SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003
Commission file number 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 36-2382580 | |||
(State of incorporation) | (IRS Employer Identification No.) | |||
One John Deere Place, Moline, Illinois | 61265 | (309) 765-8000 | ||
(Address of principal executive offices) | (Zip Code) | (Telephone Number) |
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT
Title of each class |
Name of each exchange on which registered |
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Common stock, $1 par value
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New York Stock Exchange Chicago Stock Exchange Frankfurt (Germany) Stock Exchange |
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5 7 / 8 % Debentures Due 2006 (issued by John Deere B.V., a wholly-owned subsidiary, and guaranteed by Deere & Company) |
New York Stock Exchange
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8.95% Debentures Due 2019 8 1 / 2 % Debentures Due 2022 6.55% Debentures Due 2028 |
New York Stock Exchange New York Stock Exchange New York Stock Exchange |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
The aggregate quoted market price of voting stock of registrant held by nonaffiliates at April 30, 2003 was $10,520,718,013. At November 30, 2003, 244,313,103 shares of common stock, $1 par value, of the registrant were outstanding. Documents Incorporated by Reference . Portions of the proxy statement for the annual meeting of stockholders to be held on February 25, 2004 are incorporated by reference in Part III.
PART I
ITEM 1. BUSINESS.
Products
Deere & Company (Company) and its subsidiaries (collectively called John Deere) have operations which are categorized into four major business segments.
The agricultural equipment segment manufactures and distributes a full line of farm equipment and service parts including tractors; combine, cotton and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; material handling equipment; and integrated agricultural management systems technology.
The commercial and consumer equipment segment manufactures and distributes equipment and service parts for commercial and residential uses including small tractors for lawn, garden, commercial and utility purposes; walk-behind mowers; golf course equipment; utility vehicles; landscape and irrigation equipment; and other outdoor power products.
The construction and forestry segment manufactures, distributes to dealers and sells at retail a broad range of machines and service parts used in construction, earthmoving, material handling and timber harvesting including backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, loaders, forwarders, harvesters and related attachments.
The products and services produced by the segments above are marketed primarily through independent retail dealer networks and major retail outlets.
The credit segment primarily finances sales and leases by John Deere dealers of new and used agricultural, commercial and consumer, and construction and forestry equipment. In addition, it provides wholesale financing to dealers of the foregoing equipment, provides operating loans and finances retail revolving charge accounts.
John Deere is also engaged in special technologies operations and provides managed health care plans. John Deeres worldwide agricultural equipment; commercial and consumer equipment; construction and forestry; and special technologies operations are sometimes referred to as the Equipment Operations. The credit and health care operations are sometimes referred to as Financial Services.
Additional information is presented in the discussion of business segment and geographic area results on page 17. The John Deere enterprise has manufactured agricultural machinery since 1837. The present Company was incorporated under the laws of Delaware in 1958.
The Companys Internet address is http://www.JohnDeere.com . Through that address, the Companys annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available free of charge as soon as reasonably practicable after they are filed with the Securities and Exchange Commission.
Market Conditions and Outlook
As a result of the factors and conditions outlined below, sales for the full 2004 fiscal year are expected to increase between 9 and 11 percent and net income is forecast to be in a range of $750 million to $850
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million. The Companys net equipment sales for the first quarter of 2004 are currently forecast to be up approximately 25 percent in comparison with depressed sales levels in the first quarter of 2003, although production levels are expected to increase only 9 to 11 percent for the first quarter. Company-wide net income for the first quarter in 2004 is forecasted in a range of $100 million to $150 million. Excluding the impact of currency and price, sales are expected to increase 18 to 20 percent for the quarter and 6 to 8 percent for the year.
The Companys yearly earnings estimate also includes an increase of approximately $125 million pretax in postretirement benefit costs, based on the Companys assumptions that reflect recent trends in medical inflation and interest rates.
Agricultural Equipment After hitting a record level in 2003, United States farm income is expected to remain strong in the coming year as a result of continuing high crop and livestock prices, as well as favorable levels of carryover stocks in farm commodities. In addition, tax provisions that offer expanded depreciation and expense write-offs should lend further support to farm machinery sales. As a result of these positive factors, industry retail sales in the United States and Canada are now expected to be up 5 to 10 percent for fiscal 2004. In other parts of the world, industry retail sales in Western Europe are expected to be flat to down 5 percent for the year mainly as a result of lower farm income due to the impact of drought on the livestock sector. The Company believes industry sales in South America will be flat in 2004. While favorable conditions support further industry growth in South America, the Company believes this could be offset by the timing and availability of Brazilian government financing. On a worldwide basis, sales of the Companys agricultural equipment are now forecast to be up between 8 to 10 percent for the year with an increase in physical volume of 5 to 7 percent.
Commercial and Consumer Equipment The Companys commercial and consumer equipment sales are expected to continue benefiting from the success of new products, including an expanded utility-vehicle line and the 100 series lawn tractor introduced in the mass and dealer channels in 2003. As a result, the segments sales are forecast to be up between 10 to 12 percent for the year.
Construction and Forestry Retail activity in the construction and forestry sectors rose at a healthy rate in 2003 mainly as a result of strong replacement demand. The Companys sales for 2003 rose sharply in virtually all market segments and outpaced the industry. Further replacement demand is expected to lead to modest growth in the industry in 2004. In 2004, the Companys shipments of construction and forestry equipment are projected to be up 2 to 4 percent. The Company consolidated Nortrax, Inc. during the first quarter of 2004. Nortrax, Inc. and Nortrax Investments, Inc. (collectively called Nortrax) are ventures involved in the ownership and development of several construction equipment dealer locations. Including Nortrax in the consolidated results will add an additional estimated $275 million to sales for the year.
Credit Operations Although the Companys credit operations are expect to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit operations expect net income of about $300 million for the year.
2003 Consolidated Results Compared with 2002
The Company had net income in 2003 of $643 million, or $2.64 per share diluted ($2.68 basic), compared with $319 million, or $1.33 per share diluted ($1.34 basic), in 2002. The success of new products and ongoing efforts to manage costs and asset intensity were evident in the results for 2003. Improved market conditions also contributed to the stronger performance of the Companys construction and forestry and commercial and consumer equipment segments. Additionally, as a result of disciplined asset management, trade receivables ended the year at their lowest level in more than a decade. Net sales and revenues increased 11 percent to $15,535 million in 2003, compared with $13,947 million in 2002. Net sales of the Equipment Operations increased 14 percent in 2003 to $13,349 million from $11,703 million last year.
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The Companys Equipment Operations, which exclude the Financial Services operations, had net income of $305 million in 2003, compared with $78 million in 2002. Income increased primarily due to improved price realization and a higher physical volume of sales. Partially offsetting these factors were higher postretirement benefit costs of $306 million. Last years results were negatively affected by the costs of closing certain facilities and higher costs associated with the Companys minority investments in Nortrax. In addition, prior-year results were negatively impacted by a higher effective tax rate.
Net income of the Companys Financial Services operations in 2003 was $330 million, compared with $262 million in 2002. The increase was due primarily to lower loan losses, growth in the portfolio and the absence of losses from Argentina related to the peso devaluation last year. Additional information is presented in the credit operations discussion on pages 17, 20 and 21.
EQUIPMENT OPERATIONS
Agricultural Equipment
Sales of agricultural equipment, particularly in the United States and Canada, are affected by total farm cash receipts, which reflect levels of farm commodity prices, acreage planted, crop yields and the amount and timing of government payments. Sales are also influenced by general economic conditions, farm land prices, farmers debt levels, interest rates, agricultural trends and the levels of costs associated with farming. Weather and climatic conditions can also affect buying decisions of equipment purchasers.
Innovations to machinery and technology also influence buying. For example, larger, more productive equipment is well accepted where farmers are striving for more efficiency in their operations. The Company has developed a comprehensive agricultural management systems approach using advanced technology and global satellite positioning to enable farmers to better control input costs and yields, to improve environmental management and to gather information.
Large, cost-efficient, highly-mechanized agricultural operations account for an important share of worldwide farm output. The large-size agricultural equipment used on such farms has been particularly important to John Deere. A large proportion of the Equipment Operations total agricultural equipment sales in the United States is comprised of tractors over 100 horsepower, self-propelled combines, self-propelled cotton pickers, self-propelled forage harvesters and self-propelled sprayers.
Seasonality . Seasonal patterns in retail demand for agricultural equipment result in substantial variations in the volume and mix of products sold to retail customers during various times of the year. Seasonal demand must be estimated in advance, and equipment must be manufactured in anticipation of such demand in order to achieve efficient utilization of manpower and facilities throughout the year. For certain equipment, the Company offers early order discounts to retail customers. Production schedules are based, in part, on these early order programs. The Equipment Operations incur substantial seasonal indebtedness with related interest expense to finance production and inventory of equipment. The Equipment Operations also incur costs to finance sales to dealers in advance of seasonal demand. New combine and cotton harvesting equipment is sold under early order programs with waivers of retail finance charges available to customers to take delivery of machines during off-season periods. Used equipment trade-ins, of which there are typically several transactions for every new machine sale, are supported with a fixed pool of funds available to dealers which are then responsible for all associated inventory and sale costs.
An important part of the competition within the agricultural equipment industry during the past decade has come from a diverse variety of short-line and specialty manufacturers with differing manufacturing and
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marketing methods. Because of industry conditions, especially the merger of certain large integrated competitors, the agricultural equipment business continues to undergo significant change and may become more competitive.
Commercial and Consumer Equipment
John Deere commercial and consumer equipment includes front-engine lawn tractors, lawn and garden tractors, compact utility tractors, utility tractors, zero-turning radius mowers, front mowers and small utility vehicles. In the fourth quarter of 2003, the division expanded its offering of utility vehicles with new products focused on residential, commercial, agricultural, and consumer markets. A broad line of associated implements for mowing, tilling, snow and debris handling, aerating, and many other residential, commercial, golf and sports turf care applications are also included. The product line also includes walk-behind mowers and other outdoor power products. Retail sales of these commercial and consumer equipment products are influenced by weather conditions, consumer spending patterns and general economic conditions. In an effort to increase asset turnover and reduce the average level of field inventories through the year, the Company has recently modified the production and shipment schedules of its product lines to more closely correspond to the seasonal pattern of retail sales.
The division sells walk-behind mowers in Europe under the SABO brand. The division also builds products for sale by mass retailers. Since 1999, the Company has built products for sale through The Home Depot stores.
John Deere Landscapes, Inc., a unit of the division, distributes irrigation equipment, nursery products and landscape supplies primarily to landscape service professionals.
In addition to the equipment manufactured by the commercial and consumer division, John Deere purchases certain products from other manufacturers for resale.
Seasonality Seasonality of retail demand for the divisions equipment occurs in the second and third quarters. The division is pursuing a strategy of building and shipping as close to retail demand as possible. Consequently, production, shipping and retail sales will be proportionately higher in the second and third quarters of each year.
Construction and Forestry
John Deere construction, earthmoving, material handling and forestry equipment includes a broad range of backhoe loaders, crawler dozers and loaders, four-wheel-drive loaders, excavators, motor graders, articulated dump trucks, landscape loaders, skid-steer loaders, log skidders, log feller bunchers, log loaders, log forwarders, log harvesters and a variety of attachments.
Today, this segment provides sizes of equipment that compete for over 90 percent of the estimated total North American market for those categories of construction, earthmoving and material handling equipment in which it competes. These construction, earthmoving and material handling machines are distributed under the Deere brand name. This segment also provides the most complete line of forestry machines and attachments available in the world. These forestry machines and attachments are distributed under the Deere, Timberjack and Waratah brand names. In addition to the equipment manufactured by the Construction and Forestry division, John Deere purchases certain products from other manufacturers for resale.
The prevailing levels of residential, commercial and public construction and the condition of the forest products industry influence retail sales of John Deere construction, earthmoving, material handling and forestry equipment. General economic conditions, the level of interest rates and certain commodity prices such as those applicable to pulp, paper and saw logs also influence sales.
The Company and Hitachi have a joint venture for the manufacture of hydraulic excavators and track log loaders in the United States and Canada. In May 2002, the Company began distributing Hitachi brands of construction and mining equipment in North, Central and South America. The Company also has supply
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agreements with Hitachi under which a range of construction, earthmoving, material handling and forestry products manufactured by John Deere in the United States, Canada, Finland and New Zealand are distributed by Hitachi in Japan and other Far East markets.
The division has a number of initiatives in the rent-to-rent, or short-term rental, market for construction, earthmoving and material handling equipment. These include specially designed rental programs for John Deere dealers and expanded cooperation with major national equipment rental companies. In November 2003, the Company sold its minority ownership in Sunstate Equipment Co., LLC, a venture engaged in the rent-to-rent business.
During the 2003 fiscal year, the Company also had a minority ownership interest in Nortrax. Nortrax is, among other things, an authorized John Deere dealer for construction, earthmoving, material handling and forestry equipment in a variety of markets in the United States and Canada. During the first quarter of 2004, the Company acquired a majority interest in Nortrax, Inc. and it was consolidated.
Engineering and Research
John Deere makes large expenditures for engineering and research to improve the quality and performance of its products, and to develop new products. Such expenditures were $577 million or 4.3 percent of net sales of equipment in 2003, $528 million, or 4.5 percent in 2002, and $590 million, or 5.3 percent in 2001.
Manufacturing
Manufacturing Plants . In the United States and Canada, the Equipment Operations own and operate 23 factory locations and lease and operate another location, which contain approximately 29.4 million square feet of floor space. Of these 24 factories, ten are devoted primarily to agricultural equipment, four to commercial and consumer equipment, two to non-forestry construction equipment, one to engines, three to hydraulic and power train components, one to special technology equipment and three to forestry equipment. Outside the United States and Canada, the Equipment Operations own and operate: agricultural equipment factories in France, Germany, Mexico, The Netherlands, Brazil and South Africa; engine factories in Argentina, France and Mexico; a component factory in Spain; commercial and consumer equipment factories in Germany and The Netherlands; and forestry equipment factories in Finland and New Zealand. These factories outside the United States and Canada contain approximately 10.6 million square feet of floor space. The Equipment Operations also have financial interests in other manufacturing organizations, which include agricultural equipment manufacturers in China, India and the United States, an industrial truck manufacturer in South Africa and the Hitachi joint venture that builds hydraulic excavators and track log loaders in the United States and Canada.
John Deeres facilities are well maintained, in good operating condition and are suitable for their present purposes. These facilities, together with both short-term and long-term planned capital expenditures, are expected to meet John Deeres manufacturing needs in the foreseeable future.
Capacity is adequate to satisfy the Companys current expectations for retail market demand. The Equipment Operations manufacturing strategy involves the implementation of appropriate levels of technology and automation to allow manufacturing processes to remain viable at varying production levels. Operations are also designed to be flexible enough to accommodate the product design changes required to meet market conditions. Common manufacturing facilities and techniques are employed in the production of components for agricultural, commercial and consumer and construction and forestry equipment.
In order to utilize manufacturing facilities and technology more effectively, the Equipment Operations pursue continuous improvements in manufacturing processes. These include steps to streamline manufacturing processes and enhance responsiveness to customers. The Company has implemented flexible assembly lines that can handle a wider product mix and deliver products at the times when dealers and customers require
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them. Additionally, considerable effort is being directed to manufacturing cost reduction through process improvement, product design, advanced manufacturing technology, enhanced environmental management systems, supply management and compensation incentives related to productivity and organizational structure. The Equipment Operations also pursue external sales of selected parts and components that can be manufactured and supplied to third parties on a competitive basis.
Capital Expenditures. The agricultural equipment, commercial and consumer equipment and construction and forestry operations capital expenditures totaled $304 million in 2003, compared with $351 million in 2002, and $480 million in 2001. Provisions for depreciation applicable to these operations property, plant and equipment during these years were $306 million, $296 million and $295 million, respectively. Capital expenditures for these operations in 2004 are currently estimated to be $520 million. The 2004 expenditures will be related primarily to the modernization and restructuring of key manufacturing facilities and will also be related to the development of new products. Future levels of capital expenditures will depend on business conditions.
Patents and Trademarks
John Deere owns a significant number of patents, licenses and trademarks which have been obtained over a period of years. The Company believes that, in the aggregate, the rights under these patents, licenses and trademarks are generally important to its operations, but does not consider that any patent, license, trademark or related group of them (other than its house trademarks) is of material importance in relation to John Deeres business.
Marketing
In the United States and Canada, the Equipment Operations distribute equipment and service parts through the following facilities (collectively called sales branches): one agricultural equipment sales and administration office supported by seven agricultural equipment sales branches; one construction, earthmoving, material handling and forestry equipment sales and administration office; and one commercial and consumer equipment sales and administration office.
In addition, the Equipment Operations operate a centralized parts distribution warehouse in coordination with several regional parts depots in the United States and Canada and have an agreement with a third party to operate a high-volume parts warehouse in Indiana.
The sales branches in the United States and Canada market John Deere products at approximately 3,167 dealer locations, most of which are independently owned. Of these, approximately 1,600 sell agricultural equipment, while 576 sell construction, earthmoving, material handling and/or forestry equipment. Nortrax owns some of the 576. Commercial and consumer equipment is sold by most John Deere agricultural equipment dealers, a few construction, earthmoving, material handling and forestry equipment dealers, and about 991 commercial and consumer equipment dealers, many of whom also handle competitive brands and dissimilar lines of products. In addition, certain lawn and garden product lines are sold through various general and mass merchandisers, including The Home Depot.
Outside the United States and Canada, John Deere agricultural equipment is sold to distributors and dealers for resale in over 160 countries. Sales branches are located in Germany, France, Italy, Russia, Spain, Switzerland, the United Kingdom, South Africa, Mexico, Brazil, Argentina, Uruguay, Australia and Hong Kong. Export sales branches are located in Europe and the United States. Associated companies doing business in China and India also sell John Deere agricultural equipment. Commercial and consumer equipment sales occur primarily in Europe and Australia. Construction, earthmoving, material handling and forestry equipment is sold to distributors and dealers primarily by sales offices located in the United States, Singapore and Finland. Some of these dealers are independently owned while the Company owns others.
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Trade Accounts and Notes Receivable
Trade accounts and notes receivable arise from sales of goods to dealers. Most trade receivables originated by the Equipment Operations are purchased by Financial Services. The Equipment Operations compensate Financial Services at market rates of interest for these receivables. Additional information appears in Note 8 to the Consolidated Financial Statements.
Special Technologies Group
The Special Technologies Group (STG) consists of three operating units that offer a range of electronic, information-system and Internet-related products and services to the Company and outside customers. STGs purpose is to integrate advanced technology into John Deere equipment and to make such advancements directly available to customers through a variety of business relationships and ventures. One STG unit, Phoenix International, develops and produces electronic devices that control and monitor a variety of mobile-equipment functions. Another, AGRIS Corporation, is a leading supplier of information-management systems for agribusinesses. NavCom develops systems for tracking the exact position of vehicles, and for transmitting data to and from vehicles on the move.
FINANCIAL SERVICES
Credit Operations
United States and Canada . The Companys credit subsidiaries (collectively referred to as the Credit Companies) primarily provide and administer financing for retail purchases from John Deere dealers of new equipment manufactured by the Companys agricultural equipment, commercial and consumer equipment, and construction and forestry divisions and used equipment taken in trade for this equipment. Deere & Company and John Deere Construction & Forestry Company are referred to as the sales companies. John Deere Capital Corporation (Capital Corporation), a United States credit subsidiary, purchases retail installment sales and loan contracts (retail notes) from the sales companies. These retail notes are acquired by the sales companies through John Deere retail dealers in the United States. John Deere Credit Inc., a Canadian credit subsidiary, purchases and finances retail notes acquired by John Deere Limited, the Companys Canadian sales branch. The terms of retail notes and the basis on which the Credit Companies acquire retail notes from the sales companies are governed by agreements with the sales companies. The Credit Companies also finance and service revolving charge accounts, in most cases acquired from and offered through merchants in the agricultural, commercial and consumer, and construction and forestry markets (revolving charge accounts). Further, the Credit Companies finance and service operating loans, offered directly to agricultural producers or offered through and acquired from farm input providers, and provide insured international export financing generally involving John Deere products (operating loans). Additionally, the Credit Companies provide wholesale financing for inventories of John Deere engines and John Deere agricultural, commercial and consumer, and construction and forestry equipment owned by dealers of those products (wholesale notes).
Retail notes acquired by the sales companies are immediately sold to the Credit Companies. The Equipment Operations are the Credit Companies major source of business, but many retail purchasers of John Deere products finance their purchases outside the John Deere organization.
The Credit Companies offer retail leases to equipment users in the United States. A small number of leases are executed with units of local government. Leases are usually written for periods of two to five years, and frequently contain an option permitting the customer to purchase the equipment at the end of the lease term. Retail leases are also offered in a generally similar manner to customers in Canada through John Deere Credit Inc. and John Deere Limited.
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The Credit Companies terms for financing equipment retail sales (other than smaller items financed with unsecured revolving charge accounts) provide for retention of a security interest in the equipment financed. The Credit Companies guidelines for minimum down payments, which vary with the types of equipment and repayment provisions, are generally not less than 20 percent on agricultural equipment, 10 percent on construction and forestry equipment and 10 percent on lawn and grounds care equipment used for personal use. Finance charges are sometimes waived for specified periods or reduced on certain John Deere products sold or leased in advance of the season of use or in other sales promotions. The Credit Companies generally receive compensation from the sales companies equal to a competitive interest rate for periods during which finance charges are waived or reduced on the retail notes or leases. The cost is accounted for as a deduction in arriving at net sales by the Equipment Operations.
The Company has an agreement with the Capital Corporation to make income maintenance payments to the Capital Corporation such that its ratio of earnings before fixed charges to fixed charges is not less than 1.05 to 1 for any fiscal quarter. For 2003 and 2002, the Capital Corporations ratios were 2.17 and 1.97 to 1, respectively, and never less than 2.05 to 1 and 1.81 to 1 for any fiscal quarter of 2003 and 2002, respectively. The Company has also committed to continue to own at least 51 percent of the voting shares of capital stock of the Capital Corporation and to maintain the Capital Corporations consolidated tangible net worth at not less than $50 million. The Companys obligations to make payments to the Capital Corporation under the agreement are independent of whether the Capital Corporation is in default on its indebtedness, obligations or other liabilities. Further, the Companys obligations under the agreement are not measured by the amount of the Capital Corporations indebtedness, obligations or other liabilities. The Companys obligations to make payments under this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation or liability of the Capital Corporation and are enforceable only by or in the name of the Capital Corporation. No payments were necessary under this agreement in 2002 or 2003.
Outside the United States and Canada . The Credit Companies offer equipment financing products in Argentina, Australia, Brazil, Finland, France (through a joint venture), Germany, Italy, Luxembourg, Mexico, New Zealand, Portugal (through a cooperation agreement), Spain, Sweden and the United Kingdom. Retail sales financing outside of the United States and Canada is affected by a diversity of customs and regulations.
Additional information on the Credit Companies appears on pages 17, 20 and 21.
Health Care
In 1985, the Company formed John Deere Health Care, Inc. to commercialize the Companys expertise in the field of health care benefit management, which had been developed from efforts to manage its own health care costs. John Deere Health Care currently provides health benefit management programs and related administrative services in Illinois, Iowa, Tennessee and Virginia for companies and government entities, either as a third-party administrator or through its health maintenance organization subsidiary, John Deere Health Plan, Inc.. At October 31, 2003, approximately 530,000 individuals were enrolled in these programs, of which approximately 72,000 were John Deere employees, retirees and their dependents.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of state, federal and international environmental laws, rules and regulations. These laws, rules and regulations may affect the way the Company conducts its operations, and failure to comply with these regulations could lead to fines and other penalties. The Company is also involved in the evaluation and clean-up of a limited number of sites that it owns. Management does not expect that these matters will have a material adverse effect on the consolidated financial position or results of operations of the Company. With respect to recently acquired properties, the Company cannot be certain that it has identified all adverse environmental conditions. The Company expects that it will acquire additional properties in the future.
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EMPLOYEES
At October 31, 2003, John Deere had approximately 43,200 full-time employees, including approximately 27,000 employees in the United States and Canada. From time to time, John Deere also retains consultants, independent contractors, and temporary and part-time workers. Unions are certified as bargaining agents for approximately 40 percent of John Deeres United States employees. Most of the Companys United States production and maintenance workers are covered by a collective bargaining agreement with the United Auto Workers (UAW), with an expiration date of September 30, 2009.
The majority of employees at John Deere manufacturing facilities outside the United States are also represented by unions.
EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the names and ages of the executive officers of the Company, their positions with the Company and summaries of their backgrounds and business experience. All executive officers are elected or appointed by the Board of Directors and hold office until the annual meeting of the Board of Directors following the annual meeting of stockholders in each year.
Name, age and office (at December 1, 2003), and year elected to office |
Principal occupation during last five years other than office of the Company currently held |
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Robert W. Lane |
54 |
Chairman, President and Chief Executive Officer |
2000 |
2000 President and Chief Executive Officer; 1999-2000 Division President; 1998-99 Senior Vice President, Ag Division, and Managing Director, Region II (Europe, Africa and the Middle East); 1996-98 Senior Vice President and Chief Financial Officer |
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Samuel R. Allen |
50 |
Division President |
2003 |
2001-2002 Senior Vice President Worldwide Human Resources; 1999-2001 Vice President Region I (Latin America, the Far East, Australia and South Africa); 1998 Manager, Worldwide Engine Manufacturing Operations; 1995-98 Manager, Engine Manufacturing Operations |
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David C. Everitt |
51 |
Division President |
2001 |
1999-2000 Senior Vice President, Region II (Europe, Africa and the Middle East); 1998-99 Vice President, Region I (Latin America, the Far East, Australia and South Africa) |
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James R. Jenkins |
58 |
Senior Vice President and General Counsel |
2000 |
1999 and prior, Vice President, Secretary and General Counsel, Dow Corning |
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John J. Jenkins |
58 |
Division President |
2000 |
1997-2000 President, John Deere Health Care; 1999-2000 also Executive Sponsor, SAP* |
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Nathan J. Jones |
47 |
Senior Vice President and Chief Financial Officer |
1998 |
Has held this position for the last five years |
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Pierre E. Leroy |
55 |
Division President |
1996 |
Has held this position for the last five years |
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H. J. Markley |
53 |
Division President |
2001 |
2000-01 Senior Vice President, Worldwide Human Resources; 1996-2000 Senior Vice President, Construction Division |
David M. Purvis, Senior Vice President and Chief Technology Officer, resigned from the Company on December 5, 2003.
* | SAP is a supplier of enterprise resource planning software |
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ITEM 2. PROPERTIES.
See Manufacturing in Item 1.
The Equipment Operations own 16 facilities housing sales branches, one centralized parts depot, regional parts depots, transfer houses and warehouses throughout the United States and Canada. These facilities contain approximately 5.2 million square feet of floor space. The Equipment Operations also own and occupy buildings housing sales branches, one centralized parts depot and regional parts depots in Australia, Brazil, Europe and New Zealand. These facilities contain approximately 1.0 million square feet of floor space.
Deere & Company administrative offices, research facilities and certain facilities for health care activities, all of which are owned by John Deere, together contain about 2.4 million square feet of floor space and miscellaneous other facilities total .8 million square feet.
Overall, the Company owns approximately 49.3 million square feet of facilities and leases additional square feet in various locations.
ITEM 3. LEGAL PROCEEDINGS.
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 financial statements.
The Company has been cooperating in a proceeding with the California Air Resources Board regarding small engines that may not comply with California emission standards. These engines were used in certain of the Companys portable power equipment and walk behind lawn mowers. The Company ceased selling these engines in California and is attempting to recall those previously sold.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Companys common stock is listed on the New York Stock Exchange, the Chicago Stock Exchange and the Frankfurt (Germany) Stock Exchange. See the information concerning quoted prices of the Companys common stock and the number of stockholders in the second table and the sentence following it, and the data on dividends declared and paid per share in the first table, under the caption Supplemental Information (Unaudited) in Note 28 to the Consolidated Financial Statements .
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ITEM 6. SELECTED FINANCIAL DATA.
Financial Summary
(Millions of dollars except per share amounts) |
2003
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2002*
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2001*
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2000
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1999
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For the Year Ended October 31: |
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Total net sales and revenues |
$ | 15,535 | $ | 13,947 | $ | 13,293 | $ | 13,137 | $ | 11,751 | ||||||
Net income (loss) |
$ | 643 | $ | 319 | $ | (64 | ) | $ | 486 | $ | 239 | |||||
Net income (loss) per share - basic |
$ | 2.68 | $ | 1.34 | $ | (.27 | ) | $ | 2.07 | $ | 1.03 | |||||
Net income (loss) per share - diluted |
$ | 2.64 | $ | 1.33 | $ | (.27 | ) | $ | 2.06 | $ | 1.02 | |||||
Dividends declared per share |
$ | .88 | $ | .88 | $ | .88 | $ | .88 | $ | .88 | ||||||
At October 31: |
||||||||||||||||
Total assets |
$ | 26,258 | $ | 23,768 | $ | 22,663 | $ | 20,469 | $ | 17,578 | ||||||
Long-term borrowings |
$ | 10,404 | $ | 8,950 | $ | 6,561 | $ | 4,764 | $ | 3,806 |
* | In 2002 and 2001, the Company had special charges of $46 million, or $.18 per share, and $217 million, or $.91 per share, respectively, related to costs of closing and restructuring certain facilities in both years and a voluntary early-retirement program in 2001. |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
See the information under the caption Managements Discussion and Analysis
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to a variety of market risks, including interest rates and currency exchange rates. The Company attempts to actively manage these risks. See the information under Managements Discussion and Analysis on page 23.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the consolidated financial statements and notes thereto and supplementary
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. 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 October 31, 2003, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors in the proxy statement dated January 15, 2004 (proxy statement), under the captions Election of Directors, Directors Continuing in Office and in the third paragraph under the caption Committees - The Audit Review Committee, is incorporated herein by reference. Information regarding executive officers is presented in Item 1 of this report under the caption Executive Officers of the Registrant.
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Companys corporate governance policies are posted on the Companys website at http://www.JohnDeere.com . The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the proxy statement under the captions Compensation of Executive Officers and Compensation of Directors is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
(a) | Securities authorized for issuance under equity compensation plans. |
Equity compensation plan information in the proxy statement, under the caption Equity Compensation Plan Information, is incorporated herein by reference.
(b) | Security ownership of certain beneficial owners. |
The information on the security ownership of certain beneficial owners in the proxy statement under the caption Security Ownership of Certain Beneficial Owners and Management is incorporated herein by reference.
(c) | Security ownership of management. |
The information on shares of common stock of the Company beneficially owned by, and under option to (i) each director, (ii) certain named executive officers and (iii) the directors and officers as a group, contained in the proxy statement under the captions Security Ownership of Certain Beneficial Owners and Management, Compensation of Executive Officers-Summary Compensation Table and Compensation of Executive Officers-Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values is incorporated herein by reference.
(d) | Change in control. |
None.
12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in the proxy statement under the caption Certain Business Relationships is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not Applicable.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page
|
||||
(a) (1) |
Financial Statements |
|||
Statement of Consolidated Income for the years ended October 31, 2003, 2002, and 2001 |
24 | |||
Consolidated Balance Sheet, October 31, 2003 and 2002 |
25 | |||
Statement of Consolidated Cash Flows for the years ended October 31, 2003, 2002, and 2001 |
26 | |||
Statement of Changes in Consolidated Stockholders Equity for the years ended October 31, 2001, 2002 and 2003 |
27 | |||
Notes to Consolidated Financial Statements |
28 | |||
(a) (2) |
Schedule to Consolidated Financial Statements |
|||
Schedule II - Valuation and Qualifying Accounts for the years ended October 31, 2003, 2002, and 2001 |
54 | |||
(a) (3) |
Exhibits |
|||
See the Index to Exhibits on pages 55 and 56 of this report. |
||||
Certain instruments relating to long-term borrowings, constituting less than 10 percent of registrants total assets, are not filed as exhibits herewith pursuant to Item 601(b)4(iii)(A) of Regulation S-K. Registrant agrees to file copies of such instruments upon request of the Commission. | ||||
(b) |
Reports on Form 8-K |
Date of Report |
Item |
Financial Statements |
||
August 5, 2003 |
Item 9 |
None |
||
August 12, 2003 |
Items 5, 7 & 12 |
Earnings release of the Company |
||
September 3, 2003 |
Item 9 |
None |
||
October 1, 2003 |
Item 9 |
None |
13
Financial Statement Schedules Omitted
The following schedules for the Company and consolidated subsidiaries are omitted because of the absence of the conditions under which they are required: I, III, IV and V.
14
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15
MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001
Deere & Company and its subsidiaries manufacture, distribute and finance a full line of agricultural equipment; a variety of commercial and consumer equipment; a broad range of equipment for construction and forestry; and other technological products and services. The company also provides credit services and managed health care plans.
2003 COMPARED WITH 2002
CONSOLIDATED RESULTS
Worldwide net income in 2003 was $643 million, or $2.64 per share diluted ($2.68 basic), compared with $319 million, or $1.33 per share diluted ($1.34 basic), in 2002. The success of new products and ongoing efforts to manage costs and asset intensity were evident in the results for 2003. Improved market conditions also contributed to the stronger performance of the companys construction and forestry and commercial and consumer equipment segments. Additionally, as a result of disciplined asset management, trade receivables ended the year at their lowest level in more than a decade.
Net sales and revenues increased 11 percent to $15,535 million in 2003, compared with $13,947 million in 2002. Net sales of the Equipment Operations increased 14 percent in 2003 to $13,349 million from $11,703 million last year. Net sales increased primarily due to higher physical volumes of commercial and consumer equipment and construction and forestry equipment. In addition, the increase was due to the translation effect of stronger foreign currency exchange rates and improved price realization. Net sales outside the United States and Canada increased 17 percent in 2003. Excluding the impact of changes in currency exchange rates, these sales were up 5 percent for the year.
Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $708 million in 2003, compared with $401 million in 2002. Operating profit increased primarily due to improved price realization and a higher physical volume of sales. Partially offsetting these factors were an increase in postretirement benefit costs of $306 million this year. Last years results were negatively affected by the costs of closing certain facilities and higher costs associated with the companys minority investments in Nortrax, Inc. and Nortrax Investments, Inc. (collectively called Nortrax), ventures involved in the ownership and development of several construction equipment dealer locations. During the first quarter of 2004, the company acquired a majority interest in Nortrax, Inc. and it was consolidated.
The Equipment Operations net income was $305 million in 2003, compared with $78 million in 2002. The same operating factors mentioned above affected these results. In addition, prior-year results were negatively impacted by a higher effective tax rate.
Net income of the companys Financial Services operations in 2003 was $330 million, compared with $262 million in 2002. The increase was primarily due to lower loan losses, growth in the portfolio and the absence of losses from Argentina related to the peso devaluation last year. Additional information is presented in the following discussion of the credit operations.
The cost of sales to net sales ratio for 2003 was 80.5 percent, compared to 82.0 percent last year. The decrease in the ratio was primarily due to improved price realization, higher production volumes, the discontinuance of the amortization of goodwill, and last years costs from closing certain facilities and higher costs related to Nortrax. These improvements were partially offset by higher postretirement benefit costs.
Finance and interest income decreased this year primarily due to a decrease in rental income on operating leases caused by a lower level of leases. Health care premiums and fees and related health care claims and costs increased, compared to last year, primarily due to higher enrollment. Other income decreased this year primarily related to a lower volume of retail notes sold. Research and development costs increased this year due to the higher level of new product development and exchange rate fluctuations. Selling, administrative and general expenses were higher this year primarily due to higher expenses for employee postretirement benefits, exchange rate fluctuations and increased promotional and support costs for new products. Other operating expenses decreased primarily as a result of lower depreciation on operating leases this year due to the lower level of leases, and the absence of last years losses from the Argentine operations related to the peso devaluation. Equity income (loss) of unconsolidated affiliates improved this year primarily due to the results of the Deere-Hitachi Construction Machinery Corporation and Nortrax.
The company has several defined benefit pension plans and defined benefit health care and life insurance plans. The companys postretirement benefit costs for these plans in 2003 were $593 million, compared to $279 million in 2002. The long-term expected return on plan assets, which is reflected in these costs, was an expected gain of 8.5 percent, or $597 million, in 2003, compared to 9.7 percent, or $663 million, in 2002. The actual return on postretirement benefit plan assets was a gain of $1,050 million in 2003, compared to a loss of $522 million in 2002. In 2004, the long-term expected return will continue to be 8.5 percent. The total unrecognized losses related to the postretirement benefit plans at October 31, 2003 was $4,794 million. The company expects the increase in postretirement benefit costs in 2004 to be approximately $125 million pretax, compared with 2003, caused by the amortization of the unrecognized losses primarily as a result of increasing the medical trend rate assumptions and a decrease in the discount rate assumption. The company makes any required contributions to the postretirement benefit plan assets under applicable regulations and voluntary contributions from time to time based on the companys liquidity and ability to make tax-deductible contributions. Total company contributions to the plans were $745 million in 2003 and $228 million in 2002, which include direct benefit payments for unfunded plans. The contributions in 2003 included a $475 million voluntary contribution to the United States postretirement benefit plan assets. No voluntary contribution was made in 2002. See the following discussion of Critical Accounting Policies for postretirement benefit obligations.
The estimated annual pretax increase in earnings and cash flows in 2002, 2003 and ongoing from the restructurings in 2001 and 2002 were approximately $100 million. These savings were as expected. The restructurings primarily reduced cost of sales by approximately $300 million and selling, administrative and general expenses by $30 million, partially offset by a reduction in sales of $230 million.
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BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion relates to operating results by reportable segment and geographic area. Operating profit is income before external interest expense, certain foreign exchange gains or losses, income taxes and corporate expenses. However, operating profit of the credit segment includes the effect of interest expense and foreign exchange gains or losses.
Worldwide Agricultural Equipment Operations
The agricultural equipment segment had an operating profit of $337 million in 2003, compared with $439 million in 2002. Net sales increased 9 percent this year due to the translation effect of stronger exchange rates and improved price realization. The production volumes and physical volume of sales were approximately equal to last year. The lower operating profit was primarily due to higher postretirement benefit costs of $216 million, higher compensation to the credit operations for financing trade receivables and one-time labor agreement ratification costs. Offsetting these factors was the impact of improved price realization.
Worldwide Commercial and Consumer Equipment Operations
The commercial and consumer equipment segment had an operating profit of $227 million, compared with $79 million in 2002. Net sales increased 19 percent for the year primarily due to strong retail demand for recently introduced products and the impact of expanded distribution channels. The improved operating profit was primarily due to higher sales and production volumes. Partially offsetting these factors were higher promotional and support costs related to new products, as well as higher postretirement benefit costs of $31 million. Results in 2002 were also negatively affected by restructuring costs related to the closure of certain facilities.
Worldwide Construction and Forestry Operations
The construction and forestry segment had an operating profit of $152 million in 2003, compared with an operating loss of $75 million in 2002. Sales increased 24 percent for the year. The increase was primarily due to higher physical volumes, reflecting improved retail activity. The operating profit improvement was primarily due to higher sales and production volumes. Improved price realization also had a favorable impact on this years results. Partially offsetting these factors were higher postretirement benefit costs of $59 million. Last years results were negatively affected by higher costs related to the companys investment in Nortrax and the costs for a factory closing.
Worldwide Credit Operations
The operating profit of the credit operations was $474 million in 2003, compared with $386 million in 2002. Operating profit in 2003 was higher than last year due primarily to lower loan losses, growth in the portfolio and the absence of losses in Argentina related to the peso devaluation, partially offset by narrower financing spreads, lower gains from a lower volume of retail note sales and higher selling, administrative and general expenses. Total revenues of the credit operations decreased 2 percent in 2003, primarily reflecting lower rental income from operating leases related to the lower level of leases, and a decrease in gains on a lower volume of retail note sales. The average balance of receivables and leases financed was 12 percent higher in 2003, compared with 2002, primarily due to the increased level of trade receivables. A decrease in financing rates, partially offset by an increase in average borrowings in 2003, resulted in a 1 percent decrease in interest expense, compared with 2002. The credit operations ratio of earnings to fixed charges was 2.07 to 1 in 2003, compared to 1.85 to 1 in 2002.
Worldwide Other Operations
The companys other operations had an operating profit of $22 million in 2003, compared with an operating loss of $12 million last year. The improvement was primarily due to lower costs and expenses of the special technologies group and the absence of goodwill amortization from the adoption of Financial Accounting Standards Board (FASB) Statement No. 142, Goodwill and Other Intangible Assets. The operating profit for the health care operations was comparable to last year.
Equipment Operations in United States and Canada
The equipment operations in the United States and Canada had an operating profit of $386 million in 2003, compared with $170 million in 2002. The increase was primarily due to improved price realization and higher sales and production volumes of construction and forestry and commercial and consumer equipment. Partially offsetting these items were higher postretirement benefit costs and higher promotional and support costs related to new products. Last years results were negatively affected by restructuring costs related to the closure of certain facilities and higher costs related to the companys investment in Nortrax. Sales increased 13 percent in 2003 while the physical volume of sales increased 10 percent, compared to 2002.
Equipment Operations outside United States and Canada
The equipment operations outside the United States and Canada had an operating profit of $322 million in 2003, compared with $231 million in 2002. The increase was primarily due to higher sales and production volumes of agricultural equipment. Sales increased mainly from the effect of stronger foreign exchange rates, as well as improvements in price realization and physical volume. Partially offsetting these factors were higher expenses related to stronger foreign exchange rates and increased compensation to the credit operations for financing trade receivables. Sales were 17 percent higher than last year, while the physical volume of sales increased 2 percent in 2003, compared with 2002.
MARKET CONDITIONS AND OUTLOOK
As a result of the factors and conditions outlined below, sales for the full 2004 fiscal year are expected to increase between 9 and 11 percent and net income is forecast to be in a range of $750 million to $850 million. The companys net equipment sales for the first quarter of 2004 are currently forecast to be up approximately 25 percent in comparison with depressed sales levels in the first quarter of 2003, although production levels are expected to increase only 9 to 11 percent for the first quarter. Company-wide net income for the first quarter in 2004 is forecasted in a range of $100 million to $150 million. Excluding the impact of currency and price, sales are expected to increase 18 to 20 percent for the quarter and 6 to 8 percent for the year.
The companys yearly earnings estimate also includes an increase of approximately $125 million pretax in postretirement benefit costs, based on the companys assumptions that reflect recent trends in medical inflation and interest rates.
17
Agricultural Equipment: After hitting a record level in 2003, United States farm income is expected to remain strong in the coming year as a result of continuing high crop and livestock prices, as well as favorable levels of carryover stocks in farm commodities. In addition, tax provisions that offer expanded depreciation and expense write-offs should lend further support to farm machinery sales. As a result of these positive factors, industry retail sales in the United States and Canada are now expected to be up 5 to 10 percent for fiscal 2004. In other parts of the world, industry retail sales in Western Europe are expected to be flat to down 5 percent for the year mainly as a result of lower farm income due to the impact of drought on the livestock sector. The company believes industry sales in South America will be flat in 2004. While favorable conditions support further industry growth in South America, the company believes this could be offset by the timing and availability of Brazilian government financing. On a worldwide basis, sales of the companys agricultural equipment are now forecast to be up between 8 to 10 percent for the year with an increase in physical volume of 5 to 7 percent.
Commercial and Consumer Equipment: The companys commercial and consumer equipment sales are expected to continue benefiting from the success of new products, including an expanded utility-vehicle line and the 100 series lawn tractor introduced in the mass and dealer channels in 2003. As a result, the segments sales are forecast to be up between 10 to 12 percent for the year.
Construction and Forestry : Retail activity in the construction and forestry sectors rose at a healthy rate in 2003 mainly as a result of strong replacement demand. The companys sales for 2003 rose sharply in virtually all market segments and outpaced the industry. Further replacement demand is expected to lead to modest growth in the industry in 2004. In 2004, the companys shipments of construction and forestry equipment are projected to be up 2 to 4 percent. The company consolidated Nortrax, Inc. during the first quarter of 2004. Including Nortrax in the consolidated results will add an additional estimated $275 million to sales for the year.
Credit Operations: Although the companys credit operations are expected to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit operations expect net income of about $300 million for the year.
FASB STATEMENT NO. 142
In the first quarter of 2003, the company adopted FASB Statement No. 142, Goodwill and Other Intangible Assets. In accordance with this Statement, the company did not amortize goodwill related to new acquisitions made after June 30, 2001 and discontinued amortizing goodwill for prior acquisitions as of November 1, 2002. Based on the new standard, goodwill will be written down only for impairments. The company was also required to test existing goodwill for impairment on a transitional basis as of November 1, 2002. The company completed this test and determined that its goodwill was not impaired and no write-downs were necessary. In 2002 and 2001, the company had goodwill amortization of $58 million pretax ($53 million after-tax) and $55 million pretax ($51 million after-tax), respectively.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under Market Conditions and 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, including worldwide demand for agricultural products, world grain stocks, prices realized for commodities and livestock, crop production expenses (most notably fuel and fertilizer costs), weather and soil conditions, real estate values, available acreage for farming, the level, complexity and distribution of government farm programs, animal diseases, crop pests, harvest yields and availability of rail transport for crops. Factors that are particularly important to the companys outlook for this segment include prices realized by farmers for their crops and livestock, which in turn are strongly impacted by weather and soil conditions and the level of farm product exports, as well as the level of payments under United States government farm programs. Further outbreaks of mad cow or foot-and-mouth disease could also adversely affect livestock and feed prices. Concerns pertaining to genetically modified organisms, or GMOs, may affect farm exports. The success of the fall harvest and the prices realized by farmers for their crops especially affect retail sales of agricultural equipment in the winter.
Factors affecting the outlook for the companys commercial and consumer equipment segment include general economic conditions in the United States, consumer confidence, consumer borrowing patterns and weather conditions. Another important assumption is continued consumer acceptance of the companys new products, including the new 100-series lawn tractors and an expanded utility vehicle line. Sales of commercial and consumer equipment during the winter are also affected by the amount and timing of snowfall.
The number of housing starts is 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 stability of global markets in which the company operates (including Brazil, Argentina and other South American countries), monetary and fiscal policies of various countries, wars and other international conflicts and the threat thereof; actions by the United States Federal Reserve Board and other central banks, actions by the United States 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, investor sentiment, inflation and deflation rates, interest rate levels and currency exchange rates; customer borrowing and repayment practices, and the number of customer
18
loan delinquencies and defaults; 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; production and technological difficulties, including capacity and supply constraints; oil and energy prices and supplies; labor relations; changes to accounting standards; the effects of terrorism and the response thereto; and legislation affecting the sectors in which the company operates.
Company results are also affected by significant changes in health care costs and in market values of investment assets, which impact postretirement benefit costs.
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, however, 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 other filings with the Securities and Exchange Commission.
2002 COMPARED WITH 2001
CONSOLIDATED RESULTS
Worldwide net income in 2002 was $319 million, or $1.33 per share diluted ($1.34 basic), compared with a net loss of $64 million, or $.27 per share diluted ($.27 basic), in 2001. Special charges of $46 million in 2002 and $217 million in 2001 had a negative impact on the results for the respective years. These charges were related to the costs of closing and restructuring certain facilities in both years and a voluntary early-retirement program in 2001. In addition to the decrease in special charges, better price realization as well as the favorable impact of the companys broad-based cost and expense reduction initiatives were the primary drivers of the improved results in 2002. Favorable customer response to new products also contributed to achieving higher sales and more efficient production levels. These factors, in conjunction with a $323 million reduction in trade receivables and inventories helped generate consolidated cash flow from operations of $1.9 billion for 2002, well above 2001 levels.
Net sales and revenues increased 5 percent to $13,947 million in 2002, compared with $13,293 million in 2001, primarily due to higher net sales. Net sales of the Equipment Operations increased 6 percent in 2002 to $11,703 million from $11,077 million in 2001. The sales increase reflected higher overseas sales of agricultural equipment, especially in Europe, the impact of acquisitions net of divestitures and higher sales of commercial and consumer equipment. Sales were down for construction and forestry equipment (excluding acquisitions) and also for agricultural equipment in the United States and Canada. Sales outside the United States and Canada rose by 19 percent in 2002 due to higher agricultural equipment sales mainly in Europe. Without the effect of foreign exchange rate changes, these sales would have been up 18 percent for 2002.
Worldwide Equipment Operations, which exclude the Financial Services operations, had an operating profit of $401 million in 2002, compared with an operating loss of $46 million in 2001. The operating profit increased primarily due to the decrease in the previously mentioned special charges, improved price realization, cost and expense reductions, higher sales of agricultural and commercial and consumer equipment, and the absence of losses from the Homelite consumer products business, which was sold. Partially offsetting these factors were the compensation to credit for financing trade receivables, higher new product start-up costs and costs associated with Nortrax. Also having a negative impact on the results for 2002 were higher postretirement benefit costs, before special items, as well as lower sales and production volumes at core construction and forestry manufacturing facilities in Dubuque and Davenport, Iowa.
The Equipment Operations net income was $78 million in 2002, compared with a net loss of $238 million in 2001. The same operating factors mentioned above affected these results. In addition, the 2002 results benefited from lower interest expense, while a higher tax rate had a negative effect.
Net income of the companys Financial Services operations in 2002 was $262 million, compared with $192 million in 2001. The increase was primarily due to the income earned on the trade receivables financed by the credit operations, increased gains on the sales of retail notes and improved interest rate spreads. Additional information is presented in the following discussion of the credit operations. Health care premiums and fees and related health care claims and costs increased in 2002, compared to 2001, primarily from increases in enrollment, premium increases and medical cost inflation.
The cost of sales to net sales ratio for 2002 was 82.0 percent, compared to 84.6 percent in 2001. The lower ratio was primarily due to the decrease in special charges, the higher level of production and improved price realization, partially offset by higher costs related to new product start-up, Nortrax and postretirement benefits.
Research and development expenses decreased in 2002, compared to 2001 when the company was introducing an unprecedented number of new products. Interest expense decreased in 2002 due primarily to lower average borrowing rates. Other operating expenses increased in 2002, primarily as a result of losses from the Argentine operations related to the peso devaluation. Other income increased in 2002, compared to 2001, primarily due to increased gains from sales of retail notes and the receipt of fire insurance settlements.
BUSINESS SEGMENT RESULTS
The agricultural equipment segment had an operating profit of $439 million in 2002, compared with $257 million in 2001. Net sales increased 7 percent in 2002 due to higher overseas sales, especially in Europe, where a record number of new products were introduced last fall. Partially offsetting the increase were lower United States and Canada sales for 2002. The operating profit improvement was primarily due to the decrease in special charges, improved price realization and higher sales and production volumes, as well as cost and expense reductions. Partially offsetting these factors were the compensation to credit for financing trade receivables and higher postretirement benefit costs. In addition, the 2002 results were negatively affected by higher new product start-up costs. Reflecting the segments commitment to more-disciplined asset management, company-owned and field inventory levels were down $120 million for 2002 in spite of the impact of stronger foreign currency exchange rates.
19
The commercial and consumer equipment segment had an operating profit of $79 million in 2002, compared with an operating loss of $165 million in 2001. Net sales increased 7 percent for 2002 or 6 percent without acquisitions and divestitures.The operating profit improvement was mainly due to the decrease in special charges, the absence of losses from Homelite, higher sales, lower sales incentive costs, lower expenses and the receipt of fire insurance settlements. Partially offsetting these factors was the compensation to credit for financing trade receivables. Company-owned and field inventory reductions totaled $204 million for 2002.
The construction and forestry segment had an operating loss of $75 million in 2002, compared with an operating loss of $83 million in 2001. Sales decreased 1 percent for 2002. Excluding the impact of acquisitions, sales decreased 6 percent. Production volumes at core facilities were down 8 percent for 2002. The improvement in operating results was primarily due to a decrease in special charges and cost and expense reductions. Partially offsetting these factors were higher sales incentive costs, higher costs related to the investment in Nortrax, and the lower sales and production volumes from core operations. Also having a negative impact on the results for 2002 were higher postretirement benefit costs.
The operating profit of the credit operations was $386 million in 2002, compared with $274 million in 2001. Operating profit in 2002 was higher than in 2001 due primarily to income earned on trade receivables, increased gains on sales of retail notes and improved interest rate spreads, partially offset by an increase in the provision for credit losses and losses related to the peso devaluation in Argentina. Total revenues of the credit operations increased 9 percent in 2002, primarily reflecting the intercompany interest compensation received from the Equipment Operations related to trade receivables financed. The average balance of receivables and leases financed was 22 percent higher in 2002, compared with 2001, primarily due to the trade receivables mentioned above. A decrease in average borrowing rates in 2002 resulted in a 16 percent decrease in interest expense, compared with 2001. The credit operations ratio of earnings to fixed charges was 1.85 to 1 in 2002, compared to 1.51 to 1 in 2001.
The companys other operations had an operating loss of $12 million in 2002, compared with $31 million in 2001. Results for both years were adversely affected by costs related to the development of new products and goodwill amortization of the special technologies operations. The decreased loss in 2002 was primarily due to cost and expense reductions in the technologies businesses and improved results of the health care operations mainly due to larger enrollment.
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the companys Equipment Operations, Financial Services operations and the consolidated totals.
EQUIPMENT OPERATIONS
The companys equipment businesses are capital intensive and are subject to large 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, the seasonal variations in financing requirements of the Equipment Operations have decreased. To the extent necessary, funds provided from operations are supplemented by external financing sources.
Cash provided by operating activities during 2003 was $1,203 million primarily due to net income and a decrease in trade receivables and inventories, which were partially offset by a cash outflow for voluntary contributions to United States employee postretirement benefit plans of $475 million (none last year). The operating cash flows and the proceeds from the issuance of common stock of $175 million (which were derived from the exercise of stock options) were used primarily to increase cash and cash equivalents by $858 million, fund purchases of property and equipment of $303 million and pay dividends to stockholders of $211 million.
Over the last three years, operating activities have provided an aggregate of $5,292 million in cash. In addition, borrowings increased $455 million, proceeds from the issuance of common stock were $240 million and the receivables from Financial Services decreased $143 million. The aggregate amount of these cash flows was used mainly to fund purchases of property and equipment of $1,144 million, an increase in the investment in Financial Services of $700 million and stockholders dividends of $626 million. Cash and cash equivalents also increased $3,648 million over the three-year period.
Trade receivables held by the Equipment Operations decreased by $263 million during 2003. During this time period, the Equipment Operations sold most of its trade receivables to the credit operations. The decrease from a year ago was primarily due to the increased sales of overseas trade receivables to the credit operations (see following consolidated discussion).
Inventories decreased by $6 million in 2003. Most of these inventories are valued on the last-in, first-out (LIFO) method. Based on constant exchange rates, inventories were approximately $110 million lower this year. The ratios of inventories at LIFO cost to the last 12 months cost of sales were 13 percent at October 31, 2003, compared to 14 percent at October 31, 2002.
Total interest-bearing debt of the Equipment Operations was $3,304 million at the end of 2003, compared with $3,387 million at the end of 2002 and $2,984 million at the end of 2001. The ratio of total debt to total capital (total interest-bearing debt and stockholders equity) at the end of 2003, 2002 and 2001 was 45 percent, 52 percent and 43 percent, respectively.
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 borrowings and equity capital. Additionally, the credit operations periodically sell substantial amounts of retail notes.
Cash flows from the companys Financial Services operating activities were $694 million in 2003. Cash provided by financing activities totaled $219 million in 2003, representing a $780 million increase in long-term borrowings and a $250 million increase in short-term borrowings, partially offset by a $563 million decrease
20
in borrowings from the Equipment Operations and the payment of $248 million of dividends. The cash provided by operating and financing activities was used primarily to increase receivables. Cash used by investing activities totaled $733 million in 2003, primarily due to receivable acquisitions exceeding collections by $2,615 million, partially offset by sales of receivables of $1,941 million. Cash and cash equivalents also increased $199 million.
Over the past three years, the Financial Services operating activities have provided $2,177 million in cash. In addition, the sale of receivables of $6,637 million, an increase in borrowings of $2,617 million, the sale of equipment on operating leases of $1,398 million and a capital investment from the Equipment Operations of $700 million have provided cash inflows. These amounts have been used mainly to fund receivable and lease acquisitions, which exceeded collections by $12,332 million, and dividends of $658 million. Cash and cash equivalents also increased $175 million over the three-year period.
Receivables and leases increased by $818 million in 2003, compared with 2002. Acquisition volumes of receivables and leases increased 23 percent in 2003, compared with 2002. The volumes of operating loans, trade receivables, revolving charge accounts, wholesale notes and retail notes increased approximately 33 percent, 30 percent, 28 percent, 13 percent and 7 percent, respectively. The credit operations also sold retail notes receiving proceeds of $1,941 million during 2003, compared with $2,968 million in 2002. At October 31, 2003 and 2002, net receivables and leases administered, which include receivables and leases previously sold but still administered, were $16,476 million and $15,363 million, respectively.
Trade receivables held by the credit operations increased by $141 million in 2003 primarily due to the increased purchases of overseas trade receivables from the Equipment Operations (see following consolidated discussion).
Total external interest-bearing debt of the credit operations was $11,447 million at the end of 2003, compared with $10,001 million at the end of 2002 and $9,776 million at the end of 2001. Total external borrowings have increased 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 subsidiaries ratio of total interest-bearing debt to total stockholders equity was 5.6 to 1 at the end of 2003, 2002 and 2001.
During 2003, the credit operations issued $850 million of 3.90% Global Notes due in January 2008 and entered into interest rate swaps related to $650 million of these notes, which swapped the fixed rate to a variable rate of approximately 1.7% at October 31,2003. During 2003, the credit operations also issued $650 million of 5.10% Global Debentures due in January 2013 and entered into interest rate swaps related to these notes, which swapped the fixed rate to a variable rate of approximately 1.8% at October 31, 2003. During 2003, the credit operations retired $200 million of floating rate notes. The credit operations issued $1,804 million and retired $2,324 million of other long-term borrowings during the year, which were primarily medium-term notes.
CONSOLIDATED
Sources of liquidity for the company include cash and short-term investments, funds from operations, the issuance of commercial paper and term debt, the securitization and sale of retail notes, and committed and uncommitted, unsecured, bank lines of credit.
Because of the multiple funding sources that have been and continue to be available to the company, the company expects to have sufficient sources of liquidity to meet its funding needs. The companys worldwide commercial paper outstanding at October 31, 2003 and 2002 was approximately $2.1 billion and $1.8 billion, respectively, while the total cash and cash equivalents position was $4.4 billion and $2.8 billion, respectively. The company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the United States, Canada, Europe and Australia, as well as public and private securitization markets in the United States and Canada. In addition, the company has access to unsecured bank lines of credit with various United States and foreign banks (see Note 16).
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. 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 currently assigned to company securities by the rating agencies listed below are investment grade ratings. Each rating should be evaluated independently of any other rating. The current company ratings and ratings outlook from each of the rating agencies engaged by the company are as follows:
Senior
Long-Term |
Short-Term
|
Outlook
|
||||
Moodys Investors Service, Inc. |
A3 | Prime-2 | Stable | |||
Standard & Poors |
A- | A-2 |
Negative
(long-term only) |
|||
Dominion Bond Rating Service |
A | R-1 (low) |
Negative
(long-term only) |
Trade accounts and notes receivable arise from sales of goods to dealers. Trade receivables decreased by $115 million in 2003. Based on constant exchange rates, trade receivables were approximately $235 million lower this year. Total worldwide agricultural equipment trade receivables increased $5 million, commercial and consumer equipment receivables decreased $77 million, construction and forestry receivables decreased $41 million and other equipment receivables decreased $2 million. The ratios of trade accounts and notes receivable at October 31 to fiscal year net sales were 20 percent in 2003, compared with 23 percent in 2002 and 26 percent in 2001. The collection period
21
for trade receivables averages less than 12 months. The percentage of receivables outstanding for a period exceeding 12 months was 11 percent at October 31, 2003, compared with 6 percent at October 31, 2002 and 11 percent at October 31, 2001.
Stockholders equity was $4,002 million at October 31, 2003, compared with $3,163 million and $3,992 million at October 31, 2002 and 2001, respectively. The increase of $839 million resulted primarily from net income of $643 million, a change in the cumulative translation adjustment of $214 million and a decrease in treasury stock of $181 million, partially offset by dividends declared of $211 million.
OFF-BALANCE SHEET ARRANGEMENTS
The companys credit operations periodically securitize and sell retail notes to special purpose entities (SPEs) in securitizations of retail notes. The credit operations use these SPEs in a manner consistent with conventional practices in the securitization industry to isolate the retail notes for the benefit of securitization investors. The use of the SPEs enables these operations to access the highly liquid and efficient securitization markets for the sales of these types of financial assets. The amounts of funding from securitizations reflects such factors as capital market accessibility, relative costs of funding sources and assets available for securitization. Based on an assessment of these and other factors, the company received $1,891 million of funding and recognized pretax gains of $50 million related to these securitizations during 2003. The companys total exposure to recourse provisions related to securitized retail notes was $236 million and the total assets held by the SPEs related to securitizations was $2,964 million at October 31, 2003.
At October 31, 2003, the company had a 41 percent ownership interest in Nortrax, Inc. and a 40 percent ownership interest in Nortrax Investments, Inc. (collectively called Nortrax), which have been recorded on the equity basis. These operations are involved in the ownership and development of several construction equipment dealers. The company has certain option agreements with the majority owners of Nortrax related to ownership for which the probable costs have been accrued at year-end. At October 31, 2003, Nortraxs total assets, total net assets and the companys investment in Nortrax were $432 million, $97 million and $40 million, respectively. The sales from the company to Nortrax and its affiliates in 2003 were $412 million, and the companys receivables from Nortrax at October 31, 2003 totaled $235 million. Nortrax did not have significant external borrowings. Subsequent to year-end (in December 2003), the company exercised certain call options in Nortrax, Inc. for $112 million, increasing the companys ownership interest to 83 percent. Nortrax, Inc., which represents most of the Nortrax operations, was consolidated at that time.
At October 31, 2003, the company had guaranteed approximately $80 million of residual values for five operating leases related to certain administrative and manufacturing buildings. The company is obligated at the end of each lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value. The company recognizes the expense for these future estimated lease payments over the terms of the operating leases and had accrued expenses of $15 million related to these agreements at October 31, 2003. The leases have terms expiring from 2004 to 2007.
At October 31, 2003, the company had approximately $70 million of guarantees issued primarily to overseas banks related to third-party receivables for the retail financing of John Deere equipment. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At October 31, 2003, the company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2003 was approximately seven years.
AGGREGATE CONTRACTUAL OBLIGATIONS
Most of the companys contractual obligations to make payments to third parties are debt obligations. In addition, the company has certain contractual agreements for future lease payments. The payment schedule for these contractual obligations in millions of dollars is as follows:
Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
|||||||||||
Total debt* |
|||||||||||||||
Equipment Operations |
$ | 3,229 | $ | 577 | $ | 301 | $ | 1 | $ | 2,350 | |||||
Financial Services |
11,216 | 3,770 | 3,120 | 1,690 | 2,636 | ||||||||||
|
|
|
|
|
|
|
|
|
|
||||||
Total |
14,445 | 4,347 | 3,421 | 1,691 | 4,986 | ||||||||||
Operating leases |
356 | 85 | 96 | 71 | 104 | ||||||||||
|
|
|
|
|
|
|
|
|
|
||||||
Total obligations |
$ | 14,801 | $ | 4,432 | $ | 3,517 | $ | 1,762 | $ | 5,090 | |||||
|
|
|
|
|
|
|
|
|
|
* | Principal payments only. |
CRITICAL ACCOUNTING POLICIES
The preparation of the companys consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Changes in these estimates and assumptions could have a significant effect on the financial statements. The accounting policies below are those management believes are the most critical to the preparation of the companys financial statements and require the most difficult, subjective or complex judgments. The companys other accounting policies are described in the Notes to the Consolidated Financial Statements.
Sales Incentives
At the time a sale to a dealer is recognized, the company records an estimate of the future sales incentive costs for allowances and financing programs that will be due when the dealer sells the equipment to a retail customer. The estimate is based on historical data, announced incentive programs, field inventory levels and settlement volumes. The final cost of these programs and the amount of accrual required for a specific sale is fully determined when the dealer sells the equipment to the retail customer. This is due to numerous programs available at any particular time and new programs that may be announced after the company records the sale. Changes in the mix and types of programs affect these estimates, which are reviewed quarterly.
22
Product Warranties
At the time a sale to a dealer is recognized, the company records the estimated future warranty costs. These costs are usually estimated based on historical warranty claims. Variances in claims experience and the type of warranty programs affect these estimates, which are reviewed quarterly.
Retirement Benefit Obligations
Pension obligations and other postretirement employee benefit (OPEB) obligations are based on various assumptions used by the companys actuaries in calculating these amounts. These assumptions include discount rates, health care cost trend rates, expected return on plan assets, compensation increases, retirement rates, mortality rates and other factors. Actual results that differ from the assumptions and changes in assumptions affect future expenses and obligations.
The effect of hypothetical changes to selected assumptions on the companys major United States retirement benefit plans would be as follows in millions of dollars:
October 31, 2003
|
2004
|
|||||||
Assumptions |
Percentage Change |
Increase (Decrease) PBO/APBO* |
Increase (Decrease) Equity** |
Increase (Decrease) Expense |
||||
Pension |
||||||||
Discount rate*** |
+/-.5 | $(343)361 | $197/(207) | $(13)/22 | ||||
Expected return on assets |
+/-.5 | (33)/33 | ||||||
OPEB |
||||||||
Discount rate*** |
+/-.5 | (251)/263 | (28)/28 | |||||
Health care cost trend rate*** |
+/-1.0 | 612/(545) | 135/(119) |
* | Projected benefit obligation (PBO) for pension plans and accumulated postretirement benefit obligation (APBO) for OPEB plans. |
** | Minimum pension liability adjustment after-tax. |
*** | Pretax impact on service cost, interest cost and amortization of gains or losses. |
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the losses expected from the companys receivable portfolio. The level of the allowance is based on many factors, including collection experience, economic conditions and credit risk quality. The adequacy of the allowance is assessed quarterly. Different assumptions or changes in economic conditions would result in changes to the credit allowance and the provision for credit losses.
Operating Lease Residual Values
The carrying value of equipment on operating leases is affected by the estimated fair values of the equipment at the end of the lease (residual values). Upon termination of the lease, the equipment is either purchased by the lessee or sold to a third party, in which case the company may record a gain or a loss for the difference between the estimated residual value and the sale price. The residual values are dependent on current economic conditions and are reviewed quarterly. Changes in residual value assumptions would affect the amount of depreciation expense and the amount of investment in equipment on operating leases.
FINANCIAL INSTRUMENT RISK INFORMATION
The company is naturally exposed to various interest rate and foreign currency risks. As a result, the company enters into derivative transactions to manage certain of these exposures that arise in the normal course of business and not for the purpose of creating speculative positions or trading. The companys credit operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. Accordingly, from time to time, these operations enter into interest rate swap agreements to manage their interest rate exposure. The company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling and financing in currencies other than the local currencies. The company has entered into agreements related to the management of these currency transaction risks. The credit risk under these interest rate and foreign currency agreements is not considered to be significant.
Interest Rate Risk
Quarterly, the company uses a combination of cash flow models to assess the sensitivity of its financial instruments with interest rate exposure to changes in market interest rates. The models calculate the effect of adjusting interest rates as follows. Cash flows for financing receivables are discounted at the current prevailing rate for each receivable portfolio. Cash flows for borrowings are discounted at the treasury yield curve plus a market credit spread for similarly rated borrowers. Cash flows for interest rate swaps are projected and discounted using forecasted rates from the swap yield curve at the repricing dates. The net loss in these financial instruments fair values which would be caused by decreasing the interest rates by 10 percent from the market rates at October 31, 2003 and 2002 would have been approximately $56 million and $35 million, respectively.
Foreign Currency Risk
In the Equipment Operations, it is the companys practice to hedge significant currency exposures. Worldwide foreign currency exposures are reviewed monthly. Based on the Equipment Operations anticipated and committed foreign currency cash inflows and outflows for the next twelve months and the foreign currency derivatives at year end, the company estimates that a hypothetical 10 percent strengthening of the United States dollar relative to all other currencies through 2004 would decrease the 2004 expected net cash inflows by $65 million. Similar assumptions and calculations indicated a potential $28 million adverse effect on the 2003 net cash inflows.
In the Financial Services operations, the companys policy is to hedge the foreign currency risk if the currency of the borrowings does not match the currency of the receivable portfolio. As a result, a hypothetical 10 percent adverse change in the value of the United States dollar relative to all other foreign currencies would not have a material effect on the Financial Services cash flows.
23
D EERE & C OMPANY
STATEMENT OF CONSOLIDATED INCOME
For the Years Ended October 31, 2003, 2002 and 2001
(In millions of dollars except per share amounts)
2003
|
2002
|
2001
|
|||||||||
Net Sales and Revenues |
|||||||||||
Net sales |
$ | 13,349.1 | $ | 11,702.8 | $ | 11,077.4 | |||||
Finance and interest income |
1,275.6 | 1,339.2 | 1,445.2 | ||||||||
Health care premiums and fees |
664.5 | 636.0 | 585.0 | ||||||||
Other income |
245.4 | 269.0 | 185.3 | ||||||||
|
|
|
|
|
|
|
|
||||
Total |
15,534.6 | 13,947.0 | 13,292.9 | ||||||||
|
|
|
|
|
|
|
|
||||
Costs and Expenses |
|||||||||||
Cost of sales |
10,752.7 | 9,593.4 | 9,376.4 | ||||||||
Research and development expenses |
577.3 | 527.8 | 590.1 | ||||||||
Selling, administrative and general expenses |
1,744.2 | 1,657.3 | 1,716.8 | ||||||||
Interest expense |
628.5 | 637.1 | 765.7 | ||||||||
Health care claims and costs |
536.1 | 518.4 | 476.0 | ||||||||
Other operating expenses |
324.5 | 410.3 | 392.7 | ||||||||
|
|
|
|
|
|
|
|
||||
Total |
14,563.3 | 13,344.3 | 13,317.7 | ||||||||
|
|
|
|
|
|
|
|
||||
Income (Loss) of Consolidated Group before Income Taxes |
971.3 | 602.7 | (24.8 | ) | |||||||
Provision for income taxes |
336.9 | 258.3 | 17.7 | ||||||||
|
|
|
|
|
|
|
|
||||
Income (Loss) of Consolidated Group |
634.4 | 344.4 | (42.5 | ) | |||||||
|
|
|
|
|
|
|
|
||||
Equity in Income (Loss) of Unconsolidated Affiliates |
|||||||||||
Credit |
.2 | (3.8 | ) | (3.3 | ) | ||||||
Other |
8.5 | (21.4 | ) | (18.2 | ) | ||||||
|
|
|
|
|
|
|
|
||||
Total |
8.7 | (25.2 | ) | (21.5 | ) | ||||||
|
|
|
|
|
|
|
|
||||
Net Income (Loss) |
$ | 643.1 | $ | 319.2 | $ | (64.0 | ) | ||||
|
|
|
|
|
|
|
|
||||
Per Share Data |
|||||||||||
Net income (loss)basic |
$ | 2.68 | $ | 1.34 | $ | (.27 | ) | ||||
Net income (loss)diluted |
$ | 2.64 | $ | 1.33 | $ | (.27 | ) | ||||
Dividends declared |
$ | .88 | $ | .88 | $ | .88 |
The notes to consolidated financial statements are an integral part of this statement.
24
D EERE & C OMPANY
CONSOLIDATED BALANCE SHEET
As of October 31, 2003 and 2002
(In millions of dollars except per share amounts)
2003
|
2002
|
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 4,384.5 | $ | 2,814.9 | ||||
Marketable securities |
231.8 | 189.2 | ||||||
Receivables from unconsolidated affiliates |
303.2 | 265.8 | ||||||
Trade accounts and notes receivablenet |
2,619.3 | 2,733.6 | ||||||
Financing receivablesnet |
9,974.2 | 9,067.5 | ||||||
Other receivables |
428.3 | 426.4 | ||||||
Equipment on operating leasesnet |
1,381.9 | 1,609.2 | ||||||
Inventories |
1,366.1 | 1,371.8 | ||||||
Property and equipmentnet |
2,075.6 | 1,998.3 | ||||||
Investments in unconsolidated affiliates |
195.5 | 180.6 | ||||||
Goodwill |
872.1 | 804.0 | ||||||
Other intangible assetsnet |
252.9 | 90.9 | ||||||
Prepaid pension costs |
62.6 | 49.6 | ||||||
Other assets |
534.3 | 582.1 | ||||||
Deferred income taxes |
1,476.1 | 1,490.1 | ||||||
Deferred charges |
99.6 | 94.0 | ||||||
|
|
|
|
|
|
|||
Total Assets |
$ | 26,258.0 | $ | 23,768.0 | ||||
|
|
|
|
|
|
|||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
LIABILITIES |
||||||||
Short-term borrowings |
$ | 4,347.2 | $ | 4,437.3 | ||||
Payables to unconsolidated affiliates |
87.8 | 64.0 | ||||||
Accounts payable and accrued expenses |
3,105.5 | 3,142.2 | ||||||
Health care claims and reserves |
94.1 | 92.8 | ||||||
Accrued taxes |
226.5 | 87.4 | ||||||
Deferred income taxes |
30.7 | 24.5 | ||||||
Long-term borrowings |
10,404.2 | 8,950.4 | ||||||
Retirement benefit accruals and other liabilities |
3,959.9 | 3,806.2 | ||||||
|
|
|
|
|
|
|||
Total liabilities |
22,255.9 | 20,604.8 | ||||||
|
|
|
|
|
|
|||
STOCKHOLDERS EQUITY |
||||||||
Common stock, $1 par value (authorized600,000,000 shares; issued268,215,602 shares in 2003 and 2002), at stated value |
1,987.8 | 1,957.0 | ||||||
Common stock in treasury, 24,694,170 shares in 2003 and 29,321,098 shares in 2002, at cost |
(1,141.4 | ) | (1,322.2 | ) | ||||
Unamortized restricted stock compensation |
(5.8 | ) | (17.8 | ) | ||||
Retained earnings |
4,329.5 | 3,912.6 | ||||||
|
|
|
|
|
|
|||
Total |
5,170.1 | 4,529.6 | ||||||
|
|
|
|
|
|
|||
Minimum pension liability adjustment |
(1,078.0 | ) | (1,032.1 | ) | ||||
Cumulative translation adjustment |
(79.2 | ) | (293.1 | ) | ||||
Unrealized loss on derivatives |
(22.4 | ) | (47.0 | ) | ||||
Unrealized gain on investments. |
11.6 | 5.8 | ||||||
|
|
|
|
|
|
|||
Accumulated other comprehensive income (loss) |
(1,168.0 | ) | (1,366.4 | ) | ||||
|
|
|
|
|
|
|||
Total stockholders equity |
4,002.1 | 3,163.2 | ||||||
|
|
|
|
|
|
|||
Total Liabilities and Stockholders Equity |
$ | 26,258.0 | $ | 23,768.0 | ||||
|
|
|
|
|
|
The notes to consolidated financial statements are an integral part of this statement.
25
D EERE & C OMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Years Ended October 31, 2003, 2002 and 2001
(In millions of dollars)
2003
|
2002
|
2001
|
||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income (loss) |
$ | 643.1 | $ | 319.2 | $ | (64.0 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||
Provision for doubtful receivables |
106.8 | 160.7 | 113.0 | |||||||||
Provision for depreciation and amortization |
631.4 | 725.3 | 718.3 | |||||||||
Undistributed earnings of unconsolidated affiliates |
(5.5 | ) | 22.7 | 19.5 | ||||||||
Provision (credit) for deferred income taxes |
33.1 | (1.2 | ) | (230.3 | ) | |||||||
Changes in assets and liabilities: |
||||||||||||
Receivables |
182.3 | 158.2 | 316.9 | |||||||||
Inventories |
84.1 | 85.8 | 136.5 | |||||||||
Accounts payable and accrued expenses |
(184.9 | ) | 144.0 | 40.7 | ||||||||
Other |
45.3 | 263.6 | 62.8 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Net cash provided by operating activities |
1,535.7 | 1,878.3 | 1,113.4 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Investing Activities |
||||||||||||
Collections of receivables |
9,077.6 | 6,987.0 | 6,966.3 | |||||||||
Proceeds from sales of financing receivables |
1,941.0 | 2,967.8 | 1,728.0 | |||||||||
Proceeds from maturities and sales of marketable securities |
76.4 | 75.4 | 32.4 | |||||||||
Proceeds from sales of equipment on operating leases |
514.5 | 495.2 | 391.7 | |||||||||
Proceeds from sales of businesses |
22.5 | 53.5 | ||||||||||
Cost of receivables acquired |
(11,576.8 | ) | (9,955.3 | ) | (9,795.7 | ) | ||||||
Purchases of marketable securities |
(118.2 | ) | (87.8 | ) | (75.7 | ) | ||||||
Purchases of property and equipment |
(309.6 | ) | (358.7 | ) | (491.0 | ) | ||||||
Cost of operating leases acquired |
(473.7 | ) | (487.9 | ) | (775.2 | ) | ||||||
Acquisitions of businesses, net of cash acquired |
(10.6 | ) | (19.0 | ) | (315.2 | ) | ||||||
Decrease (increase) in receivables from unconsolidated affiliates |
(6.8 | ) | 14.8 | (112.0 | ) | |||||||
Other |
(32.4 | ) | 1.0 | 81.5 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Net cash used for investing activities |
(896.1 | ) | (314.0 | ) | (2,364.9 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Cash Flows from Financing Activities |
||||||||||||
Increase (decrease) in short-term borrowings |
126.9 | (1,413.2 | ) | (506.6 | ) | |||||||
Proceeds from long-term borrowings |
3,312.9 | 4,573.7 | 4,818.3 | |||||||||
Principal payments on long-term borrowings |
(2,542.7 | ) | (2,771.0 | ) | (2,118.5 | ) | ||||||
Proceeds from issuance of common stock |
174.5 | 48.0 | 17.8 | |||||||||
Repurchases of common stock |
(.4 | ) | (1.2 | ) | (1.3 | ) | ||||||
Dividends paid |
(210.5 | ) | (208.9 | ) | (206.5 | ) | ||||||
Other |
(1.8 | ) | (1.5 | ) | (2.8 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net cash provided by financing activities |
858.9 | 225.9 | 2,000.4 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Effect of Exchange Rate Changes on Cash |
71.1 | (5.3 | ) | (10.6 | ) | |||||||
|
|
|
|
|
|
|
|
|
||||
Net Increase in Cash and Cash Equivalents |
1,569.6 | 1,784.9 | 738.3 | |||||||||
Cash and Cash Equivalents at Beginning of Year |
2,814.9 | 1,030.0 | 291.7 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Cash and Cash Equivalents at End of Year |
$ | 4,384.5 | $ | 2,814.9 | $ | 1,030.0 | ||||||
|
|
|
|
|
|
|
|
|
The notes to consolidated financial statements are an integral part of this statement.
26
D EERE & C OMPANY
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS EQUITY
For the Years Ended October 31, 2001, 2002 and 2003
(In millions of dollars)
Total
Equity |
Common
Stock |
Treasury
Stock |
Unamortized
Restricted Stock |
Retained
Earnings |
Other
Comprehensive Income (Loss) |
||||||||||||||||||
Balance October 31, 2000 |
$ | 4,301.9 | $ | 1,864.4 | $ | (1,439.0 | ) | $ | (10.9 | ) | $ | 4,117.2 | $ | (229.8 | ) | ||||||||
|
|
|
|||||||||||||||||||||
Comprehensive income (loss) |
|||||||||||||||||||||||
Net income (loss) |
(64.0 | ) | (64.0 | ) | |||||||||||||||||||
Other comprehensive income (loss) |
|||||||||||||||||||||||
Minimum pension liability adjustment |
(7.7 | ) | (7.7 | ) | |||||||||||||||||||
Cumulative translation adjustment |
(63.1 | ) | (63.1 | ) | |||||||||||||||||||
Unrealized loss on derivatives |
(72.0 | ) | (72.0 | ) | |||||||||||||||||||
Unrealized gain on investments |
3.7 | 3.7 | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Total comprehensive income (loss) |
(203.1 | ) | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Repurchases of common stock |
(1.3 | ) | (1.3 | ) | |||||||||||||||||||
Treasury shares reissued |
34.8 | 34.8 | |||||||||||||||||||||
Dividends declared |
(206.1 | ) | (206.1 | ) | |||||||||||||||||||
Acquisition of a business |
80.5 | 80.5 | |||||||||||||||||||||
Other stockholder transactions |
(14.5 | ) | 3.7 | (5.9 | ) | (12.3 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance October 31, 2001 |
3,992.2 | 1,948.6 | (1,405.5 | ) | (16.8 | ) | 3,834.8 | (368.9 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||||
Comprehensive income (loss) |
|||||||||||||||||||||||
Net income |
319.2 | 319.2 | |||||||||||||||||||||
Other comprehensive income (loss) |
|||||||||||||||||||||||
Minimum pension liability adjustment |
(1,015.9 | ) | (1,015.9 | ) | |||||||||||||||||||
Cumulative translation adjustment |
(7.6 | ) | (7.6 | ) | |||||||||||||||||||
Unrealized gain on derivatives |
25.0 | 25.0 | |||||||||||||||||||||
Unrealized gain on investments |
1.0 | 1.0 | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Total comprehensive income (loss) |
(678.3 | ) | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Repurchases of common stock |
(1.2 | ) | (1.2 | ) | |||||||||||||||||||
Treasury shares reissued |
84.5 | 84.5 | |||||||||||||||||||||
Dividends declared |
(209.3 | ) | (209.3 | ) | |||||||||||||||||||
Other stockholder transactions |
(24.7 | ) | 8.4 | (1.0 | ) | (32.1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance October 31, 2002 |
3,163.2 | 1,957.0 | (1,322.2 | ) | (17.8 | ) | 3,912.6 | (1,366.4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
|||||||||||||||||||||||
Net income |
643.1 | 643.1 | |||||||||||||||||||||
Other comprehensive income (loss) |
|||||||||||||||||||||||
Minimum pension liability adjustment |
(45.9 | ) | (45.9 | ) | |||||||||||||||||||
Cumulative translation adjustment |
213.9 | 213.9 | |||||||||||||||||||||
Unrealized gain on derivatives |
24.6 | 24.6 | |||||||||||||||||||||
Unrealized gain on investments |
5.8 | 5.8 | |||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Total comprehensive income (loss) |
841.5 | ||||||||||||||||||||||
|
|
|
|||||||||||||||||||||
Repurchases of common stock |
(.4 | ) | (.4 | ) | |||||||||||||||||||
Treasury shares reissued |
181.2 | 181.2 | |||||||||||||||||||||
Dividends declared |
(211.2 | ) | (211.2 | ) | |||||||||||||||||||
Other stockholder transactions |
27.8 | 30.8 | 12.0 | (15.0 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance October 31, 2003 |
$ | 4,002.1 | $ | 1,987.8 | $ | (1,141.4 | ) | $ | (5.8 | ) | $ | 4,329.5 | $ | (1,168.0 | ) | ||||||||
|
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|
|
The notes to consolidated financial statements are an integral part of this statement.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are significant accounting policies in addition to those included in other notes to the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements represent the consolidation of all companies in which Deere & Company has a controlling interest. Deere & Company records its investment in each unconsolidated affiliated company (generally 20 to 50 percent ownership) at its related equity in the net assets of such affiliate. Other investments (less than 20 percent ownership) are recorded at cost. Consolidated retained earnings at October 31, 2003 include undistributed earnings of the unconsolidated affiliates of $35 million. Dividends from unconsolidated affiliates were $3 million in 2003, $2 million in 2002 and $2 million in 2001 (see Note 6).
Special purpose entities (SPEs) related to the sale and securitization of financing receivables, which are also variable interest entities, are not consolidated since the company does not control these entities, and they either meet the requirements of qualified special purpose entities, or the company is not the primary beneficiary (see Note 10).
Certain amounts for prior years have been reclassified to conform with 2003 financial statement presentations.
Structure of Operations
Certain 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, construction and forestry, and special technologies operations with Financial Services reflected on the equity basis.
Financial Services Includes the companys credit and health care operations.
Consolidated Represents the consolidation of the Equipment Operations and Financial Services. References to Deere & Company or the company refer to the entire enterprise.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures.Actual results could differ from those estimates.
Revenue Recognition
Sales of equipment and service parts are recorded when title and all risk of ownership are transferred to the independent dealer based on the agreement in effect with the dealer. In the United States and most international locations, this transfer occurs when goods are shipped to the dealer. In Canada and some other international locations, certain goods are shipped to dealers on a consignment basis under which title and risk of ownership are not transferred to the dealer.Accordingly, sales are not recorded until a retail customer has purchased the goods. In all cases, when a sale is recorded by the company, no significant uncertainty exists surrounding the purchasers obligation to pay. No right of return exists on sales of equipment. Service parts returns are estimable and accrued at the time a sale is recognized.The company makes appropriate provisions based on experience for costs such as doubtful receivables, sales incentives and product warranty.
Financing revenue is recorded over the terms of the related receivables using the interest method. Income from operating leases is recognized on a straight-line basis over the scheduled lease terms. Health care premiums and fees are recognized as earned over the terms of the policies or contracts.
Sales Incentives
At the time a sale to a dealer is recognized, the company records an estimate of the future sales incentive costs for allowances and financing programs that will be due when the dealer sells the equipment to a retail customer.The estimate is based on historical data, announced incentive programs, field inventory levels and settlement volumes.
Product Warranties
At the time a sale to a dealer is recognized, the company records the estimated future warranty costs.These costs are usually estimated based on historical warranty claims (see Note 20).
Sales of Receivables
Certain financing receivables are periodically sold to SPEs in securitization transactions (see Note 10). Gains or losses from these sales are recognized in the period of sale based on the relative fair value of the portion sold and the portion allocated to retained interests.The retained interests are recorded at fair value estimated by discounting future cash flows. Changes in these fair values are recorded after-tax as a component of equity included in other comprehensive income until realized.
Depreciation and Amortization
Property and equipment, capitalized software and other intangible assets are depreciated over the estimated useful lives using the straight-line method. Equipment on operating leases is depreciated over the terms of the leases using the straight-line method. Property and equipment expenditures for new and revised products, increased capacity and the replacement or major renewal of significant items are capitalized. Expenditures for maintenance, repairs and minor renewals are generally charged to expense as incurred.
Impairment of Long-Lived Assets
The company evaluates the carrying value of long-lived assets (including property and equipment, goodwill and other intangible assets) when events and circumstances warrant such a review. Goodwill is also reviewed for impairment by reporting unit annually (see Note 15). If the carrying value of the long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the asset.
Health Care Claims and Reserves
Health care claims and reserves include liabilities for unpaid claims based on estimated costs of settling the claims using past experience adjusted for current trends.
Foreign Currency Translation
The functional currencies for most of the companys foreign operations are their respective local currencies.The assets and liabilities of these operations are translated into United States dollars at the end of the period exchange rates, and the revenues and expenses are translated at weighted-average rates for the period.The gains or losses from these translations are included in other comprehensive income, which is part of stockholders equity. Gains or losses from transactions denominated in a currency other than the functional currency of the subsidiary involved and
28
foreign exchange forward contracts and options are included in net income.The total foreign exchange pretax net loss for 2003, 2002 and 2001 was $6 million, $36 million and $16 million, respectively.
Stock-Based Compensation
The company has retained the intrinsic value method of accounting for its plans in accordance with APB Opinion No. 25. No compensation expense for stock options was recognized under this method since the options exercise prices were not less than the market prices of the stock at the dates the options were awarded (see Note 22).The stock-based compensation expense recognized in earnings relates to restricted stock awards. For disclosure purposes under Financial Accounting Standards Board (FASB) Statement No. 123,Accounting for Stock-Based Compensation, the Black-Scholes option pricing model was used to calculate the fair values of stock options on the date the options were awarded. Based on this model, the weighted-average fair values of stock options awarded during 2003, 2002 and 2001 with the exercise price equal to the market price were $9.55, $11.42 and $12.06 per option, respectively.
Pro forma net income (loss) and net income (loss) per share, as if the fair value method in FASB Statement No. 123 had been used for stock-based compensation, and the assumptions used were as follows with dollars in millions except per share amounts:
2003
|
2002
|
2001
|
||||||||||
Net income (loss) as reported |
$ | 643 | $ | 319 | $ | (64 | ) | |||||
Add: |
||||||||||||
Stock-based employee compensation costs, net of tax, included in net income |
3 | 2 | ||||||||||
Less: |
||||||||||||
Stock-based employee compensation costs, net of tax, as if fair value method had been applied |
(32 | ) | (37 | ) | (32 | ) | ||||||
Pro forma net income (loss) |
$ | 614 | $ | 284 | $ | (96 | ) | |||||
Net income (loss) per share: |
||||||||||||
As reported basic |
$ | 2.68 | $ | 1.34 | $ | (.27 | ) | |||||
Pro forma basic |
$ | 2.56 | $ | 1.19 | $ | (.41 | ) | |||||
As reported diluted |
$ | 2.64 | $ | 1.33 | $ | (.27 | ) | |||||
Pro forma diluted |
$ | 2.53 | $ | 1.19 | $ | (.41 | ) | |||||
Black-Scholes assumptions* |
||||||||||||
Risk-free interest rate |
2.4 | % | 3.6 | % | 5.4 | % | ||||||
Dividend yield |
1.9 | % | 2.1 | % | 2.1 | % | ||||||
Stock volatility |
29.8 | % | 36.0 | % | 33.2 | % | ||||||
Expected option life in years |
3.4 | 3.7 | 4.1 |
* | Weighted-averages |
New Accounting Standards Adopted
In 2003, the company adopted FASB Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires the purchase method of accounting for all business combinations and eliminated the pooling of interests method effective June 30, 2001. Statement No. 141 also specifies the types of acquired intangible assets to be included in goodwill and those to be reported separately from goodwill upon adoption of Statement No. 142. No adjustments of goodwill and other intangible assets were necessary based on these requirements.
In accordance with Statement No. 142, the company did not amortize goodwill related to acquisitions made after June 30, 2001 and discontinued amortizing goodwill for prior acquisitions upon adoption of the new standard as of November 1, 2002. Based on the new standard, goodwill will be written down only for impairments.The company was also required to test existing goodwill for impairment on a transitional basis as of November 1, 2002.The company has completed this test and has determined that its goodwill is not impaired and no write-downs are necessary.A fair value approach was applied to the companys reporting units to determine if the carrying value of goodwill was impaired.The fair value of the reporting units was established based on discounted cash flows and market multiples. Goodwill will continue to be tested for impairment annually, or more often if events and circumstances change.
Pro forma net income (loss) and net income (loss) per share, excluding goodwill amortization, were as follows with dollars in millions except per share amounts:
2003
|
2002
|
2001
|
||||||||
Net income (loss) as reported |
$ | 643 | $ | 319 | $ | (64 | ) | |||
Goodwill amortization, net of tax |
53 | 51 | ||||||||
|
|
|
|
|
|
|
||||
Pro forma net income (loss) |
$ | 643 | $ | 372 | $ | (13 | ) | |||
|
|
|
|
|
|
|
||||
Basic net income per share: |
||||||||||
Net income (loss) as reported |
$ | 2.68 | $ | 1.34 | $ | (.27 | ) | |||
Goodwill amortization, net of tax |
.22 | .22 | ||||||||
|
|
|
|
|
|
|
||||
Pro forma net income (loss) |
$ | 2.68 | $ | 1.56 | $ | (.05 | ) | |||
|
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|
||||
Diluted net income per share: |
||||||||||
Net income (loss) as reported |
$ | 2.64 | $ | 1.33 | $ | (.27 | ) | |||
Goodwill amortization, net of tax |
.22 | .21 | ||||||||
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|
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Pro forma net income (loss) |
$ | 2.64 | $ | 1.55 | $ | (.06 | ) | |||
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In 2003, the company also adopted new accounting standards issued by the FASB described as follows. Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires the guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee (see Note 20). Statement No. 143, Accounting for Asset Retirement Obligations, requires legal obligations associated with the retirement of long-lived assets to be recorded as increases in costs of the related assets. Statement No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. Statement No. 146,Accounting for the Costs
29
Associated with Exit or Disposal Activities, requires companies to recognize liabilities and costs associated with exit or disposal activities initiated after December 31, 2002 when they are incurred, rather than when management commits to a plan to exit an activity. Statement No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, amends the transition provisions and requires certain pro forma disclosures. Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities, which incorporates certain implementation guidance and clarifies the definition of a derivative. Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which affects the accounting for certain obligations that a reporting entity can or must settle by issuing its own equity shares. The adoption of these standards did not have a material effect on the companys financial position or net income.
New Accounting Standard to be Adopted
In 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation and related disclosures of these entities by business enterprises. These are entities in which either the equity investment at risk is not sufficient to absorb the probable losses without additional subordinated financial support from other parties, or the investors with equity at risk lack certain essential characteristics of a controlling interest. Under the Interpretation, the company must consolidate any variable interest entities (VIEs) in which the company holds variable interests and the company is deemed the primary beneficiary. The effective date for the adoption of FIN No. 46 for interests in VIEs created prior to February 1, 2003 is the end of the first fiscal quarter of 2004 and the adoption is not expected to have a material effect on the companys financial position or net income. The effective date for new VIEs created after January 31, 2003 was immediate and the adoption had no effect.
As disclosed in Note 10, the companys credit operations hold retained interests in certain special purpose entities (SPEs) related to the securitization and sale of their retail notes. These SPEs are defined as VIEs. Under the Interpretation, most of the company retained interests are not deemed variable interests because they are interests in a VIEs specified assets with a fair value that is less than half the fair value of the VIEs total assets. The companys remaining retained interests are with qualified special purpose entities (QSPEs) as defined by FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which are exempt from consolidation. The adoption of this standard will not require the consolidation of any of these SPEs related to securitizations.
The company also has a 41 percent ownership interest in Nortrax, Inc. and a 40 percent ownership interest in Nortrax Investments, Inc. (collectively called Nortrax), which meet the definition of VIEs under FIN No. 46. These operations are involved in the ownership and development of several construction equipment dealer locations. Nortrax has been recorded based on the equity method. Under the Interpretation, the company is the primary beneficiary due to certain put options held by the majority owners (see Note 20). Nortrax would have to be consolidated on the effective date of FIN No. 46 on January 31, 2004. Subsequent to fiscal year-end (in December 2003), the company increased its ownership in Nortrax, Inc. to 83 percent and it was consolidated at that time (see Note 28). Nortrax, Inc. represents most of the Nortrax operations.
Financial information for Nortrax in millions of dollars is as follows:
October 31
|
||||||
Financial Position |
2003
|
2002
|
||||
Total assets |
$ | 432 | $ | 407 | ||
Total net assets |
97 | 92 | ||||
Deere & Companys share of the net assets |
40 | 38 |
The sales from the company to Nortrax and its affiliates during 2003, 2002 and 2001 were $412 million, $271 million and $293 million, respectively. The companys total receivables from Nortrax at October 31, 2003 and 2002 were $235 million and $255 million, respectively. Nortrax did not have significant external borrowings. The companys probable cost related to the options with the majority owners has been accrued as of October 31, 2003 (see Note 20).
2. SPECIAL ITEMS
In 2001 and 2002, the company announced certain actions aimed at increasing efficiency and reducing costs. The company recognized asset write-downs and liabilities related to these costs. Following are tables of the write-downs and liabilities related to the restructuring charges and descriptions of these actions. There have been no material revisions to these restructuring plans. The estimated annual pretax increase in earnings and cash flows in 2002, 2003 and ongoing from the restructurings in 2001 and 2002 were approximately $100 million. These savings were as expected. The restructurings primarily reduced cost of sales by approximately $300 million and selling, administrative and general expenses by $30 million, partially offset by a reduction in sales of $230 million. The company also recognized non-recurring special item charges for voluntary early-retirement programs as described below.
30
2001 Restructuring Charges
The expense and liabilities for restructuring items at October 31 in millions of dollars and the number of employees to be terminated were as follows:
Liabilities | |||||||||||
Expense**
|
Payments
|
2001
|
|||||||||
Property and equipment write-downs |
$ | 38 | |||||||||
Inventory write-downs |
33 | ||||||||||
|
|
|
|||||||||
Total write-downs |
71 | ||||||||||
|
|
|
|||||||||
Termination benefits |
26 | $ | (2 | ) | $ | 24 | |||||
Contract terminations |
27 | 27 | |||||||||
Warranties and product returns |
16 | 16 | |||||||||
Goodwill write-off |
5 | (5 | ) | ||||||||
Other costs |
10 | (3 | ) | 7 | |||||||
|
|
|
|
|
|
|
|
||||
Total accruals |
84 | $ | (10 | ) | $ | 74 | |||||
|
|
|
|
|
|
|
|
||||
Total |
$ | 155 | * | ||||||||
|
|
|
|||||||||
2001
|
|||||||||||
Employees to be terminated |
1,000 |
* | In the fourth quarter of 2001, the company also accrued voluntary early-retirement benefits of $189 million based on acceptances for a total of $344 million special items. See following discussion. |
** | There were no adjustments in 2001. |
The costs for restructuring items in 2001 totaled $155 million consisting of $123 million of cost of sales and $32 million of selling, administrative and general expenses as discussed below.
In the fourth quarter of 2001, the company announced plans to exit the hand-held consumer products business included in the commercial and consumer equipment segment. Affected by this decision were consumer products operations and employees primarily in the southeastern United States and Mexico. The company sold its hand-held consumer products operations in Chihuahua, Mexico and other United States facilities related to this business. As a result, a total cost of $132 million was recognized consisting of $15 million for termination benefits for approximately 700 employees, contract terminations of $27 million, product warranties and returns of $16 million, impairment write-downs of $33 million for inventory and $35 million for property and equipment, and other costs of $6 million. The hand-held consumer products operations had revenues of $240 million and $235 million during 2001 and 2000, respectively. During the same periods, pretax operating losses were $72 million and $70 million, excluding the restructuring costs as discussed above.
In the fourth quarter of 2001, the company also announced plans to reduce manufacturing and marketing costs in the construction and forestry segment. These plans included employee separations, the closing or sale of certain forestry equipment operations in Bessemer, Alabama; Atlanta, Georgia; and Woodstock, Ontario. As a result, a total cost of $23 million was recognized consisting of $11 million for termination benefits for approximately 300 employees, a write-off of goodwill of $5 million, impairment write-downs of property and equipment of $3 million and other costs of $4 million.
2001 Voluntary Early-Retirement Programs
During the fourth quarter of 2001, the company also offered voluntary early-retirement programs primarily to certain United States employees whose age plus years of service equaled 80 or more by October 31, 2001. Based on acceptances received, the company recorded an expense of $189 million pretax for the cost of the special retirement benefits and related curtailment costs consisting of $132 million in cost of sales and $57 million in selling, administrative and general expenses. The voluntary early-retirement liability is being paid from the pension assets over the remaining lives of the retirees and dependents as pension payments are made (see Note 3).
2002 Restructuring Charges
The expense (income) and liabilities for restructuring items at October 31 in millions of dollars and the number of employees to be terminated were as follows:
Liabilities
|
Expense
|
Liabilities
|
||||||||||||
2001
|
(Income)
|
Payments
|
2002
|
|||||||||||
Property and equipment write-downs |
$ | 29 | ||||||||||||
Inventory write-downs |
5 | |||||||||||||
|
|
|
||||||||||||
Total write-downs |
34 | |||||||||||||
|
|
|
||||||||||||
Termination benefits |
$ | 24 | 12 | $ | (25 | ) | $ | 11 | ||||||
Contract terminations |
27 | 12 | (21 | ) | 18 | |||||||||
Warranties and product returns |
16 | (8 | ) | (7 | ) | 1 | ||||||||
Other costs |
7 | 8 | (3 | ) | 12 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||
Total accruals |
$ | 74 | 24 | $ | (56 | ) | $ | 42 | ||||||
|
|
|
|
|
|
|
|
|
|
|||||
Total |
$ | 58 | * | |||||||||||
|
|
|
||||||||||||
2001
|
Additions
|
Terminated
|
2002
|
|||||||||||
Employees to be terminated |
1,000 | 900 | (1700 | ) | 200 |
* | In addition to these charges, the company recognized $11 million of other non-accruable restructuring costs for a total of $69 million restructuring costs. The restructuring costs of $69 million have been reduced by $14 million of adjustments ($10 million cost of sales and $4 million selling, administrative and general expenses) due to changes in prior-year estimates as described below. Early-retirement programs also totaled $3 million in 2002 for a total of $72 million of special items. |
The costs for restructuring items in 2002 totaled $69 million consisting of $68 million of cost of sales and $1 million of other expenses, as discussed below. The beginning liabilities shown above relate to special items shown in the previous table for 2001.
In 2002, the companys commercial and consumer equipment segment announced plans to close facilities in Williamsburg, Virginia and Jeffersonville, Indiana and streamline operations at Horicon, Wisconsin. As a result of these actions, a cost of $38 million was recognized, partially offset by $14 million of adjustments related to exiting the hand-held consumer products business (see prior discussion for 2001). The net restructuring cost of $24 million
31
consisted of property and equipment write-downs of $6 million, inventory write-downs of $1 million, contract terminations of $8 million, termination benefits of $3 million for approximately 200 employees and other costs of $6 million.
In 2002, the construction and forestry segment announced plans to close the Loudon,Tennessee factory and relocate the skid-steer loader production to its Dubuque, Iowa facility. Primarily as a result of this closure, a total cost of $27 million was recognized consisting of property and equipment write-downs of $14 million, inventory write-downs of $1 million, contract terminations of $4 million, termination benefits of $4 million for approximately 400 employees and other costs of $4 million.
In 2002, the companys agricultural equipment segment recognized $12 million of impairment and reorganization costs primarily in its Argentina operations consisting of property and equipment write-downs of $8 million, inventory write-downs of $2 million, termination benefits of $1 million for approximately 100 employees and other costs of $1 million.The companys special technologies group recognized $9 million of costs primarily related to the closure of a facility in Springfield, Illinois and the restructuring of Agris Corporation.These costs consisted of termination benefits of $4 million for approximately 200 employees, property and equipment write-downs of $1 million, inventory write-downs of $1 million and other costs of $3 million.
2003 Restructuring Charges
The income and liabilities for restructuring items at October 31 in millions of dollars and the number of employees to be terminated were as follows:
Liabilities
|
Adjustment
|
Liabilities
|
||||||||||||
2002
|
Income**
|
Payments
|
2003
|
|||||||||||
Termination benefits |
$ | 11 | $ | (1 | ) | $ | (10 | ) | ||||||
Contract terminations |
18 | (3 | ) | (1 | ) | $ | 14 | |||||||
Warranties and product returns |
1 | (1 | ) | |||||||||||
Other costs |
12 | (2 | ) | (8 | ) | 2 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||
Total |
$ | 42 | $ | (7 | )* | $ | (19 | ) | $ | 16 | ||||
|
|
|
|
|
|
|
|
|
|
|||||
2002
|
Additions
|
Terminated
|
2003
|
|||||||||||
Employees to be terminated |
200 | (200 | ) |
* | In addition to these accrual adjustments, the company recognized $2 million of other non-accruable restructuring costs related to these actions for a net total $5 million of restructuring income. |
** | These are adjustments of prior year accruals due to changes in estimates. |
The income from restructuring items in 2003 totaled $5 million consisting of credits of $2 million to cost of sales and $3 million to selling, administrative and general expenses. The beginning liabilities shown above relate to special items shown in the previous table for 2002.
3. PENSION AND OTHER POSTRETIREMENT BENEFITS
The company has several defined benefit pension plans covering its United States employees and employees in certain foreign countries.The company also has several defined benefit health care and life insurance plans for retired employees in the United States and Canada.
The worldwide components of net periodic pension cost and the significant assumptions consisted of the following in millions of dollars and in percents:
2003
|
2002
|
2001
|
||||||||||
Pensions |
||||||||||||
Service cost |
$ | 111 | $ | 107 | $ | 113 | ||||||
Interest cost |
450 | 448 | 424 | |||||||||
Return on assets: |
||||||||||||
Actual (gain) loss |
(958 | ) | 481 | 1,318 | ||||||||
Deferred gain (loss) |
400 | (1,100 | ) | (1,921 | ) | |||||||
Amortization of actuarial (gain) loss |
40 | 2 | (9 | ) | ||||||||
Amortization of prior service cost |
40 | 30 | 34 | |||||||||
Amortization of net transition asset |
(1 | ) | (9 | ) | ||||||||
Special early-retirement benefits |
3 | 135 | ||||||||||
Settlements/curtailments |
6 | |||||||||||
|
|
|
|
|
|
|
|
|
||||
Net cost (income) |
$ | 83 | $ | (24 | ) | $ | 85 | |||||
|
|
|
|
|
|
|
|
|
||||
Weighted-average Assumptions |
||||||||||||
Discount rates for obligations |
6.0 | % | 6.7 | % | 7.2 | % | ||||||
Discount rates for expenses |
6.7 | % | 7.2 | % | 7.4 | % | ||||||
Assumed rates of compensation increases |
3.9 | % | 3.9 | % | 4.8 | % | ||||||
Expected long-term rates of return |
8.5 | % | 9.7 | % | 9.7 | % |
The worldwide components of net periodic postretirement benefits cost and the significant assumptions consisted of the following in millions of dollars and in percents:
2003
|
2002
|
2001
|
||||||||||
Health Care and Life Insurance |
||||||||||||
Service cost |
$ | 88 | $ | 83 | $ | 69 | ||||||
Interest cost |
287 | 224 | 192 | |||||||||
Return on assets: |
||||||||||||
Actual (gain) loss |
(92 | ) | 41 | 101 | ||||||||
Deferred gain (loss) |
53 | (85 | ) | (155 | ) | |||||||
Amortization of actuarial loss |
176 | 46 | ||||||||||
Amortization of prior service cost |
(2 | ) | (6 | ) | 2 | |||||||
Special early-retirement benefits |
1 | |||||||||||
Settlements/curtailments |
53 | |||||||||||
|
|
|
|
|
|
|
|
|
||||
Net cost |
$ | 510 | $ | 303 | $ | 263 | ||||||
|
|
|
|
|
|
|
|
|
||||
Weighted-average Assumptions |
||||||||||||
Discount rates for obligations |
6.0 | % | 6.8 | % | 7.2 | % | ||||||
Discount rates for expenses |
6.8 | % | 7.2 | % | 7.7 | % | ||||||
Expected long-term rates of return |
8.5 | % | 9.7 | % | 9.7 | % |
The total special early-retirement benefits were $3 million in 2002 and $189 million in 2001, including curtailments (see Note 2).
The annual rates of increase in the per capita cost of covered health care benefits (the health care cost trend rates) used to determine 2003 costs were assumed to be 7.0 percent for 2004 and 5.0 percent for 2005 and all future years.The 2002 costs assumed 5.0 percent in 2003 and all future years.The 2001 costs assumed 4.5 percent for 2002 and all future years.
32
The October 31, 2003 health care obligations assumed 10.0 percent for the 2004 trend rate graded down evenly to 5.0 percent for 2009 and all future years. An increase of one percentage point in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligations at October 31, 2003 by $619 million and the aggregate of service and interest cost component of net periodic postretirement benefits cost for that year by $51 million. A decrease of one percentage point would decrease the obligations by $551 million and the cost by $44 million.
The following is the actual percentage allocation, target allocation and expected rate of return for the total pension and health care plan assets (similar for both plans) at October 31, 2003:
Actual | Target | Expected | |||||||
Allocation
Percent |
Allocation
Percent |
Rate of
Return |
|||||||
U.S. equity securities |
38 | % | 40 | % | 9.0 | % | |||
Non-U.S. equity securities |
22 | 20 | 9.0 | ||||||
Global fixed income securities |
20 | 20 | 6.0 | ||||||
Global alternative investments |
20 | 20 | 9.5 |
The global fixed income securities weighted-average maturity was approximately 7.5 years.
The expected long-term rate of return on plan assets reflects managements expectations of long-term average rates of return on funds invested to provide for benefits included in the projected benefit obligations. The expected return is based on the outlook for inflation, fixed income returns and equity returns, while also considering historical returns, asset allocation and investment strategy. Although not a guarantee of future results, the average annual return of the companys United States pension fund was 10 percent during the past ten years and 11 percent during the past 20 years. The discount rate assumption is based on investment yields available on AA rated long-term corporate bonds.
The company will not have mandatory contributions to the United States pension plans for fiscal year 2004. However, voluntary contributions may be made during this period.
A worldwide reconciliation of the funded status of the benefit plans at October 3l in millions of dollars follows:
Pensions
|
Health Care and Life Insurance |
|||||||||||||||
2003
|
2002
|
2003
|
2002
|
|||||||||||||
Change in benefit obligations |
||||||||||||||||
Beginning of year balance |
$ | (6,840 | ) | $ | (6,440 | ) | $ | (4,108 | ) | $ | (3,114 | ) | ||||
Service cost |
(111 | ) | (107 | ) | (88 | ) | (83 | ) | ||||||||
Interest cost |
(450 | ) | (448 | ) | (287 | ) | (224 | ) | ||||||||
Actuarial loss |
(534 | ) | (293 | ) | (1,578 | ) | (882 | ) | ||||||||
Amendments |
(190 | ) | 424 | |||||||||||||
Benefits paid |
484 | 474 | 238 | 195 | ||||||||||||
Settlements/curtailments |
4 | |||||||||||||||
Special early-retirement benefits |
(3 | ) | ||||||||||||||
Foreign exchange and other |
(149 | ) | (27 | ) | (9 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
End of year balance |
(7,790 | ) | (6,840 | ) | (5,408 | ) | (4,108 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in plan assets (fair value) |
||||||||||||||||
Beginning of year balance |
5,024 | 5,951 | 410 | 451 | ||||||||||||
Actual return on plan assets |
958 | (481 | ) | 92 | (41 | ) | ||||||||||
Employer contribution |
432 | 33 | 313 | 195 | ||||||||||||
Benefits paid |
(484 | ) | (474 | ) | (238 | ) | (195 | ) | ||||||||
Foreign exchange and other |
57 | (5 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
End of year balance |
5,987 | 5,024 | 577 | 410 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Plan obligation more than plan assets |
(1,803 | ) | (1,816 | ) | (4,831 | ) | (3,698 | ) | ||||||||
Unrecognized actuarial loss |
2,094 | 1,975 | 2,869 | 1,518 | ||||||||||||
Unrecognized prior service (credit) cost |
254 | 90 | (423 | ) | (1 | ) | ||||||||||
Remaining unrecognized transition liability |
1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net amount recognized |
545 | 250 | (2,385 | ) | (2,181 | ) | ||||||||||
Minimum pension liability adjustment |
(1,964 | ) | (1,729 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net liability recognized |
$ | (1,419 | ) | $ | (1,479 | ) | $ | (2,385 | ) | $ | (2,181 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amounts recognized in balance sheet |
$ | 63 | $ | 50 | ||||||||||||
Accrued benefit liability |
(1,482 | ) | (1,529 | ) | $ | (2,385 | ) | $ | (2,181 | ) | ||||||
Intangible asset |
250 | 87 | ||||||||||||||
Accumulated pretax charge to other comprehensive income |
1,714 | 1,642 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net amount recognized |
$ | 545 | $ | 250 | $ | (2,385 | ) | $ | (2,181 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
The total accumulated benefit obligations for all pension plans at October 31, 2003 and 2002 was $7,390 million and $6,487 million, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with the accumulated benefit obligations greater than plan assets at October 31, 2003 were $7,569 million, $7,186 million and $5,745 million, respectively, and at October 31, 2002 were $6,722 million, $6,375 million and $4,849 million, respectively.
The minimum pension liability adjustment recorded by the company was $1,964 million and $1,729 million as of October 31, 2003 and 2002, respectively. The increase in the adjustment, compared to last year, was caused by an increase
33
in the accumulated benefit obligation due to a decrease in the discount rate from 6.7 percent to 6.0 percent and amendments to the plans. This increase in the obligation was partially offset by an increase in the fair value of plan assets
4. INCOME TAXES
The provision for income taxes by taxing jurisdiction and by significant component consisted of the following in millions of dollars:
2003
|
2002
|
2001
|
||||||||||
Current: |
||||||||||||
United States: |
||||||||||||
Federal |
$ | 96 | $ | 145 | $ | 96 | ||||||
State |
4 | 1 | 8 | |||||||||
Foreign |
200 | 109 | 112 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Total current |
300 | 255 | 216 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Deferred: |
||||||||||||
United States: |
||||||||||||
Federal |
59 | 6 | (171 | ) | ||||||||
State |
3 | 2 | (17 | ) | ||||||||
Foreign |
(25 | ) | (5 | ) | (10 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Total deferred |
37 | 3 | (198 | ) | ||||||||
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
$ | 337 | $ | 258 | $ | 18 | ||||||
|
|
|
|
|
|
|
|
|
Based upon location of the companys operations, the consolidated income (loss) before income taxes in the United States in 2003, 2002 and 2001 was $428 million, $327 million and $(227) million, respectively, and in foreign countries was $543 million, $276 million and $202 million, respectively. Certain foreign operations are branches of Deere & Company and are, therefore, subject to United States as well as foreign income tax regulations. The pretax income by location and the preceding analysis of the income tax provision by taxing jurisdiction are, therefore, not directly related.
A comparison of the statutory and effective income tax provision and reasons for related differences in millions of dollars follow:
2003
|
2002
|
2001
|
||||||||||
United States federal income tax provision (credit) at a statutory rate of 35 percent |
$ | 340 | $ | 211 | $ | (9 | ) | |||||
Increase (decrease) resulting from: |
||||||||||||
State and local income taxes, net of federal income tax benefit |
4 | 2 | (6 | ) | ||||||||
Taxes on foreign activities |
(4 | ) | (1 | ) | 28 | |||||||
Benefit of Foreign Sales Corporation |
(6 | ) | ||||||||||
Goodwill amortization |
10 | 11 | ||||||||||
Nondeductible costs and othernet |
(3 | ) | 36 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
$ | 337 | $ | 258 | $ | 18 | ||||||
|
|
|
|
|
|
|
|
|
At October 31, 2003, accumulated earnings in certain overseas subsidiaries totaled $504 million for which no provision for United States income taxes or foreign withholding taxes has been made, because it is expected that such earnings will be reinvested overseas indefinitely. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practical.
Deferred income taxes arise because there are certain items that are treated differently for financial accounting than for income tax reporting purposes. An analysis of the deferred income tax assets and liabilities at October 31 in millions of dollars follows:
2003
|
2002
|
||||||||||||
Deferred Tax Assets |
Deferred Tax Liabilities |
Deferred Tax Assets |
Deferred Tax Liabilities |
||||||||||
Accrual for retirement and postemployment benefits |
$ | 696 | $ | 721 | |||||||||
Minimum pension liability adjustment |
636 | 612 | |||||||||||
Accrual for sales allowances |
266 | 273 | |||||||||||
Tax over book depreciation |
$ | 215 | $ | 221 | |||||||||
Deferred lease income |
169 | 155 | |||||||||||
Allowance for doubtful receivables |
79 | 75 | |||||||||||
Accrual for vacation pay |
60 | 54 | |||||||||||
Tax loss and tax credit carryforwards |
37 | 47 | |||||||||||
Unrealized loss on derivatives |
12 | 25 | |||||||||||
Other items |
112 | 69 | 89 | 49 | |||||||||
Less valuation allowance |
(5 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||
Deferred income tax assets and liabilities |
$ | 1,898 | $ | 453 | $ | 1,891 | $ | 425 | |||||
|
|
|
|
|
|
|
|
|
Deere & Company files a consolidated federal income tax return in the United States, which includes the wholly-owned Financial Services subsidiaries. These subsidiaries account for income taxes generally as if they filed separate income tax returns.
At October 31, 2003, certain tax loss and tax credit carryforwards for $37 million were available with $18 million expiring from 2007 through 2012 and $19 million with an unlimited expiration date.
5. OTHER INCOME AND OTHER OPERATING EXPENSES
The major components of other income and other operating expenses consisted of the following in millions of dollars:
2003
|
2002
|
2001
|
|||||||
Other income |
|||||||||
Gains from sales of retail notes and leases* |
$ | 54 | $ | 81 | $ | 32 | |||
Securitization and servicing fee income |
55 | 50 | 30 | ||||||
Revenues from services |
45 | 51 | 52 | ||||||
Investment income |
11 | 12 | 12 | ||||||
Other |
80 | 75 | 59 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 245 | $ | 269 | $ | 185 | |||
|
|
|
|
|
|
||||
Other operating expenses |
|||||||||
Depreciation of equipment on operating leases |
$ | 273 | $ | 316 | $ | 317 | |||
Cost of services |
20 | 31 | 40 | ||||||
Other** |
32 | 63 | 36 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 325 | $ | 410 | $ | 393 | |||
|
|
|
|
|
|
* | Includes securitizations and other sales of retail notes and leases. |
** | Includes Argentine peso devaluation losses in 2002. |
6. UNCONSOLIDATED AFFILIATED COMPANIES
Unconsolidated affiliated companies are companies in which Deere & Company generally owns 20 percent to 50 percent of the outstanding voting shares. Deere & Company does not control
34
these companies and accounts for its investments in them on the equity basis. The investments in these companies primarily consist of Deere-Hitachi Construction Machinery Corporation (50 percent ownership), Nortrax, Inc. (41 percent ownership), Nortrax Investments, Inc. (40 percent ownership), Bell Equipment Limited (32 percent ownership) and Sunstate Equipment Co., LLC (49 percent ownership). Subsequent to fiscal year-end, the company increased its ownership in Nortrax, Inc. to 83 percent, at which time Nortrax, Inc. was consolidated, and the company sold its minority ownership in Sunstate Equipment Co., LLC (see Note 28). The unconsolidated affiliated companies manufacture, market or rent equipment. Deere & Companys share of the income of these companies is reported in the consolidated income statement under Equity in Income (Loss) of Unconsolidated Affiliates. The investment in these companies is reported in the consolidated balance sheet under Investments in Unconsolidated Affiliates.
Combined financial information of the unconsolidated affiliated companies in millions of dollars is as follows:
Year Ended October
|
|||||||||||
Operations |
2003
|
2002
|
2001
|
||||||||
Sales |
$ | 1,929 | $ | 1,605 | $ | 1,667 | |||||
Net income (loss) |
23 | (38 | ) | (32 | ) | ||||||
Deere & Companys equity in net income (loss) |
9 | (25 | ) | (22 | ) | ||||||
October 31
|
|||||||||||
Financial Position |
2003
|
2002
|
|||||||||
Total assets |
$ | 1,297 | $ | 1,265 | |||||||
Total external borrowings |
384 | 193 | |||||||||
Total net assets |
445 | 449 | |||||||||
Deere & Companys share of the net assets |
196 | 181 |
7. MARKETABLE SECURITIES
Marketable securities are currently held by the health care subsidiaries. All marketable securities are classified as available-for-sale under FASB Statement No. 115, with unrealized gains and losses shown as a component of stockholders equity. Realized gains or losses from the sales of marketable securities are based on the specific identification method.
The amortized cost and fair value of marketable securities in millions of dollars follow:
Amortized Cost or Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||
October 31, 2003 |
||||||||||||
Equity securities |
$ | 25 | $ | 3 | $ | 1 | $ | 27 | ||||
U.S. government debt securities |
62 | 2 | 64 | |||||||||
Corporate debt securities |
81 | 4 | 1 | 84 | ||||||||
Mortgage-backed debt securities |
57 | 1 | 1 | 57 | ||||||||
|
|
|
|
|
|
|
|
|||||
Marketable securities |
$ | 225 | $ | 10 | $ | 3 | $ | 232 | ||||
|
|
|
|
|
|
|
|
|||||
October 31, 2002 |
||||||||||||
Equity securities |
$ | 18 | $ | 2 | $ | 16 | ||||||
U.S. government debt securities |
49 | $ | 3 | 52 | ||||||||
Corporate debt securities |
63 | 3 | 66 | |||||||||
Mortgage-backed debt securities |
53 | 2 | 55 | |||||||||
|
|
|
|
|
|
|
|
|||||
Marketable securities |
$ | 183 | $ | 8 | $ | 2 | $ | 189 | ||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities at October 31, 2003 in millions of dollars follow:
Amortized
Cost |
Fair
Value |
|||||
Due in one year or less |
$ | 11 | $ | 11 | ||
Due after one through five years |
62 | 66 | ||||
Due after five through 10 years |
68 | 70 | ||||
Due after 10 years |
59 | 58 | ||||
|
|
|
|
|||
Debt securities |
$ | 200 | $ | 205 | ||
|
|
|
|
Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Proceeds from the sales of available-for-sale securities were $20 million in 2003, $34 million in 2002 and $7 million in 2001. Realized gains and losses and the increase (decrease) in the net unrealized gains or losses were not significant in those years.
8. TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||
Trade accounts and notes: |
||||||
Agricultural |
$ | 1,702 | $ | 1,697 | ||
Commercial and consumer |
683 | 760 | ||||
Construction and forestry |
225 | 266 | ||||
Other |
9 | 11 | ||||
|
|
|
|
|||
Trade accounts and notes receivablenet |
$ | 2,619 | $ | 2,734 | ||
|
|
|
|
At October 31, 2003 and 2002, dealer notes included in the previous table were $428 million and $472 million, and the allowance for doubtful trade receivables was $58 million and $45 million, respectively.
In October 2001, the Equipment Operations in the United States sold $2.2 billion of trade receivables to Deere Capital, Inc. (DCI), a wholly-owned Financial Services subsidiary of John Deere Capital Corporation. In 2002 and 2003, these operations continued to sell a significant portion of newly originated trade receivables to the credit operations. During 2002 and 2003, the overseas Equipment Operations also began selling certain trade receivables to John Deere Finance S.A., a wholly-owned overseas Financial Services subsidiary of the Capital Corporation. The Equipment Operations provided compensation to the credit operations at market rates of interest for these receivables during 2002 and 2003. Although this arrangement had substantially no effect on consolidated net income, it did shift net income and operating profit from the Equipment Operations to the credit operations due to the compensation in those years. Responsibility for servicing these receivables in the United States was also transferred to the credit operations.
Trade accounts and notes receivable arise from sales of goods to dealers. Under the terms of the sales to dealers, interest is charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is
35
received by the company. Dealers cannot cancel purchases after the equipment is shipped and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to 12 months for most equipment. Interest-free periods may not be extended. Interest charged may not be forgiven and interest rates, which exceed the prime rate, are set based on market factors. The company evaluates and assesses dealers on an ongoing basis as to their creditworthiness and generally retains a security interest in the goods associated with these trade receivables. The company is obligated to repurchase goods sold to a dealer upon cancellation or termination of the dealers contract for such causes as change in ownership, closeout of the business or default. The company may also in certain circumstances repurchase goods sold to a dealer in order to satisfy a request for goods from another dealer.
Trade accounts and notes receivable have significant concentrations of credit risk in the agricultural, commercial and consumer, and construction and forestry sectors as shown in the previous table. On a geographic basis, there is not a
9. FINANCING RECEIVABLES
Financing receivables at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||
Retail notes: |
||||||
Equipment: |
||||||
Agricultural |
$ | 4,995 | $ | 4,292 | ||
Commercial and consumer |
1,092 | 914 | ||||
Construction and forestry |
1,515 | 1,550 | ||||
Recreational products |
114 | 166 | ||||
|
|
|
|
|||
Total |
7,716 | 6,922 | ||||
Wholesale notes |
828 | 950 | ||||
Revolving charge accounts |
1,164 | 928 | ||||
Financing leases |
759 | 751 | ||||
Operating loans |
543 | 563 | ||||
|
|
|
|
|||
Total financing receivables |
11,010 | 10,114 | ||||
|
|
|
|
|||
Less: |
||||||
Unearned finance income: |
||||||
Equipment notes |
755 | 754 | ||||
Recreational product notes |
34 | 51 | ||||
Financing leases |
98 | 105 | ||||
|
|
|
|
|||
Total |
887 | 910 | ||||
|
|
|
|
|||
Allowance for doubtful receivables |
149 | 136 | ||||
|
|
|
|
|||
Financing receivablesnet |
$ | 9,974 | $ | 9,068 | ||
|
|
|
|
Financing receivables have significant concentrations of credit risk in the agricultural, commercial and consumer, and construction and forestry sectors as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area. The company retains as collateral a security interest in the equipment associated with retail notes, wholesale notes and financing leases.
Financing receivable installments, including unearned finance income, at October 31 are scheduled as follows in millions of dollars:
2003
|
2002
|
|||||
Due in months: |
||||||
0 12 |
$ | 5,282 | $ | 4,949 | ||
13 24 |
2,194 | 1,994 | ||||
25 36 |
1,602 | 1,430 | ||||
37 48 |
1,101 | 927 | ||||
49 60 |
607 | 541 | ||||
Thereafter |
224 | 273 | ||||
|
|
|
|
|||
Total |
$ | 11,010 | $ | 10,114 | ||
|
|
|
|
The maximum terms for retail notes are generally eight years for agricultural equipment, six years for commercial and consumer equipment and five years for construction and forestry equipment. The maximum term for financing leases is generally five years, while the average term for wholesale notes is 12 months.
At October 31, 2003 and 2002, the unpaid balances of retail notes and leases previously sold by the credit operations were $2,916 million and $2,621 million, respectively. The retail notes sold are collateralized by security interests in the related equipment sold to customers. At October 31, 2003 and 2002, worldwide financing receivables administered, which include financing receivables and leases previously sold but still administered, totaled $12,890 million and $11,689 million, respectively.
Total financing receivable amounts 60 days or more past due were $51 million at October 31, 2003, compared with $57 million at October 31, 2002. These past-due amounts represented .50 percent of the receivables financed at October 31, 2003 and .62 percent at October 31, 2002. The allowance for doubtful financing receivables represented 1.47 percent and 1.48 percent of financing receivables outstanding at October 31, 2003 and 2002, respectively. In addition, at October 31, 2003 and 2002, the companys credit operations had $175 million and $153 million, respectively, of deposits withheld from dealers and merchants available for potential credit losses. An analysis of the allowance for doubtful financing receivables follows in millions of dollars:
2003
|
2002
|
2001
|
||||||||||
Balance, beginning of the year |
$ | 136 | $ | 126 | $ | 106 | ||||||
Provision charged to operations |
84 | 156 | 103 | |||||||||
Amounts written off |
(56 | ) | (128 | ) | (73 | ) | ||||||
Transfers primarily related to retail note sales |
(15 | ) | (18 | ) | (10 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Balance, end of the year |
$ | 149 | $ | 136 | $ | 126 | ||||||
|
|
|
|
|
|
|
|
|
10. SALE AND SECURITIZATION OF FINANCING RECEIVABLES
The company periodically sells receivables to special purpose entities (SPEs) in securitizations of retail notes. It retains interest-only strips, servicing rights, and in some cases cash reserve accounts, all of which are retained interests in the securitized receivables. Gains or losses on sales of the receivables depend in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair values at the date of transfer.
36
The company generally estimates fair values based on the present value of future expected cash flows using managements key assumptions as discussed below.The company retains the rights to certain future cash flows and in the United States transactions receives annual servicing fees approximating 1 percent of the outstanding balance. No significant balances for servicing assets or liabilities exist because the benefits received for servicing are offset by the costs of providing the servicing.The companys maximum exposure under recourse provisions related to securitizations at October 31, 2003 and 2002 was $236 million and $209 million, respectively. Except for this exposure, the investors and securitization trusts have no recourse to the company for failure of debtors to pay when due.The companys retained interests, which are included in the recourse provisions, are subordinate to investors interests, and their values are subject to certain key assumptions as shown below.The total assets of the unconsolidated SPEs related to securitizations at October 31, 2003 and 2002 were $2,964 million and $2,720 million, respectively.
Pretax gains in millions of dollars on retail notes securitized and key assumptions used to initially determine the fair value of the retained interests were as follows:
2003
|
2002
|
2001
|
||||||||||
Pretax gains |
$ | 50 | $ | 71 | $ | 12 | ||||||
Weighted-average maturities in months |
21 | 19 | 20 | |||||||||
Average annual prepayment rates |
19 | % | 22 | % | 20 | % | ||||||
Average expected annual credit losses |
.42 | % | .42 | % | .30 | % | ||||||
Discount rates on retained interests and subordinate tranches |
13 | % | 13 | % | 13 | % |
Cash flows received from securitization trusts in millions of dollars were as follows:
2003
|
2002
|
2001
|
|||||||
Proceeds from new securitizations |
$ | 1,891 | $ | 2,870 | $ | 995 | |||
Servicing fees received |
24 | 28 | 19 | ||||||
Other cash flows received |
49 | 103 | 53 |
The total retained interests, weighted-average life, weighted-average current key economic assumptions and the sensitivity analysis showing the hypothetical effects on the retained interests from immediate 10 percent and 20 percent adverse changes in those assumptions with dollars in millions were as follows:
2003
|
2002
|
|||||||
Retail Note Securitizations |
||||||||
Carrying amount/fair value of retained interests |
$ | 146 | $ | 107 | ||||
Weighted-average life (in months) |
16 | 15 | ||||||
Prepayment speed assumption (annual rate) |
20 | % | 19 | % | ||||
Impact on fair value of 10% adverse change |
$ | 1.9 | $ | .8 | ||||
Impact on fair value of 20% adverse change |
$ | 3.8 | $ | 1.9 | ||||
Expected credit losses (annual rate) |
.40 | % | .39 | % | ||||
Impact on fair value of 10% adverse change |
$ | 1.8 | $ | 1.1 | ||||
Impact on fair value of 20% adverse change |
$ | 3.6 | $ | 2.2 | ||||
Residual cash flows discount rate (annual) |
13 | % | 13 | % | ||||
Impact on fair value of 10% adverse change |
$ | 3.6 | $ | 2.5 | ||||
Impact on fair value of 20% adverse change |
$ | 7.0 | $ | 4.9 |
These sensitivities are hypothetical changes in fair value and cannot be extrapolated because the relationship of the changes in assumption to the changes in fair value may not be linear. Also, the effect of a variation in a particular assumption is calculated without changing any other assumption, whereas, changes in one factor may result in changes in another. Accordingly, no assurance can be given that actual results would be consistent with the results of these estimates.
Principal balances of owned, securitized and managed retail notes; past due amounts; and credit losses (net of recoveries) in millions of dollars follow:
Principal Outstanding |
Principal 60 Days or More Past Due |
Net Credit Losses |
|||||||
2003 |
|||||||||
Owned |
$ | 6,759 | $ | 30 | $ | 27 | |||
Securitized |
2,752 | 12 | 11 | ||||||
|
|
|
|
|
|
||||
Managed |
$ | 9,511 | $ | 42 | $ | 38 | |||
|
|
|
|
|
|
||||
2002 |
|||||||||
Owned |
$ | 6,066 | $ | 18 | $ | 27 | |||
Securitized |
2,497 | 14 | 10 | ||||||
|
|
|
|
|
|
||||
Managed |
$ | 8,563 | $ | 32 | $ | 37 | |||
|
|
|
|
|
|
The amount of actual and projected future credit losses as a percent of the original balance of retail notes securitized (expected static pool losses) were as follows:
Retail Notes Securitized In |
|||||||||||
2003
|
2002
|
2001
|
|||||||||
Actual and Projected Losses (%) as of Year End: |
|||||||||||
2003 |
.67% | .53% | .76 | % | |||||||
2002 |
.61% | .57 | % | ||||||||
2001 |
.61 | % |
11. OTHER RECEIVABLES
Other receivables at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||
Taxes receivable |
$ | 176 | $ | 232 | ||
Receivables relating to securitizations |
134 | 92 | ||||
Other |
118 | 102 | ||||
|
|
|
|
|||
Other receivables |
$ | 428 | $ | 426 | ||
|
|
|
|
The credit operations receivables related to securitizations are equal to the present value of payments to be received for certain retained interests and deposits made with other entities for recourse provisions under the retail note sales agreements.
12. EQUIPMENT ON OPERATING LEASES
Operating leases arise primarily from the leasing of John Deere equipment to retail customers. Initial lease terms generally range from 36 to 60 months. Net equipment on operating leases totaled $1,382 million and $1,609 million at October 31, 2003 and 2002, respectively.The equipment is depreciated on a straight-line basis over the terms of the leases.The accumulated depreciation on this equipment was $535 million and $614 million at October 31, 2003 and 2002, respectively.The corresponding depreciation expense was $273 million in 2003, $316 million in 2002 and $318 million in 2001.
37
Future payments to be received on operating leases totaled $626 million at October 31, 2003 and are scheduled as follows in millions of dollars: 2004 $276, 2005 $185, 2006 $103, 2007 $48 and 2008 $14.
13. INVENTORIES
Most inventories owned by Deere & Company and its United States equipment subsidiaries are valued at cost, on the last-in, first-out (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the first-in, first-out (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 67 percent and 72 percent of worldwide gross inventories at FIFO value on October 31, 2003 and 2002, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows:
2003
|
2002
|
|||||
Raw materials and supplies |
$ | 496 | $ | 515 | ||
Work-in-process |
388 | 361 | ||||
Finished machines and parts |
1,432 | 1,444 | ||||
|
|
|
|
|||
Total FIFO value |
2,316 | 2,320 | ||||
Adjustment to LIFO value |
950 | 948 | ||||
|
|
|
|
|||
Inventories |
$ | 1,366 | $ | 1,372 | ||
|
|
|
|
14. PROPERTY AND DEPRECIATION
A summary of property and equipment at October 31 in millions of dollars follows:
Useful Lives (Years) |
2003
|
2002
|
||||||
Land |
$ | 68 | $ | 62 | ||||
Buildings and building equipment |
10-33 | 1,366 | 1,254 | |||||
Machinery and equipment |
12 | 2,705 | 2,470 | |||||
Dies, patterns, tools, etc |
8 | 932 | 821 | |||||
All other |
3-8 | 671 | 692 | |||||
Construction in progress |
92 | 196 | ||||||
|
|
|
|
|||||
Total at cost |
5,834 | 5,495 | ||||||
Less accumulated depreciation |
3,758 | 3,497 | ||||||
|
|
|
|
|||||
Property and equipmentnet |
$ | 2,076 | $ | 1,998 | ||||
|
|
|
|
Leased property under capital leases amounting to $19 million and $12 million at October 31, 2003 and 2002, respectively, is included in property and equipment.
Property and equipment is stated at cost less accumulated depreciation. Property and equipment additions in 2003, 2002 and 2001 were $320 million, $358 million and $500 million and depreciation was $319 million, $310 million and $308 million, respectively.
Capitalized software is stated at cost less accumulated amortization and the estimated useful life is three years. The amount of total capitalized software costs, including purchased and internally developed software, classified as Other Assets at October 31, 2003 and 2002 was $276 million and $238 million, less accumulated amortization of $207 million and $170 million, respectively. Amortization of these software costs was $38 million, $38 million and $31 million in 2003, 2002 and 2001, respectively.
The cost of compliance with foreseeable environmental requirements has been accrued and did not have a material effect on the companys financial
15. GOODWILL AND OTHER INTANGIBLE ASSETSNET
The amounts of goodwill by operating segment were as follows in millions of dollars:
2003*
|
2002
|
|||||
Agricultural equipment |
$ | 75 | $ | 68 | ||
Commercial and consumer equipment |
305 | 304 | ||||
Construction and forestry |
473 | 413 | ||||
Other |
19 | 19 | ||||
|
|
|
|
|||
Total goodwill |
$ | 872 | $ | 804 | ||
|
|
|
|
* | The changes in goodwill between years were primarily due to fluctuations in foreign currency exchange rates. |
Upon the adoption of FASB Statement No. 142, Goodwill and Other Intangible Assets, in the first quarter of fiscal 2003, goodwill was no longer amortized and will be written down in the future only for impairments (see Note 1). Goodwill is reviewed for impairment by reporting unit annually or as events and circumstances change. All goodwill has been allocated to the reporting units, which consist primarily of the operating segments.
The components of other intangible assets are as follows in millions of dollars:
2003
|
2002
|
|||||||
Amortized intangible assets: |
||||||||
Gross patents, licenses and other |
$ | 9 | $ | 10 | ||||
Accumulated amortization |
(6 | ) | (6 | ) | ||||
|
|
|
|
|
|
|||
Net patents, licenses and other |
3 | 4 | ||||||
Unamortized intangible assets: |
||||||||
Intangible asset related to minimum pension liability |
250 | 87 | ||||||
|
|
|
|
|
|
|||
Total other intangible assetsnet |
$ | 253 | $ | 91 | ||||
|
|
|
|
|
|
Other intangible assets, excluding the intangible pension asset, are stated at cost less accumulated amortization and are being amortized over 17 years or less on the straight-line basis. The intangible pension asset is remeasured and adjusted annually. The increase in the intangible pension asset is due to an increase in unrecognized prior service cost related to pension plan amendments. The amortization of other intangible assets is not significant.
38
16. SHORT-TERM BORROWINGS
Short-term borrowings at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||
Equipment Operations |
||||||
Commercial paper |
$ | 279 | $ | 313 | ||
Notes payable to banks |
35 | 69 | ||||
Long-term borrowings due within one year |
263 | 16 | ||||
|
|
|
|
|||
Total |
577 | 398 | ||||
|
|
|
|
|||
Financial Services |
||||||
Commercial paper |
1,836 | 1,531 | ||||
Notes payable to banks |
66 | 37 | ||||
Long-term borrowings due within one year |
1,868 | 2,471 | ||||
|
|
|
|
|||
Total |
3,770 | 4,039 | ||||
|
|
|
|
|||
Short-term borrowings |
$ | 4,347 | $ | 4,437 | ||
|
|
|
|
The weighted-average interest rates on total short-term borrowings, excluding current maturities of long-term borrowings, at October 31, 2003 and 2002 were 2.3 percent and 2.8 percent, respectively. All of the Financial Services short-term borrowings represent obligations of the credit subsidiaries.
Unsecured lines of credit available from United States and foreign banks were $4,211 million at October 31, 2003. Some of these credit lines are available to both Deere & Company and John Deere Capital Corporation. At October 31, 2003, $1,722 million of these worldwide lines of credit were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings, excluding the current maturities of long-term borrowings, were considered to constitute utilization.
Included in the above lines of credit is a long-term committed credit agreement expiring in February 2006 for $2,150 million. The agreement is mutually extendable and the annual facility fee is not significant. The credit agreement has various requirements of John Deere Capital Corporation, including the maintenance of 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 to total stockholders equity plus subordinated debt at not more than 8 to 1 at the end of any fiscal quarter. The credit agreement also contains a provision requiring Deere & Company to maintain consolidated tangible net worth of $500 million according to accounting principles generally accepted in the United States of America in effect at October 31, 1998. Under this provision, $2,400 million of the companys retained earnings balance was free of restriction at October 31, 2003. All the requirements of the credit agreement have been met during the periods included in the financial statements.
Deere & Company has an agreement
with John Deere Capital Corporation pursuant to which it has agreed to continue to own at least 51 percent of the voting shares of capital stock of the Capital Corporation and to maintain the Capital Corporations consolidated tangible net
worth at not less than $50 million. This agreement also obligates Deere & Company to make income maintenance payments to the Capital Corporation such that its consolidated ratio of earnings before fixed charges to fixed charges is not less than
1.05 to 1 for any fiscal quarter. Deere & Companys obligations to make payments to the Capital Corporation under the agreement are independent of whether the Capital Corporation is in default on its indebtedness, obligations or other
liabilities. Further, the companys obligations under the agreement are not measured by the amount of the Capital Corporations indebtedness, obligations or other liabilities. Deere & Companys obligations to make payments under
this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation or liability of the Capital Corporation and are enforceable only by or in the name of the Capital Corporation. No payments were required under this
17. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||||
Equipment Operations |
||||||||
Accounts payable: |
||||||||
Trade payables |
$ | 912 | $ | 1,004 | ||||
Dividends payable |
53 | 53 | ||||||
Other |
58 | 48 | ||||||
Accrued expenses: |
||||||||
Employee benefits |
349 | 282 | ||||||
Dealer commissions |
97 | 225 | ||||||
Product warranties |
389 | 332 | ||||||
Trade receivable valuation accounts |
307 | 314 | ||||||
Other |
607 | 543 | ||||||
|
|
|
|
|
|
|||
Total |
2,772 | 2,801 | ||||||
|
|
|
|
|
|
|||
Financial Services |
||||||||
Accounts payable: |
||||||||
Deposits withheld from dealers and merchants |
175 | 153 | ||||||
Other |
234 | 260 | ||||||
Accrued expenses: |
||||||||
Interest payable |
79 | 65 | ||||||
Other |
153 | 177 | ||||||
|
|
|
|
|
|
|||
Total |
641 | 655 | ||||||
|
|
|
|
|
|
|||
Eliminations |
307 | * | 314 | * | ||||
|
|
|
|
|
|
|||
Accounts payable and accrued expenses |
$ | 3,106 | $ | 3,142 | ||||
|
|
|
|
|
|
* | Trade receivable valuation accounts which are reclassified as accrued expenses by the Equipment Operations as a result of trade receivables sold to Financial Services. |
39
18. LONG-TERM BORROWINGS
Long-term borrowings at October 31 consisted of the following in millions of dollars:
2003
|
2002
|
|||||||
Equipment Operations** |
||||||||
Notes and debentures: |
||||||||
Medium-term notes due 2005 2006: |
||||||||
Average interest rates of 9.6% 2003 and 2002 |
$ | 45 | $ | 45 | ||||
6.55% notes due 2004 |
250 | |||||||
5 7 / 8 % U.S. dollar notes due 2006: ($250 principal) $170 swapped to Euro in 2003 and Euro and Swedish Krona in 2002 at average variable interest rates of 2.7% 2003, 3.7% 2002 |
257 | * | 260 | * | ||||
7.85% debentures due 2010 |
500 | 500 | ||||||
6.95% notes due 2014: ($700 principal) Swapped to 2.1% 2003, 2.8% 2002 |
771 | * | 769 | * | ||||
8.95% debentures due 2019 |
200 | 200 | ||||||
8 1 / 2 % debentures due 2022 |
200 | 200 | ||||||
6.55% debentures due 2028 |
200 | 200 | ||||||
8.10% debentures due 2030 |
250 | 250 | ||||||
7.125% notes due 2031 |
300 | 300 | ||||||
Other notes |
4 | 15 | ||||||
|
|
|
|
|
|
|||
Total |
2,727 | 2,989 | ||||||
|
|
|
|
|
|
|||
Financial Services** |
||||||||
Notes and debentures: |
||||||||
Medium-term notes due 2005 2009: (principal $2,696 2003, $2,616 2002) Average interest rates of 3.4% 2003, 2.8% 2002 |
2,714 | * | 2,628 | * | ||||
5.125% debentures due in 2006: ($600 principal) $300 swapped to variable interest rate of 1.8% 2003, $600 swapped to 2.5% 2002 |
632 | * | 625 | * | ||||
4.5% notes due 2007: ($500 principal) Swapped $450 to variable interest rate of 1.8% 2003, 2.5% 2002 |
511 | * | 481 | * | ||||
3.90% notes due 2008: ($850 principal) $650 swapped to variable interest rate of 1.7% 2003 |
851 | * | ||||||
6% notes due 2009: ($300 principal) Swapped to variable interest rates of 1.4% 2003, 2.0% 2002 |
329 | * | 329 | * | ||||
7% notes due 2012: ($1,500 principal) $1,225 swapped to variable interest rate of 2.1% 2003, $1,500 swapped to 2.8% 2002 |
1,665 | * | 1,662 | * | ||||
5.10% debentures due 2013: ($650 principal) Swapped to variable interest rate of 1.8% 2003 |
641 | * | ||||||
Other notes |
184 | 86 | ||||||
|
|
|
|
|
|
|||
Total notes and debentures |
7,527 | 5,811 | ||||||
Subordinated debt: |
||||||||
8 5 / 8 % subordinated debentures due 2019 |
150 | 150 | ||||||
|
|
|
|
|
|
|||
Total |
7,677 | 5,961 | ||||||
|
|
|
|
|
|
|||
Long-term borrowings |
$ | 10,404 | $ | 8,950 | ||||
|
|
|
|
|
|
* | Includes fair value adjustments related to interest rate swaps. |
** | All interest rates are as of year end. |
All of the Financial Services long-term borrowings represent obligations of the credit subsidiaries.
The approximate amounts of the Equipment Operations long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2004 $263, 2005 $28, 2006 $273, 2007 $1 and 2008 none. The approximate amounts of the credit subsidiaries long-term borrowings maturing in each of the next five years in millions of dollars are as follows: 2004 $1,868, 2005 $1,414, 2006 $1,706, 2007 $816 and 2008 $874.
19. LEASES
At October 31, 2003, future minimum lease payments under capital leases totaled $18 million. Total rental expense for operating leases was $98 million in 2003, $95 million in 2002 and $90 million in 2001. At October 31, 2003, future minimum lease payments under operating leases amounted to $356 million as follows: 2004 $85, 2005 $57, 2006 $39, 2007 $52, 2008 $19 and later years $104. See Note 20 for operating leases with residual value guarantees.
20. CONTINGENCIES AND COMMITMENTS
Contingencies
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.
A reconciliation of the changes in the warranty liability in millions of dollars follows:
Warranty Liability
|
||||
Beginning balance at October 31, 2002 |
$ | 332 | ||
Payments |
(321 | ) | ||
Accruals for warranties |
378 | |||
|
|
|
||
Ending balance at October 31, 2003 |
$ | 389 | ||
|
|
|
The company has guaranteed certain recourse obligations on financing receivables that it has 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 October 31, 2003, the maximum amount of exposure to losses under these agreements was $238 million, which is net of accrued losses of $21 million related to these agreements. The company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At October 31, 2003, the maximum remaining term of the receivables guaranteed was approximately six years.
The company has a 41 percent ownership interest in Nortrax, Inc. and a 40 percent ownership interest in Nortrax Investments, Inc., in which the majority owners have put options to require the company to purchase their interests. These puts could be exercised over a two-year period which begins December 2004 to March 2005 and total approximately $170 million to $250 million, depending on whether they are exercised on the first or last day of the period. If the companys rating on its senior unsecured debt falls below Baa3 from Moodys Investors Service or BBB- from Standard & Poors, these puts could be exercised immediately for approximately $150 million.
40
The companys debt ratings are above this level. The company also has call options to acquire the majority owners interests. These calls can be exercised over a two-year period beginning December 2003 to March 2004 and total approximately $165 million to $260 million, depending on whether they are exercised on the first or last day of the period. At October 31, 2003, the company had accrued the probable costs of $114 million under these option agreements. In December 2003, the company exercised certain call options for $112 million and purchased an additional interest in Nortrax, Inc. increasing the companys ownership to 83 percent (see Notes 1 and 28). After these call options were exercised, the call and put options for the remaining minority ownership of Nortrax, Inc. and the majority ownership of Nortrax Investments, Inc. ranged from approximately $55 million to $85 million, depending on when they are exercised over the two-year period beginning March 2004 for the call options and March 2005 for the put options.
At October 31, 2003, the company had guaranteed approximately $80 million of residual values for five operating leases related to certain administrative and manufacturing buildings. The company is obligated at the end of each lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value.The company recognizes the expense for these future estimated lease payments over the terms of the operating leases and had accrued expenses of $15 million related to these agreements at October 31, 2003. The leases have terms expiring from 2004 to 2007.
At October 31, 2003, the company had approximately $70 million of guarantees issued primarily to overseas banks related to third-party receivables for the retail financing of John Deere equipment. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At October 31, 2003, the company had accrued losses of approximately $1 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2003 was approximately seven years.
The company also had other miscellaneous contingent liabilities totaling approximately $35 million at October 31, 2003, for which it believes the probability for payment is remote.
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 financial statements.
Commitments
At October 31, 2003, the company had commitments of approximately $74 million for construction and acquisition of property and equipment. The company had pledged assets of $12 million, primarily outside the United States, as collateral for borrowings, and $17 million of restricted investments related to conducting the health care business in various states at October 31, 2003.
John Deere B.V., located in the Netherlands, is a consolidated indirect wholly-owned finance subsidiary of the company. The debt securities of John Deere B.V., including those which are registered with the United States Securities and Exchange Commission, are fully and unconditionally guaranteed by the company.
21. CAPITAL STOCK
Changes in the common stock account in 2001, 2002 and 2003 in millions were as follows:
Number of Shares Issued |
Amount
|
||||
Balance at October 31, 2000 |
266.0 | $ | 1,864 | ||
Acquisition of a business |
2.2 | 81 | |||
Other |
4 | ||||
|
|
|
|||
Balance at October 31, 2001 |
268.2 | 1,949 | |||
Other |
8 | ||||
|
|
|
|||
Balance at October 31, 2002 |
268.2 | 1,957 | |||
Other |
31 | ||||
|
|
|
|||
Balance at October 31, 2003 |
268.2 | $ | 1,988 | ||
|
|
|
The number of common shares the company is authorized to issue is 600 million and the number of authorized preferred shares, none of which has been issued, is 9 million.
A reconciliation of basic and diluted net income per share follows in millions, except per share amounts:
2003
|
2002
|
2001
|
||||||||
Net income (loss) |
$ | 643.1 | $ | 319.2 | $ | (64.0 | ) | |||
Average shares outstanding |
240.2 | 238.2 | 235.0 | |||||||
Basic net income (loss) per share |
$ | 2.68 | $ | 1.34 | $ | (.27 | ) | |||
|
|
|
|
|
|
|
||||
Average shares outstanding |
240.2 | 238.2 | 235.0 | |||||||
Effect of dilutive stock options |
3.1 | 2.7 | 1.8 | |||||||
|
|
|
|
|
|
|
||||
Total potential shares outstanding |
243.3 | 240.9 | 236.8 | |||||||
|
|
|
|
|
|
|
||||
Diluted net income (loss) per share |
$ | 2.64 | $ | 1.33 | $ | (.27 | ) | |||
|
|
|
|
|
|
|
Stock options to purchase 2.8 million shares and 3.0 million shares during 2002 and 2001, respectively, were outstanding, but not included in the preceding diluted per share computation because the options exercise prices were greater than the average market price of the companys common stock during the related periods. In 2003, all stock options were included.
22. STOCK OPTION AND RESTRICTED STOCK AWARDS
The company issues stock options and restricted stock to key employees under plans approved by stockholders. Restricted stock is also issued to nonemployee directors under a plan approved by stockholders. Options are generally awarded with the exercise price equal to the market price and become exercisable in one to three years after grant. Certain other options have been awarded with the exercise prices greater than the market price and become exercisable in one year or longer after grant, depending on the achievement of company performance goals. Options generally expire 10 years after the date of grant. According to these plans at October 31, 2003, the company is authorized to grant an additional 12.8 million shares related to stock options or restricted stock.
41
During the last three fiscal years, shares under option in millions were as follows:
2003
|
2002
|
2001
|
||||||||||||||||
Shares
|
Exercise
Price* |
Shares
|
Exercise
Price* |
Shares
|
Exercise Price* |
|||||||||||||
Outstanding at beginning of year |
22.9 | $ | 41.58 | 20.5 | $ | 40.56 | 16.7 | $ | 39.77 | |||||||||
Grantedat market |
3.9 | 45.80 | 4.3 | 42.30 | 4.5 | 41.98 | ||||||||||||
Exercised |
(4.8 | ) | 36.30 | (1.6 | ) | 30.35 | (.6 | ) | 28.94 | |||||||||
Expired or forfeited |
(.8 | ) | 68.68 | (.3 | ) | 41.82 | (.1 | ) | 42.80 | |||||||||
|
|
|
|
|
|
|||||||||||||
Outstanding at end of year |
21.2 | 42.57 | 22.9 | 41.58 | 20.5 | 40.56 | ||||||||||||
Exercisable at end of year |
13.1 | 41.80 | 12.9 | 39.28 | 14.8 | 38.28 |
* Weighted-averages
Options outstanding and exercisable in millions at October 31, 2003 were as follows:
Options Outstanding
|
Options
Exercisable |
|||||||||||
Range of Exercise Prices |
Shares
|
Remaining
Life (yrs)* |
Exercise
Price* |
Shares
|
Exercise Price* |
|||||||
$21.02 $34.19 |
2.7 | 3.66 | $ | 31.43 | 2.7 | $ | 31.43 | |||||
$36.37 $41.47 |
3.9 | 6.05 | 41.23 | 3.7 | 41.36 | |||||||
$42.07 $47.36 |
12.5 | 7.74 | 43.35 | 4.6 | 42.34 | |||||||
$50.97 $56.50 |
2.1 | 4.40 | 54.75 | 2.1 | 54.75 | |||||||
|
|
|||||||||||
Total |
21.2 | 13.1 |
* Weighted-averages
In 2003, 2002, and 2001, the company granted 196,294, 12,711 and 44,001 shares of restricted stock with weighted-average fair values of $45.29, $48.43 and $41.96 per share, respectively. The total compensation expense for the restricted stock plans, which is being amortized over the restricted periods, was $4 million, $2 and none in 2003, 2002 and 2001, respectively. The amortization in 2001 was offset by decreases in estimates of restricted stock to be issued.
23. EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS
The company maintains the following significant plans for eligible United States employees:
John Deere Savings and Investment Plan, for salaried employees
John Deere Stock Purchase Plan, for salaried employees
John Deere Tax Deferred Savings Plan, for wage employees
Company contributions under these plans were $25 million in 2003, $21 million in 2002 and $34 million in 2001.
24. OTHER COMPREHENSIVE INCOME ITEMS
Other comprehensive income items under FASB Statement No. 130 are transactions recorded in stockholders equity during the year, excluding net income and transactions with stockholders. Following are the items included in other comprehensive income (loss) and the related tax effects in millions of dollars:
Before
Amount |
Tax (Expense) Credit |
After Tax Amount |
||||||||||
2001 |
||||||||||||
Minimum pension liability adjustment |
$ | (11 | ) | $ | 3 | $ | (8 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
Cumulative translation adjustment |
(63 | ) | (63 | ) | ||||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized loss on derivatives: |
||||||||||||
Hedging loss |
(155 | ) | 55 | (100 | ) | |||||||
Reclassification of realized loss to net income |
43 | (15 | ) | 28 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Net unrealized loss |
(112 | ) | 40 | (72 | ) | |||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized holding gain and net gain on investments* |
6 | (2 | ) | 4 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Total other comprehensive loss |
$ | (180 | ) | $ | 41 | $ | (139 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
2002 |
||||||||||||
Minimum pension liability adjustment |
$ | (1,620 | ) | $ | 604 | $ | (1,016 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
Cumulative translation adjustment |
(8 | ) | (8 | ) | ||||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on derivatives: |
||||||||||||
Hedging loss |
(61 | ) | 21 | (40 | ) | |||||||
Reclassification of realized loss to net income |
99 | (34 | ) | 65 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Net unrealized gain |
38 | (13 | ) | 25 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized holding gain and net gain on investments* |
2 | (1 | ) | 1 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Total other comprehensive loss |
$ | (1,588 | ) | $ | 590 | $ | (998 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
2003 |
||||||||||||
Minimum pension liability adjustment |
$ | (72 | ) | $ | 26 | $ | (46 | ) | ||||
|
|
|
|
|
|
|
|
|
||||
Cumulative translation adjustment |
210 | 4 | 214 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on derivatives: |
||||||||||||
Hedging loss |
(41 | ) | 14 | (27 | ) | |||||||
Reclassification of realized loss to net income |
79 | (27 | ) | 52 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Net unrealized gain |
38 | (13 | ) | 25 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Unrealized holding gain and net gain on investments* |
9 | (3 | ) | 6 | ||||||||
|
|
|
|
|
|
|
|
|
||||
Total other comprehensive income |
$ | 185 | $ | 14 | $ | 199 | ||||||
|
|
|
|
|
|
|
|
|
* Reclassification of realized gains or losses to net income were not material
42
25. FINANCIAL INSTRUMENTS
The fair values of financial instruments which do not approximate the carrying values in the financial statements at October 31 in millions of dollars follow:
2003
|
2002
|
|||||||||||
Carrying
Value |
Fair
Value |
Carrying Value |
Fair Value |
|||||||||
Financing receivables |
$ | 9,974 | $ | 9,994 | $ | 9,068 | $ | 9,111 | ||||
|
|
|
|
|
|
|
|
|||||
Long-term borrowings |
||||||||||||
Equipment Operations |
$ | 2,727 | $ | 3,109 | $ | 2,989 | $ | 3,319 | ||||
Financial Services |
7,677 | 7,687 | 5,961 | 6,081 | ||||||||
|
|
|
|
|
|
|
|
|||||
Total |
$ | 10,404 | $ | 10,796 | $ | 8,950 | $ | 9,400 | ||||
|
|
|
|
|
|
|
|
Fair Value Estimates
Fair values of the long-term financing receivables with fixed rates were based on the discounted values of their related cash flows at current market interest rates. The fair values of the remaining financing receivables approximated the carrying amounts.
Fair values of long-term borrowings with fixed rates were based on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings include adjustments related to fair value hedges.
Derivatives
It is the companys policy that derivative transactions are executed only to manage exposures arising in the normal course of business and not for the purpose of creating speculative positions or trading. The companys credit operations manage the relationship of the types and amounts of their funding sources to their receivable and lease portfolio in an effort to diminish risk due to interest rate and foreign currency fluctuations, while responding to favorable financing opportunities. The company also has foreign currency exposures at some of its foreign and domestic operations related to buying, selling and financing in currencies other than the local currencies.
Interest Rate Swaps
The company enters into interest rate swap agreements primarily to more closely match the fixed or floating interest rates of the credit operations borrowings to those of the assets being funded.
Certain interest rate swaps were designated as hedges of future cash flows from commercial paper and variable interest rate borrowings. The effective portion of the fair value gains or losses on these cash flow hedges are recorded in other comprehensive income and subsequently reclassified into interest expense as payments are accrued and the swaps approach maturity. These amounts offset the effects of interest rate changes on the related borrowings. The amount of the loss recorded in other comprehensive income at October 31, 2003 that is expected to be reclassified to earnings in the next 12 months if interest rates remain unchanged is approximately $17 million after-tax. These swaps mature in up to 55 months.
Certain interest rate swaps were designated as fair value hedges of fixed-rate, long-term borrowings. The effective portion of the fair value gains or losses on these swaps were offset by fair value adjustments in the underlying borrowings.
Any ineffective portions of the gains or losses on all cash flow and fair value interest rate swaps designated as hedges were recognized immediately in interest expense and were not material. The amounts of gains or losses reclassified from unrealized in other comprehensive income to realized in earnings as a result of the discontinuance of cash flow hedges were not material. There were no components of cash flow or fair value hedges that were excluded from the assessment of effectiveness.
The company has certain interest rate swap agreements that are not designated as hedges under FASB Statement No. 133 and the fair value gains or losses are recognized directly in earnings. These instruments relate to swaps that are used to facilitate securitization transactions and certain borrowings.
Foreign Exchange Forward Contracts, Swaps and Options
The company has entered into foreign exchange forward contracts, swaps and purchased options in order to manage the currency exposure of certain receivables, liabilities, borrowings and expected inventory purchases. These derivatives were not designated as hedges under FASB Statement No. 133. The fair value gains or losses from these foreign currency derivatives are recognized directly in earnings, generally offsetting the foreign exchange gains or losses on the exposures being managed.
The company has designated cross currency interest rate swaps as fair value hedges of certain long-term borrowings. The effective portion of the fair value gains or losses on these swaps are offset by fair value adjustments in the underlying borrowings and the ineffectiveness was not material. The company has also designated foreign exchange forward contracts and currency swaps as cash flow hedges of long-term borrowings. The effective portion of the fair value gains or losses on these forward contracts and swaps is recorded in other comprehensive income and subsequently reclassified into earnings as payments are accrued and these instruments approach maturity. This will offset the exchange rate effects on the borrowing being hedged and the ineffectiveness was not material.
26. CASH FLOW INFORMATION
For purposes of the statement of consolidated cash flows, the company considers investments with original maturities of three months or less to be cash equivalents. Substantially all of the companys short-term borrowings, excluding the current maturities of long-term borrowings, mature within three months or less.
In 2001, the Equipment Operations cash flows from operations had a significant positive cash flow included in their change in receivables related to the sale of most of the existing balance of trade receivables to Financial Services (see Notes 8 and 29). The Financial Services cash flows from investing activities had an offsetting cash outflow included in their cost of receivables acquired. In 2002 and 2003, the Equipment Operations continued to sell most of their trade receivables to Financial Services. These intercompany cash flows were eliminated in the consolidated cash flows in all three years.
43
Cash payments for interest and income taxes consisted of the following in millions of dollars:
2003
|
2002
|
2001
|
||||||||||
Interest: |
||||||||||||
Equipment Operations |
$ | 354 | * | $ | 312 | * | $ | 220 | ||||
Financial Services |
416 | 413 | 540 | |||||||||
Intercompany eliminations |
(226 | )* | (187 | )* | (34 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Consolidated |
$ | 544 | $ | 538 | $ | 726 | ||||||
|
|
|
|
|
|
|
|
|
||||
Income taxes: |
||||||||||||
Equipment Operations |
$ | 74 | $ | 188 | $ | 119 | ||||||
Financial Services |
152 | 131 | 61 | |||||||||
Intercompany eliminations |
(142 | ) | (118 | ) | (48 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Consolidated |
$ | 84 | $ | 201 | $ | 132 | ||||||
|
|
|
|
|
|
|
|
|
* | Includes interest compensation to Financial Services for financing trade receivables. |
27. SEGMENT AND GEOGRAPHIC AREA DATA FOR THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001
The companys operations are organized and reported in four major business segments described as follows:
The agricultural equipment segment manufactures and distributes a full line of farm equipment and service parts including tractors; combine, cotton and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; material handling equipment; and integrated agricultural management systems technology.
The commercial and consumer equipment segment manufactures and distributes equipment and service parts for commercial and residential uses including small tractors for lawn, garden, commercial and utility purposes; walk-behind mowers; golf course equipment; utility vehicles; landscape and irrigation equipment; and other outdoor power products.
The construction and forestry segment manufactures, distributes to dealers and sells at retail a broad range of machines and service parts used in construction, earthmoving, material handling and timber harvesting including backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; motor graders; articulated dump trucks; landscape loaders; skid-steer loaders; and log skidders, feller bunchers, loaders, forwarders, harvesters and related attachments.
The products and services produced by the equipment segments are marketed primarily through independent retail dealer networks and major retail outlets.
The credit segment primarily finances sales and leases by John Deere dealers of new and used agricultural, commercial and consumer, and construction and forestry equipment. In addition, it provides wholesale financing to dealers of the foregoing equipment, provides operating loans and finances retail revolving charge accounts.
Certain operations do not meet the materiality threshold of FASB Statement No. 131 and have been grouped together as Other segments. These include the special technologies group and health care.
Corporate assets are primarily the Equipment Operations prepaid pension costs, deferred income tax assets, other receivables and cash and cash equivalents as disclosed in the financial statements in Note 29, net of certain intercompany eliminations.
Because of integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations must be made to determine operating segment and geographic area data. Intersegment sales and revenues represent sales of components and finance charges which are generally based on market prices.
Information relating to operations by operating segment in millions of dollars follows with related comments included in Managements Discussion and Analysis. In addition to the following unaffiliated sales and revenues by segment, intersegment sales and revenues in 2003, 2002 and 2001 were as follows: agricultural equipment net sales of $61 million, $54 million and $76 million and credit revenues of $209 million, $167 million and $22 million, respectively.
OPERATING SEGMENTS |
2003
|
2002
|
2001
|
||||||
Net sales and revenues | |||||||||
Unaffiliated customers: |
|||||||||
Agricultural equipment net sales |
$ | 7,349 | $ | 6,738 | $ | 6,269 | |||
Commercial and consumer equipment net sales |
3,231 | 2,712 | 2,527 | ||||||
Construction and forestry net sales |
2,728 | 2,199 | 2,226 | ||||||
Other net sales |
41 | 54 | 55 | ||||||
|
|
|
|
|
|
||||
Total net sales |
13,349 | 11,703 | 11,077 | ||||||
Credit revenues |
1,347 | 1,426 | 1,439 | ||||||
Other revenues |
839 | 818 | 777 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 15,535 | $ | 13,947 | $ | 13,293 | |||
|
|
|
|
|
|
(continued)
44
OPERATING SEGMENTS |
2003
|
2002
|
2001
|
|||||||||
Operating profit (loss)* |
||||||||||||
Agricultural equipment |
$ | 337 | $ | 439 | $ | 257 | ||||||
Commercial and consumer equipment |
227 | 79 | (165 | ) | ||||||||
Construction and forestry |
152 | (75 | ) | (83 | ) | |||||||
Credit** |
474 | 386 | 274 | |||||||||
Other** |
22 | (12 | ) | (31 | ) | |||||||
|
|
|
|
|
|
|
|
|
||||
Total operating profit |
1,212 | 817 | 252 | |||||||||
|
|
|
|
|
|
|
|
|
||||
Interest income |
59 | 66 | 39 | |||||||||
Interest expense |
(217 | ) | (223 | ) | (268 | ) | ||||||
Foreign exchange loss from equipment operations financing activities |
(12 | ) | (17 | ) | (15 | ) | ||||||
Corporate expensesnet |
(62 | ) | (66 | ) | (54 | ) | ||||||
Income taxes |
(337 | ) | (258 | ) | (18 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Total |
(569 | ) | (498 | ) | (316 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
$ | 643 | $ | 319 | $ | (64 | ) | |||||
|
|
|
|
|
|
|
|
|
* | In 2003, there was no goodwill amortization and the costs or income for special items were not material. In 2002, the operating profit (loss) of the agricultural equipment, commercial and consumer equipment, construction and forestry and other segments included pretax goodwill amortization of $15, $14, $17 and $12, respectively, for a total of $58. In 2001, goodwill amortization was $12, $13, $16 and $14, respectively, for a total of $55. In 2002, operating profit (loss) of the agricultural equipment, commercial and consumer equipment, construction and forestry, credit and other segments includes expense for special items of $12 million, $24 million, $27 million, none and $9 million, respectively, for a total of $72 million. In 2001, the expense for special items was $97 million, $160 million, $83 million, $3 million and $1 million, respectively, for a total of $344 million (see Note 2). |
** | Operating profit of the credit business segment includes the effect of interest expense, which is the largest element of its operating costs, and foreign exchange gains or losses. Operating profit of the other category includes health care investment income. |
Interest income* |
||||||||||||
Agricultural equipment |
$ | 6 | $ | 7 | $ | 26 | ||||||
Commercial and consumer equipment |
4 | 5 | 16 | |||||||||
Construction and forestry |
8 | 7 | 14 | |||||||||
Credit** |
1,000 | 948 | 869 | |||||||||
Corporate |
59 | 66 | 39 | |||||||||
Intercompany** |
(226 | ) | (187 | ) | (34 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Total |
$ | 851 | $ | 846 | $ | 930 | ||||||
|
|
|
|
|
|
|
|
|
* | Does not include finance rental income for equipment on operating leases. |
** | Includes interest income from equipment operations for financing trade receivables in 2003 and 2002. |
Interest expense | ||||||||||||
Agricultural equipment* |
$ | 133 | $ | 94 | $ | 1 | ||||||
Commercial and consumer equipment* |
48 | 46 | ||||||||||
Construction and forestry* |
19 | 18 | ||||||||||
Credit |
437 | 443 | 530 | |||||||||
Other |
1 | |||||||||||
Corporate |
218 | 223 | 268 | |||||||||
Intercompany* |
(226 | ) | (187 | ) | (34 | ) | ||||||
|
|
|
|
|
|
|
|
|
||||
Total |
$ | 629 | $ | 637 | $ | 766 | ||||||
|
|
|
|
|
|
|
|
|
* | Includes interest compensation to credit for financing trade receivables in 2003 and 2002. |
(continued)
OPERATING SEGMENTS |
2003
|
2002
|
2001
|
||||||
Depreciation* and amortization expense |
|||||||||
Agricultural equipment |
$ | 207 | $ | 212 | $ | 204 | |||
Commercial and consumer equipment |
69 | 81 | 89 | ||||||
Construction and forestry |
60 | 82 | 76 | ||||||
Credit |
281 | 322 | 321 | ||||||
Other |
14 | 28 | 28 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 631 | $ | 725 | $ | 718 | |||
|
|
|
|
|
|
* Includes depreciation for equipment on operating leases.
Identifiable operating assets |
|||||||||
Agricultural equipment |
$ | 2,711 | $ | 2,875 | $ | 2,975 | |||
Commercial and consumer equipment |
1,295 | 1,324 | 1,542 | ||||||
Construction and forestry |
1,461 | 1,423 | 1,426 | ||||||
Credit |
14,714 | 13,671 | 14,559 | ||||||
Other |
388 | 356 | 385 | ||||||
Corporate |
5,689 | 4,119 | 1,776 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 26,258 | $ | 23,768 | $ | 22,663 | |||
|
|
|
|
|
|
Capital additions | |||||||||
Agricultural equipment |
$ | 202 | $ | 230 | $ | 266 | |||
Commercial and consumer equipment |
71 | 62 | 161 | ||||||
Construction and forestry |
38 | 59 | 58 | ||||||
Credit |
4 | 3 | 3 | ||||||
Other |
5 | 4 | 12 | ||||||
|
|
|
|
|
|
||||
Total |
$ | 320 | $ | 358 | $ | 500 | |||
|
|
|
|
|
|
45
The company views and has historically disclosed its operations as consisting of two geographic areas, the United States and Canada, and outside the United States and Canada, shown below in millions of dollars. Operating income for these areas has been disclosed in addition to the requirements under FASB Statement No. 131. No individual foreign countrys net sales and revenues were material for disclosure purposes. The percentages shown in the captions for net sales and revenues indicate the approximate proportion of each amount that relates to the United States only. The percentages are based upon a three-year average for 2003, 2002 and 2001.
GEOGRAPHIC AREAS |
2003
|
2002
|
2001
|
|||||||
Net sales and revenues |
||||||||||
Unaffiliated customers: |
||||||||||
United States and Canada: |
||||||||||
Equipment Operations net sales (91%) |
$ | 9,249 | $ | 8,199 | $ | 8,124 | ||||
Financial Services revenues (89%) |
1,861 | 1,950 | 1,937 | |||||||
|
|
|
|
|
|
|
||||
Total |
11,110 | 10,149 | 10,061 | |||||||
|
|
|
|
|
|
|
||||
Outside United States and Canada: |
||||||||||
Equipment Operations net sales |
4,100 | 3,504 | 2,954 | |||||||
Financial Services revenues |
165 | 127 | 100 | |||||||
|
|
|
|
|
|
|
||||
Total |
4,265 | 3,631 | 3,054 | |||||||
|
|
|
|
|
|
|
||||
Other revenues |
160 | 167 | 178 | |||||||
|
|
|
|
|
|
|
||||
Total |
$ | 15,535 | $ | 13,947 | $ | 13,293 | ||||
|
|
|
|
|
|
|
||||
Operating profit (loss) |
||||||||||
United States and Canada: |
||||||||||
Equipment Operations |
$ | 386 | $ | 170 | $ | (164 | ) | |||
Financial Services |
469 | 410 | 283 | |||||||
|
|
|
|
|
|
|
||||
Total |
855 | 580 | 119 | |||||||
|
|
|
|
|
|
|
||||
Outside United States and Canada: |
||||||||||
Equipment Operations |
322 | 231 | 118 | |||||||
Financial Services |
35 | 6 | 15 | |||||||
|
|
|
|
|
|
|
||||
Total |
357 | 237 | 133 | |||||||
|
|
|
|
|
|
|
||||
Total |
$ | 1,212 | $ | 817 | $ | 252 | ||||
|
|
|
|
|
|
|
||||
Property and equipment |
||||||||||
United States |
$ | 1,297 | $ | 1,285 | $ | 1,407 | ||||
Germany |
241 | 192 | 155 | |||||||
Mexico |
215 | 217 | 189 | |||||||
Other countries |
323 | 304 | 301 | |||||||
|
|
|
|
|
|
|
||||
Total |
$ | 2,076 | $ | 1,998 | $ | 2,052 | ||||
|
|
|
|
|
|
|
28. SUPPLEMENTAL INFORMATION (UNAUDITED)
Quarterly information with respect to net sales and revenues and earnings is shown in the following schedule. Such information is shown in millions of dollars except for per share amounts.
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||
2003 |
||||||||||||
Net sales and revenues |
$ | 2,794 | $ | 4,400 | $ | 4,402 | $ | 3,939 | ||||
Income before income taxes |
106 | 398 | 370 | 97 | ||||||||
Net income |
68 | 257 | 247 | 71 | ||||||||
Net income per sharebasic |
.28 | 1.08 | 1.03 | .29 | ||||||||
Net income per sharediluted |
.28 | 1.07 | 1.02 | .27 | ||||||||
Dividends declared per share |
.22 | .22 | .22 | .22 | ||||||||
Dividends paid per share |
.22 | .22 | .22 | .22 |
2002 |
|||||||||||||
Net sales and revenues |
$ | 2,522 | $ | 3,987 | $ | 3,969 | $ | 3,469 | |||||
Income (loss) before income taxes |
(53 | ) | 240 | 289 | 127 | ||||||||
Net income (loss) |
(38 | ) | 142 | 147 | 68 | ||||||||
Net income (loss) per share |
|||||||||||||
basic |
(.16 | ) | .60 | .62 | .28 | ||||||||
Net income (loss) per share |
|||||||||||||
diluted |
(.16 | ) | .59 | .61 | .28 | ||||||||
Dividends declared per share |
.22 | .22 | .22 | .22 | |||||||||
Dividends paid per share |
.22 | .22 | .22 | .22 |
Common stock per share sales prices from New York Stock Exchange composite transactions quotations follow:
First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||
2003 Market price |
||||||||||||
High |
$ | 51.60 | $ | 43.80 | $ | 49.96 | $ | 60.75 | ||||
Low |
$ | 41.30 | $ | 37.56 | $ | 42.45 | $ | 48.25 | ||||
2002 Market price |
||||||||||||
High |
$ | 45.15 | $ | 49.98 | $ | 49.18 | $ | 49.25 | ||||
Low |
$ | 36.60 | $ | 41.10 | $ | 37.50 | $ | 39.50 |
At October 31, 2003, there were 31,089 holders of record of the companys $1 par value common stock.
Dividend and Other Events
A quarterly cash dividend of $.22 per share was declared at the board of directors meeting held on December 3, 2003, payable on February 2, 2004.
In November 2003, the company sold its minority ownership in Sunstate Equipment Co., LLC, which is a rental equipment company included in the construction and forestry operations on the equity basis. The equity income in the financial statements for the periods presented was not material. The gain on the sale was approximately $30 million pretax and $22 million after-tax.
In December 2003, the company exercised a call option to purchase an additional 42 percent of Nortrax, Inc. for $112 million, increasing its ownership to 83 percent. Nortrax, Inc., which was previously recorded as an equity investment in the construction and forestry operations, was consolidated beginning in December 2003.
46
29. SUPPLEMENTAL CONSOLIDATING DATA
INCOME STATEMENT
For the Years Ended October 31, 2003, 2002 and 2001
(In millions of dollars)
EQUIPMENT OPERATIONS*
|
FINANCIAL SERVICES
|
|||||||||||||||||||||
2003
|
2002
|
2001
|
2003
|
2002
|
2001
|
|||||||||||||||||
Net Sales and Revenues |
||||||||||||||||||||||
Net sales |
$ | 13,349.1 | $ | 11,702.8 | $ | 11,077.4 | ||||||||||||||||
Finance and interest income |
77.6 | 85.6 | 95.9 | $ | 1,424.0 | $ | 1,440.6 | $ | 1,383.5 | |||||||||||||
Health care premiums and fees |
683.1 | 654.2 | 603.6 | |||||||||||||||||||
Other income |
145.3 | 146.0 | 129.4 | 145.3 | 167.3 | 91.4 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
13,572.0 | 11,934.4 | 11,302.7 | 2,252.4 | 2,262.1 | 2,078.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Costs and Expenses |
||||||||||||||||||||||
Cost of sales |
10,767.5 | 9,608.1 | 9,391.9 | |||||||||||||||||||
Research and development expenses |
577.3 | 527.8 | 590.1 | |||||||||||||||||||
Selling, administrative and general expenses |
1,284.7 | 1,153.5 | 1,295.3 | 466.3 | 510.2 | 424.6 | ||||||||||||||||
Interest expense |
217.6 | 222.9 | 268.9 | 437.2 | 443.1 | 530.8 | ||||||||||||||||
Interest compensation to Financial Services |
199.6 | 158.1 | .9 | |||||||||||||||||||
Health care claims and costs |
536.1 | 518.4 | 476.0 | |||||||||||||||||||
Other operating expenses |
57.8 | 81.4 | 81.3 | 309.0 | 370.3 | 346.2 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
13,104.5 | 11,751.8 | 11,628.4 | 1,748.6 | 1,842.0 | 1,777.6 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income (Loss) of Consolidated Group before Income Taxes |
467.5 | 182.6 | (325.7 | ) | 503.8 | 420.1 | 300.9 | |||||||||||||||
Provision (credit) for income taxes |
162.4 | 104.2 | (87.9 | ) | 174.5 | 154.1 | 105.6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income (Loss) of Consolidated Group |
305.1 | 78.4 | (237.8 | ) | 329.3 | 266.0 | 195.3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates |
||||||||||||||||||||||
Credit |
310.5 | 243.0 | 176.8 | .2 | (3.8 | ) | (3.3 | ) | ||||||||||||||
Other |
27.5 | (2.2 | ) | (3.0 | ) | .2 | .1 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total |
338.0 | 240.8 | 173.8 | .4 | (3.8 | ) | (3.2 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Income (Loss) |
$ | 643.1 | $ | 319.2 | $ | (64.0 | ) | $ | 329.7 | $ | 262.2 | $ | 192.1 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | Deere & Company with Financial Services on the equity basis. |
The supplemental consolidating data is presented for informational purposes. The Equipment Operations (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The consolidated group data in the Equipment Operations income statement reflect the results of the agricultural equipment, commercial and consumer equipment, construction and forestry and special technologies group operations. The supplemental Financial Services data represent Deere & Companys credit and health care operations. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements.
47
29. SUPPLEMENTAL CONSOLIDATING DATA (continued)
BALANCE SHEET
As of October 31, 2003 and 2002
(In millions of dollars except per share amounts)
EQUIPMENT OPERATIONS* |
FINANCIAL SERVICES |
|||||||||||||||
2003
|
2002
|
2003
|
2002
|
|||||||||||||
ASSETS |
||||||||||||||||
Cash and cash equivalents |
$ | 4,009.3 | $ | 2,638.5 | $ | 375.2 | $ | 176.3 | ||||||||
Cash equivalents deposited with unconsolidated subsidiaries |
278.1 | 790.8 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
4,287.4 | 3,429.3 | 375.2 | 176.3 | ||||||||||||
Marketable securities |
231.8 | 189.2 | ||||||||||||||
Receivables from unconsolidated subsidiaries and affiliates |
178.8 | 220.1 | 274.3 | 259.8 | ||||||||||||
Trade accounts and notes receivablenet |
646.1 | 909.4 | 2,279.1 | 2,137.7 | ||||||||||||
Financing receivablesnet |
63.5 | 60.1 | 9,910.7 | 9,007.4 | ||||||||||||
Other receivables |
236.6 | 279.1 | 191.7 | 147.3 | ||||||||||||
Equipment on operating leasesnet |
11.9 | 12.4 | 1,369.9 | 1,596.8 | ||||||||||||
Inventories |
1,366.1 | 1,371.8 | ||||||||||||||
Property and equipmentnet |
2,042.9 | 1,963.4 | 32.7 | 34.9 | ||||||||||||
Investments in unconsolidated subsidiaries and affiliates |
2,431.2 | 2,248.5 | 3.8 | 7.7 | ||||||||||||
Goodwill |
871.9 | 803.9 | .2 | .2 | ||||||||||||
Other intangible assetsnet |
252.6 | 90.4 | .2 | .4 | ||||||||||||
Prepaid pension costs |
62.0 | 49.6 | .6 | |||||||||||||
Other assets |
195.0 | 208.1 | 339.4 | 374.0 | ||||||||||||
Deferred income taxes |
1,590.8 | 1,576.3 | 3.2 | 1.8 | ||||||||||||
Deferred charges |
78.4 | 73.4 | 22.1 | 20.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Assets |
$ | 14,315.2 | $ | 13,295.8 | $ | 15,034.9 | $ | 13,954.1 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||||||||||
LIABILITIES |
||||||||||||||||
Short-term borrowings |
$ | 577.0 | $ | 398.1 | $ | 3,770.2 | $ | 4,039.2 | ||||||||
Payables to unconsolidated subsidiaries and affiliates |
96.7 | 79.4 | 419.4 | 989.7 | ||||||||||||
Accounts payable and accrued expenses |
2,771.5 | 2,800.7 | 640.7 | 654.9 | ||||||||||||
Health care claims and reserves |
94.1 | 92.8 | ||||||||||||||
Accrued taxes |
209.9 | 83.2 | 16.6 | 4.2 | ||||||||||||
Deferred income taxes |
11.5 | 9.5 | 137.2 | 102.9 | ||||||||||||
Long-term borrowings |
2,727.5 | 2,988.8 | 7,676.7 | 5,961.5 | ||||||||||||
Retirement benefit accruals and other liabilities |
3,919.0 | 3,772.9 | 40.8 | 33.3 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total liabilities |
10,313.1 | 10,132.6 | 12,795.7 | 11,878.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
STOCKHOLDERS EQUITY |
||||||||||||||||
Common stock, $1 par value (authorized600,000,000 shares;
|
1,987.8 | 1,957.0 | 968.6 | 968.6 | ||||||||||||
Common stock in treasury, 24,694,170 shares in 2003 and 29,321,098 shares in 2002, at cost |
(1,141.4 | ) | (1,322.2 | ) | ||||||||||||
Unamortized restricted stock compensation |
(5.8 | ) | (17.8 | ) | ||||||||||||
Retained earnings |
4,329.5 | 3,912.6 | 1,277.7 | 1,195.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
5,170.1 | 4,529.6 | 2,246.3 | 2,164.5 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Minimum pension liability adjustment |
(1,078.0 | ) | (1,032.1 | ) | ||||||||||||
Cumulative translation adjustment |
(79.2 | ) | (293.1 | ) | 1.5 | (49.7 | ) | |||||||||
Unrealized loss on derivatives |
(22.4 | ) | (47.0 | ) | (20.2 | ) | (45.0 | ) | ||||||||
Unrealized gain on investments. |
11.6 | 5.8 | 11.6 | 5.8 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Accumulated other comprehensive income (loss) |
(1,168.0 | ) | (1,366.4 | ) | (7.1 | ) | (88.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total stockholders equity |
4,002.1 | 3,163.2 | 2,239.2 | 2,075.6 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total Liabilities and Stockholders Equity |
$ | 14,315.2 | $ | 13,295.8 | $ | 15,034.9 | $ | 13,954.1 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
* | Deere & Company with Financial Services on the equity basis. |
The supplemental consolidating data is presented for informational purposes. The Equipment Operations (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The supplemental Financial Services data represent Deere & Companys credit and health care operations. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements.
48
29. SUPPLEMENTAL CONSOLIDATING DATA (continued)
STATEMENT OF CASH FLOWS
For the Years Ended October 31, 2003, 2002 and 2001
(In millions of dollars)
EQUIPMENT OPERATIONS*
|
FINANCIAL SERVICES
|
|||||||||||||||||||||||
2003
|
2002
|
2001
|
2003
|
2002
|
2001
|
|||||||||||||||||||
Cash Flows from Operating Activities |
||||||||||||||||||||||||
Net income (loss) |
$ | 643.1 | $ | 319.2 | $ | (64.0 | ) | $ | 329.7 | $ | 262.2 | $ | 192.1 | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||||||||||||||
Provision for doubtful receivables |
17.9 | 6.5 | 10.4 | 88.9 | 154.2 | 102.6 | ||||||||||||||||||
Provision for depreciation and amortization |
341.6 | 394.8 | 389.5 | 329.0 | 366.3 | 359.7 | ||||||||||||||||||
Undistributed earnings of unconsolidated subsidiaries and affiliates |
(86.9 | ) | 156.2 | (165.1 | ) | (.4 | ) | 3.8 | 3.2 | |||||||||||||||
Provision (credit) for deferred income taxes |
19.8 | (19.2 | ) | (229.4 | ) | 13.3 | 18.0 | (.9 | ) | |||||||||||||||
Changes in assets and liabilities: |
||||||||||||||||||||||||
Receivables |
338.6 | 116.7 | 2,198.0 | (42.5 | ) | (3.8 | ) | (9.3 | ) | |||||||||||||||
Inventories |
84.1 | 85.8 | 136.5 | |||||||||||||||||||||
Accounts payable and accrued expenses |
(162.0 | ) | 107.9 | 225.0 | (29.6 | ) | (4.2 | ) | 169.5 | |||||||||||||||
Other |
7.1 | 219.9 | 200.4 | 5.9 | (26.3 | ) | (104.2 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
1,203.3 | 1,387.8 | 2,701.3 | 694.3 | 770.2 | 712.7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash Flows from Investing Activities |
||||||||||||||||||||||||
Collections of receivables |
11.5 | 8.7 | 69.5 | 19,396.3 | 14,992.3 | 7,068.2 | ||||||||||||||||||
Proceeds from sales of financing receivables |
1,941.0 | 2,967.8 | 1,728.0 | |||||||||||||||||||||
Proceeds from maturities and sales of marketable securities |
76.4 | 75.4 | 32.4 | |||||||||||||||||||||
Proceeds from sales of equipment on operating leases |
.1 | 1.6 | 2.1 | 514.4 | 493.6 | 389.6 | ||||||||||||||||||
Proceeds from sales of businesses |
22.5 | 53.5 | ||||||||||||||||||||||
Cost of receivables acquired |
(4.2 | ) | (27.4 | ) | (2.6 | ) | (22,011.5 | ) | (17,861.4 | ) | (12,196.9 | ) | ||||||||||||
Purchases of marketable securities |
(118.2 | ) | (87.8 | ) | (75.7 | ) | ||||||||||||||||||
Purchases of property and equipment |
(303.4 | ) | (354.5 | ) | (485.6 | ) | (6.2 | ) | (4.2 | ) | (5.4 | ) | ||||||||||||
Cost of operating leases acquired |
(2.8 | ) | (6.1 | ) | (9.1 | ) | (470.9 | ) | (481.8 | ) | (766.2 | ) | ||||||||||||
Increase in investment in Financial Services |
(700.0 | ) | ||||||||||||||||||||||
Acquisitions of businesses, net of cash acquired |
(10.6 | ) | (9.3 | ) | (308.0 | ) | (9.7 | ) | (7.2 | ) | ||||||||||||||
Decrease (increase) in receivables from unconsolidated affiliates |
(14.5 | ) | 54.1 | (173.9 | ) | |||||||||||||||||||
Other |
9.4 | 80.3 | 66.7 | (39.3 | ) | (79.5 | ) | 5.7 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net cash provided by (used for) investing activities |
(277.5 | ) | (253.2 | ) | (1,367.0 | ) | (732.5 | ) | 58.8 | (4,001.4 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash Flows from Financing Activities |
||||||||||||||||||||||||
Increase (decrease) in short-term borrowings |
(123.2 | ) | (304.6 | ) | (225.2 | ) | 250.1 | (1,108.6 | ) | (281.3 | ) | |||||||||||||
Change in intercompany receivables/payables |
50.5 | 29.6 | 62.8 | (563.2 | ) | (882.0 | ) | 1,037.0 | ||||||||||||||||
Proceeds from long-term borrowings |
9.1 | 708.3 | 558.8 | 3,303.8 | 3,865.4 | 4,259.5 | ||||||||||||||||||
Principal payments on long-term borrowings |
(19.0 | ) | (75.9 | ) | (73.3 | ) | (2,523.7 | ) | (2,695.1 | ) | (2,045.2 | ) | ||||||||||||
Proceeds from issuance of common stock |
174.5 | 48.0 | 17.8 | |||||||||||||||||||||
Repurchases of common stock |
(.4 | ) | (1.2 | ) | (1.3 | ) | ||||||||||||||||||
Capital investment from Equipment Operations |
700.0 | |||||||||||||||||||||||
Dividends paid |
(210.5 | ) | (208.9 | ) | (206.5 | ) | (247.9 | ) | (399.5 | ) | (10.7 | ) | ||||||||||||
Other |
(1.8 | ) | (1.5 | ) | (2.9 | ) | 8.7 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net cash provided by (used for) financing activities |
(120.8 | ) | 193.8 | 130.2 | 219.1 | (1,219.8 | ) | 3,668.0 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Effect of Exchange Rate Changes on Cash |
53.1 | 2.3 | (5.6 | ) | 18.0 | (7.6 | ) | (4.9 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net Increase (Decrease) in Cash and Cash Equivalents |
858.1 | 1,330.7 | 1,458.9 | 198.9 | (398.4 | ) | 374.4 | |||||||||||||||||
Cash and Cash Equivalents at Beginning of Year |
3,429.3 | 2,098.6 | 639.7 | 176.3 | 574.7 | 200.3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cash and Cash Equivalents at End of Year |
$ | 4,287.4 | $ | 3,429.3 | $ | 2,098.6 | $ | 375.2 | $ | 176.3 | $ | 574.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* | Deere & Company with Financial Services on the equity basis. |
The supplemental consolidating data is presented for informational purposes. The Equipment Operations (Deere & Company with Financial Services on the Equity Basis) reflect the basis of consolidation described in Note 1 to the consolidated financial statements. The supplemental Financial Services data represent Deere & Companys credit and health care operations. Transactions between the Equipment Operations and Financial Services have been eliminated to arrive at the consolidated financial statements.
49
D EERE & C OMPANY
SELECTED FINANCIAL DATA
(Dollars in millions except per share amounts)
2003
|
2002
|
2001
|
2000
|
1999
|
1998
|
1997
|
1996
|
1995
|
1994
|
|||||||||||||||||||||||||||||||
Net sales and revenues |
$ | 15,535 | $ | 13,947 | $ | 13,293 | $ | 13,137 | $ | 11,751 | $ | 13,822 | $ | 12,791 | $ | 11,229 | $ | 10,291 | $ | 8,977 | ||||||||||||||||||||
Net sales |
13,349 | 11,703 | 11,077 | 11,169 | 9,701 | 11,926 | 11,082 | 9,640 | 8,830 | 7,663 | ||||||||||||||||||||||||||||||
Finance and interest income |
1,276 | 1,339 | 1,445 | 1,321 | 1,104 | 1,007 | 867 | 763 | 660 | 548 | ||||||||||||||||||||||||||||||
Research and development expenses |
577 | 528 | 590 | 542 | 458 | 445 | 412 | 370 | 327 | 276 | ||||||||||||||||||||||||||||||
Selling, administrative and general expenses |
1,744 | 1,657 | 1,717 | 1,505 | 1,362 | 1,309 | 1,321 | 1,147 | 1,001 | 908 | ||||||||||||||||||||||||||||||
Interest expense |
629 | 637 | 766 | 677 | 557 | 519 | 422 | 402 | 393 | 303 | ||||||||||||||||||||||||||||||
Income (loss) before goodwill amortization |
643 | 372 | (13 | ) | 526 | 264 | 1,036 | 978 | 828 | 713 | 610 | |||||||||||||||||||||||||||||
Goodwill amortization after-tax |
53 | 51 | 40 | 25 | 15 | 18 | 11 | 7 | 6 | |||||||||||||||||||||||||||||||
Net income (loss) |
643 | 319 | (64 | ) | 486 | 239 | 1,021 | 960 | 817 | 706 | 604 | |||||||||||||||||||||||||||||
Return on net sales |
4.8 | % | 2.7 | % | (.6 | )% | 4.3 | % | 2.5 | % | 8.6 | % | 8.7 | % | 8.5 | % | 8.0 | % | 7.9 | % | ||||||||||||||||||||
Return on beginning stockholders equity |
20.3 | % | 8.0 | % | (1.5 | )% | 11.9 | % | 5.9 | % | 24.6 | % | 27.0 | % | 26.5 | % | 27.6 | % | 28.9 | % | ||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Income (loss) per share before goodwill amortization basic |
$ | 2.68 | $ | 1.56 | $ | (.05 | ) | $ | 2.24 | $ | 1.14 | $ | 4.26 | $ | 3.85 | $ | 3.18 | $ | 2.74 | $ | 2.36 | |||||||||||||||||||
Net income (loss) per share basic |
2.68 | 1.34 | (.27 | ) | 2.07 | 1.03 | 4.20 | 3.78 | 3.14 | 2.71 | 2.34 | |||||||||||||||||||||||||||||
Net income (loss) per share diluted |
2.64 | 1.33 | (.27 | ) | 2.06 | 1.02 | 4.16 | 3.74 | 3.11 | 2.69 | 2.32 | |||||||||||||||||||||||||||||
Dividends declared per share |
.88 | .88 | .88 | .88 | .88 | .88 | .80 | .80 | .75 | .68 | 1 / 3 | |||||||||||||||||||||||||||||
Dividends paid per share |
.88 | .88 | .88 | .88 | .88 | .86 | .80 | .80 | .73 | 1 / 3 | .66 | 2 / 3 | ||||||||||||||||||||||||||||
Average number of common shares outstanding (in thousands) |
240,200 | 238,217 | 234,980 | 234,276 | 232,874 | 243,315 | 253,723 | 260,547 | 260,494 | 258,438 | ||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Total assets |
$ | 26,258 | $ | 23,768 | $ | 22,663 | $ | 20,469 | $ | 17,578 | $ | 18,002 | $ | 16,320 | $ | 14,653 | $ | 13,847 | $ | 12,781 | ||||||||||||||||||||
Trade accounts and notes receivable net |
2,619 | 2,734 | 2,923 | 3,169 | 3,251 | 4,059 | 3,334 | 3,153 | 3,260 | 2,939 | ||||||||||||||||||||||||||||||
Financing receivables net |
9,974 | 9,068 | 9,199 | 8,276 | 6,743 | 6,333 | 6,405 | 5,912 | 5,345 | 4,502 | ||||||||||||||||||||||||||||||
Equipment on operating leases net |
1,382 | 1,609 | 1,939 | 1,954 | 1,655 | 1,209 | 775 | 430 | 259 | 219 | ||||||||||||||||||||||||||||||
Inventories |
1,366 | 1,372 | 1,506 | 1,553 | 1,294 | 1,287 | 1,073 | 829 | 721 | 698 | ||||||||||||||||||||||||||||||
Property and equipment net |
2,076 | 1,998 | 2,052 | 1,912 | 1,782 | 1,700 | 1,524 | 1,352 | 1,336 | 1,314 | ||||||||||||||||||||||||||||||
Short-term borrowings: |
||||||||||||||||||||||||||||||||||||||||
Equipment Operations |
577 | 398 | 773 | 928 | 642 | 1,512 | 171 | 223 | 396 | 54 | ||||||||||||||||||||||||||||||
Financial Services |
3,770 | 4,039 | 5,425 | 4,831 | 3,846 | 3,810 | 3,604 | 2,921 | 2,744 | 2,583 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
4,347 | 4,437 | 6,198 | 5,759 | 4,488 | 5,322 | 3,775 | 3,144 | 3,140 | 2,637 | ||||||||||||||||||||||||||||||
Long-term borrowings: |
||||||||||||||||||||||||||||||||||||||||
Equipment Operations |
2,727 | 2,989 | 2,210 | 1,718 | 1,036 | 553 | 540 | 626 | 703 | 1,019 | ||||||||||||||||||||||||||||||
Financial Services |
7,677 | 5,961 | 4,351 | 3,046 | 2,770 | 2,239 | 2,083 | 1,799 | 1,473 | 1,035 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
10,404 | 8,950 | 6,561 | 4,764 | 3,806 | 2,792 | 2,623 | 2,425 | 2,176 | 2,054 | ||||||||||||||||||||||||||||||
Total stockholders equity |
4,002 | 3,163 | 3,992 | 4,302 | 4,094 | 4,080 | 4,147 | 3,557 | 3,085 | 2,558 | ||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Book value per share |
$ | 16.43 | $ | 13.24 | $ | 16.82 | $ | 18.34 | $ | 17.51 | $ | 17.56 | $ | 16.57 | $ | 13.83 | $ | 11.78 | $ | 9.87 | ||||||||||||||||||||
Capital expenditures |
$ | 313 | $ | 358 | $ | 495 | $ | 419 | $ | 308 | $ | 438 | $ | 492 | $ | 277 | $ | 263 | $ | 230 | ||||||||||||||||||||
Number of employees (at year end) |
43,221 | 43,051 | 45,069 | 43,670 | 38,726 | 37,002 | 34,420 | 33,919 | 33,375 | 34,252 | ||||||||||||||||||||||||||||||
|
50
[Letterhead]
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601
INDEPENDENT AUDITORS REPORT
Deere & Company:
We have audited the accompanying consolidated balance sheets of Deere & Company and subsidiaries as of October 31, 2003 and 2002 and the related statements of consolidated income, changes in consolidated stockholders equity and consolidated cash flows for each of the three years in the period ended October 31, 2003. Our audits also included the financial statement schedule listed in the Index under Part IV, Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Deere & Company and subsidiaries at October 31, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, effective November 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets .
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 16, 2003
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 |
||
By: |
/s/ R. W. Lane |
|
R. W. Lane |
||
Chairman and Chief Executive Officer |
Date: 22 December 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Each person signing below also hereby appoints Robert W. Lane, Nathan J. Jones and James H. Becht, and each of them singly, his or her lawful attorney-in-fact with full power to execute and file any and all amendments to this report together with exhibits thereto and generally to do all such things as such attorney-in-fact may deem appropriate to enable Deere & Company to comply with the provisions of the Securities Exchange Act of 1934 and all requirements of the Securities and Exchange Commission.
Signature |
Title |
Date |
||
/s/ John R. Block |
Director |
) |
||
John R. Block |
) |
|||
) |
||||
) |
||||
/s/ C. C. Bowles |
Director |
) |
||
C. C. Bowles |
) |
|||
) |
||||
) 22 December 2003 |
||||
/s/ T. Kevin Dunnigan |
Director |
) |
||
T. Kevin Dunnigan |
) |
|||
) |
||||
) |
||||
/s/ Leonard A. Hadley |
Director |
) |
||
Leonard A. Hadley |
) |
|||
) |
52
Signature |
Title |
Date |
||
) |
||||
/s/ Dipak C. Jain Dipak C. Jain |
Director |
) |
||
) |
||||
) |
||||
/s/ Nathan J. Jones Nathan J. Jones |
Senior Vice President, Chief Financial Officer and Chief Accounting Officer |
) ) ) |
||
) |
||||
) |
||||
/s/ Arthur L. Kelly Arthur L. Kelly |
Director |
) ) |
||
) |
||||
) |
||||
/s/ R. W. Lane R. W. Lane |
Chairman, Director and Chief Executive Officer |
) ) |
||
) |
||||
) 22 December 2003 |
||||
/s/ Antonio Madero B. Antonio Madero B. |
Director |
) ) |
||
) |
||||
) |
||||
/s/ Joachim Milberg Joachim Milberg |
Director |
) ) |
||
) |
||||
) |
||||
/s/ Thomas H. Patrick Thomas H. Patrick |
Director |
) ) |
||
) |
||||
) |
||||
/s/ Aulana L. Peters Aulana L. Peters |
Director |
) ) |
||
) |
||||
) |
||||
/s/ John R. Walter John R. Walter |
Director |
) ) |
||
) |
||||
) |
53
SCHEDULE II
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended October 31, 2003, 2002 and 2001
(in thousands of dollars)
Column A |
Column B
|
Column C
|
Column D |
Column E
|
|||||||||||||||
Additions
|
|||||||||||||||||||
Description |
Balance at
beginning of period |
Charged to
costs and expenses |
Charged to other accounts |
Deductions |
Balance at end of period |
||||||||||||||
Description |
Amount
|
Description |
Amount
|
||||||||||||||||
YEAR ENDED OCTOBER 31, 2003 |
|||||||||||||||||||
Allowance for doubtful receivables: |
|||||||||||||||||||
Equipment Operations |
|||||||||||||||||||
Trade receivable allowances |
$ | 32,723 | $ | 17,912 |
Bad debt recoveries |
$ | 411 |
Trade receivable write-offs |
$ | 7,471 | $ | 40,698 | |||||||
Transfers related to trade receivable sales |
2,877 | ||||||||||||||||||
Financial Services |
|||||||||||||||||||
Trade receivable allowances |
12,367 | 4,666 |
Acquisitions |
2,877 |
Trade receivable write-offs |
3,055 | 16,855 | ||||||||||||
Financing receivable allowances |
136,446 | 84,133 |
Transfers related to retail note sales |
14,889 | |||||||||||||||
Financing receivable write-offs |
56,609 | 149,081 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Consolidated receivable allowances |
$ | 181,536 | $ | 106,711 | $ | 3,288 | $ | 84,901 | $ | 206,634 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
YEAR ENDED OCTOBER 31, 2002 |
|||||||||||||||||||
Allowance for doubtful receivables: |
|||||||||||||||||||
Equipment Operations |
|||||||||||||||||||
Trade receivable allowances |
$ | 43,341 | $ | 9,119 |
Bad debt recoveries |
$ | 1,506 |
Trade receivable write-offs |
$ | 19,474 | $ | 32,723 | |||||||
Transfers related to trade receivable sales |
1,769 | ||||||||||||||||||
Financial Services |
|||||||||||||||||||
Trade receivable allowances |
7,239 | 7,066 |
Acquisitions |
1,769 |
Trade receivable write-offs |
3,707 | 12,367 | ||||||||||||
Financing receivable allowances |
125,987 | 155,854 |
Transfers related to retail note sales |
18,052 | |||||||||||||||
Financing receivable write-offs |
127,343 | 136,446 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Consolidated receivable allowances |
$ | 176,567 | $ | 172,039 | $ | 3,275 | $ | 170,345 | $ | 181,536 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
YEAR ENDED OCTOBER 31, 2001 |
|||||||||||||||||||
Allowance for doubtful receivables: |
|||||||||||||||||||
Equipment Operations |
|||||||||||||||||||
Trade receivable allowances |
$ | 34,447 | $ | 11,342 |
Bad debt recoveries |
$ | 4,125 |
Trade receivable write-offs |
$ | 6,282 | $ | 43,341 | |||||||
Acquisitions |
6,872 |
Transfers related to trade receivable sales |
7,163 | ||||||||||||||||
Financial Services |
|||||||||||||||||||
Trade receivable allowances |
76 |
Acquisitions |
7,163 | 7,239 | |||||||||||||||
Financing receivable allowances |
106,370 | 102,533 |
Transfers related to retail note sales |
9,566 | |||||||||||||||
Financing receivable write-offs |
73,350 | 125,987 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Consolidated receivable allowances |
$ | 140,817 | $ | 113,951 | $ | 18,160 | $ | 96,361 | $ | 176,567 | |||||||||
|
|
|
|
|
|
|
|
|
|
54
INDEX TO EXHIBITS
55
10.7 | John Deere Performance Bonus Plan as amended December 6, 2000 (Exhibit 10.7 to Form 10-K of registrant for the year ended October 31, 2000*) ** | |
10.8 | John Deere Mid-Term Incentive Bonus Plan (Appendix A to Notice and Proxy Statement of registrant for the annual shareholder meeting on February 26, 2003*)** | |
10.9 | 1991 John Deere Stock Option Plan (Exhibit 10.9 to Form 10-K of registrant for the year ended October 31, 1999*) ** | |
10.10 | John Deere Omnibus Equity and Incentive Plan (Exhibit 4.3 to Registration Statement on Form S-8 no. 333-103757 filed March 11, 2003*) ** | |
10.11 | John Deere Defined Contribution Restoration Plan as amended January 1, 2000 (Exhibit 10.13 to Form 10-K of registrant for the year ended October 31, 2000*) ** | |
10.12 | John Deere Supplemental Pension Benefit Plan, as amended January 1, 2002** | |
10.13 | Nonemployee Director Stock Ownership Plan Appendix A to Notice and Proxy Statement of registrant for the annual shareholder meeting on February 27, 2002 *)** | |
10.14 | Deere & Company Nonemployee Director Deferred Compensation Plan as amended May 26, 1999 (Exhibit 10.16 to Form 10-K of registrant for the year ended October 31, 1999*)** | |
10.15 | Form of Severance Protection Agreement between registrant and the executive officers (Exhibit 10.1 to Form 10-Q of registrant for the quarter ended April 30, 2000*)** | |
10.16 | Early Retirement Agreement dated August 10, 2001 between registrant and Ferdinand F. Korndorf (Exhibit 10.18 to Form 10-K of registrant for the year ended October 31, 2001*)** | |
10.17 | Asset Purchase Agreement dated October 29, 2001 between registrant and Deere Capital, Inc. concerning the sale of trade receivables (Exhibit 10.19 to Form 10-K of registrant for the year ended October 31, 2001*) | |
10.18 | Asset Purchase Agreement dated October 29, 2001 between John Deere Construction & Forestry Company and Deere Capital, Inc. concerning the sale of trade receivables (Exhibit 10.20 to Form 10-K of registrant for the year ended October 31, 2001*) | |
10.19 | Factoring Agreement dated September 20, 2002 between John Deere Finance S.A. and John Deere Vertrieb, a branch of Deere & Company, concerning the sale of trade receivables (Exhibit 10.21 to Form 10-K of registrant for the year ended October 31, 2002*) | |
10.20 | Receivables Purchase Agreement dated August 23, 2002 between John Deere Finance S.A. and John Deere Limited (Scotland) concerning the sale of trade receivables (Exhibit 10.22 to Form 10-K of registrant for the year ended October 31, 2002*) | |
12. | Computation of ratio of earnings to fixed charges | |
13. | Not applicable | |
14. | Not applicable | |
16. | Not applicable | |
18. | Not applicable | |
21. | Subsidiaries | |
22. | Not applicable | |
23. | Consent of Deloitte & Touche LLP | |
24. | Power of Attorney (included on signature page) | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification | |
32 | Section 1350 Certifications |
* | Incorporated by reference. Copies of these exhibits are available from the Company upon request. |
** | Compensatory plan or arrangement filed as an exhibit pursuant to Item 15(c) of Form 10-K. |
56
EXHIBIT 3.3
BYLAWS of
DEERE & COMPANY
(Adopted July 30, 1958; Amended December 3, 2003)
ARTICLE I IDENTIFICATION
Section 1 . NAME . The name of the Company is Deere & Company (hereinafter referred to as the Company).
Section 2 . OFFICES . The principal office of the Company in Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The Company may maintain, change or discontinue its other offices, including its principal business office in the County of Rock Island, State of Illinois, and may have such other offices both within and outside of the State of Delaware as its business may require.
Section 3 . SEAL . The seal of the Company shall be circular in form and mounted upon a metal die, suitable for impressing the same upon paper. About the upper periphery of the seal shall appear the words Deere & Company and about the lower periphery thereof the word Delaware. In the center of the seal shall appear a representation of a leaping deer.
Section 4 . FISCAL YEAR . The fiscal year of the Company shall begin on the first day of November in each calendar year and end on the last day of October in the following calendar year.
ARTICLE II THE STOCKHOLDERS
Section 1 . PLACE OF MEETINGS . Annual meetings of the stockholders for the election of directors shall be held at the principal business office of the Company in Rock Island County, State of Illinois. Meetings of the stockholders for any other purpose may be held at such place within the State of Delaware or the State of Illinois as may be specified by the Chairman or the Board of Directors.
Section 2. ANNUAL MEETING . The annual meeting of the stockholders, at which they shall elect directors by ballot and by plurality vote and may transact such other business as may properly be brought before the meeting in accordance with Section 3 of Article II of these bylaws, shall be held at ten oclock in the morning, local time, on the last Wednesday in February of each year or on such business day and at such time and at such place as may be designated by the Board of Directors. If the date designated for the annual meeting is a legal holiday then the annual meeting shall be held on the first following day that is not a legal holiday.
Section 3 . NOMINATION OF DIRECTORS AND OTHER BUSINESS .
(a) |
Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election as directors may be made at a meeting of stockholders only (i) by or at the direction of the Board of |
Directors, (ii) by any person or persons authorized to do so by the Board or (iii) by any stockholder of the Company entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 3. Such nomination, other than those made by or at the direction of the Board or by persons authorized by the Board, shall be made pursuant to timely notice in writing to the Secretary of the Company. Such stockholders notice to the Secretary of a proposed nomination shall set forth, as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Company which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as now or hereafter amended; such notice shall further set forth, as to the stockholder giving the notice, (i) the name and record address of such stockholder and (ii) the class and number of shares of the Company which are beneficially owned by such stockholder. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as director. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth herein and unless qualified under the other provisions of these bylaws. If the Chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedure, he shall so declare to the meeting and the defective nomination shall be disregarded. |
(b) | To be properly brought before any annual or special meeting of stockholders, business must be either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board, or (iii) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Company. A stockholders notice to the Secretary shall set forth with respect to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Company which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any meeting of stockholders except in accordance with the procedures set forth in this Section 3, provided, however, that nothing in this Section 3 shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting. If the Chairman of the meeting determines that such business was not properly brought before the meeting in accordance with the foregoing procedure, he shall so declare to the meeting, any such business not properly brought before the meeting shall not be transacted. |
2
(c) | To be timely, a stockholders notice of nomination or other business must be delivered to, or mailed and received at, the principal executive offices of the Company, not less than 90 days nor more than 120 days prior to the meeting; provided, however, that in the event that less than 105 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. |
Section 4 . SPECIAL MEETINGS . Special meetings of the stockholders may be called by the Chairman or the Board of Directors. The business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice for the meeting.
Section 5 . NOTICE OF MEETINGS . Written notice of each meeting of stockholders, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman or the Secretary to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the stock transfer books of the Company, with postage thereon prepaid.
Section 6 . FIXING OF RECORD DATES . In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 7 . VOTING LIST . The Secretary shall prepare and make, or cause to be prepared and made, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not so specified, at the place where the meeting is to be held, and the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and subject to the inspection of any stockholder who may be present.
Section 8 . QUORUM AND ADJOURNED MEETINGS . The holders of a majority of the shares entitled to vote at any meeting of stockholders, present in person or by proxy, shall constitute a quorum at such meeting except as otherwise provided by statute. Whenever a quorum shall be
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present at any meeting all matters shall be decided by vote of the holders of a majority of the shares present, unless otherwise provided by statute, the certificate of incorporation, or by these bylaws.
Meetings of stockholders may be adjourned from time to time for any reason and, if a quorum shall not be present, the holders of the shares entitled to vote present in person or by proxy, may so adjourn the meeting. When a meeting is adjourned to another time or place, unless the bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken except that, if the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Company may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time, without notice other than at the meeting, until a quorum shall be present.
Section 9 . VOTING AT MEETINGS . Unless otherwise required by law, the certificate of incorporation or these bylaws, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period.
Section 10 . ORGANIZATION . The Chairman shall preside at all meetings of the stockholders. In the absence or inability to act of the Chairman, the Vice Chairman, the President or an Executive Vice President (in that order) shall preside, and in their absence or inability to act another person designated by one of them shall preside. The Secretary of the Company shall act as secretary of each meeting of the stockholders. In the event of his absence or inability to act, the chairman of the meeting shall appoint a person who need not be a stockholder to act as secretary of the meeting.
Section 11 . INSPECTORS OF VOTING . Except as otherwise provided by statute, the Chairman or in his absence the chairman of the meeting, shall appoint inspectors of voting for each meeting of stockholders.
Section 12 . MEETING PROCEDURES . Meetings of the stockholders shall be conducted in a fair manner but need not be governed by any prescribed rules of order. The presiding officers rulings on procedural matters shall be final. The presiding officer is authorized to impose reasonable time limits on the remarks of individual stockholders and may take such steps as such officer may deem necessary or appropriate to assure that the business of the meeting is conducted in a fair and orderly manner.
ARTICLE III THE BOARD OF DIRECTORS
Section 1 . NUMBER AND QUALIFICATIONS . The business and affairs of the company shall be under the direction of or managed by a Board of Directors who need not be residents of the
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State of Delaware or stockholders of the company. The number of directors may be increased or decreased from time to time by resolution of the Board of Directors, provided no decrease shall have the effect of shortening the term of any incumbent director.
Persons who are or have been officers of the company, other than persons who hold or have held either or both of the office of chairman and chief executive officer and the office of president, shall not be elected directors of the company for terms beginning after the date they retire from active employment with the company. A director shall retire from the board effective with the first annual meeting of stockholders following such directors 71st birthday.
Section 2 . ELECTION . Directors shall be elected by class for three year terms as specified in the Certificate of Incorporation at the annual meeting of stockholders, except as provided in Section 3 of this Article and except as required under the terms of any preferred shares, and each director elected shall hold office during the term for which he is elected and until his successor is elected and qualified. A director may be removed only for cause.
Section 3. VACANCIES . Any vacancies occurring in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the remaining directors though less than a quorum of the Board of Directors, or by the sole remaining director, and any director so chosen shall hold office until the next election of the class for which he was chosen and until his successor is duly elected and qualified.
Section 4. REGULAR MEETINGS . Regular meetings of the Board of Directors shall be held at nine-thirty oclock in the morning, local time, or at such other time as may be established from time to time by resolution of the Board of Directors, on the last Wednesday of May and August, and the first Wednesday in December, and immediately following the adjournment of the Annual Meeting of stockholders on the last Wednesday in February in each year. Should any of such days be a legal holiday, the meeting shall be held at the same time on the first following day that is not a legal holiday. The February meeting shall be held at the same place as the annual meeting of stockholders. All other regular meetings shall be held at the principal business office of the Company in Rock Island County, Illinois, or at any other place either within or outside the State of Delaware approved in writing not less than ten days in advance of the meeting by a majority of the number of directors then in office or approved at the last preceding regular meeting of the Board of Directors.
Section 5. SPECIAL MEETINGS . Special meetings of the Board of Directors may be held upon call of the Chairman at any time; special meetings also shall be called by the Chairman or by the Secretary whenever requested by one-third of the directors then in office. Such meetings shall be held at the principal business office of the Company in Rock Island County, Illinois, or at any other place either within or outside the State of Delaware as is designated in the call and notice for the meeting.
Section 6. NOTICE OF MEETINGS . No notice of any kind shall be necessary for regular meetings of the Board of Directors to be held at the principal business office of the Company in Rock Island County, Illinois.
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Notice of special meetings of the Board of Directors wherever held in the United States other than Alaska or Hawaii, and notice of regular meetings of the Board of Directors to be held at a place in the United States other than at the principal business office of the Company and other than in Alaska or Hawaii shall be given by letter, telegram, cable or radiogram addressed to each directors regular business office and delivered for transmission not later than during the second day immediately preceding the day for such meeting. One day personal, telegraphic or telephonic notice given by the Chairman, Secretary or any other officer, shall be sufficient notice of the calling of a special meeting; provided that such persons may give shorter notice if that is deemed necessary or appropriate under the circumstances provided that the shorter notice is actually received by the director prior to the meeting and provision is made at the meeting for participation by means of telecommunication, as permitted by Section 10 of this Article.
Notice of special meetings and of regular meetings of the Board of Directors to be held at a place in Alaska or Hawaii or outside the United States shall be given by letter, telegram, cable or radiogram addressed to each directors regular business office and delivered for transmission not later than during the tenth day immediately preceding the day for such meeting.
Notice of any meeting of the Board of Directors for which a notice is required may be waived in writing signed by the person or persons entitled to such notice, whether before or after the time of such meeting, and such waiver shall be equivalent to the giving of such notice. Attendance of a director at any such meeting shall constitute a waiver of notice thereof, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because such meeting is not lawfully convened. Neither the business to be transacted at nor the purpose of any meeting of the Board of Directors for which a notice is required need be specified in the notice, or waiver of notice, of such meeting.
Section 7 . QUORUM . A majority of the number of directors in office shall constitute a quorum for the transaction of business. The act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors except as otherwise provided by law or these bylaws. [During an emergency period following a national catastrophe, due to enemy attack, a majority of the surviving members of the Board of Directors who have not been rendered incapable of acting as the result of physical or mental incapacity or the difficulty of transportation to the place of the meeting shall constitute a quorum for the purpose of filling vacancies in the Board of Directors and among the elected officers of the Company.]
Section 8 . ORGANIZATION . The Chairman shall preside at all meetings of the Board of Directors. In the absence or inability to act of the Chairman, the Vice Chairman, the President or an Executive Vice President (in that order) shall preside, and in their absence or inability to act another director designated by one of them shall preside.
Section 9. ACTIONS BY WRITTEN CONSENT . Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the Board or such committee.
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Section 10. MEETINGS BY MEANS OF TELECOMMUNICATION . Members of the Board of Directors of the Company, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting.
Section 11. INTERESTED DIRECTORS: QUORUM .
(a) | No contract or transaction between the Company and one or more of its directors or officers, or between the Company and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: |
(1) | The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or |
(2) | The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or |
(3) | The contract or transaction is fair as to the Company as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof or the shareholders. |
(b) | Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. |
Section 12 . COMPENSATION . The Board of Directors, by the affirmative vote of a majority of the whole Board, and irrespective to any personal interest of its members, shall provide reasonable compensation of all directors for services, ordinary or extraordinary, to the Company as directors, officers or otherwise. Directors shall be paid their actual expenses of attendance at each meeting of the Board of Directors and committees thereof.
ARTICLE IV EXECUTIVE COMMITTEE
Section 1 . DESIGNATION AND MEMBERS . During the intervals between meetings of the Board of Directors and subject to such limitations as may be imposed by law and these bylaws, an Executive Committee shall have and may exercise all of the authority of the Board of
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Directors in the management of the business and affairs of the Company. The membership of such Executive Committee shall include the Chairman and such other directors as are designated by the Board of Directors at the recommendation of the Chairman.
This designation of the Executive Committee and the delegation of authority granted to it shall not operate to relieve the Board of Directors, or any director, of any responsibility imposed upon it or him by law. No member of the Executive Committee shall continue to be a member thereof after he ceases to be a director of the Company.
Section 2 . LIMITATION OF POWERS . Neither the Executive Committee, nor any other Board Committee, shall have the authority of the Board of Directors in reference to amending the certificate of incorporation; adopting an agreement of merger or consolidation with another corporation or corporations; amending, altering or repealing the bylaws; electing or removing the Chairman, Vice Chairman, President, any Executive Vice President or any Senior Vice President; declaring dividends; or amending, altering or repealing any resolution of the Board of Directors which by its terms provides that it shall not be amended, altered or repealed by the Executive Committee. Nor, unless specifically authorized by the Board of Directors, shall the Executive Committee have the authority of the Board of Directors in reference to incurring indebtedness for a term of longer than one year except that this limitation shall not apply to indebtedness of up to five years which (i) do not involve registration with the Securities & Exchange Commission and (ii) do not result in a total of indebtedness of $50,000,000 for a term longer than one year to any one lender, nor shall this limitation apply to the guaranty of an indebtedness which runs longer than one year.
In any resolution of the Board of Directors providing for action to be taken or approval to be given by, or a report to be made to, the Board, the term Board of Directors standing alone shall not be deemed to mean the Executive Committee.
All minutes of meetings of the Executive Committee shall be submitted to the next succeeding meeting of the Board of Directors, provided that no rights other than those of the Company shall be affected by any revision or alteration by the Board of Directors of actions of the Executive Committee.
Section 3 . PROCEDURE, MEETINGS, QUORUM . The Chairman shall preside at all meetings of the Executive Committee. In the absence or inability to act of the Chairman, the Vice Chairman, the President or an Executive Vice President (in that order) shall preside, and in their absence or inability to act another member designated by one of them shall preside.
The Executive Committee shall keep a record of its acts and proceedings.
Meetings of the Executive Committee shall be called at the request of any member of the Committee with the concurrence of the Chairman, or in the event of his absence or inability to act, the Vice Chairman, or in the event of the Vice Chairmans absence or inability to act, the President or an Executive Vice President of the Company, in the order of their availability. Such meeting shall be held at such location as shall be stated in the notice for such meetings.
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Meetings of the Executive Committee may be held upon notice given by word of mouth or written notice delivered during regular business hours to the office of each member or at other times to his residence. In the case of a meeting held at the principal business office of the Company in Rock Island County, Illinois, such notice may be given at any time prior to said meeting. In the case of a meeting held at any place in the United States other than the principal business office and other than Alaska or Hawaii, such notice may be given 48 hours prior to said meeting. In the case of a meeting held in Alaska or Hawaii or elsewhere outside the United States, such notice may be given four days prior to said meeting.
A majority of the members of the Executive Committee shall constitute a quorum for the transaction of any business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the Executive Committee.
ARTICLE V BOARD COMMITTEES OTHER THAN THE EXECUTIVE COMMITTEE
Section 1 . GENERAL PROVISIONS . The Board of Directors may from time to time establish such committees of the Board as it shall deem appropriate in addition to the Executive Committee. The resolution establishing each such committee shall state its powers and duties and the number of directors who shall be members. The membership of and committee chairman of each such committee shall be designated by the Board of Directors upon the recommendation of the Chairman. No such committee of the Board shall exercise any of the powers of the Board other than those set forth in such resolution establishing the committee, as such resolution may be amended from time to time.
Section 2 . PROCEDURES, MEETINGS, QUORUM . Meetings of such Board committees may be held on call of the Chairman of the committee or upon call issued by the Secretary of the Company at the request of a majority of the committee.
Unless stated otherwise in the resolution establishing a committee, a majority of the members shall constitute a quorum for the conduct of business.
Meetings of such Board committees may be held at such place as may be designated in the notice of meeting. Notice of meetings shall be given by the Secretary of the Company and shall be by word of mouth delivered to the office of the committee member not later than the third day before the meeting or in writing or by telegram mailed or sent not later than the fourth day before the meeting. The notice need not specify the business to be conducted at a meeting.
ARTICLE VI THE OFFICERS
Section 1 . NUMBER AND QUALIFICATIONS . The principal corporate officers of the Company shall consist of a Chairman, a President, a Secretary, and a Treasurer; and the Company may have a Vice Chairman, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a General Counsel, a Comptroller and such other corporate officers and assistant officers as may be elected or appointed pursuant to these bylaws. The Chairman and Vice Chairman shall be chosen from among the directors, but
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no other officer need be a director. The Company may also have such divisional officers as may be elected or appointed pursuant to these bylaws. Any number of offices may be held by the same person.
Section 2. GENERAL DUTIES . All corporate and any divisional officers so designated by the Board of Directors or the Chairman (Designated Divisional Officers), shall have such authority and perform such duties as officers of the Company as may be provided by or delegated in accordance with Sections 7 through 16 of these bylaws, or as may be determined by resolution of the Board of Directors not inconsistent with these bylaws. All agents and employees of the Company not elected by the Board of Directors may be appointed by the Chairman or by persons authorized by him to do so, to serve for such time and to have such duties as the appointing authority may determine from time to time.
Section 3. ELECTION AND TERM OF OFFICE . All corporate officers and each Designated Divisional Officer shall be elected annually by the Board of Directors at its regular meeting in February of each year. Each such corporate and divisional officer shall hold office for one year and until his successor is elected and qualified, or until he shall have resigned, or shall have been removed in the manner provided in Section 4.
Section 4 . REMOVAL . Any corporate or divisional officer may be removed by the Board of Directors, and any corporate officer below the rank of Senior Vice President or divisional officer other than a Designated Divisional Officer may be removed by the Chairman, whenever in the judgment of the Board or the Chairman, respectively, the interests of the Company will be served thereby. Such removal shall be without prejudice to the contract rights, if any, of the person removed. Election of an officer shall not of itself create contract rights.
Section 5 . RESIGNATIONS . Any officer may resign at any time by giving written notice to the Board of Directors or to the Chairman. Such resignation shall take effect at the time specified therein and, unless specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 6 . VACANCIES . The Board of Directors may at any time create and fill new offices and may at any time fill the unexpired portion of the term of any vacant office. In addition, as to any corporate office below the rank of Senior Vice President, or any divisional office below the rank of Designated Divisional Officer, the Chairman may at any time create and fill new offices and may at any time fill the unexpired term of any such office.
Section 7 . CHAIRMAN . The Chairman shall be the chief executive officer of the Company and as such shall have the active executive management of the operations of the Company, and shall see that the orders and resolutions of the Board of Directors and of the Executive Committee are carried into effect. He shall have power to execute in the name of the Company all bonds, contracts, other obligations and property conveyances which are duly authorized, and he shall have all the powers and perform all duties devolving upon him by law and as head of the Company. He may call special meetings of the stockholders and of the Board of Directors. From time to time he shall bring to the attention of the Board of Directors such information or recommendations concerning the business and affairs of the Company as he may deem
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necessary or appropriate. When present he shall preside at all meetings of the stockholders, of the Board of Directors and of the Executive Committee.
Section 8. VICE CHAIRMAN . The Vice Chairman shall be the second ranking officer of the Company. He shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman may from time to time delegate to him. In the absence or inability to act of the Chairman, the Vice Chairman shall act as the chief executive officer of the Company and shall perform the duties of the Chairman.
Section 9 . PRESIDENT . The President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him. In the absence or inability to act of the Chairman and the Vice Chairman, the President shall perform the duties of Chairman.
Section 10 . EXECUTIVE VICE PRESIDENTS . Each Executive Vice President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman may from time to time delegate to him. In the absence or inability to act of the Chairman, the Vice Chairman and the President, an Executive Vice President present shall act as the chief executive officer of the Company and shall perform the duties of the Chairman.
Section 11 . SENIOR VICE PRESIDENTS . Each Senior Vice President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman may from time to time delegate to him. In the absence or inability to act of the Chairman, the Vice Chairman, the President and Executive Vice Presidents, the duties of the Chairman shall be performed by a Senior Vice President present, acting in such order of priority as shall be designated by the Chairman.
Section 12. VICE PRESIDENTS . Each Vice President shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman may from time to time delegate to him.
Section 13 . SECRETARY . The Secretary shall act as secretary of all meetings of the stockholders, the Board of Directors and the Executive Committee. He shall prepare and keep or cause to be kept in books provided for the purpose minutes of all meetings of the stockholders, the Board of Directors and the Executive Committee; shall see that all notices are duly given in accordance with the provisions of these bylaws and as required by law, shall be custodian of the records and of the seal of the Company and see that the seal is affixed to all documents, the execution of which on behalf of the Company under its seal is duly authorized and, in general, he shall perform all duties incident to the office of Secretary and as required by law and such other duties as may be assigned to him from time to time by the Board of Directors or by the Chairman.
Each Assistant Secretary (if one or more Assistant Secretaries be elected) shall assist the Secretary in his duties and shall perform such other duties as the Board of Directors may prescribe from time to time, or the Chairman or the Secretary may delegate to him from time to time. In the event of the absence or inability to act of the Secretary, his duties shall be performed by an Assistant Secretary designated by the Chairman.
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Section 14 . TREASURER . The Treasurer shall have charge and custody of, and be responsible for, all moneys, notes and securities in the possession of the Company, and deposit all funds in the name of the Company in such banks, trust companies or other depositories as he may select; shall receive, and give receipts for, moneys due and payable to the Company from any source whatsoever; and, in general, he shall perform all the duties incident to the office of Treasurer and as required by law and such other duties as may be assigned to him from time to time by the Board of Directors or by the Chairman.
Each Assistant Treasurer (if one or more Assistant Treasurers be elected) shall assist the Treasurer in his duties and shall perform such other duties as the Board of Directors may prescribe from time to time, or the Chairman or the Treasurer may delegate to him from time to time. In the event of the absence or inability to act of the Treasurer, his duties shall be performed by an Assistant Treasurer designated by the Chairman.
Section 15 . GENERAL COUNSEL . The General Counsel shall be the chief legal advisor of the Company as to all matters affecting the Company and its business and, in general, he shall perform all the duties incident to the office of General Counsel and such other duties as may be assigned to him from time to time by the Board of Directors or by the Chairman.
Section 16 . COMPTROLLER . The Comptroller shall direct the preparation and maintenance, on a current basis, of such accounting books, records and reports as may be necessary to permit the directors, officers and executives of the Company to exercise adequate planning and control of the business of the Company or as may be required by law; and in general, he shall perform all the duties incident to the office of Comptroller and such other duties as may be assigned to him from time to time by the Board of Directors or by the Chairman.
ARTICLE VII ACTS WITH RESPECT TO SECURITIES OWNED
Section 1. ACTS WITH RESPECT TO SECURITIES OWNED. Subject always to the specific directions of the Board of Directors, the Chairman, the Vice Chairman, the President, an Executive Vice President, a Senior Vice President, a Vice President, or the Treasurer on behalf of the Company may exercise all the rights, powers and privileges of ownership, including the right to vote, by proxy or otherwise, any security or securities owned by the Company (including reacquired shares of capital stock of the Company). The endorsement of such officers may be attested by the Secretary or an Assistant Secretary either with or without affixing thereto the corporate seal.
ARTICLE VIII OTHER PROVISIONS
Section 1. CERTIFICATES OF STOCK . The shares of the corporation may be represented by a certificate or may be uncertificated. Certificates to evidence ownership of stock of the Company shall be in such form as the Board of Directors shall from time to time approve. The Chairman, President, Chief Financial Officer or the Treasurer is authorized to appoint a transfer agent and registrar for the stock of the Company and to make all other appointments of agents related to the stock of the Company. The Chairman, President, Chief Financial Officer or the
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Treasurer may adopt such regulations concerning the authority and duties of the transfer agent and registrar, the transfer and registration of certificates of stock and the substitution or replacement of lost, stolen, destroyed or mutilated certificates as such officer shall see fit.
Section 2 . LOANS . The Company may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Company or of any of its subsidiaries, including any officer or employee who is a director of the Company or of any of its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guaranty or assistance may reasonably be expected to benefit the Company. The loan, guaranty or other assistance may be with or without interest and may be unsecured or secured in such manner as the Board of Directors shall approve including, without limitation, a pledge of shares of stock of the Company.
Section 3 . AMENDMENT OF BYLAWS . In addition to such power of amendment as is vested by law in the shareholders, the Board of Directors is authorized to alter, amend or repeal the bylaws at any meeting of the Board of Directors by the affirmative vote of a majority of the number of directors then in office.
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EXHIBIT 10.4
JOHN DEERE CONSTRUCTION EQUIPMENT COMPANY
400 19TH STREET, MOLINE, ILLINOIS 61265-1390
BOB B. BROCK
Director, Customer Support
& Commercial Operations
14 July 1997
Jon D. Volkert
Senior Vice President,
Commercial & Consumer Lending Division
U.S. & Canada
Dear Jon:
This will document the agreement between John Deere Construction Equipment Company (JDCEC) and John Deere Capital Corporation (JDCC) with regard to the various matters addressed below. Essential to the arrangement being documented will be continuation of the interaction, open communication, and spirit of cooperation which have characterized the parties relationship in the past.
1. JDCC Recourse to JDCEC for Losses on Wholesale and Retail Financing and/or Leasing
JDCC will have no recourse to JDCEC for losses JDCC sustains in connection with JDCCs retail financing and/or leasing, except to the limited extent such recourse is specifically allowed under section 5.2 of the parties 11 May 1993 Agreement Concerning Industrial Retail Notes (as amended 14 July 1997). JDCC will have no recourse to JDCEC for losses JDCC sustains in connection with JDCCs wholesale financing and/or leasing, except to the limited extent such recourse is specifically allowed under sections 2, 5, 6, and 9 of this letter. Any additional exceptions, whether for wholesale or retail financing and/or leasing, will require the advance written approval of JDCECs Manager, Finance, and JDCECs Controller.
2. Inventory Verification
JDCC will conduct verifications of dealer inventories, which will include JDCEC collateral, when and as requested by JDCEC. JDCEC may conduct its own verifications, which, if conducted, will include JDCC collateral. For each verification,
each party will be responsible for the actual cost of verification attributable to its own collateral. JDCC and JDCEC will confer and agree on a method for allocating verification costs between them, which will be subject to future changes by further agreement of the parties.
Verifications will be conducted in accordance with the Inventory Verification Procedures dated 29 August 1996 (as amended from time to time by agreement of the parties), unless the parties agree in writing to the use of other procedures.
The party conducting an inventory verification will be responsible for any loss which the other party sustains on an extension of credit to the dealer and which is directly attributable to a failure, by the verifying party, to follow inventory verification procedures agreed upon by the parties.
3. Administrative Support by JDCEC
JDCEC will process JDCCs dealer charges and credits using JDCECs standard dealer billing and payment system. For this service, JDCC will pay JDCEC a monthly fee in an amount to be agreed upon by the parties. The amount of this fee will be subject to annual review and renegotiation by the parties.
In the event a dealer fails to make full and timely payment of the Amount Due Now appearing on its John Deere Statement of Account, JDCEC may reverse all JDCC-originated charges included in the Amount Due Now, provided JDCEC reverses all JDCC- originated credits (excluding any note or lease credits issued to the dealer by JDCC in connection with the disposition, by the dealer, of JDCECs collateral, to the extent of the amount owed by the dealer to JDCEC for that collateral) included in calculating the Amount Due Now. Such a reversal will be for the sole purpose of allocating charges and credits between JDCC and JDCEC, and will not appear on the statement of the dealer involved. The dealer will remain fully liable for all indebtedness owed to either party.
4. Provisional Credits
JDCC will be responsible for any loss sustained by JDCEC in connection with a provisional credit which is taken by a dealer and not charged back to the dealer within 15 days (or such lesser number of days as the parties may agree upon in writing) after it was taken. Further, for each provisional credit for which JDCC is at risk by virtue of the preceding sentence, JDCC will pay JDCEC interest, at the prime rate (as defined in JDCECs Dealer Terms Schedule, as amended from time to time by JDCEC), for:
(1) the period beginning on the sixteenth day after the credit was taken and continuing to, but not including, the first day for which JDCEC charges the dealer involved past-due interest on account of the credit, and
(2) any periods thereafter for which JDCEC charges the dealer involved past-due interest on account of the credit but does not collect such interest from the dealer.
5. Subordination Agreements
All requests for subordination affecting both JDCEC and JDCC collateral will be processed by JDCEC, in consultation with JDCC. Any subordination agreement affecting both JDCEC and JDCC collateral must be executed by JDCEC.
JDCC and JDCEC will confer and agree on procedures for processing requests for subordination. After such agreement is concluded, JDCEC will be responsible for any loss which JDCC sustains on an extension of credit to a dealer and which is directly attributable to a failure, by JDCEC, to consult with JDCC, in accordance with such procedures, regarding a request for subordination affecting both JDCEC and JDCC collateral.
6. Financing Statement Filings
All financing statement filings concerning JDCECs dealers will be processed by JDCEC and indicate JDCECs Moline address. JDCC and JDCEC will confer and agree on a collateral description to be used in such filings.
If approved by counsel for the parties, JDCEC will:
(1) mend the existing JDCEC blanket dealer filings to conform to the agreed-upon collateral description, and
(2) allow the existing JDCC blanket dealer filings to lapse.
As JDCEC receives purchase money security interest notifications from other creditors of dealers, it will provide JDCC with a copy of each notification that pertains to a dealer then financed by JDCC.
JDCC and JDCEC will confer and agree on procedures for transitioning from the current dual filing arrangement to the single filing arrangement agreed upon in this letter. Once the transition is completed, JDCEC will be responsible for any loss which JDCC sustains on an extension of credit to a dealer and which is directly attributable to:
(1) an error or omission committed by JDCEC, following the transition, in filing or continuing a dealer financing statement (unless the particular act or omission is approved in advance by JDCC), or
(2) a failure, by JDCEC, to provide copies of purchase money security interest notifications as agreed in this letter.
7. Equipment Remarketing Services Fees and Expenses
For each sale which Equipment Remarketing Services (ERS) conducts on JDCCs behalf, JDCC will pay ERS a commission equal to 4% of the sale price and reimburse any direct, reasonable expenses incurred by ERS in connection with the equipment sold. The amount of this commission will be subject to annual review and renegotiation by the parties.
8. Repossession of Dealer Collateral
Each party will notify the other before repossessing any dealer assets. If one party proceeds with a repossession of dealer assets, it may take possession of the others collateral, but will have no obligation to do so. If the repossessing party does take possession of the other partys collateral, it will hold that collateral until disposal instructions are received from the other party, and each party will be responsible for the actual costs of repossession and storage attributable to its own collateral.
Each party will have the prerogative and responsibility to dispose of its own collateral, unless the parties agree otherwise following the repossession. Any such agreement will include an allocation of costs and potential risks (such as the risk of a challenge to the manner of disposition) acceptable to both parties.
Each party may apply the entire proceeds of its collateral to the indebtedness owed it by the dealer involved before sharing any of the proceeds with the other party. However, to the extent permitted by law, any credit balance remaining after application of collateral proceeds to the indebtedness owed to one party will be applied to the indebtedness of the dealer involved to the other party.
9. Approval of JDCC Repossessions by JDCEC
JDCC will seek JDCECs approval before proceeding with a repossession of dealer assets, and JDCC will not proceed with a planned repossession of dealer assets if JDCEC disapproves the repossession in writing. If a dealer is in default under its agreements with JDCC and JDCC desires to conduct a repossession, but does not do so due to JDCECs disapproval, JDCEC will be responsible for any loss which JDCC sustains on its extension of credit to the dealer as a result of diminution in the value, or sale out of trust, of the collateral JDCC would have repossessed, but only to the extent the diminution in value or conversion of sale proceeds occurs during the period beginning when JDCEC disapproves JDCCs planned repossession and ending:
(1) when JDCC makes a new advance to the dealer involved,
(2) when the dealer has cured its default with JDCC and has remained current thereafter with both JDCC and JDCEC for three consecutive months, or
(3) upon such other date or event as JDCC and JDCEC may agree upon in writing, whichever occurs first.
10. 11 May 1993 Agreement Concerning Industrial Retail Notes
The parties 11 May 1993 Agreement Concerning Industrial Retail Notes (as amended 14 July 1997) shall continue in full force and effect. Please acknowledge your agreement to the foregoing by signing in the space provided below and return this letter to me. A duplicate original is enclosed for your files.
JOHN DEERE CONSTRUCTION EQUIPMENT COMPANY
By: |
/s/ Bob B. Brock |
|
Bob B. Brock |
||
Director, Customer Support |
||
and Commercial Operations |
Acknowledged and agreed to:
JOHN DEERE CAPITAL CORPORATION
By: |
/s/ Jon D. Volkert |
|
Jon D. Volkert |
||
Senior Vice-President |
Date: 29 July 1997
AMENDMENT TO
AGREEMENT CONCERNING INDUSTRIAL RETAIL NOTES
John Deere Construction Equipment Company (Sales Company), its successors and assigns; and John Deere Capital Corporation (Capital Corporation) its successors and assigns; agree as follows:
Section 1.
Section 2.3 of the AGREEMENT CONCERNING INDUSTRIAL RETAIL NOTES dated 11 May 1993, is hereby deleted and replaced by the following.
2.3 Purchase Price. The purchase price of any Retail Note accepted by the Capital Corporation shall be the face amount of the Retail Note less both the finance charge and any separately stated insurance premiums.
Section 2.
Section 2.5 of the AGREEMENT CONCERNING INDUSTRIAL RETAIL NOTES dated 11 May 1993, is hereby deleted and replaced by the following.
2.5 Time of Payment. The purchase price shall be payable to the Sales Company upon acceptance by the Capital Corporation under Section 2.1.
Section 3.
The parties mean for this Amendment to be construed broadly to give effect to their intent.
Section 4.
This Amendment shall be effective as of 1 November 1994.
Dated as of 14 July 1997.
JOHN DEERE CONSTRUCTION EQUIPMENT COMPANY |
JOHN DEERE CAPITAL CORPORATION |
|||||
By: |
/s/ Bob B. Brock |
By: |
/s/ Jon D. Volkert |
|||
Bob B. Brock |
Jon D. Volkert |
|||||
Title: Director, Customer Support and Commercial Operations |
Title: Senior Vice President |
EXHIBIT 10.5
FIRST AMENDED AGREEMENT
This FIRST AMENDED AGREEMENT is dated and effective as of November 1, 2003, and amends the Agreement between Deere & Company, a Delaware corporation (Deere) and John Deere Capital Corporation, a Delaware corporation (JDCC) dated October 15, 1996.
WITNESSETH:
WHEREAS, Deere owns all of the outstanding common stock of JDCC; and
WHEREAS, Deere and JDCC believe that it is their respective best interest to demonstrate Deeres support for JDCC to debt holders and derivative counterparties.
NOW, THEREFORE, in consideration of the foregoing, the mutual advantage and benefit of the parties hereto and other good and valuable consideration, the parties hereto hereby agree as follows:
1. Fixed Charges Ratio . Deere shall make income maintenance payments to JDCC, constituting additions to the pre-tax income of JDCC, to the extent that such payments are necessary to cause the ratio of Net Earnings Available for Fixed Charges to Fixed Charges of JDCC and consolidated affiliates (determined on a consolidated basis and in accordance with GAAP) to be not less than 1.05 for each JDCC fiscal quarter.
2. Ownership . Deere or one or more of its direct or indirect wholly-owned subsidiaries or a combination thereof will continue to own at least fifty-one percent (51%) of the shares of capital stock of JDCC having voting power for the election of directors, provided, however , that JDCC may merge or consolidate with, or sell or convey substantially all of its assets, to Deere, if in connection therewith, Deere shall expressly assume the due and punctual payment of all of JDCCs rated debt.
3. Minimum Net Worth . Deere shall cause JDCC to have as at the end of any fiscal quarter a Consolidated Tangible Net Worth of at least $50,000,000.
4. No Guaranty . This Agreement is not, and nothing herein contained and nothing done pursuant hereto by Deere shall be deemed to constitute, a guaranty by Deere of the payment of any indebtedness, obligation or liability of any kind or character whatsoever of JDCC, any of JDCCs direct or indirect subsidiaries or any other entity the indebtedness, obligations or liabilities of which have been guaranteed by JDCC (any such other entity a Guaranteed Entity).
5. Term . This Agreement may be modified, amended or terminated, at Deeres election, upon thirty days prior written notice to JDCC and to Moodys Investors Service, Inc. (Moodys), Standard & Poors Ratings Services (S&P) and Dominion Bond Rating Service Limited (DBRS) if (a) such modification, amendment or termination would not result in a downgrade of JDCCs rated public debt or of the rated public debt of any Guaranteed Entity (any such rated public debt Debt) by Moodys, S&P or DBRS; or (b) the modification, amendment or notice of termination provides that this Agreement will continue in effect with respect to Debt outstanding on the effective date of the modification, amendment or termination; or (c) there is no outstanding long-term Debt. For purposes hereof, no portion of any Debt shall be considered outstanding if such Debt shall be defeased or discharged in accordance with the indenture or other governing instrument defining the rights of the holders of such Debt. Upon termination of this Agreement, no further obligation on the part of Deere shall thereafter arise hereunder.
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6. Defined Terms . Capitalized terms used herein, but not defined herein, shall be as defined in the $1,350,000,000 Credit Agreement dated as of February 18, 2003 among Deere and JDCC and JPMorgan Chase Bank as Administrative Agent, Citibank N.A. and Credit Suissse First Boston, as documentation agents, Bank of America, N.A. and Deutsche Bank AG New York Branch as Syndication Agents, and various institutions as Managing Agents and Co-Agents, as such credit agreement or any successor or replacement agreement may be amended from time to time.
7. Waiver . Deere hereby waives any failure or delay on the part of JDCC in asserting or enforcing any of its rights or in making any claims or demands hereunder.
8. Rights of Lenders . The obligations of Deere to JDCC pursuant to this Agreement are to JDCC only and do not run to, and are not enforceable directly by, any creditor of JDCC or any creditor of any Guaranteed Entity; nor shall this Agreement cause Deere to be responsible for the payment of any obligations of JDCC or of any Guaranteed Entity to any creditor thereof; provided, however , that any Lender shall have the right to demand that JDCC enforce JDCCs rights under this Agreement and if JDCC fails or refuses to take timely action to enforce such rights such Lender may proceed against JDCC to enforce JDCCs rights under this Agreement. The term Lender in this paragraph 8 shall mean any person, firm or corporation to which JDCC or any Guaranteed Entity is indebted for borrowed money or that is a derivative counterparty to JDCC or to any other entity the derivative obligations of which are guaranteed by JDCC.
9. Successors . The Agreements herein set forth shall be mutually binding upon, and shall inure to the benefit of, Deere and JDCC and their respective successors and assigns.
10. Governing Law . This Agreement shall be governed by the laws of the State of New York .
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed the day and year first above written.
DEERE & COMPANY |
||
By: |
/s/ Nathan J. Jones |
|
JOHN DEERE CAPITAL CORPORATION |
||
By |
/s/ Jon Volkert |
2
EXHIBIT 10.12
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
AMENDED: 1 November 198
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: 01Jan 2000 (Item (1&2) 01 Apr 2000 (Item (3)
(See Resolution for Item explanation)
AMENDED: 29 January 2002 - Effective: 01 January 2002
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
TABLE OF CONTENTS
i
ii
JOHN DEERE SUPPLEMENTAL PENSION BENEFIT PLAN
Section 1. Purpose and Establishment
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. |
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. |
1.5 | Administration 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 or modify 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 |
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 |
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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 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 the laws of the State of Illinois. |
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Section 2. Definitions
2.1 | Definitions . Whenever used in this Plan, it is intended that the following terms have the meanings set forth below: |
(a) | Average Pensionable Pay of the Traditional Pension Option means the average for each year of the following: |
(1) | all straight-time salary payments, plus the larger of (i) or (ii) through 31 December 2000 and as of 1 January 2001 plus the larger of (i) or (iii) below: |
(i) | the amounts paid under the John Deere Profit Sharing Plan and the John Deere Short-Term Incentive Plan prior to 1991 plus the sum of the bonuses paid under the John Deere Performance Bonus Plan for Salaried Employees, the John Deere Health Care,Inc. Annual Performance Award Plan or the John Deere Credit Company Profit Sharing Plan. |
(ii) | the amount paid prior to 1989 under the John Deere Long-Term Incentive Plan, the John Deere Restricted Stock Plan through 1998, or after 1998 the Pro-rated Yearly Vesting Amount under the John Deere Equity Incentive Plan. |
(iii) | the target amount under the John Deere Performance Bonus Plan for Salaried Employees, the John Deere Health, Inc. Annual Performance Award Plan or the John Deere Credit Company Profit Sharing Plan. |
(2) | The annual average of such amounts shall be based on the five (5) highest years, not necessarily consecutive, during the ten (10) years immediately preceding the earliest of the Participants retirement, total and permanent disability, or death. The greater of any such short or long-term awards as defined in 2.1(a)(1)(i) or (ii) above paid or vested during the twelve months immediately following the Participants retirement, shall be substituted for the lowest such annual short or long-term bonus award used to calculate Average Pensionable Pay, if the result would be a higher pension benefit. All amounts used in calculating the Average Pensionable Pay will be determined before the effect of any salary or bonus 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 contribution, and/or flexible credits provided by the Company under any such plan or program. |
(b) | Average Monthly Pensionable Pay means the Average Pensionable Pay divided by twelve (12). |
(c) | Board means the Board of Directors of the Company. |
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(d.1) | Career Average Pay of the Contemporary Pension Option means the following for those Officers listed in Exhibit 1: |
(1) | The highest five calendar years of the last ten not necessarily consecutive as of 31 December 1996 plus the greater of short-term bonus or long-term incentive pay received in each of those years as defined in section 2.1(a)(1)(i) or (ii) above. |
plus
(2) | Base pay and short-term bonuses as defined in Section 2.1(a)(1)(i) above paid beginning 1 January 1997 and thereafter (excluding any long-term incentives as defined in section 2.1(a)(1)(ii) above). |
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: |
(1) | The highest five consecutive of the last ten anniversary years or the last 60 months of straight time pay if higher as of 31 December 1996 for Participants with five or more years of continuous employment. |
plus
(2) | Restorable short-term performance bonuses earned and paid during the years 1992-1996 credited at the rate of 1/120th for each pay period of continuous employment beginning 1 January 1997. Short-term performance bonuses are defined in 2.1(a)(1)(i) of this Plan. |
plus
(3) | All straight time pay plus short-term performance bonuses paid on or after 1 January 1997 (excluding any long-term incentives such as stock options). |
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.
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(e) | Company means Deere & Company, a Delaware corporation. |
(f) | Contemporary Pension Option means the benefit provided to Officers Listed in Exhibit 1 who elect the Contemporary Pension Option on or before 15 November 1996, and all other Executives who become Participants on or after 1 January 1997. |
(g) | Disability shall have the same meaning as under the Qualified Retirement Plan or John Deere Long Term Disability Plan for Salaried Employees |
(h) | Executive means an employee base salary grade 13 or above who on 1 January 1997 is a non-officer, or an employee who attains base salary grade 13 or above after 1 January 1997. |
(i) | Officer means employees listed in Exhibit I and by way of their election under the John Deere Pension Plan for Salaried Employees may choose between this Traditional or Contemporary Supplemental Plan option. |
(j) | Non-officer means any employee of the Company who is not an elected officer and does not hold one of the elected positions listed in (i) above. |
(k) | Participant means an Officer as defined in (i) above who has served in such capacity for 36 months or Salary Grade 13 and above Executives who are eligible for participation under the Contemporary Supplemental Plan option on the latter of 1 January 1997 or attainment of base Salary Grade 13. |
(l) | Plan Year means the 12-month period beginning each November 1. |
(m) | Pro-rated Yearly Vesting Amount under the John Deere Equity Incentive Plan means for the purposes of calculating a long term incentive amount under Section 2.1 (a) (1) (ii) of this Plan is one-quarter of each bi-annual EIP Grant allocated to each year following the Grant date multiplied times the Grant Price. In the event an EIP Grant vests and bonus shares are payable during the 12 months immediately following a Participants retirement, the actual value of the Grant will be redetermined and allocated equally in one-quarter increments to each of the years following the Grant date which were used to calculate Average Pensionable Pay, if the result would be a higher pension benefit. |
(n) | Qualified Retirement Plan means the John Deere Pension Plan for Salaried Employees which is a qualified plan under Section 401(a) of the Internal Revenue Code. Provisions under this Plan shall in no way alter provisions under the Qualified Retirement Plan. |
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o) | Retirement Benefit shall be a single-life annuity or lump sum amount as provided under Section 3 subject to provisions of Section 5. |
(p) | Section 162(m) Participant means a participant who is the CEO or the four highest paid Executives, as reported in the proxy, who is employed on the last day of the fiscal year. |
q) | Service shall have the same meaning in this Plan as service credit in the Qualified Retirement Plan. Service credit for benefit purposes in this plan for those Executives not listed in Exhibit I will begin on the latter of 1 January 1997 or attainment of base salary grade 13 or above whichever is later. |
(r) | Surviving Spouse shall mean the legally married spouse of a deceased participant. |
(s) | Traditional Pension Option means the benefit under this Plan for Officers who (1) are listed in Exhibit 1, and (2) are or become Participants, and (3) who elect the Traditional Pension Option on or before 15 November 1996. |
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. |
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Section 3. Supplemental Pension Benefit
3.1 | Eligibility . A Participant shall be eligible for benefits under the provisions of this Plan who has attained age 60 under the Traditional Pension Option or age 55 under the Contemporary Pension Option or at any age if eligible to retire on 1 January 1997 and retires under the provisions of the Qualified Retirement Plan. |
3.2 | Amount . Upon termination and election to retire pursuant to 3.1 above, the Participant shall be entitled to a monthly Retirement Benefit as follows: |
(1) | Traditional Pension Option equals (a) plus (b) below: |
(a) | 2% of average monthly pensionable pay for each year of service as an Officer. |
(b) | 1 1 / 2 % of average monthly pensionable pay for each year of service as a non-Officer. |
or
(2) | Contemporary Pension Option equals (a) plus (b) below: |
(a) | 2% of career average pay for each year of service as an Officer or Participant. |
(b) | 1 1 / 2 % of career average pay for each year of service as a non-Officer prior to the latter of 1 January 1997 or attainment of base salary grade 13 or above, whichever is later. |
This amount shall be subject to any reductions for
(1) | Early retirement under the Contemporary Pension Option as provided in Section 3.4 of this plan. |
(2) | Any formula used to calculate the reduction in the retirees monthly benefit under the Qualified Retirement Plan. |
(3) | Survivor benefits described in Section 6. |
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(4) | Provisions shown in Section 3.3 which follows and shall be further reduced by the sum of |
(i) | the benefit earned under the Qualified Retirement Plan and |
(ii) | the benefit provided under the John Deere Supplementary Pension Plan. |
3.3 | Limitations . |
(a) | The total monthly Retirement Benefit paid under the Traditional Pension Option of this Plan, the Qualified Retirement Plan and the John Deere Supplementary Pension Plan may not exceed 66- 2 / 3 % of the Average Monthly Pensionable Pay. If such number is exceeded the amount payable under this Plan shall be reduced. |
(b) | That part of the retired employees monthly benefit which is based on service credit prior to 1 July 1993 (1 January 1994 for employees of John Deere Credit Company, John Deere Health Care, Inc. and John Deere Insurance Group) shall be reduced by 1 / 2 % for each full year in excess of 10 years that the spouse is younger than the employee. |
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 provided in the Contemporary Pension Option of the Qualified Retirement Plan 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 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.
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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 or, in the case of Participants death, the surviving spouses age on the date payment is made.
Monthly retirement benefits will be redetermined as soon as practicable and increased benefits paid retroactive to the Participants date of retirement for:
(a) | any eligible long or short-term bonus paid after retirement replacing an earlier bonus award used to calculate average pensionable pay under the Traditional Pension Option |
or |
(b) | any eligible short-term bonus paid after retirement added to career average earnings used to calculate pension benefits under the Contemporary Pension Option. |
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 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
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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.
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Section 4. Disability Benefit
4.1 | Eligibility . An employee who qualifies for a total and permanent 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. |
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Section 5. Change in Control of Company
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 participants cessation of employment is by reason of Death or Permanent Disability, the participants rights under this Plan shall be governed by Section 4 and 6 of this Plan, despite the occurrence of a change in control. |
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: |
(i) | any person (as defined in Sections 13(d) and 14(d) of the Exchange Act) 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 thirty percent (30%) or more of the combined voting power of the Companys then outstanding securities; |
(ii) | during any period of two (2) consecutive years (not including any period prior to December 9, 1987) 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 two-thirds ( 2 / 3 ) 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; or |
(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 or consolidation. |
12
(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 the Companys assets. |
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: |
(i) | the assignment to the participant of duties materially inconsistent with the participants duties, responsibilities and status prior to the Change in Control or a material reduction or alteration in the scope of the participants responsibilities from those in effect prior to the Change in Control; |
(ii) | a reduction by the Company in the participants base salary or profit sharing award as in effect prior to the Change in Control; |
(iii) | the Company requiring the participant to be based at a location in excess of twenty-five (25) miles from the location where the participant is currently based; |
(iv) | the failure by the Company or any successor to the Company to continue in effect any other Pension Plans, or its Profit Sharing Plan for Salaried Employees, Short-Term Incentive Bonus Plan, Deferred Compensation Plan, Long-Term Incentive Plan, the John Deere Stock Option Plan or any other of the Companys employee benefit plans, policies, practices or arrangements applying to the participant or the failure by the Company to continue the participants participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of his or her participation relative to other participants, as existed prior to the Change in Control; |
13
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
Section 6. Survivor Benefits
6.1 | In the event of the death of an active Participant or a Participant on Permanent and Total Disability , notwithstanding Section 3.1 of this Plan, the surviving spouse shall be eligible for a monthly survivor benefit provided the Participant: |
(a) | was married and eligible to retire on the date of death under early or normal retirement provisions of the Qualified Retirement Plan or |
(b) | had been married for at least one year prior to death and was on Total and Permanent Disability as provided in the Qualified Retirement Plan or |
(c) | was married for at least one year prior to death and Participant had elected the Contemporary Pension Option and was vested under the Qualified Retirement Plan or |
(d) | was married for at least one year prior to death and the Participant elected the Traditional Pension Option and had three years or more of service as an Officer. The benefit will be reduced 1 / 3 % of 1% for each month the Officer would have been under age 60 at the date this surviving spouse benefit commences. |
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: |
(a) | the Participant is eligible for a retirement benefit under this Plan and |
(b) | the Participant had not received the lump sum payment provided under Section 3.5 of this Plan and |
(c) | the surviving spouse and Participant were either: |
(1) | continuously married before the Participants early or normal retirement or |
15
(2) | the Participant had elected a surviving spouse benefit under section 6.4 below. |
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: |
(1) | The Participant was not married at retirement and has subsequently married, or |
(2) | The Participant has had a Survivor Benefit provision in effect and has remarried, and |
(3) | The Participant had not received a lump sum payment provided in Section 3.5 of this Plan. |
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
Section 7. Financing of Benefits
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 of employment 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. |
18
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 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 . The Company may withhold from any payment of benefits hereunder any taxes required to be withheld and such sum as the Company may reasonably estimate to be necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment. |
19
EXHIBIT I
TITLES AS OF 1 NOVEMBER 1996 |
OFFICER SINCE |
|||
Hans W. Becherer |
Chairman & COO & CEO |
26 Apr 1977 |
||
Bernard L. Hardiek |
President, Worldwide Ag. Equipment Division |
26 Aug 1987 (Retired) |
||
Ferdinand F. Korndorf |
President, Worldwide Commercial & Consumer Equipment Division |
23 Sep 1991 |
||
John K. Lawson |
Sr. VP, Engineering, Information & Technology |
27 Feb 1985 |
||
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 |
||
Michael S. Plunkett |
Sr., VP, Engineering, Technology & HR |
29 Jan 1980 (Retired) |
||
Frank S. Cottrell |
VP, General Counsel & Corporate Secretary |
26 Aug 1987 |
||
Robert W. Lane |
Sr. VP & CFO |
16 Jan 1996 |
||
John S. Gault |
former VP, Engr., Info, & Tech. GM, Harvester |
01 Jan 1994 |
||
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) |
20
EXHIBIT I (continued)
TITLES AS OF 1 NOVEMBER 1996 |
OFFICER SINCE |
|||
Adel A. Zakaria |
Sr. VP, Worldwide Ag Engr. & Mfg. |
01 Apr 1992 |
||
James D. White |
Sr. VP, Manufacturing |
26 Aug 1987 |
||
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 |
||
Richard J. VanBell |
President John Deere Health Care |
16 Jan 1994 (Retired) |
21
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands of dollars)
Year Ended October 31
|
||||||||||||||||
2003
|
2002
|
2001
|
2000
|
1999
|
||||||||||||
Earnings: |
||||||||||||||||
Income of consolidated group before income taxes and changes in accounting |
$ | 971,277 | $ | 602,705 | $ | (24,757 | ) | $ | 777,507 | $ | 365,135 | |||||
Dividends received from less than fifty percent owned affiliates |
3,151 | 2,236 | 1,675 | 3,065 | 5,734 | |||||||||||
Fixed charges excluding capitalized interest |
643,511 | 659,263 | 787,737 | 693,626 | 571,949 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Total earnings |
$ | 1,617,939 | $ | 1,264,204 | $ | 764,655 | $ | 1,474,198 | $ | 942,818 | ||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Fixed charges: |
||||||||||||||||
Interest expense of consolidated group including capitalized interest |
$ | 628,647 | $ | 637,571 | $ | 766,254 | $ | 677,424 | $ | 557,740 | ||||||
Portion of rental charges deemed to be interest |
15,044 | 22,145 | 22,030 | 17,122 | 15,347 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Total fixed charges |
$ | 643,691 | $ | 659,716 | $ | 788,284 | $ | 694,546 | $ | 573,087 | ||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
Ratio of earnings to fixed charges* |
2.51 | 1.92 | ** | 2.12 | 1.65 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
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 less than fifty percent owned affiliates. Earnings consist of income before income taxes, changes in accounting 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. |
** | For the year ended October 31, 2001, earnings available for fixed charges coverage were $24 million less than the amount required for a ratio of earnings to fixed charges of 1.0. |
EXHIBIT 21
DEERE & COMPANY
SUBSIDIARIES OF THE REGISTRANT
As of October 31, 2003
Subsidiary companies of Deere & Company are listed below. Except where otherwise indicated, 100 percent of the voting securities of the companies named is owned directly or indirectly by Deere & Company.
Name of subsidiary |
Organized
under the laws of |
|
Subsidiaries included in consolidated financial statements * |
||
John Deere Construction & Forestry Company |
Delaware | |
John Deere Agricultural Holdings, Inc. |
Delaware | |
John Deere Construction Holdings, Inc. |
Delaware | |
John Deere Lawn and Grounds Care Holdings, Inc. |
Delaware | |
John Deere Commercial Worksite Products, Inc. |
Tennessee | |
John Deere Limited |
Canada | |
John Deere - Lanz Verwaltungs A.G. (99.9% owned) |
Germany | |
John Deere S.A.S. |
France | |
John Deere Iberica S.A. |
Spain | |
John Deere Intercontinental GmbH |
Germany | |
John Deere Central Services GmbH |
Germany | |
John Deere International GmbH |
Switzerland | |
Chamberlain Holdings Limited |
Australia | |
John Deere Limited Australia |
Australia | |
Industrias John Deere Argentina S.A. |
Argentina | |
John Deere Foreign Sales Corporation Limited |
Jamaica | |
John Deere Credit Company |
Delaware | |
John Deere Capital Corporation |
Delaware | |
John Deere Credit Inc. |
Canada | |
John Deere Receivables, Inc. |
Nevada | |
John Deere Funding Corporation |
Nevada | |
Deere Receivables Corporation |
Nevada | |
Deere Credit, Inc. |
Delaware | |
Deere Credit Services, Inc. |
Delaware | |
Farm Plan Corporation |
Delaware | |
Arrendadora John Deere S.A. de C.V. (99.9% owned) |
Mexico | |
John Deere Credit Limited (Australia) |
Australia | |
John Deere Health Care, Inc. |
Delaware | |
John Deere Health Plan, Inc. |
Illinois | |
Funk Manufacturing Company |
Delaware | |
Cameco Industries, Inc. |
Louisiana | |
Sprayfab, LLC |
Louisiana | |
John Deere Brasil Participacoes LTDA (99.9% owned) |
Brazil | |
John Deere Distribuidora De Titulos e Valores |
Brazil | |
John Deere Ltd. Scotland (E. Kilbride) |
England | |
John Deere Consumer Products, Inc. |
Delaware | |
John Deere S.A. de C.V. |
Mexico | |
Industrias John Deere, S.A. de C.V. |
Mexico | |
Motores John Deere S.A. de C.V. |
Mexico | |
John Deere Torreon S.A. de C.V. |
Mexico | |
John Deere Mexico S.A. de C.V. |
Mexico |
One hundred and nine consolidated subsidiaries and thirty-nine unconsolidated affiliates whose names are omitted, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary.
EXHIBIT 23
[Letterhead] | ||
Deloitte & Touche LLP |
||
Two Prudential Plaza |
||
180 North Stetson Avenue |
||
Chicago, Illinois 60601 |
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 2-62630, 2-76637, 2-90384, 33-15949, 33-17990, 33-24397, 33-44294, 33-49740, 33-49742, 33-49762, 33-55551, 33-55549, 33-57897, 333-01477, 333-62665, 333-62669, 333-46790, and 333-103757 of Deere & Company on Form S-8 and in Registration Statement No. 333-92134 of Deere & Company on Form S-3 of our report dated December 16, 2003 (which report on the consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph related to a change in the method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets , effective November 1, 2002), appearing in the Annual Report on Form 10-K of Deere & Company for the year ended October 31, 2003, and to the reference to us under the heading Experts in the Prospectuses, which are part of such Registration Statements.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 19, 2003
Exhibit 31.1
CERTIFICATIONS
I, R. W. Lane, certify that:
1. | I have reviewed this annual report on Form 10-K 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)) 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) 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
(c) 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: |
December 22, 2003 |
By: |
/s/ R. W. Lane |
|||
R. W. Lane |
||||||
Principal Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Nathan J. Jones, certify that:
1. | I have reviewed this annual report on Form 10-K 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)) 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) 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
(c) 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: |
December 22, 2003 |
By: |
/s/ Nathan J. Jones |
|||
Nathan J. Jones |
||||||
Principal Financial Officer |
EXHIBIT 32
STATEMENT PURSUANT TO
18 U.S.C. SECTION 1350
AS REQUIRED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Deere & Company (the Company) on Form 10-K for the fiscal year ending October 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned hereby certify that to the best of our knowledge:
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. |
December 22, 2003 |
/s/ R. W. Lane |
Chairman, President and Chief Executive Officer |
||
R. W. Lane |
||||
December 22, 2003 |
/s/ Nathan J. Jones |
Senior Vice President and Chief Financial Officer |
||
Nathan J. Jones |
A signed original of this written statement required by Section 906 has been provided to Deere & Company and will be retained by Deere & Company and furnished to the Securities and Exchange Commission or its staff upon request.