or Death Benefits to Unmarried Participants. If a Participant is not married to a surviving spouse:
(1) as of the date of his Separation from Service and (i) he is an active employee (i.e., has not incurred a Separation from Service) of the Company as of the date immediately preceding his Separation from Service and (ii) such Separation from Service is by reason of the Participants death, no survivor benefit or death benefit with respect to such Participants Vested Plan Benefit, if any, shall be payable to any person and such Plan Benefit shall be forfeited as of the date of death; or
(2) as of the date of his death and his Separation from Service occurs prior to the date of death, the survivor benefit or death benefit with respect to such Participants Vested Plan Benefit, if any, shall be payable to such Participants estate in accordance with the time and form of payment set forth in Section A-2.3(c).
(b) Separation From Service Due to Death.
(1) If an active Participant (i.e., a Participant who has not incurred a Separation from Service) who is Retirement Eligible incurs a Separation from
A-2
Service due to his death and, as of the date of death, has been married to a Spouse for at least one year immediately prior to the date of death, the Surviving Spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant Retired on the date of his death. Such Lump Sum shall be calculated using lump sum equivalency factors for a Single Life Annuity payable immediately based on the Participants age at the date of death. Notwithstanding anything in Section A-1.1, A-1.2 or A-1.3 to the contrary regarding the time or form of payment, such lump sum distribution to the Surviving Spouse shall be made on the 15 th day of the month following the month in which the Participant dies.
(2) If an active Participant who is not Retirement Eligible incurs a Separation from Service by reason of his death and, as of the date of death, has been married to a Spouse for at least one year immediately prior to the date of death, the Surviving Spouse shall be paid a single lump sum equal to 55% of the Lump Sum payable to the Participant had the Participant lived until the earliest date on which he would be eligible for an unreduced benefit under the Salaried Pension Plan and then Retired. Such lump sum payable to the Surviving Spouse shall be calculated using the lump sum equivalency factors for a Lump Sum which is actuarially equivalent to a deferred Single Life Annuity payable on the earliest unreduced benefits date under the Salaried Pension Plan had the Participant lived to Retire and based on the Participants age at the date of death. The Lump Sum payable pursuant to this Section A-2.3(b)(2) shall be paid on the 15 th day of the month following the month in which the Participant dies, notwithstanding anything to the contrary in Section A-1.1, A-1.2 or A-1.3 regarding the time or form of payment.
(c) Death After Separation from Service and Prior to Payment of Lump Sum. If a Participant dies after his Separation from Service but prior to the receipt of the Lump Sum distribution, such Lump Sum shall be determined and paid in accordance with Section A-1.2 or A-1.3, as applicable.
A-2.4 Separation from Service Due to Disability.
(a) Separation from Service on or After 1 January 2007. A Participant who incurs a Separation from Service due to a Disability on or after 1 January 2007 shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.2 or A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.3, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until the first day of the calendar month following his or her 65 th birthday, (ii) received pay, determined as of the end of the elimination period under the John Deere Long Term Disability Plan for Salaried Employees, until the date in (i) above, and (iii) then incurred a Separation from Service with the Company.
(b) Separation From Service Prior to 1 January 2005. If a Participant incurred a Separation from Service due to Disability prior to 1 January 2005, is entitled to a Plan Benefit based in part on credit for service with the Company after 31 December 2004 and, as of 1 January 2005, has not commenced payment of his Plan
A-3
Benefit, such Plan Benefit shall be paid in a Lump Sum in accordance with Section A-1.2 or A-1.3; provided, however, that if the date specified for payment under Section A-1.2 or A-1.3 is prior to 30 November 2007, such Lump Sum shall be paid on or before 30 November 2007. The amount of the Participants Plan Benefit shall be determined in accordance with Section 3.2 and Section A-2.4(a).
(c) The provisions of this Section A-2.4 shall be superseded by Section A-2.3 in the event that a Participants death occurs prior to payment of his entire Plan Benefit.
A-2.5 Return to Work Following Disability. If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to Disability and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. The determination of such Participants new Plan Benefit shall include the period beginning on the date of such Participants initial Separation from Service and ending on his subsequent Separation from Service following his return to work. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Lump Sum value of the Plan Benefit which the Participant previously received with interest credited from the date of receipt through the date of subsequent payment using the interest rate described in Section 3.3, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section A-2.5, the Participants Aggregate Plan Benefit means the Plan Benefit the Participant would be entitled to receive had he or she remained continuously employed with the Company from his initial date of hire through the date of the Participants subsequent Separation from Service, recalculated pursuant to Section 3.2 based on all service with the Company and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Salaried Pension Plan.
A-4
APPENDIX B
ARTICLE B-1
MISCELLANEOUS PROVISIONS
B-1.1 Application of this Article. For purposes of clarification, the provisions in this Appendix B supplement the provisions in Appendix A, and are effective 1 January 2007 unless otherwise provided.
B-1.2 Impact of Vacation. If a Participants Retirement occurs immediately prior to or during such Participants Vacation, then, solely for purposes of determining the amount of the Plan Benefit for a Participant, such Participants Separation from Service shall be determined in accordance with the Prior Plan and the Participant shall be eligible to accrue benefits in accordance with the Plan until such Separation from Service; provided , however , that solely for purposes of this Section B-1.2, Vacation shall exclude any day of vacation not used by the Participant to extend his service under the Salaried Pension Plan.
B-1.3 Impact of Leave of Absence and Special Paid Leave of Absence.
(a) Leave of Absence. If a Participant who has commenced payment of his Plan Benefit returns to work with the Company following his Separation from Service due to an approved Leave of Absence and is eligible to become a Participant upon such return to work, such Participant shall begin accruing a new Plan Benefit. Upon such Participants subsequent Separation from Service, the Participants new Plan Benefit shall equal his or her (i) Aggregate Plan Benefit, less (ii) the Plan Benefit which the Participant previously received with interest credited annually using the interest rate described in Section 3.3, and shall be paid to the Participant in a Lump Sum in accordance with Section A-1.2 or A-1.3, as applicable, based on the date of such subsequent Separation from Service. For purposes of this Section B-1.3, the Participants Aggregate Plan Benefit means the Participants Plan Benefit determined as though the Participant had never commenced payment of his Plan Benefit upon the original Separation from Service, recalculated pursuant to Section 3.2 based on all service with the Company and all compensation paid by the Company, solely to the extent that such service and compensation are considered under the Salaried Pension Plan.
(b) Special Paid Leave of Absence. Solely for purposes of determining the amount of such Participants Vested Plan Benefit, a Participant who incurs a Separation from Service by reason of a Special Paid Leave of Absence shall receive a distribution of his Plan Benefit in a Lump Sum paid in accordance with Section A-1.3. The Participants immediate Single Life Annuity, which is then converted into a Lump Sum in accordance with Section 3.3, shall be determined in accordance with Section 3.2 as though the Participant (i) had remained employed with the Company until the expiration of such Participants Special Paid Leave of Absence, (ii) received pay, determined as of the date of the Participants commencement of the Special Paid Leave
B-1
of Absence, until the date in (i) above, and (iii) then incurred a Separation from Service with the Company.
B-1.4 No Acceleration or Delay . The Administrator shall not accelerate or delay payment under the Plan except to the extent that such acceleration or delay shall not cause any person to incur additional taxes, interest or penalties under Section 409A (Section 409A Compliance).
ARTICLE B-2
AMENDMENT AND TERMINATION
B-2.1 Amendment and Termination. Notwithstanding any provision in this Plan to the contrary, the Board of Directors, the Committee, or the Deere & Company Management Compensation Committee shall have the unilateral right to amend, modify or terminate the Plan at any time. The Vice President of Human Resources of the Company shall have the unilateral right to amend or modify the Plan to the extent the Vice President of Human Resources of the Company deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A. Any determinations made by the Board of Directors, the Committee, the Management Compensation Committee, or the Vice President of Human Resources of the Company under this Section B-2.1 shall be final, conclusive and binding on all persons.
B-2.2 Plan Benefit in the Event of Termination. With respect to a Participants Plan Benefit, if the Plan is terminated, Plan Benefits shall be paid in accordance with Appendix A, unless the Board of Directors or the Committee, in its discretion and in full and complete settlement of the Companys obligations under this Plan, causes the Company to distribute the full amount of a Participants then accrued and Vested Plan Benefit to the Participant in a Lump Sum; provided, that such distribution may be effected in a manner that will result in Section 409A Compliance.
ARTICLE B-3
DEFINITIONS
B-3.1 Section References. All references to sections are, unless otherwise indicated, references to sections of the Plan, including the appendices.
B-3.2 Terms Defined. Except as otherwise provided, whenever used in Appendix A, the following terms shall have the meanings set forth below:
Annuity means a Single Life Annuity or a Joint and Survivor Annuity.
Committee means the Companys Pension Plan Oversight Committee.
Disability shall have the same meaning as under the Salaried Pension Plan or the John Deere Long-Term Disability Plan for Salaried Employees.
B-2
Joint and Survivor Annuity shall have the meaning set forth in the Salaried Pension Plan.
Lump Sum means the actuarial equivalent of a Participants Plan Benefit payable in a single cash lump sum on the Payment Date.
Payment Date means the date the Participant receives his Plan Benefit, in all cases in accordance with the applicable provisions of the Plan.
Plan Benefit means, as of a given date, the total benefit payable under the Plan to a Participant, expressed as a Single Life Annuity in accordance with the rules of Section 3.2, commencing on the Participants Normal Retirement Date or Postponed Retirement Date, as applicable, that a Participant has accrued under the Plan.
Prior Plan means the terms of the Plan in effect immediately prior to 1 January 2005, as set forth in the Companys written documents, rules, practices and procedures applicable to this Plan.
Retirement or Retire means a Separation from Service by a Participant who is then Retirement Eligible.
Retirement Eligible means eligible for a normal retirement benefit or an early retirement benefit within the meaning of the terms of the Salaried Pension Plan in effect as of 1 January 2007.
Section 409A means Section 409A of the Code and the applicable rulings and regulations promulgated thereunder.
Section 409A Compliance has the meaning set forth in Section B-1.4.
Separation from Service means, with respect to a Participant, a separation from service within the meaning of the default rules of Section 409A; provided that:
(1) for purposes of determining which entities are treated as a single service recipient with the Company, the phrase at least 20 percent shall be substituted for the phrase at least 80 percent each place it appears in Sections 1563(a)(1), (2) and (3) of the Code and Section 1.414(c)-2 of the Treasury Regulations, as permitted under Section 1.409A-1(h)(3) of the Treasury Regulations; and
(2) a Participant absent from work due to Disability shall incur a Separation from Service 29 months after the date on which the Participant was first Disabled.
B-3
Single Life Annuity means a Participants Plan Benefit payable in monthly installments over the life of the Participant, commencing as of the Payment Date and ending with the payment due for the month in which the Participant dies, with no further payments on his behalf after his death.
Special Paid Leave of Absence has the meaning set forth in the Deere & Company Policy for Special Paid Leave of Absence for Salaried Employees.
Termination means a Separation from Service by a Participant who is not Retirement Eligible.
Vacation means one or more days, as the case may be, of such vacation to which the Participant is entitled pursuant to the policies and practices of the Company then in effect and (i) as of the date of the Participants Separation from Service, deferred from a prior anniversary year and unused as of such Separation from Service, (ii) earned in the current anniversary year and unused as of such Separation from Service and (iii) if a Participants Vacation described in clause (i) or (ii) of this definition is used in the anniversary year following the anniversary year in which such Separation from Service occurs, earned in such following anniversary year, whether or not used by the Participant.
Vested Plan Benefit means the portion of the Participants Plan Benefit that has vested in accordance with Article 3.
B-4
DEERE & COMPANY
NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
EFFECTIVE DATE: 01 JANUARY 1997
REVISED: 26 MAY 1999
AMENDED BY SUPPLEMENT: 30 AUGUST 2006
AMENDED: 29 NOVEMBER 2006
AMENDED AND RESTATED 13 DECEMBER 2007: EFFECTIVE 1 JANUARY 2008
(For special rules applicable to deferrals after 2004
see the supplement beginning on page 12)
DEERE & COMPANY
NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
I. Purpose
The purposes of the Deere & Company Nonemployee Director Deferred Compensation Plan (Plan) are to attract and retain highly qualified individuals to serve as Directors of Deere & Company (Company) and to relate Nonemployee Directors interests more closely to the Companys performance and its shareholders interests.
II. Eligibility
Each member of the Board of Directors (Board) of the Company who is not an employee of the Company or any of its subsidiaries (Nonemployee Director) is eligible to participate in the Plan.
III. Definitions
(a) Committee . The Nominating Committee of the Board or any successor committee of the Board.
(b) Common Stock . The publicly traded $1 par value common stock of the Company or any successor.
(c) Compensation . Amounts payable for services as a Nonemployee Director, excluding reimbursed expenses.
(d) Deferred Account . The bookkeeping account maintained for each participating Nonemployee Director which will be credited with Deferred Amounts pursuant to the terms hereof.
(e) Deferred Amounts . All amounts credited to a Nonemployee Directors Deferred Account pursuant to the Plan.
(f) Elective Deferrals . Compensation voluntarily deferred by a Nonemployee Director under the Plan after 31 December 1996 (other than Lump-Sum Deferral defined below).
(g) Lump-Sum Deferral . A one-time lump-sum amount for each Nonemployee Director serving on 31 December 1996, which amount is deferred under the Plan as described in Section V, below, as a result of the termination of the John Deere Pension Benefit Plan for Directors
2
(Retirement Plan).
(h) Participant . A Nonemployee Director for whom a Lump-Sum Deferral occurs on the Effective Date, or who elects to participate in the Plan.
(i) Pre-1997 Elective Deferrals . Compensation deferred by a Nonemployee Director prior to 1 January 1997 under the predecessor Directors Deferred Compensation Plan approved 30 January 1973, as amended from time to time.
(j) Secretary . The Secretary of the Company.
IV. Effective Date
The effective date of the Plan is 1 January 1997 (Effective Date).
V. Lump-Sum Deferral
As of the Effective Date, the Retirement Plan will be eliminated and the present value of the life annuity offered under the Retirement Plan for each Nonemployee Director who is both a participant in the Retirement Plan and a member of the Board on the Effective Date will be deposited into the Deferred Account of such Nonemployee Director. The present value will be determined by using a discount factor which shall be the rate for 10-year treasury stripped bonds in effect as of 31 December 1996 and by using the 1984 Unisex Pension Mortality tables published in the Pension Benefit Guaranty Corporation Regulation 2619, Appendix A.
VI. Elective Deferral
(a) Participants may elect to defer a part or all of their annual Compensation by making an irrevocable deferral election in writing on a form provided by the Company and delivered to the Company not later than the Company may direct. Elective Deferrals will become effective on the first day of the following calendar quarter, at which time they become irrevocable. Notwithstanding the preceding sentence, any person who first becomes a Nonemployee Director during a calendar quarter, may elect, before his or her term begins, to defer a part or all of his or her compensation that would otherwise be payable to him or her during the remainder of such calendar quarter and each succeeding calendar quarter until such election is modified or terminated as provided herein. A Participant may discontinue deferrals, or may change his or her investment choices, for future quarters by providing a written election delivered to the Company not later than the Company may direct. These changes will become
3
effective on the first day of the following calendar quarter.
(b) If the amount of a Participants Compensation is changed, the deferral percentage and investment alternative elections shall continue to be applied to the new Compensation amount after the change.
VII. Deferred Account
(a) The Company shall establish a separate Deferred Account for each Participant.
(b) Pre-1997 Elective Deferrals and the interest earned thereon shall be credited to the Deferred Account and will continue to be invested in the interest-bearing investment alternative described below.
(c) Two investment alternatives will be available, as of the Effective Date: an interest-bearing alternative and an equity alternative denominated in units of Deere Common Stock. Additional investment alternatives may be added by subsequent amendment of the Plan.
(d) At the time of Elective Deferral, Participants may direct their deferrals into either investment alternative, or a combination of the two, in increments of 5%.
(e) Deferred amounts credited into the interest-bearing investment alternative will be credited with interest at the end of each calendar quarter at the interest rate identified in the U.S. Federal Reserve Statistical Release, bank prime loan rate for the second month of each calendar quarter, plus 2%.
(f) Deferred Amounts credited into the equity alternative shall be expressed and credited to each Participants Deferred Account in units (Units) determined as hereinafter provided. As of each date on which Deferred Amounts are credited into the equity investment alternative, the Company shall credit to such Deferred Account a number of Units and fractional Units, rounded to three decimal places, determined by dividing such Deferred Amounts by the Unit Value (as defined below) of one share of Common Stock. The Unit Value of one share of Common Stock shall be the closing price of the Common Stock on the New York Stock Exchange on the date on which Deferred Amounts are credited to the Deferred Account or a payment is to be valued under Section VIII (b) below, as the case may be; or if there were no sales on that day, then Unit Value shall be the closing price on the New York Stock Exchange Composite Tape on the most recent preceding day on which there were sales. The Lump-Sum Deferral shall be credited as of the Effective Date.
4
(g) When dividends are paid with respect to the Companys Common Stock, the Company shall calculate the amount which would have been payable on the Units in each Participants Deferred Account on each dividend record date as if each Unit represented one issued and outstanding share of the Companys Common Stock. The applicable number of Units and fractional Units equal to the amount of such dividends (based on the Unit Value of one share of the Companys Common Stock on the dividend payment date) shall be credited to each Participants Deferred Account. In the event of any capital stock adjustment to the Companys Common Stock or other similar event, the number of Units or fractional Units credited to Deferred Accounts shall be adjusted to appropriately reflect such event.
(h) Participants credited with Units hereunder shall not have any voting rights in respect thereof.
VIII. Payment of Benefits
(a) The value of a Participants Deferred Account shall be payable solely in cash, either in (i) a lump sum, or (ii) in up to ten equal annual installments, in accordance with an election made by the Participant by written notice delivered to the Company prior to the calendar year in which payments are to be made or commence. Such payment or payments shall be made or commence, as the case may be, on the first business day of the calendar year following the year of the termination of service as Director.
(b) Any lump sum payment shall be valued as of the end of the most recent calendar month prior to the payment date. The amount of each installment payment shall be determined by dividing the aggregate value credited to the Participants Deferred Account (as of the end of the most recent calendar month prior to the payment date) by the remaining number of unpaid installments; provided, however, that the Committee may, in its absolute discretion, approve any other method of determining the amount of each installment payment in order to achieve approximately equal installment payments over the installment period.
(c) The Company shall have the right to deduct from all payments under this Plan the amount necessary to satisfy any Federal, state, or local withholding tax requirements.
(d) The Committee, at its sole discretion, may alter the timing or manner of payment of Deferred Amounts in the event that the Participant establishes, to the satisfaction of the Board, severe financial hardship. In such event, the Committee may:
(1) provide that all or a portion of the amount previously deferred by
5
the Participant shall be paid immediately in a lump-sum cash payment;
(2) provide that all or a portion of the installments payable over a period of time shall be paid immediately in a lump sum; or
(3) provide for such other installment payment schedules as it deems appropriate under the circumstances.
It is expressly provided that the amount distributed shall not be in excess of that amount which is necessary for the Participant to meet the financial hardship. Severe financial hardship will be deemed to have occurred in the event of the Participants impending bankruptcy, the long and serious illness of Participant or a dependent, other events of similar magnitude, or the invalidation of a deferral election by the Internal Revenue Service. The Committees decision in passing on the severe financial hardship of the Participant and the manner in which, if at all, the payment of Deferred Amounts shall be altered or modified shall be final, conclusive and not subject to appeal.
IX. Death of Participant
(a) In the event of the death of a Participant, any amounts remaining in the Deferred Account will be paid to the Participants designated beneficiary in accordance with the distribution choices (e.g., lump sum or installments) elected by the Participant. These payments will commence on the first business day of the calendar year following the Participants death. Amounts unpaid after the death of both the Participant and the designated beneficiary will be paid in a lump sum to the executor or administrator of the estate of the last of them to die. In the event that a Participant had not properly filed a beneficiary designation with the Company prior to his or her death or, in the event a beneficiary predeceases the Participant, any unpaid deferrals will be paid in a lump sum to the Participants estate.
(b) No beneficiary hereunder shall have any right to assign, alienate, pledge, hypothecate, anticipate, or in any way create a lien upon any part of this Plan, nor shall the interest of any beneficiary or any distributions due or accruing to such beneficiary be liable in any way for the debts, defaults, or obligations of such beneficiary, whether such obligations arise out of contract or tort.
6
X. Change of Control
The following acceleration and valuation provisions shall apply in the event of a Change of Control or Potential Change of Control, as defined in this Section X.
(a) In the event that:
(i) a Change of Control as defined in paragraph (b) of this Section X occurs; or
(ii) a Potential Change of Control as defined in paragraph (c) of this Section X occurs and the Committee or the Board determines that the provisions of this paragraph (a) should be invoked;
then, unless otherwise determined by the Committee or the Board in writing prior to the occurrence of such Change of Control, the value of all Units credited to a Participants Deferred Account shall be converted to cash based on the Change of Control Price (as defined in paragraph X(d)) and the aggregate amount credited to the Participants Deferred Account under the Plan shall be paid in one lump-sum payment as soon as practicable following the date the Change of Control or Potential Change of Control occurs, but in no event more than 90 days after such date.
(b) For purposes of paragraph (a) of this Section X, a Change of Control means a change in control of a nature that would be required to be reported in response to Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (Exchange Act) whether or not the Company is then subject to such reporting requirement, provided that, without limitation, such a Change of Control shall be deemed to have occurred if:
(i) any person (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than a Participant in the Plan or group of Participants in the Plan, is or becomes the beneficial owner (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Companys then outstanding securities;
(ii) during any period of two consecutive years, there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least
7
_ of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved;
(iii) the shareholders of the Company approve a merger or consolidation of the Company with any other company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger of
consolidation; or
(iv) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets.
(c) For purposes of paragraph (a) of this Section X, a Potential Change of Control means the happening of any of the following:
(i) the entering into an agreement by the Company (other than with a Participant in the Plan or group of Participants in the Plan), the consummation of which would result in a Change of Control of the Company as defined in paragraph (b) of this Section X; or
(ii) the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than a Participant or group of Participants, the Company or a majority owned subsidiary of the Company, or any of the Companys employee benefit plans including its trustee) of securities of the Company representing 5% or more of the combined voting power of the Companys outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change of Control of the Company has occurred for purposes of the Plan.
(d) For purposes of this Section X, Change of Control Price means the highest price per share of the Common Stock paid in any transaction reported on the New York Stock Exchange Composite Tape, or offered in any transaction related to a Potential or actual Change of Control of the Company at:
(i) the date the Change of Control occurs;
(ii) the date the Potential Change of Control is determined to have occurred; or
8
(iii) such other date as the Committee may determine before the Change of Control occurs, or before or at the time the Potential Change of Control is determined to have occurred or the Committee or the Board determines that the provisions of paragraph X(a) shall be invoked, or at any time selected by the Committee during the 60 day period preceding such date.
(e) Notwithstanding anything to the contrary in the Plan, in the event of a Change of Control (i) the Plan may not be amended to reduce the formulas contained in paragraph VII(e) which determine the rate at which amounts equivalent to interest accrue with respect to cash amounts credited to a Participants Deferred Account, including cash amounts attributable to the conversion of Units in a Participants Deferred Account pursuant to paragraph X(a), and (ii) the successor Plan Administrator referred to in paragraph XI(d) shall determine the rates under the interest formulas contained in paragraph VII(e).
XI. Miscellaneous
(a) The right of a Participant to receive any amount credited to the Participants Deferred Account shall not be transferable or assignable by the Participant, in whole or in part, either directly or by operation of law or otherwise, including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy, or in any other manner, and no right or interest established herein shall be liable for, or subject to, any obligation or liability of the Participant, except by will or by the laws of descent and distribution. To the extent that any person acquires a right to receive any amount credited to a Participants Deferred Account hereunder, such right shall be no greater than that of an unsecured general creditor of the Company. Except as expressly provided herein, any person having an interest in any amount credited to a Participants Deferred Account under the Plan shall not be entitled to payment until the date the amount is due and payable. No person shall be entitled to anticipate any payment by assignment, alienation, sale, pledge, encumbrance or transfer in any form or manner prior to actual or constructive receipt thereof.
(b) The amounts credited to the Deferred Account shall constitute an unsecured claim against the general funds of the Company. The Company shall not be required to reserve or otherwise set aside funds or shares of Common Stock for the payment of its obligations hereunder. The Plan is unfunded, and the Company will make Plan benefit payments solely from the general assets of the Company as benefit payments come due from time to time.
9
(c) Except as herein provided, this Plan shall be binding upon the parties hereto, their designated beneficiaries, heirs, executors, administrators, successors (including but not limited to successors resulting from any corporate merger, purchase, consolidation or otherwise of all or substantially all of the business or assets of the Company) or assigns.
(d) In the event of a Change in Control, the Committee shall interpret the Plan and make all determinations, construe any ambiguity, supply any omission, and reconcile any inconsistency, deemed necessary or desirable for the Plans implementation. The determination of the Committee shall be conclusive. The Committee may obtain such advice or assistance as it deems appropriate from persons not serving on the Committee. The Secretary or other appropriate officer of the Company shall, in the event of any Change in Control, name as successor Plan Administrator any person or entity (including, without limitation, a bank or trust company). Following a Change in Control, the successor Plan Administrator shall interpret the Plan and make all determinations deemed necessary or desirable for the Plans implementation. The determination of the successor Plan Administrator shall be conclusive. The Company shall provide the successor Plan Administrator with such records and information as are necessary for the proper administration of the Plan. The successor Plan Administrator shall rely on such records and other information as the successor Plan Administrator shall in its judgment deem necessary or appropriate in determining the eligibility of a Participant and the amount payable to a Participant under the Plan.
(e) The Board, upon recommendation of the Committee, may at any time amend or terminate the Plan provided that no amendment or termination shall impair the rights of a Participant with respect to amounts then credited to the Participants Deferred Account, except with his or her consent.
(f) Each Participant will receive a quarterly statement indicating the amounts credited to the Participants Deferred Account as of the end of the preceding calendar quarter.
(g) If adjustments are made to outstanding shares of Common Stock as a result of stock dividends, stock splits, recapitalizations, reorganizations, mergers, consolidations and other changes in the corporate structure of the Company affecting the Common Stock, an appropriate adjustment shall also be made in the number and type of Units credited to the Participants Deferred Account to prevent dilution or enlargement of rights. The Committees or Boards determination as to what adjustments shall be made, and the extent thereof, shall be final.
(h) This Plan and all elections hereunder shall be construed in accordance with and governed by the laws of the State of Illinois.
10
(i) Except where otherwise indicated by the context, any term used herein connoting gender also shall include both the masculine and feminine; the plural shall include the singular, and the singular shall include the plural.
(j) In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
(k) Nothing in the Plan shall be deemed to create any obligation on the part of the Board to nominate any Nonemployee Director for reelection by the Companys shareholders, or rights to any benefits not specifically provided by the Plan.
(l) The crediting of Units and the payment of cash under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies as may be required.
(m) The Company may impose such other restrictions on any Units credited pursuant to the Plan as it may deem advisable including, without limitation, restrictions intended to achieve compliance with the Securities Act of 1933, as amended, Section 16 of the Securities Exchange Act of 1934, as amended, with the requirements of any stock exchange upon which Common Stock is listed, and with any blue sky or other securities laws applicable to such Units.
(n) With respect to any Participants subject to Section 16 of the Securities Exchange Act, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors. To the extent any provision of the Plan or action by the Board fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board.
11
SUPPLEMENT TO
DEERE & COMPANY
NONEMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
APPLICABLE TO AMOUNTS DEFERRED AFTER DECEMBER 31, 2004
The following provisions will apply only to amounts deferred under the Plan after December 31, 2004 and not to amounts deferred under the Plan that were both earned and vested before January 1, 2005. Amounts deferred under the Plan prior to January 1, 2005 will be subject to the terms of the Plan without regard to this supplement. Except to the extent amended hereby, the terms of the Plan shall continue to apply to amounts deferred pursuant to the Plan.
1. The following definitions are added to Section III ( Definitions ) .
(a) Change in Control Event . A change in ownership, a change in effective control, or a change in the ownership of a substantial portion of the assets of the Company within the meaning of the default rules under Section 409A.
(l) Section 409A . Section 409A of the Internal Revenue Code and the regulations and other guidance thereunder.
(m) Separation from Service . With respect to a Participant, a separation from service as a director or independent contractor within the meaning of the default rules of Section 409A.
(n) Unforeseeable Emergency . A severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant or his spouse, dependent (within the meaning of Section 152 of the Internal Revenue Code, but without giving effect to Section 152(b)(1), (b)(2) and (d)(1)(B) (Dependent)) or beneficiary, (ii) the loss of the Participants property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster), (iii) the imminent foreclosure of or eviction from the Participants primary residence, (iv) the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication, (v) the need to pay for the funeral expenses of a spouse, Dependent or beneficiary, or (vi) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The purchase of a primary residence and the
payment of college tuition shall not constitute Unforeseeable Emergencies .
2. Subsections (a) through (j) of Section III ( Definitions ) are renumbered as subsections
12
(b) through (k).
3. Section VI(a) ( Elective Deferral ) is restated in its entirety as follows:
(a) Participants may elect to defer a part or all of their annual Compensation by making an irrevocable deferral election in writing on a form provided by the Company and delivered to the Company not later than the last day of the calendar year preceding the calendar year in which the deferrals are to commence, at which time the deferral election becomes irrevocable. Notwithstanding the preceding sentence, any person who first becomes a Nonemployee Director during a calendar year, may elect, before or within 30 days after his or her term begins, to defer a part or all of his or her compensation that would otherwise be payable to him or her during the remainder of such calendar year and each succeeding calendar year until such election is modified or terminated as provided herein, except that no such election shall be available to a Nonemployee Director if prior to becoming eligible to participate in the Plan, the Nonemployee Director was eligible to participate in any other arrangement of the Company or its subsidiaries or affiliates that is an elective account balance plan (as such term is defined for purposes of Section 409A) for directors or independent contractors, other than a separation pay arrangement. A Participant may discontinue or modify deferrals, or may change his or her investment choices, for future calendar years by providing an irrevocable written election delivered to the Company not later than the close of the calendar year preceding the calendar year in which the changes are to commence. These changes will become effective on the first day of the following calendar year.
4. Section VIII ( Payment of Benefits ) is restated in its entirety as follows:
(a) The value of a Participants Deferred Account attributable to amounts deferred in respect of any calendar year (including related investment returns) shall be payable solely in cash, either in (i) a lump sum, or (ii) in up to ten equal annual installments, in accordance with an election made by the Participant by written notice delivered to the Company prior to the calendar year for which the services to the Company are rendered. Such payment or payments shall be made or commence, as the case may be, on the first business day of the calendar year following the year of the Participants Separation from Service.
(b) Notwithstanding anything else herein to the contrary, to the extent that a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, as determined under the Companys established methodology for determining specified employees, on the date on which the Participant incurs a Separation from Service, no distribution upon Separation from Service (including upon retirement or other
13
termination) may be made before the first business day of the first calendar quarter that begins at least six (6) months after such Participants date of Separation from Service, or, if earlier, the date of the Participants death, and any distribution that would be made but for application of this provision shall instead be aggregated with, and paid together with, the first distribution scheduled to be made after the end of such delay period (or, if earlier, the date of the Participants death).
(c) Any lump sum payment shall be valued as of the end of the most recent calendar month prior to the payment date. The amount of each installment payment shall be determined by dividing the aggregate value credited to the Participants Deferred Account (as of the end of the most recent calendar month prior to the payment date) by the remaining number of unpaid installments.
(d) The Company shall have the right to deduct from all payments under this Plan the amount necessary to satisfy any Federal, state, or local withholding tax requirements.
(e) The Committee, at its sole discretion, may alter the timing or manner of payment of Deferred Amounts in the event that the Participant establishes, to the satisfaction of the Board, that there has occurred an Unforeseeable Emergency. In such event, the Committee may:
(i) provide that all or a portion of the amount previously deferred by the Participant shall be paid immediately in a lump-sum cash payment; or
(ii) provide that all or a portion of the installments payable over a period of time shall be paid immediately in a lump sum.
It is expressly provided that, as determined under regulations of the Secretary of the United States Treasury, the amount distributed shall not be in excess of that amount which is reasonably necessary to satisfy the Unforeseeable Emergency (which may include amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s)), after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participants assets to the extent liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan. If a Participant requests and receives a distribution on account of Unforeseeable Emergency, the Participants deferrals under the Plan shall cease and his election under the Plan shall be canceled. Any new deferral election following cancellation of a prior deferral election due to Unforeseeable Emergency shall be subject to the timing requirements of Section VI and Section 409A.
14
The Committees decision in passing on the occurrence of an Unforeseeable Emergency for the Participant and the manner in which, if at all, the payment of Deferred Amounts shall be altered or modified shall be final, conclusive and not subject to appeal.
(f) Notwithstanding anything to the contrary herein, this Plan does not permit the acceleration of the time or schedule of any distribution under the Plan, except as would not result in the imposition on any person of additional taxes, penalties or interest under Section 409A.
5. Subsection (a) of Section IX ( Death of Participant ) is restated in its entirety as follows:
(a) In the event of the death of a Participant, any amounts remaining in the Deferred Account will be paid to the Participants designated beneficiary in a single lump sum on the first business day of the calendar year following the Participants death. In the event that a Participant had not properly filed a beneficiary designation with the Company prior to his or her death, or if the beneficiary dies prior to the payment date set forth in the preceding sentence, the balance of the Participants Deferred Account will be paid to his or her estate on such payment date.
6. Section X ( Change in Control ) is restated in its entirety as follows:
The following acceleration and valuation provisions shall apply in the event of a Change in Control Event.
(a) In the event that a Change in Control Event occurs, then the value of all Units credited to a Participants Deferred Account shall be converted to cash, determined by multiplying the number of Units credited to the Participants Deferred Account on the date of the Change in Control Event by the Change in Control Price (as defined in paragraph X(b)), and the aggregate amount credited to the Participants Deferred Account under the Plan shall be paid in one lump-sum payment as soon as practicable following the date the Change in Control Event occurs, but in no event more than 90 days after such date.
(b) For purposes of this Section X, Change in Control Price means the closing selling price of a share of Common Stock on the date the Change in Control Event occurs, or if there are no sales on the date the Change in Control Event occurs, the closing selling price of a share of Common Stock on the trading day immediately preceding the date the Change in Control Event occurs, in either case as reported on the composite tape for securities listed on the NYSE, or such other national securities exchange as may be designated by the Committee.
15
(c) Notwithstanding anything to the contrary in the Plan, in the event of a Change in Control Event (i) the Plan may not be amended to reduce the formulas contained in paragraph VII(e), which determine the rate at which amounts equivalent to interest accrue with respect to cash amounts credited to a Participants Deferred Account, including cash amounts attributable to the conversion of Units in a Participants Deferred Account pursuant to paragraph X(a), and (ii) the successor Plan Administrator referred to in paragraph XI(d) shall determine the rates under the interest formulas contained in paragraph VII(e).
7. Subsection XI(b) ( Miscellaneous ) is amended by adding the following after the initial sentence thereof:
No Participant or beneficiary shall have any interest whatsoever in any specific asset of the Company.
8. Subsection XI(d) ( Miscellaneous ) is amended by replacing each occurrence of the term Change in Control with Change in Control Event.
9. Subsection XI(e) ( Miscellaneous ) is amended by adding thereto:
I f the Plan is terminated, the balance of the Participants Deferred Account shall be paid in accordance with normal time and form of payment specified hereunder, provided that the Committee, in its discretion and in full and complete settlement of the Companys obligations under this Plan, may cause the Company to distribute the full amount of a Participants Deferred Account to the Participant in a single lump sum to the extent that such distribution may be effected in a manner that will not result in the imposition on any person of additional taxes, penalties or interest under Section 409A .
Notwithstanding any provision in this Plan to the contrary, the Board, the Committee or the Vice President of Human Resources of the Company shall have the unilateral right to amend or modify the Plan to the extent the Board, the Committee or the Vice President of Human Resources of the Company deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A , including recognition of income in respect of any benefits under this Plan before such benefits are paid or the imposition of additional taxes, penalties or interest . Any determinations made by the Board, the Committee or the Vice President of Human Resources of the Company in this regard shall be final, conclusive and binding on all persons.
16
DEERE & COMPANY
VOLUNTARY DEFERRED COMPENSATION PLAN
Adopted 28 August 1985
Amended 11 December 1986
Amended 26 May 1993 Effective 1 July 1993
Amended 7 December 1994 Effective 1 January 1995
Amended 4 December 1996 Effective 1 January 1997
Amended 26 August 1998
Amended by Supplement 30 August 2006
Amended and Restated 13 December 2007 Effective 1 January 2008
(For special rules applicable to deferrals after 2004
see the supplement beginning on page 9)
TABLE OF CONTENTS |
|
|
|
|
|
|
Page |
|
|
|
|
SECTION 1. ESTABLISHMENT AND PURPOSE |
|
|
|
|
|
1.1 |
Establishment |
1 |
1.2 |
Purpose |
1 |
|
|
|
SECTION 2. DEFINITIONS |
|
|
|
|
|
2.1 |
Definitions |
1 |
2.2 |
Gender and Number |
2 |
|
|
|
SECTION 3. ELIGIBILITY FOR PARTICIPATION |
|
|
|
|
|
3.1 |
Eligibility |
2 |
|
|
|
SECTION 4. ELECTION TO DEFER |
|
|
|
|
|
4.1 |
Deferral Amount |
2 |
4.2 |
Deferral Period and Payment Method |
3 |
4.3 |
Irrevocable Elections |
4 |
|
|
|
SECTION 5. DEFERRED ACCOUNTS |
|
|
|
|
|
5.1 |
Participant Accounts |
4 |
5.2 |
Growth Additions |
4 |
5.3 |
Effect on other Company Benefits |
4 |
5.4 |
Charges Against Accounts |
4 |
5.5 |
Contractual Obligation |
4 |
5.6 |
Unsecured Interest |
5 |
|
|
|
SECTION 6. PAYMENT OF DEFERRED AMOUNTS |
|
|
|
|
|
6.1 |
Payment of Deferred Amounts |
5 |
6.2 |
Financial Hardship |
5 |
|
|
|
SECTION 7. BENEFICIARY |
|
|
|
|
|
7.1 |
Beneficiary |
5 |
|
|
|
SECTION 8. RIGHTS OF EMPLOYEES, PARTICIPANTS |
|
|
|
|
|
8.1 |
Employment |
6 |
8.2 |
Nontransferability |
6 |
|
|
|
SECTION 9. ADMINISTRATION |
|
1
TABLE OF CONTENTS |
Page |
|
|
|
|
|
|
|
9.1 |
Administration |
6 |
|
|
|
SECTION 10. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN |
|
|
|
|
|
10.1 |
Amendment, Modification and Termination of the Plan |
7 |
|
|
|
SECTION 11. MERGER OR CONSOLIDATION |
|
|
|
|
|
11.1 |
Merger or Consolidation |
7 |
|
|
|
SECTION 12. REQUIREMENTS OF LAW |
|
|
|
|
|
12.1 |
Requirements of Law |
7 |
12.2 |
Governing Law |
7 |
|
|
|
SECTION 13. WITHHOLDING TAXES |
|
|
|
|
|
13.1 |
Withholding Taxes |
8 |
|
|
|
SECTION 14. EFFECTIVE DATE OF THE PLAN |
|
|
|
|
|
14.1 |
Effective Date |
8 |
|
|
|
SUPPLEMENT APPLICABLE TO DEFERRALS AFTER 2004 |
13 |
2
DEERE & COMPANY
VOLUNTARY DEFERRED COMPENSATION PLAN
1.1 Establishment . Deere & Company, a Delaware corporation, hereby establishes effective as of November 1, 1985, a deferred compensation plan for executives as described herein, which shall be known as the DEERE & COMPANY VOLUNTARY DEFERRED COMPENSATION PLAN (hereinafter called the Plan).
1.2 Purpose . The purpose of this Plan is to provide a means whereby cash incentive awards, including performance bonus, cash bonus and profit sharing awards, or any other compensation determined by the Committee to be subject hereto, and base salary payable by the Company to key personnel may be deferred for a specified period.
2.1 Definitions . Whenever used hereinafter, the following terms shall have the meaning set forth below:
1
2.2 Gender and Number . Except when otherwise indicated by the context, any masculine terminology when used in the Plan shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.
3.1 Eligibility . Participation in the Plan shall be limited to those Employees of the Company or any Subsidiary who are key to the Companys growth and success and who are designated as Participants by the Committee. In the event an Employee no longer meets the requirements for Participation in this Plan, he shall become an inactive Participant, retaining all the rights described under this Plan, except the right to make any further deferrals, until the time that he again becomes an active Participant.
4.1 Deferral Amount .
2
Notwithstanding amounts elected by the Participant for deferral from the John Deere Performance Bonus Plan award, the total deferred portion shall not be less than $1,000 in any given calendar year. In the event the total deferred amount is less than $1,000, it shall be paid pursuant to the normal payout schedule for the John Deere Performance Bonus Plan.
Amounts of less than $1,000 per calendar quarter shall not be deferred from salary.
4.2 Deferral Period and Payment Method . If the Participant defers any amount pursuant to Section 4.1, the Participant shall also designate the period and payment method for the deferral in the election. Payments of the deferral amounts, plus any growth additions thereon, shall be made on the date or dates specified by the Participant in the election. However, if death, total and permanent disability, or termination (other than retirement) occurs before retirement, all remaining deferrals plus any growth additions, shall be distributed as a single lump sum payment in January of the calendar year following the date of such death, disability or termination.
In all other cases, the distribution must begin on a date specified by the Participant in the election (whether the distribution is scheduled to begin before or after the date of retirement) but no later than ten years following the date of retirement. The Participant may elect to have distribution made in up to ten annual installments from the date distribution is to begin, but such distribution must be completed within ten years following retirement.
If the Participant wishes to designate a distribution after retirement, the Participant may designate in the election that distribution shall begin at retirement or begin at a specified point in time, or during a specified month, following the date of retirement, (Example #1: Distribution to begin three months after retirement. Example #2: Distribution to begin the January of the year following retirement.)
3
4.3 Irrevocable Elections . The elections in Sections 4.1 and 4.2 are irrevocable and may not be modified or terminated by the Participant or his beneficiary.
5.1 Participant Accounts . The Company shall establish and maintain a bookkeeping account for each Participant, to be credited as of the date the cash incentive award or salary is actually deferred. While the John Deere Performance Bonus Plan or John Deere Equity Incentive Plan deferral will be credited to the Participants account when deferred as stated above, it will not begin earning growth additions, under Section 5.2, until the first day of the succeeding calendar quarter following the date of deferral.
5.2 Growth Additions . Each Participants account shall be credited on the first day of each calendar quarter with a growth addition computed on the balance in the account as of the last day of the immediately preceding quarter. The growth addition shall be equal to said account balance multiplied by a growth increment. The method for determining the growth increment shall be determined from time to time by the Committee. The method of determining the growth increment, as stated on the election form, that is in effect on the first date a growth addition is added to a Participants account will remain in effect for that deferral until that entire deferral, and growth additions attributable to it, have been distributed for a given deferral.
5.3 Effect on other Company Benefits . Salary, cash incentive awards or bonus deferred pursuant to Section 4.1 of this Plan shall not decrease in any way benefits provided under any other Company sponsored benefit plan. In the event deferrals under this Plan decrease benefits payable under any qualified retirement plan or limit deferrals under any qualified defined contribution plan, such decrease or limit shall be restored by immediate participation in the John Deere Supplementary Pension Plan or the Defined Contribution Restoration Plan.
5.4 Charges Against Accounts . There shall be charged against each Participants account any payments made to the Participant or to his beneficiary in accordance with Section 6 hereof.
5.5 Contractual Obligation . It is intended that the Company is under a contractual obligation to make payments from a Participants account when due. Account balances shall not be financed through a trust fund or insurance contracts or otherwise unless owned by the Company. Payment of account balances shall be made out of the general funds of the Company.
5.6 Unsecured Interest . No Participant or beneficiary shall have any interest whatsoever in any specific asset of the Company. To the extent that any person
4
acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.
6.1 Payment of Deferred Amounts . Payment of a Participants deferred salary, or cash incentive award plus accumulated growth additions attributable thereto, shall be paid in a lump sum or in approximately equal annual installments, in the manner elected by the Participant under Sections 4.1 and 4.2 of this Plan.
6.2 Financial Hardship . The Committee, at its sole discretion, may alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Board, severe financial hardship. In such event, the Committee may:
as long as the amount distributed shall not be in excess of that amount which is necessary for the Participant to meet the financial hardship.
Severe financial hardship will be deemed to have occurred in the event of the Participants impending bankruptcy, a dependents long and serious illness, other events of similar magnitude or the invalidation of a deferral election by the Internal Revenue Service. The Committees decision in passing on the severe financial hardship of the Participant and the manner in which, if at all, the payment of deferred amounts shall be altered or modified shall be final, conclusive and not subject to appeal.
7.1 Beneficiary . A Participant may designate a beneficiary or beneficiaries who, upon his death, are to receive the distributions that otherwise would have been paid to him. All designations shall be in writing and shall be effective only if and when delivered to the Secretary of the Company during the lifetime of the Participant. If a Participant designates a beneficiary without providing in the designation that the beneficiary must be living at the time of such distribution, the designation shall vest in the beneficiary all of the distributions whether payable
5
before or after the beneficiarys death, and any distributions remaining upon the beneficiarys death shall be made to the beneficiarys estate.
A Participant may from time to time during his lifetime change his beneficiary or beneficiaries by a written instrument delivered to the Secretary of the Company. In the event a Participant shall not designate a beneficiary or beneficiaries pursuant to this Section, or if for any reason such designation shall be ineffective, in whole or in part, the distribution that otherwise would have been paid to such Participant shall be paid to his estate and in such event, the term beneficiary shall include his estate.
8.1 Employment . Nothing in this Plan shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate any Employees or Participants employment at any time, nor confer upon any Employee or Participant any right to continue in the employ of the Company or any of its Subsidiaries.
8.2 Nontransferability . No right or interest of any Participant in this Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge and bankruptcy. In the event of a Participants death, payment of any amounts due under this Plan shall be made to the Participants designated beneficiary, or in the absence of such designation, to the Participants estate.
9.1 Administration . The Committee shall be responsible for the administration of the Plan. The Committee is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, provide for conditions and assurances deemed necessary or advisable to protect the interest of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. The Committee shall determine, within the limits of the express provisions of the Plan, the Employees to whom, and the time or times at which, participation shall be extended, and the amount which may be deferred. In making such determinations, the Committee may take into account the nature of the services rendered by such Employees or classes of Employees, their present and potential contributions to the Companys or its Subsidiaries success and such other factors as the Committee in its discretion shall deem relevant. The determination of the Committee, interpretation or other action made or taken pursuant to the provisions of the Plan, shall be final and shall be binding and conclusive for all purposes and upon all persons.
6
10.1 Amendment, Modification and Termination of the Plan . The Committee, at any time may terminate, and at any time and from time to time and in any respect, may amend or modify the Plan, provided, however, that no such action of the Committee, without approval of the Participant, may adversely affect in any way any amounts already deferred pursuant to Section 4.1 of this Plan.
11.1 Merger or Consolidation . If the Company shall be involved in a dissolution, liquidation, merger, or consolidation in which the Company and its Subsidiaries are not the surviving corporation, the Committee may:
Amounts calculated under either (a) or (b) above shall be paid in full as soon as practicable following any termination of the Plan.
12.1 Requirements of Law . The payment of cash pursuant to this Plan shall be subject to all applicable laws, rules, and regulations, and shall not be made except upon approval of proper government agencies as may be required.
12.2 Governing Law . The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois.
13.1 Withholding Taxes . The Company shall have the right to deduct from all payments under this Plan an amount necessary to satisfy any Federal, state, or local withholding tax requirements.
7
14.1 Effective Date . The Plan shall become effective as of November 1, 1985.
8
SUPPLEMENT TO
DEERE & COMPANY
VOLUNTARY DEFERRED COMPENSATION PLAN
APPLICABLE TO AMOUNTS DEFERRED AFTER DECEMBER 31, 2004
The following provisions will apply only to amounts deferred under the Plan after December 31, 2004 and not to amounts deferred under the Plan that were both earned and vested before January 1, 2005. Amounts deferred under the Plan prior to January 1, 2005 will be subject to the terms of the Plan without regard to this supplement. Except to the extent amended hereby, the terms of the Plan shall continue to apply to amounts deferred pursuant to the Plan.
1. The following definitions are added to Section 2 ( Definitions ) .
2.1(b) Change in Control Event means a change in ownership, a change in effective control, or a change in the ownership of a substantial portion of the assets of the Company within the meaning of the default rules under Section 409A.
2.1(e) Disability means a participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months or is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under a disability or an accident and health plan covering employees of the Company.
2.1(i) Retirement means a Separation from Service by a Participant who is then eligible for a normal retirement benefit or an early retirement benefit within the meaning of the terms of the John Deere Pension Plan for Salaried Employees in effect as of 1 January 2007.
2.1(j) Section 409A means Section 409A of the Internal Revenue Code and the regulations and other guidance thereunder.
2.1(k) Section 409A Compliance shall have the meaning ascribed to such term in Section 8.3.
2.1(l) Separation from Service means, with respect to a Participant, a separation from service within the meaning of the default rules of Section 409A; provided that for purposes of determining which entities are treated as a single service recipient with the Company, the phrase at least 20 percent shall be substituted for the phrase at least 80 percent each place it appears in Sections 1563(a)(1), (2) and (3) of the Code and Section 1.414(c)-2 of the
9
Treasury Regulations, as permitted under Section 1.409A-1(h)(3) of the Treasury Regulations
2.1(n) Unforeseeable Emergency means a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant or his spouse, dependent (within the meaning of Section 152 of the Code, but without giving effect to Section 152(b)(1), (b)(2) and (d)(1)(B) (Dependent)) or beneficiary, (ii) the loss of the Participants property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster), (iii) the imminent foreclosure of or eviction from the Participants primary residence, (iv) the need to pay for medical expenses, including non-refundable deductibles, as well as for the costs of prescription drug medication, (v) the need to pay for the funeral expenses of a spouse, Dependent or beneficiary, or (vi) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The purchase of a primary residence and the payment of college tuition shall not constitute Unforeseeable Emergencies.
2. Subsections 2.1(b) and (c) are renumbered as 2.1(c) and (d), respectively.
3. Subsection 2.1(d) is renumbered as 2.1(f).
4. Subsection 2.1(e) is renumbered as 2.1(h).
5. Subsection 2.1(f) is renumbered as 2.1(m).
6. Section 4 ( Election to Defer ) is restated in its entirety as follows:
4.1 Deferral Amount
(a) Any Participant may elect to defer any part (in 5% increments up to 95%) of an award to be paid under the provisions of the John Deere Short-Term Incentive Bonus Plan. Such election must be made in writing prior to the beginning of the Fiscal Year upon which the award is based. Notwithstanding the Participants election, enough of the award must be paid in cash to cover all withholding taxes. If not, the Company shall be authorized to reduce the Participants elected deferral in such amount as is necessary to satisfy all applicable withholding taxes.
(b) Any Participant may elect to defer any part (in 5% increments up to 70%) of base salary. Such election must be made in writing prior to the beginning of the calendar year in which the deferrals are to commence and shall remain in effect for the remainder of the calendar year. Notwithstanding the Participants election, enough salary must be paid in cash to cover all withholding taxes. If not, the Company shall be authorized to reduce the Participants elected
10
deferral in such amount as is necessary to satisfy all applicable withholding taxes, and the reduced deferral percent shall remain in effect until the beginning of the next pay period, at which time it shall revert to the Participants stated deferral percent subject to the same reduction potential.
(c) Any Participant may elect to defer any part (in 5% increments up to 95%) of any other cash incentive award that is authorized by the Committee to be deferred pursuant hereto. Such election must be in writing (i) in the case of non-performance-based compensation or compensation for services performed for less than 12 months, not later than the close of the Participants taxable year preceding the taxable year in which services related to the award are performed; or (ii) in the case of performance-based compensation (as determined by the Committee pursuant to Section 409A) based on services performed over a period of at least 12 months, prior to the close of the Fiscal Year immediately preceding the calendar year of payment but in no event later than 6 months before the end of the performance period. Notwithstanding the Participants election, enough of the award must be paid in cash to cover all withholding taxes. If not, the Company shall be authorized to reduce the Participants elected deferral in such amount as is necessary to satisfy all applicable withholding taxes.
4.2 Deferral Period and Payment Method . If the Participant defers any amount pursuant to Section 4.1, the Participant shall also designate the period and payment method for the deferral in the election. The Participant may elect to have distribution made in a lump sum or in up to ten annual installments, provided that the payments must in either case be completed within ten years following the year of Retirement. Payments of the deferral amounts, plus any growth additions thereon, shall commence on the first business day of the calendar quarter specified by the Participant in the election; provided, however, that if the Participant elects for the distribution to begin after Retirement, payment of the deferral amounts, plus any growth additions thereon, shall commence on the first business day of the third or later calendar quarter (as elected by the Participant) following the calendar quarter of Retirement.
Notwithstanding the Participants deferral election, if death, Disability or Separation from Service occurs before Retirement, all remaining deferrals plus any growth additions, shall be distributed as a single lump sum payment in January of the calendar year following the date of such death, Disability or Separation from Service. Additionally, no distribution upon Separation from Service (including upon Retirement or other termination but excluding upon Disability or death) may be made before the first business day of the first calendar quarter that begins at least six (6) months after such Participants date of Separation from Service, or, if earlier, the date of the
11
Participants death, and any distribution that would be made but for application of this provision shall instead be aggregated with, and paid together with, the first distribution scheduled to be made after the end of such six-month period (or, if earlier, the date of the Participants death).
4.3 Irrevocable Elections . The elections in Sections 4.1 and 4.2 shall become irrevocable on the day prior to the beginning of the Fiscal Year or calendar year, as applicable, and may not be modified or terminated thereafter by the Participant or his beneficiary.
7. Subsection 5.1 ( Deferred Accounts - Participant Accounts ) is amended by changing the phrase John Deere Equity Incentive Plan to John Deere Mid-Term Incentive Bonus Plan.
8. Subsection 6.2 ( Payment of Deferred Amounts - Unforeseeable Emergency ) is restated in its entirety as follows:
6.2 Unforeseeable Emergency . The Committee, at its sole discretion, may alter the timing or manner of payment of deferred amounts in the event that the Participant establishes, to the satisfaction of the Committee, the occurrence of an Unforeseeable Emergency. In such event, the Committee may:
(a) provide that all or a portion of the amount previously deferred by the Participant shall be paid immediately in a lump sum cash payment, or
(b) provide that all or a portion of the installments payable over a period of time shall be paid immediately in a lump sum,
as long as, as determined under regulations of the Secretary of the United States Treasury, the amount distributed shall not be in excess of that amount which is reasonably necessary to satisfy the Unforeseeable Emergency (which may include amounts necessary to pay taxes reasonably anticipated as a result of such distribution(s)), after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participants assets to the extent liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan and any other plan that would be aggregated with the Plan for purposes of Section 409A. If a Participant requests and receives a distribution on account of Unforeseeable Emergency, the Participants deferrals under the Plan shall cease and his elections under the Plan shall be canceled. Any new deferral election following cancellation of a prior deferral election due to Unforeseeable Emergency shall be subject to the timing requirements of Sections 4.1 and 4.2 and Section 409A.
The Committees decision in passing on the occurrence of an Unforeseeable Emergency for the Participant and the manner in which, if at all, the payment of deferred amounts shall be altered or modified shall be final, conclusive
12
and not subject to appeal.
9. Subsection 8.3 ( Rights of Employees, Participants - No Acceleration of Distributions) is added as follows:
8.3 No Acceleration of Distributions . Notwithstanding anything to the contrary herein, this Plan does not permit the acceleration of the time or schedule of any distribution under the Plan, except as would not result in the imposition on any person of additional taxes, penalties or interest under Section 409A.
10. Section 10.1 ( Amendment, Modification and Termination of the Plan ) is amended by adding thereto:
I f the Plan is terminated, the Participants account shall be paid in accordance with time and form of payment otherwise specified hereunder, provided that the Board of Directors or the Committee, in its discretion and in full and complete settlement of the Companys obligations under this Plan, may cause the Company to distribute the full amount of a Participants account to the Participant in a single lump sum to the extent that such distribution may be effected in a manner that will not result in the imposition on any person of additional taxes, penalties or interest under Section 409A .
In addition, there is added immediately following Section 10.1 a new Section 10.2 ( Section 409A Amendments ) as follows:
10.2 Section 409A Amendments . Notwithstanding any provision in this Plan to the contrary the Board, the Committee or the Vice President of Human Resources of the Company shall have the unilateral right to amend or modify the Plan to the extent the Board, the Committee or the Vice President of Human Resources of the Company deems such action to be necessary or advisable to avoid the imposition on any person of adverse or unintended tax consequences under Section 409A, including recognition of income in respect of any benefits under this Plan before such benefits are paid or the imposition of additional taxes, penalties or interest. Any determinations made by the Board, the Committee, or the Vice President of Human Resources of the Company under this Section 10.2 shall be final, conclusive and binding on all persons.
11. Section 11 ( Merger or Consolidation ) is restated in its entirety as follows:
Section 11. Change in Control
11.1 Change in Control . If the Company shall experience a Change in Control Event, the Committee may:
(a) terminate the Plan and all other plans of the same type that would be aggregated with the Plan under Section 409A within the twelve months following the Change in Control Event, and all amounts deferred, plus interest additions shall be distributed in full as soon as
13
practicable, but in no event later than twelve months, following the date the aggregated plans are terminated, notwithstanding any other provisions to the contrary; or
(b) permit the Plan to continue, making any necessary adjustments or modifications to reflect any impact of the Change in Control Event, as determined by the Committee; provided that such adjustments or modifications do not result in the imposition on any person of additional taxes, penalties or interest under Section 409A.
14
Contents
Article 1. Establishment, Term, and Purpose |
1 |
|
|
Article 2. Definitions |
2 |
|
|
Article 3. Severance Benefits |
6 |
|
|
Article 4. Form and Timing of Severance Benefits |
9 |
|
|
Article 5. Excise Tax Equalization Payment |
9 |
|
|
Article 6. The Companys Payment Obligation |
11 |
|
|
Article 7. Covenants of the Executive |
12 |
|
|
Article 8. Legal Remedies |
12 |
|
|
Article 9. Successors and Assignment |
13 |
|
|
Article 10. Miscellaneous |
13 |
THIS AGREEMENT is made and entered into as of the day of , 2008, by and between Deere & Company (hereinafter referred to as the Company) and (hereinafter referred to as the Executive).
WHEREAS, the Board of Directors of the Company has approved the Company entering into change in control agreements with certain key executives of the Company;
WHEREAS, the Executive is a key executive of the Company;
WHEREAS, should the possibility of a Change in Control of the Company arise, the Board believes it is imperative that the Company and the Board should be able to rely upon the Executive to continue in his position, and that the Company should be able to receive and rely upon the Executives advice, if requested, as to the best interests of the Company and its shareholders without concern that the Executive might be distracted by the personal uncertainties and risks created by the possibility of a Change in Control; and
WHEREAS, should the possibility of a Change in Control arise, in addition to his regular duties, the Executive may be called upon to assist in the assessment of such possible Change in Control, advise management and the Board as to whether such Change in Control would be in the best interests of the Company and its shareholders, and to take such other actions as the Board might determine to be appropriate.
NOW THEREFORE, to assure the Company that it will have the continued dedication of the Executive and the availability of his advice and counsel notwithstanding the possibility, threat, or occurrence of a Change in Control of the Company, and to induce the Executive to remain in the employ of the Company, and for other good and valuable consideration, the Company and the Executive agree as follows:
This Agreement will commence on the Effective Date and shall continue in effect for two (2) full years. However, at the end of such two (2) year period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Committee delivers written notice six (6) months prior to the end of such term, or extended term, to the Executive, that the Agreement will not be extended. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. Provided, a notice that the Agreement will not be extended shall not be given within six (6) months following a Potential Change in Control, and provided further, that in the event a Change in Control occurs during the original or any extended term, this Agreement will remain in effect for the
1
longer of: (i) twenty-four (24) months beyond the month in which such Change in Control occurred; or (ii) until all obligations of the Company hereunder have been fulfilled, and until all benefits required hereunder have been paid to the Executive.
Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized.
(a) Base Salary means the salary of record paid to the Executive as annual salary, excluding amounts received under incentive or other bonus plans, whether or not deferred.
(b) Beneficial Owner shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
(c) Beneficiary means the persons or entities deemed designated by the Executive pursuant to Section 10.2 herein.
(d) Board means the Board of Directors of the Company.
(e) Bonus means the greater of: (a) the arithmetic mean of the bonuses paid to the Executive pursuant to the Performance Bonus Plan, or its successor plan as approved by the Committee, of the Company for the three complete fiscal years immediately preceding the Executives Effective Date of Termination; and (b) the target bonus amount for the Executive for the fiscal year in which the Effective Date of Termination occurs. For purposes of this Agreement, the term Bonus shall not be deemed to include any payments made pursuant to the Companys Mid-Term Incentive Plan, or its successor plan.
(f) Cause means (a) the Executives willful and continued failure to substantially perform his duties with the Company (other than any such failure resulting from Disability or occurring after issuance by the Executive of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Company believes that the Executive has willfully failed to substantially perform his duties, and after the Executive has failed to resume substantial performance of his duties on a continuous basis within thirty (30) calendar days of receiving such demand; (b) the Executives willfully engaging in conduct (other than conduct covered under (a) above) which is demonstrably and materially injurious to the Company, monetarily or otherwise; or (c) the Executives having been convicted of a felony. For purposes of this subparagraph, no act, or failure to act, on the Executives
2
part shall be deemed willful unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interests of the Company.
(g) Change in Control means a change in control of a nature that would be required to be reported in response to Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the Exchange Act) whether or not the Company is then subject to such reporting requirement, provided that, without limitation, such a Change in Control shall be deemed to have occurred if:
(i) any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) (other than a Participant or group of Participants, the Company or a subsidiary, any employee benefit plan of the Company including its trustee, or any corporation or similar entity which becomes the Beneficial Owner of securities of the Company in connection with a transaction excepted from the provisions of clause (iii) below) is or becomes the beneficial owner (as defined in Rule 13(d-3) under the Exchange Act), directly or indirectly, of securities of the Company (not including the securities beneficially owned or any securities acquired directly from the Company) representing thirty percent (30%) or more of the combined Voting Power of the Companys then outstanding securities;
(ii) the following individuals shall cease to constitute a majority of the Board: individuals who on the Effective Date constitute the Board and any new director(s) whose appointment or election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment or election or nomination for election was previously so approved but excluding, for this purpose, any such new director whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board;
(iii) there is consummated a merger, consolidation or similar business combination transaction of the Company (including, for the avoidance of doubt, any business combination structured as a forward or reverse triangular merger involving any direct or indirect subsidiary of the Company) with any other company, other than a merger, consolidation or similar business combination transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least sixty percent (60%) of the combined Voting Power of the voting securities of the
3
Company or such surviving entity or parent thereof outstanding immediately after such merger, consolidation or similar business combination transaction; or
(iv) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets.
(h) Code means the United States Internal Revenue Code of 1986, as amended, and any successors thereto.
(i) Committee means the Board Committee on Compensation or any other committee appointed by the Board to perform the functions of the Compensation and Organization Committee.
(j) Company means Deere & Company, a Delaware corporation, or any successor thereto as provided in Article 9 herein.
(k) Date of Termination Share Price means the average of the high and low prices per share paid in transactions reported on the New York Stock Exchange Composite Tape at the Effective Date of Termination.
(l) Disability means complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which the Executive was employed when such disability commenced.
(m) Effective Date means the date of this Agreement set forth above.
(n) Effective Date of Termination means the date on which a Qualifying Termination occurs which triggers the payment of Severance Benefits hereunder.
(o) Exchange Act means the United States Securities Exchange Act of 1934, as amended.
(p) Good Reason shall mean, without the Executives express written consent, the occurrence of any one or more of the following:
(i) The assignment of the Executive to duties materially inconsistent with the Executives authorities, duties, responsibilities, and status (including offices and reporting requirements) as an employee of the Company, or a reduction or alteration in the nature or status of the Executives authorities, duties, or responsibilities from the greater of (i) those in effect on the Effective Date; (ii) those in effect during the fiscal
4
year immediately preceding the year of the Change in Control; or (iii) those in effect immediately preceding the Change in Control;
(ii) The Companys requiring the Executive to be based at a location which is at least fifty (50) miles further from the current primary residence than is such residence from the Companys current headquarters, except for required travel on the Companys business to an extent substantially consistent with the Executives business obligations as of the Effective Date;
(iii) A reduction by the Company in the Executives Base Salary as in effect on the Effective Date or as the same shall be increased from time to time;
(iv) A material reduction in the Executives level of participation in any of the Companys short- and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participates from the levels in place during the fiscal year immediately preceding the Change in Control; provided, however, that reductions in the levels of participation in any such plans shall not be deemed to be Good
Reason if the Executives reduced level of participation in each such program remains substantially consistent with the average level of participation of other executives who have positions commensurate with the Executives position;
(v) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement, as contemplated in Article 9 herein; or
(vi) Any termination of Executives employment by the Company that is not effected pursuant to a Notice of Termination.
The existence of Good Reason shall not be affected by the Executives temporary incapacity due to physical or mental illness not constituting a Disability. The Executives Retirement shall constitute a waiver of the Executives rights with respect to any circumstance constituting Good Reason. The Executives continued employment shall not constitute a waiver of the Executives rights with respect to any circumstance constituting Good Reason.
(q) Notice of Termination shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executives employment under the provision so indicated.
(r) Person shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a group as provided in Section 13(d).
5
(s) Potential Change in Control of the Company means the happening of any of the following:
(i) the entering into an agreement by the Company, the consummation of which would result in a Change of Control of the Company as defined in paragraph (g) of this Article 2; or
(ii) the acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than a Participant or group of Participants, the Company or a subsidiary, or any employee benefit plan of the Company including its trustee) of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Companys outstanding securities and the adoption by the Board of Directors of a resolution to the effect that a Potential Change of Control of the Company has occurred for purposes of the Plan.
(t) Qualifying Termination means any of the events described in Section 3.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.
(u) SEC means the United States Securities and Exchange Commission.
(v) Section 16 Grantee means a person subject to potential liability with respect to equity securities of the Company under Section 16(b) of the Exchange Act.
(w) Severance Benefits means the payment of severance compensation as provided in Section 3.3 herein.
(x) Stock means common stock of the Company, par value $1.00 per share.
(y) Subsidiary means any corporation or other entity of which ownership interests having ordinary Voting Power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Company.
(z) Voting Power of a corporation or other entity means the combined voting power of the then-outstanding voting securities of such corporation or other entity entitled to vote generally in the election of directors.
3.1 Right to Severance Benefits . The Executive shall be entitled to receive from the Company Severance Benefits, as described in Section 3.3 herein, if a Qualifying Termination of the Executive has occurred.
6
The Executive shall not be entitled to receive Severance Benefits if he or she is terminated for Cause, or if his employment with the Company ends due to death or Disability or due to a voluntary termination of employment by the Executive without Good Reason.
3.2 Qualifying Termination . The occurrence of any one or more of the following events shall trigger the payment of Severance Benefits to the Executive under this Agreement:
(a) An involuntary termination of the Executives employment by the Company for reasons other than Cause within six (6) months preceding or within twenty-four (24) calendar months following a Change in Control of the Company; any such involuntary termination shall be pursuant to a Notice of Termination (specifying the Effective Date of Termination which shall be not less than five days from the date of the Notice of Termination) delivered to the Executive by the Company; or
(b) A voluntary termination by the Executive for Good Reason within twenty-four (24) calendar months following a Change in Control of the Company pursuant to a Notice of Termination delivered to the Company by the Executive.
3.3 Description of Severance Benefits . In the event the Executive becomes entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2 herein, the Company shall pay to the Executive and provide him or her with all of the following:
(a) An amount equal to three times the sum of the Executives Base Salary in effect at the Effective Date of Termination (without regard to any decreases therein which constitute Good Reason) plus the Executives Bonus.
(b) An amount equal to the Executives unpaid Base Salary, accrued vacation pay, and earned but not taken vacation pay through the Effective Date of Termination.
(c) An amount equal to the Executives Bonus multiplied by a fraction, the numerator of which is the number of days the Executive was employed by the Company in the then-existing fiscal year through the Effective Date of Termination, and the denominator of which is three hundred sixty-five (365) less, in the case of an Executive who began employment with the Company after the beginning of the fiscal year, the number of days from the beginning of the fiscal year to the date the Executive commenced employment with the Company.
7
(d) A continuation of the welfare benefits of health care, life and accidental death and dismemberment, and disability insurance coverage for three full years after the Effective Date of Termination. These benefits shall be provided to the Executive at the same premium cost, and at the same coverage level, as in effect as of the Executives Effective Date of Termination. However, in the event the premium cost and/or level of coverage shall change for all employees of the Company, or for management employees with respect to supplemental benefits, the cost and/or coverage level, likewise, shall change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to the end of the three year period to the extent the Executive has available substantially similar benefits at a comparable cost from a subsequent employer, as determined by the Committee.
(e) In a single payment an amount in cash equal to the excess of (i) the Supplemental Retirement Benefit (as defined below) had (x) the Executive remained employed by the Company for an additional three complete years of age and credited service, (y) his or her annual compensation during such period been equal to his or her Base Salary and Bonus taken into account under Section 3.3(a) above; and (z) he or she been fully (100%) vested in his or her benefit under each defined benefit retirement plan in which the Executive was a participant, over (ii) the lump sum actuarial equivalent (calculated as set forth in Section 3.5 of the John Deere Supplemental Pension Benefit Plan) of the aggregate retirement benefit the Executive is actually entitled to receive under such defined benefit retirement plans. For purposes of this subsection (e), the Supplemental Retirement Benefit shall mean the lump sum actuarial equivalent (calculated as set forth in Section 3.5 of the John Deere Supplemental Pension Benefit Plan) of the aggregate retirement benefit the Executive would have been entitled to receive under the Companys supplemental and other defined benefit retirement plans.
(f) In a single payment, an amount in cash equal to three times the amount of the Companys employer contributions made on behalf of the Executive under all defined contribution plans of the Company for the plan year immediately preceding the Effective Date of Termination (or, if higher, for the plan year immediately prior to the Change in Control).
Compensation which has been deferred under the Companys deferred compensation plans, together with all interest that has been credited with respect to any
8
such deferred compensation balances, shall be distributed pursuant to the terms of the applicable plan.
3.4 Termination for Disability . Following a Change in Control of the Company, if an Executives employment is terminated due to Disability, the Executive shall receive his Base Salary through the date of termination, at which point in time the Executives benefits shall be determined in accordance with the Companys disability, retirement, insurance, and other applicable plans and programs then in effect. In the event the Executives employment is terminated due to Disability, the Executive shall not be entitled to the Severance Benefits described in Section 3.3.
3.5 Termination for Death . Following a Change in Control of the Company, if the Executives employment is terminated by reason of his death, the Executives benefits shall be determined in accordance with the Companys retirement, survivors benefits, insurance, and other applicable programs of the Company then in effect. In the event the Executives employment is terminated by reason of his death, the Executive shall not be entitled to the Severance Benefits described in Section 3.3.
3.6 Termination for Cause, or Other Than for Good Reason . Following a Change in Control of the Company, if the Executives employment is terminated either (a) by the Company for Cause; or (b) by the Executive (other than for Good Reason or under circumstances giving rise to a Qualifying Termination described in Section 3.2(c) herein), the Company shall pay the Executive his full Base Salary and accrued vacation through the date of termination, at the rate then in effect, plus all other amounts to which the Executive is entitled under any compensation and benefit plans of the Company, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement.
3.7 Notice of Termination . Any termination of employment by the Executive for Good Reason shall be communicated by a Notice of Termination.
4.1 Form and Timing of Severance Benefits . The Severance Benefits described in Sections 3.3(a), 3.3(b), 3.3(c), 3.3(e) and 3.3(f) herein shall be paid in cash to the Executive in a single lump sum as soon as practicable upon the expiration of 185 days following the Effective Date of Termination.
4.2 Withholding of Taxes . The Company shall be entitled to withhold from any amounts payable under this Agreement all taxes as legally shall be required (including, without limitation, any United States federal taxes and any other state, city, or local taxes).
9
5.1 Excise Tax Equalization Payment . In the event that the Executive becomes entitled to Severance Benefits or any other payment or benefit under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the Total Payments), if all or any part of the Total Payments will be subject to the tax (the Excise Tax) imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Total Payments paid to the Executive shall be reduced, such that the value of the aggregate payments that the Executive receives shall be one dollar ($1) less than the maximum amount which the Executive may receive without becoming subject to the tax imposed by Section 4999 of the Code, or which the Company may pay without loss of deduction under Section 280G(a) of the Code.
Notwithstanding the preceding paragraph, the Company shall pay to the Executive in cash an additional amount (the Gross-Up Payment) such that the net amount retained by the Executive after deduction of any Excise Tax upon the Total Payments and any federal, state, and local income and employment tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 5.1 (including FICA and FUTA), shall be equal to the Total Payments, if and only if such Gross-Up Payment would enable the Executive to receive an amount which would exceed by at least ten percent (10%) the Total of Payments reduced as described in the preceding paragraph. Any such payment shall be made by the Company to the Executive as soon as practical following the Effective Date of Termination, but in no event beyond thirty (30) days from such date.
5.2 Tax Computation . All calculations done pursuant to subsection 5.1, shall be made and determined by the auditing firm which served as the Companys independent auditors immediately prior to the Change in Control.
For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executives residence on the Effective Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
The Executive shall notify the Company immediately of the assertion by any taxing authority of any underpayment of tax. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments and in resolving any dispute with any taxing authority regarding any asserted underpayment of Excise Tax.
5.3 Subsequent Recalculation . In the event the Internal Revenue Service adjusts the computation of the Company under Section 5.2 herein so that the Executive did not receive the greatest net benefit, the Company shall reimburse the Executive for the full
10
amount necessary to make the Executive whole, plus a market rate of interest, as determined by the Committee.
In the event the Internal Revenue Service adjusts the computation of the Company under Section 5.2 herein so that the Executive is not required to submit the full Gross-Up Payment, the Executive shall repay to the Company such portion of the Gross-Up Payment as shall exceed the amount of federal, state, and local taxes actually determined to be owed. Such repayment shall be made within twenty (20) days of the date the actual refund or credit of such portion has been made to Executive and that Executive shall pay the Company such interest received or credited to Executive by such tax authority for the period it held such portion.
6.1 Payment Obligations Absolute . The Companys obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as provided in Section 5.3 above, each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever.
Notwithstanding anything else herein to the contrary, however, if the Company (or any subsidiary or affiliate of the Company) is obligated by law to pay to the Executive severance pay, a termination indemnity, notice pay, or the like, or is obligated by law to provide to the Executive advance notice of separation (Notice Period), then any Severance Benefits hereunder shall be reduced by the amount of any such severance pay, termination indemnity, notice pay or the like, as applicable, and by the amount of any compensation received during any Notice Period.
The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Companys obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 3.3(d) herein.
6.2 Contractual Rights to Benefits . This Agreement establishes and vests in the Executive a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to prohibit the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.
11
7.1 Disclosure of Information . The Executive recognizes that he or she has access to and knowledge of certain confidential and proprietary information of the Company which is essential to the performance of his or her duties as an employee of the Company. The Executive will not, during or after the term of his or her employment by the Company, in whole or in part, disclose such information to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, nor shall he or she make use of any such information for their own purposes.
7.2 Covenants Regarding Other Employees . During the term of this Agreement, and for a period of two (2) years following the payment of Severance Benefits under this Agreement, the Executive agrees not to:
(a) attempt to induce any employee of the Company to (i) terminate his or her employment with the Company, or (ii) accept employment with any competitor of the Company; or
(b) interfere in a similar manner with the business of the Company.
8.1 Payment of Legal Fees . To the extent permitted by law, the Company shall pay all reasonable legal fees, costs of litigation or arbitration, prejudgment interest, and other expenses incurred in good faith by the Executive as a result of:
(a) the Companys refusal to provide the Severance Benefits to which the Executive becomes entitled under this Agreement, or
(b) the Companys contesting the validity, enforceability, or interpretation of this Agreement, or
(c) any conflict between the parties pertaining to this Agreement.
8.2 Arbitration . Any dispute or controversy arising under or in connection with this Agreement may, at the sole election of the Executive, be settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Executive within fifty (50) miles from the location of his employment with the Company, in accordance with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Executive, shall be borne by the Company.
12
9.1 Successors to the Company . The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, a similar business combination transaction or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform the Companys obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. The date on which any such succession becomes effective shall be deemed to be the date of the Change in Control.
9.2 Assignment by the Executive . This Agreement shall inure to the benefit of and be enforceable by the Executives personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him or her hereunder had he or she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executives Beneficiary. If the Executive has not named a Beneficiary, then such amounts shall be paid to the Executives devisee, legatee, or other designee, or if there is no such designee, to the Executives estate.
10.1 Employment Status . Except as may be provided under any other agreement between the Executive and the Company, the employment of the Executive by the Company is at will, and may be terminated by either the Executive or the Company at any time, subject to applicable law.
For purposes of this Agreement, the employment of the Executive by a Subsidiary of the Company shall be deemed to be employment by the Company.
10.2 Beneficiaries . The primary and/or contingent beneficiaries designated by the Executive pursuant to Company-provided life insurance benefits shall be the persons or entities who or which are the Beneficiaries of any Severance Benefits owing to the Executive under this Agreement.
10.3 Severability . In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.
10.4 Modification . No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and
13
signed by the Executive and by an authorized member of the Committee, or by the respective parties legal representatives and successors, Notwithstanding the preceding sentence, the Company shall have the unilateral right to amend or modify this Agreement to the extent that the Companys Vice President, Human Resources, determines such action to be necessary or advisable to avoid the imposition on the Executive of an additional tax or interest under Section 409A of the Code. Any determinations of the Companys Vice President, Human Resources, pursuant to the preceding sentence shall be final, conclusive and binding on all parties.
10.5 Applicable Law . TO THE EXTENT NOT PREEMPTED BY THE LAWS OF THE UNITED STATES OR ANY OTHER LAW MANDATORILY APPLYING TO THE EXECUTIVES EMPLOYMENT, THE LAWS OF THE STATE OF ILLINOIS SHALL BE THE CONTROLLING LAW IN ALL MATTERS RELATING TO THIS AGREEMENT.
10.6 Effect on Prior Agreements . By signing this Agreement, the Executive and the Company acknowledge that: (a) this Agreement supersedes all prior written or oral agreements between them, including, but not limited to, any Severance Protection Agreement which the parties may have entered into; and (b) as of the Effective Date, any and all such prior agreements are null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement on this day of 2008.
DEERE & COMPANY |
EXECUTIVE: |
|||||||
|
|
|||||||
|
|
|||||||
By: |
|
|
|
|||||
|
|
James R. Jenkins |
|
|
|
|||
|
|
|
||||||
Its: |
Senior Vice President & |
|
||||||
|
General Counsel |
|
||||||
|
|
|||||||
|
|
|||||||
Attest: |
|
|
|
|||||
|
John H. Leinart |
|
||||||
14
EXECUTIVE INCENTIVE AWARD
RECOUPMENT POLICY
WHEREAS, section 304 of the Sarbanes-Oxley Act of 2002 already requires the Chief Executive Officer and the Chief Financial Officer of Deere to reimburse Deere for certain Incentive Compensation they receive and profits they realize on the sale of Deere securities during the 12-month period following the issuance by Deere of a financial report that, due to misconduct, is materially noncompliant with any financial reporting requirement under the federal securities laws;
WHEREAS, Incentive Compensation payments (Incentive Compensation) under this policy may include, without limitation, Short Term Incentive (STI) awards; Mid-Term Incentive Awards (MTI); Long Term Incentive awards, which include restricted stock units and stock options; and any portion of pension payments that are calculated based on Incentive Compensation payments;
WHEREAS, for purposes of this policy, the term Executive means (i) an individual designated by the Board of Directors of Deere & Company (Deere) as an executive officer of Deere; and (ii) all other employees of Deere and its subsidiaries in compensation band IV as determined by Deeres policies and procedures . This policy shall also apply to any retired Executive who meets all of the requirements for recoupment of Incentive Compensation payments under this policy; and
WHEREAS, the Board Compensation Committee (Committee) believes it would be in the best interests of Deere to adopt a similar policy on recoupment of Incentive Compensation payments made to other Deere Executives;
RESOLVED, that, effective 1 November 2007 (Effective Date), if the Committee learns of any misconduct by an Executive that contributed to Deeres restatement of all or a portion of Deeres financial statements filed with the Securities and Exchange Commission (SEC), the Committee will take any and all actions the Committee deems necessary to remedy the misconduct and prevent its recurrence.
The Committee shall, to the extent permitted by applicable law, determine whether to require recoupment of any Incentive Compensation paid to an Executive where:
(a) The following three conditions are met:
(1) the payment was predicated upon achieving certain financial results that were subsequently restated due to Deeres material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws;
(2) the Committee determines the Executive engaged in misconduct that contributed to the need for the restatement; and
(3) a lower payment would have been made to the Executive based upon the restated financial results; and/or
1
(b) The following two conditions are met:
(1) the Committee determines the Executive engaged in misconduct that contributed to inaccurate operating metrics being used to calculate Incentive Compensation;
(2) a lower payment would have been made to the Executive had the correct operating metrics been properly applied to the calculation of Incentive Compensation.
If the Committee determines that recoupment action is appropriate, the Committee will, to the extent practicable and permitted by applicable law, seek to recover from the individual Executive all of the Incentive Compensation paid to the Executive or credited to the Executives deferred compensation account for the relevant period. Such recovery may be made in any manner permitted by law, including, but not limited to, offsetting current incentive and non-incentive compensation.
In determining whether a claim for recoupment of Incentive Compensation from an Executive is appropriate, the Committee will take into account all relevant factors.
The Committee may, in determining appropriate remedial action, take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities. The Committees power to determine the appropriate punishment for the wrongdoer is in addition to, and not in replacement of, any remedies or sanctions imposed by such authorities or any other third party actions.
This policy applies to any restatements of Deere financial statements filed with the SEC that occur after the Effective Date that meet the requirements of the policy, including, without limitation, any restatements of any financial statements of a fiscal year prior to the Effective Date where the restatement occurs after the Effective Date.
2
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions of dollars)
|
|
Three Months Ended
|
|
Year Ended October 31 |
|
|||||||||||||||||
|
|
2008 |
|
2007 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income of
consolidated group before income
|
|
$ |
531.5 |
|
$ |
365.4 |
|
$ |
2,675.5 |
|
$ |
2,173.8 |
|
$ |
2,106.5 |
|
$ |
2,100.6 |
|
$ |
934.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Dividends received from unconsolidated affiliates |
|
1.4 |
|
1.1 |
|
13.0 |
|
2.6 |
|
1.9 |
|
21.6 |
|
3.2 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Fixed charges excluding capitalized interest |
|
300.9 |
|
271.8 |
|
1,174.3 |
|
1,036.4 |
|
779.2 |
|
606.5 |
|
643.5 |
|
|||||||
Total earnings |
|
$ |
833.8 |
|
$ |
638.3 |
|
$ |
3,862.8 |
|
$ |
3,212.8 |
|
$ |
2,887.6 |
|
$ |
2,728.7 |
|
$ |
1,581.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest expense
of consolidated group
|
|
$ |
304.5 |
|
$ |
274.4 |
|
$ |
1,181.9 |
|
$ |
1,023.8 |
|
$ |
763.2 |
|
$ |
592.8 |
|
$ |
628.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Portion of rental charges deemed to be interest |
|
5.8 |
|
4.7 |
|
23.1 |
|
18.9 |
|
18.2 |
|
14.4 |
|
15.0 |
|
|||||||
Total fixed charges |
|
$ |
310.3 |
|
$ |
279.1 |
|
$ |
1,205.0 |
|
$ |
1,042.7 |
|
$ |
781.4 |
|
$ |
607.2 |
|
$ |
643.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ratio of earnings to fixed charges |
|
2.69 |
|
2.29 |
|
3.21 |
|
3.08 |
|
3.70 |
|
4.49 |
|
2.46 |
|
The computation of the ratio of earnings to fixed charges is based on applicable amounts of the Company and its consolidated subsidiaries plus dividends received from unconsolidated affiliates. Earnings consist of income before income taxes, the cumulative effect of changes in accounting, discontinued operations and fixed charges excluding capitalized interest. Fixed charges consist of interest on indebtedness, amortization of debt discount and expense, an estimated amount of rental expense that is deemed to be representative of the interest factor, and capitalized interest.
The Company has not issued preferred stock. Therefore, the ratios of earnings to combined fixed charges and preferred stock dividends are the same as the ratios presented above.
CERTIFICATIONS |
I, R. W. Lane, certify that: |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
1. |
|
I have reviewed this quarterly report on Form 10-Q of Deere & Company; |
|
|
|
|
|||
|
|
|
|
|
|
|
|||
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|||||||
|
|
|
|
|
|
|
|||
3. |
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|||||||
|
|
|
|
|
|
|
|||
4. |
|
The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|||||||
|
|||||||||
|
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|||||||
|
|||||||||
|
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|||||||
|
|
|
|
|
|
|
|||
|
|
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|||||||
|
|
|
|
|
|
|
|||
|
|
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
|||||||
|
|||||||||
5. |
|
The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
|||||||
|
|
|
|
|
|
|
|||
|
|
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
|||||||
|
|
|
|
|
|
|
|||
|
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
|||||||
|
|
|
|
|
|
Date: February 28, 2008 |
|
|
By: |
/s/ R. W. Lane |
|
|
|
|
|
R. W. Lane Principal Executive Officer |
|
|
|
|
|
||
|
|
|
|
CERTIFICATIONS
I, M. J. Mack, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Deere & Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: February 28, 2008 |
By: |
/s/ M. J. Mack, Jr. |
|
|
|
M. J. Mack, Jr. |
|
|
|
Principal Financial Officer |
|
|
|
|
|
|
|
|
18 U.S.C. SECTION 1350
AS REQUIRED BY
1. |
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and |
|
|
|
2. |
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
February 28, 2008 |
|
/s/ R. W. Lane |
Chairman, President and Chief Executive Officer |
|
|
R. W. Lane |
|
|
|
|
|
February 28, 2008 |
|
/s/ M. J. Mack, Jr. |
Senior Vice President and Chief Financial Officer |
|
|
M. J. Mack, Jr. |
|