<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K 405
--------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
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.)
JOHN DEERE ROAD, 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
Common stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
Frankfurt, Germany Stock Exchange
5-1/2% Convertible Subordinated
Debentures Due 2001 New York Stock Exchange
8-1/4% Notes Due 1996 New York Stock Exchange
9-1/8% Notes Due 1996 New York Stock Exchange
8.95% Debentures Due 2019 New York Stock Exchange
8-1/2% Debentures Due 2022 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 registrant's 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. [X]
The aggregate quoted market price of voting stock of registrant held by
nonaffiliates at December 31, 1995 was $9,218,374,986. At December 31, 1995,
262,301,214 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 28, 1996
are incorporated by reference in Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Page 1 of 69 pages.
Index to exhibits is on pages 50-52.
<PAGE>
PART I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS.
PRODUCTS
Deere & Company (Company) and its subsidiaries (collectively called John Deere)
have operations which are categorized into six business segments.
The Company's worldwide AGRICULTURAL EQUIPMENT segment manufactures and
distributes a full range of equipment used in commercial farming --
including tractors; tillage, soil preparation, planting and harvesting
machinery; sprayers; crop handling equipment; and precision farming
devices.
The Company's worldwide INDUSTRIAL EQUIPMENT segment manufactures and
distributes a broad range of machines used in construction, earthmoving and
forestry -- including backhoe loaders; crawler dozers and loaders;
four-wheel-drive loaders; scrapers; motor graders; excavators; and log
skidders. This segment also includes the manufacture and distribution of
engines and drivetrain components for the original equipment manufacturer
(OEM) market.
The Company's worldwide LAWN AND GROUNDS CARE EQUIPMENT segment
manufactures and distributes equipment for commercial and residential uses
-- including small tractors for lawn, garden and utility purposes; riding
and walk-behind mowers; golf course equipment; utility transport vehicles;
snowblowers; hand-held products such as chain saws, string trimmers and
leaf blowers; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and other retail outlets.
The Company's CREDIT segment, which operates in the United States and
Canada, primarily finances and services: retail notes related to sales by
John Deere dealers of new and used equipment; retail notes related to sales
by non-Deere dealers of recreational vehicle and recreational marine
products; leases of John Deere equipment to retail customers; unsecured
revolving charge accounts acquired from merchants; and wholesale notes from
certain dealers of the foregoing equipment.
The Company's INSURANCE segment issues policies in the United States and
Canada primarily for general and specialized lines of property and casualty
insurance to the general public; group accident and health insurance for
employees of participating John Deere dealers and disability insurance for
employees of John Deere.
The Company's HEALTH CARE segment provides health management programs and
related administrative services in the United States to corporate customers
as well as employees of John Deere.
1
<PAGE>
The Company's worldwide agricultural, industrial and lawn and grounds care
equipment operations and subsidiaries are sometimes referred to as the
"Equipment Operations." The Company's credit, insurance and health care
subsidiaries are sometimes referred to as "Financial Services."
The Company believes that its worldwide sales of agricultural equipment during
recent years have been greater than those of any other business enterprise. It
also believes that John Deere is an important provider of most of the types of
industrial equipment that it markets, and a leader in some size ranges. The
Company also believes it is the largest manufacturer of lawn and garden tractors
and provides the broadest line of grounds care equipment in North America. The
John Deere enterprise has manufactured agricultural machinery since 1837. The
present Company was incorporated under the laws of Delaware in 1958.
MARKET CONDITIONS AND OUTLOOK
Market demand for John Deere products remains very strong. Increased overseas
and domestic demand for agricultural commodities, coupled with lower than
anticipated harvest yields, have resulted in substantial increases in commodity
prices. Additionally, the United States Department of Agriculture (USDA) is
currently forecasting world grain stocks to be at the lowest levels, relative to
use, since it began keeping systematic records. The low commodity inventories,
expected increases in worldwide grain demand and the anticipated resulting
strong worldwide commodity price levels should bolster farmers' confidence and
result in continued strong demand for new and used agricultural equipment.
Additionally, government acreage set-asides should be lower in 1996 in response
to the reduction in world grain stocks which should further promote agricultural
demand. Therefore, the Company expects agricultural equipment industry retail
sales to increase again in 1996, despite some uncertainty surrounding the new
farm bill.
Nonresidential and public construction expenditures in 1996 are anticipated to
show moderate growth. Housing starts are projected to increase slightly over
1995 levels in response to lower mortgage rates now forecasted for 1996.
Consumer spending is expected to remain at relatively strong levels throughout
most of 1996. Additionally, the Company's lawn and grounds care equipment
demand should also increase as a result of the introduction of a new product
line, "Sabre by John Deere", which includes entry-level lawn tractors and walk-
behind mowers. As a result of the many factors cited, industry retail sales for
industrial and lawn and grounds care products are expected to increase in 1996
compared with 1995. Financial Services revenues should reflect this continued
strong demand for John Deere products.
Based on initial 1996 production schedules, the Company's worldwide physical
volume of sales to dealers in 1996 is expected to increase by four percent
compared with 1995, with first quarter volumes anticipated to be approximately
12 percent higher than the first quarter of 1995. Additionally, expenditures
targeted at establishing markets for new and existing products in both domestic
and overseas regions are expected to increase substantially in 1996. However,
the expected volume increases will more than offset the short-term costs
associated with the Company's planned growth initiatives. Therefore, 1996 is
expected to be another strong year.
2
<PAGE>
1995 COMPARED WITH 1994 CONSOLIDATED RESULTS (UNAUDITED)
Deere & Company achieved record worldwide net income for 1995, totaling $706
million or $2.71 per share compared with last year's income of $604 million or
$2.34 per share on a post-split basis. The Company's strong results for 1995
were due to higher production and sales levels, coupled with significantly
improved overseas and industrial equipment division results. Additionally, the
Company's exports from the United States set a new record, totaling $1,314
million. Company results also continued to benefit from the strong performance
of its Financial Services subsidiaries. All per share information reflects a
three-for-one stock split effective November 17, 1995 (see "Capital Stock" note
on page 41).
The Company's annual sales and revenues exceeded $10 billion for the first time
in the Company's history, due to continued growth in demand for the Company's
products and services. Worldwide net sales and revenues increased 15 percent to
$10,291 million in 1995 compared with $8,977 million in 1994. Net sales of the
Equipment Operations increased 15 percent in 1995 to $8,830 million from $7,663
million last year. The physical volume of sales increased by 11 percent
compared with a year ago.
Finance and interest income increased 20 percent to $660 million in 1995
compared with $548 million last year, while insurance and health care premiums
increased three percent to $628 million in the current year compared with $609
million in 1994.
The Company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
net income of $529 million in 1995 compared with $433 million in 1994. The
improved operating results of the Equipment Operations in 1995 were the primary
factor behind the Company's record profitability. The benefits from the higher
production and sales volumes were partially offset by the impact of management's
planned initiatives to reduce service parts inventory and used goods
receivables. Service parts production was lower and used goods sales incentive
expenses increased compared to last year as a result of the initiatives. The
worldwide ratio of cost of goods sold to net sales was 78.6 percent in 1995
compared with 78.7 percent last year.
Net income of the Company's Financial Services operations remained strong
totaling $167 million in 1995 compared with $161 million in 1994. Additional
information is presented in the discussion of credit, insurance and health care
operations on pages 27 through 29.
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 government payments. Sales are also
influenced by general economic conditions, levels of 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. Reduced tillage
practices have been adopted by many farmers to control soil erosion and lower
production costs. John Deere
3
<PAGE>
has responded to this shift by delivering leading edge planters, drills and
tilling equipment. Additionally, the Company has developed a precision farming
approach to planting and harvesting. The application of this advanced
technology should substantially improve annual planting and harvesting results,
while better maintaining soil and environmental conditions.
Large, cost-efficient, highly-mechanized agricultural operations account for an
important share of total United States 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 and self-propelled cotton pickers.
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
months 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, and to finance sales to dealers in advance of seasonal demand.
The Equipment Operations often encourage early retail sales decisions for both
new and used equipment, by waiving retail finance charges or offering low-rate
financing, during off-season periods and in early order promotions.
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 marketing methods.
Because of industry conditions, especially consolidation among large integrated
competitors, the competitive environment is undergoing important changes, and
the importance of short-line and specialty manufacturers may continue to
increase in the future.
In addition to the agricultural equipment manufactured by the Equipment
Operations, a number of products are purchased from other manufacturers for
resale by John Deere outside the U.S. and Canada, including eight models of
tractors sourced from a Czech manufacturer and one sourced from a French
manufacturer built around a John Deere engine.
INDUSTRIAL EQUIPMENT
The industrial equipment industry is broadly defined as including construction,
earthmoving and forestry equipment, as well as some materials handling
equipment, cranes, off-highway trucks and a variety of machines for specialized
industrial applications, including uses in the mining industry. The Equipment
Operations provide types and sizes of equipment that compete for approximately
two-thirds of the estimated total United States market for all types and sizes
of industrial equipment (other than the market for cranes and specialized mining
equipment). Retail sales of John Deere industrial equipment are influenced by
prevailing levels of residential, industrial and public construction and the
condition of the forest products industry. Sales are also influenced by general
economic conditions and the level of interest rates.
4
<PAGE>
John Deere industrial equipment falls into three broad categories: utility
tractors and smaller earthmoving equipment, medium capacity construction and
earthmoving equipment, and forestry machines. The Equipment Operations'
industrial equipment business began in the late 1940s with wheel and crawler
tractors of a size and horsepower range similar to agricultural tractors,
utilizing common components. Through the years, the Equipment Operations
substantially increased production capacity for industrial equipment, adding to
the line larger machines such as crawler loaders and dozers, log skidders, motor
graders, hydraulic excavators and four-wheel-drive loaders. These products
incorporate technology and many major components similar to those used in
agricultural equipment, including diesel engines, transmissions and
sophisticated hydraulics and electronics. In addition to the industrial
equipment manufactured by the Equipment Operations, certain products are
purchased from other manufacturers for resale by John Deere.
The Company and Hitachi Construction Machinery Co., Inc. of Japan ("Hitachi")
have a joint venture for the manufacture of hydraulic excavators in the United
States and for the distribution of excavators primarily in North, Central and
South America. The Company also has supply agreements with Hitachi under which
a broad range of industrial products manufactured by the Company in the United
States, including four-wheel-drive loaders, are distributed by Hitachi in Japan
and other Far East markets. In addition, Hitachi is manufacturing certain
models of four-wheel-drive loaders for distribution by John Deere primarily in
North, Central and South America.
The Company has recently reached an agreement with a Chinese partner and Hitachi
to establish a joint venture in China for the manufacture, distribution and
servicing of wheel loaders. The division has also taken a number of initiatives
in the rental equipment market for industrial machinery including specially
designed rental programs for Deere dealers, expanded cooperation with major
national equipment rental companies, such as Hertz, and direct participation in
the rental market. During the first quarter of 1996, the Company agreed to
acquire a minority ownership interest in Sunstate Equipment Corp., a regional
rental company based in Phoenix, Arizona.
The Equipment Operations manufacture and distribute diesel engines and
drivetrain components both for use in John Deere products and for sale to other
original equipment manufacturers.
LAWN AND GROUNDS CARE EQUIPMENT
The line of John Deere lawn and grounds care equipment includes rear-engine
riding mowers, front-engine lawn tractors, lawn and garden tractors, small
diesel tractors, compact utility tractors, front mowers, small utility transport
vehicles, hand held products such as chain saws, string trimmers and leaf
blowers, and 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. The product line also includes walk-behind
mowers, snow throwers and other outdoor power products. Retail sales of lawn
and grounds care products are influenced by weather conditions, consumer
spending patterns and general economic conditions.
In 1995, the division introduced a new line of entry-level lawn tractors and
walk-behind mowers under the name "Sabre by John Deere" in North America and
under the name "Europro" in
5
<PAGE>
Europe. The division also sells consumer products under the Homelite and Green
Machine brand names.
In addition to the lawn and grounds care equipment manufactured by the lawn and
grounds care division, certain products are purchased from other manufacturers
for resale by John Deere, including five models of compact utility tractors
sourced from a Japanese manufacturer.
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 $327 million, or 3.7 percent of net sales of equipment in
1995, and $276 million in 1994.
MANUFACTURING
MANUFACTURING PLANTS. In the United States and Canada, the Equipment Operations
own and operate 18 factory locations, which contain approximately 29.7 million
square feet of floor space. Six of the factories are devoted primarily to the
manufacture of agricultural equipment, two to industrial equipment, one to
engines, one to hydraulics and power train components, one to gray iron and
nodular castings, six to lawn and grounds care equipment, and one to power train
components manufactured mostly for OEM markets. The Equipment Operations own
and operate tractor factories in Germany and Argentina; agricultural equipment
factories in France, Germany and South Africa; an engine factory in France; a
component factory in Spain; and two lawn and grounds care facilities in Germany
and the Netherlands. These overseas factories contain approximately 6.1 million
square feet of floor space. The Equipment Operations also have financial
interests in a combine and tractor manufacturer in Brazil, in a tractor and
implement manufacturer in Mexico and in a joint venture which builds industrial
excavators in the United States.
John Deere's facilities are well maintained, in good operating condition and are
suitable for their present purposes. These facilities, together with planned
capital expenditures, are expected to meet John Deere's manufacturing needs in
the foreseeable future.
The Equipment Operations manufacture many of the components included in their
products. The principal raw materials required for the manufacture of products
are purchased from numerous suppliers. Although the Equipment Operations depend
upon outside sources of supply for a substantial number of components,
manufacturing operations are extensively integrated. Similar or common
manufacturing facilities and techniques are employed in the production of
components for industrial, agricultural and lawn and grounds care equipment.
The physical volume of sales in 1995 was 11 percent higher than in 1994.
Although demand for certain key products is nearing production capacity, in
general, capacity is adequate to satisfy anticipated retail demand. The
Equipment Operations' manufacturing strategy involves the implementation of
appropriate levels of technology and automation, so that manufacturing processes
can remain viable at varying production levels and can be flexible enough to
accommodate many of the product design changes required to meet market
requirements.
6
<PAGE>
In order to utilize manufacturing facilities and technology more effectively,
the Equipment Operations continue to pursue improvements in manufacturing
processes. Manufacturing activities judged not competitively advantageous for
the Equipment Operations on a long-term basis are being shifted to outside
suppliers, while many of those manufacturing activities that do offer long-term
competitive advantages are being restructured. Improvements include the
creation of flow-through manufacturing cells which reduce costs and inventories,
increase quality and require less space, and the establishment of flexible
assembly lines which can handle a wider range of product mix and deliver
products at the times when dealers and customers demand them. Additionally,
considerable effort is being directed to manufacturing cost reduction through
product design, the introduction of advanced manufacturing technology and
improvements in compensation incentives related to productivity and
organizational structure. The Equipment Operations are also pursuing the sale
to other companies of selected parts and components which can be manufactured
and supplied to third parties on a competitive basis.
CAPITAL EXPENDITURES. The Equipment Operations' capital expenditures were $245
million in 1995 compared with $217 million in 1994 and $196 million in 1993.
Provisions for depreciation applicable to the Equipment Operations' property,
plant and equipment during these years were $243 million, $226 million and $222
million, respectively. The Equipment Operations' capital expenditures for 1996
are currently estimated to approximate $270 million. The 1996 expenditures will
be associated with new product and operations improvement programs.
Additionally, 1996 expenditures may increase further as a result of ongoing
studies related to the manufacture and marketing of products in new markets such
as Mexico, India, China, Brazil and the former Soviet Union. Recommendations
from these studies will be made during 1996 and may lead to additional
expenditures. Future levels of capital expenditures will depend on business
conditions as well as the results of these studies.
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 group of them (other than its house trademarks) is of material
importance in relation to John Deere's business.
MARKETING
In the United States and Canada, the Equipment Operations, excluding Homelite,
Green Machine and Sabre, distribute equipment and service parts through six
agricultural equipment sales branches, one industrial equipment sales and
administration office and one lawn and grounds care equipment sales and
administration office (collectively called sales branches). 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 are finalizing 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 to
approximately 3,090 retail dealers, all of which are independently owned except
for one retail store owned and operated by the Company. Of these dealers,
approximately 1,350 sell agricultural equipment, 405 sell industrial equipment,
and 15 sell both agricultural and industrial equipment. Smaller
7
<PAGE>
industrial equipment is sold by nearly all of the industrial equipment dealers
and larger industrial equipment, forestry equipment and a line of light
industrial equipment are sold by most of these dealers. Lawn and grounds care
equipment is sold by most John Deere agricultural equipment dealers, a few
industrial equipment dealers, and about 1,320 lawn and grounds care equipment
dealers, many of whom also handle competitive brands and dissimilar lines of
products. In addition, the Sabre, Homelite and Green Machine product lines are
sold through independent dealers and various general and mass merchandisers.
Outside North America, John Deere agricultural equipment is sold to distributors
and dealers for resale in over 110 countries by sales branches located in five
European countries, South Africa, Argentina and Australia, by export sales
branches in Europe and the United States, and by associated companies in Mexico
and Brazil. Lawn and grounds care equipment sales overseas occur primarily in
Europe and Australia. Outside North America, industrial equipment is sold
primarily by an export sales branch located in the United States.
WHOLESALE FINANCING
The Equipment Operations provide wholesale financing to dealers in the United
States for extended periods, to enable dealers to carry representative
inventories of equipment and to encourage the purchase of goods by dealers in
advance of seasonal retail demand. Down payments are not required, and interest
is not charged for a substantial part of the period for which the inventories
are financed. A security interest is retained in dealers' inventories, and
periodic physical checks are made of dealers' inventories. Generally, terms to
dealers require payments as the equipment which secures the indebtedness is sold
to retail customers. Variable market rates of interest are charged on balances
outstanding after certain interest-free periods, which currently are 6 to 9
months for agricultural tractors, 1 to 5 months for industrial equipment, and
from 5 to 24 months for most other equipment. Financing is also provided to
dealers on used equipment accepted in trade, on repossessed equipment, and on
approved equipment from other manufacturers. A security interest is obtained in
such equipment. Equipment dealer defaults incurred in recent years by John
Deere have not been significant.
In Canada, John Deere products (other than service parts and lawn and grounds
care equipment) in the possession of dealers are inventories of the Equipment
Operations that are consigned to the dealers. Dealers are required to make
deposits on consigned equipment remaining unsold after specified periods.
Sales to overseas dealers are made by the Equipment Operations' overseas and
export sales branches and are, for the most part, financed by John Deere in a
manner similar to that provided for sales to dealers in the United States and
Canada, although maturities tend to be shorter and a security interest is not
always retained in the equipment sold.
Receivables from dealers, which largely represent dealer inventories, were $3.3
billion at October 31, 1995 compared with $2.9 billion at October 31, 1994 and
$2.8 billion at October 31, 1993. At those dates, the ratios of worldwide net
dealer receivables to fiscal year net sales, were 37 percent, 38 percent and 43
percent, respectively. The highest month-end balance of such receivables during
each of the past two fiscal years was $3.6 billion at April 30, 1995 and $3.2
billion at April 30, 1994.
8
<PAGE>
FINANCIAL SERVICES
CREDIT OPERATIONS
UNITED STATES AND CANADA. In the United States and Canada, the Company's credit
subsidiaries provide and administer financing for retail purchases of new and
used John Deere agricultural, industrial and lawn and grounds care equipment.
The Company's credit subsidiaries in the United States and Canada include John
Deere Capital Corporation (Capital Corporation) and its subsidiaries (Deere
Credit, Inc., Farm Plan Corporation, Deere Credit Services, Inc. and John Deere
Receivables, Inc.), John Deere Finance Limited and Canadian Equipment Finance
Corporation (collectively referred to as the Credit Companies). Deere & Company
and John Deere Industrial Equipment Company are referred to as the "sales
companies." The Capital Corporation 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 Finance Limited purchases and finances retail notes through
John Deere's equipment sales branches in Canada. The terms of retail notes and
the basis on which the credit subsidiaries acquire retail notes from the sales
companies are governed by agreements with the sales companies. A subsidiary of
the Capital Corporation leases John Deere agricultural, industrial and lawn and
grounds care equipment to United States retail customers.
The credit subsidiaries also purchase and finance retail notes unrelated to John
Deere, representing primarily recreational vehicle and recreational marine
product notes acquired from independent dealers of those products and from
marine product mortgage service companies. The United States credit
subsidiaries also finance and service unsecured revolving charge accounts
through merchants in the agricultural, lawn and grounds care and marine retail
markets and, additionally, provide wholesale financing for wholesale inventories
of recreational vehicles, manufactured housing units, yachts, John Deere engine
inventories and John Deere industrial equipment owned by dealers of those
products. The credit subsidiaries intend to continue to seek additional volumes
and types of non-Deere financing with the objective of broadening their base of
business.
Retail notes acquired by the sales companies have been immediately sold to the
Credit Companies. The Equipment Operations have been the Credit Companies'
major source of business, but in some cases, retail purchasers of John Deere
products finance their purchases outside the John Deere organization.
The Credit Companies' terms for financing equipment retail sales (other than
smaller items purchased through 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 and industrial equipment, 10 percent on lawn and grounds care
equipment used for personal use and 15 percent for recreational vehicles and
marine products. Finance charges are sometimes waived for specified periods or
reduced on certain products sold or leased in advance of the season of use or in
other sales promotions. The Credit Companies generally receive compensation
from the Equipment Operations equal to a competitive interest rate for periods
during which finance charges are waived or reduced on the retail notes
9
<PAGE>
or leases. The cost is accounted for as a deduction in arriving at net sales by
the Equipment Operations.
Retail leases are offered to equipment users in the United States by Deere
Credit, Inc. A small number of leases are executed between Deere Credit, Inc.
and units of local government. Leases are usually written for periods of one to
six years, and in some cases 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 a Canadian
subsidiary.
The Company has expressed an intention of conducting its business with the
Capital Corporation on such terms that the Capital Corporation's consolidated
ratio of earnings to fixed charges for each fiscal quarter will not be less than
1.05 to 1. For 1995, the consolidated ratio of the Capital Corporation was 1.73
to 1. This arrangement is not intended to make the Company responsible for
payment of the obligations of the Capital Corporation. Additional information
on the Credit Companies appears under the caption "Credit Operations" on pages
27 and 28.
OVERSEAS. Retail sales financing outside of the United States and Canada is
affected by a diversity of customs and regulations. The Equipment Operations
retain only a minor part of the obligations arising from retail sales of their
products overseas.
INSURANCE
The Company's insurance subsidiaries consist of John Deere Insurance Group, Inc.
and its subsidiaries in the United States and John Deere Insurance Company of
Canada. The insurance group business focus is on marketing commercial
property/casualty insurance services and coverages to selected market segments.
Marketing efforts are directed through separate business units that specialize
in a particular market segment. The Dealer Operations business unit insures
dealership organizations in the United States with primary focus on agricultural
equipment, industrial equipment and automobile dealerships. The Transportation
business unit insures trucking operations with primary focus on long-haul
trucking firms. The Specialty Managers business unit provides insurance
coverages for niche markets, such as intracoastal ocean marine operations
through contracted underwriting managers. Other specialty insurance business
marketed through the different business units include inland marine programs and
providing insurance on equipment utilized in forestry, construction and
agricultural operations.
In 1995, the Company's insurance subsidiaries agreed to sell their 3.1 million
shares (43.8 percent) of ReCapital Corporation to Zurich Reinsurance Centre
Holdings, Inc. for $57 million. In 1995, the insurance subsidiaries also agreed
to sell their wholly-owned subsidiary, John Deere Life Insurance Company, to
Life Reassurance Corporation of America for $33 million. These sales did not
have a significant effect on the Company's consolidated financial position or
net income for 1995.
For additional financial information on insurance operations, see the material
under the caption "Insurance Operations" on page 28.
10
<PAGE>
HEALTH CARE
In 1985, the Company formed John Deere Health Care, Inc. to commercialize the
Company's expertise in the field of health care, which was developed from
efforts to control its own health care costs. John Deere Health Care, Inc.
currently provides health management programs and related administrative
services, either directly or through its health maintenance organization
subsidiaries, Heritage National Healthplan, Heritage National Healthplan of
Tennessee and John Deere Family Healthplan, for companies located in Illinois,
Iowa, Wisconsin, Kentucky, Tennessee, Virginia and Georgia. At October 31,
1995, approximately 311,000 individuals were enrolled in these programs, of
which approximately 68,300 were John Deere employees, retirees and their
dependents.
For additional financial information on health care operations, see the material
under the caption "Health Care Operations" on pages 28 and 29.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency (EPA) and the State of California have
issued regulations concerning permissible emissions from off-road engines. The
Company does not anticipate that the cost of complying with the regulations will
be material.
The Company has been designated a potentially responsible party (PRP), in
conjunction with other parties, in certain government actions associated with
hazardous waste sites. As a PRP, the Company has been and will be required to
pay a portion of the costs of evaluation and cleanup of these sites. Management
does not expect that these matters will have a material adverse effect on the
consolidated financial position or operating results of the Company.
EMPLOYEES
At October 31, 1995, John Deere had approximately 33,400 employees, including
26,000 employees in the United States and Canada. Unions are certified as
bargaining agents for approximately 44.5 percent of John Deere's United States
employees. Most of the Company's 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, 1997. During 1995, the
Company reached an agreement with the Canadian Auto Workers (CAW) with an
expiration date of September 30, 1998.
The majority of employees at John Deere facilities overseas 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.
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND OFFICE (AT DECEMBER 31, PRINCIPAL OCCUPATION DURING LAST FIVE
1995), AND YEAR ELECTED TO OFFICE YEARS OTHER THAN OFFICE OF THE COMPANY
CURRENTLY HELD
<S> <C>
Hans W. Becherer, 60, Chairman, 1990 1990 and prior, President
David H. Stowe, Jr., 59, President, 1990 1990 and prior, Executive Vice President
Eugene L. Schotanus, 58, Executive Vice President, 1990 1990 and prior, Senior Vice President
Bernard L. Hardiek, 55 Division President, 1995 1994-95 Executive Vice President;
1994 and prior, Senior Vice President
Joseph W. England, 55, Senior Vice President, 1981 -
Michael S. Plunkett, 58, Senior Vice President, 1983 -
John K. Lawson, 55, Division President, 1995 1992-95 Senior Vice President;
1992 and prior, Vice President
Pierre E. Leroy, 47, Senior Vice President, 1994 1994 and prior, Vice President and Treasurer
Ferdinand F. Korndorf, 46, Division President, 1995 1994-95 Senior Vice President;
1991-1994 Vice President,
1990 President of Deere-Hitachi
Frank S. Cottrell, 53, Vice President, Secretary and 1991-1993, Secretary and General Counsel
General Counsel, 1993 1991 and prior, Secretary and Associate
General Counsel
</TABLE>
ITEM 2. PROPERTIES.
See "Manufacturing" in Item 1.
The Equipment Operations also own and operate buildings housing seven sales
branches, one centralized parts depot, five regional parts depots and several
transfer houses and warehouses throughout the United States and Canada. These
facilities contain approximately 4.9 million square feet of floor space. The
Equipment Operations also own and operate buildings housing three sales
branches, one centralized parts depot and three regional parts depots in Europe.
These facilities contain approximately 850,000 square feet of floor space.
Deere & Company administrative offices, offices for insurance and credit,
research facilities and certain facilities for health care activities, all of
which are owned by John Deere, together contain about 1.9 million square feet of
floor space. John Deere also leases space in various locations totaling about
725,000 square feet. John Deere's obligations on these leases are not material.
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 and retail credit 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 position or results of operations.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's 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 Company's common stock and the number of
stockholders in the second table and the third paragraph, and the data on
dividends declared and paid per share in the first table, under the caption
"Supplemental 1995 and 1994 Quarterly Information (Unaudited)" on page 43.
ITEM 6. SELECTED FINANCIAL DATA.
Financial Summary
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
(Millions of dollars except per share amounts)
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
For the Year Ended
October 31:
<S> <C> <C> <C> <C> <C>
Total net sales and revenues $10,291 $ 8,977 $ 7,696 $ 6,930 $ 7,035
Income (loss) before changes
in accounting(1) $ 706 $ 604 $ 184 $ 37 $ (20)
Net income (loss) $ 706 $ 604 $ (921) $ 37 $ (20)
Income (loss) per share before
changes in accounting -
primary and fully
diluted(1)(2) $ 2.71 $ 2.34 $ .80 $ .16 $ (.09)
Net income (loss) per share -
primary and fully diluted(2) $ 2.71 $ 2.34 $ (3.97) $ .16 $ (.09)
Dividends declared per share(2 $ .75 $.68-1/3 $ .66-2/3 $ .66-2/3 $ .66-2/3
At October 31:
Total assets $13,847 $12,781 $11,467 $ 11,446 $ 11,649
Long-term borrowings $ 2,176 $ 2,054 $ 2,548 $ 2,473 $ 2,206
(1) See description of accounting changes on page 31.
(2) Adjusted for a three-for-one stock split effective November 17, 1995.
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See the information under the caption "Management's Discussion and
Analysis" on pages 24 - 30.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the consolidated financial statements and notes thereto and
supplementary data on pages 18 - 43 .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors in the proxy statement dated
January 13, 1996 (the "proxy statement"), under the captions "Election
of Directors" and "Directors Continuing in Office", 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".
ITEM 11. EXECUTIVE COMPENSATION.
The information in the proxy statement under the captions "Option/SAR
Grants in Last Fiscal Year", "Summary Compensation Table" and
"Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-
End Option/SAR Values" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The information on the security ownership of a certain beneficial
owner contained in the proxy statement under the caption
"Principal Holders of Voting Securities" is incorporated by
reference.
14
<PAGE>
(b) SECURITY OWNERSHIP OF MANAGEMENT.
The information on shares of common stock of the Company
beneficially owned by, and under option to (i) each director and
(ii) the directors and officers as a group, contained in the
proxy statement under the captions "Election of Directors",
"Directors Continuing in Office" and "Aggregate Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
Values" is incorporated herein by reference.
(c) CHANGE IN CONTROL.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS PAGE
Statement of Consolidated Income for the years ended October 31, 1995,
1994 and 1993 18
Consolidated Balance Sheet, October 31, 1995 and 1994 20
Statement of Consolidated Cash Flows for the years ended
October 31, 1995, 1994 and 1993 22
Notes to Consolidated Financial Statements 31
(a)(2) SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule II - Valuation and Qualifying Accounts for the years ended
October 31, 1995, 1994 and 1993 48
(a)(3) EXHIBITS
15
<PAGE>
SEE THE "INDEX TO EXHIBITS" ON PAGES 50-52 OF THIS REPORT.
Certain instruments relating to long-term borrowings, constituting less than 10%
of registrant's 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.
Current report on Form 8-K dated August 31, 1995 (Item 5).
Current report on Form 8-K dated August 17, 1995 (Item 7).
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.
16
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
17
<PAGE>
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED
(DEERE & COMPANY AND
CONSOLIDATED SUBSIDIARIES)
- -----------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Net sales of equipment . . . . . . . . . . . . . . . . . . . . . . . . . $8,830.2 $7,663.1 $6,479.3
Finance and interest income. . . . . . . . . . . . . . . . . . . . . . . 660.4 547.8 562.8
Insurance and health care premiums . . . . . . . . . . . . . . . . . . . 627.6 609.4 496.7
Investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95.4 93.9 97.5
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76.9 62.9 59.7
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,290.5 8,977.1 7,696.0
-------- -------- --------
- --------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,922.1 6,019.6 5,368.9
Research and development expenses. . . . . . . . . . . . . . . . . . . . 327.4 275.7 269.8
Selling, administrative and general expenses . . . . . . . . . . . . . . 1,001.4 907.6 844.1
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392.4 303.0 369.1
Insurance and health care claims and benefits. . . . . . . . . . . . . . 499.2 512.5 427.5
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 55.3 37.8 37.1
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . 107.2
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,197.8 8,056.2 7,423.7
-------- -------- --------
- --------------------------------------------------------------------------------------------------------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES
AND CHANGES IN ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . 1,092.7 920.9 272.3
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . 397.8 332.2 97.2
-------- -------- --------
INCOME OF CONSOLIDATED GROUP BEFORE CHANGES IN ACCOUNTING. . . . . . . . 694.9 588.7 175.1
-------- -------- --------
- --------------------------------------------------------------------------------------------------------
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
BEFORE CHANGES IN ACCOUNTING
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 4.9 2.2
Health care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 10.0 7.1
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 14.9 9.3
-------- -------- --------
- --------------------------------------------------------------------------------------------------------
INCOME BEFORE CHANGES IN ACCOUNTING. . . . . . . . . . . . . . . . . . . 706.1 603.6 184.4
Changes in accounting. . . . . . . . . . . . . . . . . . . . . . . . . . (1,105.3)
-------- -------- --------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 706.1 $ 603.6 $ (920.9)
-------- -------- --------
-------- -------- --------
- --------------------------------------------------------------------------------------------------------
PER SHARE DATA*
Primary and fully diluted:
Income before changes in accounting. . . . . . . . . . . . . . . . . . $ 2.71 $ 2.34 $ .80
Changes in accounting. . . . . . . . . . . . . . . . . . . . . . . . . (4.77)
-------- -------- --------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.71 $ 2.34 $ (3.97)
-------- -------- --------
-------- -------- --------
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .75 $ .68 1/3 $ .66 2/3
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(DEERE & COMPANY WITH FINANCIAL
SERVICES ON THE EQUITY BASIS)
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31 YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES AND REVENUES
Net sales of equipment . . . . . . . . . . . . . . . . . . . . . . . . $8,830.2 $7,663.1 $6,479.3
Finance and interest income. . . . . . . . . . . . . . . . . . . . . . 105.3 81.3 84.0 $ 561.2 $ 471.9 $ 482.4
Insurance and health care premiums . . . . . . . . . . . . . . . . . . 674.6 648.3 540.4
Investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . 95.4 93.9 97.6
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.4 24.0 23.3 52.0 43.7 42.0
-------- -------- -------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,963.9 7,768.4 6,586.6 1,383.2 1,257.8 1,162.4
-------- -------- -------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . 6,943.8 6,032.6 5,381.1
Research and development expenses. . . . . . . . . . . . . . . . . . . 327.4 275.7 269.8
Selling, administrative and general expenses . . . . . . . . . . . . . 707.7 638.3 602.8 305.9 282.9 255.5
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.7 117.1 180.3 271.7 191.3 192.5
Insurance and health care claims and benefits. . . . . . . . . . . . . 515.6 529.6 450.3
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . 25.5 17.0 18.0 30.0 20.8 19.2
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . 107.2
-------- -------- -------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,131.1 7,080.7 6,559.2 1,123.2 1,024.6 917.5
-------- -------- -------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES
AND CHANGES IN ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . 832.8 687.7 27.4 260.0 233.2 244.9
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . 303.8 254.7 14.4 94.1 77.5 82.8
-------- -------- -------- ------- ------- -------
INCOME OF CONSOLIDATED GROUP BEFORE CHANGES IN ACCOUNTING. . . . . . . 529.0 433.0 13.0 165.9 155.7 162.1
-------- -------- -------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY IN INCOME OF UNCONSOLIDATED SUBSIDIARIES AND AFFILIATES
BEFORE CHANGES IN ACCOUNTING
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120.9 113.7 122.2
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.4 31.2 31.1 .7 4.9 2.2
Health care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.3 15.7 11.0
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 10.0 7.1
-------- -------- -------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177.1 170.6 171.4 .7 4.9 2.2
-------- -------- -------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CHANGES IN ACCOUNTING. . . . . . . . . . . . . . . . . . 706.1 603.6 184.4 166.6 160.6 164.3
Changes in accounting. . . . . . . . . . . . . . . . . . . . . . . . . (1,105.3) (6.9)
-------- -------- -------- ------- ------- -------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 706.1 $ 603.6 $ (920.9) $ 166.6 $ 160.6 $ 157.4
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA*
Primary and fully diluted:
Income before changes in accounting. . . . . . . . . . . . . . . . .
Changes in accounting. . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . .
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The consolidated group data in the "Equipment Operations" income
statement reflect the results of the agricultural equipment, industrial
equipment and lawn and grounds care equipment operations. The supplemental
"Financial Services" consolidating data in this statement include Deere &
Company's credit, insurance and health care subsidiaries. Transactions
between the "Equipment Operations" and "Financial Services" have been
eliminated to arrive at the "Consolidated" data.
*Adjusted for three-for-one stock split effective November 17, 1995.
The information on pages 24 through 43 is an integral part of this statement.
19
<PAGE>
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS FINANCIAL SERVICES
(DEERE & COMPANY
(DEERE & COMPANY WITH FINANCIAL
AND CONSOLIDATED SERVICES ON THE
SUBSIDIARIES) EQUITY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) OCTOBER 31 OCTOBER 31 OCTOBER 31
1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and short-term investments. . . . . . . . . . . . . . . . . $ 363.7 $ 245.4 $ 71.0 $ 104.0 $ 292.7 $ 141.4
Cash deposited with unconsolidated subsidiaries. . . . . . . . . 460.1
--------- --------- -------- -------- -------- --------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . 363.7 245.4 531.1 104.0 292.7 141.4
Marketable securities. . . . . . . . . . . . . . . . . . . . . . 829.7 1,126.3 829.7 1,126.3
Receivables from unconsolidated subsidiaries and affiliates. . . 2.3 8.9 55.5 196.9
Dealer accounts and notes receivable - net . . . . . . . . . . . 3,259.7 2,939.4 3,259.7 2,939.4
Credit receivables - net . . . . . . . . . . . . . . . . . . . . 5,345.2 4,501.7 118.3 115.8 5,226.9 4,385.9
Other receivables . . . . . . . . . . . . . . . . . . . . . . . 492.4 429.7 3.2 15.2 490.2 415.5
Equipment on operating leases - net. . . . . . . . . . . . . . . 258.8 219.5 119.3 94.3 139.5 125.2
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 720.8 698.0 720.8 698.0
Property and equipment - net . . . . . . . . . . . . . . . . . . 1,335.6 1,314.1 1,295.0 1,281.8 40.6 32.3
Investments in unconsolidated subsidiaries and affiliates. . . . 115.2 154.3 1,378.4 1,285.9 55.1
Intangible assets - net. . . . . . . . . . . . . . . . . . . . . 305.0 283.7 295.4 266.8 9.6 16.9
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 61.6 61.8 29.4 31.1 32.1 30.7
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 639.8 679.8 578.9 620.5 61.0 59.2
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . 117.6 118.6 79.1 60.7 38.5 57.9
--------- --------- -------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,847.4 $12,781.2 $8,464.1 $7,710.4 $7,160.8 $6,446.4
---------- --------- -------- -------- -------- --------
---------- --------- -------- -------- -------- --------
20
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . $ 3,139.8 $ 2,637.4 $ 395.7 $ 53.8 $2,744.1 $2,583.5
Payables to unconsolidated subsidiaries and affiliates . . . . . 27.5 34.0 27.5 34.0 513.3 187.9
Accounts payable and accrued expenses. . . . . . . . . . . . . . 2,533.0 2,285.2 1,859.9 1,617.3 674.1 668.9
Insurance and health care claims and reserves. . . . . . . . . . 470.3 761.3 470.3 761.3
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 72.8 80.2 72.4 79.7 .3 .5
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 15.6 13.5 15.6 13.5
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 2,175.8 2,053.9 702.9 1,019.4 1,472.9 1,034.5
Retirement benefit accruals and other liabilities. . . . . . . . 2,327.2 2,357.8 2,304.7 2,334.8 22.6 23.0
--------- --------- -------- -------- -------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 10,762.0 10,223.3 5,378.7 5,152.5 5,897.6 5,259.6
--------- --------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value (authorized - 600,000,000* shares;
issued - 262,524,084* shares in 1995 and 259,915,584* shares
in 1994) at stated value. . . . . . . . . . . . . . . . . . . . 1,728.7 1,491.4 1,728.7 1,491.4 209.4 209.5
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 1,690.3 1,353.9 1,690.3 1,353.9 1,054.3 980.3
Minimum pension liability adjustment . . . . . . . . . . . . . . (300.4) (248.4) (300.4) (248.4)
Cumulative translation adjustment. . . . . . . . . . . . . . . . (11.6) (17.9) (11.6) (17.9) (4.1) (3.0)
Unrealized gain on marketable securities available for sale. . . 3.6 3.6 3.6
Unamortized restricted stock compensation. . . . . . . . . . . . (12.1) (8.8) (12.1) (8.8)
Common stock in treasury, 549,387* shares in 1995 and 652,803*
shares in 1994, at cost . . . . . . . . . . . . . . . . . . . . (13.1) (12.3) (13.1) (12.3)
-------- --------- -------- -------- -------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 3,085.4 2,557.9 3,085.4 2,557.9 1,263.2 1,186.8
-------- --------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,847.4 $12,781.2 $8,464.1 $7,710.4 $7,160.8 $6,446.4
--------- --------- -------- -------- -------- --------
--------- --------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated" data.
*Adjusted for three-for-one stock split effective November 17, 1995.
The information on pages 24 through 43 is an integral part of this statement.
21
<PAGE>
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED EQUIPMENT OPERATIONS
(DEERE & COMPANY
(DEERE & COMPANY WITH FINANCIAL
AND CONSOLIDATED SERVICES ON THE
SUBSIDIARIES) EQUITY BASIS)
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31 YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS) 1995 1994 1993 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ 706.1 $ 603.6 $ (920.9) $ 706.1 $ 603.6 $ (920.9)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in accounting, cumulative net adjustment . . . . . 1,105.3 1,105.3
Provision for doubtful receivables . . . . . . . . . . . . 39.6 36.1 32.6 3.5 5.6 2.3
Provision for depreciation . . . . . . . . . . . . . . . . 283.1 256.7 257.2 255.2 230.6 233.5
Provision for restructuring costs. . . . . . . . . . . . . 78.5 78.5
Undistributed earnings of unconsolidated subsidiaries
and affiliates . . . . . . . . . . . . . . . . . . . . . . (9.2) (12.6) (7.7) (82.6) 57.3 (84.5)
Provision (credit) for deferred income taxes . . . . . . . 75.5 26.2 (30.4) 77.0 32.4 (30.7)
Changes in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . . . . . (355.4) (147.8) 82.4 (311.2) (85.8) 101.6
Inventories. . . . . . . . . . . . . . . . . . . . . . . (17.0) (164.5) 35.4 (17.0) (164.5) 35.4
Accounts payable and accrued expenses. . . . . . . . . . 8.9 (60.4) 93.5 10.2 (116.2) 79.7
Insurance and health care claims and reserves. . . . . . 38.0 98.8 27.5
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 69.8 82.7 80.7 73.3 113.8 101.6
-------- ------- -------- ------- ------- -------
Net cash provided by operating activities. . . . . . . 839.4 718.8 834.1 714.5 676.8 701.8
-------- ------- -------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collections of credit receivables. . . . . . . . . . . . . . 3,409.9 3,012.5 2,995.5 58.1 77.1 87.7
Proceeds from sales of credit receivables. . . . . . . . . . 837.3 561.9 1,148.3 .5 1.6 5.7
Proceeds from maturities and sales of marketable
securities. . . . . . . . . . . . . . . . . . . . . . . . . 181.2 222.9 320.9
Proceeds from sales of equipment on operating leases . . . . 45.5 49.2 46.5 24.3 25.0 25.4
Proceeds from sales of businesses. . . . . . . . . . . . . . 90.5
Cost of credit receivables acquired. . . . . . . . . . . . . (5,147.7) (4,308.8) (3,635.1) (59.0) (70.1) (124.1)
Purchases of marketable securities . . . . . . . . . . . . . (194.1) (344.8) (346.5)
Purchases of property and equipment. . . . . . . . . . . . . (262.4) (228.1) (206.5) (244.6) (215.2) (197.4)
Cost of operating leases acquired. . . . . . . . . . . . . . (120.8) (102.5) (106.3) (62.5) (52.3) (31.8)
Acquisition of a business. . . . . . . . . . . . . . . . . . (119.8) (119.8)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (35.2) 52.2 (1.8) (9.7) 14.8 8.4
-------- ------- -------- ------- ------- -------
Net cash provided by (used for) investing
activities. . . . . . . . . . . . . . . . . . . . . . (1,195.8) (1,205.3) 215.0 (292.9) (338.9) (226.1)
--------- ------- -------- ------- ------- ------
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings . . . . . . . . 490.1 934.2 (1,487.1) 35.4 (301.8) (464.7)
Change in intercompany receivables/payables. . . . . . . . . 134.7 320.0 (359.1)
Proceeds from long-term borrowings . . . . . . . . . . . . . 775.0 188.5 687.1 .1
Principal payments on long-term borrowings . . . . . . . . . (636.7) (590.7) (546.3) (10.9) (185.5) (39.4)
Proceeds from issuance of common stock . . . . . . . . . . . 43.6 36.9 586.0 43.6 36.9 586.0
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (190.5) (171.8) (152.9) (190.5) (171.8) (152.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (8.2) (6.2) (12.9) (8.2) (6.2) (12.9)
-------- ------- -------- ------- ------- -------
Net cash provided by (used for) financing
activities. . . . . . . . . . . . . . . . . . . . . . 473.3 390.9 (926.1) 4.1 (308.4) (442.9)
-------- ------- -------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . . . . 1.4 2.8 (1.6) 1.4 2.8 (1.5)
-------- ------- -------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 118.3 (92.8) 121.4 427.1 32.3 31.3
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 245.4 338.2 216.8 104.0 71.7 40.4
-------- ------- -------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $363.7 $245.4 $338.2 $531.1 $104.0 $71.7
-------- ------- -------- ------- ------- -------
-------- ------- -------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------
22
<PAGE>
Caption>
FINANCIAL SERVICES
- --------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $166.6 $160.6 $157.4
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in accounting, cumulative net adjustment . . . . . 6.9
Provision for doubtful receivables . . . . . . . . . . . . 36.1 30.5 30.3
Provision for depreciation . . . . . . . . . . . . . . . . 27.8 26.1 23.6
Provision for restructuring costs. . . . . . . . . . . . .
Undistributed earnings of unconsolidated subsidiaries
and affiliates . . . . . . . . . . . . . . . . . . . . . . (.5) (3.6) (1.6)
Provision (credit) for deferred income taxes . . . . . . . (1.5) (6.2) .3
Changes in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . . . . . (44.3) (62.0) (19.3)
Inventories. . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses. . . . . . . . . . (1.3) 55.7 14.0
Insurance and health care claims and reserves. . . . . . 38.0 98.8 27.5
Other. . . . . . . . . . . . . . . . . . . . . . . . . . (3.4) (31.1) (20.9)
-------- ------- --------
Net cash provided by operating activities. . . . . . . 217.5 268.8 218.2
-------- ------- --------
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collections of credit receivables. . . . . . . . . . . . . . 3,351.9 2,935.3 2,907.8
Proceeds from sales of credit receivables. . . . . . . . . . 836.8 580.2 1,161.7
Proceeds from maturities and sales of marketable
securities. . . . . . . . . . . . . . . . . . . . . . . . . 181.2 222.9 320.9
Proceeds from sales of equipment on operating leases . . . . 21.1 24.2 21.1
Proceeds from sales of businesses. . . . . . . . . . . . . . 90.5
Cost of credit receivables acquired. . . . . . . . . . . . . (5,088.7) (4,258.6) (3,530.1)
Purchases of marketable securities . . . . . . . . . . . . . (194.1) (344.8) (346.5)
Purchases of property and equipment. . . . . . . . . . . . . (17.8) (12.8) (9.2)
Cost of operating leases acquired. . . . . . . . . . . . . . (58.3) (50.1) (74.5)
Acquisition of a business. . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (25.5) 37.4 (10.2)
-------- ------- --------
Net cash provided by (used for) investing
activities. . . . . . . . . . . . . . . . . . . . . . (902.9) (866.3) 441.0
-------- ------- --------
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings . . . . . . . . 454.7 1,235.9 (1,022.3)
Change in intercompany receivables/payables. . . . . . . . . 325.4 (320.0) 359.1
Proceeds from long-term borrowings . . . . . . . . . . . . . 775.0 188.5 687.0
Principal payments on long-term borrowings . . . . . . . . . (625.8) (405.2) (506.9)
Proceeds from issuance of common stock . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (92.6) (226.8) (85.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
-------- ------- --------
Net cash provided by (used for) financing
activities. . . . . . . . . . . . . . . . . . . . . . 836.7 472.4 (569.0)
-------- ------- --------
- --------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH. . . . . . . . . . . (.1)
-------- ------- --------
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . 151.3 (125.1) 90.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 141.4 266.5 176.4
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $292.7 $141.4 $266.5
-------- ------- --------
-------- ------- --------
- --------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated" data.
The information on pages 24 through 43 is an integral part of this statement.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1995, 1994 AND 1993 (UNAUDITED)
Deere & Company and its subsidiaries manufacture, distribute and finance a full
range of agricultural equipment; a broad range of industrial equipment for
construction, forestry and public works; and a variety of lawn and grounds care
equipment. The company also provides credit, insurance and health care products
for businesses and the general public. Additional information on these business
segments is presented beginning on page 32.
1995 COMPARED WITH 1994 (UNAUDITED)
CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income for 1995, totaling $706
million or $2.71 per share compared with last year's income of $604 million or
$2.34 per share on a post-split basis. The company's strong results for 1995
were due to higher production and sales levels, coupled with significantly
improved overseas and industrial equipment division results. Additionally, the
company's exports from the United States set a new record, totaling $1,314
million. Company results also continued to benefit from the strong performance
of its Financial Services subsidiaries. All per share information reflects a
three-for-one stock split effective November 17, 1995 (see "Capital Stock" note
on page 41).
The company's annual sales and revenues exceeded $10 billion for the first
time in the company's history, due to continued growth in demand for the
company's products and services. Worldwide net sales and revenues increased 15
percent to $10,291 million in 1995 compared with $8,977 million in 1994. Net
sales of the Equipment Operations increased 15 percent in 1995 to $8,830 million
from $7,663 million last year. The physical volume of sales increased by 11
percent compared with a year ago.
Finance and interest income increased 20 percent to $660 million in 1995
compared with $548 million last year, while insurance and health care premiums
increased three percent to $628 million in the current year compared with $609
million in 1994.
The company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
income of $529 million in 1995 compared with $433 million in 1994. The improved
operating results of the Equipment Operations in 1995 were the primary factor
behind the company's record profitability. The benefits from the higher
production and sales volumes were partially offset by the impact of management's
planned initiatives to reduce service parts inventory and used goods
receivables. Service parts production was lower and used goods sales incentive
expenses increased compared to last year as a result of the initiatives. The
worldwide ratio of cost of goods sold to net sales was 78.6 percent in 1995
compared with 78.7 percent last year.
Net income of the company's Financial Services operations remained strong
totaling $167 million in 1995 compared with $161 million in 1994. Additional
information is presented in the discussion of credit, insurance and health care
operations on pages 27 through 29.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion of operating results by industry segment and geographic
area relates to information beginning on page 32. Operating profit is defined as
income before interest expense, foreign exchange gains and losses, income taxes
and certain corporate expenses, except for the operating profit of the credit
segment, which includes the effect of interest expense.
1995 NET SALES AND REVENUES
BY BUSINESS SEGMENT
[Pie Chart]
Agricultural Equipment 52%
Industrial Equipment 18%
Lawn and Grounds Care Equipment 17%
Health Care 3%
Insurance 4%
Credit 6%
Operating profit of each of the company's Equipment Operations was
favorably affected by higher sales volumes compared with last year's results.
WORLDWIDE AGRICULTURAL EQUIPMENT
[Graph]
Net Sales (in billions) 93 - $4.1
94 - $4.7
95 - $5.3
Operating Profit (before restructuring)(in millions) 93 - $230
94 - $553
95 - $643
Operating profit of the worldwide agricultural equipment segment increased
to $643 million in 1995 compared with $553 million in 1994, as a result of a 12
percent increase in worldwide agricultural equipment sales, along with a
substantial improvement in overseas results. These higher sales margins on
complete goods were partially offset by the previously mentioned used goods and
service parts initiatives.
WORLDWIDE INDUSTRIAL EQUIPMENT
[Graph]
Net Sales (in billions) 93 - $1.3
94 - $1.6
95 - $1.9
Operating Profit (in millions) 93 - $20
94 - $132
95 - $198
24
<PAGE>
The worldwide industrial equipment operations improved substantially in
1995, generating an operating profit of $198 million this year compared with
$132 million in 1994, primarily as a result of higher production and sales
volumes, and improved operating efficiency. In 1995, sales increased 14 percent
compared to last year.
WORLDWIDE LAWN AND GROUNDS CARE EQUIPMENT
[Graph]
Net Sales (in billions) 93 - $1.1
94 - $1.3
95 - $1.7
Operating Profit (in millions) 93 - $99
94 - $162
95 - $165
The worldwide lawn and grounds care equipment operations had an operating
profit of $165 million in 1995 compared with $162 million in 1994. The
Homelite division of Textron, Inc. was purchased in August 1994 and its
results since the acquisition are included in the lawn and grounds care
equipment operations. Net sales in 1995 included Homelite sales of $287
million compared to $36 million last year. Excluding Homelite, lawn and
grounds care equipment sales increased 10 percent in 1995. The benefits from
the small increase in production and sales volumes were offset by unfavorable
currency fluctuations on imported components. Including Homelite, lawn and
grounds care equipment sales increased 29 percent this year.
FINANCIAL SERVICES
[Graph]
Revenues (in billions) 93 - $1.1
94 - $1.2
95 - $1.3
Operating Profit (in millions) 93 - $247
94 - $238
95 - $261
The combined operating profit of the credit, insurance and health care
business segments was $261 million in 1995 compared to $238 million in 1994.
Additional information on these businesses is presented in the discussion of
credit, insurance and health care operations on pages 27 through 29.
On a geographic basis, the United States and Canadian
equipment operations had a higher operating profit of $839 million in 1995
compared with $764 million last year as a result of higher volumes, which were
partially offset by used goods sales incentive expenses and lower service parts
production. Sales increased 13 percent in 1995 and the physical volume of sales
increased 12 percent.
The overseas equipment operations generated a significantly higher
operating profit of $167 million in 1995 compared with $83 million last year
primarily due to the higher sales volumes and the previous restructuring of
these operations. Overseas sales increased 21 percent and the physical volume
of sales increased nine percent in 1995 compared with 1994.
MARKET CONDITIONS AND OUTLOOK
Market demand for John Deere products remains very strong. Increased overseas
and domestic demand for agricultural commodities, coupled with lower than
anticipated harvest yields, have resulted in substantial increases in commodity
prices. Additionally, the United States Department of Agriculture (USDA) is
currently forecasting world grain stocks to be at the lowest levels, relative to
use, since it began keeping systematic records. The low commodity inventories,
expected increases in worldwide grain demand and the anticipated resulting
strong worldwide commodity price levels should bolster farmers' confidence and
result in continued strong demand for new and used agricultural equipment.
Additionally, government acreage set-asides should be lower in 1996 in response
to the reduction in world grain stocks which should further promote agricultural
demand. Therefore, the company expects agricultural equipment industry retail
sales to increase again in 1996, despite some uncertainty surrounding the new
farm bill.
Nonresidential and public construction expenditures in 1996 are anticipated
to show moderate growth. Housing starts are projected to increase slightly over
1995 levels in response to lower mortgage rates now forecasted for 1996.
Consumer spending is expected to remain at relatively strong levels throughout
most of 1996. Additionally, the company's lawn and grounds care equipment demand
should also increase as a result of the introduction of a new product line,
"Sabre by John Deere," which includes entry-level lawn tractors and walk-behind
mowers. As a result of the many factors cited, industry retail sales for
industrial and lawn and grounds care products are expected to increase in 1996
compared with 1995. Financial Services revenues should reflect this continued
strong demand for John Deere products.
The company's worldwide physical volume of sales to dealers in 1996 is
expected to increase by four percent compared with 1995, with first quarter
volumes anticipated to be approximately 12 percent higher than the first quarter
of 1995. Additionally, expenditures targeted at establishing markets for new and
existing products in both domestic and overseas regions are expected to increase
substantially in 1996. However, the expected volume increases will more than
offset the short-term costs associated with the company's planned growth
initiatives. Therefore, 1996 is expected to be another strong year.
25
<PAGE>
1994 COMPARED WITH 1993 (UNAUDITED)
CONSOLIDATED RESULTS
Deere & Company's worldwide net income for 1994 was a record totaling $604
million or $2.34 per share compared with income of $248 million or $1.07 per
share in 1993 before the effects of the special items as shown in the following
table and described on pages 31, 34, and 36. The company's strongly improved
1994 results reflected substantially higher North American production and sales
volumes, improved operating efficiencies and significantly better overseas
results. Additionally, the company's exports from the United States set a
record, totaling $1,144 million. Company results also continued to benefit from
the strong performance of its Financial Services subsidiaries. Income in 1993
was $184 million or $.80 per share after the effects of the restructuring
charges and the tax rate change as shown in the table below. However, the
company incurred a worldwide net loss of $921 million or $3.97 per share in 1993
after the cumulative effect of accounting changes.
<TABLE>
<CAPTION>
(In millions of dollars PER SHARE
except per share amounts) 1994 1993 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before special items. . . . . . $ 604 $ 248 $ 2.34 $ 1.07
Restructuring charges. . . . . . . . . (80) (.34)
Effect of tax rate change. . . . . . . 16 .07
------- ------- ------- --------
Income before cumulative effect of
changes in accounting standards . . 604 184 2.34 .80
Cumulative effect of changes in
accounting standards. . . . . . . . (1,105) (4.77)
------- ------- ------- --------
Worldwide net income (loss). . . . . . $ 604 $ (921) $ 2.34 $ (3.97)
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
- -------------------------------------------------------------------------------
The company's total worldwide net sales and revenues increased 16 percent to
$9,030 million in 1994 compared with $7,754 million in 1993. Worldwide net sales
were $7,663 million in 1994, an increase of 18 percent from sales of $6,479
million in 1993. The physical volume of the company's worldwide sales increased
approximately 14 percent in 1994.
Finance and interest income decreased three percent to $548 million in 1994
compared with $563 million in 1993, while insurance and health care premiums
increased 23 percent to $609 million in 1994 compared with $497 million in 1993.
The company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
income of $433 million in 1994 compared with income of $77 million in 1993
before the effects of the restructuring charges and the tax rate change.
Including these special items, the Equipment Operations' income was $13 million
in 1993. The Equipment Operations incurred a net loss of $1,085 million in 1993
after all of the special items including the cumulative effect of the accounting
changes. Net income of the company's Financial Services subsidiaries totaled
$161 million in 1994 compared with income before accounting changes of $164
million in 1993 ($157 million after accounting changes). Additional information
is presented in the discussion of credit, insurance and health care operations
on pages 27 through 29.
The improved operating results of the Equipment Operations in 1994 were
primarily due to higher North American production and sales volumes, and
continued improvements in operating efficiencies. North American sales were
19 percent higher than in 1993. The overseas equipment operations had
significantly higher income in 1994, primarily due to lower operating costs
generated by the ongoing restructuring of the company's European operations,
coupled with higher sales and production volumes. Reflecting the effects of
the improved operations, the worldwide ratio of cost of goods sold to net
sales decreased to 78.7 percent in 1994 compared with 83.1 percent in 1993.
After-tax results of the Equipment Operations in 1993 benefited by $33
million or $.14 per share from the reduction of inventories valued on a
last-in, first-out (LIFO) basis. A LIFO benefit was not recognized in 1994.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion of operating results by industry segment and geographic
area relates to information beginning on page 32.
Operating profit of each of the company's Equipment Operations in 1994 was
favorably affected by higher volumes and improved productivity compared with
results in 1993.
Operating profit of the worldwide agricultural equipment segment increased to
$553 million in 1994 compared with $230 million in 1993 before restructuring
charges. This improvement was caused primarily by a 16 percent increase in sales
and improvements in operating efficiencies. There were no benefits from the
reduction of LIFO inventories in 1994 compared with $38 million in 1993. After
restructuring charges of $107 million, 1993 operating profit was $123 million.
The worldwide industrial equipment operations improved significantly in 1994,
generating an operating profit of $132 million in 1994 compared with $20 million
in 1993. In 1994, sales increased 22 percent and operating costs were lower.
There were no LIFO inventory benefits in 1994 compared with $13 million in 1993.
The worldwide lawn and grounds care equipment operations had a higher
operating profit of $162 million in 1994 compared with $99 million in 1993. Lawn
and grounds care equipment sales were up 24 percent in 1994. The Homelite
division of Textron, Inc. was purchased in August 1994 and its results since the
acquisition are included in the lawn and grounds care equipment operations.
The combined operating profit of the credit, insurance and health care
business segments was $238 million in 1994 compared to $247 million in 1993.
Additional information on these businesses is presented in the discussion of
credit, insurance and health care operations on pages 27 through 29.
On a geographic basis, the United States and Canadian equipment operations
had significantly higher operating profit of $764 million in 1994 compared with
$372 million in 1993. Sales increased 19 percent and operating efficiency
improved in all
26
<PAGE>
of the company's businesses in 1994. There were no LIFO inventory benefits in
1994 compared with $13 million in 1993.
The overseas equipment operations generated an operating profit of $83
million in 1994 compared with an operating loss of $23 million in 1993,
excluding restructuring charges. Overseas sales increased 17 percent and the
physical volume of sales increased approximately 11 percent in 1994 compared
with 1993. As previously mentioned, 1994 results were also favorably affected by
lower cost levels resulting primarily from the restructuring of the European
operations. However, there were no benefits from the reduction of LIFO
inventories in 1994 compared with $38 million in 1993. Including restructuring
charges of $107 million, the operating loss in 1993 was $130 million.
CREDIT OPERATIONS
Deere & Company's credit subsidiaries consist of John Deere Credit Company and
its subsidiaries in the United States and John Deere Finance Limited in Canada.
The credit operations bear all credit risk, net of recovery from withholdings
from dealers, and perform all servicing and collection functions on retail notes
and leases on John Deere products acquired by the credit subsidiaries from the
Equipment Operations. The Equipment Operations receive compensation from the
United States credit operations for originating retail notes and leases. The
Equipment Operations are reimbursed by the credit operations for staff support
and other administrative services at estimated cost, and for credit lines
provided by Deere & Company based on utilization of the lines. The credit
subsidiaries generally receive compensation from the Equipment Operations equal
to a competitive interest rate for periods during which finance charges have
been waived or reduced on retail notes and leases.
Condensed combined financial information of the credit operations in millions
of dollars follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31
FINANCIAL POSITION 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . $ 165 $ 43
------ -----
Credit receivables and leases:
Equipment retail notes . . . . . . . . . . . 3,467 2,901
Recreational product retail notes . . . . . . 871 873
Revolving charge accounts . . . . . . . . . . 513 438
Wholesale notes . . . . . . . . . . . . . . . 314 142
Financing leases. . . . . . . . . . . . . . . 149 118
Equipment on operating leases . . . . . . . . 140 125
------ -----
Total credit receivables and leases . . . . . 5,454 4,597
Less allowance for credit losses. . . . . . . 88 86
------ -----
Total - net. . . . . . . . . . . . . . . 5,366 4,511
------ -----
Other receivables. . . . . . . . . . . . . . . . 192 155
------ -----
Net property and other assets. . . . . . . . . . 73 66
------ -----
Total assets. . . . . . . . . . . . . . . . . $ 5,796 $ 4,775
------ -----
------ -----
</TABLE>
- -------------------------------------------------------------------------------
(continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCTOBER 31
FINANCIAL POSITION 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings. . . . . . . . . . . . . . $2,744 $2,584
Payables to Deere & Company. . . . . . . . . . . 491 125
Deposits withheld from dealers and merchants . . 144 127
Other liabilities. . . . . . . . . . . . . . . . 176 200
Long-term borrowings . . . . . . . . . . . . . . 1,473 1,034
Stockholder's equity . . . . . . . . . . . . . . 768 705
------ -----
Total liabilities and stockholder's equity. . $5,796 $4,775
------ -----
------ -----
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
Summary of Operations 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 612 $ 516 $ 524
------ ------ ------
Expenses:
Interest. . . . . . . . . . . . . . . . . . . 271 190 192
Selling, administrative and general . . . . . 94 96 93
Provision for credit losses . . . . . . . . . 36 31 30
Depreciation. . . . . . . . . . . . . . . . . 22 21 19
------ ------ ------
Total. . . . . . . . . . . . . . . . . . . 423 338 334
------ ------ ------
Income before income taxes and changes
in accounting . . . . . . . . . . . . . . . . 189 178 190
Provision for income taxes . . . . . . . . . . . 68 64 68
------ ------ ------
Income before changes in accounting. . . . . . . 121 114 122
Changes in accounting. . . . . . . . . . . . . . (4)
------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . $ 121 $ 114 $ 118
------ ------ ------
------ ------ ------
Ratio of earnings to fixed charges . . . . . . . 1.69 1.93 1.97
</TABLE>
- -------------------------------------------------------------------------------
Total acquisitions of credit receivables and leases by the credit
subsidiaries increased 19 percent during 1995 compared to 1994. The higher
acquisitions this year resulted from an increased volume of retail notes,
revolving charge accounts and wholesale receivables.
During 1995, retail notes acquired by the credit subsidiaries totaled $3,315
million, an 18 percent increase compared with 1994 acquisitions of $2,816
million. Acquisitions of recreational product retail notes accounted for 10
percent of total note acquisitions in 1995 and 11 percent in 1994. Acquisitions
of John Deere equipment notes were 16 percent higher in the current year due
primarily to increased retail sales of John Deere equipment and an improvement
in the credit subsidiaries' market share for the financing of John Deere
agricultural equipment. The credit operations also securitized and sold retail
notes which partially offset the increase in acquisitions, receiving proceeds of
$837 million during 1995 compared with $560 million last year. At October 31,
1995 and 1994, credit receivables and leases administered, which include
receivables previously sold but still administered, were $6,666 million and
$5,725 million, respectively. The discussion of "Credit Receivables" on pages 37
and 38 presents additional information.
Income of the credit operations was $121 million in 1995 compared with $114
million in 1994 and $122 million in 1993 before the cumulative effect of
adopting FASB Statements No. 106 and 112. Net income in 1995 was higher than in
1994 reflecting higher earnings from a larger average receivable and lease
portfolio financed, partially offset by lower financing margins. Total revenues
of the credit operations increased 19 percent in
27
<PAGE>
1995, due primarily to a larger average portfolio financed and a higher overall
yield on the receivables held in 1995 compared with 1994. The average balance of
credit receivables and leases financed was 13 percent higher in 1995 compared
with 1994. Higher average borrowings and higher borrowing rates in 1995 resulted
in a 43 percent increase in interest expense in 1995 compared to 1994.
Income in 1994 was lower than in 1993 primarily reflecting the impact of a
higher dividend payout during the year, lower gains from the sale of retail
notes and higher selling, administrative and general expenses. These effects
were partially offset by higher securitization and servicing fee income from
notes previously sold but still administered. Total revenues of the credit
operations decreased two percent in 1994 compared with 1993. Revenues were
affected by lower gains from the sale of retail notes and lower interest rates
resulting in lower finance charges earned in 1994. These decreases in revenues
were partially offset by an increase in securitization and servicing fee income.
Additionally, lower average borrowing rates in 1994 resulted in a one percent
decrease in interest expense compared to 1993. The average balance of credit
receivables and leases financed was approximately the same in 1994 compared with
1993. Net income of the credit operations totaled $118 million in 1993 including
the cumulative effect of the changes in accounting standards.
INSURANCE OPERATIONS
- -------------------------------------------------------------------------------
Deere & Company's insurance subsidiaries consist of John Deere Insurance Group,
Inc. and its subsidiaries in the United States, which mainly provide general and
specialized property and casualty coverages to the general public, and John
Deere Insurance Company of Canada.
Condensed combined financial information of the insurance operations in
millions of dollars follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 110 $ 73
Marketable securities . . . . . . . . . . . . . . 684 1,002
Other assets . . . . . . . . . . . . . . . . . . . 334 406
------- -------
Total assets . . . . . . . . . . . . . . . . . $ 1,128 $ 1,481
------- -------
------- -------
Claims and reserves. . . . . . . . . . . . . . . . $ 416 $ 708
Unearned premiums. . . . . . . . . . . . . . . . . 141 142
Other liabilities . . . . . . . . . . . . . . . . 162 218
Stockholder's equity . . . . . . . . . . . . . . . 409 413
------- -------
Total liabilities and stockholder's equity. . . $ 1,128 $ 1,481
------- -------
------- -------
</TABLE>
- -------------------------------------------------------------------------------
(continued)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums . . . . . . . . . . . . . . . . . . $ 369 $ 346 $ 324
Investment income. . . . . . . . . . . . . . 84 81 88
------ ------ ------
Total revenues. . . . . . . . . . . . . . 453 427 412
------ ------ ------
Expenses:
Claims and benefits . . . . . . . . . . . 297 297 284
Selling, administrative and general . . . 102 99 90
Other . . . . . . . . . . . . . . . . . . 8
------ ------ ------
Total . . . . . . . . . . . . . . . . 407 396 374
------ ------ ------
Income of consolidated group before
income taxes and changes in accounting. . 46 31 38
Provision for income taxes . . . . . . . . . 18 5 9
------ ------ ------
Income of consolidated group before
changes in accounting . . . . . . . . . . 28 26 29
Equity in income of unconsolidated affiliate 1 5 2
------ ------ ------
Income before changes in accounting. . . . . 29 31 31
Changes in accounting. . . . . . . . . . . . (2)
------ ------ ------
Net income . . . . . . . . . . . . . . . . . $ 29 $ 31 $ 29
------ ------ ------
------ ------ ------
</TABLE>
- -------------------------------------------------------------------------------
Insurance premium revenues of $20 million in 1995, $19 million in 1994 and
$26 million in 1993 related to coverages provided to Deere & Company and its
subsidiaries.
Income of the insurance operations totaled $29 million in 1995 compared with
$31 million in 1994 and $31 million in 1993 before the cumulative effect of
adopting FASB Statements No. 106 and 112. The decrease in 1995 net income
compared with 1994 resulted from a loss from the sale of the John Deere Life
Insurance Company, lower equity income due to the sale of the insurance
operations' interest in Re Capital Corporation and a higher effective tax rate.
This decline was partially offset by an improvement in underwriting results and
investment income in 1995. The sales of the insurance companies mentioned above
will not significantly affect the future profitability of the insurance
operations and will enable the division to focus on growing its property and
casualty businesses. Premiums increased seven percent in 1995, while total
claims, benefits, and selling, administrative and general expenses increased one
percent from 1994.
The benefits in 1994 of a lower effective tax rate, higher equity income from
Re Capital Corporation and improved underwriting results were offset by lower
investment income compared to 1993. Insurance premiums increased seven percent
in 1994, while total claims, benefits, and selling, administrative and general
expenses increased six percent from 1993. Net income of the insurance operations
totaled $29 million in 1993 including the cumulative effect of the changes in
accounting standards.
HEALTH CARE OPERATIONS
John Deere Health Care, Inc., directly or through its health maintenance
organizations and Deere & Company's insurance subsidiaries, provides
administrative services and managed health care programs for commercial clients
and Deere & Company.
28
<PAGE>
Condensed combined financial information of the health care operations in
millions of dollars follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . $ 18 $ 26
Marketable securities. . . . . . . . . . . . 146 124
Other assets . . . . . . . . . . . . . . . . 73 40
------ ------
Total assets . . . . . . . . . . . . . . . $ 237 $ 190
------ ------
------ ------
Claims and reserves. . . . . . . . . . . . . $ 56 $ 53
Unearned premiums. . . . . . . . . . . . . . 19 12
Other liabilities. . . . . . . . . . . . . . 76 56
Stockholder's equity . . . . . . . . . . . . 86 69
------ ------
Total liabilities and stockholder's equity $ 237 $ 190
------ ------
------ ------
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and administrative services . . . . $ 306 $ 303 $ 220
Investment income. . . . . . . . . . . . . . 13 13 9
------ ------ ------
Total revenues. . . . . . . . . . . . . . 319 316 229
------ ------ ------
Expenses:
Claims and benefits . . . . . . . . . . . 220 232 167
Selling, administrative and general . . . 74 60 45
------ ------ ------
Total. . . . . . . . . . . . . . . . . 294 292 212
------ ------ ------
Income of consolidated group before
income taxes and changes in accounting. . 25 24 17
Provision for income taxes . . . . . . . . . 9 8 6
------ ------ ------
Income before changes in accounting. . . . . 16 16 11
Changes in accounting. . . . . . . . . . . . (1)
------ ------ ------
Net income . . . . . . . . . . . . . . . . . $ 16 $ 16 $ 10
------ ------ ------
------ ------ ------
Managed care membership (thousands). . . . . 311 295 234
</TABLE>
- -------------------------------------------------------------------------------
Health care revenues of $28 million in 1995, $21 million in 1994 and $21
million in 1993 related to administrative services provided to Deere & Company
and its subsidiaries.
Income of the health care operations totaled $16 million in 1995 and 1994,
and $11 million in 1993 before the cumulative effect of adopting FASB Statements
No. 106 and 112. Income in 1995 was affected by the development of new health
care delivery systems. Although managed care membership grew by five percent
during 1995, premium revenues increased one percent due to the shift from
insured to self-insured accounts. Total claims, benefits, and selling,
administrative and general expenses also increased one percent from 1994.
The increase in 1994 income compared with 1993 resulted mainly from higher
membership and increased investment income. Health care premiums increased 38
percent in 1994, while total claims, benefits, and selling, administrative and
general expenses also increased 38 percent from 1993. Net income of the health
care operations totaled $10 million in 1993 including the cumulative effect of
the changes in accounting standards.
CAPITAL RESOURCES AND LIQUIDITY (UNAUDITED)
- -------------------------------------------------------------------------------
The discussion of capital resources and liquidity has been
organized to review separately, where appropriate, the company's Equipment
Operations, Financial Services operations and the consolidated totals.
EQUIPMENT OPERATIONS
The company's equipment businesses are capital intensive and are subject to
large seasonal variations in financing requirements for receivables from dealers
and inventories. Accordingly, to the extent necessary, funds provided from
operations are supplemented from external borrowing sources.
[Chart]
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS 1993 1994 1995
(IN MILLIONS)
<S> <C> <C> <C>
Cash Provided By Operations. . . . . . . . . $ 702 $ 677 $ 715
Purchases of Property and Equipment. . . . . $ 197 $ 215 $ 245
</TABLE>
Positive cash flows from operating activities in 1995 were primarily the
result of the record level of net income. In addition, dividends of $93 million
were received from the Financial Services subsidiaries. Partially offsetting
these positive operating cash flows were increases in dealer receivables and
contributions of $285 million to the pension fund. The aggregate amount of these
operating cash flows of $715 million, along with proceeds from the reduction in
receivables from the Financial Services subsidiaries of $135 million and an
increase in borrowings of $25 million, were used primarily to fund purchases of
property and equipment of $245 million and the payment of dividends to
stockholders of $191 million. Cash and cash equivalents also increased $427
million.
Over the last three years, operating activities have provided an aggregate
of $2,094 million in cash, including dividends received from the Financial
Services subsidiaries of $405 million. Proceeds from the issuance of common
stock were $667 million during this three-year period. The aggregate amount
of these cash flows was used mainly to fund a decrease in borrowings of $967
million, purchases of property and equipment of $657 million, stockholders'
dividends of $515 million and the acquisition of Homelite for $120 million.
Cash and cash equivalents also increased $491 million.
Net dealer accounts and notes receivable result mainly
from sales to dealers of equipment that is being carried in their inventories.
Although dealer receivables increased by $320 million during 1995, the ratios of
worldwide net dealer accounts and notes receivables at October 31 to fiscal year
net sales were 37 percent in 1995 compared to 38 percent in 1994 and 43 percent
in 1993. North American agricultural, industrial and lawn and grounds care
equipment dealer receivables increased approximately $210 million, $30 million
and $70 million, respectively. Total overseas dealer receivables were
approximately $10 million higher than one year ago.
29
<PAGE>
The collection period for receivables from dealers averages less than 12
months. The percentage of receivables outstanding for a period exceeding 12
months was eight percent at October 31, 1995 compared with seven percent at
October 31, 1994 and 11 percent at October 31, 1993.
Company-owned inventories increased slightly in 1995 compared to 1994, while
net sales increased 15 percent.
Total interest-bearing debt of the Equipment Operations was $1,099 million at
the end of 1995 compared with $1,073 million at the end of 1994 and
$1,546 million at the end of 1993. The ratio of total debt to total capital
(total interest-bearing debt and stockholders' equity) at the end of 1995,
1994 and 1993 was 26.3 percent, 29.6 percent and 42.6 percent, respectively.
FINANCIAL SERVICES
The Financial Services credit subsidiaries 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 subsidiaries periodically sell
substantial amounts of retail notes in the public market. The insurance and
health care subsidiaries generate their funds through internal operations and
have no external borrowings.
Cash flows from the company's Financial Services operating activities were
$218 million in 1995. Cash provided by financing activities totaled $837 million
in 1995, representing an increase in total borrowings of $930 million, which was
partially offset by $93 million of dividends paid to the Equipment Operations.
The aggregate cash provided by operating and financing activities was used
primarily to increase credit receivables and a $151 million increase in cash and
cash equivalents. Cash used for investing activities totaled $903 million in
1995, primarily due to acquisitions of credit receivables exceeding collections
by $1,737 million, which was partially offset by proceeds of $837 million
received from the sale of receivables. Within the Financial Services operations,
the positive cash flows from insurance and health care operations were primarily
invested in marketable securities.
Over the past three years, the Financial Services operating activities have
provided $705 million in cash, the sale of receivables $2,579 million and total
borrowings $1,145 million. These amounts have been used mainly to fund credit
receivable acquisitions which exceeded collections by $3,682 million, $405
million of dividends to the Equipment Operations and an excess of
$160 million in marketable security purchases over maturities and sales. Cash
and cash equivalents also increased $116 million.
Marketable securities consist primarily of debt securities held by the
insurance and health care operations in support of their obligations to
policyholders. The $297 million decrease in 1995 compared with 1994 resulted
primarily from the sale of the John Deere Life Insurance Company including its
marketable securities.
Credit receivables increased by $841 million in 1995 compared with 1994. The
discussion of "Credit Operations" on pages 27 through 28, and pages 37 through
38 of the notes to the consolidated financial statements provides detailed
information on these receivables.
Total interest-bearing debt of the credit subsidiaries was $4,217 million at
the end of 1995 compared with $3,618 million at the end of 1994 and $2,603
million at the end of 1993. The credit subsidiaries' ratio of total interest-
bearing debt to total stockholder's equity was 6.1 to 1 at the end of 1995
compared with 5.3 to 1 at the end of 1994 and 3.8 to 1 at the end of 1993.
During 1995, the John Deere Capital Corporation issued $150 million of
floating rate notes due in 1998 and retired $150 million of 5% debentures, $150
million of 11-5/8% debentures and $100 million of 6% debentures all due in 1995.
During the same period, the Capital Corporation also issued $625 million and
retired $226 million of medium-term notes.
CONSOLIDATED
The company maintains unsecured lines of credit with various banks in North
America and overseas. The discussion of "Short-Term Borrowings" on page 39
provides further information on these lines of credit.
During 1995, the total increase in cash and cash equivalents on a
consolidated basis was $118 million. This represents $427 million provided by
the Equipment Operations and $151 million provided by Financial Services,
reduced by $460 million of Equipment Operations' cash deposited with the
Financial Services operations.
The company is naturally exposed to various interest rate and foreign
currency risks. As a result, the company enters into derivative transactions to
hedge these exposures that arise in the normal course of business, and not for
the purpose of creating speculative positions or trading. In common with other
large credit companies, the company's credit subsidiaries actively
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 fluctuations, while responding to favorable financing
opportunities. Accordingly, from time to time, these subsidiaries enter into
interest rate swap and interest rate cap agreements to hedge their interest rate
exposure in amounts corresponding to a portion of their borrowings. 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 and market risks under these interest rate and foreign currency
agreements are not considered to be significant. Additional detailed information
is included in the "Financial Instruments" note on pages 42 and 43.
Stockholders' equity was $3,085 million at October 31, 1995 compared with
$2,558 million and $2,085 million at October 31, 1994 and 1993, respectively.
The increase in 1995 was caused primarily by net income of $706 million, an
increase in common stock of $237 million including a one-time stock-split
adjustment of $175 million, and a $6 million change in the cumulative
translation adjustment, partially offset by cash dividends declared of $195
million, a $175 million adjustment to retained earnings for the stock split and
an increase of $52 million in the minimum pension liability adjustment.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Following are significant accounting policies in addition to those
included in other notes to the consolidated financial statements.
The consolidated financial statements represent the consolidation of all
companies in which Deere & Company has a majority ownership. Deere & Company
records its investment in each unconsolidated affiliated company (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.
Unconsolidated affiliates at October 31, 1995 consisted primarily of
equipment affiliates in Brazil, Mexico and the United States. Consolidated
retained earnings at October 31, 1995 include undistributed earnings of the
unconsolidated affiliates of $65 million. Dividends from unconsolidated
affiliates were $2 million in 1995, 1994 and 1993.
The company's consolidated financial statements and some information in the
notes and related commentary are presented in a format which includes data
grouped as follows:
EQUIPMENT OPERATIONS -- These data include the company's agricultural equipment,
industrial equipment and lawn and grounds care equipment operations with
Financial Services reflected on the equity basis. Data relating to the above
equipment operations, including the consolidated group data in the income
statement, are also referred to as "Equipment Operations" in this report.
FINANCIAL SERVICES -- These data include the company's credit, insurance and
health care operations.
CONSOLIDATED -- These data represent the consolidation of the Equipment
Operations and Financial Services in conformity with Financial Accounting
Standards Board (FASB) Statement No. 94. References to "Deere & Company" or "the
company" refer to the entire enterprise.
Sales of equipment and service parts are generally recorded by the company
when they are shipped to independent dealers. Provisions for sales incentives
and product warranty costs are recognized at the time of sale or at the
inception of the incentive programs.
Retail notes receivable include unearned finance income in the face amount of
the notes, which is amortized into income over the lives of the notes on the
effective-yield basis. Unearned finance income on variable-rate notes is
adjusted monthly based on fluctuations in the base rate of a specified bank.
Financing leases receivable include unearned lease income, which is equal to the
excess of the gross lease receivable plus the estimated residual value over the
cost of the equipment, and is recognized as revenue over the lease terms on the
effective-yield basis. Rental payments applicable to equipment on operating
leases are recorded as income on a straight-line method over the lease terms.
Assets on operating leases are recorded at cost and depreciated on a straight-
line method over the terms of the leases. Interest charged to revolving charge
account customers and on wholesale receivables is based on the balances
outstanding. Other receivables from limited-purpose business trusts are recorded
at net present value and relate to deposits made pursuant to recourse provisions
and other payments to be received under asset backed securities sales
agreements. The receivables are amortized to their value at maturity using the
interest method. Securitization and servicing fee income includes both the
amortization of the above receivables and reimbursed administrative expenses
received from the trusts.
Insurance and health care premiums are generally recognized as earned over
the terms of the related policies. Insurance and health care claims and
reserves include liabilities for unpaid claims and future policy benefits.
Policy acquisition costs, such as commissions, premium taxes and certain
other underwriting expenses, are deferred and amortized over the terms of the
related policies. The liability for unpaid claims and claims adjustment
expenses is based on estimated costs of settling the claims using past
experience adjusted for current trends. The receivable for amounts
recoverable from reinsurers is estimated based on the corresponding claim
liability associated with the reinsured policies.
On November 15, 1995, a special meeting of stockholders was held authorizing
a three-for-one stock split effective November 17, 1995. All references in the
consolidated financial statements referring to shares, share prices, per share
amounts and stock plans have been adjusted retroactively for the three-for-one
stock split. Additional information is presented in the "Capital Stock" note on
page 41.
In 1995, the company's insurance subsidiaries agreed to sell their 3.1
million shares (43.8 percent) of Re Capital Corporation to Zurich Reinsurance
Centre Holdings, Inc. for $57 million. In 1995, the insurance subsidiaries
also agreed to sell their wholly-owned subsidiary, John Deere Life Insurance
Company, to Life Reassurance Corporation of America for $33 million. These
sales did not have a significant effect on the company's consolidated
financial position or net income for 1995.
In 1995, the company adopted FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Statement had an immaterial
effect on stockholders' equity and no impact on the consolidated income
statement. Additional information is presented in the "Marketable Securities"
note on pages 36 and 37. In 1995, the company also adopted FASB Statement No.
119, Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments. Additional information is presented in the "Financial
Instruments" note on pages 42 and 43.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which the company must adopt by fiscal year 1997.
This Statement defines a new "fair value" method of accounting for
stock-based compensation expense, and requires certain additional disclosures
for these plans. The Statement also allows the retention of the previous
"intrinsic value" method of accounting for expense recognition under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. The company intends to retain the intrinsic value method and,
therefore, the new standard will have no effect on the company's net income
or financial position.
In 1993, the company adopted FASB Statement No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. The company elected to
recognize the pretax transition obligation of $1,712 million ($1,095 million or
$4.72 per share net of deferred income taxes) as a one-time charge to earnings
in 1993. In 1993, the company also adopted FASB Statement No. 112, Employers'
Accounting for Postemployment Benefits. The cumulative pretax charge resulting
from this change in accounting totaled $16 million ($10 million or $.04 per
share net of deferred income taxes).
Certain amounts for prior years have been reclassified to conform with 1995
financial statement presentations.
31
<PAGE>
- -------------------------------------------------------------------------------
INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA FOR THE
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
- -------------------------------------------------------------------------------
In prior years, the company's business segment disclosures combined the
insurance and health care operations. As a result of the development and
expansion of the health care operations, insurance and health care have been
divided into separate segments with prior periods reclassified to conform to the
current presentation. The company's operations are now categorized into six
business segments described as follows.
The company's worldwide agricultural equipment segment manufactures and
distributes a full range of equipment used in commercial farming - including
tractors; tillage, soil preparation, planting and harvesting machinery;
sprayers; crop handling equipment and precision farming devices.
The company's worldwide industrial equipment segment manufactures and
distributes a broad range of machines used in construction, earthmoving and
forestry - including backhoe loaders; crawler dozers and loaders; four-wheel-
drive loaders; scrapers; motor graders; excavators; and log skidders. This
segment also includes the manufacture and distribution of
engines and drivetrain components for the original equipment manufacturer (OEM)
market.
The company's worldwide lawn and grounds care equipment segment manufactures
and distributes equipment for commercial and residential uses - including small
tractors for lawn, garden and utility purposes; riding and walk-behind mowers;
golf course equipment; utility transport vehicles; snowblowers; hand-held
products such as chain saws, string trimmers and leaf blowers; and other outdoor
power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and other retail outlets.
The company's credit segment, which operates in the United States and Canada,
primarily finances and services: retail notes related to sales by John Deere
dealers of new and used equipment; retail notes related to sales by non-Deere
dealers of recreational vehicle and marine products; leases of John Deere
equipment to retail customers; unsecured revolving charge accounts acquired from
merchants; and wholesale notes from certain dealers of the foregoing equipment.
The company's insurance segment issues policies in the United States and
Canada primarily for: general and specialized lines of property and casualty
insurance to the general public, group accident and health insurance for
employees of participating John Deere dealers and disability insurance for
employees of the company.
The company's health care segment provides health management programs and
related administrative services in the United States to corporate customers
as well as employees of the company.
Because of integrated manufacturing operations and common administrative
and marketing support, a substantial number of allocations must be made to
determine industry segment and geographic area data. Intersegment sales and
revenues represent sales of components, insurance premiums, health care
administrative services and finance charges. Interarea sales represent sales
of complete machines, service parts and components to units in other
geographic areas. Intersegment sales and revenues and interarea sales are
generally priced at market prices. Overseas operations are defined to include
all activities of divisions, subsidiaries and affiliated companies conducted
outside the United States and Canada.
Information relating to operations by industry segment in millions of dollars
follows. Comments relating to these data are included in Management's Discussion
and Analysis. In addition to the following segment unaffiliated sales and
revenues, intersegment sales and revenues in 1995, 1994, and 1993 were as
follows: agricultural equipment net sales of $117 million, $119 million and $123
million; industrial equipment net sales of $91 million, $104 million and $85
million; credit revenues of $1 million, $1 million and $1 million; insurance
revenues of $20 million, $19 million and $26 million; and health care revenues
of $28 million, $21 million and $21 million, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Unaffiliated customers:
Agricultural equipment net sales . . . . . . . . $ 5,277 $ 4,718 $ 4,078
Industrial equipment net sales . . . . . . . . . 1,875 1,640 1,348
Lawn and grounds care equipment
net sales. . . . . . . . . . . . . . . . . . . 1,678 1,305 1,053
Credit revenues. . . . . . . . . . . . . . . . . 611 515 523
Insurance revenues . . . . . . . . . . . . . . . 433 408 386
Health care revenues . . . . . . . . . . . . . . 291 295 208
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . 10,165 8,881 7,596
Other revenues . . . . . . . . . . . . . . . . . . 126 96 100
------- ------- -------
CONSOLIDATED NET SALES AND REVENUES. . . . . . . . $10,291 $ 8,977 $ 7,696
------- ------- -------
------- ------- -------
OPERATING PROFIT
Agricultural equipment . . . . . . . . . . . . . . $ 643 $ 553 $ 123*
Industrial equipment . . . . . . . . . . . . . . . 198 132 20
Lawn and grounds care equipment. . . . . . . . . . 165 162 99
Credit** . . . . . . . . . . . . . . . . . . . . . 189 178 190
Insurance**. . . . . . . . . . . . . . . . . . . . 47 36 40
Health care**. . . . . . . . . . . . . . . . . . . 25 24 17
------- ------- -------
Total operating profit . . . . . . . . . . . . . 1,267 1,085 489*
------- ------- -------
OTHER INCOME AND (EXPENSE)
Interest income-net. . . . . . . . . . . . . . . . 4 1 1
Interest expense-net . . . . . . . . . . . . . . . (124) (114) (177)
Foreign exchange loss. . . . . . . . . . . . . . . (9) (3) (4)
Corporate expenses-net . . . . . . . . . . . . . . (34) (33) (28)
Income taxes . . . . . . . . . . . . . . . . . . . (398) (332) (97)
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . (561) (481) (305)
------- ------- -------
Income before changes in accounting. . . . . . . . 706 604 184*
Changes in accounting. . . . . . . . . . . . . . . (1,105)
------- ------- -------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . $ 706 $ 604 $ (921)*
------- ------- -------
------- ------- -------
</TABLE>
* In 1993, the operating profit of the agricultural equipment business
segment includes restructuring costs of $107 million.
** Operating profit of the credit business segment includes the effect of
interest expense, which is the largest element of its operating costs.
Operating profit of the insurance and health care business segments include
investment income.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Agricultural equipment . . . . . . . . . . . $ 3,661 $ 3,424 $ 3,233
Industrial equipment . . . . . . . . . . . . 1,218 1,168 1,129
Lawn and grounds care equipment. . . . . . . 1,141 989 767
Credit . . . . . . . . . . . . . . . . . . . 5,796 4,774 4,158
Insurance. . . . . . . . . . . . . . . . . . 1,127 1,480 1,312
Health care. . . . . . . . . . . . . . . . . 237 191 140
Corporate. . . . . . . . . . . . . . . . . . 667 755 728
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . $13,847 $12,781 $11,467
------- ------- -------
------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
(continued)
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL ADDITIONS
Agricultural equipment . . . . . . . . . . . . . . $150 $148 $134
Industrial equipment . . . . . . . . . . . . . . . 47 43 43
Lawn and grounds care equipment. . . . . . . . . . 48 27 20
Credit . . . . . . . . . . . . . . . . . . . . . . 2 3 1
Insurance. . . . . . . . . . . . . . . . . . . . . 2 2 2
Health care. . . . . . . . . . . . . . . . . . . . 14 8 5
---- ---- ----
Total. . . . . . . . . . . . . . . . . . . . . . $263 $231 $205
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------
DEPRECIATION EXPENSE
Agricultural equipment . . . . . . . . . . . . . . $168 $159 $156
Industrial equipment . . . . . . . . . . . . . . . 38 37 39
Lawn and grounds care equipment. . . . . . . . . . 36 29 26
Credit . . . . . . . . . . . . . . . . . . . . . . 2 2 2
Insurance. . . . . . . . . . . . . . . . . . . . . 2 1 1
Health care. . . . . . . . . . . . . . . . . . . . 3 2 1
Corporate. . . . . . . . . . . . . . . . . . . . . 1 1 1
---- ---- ----
Total. . . . . . . . . . . . . . . . . . . . . . $250 $231 $226
---- ---- ----
---- ---- ----
</TABLE>
The company views and has historically disclosed its operations as consisting
of two geographic areas, the United States and Canada, and overseas, shown below
in millions of dollars. The percentages shown in the captions for net sales and
revenues, operating profit (loss) and identifiable assets indicate the
approximate proportion of each amount that relates to either the United States
only or to the company's Europe, Africa and Middle East division, the only
overseas area deemed to be significant for disclosure purposes. The percentages
are based upon a three-year average for 1995, 1994 and 1993. In addition to the
following geographic unaffiliated sales, interarea sales in 1995, 1994 and 1993
were as follows: Unites States and Canada equipment net sales of $763 million,
$640 million and $558 million, and overseas net sales of $395 million, $360
million and $322 million, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Unaffiliated customers:
United States and Canada:
Equipment net sales (90%). . . . . . . . . . . $ 6,648 $ 5,860 $ 4,934
Financial Services revenues (95%). . . . . . . 1,335 1,218 1,117
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . 7,983 7,078 6,051
Overseas net sales (73%) . . . . . . . . . . . . 2,182 1,803 1,545
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . 10,165 8,881 7,596
Other revenues . . . . . . . . . . . . . . . . . . 126 96 100
------- ------- -------
CONSOLIDATED NET SALES AND REVENUES. . . . . . . . $10,291 $ 8,977 $ 7,696
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
United States and Canada:
Equipment operations (93%) . . . . . . . . . . . $ 839 $ 764 $ 372
Financial Services (93%) . . . . . . . . . . . . 261 238 247
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . 1,100 1,002 619
Overseas equipment operations (62%). . . . . . . . 167 83 (130)*
------- ------- -------
Total operating profit . . . . . . . . . . . . $ 1,267 $ 1,085 $ 489*
------- ------- -------
------- ------- -------
</TABLE>
* In 1993, the operating loss of the overseas equipment operations includes
restructuring costs of $107 million.
- --------------------------------------------------------------------------------
(continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
United States and Canada:
Equipment operations (92%) . . . . . . . . . . . $ 4,607 $ 4,265 $ 3,951
Financial Services (92%) . . . . . . . . . . . . 7,160 6,445 5,610
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . 11,767 10,710 9,561
Overseas equipment operations (76%). . . . . . . . 1,413 1,316 1,178
Corporate. . . . . . . . . . . . . . . . . . . . . 667 755 728
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . $13,847 $12,781 $11,467
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------
CAPITAL ADDITIONS
United States and Canada:
Equipment operations . . . . . . . . . . . . . . $ 197 $ 190 $ 162
Financial Services . . . . . . . . . . . . . . . 18 13 8
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . 215 203 170
Overseas equipment operations. . . . . . . . . . . 48 28 35
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . $ 263 $ 231 $ 205
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------
DEPRECIATION EXPENSE
United States and Canada:
Equipment operations . . . . . . . . . . . . . . $ 177 $ 166 $ 159
Financial Services . . . . . . . . . . . . . . . 7 5 4
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . 184 171 163
Overseas equipment operations. . . . . . . . . . . 65 59 62
Corporate. . . . . . . . . . . . . . . . . . . . . 1 1 1
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . $ 250 $ 231 $ 226
------- ------- -------
------- ------- -------
- --------------------------------------------------------------------------------
NUMBER OF EMPLOYEES
United States and Canada:
Equipment operations . . . . . . . . . . . . . . 23,600 24,200 22,700
Financial Services . . . . . . . . . . . . . . . 2,400 2,400 2,300
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . 26,000 26,600 25,000
Overseas equipment operations. . . . . . . . . . . 7,400 7,700 8,100
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . 33,400 34,300 33,100
------- ------- -------
------- ------- -------
</TABLE>
- --------------------------------------------------------------------------------
Total exports from the United States were $1,314 million in 1995, $1,144
million in 1994 and $961 million in 1993. Exports from the Europe, Africa and
Middle East division were $510 million in 1995, $495 million in 1994 and $423
million in 1993. Most of these exports were to the United States and Canada.
REINSURANCE
- --------------------------------------------------------------------------------
The company's insurance subsidiaries utilize reinsurance to limit their losses
and reduce their exposure to large claims. Although reinsurance contracts permit
recovery of certain claims from reinsurers, the insurance subsidiaries are not
relieved of their primary obligations to the policyholders. The financial
condition of the reinsurers is evaluated to minimize any exposure to losses from
insolvencies.
33
<PAGE>
Insurance and health care premiums earned consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Premiums earned:
Direct from policyholders. . . . . . . . . . . . $686 $678
Reinsurance assumed. . . . . . . . . . . . . . . 44 47
Reinsurance ceded. . . . . . . . . . . . . . . . (55) (68)
---- ----
Financial Services premiums. . . . . . . . . . 675 657
Intercompany premiums. . . . . . . . . . . . . . . (47) (48)
---- ----
CONSOLIDATED PREMIUMS. . . . . . . . . . . . . . . $628 $609
---- ----
---- ----
</TABLE>
- --------------------------------------------------------------------------------
The difference between premiums earned and written is not material.
Reinsurance recoveries on ceded reinsurance contracts during 1995 and 1994
totaled $36 million and $80 million, respectively, and are deducted from
"Insurance and Health Care Claims and Benefits" expense. At October 31, 1995 and
1994, reinsurance receivables of $81 million and $75 million and prepaid
insurance premiums of $18 million and $15 million, respectively, were associated
with a single reinsurer.
RESTRUCTURING COSTS
- --------------------------------------------------------------------------------
During the second quarter of 1993, the company initiated plans to downsize and
rationalize its European operations. This resulted in a restructuring charge of
$80 million after income taxes or $.34 Per share ($107 million before income
taxes). The charge mainly represented the cost of employment reductions. As of
October 31, 1995, the expected employment reductions and the disbursement of the
$107 million accrual were both approximately 80 percent complete. The remaining
accrual is expected to be utilized in 1996.
PENSION BENEFITS
- --------------------------------------------------------------------------------
The company has several pension plans covering substantially all of its United
States employees and employees in certain foreign countries. The United States
plans and significant foreign plans in Canada, Germany and France are defined
benefit plans in which the benefits are based primarily on years of service and
employee compensation near retirement. It is the company's policy to fund its
United States plans according to the 1974 Employee Retirement Income Security
Act (ERISA) and income tax regulations. In Canada, the company's funding is in
accordance with local laws and income tax regulations, while the pension plans
in Germany and France are unfunded. Plan assets in the United States and Canada
consist primarily of common stocks, common trust funds, government securities
and corporate debt securities. Pension cost for United States plans is based on
the 1983 Group Annuity Mortality Table.
The expense of all pension plans was $120 million in 1995, $130 million in
1994 and $151 million in 1993. In 1995, pension expense decreased $25 million
from utilization of a higher discount rate and $21 million from the total
increased funding and investment experience, which were partially offset by $17
million of lump sum payments, $11 million from other actuarial experience and $8
million from a change in the retirement assumption. In 1994, pension expense
decreased by $46 million from the total increased funding and investment
experience and $26 million from a change in assumed rates of compensation
increases, which were partially offset by $35 million from the utilization of a
lower discount rate and $16 million from other actuarial experience.
The components of net periodic pension cost and the significant assumptions
for the United States plans consisted of the following in millions of dollars
and in percents:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . $ 73 $ 79 $ 74
Interest cost. . . . . . . . . . . . . . . . . 308 286 283
Return on assets:
Actual gain. . . . . . . . . . . . . . . . . (659) (86) (590)
Deferred gain (loss) . . . . . . . . . . . . 322 (218) 324
Net amortization . . . . . . . . . . . . . . . 49 43 32
----- ----- -----
NET COST . . . . . . . . . . . . . . . . . . . $ 93 $ 104 $ 123
----- ----- -----
----- ----- -----
Discount rates for obligations . . . . . . . . 7.5% 8.0% 7.25%
Discount rates for expenses. . . . . . . . . . 8.0% 7.25% 8.0%
Assumed rates of compensation increases. . . . 5.0% 5.0% 5.0%
Expected long-term rate of return. . . . . . . 9.7% 9.7% 9.7%
</TABLE>
- --------------------------------------------------------------------------------
A reconciliation of the funded status of the United States plans at
October 31 in millions of dollars follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS
Vested benefit obligation. . . . . . . $ (1,641) $ (1,938) $ (1,522) $ (1,693)
Nonvested benefit obligation . . . . . (102) (356) (73) (270)
-------- -------- -------- -------
Accumulated benefit obligation . . . . (1,743) (2,294) (1,595) (1,963)
Excess of projected benefit
obligation over accumulated
benefit obligation . . . . . . . . . (386) (21) (340) (20)
-------- -------- -------- -------
Projected benefit obligation . . . . . . (2,129) (2,315) (1,935) (1,983)
Plan assets at fair value. . . . . . . . 2,025 2,142 1,756 1,767
-------- -------- -------- -------
Projected benefit obligation
in excess of plan assets . . . . . . . (104) (173) (179) (216)
Unrecognized net loss. . . . . . . . . . 5 498 35 415
Prior service cost not yet
recognized in net periodic
pension cost . . . . . . . . . . . . . 4 172 9 154
Remaining unrecognized
transition net asset
from November 1, 1985 . . . . . . . . (63) (7) (73) (10)
Adjustment required to
recognize minimum liability . . . . . (648) (545)
-------- -------- -------- -------
PENSION LIABILITY RECOGNIZED
IN THE CONSOLIDATED
BALANCE SHEET. . . . . . . . . . . . . $ (158) $ (158) $ (208) $ (202)
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>
34
<PAGE>
The components of net periodic pension cost and the significant assumptions
for the foreign plans consisted of the following in millions of dollars and in
percents:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . $ 9 $ 9 $ 10
Interest cost. . . . . . . . . . . . . . . 27 23 23
Return on assets:. . . . . . . . . . . . .
Actual gain. . . . . . . . . . . . . . . (14) (14) (18)
Deferred gain . . . . . . . . . . . . . 3 6 9
Net amortization . . . . . . . . . . . . . 2 2 4
---- ---- ----
NET COST . . . . . . . . . . . . . . . . . $ 27 $ 26 $ 28
---- ---- ----
---- ---- ----
Discount rates for obligations . . . . . . 7.0-8.3% 7.0-8.3% 6.8-7.0%
Discount rates for expenses. . . . . . . . 7.0-8.3% 6.8-7.0% 7.0-7.5%
Assumed rates of compensation increases. . 4.0-7.0% 4.0-7.0% 4.0-7.0%
Expected long-term rates of return . . . . 8.3% 6.8-7.0% 7.0-7.5%
</TABLE>
- --------------------------------------------------------------------------------
A reconciliation of the funded status of the foreign plans at october 31 in
millions of dollars follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS
Vested benefit obligation. . . . . . . $ (79) $(264) $ (68) $(237)
Nonvested benefit obligation . . . . . (4) (4)
----- ----- ----- -----
Accumulated benefit obligation . . . . (79) (268) (68) (241)
Excess of projected benefit
obligation over accumulated
benefit obligation . . . . . . . . . (12) (44) (11) (41)
----- ----- ----- -----
Projected benefit obligation . . . . . . (91) (312) (79) (282)
Plan assets at fair value. . . . . . . . 139 131
----- ----- ----- -----
Projected benefit obligation
(in excess of) or
less than plan assets. . . . . . . . . 48 (312) 52 (282)
Unrecognized net gain. . . . . . . . . . (10) (10) (16) (4)
Prior service cost not yet recognized
in net periodic pension cost . . . . . 1 1
Remaining unrecognized
transition net (asset) obligation
from November 1, 1987. . . . . . . . . (13) 29 (16) 33
----- ----- ----- -----
PREPAID PENSION ASSET
(PENSION LIABILITY) RECOGNIZED
IN THE CONSOLIDATED
BALANCE SHEET. . . . . . . . . . . . . $ 26 $(293) $ 21 $(253)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
- --------------------------------------------------------------------------------
The company generally provides defined benefit health care and life insurance
plans for retired employees in the United States and Canada. Provisions of the
benefit plans for hourly employees are, in large part, subject to collective
bargaining. The plans for salaried employees include certain cost-sharing
provisions. It is the company's policy to fund a portion of its obligations for
the United States postretirement health care benefit plans under provisions of
Internal Revenue Code Section 401(h). Plan assets consist primarily of common
stocks, common trust funds, government securities and corporate debt securities.
The components of net periodic postretirement benefits cost and the
significant assumptions for the United States and Canadian plans consisted of
the following in millions of dollars and in percents:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE
Service cost . . . . . . . . . . . . . . $ 55 $ 54 $ 28
Interest cost. . . . . . . . . . . . . . 122 117 120
Return on assets:
Actual gain. . . . . . . . . . . . . . (30) (4) (21)
Deferred gain (loss) . . . . . . . . . 15 (10) 11
Net amortization . . . . . . . . . . . . (40) (44) (12)
---- ---- ----
Net cost . . . . . . . . . . . . . . . 122 113 126
---- ---- ----
LIFE INSURANCE
Service cost . . . . . . . . . . . . . . 3 3 3
Interest cost. . . . . . . . . . . . . . 16 15 13
---- ---- ----
Net cost . . . . . . . . . . . . . . . 19 18 16
---- ---- ----
TOTAL NET COST . . . . . . . . . . . . . $141 $131 $142
---- ---- ----
---- ---- ----
Discount rates for obligations . . . . . 7.75% 8.25% 7.5%
Discount rates for expense . . . . . . . 8.25% 7.5% 8.25%
Expected long-term rate of return. . . . 9.7% 9.7% 9.7%
</TABLE>
- --------------------------------------------------------------------------------
A reconciliation of the funded status of the united states and canadian plans
in millions of dollars follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
------------------- ------------------
Health Life Health Life
Care Insurance Care Insurance
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATIONS
Retirees . . . . . . . . . . . . . . . .$(1,167) $ (139) $(1,120) $ (112)
Fully eligible active plan participants. (225) (29) (167) (24)
Other active plan participants . . . . . (369) (55) (302) (46)
------- ------ ------- ------
Total. . . . . . . . . . . . . . . . . . (1,761) (223) (1,589) (182)
Plan assets at fair value. . . . . . . . . 192 153
------- ------ ------- ------
Accumulated postretirement benefit
obligation in excess of plan assets. . . (1,569) (223) (1,436) (182)
Unrecognized net loss. . . . . . . . . . . 143 32 106
Prior service credit not yet recognized
in net periodic postretirement
benefits costs . . . . . . . . . . . . . (91) (175)
------- ------ ------- ------
POSTRETIREMENT BENEFIT LIABILITY
RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET. . . . . . . . . . . . . .$(1,517) $ (191) $(1,505) $ (182)
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
- --------------------------------------------------------------------------------
The annual rate of increase in the per capita cost of covered health care
benefits (the health care cost trend rate) used to determine 1995 cost was
assumed to be 9.1 Percent for 1996 decreasing gradually to 4.5 Percent by the
year 2001. The rate used to determine 1994 cost was assumed to be 8.2 Percent
for 1995 decreasing gradually to 4.5 Percent by the year 2001. The rate used to
determine 1993 cost was assumed to be 1.3 Percent for 1994 increasing to 9.0
Percent in 1995 and decreasing gradually to 4.3 Percent by the year 2001. The
1994 rate used in 1993 was lower than normal due to the effects of plan changes.
An increase of one percentage point in the assumed health care cost trend rate
would increase the accumulated postretirement benefit obligation as of october
31, 1995 by $187 million and the aggregate of the service and interest cost
components of net periodic postretirement benefits cost for the year then ended
by $23 million.
35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCOME TAXES
- --------------------------------------------------------------------------------
The provision (credit) for income taxes by taxing jurisdiction and by
significant component consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States:
Federal . . . . . . . . . . . . . . . . . . $253 $244 $ 82
State . . . . . . . . . . . . . . . . . . . 17 12 4
Foreign . . . . . . . . . . . . . . . . . . . 55 50 40
---- ---- ----
Total Current . . . . . . . . . . . . . . . 325 306 126
---- ---- ----
Deferred:
United States:
Federal . . . . . . . . . . . . . . . . . . 70 21 (24)
State . . . . . . . . . . . . . . . . . . . 4 2 (2)
Foreign . . . . . . . . . . . . . . . . . . . (1) 3 (3)
---- ---- ----
Total Deferred . . . . . . . . . . . . . . 73 26 (29)
---- ---- ----
CONSOLIDATED PROVISION FOR INCOME TAXES. . . . . $398 $332 $97
---- ---- ----
---- ---- ----
- -----------------------------------------------------------------------------
</TABLE>
Based upon location of the company's operations, the consolidated income
(loss) before income taxes in the United States in 1995, 1994 and 1993 was $881
million, $781 million and $353 million, respectively, and in foreign countries
was $212 million, $140 million and $(80) million, respectively. Certain overseas
operations are branches of Deere & Company and are, therefore, subject to United
States as well as foreign income tax regulations. The pretax income (loss) by
location and the preceding analysis of the income tax provision (credit) by
taxing jurisdiction are, therefore, not directly related.
The Omnibus Budget Reconciliation Act of 1993 was signed into law during
1993. In accordance with FASB Statement No. 109, Accounting for Income Taxes,
the United States deferred income tax assets and liabilities as of the
enactment date were revalued during 1993 using the new tax rate of 35 percent.
This resulted in a credit of $17 million or $.07 Per share to the provision for
income taxes.
A comparison of the statutory and effective income tax provision and reasons
for related differences in millions of dollars follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES FEDERAL INCOME TAX PROVISION
AT A STATUTORY RATE OF 35 PERCENT IN 1995 AND
1994, AND 34.83 PERCENT IN 1993. . . . . . . . . . . . . $382 $322 $95
INCREASE (DECREASE) RESULTING FROM:
State and local income taxes, net of
federal income tax benefit. . . . . . . . . . . . . . 14 8 1
Taxes on foreign income which differ from
the united states statutory rate. . . . . . . . . . . 11 7 25
Effect of statutory tax rate change on deferred taxes . (17)
realization of benefits of tax loss
and tax credit carryforwards. . . . . . . . . . . . . (1) (4) (4)
Tax Exempt Income. . . . . . . . . . . . . . . . . . . . (5) (5) (6)
Other Adjustments - Net. . . . . . . . . . . . . . . . . (3) 4 3
---- ---- ----
CONSOLIDATED PROVISION FOR INCOME TAXES. . . . . . . . . $398 $332 $ 97
---- ---- ----
---- ---- ----
- --------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
-------------------- ----------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred installment sales income. . . . . . . . $ 321 $ 265
Tax over book depreciation . . . . . . . . . . . 105 98
Accrual for retirement and
postemployment benefits. . . . . . . . . . . . $499 $ 581
Minimum pension liability
adjustment . . . . . . . . . . . . . . . . . . 192 142
Accrual for sales allowances . . . . . . . . . . 186 144
Accrual for vacation pay . . . . . . . . . . . . 41 39
Allowances for doubtful receivables. . . . . . . 43 39
Accrual for restructuring costs. . . . . . . . . 25 28
Tax loss and tax credit carryforwards. . . . . . 29 24
Claims and benefits reserves . . . . . . . . . . 21 23
Unearned premiums. . . . . . . . . . . . . . . . 9 11
Other items. . . . . . . . . . . . . . . . . . . 80 46 62 36
Less valuation allowance . . . . . . . . . . . . (29) (28)
------ ---- ------ -----
CONSOLIDATED DEFERRED
INCOME TAX ASSETS
AND LIABILITIES. . . . . . . . . . . . . . . . $1,096 $ 472 $ 1,065 $399
------ ----- ------- ----
------ ----- ------- ----
- ---------------------------------------------------------------------------------------------------------
</TABLE>
At October 31, 1995, accumulated earnings in certain overseas subsidiaries
and affiliates totaled $530 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.
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, 1995, certain foreign tax loss and tax credit carryforwards
were available. The expiration dates and amounts in millions of dollars are as
follows: 1996 - $2, 1997 - $5, 1998 - $9, 1999 - $7, 2000 - $4 and unlimited -
$2.
MARKETABLE SECURITIES
- -----------------------------------------------------------------
Marketable securities are held by the insurance and health care
subsidiaries. The company adopted FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in the first quarter of 1995. Held-
to-maturity debt securities are carried at amortized cost. Available-for-sale
debt securities and equity securities are carried at fair value with
unrealized gains and losses shown as a separate component of stockholders'
equity. Previously, the company valued all its debt securities on an amortized
cost basis and its equity securities on a cost basis. Realized gains or losses
from the sales of marketable securities are based on the specific identification
method.
36
<PAGE>
The amortized cost and fair value of marketable securities
in millions of dollars follow:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OCTOBER 31, 1995
Held-to-Maturity:
U.S. Government and agencies. . . . . . . . . $ 79 $ 5 $ 84
States and municipalities . . . . . . . . . . 170 11 $ 1 180
Corporate . . . . . . . . . . . . . . . . . . 126 7 133
Mortgage-backed securities. . . . . . . . . . 124 6 1 129
----- ----- ----- -----
Total. . . . . . . . . . . . . . . . . . . 499 29 2 526
----- ----- ----- -----
Available-for-Sale:
Equity securities . . . . . . . . . . . . . . 6 6
U.S. government and agencies. . . . . . . . . 111 2 1 112
States and municipalities . . . . . . . . . . 24 1 25
Corporate . . . . . . . . . . . . . . . . . . 151 3 1 153
Mortgage-backed securities. . . . . . . . . . 30 1 31
Other . . . . . . . . . . . . . . . . . . . . 4 4
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . 326 7 2 331
----- ----- ----- -----
MARKETABLE SECURITIES. . . . . . . . . . . . . . $ 825 $ 36 $ 4 $ 857
----- ----- ----- -----
----- ----- ----- -----
OCTOBER 31, 1994
Equity securities . . . . . . . . . . . . . . $34 $5 $1 $38
U.S. government and agencies. . . . . . . . . 216 4 11 209
States and municipalities . . . . . . . . . . 214 9 5 218
Corporate . . . . . . . . . . . . . . . . . . 416 8 20 404
Mortgage-backed securities. . . . . . . . . . 236 3 20 219
Other . . . . . . . . . . . . . . . . . . . . 10 10
----- ----- ----- -----
MARKETABLE SECURITIES. . . . . . . . . . . . . . $1,126 $ 29 $ 57 $1,098
----- ----- ----- -----
----- ----- ----- -----
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The contractual maturities of debt securities at October 31, 1995 in millions
of dollars follow:
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less. . . . . . . . $ 7 $ 7 $ 28 $ 28
Due after one through five years . . . 107 109 184 185
Due after five through 10 years. . . . 107 114 50 52
Due after 10 years . . . . . . . . . . 278 296 54 56
---- ---- ---- ----
DEBT SECURITIES. . . . . . . . . . . . $499 $526 $316 $321
---- ---- ---- ----
---- ---- ---- ----
- ----------------------------------------------------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities because some
borrowers have the right to call or prepay obligations. Proceeds from the sales
of available-for-sale securities were $79 million in 1995, and gross realized
gains and losses on those sales were $9 million and $2 million, respectively.
The increase in the net unrealized holding gain on available-for-sale securities
was $5 million ($3 million after income taxes) during 1995. In 1995, the John
Deere Life Insurance Company was sold, including its held-to-maturity marketable
securities of $229 million and available-for-sale securities of $100 million.
During November 1995, in concurrence with the adoption of "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities - Questions and Answers," the company transferred all its
held-to-maturity debt securities to the available-for-sale category. The
amortized cost of these securities at the time of transfer was $484 million and
the unrealized gain was $29 million ($19 million after income taxes). Although
the company's intention to hold a majority of its debt securities to maturity
has not changed, the transfer was made to increase flexibility in responding to
future changes.
DEALER ACCOUNTS AND NOTES RECEIVABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dealer accounts and notes receivable at October 31 consisted of
the following in millions of dollars:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Dealer accounts and notes:
Agricultural. . . . . . . . . . . . . . . . . $1,877 $1,678
Industrial. . . . . . . . . . . . . . . . . . 575 551
Lawn and grounds care . . . . . . . . . . . . 658 580
------ ------
Total. . . . . . . . . . . . . . . . . . . 3,110 2,809
Other receivables. . . . . . . . . . . . . . . . . 174 153
------ ------
Total . . . . . . . . . . . . . . . . . . . . 3,284 2,962
Less allowance for doubtful receivables. . . . . . 24 23
DEALER ACCOUNTS AND NOTES RECEIVABLE-NET . . . . . $3,260 $2,939
------ ------
------ ------
- ----------------------------------------------------------------------------
</TABLE>
At October 31, 1995 and 1994, dealer notes included above were $575 million
and $490 million, respectively.
Dealer accounts and notes receivable arise primarily from sales to dealers
of John Deere agricultural, industrial and lawn and grounds care equipment. The
company retains as collateral a security interest in the equipment associated
with these receivables. Generally, terms to dealers require payments as the
equipment which secures the indebtedness is sold to retail customers. Interest
is charged on balances outstanding after certain interest-free periods, which
range from six to nine months for agricultural tractors, one to five months for
industrial equipment, and from five to 24 months for most other equipment.
Dealer accounts and notes receivable have significant concentrations of credit
risk in the agricultural, industrial and lawn and grounds care business sectors
as shown in the previous table. On a geographic basis, there is not a
disproportionate concentration of credit risk in any area.
CREDIT RECEIVABLES
- -------------------------------------------------------------------------------
Credit receivables at October 31 consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Retail notes:
Equipment:
Agricultural. . . . . . . . . . . . . $3,282 $2,798
Industrial. . . . . . . . . . . . . . 742 535
Lawn and grounds care . . . . . . . . 215 204
Recreational products . . . . . . . . 1,403 1,359
------ ------
Total . . . . . . . . . . . . . . . . 5,642 4,896
Revolving charge accounts. . . . . . . . . . 513 438
Financing leases . . . . . . . . . . . . . . 199 182
Wholesale notes. . . . . . . . . . . . . . . 314 142
------ ------
Total credit receivables. . . . . . . . 6,668 5,658
------ ------
Less:
Unearned finance income:
Equipment notes . . . . . . . . . . . 674 559
Recreational product notes. . . . . . 532 486
Financing leases. . . . . . . . . . . 29 25
------ ------
Total. . . . . . . . . . . . . . . . 1,235 1,070
------ ------
Allowance for doubtful receivables. . . 88 86
------ ------
CREDIT RECEIVABLES - NET . . . . . . . . . . $5,345 $4,502
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
At October 31, 1995, $118 million of the credit receivables was financed by
the Equipment Operations and $5,227 million by the credit subsidiaries.
Credit receivables have significant concentrations of credit risk in the
agricultural, industrial, lawn and grounds care, and recreational product
business 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 and leases.
Credit receivable installments, including unearned finance income, at
october 31 are scheduled as follows in millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
DUE IN MONTHS:
0 - 12. . . . . . . . . . . . . . . . . $2,128 $1,722
13 - 24 . . . . . . . . . . . . . . . . 1,445 1,252
25 - 36 . . . . . . . . . . . . . . . . 1,064 928
37 - 48 . . . . . . . . . . . . . . . . 761 646
49 - 60 . . . . . . . . . . . . . . . . 493 429
THEREAFTER. . . . . . . . . . . . . . . 777 681
------ ------
TOTAL. . . . . . . . . . . . . . . . . . . . $6,668 $5,658
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
The maximum maturities for retail notes are generally seven years for
agricultural equipment, five years for industrial equipment, six years for lawn
and grounds care equipment and 15 years for recreational products. The maximum
term for financing leases is six years, while the maximum maturity for wholesale
notes is generally 12 months.
The company's United States and Canadian credit subsidiaries received
proceeds of $837 million in 1995, $560 million in 1994 and $1,143 million in
1993 from the sale of retail notes to limited-purpose business trusts, which
utilized the notes as collateral for the issuance of asset backed securities to
the public. Certain other foreign subsidiaries also sold retail notes to other
financial institutions, receiving proceeds of $.5 Million in 1995, $2 million in
1994 and $5 million in 1993. At October 31, 1995 and 1994, the unpaid balances
of retail notes previously sold were $1,279 million and $1,176 million,
respectively. The company's maximum exposure under all retail note recourse
provisions at October 31, 1995 and 1994 was $188 million and $142 million,
respectively. The retail notes sold are collateralized by security interests in
the related machinery sold to customers. There is no anticipated credit risk
related to nonperformance by the counterparties. At October 31, 1995 and 1994,
worldwide credit receivables administered, which include credit receivables
previously sold but still administered, totaled $6,624 million and $5,678
million, respectively.
Total credit receivable amounts 60 days or more past due were $16 million
at October 31, 1995 compared with $14 million at October 31, 1994. These past-
due amounts represented .30 Percent of the credit receivables financed at
October 31, 1995 and .31 Percent at October 31, 1994. The allowance for doubtful
credit receivables represented 1.61 Percent and 1.87 Percent of credit
receivables outstanding at october 31, 1995 and 1994, respectively. In addition,
at October 31, 1995 and 1994, the company's credit subsidiaries had $144 million
and $127 million, respectively, of deposits withheld from dealers and merchants
available for potential credit losses. An analysis of the allowance for doubtful
credit receivables follows in millions of dollars:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . $86 $83 $89
Provision charged to operations. . . . . . . 36 31 30
Amounts written off. . . . . . . . . . . . . (25) (24) (29)
Transfers related to retail note sales . . . (9) (4) (7)
--- --- ---
BALANCE, END OF THE YEAR . . . . . . . . . . $88 $86 $83
--- ---- ---
--- --- ---
- ------------------------------------------------------------------------------
</TABLE>
OTHER RECEIVABLES
- -------------------------------------------------------------------------------
Other receivables at October 31 consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Insurance and health care premiums receivable. . . . $114 $81
Reinsurance receivables. . . . . . . . . . . . . . . 145 151
Receivables relating to asset backed securities. . . 188 140
Other. . . . . . . . . . . . . . . . . . . . . . . . 45 58
---- ----
OTHER RECEIVABLES. . . . . . . . . . . . . . . . . . $492 $430
---- ----
---- ----
- -------------------------------------------------------------------------------
</TABLE>
Other receivables are primarily held by the Financial Services subsidiaries.
The credit subsidiaries have sold retail notes to limited-purpose business
trusts, which utilized the notes as collateral for the issuance of asset backed
securities to the public. The balance of the related receivables is equal to the
unamortized present value of deposits made with the trusts pursuant to recourse
provisions, and other payments to be received under the sales agreements.
EQUIPMENT ON OPERATING LEASES
- --------------------------------------------------------------------------------
Operating leases arise from the lease of John Deere equipment to retail
customers in the United States and Canada. Initial lease terms range from 12 to
72 months. The net value of John Deere equipment on operating leases was $259
million and $219 million at October 31, 1995 and 1994, respectively. Of these
leases, at October 31, 1995, $119 million was financed by the equipment
operations and $140 million by John Deere credit company. The accumulated
depreciation on this equipment was $71 million and $56 million at october 31,
1995 and 1994, respectively. The corresponding depreciation expense was $35
million in 1995, $31 million in 1994 and $29 million in 1993.
Future payments to be received on operating leases totaled $143 million at
October 31, 1995 and are scheduled as follows:
1996 - $55, 1997 - $40, 1998 - $28, 1999 - $16 and 2000 - $4.
INVENTORIES
- --------------------------------------------------------------------------------
Substantially all inventories owned by Deere & Company and its United States
equipment subsidiaries are valued at cost on the "last-in, first-out" (LIFO)
method. 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 79 percent and 82 percent of worldwide gross
inventories at fifo value on october 31, 1995 and 1994, respectively.
Under the LIFO inventory method, cost of goods sold ordinarily reflects
current production costs, thus providing a matching of current costs and current
revenues in the income statement. However, when LIFO-valued inventories decline,
as they did in 1993, lower costs that prevailed in prior years are matched
against current year revenues, resulting in higher reported net income. Benefits
from the reduction of LIFO inventories totaled $51 million ($33 million or $.14
Per share after income taxes) in 1993.
38
<PAGE>
- --------------------------------------------------------------------------------
Raw material, work-in-process and finished goods inventories at October 31,
1995 totaled $721 million on a LIFO-value basis compared with $698 million one
year ago. 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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . . . . . . $ 223 $ 206
Work-in-process . . . . . . . . . . . . . . . . . . . 343 357
Finished machines and parts. . . . . . . . . . . . . . 1,100 1,079
------ ------
Total FIFO Value. . . . . . . . . . . . . . . . . . 1,666 1,642
Adjustment to LIFO basis . . . . . . . . . . . . . . . 945 944
------ ------
INVENTORIES. . . . . . . . . . . . . . . . . . . . . . $ 721 $ 698
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
PROPERTY AND DEPRECIATION
- --------------------------------------------------------------------------------
A summary of consolidated property and equipment at October 31 in millions of
dollars follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . $ 42 $ 44
Buildings and building equipment . . . . . . . . . . . 891 869
Machinery and equipment. . . . . . . . . . . . . . . . 2,219 2,097
Dies, patterns, tools, etc . . . . . . . . . . . . . . 516 504
All other . . . . . . . . . . . . . . . . . . . . . . 476 469
Construction in progress . . . . . . . . . . . . . . . 69 55
------ ------
Total at cost . . . . . . . . . . . . . . . . . . . 4,213 4,038
Less accumulated depreciation. . . . . . . . . . . . . 2,877 2,724
------ ------
PROPERTY AND EQUIPMENT - NET . . . . . . . . . . . . . $1,336 $1,314
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
Leased property under capital leases amounting to $7 million and $11
million at October 31, 1995 and 1994, respectively, is included primarily in
machinery and equipment and all other.
Property and equipment additions and depreciation are reported on page 33.
Property and equipment expenditures for new and revised products, increased
capacity and the replacement or major renewal of significant items of property
and equipment are capitalized. Expenditures for maintenance, repairs and minor
renewals are generally charged to expense as incurred. Most of
the company's property and equipment is depreciated using
the straight-line method for financial accounting purposes. Depreciation for
United States federal income tax purposes is computed using accelerated
depreciation methods.
It is not expected that the cost of compliance with foreseeable
environmental requirements will have a material effect on the company's
financial position or operating results.
INTANGIBLE ASSETS
- --------------------------------------------------------------------------------
Consolidated net intangible assets totaled $305 million and $284
million at October 31, 1995 and 1994, respectively. The Equipment Operations'
balance of $295 million at October 31, 1995 consisted primarily of $176 million
related to the minimum pension liability required by FASB Statement No. 87, and
unamortized goodwill which resulted from the purchase cost of assets acquired
exceeding their fair value. The intangible pension asset increased by $18
million during 1995.
Intangible assets, excluding the intangible pension asset,
are being amortized over 25 years or less, and the accumulated amortization was
$30 million and $59 million at October 31, 1995 and 1994, respectively.
Accumulated amortization decreased due to the sale of the John Deere Life
Insurance Company. The intangible pension asset is remeasured and adjusted
annually. The unamortized goodwill is reviewed periodically for potential
impairment.
SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Commercial paper . . . . . . . . . . . . . . . . . . . $ 54 $ 7
Notes payable to banks . . . . . . . . . . . . . . . . 23 34
Long-term borrowings due within one year . . . . . . . 319 13
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . 396 54
------ ------
FINANCIAL SERVICES
Commercial paper . . . . . . . . . . . . . . . . . . . 2,398 1,948
Notes payable to banks . . . . . . . . . . . . . . . . 2 2
Long-term borrowings due within one year . . . . . . . 344 633
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . 2,744 2,583
------ ------
CONSOLIDATED SHORT-TERM BORROWINGS . . . . . . . . . . $3,140 $2,637
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
The weighted average interest rates on consolidated short-term borrowings,
excluding current maturities of long-term borrowings, at October 31, 1995 and
1994 were 5.9 percent and 5.0 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
$4,108 million at October 31, 1995. Some of these credit lines are available to
both the equipment operations and certain credit subsidiaries. At October 31,
1995, $1,632 million of the worldwide lines of credit were unused. For the
purpose of computing the unused credit lines, total short-term borrowings,
excluding the current portion of long-term borrowings, were considered to
constitute utilization.
Included in the above lines of credit is a long-term committed credit
agreement expiring on April 4, 2000 for $3,500 million. This agreement is
mutually extendable and the annual facility fee is .095 Percent.
The credit agreement has various requirements of John Deere Capital
Corporation, including the maintenance of its consolidated ratio of earnings
before fixed charges to fixed charges at not less than 1.05 to 1 for each fiscal
quarter. In addition, the Capital Corporation's ratio of senior debt to total
stockholder's equity plus subordinated debt may not be more than 8 to 1 at the
end of any fiscal quarter. Deere & Company has expressed an intention of
conducting business with the Capital Corporation on such terms that its ratio of
earnings before fixed charges to fixed charges will not be less than 1.05 to 1
for each fiscal quarter. These arrangements are not intended to make Deere &
Company responsible for the payment of obligations of this credit subsidiary.
The credit agreement also contains a provision requiring Deere & Company to
maintain consolidated tangible net worth of $500 million according to United
States generally accepted accounting principles as of October 31, 1994. Under
this provision, the company's total retained earnings balance was free of
restriction at October 31, 1995.
39
<PAGE>
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- --------------------------------------------------------------------------------
Accounts payable and accrued expenses at October 31 consisted
of the following in millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Accounts payable:
Trade. . . . . . . . . . . . . . . . . . . . . . . . . $ 841 $ 597
Dividends payable. . . . . . . . . . . . . . . . . . . 52 48
Other. . . . . . . . . . . . . . . . . . . . . . . . . 23 19
Accrued expenses:
Employee benefits. . . . . . . . . . . . . . . . . . . 166 161
Dealer commissions . . . . . . . . . . . . . . . . . . 153 147
Other. . . . . . . . . . . . . . . . . . . . . . . . . 625 645
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . 1,860 1,617
------ ------
FINANCIAL SERVICES
Accounts payable:
Deposits withheld from dealers and merchants . . . . . 144 127
Other. . . . . . . . . . . . . . . . . . . . . . . . . 121 139
Accrued expenses:
Unearned premiums. . . . . . . . . . . . . . . . . . . 141 142
Unpaid loss adjustment expenses. . . . . . . . . . . . 90 95
Interest payable . . . . . . . . . . . . . . . . . . . 36 45
Other. . . . . . . . . . . . . . . . . . . . . . . . . 142 121
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . 674 669
------ ------
Intercompany eliminations. . . . . . . . . . . . . . . . (1) (1)
------ ------
CONSOLIDATED ACCOUNTS PAYABLE
AND ACCRUED EXPENSES . . . . . . . . . . . . . . . . . $2,533 $2,285
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
LONG-TERM BORROWINGS
- --------------------------------------------------------------------------------
Long-term borrowings at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Notes and debentures:
Medium-term notes due 1996 - 2006:
Average interest rate of 8.9%
As of year end 1995 and 8.8%
As of year end 1994. . . . . . . . . . . . . . . . . $ 239 $ 296
8-1/4% notes due 1996. . . . . . . . . . . . . . . . . 150
9-1/8% notes due 1996. . . . . . . . . . . . . . . . . 100
Adjustable rate senior notes due 2002:
Interest rate of 7.1% As of year end
1995 and 8.5% As of year end 1994. . . . . . . . . . 60 70
8.95% debentures due 2019. . . . . . . . . . . . . . . 200 200
8-1/2% debentures due 2022 . . . . . . . . . . . . . . 200 200
Other. . . . . . . . . . . . . . . . . . . . . . . . . 4 3
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 703 $1,019
------ ------
- --------------------------------------------------------------------------------
(continued)
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES
Notes and debentures:
Medium-term notes due 1997 - 2002:
Average interest rate of 7.0% As of year
end 1995 and 1994. . . . . . . . . . . . . . . . . . $ 826 $338
4-5/8% notes due 1996. . . . . . . . . . . . . . . . . 200
7.20% Notes due 1997 . . . . . . . . . . . . . . . . . 100 100
Floating rate notes due 1998 (federal funds rate):
Swapped to an alternative variable interest
rate of 6.0% As of year end 1995 . . . . . . . . . . 150
5% Swiss franc bonds due 1999: swapped to U.S.
dollars and a variable interest rate of 6.4% As of
year end 1995 and 5.8% As of year end 1994 . . . . . 97 97
------ ------
Total notes and debentures . . . . . . . . . . . . 1,173 735
------ ------
Subordinated debt:
9-5/8% Subordinated notes due 1998: swapped
to variable interest rate of 6.5% As of
year end 1995 and 5.9% As of year end 1994 . . . . . 150 150
8-5/8% subordinated debentures due 2019:
Swapped to variable interest rate of 5.7%
As of year end 1995 and 5.3% As of year end 1994 . . 150 150
------ ------
Total subordinated debt. . . . . . . . . . . . . . 300 300
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . 1,473 1,035
------ ------
CONSOLIDATED LONG-TERM BORROWINGS. . . . . . . . . . . . $2,176 $2,054
------ ------
------ ------
- --------------------------------------------------------------------------------
</TABLE>
All of the financial services' long-term borrowings represent obligations of
John Deere Capital Corporation.
The approximate amounts of the Equipment Operations' long-term borrowings
maturing and sinking fund payments required in each of the next five years in
millions of dollars are as follows: 1996 - $319, 1997 - $79, 1998 - $49, 1999 -
$210 and 2000 - $15. The approximate amounts of the Capital Corporation's long-
term borrowings maturing and sinking fund payments required in each of the next
five years in millions of dollars are as follows: 1996 - $344, 1997 - $489, 1998
- - $393, 1999 - $248 and 2000 - $290.
LEASES
- --------------------------------------------------------------------------------
At October 31, 1995, future minimum lease payments under capital leases totaled
$1 million in 1996. Total rental expense for operating leases during 1995 was
$50 million compared with $49 million in 1994 and $48 million in 1993. At
October 31, 1995, future minimum lease payments under operating leases amounted
to $76 million as follows: 1996 - $28, 1997 - $22, 1998 - $15, 1999 - $5, 2000 -
$2, later years - $4.
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
On October 31, 1995, the company's maximum exposure under all credit receivable
recourse provisions was $188 million for retail notes sold to limited-purpose
business trusts or financial institutions by both the financial services
subsidiaries and the equipment operations. In addition, certain foreign
subsidiaries have pledged assets with a balance sheet value of $46 million as
collateral for bank advances of $1 million. Also, at October 31, 1995, the
company had commitments of approximately $55 million for construction and
acquisition of property and equipment.
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 and retail credit matters. Although it is not possible to predict with
certainty the outcome
40
<PAGE>
- --------------------------------------------------------------------------------
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 position or results of operations.
CAPITAL STOCK
- --------------------------------------------------------------------------------
On November 15, 1995, the company declared a three-for-one stock split effected
in the form of a 200 percent stock dividend to stockholders of record on
November 17, 1995. This stock split has been recorded as of October 31, 1995 by
a transfer of $175 million from retained earnings to common stock, representing
a $1 par value for each additional share issued. The number of common shares the
company is authorized to issue was also increased from 200 million to 600
million and the number of authorized preferred shares, none of which has been
issued, was increased from three million to nine million.
Changes in the common stock account in 1993, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Amount
Shares Issued* (in millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at October 31, 1992. . . . . . . . . . . . 229,572,342 $ 840
Stock issued . . . . . . . . . . . . . . . . . . . 24,150,000 535
Stock options exercised. . . . . . . . . . . . . . 3,506,499 51
Debenture conversions. . . . . . . . . . . . . . . 12,264
Other. . . . . . . . . . . . . . . . . . . . . . . 11
----------- ------
Balance at October 31,1993 . . . . . . . . . . . . 257,241,105 1,437
Stock options exercised. . . . . . . . . . . . . . 2,582,703 37
Debenture conversions. . . . . . . . . . . . . . . 91,776 1
Other. . . . . . . . . . . . . . . . . . . . . . . 16
----------- ------
Balance at October 31, 1994. . . . . . . . . . . . 259,915,584 1,491
Transfer from retained earnings for
three-for-one stock split (see above). . . . . . 175
Stock options exercised. . . . . . . . . . . . . . 2,604,114 44
Debenture conversions. . . . . . . . . . . . . . . 4,386
Other. . . . . . . . . . . . . . . . . . . . . . . 19
----------- ------
BALANCE AT OCTOBER 31, 1995. . . . . . . . . . . . 262,524,084 $ 1,729
----------- ------
----------- ------
</TABLE>
*Adjusted for three-for-one stock split.
- --------------------------------------------------------------------------------
In September 1993, the company issued 24,150,000 shares of common stock on a
post-split basis in a public offering. The net proceeds of $535 million were
used for working capital and other general corporate purposes, including the
reduction of indebtedness of the equipment operations and the credit
subsidiaries.
The calculation of net income per share is based on the average number of
shares outstanding during the year. The calculation of net income per share,
assuming full dilution, recognizes the dilutive effect of the assumed exercise
of stock appreciation rights and stock options, and conversion of convertible
debentures. The calculation also reflects adjustment for interest expense
relating to the convertible debentures, net of applicable income taxes.
The major changes on a post-split basis during 1995 affecting common stock in
treasury included the acquisition of 216,000 shares of treasury stock at a total
cost of $5.7 million. In addition, 305,127 shares of treasury stock at original
cost of $4.7 million were issued under the restricted stock plan and 14,289
shares at an original cost of $.2 million for other transactions.
RESTRICTED STOCK
- --------------------------------------------------------------------------------
Restricted shares of the company's stock are issued to key employees and
nonemployee directors under restricted stock plans approved by stockholders.
Under the plans for employees, the company establishes the performance goals and
periods of restriction for each award. The restrictions for the nonemployee
directors lapse when a director retires from the board. Under these plans,
5,340,000 shares on a post-split basis may be granted as restricted stock.
The market value of the restricted stock at the time of grant is recorded as
unamortized restricted stock compensation in a separate component of
stockholders' equity and adjusted to current market value for performance based
plans. This compensation is amortized to expense over the periods of
restriction. At October 31, 1995, 3,827,295 shares on a post-split basis
remained available for award under all plans.
Changes in the unamortized restricted stock compensation account in 1993,
1994 and 1995 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Amount
Shares Issued* (in millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1992. . . . . . . . . . 679,500 $ 7
Granted. . . . . . . . . . . . . . . . . . . . . . 211,884 4
Amortized and vested . . . . . . . . . . . . . . . (138,321) (3)
-------- ------
Outstanding at October 31, 1993. . . . . . . . . . 753,063 8
Granted. . . . . . . . . . . . . . . . . . . . . . 201,999 5
Amortized and vested . . . . . . . . . . . . . . . (147,285) (4)
-------- ------
Outstanding at October 31, 1994. . . . . . . . . . 807,777 9
Granted. . . . . . . . . . . . . . . . . . . . . . 305,127 9
Amortized and vested . . . . . . . . . . . . . . . (216,366) (6)
-------- ------
OUTSTANDING AT OCTOBER 31, 1995. . . . . . . . . . 896,538 $ 12
-------- ------
-------- ------
</TABLE>
*Adjusted for three-for-one stock split.
- --------------------------------------------------------------------------------
STOCK OPTIONS
- --------------------------------------------------------------------------------
Options for the purchase of the company's common stock are issued to key
employees under stock option plans approved by stockholders. Options outstanding
at October 31, 1995 generally become exercisable one year after the date of
grant and are exercisable up to 10 years after the date of grant.
The stock option plan includes authority to grant stock appreciation rights,
either concurrently with the grant of options or subsequently, and to accept
stock of the company in payment for shares under the options. At October 31,
1995, 9,095,190 shares on a post-split basis remained available for the granting
of options.
41
<PAGE>
- --------------------------------------------------------------------------------
During the last three fiscal years, changes in shares under option were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares* Option Price Per Share*
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1992. . . . . . . 7,809,081 $ 7.77 - $20.02
Granted. . . . . . . . . . . . . . . . . . . 3,110,457 $13.63
Exercised. . . . . . . . . . . . . . . . . .(3,506,499) $ 7.77 - $20.02
Expired or cancelled . . . . . . . . . . . . (479,052) $ 7.77 - $20.02
----------
Outstanding at October 31, 1993. . . . . . . 6,933,987 $ 7.77 - $20.02
Granted. . . . . . . . . . . . . . . . . . . 1,785,966 $23.56
Exercised. . . . . . . . . . . . . . . . . .(2,582,703) $ 7.77 - $20.02
Expired or cancelled . . . . . . . . . . . . (762,207) $ 7.77 - $23.56
----------
Outstanding at October 31, 1994. . . . . . . 5,375,043 $ 7.77 - $23.56
Granted. . . . . . . . . . . . . . . . . . . 2,526,948 $21.02
Exercised. . . . . . . . . . . . . . . . . .(2,604,114) $ 7.77 - $23.56
Expired or cancelled . . . . . . . . . . . . (159,129) $ 9.04 - $23.56
----------
OUTSTANDING AT OCTOBER 31, 1995. . . . . . . 5,138,748 $ 7.77 - $23.56
----------
----------
</TABLE>
*Adjusted for three-for-one stock split.
- --------------------------------------------------------------------------------
For options outstanding at October 31, 1995, the average exercise price was
$19.40 per share and expiration dates ranged from December 1995 to December
2004. Of the outstanding options, 265,659 on a post-split basis may be exercised
in the form of stock appreciation rights.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS
- --------------------------------------------------------------------------------
The company maintains the following significant plans for eligible
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 hourly and incentive
paid employees
Company contributions under these plans were $30 million in 1995, $12 million
in 1994 and $9 million in 1993.
RETAINED EARNINGS
- --------------------------------------------------------------------------------
AN ANALYSIS OF THE COMPANY'S RETAINED EARNINGS FOLLOWS IN MILLIONS
OF DOLLARS:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . $1,354 $ 926 $2,004
Net income (loss). . . . . . . . . . . . . . 706 604 (921)
Dividends declared . . . . . . . . . . . . . (195) (176) (157)
Transfer to capital stock for
three-for-one stock split . . . . . . . . (175)
------ ------ ------
BALANCE, END OF THE YEAR . . . . . . . . . . $1,690 $1,354 $ 926
------ ------ ------
------ ------ ------
</TABLE>
- --------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENT
- --------------------------------------------------------------------------------
An analysis of the company's cumulative translation adjustment follows in
millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . . . . . . $18 $42 $19
Translation adjustments for the year.. . . . . . . . . (6) (25) 16
Income taxes applicable to translation adjustments . . 1 7
--- --- ---
BALANCE, END OF THE YEAR . . . . . . . . . . . . . . . $12 $18 $42
--- --- ---
--- --- ---
</TABLE>
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994
----------------- ------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable securities. . . . . . . . . $ 830 $ 857 $ 1,126 $ 1,098
Credit receivables and receivables
related to asset backed securities . $ 5,533 $ 5,536 $ 4,642 $ 4,644
Long-term borrowings and related swaps:
Equipment Operations . . . . . . . . $ (703) $ (789) $(1,019) $(1,064)
Financial Services . . . . . . . . . (1,504) (1,545) (1,053) (1,048)
Interest rate and
foreign currency swaps . . . . . . 31 56 18 20
------- ------- ------- -------
Total. . . . . . . . . . . . . . . $(2,176) $(2,278) $(2,054) $(2,092)
------- ------- ------- -------
------- ------- ------- -------
- --------------------------------------------------------------------------------
</TABLE>
FAIR VALUE ESTIMATES
Fair values of marketable securities were estimated using quoted market prices.
Fair values of the long-term credit 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 credit receivables approximated the
carrying amounts. The fair values of receivables related to asset backed
securities were based on the discounted values of their related cash flows.
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.
Fair values of the John Deere Capital Corporation's long-term borrowings that
have been swapped to current variable interest rates approximated their carrying
amounts. However, the fair values of the long-term borrowings and the related
interest rate and foreign currency swaps are shown separately in the previous
table. Fair values of these swaps were based on quotes from dealers.
Fair values and carrying values of the company's other interest rate swaps
and caps associated with short-term borrowings, foreign exchange forward
contracts and options were not material.
DERIVATIVES
The company enters into derivative transactions only to hedge exposures arising
in the normal course of business, and not for the purpose of creating
speculative positions or trading. The following notional or contract amounts do
not represent amounts exchanged by the parties and, therefore, are not
representative of the company's risk. The net amounts exchanged are calculated
on the basis of the notional amounts and other terms of the derivatives such as
interest rates and exchange rates, and represent only a small portion of the
notional amounts. The credit and market risk under these agreements is not
considered to be significant since the counterparties have high credit ratings
and the fair values and carrying values are not material.
INTEREST RATE SWAPS AND CAPS
The company's credit subsidiaries have entered into interest rate swap and
interest rate cap agreements related to their borrowings in order to more
closely match the type of interest rates of the borrowings to those of the
assets being funded. The differential to be paid or received on all swap and cap
agreements is accrued as interest rates change and is recognized over the lives
of the agreements in interest expense. Premiums are amortized to interest
expense over the lives of the agreements.
42
<PAGE>
- --------------------------------------------------------------------------------
At October 31, 1995 and 1994, the total notional principal amounts of
interest rate swap agreements hedging short-term borrowings were $137 million
and $637 million, having rates of 6.5 To 7.0 percent and 4.5 To 10.0 percent,
terminating in up to four months and 16 months, respectively. The total notional
principal amount of interest rate cap agreements hedging short-term borrowings
at October 31, 1994 was $33 million, having capped rates of 6.3 to 8.3 percent,
terminating in up to nine months. There were no interest rate cap agreements at
October 31, 1995.
The Capital Corporation has entered into interest rate swap agreements with
independent parties that change the effective rate of interest on certain long-
term borrowings. The "long-term borrowings" table on page 40 reflects the
effective year-end variable interest rates relating to these swap agreements.
The notional principal amounts and maturity dates of these swap agreements are
the same as the principal amounts and maturities of the related borrowings. In
addition, the capital corporation has interest rate swap agreements
corresponding to a portion of their fixed-rate long-term borrowings. At October
31, 1995 and 1994, the total notional principal amounts of these interest rate
swap agreements were $116 million and $302 million, having variable interest
rates of 6.1 percent to 6.5 percent and 5.3 to 5.7 percent, terminating in up to
16 months and 28 months, respectively.
The Capital Corporation also has interest rate swap agreements associated
with medium-term notes. The "long-term borrowings" table on page 40 reflects the
interest rates relating to these swap agreements. At October 31, 1995 and 1994,
the total notional principal amounts of these swap agreements were $260 million
and $40 million, terminating in up to 83 months and 45 months, respectively.
FOREIGN EXCHANGE FORWARD CONTRACTS, SWAPS AND OPTIONS
The company has entered into foreign exchange forward contracts, swaps and
options in order to hedge the currency exposure of certain assets, liabilities
and expected inventory purchases. Depending on the item being hedged, the
foreign exchange forward contract and swap gains or losses are accrued as
foreign exchange rates change or deferred until expiration of the contract, and
the contract premiums are either amortized or deferred over the terms of the
contracts. The option premiums and any gains are deferred and recorded as part
of the cost of future inventory purchases. At October 31, 1995 and 1994, the
company had foreign exchange forward contracts maturing in up to seven months
and six months for $349 million and $331 million, respectively, and a foreign
currency swap agreement maturing in up to 39 months and 51 months, respectively,
for $97 million. At October 31, 1995 and 1994, the company had options maturing
in up to 24 months and 12 months for $190 million and $23 million, respectively.
The total deferred gains or losses on these foreign exchange hedges were not
significant at October 31, 1995 and 1994.
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 company's short-term borrowings mature
within three months or less.
Cash payments for interest and income taxes consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Equipment Operations . . . . . . . . . . . . . . $ 129 $ 123 $ 178
Financial Services . . . . . . . . . . . . . . . 262 202 162
Intercompany eliminations. . . . . . . . . . . . (6) (6) (4)
----- ----- -----
CONSOLIDATED . . . . . . . . . . . . . . . . . . . $ 385 $ 319 $ 336
----- ----- -----
----- ----- -----
Income taxes:
Equipment Operations . . . . . . . . . . . . . . $ 297 $ 259 $ 98
Financial Services . . . . . . . . . . . . . . . 99 88 79
Intercompany eliminations. . . . . . . . . . . . (88) (66) (60)
----- ----- -----
CONSOLIDATED . . . . . . . . . . . . . . . . . . . $ 308 $ 281 $ 117
----- ----- -----
----- ----- -----
- --------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL 1995 AND 1994 QUARTERLY 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales and revenues . . . . . $2,088 $2,812 $2,673 $2,718
Income before income taxes . . . 221 371 273 228
Net income . . . . . . . . . . . 138 237 180 151
Net income per share*. . . . . . .53 .92 .69 .57
Dividends declared per share*. . .18 1/3 .18 1/3 .18 1/3 .20
Dividends paid per share*. . . . .18 1/3 .18 1/3 .18 1/3 .18 1/3
1994
Net sales and revenues . . . . . $1,713 $2,445 $2,307 $2,512
Income before income taxes . . . 133 295 241 252
Net income . . . . . . . . . . . 87 189 158 170
Net income per share*. . . . . . .34 .73 .61 .66
Dividends declared per share*. . .16 2/3 .16 2/3 .16 2/3 .18 1/3
Dividends paid per share*. . . . .16 2/3 .16 2/3 .16 2/3 .16 2/3
</TABLE>
*Adjusted for three-for-one stock split.
- --------------------------------------------------------------------------------
Common stock per share sales prices from New York Stock Exchange Composite
transactions quotations follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 MARKET PRICE*
High . . . . . . . . . . . . .$ 25.04 $ 28.50 $ 31.75 $ 30.58
Low. . . . . . . . . . . . . .$ 20.42 $ 23.58 $ 26.96 $ 26.71
1994 MARKET PRICE*
High . . . . . . . . . . . . .$ 26.75 $ 30.29 $ 26.13 $ 25.08
Low. . . . . . . . . . . . . .$ 22.42 $ 24.88 $ 22.50 $ 21.50
</TABLE>
*Adjusted for three-for-one stock split.
- --------------------------------------------------------------------------------
At October 31, 1995, there were 24,918 holders of record of the company's $1
par value common stock and 24 holders of record of the company's 5-1/2%
convertible subordinated debentures due 2001.
DIVIDEND
- --------------------------------------------------------------------------------
A quarterly cash dividend of $.20 per share on a post-split basis was declared
at the Board of Directors' meeting held on December 6, 1995, payable on
February 1, 1996.
43
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
44
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Deere & Company:
We have audited the accompanying consolidated balance sheets of Deere & Company
and subsidiaries as of October 31, 1995 and 1994 and the related statements of
consolidated income and of consolidated cash flows for each of the three years
in the period ended October 31, 1995. 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 Company's 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 generally accepted auditing
standards. 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, 1995 and 1994 and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1995 in
conformity with generally accepted accounting principles. 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 the Notes to the Consolidated Financial Statements, effective
November 1, 1992 the Company changed its method of accounting for postretirement
benefits other than pensions.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 6, 1995
45
<PAGE>
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/ Hans W. Becherer
--------------------
Hans W. Becherer
Chairman and Chief Executive Officer
Date: 15 January 1996
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.
Signature Title Date
- --------- ----- ----
/S/ Hans W. Becherer Chairman, Director and )
- ---------------------- Chief Executive Officer )
Hans W. Becherer )
)
/S/ John R. Block Director )
- ----------------------
John R. Block )
)
/S/ Pierre E. Leroy Senior Vice President, )
- ---------------------- Principal Financial Officer )
P. E. Leroy and Principal Accounting )
Officer )
)
)
/S/ Leonard A. Hadley Director )
- ---------------------- )
Leonard A. Hadley )
)
/s/ Regina Herzlinger Director ) 15 January 1996
- ---------------------- )
Regina Herzlinger )
)
/S/ Samuel C. Johnson Director )
- ---------------------- )
Samuel C. Johnson )
)
/S/ Arthur L. Kelly Director )
- ---------------------- )
Arthur L. Kelly )
)
/S/ A. Santamarina V Director )
- ---------------------- )
A. Santamarina V )
46
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ William A. Schreyer Director ) 15 January 1996
- ---------------------- )
William A. Schreyer )
)
/s/ D. H. Stowe, Jr. Director )
- ---------------------- )
D. H. Stowe, Jr. )
)
/S/ John R. Walter Director )
- ---------------------- )
John R. Walter )
)
/S/ Dr. Arnold R. Weber Director )
- ---------------------- )
Dr. Arnold R. Weber )
47
<PAGE>
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended October 31, 1995, 1994 and 1993
(In thousands of dollars)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C
-------- -------- ----------
Additions
----------------------------------------------------------
other
Balance at Charged to Charged to accounts
beginning costs and --------------------------------------
Description of period expenses Description Amount
----------- ---------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1995
Allowance for doubtful receivables:
Equipment Operations
---------------------
Dealer receivable allowances. . . . . . . . . $ 23,003 $ 3,487 Bad debt recoveries. . . $1,645
Financial Services
------------------
Credit receivable allowances. . . . . . . . . 85,791 36,125
-------- ------- -----
Consolidated receivable
allowances. . . . . . . . . . . . . . . . . $108,794 $39,612 $1,645
-------- ------- ------
-------- ------- ------
YEAR ENDED OCTOBER 31, 1994
Allowance for doubtful receivables:
Equipment Operations Bad debt recoveries. . . $1,565
-------------------- Purchase of Homelite
Dealer receivable allowances. . . . . . . . . $ 18,051 $ 5,572 dealer receivables. . . 1,364
Financial Services
-------------------
Credit receivable allowances. . . . . . . . . 83,243 30,538
------- -------- ------
Consolidated receivable
allowances . . . . . . . . . . . . . . . . . $101,294 $36,110 $2,929
-------- -------- ------
-------- -------- ------
YEAR ENDED OCTOBER 31, 1993
Allowance for doubtful receivables:
Equipment Operations
--------------------
Dealer receivable allowances. . . . . . . . . $ 19,804 $ 2,328 Bad debt recoveries. . . . $ 909
Financial Services
------------------
Credit receivable allowances. . . . . . . . . 89,068 30,380
Consolidated receivable -------- ------- ------
allowances . . . . . . . . . . . . . . . . . $108,872 $32,708 $ 909
-------- ------- ------
-------- ------- ------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Column D Column E
---------- -----------
Deductions Balance
- --------------------------------------------------------- at end
Description Amount of period
- ----------- -------- -----------
<S> <C> <C>
Dealer receivable write-offs . . . . . . . . $ 4,123 $ 24,012
Transfers related to
retail note sales. . . . . . . . . . . . . 9,138
Credit receivable write-offs . . . . . . . . 25,063 87,715
------- --------
$38,324 $111,727
------- ---------
------- ---------
Dealer receivable write-offs . . . . . . . . $ 3,549 $ 23,003
Transfers related to
retail note sales. . . . . . . . . . . . . 3,584
Credit receivable write-offs . . . . . . . . 24,406 85,791
------- --------
$31,539 $108,794
------- --------
------- --------
Dealer receivables write-offs. . . . . . . . $ 4,990 $ 18,051
Transfers related to
retail note sales. . . . . . . . . . . . . 7,511
Credit receivable write-offs . . . . . . . . 28,694 83,243
------- --------
$41,195 $101,294
------- --------
------- --------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
3.1 Certificate of incorporation, as amended 53
3.2 Certificate of Designation Preferences and Rights of Series A
Participating Preferred Stock (Exhibit 3.2 to Form 10-Q of registrant
for the period ended April 30, 1993*)
3.3 By-laws, as amended (Exhibit 3 to Form 10-Q of registrant for the
period ended April 30, 1995*)
4.1 Indenture dated February 15, 1991 between registrant and Citibank,
N.A., as Trustee.
(Exhibit 4.1 to Form 10-Q of registrant for the quarter ended April 30,
1993*)
4.2 Credit agreements among registrant, John Deere Capital Corporation,
various financial institutions, and Chemical Bank, The Chase Manhattan
Bank (National Association), Bank of Americas National Trust and
Savings Association, Deutsche Bank AG, and The Toronto Dominion Bank,
as Managing Agents, dated as of April 5, 1995 (Exhibit 4.1(a) and
4.1(b) to 1993 Form 10-Q of registrant for the period ended April 30,
1995*)
4.3 Credit agreements among John Deere Limited, John Deere Finance
Limited, various financial institutions and The Toronto-Dominion Bank
as agent, dated as of April 5, 1995 (Exhibit 4.2(a) and 4.2(b) to Form
10-Q of registrant for the quarter ended April 30, 1995*)
4.4 Form common stock certificates (Exhibit 4.4 to Form 10-Q of registrant
for the quarter ended April 30, 1993*)
4.5 Rights Agreement dated as of December 9, 1987 as amended between
registrant and Morgan Shareholder Services Trust Company (Exhibit 4.5
to Form 10-Q of registrant for the quarter ended April 30, 1993*)
4.6 First Amendment to Rights Agreement, dated as of February 28, 1990
between registrant and First Chicago Trust Co. of New York (Exhibit
4.6 to Form 10-Q of registrant for the quarter ended April 30, 1993*)
4.7 Second Amendment to Rights Agreement, dated as of March 1, 1991
between registrant and First Chicago Trust Co. of New York (Exhibit
4.7 to Form 10-Q of registrant for the quarter ended April 30, 1993*)
50
<PAGE>
Exhibit Page
- ------- ----
Certain instruments relating to long-term debt constituting less than
10% of the registrant's total assets, are not filed as exhibits
herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The
registrant will file copies of such instruments upon request of the
Commission.
9. Not applicable
10.1 Agreement dated May 11, 1993 between registrant and John Deere Capital
Corporation concerning agricultural retail notes (Exhibit 10.1 to Form
10-Q of registrant for the quarter ended April 30, 1993*)
10.2 Agreement dated May 11, 1993 between registrant and John Deere Capital
Corporation relating to lawn and grounds care retail notes (Exhibit
10.2 to Form 10-Q of registrant for the quarter ended April 30, 1993*)
10.3 Agreement dated May 11, 1993 between John Deere Industrial Equipment
Company, a wholly-owned subsidiary of registrant and John Deere
Capital Corporation concerning industrial retail notes (Exhibit 10.3
to Form 10-Q of registrant for the quarter ended April 30, 1993*)
10.4 Agreement dated January 26, 1983 between registrant and John Deere
Capital Corporation relating to agreements on retail notes with United
States sales branches (Exhibit 10.4 to Form 10-Q of registrant for the
quarter ended April 30, 1993*)
10.5 John Deere Supplemental Pension Benefit Plan, as amended May 26, 1993.
(Exhibit 10.5 to Form 10-Q of registrant for the quarter ended April
30, 1993*)**
10.6 1986 John Deere Stock Option Plan (Exhibit 10.7 to Form 10-Q of
registrant for the quarter ended April 30, 1993*)**
10.7 1991 John Deere Stock Option Plan (Exhibit 10.8 to Form 10-Q of
registrant for the quarter ended April 30, 1993*)**
10.8 Deere & Company Voluntary Deferred Compensation Plan (Exhibit 10.9 to
Form 10-Q of registrant for the quarter ended April 30, 1993*)**
10.9 John Deere Restricted Stock Plan (Exhibit 10.10 to Form 10-Q of
registrant for the quarter ended April 30, 1993*)**
51
<PAGE>
Exhibit Page
- ------- ----
10.10 1993 Nonemployee Director Stock Ownership Plan (Exhibit to
Notice and Proxy Statement of registrant for the annual
shareholder meeting on February 24, 1993*)**
10.11 John Deere Performance Bonus Plan (Exhibit A to Notice and
Proxy Statement of registrant for the annual shareholder
meeting on February 22, 1995*)**
10.12 John Deere Equity Incentive Plan (Exhibit B to Notice and
Proxy Statement of registrant for the annual shareholder
meeting on February 22, 1995*)**
11. Computation of net income per share 65
12. Computation of ratio of earnings to fixed charges 66
13. Not applicable
16. Not applicable
18. Not applicable
21. Subsidiaries 67
22. Not applicable
23. Consent of Deloitte & Touche LLP 68
24. Not applicable
27. Financial Data Schedule 69
28. Not applicable
99.1 Press Release dated December 9, 1987 announcing adoption of
Shareholder Rights Plan (Exhibit 99.1 to Form 10-Q of registrant for
the quarter ended April 30, 1993*)
99.2 Form of Letter to Shareholders dated December 10, 1987 describing
Shareholder Rights Plan (Exhibit 99.2 to Form 10-Q of registrant for
the quarter ended April 30, 1993*)
* 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 14(c) of Form 10-K.
52
<PAGE>
EXHIBIT 3.1
DEERE & COMPANY
RESTATED CERTIFICATE OF INCORPORATION
As Adopted February 27, 1985
(As Amended February 25, 1987)
(As Amended November 17, 1995)
(The original certificate was filed with the Secretary of State of Delaware on
April 25, 1958, under the original name of John Deere & Company)
FIRST. The name of the corporation is Deere & Company.
SECOND. The registered office of the corporation in the State of Delaware
is located at 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the registered agent of the corporation is The Corporation
Trust Company.
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The stock that the corporation shall have authority to issue is
609,000,000 shares, of which 600,000,000 shares shall be common stock, $1 par
value (common stock), and 9,000,000 shares shall be preferred stock, $1 par
value (preferred stock), issuable in series.
1. COMMON STOCK PROVISIONS
1.1 DIVIDEND RIGHTS. Subject to provisions of law and the preferences of
the preferred stock, the holders of the common stock shall be entitled to
receive dividends at such time and in such amounts as may be determined by
the board of directors.
1.2 VOTING RIGHTS. Except as provided in the final two paragraphs of
section 2.6, the holders of the common stock shall have one vote for each
share on each matter submitted to a vote of the stockholders of the
corporation. Except as otherwise provided by law, or by the provisions of
the certificate of incorporation or any amendment thereto, or by
resolutions of the board of directors providing for the issue of any series
of preferred stock, the holders of the common stock shall have sole voting
power.
1.3 LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
corporation and the preferential amounts to which the
53
<PAGE>
holders of the
preferred stock shall be entitled, the holders of the common stock shall be
entitled to share ratably in the remaining assets of the corporation.
2. PREFERRED STOCK PROVISIONS
2.1 AUTHORITY OF THE BOARD OF DIRECTORS TO ISSUE IN SERIES. The preferred
stock may be issued from time to time in one or more series. Subject to
the provisions of the certificate of incorporation or any amendment
thereto, authority is expressly granted to the board of directors to
authorize the issue of one or more series of preferred stock, and to fix by
resolutions providing for the issue of each such series the voting powers,
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations and restrictions thereof
(sometimes referred to as powers, preferences and rights), to the full
extent now or hereafter permitted by law, including but not limited to the
following:
2.11 The number of shares of such series (which may subsequently be
increased by resolutions of the board of directors) and the
distinctive designation thereof;
2.12 The dividend rate of such series and any limitations,
restrictions or conditions on the payment of such dividends;
2.13 The price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed;
2.14 The amounts which the holders of the shares of such series are
entitled to receive upon any liquidation, dissolution or winding up of
the corporation;
2.15 The terms of any purchase, retirement or sinking fund to be
provided for the shares of such series;
2.16 The terms, if any, upon which the shares of such series shall be
convertible into or exchangeable for shares of any other series, class
or classes, or other securities, and the terms and conditions of such
conversion or exchange;
2.17 The voting powers, if any, of such series in addition to the
voting powers provided in this article.
The preferred stock of each series shall rank on a parity with the
preferred stock of every other series in priority of payment of dividends and in
the distribution of assets in the event of any liquidation, dissolution or
winding up of the corporation, whether voluntary or involuntary, to the extent
of the preference to which the preferred stock of the respective series shall be
entitled under the provisions of the certificate of incorporation or any
amendment thereto or the resolutions of the board of directors providing for the
issue of such series. All shares of any one series of preferred stock shall be
identical except as to the dates of
54
<PAGE>
issue and the dates from which dividends on shares of the series issued on
different dates shall accumulate (if cumulative).
2.2 DEFINITIONS
2.21 The term "arrearages," whenever used in connection with
dividends on any share of preferred stock, shall refer to the
condition that exists as to dividends, to the extent that they are
cumulative (either unconditionally, or conditionally to the extent
that the conditions have been fulfilled), on such share which shall
not have been paid or declared and set apart for payment to the date
or for the period indicated; but the term shall not refer to the
condition that exists as to dividends, to the extent that they are
non- cumulative, on such share which shall not have been paid or
declared and set apart for payment.
2.22 The term "stock junior to the preferred stock," whenever used
with reference to the preferred stock, shall mean the common stock and
other stock of the corporation over which the preferred stock has
preference or priority in the payment of dividends or in the
distribution of assets on any dissolution, liquidation or winding up
of the corporation.
2.23 The term "subsidiary" shall mean any corporation, association or
business trust, the majority of whose outstanding shares (at the time
of determination) having voting power for the election of directors or
trustees, either at all times or only so long as no senior class of
shares has such voting power because of arrearages in dividends or
because of the existence of some default, is owned directly or
indirectly by the corporation.
2.3 DIVIDEND RIGHTS
2.31 The holders of the preferred stock of each series shall be
entitled to receive, when and as declared by the board of directors,
preferential dividends in cash payable at such rate, from such date,
and on such quarterly dividend payment dates and, if cumulative,
cumulative from such date or dates, as may be fixed by the resolutions
of the board of directors providing for the issue of such series. The
holders of the preferred stock shall not be entitled to receive any
dividends thereon other than those specifically provided for by the
certificate of incorporation or any amendment thereto, or such
resolutions of the board of directors, nor shall any arrearages in
dividends on the preferred stock bear any interest.
2.32 So long as any of the preferred stock is outstanding, no
dividends (other than dividends payable in stock junior to the
preferred stock or in options, rights or warrants to purchase or
acquire such stock junior to the preferred and cash in lieu of
fractional shares in connection with any such dividend) shall be
paid or
55
<PAGE>
declared in cash or otherwise, nor shall any other distribution be
made, on any stock junior to the preferred stock, unless
2.321 there shall be no arrearages in dividends on preferred
stock for any past quarterly dividend period, and dividends in
full for the current quarterly dividend period shall have been
paid or declared on all preferred stock (cumulative and non-
cumulative); and
2.322 the corporation shall have paid or set aside all amounts,
if any, then or theretofore required to be paid or set aside for
all sinking funds, if any, for the preferred stock of any series;
and
2.323 the corporation shall not be default on any of its
obligations to redeem any of the preferred stock.
2.33 So long as any of the preferred stock is outstanding, no shares
of any stock junior to the preferred stock shall be purchased,
redeemed or otherwise acquired by the corporation or by any subsidiary
except in connection with a reclassification or exchange of any stock
junior to the preferred stock through the issuance of other stock
junior to the preferred stock (or of options, rights or warrants to
purchase or acquire such stock junior to the preferred), or the
purchase, redemption or other acquisition of any stock junior to the
preferred stock with proceeds of a reasonably contemporaneous sale of
other stock junior to the preferred stock (or of options, rights or
warrants to purchase or acquire such stock junior to the preferred),
nor shall any funds be set aside or made available for any sinking
fund for the purchase or redemption of any stock junior to the
preferred stock, unless
2.331 there shall be no arrearages in dividends on preferred
stock for any past quarterly dividend period; and
2.332 the corporation shall have paid or set aside all amounts,
if any, then or theretofore required to be paid or set aside for
all sinking funds, if any, for the preferred stock of any series;
and
2.333 the corporation shall not be in default on any of its
obligations to redeem any of the preferred stock.
2.34 Subject to the foregoing provisions and not otherwise, such
dividends (payable in cash, property or stock junior to the preferred
stock or in options, rights or warrants to purchase or acquire such
stock junior to the preferred) as may be determined by the board of
directors may be declared and paid on the shares of any stock junior
to the preferred stock from time to time, and in the event of the
declaration and payment of any such dividends, the holders of such
stock
56
<PAGE>
junior to the preferred shall be entitled, to the exclusion of
holders of the preferred stock, to share ratably therein according to
their respective interests.
2.35 Dividends in full shall not be declared or paid or set apart for
payment on any series of preferred stock, unless there shall be no
arrearages in dividends on preferred stock for any past quarterly
dividend period and dividends in full for the current quarterly
dividend period shall have been paid or declared on all preferred
stock to the extent that such dividends are cumulative, and any
dividends paid or declared when dividends are not so paid or declared
in full shall be shared ratably by the holders of all series of
preferred stock in proportion to such respective arrearages and unpaid
and undeclared current quarterly cumulative dividends.
2.4 LIQUIDATION RIGHTS
2.41 In the event of any liquidation, dissolution or winding up of
the corporation, whether voluntary or involuntary, the holders of
preferred stock of each series shall be entitled to receive the full
preferential amount fixed by the certificate of incorporation or any
amendment thereto, or by the resolutions of the board of directors
providing for the issue of such series, including any arrearages in
dividends thereon to the date fixed for the payment in liquidation,
before any distribution shall be made to the holders of any stock
junior to the preferred stock. After such payment in full to the
holders of the preferred stock, the remaining assets of the
corporation shall then be distributable exclusively among the holders
of any stock junior to the preferred stock outstanding, according to
their respective interests.
2.42 If the assets of the corporation are insufficient to permit the
payment of the full preferential amounts payable to the holders of the
preferred stock of the respective series in the event of a
liquidation, dissolution or winding up, then the assets available for
distribution to holders of the preferred stock shall be distributed
ratably to such holders in proportion to the full preferential amounts
payable on the respective shares.
2.43 A consolidation or merger of the corporation with or into one or
more other corporations or a sale of all or substantially all of the
assets of the corporation shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
2.5 REDEMPTION
2.51 The provisions of this section 2.5 shall apply only to those
series of preferred stock to which such provisions are expressly made
applicable by resolutions of the board of directors providing for the
issue of such series.
57
<PAGE>
2.52 At the option of the board of directors, the corporation may
redeem the whole or any part of the preferred stock, or of any series
thereof, at any time or from time to time within the period during
which such stock is by its terms redeemable at the option of the board
of directors, by paying such redemption price thereof as shall have
been fixed by the resolutions of the board of directors providing for
the issue of the preferred stock to be redeemed, including an amount
in the case of each share so to be redeemed equal to any arrearages in
dividends thereon to the date fixed for redemption (the total amount
so to be paid being hereinafter called the "redemption price").
2.53 Unless expressly provided otherwise in the resolutions of the
board of directors providing for the issue of the preferred stock to
be redeemed, (i) notice of each such redemption shall be mailed not
less than thirty days nor more than ninety days prior to the date
fixed for redemption to each holder of record of shares of the
preferred stock to be redeemed, at his address as the same may appear
on the books of the corporation, and (ii) in case of a redemption of a
part only of any series of the preferred stock, the shares of such
series to be redeemed shall be selected pro rata or by lot or in such
other manner as the board of directors may determine. The board of
directors shall have full power and authority, subject to the
limitations and provisions contained in the certificate of
incorporation or any amendment thereto or in the resolutions of the
board of directors providing for the issue of the preferred stock to
be redeemed, to prescribe the manner in which and the terms and
conditions upon which the preferred stock may be redeemed from time to
time.
2.54 If any such notice of redemption shall have been duly given,
then on and after the date fixed in such notice of redemption (unless
default shall be made by the corporation in the payment or deposit of
the redemption price pursuant to such notice) all arrearages in
dividends, if any, on the shares of preferred stock so called for
redemption shall cease to accumulate, and on such date all rights of
the holders of the preferred stock so called for redemption shall
cease and terminate except the right to receive the redemption price
upon surrender of their certificates for redemption and such rights,
if any, of conversion or exchange as may exist with respect to such
preferred stock under the resolutions of the board of directors
providing for the issue of such preferred stock.
2.55 If, before the redemption date specified in any notice of the
redemption of any preferred stock, the corporation shall deposit the
redemption price with a bank or trust company in Chicago, Illinois or
New York, New York having a capital and surplus of at least $5,000,000
according to its last published statement of condition, in trust for
payment on the redemption date to the holders of the preferred stock
to be redeemed, from and after the date of such deposit all rights of
the holders of the preferred stock so called for redemption shall
cease and terminate except the right to receive the redemption price
upon surrender of their
58
<PAGE>
certificates for redemption and such rights,
if any, of conversion or exchange as may exist with respect to such
preferred stock under the resolutions of the board of directors
providing for the issue of such preferred stock. Any funds so
deposited which are not required for such redemption because of the
exercise of any such right of conversion or exchange subsequent to the
date of such deposit shall be returned to the corporation forthwith.
The corporation shall be entitled to receive from the depositary, from
time to time, the interest, if any allowed on such funds deposited
with it, and the holders of the shares so redeemed shall have no claim
to any interest. Any funds so deposited and remaining unclaimed at
the end of six years from the redemption date shall, if thereafter
requested by the board of directors, be repaid to the corporation.
2.56 Shares of preferred stock of any series may also be subject to
redemption through operation of any sinking fund created therefor, in
the manner hereinabove prescribed under section 2.5, at the redemption
prices and under the terms and provisions contained in the resolutions
of the board of directors providing for the issue of such series.
2.57 The corporation shall not be required to register a transfer of
any share of preferred stock (i) within fifteen days preceding a
selection for redemption of shares of the series of preferred stock of
which such share is a part or (ii) which has been selected for
redemption.
2.58 During the continuance of any arrearages in dividends for any
past quarterly dividend period or a failure in fulfillment of any
sinking fund or redemption obligation on any series of preferred
stock, the corporation shall not purchase or redeem any shares of
preferred stock or of any other stock ranking on a parity with the
preferred stock as to dividends or upon liquidation, nor permit any
subsidiary to do so, without the consent given in writing or
affirmative vote given in person or by proxy at a meeting called for
the purpose, by the holders of at least 66-2/3 percent of all the
shares of preferred stock then outstanding; provided that (i) to meet
the requirements of any purchase, retirement or sinking fund
provisions with respect to any series, the corporation may use shares
of such series acquired by it prior to such arrearages in dividends or
failure of payment and then held by it as treasury stock, valued at
redemption price, and (ii) the corporation may complete the purchase
or redemption of shares of preferred stock for which a purchase
contract was entered into for any purchase, retirement or sinking fund
purposes, or the notice of redemption of which was initially mailed,
prior to such arrearages in dividends or failure of payment.
2.59 If any obligation to retire shares of preferred stock is not
paid in full on all series as to which such obligation exists, the
number of shares of each such series to be retired pursuant to any
such obligation shall be in proportion to the
59
<PAGE>
respective amounts which
would be payable if all amounts payable for the retirement of all such
series were discharged in full.
2.6 RESTRICTIONS ON CERTAIN ACTION AFFECTING PREFERRED STOCK. The
corporation will not, without the consent given in writing or affirmative
vote given in person or by proxy at a meeting called for the purpose,
2.61 by the holders of at least 66-2/3 percent of all the shares of
preferred stock then outstanding, (i) create any other class or
classes of stock ranking prior to the preferred stock, either as to
dividends or upon liquidation, or create any stock or other security
convertible into or exchangeable for or evidencing the right to
purchase any such stock so ranking prior to the preferred stock, or
increase the authorized number of shares of any such other class of
stock or other security, (ii) amend, alter or repeal any of the
provisions of the certificate of incorporation or any amendment
thereto so as to affect adversely the powers, preferences or rights of
the holders of the preferred stock; or
2.62 by the holders of at least 66-2/3 percent of the shares of any
series of preferred stock then outstanding, amend, alter or repeal any
of the provisions of the certificate of incorporation or any amendment
thereto or of the resolutions of the board of directors providing for
the issue of such series so as to affect adversely the powers,
preferences or rights of the holders of the preferred stock of such
series; or
2.63 by the holders of at least a majority of all the shares of
preferred stock then outstanding, (i) increase the authorized amount
of the preferred stock, or (ii) create any other class or classes of
stock ranking on a parity with the preferred stock, either as to
dividends of upon liquidation, or create any stock or other security
convertible into or exchangeable for or evidencing the right to
purchase any such stock ranking on a parity with the preferred stock,
or increase the authorized number of shares of any such other class of
stock or other security.
If an amendment described in clause (ii) of subsection 2.61 would in
no way affect adversely the powers, preferences or rights of the holders of any
stock of the corporation other than the preferred stock, such amendment may be
made effective by the adoption and filing of an appropriate amendment to the
certificate of incorporation of the corporation without obtaining the consent or
vote of the holders of any stock of the corporation other than the preferred
stock.
If an amendment described in subsection 2.62 would in no way affect
adversely the powers, preferences or rights of the holders of any stock of the
corporation other than the preferred stock of such series, such amendment may be
made effective by the adoption and filing of an appropriate amendment to the
certificate of incorporation of the corporation without obtaining the consent or
vote of the holders of any stock of the corporation other than the preferred
stock of such series.
60
<PAGE>
2.7 ELECTION OF DIRECTORS BY HOLDERS OF CERTAIN PREFERRED STOCK IN EVENT
OF NON-DECLARATION OF DIVIDENDS.
2.71 The provisions under section 2.7 shall apply only to those
series of preferred stock (applicable preferred stock) to which such
provisions are expressly made applicable by resolutions of the board
of directors providing for the issue of such series.
2.72 Whenever declarations of dividends (including non-cumulative
dividends) on any share of any series of applicable preferred stock
shall be omitted in an aggregate amount equal to six quarterly
dividends on such share the holders of the applicable preferred stock
shall have the exclusive and special right (in addition to any other
voting rights), voting separately as a class and without regard to
series, to elect at an annual meeting of stockholders or special
meeting held in place thereof, or at a special meeting of the holders
of the applicable preferred stock called as hereinafter provided, two
members of the board of directors, until four consecutive quarterly
dividends shall have been paid on or declared and set apart for
payment on such share, if the share is non-cumulative, or until all
arrearages in dividends and dividends in full for the current
quarterly period shall have been paid or declared and set apart for
payment on the share, if the share is cumulative, whereupon all voting
rights as a class provided for under section 2.7 shall be divested
from the applicable preferred stock (subject, however, to being at any
time or from time to time similarly revived if declarations of
dividends for subsequent quarterly periods shall be omitted).
2.73 At any time after the holders of the applicable preferred stock
shall have thus become entitled to elect two members of the board of
directors, the secretary of the corporation may, and upon written
request of holders of record of at least 10 percent of the shares of
the applicable preferred stock then outstanding addressed to him at
the principal office of the corporation shall, call a special meeting
of the holders of the applicable preferred stock for the purpose of
electing such directors, to be held at the place of annual meetings of
shareholders of the corporation as soon as practicable after the
receipt of such request upon the notice provided by law and the
bylaws of the corporation for the holding of special meetings of
shareholders; provided, however, that the secretary need not call any
such special meeting if the next annual meeting of stockholders is to
convene within ninety days after the receipt of such request. If such
special meeting shall not be called by the secretary within thirty
days after receipt of such request (not including, however, a request
falling within the proviso to the foregoing sentence), then the
holders of record of at least 10 percent of the shares of the
applicable preferred stock then outstanding may designate in writing
one of their number to call such a meeting at the place and upon the
notice above provided, and any person so designated for that purpose
shall have access to the stock records of the corporation for such
purpose.
61
<PAGE>
2.74 At any meeting at which the holders of the applicable preferred
stock shall be entitled to vote for the election of such two directors
as above provided, the holders of 33-1/3 percent of the applicable
preferred stock then outstanding present in person or by proxy shall
constitute a quorum for the election of such two directors and for no
other purpose, and the vote of the holders of a majority of the
applicable preferred stock so present at any such meeting at which
there shall be such a quorum shall be sufficient to elect two
directors. The election of such directors or one such director shall
automatically increase the number of members of the board of directors
by the number of directors so elected. The classes in which such
directors serve, as provided by article sixth, may be designated by
the holders of the applicable preferred stock, unless such classes
have been previously designated by the board of directors. The
persons so elected as directors by the holders of the applicable
preferred stock shall hold office until their successors shall have
been elected by such holders or until the right of the holders of the
applicable preferred stock to vote as a class in the election of
directors shall be divested as provided in subsection 2.72. Upon
divestment of the right to elect directors as above provided, any
directors so elected by the holders of the applicable preferred stock
shall forthwith cease to be directors of the corporation, and the
number of directorships shall automatically be reduced accordingly.
If a vacancy occurs in a directorship elected by the holders of the
applicable preferred stock voting as a class, a successor may be
appointed by the remaining director so elected by the holders of the
applicable preferred stock.
2.75 At any such meeting or any adjournment thereof, (i) the absence
of a quorum of the holders of the applicable preferred stock shall not
prevent the election of the directors other than those to be elected
by the holders of the applicable preferred stock voting as a class,
and the absence of a quorum of holders of the shares entitled to vote
for directors other than those to be elected by the holders of the
applicable preferred stock voting as a class, shall not prevent the
election of the directors to be elected by the holders of the
applicable preferred stock voting as a class, and (ii) in the absence
of a quorum of the holders of the applicable preferred stock, the
holders of a majority of the applicable preferred stock present in
person or by proxy shall have power to adjourn from time to time the
meeting for the election of the directors which they are entitled to
elect voting as a class, without notice other than announcement at the
meeting, until a quorum shall be present, and in the absence of a
quorum of the holders of the shares entitled to vote for directors
other than those elected by the holders of the applicable preferred
stock voting as a class, the holders of a majority of such stock
present in person or by proxy shall have power to adjourn from time to
time the meeting for the election of the directors which they are
entitled to elect, without notice other than announcement at the
meeting, until a quorum shall be present.
62
<PAGE>
3. OTHER PROVISIONS
3.1 AUTHORITY FOR ISSUANCE OF SHARES. The board of directors shall have
authority to authorize the issuance, from time to time without any vote or
other action by the stockholders, of any or all shares of stock of the
corporation of any class at any time authorized, and any securities
convertible into or exchangeable for any such shares, and any options,
rights or warrants to purchase or acquire any such shares, in each case to
such persons and on such terms (including as a dividend or distribution on
or with respect to, or in connection with a split or combination of, the
outstanding shares of stock of the same or any other class) as the board of
directors from time to time in its discretion lawfully may determine;
provided, however, that the consideration for the issuance of shares of
stock of the corporation having par value (unless issued as such a dividend
or distribution or in connection with such a split or combination) shall
not be less than such par value. Shares so issued, shall be full paid
stock, and the holders of such stock shall not be liable to any further
call or assessments thereon.
3.2 ABANDONMENT OF DIVIDENDS AND DISTRIBUTIONS. Anything herein contained
to the contrary notwithstanding, any and all right, title, interest, and
claim in or to any dividends declared, or other distributions made, by the
corporation, whether in cash, stock or otherwise, which are unclaimed by
the stockholder entitled thereto for a period of six years after the close
of business on the payment date, shall be and be deemed to be extinguished
and abandoned; and such unclaimed dividends or other distributions in the
possession of the corporation, its transfer agents or other agents or
depositaries, shall at such time become the absolute property of the
corporation, free and clear of any and all claims of any persons
whatsoever.
FIFTH. The board of directors shall have authority to adopt, make, alter
and repeal the bylaws of the corporation.
SIXTH. The business and affairs of the corporation shall be managed by or
under the direction of a board of directors consisting of not less than three
nor more than eighteen directors. The exact number shall be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution.
The directors shall be divided into three classes, each class
consisting, as nearly as may be possible, of one-third of the total number of
directors constituting the entire board of directors. At each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes by the board of directors so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class. In
no case will a decrease in the number of directors shorten the term of any
incumbent director even though such decrease may result in an inequality of the
classes until the expiration of such term.
63
<PAGE>
A director shall hold office until the annual meeting for the year in which
his term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement or removal from
office. No director may be removed except for cause. Any vacancy on the
board of directors that results from an increase in the number of directors
may be filled by a majority of the board of directors then in office, and any
other vacancy occurring on the board of directors may be filled by a majority
of the directors then in office, although less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this certificate of incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this article
sixth unless expressly provided by such terms.
SEVENTH. Each person who is or was a director or officer of the
corporation, and each person who serves or served at the request of the
corporation as a director or officer (or equivalent) of another enterprise,
shall be indemnified by the corporation to the fullest extent authorized by the
General Corporation Law of Delaware as it may be in effect from time to time,
except as to any action, suit or proceeding brought by or on behalf of a
director or officer without prior approval of the board of directors.
EIGHTH. No stockholder action required to be taken or which may be taken
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, and the power of stockholders to consent in writing without a
meeting to the taking of any action is specifically denied.
NINTH. No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article NINTH
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
64
<PAGE>
EXHIBIT 11
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
For the Five Years Ended October 31, 1995
(All amounts other than per share data
are stated in thousands)
<TABLE>
<CAPTION>
Year Ended October 31
-----------------------
1995 1994
-------- --------
<S> <C> <C>
1. Net income (loss)...................... $706,105 $603,563
2. Adjustment - Interest expense,
after income tax benefit,
applicable to convertible
debentures outstanding............... 22 35
-------- --------
3. Net income (loss) applicable to common
stock - before interest applicable
to convertible debentures............ $706,127 $603,598
-------- --------
-------- --------
PRIMARY NET INCOME PER COMMON SHARE:
Shares:
4. Weighted average number of common
shares outstanding................... 260,494 258,438
-------- --------
-------- --------
5. Incremental shares:
Dilutive common stock options........ 1,647 1,359
Dilutive stock appreciation
rights............................. ----------------
58 144
-------- --------
Total incremental shares........... 1,705 1,503
-------- --------
-------- --------
6. Primary net income (loss) per common
share (1 divided by 4)............... $ 2.71* $ 2.34*
-------- --------
-------- --------
FULLY DILUTED NET INCOME PER COMMON SHARE:
Shares:
7. Weighted average number of common
shares outstanding................... 260,494 258,438
8. Incremental shares:
Dilutive common stock options........ 1,833 1,503
Dilutive stock appreciation
rights............................. 67 147
9. Common equivalent shares from
assumed conversion of
convertible debentures:
5-1/2% debentures due 2001......... 54 57
-------- --------
10. Total.............................. 262,448 260,145
-------- --------
-------- --------
11. Fully diluted net income (loss) per
common share (3 divided by 10)....... $ 2.71* $ 2.34*
-------- --------
-------- --------
<CAPTION>
Year Ended October 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
1. Net income (loss)...................... $(920,860) $ 37,426 $(20,191)
2. Adjustment - Interest expense,
after income tax benefit,
applicable to convertible
debentures outstanding............... 60 67 91
-------- -------- --------
3. Net income (loss) applicable to common
stock - before interest applicable
to convertible debentures............ $(920,800) $ 37,493 $(20,100)
-------- -------- --------
-------- -------- --------
PRIMARY NET INCOME PER COMMON SHARE:
Shares:
4. Weighted average number of common
shares outstanding................... 231,874 228,822 228,493
-------- -------- --------
-------- -------- --------
5. Incremental shares:
Dilutive common stock options........ 3,000 441 813
Dilutive stock appreciation
rights............................. 66 33 33
-------- -------- --------
Total incremental shares .......... 3,066 474 846
-------- -------- --------
-------- -------- --------
6. Primary net income (loss) per common
share (1 divided by 4) .............. $ (3.97)* $ .16* $ (.09)*
-------- -------- --------
-------- -------- --------
65
FULLY DILUTED NET INCOME PER COMMON SHARE:
Shares:
7. Weighted average number of common
shares outstanding................... 231,874 228,822 228,493
8. Incremental shares:
Dilutive common stock options........ 3,378 441 966
Dilutive stock appreciation
rights............................. 126 45 48
9. Common equivalent shares from
assumed conversion of
convertible debentures:
5-1/2% debentures due 2001......... 150 162 177
-------- -------- --------
10. Total.............................. 235,528 229,470 229,684
-------- -------- --------
-------- -------- --------
11. Fully diluted net income (loss) per
common share (3 divided by 10)....... $ (3.97)* $ .16* $ (.09)*
-------- -------- --------
-------- -------- --------
</TABLE>
* Net income per common share outstanding was used in the designated
calculations since the dilutive effect of common stock options, stocks
appreciation rights and assumed conversion of convertible debentures
was either immaterial or antidilutive. All share and per share amounts
have been adjusted retroactively for a three-for-one stock split
effective November 17,1995.
65
<PAGE>
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended October 31
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Earnings:
Income (loss) of consolidated
group before income taxes
and changes in accounting....... $1,092,751 $ 920,920
Dividends received from
less than fifty percent
owned affiliates................ 2,023 2,329
Fixed charges net of
capitalized interest............ 399,056 310,047
---------- ----------
Total earnings.................. $1,493,830 $1,233,296
---------- ----------
---------- ----------
Fixed charges:
Interest expense of
consolidated group (includes
capitalized interest)........... $ 392,408 $ 303,080
Portion of rental charges
deemed to be interest........... 6,661 7,008
---------- ----------
Total fixed charges............. 399,069 $ 310,088
---------- ----------
---------- ----------
Ratio of earnings to
fixed charges**................... 3.74 3.98
---------- ----------
<CAPTION>
Year Ended October 31
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Income (loss) of consolidated
group before income taxes
and changes in accounting....... $272,345 $ 43,488 $(26,176)
Dividends received from
less than fifty percent
owned affiliates................ 1,706 2,325 6,229
Fixed charges net of
capitalized interest............ 375,238 420,133 454,092
-------- -------- --------
Total earnings.................. $649,289 $465,946 $434,145
-------- -------- --------
-------- -------- --------
Fixed charges:
Interest expense of
consolidated group (includes
capitalized interest)........... $369,325 $415,205 $451,936
Portion of rental charges
deemed to be interest........... 6,127 6,720 4,088
-------- -------- --------
Total fixed charges............. $375,452 $421,925 $456,024
-------- -------- --------
-------- -------- --------
Ratio of earnings to
fixed charges**................... 1.73 1.10 *
-------- -------- --------
-------- -------- --------
__________
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 which is deemed to be
representative of the interest factor, and capitalized interest.
* For the year ended October 31, 1991, earnings available for fixed charges coverage were $22 million less than the amount
required for a ratio of earnings to fixed charges of 1.0.
** 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.
</TABLE>
66
<PAGE>
EXHIBIT 21
DEERE & COMPANY
AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
As of October 31, 1995
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.
Organized
Under the
Name of Subsidiary Laws of
- ------------------ ---------
Subsidiaries included in consolidated
financial statements *
John Deere Industrial Equipment Company......... Delaware
John Deere Limited.............................. Canada
John Deere - Lanz Verwaltungs A.G.
(99.9% owned by Deere & Company).............. Germany
John Deere S.A.................................. France
John Deere Iberica S.A.......................... Spain
John Deere Intercontinental GmbH (Germany)...... Germany
Chamberlain Holdings Limited (Australia)........ Australia
John Deere Limited Australia ................... Australia
John Deere Power Products, Inc.................. Tennessee
John Deere Foreign Sales Corporation Limited.... Jamaica
John Deere Credit Company....................... Delaware
John Deere Capital Corporation.................. Delaware
John Deere Finance Limited...................... Canada
John Deere Receivables, Inc..................... Nevada
Deere Credit, Inc............................... Delaware
Deere Credit Services, Inc...................... Delaware
John Deere Insurance Group, Inc................. Delaware
John Deere Insurance Company of Canada.......... Canada
Rock River Insurance Company.................... Illinois
Sierra General Life Insurance Company........... Nevada
Tahoe Insurance Company......................... Nevada
John Deere Insurance Company.................... Illinois
John Deere Health Care, Inc..................... Delaware
Heritage National Healthplan, Inc............... Illinois
Heritage National Healthplan of Tennessee, Inc.. Tennessee
John Deere Family Healthplan, Inc............... Illinois
_________
* Twenty-four consolidated subsidiaries and seventeen unconsolidated
affiliates whose names are omitted, considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
67
<PAGE>
EXHIBIT 23
[DELOITTE & TOUCHE LLP - LOGO]
- ------------------------------
------------------------------------------------------
Two Prudential Plaza Telephone:(312) 946-3000
180 North Stetson Avenue Facsimile;(312) 946-2600
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-62630, 2-76637, 2-77915, 2-90384, 33-15949, 33-17990, 33-24397, 33-44294,
33-49740, 33-49742, 33-49762, 33-55551, 33-55549, and 33-57897 of Deere &
Company on Form S-8 and in Registration Statements No. 33-54165, 33-39006,
33-54149, and 33-66134 of Deere & Company on Form S-3, of our report dated
December 6, 1995, appearing in the Annual Report on Form 10-K of Deere &
Company for the year ended October 31, 1995 and to the reference to us under
the heading "Experts" in the Prospectuses, which are a part of such
Registration Statements.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
January 15, 1996
68
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000315189
<NAME> DEERE & COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<CASH> 364
<SECURITIES> 830
<RECEIVABLES> 9,211
<ALLOWANCES> 112
<INVENTORY> 721
<CURRENT-ASSETS> 0
<PP&E> 4,213
<DEPRECIATION> 2,878
<TOTAL-ASSETS> 13,847
<CURRENT-LIABILITIES> 0
<BONDS> 2,176
0
0
<COMMON> 1,729
<OTHER-SE> 1,356
<TOTAL-LIABILITY-AND-EQUITY> 13,847
<SALES> 8,830
<TOTAL-REVENUES> 10,291
<CGS> 6,922
<TOTAL-COSTS> 7,804
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> 1,093
<INCOME-TAX> 398
<INCOME-CONTINUING> 706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> 2.71
<EPS-DILUTED> 2.71
</TABLE>
