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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K 405
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 2000
Commission file number 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 36-2382580
(State of incorporation) (IRS Employer Identification No.)
One John Deere Place, Moline, Illinois 61265 (309) 765-8000
(Address of principal executive offices) (Zip Code) (Telephone Number)
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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
8.95% Debentures Due 2019 New York Stock Exchange
8-1/2% Debentures Due 2022 New York Stock Exchange
6.55% Debentures Due 2028 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, 2000 was $10,743,291,523. At December 31, 2000,
234,656,260 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, 2001
are incorporated by reference in Part III.
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PART I
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ITEM 1. BUSINESS.
Products
Deere & Company (Company) and its subsidiaries (collectively called John Deere)
have operations which are categorized into four major business segments.
The worldwide agricultural equipment segment manufactures and distributes a
full line of farm equipment -- including tractors; combine, cotton and
sugarcane harvesters; tillage, seeding and soil preparation machinery;
sprayers; hay and forage equipment; materials handling equipment; and
integrated precision farming technology.
The worldwide commercial and consumer equipment segment manufactures and
distributes equipment for commercial and residential uses -- including
small tractors for lawn, garden, commercial and utility purposes; riding
and walk-behind mowers; golf course equipment; snowblowers; handheld
products such as chain saws, string trimmers and leaf blowers; skid-steer
loaders; utility vehicles; and other outdoor power products.
The worldwide construction equipment segment manufactures and distributes a
broad range of machines used in construction, earthmoving, material
handling and timber harvesting - including backhoe loaders; crawler dozers
and loaders; four-wheel-drive loaders; excavators; motor graders;
articulated dump trucks; forklifts; landscape loaders; and log skidders,
feller bunchers, loaders, forwarders, harvesters and related attachments.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and major retail outlets.
The credit segment primarily finances sales and leases by John Deere
dealers of new and used agricultural, commercial and consumer, and
construction equipment and sales by non-Deere dealers of recreational
products. In addition, it provides wholesale financing to dealers of the
foregoing equipment, provides operating loans and finances retail revolving
charge accounts.
John Deere's worldwide agricultural; commercial and consumer; construction
equipment and special technologies operations are sometimes referred to as the
"Equipment Operations." The credit and health care operations are sometimes
referred to as "Financial Services."
Additional information is presented in the discussion of business segment and
geographic area results on pages 21, 22, 24, 37 and 38. 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
Based on a favorable outlook for further growth in the Equipment Operations, the
Company's worldwide physical volume of sales is currently forecast to increase
by 28 percent for the first quarter of 2001, in comparison with the
corresponding 2000 period, and by 11 percent for the full year.
Agricultural Equipment. The Company expects North American industry retail sales
of farm machinery to be slightly higher next year. Lower than anticipated global
production of grain and oilseeds has resulted in a modest price improvement for
these commodities in recent weeks as well as a reduction in carryover stocks. At
the same time, farmers remain in sound overall financial condition. In other
areas,
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industry retail sales of farming machinery are expected to be down 5 percent
next year in Europe and flat in Latin America and Australia. Sales of John Deere
farm equipment are expected to move higher next year due in large part to the
continued success of newly introduced products and this year's reduction in used
goods inventories held by dealers. Partially offsetting these factors will be
continued expenditures related to growth.
Commercial and Consumer Equipment. In a slowing economic environment, industry
retail sales for these products -- which include lawn care equipment and
worksite and utility vehicles -- are expected to be slightly lower in 2001 than
in 2000. However, the segment's sales and financial results are expected to
improve on the strength of new products and recent steps to improve
profitability.
Construction Equipment. Housing starts, though remaining high by historical
standards, are expected to be lower in 2001 for the second year in a row. Lumber
production in this environment is expected to be scaled back, but pulp
production should continue to expand in light of global economic growth and
higher pulp prices. As a result of these factors, industry sales of construction
equipment are expected to fall by 7 to 10 percent in 2001. The Company's
construction equipment operations are expected to experience further growth next
year due in large part to the success of new products and the full year
inclusion of the sales of the Timberjack Group, the recently acquired
manufacturer of forestry machines. These factors will be partially offset by
further growth related expenditures.
Credit Operations. Credit is expected to benefit next year from continued growth
in its receivable portfolio both in North American and international markets.
The Company is in position to improve its financial and operating performance in
2001 and is encouraged by the firming tone of farm commodity prices. In
addition, customers have responded positively to the Company's many new,
innovative products, and significant progress has been made in bringing down
used equipment inventories. At the same time, the Company's initiatives aimed at
growth and quality improvement remain well on track.
2000 Consolidated Results Compared with 1999
Net income in 2000 totaled $486 million, or $2.06 per share diluted ($2.07
basic), compared with $239 million, or $1.02 per share diluted ($1.03 basic), in
1999. The earnings more than doubled this year primarily due to improved
manufacturing efficiencies associated with higher sales and production volumes.
Net sales and revenues increased 12 percent to $13,137 million in 2000, compared
with $11,751 million in 1999. Net sales of the Equipment Operations increased 15
percent in 2000 to $11,169 million from $9,701 million last year. Despite
weakness in the Company's major markets, sales rose due to production and
shipments to dealers being better aligned with retail demand this year, market
share gains and the inclusion of Timberjack sales, partially offset by the
impact of weaker European currencies. Overseas net sales increased 8 percent and
excluding the impact of weaker foreign currencies were up 17 percent for the
year. Overall, the Company's worldwide physical volume of sales increased 18
percent for the year.
The Company's Equipment Operations, which exclude the Financial Services
operations and unconsolidated affiliates, had net income of $311 million in
2000, compared with $43 million in 1999. The operating profit from Equipment
Operations also increased significantly to $693 million in 2000, compared to
$272 million in 1999. The increases were primarily due to manufacturing
efficiencies associated with higher sales and production volumes, in addition to
lower pension and postretirement health care costs and the effect of quality and
efficiency improvement initiatives. Partially offsetting these factors were
increases in the cost of promotional programs related to used farm equipment
held by dealers and higher expenses regarding the development of new products
and growth initiatives. Last year's results included a charge for early
retirement programs.
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Net income of the Company's Financial Services operations in 2000 was $173
million, compared with $187 million in 1999. Additional credit operations
information is presented on pages 24 and 25. Insurance and health care premiums,
claims and benefits expenses, and investment income all decreased this year due
to the sale of the insurance subsidiaries in the fourth quarter of 1999.
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, farm land prices, farmers' debt
levels, interest rates, agricultural trends and the levels of costs associated
with farming. Weather and climatic conditions can also affect buying decisions
of equipment purchasers.
Innovations to machinery and technology also influence buying. Alternative
tillage practices have been adopted by many farmers to control soil erosion and
lower production costs. John Deere has responded to this shift by delivering
leading edge planters, drills and tillage equipment. Additionally, the Company
has developed a comprehensive agricultural management systems approach using
advanced technology and global satellite positioning that should enable farmers
to better control input costs and yields and to improve environmental
management.
Large, cost-efficient, highly-mechanized agricultural operations account for an
important share of worldwide farm output. The large-size agricultural equipment
used on such farms has been particularly important to John Deere. A large
proportion of the Equipment Operations' total agricultural equipment sales in
the United States is comprised of tractors over 100 horsepower, self-propelled
combines and self-propelled cotton pickers.
Seasonality. Seasonal patterns in retail demand for agricultural equipment
result in substantial variations in the volume and mix of products sold to
retail customers during various times of the year. Seasonal demand must be
estimated in advance, and equipment must be manufactured in anticipation of such
demand in order to achieve efficient utilization of manpower and facilities
throughout the year. For certain equipment, the Company offers early order
discounts to retail customers. Production schedules are based, in part, on these
early order programs. The Equipment Operations incur substantial seasonal
indebtedness with related interest expense to finance production and inventory
of equipment, 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 the merger of certain large
integrated competitors, the competitive environment is undergoing significant
change.
Commercial and Consumer Equipment
John Deere commercial and consumer equipment includes rear-engine riding mowers,
front-engine lawn tractors, lawn and garden tractors, compact utility tractors,
utility tractors, skid steer loaders, front mowers, small utility vehicles and
handheld products such as chain saws, string trimmers and leaf blowers. A broad
line of associated implements for mowing, tilling, snow and debris handling,
aerating, and many other residential, commercial, golf and sports turf care
applications are also included. The product line also includes walk-behind
mowers, snow throwers and other outdoor power products. Retail sales of
commercial
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and consumer equipment products are influenced by weather conditions, consumer
spending patterns and general economic conditions.
The division sells entry-level lawn, yard and garden tractors and walk-behind
mowers under the name "Sabre by John Deere" in North America. The division also
sells consumer products under the Homelite and Green Machine brand names and
sells walk-behind mowers in Europe under the SABO brand name and commercial
mowing equipment under the Roberine brand name. The division also builds
products for sale by others. Beginning in 1999, the Company has built products
under the Scott's(TM) and Homelite brands for sale through Home Depot stores.
In addition to the equipment manufactured by the commercial and consumer
division, John Deere purchases certain products from other manufacturers for
resale.
Construction Equipment
John Deere construction, earthmoving, material handling and forestry equipment
includes a broad range of backhoe loaders, crawler dozers and loaders, four-
wheel-drive loaders, excavators, motor graders and articulated dump trucks;
forklifts, landscape loaders, log skidders, wheel and track log feller bunchers,
trailer mounted log loaders, log forwarders, wheel and track log harvesters,
track log loaders and a variety of attachments.
Today, the Equipment Operations provide sizes of equipment that compete for over
90 percent of the estimated total North American market for those categories of
construction, earthmoving and material handling equipment in which it competes.
These construction, earthmoving and material handling machines are distributed
under the Deere brand name. In addition to the equipment manufactured by the
construction equipment division, John Deere purchases certain products from
other manufacturers for resale.
The product line was substantially expanded in 2000 as a consequence of the
division's acquisition of the Timberjack Group, the world's leading manufacturer
of forestry machines and attachments. Today, the Equipment Operations provide
the most complete line of forestry machines and attachments available in the
world. These forestry machines and attachments are distributed under both the
Deere and Timberjack brand names.
The prevailing levels of residential, commercial and public construction and the
condition of the forest products industry influence retail sales of John Deere
construction, earthmoving, material handling and forestry equipment. General
economic conditions, the level of interest rates and certain commodity prices
such as those applicable to pulp, paper and saw logs also influence sales.
The Company and Hitachi Construction Machinery Co., Inc. of Japan ("Hitachi")
have a joint venture for the manufacture of hydraulic excavators in the United
States and Mexico and for the distribution of excavators in North, Central and
South America. The Company also has supply agreements with Hitachi under which a
range of construction, earthmoving and material handling products manufactured
by John Deere in the United States are distributed by Hitachi in Japan and other
Far East markets.
The division has a number of initiatives in the rent-to-rent market for
construction, earthmoving and material handling equipment. These include
specially designed rental programs for John Deere dealers, expanded cooperation
with major national equipment rental companies and direct participation in the
rent-to-rent market through the Company's minority ownership in Sunstate
Equipment Co., LLC.
The Company also has minority ownership interests in Nortrax Inc. and Nortrax
II, Inc., companies involved in the distribution and service of construction
equipment. Nortrax Inc. and Nortrax II, Inc. are,
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among other things, authorized John Deere dealers for construction, earthmoving,
material handling and forestry equipment in a variety of markets in North
America. Additional information on the businesses of Nortrax Inc. and Nortrax
II, Inc. appears in Note 1 to the Consolidated Financial Statements.
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 $542 million, or 4.9 percent of net sales of equipment in
2000, and $458 million, or 4.7 percent in 1999.
Manufacturing
Manufacturing Plants. In the United States and Canada, the Equipment Operations
own and operate 28 factory locations and lease and operate two factory
locations, which contain approximately 31.5 million square feet of floor space.
Of these 30 factories, nine are devoted primarily to agricultural equipment,
nine to commercial and consumer equipment, two to non-forestry construction
equipment, one to engines, two to hydraulic and power train components, two to
special technology equipment, and five to forestry equipment. Overseas, the
Equipment Operations own and operate: agricultural equipment factories in
Argentina, France, Germany, Mexico, The Netherlands, Brazil and South Africa;
engine factories in Argentina, France and Mexico; a component factory in Spain;
commercial and consumer equipment factories in Germany, Mexico and The
Netherlands; and forestry equipment factories in Finland, Sweden and New
Zealand. These overseas factories contain approximately 10.2 million square feet
of floor space. The Equipment Operations also have financial interests in other
manufacturing organizations, which include agricultural equipment manufacturers
in China, India and the United States, an industrial truck manufacturer in South
Africa and a joint venture that builds construction 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.
Capacity is adequate to satisfy anticipated retail demand. The Equipment
Operations' manufacturing strategy involves the implementation of appropriate
levels of technology and automation to allow manufacturing processes to remain
viable at varying production levels. Operations are also designed to be flexible
enough to accommodate the product design changes required to meet market
requirements. Common manufacturing facilities and techniques are employed in the
production of components for agricultural, commercial and consumer and
construction equipment.
In order to utilize manufacturing facilities and technology more effectively,
the Equipment Operations pursue continuous improvements in manufacturing
processes. These include steps to streamline manufacturing processes and enhance
customer responsiveness. The Company has implemented flexible assembly lines
that can handle a wider product mix and deliver products at the times when
dealers and customers require them. Additionally, considerable effort is being
directed to manufacturing cost reduction through process improvement, product
design, advanced manufacturing technology, enhanced environmental management
systems, supply management and compensation incentives related to productivity
and organizational structure. The Equipment Operations also pursue external
sales of selected parts and components that can be manufactured and supplied to
third parties on a competitive basis.
Capital Expenditures. The agricultural, commercial and consumer, and
construction equipment operations' capital expenditures totaled $399 million in
2000 compared with $291 million in 1999 and $425 million in 1998. Provisions for
depreciation applicable to these operations' property, plant and equipment
during these years were $280 million, $268 million and $267 million,
respectively. Capital expenditures for these operations in 2001 are currently
estimated to approximate $570 million. The 2001 expenditures will be
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associated with new products, factory and operations improvement programs and
the manufacture and marketing of products in new markets such as Mexico, India,
China, Brazil and the former Soviet Union. Future levels of capital expenditures
will depend on business conditions.
Patents and Trademarks
John Deere owns a significant number of patents, licenses and trademarks which
have been obtained over a period of years. The Company believes that, in the
aggregate, the rights under these patents, licenses and trademarks are generally
important to its operations, but does not consider that any patent, license,
trademark or related group of them (other than its house trademarks) is of
material importance in relation to John Deere's business.
Marketing
In the United States and Canada, the Equipment Operations, excluding certain
consumer product lines, distribute equipment and service parts through the
following facilities (collectively called sales branches): one agricultural
equipment sales and administration office supported by seven agricultural
equipment sales branches; one construction, earthmoving, material handling and
forestry equipment sales and administration office representing the Deere brand;
one forestry equipment sales and administration office representing the
Timberjack brand; and one commercial and consumer equipment sales and
administration office.
In addition, the Equipment Operations operate a centralized parts distribution
warehouse in coordination with several regional parts depots in the United
States and Canada and have an agreement with a third party to operate a high-
volume parts warehouse in Indiana.
The sales branches in the United States and Canada market John Deere products at
approximately 3,994 dealer locations, most of which are independently owned. Of
these, 1,650 sell agricultural equipment, while 527 sell construction,
earthmoving, material handling and/or forestry equipment. Some of these are
owned by Nortrax Inc. and Nortrax II, Inc., entities in which the Company has
minority interests. Commercial and consumer equipment is sold by most John Deere
agricultural equipment dealers, a few construction, earthmoving, material
handling and forestry equipment dealers, and about 1,817 commercial and consumer
equipment dealers, many of whom also handle competitive brands and dissimilar
lines of products. In addition, the Sabre, Homelite, Green Machine and
Scott's/TM/ 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 122 countries by sales branches located in five
European countries, South Africa, Mexico, Brazil, Argentina, Uruguay and
Australia, by export sales branches in Europe and the United States, and by
associated companies doing business in the former Soviet Union and China.
Commercial and consumer equipment sales overseas occur primarily in Europe and
Australia. Outside North America, construction, earthmoving, material handling
and forestry equipment is sold primarily by export sales offices located in the
United States, Brazil, Singapore and Sweden.
Trade Accounts and Notes Receivable
Trade accounts and notes receivable arise from sales of goods to dealers. Trade
accounts and notes receivable were $3.2 billion at October 31, 2000 compared
with $3.3 billion at October 31, 1999 and $4.1 billion at October 31, 1998. At
those dates, the ratios of worldwide trade accounts and notes receivable to
fiscal year net sales, were 28 percent, 34 percent and 34 percent, respectively.
The highest month-end balance of such receivables during each of the past two
fiscal years was $3.9 billion at March 31, 2000 and $4.3 billion at April 30,
1999. Additional information appears in Note 6 to the Consolidated Financial
Statements.
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John Deere Special Technologies Group
John Deere Special Technologies Group (JDSTG) consists of five operating units
that offer a range of electronic, wireless-communication, information-system and
Internet-related products and services to the Company and outside customers.
JDSTG's purpose is to integrate advanced technology into John Deere equipment
and to make such advancements directly available to customers through a variety
of business relationships and ventures. One JDSTG unit, Phoenix International,
makes electronic devices that control and monitor a variety of mobile-equipment
functions. Another, AGRIS Corporation, is the world's leading supplier of
information-management systems for agribusinesses. A third unit, VantagePoint
Network, a joint venture, offers a Web site for collecting, storing and
interpreting data generated by farming operations. NavCom develops systems for
tracking the exact position of vehicles, and for transmitting data to and from
vehicles on the move. John Deere Information Systems provides information-
technology products and services to John Deere dealers.
FINANCIAL SERVICES
Credit Operations
United States and Canada. The Company's credit subsidiaries (collectively
referred to as the Credit Companies) provide and administer financing for retail
purchases of new and used John Deere agricultural, construction, and commercial
and consumer equipment. Deere & Company and John Deere Construction Equipment
Company are referred to as the "sales companies." John Deere Capital Corporation
(Capital Corporation), a United States credit subsidiary, purchases retail
installment sales and loan contracts (retail notes) from the sales companies.
These retail notes are acquired by the sales companies through John Deere retail
dealers in the United States. John Deere Credit Inc., a Canadian credit
subsidiary, purchases and finances retail notes acquired by John Deere's
equipment sales branches in Canada. The terms of retail notes and the basis on
which the Credit Companies acquire retail notes from the sales companies are
governed by agreements with the sales companies. The Credit Companies purchase
and finance retail notes unrelated to John Deere, representing primarily notes
acquired from independent recreational vehicle dealers and notes acquired from
independent manufactured housing dealers. The Credit Companies also finance and
service revolving charge accounts and operating loans through merchants or farm
input providers in the agricultural, construction, and lawn and grounds care
markets as well as insured international export financing products (revolving
charge accounts) and, additionally, provide wholesale financing for inventories
of yachts, John Deere engines and John Deere agricultural and construction
equipment owned by dealers of those products (wholesale notes).
Retail notes acquired by the sales companies are immediately sold to the Credit
Companies. The Equipment Operations are the Credit Companies' major source of
business, but in some cases, retail purchasers of John Deere products finance
their purchases outside the John Deere organization.
The Credit Companies offer retail leases to equipment users in the United
States. A small number of leases are executed with units of local government.
Leases are usually written for periods of two to five years, and frequently
contain an option permitting the customer to purchase the equipment at the end
of the lease term. Retail leases are also offered in a generally similar manner
to customers in Canada through John Deere Credit Inc. and the Company's Canadian
sales subsidiary, John Deere Limited.
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 construction equipment, 10 percent on lawn and grounds care
equipment used for personal use, and 10 percent for
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recreational vehicles. Finance charges are sometimes waived for specified
periods or reduced on certain John Deere products sold or leased in advance of
the season of use or in other sales promotions. The Credit Companies generally
receive compensation from the Equipment Operations equal to a competitive
interest rate for periods during which finance charges are waived or reduced on
the retail notes or leases. The cost is accounted for as a deduction in arriving
at net sales by the Equipment Operations.
The Company has an agreement with the Capital Corporation to make income
maintenance payments to the Capital Corporation such that its ratio of earnings
before fixed charges to fixed charges is not less than 1.05 to 1 for each fiscal
quarter. For 2000 and 1999, the Capital Corporation's ratios were 1.48 to 1 and
1.64 to 1, respectively. The Company has also committed to continue to own at
least 51 percent of the voting shares of capital stock of the Capital
Corporation and to maintain the Capital Corporation's consolidated tangible net
worth at not less than $50 million. These arrangements are not intended to make
the Company responsible for the payment of any indebtedness, obligation or
liability of the Capital Corporation or any of its direct or indirect
subsidiaries. No payments were necessary under this agreement in 1999 or 2000.
Additional information on the Credit Companies appears under the caption "Credit
Operations" on pages 24 and 25.
Overseas. The Credit Companies offer equipment financing products in Argentina,
Australia, Brazil, Finland, France (through a joint venture), Germany,
Luxembourg, Mexico, New Zealand, Sweden and the United Kingdom. Retail sales
financing outside of the United States and Canada is affected by a diversity of
customs and regulations.
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 had been developed from
efforts to control its own health care costs. John Deere Health Care currently
provides health management programs and related administrative services, through
its health maintenance organization subsidiary, John Deere Health Plan, Inc.,
for companies located in Illinois, Iowa, Tennessee and Virginia. At October 31,
2000, approximately 438,000 individuals were enrolled in these programs, of
which approximately 70,800 were John Deere employees, retirees and their
dependents.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of state, federal and international
environmental laws, rules and regulations. These laws, rules and regulations may
affect the way the Company conducts its operations, and failure to comply with
these regulations could lead to fines and other penalties. The Company is also
involved in the evaluation and clean-up of a limited number of sites currently
owned. Management does not expect that these matters will have a material
adverse effect on the consolidated financial position or results of operations
of the Company. With respect to recently acquired properties, the Company cannot
be certain that it has identified all adverse environmental conditions. The
Company will acquire additional properties in the future.
EMPLOYEES
At October 31, 2000, John Deere had approximately 43,700 full-time employees,
including approximately 28,000 employees in the United States and Canada. From
time to time, John Deere also retains consultants, independent contractors, and
temporary and part-time workers. Unions are certified as bargaining agents for
approximately 45 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, 2003.
The majority of employees at John Deere facilities in Canada and overseas are
also represented by unions.
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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.
<TABLE>
<CAPTION>
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Name, age and office (at December 31, 2000), Principal occupation during last five years other
and year elected to office than office of the Company currently held
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<S> <C> <C> <C> <C>
Robert W. Lane 51 Chairman, President and 2000 2000 President and Chief Executive Officer; 1999-2000
Chief Executive Officer Division President, 1998-99 Senior Vice President,
Ag Division, and Managing Director, Region II;
1996-98 Senior Vice President and Chief Financial
Officer; 1995-96 Senior Vice President, Ag Division;
1992-95 Director Latin America, the Far East,
Australia and South Africa
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John J. Jenkins 55 Division President 2000 1997-2000 President, John Deere Health Care; 1999-2000
also Executive Sponsor, SAP; 1995-1997, Vice
President & Comptroller
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Ferdinand F. Korndorf 51 Division President 1995 1994-95 Senior Vice President
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Pierre E. Leroy 52 Division President 1996 1994-96 Senior Vice President and Chief Financial Officer
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Michael P. Orr 53 Division President 1997 1997 and prior, President, John Deere Credit
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James R. Jenkins 55 Senior Vice President 2000 1999 and prior, Vice President, Secretary and General
and General Counsel Counsel, Dow Corning
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Nathan J. Jones 44 Senior Vice President 1998 1995-98 Vice President and Treasurer
and Chief Financial
Officer
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John K. Lawson 60 Senior Vice President 1996 1995-96 Division President; 1992-95 Senior Vice
President
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H. J. Markley 50 Senior Vice President 2000 1996-2000 Senior Vice President, Construction Division;
1996 and prior General Manager John Deere Waterloo
Works
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</TABLE>
ITEM 2. PROPERTIES.
See "Manufacturing" in Item 1.
The Equipment Operations own or lease nineteen facilities housing sales
branches, one centralized parts depot, regional parts depots, transfer houses
and warehouses throughout the United States and Canada. These facilities contain
approximately 5.5 million square feet of floor space. The Equipment Operations
also own and occupy buildings housing sales branches, one centralized parts
depot and regional parts depots in Australia, Brazil, Europe and New Zealand.
These facilities contain approximately 1.6 million square feet of floor space.
Deere & Company administrative offices, research facilities and certain
facilities for health care activities, all of which are owned by John Deere,
together contain about 2.1 million square feet of floor space and miscellaneous
other facilities total 0.6 million square feet. John Deere also leases space in
various locations totaling about 3.1 million square feet.
Overall, the Company owns approximately 50.4 million square feet of facilities
and leases an additional 4.2 million square feet in various locations.
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<PAGE>
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, retail credit, software licensing, patent and trademark matters. One
of these actions is Caterpillar Inc. v. Deere & Company, filed in the Federal
District Court in Chicago, in which Caterpillar is charging the Company with
infringement of a patent on rubber tracked tractors. On August 13, 1999, the
court granted a motion for summary judgment in favor of the Company. In granting
the motion filed by the Company, the District Court Judge determined there was
no infringement. Caterpillar appealed and on September 14, 2000, the appellate
court vacated the summary judgment and remanded the case for a trial by a jury.
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.
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 Information (Unaudited)" in Note 25.
ITEM 6. SELECTED FINANCIAL DATA.
Financial Summary
<TABLE>
<CAPTION>
================================================================================================================
(Millions of dollars except per share amounts) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended October 31:
Total net sales and revenues $13,137 $11,751 $13,822 $12,791 $11,229
Net income $ 486 $ 239 $ 1,021 $ 960 $ 817
Net income per share - basic $ 2.07 $ 1.03 $ 4.20 $ 3.78 $ 3.14
Net income per share - diluted $ 2.06 $ 1.02 $ 4.16 $ 3.74 $ 3.11
Dividends declared per share $ .88 $ .88 $ .88 $ .80 $ .80
At October 31:
Total assets $20,469 $17,578 $18,002 $16,320 $14,653
Long-term borrowings $ 4,764 $ 3,806 $ 2,792 $ 2,623 $ 2,425
================================================================================================================
</TABLE>
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 21 through 26.
10
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to a variety of market risks, including interest rates
and currency exchange rates. The Company attempts to actively manage these
risks. See the information under "Management's Discussion and Analysis" on page
26, Note 22, "Financial Instruments" and the supplementary data under "Financial
Instrument Risk Information" on page 39.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the consolidated financial statements and notes thereto and supplementary
data on pages 14 through 20 and 27 through 39.
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 18,
2001 (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 "Compensation of
Executive Officers" and "Compensation of Directors" 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 certain beneficial owners in
the proxy statement under the caption "Principal Holders of Voting
Securities" is incorporated herein by reference.
(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, (ii) certain named executive
officers and (iii) the directors and officers as a group, contained in the
proxy statement under the captions "Election of Directors", "Directors
Continuing in Office", "Named Executive Officers Who Are Not Directors",
"Summary Compensation Table" and "Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values" is incorporated herein
by reference.
(c) Change in control.
None.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information in the proxy statement under the caption "Certain Business
Relationships" is incorporated herein by reference.
PART IV
================================================================================
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Page
(a) (1) Financial Statements
Statement of Consolidated Income for the years ended
October 31, 2000, 1999, and 1998 14
Consolidated Balance Sheet, October 31, 2000 and 1999 16
Statement of Consolidated Cash Flows for the years ended
October 31, 2000, 1999, and 1998 18
Statement of Changes in Consolidated Stockholders' Equity
for the years ended October 31, 2000, 1999, and 1998. 20
Notes to Consolidated Financial Statements 27
(a) (2) Schedule to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts for the years ended
October 31, 2000, 1999, and 1998 44
(a) (3) Exhibits
See the "Index to Exhibits" on pages 45 and 46 of this report.
Certain instruments relating to long-term borrowings, constituting less
than 10 percent 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 reports on Form 8-K dated August 15, 2000 (Item 7); and
September 13, 2000 (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.
12
<PAGE>
13
<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) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales and Revenues
Net sales of equipment....................................................................... $11,168.6 $ 9,701.2 $11,925.8
Finance and interest income.................................................................. 1,321.3 1,104.4 1,007.1
Insurance and health care premiums........................................................... 473.7 716.1 692.9
Investment income............................................................................ 18.6 61.4 73.1
Other income................................................................................. 154.6 167.8 122.6
--------- --------- ---------
Total...................................................................................... 13,136.8 11,750.9 13,821.5
--------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of goods sold........................................................................... 8,936.1 8,177.5 9,233.7
Research and development expenses............................................................ 542.1 458.4 444.4
Selling, administrative and general expenses................................................. 1,504.9 1,362.1 1,309.4
Interest expense............................................................................. 676.5 556.6 519.4
Insurance and health care claims and benefits................................................ 380.5 594.9 579.0
Other operating expenses..................................................................... 319.2 236.3 175.6
--------- --------- ---------
Total...................................................................................... 12,359.3 11,385.8 12,261.5
--------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Income of Consolidated Group before Income Taxes............................................. 777.5 365.1 1,560.0
Provision for income taxes................................................................... 293.8 134.7 553.9
--------- --------- ---------
Income of Consolidated Group................................................................. 483.7 230.4 1,006.1
--------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates
Credit..................................................................................... .6 (.3) .1
Other...................................................................................... 1.2 9.1 15.2
--------- --------- ---------
Total.................................................................................... 1.8 8.8 15.3
--------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Net Income................................................................................... $ 485.5 $ 239.2 $ 1,021.4
========= ========= =========
------------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income - basic........................................................................... $ 2.07 $ 1.03 $ 4.20
Net income - diluted......................................................................... $ 2.06 $ 1.02 $ 4.16
Dividends declared........................................................................... $ .88 $ .88 $ .88
====================================================================================================================================
</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 in Note 1 to the consolidated financial statements. The
consolidated group data in the "Equipment Operations" income statement reflect
primarily the results of the agricultural equipment, commercial and consumer
equipment, and construction equipment operations. The supplemental "Financial
Services" consolidating data in this statement includes primarily Deere &
Company's credit operations. Transactions between the "Equipment Operations" and
"Financial Services" have been eliminated to arrive at the "Consolidated" data.
The notes to consolidated financial statements are an integral part of this
statement.
14
<PAGE>
<TABLE>
<CAPTION>
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(Deere & Company with Financial Services on the Equity Basis)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31 Year Ended October 31
2000 1999 1998 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11,168.6 $9,701.2 $11,925.8
99.1 92.5 131.1 $1,245.4 $1,027.1 $ 887.0
493.0 741.9 720.8
7.7 1.1 10.9 60.3 73.1
101.5 86.1 40.4 83.9 110.2 85.9
--------- -------- --------- -------- -------- --------
11,376.9 9,880.9 12,097.3 1,833.2 1,939.5 1,766.8
--------- -------- --------- -------- -------- --------
------------------------------------------------------------------------------------------------------------------------------------
8,952.2 8,193.1 9,252.7
542.1 458.4 444.4
1,149.4 953.6 932.5 357.9 411.4 382.8
183.1 161.9 128.0 516.5 409.9 402.3
380.5 602.8 585.8
44.3 28.6 50.4 306.6 235.6 125.2
--------- -------- --------- -------- -------- --------
10,871.1 9,795.6 10,808.0 1,561.5 1,659.7 1,496.1
--------- -------- --------- -------- -------- --------
------------------------------------------------------------------------------------------------------------------------------------
505.8 85.3 1,289.3 271.7 279.8 270.7
194.7 42.1 458.1 99.1 92.6 95.8
--------- -------- --------- -------- -------- --------
311.1 43.2 831.2 172.6 187.2 174.9
--------- -------- --------- -------- -------- --------
------------------------------------------------------------------------------------------------------------------------------------
161.5 174.9 162.8 .6 (.3) .1
12.9 21.1 27.4 .1 .2
--------- -------- --------- -------- -------- --------
174.4 196.0 190.2 .6 (.2) .3
--------- -------- --------- -------- -------- --------
------------------------------------------------------------------------------------------------------------------------------------
$ 485.5 $ 239.2 $ 1,021.4 $ 173.2 $ 187.0 $ 175.2
========= ======== ========= ======== ======== ========
------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
15
<PAGE>
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED
(Deere & Company and Consolidated Subsidiaries)
------------------------------------------------------------------------------------------------------------------------------------
(In millions of dollars except per share amounts) October 31
ASSETS 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments.................................................... $ 291.7 $ 295.5
Cash deposited with unconsolidated subsidiaries
--------- ---------
Cash and cash equivalents........................................................ 291.7 295.5
Marketable securities.............................................................. 127.4 315.5
Receivables from unconsolidated subsidiaries and affiliates........................ 230.9 30.2
Trade accounts and notes receivable - net.......................................... 3,169.2 3,251.1
Financing receivables - net........................................................ 8,275.7 6,742.6
Other receivables.................................................................. 395.3 273.9
Equipment on operating leases - net................................................ 1,954.4 1,654.7
Inventories........................................................................ 1,552.9 1,294.3
Property and equipment - net....................................................... 1,912.4 1,782.3
Investments in unconsolidated subsidiaries and affiliates.......................... 190.7 151.5
Intangible assets - net............................................................ 652.2 295.1
Prepaid pension costs.............................................................. 635.3 619.9
Other assets....................................................................... 256.8 185.5
Deferred income taxes.............................................................. 740.4 598.1
Deferred charges................................................................... 84.1 88.0
--------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Total.............................................................................. $20,469.4 $17,578.2
========= =========
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings.............................................................. $ 5,758.5 $ 4,488.2
Payables to unconsolidated subsidiaries and affiliates............................. 32.7 15.5
Accounts payable and accrued expenses.............................................. 2,976.4 2,432.8
Insurance and health care claims and reserves...................................... 63.4 55.4
Accrued taxes...................................................................... 57.5 144.8
Deferred income taxes.............................................................. 74.6 63.0
Long-term borrowings............................................................... 4,764.3 3,806.2
Retirement benefit accruals and other liabilities.................................. 2,440.1 2,478.0
--------- ---------
Total liabilities.............................................................. 16,167.5 13,483.9
--------- ---------
-----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value (authorized - 600,000,000 shares; issued -
266,042,070 shares in 2000 and 265,760,670 shares in 1999), at stated value..... 1,864.4 1,850.4
Common stock in treasury, 31,486,348 shares in 2000 and 31,995,775 shares
in 1999, at cost................................................................ (1,439.0) (1,469.4)
Unamortized restricted stock compensation.......................................... (10.9) (21.3)
Retained earnings.................................................................. 4,117.2 3,855.3
--------- ---------
Total liabilities............................................................... 4,531.7 4,215.0
--------- ---------
Minimum pension liability adjustment............................................... (8.5) (18.9)
Cumulative translation adjustment.................................................. (222.4) (107.4)
Unrealized gain on marketable securities........................................... 1.1 5.6
--------- ---------
Accumulated other comprehensive income (loss)................................... (229.8) (120.7)
--------- ---------
Total stockholders' equity...................................................... 4,301.9 4,094.3
--------- ---------
------------------------------------------------------------------------------------------------------------------------------------
Total.............................................................................. $20,469.4 $ 17,578.2
========= ==========
------------------------------------------------------------------------------------------------------------------------------------
</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 in Note 1 to the consolidated financial statements. The
supplemental "Financial Services" consolidating data in this statement includes
primarily Deere & Company's credit operations. Transactions between the
"Equipment Operations" and "Financial Services" have been eliminated to arrive
at the "Consolidated" data.
The notes to consolidated financial statements are an integral part of this
statement.
16
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(Deere & Company with Financial Services on the Equity Basis)
------------------------------------------------------------------------------------------------------------------------------------
October 31 October 31
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 91.4 $ 111.7 $ 200.3 $ 183.8
548.3 117.4
--------- --------- --------- --------
639.7 229.1 200.3 183.8
205.3 127.4 110.1
408.4 266.0 140.0 4.8
3,169.2 3,251.1
125.0 118.4 8,150.7 6,624.2
266.4 129.4 128.9 144.5
5.9 2.6 1,948.5 1,652.2
1,552.9 1,294.3
1,864.6 1,738.8 47.7 43.5
1,561.8 1,362.8 10.1 9.9
651.2 294.8 1.1 .3
635.3 619.9
117.5 95.7 139.3 89.8
736.4 592.9 3.9 5.2
78.4 80.8 5.7 7.2
--------- --------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
$11,812.7 $10,281.9 $10,903.6 $8,875.5
========= ========= ========= ========
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
$ 927.5 $ 642.2 $ 4,831.1 $3,846.0
41.4 15.5 856.9 358.1
2,360.8 1,891.9 615.6 540.8
63.4 55.4
45.5 138.1 11.9 6.8
2.5 7.2 72.1 55.8
1,717.7 1,036.1 3,046.7 2,770.1
2,415.4 2,456.6 24.8 21.3
--------- --------- --------- --------
7,510.8 6,187.6 9,522.5 7,654.3
--------- --------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
1,864.4 1,850.4 258.6 229.1
(1,439.0) (1,469.4)
(10.9) (21.3)
4,117.2 3,855.3 1,152.1 1,005.6
--------- --------- --------- --------
4,531.7 4,215.0 1,410.7 1,234.7
-------- --------- --------- --------
(8.5) (18.9)
(222.4) (107.4) (30.7) (15.0)
1.1 5.6 1.1 1.5
-------- --------- --------- --------
(229.8) (120.7) (29.6) (13.5)
-------- --------- --------- --------
4,301.9 4,094.3 1,381.1 1,221.2
-------- --------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
$11,812.7 $10,281.9 $10,903.6 $8,875.5
======== ========= ========= ========
====================================================================================================================================
</TABLE>
17
<PAGE>
Deere & Company
STATEMENT OF CONSOLIDATED CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
CONSOLIDATED
(Deere & Company and Consolidated Subsidiaries)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended October 31
(In millions of dollars) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income........................................................................... $ 485.5 $ 239.2 $1,021.4
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful receivables................................................ 75.0 73.5 57.0
Provision for depreciation and amortization....................................... 647.9 542.4 463.2
Undistributed earnings of unconsolidated subsidiaries and affiliates.............. (1.2) (5.8) (13.2)
Provision (credit) for deferred income taxes...................................... (132.9) (162.4) 141.9
Changes in assets and liabilities:
Receivables................................................................... (53.8) 802.3 (724 6)
Inventories................................................................... (184.0) 50.7 (192.6)
Accounts payable and accrued expenses......................................... 540.0 (170.8) (40.7)
Other......................................................................... (296.5) 65.4 (295.5)
-------- --------- --------
Net cash provided by operating activities................................... 1,080.0 1,434.5 416.9
-------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Collections of financing receivables................................................. 6,655.1 6,017.1 5,685.3
Proceeds from sales of financing receivables......................................... 978.3 2,481.6 1,859.9
Proceeds from maturities and sales of marketable securities.......................... 247.8 115.4 187.3
Proceeds from sales of equipment on operating leases................................. 334.6 191.3 154.5
Proceeds from sale of a business..................................................... 179.1
Cost of financing receivables acquired............................................... (9,126.5) (8,186.2) (7,521.5)
Purchases of marketable securities................................................... (61.9) (92.9) (224.9)
Purchases of property and equipment.................................................. (426.7) (315.5) (434.8)
Cost of operating leases acquired.................................................... (939.9) (833.5) (752.3)
Acquisitions of businesses, net of cash acquired..................................... (643.3) (215.8) (103.0)
Increase in receivables with unconsolidated affiliates............................... (135.2) (4.8)
Other................................................................................ 7.4 12.4 27.6
-------- --------- --------
Net cash used for investing activities...................................... (3,110.3) (651.8) (1,121.9)
-------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings......................................... 1,785.8 (1,650.7) 802.3
Change in intercompany receivables/payables..........................................
Proceeds from long-term borrowings................................................... 2,814.0 2,902.1 2,067.6
Principal payments on long-term borrowings........................................... (2,377.4) (1,796.2) (1,106.4)
Proceeds from issuance of common stock............................................... 15.9 4.2 22.7
Repurchases of common stock.......................................................... (.6) (49.0) (885.9)
Dividends paid....................................................................... (206.0) (205.4) (212.4)
Other................................................................................ (1.3) (.1) (1.2)
-------- --------- --------
Net cash provided by (used for) financing activities........................ 2,030.4 (795.1) 686.7
-------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash.............................................. (3.9) (1.8) (2.0)
-------- --------- --------
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents................................. (3.8) (14.2) (20.3)
Cash and Cash Equivalents at Beginning of Year....................................... 295.5 309.7 330.0
-------- --------- --------
Cash and Cash Equivalents at End of Year............................................. $ 291.7 $ 295.5 $ 309.7
======== ========= ========
====================================================================================================================================
</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 in Note 1 to the consolidated financial statements. The
supplemental "Financial Services" consolidating data in this statement includes
primarily Deere & Company's credit operations. Transactions between the
"Equipment Operations" and "Financial Services" have been eliminated to arrive
at the "Consolidated" data.
The notes to consolidated financial statements are an integral part of this
statement.
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
2000 1999 1998 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 485.5 $ 239.2 $1,021.4 $ 173.2 $ 187.0 $ 175.2
11.2 5.6 6.4 63.8 67.9 50.6
359.0 326.4 324.6 318.5 245.0 138.6
(147.0) (117.5) (131.4) (.6) (.4) (.2)
(152.3) (203.2) 115.3 19.5 40.8 26.6
(70.6) 802.4 (739.1) 16.8 14.4
(184.0) 50.7 (192.6)
460.8 (172.1) (70.0) 79.2 1.3 29.3
(295.1) 143.6 (222.7) (31.1) (107.1) (72.7)
------- -------- -------- --------- --------- ---------
467.5 1,075.1 111.9 639.3 434.5 361.8
------- -------- -------- --------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
13.6 23.0 36.1 6,641.5 5,994.1 5,649.2
30.6 978.3 2,481.6 1,859.9
202.8 45.0 115.4 187.3
1.4 65.7 333.2 191.3 88.8
179.1
(20.1) (50.8) (41.0) (9,137.0) (8,135.4) (7,480.5)
(61.9) (92.9) (224.9)
(414.1) (304.4) (421.6) (12.6) (11.1) (13.1)
(4.7) (2.7) (123.5) (935.2) (830.8) (628.8)
(641.8) (151.9) (95.9) (1.5) (63.9) (7.2)
(135.2) (4.8)
(5.1) 19.7 13.3 (4.5) (7.4) 15.6
------- -------- -------- --------- --------- ---------
(837.4) (288.0) (566.9) (2,289.9) (363.9) (553.7)
------- -------- -------- --------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
459.7 (961.9) 1,184.8 1,326.1 (688.8) (382.5)
(26.7) (32.5) (15.0) 457.6 10.2 (195.4)
752.1 499.8 199.4 2,061.8 2,402.3 1,868.2
(208.7) (19.1) (38.9) (2,168.7) (1,777.0) (1,067.5)
15.9 4.2 22.7
(.6) (49.0) (885.9)
(206.0) (205.4) (212.4) (26.8) (75.0) (56.8)
(1.3) (.2) (1.1) 17.1 (1.3)
------- -------- -------- --------- --------- ---------
784.4 (764.1) 253.6 1,667.1 (128.3) 164.7
------- -------- -------- --------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
(3.9) (1.8) (1.9) (.1)
------- -------- -------- --------- --------- ---------
------------------------------------------------------------------------------------------------------------------------------------
410.6 21.2 (203.3) 16.5 (57.7) (27.3)
229.1 207.9 411.2 183.8 241.5 268.8
------- -------- -------- --------- --------- ---------
$ 639.7 $ 229.1 $ 207.9 $ 200.3 $ 183.8 $ 241.5
======= ======== ======== ========= ========= =========
====================================================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Deere & Company
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
====================================================================================================================================
Unamortized Other
Total Common Treasury Restricted Retained Comprehensive
(In millions of dollars) Equity Stock Stock Stock* Earnings Income (Loss)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance October 31, 1997.......................... $4,147.2 $1,778.5 $ (613.1) $(17.4) $3,048.4 $ (49.2)
--------
Comprehensive income (loss)
Net income.................................... 1,021.4 1,021.4
Other comprehensive income
Minimum pension liability adjustment....... (4.7) (4.7)
Cumulative translation adjustment.......... (23.1) (23.1)
Unrealized gain on marketable securities... 2.3 2.3
--------
Total comprehensive income.................... 995.9
--------
Repurchases of common stock....................... (885.9) (885.9)
Treasury shares reissued.......................... 31.4 31.4
Dividends declared................................ (213.3) (213.3)
Other stockholder transactions.................... 4.5 11.3 10.2 (17.0)
-------- -------- --------- ------ -------- -------
Balance October 31, 1998.......................... 4,079.8 1,789.8 (1,467.6) (7.2) 3,839.5 (74.7)
--------
Comprehensive income (loss)
Net income.................................... 239.2 239.2
Other comprehensive income
Minimum pension liability adjustment....... (.2) (.2)
Cumulative translation adjustment.......... (26.9) (26.9)
Unrealized gain on marketable securities... (18.9) (18.9)
--------
Total comprehensive income.................... 193.2
--------
Repurchases of common stock....................... (49.0) (49.0)
Treasury shares reissued.......................... 47.2 47.2
Dividends declared................................ (204.2) (204.2)
Other stockholder transactions.................... 27.3 60.6 (14.1) (19.2)
-------- -------- --------- ------ -------- -------
Balance October 31, 1999.......................... 4,094.3 1,850.4 (1,469.4) (21.3) 3,855.3 (120.7)
--------
Comprehensive income (loss)
Net income.................................... 485.5 485.5
Other comprehensive income
Minimum pension liability adjustment....... 10.4 10.4
Cumulative translation adjustment.......... (115.0) (115.0)
Unrealized loss on marketable securities... (4.5) (4.5)
--------
Total comprehensive income.................... 376.4
--------
Repurchases of common stock....................... (.6) (.6)
Treasury shares reissued.......................... 31.0 31.0
Dividends declared................................ (205.4) (205.4)
Other stockholder transactions.................... 6.2 14.0 10.4 (18.2)
-------- -------- --------- ------ -------- -------
Balance October 31, 2000.......................... $4,301.9 $1,864.4 $(1,439.0) $(10.9) $4,117.2 $(229.8)
======== ======== ========= ====== ======== =======
====================================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of this
statement.
*Unamortized restricted stock includes restricted stock issued at market price
net of amortization to compensation expense.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited)
================================================================================
RESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 2000, 1999 AND 1998
================================================================================
Deere & Company and its subsidiaries manufacture, distribute and finance a full
line of agricultural equipment; a variety of commercial and consumer equipment;
a broad range of equipment for construction and forestry; and other
technological products and services. The company also provides credit services
and managed health care plans. Additional information on these business segments
is presented in Note 24 to the consolidated financial statements.
2000 COMPARED WITH 1999
================================================================================
CONSOLIDATED RESULTS
Net income in 2000 totaled $486 million, or $2.06 per share diluted ($2.07
basic), compared with $239 million, or $1.02 per share diluted ($1.03 basic), in
1999. The earnings more than doubled this year primarily due to improved
manufacturing efficiencies associated with higher sales and production volumes.
Net sales and revenues increased 12 percent to $13,137 million in 2000,
compared with $11,751 million in 1999. Net sales of the Equipment Operations
increased 15 percent in 2000 to $11,169 million from $9,701 million last year.
Despite weakness in the company's major markets, sales rose due to production
and shipments to dealers being better aligned with retail demand this year,
market share gains and the inclusion of Timberjack sales, partially offset by
the impact of weaker European currencies. Overseas net sales increased 8 percent
and excluding the impact of weaker foreign currencies were up 17 percent for the
year. Overall, the company's worldwide physical volume of sales increased 18
percent for the year.
Worldwide equipment operations, which exclude the Financial Services
operations and unconsolidated affiliates, had net income of $311 million in
2000, compared with $43 million in 1999. The operating profit from equipment
operations also increased significantly to $693 million in 2000, compared to
$272 million in 1999. The increases were primarily due to manufacturing
efficiencies associated with higher sales and production volumes, in addition to
lower pension and postretirement health care costs, and the impact of quality
and efficiency improvement initiatives. Partially offsetting these factors were
increases in the cost of promotional programs related to used farm equipment
held by dealers and higher expenses regarding the development of new products
and growth initiatives. Last year's results included a charge for early
retirement programs.
Net income of the company's Financial Services operations in 2000 was $173
million, compared with $187 million in 1999. Additional information is
presented in the following discussion of the credit operations. Insurance and
health care premiums, claims and benefits expenses, and investment income all
decreased this year due to the sale of the insurance subsidiaries in the fourth
quarter of 1999.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion of operating results by reportable segment and
geographic area relates to information in Note 24. Operating profit is income
before interest expense, foreign exchange gains and losses, income taxes and
corporate expenses.
However, operating profit of the credit segment includes the effect of interest
expense.
2000 NET SALES AND REVENUES
BY BUSINESS SEGMENT
--------------------------------
[GRAPH APPEARS HERE]
Agricultural Equipment 45%
Commercial & Consumer Equipment 23%
Construction Equipment 17%
Other 5%
Credit 10%
WORLDWIDE AGRICULTURAL EQUIPMENT
-----------------------------------------
[CHART APPEARS HERE]
Operating
$7.5 $5.1 $5.9 Profit $941 ($51) $400
Net Sales 1998 1999 2000 (Loss) 1998 1999 2000
------------------------------- -------------------------------
(in billions) (in millions)
Sales of the worldwide agricultural equipment segment increased 15 percent
for the year. Operating profit increased to $400 million in 2000, compared with
an operating loss of $51 million in 1999. Despite continued market weakness,
operating profit rose due to improved manufacturing efficiencies associated with
higher sales and production volumes, as the segment was able to better align
production schedules with retail sales. In addition, the segment benefited from
positive customer response to its products, resulting in increased market share
for John Deere farm machinery. Also aiding results were lower pension and
postretirement health care costs and the impact of initiatives aimed at quality
and efficiency improvement. Selling and administrative expenses and research
and development expenses were higher due to growth and other initiatives. These
increases, however, were proportional to the year's rise in sales. In addition,
promotional expenses increased as part of a program that significantly reduced
inventories of used equipment held by John Deere dealers in order to better
position the segment for increased sales volumes in the future. Last year's
results were affected by the $68 million pretax cost of the previously-mentioned
early retirement programs. Overseas operations had lower profit due to the
impact of weaker European currencies, higher sales incentive costs and increased
expenses for the development of new products and for growth initiatives. In
addition, average assets of the agricultural equipment segment declined in 2000,
compared to last year.
21
<PAGE>
================================================================================
WORLDWIDE COMMERCIAL AND CONSUMER EQUIPMENT
--------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
$2.2 $2.6 $3.0 Operating $213 $213 $159
Net Sales 1998 1999 2000 Profit 1998 1999 2000
---------------------------------- -------------------------------
(in billions) (in millions)
The commercial and consumer equipment segment had an operating profit of
$159 million in 2000, compared to $213 million in 1999. Although retail demand
for most products in this segment remained strong as sales rose 12 percent,
results were negatively affected by higher expenses related to growth, new
products and other initiatives, higher sales incentive costs, and by costs and
inefficiencies associated with the handheld product and generator operations,
which are experiencing weaker market conditions. A stronger Japanese yen also
had an adverse effect on the year's results.
WORLDWIDE CONSTRUCTION EQUIPMENT
--------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
$2.3 $1.9 $2.2 Operating $326 $149 $191
Net Sales 1998 1999 2000 Profit 1998 1999 2000
---------------------------------- -------------------------------
(in billions) (in millions)
The construction equipment segment had an operating profit of $191 million
in 2000, compared to $149 million in 1999. The increase was primarily due to
higher sales and improved efficiencies, partially offset by higher growth
expenditures. Sales increased 17 percent due to the impact of the acquisition of
Timberjack (see Note 1), an expanded product line and market share gains. Last
year's sales were adversely affected by implementation of the estimate-to-cash
order fulfillment initiative, which has reduced asset levels and cut product
delivery times. Current-year results also were negatively affected by a reversal
of sales and cost of sales related to company equipment held in inventory by
dealers acquired by Nortrax, a recently established venture in which the company
has a minority interest (see Note 1).
WORLDWIDE CREDIT OPERATIONS
--------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
$1.0 $1.1 $1.3 Operating $256 $274 $254
Revenues 1998 1999 2000 Profit 1998 1999 2000
---------------------------------- -------------------------------
(in billions) (in millions)
The operating profit of the credit operations was $254 million in 2000,
compared with $274 million in 1999. Additional information is presented in the
following discussion of the credit operations.
The company's other operations had an aggregate operating loss of $39
million for the year, compared with an operating loss of $33 million in 1999.
Results for both years were adversely affected by costs related to the
development of new products, e-business initiatives and goodwill amortization of
the special technologies group. Health care operations continued to generate
improved results. The 1999 results included the underwriting losses of the
insurance operations, which were sold in that year.
UNITED STATES AND CANADA EQUIPMENT OPERATIONS
--------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
$8.9 $7.0 $8.3 Operating $1,177 $48 $529
Net Sales 1998 1999 2000 Profit 1998 1999 2000
---------------------------------- -------------------------------
(in billions) (in millions)
The United States and Canadian equipment operations had an operating profit
of $529 million in 2000, compared with $48 million last year. The increase was
primarily due to the manufacturing efficiencies associated with higher sales and
production volumes, lower pension and postretirement health care costs and the
impact of quality and efficiency improvement initiatives, partially offset by
expenses related to growth and other initiatives and higher sales incentive
costs. Sales and physical volume increased 18 percent in 2000, compared with
last year.
OVERSEAS EQUIPMENT OPERATIONS
--------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
$3.0 $2.7 $2.9 Operating $299 $224 $164
Net Sales 1998 1999 2000 Profit 1998 1999 2000
---------------------------------- -------------------------------
(in billions) (in millions)
The overseas equipment operations had an operating profit of $164 million
in 2000, compared with $224 million last year. As previously mentioned, the
decline this year was due to weaker European currencies, higher sales incentive
costs and increased expenses related to the development of new products and
growth initiatives. Overseas sales were 8 percent higher than last year, while
the physical volume of sales increased 17 percent in 2000, compared with 1999.
22
<PAGE>
================================================================================
MARKET CONDITIONS AND OUTLOOK
Based on a favorable outlook for further growth in the company's equipment
operations, the company's worldwide physical volume of sales is currently
forecast to increase by 28 percent for the first quarter 2001 and 11 percent for
the full year, compared to the same periods in 2000.
Agricultural Equipment. The company expects North American industry retail sales
of farm machinery to be slightly higher next year. Lower than anticipated
global production of grain and oilseeds has resulted in a modest price
improvement for these commodities in recent weeks as well as a reduction in
carryover stocks. At the same time, farmers remain in sound overall financial
condition. In other areas, industry retail sales of farm machinery are expected
to be down 5 percent next year in Europe and flat in Latin America and
Australia. Sales of John Deere farm equipment are expected to move higher next
year due in large part to the continued success of newly introduced products and
this year's reduction in used goods inventories held by dealers. Partially
offsetting these factors will be continued expenditures related to growth.
Commercial and Consumer Equipment. In a slowing economic environment, industry
retail sales for these products -- which include lawn care equipment, and
worksite and utility vehicles -- are expected to be slightly lower in 2001
relative to this year. However, the segment's sales and financial results are
expected to improve on the strength of new products and recent steps to improve
profitability.
Construction Equipment. Housing starts, though remaining high by historical
standards, are expected to be lower in 2001 for the second year in a row. Lumber
production in this environment is expected to be scaled back, but pulp
production should continue to expand in light of global economic growth and
higher pulp prices. As a result of these factors, industry sales of construction
equipment are expected to fall by 7 to 10 percent in 2001. The company's
construction equipment operations are expected to experience further growth next
year, due in large part to the success of new products and the full year
inclusion of Timberjack sales. However, the impact of these factors in the
financial results of the segment will be partially offset by further growth
related expenditures.
Credit Operations. Credit is expected to benefit next year from continued growth
in its receivable portfolio both in North American and international markets.
The company is in position to improve its financial and operating
performance in 2001, and is encouraged by the firming tone of farm commodity
prices. In addition, the company is pleased with the positive customer response
to its many new innovative products, and believes that significant progress has
been made in bringing down used equipment inventories. At the same time, the
company's initiatives aimed at growth and quality improvement remain well on
track.
================================================================================
EURO CONVERSION
The transition period for this change extends through January 1, 2002. The
company has substantially completed the process of testing and converting its
systems to adopt the euro currency in its operations. The currency change has
not had a significant impact on the company's relationships with affected
suppliers, distribution network and financial institutions. The cost of
information systems modifications, effects on product pricing and purchase
contracts, and the impact on foreign currency financial instruments, including
derivatives, has not had a material effect on the company's operations. The
impact on future operations is also not expected to be material.
SAFE HARBOR STATEMENT
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements under "Market Conditions and Outlook," "Euro Conversion," and
the "Supplemental Information (Unaudited)" in Note 25 and other statements
herein that relate to future operating periods are subject to important risks
and uncertainties that could cause actual results to differ materially. Some of
these risks and uncertainties could affect particular lines of business, while
others could affect all of the company's businesses.
The results of the company's agricultural equipment segment are strongly
influenced by the many interrelated factors that affect farmers' confidence,
including worldwide demand for agricultural products, world grain stocks, prices
realized for commodities and livestock, weather conditions, government farm
programs, animal diseases, crop pests and harvest yields. Factors that are
particularly important to the company's outlook for this segment include the
prices realized by farmers for their crops and livestock, which are in turn
strongly impacted by weather and soil conditions and the level of farm product
exports, as well as the level of payments under United States government farm
programs. The success of the fall harvest and the prices realized by farmers for
their crops especially affect retail sales of agricultural equipment in the
winter.
The company's outlook for its commercial and consumer equipment sales
assumes the continuation of current economic conditions in the United States and
is dependent on the level of consumer confidence. Other important assumptions
include continued consumer acceptance of the company's new products and a
continuation of existing consumer borrowing patterns. Sales of commercial and
consumer equipment during the winter are affected by the amount and timing of
snowfall.
The number of housing starts is especially important to sales of the
company's construction equipment. The results of the company's construction
equipment segment are also impacted by levels of public construction and non-
residential construction. Prices for pulp, lumber and structural panels are
important to sales of forestry equipment.
23
<PAGE>
================================================================================
All of the company's businesses are affected by general economic conditions
in the global markets in which the company operates, interest and currency
exchange rates, as well as monetary and fiscal policies (including actions by
the Federal Reserve Board); actions of competitors in the various industries in
which the company competes, particularly price cutting; dealer practices,
especially as to levels of new and used field inventories; and legislation
affecting the sectors in which the company operates. Other risks and
uncertainties that, from time to time, could affect the company's results
include production difficulties, such as capacity and supply constraints; labor
relations; technological difficulties; and changes to accounting standards.
The company's outlook is based upon assumptions relating to the factors
described above, which are sometimes based upon estimates and data prepared by
government agencies. These estimates and data are often revised. The company,
however, undertakes no obligation to update or revise its outlook, whether as a
result of new developments or otherwise. Further information concerning the
company and its businesses, including factors that potentially could materially
affect the company's financial results, is included in other filings with the
Securities and Exchange Commission.
1999 COMPARED WITH 1998
================================================================================
CONSOLIDATED RESULTS
Net income in 1999 totaled $239 million, or $1.02 per share diluted ($1.03
basic), compared with $1,021 million, or $4.16 per share diluted ($4.20 basic),
in 1998. The decline in profits was largely due to a continuation of weak demand
for agricultural equipment caused by depressed farm commodity prices. Cash flow
from operations, however, was higher due to a reduction in agricultural
equipment receivables of approximately $800 million, and a decline in
construction equipment receivables of approximately $200 million. During 1999,
the company implemented aggressive production schedule reductions in order to
help balance receivables and inventories with forecasted levels of demand.
Net sales and revenues decreased 15 percent to $11,751 million in 1999,
compared with $13,822 million in 1998. Net sales of the Equipment Operations
decreased 19 percent in 1999 to $9,701 million from $11,926 million in 1998.
Overseas net sales were $2,678 million in 1999 compared with $3,049 million in
1998. Overall, the company's worldwide physical volume of sales decreased 18
percent in 1999.
The company's Equipment Operations, which exclude the Financial Services
operations, had operating profit of $272 million in 1999, compared with $1,476
million in 1998. Lower sales and production volumes of agricultural and
construction equipment, an adverse sales mix and the cost of early-retirement
programs affected the 1999 results. Largely due to the reduction in agricultural
and construction trade receivables, equipment operations' assets ended 1999 at
$8,702 million, 4 percent below the level in 1998.
Net income of the company's Financial Services operations improved in 1999
totaling $187 million, compared with $175 million in 1998. Finance and interest
income increased to $1,027 million in 1999, compared with $887 million in 1998.
Additional information is presented in the following discussion of the credit
operations.
BUSINESS SEGMENT RESULTS
The agricultural equipment segment incurred an operating loss of $51 million in
1999, compared with an operating profit of $941 million in 1998. Lower sales and
production volumes, especially of high-horsepower, high-margin agricultural
equipment, were primary reasons for the loss as sales decreased 31 percent in
1999, compared with 1998. Lower production volumes, however, helped achieve a
substantial reduction in trade receivables and improved cash flow. Results were
also affected by the $68 million pretax cost of early-retirement programs and
higher sales incentive costs, with an emphasis on used goods. Overseas
operations, which experienced a more moderate decline in sales than in North
America, continued to be positive contributors to the segment's results. These
operations, as well, benefited from increased market shares and strong response
to innovative products.
The commercial and consumer equipment segment had an operating profit of
$213 million in 1999 and 1998. The 1999 results benefited from a 21 percent
increase in sales and higher production volumes driven by strong retail demand
and market-share gains, offset by higher expenses for the development and
introduction of new products and the start-up of new facilities.
The construction equipment segment had an operating profit of $149 million
in 1999, compared to $326 million in 1998. Sales decreased 18 percent in 1999,
compared to 1998. During the early part of 1999, the segment began
implementation of its estimate-to-cash order fulfillment initiative, which was
aimed at better matching product availability with customer requirements, while
reducing field inventories. Although retail sales remained at favorable levels,
company sales and production volumes declined as dealers reduced field
inventories largely due to this initiative. The reduction, however, also
reflected a weaker business outlook. In addition, the 1999 results were affected
by higher sales incentive costs.
The operating profit of the credit operations improved to $274 million in
1999, compared with $256 million in 1998. Additional credit operations
information follows.
CREDIT OPERATIONS
================================================================================
The credit operations primarily finance sales and leases by John Deere dealers
of new and used agricultural, commercial and consumer, and construction
equipment, and sales by non-Deere dealers of recreational products. In addition,
these operations provide wholesale financing to dealers of the foregoing
equipment, provide operating loans and finance retail revolving charge accounts.
24
<PAGE>
================================================================================
Condensed combined financial information of the credit operations in millions of
dollars follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
October 31
Financial Position 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents......................... $ 165 $ 149
------- ------
Financing receivables and leases:
Retail notes................................... 5,444 4,215
Revolving charge accounts...................... 1,133 918
Wholesale notes................................ 1,068 1,052
Financing leases............................... 611 532
Equipment on operating leases.................. 1,949 1,652
------- ------
Total financing receivables and leases...... 10,205 8,369
Less allowance for credit losses............... 106 93
------- ------
Total - net................................. 10,099 8,276
------- ------
Other receivables................................. 232 108
------- ------
Net property and other assets..................... 179 125
------- ------
Total assets................................ $10,675 $8,658
======= ======
Short-term borrowings............................. $ 4,831 $3,846
Payables to Deere & Company....................... 824 318
Deposits withheld from dealers and merchants...... 147 139
Other liabilities................................. 526 433
Long-term borrowings.............................. 3,047 2,770
Stockholder's equity.............................. 1,300 1,152
------- ------
Total liabilities and stockholder's equity.. $10,675 $8,658
======= ======
--------------------------------------------------------------------------------
Year Ended October 31
Summary of Operations 2000 1999 1998
--------------------------------------------------------------------------------
Revenues.......................................... $1,327 $1,137 $ 973
------ ------ -----
Expenses:
Interest....................................... 515 408 400
Selling, administrative and general............ 187 152 142
Provision for credit losses.................... 64 68 50
Depreciation and other......................... 307 234 125
------ ------ -----
Total....................................... 1,073 862 717
------ ------ -----
Income of consolidated group
before income taxes............................. 254 275 256
Provision for income taxes........................ 93 100 93
------ ------ -----
Income of consolidated group...................... 161 175 163
Equity in income of unconsolidated affiliates..... 1
------ ------ -----
Net income........................................ $ 162 $ 175 $ 163
====== ====== =====
Ratio of earnings to fixed charges................ 1.49 1.66 1.63
--------------------------------------------------------------------------------
</TABLE>
Acquisition volumes of financing receivables and leases increased 12
percent in 2000, compared with 1999. The volumes of revolving charge accounts,
leases and retail notes increased 26 percent, 18 percent and 11 percent,
respectively. The credit operations also sold retail notes receiving proceeds of
$978 million during 2000, compared with $2,482 million in 1999 and $1,860
million in 1998. The gains on the sales of these retail notes were $24 million,
$45 million and $41 million during 2000, 1999 and 1998, respectively. At October
31, 2000 and 1999, net financing receivables and leases administered, which
include receivables previously sold but still administered, were $12,223 million
and $10,992 million, respectively. The discussion in Note 7 presents additional
information.
Net income of the credit operations was $162 million in 2000, compared with
$175 million in 1999 and $163 million in 1998. Net income in 2000 was lower than
in 1999 due primarily to a reduced level of receivable sales, resulting in lower
gains, and by higher operating expenses, partially offset by higher earnings
from growth in the receivable and lease portfolio. Total revenues of the credit
operations increased 17 percent in 2000, reflecting the larger average
portfolio, compared with 1999. The average balance of receivables and leases
financed was 11 percent higher in 2000, compared with 1999. An increase in
average borrowings and higher borrowing rates in 2000 resulted in a 26 percent
increase in interest expense, compared with 1999. Depreciation expense
increased this year due to the increase in the equipment on operating leases.
Net income in 1999 was higher than in 1998 due primarily to higher earnings
from a larger average receivable and lease portfolio, a reduction in leverage
and a gain on the sale of the yacht retail note portfolio and related
intangibles, partially offset by higher receivable write-offs, lower financing
spreads and higher operating expenses. Total revenues of the credit operations
increased in 1999, reflecting the larger average portfolio, compared with 1998.
The average balance of receivables and leases financed was 6 percent higher in
1999, compared with 1998. Higher average borrowings in 1999 resulted in a small
increase in interest expense, compared with 1998.
CAPITAL RESOURCES AND LIQUIDITY
================================================================================
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 by
operations are supplemented from external borrowing sources.
[GRAPH APPEARS HERE]
$1,867 $1,655 $1,140 $936 $890 $624
Primary
Cash Flows
Years 1998-2000 1 2 3 4 5 6
--------------------------------------------------------------------
(in millions)
Cash Inflows Cash Outflows
------------ -------------
1. Increased Borrowings 3. Purchases of Property and Equipment
2. Cash Provided by Operations 4. Repurchases of Common Stock
5. Acquisitions of Businesses
6. Dividends Paid
25
<PAGE>
================================================================================
Cash provided by operating activities during 2000 was $468 million,
primarily resulting from net income. The operating cash flows and a $1,003
million increase in borrowings were used primarily to fund acquisitions of
businesses of $642 million, purchases of property and equipment of $414 million
and the payment of dividends to stockholders of $206 million. Cash and cash
equivalents also increased $411 million.
Over the last three years, operating activities have provided an aggregate
of $1,655 million in cash. In addition, borrowings increased $1,867 million.
The aggregate amount of these cash flows was used mainly to fund purchases of
property and equipment of $1,140 million, repurchases of common stock of $936
million, acquisitions of businesses for $890 million and stockholders' dividends
of $624 million.
Trade accounts and notes receivable arise from sales of goods to dealers.
Trade receivables decreased by $82 million during 2000. Agricultural equipment
trade receivables decreased $276 million. Commercial and consumer equipment
receivables increased $124 million, construction equipment receivables
increased $68 million and other equipment receivables increased $2 million. The
ratios of worldwide trade accounts and notes receivable at October 31 to fiscal
year net sales were 28 percent in 2000, compared with 34 percent in 1999 and
1998.
The collection period for trade receivables averages less than 12 months.
The percentage of receivables outstanding for a period exceeding 12 months was 8
percent at October 31, 2000, compared with 12 percent at October 31, 1999 and 8
percent at October 31, 1998.
Inventories increased by $259 million in 2000. Since most of these
inventories are valued on the last-in, first-out (LIFO) method, lower
prevailing costs from prior years are assigned to beginning inventories.
Inventories valued on an approximate current cost basis increased by 8 percent
during 2000, compared to an increase in net sales of 15 percent during the same
period.
Total interest-bearing debt of the Equipment Operations was $2,645 million
at the end of 2000, compared with $1,678 million at the end of 1999 and $2,065
million at the end of 1998. The ratio of total debt to total capital (total
interest-bearing debt and stockholders' equity) at the end of 2000, 1999 and
1998 was 38.1 percent, 29.1 percent and 33.6 percent, respectively.
During 2000, the Equipment Operations issued $500 million of 7.85% notes
due in 2010 and $250 million of 8.10% debentures due in 2030. These operations
also retired $203 million of medium-term notes.
FINANCIAL SERVICES
The Financial Services' credit operations rely on their ability to raise
substantial amounts of funds to finance their receivable and lease portfolios.
Their primary sources of funds for this purpose are a combination of borrowings
and equity capital. Additionally, the credit operations periodically sell
substantial amounts of retail notes.
Cash flows from the company's Financial Services operating activities were
$639 million in 2000. Cash provided by financing activities totaled $1,667
million in 2000, representing mainly an increase in total borrowings of $1,677
million. The cash provided by operating and financing activities was used
primarily to increase total receivables and leases. Cash used for investing
activities totaled $2,290 million in 2000, primarily due to acquisitions of
receivables and leases exceeding collections by $3,431 million, which was
partially offset by proceeds of $978 million from the sale of receivables and
$333 million from the sale of equipment on operating leases.
Over the past three years, the Financial Services operating activities have
provided $1,436 million in cash. In addition, the sale of receivables and an
increase in borrowings have provided $5,320 million and $1,846 million,
respectively. These amounts have been used mainly to fund receivable and lease
acquisitions, which exceeded collections by $8,863 million.
Financing receivables and leases increased by $1,823 million in 2000,
compared with 1999. Additional information is presented in the preceding
discussion of the credit operations.
Total outside interest-bearing debt of the credit operations was $7,878
million at the end of 2000, compared with $6,616 million at the end of 1999 and
$6,049 million at the end of 1998. The credit subsidiaries' ratio of total
interest-bearing debt to total stockholder's equity was 6.7 to 1 at the end of
2000, compared with 6.0 to 1 at the end of 1999 and 6.1 to 1 at the end of 1998.
During 2000, the credit operations issued $1,964 million and retired $1,980
million of medium-term notes.
CONSOLIDATED
The company maintains unsecured lines of credit with various United States and
foreign banks. The discussion in Note 13 provides further information.
The company is naturally exposed to various interest rate and foreign
currency risks. As a result, the company enters into derivative transactions to
manage certain of these exposures that arise in the normal course of business,
and not for the purpose of creating speculative positions or trading. The
company's credit operations manage the relationship of the types and amounts of
their funding sources to their receivable and lease portfolio in an effort to
diminish risk due to interest rate fluctuations, while responding to favorable
financing opportunities. Accordingly, from time to time, these operations enter
into interest rate swap agreements to manage their interest rate exposure. The
company also has foreign currency exposures at some of its foreign and domestic
operations related to buying, selling and financing in currencies other than
the local currencies. The company has entered into agreements related to the
management of these currency transaction risks. The credit and market risks
under these interest rate and foreign currency agreements are not considered to
be significant. Additional detailed financial instrument information is included
in Notes 22 and 25.
Stockholders' equity was $4,302 million at October 31, 2000, compared with
$4,094 million and $4,080 million at October 31, 1999 and 1998, respectively.
The increase in 2000 was caused primarily by net income of $486 million,
partially offset by cash dividends declared of $205 million and a change in the
cumulative translation adjustment of $115 million.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
The consolidated financial statements represent the consolidation of all
companies in which Deere & Company has a controlling interest. Deere & Company
records its investment in each unconsolidated affiliated company (generally 20
to 50 percent ownership) at its related equity in the net assets of such
affiliate. Other investments (less than 20 percent ownership) are recorded at
cost. Consolidated retained earnings at October 31, 2000 include undistributed
earnings of the unconsolidated affiliates of $60 million. Dividends from
unconsolidated affiliates were $3 million in 2000, $6 million in 1999 and $6
million in 1998.
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,
commercial and consumer equipment, construction equipment, and special
technologies 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. The insurance operations were sold in the fourth
quarter of 1999.
Consolidated - These data represent the consolidation of the Equipment
Operations and Financial Services. References to "Deere & Company" or "the
company" refer to the entire enterprise.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and related disclosures. Actual results could differ from those estimates.
Sales of equipment and service parts are recorded when title and all risk
of ownership are transferred to the independent dealer, based on the agreement
in effect with the dealer. In the United States and most international
locations, this transfer occurs when goods are shipped to the dealer. In Canada
and other international locations, certain goods are shipped to dealers on a
consignment basis under which title and risk of ownership are not transferred to
the dealer. Accordingly, sales are not recorded until a retail customer has
purchased the goods. In all cases, when a sale is recorded by the company, no
significant uncertainty exists surrounding the purchaser's obligation to pay and
no right of return exists. The company makes appropriate provisions based on
experience for costs such as doubtful receivables, sales incentives and product
warranty.
The functional currencies for most of the company's foreign operations are
their respective local currencies. The assets and liabilities of these
operations are translated to U.S. dollars at the end of the period exchange
rates, and the revenues and expenses are translated at weighted-average rates
for the period. The gains or losses from these translations are included in
other comprehensive income, which is part of stockholders' equity. Gains or
losses from transactions denominated in a currency other than the functional
currency of the subsidiary involved are included in net income.
In 2000, the company adopted AICPA Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This SOP requires the capitalization of costs for software developed
internally for internal use, which were previously expensed. The amount of
total capitalized software costs, including purchased and internally developed
software, classified as "Other Assets" at October 31, 2000 was $174 million,
less accumulated amortization of $113 million. Amortization of these software
costs was $29 million in 2000. The SOP's effect on the company's financial
position or net income was not material.
In 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was amended by Statement No. 138 in
2000. Under the new standards, all derivatives will be recorded at fair value in
the financial statements. The company will adopt these statements in fiscal year
2001 and the effect on the company's financial position or net income will not
be material. In 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
This standard revises FASB Statement No. 125 and requires additional disclosure.
The Statement will be effective March 31, 2001 and will have no material impact
on the company's financial position or net income. In 1999, the Securities and
Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. The SAB summarizes the SEC staff's
views on applying generally accepted accounting principles to revenue
recognition in financial statements. The company has reviewed its revenue
recognition policies and has determined that they comply with the principles as
set forth in SAB No. 101. Accordingly, the adoption of the SAB will have no
effect on the company's financial position or net income.
On April 28, 2000, the company acquired Timberjack Group, a leading
manufacturer of forestry equipment headquartered in Helsinki, Finland, for $608
million. The acquisition has been accounted for as a purchase with the purchase
price allocated to the assets acquired and liabilities assumed based on the fair
values as of the acquisition date. The excess of this purchase price over the
fair value of the net assets acquired (goodwill) was approximately $430 million,
which is being amortized on a straight-line basis over 30 years. The Timberjack
assets, liabilities and results of operations are included in the consolidated
financial statements from the date of acquisition. Timberjack reported annual
sales of $515 million in 1999. The pro forma results of operations for 2000 and
1999, as if the acquisition had occurred at the beginning of the fiscal year,
would not differ significantly from reported results.
During 2000, the company invested $36 million for 41 and 40 percent
interests in Nortrax, Inc. and Nortrax II, Inc., respectively, both construction
equipment dealers. Among their activities, these Nortrax dealers pursue the
acquisition of other construction equipment dealers to enhance their
profitability. In doing so, they provide a source of liquidity for other dealers
who have chosen to exit the construction equipment business. The company
accounts for its investments in these Nortrax dealers on the equity basis and,
accordingly, does not recognize 41 or 40 percent of the company's sales to these
dealers until the goods are sold to an unaffiliated party. At the time an
acquisition of a dealer by the Nortrax dealers becomes probable, the company
eliminates 41 or 40 percent of the previously recognized company sales related
to remaining inventories held by the dealers. The company has call options to
purchase an additional 57 or 60 percent of these Nortrax dealers from certain
owners beginning in approximately three years. These same owners also have put
options to require the company to purchase their 57 or 60 percent ownership
interests
27
<PAGE>
================================================================================
beginning in three to four years. The options may be exercised over a two- to
three-year period. Whether the options will be exercised in the future is
uncertain at this time. The acquisitions of the interests in the Nortrax dealers
and their activities have not had a material effect on the company's financial
position or results of operations and the impact on future financial statements
is uncertain at present.
Certain amounts for prior years have been reclassified to conform with 2000
financial statement presentations.
2. PENSION AND OTHER POSTRETIREMENT BENEFITS
================================================================================
The company has several defined benefit pension plans covering its United States
employees and employees in certain foreign countries. The company also has
several defined benefit health care and life insurance plans for retired
employees in the United States and Canada.
The worldwide components of net periodic pension cost and the significant
assumptions consisted of the following in millions of dollars and in percents:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Pensions
Service cost........................................ $ 106 $ 117 $ 102
Interest cost....................................... 414 396 386
Expected return on assets........................... (543) (497) (456)
Amortization of actuarial loss...................... 1 33 29
Amortization of prior service cost.................. 36 44 43
Amortization of net transition asset................ (8) (8) (11)
Special termination benefits........................ 29 5
Settlements/curtailments............................ 7 (2) 2
----- ----- -----
Net cost............................................ $ 13 $ 112 $ 100
===== ===== =====
Weighted-average Assumptions
Discount rates for obligations...................... 7.4% 7.4% 7.0%
Discount rates for expenses......................... 7.4% 7.0% 7.5%
Assumed rates of compensation increases............. 4.8% 4.9% 4.9%
Expected long-term rates of return.................. 9.7% 9.7% 9.7%
--------------------------------------------------------------------------------
</TABLE>
The worldwide components of net periodic postretirement benefits cost and
the significant assumptions consisted of the following in millions of dollars
and in percents:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Care and Life Insurance
Service cost........................................ $ 70 $ 85 $ 74
Interest cost....................................... 189 188 172
Expected return on assets........................... (43) (35) (31)
Amortization of actuarial loss...................... 1 23 2
Amortization of prior service cost.................. (3) (4) (6)
Special termination benefits........................ 5
Settlement.......................................... 3
----- ----- -----
Net cost............................................ $ 214 $ 265 $ 211
===== ===== =====
Weighted-average Assumptions
Discount rates for obligations...................... 7.74% 7.75% 7.26%
Discount rates for expenses......................... 7.75% 7.26% 7.76%
Expected long-term rates of return.................. 9.7% 9.7% 9.7%
--------------------------------------------------------------------------------
</TABLE>
In addition to the special termination benefits included in the pension and
postretirement benefit plans shown above, the company provided $34 million of
other special early-retirement benefits to certain employees in 1999. These
benefits and the special termination benefits included in the benefit plans
totaled $68 million in 1999.
The annual rates of increase in the per capita cost of covered health care
benefits (the health care cost trend rates) used to determine 2000, 1999 and
1998 costs were assumed to be 4.5 percent for 2001 and all future years, 6.0
percent for 2000 and 4.5 percent for 2001 and all future years, and 9.1 percent
for 1999, decreasing gradually to 4.5 percent by the year 2001, respectively. An
increase of one percentage point in the assumed health care cost trend rate
would increase the accumulated postretirement benefit obligations at October 31,
2000 by $270 million and the net periodic postretirement benefits cost for that
year by $31 million. A decrease of one percentage point would decrease the
postretirement benefit obligations by $242 million and the cost by $28 million
for the same period.
A worldwide reconciliation of the funded status of the benefit plans at
October 3l in millions of dollars follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Health Care
and
Pensions Life Insurance
------------ --------------
2000 1999 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligations
Beginning of year balance........... $ (5,795) $ (5,830) $ (2,667) $ (2,517)
Service cost........................ (106) (117) (70) (85)
Interest cost....................... (414) (396) (189) (188)
Actuarial gain (loss)............... (3) 188 148 (37)
Amendments.......................... (6)
Benefits paid....................... 405 364 170 164
Settlements/curtailments............ (7) 2 (3)
Special termination benefits........ (29) (5)
Acquisition of business............. (25) (6)
Foreign exchange and other.......... 72 29 2 4
-------- -------- -------- --------
End of year balance................. (5,873) (5,795) (2,612) (2,667)
-------- -------- -------- --------
Change in plan assets (fair value)
Beginning of year balance........... 6,472 5,661 445 359
Actual return on plan assets........ 1,510 1,143 107 76
Employer contribution............... 42 23 170 168
Benefits paid....................... (405) (364) (170) (158)
Acquisition of business............. 33
Foreign exchange and other.......... (6) 9
-------- -------- -------- --------
End of year balance................. 7,646 6,472 552 445
-------- -------- -------- --------
Plan obligation (more than)
less than plan assets............ 1,773 677 (2,060) (2,222)
Unrecognized actuarial (gain) loss.. (1,609) (638) 82 295
Unrecognized prior service
(credit) cost.................... 151 186 (6) (8)
Remaining unrecognized
transition asset................. (10) (17)
-------- -------- -------- --------
Net amount recognized
in the balance sheet............. $ 305 $ 208 $ (1,984) $ (1,935)
======== ======== ======== ========
Amounts recognized in
balance sheet
Prepaid benefit cost................ $ 635 $ 620
Accrued benefit liability........... (362) (463) $ (1,984) $ (1,935)
Intangible asset.................... 21 25
Accumulated pretax charge to
other comprehensive income....... 11 26
-------- -------- -------- --------
Net amount recognized............... $ 305 $ 208 $ (1,984) $ (1,935)
======== ======== ======== ========
--------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
================================================================================
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with the accumulated benefit obligations
greater than plan assets at October 31, 2000 were $333 million, $299 million and
none, respectively, and at October 31, 1999 were $425 million, $385 million and
$14 million, respectively.
3. INCOME TAXES
================================================================================
The provision for income taxes by taxing jurisdiction and by significant
component consisted of the following in millions of dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States:
Federal....................... $ 264 $ 115 $216
State......................... 26 13 30
Foreign......................... 142 166 164
----- ----- ----
Total current............... 432 294 410
----- ----- ----
Deferred:
United States:
Federal....................... (118) (143) 138
State......................... (14) (13) 10
Foreign......................... (6) (3) (4)
----- ----- ----
Total deferred.............. (138) (159) 144
----- ----- ----
Provision for income taxes........ $ 294 $ 135 $554
===== ===== ====
--------------------------------------------------------------------------------
</TABLE>
Based upon location of the company's operations, the consolidated income
before income taxes in the United States in 2000, 1999 and 1998 was $504
million, $21 million and $1,158 million, respectively, and in foreign countries
was $274 million, $344 million and $402 million, respectively. Certain foreign
operations are branches of Deere & Company and are, therefore, subject to United
States as well as foreign income tax regulations. The pretax income by location
and the preceding analysis of the income tax provision by taxing jurisdiction
are, therefore, not directly related.
A comparison of the statutory and effective income tax provision and
reasons for related differences in millions of dollars follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
United States federal income tax
provision at a statutory rate
of 35 percent......................... $272 $128 $546
Increase (decrease) resulting from:
State and local income taxes, net
of federal income tax benefit......... 8 25
Taxes on foreign income which differ
from the United States statutory
rate.................................. 13 22 3
Benefit of Foreign Sales Corporation... (8) (11) (20)
Other adjustments--net................. 9 (4)
---- ---- ----
Provision for income taxes............. $294 $135 $554
==== ==== ====
--------------------------------------------------------------------------------
</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>
--------------------------------------------------------------------------------
2000 1999
--------------------- ---------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred installment sales income.. $211 $317
Tax over book depreciation......... 158 138
Deferred lease income.............. 101 72
Accrual for retirement and
postemployment benefits........... $ 631 $ 619
Accrual for sales allowances....... 283 262
Accrual for vacation pay........... 51 54
Allowance for doubtful
receivables....................... 55 48
Tax loss and tax credit
carryforwards..................... 45 12
Minimum pension liability
adjustment........................ 5 10
Other items........................ 114 44 115 56
Less valuation allowance........... (4) (2)
------ ---- ------ ----
Deferred income tax
assets and liabilities............ $1,180 $514 $1,118 $583
====== ==== ====== ====
--------------------------------------------------------------------------------
</TABLE>
At October 31, 2000, accumulated earnings in certain overseas subsidiaries
totaled $669 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, 2000, certain tax loss and tax credit carryforwards for $45
million were available with $24 million expiring from 2006 through 2019 and $21
million with an unlimited expiration date.
4. OTHER INCOME AND OTHER OPERATING EXPENSES
================================================================================
The major components of other income and other operating expenses consisted of
the following in millions of dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Other income
Gains from sales of retail notes....... $ 24 $ 45 $ 41
Securitization and servicing fee
income................................ 31 38 33
Revenues from services................. 40 25
Other.................................. 60 60 49
---- ---- ----
Total................................ $155 $168 $123
==== ==== ====
Other operating expenses
Depreciation on equipment on
operating leases...................... $280 $205 $146
Cost of services....................... 36 23
Other.................................. 3 8 30
---- ---- ----
Total................................ $319 $236 $176
==== ==== ====
</TABLE>
--------------------------------------------------------------------------------
29
<PAGE>
================================================================================
5. MARKETABLE SECURITIES
--------------------------------------------------------------------------------
Marketable securities are currently held by the health care subsidiaries. All
marketable securities are classified as available-for-sale under FASB Statement
No. 115, with unrealized gains and losses shown as a component of stockholders'
equity. Realized gains or losses from the sales of marketable securities are
based on the specific identification method.
The amortized cost and fair value of marketable securities in millions of
dollars follow:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 31, 2000
Equity securities.............. $ 8 $ 1 $ 9
U.S. government and agencies... 23 23
Corporate...................... 62 1 $ 1 62
Mortgage-backed securities..... 33 33
---- --- --- ----
Marketable securities.......... $126 $ 2 $ 1 $127
==== === === ====
October 31, 1999
Equity securities.............. $ 86 $18 $ 9 $ 95
U.S. government and agencies... 33 1 34
Corporate...................... 129 1 2 128
Mortgage-backed securities..... 59 1 1 59
---- --- --- ----
Marketable securities.......... $307 $21 $12 $316
==== === === ====
--------------------------------------------------------------------------------
</TABLE>
The contractual maturities of debt securities at October 31, 2000 in
millions of dollars follow:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Amortized Fair
Cost Value
----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less.......................... $ 15 $ 15
Due after one through five years................. 65 65
Due after five through 10 years.................. 28 28
Due after 10 years............................... 10 10
---- ----
Debt securities.................................. $118 $118
==== ====
----------------------------------------------------------------------
</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 $205 million in 2000, $19 million in 1999
and $105 million in 1998. In 2000, realized gains were $20 million and realized
losses were $13 million on these sales. In 1999 and 1998, the gains and losses
were not significant. Proceeds in 2000 include the sale of securities that were
previously transferred to Deere & Company from John Deere Insurance Group, Inc.
prior to the sale of this subsidiary in 1999. The increase (decrease) in the net
unrealized holding gain after income taxes was $(5) million, $(19) million and
$3 million during 2000, 1999 and 1998, respectively.
6. TRADE ACCOUNTS AND NOTES RECEIVABLE
--------------------------------------------------------------------------------
Trade accounts and notes receivable at October 31 consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
<S> <C> <C>
Trade accounts and notes:
Agricultural.................................. $1,819 $2,095
Commercial and consumer....................... 1,120 996
Construction.................................. 215 147
Other......................................... 15 13
------ ------
Trade accounts and notes receivable - net.......... $3,169 $3,251
====== ======
----------------------------------------------------------------------
</TABLE>
At October 31, 2000 and 1999, dealer notes included in the previous table
were $622 million and $856 million, respectively, and the allowance for doubtful
trade receivables included was $34 million for both years.
Trade accounts and notes receivable arise from sales of goods to dealers.
Under the terms of the sales to dealers, interest is charged to dealers on
outstanding balances, from the earlier of the date when goods are sold to retail
customers by the dealer or the expiration of certain interest-free periods
granted to the dealer at the time of the sale, until payment is received by the
company. Dealers cannot cancel purchases after goods are shipped and are
responsible for payment even if the equipment is not sold to retail customers.
The interest-free periods are determined based on the type of equipment sold and
the time of year of the sale. These periods range from one to 12 months for
agricultural tractors, from one to four months for most construction equipment,
and from two to 24 months for most other equipment. Interest-free periods may
not be extended. Interest charged may not be forgiven and interest rates, which
exceed the prime rate, are set based on market factors. The company evaluates
and assesses dealers on an ongoing basis as to their credit worthiness and
generally retains a security interest in the goods associated with these trade
receivables. The company is obligated to repurchase goods sold to a dealer upon
cancellation or termination of the dealer's contract for such causes as change
in ownership, closeout of the business or default. The company may also in
certain circumstances repurchase goods sold to a dealer in order to satisfy a
request for goods from another dealer.
Trade accounts and notes receivable have significant concentrations of
credit risk in the agricultural, commercial and consumer and construction
sectors as shown in the previous table. On a geographic basis, there is not a
disproportionate concentration of credit risk in any area.
7. FINANCING RECEIVABLES
--------------------------------------------------------------------------------
Financing receivables at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
<S> <C> <C>
Retail notes:
Equipment:
Agricultural................................ $4,342 $3,397
Commercial and consumer..................... 611 457
Construction................................ 1,419 854
Recreational products......................... 327 333
------ ------
Total....................................... 6,699 5,041
Revolving charge accounts........................ 1,133 918
Financing leases................................. 728 633
Wholesale notes.................................. 1,068 1,052
------ ------
Total financing receivables................... 9,628 7,644
------ ------
Less:
Unearned finance income:
Equipment notes............................. 1,020 626
Recreational product notes.................. 110 80
Financing leases............................ 116 102
------ ------
Total..................................... 1,246 808
------ ------
Allowance for doubtful receivables............ 106 93
------ ------
Financing receivables - net...................... $8,276 $6,743
====== ======
----------------------------------------------------------------------
</TABLE>
30
<PAGE>
================================================================================
Financing receivables have significant concentrations of credit risk in the
agricultural, construction, commercial and consumer, 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, wholesale notes and financing leases.
Financing receivable installments, including unearned finance income, at
October 31 are scheduled as follows in millions of dollars:
<TABLE>
<CAPTION>
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
<S> <C> <C>
Due in months:
0 - 12............................ $4,013 $3,432
13 - 24............................ 2,193 1,670
25 - 36............................ 1,466 1,066
37 - 48............................ 1,016 781
49 - 60............................ 648 485
Thereafter.......................... 292 210
------ ------
Total....................................... $9,628 $7,644
====== ======
------------------------------------------------------------------
</TABLE>
The maximum terms for retail notes are generally eight years for
agricultural equipment, five years for construction equipment, six years for
commercial and consumer equipment and 15 years for recreational products. The
maximum term for financing leases is generally five years, while the maximum
term for wholesale notes is generally 12 months.
At October 31, 2000 and 1999, the unpaid balances of retail notes
previously sold by the credit operations were $2,123 million and $2,716
million, respectively. The company's maximum exposure under all retail note
recourse provisions at October 31, 2000 and 1999 was $174 million and $176
million, respectively. There is no anticipated credit risk related to
nonperformance by the counter-parties. The retail notes sold are collateralized
by security interests in the related equipment sold to customers. At October 31,
2000 and 1999, worldwide financing receivables administered, which include
financing receivables previously sold but still administered, totaled $10,399
million and $9,459 million, respectively.
Total financing receivable amounts 60 days or more past due were $44
million at October 31, 2000, compared with $35 million at October 31, 1999.
These past-due amounts represented .53 percent of the receivables financed at
October 31, 2000 and .52 percent at October 31, 1999. The allowance for doubtful
financing receivables represented 1.26 percent and 1.36 percent of financing
receivables outstanding at October 31, 2000 and 1999, respectively. In addition,
at October 31, 2000 and 1999, the company's credit operations had $147 million
and $139 million, respectively, of deposits withheld from dealers and merchants
available for potential credit losses. An analysis of the allowance for doubtful
financing receivables follows in millions of dollars:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year...................... $ 93 $ 90 $ 94
Provision charged to operations..................... 64 68 50
Amounts written off................................. (44) (44) (36)
Transfers primarily related to retail note sales.... (7) (21) (18)
---- ---- ----
Balance, end of the year............................ $106 $ 93 $ 90
==== ==== ====
-----------------------------------------------------------------------------
</TABLE>
================================================================================
8. Other Receivables
--------------------------------------------------------------------------------
Other receivables at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Taxes receivable.............................................. $206 $115
Receivables relating to asset backed securitizations.......... 89 89
Health care premiums receivable............................... 22 42
Other......................................................... 78 28
---- ----
Other receivables............................................. $395 $274
==== ====
--------------------------------------------------------------------------------
</TABLE>
The credit operations' receivables related to asset backed securitizations
are equal to the present value of payments to be received for retained interests
and deposits made with other entities for recourse provisions under the retail
note sales agreements.
9. EQUIPMENT ON OPERATING LEASES
================================================================================
Operating leases arise from the leasing of John Deere equipment to retail
customers. Initial lease terms generally range from 36 to 60 months. Equipment
on operating leases was $1,954 million and $1,655 million at October 31, 2000
and 1999, respectively. The equipment is depreciated on a straight-line basis
over the terms of the leases. The accumulated depreciation on this equipment was
$480 million and $352 million at October 31, 2000 and 1999, respectively. The
corresponding depreciation expense was $280 million in 2000, $205 million in
1999 and $146 million in 1998.
Future payments to be received on operating leases totaled $746 million at
October 31, 2000 and are scheduled as follows: 2001 - $324, 2002 - $232, 2003 -
$118, 2004 - $57 and 2005 - $15.
10. INVENTORIES
================================================================================
Most inventories owned by Deere & Company and its United States equipment
subsidiaries are valued at cost, on the "last-in, first-out" (LIFO) basis.
Remaining inventories are generally valued at the lower of cost, on the "first-
in, first-out" (FIFO) basis, or market. The value of gross inventories on the
LIFO basis represented 74 percent and 77 percent of worldwide gross inventories
at FIFO value on October 31, 2000 and 1999, respectively. If all inventories had
been valued on a FIFO basis, estimated inventories by major classification at
October 31 in millions of dollars would have been as follows:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------------------------
2000 1999
----------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies................... $ 460 $ 345
Work-in-process.............................. 404 412
Finished machines and parts.................. 1,667 1,591
------ ------
Total FIFO value..................... 2,531 2,348
Adjustment to LIFO basis..................... 978 1,054
------ ------
Inventories.................................. $1,553 $1,294
====== ======
</TABLE>
----------------------------------------------------------------
31
<PAGE>
================================================================================
11. PROPERTY AND DEPRECIATION
--------------------------------------------------------------------------------
A summary of property and equipment at October 31 in millions of dollars
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Land $ 58 $ 59
Buildings and building equipment......................... 1,166 1,124
Machinery and equipment.................................. 2,315 2,318
Dies, patterns, tools, etc............................... 678 682
All other................................................ 658 602
Construction in progress................................. 180 105
------- ------
Total at cost.................................... 5,055 4,890
Less accumulated depreciation............................ 3,143 3,108
------ ------
Property and equipment - net............................. $1,912 $1,782
====== ======
--------------------------------------------------------------------------------
</TABLE>
Leased property under capital leases amounting to $11 million and $5
million at October 31, 2000 and 1999, respectively, is included in property and
equipment.
Property and equipment additions in 2000, 1999 and 1998 were $422 million,
$309 million and $442 million and depreciation was $292 million, $281 million
and $279 million, respectively. 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.
The cost of compliance with foreseeable environmental requirements has been
accrued and did not have a material effect on the company's financial position
or results of operations.
12. INTANGIBLE ASSETS
--------------------------------------------------------------------------------
Net intangible assets totaled $652 million and $295 million at October 31, 2000
and 1999, respectively. The balance at October 31, 2000 consisted primarily of
unamortized goodwill, which resulted from the purchase cost of assets acquired
exceeding their fair value, and an intangible asset of $21 million related to
the additional minimum pension liability required by FASB Statement No. 87.
Intangible assets, excluding the intangible pension asset, are being
amortized over 30 years or less on the straight-line basis, and the accumulated
amortization was $125 million and $89 million at October 31, 2000 and 1999,
respectively. The intangible pension asset is remeasured and adjusted annually.
The unamortized goodwill is reviewed periodically for potential impairment.
13. SHORT-TERM BORROWINGS
--------------------------------------------------------------------------------
Short-term borrowings at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Equipment Operations
Commercial paper.......................................... $ 712 $ 316
Notes payable to banks.................................... 143 121
Long-term borrowings due within one year.................. 73 205
------ ------
Total............................................. 928 642
------ ------
Financial Services
Commercial paper.......................................... 3,016 1,699
Notes payable to banks.................................... 7 9
Long-term borrowings due within one year.................. 1,808 2,138
------ ------
Total............................................. 4,831 3,846
------ ------
Short-term borrowings..................................... $5,759 $4,488
====== ======
--------------------------------------------------------------------------------
</TABLE>
The weighted-average interest rates on total short-term borrowings,
excluding current maturities of long-term borrowings, at October 31, 2000 and
1999 were 6.2 percent and 5.3 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 $5,197 million at October 31, 2000. Some of these credit lines are
available to both the Equipment Operations and certain credit subsidiaries. At
October 31, 2000, $1,303 million of the worldwide lines of credit were unused.
For the purpose of computing the unused credit lines, commercial paper and
short-term bank borrowings, excluding the current maturities of long-term
borrowings, were considered to constitute utilization.
Included in the above lines of credit is a long-term committed credit
agreement expiring in February 2005 for $2,338 million. The agreement is
mutually extendable and the annual facility fee is not significant. The credit
agreement has various requirements of John Deere Capital Corporation, including
the maintenance of its consolidated ratio of earnings to fixed charges at not
less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt to
total stockholder's equity plus subordinated debt at not more than 8 to 1 at the
end of any fiscal quarter. The credit agreement also contains a provision
requiring Deere & Company to maintain consolidated tangible net worth of $500
million according to accounting principles generally accepted in the United
States of America in effect at October 31, 1998. Under this provision, $3,150
million of the company's retained earnings balance was free of restriction at
October 31, 2000.
Deere & Company has a contractual agreement to conduct business with the
John Deere Capital Corporation on such terms that the Capital Corporation will
continue to satisfy the ratio requirement discussed above for earnings to fixed
charges, the Capital Corporation's tangible net worth will be maintained at not
less than $50 million and Deere & Company will continue to own at least 51
percent of Capital Corporation's voting capital stock. These arrangements are
not intended to make Deere & Company responsible for the payment of obligations
of this credit subsidiary.
32
<PAGE>
================================================================================
14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
================================================================================
Accounts payable and accrued expenses at October 31 consisted of the following
in millions of dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Equipment Operations
Accounts payable:
Trade payables................................... $1,061 $ 804
Dividends payable................................ 52 51
Other............................................ 46 42
Accrued expenses:
Employee benefits................................ 306 226
Dealer commissions............................... 202 173
Other............................................ 694 596
------ ------
Total.......................................... 2,361 1,892
------ ------
Financial Services
Accounts payable:
Deposits withheld from dealers and merchants..... 147 139
Other............................................ 234 233
Accrued expenses:
Interest payable................................. 61 39
Other............................................ 173 130
------ ------
Total.......................................... 615 541
------ ------
Accounts payable and accrued expenses.............. $2,976 $2,433
====== ======
--------------------------------------------------------------------------------
</TABLE>
15. LONG-TERM BORROWINGS
================================================================================
Long-term borrowings at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Equipment Operations
Notes and debentures:
Medium-term notes due 2002 -- 2006:
Average interest rate of 7.5% as of year end
2000 and 8.0% as of year end 1999.............. $ 115 $ 181
6.55% notes due 2004............................. 250 250
7.85% debentures due 2010........................ 500
8.95% debentures due 2019........................ 200 200
8-1/2% debentures due 2022....................... 200 200
6.55% debentures due 2028........................ 200 200
8.10% debentures due 2030........................ 250
Other notes...................................... 2 5
------ ------
Total.......................................... $1,717 $1,036
------ ------
--------------------------------------------------------------------------------
</TABLE>
(continued)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Financial Services
Notes and debentures:
Medium-term notes due 2001 -- 2007:
Average interest rate of 7.4% as of year end
2000 and 6.1% as of year end 1999.............. $1,992 $1,373
5.85% notes due 2001............................. 200
5.35% notes due 2001............................. 200
7% notes due 2002: Swapped to variable interest
rate of 7.1% as of year end 2000 and 6.5% as
of year end 1999............................... 300 300
6.125% U.S. dollar notes due 2003: Swapped
to Canadian dollars and a variable interest
rate of 6.1% as of year end 2000 and
5.1% as of year end 1999....................... 142 147
Other notes due up to 2008:
Average rate of 7.8% as of year end 2000 and
7.2% as of year end 1999....................... 163 100
6% notes due 2009: Swapped to variable interest
rate of 6.9% as of year end 2000 and 5.5% as
of year end 1999............................... 300 300
------ ------
Total notes and debentures..................... 2,897 2,620
Subordinated debt:
8-5/8% subordinated debentures due 2019.......... 150 150
------ ------
Total.......................................... 3,047 2,770
------ ------
Long-term borrowings............................... $4,764 $3,806
====== ======
--------------------------------------------------------------------------------
</TABLE>
All of the Financial Services' long-term borrowings represent obligations
of the credit subsidiaries.
The approximate amounts of the Equipment Operations' long-term borrowings
maturing and sinking fund payments required in each of the next five years in
millions of dollars are as follows: 2001 -- $73, 2002 -- $72, 2003 -- $2,
2004 -- $251 and 2005 -- $25. The approximate amounts of the credit
subsidiaries' long-term borrowings maturing and sinking fund payments required
in each of the next five years in millions of dollars are as follows:
2001 -- $1,808, 2002 -- $1,700, 2003 -- $727, 2004 -- $54 and 2005 -- $11.
16. LEASES
================================================================================
At October 31, 2000, future minimum lease payments under capital leases totaled
$8 million. Total rental expense for operating leases was $73 million in 2000,
1999 and 1998. At October 31, 2000, future minimum lease payments under
operating leases amounted to $183 million as follows: 2001 -- $54, 2002 -- $38,
2003 -- $24, 2004 -- $31, 2005 -- $14 and later years $22.
17. COMMITMENTS AND CONTINGENT LIABILITIES
================================================================================
On October 31, 2000, the company's maximum exposure under all credit receivable
recourse provisions was $174 million for retail notes sold by the Financial
Services subsidiaries. Also, at October 31, 2000, the company had commitments
of approximately $123 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, retail credit, software licensing, patent and trademark
matters. Although it is not possible to predict with certainty the outcome of
these unresolved legal actions or the range of possible loss, the company
believes these unresolved legal actions will not have a material effect on its
financial position or results of operations.
33
<PAGE>
================================================================================
18. CAPITAL STOCK
================================================================================
Changes in the common stock account in 1998, 1999 and 2000 in millions were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Number of
Shares Issued Amount
--------------------------------------------------------------------------------
<S> <C> <C>
Balance at October 31, 1997.............................. 263.8 $1,779
Other.................................................... .1 11
----- ------
Balance at October 31, 1998.............................. 263.9 1,790
Acquisition of a business................................ 1.5 49
Other.................................................... .4 11
----- ------
Balance at October 31, 1999.............................. 265.8 1,850
Acquisitions of businesses............................... .2 10
Other.................................................... 4
----- ------
Balance at October 31, 2000.............................. 266.0 $1,864
===== ======
--------------------------------------------------------------------------------
</TABLE>
The number of common shares the company is authorized to issue is 600
million and the number of authorized preferred shares, none of which has been
issued, is 9 million.
The company has previously announced it would repurchase up to $1,500
million of Deere & Company common stock. The stock repurchased under the program
to date totals $1,308 million. No purchases related to the repurchase program
were made in 2000.
A reconciliation of basic and diluted net income per share follows in
millions, except per share amounts:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income...................................... $485.5 $239.2 $1,021.4
Average shares outstanding...................... 234.3 232.9 243.3
Basic net income per share...................... $ 2.07 $ 1.03 $ 4.20
====== ====== ========
Average shares outstanding...................... 234.3 232.9 243.3
Effect of dilutive securities:
Stock options................................. 1.7 1.5 2.1
Other......................................... .3
------ ------ --------
Total potential shares outstanding.......... 236.0 234.4 245.7
====== ====== ========
Diluted net income per share.................... $ 2.06 $ 1.02 $ 4.16
====== ====== ========
--------------------------------------------------------------------------------
</TABLE>
Stock options to purchase 2.9 million shares, 4.2 million shares and .5
million shares during 2000, 1999 and 1998, respectively, were outstanding, but
not included in the preceding diluted per share computation because the options'
exercise prices were greater than the average market price of the company's
common stock during the related periods.
19. STOCK OPTION AND RESTRICTED STOCK AWARDS
================================================================================
The company issues stock options and restricted stock to key employees under
plans approved by stockholders. Restricted stock is also issued to nonemployee
directors. Options are generally awarded with the exercise price equal to the
market price and become exercisable in one to three years after grant. Certain
other options have been awarded with the exercise prices greater than the market
price and become exercisable in one year or longer after grant, depending on the
achievement of company performance goals. Options generally expire 10 years
after the date of grant. According to these plans at October 31, 2000, the
company is authorized to grant stock options and restricted stock for an
additional 15.1 million shares.
The company has retained the intrinsic value method of accounting for its
plans in accordance with APB Opinion No. 25, and no compensation expense for
stock options was recognized under this method. For disclosure purposes only
under FASB Statement No. 123, Accounting for Stock Based Compensation, the
Black-Scholes option pricing model was used to calculate the "fair values" of
stock options on the date the options were awarded. Based on this model, the
weighted-average fair values of stock options awarded during 2000, 1999 and 1998
with the exercise price equal to the market price were $12.06, $7.96 and $19.84
per option, respectively, and those awarded during 1999 and 1998 with the
exercise price greater than the market price were $4.26 and $14.81 per option,
respectively.
Pro forma net income and earnings per share, as if the fair value method in
FASB Statement No. 123 had been used to account for stock-based compensation,
and the assumptions used are as follow:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions)
As reported............................. $ 486 $ 239 $ 1,021
Pro forma............................... $ 446 $ 216 $ 997
Net income per share
As reported - basic..................... $ 2.07 $ 1.03 $ 4.20
Pro forma - basic....................... $ 1.91 $ .93 $ 4.10
As reported - diluted................... $ 2.06 $ 1.02 $ 4.16
Pro forma - diluted..................... $ 1.89 $ .92 $ 4.06
Black-Scholes assumptions*
Risk-free interest rate................. 6.2% 4.6% 5.8%
Dividend yield.......................... 2.1% 2.7% 1.6%
Stock volatility........................ 30.4% 27.9% 34.7%
Expected option life.................... 4.5 years 5.0 years 5.3 years
*Weighted-averages
--------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
================================================================================
During the last three fiscal years, changes in shares under option in
millions were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year....... 11.9 $38.59 7.6 $39.95 6.2 $30.90
Granted - at market...... 5.5 41.29 3.9 32.75 1.7 56.50
Granted - at premium..... .7 50.97 .5 82.19
Exercised................ (.6) 28.75 (.2) 21.35 (.7) 29.55
Expired or forfeited..... (.1) 42.50 (.1) 40.62 (.1) 48.67
---- ---- ----
Outstanding at
end of year............. 16.7 39.77 11.9 38.59 7.6 39.95
Exercisable at
end of year............. 10.1 36.14 6.8 37.36 3.8 30.52
*Weighted-averages
--------------------------------------------------------------------------------
</TABLE>
Options outstanding and exercisable in millions at October 31, 2000 were as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Options Outstanding Options Exercisable
----------------------------- -------------------
Remaining
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (yrs)* Price* Shares Price*
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.63 - $23.56............. 1.4 3.27 $19.91 1.4 $19.91
$28.39 - $34.19............. 5.6 6.70 32.52 5.6 32.52
$35.00 - $47.36............. 6.8 8.48 41.53 1.5 42.43
$50.97 - $56.50............. 2.4 7.39 54.78 1.6 56.50
$82.19...................... .5 7.08 82.19
---- ----
Total....................... 16.7 10.1
*Weighted-averages
--------------------------------------------------------------------------------
</TABLE>
In 2000, 1999, and 1998, the company granted 53,956, 703,914 and 33,239
shares of restricted stock with weighted-average fair values of $37.55, $32.85
and $55.60 per share, respectively. The total compensation expense for the
restricted stock plans, which are being amortized over the restricted periods,
was $9 million, $10 million and $2 million in 2000, 1999 and 1998, respectively.
20. EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS
================================================================================
The company maintains the following significant plans for eligible United States
employees:
John Deere Savings and Investment Plan, for salaried employees
John Deere Stock Purchase Plan, for salaried employees
John Deere Tax Deferred Savings Plan, for hourly and incentive paid employees
Company contributions under these plans were $27 million in 2000, $51
million in 1999 and $45 million in 1998.
21. OTHER COMPREHENSIVE INCOME ITEMS
================================================================================
Other comprehensive income items under FASB Statement No. 130 are transactions
recorded in stockholders' equity during the year, excluding net income and
transactions with stockholders. Following are the items included in other
comprehensive income (loss) and the related tax effects in millions of dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Before Tax After
Tax (Expense) Tax
Amount Credit Amount
--------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Minimum pension liability adjustment.............. $ (8) $ 3 $ (5)
----- --- -----
Cumulative translation adjustment................. (21) (3) (24)
----- --- -----
Unrealized gain on marketable securities:
Holding gain.................................... 11 (4) 7
Reclassification of realized gain
to net income................................. (7) 3 (4)
----- --- -----
Net unrealized gain............................. 4 (1) 3
----- --- -----
Total other comprehensive loss.................... $ (25) $(1) $ (26)
===== === =====
--------------------------------------------------------------------------------
1999
Cumulative translation adjustment................. $ (24) $(3) $ (27)
----- --- -----
Unrealized loss on marketable securities:
Holding loss.................................... (28) 10 (18)
Reclassification of realized gain
to net income................................. (1) (1)
----- --- -----
Net unrealized loss............................. (29) 10 (19)
----- --- -----
Total other comprehensive loss.................... $ (53) $ 7 $ (46)
===== === =====
--------------------------------------------------------------------------------
2000
Minimum pension liability adjustment.............. $ 16 $(5) $ 11
----- --- -----
Cumulative translation adjustment................. (108) (7) (115)
----- --- -----
Unrealized loss on marketable securities:
Holding loss.................................... (1) (1)
Reclassification of realized gain
to net income................................. (7) 3 (4)
----- --- -----
Net unrealized loss............................. (8) 3 (5)
----- --- -----
Total other comprehensive loss.................... $(100) $(9) $(109)
===== === =====
--------------------------------------------------------------------------------
</TABLE>
22. 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>
--------------------------------------------------------------------------------
2000 1999
---------------- ----------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financing receivables........................ $8,276 $8,254 $6,743 $6,702
====== ====== ====== ======
Long-term borrowings and related swaps:
Equipment Operations borrowings............ $1,717 $1,722 $1,036 $1,045
Financial Services borrowings.............. 3,055 3,036 2,773 2,748
Interest rate and
foreign currency swaps................... (8) 19 (3) 19
------ ------ ------ ------
Total.................................... $4,764 $4,777 $3,806 $3,812
====== ====== ====== ======
--------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
================================================================================
Fair Value Estimates
Fair values of the long-term financing receivables with fixed rates were based
on the discounted values of their related cash flows at current market interest
rates. The fair values of the remaining financing receivables approximated the
carrying amounts.
Fair values of long-term borrowings with fixed rates were based on the
discounted values of their related cash flows at current market interest rates.
Certain long-term borrowings of the credit operations have been swapped to
current variable interest rates. Fair values of these swaps were also based on
discounted values of their related cash flows at current market interest rates.
Fair values and carrying values of the company's other interest rate swaps
associated with short-term borrowings, foreign exchange forward contracts and
options were not material.
Derivatives
The company enters into derivative transactions only to manage 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 risks under these agreements are 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
The company's credit operations enter into interest rate swap agreements related
to their borrowings and certain asset backed securitizations. These swaps are
utilized to more closely match the type of interest rates of the borrowings to
those of the assets being funded or to manage interest rate exposures from
securitizations. The differential to be paid or received on all swap agreements
is accrued as interest rates change and is recognized over the lives of the
agreements in interest expense. The fair value adjustments for swap agreements
related to securitizations are recognized in other income.
At October 31, 2000 and 1999, the total notional principal amounts of
interest rate swap agreements related to short-term borrowings were $1,915
million and $1,037 million, having rates of 4.9 to 7.5 percent and 4.7 to 6.8
percent, terminating in up to 64 months and 59 months, respectively.
The credit operations have entered into interest rate swap agreements with
independent parties that change the effective rate of interest on certain long-
term borrowings. The table in Note 15 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. The credit operations also
have interest rate swap agreements associated with medium-term notes. The table
in Note 15 reflects the interest rates relating to these swap agreements. At
October 31, 2000 and 1999, the total notional principal amounts of these swap
agreements were $1,255 million and $540 million, terminating in up to 100 months
and 92 months, respectively.
At October 31, 2000 and 1999, the total notional principal amounts of
interest rate swap agreements related to asset backed securitizations were $210
million and $361 million, having rates of 4.8 to 5.4 percent and 4.7 to 5.9
percent, terminating in up to 56 months and 68 months, respectively.
Foreign Exchange Forward Contracts, Swaps and Options
The company has entered into foreign exchange forward contracts, swaps and
purchased options in order to manage the currency exposure of certain
receivables, liabilities and expected inventory purchases. The foreign exchange
forward contract and swap gains or losses are accrued as foreign exchange rates
change for contracts related to receivables and liabilities or deferred until
expiration of the contract for future commitments. The contract gains or losses
and premiums are recognized in other operating expenses, cost of sales or
interest expense, and the premiums are either amortized or deferred over the
terms of the contracts depending on the related items. Premiums and gains on the
options related to future inventory purchases are deferred and recognized in
cost of sales. At October 31, 2000 and 1999, the company had foreign exchange
forward contracts of $1,024 million and $778 million maturing in up to 7 months
and 19 months, respectively, and foreign currency swap agreements for $174
million and $147 million maturing in up to 31 months and 43 months,
respectively. At October 31, 2000 and 1999, the company had purchased options
for $202 million and $131 million maturing in up to 14 months and 23 months,
respectively. The total deferred gains or losses on these foreign exchange
options were not material at October 31, 2000 and 1999.
23. 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>
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Equipment Operations................................. $152 $151 $126
Financial Services................................... 489 428 414
Intercompany eliminations............................ (23) (15) (11)
---- ---- ----
Consolidated........................................... $618 $564 $529
==== ==== ====
Income taxes:
Equipment Operations................................. $393 $135 $449
Financial Services................................... 77 55 80
Intercompany eliminations............................ (57) (43) (63)
---- ---- ----
Consolidated........................................... $413 $147 $466
==== ==== ====
--------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
================================================================================
24. SEGMENT AND GEOGRAPHIC AREA DATA FOR THE YEARS ENDED OCTOBER 31, 2000, 1999
AND 1998
================================================================================
The company's operations are organized and reported in four major business
segments described as follows.
The company's worldwide agricultural equipment segment manufactures and
distributes a full line of farm equipment -- including tractors; combine, cotton
and sugarcane harvesters; tillage, seeding and soil preparation machinery;
sprayers; hay and forage equipment; materials handling equipment; and integrated
precision farming technology.
The company's worldwide commercial and consumer equipment segment
manufactures and distributes equipment for commercial and residential uses --
including small tractors for lawn, garden, commercial and utility purposes;
riding and walk-behind mowers; golf course equipment; snowblowers; handheld
products such as chain saws, string trimmers and leaf blowers; skid-steer
loaders; utility vehicles; and other outdoor power products.
The company's worldwide construction equipment segment manufactures and
distributes a broad range of machines used in construction, earthmoving,
material handling and timber harvesting -- including backhoe loaders; crawler
dozers and loaders; four-wheel-drive loaders; excavators; motor graders;
articulated dump trucks; forklifts; landscape loaders; and log skidders, feller
bunchers, loaders, forwarders, harvesters and related attachments.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and major retail outlets.
The company's credit segment primarily finances sales and leases by John
Deere dealers of new and used agricultural, commercial and consumer, and
construction equipment and sales by non-Deere dealers of recreational products.
In addition, it provides wholesale financing to dealers of the foregoing
equipment, provides operating loans and finances retail revolving charge
accounts.
Certain operations do not meet the materiality threshold of FASB Statement
No. 131 and have been grouped together as "Other" segments. These include
special technologies, health care and the insurance operations which were sold
in 1999.
Corporate assets are primarily the Equipment Operations' prepaid pension
costs, deferred income tax assets, other receivables and cash and short-term
investments as disclosed in the financial statements, net of certain minor
intercompany eliminations.
Because of integrated manufacturing operations and common administrative
and marketing support, a substantial number of allocations must be made to
determine operating segment and geographic area data. Intersegment sales and
revenues represent sales of components and finance charges which are generally
based on market prices. 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 operating segment in millions of
dollars follows with related comments included in Management's Discussion and
Analysis. In addition to the following unaffiliated sales and revenues by
segment, intersegment sales and revenues in 2000, 1999, and 1998 were as
follows: agricultural equipment net sales of $94 million, $106 million and $132
million and credit revenues of $4 million, $1 million and $2 million,
respectively.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
OPERATING SEGMENTS 2000 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues
Unaffiliated customers:
Agricultural equipment net sales................ $ 5,934 $ 5,138 $ 7,463
Commercial and consumer equipment
net sales..................................... 2,966 2,648 2,182
Construction equipment net sales................ 2,203 1,880 2,281
Other net sales................................. 66 35
------- ------- -------
Total net sales............................... 11,169 9,701 11,926
Credit revenues................................... 1,323 1,136 971
Other revenues.................................... 645 914 925
------- ------- -------
Total............................................. $13,137 $11,751 $13,822
======= ======= =======
------------------------------------------------------------------------------
Operating profit (loss)
Agricultural equipment*........................... $ 400 $ (51) $ 941
Commercial and consumer equipment................. 159 213 213
Construction equipment............................ 191 149 326
Credit**.......................................... 254 274 256
Other**........................................... (39) (33) 11
------- ------- -------
Total operating profit.......................... 965 552 1,747
------- ------- -------
Interest income................................... 40 24 13
Investment income................................. 8 1
Interest expense.................................. (182) (161) (126)
Foreign exchange loss............................. (8) (7) (24)
Corporate expenses - net.......................... (43) (35) (35)
Income taxes...................................... (294) (135) (554)
------- ------- -------
Total........................................... (479) (313) (726)
------- ------- -------
Net income........................................ $ 486 $ 239 $ 1,021
======= ======= =======
</TABLE>
* Includes $68 million of early-retirement costs in 1999.
** 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 "other" category includes health care and insurance
investment income.
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------
Interest income
Agricultural equipment............................ $ 39 $ 51 $ 43
Commercial and consumer equipment................. 11 8 8
Construction equipment............................ 8 9 11
Credit............................................ 791 685 697
Corporate......................................... 40 24 13
Intercompany...................................... (23) (15) (11)
------- ------- -------
Total........................................... $ 866 $ 762 $ 761
======= ======= =======
------------------------------------------------------------------------------
Interest expense
Agricultural equipment............................ $ 1 $ 1 $ 2
Credit............................................ 515 408 400
Other............................................. 2 2 2
Corporate......................................... 182 161 126
Intercompany...................................... (23) (15) (11)
------- ------- -------
Total........................................... $ 677 $ 557 $ 519
======= ======= =======
------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
================================================================================
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
OPERATING SEGMENTS 2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation* and amortization
expense
Agricultural equipment....................... $ 199 $ 193 $ 214
Commercial and consumer equipment............ 75 71 57
Construction equipment....................... 60 46 52
Credit....................................... 283 208 129
Other........................................ 31 24 11
------- ------- -------
Total...................................... $ 648 $ 542 $ 463
======= ======= =======
* Includes depreciation for equipment on operating leases.
--------------------------------------------------------------------------------
Equity in income (loss) of
unconsolidated affiliates
Agricultural equipment....................... $ (5) $ 2 $ 2
Commercial and consumer equipment............ 1
Construction equipment....................... 6 10 15
Credit....................................... 1
Other........................................ (3) (3)
------- ------- -------
Total...................................... $ 2 $ 9 $ 15
======= ======= =======
--------------------------------------------------------------------------------
Identifiable assets
Agricultural equipment....................... $ 4,082 $ 4,244 $ 5,324
Commercial and consumer equipment............ 2,216 1,948 1,574
Construction equipment....................... 1,522 757 950
Credit....................................... 10,675 8,658 7,674
Other........................................ 338 327 1,236
Corporate.................................... 1,636 1,644 1,244
------- ------- -------
Total...................................... $20,469 $17,578 $18,002
======= ======= =======
--------------------------------------------------------------------------------
Capital additions
Agricultural equipment....................... $ 214 $ 170 $ 261
Commercial and consumer equipment............ 135 80 97
Construction equipment....................... 53 42 71
Credit....................................... 10 5 9
Other........................................ 10 12 4
------- ------- -------
Total...................................... $ 422 $ 309 $ 442
======= ======= =======
--------------------------------------------------------------------------------
Investment in unconsolidated
affiliates
Agricultural equipment....................... $ 26 $ 23 $ 57
Commercial and consumer equipment............ 2 2 1
Construction equipment....................... 153 116 92
Credit....................................... 10 9 20
Other........................................ 2 2
------- ------- -------
Total...................................... $ 191 $ 152 $ 172
======= ======= =======
--------------------------------------------------------------------------------
</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. Operating income for these areas has been
disclosed in addition to the requirements under FASB Statement No. 131. No
individual foreign country's net sales and revenues were material for disclosure
purposes. The percentages shown in the captions for net sales and revenues
indicate the approximate proportion of each amount that relates to the United
States only. The percentages are based upon a three-year average for 2000, 1999
and 1998.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
GEOGRAPHIC AREAS 2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues
Unaffiliated customers:
United States and Canada:
Equipment operations net sales (92%)..... $ 8,272 $ 7,023 $ 8,877
Financial Services revenues (91%)........ 1,731 1,873 1,737
------- ------- -------
Total.................................... 10,003 8,896 10,614
------- ------- -------
Overseas:
Equipment operations net sales........... 2,897 2,678 3,049
Financial Services revenues*............. 79 40
------- ------- -------
Total.................................. 2,976 2,718 3,049
------- ------- -------
Other revenues............................... 158 137 159
------- ------- -------
Total........................................ $13,137 $11,751 $13,822
======= ======= =======
*Overseas Financial Services were not significant in 1998.
--------------------------------------------------------------------------------
Operating profit
United States and Canada:
Equipment operations..................... $ 529 $ 48 $ 1,177
Financial Services....................... 265 277 271
------- ------- -------
Total.................................. 794 325 1,448
------- ------- -------
Overseas:
Equipment operations..................... 164 224 299
Financial Services*...................... 7 3
------- ------- -------
Total.................................. 171 227 299
------- ------- -------
Total........................................ $ 965 $ 552 $ 1,747
======= ======= =======
*Overseas Financial Services were not significant in 1998.
--------------------------------------------------------------------------------
Property and equipment
United States................................ $ 1,322 $ 1,267 $ 1,253
Mexico....................................... 197 194 176
Germany...................................... 121 137 156
Other countries.............................. 272 184 115
------- ------- -------
Total..................................... $ 1,912 $ 1,782 $ 1,700
======= ======= =======
--------------------------------------------------------------------------------
</TABLE>
25. SUPPLEMENTAL INFORMATION (UNAUDITED)
================================================================================
Quarterly information with respect to net sales and revenues and earnings is
shown in the following schedule. Such information is shown in millions of
dollars except for per share amounts.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Net sales and revenues...................... $2,339 $3,790 $3,632 $3,376
Income before income taxes.................. 60 353 270 95
Net income.................................. 38 204 173 71
Net income per share - basic................ .16 .87 .74 .30
Net income per share - diluted.............. .16 .87 .72 .30
Dividends declared per share................ .22 .22 .22 .22
Dividends paid per share.................... .22 .22 .22 .22
--------------------------------------------------------------------------------
</TABLE>
(continued)
38
<PAGE>
================================================================================
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales and revenues...................... $2,459 $3,468 $3,036 $2,788
Income (loss) before income taxes........... 76 231 125 (67)
Net income (loss)........................... 50 150 69 (30)
Net income (loss) per share - basic......... .21 .65 .30 (.13)
Net income (loss) per share - diluted....... .21 .65 .29 (.13)
Dividends declared per share................ .22 .22 .22 .22
Dividends paid per share.................... .22 .22 .22 .22
--------------------------------------------------------------------------------
</TABLE>
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>
2000 Market price
High........................................ $48.31 $44.63 $49.63 $38.94
Low......................................... $35.38 $30.31 $36.31 $30.69
1999 Market price
High........................................ $40.19 $45.94 $45.25 $43.44
Low......................................... $29.44 $31.56 $35.13 $35.13
--------------------------------------------------------------------------------
</TABLE>
At October 31, 2000, there were 33,241 holders of record of the company's
$1 par value common stock and 10 holders of record of the company's 5-1/2%
convertible subordinated debentures due 2001.
Dividend
A quarterly cash dividend of $.22 per share was declared at the board of
directors' meeting held on December 6, 2000, payable on February 1, 2001.
FINANCIAL INSTRUMENT RISK INFORMATION (UNAUDITED)
Sensitivity Analysis
The following is a sensitivity analysis for the company's derivatives and other
financial instruments which have interest rate risk. These instruments are held
for other than trading purposes. The gains or losses in the following table
represent the changes in the financial instruments' fair values which would be
caused by decreasing the interest rates by 10 percent of the current market
rates at October 31, 2000 and 1999. The fair values were determined based on the
discounted values of their related cash flows. The gains or losses in fair
values would have been as follows in millions of dollars:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Fair Value
Gains (Losses)
---------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Marketable securities........................................ $ 2 $ 10
Financing receivables........................................ 52 40
Long-term borrowings and related swaps:
Equipment Operations borrowings............................ (79) (48)
Financial Services borrowings.............................. (32) (39)
Interest rate and
foreign currency swaps................................... 14 23
---- ----
Total.................................................... $(43) $(14)
==== ====
--------------------------------------------------------------------------------
</TABLE>
Tabular Information
The following foreign exchange forward contracts were held by the company
related to certain currency exposures. Substantially all contracts have maturity
dates of less than one year. The notional amounts and fair values in millions of
dollars follow:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Average Fair Value
Contractual Notional Gains
Rate* Amount (Losses)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
October 31, 2000
Buy US$ / Sell Canadian dollar................ 1.5011 $ 153 $ 2.4
Buy Deutsche Mark / Sell US$.................. 2.3367 145 (.9)
Buy US$ / Sell Euro........................... 1.1651 137 4.1
Buy US$ / Sell Swedish Krona.................. 9.6095 123 7.4
Buy US$ / Sell British Pound.................. .6873 119 1.5
Buy US$ / Sell Australian dollar.............. 1.8043 118 6.8
Buy US$ / Sell Deutsche Mark.................. 2.3394 87 .5
Other contracts............................... 142 (.4)
------ -----
Total...................................... $1,024 $21.4
====== =====
October 31, 1999
Buy Deutsche Mark / Sell US$.................. 1.8513 $ 157 $(1.3)
Buy US$ / Sell British Pound.................. .6314 133 1.2
Buy US$ / Sell Brazilian Real................. 1.9633 132 .7
Buy US$ / Sell Deutsche Mark.................. 1.8404 120 1.8
Buy US$ / Sell Canadian dollar................ 1.4694 76
Buy US$ / Sell Australian dollar.............. 1.5475 47 (.4)
Other contracts............................... 113 (.6)
------ -----
Total...................................... $ 778 $ 1.4
====== =====
*Currency per United States dollar (US$)
--------------------------------------------------------------------------------
</TABLE>
At October 31, 2000 and 1999, the company had $202 million and $131 million
of foreign exchange purchased options with a deferred premium of $6 million and
$5 million, respectively. The premium is the maximum potential loss on these
options, which are related to expected inventory purchases. Additional
information on financial instruments including derivatives is presented in Note
22.
39
<PAGE>
Deere & Company
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
====================================================================================================================================
(Dollars in millions
except per share amounts) 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and revenues.......... $13,137 $11,751 $13,822 $12,791 $11,229 $10,291 $ 8,977 $ 7,696 $ 6,930 $ 7,035
Net sales of equipment.......... 11,169 9,701 11,926 11,082 9,640 8,830 7,663 6,479 5,723 5,848
Finance and interest income..... 1,321 1,104 1,007 867 763 660 548 563 616 654
Research and development
expenses...................... 542 458 445 412 370 327 276 270 288 279
Interest expense................ 677 557 519 422 402 393 303 369 413 450
Income (loss) before changes in
accounting.................... 486 239 1,021 960 817 706 604 184 37 (20)
Net income (loss)............... 486 239 1,021 960 817 706 604 (921) 37 (20)
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) per share before
changes in accounting......... $ 2.07 $ 1.03 $ 4.20 $ 3.78 $ 3.14 $ 2.71 $ 2.34 $ .80 $ .16 $ (.09)
Net income (loss) per share
- basic....................... 2.07 1.03 4.20 3.78 3.14 2.71 2.34 (3.97) .16 (.09)
Net income (loss) per share
- diluted..................... 2.06 1.02 4.16 3.74 3.11 2.69 2.32 (3.97) .16 (.09)
Dividends declared per share.... .88 .88 .88 .80 .80 .75 .68 1/3 .66 2/3 .66 2/3 .66 2/3
Dividends paid per share........ .88 .88 .86 .80 .80 .73 1/3 .66 2/3 .66 2/3 .66 2/3 .66 2/3
Average number of common shares
outstanding (in thousands).... 234,276 232,874 243,315 253,723 260,547 260,494 258,438 231,874 228,822 228,493
------------------------------------------------------------------------------------------------------------------------------------
Total assets.................... $20,469 $17,578 $18,002 $16,320 $14,653 $13,847 $12,781 $11,467 $11,446 $11,649
Trade accounts and notes
receivable - net.............. 3,169 3,251 4,059 3,334 3,153 3,260 2,939 2,794 2,946 2,958
Financing receivables - net..... 8,276 6,743 6,333 6,405 5,912 5,345 4,502 3,755 4,395 4,754
Equipment on operating leases
- net......................... 1,954 1,655 1,209 775 430 259 219 195 168 185
Inventories..................... 1,553 1,294 1,287 1,073 829 721 698 464 525 538
Property and equipment - net.... 1,912 1,782 1,700 1,524 1,352 1,336 1,314 1,240 1,308 1,235
Short-term borrowings:
Equipment Operations........ 928 642 1,512 171 223 396 54 476 856 881
Financial Services.......... 4,831 3,846 3,810 3,604 2,921 2,744 2,583 1,125 2,224 2,590
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total................... 5,759 4,488 5,322 3,775 3,144 3,140 2,637 1,601 3,080 3,471
Long-term borrowings:
Equipment Operations........ 1,718 1,036 553 540 626 703 1,019 1,070 1,234 1,018
Financial Services.......... 3,046 2,770 2,239 2,083 1,799 1,473 1,035 1,478 1,239 1,188
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total................... 4,764 3,806 2,792 2,623 2,425 2,176 2,054 2,548 2,473 2,206
Total stockholders' equity...... 4,302 4,094 4,080 4,147 3,557 3,085 2,558 2,085 2,650 2,836
------------------------------------------------------------------------------------------------------------------------------------
Book value per share............ $ 18.34 $ 17.51 $ 17.56 $ 16.57 $ 13.83 $ 11.78 $ 9.87 $ 8.13 $ 11.58 $ 12.40
Number of employees
(at year end)................. 43,670 38,726 37,002 34,420 33,919 33,375 34,252 33,070 34,852 36,774
====================================================================================================================================
</TABLE>
40
<PAGE>
[Letterhead]
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, IL 60601
INDEPENDENT AUDITORS' REPORT
----------------------------
Deere & Company:
We have audited the accompanying consolidated balance sheets of Deere & Company
and subsidiaries as of October 31, 2000 and 1999 and the related statements of
consolidated income, changes in consolidated stockholders' equity and
consolidated cash flows for each of the three years in the period ended October
31, 2000. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Deere & Company and subsidiaries at
October 31, 2000 and 1999 and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Chicago, Illinois
November 21, 2000
41
<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.
Each person signing below also hereby appoints Robert W. Lane, Nathan J.
Jones and Michael A. Harring, and each of them singly, his or her lawful
attorney-in-fact with full power to execute and file any and all amendments to
this report together with exhibits thereto and generally to do all such things
as such attorney-in-fact may deem appropriate to enable Deere & Company to
comply with the provisions of the Securities Exchange Act of 1934 and all
requirements of the Securities and Exchange Commission.
DEERE & COMPANY
By: /s/ R. W. LANE
------------------------------------
R. W. Lane
Chairman and Chief Executive Officer
Date: 16 January 2001
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------- ----
<S> <C> <C>
/s/ JOHN R. BLOCK Director ) 16 January 2001
-------------------------------- )
John R. Block )
)
)
/s/ C. C. BOWLES Director )
-------------------------------- )
C. C. Bowles )
)
)
/s/ T. KEVIN DUNNIGAN Director )
-------------------------------- )
T. Kevin Dunnigan )
)
)
/s/ LEONARD A. HADLEY Director )
-------------------------------- )
Leonard A. Hadley )
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ REGINA E. HERZLINGER Director )
-------------------------------- )
Regina E. Herzlinger )
)
)
)
Senior Vice President, )
/s/ NATHAN J. JONES Principal Financial Officer and )
-------------------------------- Principal Accounting Officer )
Nathan J. Jones )
)
)
/s/ ARTHUR L. KELLY Director )
-------------------------------- )
Arthur L. Kelly )
)
)
/s/ R. W. LANE Chairman, Director and ) 16 January 2001
-------------------------------- Chief Executive Officer )
R. W. Lane )
)
)
/s/ ANTONIO MADERO B. Director )
-------------------------------- )
Antonio Madero B. )
)
)
/s/ THOMAS H. PATRICK Director )
-------------------------------- )
Thomas H. Patrick )
)
)
/s/ JOHN R. STAFFORD Director )
-------------------------------- )
John R. Stafford )
)
)
/s/ JOHN R. WALTER Director )
-------------------------------- )
John R. Walter )
)
)
/s/ ARNOLD R. WEBER Director )
-------------------------------- )
Arnold R. Weber )
</TABLE>
43
<PAGE>
SCHEDULE II
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended October 31, 2000, 1999 and 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
==============================================================================================
Column A Column B Column C
------------------------------------ ----------- ----------------------------------------
Additions
----------------------------------------
Balance at Charged to
beginning costs and Charged to other accounts
----------------------------
Description of period expenses Description Amount
------------------------------------ ----------- ---------- ------------------ --------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 2000
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances $ 34,027 $ 11,177 Bad debt recoveries $1,940
Acquisition 408
Financial Services
------------------
Financing receivable allowances 93,219 63,813
-------- -------- ------
Consolidated receivable allowances $127,246 $ 74,990 $2,348
======== ======== ======
YEAR ENDED OCTOBER 31, 1999
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances $ 31,339 $ 5,604 Bad debt recoveries $3,149
Financial Services
------------------
Financing receivable allowances 89,800 67,947
-------- -------- ------
Consolidated receivable allowances $121,139 $ 73,551 $3,149
======== ======== ======
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances $ 34,801 $ 6,347 Bad debt recoveries $1,840
Financial Services
------------------
Financing receivable allowances 93,656 50,500
-------- -------- ------
Consolidated receivable allowances $128,457 $ 56,847 $1,840
======== ======== ======
<CAPTION>
========================================================================================================
Column A Column D Column E
-------------------------------------- ------------------------------------------------ ---------
Balance
Deductions at end
------------------------------------------------
Description Description Amount of period
-------------------------------------- ------------------------------------- ------- ---------
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31, 2000
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances Trade receivable write-offs $13,105 $ 34,447
Financial Services
------------------ Transfers related to retail
Financing receivable allowances note sales 6,734
Financing receivable write-offs 43,928 106,370
Consolidated receivable allowances ------- ----------
$63,767 $ 140,817
======= ==========
YEAR ENDED OCTOBER 31, 1999
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances
Trade receivable write-offs $ 6,065 $ 34,027
Financial Services
------------------ Transfers related to retail note sales 20,901
Financing receivable allowances
Financing receivable write-offs 43,627 93,219
Consolidated receivable allowances ------- ----------
$70,593 $ 127,246
======= ==========
YEAR ENDED OCTOBER 3, 1998
Allowance for doubtful receivables:
Equipment Operations
--------------------
Trade receivable allowances Trade receivable write-offs $11,649 $ 31,339
Financial Services Transfers related to retail note sales 18,572
------------------
Financing receivable allowances Financing receivable write-offs 35,784 89,800
------- ----------
Consolidated receivable allowances $66,005 $ 121,139
======= ==========
========================================================================================================
</TABLE>
44
<PAGE>
INDEX TO EXHIBITS
2. Not applicable
3.1 Certificate of incorporation, as amended (Exhibit 3.1 to Form 10-K of
registrant for the year ended October 31, 1999*)
3.2 Certificate of Designation Preferences and Rights of Series A
Participating Preferred Stock (Exhibit 3.2 to Form 10-K of registrant
for the year ended October 31, 1998*)
3.3 By-laws, as amended (Exhibit 3.3 to Form 10-K of registrant for the
year ended October 31, 1999*)
4.1 Credit agreements among registrant, John Deere Capital Corporation,
various financial institutions, The Chase Manhattan Bank as
administrative agent, Bank of America National, N.A. and Bank One,
N.A. as documentation agents, and Deutsche Bank AG, New York Branch
as syndication agent, et al, dated as of February 22,2000 (Exhibit
4.1 and 4.2 to Form 10-Q of registrant for the quarter ended April
30, 2000*)
4.2 Form of common stock certificate (Exhibit 4.6 to Form 10-K of
registrant for the year ended October 31, 1998*)
4.3 Rights Agreement dated as of December 3, 1997 between registrant and
The Bank of New York (Exhibit 1 to Form 8-A of registrant filed
December 10, 1997*)
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 as amended November 1, 1994 between registrant and John
Deere Capital Corporation concerning agricultural retail notes
(Exhibit 10.1 to Form 10-K of registrant for the year ended October
31, 1998*)
10.2 Agreement as amended November 1, 1994 between registrant and John
Deere Capital Corporation relating to lawn and grounds care retail
notes (Exhibit 10.2 to Form 10-K of registrant for the year ended
October 31, 1998*)
10.3 Agreement as amended November 1, 1994 between John Deere Construction
Equipment Company, a wholly-owned subsidiary of registrant and John
Deere Capital Corporation concerning construction retail notes
(Exhibit to Form 10-K of registrant for the year ended October 31,
1998*)
10.4 Agreement dated July 14, 1997 between the John Deere Construction
Equipment Company and John Deere Capital Corporation concerning
construction retail notes (Exhibit 10.8 to John Deere Capital
Corporation Form 10-K for the year ended October 31, 1997 Securities
and Exchange Commission file number 1-6458*)
10.5 Agreement dated October 15, 1996 between registrant and John Deere
Capital Corporation relating to fixed charges ratio, ownership and
minimum net worth of John Deere Capital Corporation. (Exhibit 10.7 to
John Deere Capital Corporation Form 10-K for the year ended October
31, 1996 Securities and Exchange Commission file number 1-6458*)
10.6 Deere & Company Voluntary Deferred Compensation Plan (Exhibit 10.9 to
Form 10-K of registrant for the year ended October 31, 1998*) **
10.7 John Deere Performance Bonus Plan as amended December 6, 2000 **
10.8 1986 John Deere Stock Option Plan (Exhibit 10.7 to Form 10-K of
registrant for the year ended October 31, 1998*) **
10.9 1991 John Deere Stock Option Plan (Exhibit 10.9 to Form 10-K of
registrant for the year ended October 31, 1999*) **
45
<PAGE>
10.10 John Deere Restricted Stock Plan (Appendix to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 28, 1996*) **
10.11 John Deere Equity Incentive Plan (Exhibit C to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 23, 2000*) **
10.12 John Deere Omnibus Equity and Incentive Plan (Exhibit A to Notice and
Proxy Statement of registrant for the annual shareholder meeting on
February 23, 2000*) **
10.13 John Deere Defined Contribution Restoration Plan as amended January
1, 2000**
10.14 John Deere Supplemental Pension Benefit Plan, as amended July 31,
2000 **
10.15 1993 Nonemployee Director Stock Ownership Plan as amended August 25,
1999 (Exhibit 10.15 to Form 10-K of registrant for the year ended
October 31, 1999*)**
10.16 Deere & Company Nonemployee Director Deferred Compensation Plan as
amended May 26, 1999 (Exhibit 10.16 to Form 10-K of registrant for
the year ended October 31, 1999*)**
10.17 Form of Severance Protection Agreement between registrant and the
executive officers (Exhibit 10.1 to Form 10-Q of registrant for the
quarter ended April 30, 2000*)**
12. Computation of ratio of earnings to fixed charges
13. Not applicable
16. Not applicable
18. Not applicable
21. Subsidiaries
22. Not applicable
23. Consent of Deloitte & Touche LLP
24. Power of Attorney (included on signature page)
_______________________________
* 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.
46
