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OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
36-2382580
61265
(309) 765-8000
TO SECTION 12(b) OF THE ACT
Chicago Stock Exchange
Frankfurt (Germany) Stock Exchange
51/2% Convertible Subordinated
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
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/
aggregate quoted market price of voting stock of registrant held by nonaffiliates at December 31, 1999 was $10,108,854,792. At December 31, 1999, 233,936,562 shares of common stock,
$1 par value, of the registrant were outstanding.
stockholders to be held on February 23, 2000 are incorporated by reference in Part III.
worldwide
and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; materials handling equipment; and integrated precision farming technology.
worldwide
forestry—including backhoe loaders; crawler dozers and loaders; four-wheel-drive loaders; excavators; scrapers; motor graders; log skidders; and forestry harvesters.
worldwide
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.
products produced by the equipment segments are marketed primarily through independent retail dealer networks and major retail outlets.
equipment and sales by non-Deere dealers of recreational products. In addition, it provides wholesale financing to dealers of the foregoing equipment and finances retail revolving charge accounts.
Deere's worldwide agricultural, construction, and commercial and consumer equipment and special technologies operations are sometimes referred to as the "Equipment Operations."
The credit, health care and insurance operations are sometimes referred to as "Financial Services."
response to a recent accounting pronouncement, the Company's segments have been redefined to coincide with internal organizational structure, the way the operations are managed and
evaluated by management and materiality considerations. The manufacture and distribution of engines and drivetrain components for the original equipment manufacturer market, previously aggregated with
the construction equipment segment, are now allocated to all three major equipment segments. In addition, the operations of certain units involved in the development and marketing of special
technologies, which were previously aggregated with the agricultural equipment and the commercial and consumer equipment segments, have been aggregated and included with the health care and insurance
operations in the "Other" category, as they do not meet the materiality threshold included in the new accounting standard. The insurance operations were sold in 1999. Additional information is
presented in the discussion of business segment and geographic area results on pages 25, 26 and 31 through 33. The John
Deere enterprise has manufactured agricultural machinery since 1837. The present Company was incorporated under the laws of Delaware in 1958.
machinery in North America are currently expected to be off by 5 to 10 percent next year. Declines of a similar nature are expected in other major markets. At the same time, farmers are in relatively
good financial condition due to higher government payments. In light of this outlook, the
Company has adopted a cautious approach, expecting sales and production volumes to trail prior-year levels early in 2000, but to be higher for the full year. The anticipated rise in sales is due to
production being increased to track more closely with retail demand than in 1999. Sales are also expected to benefit from a positive response to several important new products.
slowdown in industry sales of construction equipment next year, the Company expects to have higher sales in the year 2000 due largely to an expanded product line. Company sales in the early part of
the year, however, are expected to be lower as a result of a continuation of dealer inventory adjustments. Made in conjunction with the Estimate to Cash initiative, these reductions should place the
Company in a favorable inventory position going into the following year. Industry inventory levels, however, are a source of concern with respect to price realization.
consumer equipment is expected to achieve further growth next year, assuming normal weather patterns and a continuation of current economic conditions. These operations are expected to benefit from
market-share growth, positive customer response to new products and continued international expansion.
higher growth expenditures, lower gains on the sale of retail notes and a weakened agricultural economy are expected to keep pressure on margins and bring about a sizeable reduction in overall
results.
on these conditions, the Company's worldwide physical volume of sales is currently expected to increase by approximately 10 percent for the year 2000. First-quarter physical
volumes are expected to be slightly higher than in the comparable 1999 period. However, the mix of sales is expected to deteriorate and put significant downward pressure on profits for the first
quarter.
the lower 1999 results, the Company has put itself in position to benefit from an upturn in the farm economy, whenever it occurs. At the same time, the Company remains on
track with its product development plans, and numerous growth, quality, technology and Internet-related initiatives. In addition, the Company fulfilled its 1999 goal of generating strong cash flow and
is setting the stage for markedly better results once the agricultural economy starts moving ahead and as other business opportunities take shape.
million, or $4.16 per share diluted ($4.20 basic). 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 the year, the Company
implemented aggressive production schedule reductions in order to help balance receivables and inventories with forecasted levels of demand.
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 last year. Overseas net sales were $2,678 million for the year, compared with $3,049 million in 1998. Overall, the Company's worldwide physical volume of sales
decreased 18 percent for the year.
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.
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 last year. Additional information is presented in the discussion of credit operations on pages 28 and 29.
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.
to machinery and technology also influence buying. Reduced tillage practices have been adopted by many farmers to control soil erosion and lower production costs. John
Deere has responded to this shift by delivering leading edge planters, drills and tillage equipment. Additionally, the Company has developed a precision farming approach using advanced technology and
satellite positioning that should enable farmers to better control input costs and yields and to improve environmental management.
cost-efficient, highly-mechanized agricultural operations account for an important share of total North American and Australian 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.
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.
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.
equipment and a variety of machines for specialized construction applications, including uses in the mining industry. The Equipment Operations provide types and sizes of equipment that compete for
approximately two-thirds of the estimated total United States market for all types and sizes of construction equipment (other than the market for cranes and specialized mining equipment). Retail sales
of John Deere construction equipment are influenced by prevailing levels of residential, industrial and public construction and the condition of the forest products industry. Sales are also influenced
by general economic conditions and the level of interest rates.
Deere construction equipment falls into three broad categories: smaller earthmoving equipment; medium capacity construction and earthmoving equipment; and forestry machines. The
Equipment
Operations' construction equipment business began in the late 1940s with wheel and crawler tractors of a size and horsepower range similar to agricultural tractors, utilizing common components.
Through the years, the Equipment Operations have substantially increased production capacity for construction equipment, adding to the line larger machines such as crawler loaders and dozers, log
skidders, motor graders, hydraulic excavators and four-wheel-drive loaders. During 1999, the division added articulated dump trucks, larger excavators and mini-excavators to its product line. The
division's products incorporate technology and many major components similar to those used in agricultural equipment, including diesel engines, transmissions and sophisticated hydraulics and
electronics. In addition to the construction equipment manufactured by the construction equipment division, certain products are purchased from other manufacturers for resale by John Deere.
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 broad range of construction products manufactured by John
Deere in the United States, including four-wheel-drive loaders and small crawler dozers, are distributed by Hitachi in Japan and other Far East markets. The Company also has an agreement with Bell
Equipment of South Africa to distribute articulated dump tucks in North America.
division has also taken a number of initiatives in the rental equipment market for construction machinery including specially designed rental programs for Deere dealers, expanded
cooperation with major national equipment rental companies, and direct participation in the rental market, through the Company's minority ownership in Sunstate Equipment Co., LLC. After the end of the
fiscal year, the Company announced the pending acquisition, subject to regulatory approval, of the Timberjack Group,
a producer of forestry equipment headquartered in Helsinki, Finland. Additional information on the pending acquisition appears on page 42.
tractors, utility tractors, skid steer loaders, front mowers, small utility vehicles, handheld products such as chain saws, string trimmers and leaf blowers, and a broad line of associated implements
for mowing, tilling, snow and debris handling, aerating, and many other residential, commercial, golf and sports turf care applications. The product line also includes walk-behind mowers, snow
throwers and other outdoor power products. Retail sales of commercial and consumer equipment products are influenced by weather conditions, consumer spending patterns and general economic conditions.
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™ brand for sale through Home Depot stores.
addition to the equipment manufactured by the commercial and consumer division, certain products are purchased from other manufacturers for resale by John Deere.
expenditures were $458 million, or 4.7 percent of net sales of equipment in 1999, and $444 million, or 3.7 percent in 1998.
which contain approximately 30.2 million square feet of floor space. Seven of the factories are devoted primarily to the manufacture of agricultural equipment, eight to commercial and consumer
equipment, two to construction equipment, one to engines, one to hydraulics and power train components, two to special technology equipment, and one to power train components manufactured mostly for
OEM markets. Overseas, the Equipment Operations own and operate tractor factories in Germany, Mexico and Brazil; agricultural equipment factories in France, Germany, Mexico, Brazil, the Netherlands
and South Africa; engine factories in France, Mexico and Argentina; a component factory in Spain; and commercial and consumer facilities in Germany, Mexico and the Netherlands. These overseas
facilities contain approximately 8.5 million square feet of floor space. The Equipment Operations also have financial interests in other manufacturing organizations, which include agricultural
equipment manufacturers in China and the United States and a joint venture that builds construction excavators in the United States.
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.
Equipment Operations manufacture many of the components included in their products. The principal raw materials required for the manufacture of products are purchased from
numerous suppliers. Although the Equipment Operations depend upon outside sources of supply for a substantial number of components, manufacturing operations are extensively integrated. Similar or
common manufacturing facilities and techniques are employed in the production of components for agricultural, construction, and commercial and consumer equipment.
physical volume of sales in 1999 was 18 percent lower than in 1998. Capacity is adequate to satisfy anticipated retail demand. The Equipment Operations' manufacturing strategy
involves the implementation of appropriate levels of technology and automation, so that manufacturing processes can remain viable at varying production levels and can be flexible enough to accommodate
many of the product design changes required to meet market requirements.
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 the sale
to other companies of selected parts and components that can be manufactured and supplied to third parties on a competitive basis.
totaled $291 million in 1999 compared with $425 million in 1998 and $479 million in 1997. Provisions for depreciation applicable to these operations' property, plant and equipment during these years
were $268 million, $267 million and $253 million, respectively. Capital expenditures for these operations in 2000 are currently estimated to approximate $500 million. The 2000 expenditures will be
associated with new products, 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.
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.
agricultural equipment sales and administration office supported by seven agricultural equipment sales branches, one construction equipment sales and administration office and one commercial and
consumer equipment sales and administration office (collectively called sales branches). In addition, the Equipment Operations operate a centralized parts distribution warehouse in coordination with
several regional parts depots in the United States and Canada and have an agreement with a third party to operate a high-volume parts warehouse in Indiana.
sales branches in the United States and Canada market John Deere products at approximately 3,380 dealer locations, all of which are independently owned. 1,675 sell agricultural
equipment, while 420 sell construction equipment. Smaller construction equipment is sold by nearly all of the construction equipment dealers and larger construction equipment, forestry equipment and a
line of light construction equipment are sold by most of these dealers. Commercial and consumer equipment is sold by most John Deere agricultural equipment dealers, a few construction equipment
dealers, and about 1,285 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™ product lines are sold through independent dealers and various general and mass merchandisers.
North America, John Deere agricultural equipment is sold to distributors and dealers for resale in over 110 countries by sales branches located in five European countries,
South Africa, 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 equipment is sold primarily by an export sales branch located in
the United States.
inventories of equipment and to encourage the purchase of goods by dealers in advance of seasonal retail demand. Down payments are not required, and interest is not charged for a substantial part of
the period for which the inventories are financed. A security interest is retained in dealers' inventories, and periodic physical checks are made of dealers' inventories. Generally, terms to dealers
require payments as the equipment which secures the indebtedness is sold to retail customers. Variable market rates of interest are charged on balances outstanding after certain interest-free periods,
which currently are one to twelve months for agricultural tractors,
one to five months for construction equipment, and two to 24 months for most other equipment. Financing is also provided to dealers on used equipment accepted in trade, on repossessed equipment, and
on approved equipment from other manufacturers. A security interest is obtained in such equipment. Dealer defaults in recent years have not been significant.
Canada, John Deere products (other than service parts and commercial and consumer equipment) in the possession of dealers are inventories of the Equipment Operations that are
consigned to the dealers. Dealers are required to make deposits on consigned equipment remaining unsold after specified periods.
to overseas dealers are made by the Equipment Operations' overseas and export sales branches and are, for the most part, financed by John Deere in a manner similar to that
provided for sales to dealers in the United States, although maturities tend to be shorter overseas and a security interest is not always retained in the equipment sold.
from dealers, which largely represent dealer inventories, were $3.3 billion at October 31, 1999 compared with $4.1 billion at October 31, 1998 and $3.3
billion at October 31, 1997. At those dates, the ratios of worldwide net dealer receivables to fiscal year net sales, were 34 percent, 34 percent and 30 percent, respectively. The
highest month-end balance of such receivables during each of the past two fiscal years was $4.3 billion at April 30, 1999 and $4.4 billion at April 30, 1998. Wholesale financing is also
provided by the Company's credit segment. See "Financial Services—Credit Operations" below.
subsidiaries provide and administer financing for retail purchases of new and used John Deere agricultural, construction, and commercial and consumer equipment. The credit operations also provide
wholesale financing for wholesale inventories of John Deere agricultural and John Deere construction equipment owned by dealers of those products. The Company's credit subsidiaries include John Deere
Credit Company, John Deere Capital Corporation (Capital Corporation) and its subsidiaries (Deere Credit, Inc., Farm Plan Corporation, Deere Credit Services, Inc., John Deere Receivables, Inc.,
John Deere Funding Corporation, Senstar Capital Corporation, Arrendadora John Deere, S.A. de C.V., John Deere Credit Group, Plc and John Deere Credit Limited—United Kingdom, and John Deere
Credit Limited— Australia, among others), and John Deere Credit Inc. (Canada) (collectively referred to as the Credit Companies). Deere & Company and John Deere Construction
Equipment Company are referred to as the "sales companies." The Capital Corporation purchases retail installment sales and loan contracts (retail notes) from the sales companies. These retail notes
are acquired by the sales companies through John Deere retail dealers in the United States and Mexico. John Deere Credit Inc. 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.
During the year, the Credit Companies also purchased and financed retail notes unrelated to John Deere, representing primarily recreational product notes acquired from independent dealers of
recreational vehicles. The Credit Companies also finance and service revolving charge accounts through merchants or leading farm input providers in the agricultural, construction, and lawn and grounds
care retail markets and, additionally, provide
wholesale financing for wholesale inventories of recreational vehicles, manufactured housing units, yachts and John Deere engines.
notes acquired by the sales companies have been immediately sold to the Credit Companies. The Equipment Operations have been the Credit Companies' major source of business, but
in some cases, retail purchasers of John Deere products finance their purchases outside the John Deere organization.
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 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.
leases are offered to equipment users in the United States, Mexico, France, the United Kingdom, Australia and New Zealand. A small number of leases are executed with units of
local government. Leases are usually written for periods of one to six 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 subsidiary, John Deere Limited.
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 1999 and 1998, the Capital Corporation's ratios were 1.64 to 1 and 1.63 to 1, respectively. The Company has also committed 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 1998 or 1999. Additional information on the Credit Companies appears under the caption "Credit Operations" on pages 28 and 29.
Arrendadora John Deere, S.A. de C.V. offers equipment financing products within Mexico. John Deere Credit-Germany, a partnership, offers equipment financing within Germany. John Deere Credit Limited
(Australia) offers equipment financing products within Australia and New Zealand. John Deere Credit S.A.S., a joint venture, offers equipment financing in France. Banco John Deere (Brazil) offers
equipment financing products within Brazil. Retail sales financing outside of the United States and Canada is affected by a diversity of customs and regulations.
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 subsidiaries, John Deere Family Healthplan, Inc. and John Deere Health Plan, Inc., for companies located in Illinois, Iowa, South Carolina,
Tennessee and Virginia. At October 31, 1999, approximately 414,000 individuals were enrolled in these programs, of which approximately 70,800 were John Deere employees, retirees and their
dependents. During the fiscal year, John Deere Health Care dissolved its subsidiary, John Deere Healthplan of Georgia, Inc., and exited the Georgia market for commercial insured business. In
addition, John Deere Health Care's subsidiary, Heritage National Healthplan, Inc., changed its name to John Deere Health Plan, Inc. In December 1999, John Deere Health Care's
other subsidiary, John Deere Family Healthplan, Inc., was merged into John Deere Health Plan, Inc., effectively creating one health maintenance subsidiary.
commercial property/casualty insurance coverages and services to selected market segments, including agricultural equipment, construction equipment and automobile dealerships, trucking operations, and
specialty insurance.
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 and the evaluation of a limited number of sites that may be acquired in pending acquisitions,
including the pending acquisition of the Timberjack Group. Additional information on the pending acquisition appears on page 42. 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.
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.
majority of employees at John Deere facilities in Canada and overseas are also represented by unions.
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.
and year elected to office
East, Australia and South Africa