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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, 1996
Commission file number 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-2382580
(State of incorporation) (IRS Employer Identification No.)
JOHN DEERE ROAD, MOLINE, ILLINOIS 61265 (309) 765-8000
(Address of principal executive offices) (Zip Code) (Telephone Number)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
Frankfurt, Germany Stock Exchange
5-1/2% Convertible Subordinated
Debentures Due 2001 New York Stock Exchange
8.95% Debentures Due 2019 New York Stock Exchange
8-1/2% Debentures Due 2022 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate quoted market price of voting stock of registrant held by
nonaffiliates at December 31, 1996 was $10,330,658,838. At December 31, 1996,
255,921,723 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 26, 1997
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 six business segments.
The Company's worldwide AGRICULTURAL EQUIPMENT segment manufactures and
distributes a full line of farm equipment -- including tractors; tillage,
soil preparation, seeding and harvesting machinery; sprayers; hay and
forage equipment; and integrated precision farming technology.
The Company's worldwide INDUSTRIAL EQUIPMENT segment manufactures and
distributes a broad range of machines used in construction, earthmoving and
forestry -- including backhoe loaders; crawler dozers and loaders;
four-wheel-drive loaders; excavators; scrapers; motor graders; log
skidders; and forestry harvesters. This segment also includes the
manufacture and distribution of engines and drivetrain components for the
original equipment manufacturer (OEM) market.
The Company's worldwide COMMERCIAL AND CONSUMER EQUIPMENT segment, formerly
the lawn and grounds care 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; hand-held products such as
chain saws, string trimmers and leaf blowers; skid-steer loaders; utility
transport vehicles; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and other retail outlets.
The Company's CREDIT segment, which mainly operates in the United States
and Canada, primarily finances sales and leases by John Deere dealers of
new and used equipment and sales by non-Deere dealers of recreational
vehicles and marine products. In addition, it provides wholesale financing
to dealers of the foregoing equipment and finances retail revolving charge
accounts.
The Company's INSURANCE segment issues policies in the United States
primarily for general and specialized lines of commercial property and
casualty insurance; group accident and health insurance for employees of
participating John Deere dealers and disability insurance for employees of
John Deere.
The Company's HEALTH CARE segment provides health management programs and
related administrative services in the United States to commercial clients
and the Company.
1
The Company's worldwide agricultural, industrial and commercial and consumer
equipment operations and subsidiaries are sometimes referred to as the
"Equipment Operations." The Company's credit, insurance and health care
subsidiaries are sometimes referred to as "Financial Services."
The Company believes that its worldwide sales of agricultural equipment during
recent years have been greater than those of any other business enterprise. It
also believes that John Deere is an important provider of most of the types of
industrial equipment that it markets, and a leader in some size ranges. The
Company also believes it is the largest manufacturer of lawn and garden tractors
and provides the broadest line of grounds care equipment in North America. The
John Deere enterprise has manufactured agricultural machinery since 1837. The
present Company was incorporated under the laws of Delaware in 1958.
MARKET CONDITIONS AND OUTLOOK
Worldwide demand for John Deere agricultural equipment remains very strong.
Favorable weather conditions in the major producing areas in North America,
combined with the removal of all annual acreage reduction programs in the United
States, resulted in significant increases in production of wheat, corn and
soybeans in 1996. However, despite recent price declines, grain prices remain
at reasonably good overall levels.
Improving worldwide dietary trends and rapid income growth in most of Asia and
Latin America continue to stimulate strong demand for farm commodities,
resulting in the need for high levels of future plantings. Additionally, many
United States farmers signed seven-year production flexibility contracts that
establish direct government payments until the year 2002. The payments are not
dependent on commodity price levels. During 1996, this program permits
estimated payments to farmers of nearly $9 billion. As a result of these
factors and the United States Department of Agriculture's projections for
continued relatively tight supplies of grains and oilseeds during next year,
farmers' confidence has remained at high levels, promoting strong North American
demand for agricultural equipment. Additionally, overseas agricultural
equipment sales, which were very strong during 1996, are also expected to
continue to increase in 1997 due principally to the impact of sales to the
republics of the former Soviet Union, including countries such as Ukraine and
Kazakhstan.
Industrial equipment markets also remained strong in 1996. Housing demand
continued at strong levels, reflecting generally favorable mortgage interest
rates, and demand is expected to remain at approximately the same levels in
1997. Strong housing demand coupled with general expectations for moderate
economic growth in the domestic economy should promote continued strong
industrial equipment demand for next year.
Commercial and consumer equipment industry sales were negatively affected this
year by a cold, wet spring followed by a cool, dry summer, resulting in retail
sales approximately equal to 1995 levels. However, the first "Sabre by John
Deere" products were introduced during 1996, opening a new market segment to the
Company. Retail sales volumes in 1997 are currently expected to increase
moderately over 1996 levels, assuming more normal weather patterns, growth of
the Sabre brand and a continuing strong economy.
2
The Company's Financial Services operations, which experienced growth in most
markets served in 1996, also are expected to continue their profitable growth
next year, partially offset by the credit operations' higher planned
expenditures for key growth initiatives.
In response to these market conditions, the Company's worldwide physical volume
of sales to dealers on a comparable basis is projected to increase by
approximately five percent in 1997 compared with 1996. First quarter physical
volumes are also projected to be six percent higher than the comparable levels
in the first quarter of 1996.
Overall, the outlook for the Company's businesses is positive. The Company is
continuing to invest in new growth initiatives throughout the world, which
should promote the sale of new as well as existing products in new markets such
as China, the republics of the former Soviet Union and India. The Company's
excellent worldwide dealer organization continues to successfully provide a
strong and critically important linkage to the customers, assisting the Company
in meeting their ever increasing expectations and reinforcing the Company's
commitment to customer satisfaction. The Company's operating margins have also
benefited from its growth and continuous improvement initiatives. Based on
these factors, coupled with the continued favorable market outlook for the
Company's businesses, the Company expects another strong operating performance
next year.
1996 COMPARED WITH 1995 CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income for 1996, totaling $817
million or $3.14 per share compared with last year's income of $706 million or
$2.71 per share. The earnings increase was primarily due to higher worldwide
agricultural equipment production and sales levels, coupled with strong
operating margins reflecting the Company's continuous improvement and growth
initiatives. Company results also continued to benefit from the improved
performance of its Financial Services subsidiaries.
Worldwide net sales and revenues increased nine percent to $11,229 million in
1996 compared with $10,291 million in 1995. Net sales of the Equipment
Operations increased nine percent in 1996 to $9,640 million from $8,830 million
last year. Export sales from the United States continued to grow, totaling
$1,584 million for 1996 compared with $1,314 million last year, an increase of
over 20 percent. Overseas sales for the year remained very strong, rising by 26
percent compared with a year ago and exceeding $2.5 billion for the first time
in the Company's history. Overall, the Company's worldwide physical volume of
sales increased seven percent for the year, reflecting the increased worldwide
demand for the Company's products.
Finance and interest income increased 16 percent to $763 million in 1996
compared with $660 million last year, while insurance and health care premiums
increased five percent to $658 million in the current year compared with $628
million in 1995.
The Company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
record income of $610 million in 1996 compared with $529 million in 1995. The
worldwide ratio of cost of goods sold to
3
net sales was 77.7 percent in 1996 compared with 78.6 percent last year. The
Equipment Operations' ratio of year-end assets to net sales also improved,
decreasing from 76 percent in 1995 to 71 percent in 1996.
Net income of the Company's Financial Services operations improved in 1996
totaling $197 million compared with $167 million in 1995. Additional
information is presented in the discussion of credit, insurance and health care
operations on pages 27 through 29.
EQUIPMENT OPERATIONS
AGRICULTURAL EQUIPMENT
Sales of agricultural equipment, particularly in the United States and Canada,
are affected by total farm cash receipts, which reflect levels of farm commodity
prices, acreage planted, crop yields and government payments. Sales are also
influenced by general economic conditions, levels of interest rates,
agricultural trends and the levels of costs associated with farming. Weather
and climatic conditions can also affect buying decisions of equipment
purchasers.
Innovations to machinery and technology also influence buying. Reduced tillage
practices have been adopted by many farmers to control soil erosion and lower
production costs. John Deere has responded to this shift by delivering leading
edge planters, drills and tillage equipment. Additionally, the Company has
developed a precision farming approach to planting and harvesting. The
application of this advanced technology will 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 total United States farm output. The large-size agricultural
equipment used on such farms has been particularly important to John Deere. A
large proportion of the Equipment Operations' total agricultural equipment sales
in the United States is comprised of tractors over 100 horsepower,
self-propelled combines and self-propelled cotton pickers.
Seasonal patterns in retail demand for agricultural equipment result in
substantial variations in the volume and mix of products sold to retail
customers during various times of the year. Seasonal demand must be estimated
in advance, and equipment must be manufactured in anticipation of such demand in
order to achieve efficient utilization of manpower and facilities throughout the
year. For certain equipment, the Company offers early order discounts to retail
customers. Production schedules are based, in part, on these early order
programs. The Equipment Operations incur substantial seasonal indebtedness with
related interest expense to finance production and inventory of equipment, and
to finance sales to dealers in advance of seasonal demand. The Equipment
Operations often encourage early retail sales decisions for both new and used
equipment, by waiving retail finance charges or offering low-rate financing,
during off-season periods and in early order promotions.
An important part of the competition within the agricultural equipment industry
during the past decade has come from a diverse variety of short-line and
specialty manufacturers with differing manufacturing and marketing methods.
Because of industry conditions, especially consolidation
4
among large integrated competitors, the competitive environment is undergoing
important changes, and the importance of short-line and specialty manufacturers
may continue to increase in the future.
In addition to the agricultural equipment manufactured by the Equipment
Operations, a number of products are purchased from other manufacturers for
resale by John Deere outside the United States and Canada, including eight
models of tractors sourced from a Czech manufacturer, four sourced from a French
manufacturer with John Deere engines and three models sourced from Italy.
INDUSTRIAL EQUIPMENT
The industrial equipment industry is broadly defined as including construction,
earthmoving and forestry equipment, as well as some materials handling equipment
and a variety of machines for specialized industrial applications, including
uses in the mining industry. The Equipment Operations provide types and sizes of
equipment that compete for approximately two-thirds of the estimated total
United States market for all types and sizes of industrial equipment (other than
the market for cranes and specialized mining equipment). Retail sales of John
Deere industrial equipment are influenced by prevailing levels of residential,
industrial and public construction and the condition of the forest products
industry. Sales are also influenced by general economic conditions and the
level of interest rates.
John Deere industrial equipment falls into three broad categories: utility
tractors and smaller earthmoving equipment, medium capacity construction and
earthmoving equipment, and forestry machines. The Equipment Operations'
industrial equipment business began in the late 1940s with wheel and crawler
tractors of a size and horsepower range similar to agricultural tractors,
utilizing common components. Through the years, the Equipment Operations
substantially increased production capacity for industrial equipment, adding to
the line larger machines such as crawler loaders and dozers, log skidders, motor
graders, hydraulic excavators and four-wheel-drive loaders. These products
incorporate technology and many major components similar to those used in
agricultural equipment, including diesel engines, transmissions and
sophisticated hydraulics and electronics. In addition to the industrial
equipment manufactured by the Equipment Operations, certain products are
purchased from other manufacturers for resale by John Deere.
The Company and Hitachi Construction Machinery Co., Inc. of Japan ("Hitachi")
have a joint venture for the manufacture of hydraulic excavators in the United
States and for the distribution of excavators primarily in North, Central and
South America. The Company also has supply agreements with Hitachi under which
a broad range of industrial products manufactured by the Company in the United
States, including four-wheel-drive loaders and small crawler dozers, are
distributed by Hitachi in Japan and other Far East markets.
The Company has an agreement with a Chinese partner and Hitachi to establish a
joint venture in China for the manufacture, distribution and servicing of wheel
loaders. The division has also taken a number of initiatives in the rental
equipment market for industrial machinery including specially designed rental
programs for Deere dealers, expanded cooperation with major national equipment
rental companies, such as Hertz, and direct participation in the rental market.
During the first quarter of 1996, the Company agreed to acquire a minority
ownership interest in Sunstate Equipment Corp., a regional rental company based
in Phoenix, Arizona.
5
The Equipment Operations also manufacture and distribute diesel engines and
drivetrain components both for use in John Deere products and for sale to other
original equipment manufacturers.
COMMERCIAL AND CONSUMER EQUIPMENT
The line of John Deere commercial and consumer equipment includes rear-engine
riding mowers, front-engine lawn tractors, lawn and garden tractors, small
diesel tractors, compact utility tractors, skid steer loaders, front mowers,
small utility transport vehicles, hand-held products such as chain saws, string
trimmers and leaf blowers, and a broad line of associated implements for mowing,
tilling, snow and debris handling, aerating, and many other residential,
commercial, golf and sports turf care applications. The product line also
includes walk-behind mowers, snow throwers and other outdoor power products.
Retail sales of commercial and consumer equipment products are influenced by
weather conditions, consumer spending patterns and general economic conditions.
In 1995, the division introduced a new line of entry-level lawn tractors and
walk-behind mowers under the name "Sabre by John Deere" in North America and
under the name "Europro" in Europe. The division also sells consumer products
under the Homelite and Green Machine brand names and sells walk-behind mowers in
Europe under the brand name SABO.
In addition to the equipment manufactured by the commercial and consumer
division, certain products are purchased from other manufacturers for resale by
John Deere, including five models of compact utility tractors sourced from a
Japanese manufacturer.
ENGINEERING AND RESEARCH
John Deere makes large expenditures for engineering and research to improve the
quality and performance of its products, and to develop new products. Such
expenditures were $370 million, or 3.8 percent of net sales of equipment in
1996, and $327 million, or 3.7 percent in 1995.
MANUFACTURING
MANUFACTURING PLANTS. In the United States and Canada, the Equipment Operations
own and operate 17 factory locations, which contain approximately 29.8 million
square feet of floor space. Six of the factories are devoted primarily to the
manufacture of agricultural equipment, two to industrial equipment, one to
engines, one to hydraulics and power train components, six to commercial and
consumer equipment, and one to power train components manufactured mostly for
OEM markets. The Equipment Operations own and operate tractor factories in
Germany and Mexico; agricultural equipment factories in France, Germany, Mexico
and South Africa; engine factories in France and Argentina; a component factory
in Spain; and two commercial and consumer facilities in Germany and the
Netherlands. These overseas facilities contain approximately 7.3 million square
feet of floor space. The Equipment Operations also have financial interests in
other manufacturing organizations, which include an agricultural equipment
manufacturer in Brazil and a joint venture which builds industrial excavators in
the United States.
6
John Deere's facilities are well maintained, in good operating condition and are
suitable for their present purposes. These facilities, together with planned
capital expenditures, are expected to meet John Deere's manufacturing needs in
the foreseeable future.
The Equipment Operations manufacture many of the components included in their
products. The principal raw materials required for the manufacture of products
are purchased from numerous suppliers. Although the Equipment Operations depend
upon outside sources of supply for a substantial number of components,
manufacturing operations are extensively integrated. Similar or common
manufacturing facilities and techniques are employed in the production of
components for industrial, agricultural and commercial and consumer equipment.
The physical volume of sales in 1996 was seven percent higher than in 1995.
Although demand for certain key products is nearing production capacity, in
general, capacity is adequate to satisfy anticipated retail demand. The
Equipment Operations' manufacturing strategy involves the implementation of
appropriate levels of technology and automation, so that manufacturing processes
can remain viable at varying production levels and can be flexible enough to
accommodate many of the product design changes required to meet market
requirements.
In order to utilize manufacturing facilities and technology more effectively,
the Equipment Operations continue to pursue improvements in manufacturing
processes. Manufacturing activities judged not competitively advantageous for
the Equipment Operations on a long-term basis are being shifted to outside
suppliers, while many of those manufacturing activities that do offer long-term
competitive advantages are being restructured. Improvements include the
creation of flow-through manufacturing cells which reduce costs and inventories,
increase quality and require less space, and the establishment of flexible
assembly lines which can handle a wider range of product mix and deliver
products at the times when dealers and customers demand them. Additionally,
considerable effort is being directed to manufacturing cost reduction through
product design, the introduction of advanced manufacturing technology and
improvements in compensation incentives related to productivity and
organizational structure. The Equipment Operations are also pursuing the sale
to other companies of selected parts and components which can be manufactured
and supplied to third parties on a competitive basis.
CAPITAL EXPENDITURES. The Equipment Operations' capital expenditures were $258
million in 1996 compared with $245 million in 1995 and $217 million in 1994.
Provisions for depreciation applicable to the Equipment Operations' property,
plant and equipment during these years were $253 million, $243 million and $226
million, respectively. The Equipment Operations' capital expenditures for 1997
are currently estimated to approximate $500 million. The 1997 expenditures will
be associated with new product 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
7
consider that any patent, license, trademark or group of them (other than its
house trademarks) is of material importance in relation to John Deere's
business.
MARKETING
In the United States and Canada, the Equipment Operations, excluding Homelite,
Green Machine and Sabre, distribute equipment and service parts through six
agricultural equipment sales branches, one industrial equipment sales and
administration office and one 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.
The sales branches in the United States and Canada market John Deere products at
approximately 3,400 dealer locations, all of which are independently owned
except for one retail store owned and operated by the Company. Approximately
1,700 sell agricultural equipment while over 400 sell industrial equipment.
Smaller industrial equipment is sold by nearly all of the industrial equipment
dealers and larger industrial equipment, forestry equipment and a line of light
industrial equipment are sold by most of these dealers. Commercial and consumer
equipment is sold by most John Deere agricultural equipment dealers, a few
industrial equipment dealers, and about 1,300 commercial and consumer equipment
dealers, many of whom also handle competitive brands and dissimilar lines of
products. In addition, the Sabre, Homelite and Green Machine product lines are
sold through independent dealers and various general and mass merchandisers.
Outside North America, John Deere agricultural equipment is sold to distributors
and dealers for resale in over 110 countries by sales branches located in five
European countries, South Africa, Mexico, Argentina and Australia, by export
sales branches in Europe and the United States, and by an associated company in
Brazil. Commercial and consumer equipment sales overseas occur primarily in
Europe and Australia. Outside North America, industrial equipment is sold
primarily by an export sales branch located in the United States.
WHOLESALE FINANCING
The Equipment Operations provide wholesale financing to dealers in the United
States for extended periods, to enable dealers to carry representative
inventories of equipment and to encourage the purchase of goods by dealers in
advance of seasonal retail demand. Down payments are not required, and interest
is not charged for a substantial part of the period for which the inventories
are financed. A security interest is retained in dealers' inventories, and
periodic physical checks are made of dealers' inventories. Generally, terms to
dealers require payments as the equipment which secures the indebtedness is sold
to retail customers. Variable market rates of interest are charged on balances
outstanding after certain interest-free periods, which currently are 6 to 9
months for agricultural tractors, 1 to 5 months for industrial equipment, and
from 6 to 24 months for most other equipment. Financing is also provided to
dealers on used equipment accepted in trade, on repossessed equipment, and on
approved equipment from other manufacturers. A security interest is obtained in
such equipment. Equipment dealer defaults incurred in recent years by John
Deere have not been significant.
8
In 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.
Sales to overseas dealers are made by the Equipment Operations' overseas and
export sales branches and are, for the most part, financed by John Deere in a
manner similar to that provided for sales to dealers in the United States and
Canada, although maturities tend to be shorter and a security interest is not
always retained in the equipment sold.
Receivables from dealers, which largely represent dealer inventories, were $3.2
billion at October 31, 1996 compared with $3.3 billion at October 31, 1995 and
$2.9 billion at October 31, 1994. At those dates, the ratios of worldwide net
dealer receivables to fiscal year net sales, were 33 percent, 37 percent and 38
percent, respectively. The highest month-end balance of such receivables during
each of the past two fiscal years was $3.8 billion at April 30, 1996 and $3.6
billion at April 30, 1995.
FINANCIAL SERVICES
CREDIT OPERATIONS
UNITED STATES, MEXICO, CANADA AND THE UNITED KINGDOM. In the United States and
Canada, the Company's credit subsidiaries provide and administer financing for
retail purchases of new and used John Deere agricultural, industrial and
commercial and consumer equipment. The Company's credit subsidiaries in the
United States and Canada include John Deere Capital Corporation (Capital
Corporation) and its subsidiaries (Deere Credit, Inc., Farm Plan Corporation,
Deere Credit Services, Inc. and John Deere Receivables, Inc.), and John Deere
Credit Inc. (collectively referred to as the Credit Companies). Deere & Company
and John Deere Industrial Equipment Company are referred to as the "sales
companies." The Capital Corporation purchases retail installment sales and loan
contracts (retail notes) from the sales companies. These retail notes are
acquired by the sales companies through John Deere retail dealers in the United
States. John Deere Credit Inc. purchases and finances retail notes through John
Deere's equipment sales branches in Canada. The terms of retail notes and the
basis on which the credit subsidiaries acquire retail notes from the sales
companies are governed by agreements with the sales companies. Certain
subsidiaries of the Capital Corporation lease John Deere agricultural,
industrial and commercial and consumer equipment to retail customers in the
United States and Mexico. In addition, in October 1996, the Company formed a
joint venture company, John Deere Credit Limited, which will enable the Company
to participate in offering equipment financing products within the United
Kingdom. These products will be offered through John Deere Credit Limited.
The credit subsidiaries also purchase and finance retail notes unrelated to John
Deere, representing primarily recreational vehicle and recreational marine
product notes acquired from independent dealers of those products and from
marine product mortgage service companies. The United States credit
subsidiaries also finance and service unsecured revolving charge accounts
through merchants in the agricultural, lawn and grounds care and marine retail
markets and, additionally, provide
9
wholesale financing for wholesale inventories of recreational vehicles,
manufactured housing units, yachts, John Deere engine inventories and John Deere
industrial equipment owned by dealers of those products. The credit
subsidiaries intend to continue to seek additional volumes and types of non-
Deere financing with the objective of broadening their base of business.
Retail notes acquired by the sales companies have been immediately sold to the
Credit Companies. The Equipment Operations have been the Credit Companies' major
source of business, but in some cases, retail purchasers of John Deere products
finance their purchases outside the John Deere organization.
The Credit Companies' terms for financing equipment retail sales (other than
smaller items purchased through unsecured revolving charge accounts) provide for
retention of a security interest in the equipment financed. The Credit
Companies' guidelines for minimum down payments, which vary with the types of
equipment and repayment provisions, are generally not less than 20 percent on
agricultural and industrial equipment, 10 percent on lawn and grounds care
equipment used for personal use and 15 percent for recreational vehicles and
marine products. Finance charges are sometimes waived for specified periods or
reduced on certain products sold or leased in advance of the season of use or in
other sales promotions. The Credit Companies generally receive compensation
from the Equipment Operations equal to a competitive interest rate for periods
during which finance charges are waived or reduced on the retail notes or
leases. The cost is accounted for as a deduction in arriving at net sales by
the Equipment Operations.
Retail leases are offered to equipment users in the United States by Deere
Credit, Inc. A small number of leases are executed between Deere Credit, Inc.
and units of local government. Leases are usually written for periods of one to
six years, and in some cases contain an option permitting the customer to
purchase the equipment at the end of the lease term. Retail leases are also
offered in a generally similar manner to customers in Canada through a Canadian
subsidiary.
In October 1996, the Company formalized in a written agreement its long-standing
previously expressed intention 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 1996 and
1995, the Capital Corporation's ratios were 1.75 to 1 and 1.73 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 Company or
any of its direct or indirect subsidiaries. Additional information on the
Credit Companies appears under the caption "Credit Operations" on pages 27 and
28.
OVERSEAS. Retail sales financing outside of the United States and Canada is
affected by a diversity of customs and regulations. The Equipment Operations
retain only a minor part of the obligations arising from retail sales of their
products overseas.
10
INSURANCE
The Company's insurance subsidiaries consist of John Deere Insurance Group, Inc.
and its subsidiaries. The insurance group business focus is on marketing
commercial property/casualty insurance services and coverages to selected market
segments. Marketing efforts are directed through separate business units that
specialize in a particular market segment. The Dealer Operations business unit
insures dealership organizations in the United States with primary focus on
agricultural equipment, industrial equipment and automobile dealerships. The
Transportation business unit insures trucking operations with primary focus on
long-haul trucking firms. The Specialty Managers business unit provides
insurance coverages for niche markets through contracted underwriting managers.
Other specialty insurance business marketed through the different business units
includes programs which provide insurance on equipment utilized in forestry,
construction and agricultural operations and a small amount of long-term
disability insurance for John Deere employees.
In 1996, the Company's insurance subsidiaries sold their personal lines block of
business to the Allied Group, Inc. for $2 million. This transaction did not
include the transfer of any outstanding liabilities and did not have a
significant effect on the Company's consolidated financial position or results
of operations for 1996.
For additional financial information on insurance operations, see the material
under the caption "Insurance Operations" on page 28.
HEALTH CARE
In 1985, the Company formed John Deere Health Care, Inc. to commercialize the
Company's expertise in the field of health care, which was developed from
efforts to control its own health care costs. John Deere Health Care currently
provides health management programs and related administrative services, either
directly, through its practice management division, or through its health
maintenance organization subsidiaries, Heritage National Healthplan, Inc., John
Deere Family Healthplan, Inc. and John Deere Healthplan of Georgia, Inc. for
companies located in Illinois, Iowa, Wisconsin, Kentucky, Tennessee, Virginia
and Georgia. At October 31, 1996, approximately 389,000 individuals were
enrolled in these programs, of which approximately 68,400 were John Deere
employees, retirees and their dependents.
For additional financial information on health care operations, see the material
under the caption "Health Care Operations" on pages 28 and 29.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency (EPA) and the State of California have
issued regulations concerning permissible emissions from off-road engines. The
Company does not anticipate that the cost of complying with the regulations will
be material.
The Company has been designated a potentially responsible party (PRP), in
conjunction with other parties, in certain government actions associated with
hazardous waste sites. As a PRP, the
11
Company has been and will be required to pay a portion of the costs of
evaluation and cleanup of these sites. Management does not expect that these
matters will have a material adverse effect on the consolidated financial
position or results of operations of the Company.
EMPLOYEES
At October 31, 1996, John Deere had approximately 33,900 employees, including
25,200 employees in the United States and Canada. Unions are certified as
bargaining agents for approximately 46.1 percent of John Deere's United States
employees. Most of the Company's United States production and maintenance
workers are covered by a collective bargaining agreement with the United Auto
Workers (UAW), with an expiration date of September 30, 1997.
The majority of employees at John Deere facilities overseas are also represented
by unions.
EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the names and ages of the executive officers of the Company, their
positions with the Company and summaries of their backgrounds and business
experience. All executive officers are elected or appointed by the Board of
Directors and hold office until the annual meeting of the Board of Directors
following the annual meeting of stockholders in each year.
12
ITEM 2. PROPERTIES.
See "Manufacturing" in Item 1.
The Equipment Operations also own and operate buildings housing seven sales
branches, one centralized parts depot, five regional parts depots and several
transfer houses and warehouses throughout the United States and Canada. These
facilities contain approximately 5.0 million square feet of floor space. The
Equipment Operations also own and operate buildings housing three sales
branches, one centralized parts depot and three regional parts depots in Europe.
These facilities contain approximately 850,000 square feet of floor space.
Deere & Company administrative offices, offices for insurance and credit,
research facilities and certain facilities for health care activities, all of
which are owned by John Deere, together contain about 2.0 million square feet of
floor space and miscellaneous other facilities total 1.4 million square feet.
John Deere also leases space in various locations totaling about 1.1 million
square feet. John Deere's obligations on these leases are not material.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various unresolved legal actions which arise in the
normal course of its business, the most prevalent of which relate to product
liability, retail credit matters, and 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.
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 Quarterly Information and Dividend (Unaudited)" on page 43.
During the fiscal year, the Company issued 5,400 shares of restricted stock as
compensation to the Company's non-employee directors. These shares were not
registered under the Securities Act of 1933 pursuant to an exemption from
registration.
13
ITEM 6. SELECTED FINANCIAL DATA.
Financial Summary
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
See the information under the caption "Management's Discussion and Analysis" on
pages 24 through 30.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the consolidated financial statements and notes thereto and supplementary
data on pages 18 through 43 .
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
--------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors in the proxy statement dated January 10,
1997 (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".
14
Based solely upon a review of Forms 3, 4 and 5, with respect to the most recent
fiscal year, no person subject to Section 16 of the Securities Exchange Act of
1934 with respect to the registrant failed to file on a timely basis any reports
required by Section 16 of the Exchange Act during the most recent fiscal year or
prior fiscal years.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the proxy statement under the caption "Compensation of
Executive Officers" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
None.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The information on shares of common stock of the Company beneficially owned
by, and under option to (i) each director and (ii) the directors and
officers as a group, contained in the proxy statement under the captions
"Election of Directors", "Directors Continuing in Office", "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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
15
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, 1996, 1995 and 1994 18
Consolidated Balance Sheet, October 31, 1996 and 1995 20
Statement of Consolidated Cash Flows for the years ended
October 31, 1996, 1995 and 1994 22
Notes to Consolidated Financial Statements 31
(a)(2) SCHEDULE TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule II - Valuation and Qualifying Accounts for the years
ended October 31, 1996, 1995 and 1994 48
(a)(3) EXHIBITS
SEE THE "INDEX TO EXHIBITS" ON PAGES 50 - 52 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 report on Form 8-K dated August 13, 1996 (Item 7).
FINANCIAL STATEMENT SCHEDULES OMITTED
The following schedules for the Company and consolidated subsidiaries
are omitted because of the absence of the conditions under which they
are required: I, III, IV and V.
16
(THIS PAGE INTENTIONALLY LEFT BLANK.)
17
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
18
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The consolidated group data in the "Equipment Operations" income
statement reflect the results of the agricultural equipment, industrial
equipment and commercial and consumer equipment operations. The supplemental
"Financial Services" consolidating data in this statement include Deere &
Company's credit, insurance and health care subsidiaries. Transactions between
the "Equipment Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
The information on pages 24 through 43 is an integral part of this statement.
19
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
20
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated" data.
The information on pages 24 through 43 is an integral part of this statement.
21
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
22
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated" data.
The information on pages 24 through 43 is an integral part of this statement.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1996, 1995 AND 1994 (UNAUDITED)
--------------------------------------------------------------------------------
Deere & Company and its subsidiaries manufacture, distribute and finance a full
line of agricultural equipment; a broad range of industrial equipment for
construction, forestry and public works; and a variety of commercial and
consumer equipment. The company also provides credit, insurance and health care
products for businesses and the general public. Additional information on these
business segments is presented beginning on page 32.
1996 COMPARED WITH 1995 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income for 1996, totaling $817
million or $3.14 per share compared with last year's income of $706 million or
$2.71 per share. The earnings increase was primarily due to higher worldwide
agricultural equipment production and sales levels, coupled with strong
operating margins reflecting the company's continuous improvement and growth
initiatives. Company results also continued to benefit from the improved
performance of its Financial Services subsidiaries.
Worldwide net sales and revenues increased nine percent to $11,229 million
in 1996 compared with $10,291 million in 1995. Net sales of the Equipment
Operations increased nine percent in 1996 to $9,640 million from $8,830 million
last year. Export sales from the United States continued to grow, totaling
$1,584 million for 1996 compared with $1,314 million last year, an increase of
over 20 percent. Overseas sales for the year remained very strong, rising by 26
percent compared with a year ago and exceeding $2.5 billion for the first time
in the company's history. Overall, the company's worldwide physical volume of
sales increased seven percent for the year, reflecting the increased worldwide
demand for the company's products.
Finance and interest income increased 16 percent to $763 million in 1996
compared with $660 million last year, while insurance and health care premiums
increased five percent to $658 million in the current year compared with $628
million in 1995.
The company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
record income of $610 million in 1996 compared with $529 million in 1995. The
improved operating results in 1996 were a result of the worldwide agricultural
equipment operations, as explained below. The worldwide ratio of cost of goods
sold to net sales was 77.7 percent in 1996 compared with 78.6 percent last year.
The Equipment Operations' ratio of year-end assets to net sales also improved,
decreasing from 76 percent in 1995 to 71 percent in 1996.
Net income of the company's Financial Services operations improved in 1996
totaling $197 million compared with $167 million in 1995. Additional information
is presented in the discussion of credit, insurance and health care operations
on pages 27 through 29.
--------------------------------------------------------------------------------
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion of operating results by industry segment and geographic
area relates to information beginning on page 32. Operating profit is defined as
income before interest expense, foreign exchange gains and losses, income taxes
and certain corporate expenses, except for the operating profit of the credit
segment, which includes the effect of interest expense.
1996 NET SALES AND REVENUES
BY BUSINESS SEGMENT
--------------------------------------------------------------------------------
Agricultural Health Care 3%
Equipment 55%
Industrial Insurance 4%
Equipment 17% [PIE CHART]
Commercial and Consumer Credit 6%
Equipment 15%
WORLDWIDE AGRICULTURAL EQUIPMENT
[CHART]
NET SALES OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $4.7 $553
1995 $5.3 $643
1996 $6.1 $821
Operating profit of the worldwide agricultural equipment segment increased
significantly to $821 million in 1996 compared with $643 million in 1995, as a
result of an increase in sales and production volumes, substantially improved
overseas results and lower relative sales incentive costs, partially offset by
expenses for development of new markets and products. Agricultural equipment
sales increased 16 percent in 1996 compared to 1995.
WORLDWIDE INDUSTRIAL EQUIPMENT
--------------------------------------------------------------------------------
[CHART]
NET SALES OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $1.6 $132
1995 $1.9 $198
1996 $1.9 $186
24
--------------------------------------------------------------------------------
The worldwide industrial equipment operations generated an operating profit
of $186 million this year compared with $198 million in 1995. The lower
operating profit in 1996 resulted mainly from increased development expenses
associated with improving the fuel efficiency and emissions performance of new
engines. In 1996, industrial equipment sales increased two percent compared to
last year.
WORLDWIDE COMMERCIAL AND CONSUMER EQUIPMENT
--------------------------------------------------------------------------------
[CHART]
NET SALE OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $1.3 $162
1995 $1.7 $165
1996 $1.6 $118
The worldwide commercial and consumer equipment operatins had an operating
profit of $118 million in 1996 compared with $165 million in 1995. Operating
profit decreased in 1996 due primarily to lower sales volume and increased
promotional and growth expenditures associated with the division's new market
initiatives. Commercial and consumer equipment sales decreased three percent in
1996 compared to 1995.
FINANCIAL SERVICES
--------------------------------------------------------------------------------
[CHART]
REVENUES OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $1.2 $238
1995 $1.3 $261
1996 $1.4 $303
The combined operating profit of the credit, insurance and health care
business segments was $303 million in 1996 compared to $261 million in 1995 as
discussed on pages 27 through 29.
UNITED STATES AND CANADA EQUIPMENT OPERATIONS
--------------------------------------------------------------------------------
[CHART]
NET SALES OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $5.9 $764
1995 $6.6 $839
1996 $6.9 $867
On a geographic basis, the United States and Canadian equipment operations
had an operating profit of $867 million in 1996 compared with $839 million last
year as a result of higher production and sales volumes, which were partially
offset by increased engine development expenses and higher promotional and
growth expenditures. Sales increased four percent in 1996 and the physical
volume of sales increased one percent compared to last year.
OVERSEAS EQUIPMENT OPERATIONS
--------------------------------------------------------------------------------
[CHART]
NET SALES OPERATING PROFIT
YEAR (IN BILLIONS) (IN MILLIONS)
1994 $1.8 $83
1995 $2.2 $167
1996 $2.7 $258
The overseas equipment operations generated a significantly higher
operating profit of $258 million in 1996 compared with $167 million last year,
primarily due to the higher volumes of production and sales, continued cost
improvements and operating efficiencies. Overseas sales increased 26 percent and
the physical volume of sales increased 24 percent in 1996 compared with 1995.
Included in overseas sales in 1996 were $95 million of combine sales to Ukraine.
MARKET CONDITIONS AND OUTLOOK
Worldwide demand for John Deere agricultural equipment remains very strong.
Favorable weather conditions in the major producing areas in North America,
combined with the removal of all annual acreage reduction programs in the United
States, resulted in significant increases in production of wheat, corn and
soybeans in 1996. However, despite recent price declines, grain prices remain at
reasonably good overall levels.
Improving worldwide dietary trends and rapid income growth in most of Asia
and Latin America continue to stimulate strong demand for farm commodities,
resulting in the need for high levels of future plantings. Additionally, many
United States farmers signed seven-year production flexibility contracts that
establish direct government payments until the year 2002. The payments are not
dependent on commodity price levels. During 1996, this program permits estimated
payments to farmers of nearly $9 billion. As a result of these factors and the
United States Department of Agriculture's projections for continued relatively
tight supplies of grains and oilseeds during next year, farmers' confidence has
remained at high levels, promoting strong North American demand for agricultural
equipment. Additionally, overseas agricultural equipment sales, which were very
strong during 1996, are also expected to continue to increase in 1997 due
principally to the impact of sales to the republics of the former Soviet Union,
including countries such as Ukraine and Kazakhstan.
Industrial equipment markets also remained strong in 1996. Housing demand
continued at strong levels, reflecting generally favorable mortgage interest
rates, and demand is expected to remain at approximately the same levels in
1997. Strong housing demand
25
--------------------------------------------------------------------------------
coupled with general expectations for moderate economic growth in the domestic
economy should promote continued strong industrial equipment demand for next
year.
Commercial and consumer equipment industry sales were negatively affected
this year by a cold, wet spring followed by a cool, dry summer, resulting in
retail sales approximately equal to 1995 levels. However, the first "Sabre by
John Deere" products were introduced during 1996, opening a new market segment
to the company. Retail sales volumes in 1997 are currently expected to increase
moderately over 1996 levels, assuming more normal weather patterns, growth of
the Sabre brand and a continuing strong economy.
The company's Financial Services operations, which experienced growth in
most markets served in 1996, also are expected to continue their profitable
growth next year, partially offset by the credit operations, higher planned
expenditures for key growth initiatives.
In response to these market conditions, the company's worldwide physical
volume of sales to dealers on a comparable basis is projected to increase by
approximately five percent in 1997 compared with 1996. First quarter physical
volumes are also projected to be six percent higher than the comparable levels
in the first quarter of 1996.
Overall, the outlook for the company's businesses is positive. The company
is continuing to invest in new growth initiatives throughout the world, which
should promote the sale of new as well as existing products in new markets such
as China, the republics of the former Soviet Union and India. The company's
excellent worldwide dealer organization continues to successfully provide a
strong and critically important linkage to the customers, assisting the company
in meeting their ever increasing expectations and reinforcing the company's
commitment to the customers' satisfaction. The company's operating margins have
also benefited from its growth and continuous improvement initiatives. Based on
these factors, coupled with the continued favorable market outlook for the
company's businesses, the company expects another strong operating performance
next year.
SAFE HARBOR STATEMENT
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Statements under the "Market Conditions and Outlook" heading that
relate to future operating periods are subject to important risks and
uncertainties that could cause actual results to differ materially. The
company's businesses include Equipment Operations (agricultural, industrial
and commercial and consumer) and Financial Services (credit, insurance and
health care). Forward-looking statements relating to these businesses involve
certain factors that are subject to change, including: the many interrelated
factors that affect farmers' confidence, including worldwide demand for
agricultural products, world grain stocks, commodities prices, weather,
animal diseases, crop pests, harvest yields, real estate values and
government farm programs; general economic conditions and housing starts;
legislation, primarily legislation relating to agriculture, the environment,
commerce and government spending on infrastructure; actions of competitors in
the various industries in which the company competes; production
difficulties, including capacity and supply constraints; dealer practices;
labor relations; interest and currency exchange rates; accounting standards;
and other risks and uncertainties. The company's outlook is based upon
assumptions relating to the factors described in the preceding sentence. The
importance of these assumptions differs from one business segment to another.
For example, general economic conditions and housing starts affect retail
sales of industrial equipment and commercial and consumer equipment more than
they affect retail sales of agricultural equipment. With respect to
agricultural equipment, the legislative reforms in Western Europe and the
United States should increase planting flexibility and decrease dependency
upon support payments, however, no assumption has been made relative to
possible changes in these reforms or as to the longer-term impact. The
interest rate environment impacts all segments of the company's business by
affecting the company's own borrowing costs, its lending spreads and the cost
to the company's customers of company products. Further information
concerning the company and its businesses, including factors that potentially
could materially affect the company's financial results, is included in the
company's filings with the Securities and Exchange Commission.
1995 COMPARED WITH 1994 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income for 1995, totaling $706
million or $2.71 per share compared with $604 million or $2.34 per share in
1994. The company's strong results for 1995 were due to higher production and
sales levels, coupled with significantly improved overseas and industrial
equipment division results. Additionally, the company's exports from the United
States set a new record, totaling $1,314 million. Company results also continued
to benefit from the strong performance of its Financial Services subsidiaries.
The company's annual net sales and revenues exceeded $10 billion for the
first time in the company's history, due to continued growth in demand for the
company's products and services. Worldwide net sales and revenues increased 15
percent to $10,291 million in 1995 compared with $8,977 million in 1994. Net
sales of the Equipment Operations increased 15 percent in 1995 to $8,830 million
from $7,663 million in 1994. The physical volume of sales increased by 11
percent in 1995 compared with 1994.
Finance and interest income increased 20 percent to $660 million in 1995
compared with $548 million in 1994, while insurance and health care premiums
increased three percent to $628 million in 1995 compared with $609 million in
1994.
The company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates, had
income of $529 million in 1995 compared with $433 million in 1994. The improved
operating results of the Equipment Operations in 1995 were the primary factor
behind the company's record profitability. The benefits from the higher
production and sales volumes were partially offset by the impact of management's
planned initiatives to reduce service parts inventory and used goods
receivables. Service parts production was lower and used goods sales incentive
expenses increased compared to 1994 as a result of the initiatives. The
worldwide ratio of cost of goods sold to net sales was 78.6 percent in 1995
compared with 78.7 percent in 1994.
26
--------------------------------------------------------------------------------
Net income of the company's Financial Services operations remained strong
totaling $167 million in 1995 compared with $161 million in 1994. Additional
information is presented in the discussion of credit, insurance and health care
operations on pages 27 through 29.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following discussion of operating results by industry segment and geographic
area relates to information beginning on page 32.
Operating profit of each of the company's Equipment Operations was
favorably affected by higher sales volumes in 1995 compared with results in
1994.
Operating profit of the worldwide agricultural equipment segment increased
to $643 million in 1995 compared with $553 million in 1994, as a result of a 12
percent increase in worldwide agricultural equipment sales, along with a
substantial improvement in overseas results. These higher sales margins on
complete goods were partially offset by the previously mentioned used goods and
service parts initiatives.
The worldwide industrial equipment operations improved substantially in
1995, generating an operating profit of $198 million in 1995 compared with $132
million in 1994, primarily as a result of higher production and sales volumes,
and improved operating efficiency. In 1995, sales increased 14 percent compared
to 1994.
The worldwide commercial and consumer equipment operations had an
operating profit of $165 million in 1995 compared with $162 million in 1994.
The Homelite division of Textron, Inc. was purchased in August 1994 and its
results since the acquisition are included in the commercial and consumer
equipment operations. Net sales in 1995 included Homelite sales of $287
million compared to $36 million in 1994. Excluding Homelite, commercial and
consumer equipment sales increased 10 percent in 1995. The benefits from the
small increase in production and sales volumes were offset by unfavorable
currency fluctuations on imported components. Including Homelite, commercial
and consumer equipment sales increased 29 percent in 1995.
The combined operating profit of the credit, insurance and health care
business segments was $261 million in 1995 compared to $238 million in 1994 as
discussed on pages 27 through 29.
On a geographic basis, the United States and Canadian equipment
operations had a higher operating profit of $839 million in 1995 compared
with $764 million in 1994 as a result of higher volumes, which were partially
offset by used goods sales incentive expenses and lower service parts
production. Sales increased 13 percent in 1995 and the physical volume of
sales increased 12 percent.
The overseas equipment operations generated a significantly higher
operating profit of $167 million in 1995 compared with $83 million in 1994,
primarily due to the higher sales volumes and the previous restructuring of
these operations. Overseas sales increased 21 percent and the physical volume
of sales increased nine percent in 1995 compared with 1994.
CREDIT OPERATIONS
--------------------------------------------------------------------------------
Deere & Company's credit subsidiaries consist primarily of John Deere Credit
Company and its subsidiaries in the United States and John Deere Credit
Incorporated in Canada. The credit operations primarily finance sales and leases
by John Deere dealers of new and used equipment, and sales by non-Deere dealers
of recreational vehicles and marine products. In addition, it provides wholesale
financing to dealers of the foregoing equipment and finances retail revolving
charge accounts.
Condensed combined financial information of the credit operations in
millions of dollars follows:
--------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1996 1995
--------------------------------------------------------------------------------
Cash and cash equivalents . . . . . . . . . . . . . . . $ 171 $ 165
------ -------
Credit receivables and leases:
Equipment retail notes . . . . . . . . . . . . . . . 3,696 3,467
Recreational product retail notes . . . . . . . . . . 883 871
Revolving charge accounts . . . . . . . . . . . . . . 576 513
Wholesale notes . . . . . . . . . . . . . . . . . . . 565 314
Financing leases. . . . . . . . . . . . . . . . . . . 182 149
Equipment on operating leases . . . . . . . . . . . . 277 140
------ -------
Total credit receivables and leases . . . . . . . . 6,179 5,454
Less allowance for credit losses. . . . . . . . . . . 93 88
------ -------
Total - net . . . . . . . . . . . . . . . . . . . . 6,086 5,366
------ -------
Other receivables . . . . . . . . . . . . . . . . . . . 200 192
------ -------
Net property and other assets . . . . . . . . . . . . . 85 73
------ -------
Total assets. . . . . . . . . . . . . . . . . . . . . $6,542 $5,796
------ -------
------ -------
Short-term borrowings . . . . . . . . . . . . . . . . . $2,921 $2,744
Payables to Deere & Company . . . . . . . . . . . . . . 623 491
Deposits withheld from dealers and merchants. . . . . . 155 144
Other liabilities . . . . . . . . . . . . . . . . . . . 198 176
Long-term borrowings. . . . . . . . . . . . . . . . . . 1,799 1,473
Stockholder's equity. . . . . . . . . . . . . . . . . . 846 768
------ -------
Total liabilities and stockholder's equity. . . . . . $6,542 $5,796
------ -------
------ -------
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1996 1995 1994
--------------------------------------------------------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $723 $612 $516
----- ----- -----
Expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . 301 271 190
Selling, administrative and general. . . . . . . . . . 113 94 96
Provision for credit losses. . . . . . . . . . . . . . 43 36 31
Depreciation . . . . . . . . . . . . . . . . . . . . . 37 22 21
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . 494 423 338
----- ----- -----
Income before income taxes . . . . . . . . . . . . . . . 229 189 178
Provision for income taxes . . . . . . . . . . . . . . . 82 68 64
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . $147 $121 $114
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges . . . . . . . . . . . 1.75 1.69 1.93
--------------------------------------------------------------------------------
Total acquisition volumes of credit receivables and leases by the credit
subsidiaries increased 18 percent during 1996 compared to 1995. The higher
acquisitions this year resulted from an increased volume of retail notes,
revolving charge accounts, wholesale notes and leases.
27
--------------------------------------------------------------------------------
During 1996, the volumes of retail notes acquired by the credit
subsidiaries totaled $3,451 million, a four percent increase compared with
$3,315 million in 1995. Volumes of recreational product retail notes accounted
for eight percent of total note volumes in 1996 and 10 percent in 1995. Volumes
of John Deere equipment notes were seven percent higher in the current year due
primarily to increased retail sales of John Deere equipment. The credit
operations also sold retail notes which partially offset the increase in
acquisition volumes, receiving proceeds of $960 million during 1996 compared
with $837 million last year. At October 31, 1996 and 1995, credit receivables
and leases administered, which include receivables previously sold but still
administered, were $7,487 million and $6,666 million, respectively. The
discussion of "Credit Receivables" on pages 37 and 38 presents additional
information.
Net income of the credit operations was $147 million in 1996 compared with
$121 million in 1995 and $114 million in 1994. Net income in 1996 was higher
than in 1995 due primarily to higher earnings from a larger average receivable
and lease portfolio financed and increased income from the securitization and
sale of retail notes. Total revenues of the credit operations increased 18
percent in 1996, reflecting the larger average portfolio financed in 1996
compared with 1995. The average balance of credit receivables and leases
financed was 19 percent higher in 1996 compared with 1995. Higher average
borrowings in 1996 resulted in an 11 percent increase in interest expense in
1996 compared to 1995.
Net income in 1995 was higher than in 1994 reflecting higher earnings from
a larger average receivable and lease portfolio financed, partially offset by
lower financing margins. Total revenues of the credit operations increased 19
percent in 1995, due primarily to a larger average portfolio financed and a
higher overall yield on the receivables held in 1995 compared with 1994. The
average balance of credit receivables and leases financed was 13 percent higher
in 1995 compared with 1994. Higher average borrowings and higher borrowing rates
in 1995 resulted in a 43 percent increase in interest expense in 1995 compared
to 1994.
INSURANCE OPERATIONS
--------------------------------------------------------------------------------
Deere & Company's insurance subsidiaries consist of John Deere Insurance Group,
Inc. and its subsidiaries in the United States, which mainly provide general and
specialized commercial property and casualty coverages.
Condensed combined financial information of the insurance operations in
millions of dollars follows:
--------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1996 1995
--------------------------------------------------------------------------------
Cash and cash equivalents . . . . . . . . . . . . . . . . . $30 $110
Marketable securities . . . . . . . . . . . . . . . . . . . 741 684
Other assets. . . . . . . . . . . . . . . . . . . . . . . . 297 334
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . $1,068 $1,128
------- -------
------- -------
Claims and reserves . . . . . . . . . . . . . . . . . . . . $395 $416
Unearned premiums . . . . . . . . . . . . . . . . . . . . . 133 141
Other liabilities . . . . . . . . . . . . . . . . . . . . . 166 162
Stockholder's equity. . . . . . . . . . . . . . . . . . . . 374 409
------- -------
Total liabilities and stockholder's equity . . . . . . . $1,068 $1,128
------- -------
------- -------
--------------------------------------------------------------------------------
(continued)
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1996 1995 1994
--------------------------------------------------------------------------------
Premiums . . . . . . . . . . . . . . . . . . . . . . . $345 $369 $346
Investment income. . . . . . . . . . . . . . . . . . . 54 84 81
Other. . . . . . . . . . . . . . . . . . . . . . . . . 2
---- ---- ----
Total revenues . . . . . . . . . . . . . . . . . . . 401 453 427
---- ---- ----
Expenses:
Claims and benefits. . . . . . . . . . . . . . . . . 255 297 297
Selling, administrative and general. . . . . . . . . 100 102 99
Other. . . . . . . . . . . . . . . . . . . . . . . . 8
---- ---- ----
Total . . . . . . . . . . . . . . . . . . . . . . 355 407 396
---- ---- ----
Income of consolidated group before
income taxes . . . . . . . . . . . . . . . . . . . . 46 46 31
Provision for income taxes . . . . . . . . . . . . . . 13 18 5
---- ---- ----
Income of consolidated group . . . . . . . . . . . . . 33 28 26
Equity in income of unconsolidated affiliate . . . . . 1 5
---- ---- ----
Net income . . . . . . . . . . . . . . . . . . . . . . $ 33 $ 29 $ 31
---- ---- ----
---- ---- ----
--------------------------------------------------------------------------------
Insurance premium revenues of $4 million in 1996, $20 million in 1995
and $19 million in 1994 related to coverages provided to Deere & Company and
its subsidiaries.
Net income of the insurance operations totaled $33 million in 1996 compared
with $29 million in 1995 and $31 million in 1994. The increase in 1996 net
income compared with 1995 was due to improved underwriting results and a lower
effective tax rate, which were offset by lower investment income. Additionally,
last year's results were affected by a loss on the sale of the John Deere Life
Insurance Company. Primarily as a result of this sale, premiums decreased six
percent in 1996, while total claims, benefits, and selling, administrative and
general expenses decreased 11 percent from 1995.
The decrease in 1995 net income compared with 1994 resulted from a loss
from the sale of the John Deere Life Insurance Company, lower equity income
due to the sale of the insurance operations' interest in Re Capital
Corporation and a higher effective tax rate. This decline was partially
offset by an improvement in underwriting results and investment income in
1995. Premiums increased seven percent in 1995, while total claims, benefits,
and selling, administrative and general expenses increased one percent from
1994.
HEALTH CARE OPERATIONS
--------------------------------------------------------------------------------
John Deere Health Care, Inc., directly or through its health maintenance
organizations and Deere & Company's insurance subsidiaries, provides
administrative services and managed health care programs in the United States
for commercial clients and Deere & Company.
28
--------------------------------------------------------------------------------
Condensed combined financial information of the health care operations in
millions of dollars follows:
--------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1996 1995
--------------------------------------------------------------------------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $10 $18
Marketable securities. . . . . . . . . . . . . . . . . . . . . 128 146
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 98 73
---- -----
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $236 $237
---- -----
---- -----
Claims and reserves. . . . . . . . . . . . . . . . . . . . . . $44 $56
Unearned premiums. . . . . . . . . . . . . . . . . . . . . . . 12 19
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . 76 76
Stockholder's equity . . . . . . . . . . . . . . . . . . . . . 104 86
---- -----
Total liabilities and stockholder's equity . . . . . . . . . $236 $237
---- -----
---- -----
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1996 1995 1994
--------------------------------------------------------------------------------
Premiums and administrative services . . . . . . . . . . $346 $306 $303
Investment income. . . . . . . . . . . . . . . . . . . . 12 13 13
----- ----- -----
Total revenues . . . . . . . . . . . . . . . . . . . . 358 319 316
----- ----- -----
Expenses:
Claims and benefits. . . . . . . . . . . . . . . . . . 249 220 232
Selling, administrative and general. . . . . . . . . . 81 74 60
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . 330 294 292
----- ----- -----
Income of consolidated group before
income taxes . . . . . . . . . . . . . . . . . . . . . 28 25 24
Provision for income taxes . . . . . . . . . . . . . . . 11 9 8
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . $17 $16 $16
----- ----- -----
----- ----- -----
Managed care membership (thousands). . . . . . . . . . . 389 311 295
--------------------------------------------------------------------------------
Health care revenues of $29 million in 1996, $28 million in 1995 and $21
million in 1994 related to premiums and administrative services provided to
Deere & Company and its subsidiaries.
Net income of the health care operations totaled $17 million in 1996 and
$16 million in 1995 and 1994. Net income in 1996 increased due to favorable
settlements on cost-based contracts and increased managed care membership,
partially offset by higher general expenses related to growth. Premium revenues
increased 13 percent, while claims, benefits and selling, administrative and
general expenses also increased 12 percent from 1995.
Net income in 1995 was affected by the development of new health care
delivery systems. Although managed care membership grew by five percent during
1995, premium revenues increased one percent due to the shift from insured to
self-insured accounts. Total claims, benefits, and selling, administrative and
general expenses also increased one percent from 1994.
CAPITAL RESOURCES AND LIQUIDITY (UNAUDITED)
--------------------------------------------------------------------------------
The discussion of capital resources and liquidity has been
organized to review separately, where appropriate, the company's Equipment
Operations, Financial Services operations and the consolidated totals.
EQUIPMENT OPERATIONS
The company's equipment businesses are capital intensive and are subject to
large seasonal variations in financing requirements for receivables from dealers
and inventories. Accordingly, to the extent necessary, funds provided by
operations are supplemented from external borrowing sources.
[GRAPH]
EQUIPMENT
OPERATIONS
(IN MILLIONS)
1994 1995 1996
CASH PROVIDED BY OPERATIONS $677 $715 $1,213
PURCHASES OF PROPERTY AND EQUIPMENT $215 $245 $257
The record level of positive cash flows provided by operating activities in
1996 was primarily the result of the record net income, coupled with a decrease
in dealer receivables. The aggregate amount of these operating cash flows of
$1,213 million was used primarily to fund repurchases of common stock of $275
million, a decrease in borrowings of $250 million, purchases of property and
equipment of $257 million, the payment of dividends to stockholders of $209
million, acquisitions of businesses for $106 million and an increase of $94
million in cash and cash equivalents.
Over the last three years, operating activities have provided an aggregate
of $2,605 million in cash, including dividends received from the Financial
Services subsidiaries of $467 million. In addition, receivables from Financial
Services subsidiaries decreased $416 million. The aggregate amount of these cash
flows was used mainly to fund purchases of property and equipment of $717
million, a decrease in borrowings of $713 million, stockholders' dividends of
$572 million, repurchases of common stock of $283 million and acquisitions of
businesses for $226 million. Cash and cash equivalents also increased $553
million.
Net dealer accounts and notes receivable result mainly from sales to
dealers of equipment that is being carried in their inventories. Dealer
receivables decreased by $107 million during 1996. North American agricultural
equipment dealer receivables increased approximately $90 million, while
industrial receivables decreased $160 million and commercial and consumer
receivables decreased $55 million. Total overseas dealer receivables were
approximately $15 million higher than one year ago. The ratios of worldwide net
dealer accounts and notes receivable at October 31 to fiscal year net sales were
33 percent in 1996 compared to 37 percent in 1995 and 38 percent in 1994.
The collection period for receivables from dealers averages less than 12
months. The percentage of receivables outstanding for
29
--------------------------------------------------------------------------------
a period exceeding 12 months was eight percent at October 31, 1996 compared with
eight percent at October 31, 1995 and seven percent at October 31, 1994.
Company-owned inventories, excluding the acquired inventories of the
Mexican operations (see note on page 31), were $785 million at the end of 1996
compared to $721 million at the end of 1995, which was eight percent of net
sales in both years.
Total interest-bearing debt of the Equipment Operations was $849 million at
the end of 1996 compared with $1,099 million at the end of 1995 and $1,073
million at the end of 1994. The ratio of total debt to total capital (total
interest-bearing debt and stockholders' equity) at the end of 1996, 1995 and
1994 was 19.3 percent, 26.3 percent and 29.6 percent, respectively.
During 1996, Deere & Company retired $150 million of 8 1/4% notes due in
1996, $100 million of 9 1/8% notes due in 1996 and $57 million of medium-term
notes.
FINANCIAL SERVICES
The Financial Services credit subsidiaries rely on their ability to raise
substantial amounts of funds to finance their receivable and lease portfolios.
Their primary sources of funds for this purpose are a combination of borrowings
and equity capital. Additionally, the credit subsidiaries periodically sell
substantial amounts of retail notes. The insurance and health care subsidiaries
generate their funds through internal operations and have no external
borrowings.
Cash flows from the company's Financial Services operating activities were
$279 million in 1996. Cash provided by financing activities totaled $472 million
in 1996, representing an increase in total borrowings of $619 million, which was
partially offset by $148 million of dividends paid to the Equipment Operations.
The aggregate cash provided by operating and financing activities was used
primarily to increase credit receivables. Cash used for investing activities
totaled $832 million in 1996, primarily due to acquisitions of credit
receivables and leases exceeding collections by $1,736 million, which was
partially offset by proceeds of $960 million received from the sale of
receivables. Cash and cash equivalents also decreased $81 million.
Over the past three years, the Financial Services operating activities have
provided $765 million in cash, the sale of receivables $2,377 million and total
borrowings $2,248 million. These amounts have been used mainly to fund credit
receivable and lease acquisitions which exceeded collections by $4,859 million,
$467 million of dividends to the Equipment Operations and an excess of $158
million in marketable security purchases over maturities and sales. Cash and
cash equivalents also decreased $55 million.
Marketable securities consist primarily of debt securities held by the
insurance and health care operations in support of their obligations to
policyholders. The $40 million increase in 1996 compared with 1995 resulted
primarily from purchases of marketable securities exceeding maturities and
sales, and the transfer of debt securities from the held-to-maturity category to
the available-for-sale category in November 1995 (see "Marketable Securities"
note on pages 36 and 37).
Credit receivables increased by $582 million in 1996 compared with 1995.
The discussion of "Credit Operations" on pages 27 and 28, and on pages 37 and 38
of the notes to the consolidated financial statements provides detailed
information on these receivables.
Total outside interest-bearing debt of the credit subsidiaries was $4,720
million at the end of 1996 compared with $4,217 million at the end of 1995 and
$3,618 million at the end of 1994. The credit subsidiaries' ratio of total
interest-bearing debt to total stockholder's equity was 6.3 to 1 at the end of
1996 compared with 6.1 to 1 at the end of 1995 and 5.3 to 1 at the end of 1994.
During 1996, John Deere Capital Corporation retired $200 million of 4 5/8%
notes due in 1996. In 1996, the Capital Corporation also issued $1,190 million
and retired $144 million of medium-term notes.
CONSOLIDATED
The company maintains unsecured lines of credit with various banks in North
America and overseas. The discussion of "Short-Term Borrowings" on page 39
provides further information on these lines of credit.
The company is naturally exposed to various interest rate and foreign
currency risks. As a result, the company enters into derivative transactions to
hedge these exposures that arise in the normal course of business, and not for
the purpose of creating speculative positions or trading. In common with other
large credit companies, the company's credit subsidiaries actively manage the
relationship of the types and amounts of their funding sources to their
receivable and lease portfolio in an effort to diminish risk due to interest
rate fluctuations, while responding to favorable financing opportunities.
Accordingly, from time to time, these subsidiaries enter into interest rate swap
and interest rate cap agreements to hedge their interest rate exposure in
amounts corresponding to a portion of their borrowings. The company also has
foreign currency exposures at some of its foreign and domestic operations
related to buying, selling and financing in currencies other than the local
currencies. The company has entered into agreements related to the management of
these currency transaction risks. The credit and market risks under these
interest rate and foreign currency agreements are not considered to be
significant. Additional detailed information is included in the "Financial
Instruments" note on pages 42 and 43.
Stockholders' equity was $3,557 million at October 31, 1996 compared with
$3,085 million and $2,558 million at October 31, 1995 and 1994, respectively.
The increase in 1996 was caused primarily by net income of $817 million, a
change of $65 million in the minimum pension liability adjustment and an
increase in common stock of $41 million, partially offset by an increase in
common stock in treasury of $253 million related to the company's stock
repurchase and employee benefit programs, and cash dividends declared of $207
million.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following are significant accounting policies in addition to those included in
other notes to the consolidated financial statements.
The consolidated financial statements represent the consolidation of all
companies in which Deere & Company has a majority ownership. Deere & Company
records its investment in each unconsolidated affiliated company (20 to 50
percent ownership) at its related equity in the net assets of such affiliate.
Other investments (less than 20 percent ownership) are recorded at cost.
Unconsolidated affiliates at October 31, 1996 consisted primarily of equipment
affiliates in Brazil and the United States. Consolidated retained earnings at
October 31, 1996 include undistributed earnings of the unconsolidated affiliates
of $36 million. Dividends from unconsolidated affiliates were $8 million in 1996
and $2 million in 1995 and 1994.
The company's consolidated financial statements and some information in the
notes and related commentary are presented in a format which includes data
grouped as follows:
Equipment Operations -- These data include the company's agricultural equipment,
industrial equipment and commercial and consumer equipment operations with
Financial Services reflected on the equity basis. Data relating to the above
equipment operations, including the consolidated group data in the income
statement, are also referred to as "Equipment Operations" in this report.
Financial Services -- These data include the company's credit, insurance and
health care operations.
Consolidated -- These data represent the consolidation of the Equipment
Operations and Financial Services in conformity with Financial Accounting
Standards Board (FASB) Statement No. 94. References to "Deere & Company" or "the
company" refer to the entire enterprise.
The preparation of financial statements in conformity with generally
accepted accounting principles 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 generally recorded by the company
when they are shipped to independent dealers. Provisions for sales incentives
and product warranty costs are recognized at the time of sale or at the
inception of the incentive programs and are based on certain estimates the
company believes are appropriate.
Retail notes receivable include unearned finance income in the face amount
of the notes, which is amortized into income over the lives of the notes on the
effective-yield basis. Unearned finance income on variable-rate notes is
adjusted monthly based on fluctuations in the base rate of a specified bank.
Financing leases receivable include unearned lease income, which is equal to the
excess of the gross lease receivable plus the estimated residual value over the
cost of the equipment, and is recognized as revenue over the lease terms on the
effective-yield basis. Rental payments applicable to equipment on operating
leases are recorded as income on a straight-line method over the lease terms.
Assets on operating leases are recorded at cost and depreciated on a straight-
line method over the terms of the leases. Interest charged to revolving charge
account customers and on wholesale receivables is based on the balances
outstanding. Other receivables related to securitizations are recorded at net
present value and relate to deposits made pursuant to recourse provisions and
other payments to be received under asset backed securities sales agreements.
The receivables are amortized to their value at maturity using the interest
method. Securitization and servicing fee income includes the amortization of the
above receivables, adjustments related to those sales and reimbursed
administrative expenses.
Insurance and health care premiums are generally recognized as earned over
the terms of the related policies. Insurance and health care claims and reserves
include liabilities for unpaid claims and future policy benefits. Policy
acquisition costs, such as commissions, premium taxes and certain other
underwriting expenses, are deferred and amortized over the terms of the related
policies. The liability for unpaid claims and claims adjustment expenses is
based on estimated costs of settling the claims using past experience adjusted
for current trends. The receivable for amounts recoverable from reinsurers is
estimated based on the corresponding claim liability associated with the
reinsured policies.
On November 15, 1995, a special meeting of stockholders was held
authorizing a three-for-one stock split effective November 17, 1995. All
references in the consolidated financial statements referring to shares, share
prices, per share amounts and stock plans have been adjusted retroactively for
the three-for-one stock split. On February 28, 1996, the company announced its
intention to repurchase up to $500 million of Deere & Company common stock.
Additional information is presented in the "Capital Stock" note on page 41.
In the first quarter of 1995, the company adopted FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The Statement
had an immaterial effect on stockholders' equity and no impact on the
consolidated income statement. In the first quarter of 1996, the company adopted
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities - Questions and Answers." Additional
information is presented in the "Marketable Securities" note on pages 36 and 37.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which the company will adopt in fiscal year 1997. This Statement is not expected
to have an effect on the company's financial position or results of operations.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation, which the company will adopt in fiscal year 1997. This Statement
defines a new "fair value" method of accounting for stock-based compensation
expense and also allows the retention of the previous "intrinsic value" method.
The company intends to retain the intrinsic value method and, therefore, the new
standard will have no effect on the company's financial position or results of
operations. In June 1996, the FASB issued Statement No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
which the company must adopt for transactions occurring after December 31, 1996.
This Statement will have no effect on the company's financial position or
results of operations.
In October 1996, Deere & Company made an additional $57 million investment
in its equipment subsidiary in Mexico, increasing its ownership to 99 percent.
This previously unconsolidated affiliate was included as a consolidated
subsidiary beginning in October. During 1996, the company also made other
acquisitions of businesses including an increase in ownership of its equipment
affiliate in Brazil to 40 percent and the purchase of a 40 percent interest in
Sunstate Equipment Company, a regional rental equipment company based in
Phoenix, Arizona. None of the acquisitions had a significant effect on the
company's financial position or results of operations.
31
--------------------------------------------------------------------------------
Certain amounts for prior years have been reclassified to conform with 1996
financial statement presentations.
INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA FOR THE
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
The company's operations are categorized into six business segments described as
follows.
The company's worldwide agricultural equipment segment manufactures and
distributes a full line of farm equipment - including tractors; tillage, soil
preparation, seeding and harvesting machinery; sprayers; hay and forage
equipment and integrated precision farming technology.
The company's worldwide industrial equipment segment manufactures and
distributes a broad range of machines used in construction, earthmoving and
forestry - including backhoe loaders; crawler dozers and loaders; four-wheel-
drive loaders; excavators; scrapers; motor graders; log skidders and forestry
harvesters. This segment also includes the manufacture and distribution of
engines and drivetrain components for the original equipment manufacturer (OEM)
market.
The company's worldwide commercial and consumer equipment segment, formerly
the lawn and grounds care 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; hand-held products such as chain saws,
string trimmers and leaf blowers; skid-steer loaders; utility transport
vehicles; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and other retail outlets.
The company's credit segment, which mainly operates in the United States
and Canada, primarily finances sales and leases by John Deere dealers of new and
used equipment and sales by non-Deere dealers of recreational vehicles and
marine products. In addition, it provides wholesale financing to dealers of the
foregoing equipment and finances retail revolving charge accounts.
The company's insurance segment issues policies in the United States
primarily for: general and specialized lines of commercial property and casualty
insurance, group accident and health insurance for employees of participating
John Deere dealers and disability insurance for employees of the company.
The company's health care segment provides health management programs and
related administrative services in the United States to commercial clients and
the company.
Because of integrated manufacturing operations and common administrative
and marketing support, a substantial number of allocations must be made to
determine industry segment and geographic area data. Intersegment sales and
revenues represent sales of components, insurance premiums, health care
administrative services and finance charges. Interarea sales represent sales of
complete machines, service parts and components to units in other geographic
areas. Intersegment sales and revenues and interarea sales are generally priced
at market prices. Overseas operations are defined to include all activities of
divisions, subsidiaries and affiliated companies conducted outside the United
States and Canada.
Information relating to operations by industry segment in millions of
dollars follows. Comments relating to these data are included in Management's
Discussion and Analysis. In addition to the following unaffiliated sales and
revenues by segment, intersegment sales and revenues in 1996, 1995, and 1994
were as follows: agricultural equipment net sales of $119 million, $117 million
and $119 million; industrial equipment net sales of $31 million, $26 million and
$29 million; credit revenues of $3 million, $1 million and $1 million; insurance
revenues of $4 million, $20 million and $19 million; and health care revenues of
$29 million, $28 million and $21 million, respectively.
--------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1996 1995 1994
--------------------------------------------------------------------------------
NET SALES AND REVENUES
Unaffiliated customers:
Agricultural equipment net sales . . . . . $ 6,097 $ 5,277 $ 4,718
Industrial equipment net sales . . . . . . 1,919 1,875 1,640
Commercial and consumer equipment
net sales. . . . . . . . . . . . . . . . 1,624 1,678 1,305
Credit revenues. . . . . . . . . . . . . . 720 611 515
Insurance revenues . . . . . . . . . . . . 397 433 408
Health care revenues . . . . . . . . . . . 329 291 295
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 11,086 10,165 8,881
Other revenues . . . . . . . . . . . . . . . 143 126 96
-------- -------- --------
NET SALES AND REVENUES . . . . . . . . . . . $ 11,229 $ 10,291 $ 8,977
-------- -------- --------
-------- -------- --------
OPERATING PROFIT
Agricultural equipment . . . . . . . . . . . $ 821 $ 643 $ 553
Industrial equipment . . . . . . . . . . . . 186 198 132
Commercial and consumer equipment. . . . . . 118 165 162
Credit*. . . . . . . . . . . . . . . . . . . 229 189 178
Insurance* . . . . . . . . . . . . . . . . . 46 47 36
Health care* . . . . . . . . . . . . . . . . 28 25 24
-------- -------- --------
Total operating profit . . . . . . . . . . 1,428 1,267 1,085
-------- -------- --------
-------- -------- --------
OTHER INCOME AND (EXPENSE)
Interest income-net. . . . . . . . . . . . . 7 4 1
Interest expense-net . . . . . . . . . . . . (104) (124) (114)
Foreign exchange loss. . . . . . . . . . . . (2) (9) (3)
Corporate expenses-net . . . . . . . . . . . (32) (34) (33)
Income taxes . . . . . . . . . . . . . . . . (480) (398) (332)
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . (611) (561) (481)
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . $ 817 $ 706 $ 604
-------- -------- --------
-------- -------- --------
*Operating profit of the credit business segment includes the effect of interest
expense, which is the largest element of its operating costs. Operating profit
of the insurance and health care business segments include investment income.
--------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Agricultural equipment . . . . . . . . . . . $ 3,851 $ 3,661 $ 3,424
Industrial equipment . . . . . . . . . . . . 1,072 1,218 1,168
Commercial and consumer equipment. . . . . . 1,129 1,141 989
Credit . . . . . . . . . . . . . . . . . . . 6,542 5,796 4,774
Insurance. . . . . . . . . . . . . . . . . . 1,068 1,127 1,480
Health care. . . . . . . . . . . . . . . . . 236 237 191
Corporate. . . . . . . . . . . . . . . . . . 755 667 755
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 14,653 $ 13,847 $ 12,781
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
(continued)
32
--------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1996 1995 1994
--------------------------------------------------------------------------------
CAPITAL ADDITIONS
Agricultural equipment . . . . . . . . . . . $ 157 $ 150 $ 148
Industrial equipment . . . . . . . . . . . . 49 47 43
Commercial and consumer equipment. . . . . . 52 48 27
Credit . . . . . . . . . . . . . . . . . . . 4 2 3
Insurance. . . . . . . . . . . . . . . . . . 2 2 2
Health care. . . . . . . . . . . . . . . . . 13 14 8
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 277 $ 263 $ 231
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
DEPRECIATION EXPENSE
Agricultural equipment . . . . . . . . . . . $ 172 $ 168 $ 159
Industrial equipment . . . . . . . . . . . . 41 38 37
Commercial and consumer equipment. . . . . . 39 36 29
Credit . . . . . . . . . . . . . . . . . . . 3 2 2
Insurance. . . . . . . . . . . . . . . . . . 1 2 1
Health care. . . . . . . . . . . . . . . . . 5 3 2
Corporate. . . . . . . . . . . . . . . . . . 1 1 1
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 262 $ 250 $ 231
-------- -------- --------
--------------------------------------------------------------------------------
The company views and has historically disclosed its operations as
consisting of two geographic areas, the United States and Canada, and overseas,
shown below in millions of dollars. The percentages shown in the captions for
net sales and revenues, operating profit and identifiable assets indicate the
approximate proportion of each amount that relates to either the United States
only or to the company's Europe, Africa and Middle East division, the only
overseas area deemed to be significant for disclosure purposes. The percentages
are based upon a three-year average for 1996, 1995 and 1994. In addition to the
following geographic unaffiliated sales, interarea sales in 1996, 1995 and 1994
were as follows: United States and Canada equipment net sales of $981 million,
$763 million and $640 million, and overseas net sales of $415 million, $395
million and $360 million, respectively.
--------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1996 1995 1994
--------------------------------------------------------------------------------
NET SALES AND REVENUES
Unaffiliated customers:
United States and Canada:
Equipment operations net sales (90%) . . $ 6,886 $ 6,648 $ 5,860
Financial Services revenues (95%). . . . 1,446 1,335 1,218
-------- -------- --------
Total. . . . . . . . . . . . . . . . . 8,332 7,983 7,078
Overseas net sales (73%) . . . . . . . . . 2,754 2,182 1,803
-------- -------- --------
Total. . . . . . . . . . . . . . . . . 11,086 10,165 8,881
Other revenues . . . . . . . . . . . . . . . 143 126 96
-------- -------- --------
NET SALES AND REVENUES . . . . . . . . . . . $ 11,229 $ 10,291 $ 8,977
-------- -------- --------
-------- -------- --------
OPERATING PROFIT
United States and Canada:
Equipment operations (94%) . . . . . . . . $ 867 $ 839 $ 764
Financial Services (93%) . . . . . . . . . 303 261 238
-------- -------- --------
Total. . . . . . . . . . . . . . . . . 1,170 1,100 1,002
Overseas equipment operations (70%). . . . . 258 167 83
-------- -------- --------
Total operating profit . . . . . . . . $ 1,428 $ 1,267 $ 1,085
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
(continued)
--------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1996 1995 1994
--------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States and Canada:
Equipment operations (91%) . . . . . . . . $ 4,689 $ 4,607 $ 4,265
Financial Services (92%) . . . . . . . . . 7,846 7,160 6,445
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 12,535 11,767 10,710
Overseas equipment operations (72%). . . . . 1,363 1,413 1,316
Corporate. . . . . . . . . . . . . . . . . . 755 667 755
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . $ 14,653 $ 13,847 $ 12,781
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
CAPITAL ADDITIONS
United States and Canada:
Equipment operations . . . . . . . . . . . $ 204 $ 197 $ 190
Financial Services . . . . . . . . . . . . 19 18 13
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 223 215 203
Overseas equipment operations. . . . . . . . 54 48 28
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . $ 277 $ 263 $ 231
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
DEPRECIATION EXPENSE
United States and Canada:
Equipment operations . . . . . . . . . . . $ 183 $ 177 $ 166
Financial Services . . . . . . . . . . . . 9 7 5
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 192 184 171
Overseas equipment operations. . . . . . . . 69 65 59
Corporate. . . . . . . . . . . . . . . . . . 1 1 1
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . $ 262 $ 250 $ 231
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
NUMBER OF EMPLOYEES
United States and Canada:
Equipment operations . . . . . . . . . . . 22,600 23,600 24,200
Financial Services . . . . . . . . . . . . 2,600 2,400 2,400
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 25,200 26,000 26,600
Overseas equipment operations. . . . . . . . 8,700 7,400 7,700
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . 33,900 33,400 34,300
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
Total exports from the United States were $1,584 million in 1996, $1,314
million in 1995 and $1,144 million in 1994. Exports from the Europe, Africa and
Middle East division were $522 million in 1996, $510 million in 1995 and $495
million in 1994. Most of these exports were to the United States
and Canada.
REINSURANCE
The company's insurance subsidiaries utilize reinsurance to limit their losses
and reduce their exposure to large claims. Although reinsurance contracts permit
recovery of certain claims from reinsurers, the insurance subsidiaries are not
relieved of their primary obligations to the policyholders. The financial
condition of the reinsurers is evaluated to minimize any exposure to losses from
insolvencies.
33
Insurance and health care premiums earned consisted of the following in
millions of dollars:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
Premiums earned:
Direct from policyholders. . . . . . . . . $ 706 $ 686 $ 678
Reinsurance assumed. . . . . . . . . . . . 19 44 47
Reinsurance ceded. . . . . . . . . . . . . (34) (55) (68)
-------- -------- --------
Financial Services premiums. . . . . . . 691 675 657
Intercompany premiums. . . . . . . . . . . . (33) (47) (48)
-------- -------- --------
PREMIUMS . . . . . . . . . . . . . . . . . . $ 658 $ 628 $ 609
-------- -------- --------
-------- -------- --------
--------------------------------------------------------------------------------
The difference between premiums earned and written is not material.
Reinsurance recoveries on ceded reinsurance contracts during 1996, 1995 and 1994
totaled $6 million, $36 million and $80 million, respectively, and are deducted
from "Insurance and Health Care Claims and Benefits" expense. At October 31,
1996 and 1995, reinsurance receivables of $66 million and $81 million and
prepaid insurance premiums of $21 million and $18 million, respectively, were
associated with a single reinsurer.
RESTRUCTURING COSTS
During the second quarter of 1993, the company initiated plans to downsize and
rationalize its European operations. This resulted in a restructuring charge of
$80 million after income taxes or $.34 per share ($107 million before income
taxes). The charge mainly represented the cost of employment reductions. As of
October 31, 1996, the expected employment reductions and the disbursement of the
$107 million accrual were both nearly complete.
PENSION BENEFITS
The company has several pension plans covering substantially all of its United
States employees and employees in certain foreign countries. The United States
plans and significant foreign plans in Canada, Germany and France are defined
benefit plans in which the benefits are based primarily on years of service and
employee compensation. It is the company's policy to fund its United States
plans according to the 1974 Employee Retirement Income Security Act (ERISA) and
income tax regulations. In Canada, the company's funding is in accordance with
local laws and income tax regulations, while the pension plans in Germany and
France are unfunded. Plan assets in the United States and Canada consist
primarily of common stocks, common trust funds, government securities and
corporate debt securities. Pension cost for United States plans is based on the
1983 Group Annuity Mortality Table.
The components of net periodic pension cost and the significant assumptions
for the United States plans consisted of the following in millions of dollars
and in percents:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . . . . $ 86 $ 73 $ 79
Interest cost. . . . . . . . . . . . . . . . 322 308 286
Return on assets:
Actual gain. . . . . . . . . . . . . . . . (733) (659) (86)
Deferred gain (loss) . . . . . . . . . . . 363 322 (218)
Net amortization . . . . . . . . . . . . . . 58 49 43
-------- -------- --------
Net cost . . . . . . . . . . . . . . . . . . $ 96 $ 93 $ 104
-------- -------- --------
-------- -------- --------
Discount rates for obligations . . . . . . . 7.5% 7.5% 8.0%
Discount rates for expenses. . . . . . . . . 7.5% 8.0% 7.25%
Assumed rates of compensation increases. . . 5.0% 5.0% 5.0%
Expected long-term rate of return. . . . . . 9.7% 9.7% 9.7%
--------------------------------------------------------------------------------
A reconciliation of the funded status of the United States plans at October
31 in millions of dollars follows:
--------------------------------------------------------------------------------
34
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The components of net periodic pension cost and the significant assumptions
for the foreign plans consisted of the following in millions of dollars and in
percents:
1996 1995 1994
--------------------------------------------------------------------------------
Service cost . . . . . . . . . . . . . . . . $ 9 $ 9 $ 9
Interest cost. . . . . . . . . . . . . . . . 28 27 23
Return on assets:
Actual gain. . . . . . . . . . . . . . . . (18) (12) (14)
Deferred gain. . . . . . . . . . . . . . . 7 1 6
Net amortization . . . . . . . . . . . . . . 7 2 2
-------- -------- --------
Net cost . . . . . . . . . . . . . . . . . . $ 33 $ 27 $ 26
-------- -------- --------
-------- -------- --------
Discount rates for obligations . . . . . . . 7.0-8.3% 7.0-8.3% 7.0-8.3%
Discount rates for expenses. . . . . . . . . 7.0-8.3% 7.0-8.3% 6.8-7.0%
Assumed rates of compensation increases. . . 4.0-7.0% 4.0-7.0% 4.0-7.0%
Expected long-term rates of return . . . . . 8.3% 8.3% 6.8-7.0%
--------------------------------------------------------------------------------
A reconciliation of the funded status of the foreign plans at October 31 in
millions of dollars follows:
--------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company generally provides defined benefit health care and life insurance
plans for retired employees in the United States and Canada. Provisions of the
benefit plans for hourly employees are, in large part, subject to collective
bargaining. The plans for salaried employees include certain cost-sharing
provisions. It is the company's policy to fund a portion of its obligations for
the United States postretirement health care benefit plans under provisions of
Internal Revenue Code Section 401(h). Plan assets consist primarily of common
stocks, common trust funds, government securities and corporate debt securities.
The components of net periodic postretirement benefits cost and the
significant assumptions for the United States and Canadian plans consisted of
the following in millions of dollars and in percents:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
HEALTH CARE
Service cost . . . . . . . . . . . . . . . . $ 61 $ 55 $ 54
Interest cost. . . . . . . . . . . . . . . . 135 122 117
Return on assets:
Actual gain. . . . . . . . . . . . . . . . (37) (30) (4)
Deferred gain (loss) . . . . . . . . . . . 17 15 (10)
Net amortization . . . . . . . . . . . . . . (23) (40) (44)
-------- -------- --------
Net cost . . . . . . . . . . . . . . . . . 153 122 113
-------- -------- --------
LIFE INSURANCE
Service cost . . . . . . . . . . . . . . . . 3 3 3
Interest cost. . . . . . . . . . . . . . . . 17 16 15
Net amortization . . . . . . . . . . . . . . 1
-------- -------- --------
Net cost . . . . . . . . . . . . . . . . . 21 19 18
-------- -------- --------
TOTAL NET COST . . . . . . . . . . . . . . . $ 174 $ 141 $ 131
-------- -------- --------
-------- -------- --------
Discount rates for obligations . . . . . . . 7.75% 7.75% 8.25%
Discount rates for expense . . . . . . . . . 7.75% 8.25% 7.5%
Expected long-term rate of return. . . . . . 9.7% 9.7% 9.7%
--------------------------------------------------------------------------------
A reconciliation of the funded status of the United States and Canadian
plans at October 3l in millions of dollars follows:
--------------------------------------------------------------------------------
The annual rate of increase in the per capita cost of covered health care
benefits (the health care cost trend rate) used to determine 1996 cost was
assumed to be 9.2 percent for 1997, decreasing gradually to 4.55 percent by the
year 2003. The rate used to determine 1995 cost was assumed to be 9.1 percent
for 1996, decreasing gradually to 4.5 percent by the year 2001. The rate used to
determine 1994 cost was assumed to be 8.2 percent for 1995, decreasing gradually
to 4.5 percent by the year 2001. An increase of one percentage point in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligations at October 31, 1996 by $213 million and the
net periodic postretirement benefits cost for the year then ended by $26
million.
35
--------------------------------------------------------------------------------
INCOME TAXES
--------------------------------------------------------------------------------
The provision for income taxes by taxing jurisdiction and by significant
component consisted of the following in millions of dollars:
----------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------
Current:
United States:
Federal. . . . . . . . . . . . . . . $ 406 $ 253 $ 244
State. . . . . . . . . . . . . . . . 42 17 12
Foreign. . . . . . . . . . . . . . . . 98 55 50
------ ------ ------
Total current. . . . . . . . . . . 546 325 306
------ ------ ------
Deferred:
United States:
Federal. . . . . . . . . . . . . . . (51) 70 21
State. . . . . . . . . . . . . . . . (7) 4 2
Foreign. . . . . . . . . . . . . . . . (8) (1) 3
------ ------ ------
Total deferred . . . . . . . . . . (66) 73 26
------ ------ ------
Provision for income taxes . . . . . . . $ 480 $ 398 $ 332
------ ------ ------
------ ------ ------
Based upon location of the company's operations, the consolidated income
before income taxes in the United States in 1996, 1995 and 1994 was $929
million, $881 million and $781 million, respectively, and in foreign countries
was $358 million, $212 million and $140 million, respectively. Certain overseas
operations are branches of Deere & Company and are, therefore, subject to United
States as well as foreign income tax regulations. The pretax income 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:
----------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------
United States federal income tax
provision at a statutory rate of
35 percent . . . . . . . . . . . . . . . $ 450 $ 382 $ 322
Increase (decrease) resulting from:
State and local income taxes, net of
federal income tax benefit . . . . . . 23 14 8
Taxes on foreign income which differ
from the United States statutory
rate . . . . . . . . . . . . . . . . . 24 11 7
Realization of benefits of tax loss
and tax credit carryforwards . . . . . (9) (1) (4)
Tax exempt income. . . . . . . . . . . . (4) (5) (5)
Other adjustments - net. . . . . . . . . (4) (3) 4
------ ------ ------
Provision for income taxes . . . . . . . $ 480 $ 398 $ 332
------ ------ ------
------ ------ ------
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:
At October 31, 1996, accumulated earnings in certain overseas subsidiaries
totaled $512 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, 1996, certain foreign tax loss and tax credit carryforwards
were available. The expiration dates and amounts in millions of dollars are as
follows: 1997 - none, 1998 - none, 1999 - $1, 2000 - $7, 2001 - $5 and
unlimited - $2.
MARKETABLE SECURITIES
Marketable securities are held by the insurance and health care subsidiaries. In
the first quarter of 1995, the company adopted FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and recorded
its held-to-maturity debt securities at amortized cost and available-for-sale
debt and equity securities at fair value with unrealized gains and losses shown
as a separate component of stockholders' equity. In the first quarter of 1996,
concurrent with the adoption of "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities - Questions and
Answers," the company transferred all its held-to-maturity debt securities to
the available-for-sale category. At the time of transfer in November 1995, the
amortized cost of these securities was $484 million and the unrealized gain was
$29 million ($19 million after income taxes). Although the company's intention
to hold a majority of its debt securities to maturity has not changed, the
transfer was made to increase flexibility in responding to future changes in
investment needs. Realized gains or losses from the sales of marketable
securities are based on the specific identification method.
36
The amortized cost and fair value of marketable securities in millions of
dollars follow:
The contractual maturities of debt securities at October 31, 1996 in millions
of dollars follow:
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 $11 million in 1996 and $79 million in
1995. Gross realized gains and losses on those sales were $.3 million and none,
respectively, in 1996 and $9 million and $2 million, respectively, in 1995. The
increase in the net unrealized holding gain on available-for-sale securities was
$16 million ($11 million after income taxes) during 1996 and $5 million ($3
million after income taxes) during 1995. In 1995, the John Deere Life Insurance
Company was sold, including its held-to-maturity marketable securities of $229
million and available-for-sale securities of $100 million.
DEALER ACCOUNTS AND NOTES RECEIVABLE
Dealer accounts and notes receivable at October 31 consisted of the
following in millions of dollars:
At October 31, 1996 and 1995, dealer notes included above were $638 million
and $575 million, respectively.
Dealer accounts and notes receivable arise primarily from sales to dealers
of John Deere agricultural, industrial and commercial and consumer equipment.
The company generally retains as collateral a security interest in the equipment
associated with these receivables. Generally, terms to dealers require payments
as the equipment which secures the indebtedness is sold to retail customers.
Interest is charged on balances outstanding after certain interest-free periods,
which range from six to nine months for agricultural tractors, one to five
months for industrial equipment, and from six to 24 months for most other
equipment. Dealer accounts and notes receivable have significant concentrations
of credit risk in the agricultural, industrial and commercial and
consumer business sectors as shown in the previous table. On a geographic basis,
there is not a disproportionate concentration of credit risk in any area.
CREDIT RECEIVABLES
Credit receivables at October 31 consisted of the following in millions of
dollars:
37
Credit receivables have significant concentrations of credit risk in the
agricultural, industrial, 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.
Credit receivable installments, including unearned finance income, at
October 31 are scheduled as follows in millions of dollars:
1996 1995
---------------------------------------------------------------------------
Due in months:
0 - 12 . . . . . . . . . . . . . . . . . . . . . $ 2,569 $ 2,128
13 - 24. . . . . . . . . . . . . . . . . . . . . 1,530 1,445
25 - 36. . . . . . . . . . . . . . . . . . . . . 1,113 1,064
37 - 48. . . . . . . . . . . . . . . . . . . . . 767 761
49 - 60. . . . . . . . . . . . . . . . . . . . . 463 493
Thereafter . . . . . . . . . . . . . . . . . . . 739 777
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 7,181 $ 6,668
-------- --------
-------- --------
The maximum terms for retail notes are generally seven years for
agricultural equipment, five years for industrial equipment, six years for
commercial and consumer equipment and 15 years for recreational products. The
maximum term for financing leases is six years, while the maximum term for
wholesale notes is generally 12 months.
The company's United States and Canadian credit subsidiaries received
proceeds of $960 million in 1996, $837 million in 1995 and $560 million in 1994
from the sale of retail notes. Certain other foreign subsidiaries also sold
retail notes, receiving proceeds of $.3 million in 1996, $.5 million in 1995 and
$2 million in 1994. At October 31, 1996 and 1995, the unpaid balances of retail
notes previously sold were $1,391 million and $1,279 million, respectively. The
company's maximum exposure under all retail note recourse provisions at October
31, 1996 and 1995 was $196 million and $188 million, respectively. The retail
notes sold are collateralized by security interests in the related equipment
sold to customers. There is no anticipated credit risk related to nonperformance
by the counterparties. At October 31, 1996 and 1995, worldwide credit
receivables administered, which include credit receivables previously sold but
still administered, totaled $7,303 million and $6,624 million, respectively.
Total credit receivable amounts 60 days or more past due were $22 million
at October 31, 1996 compared with $16 million at October 31, 1995. These past-
due amounts represented .36 percent of the credit receivables financed at
October 31, 1996 and .30 percent at October 31, 1995. The allowance for doubtful
credit receivables represented 1.56 percent and 1.61 percent of credit
receivables outstanding at October 31, 1996 and 1995, respectively. In addition,
at October 31, 1996 and 1995, the company's credit subsidiaries had $155 million
and $144 million, respectively, of deposits withheld from dealers and merchants
available for potential credit losses. An analysis of the allowance for doubtful
credit receivables follows in millions of dollars:
1996 1995 1994
--------------------------------------------------------------------------------
Balance, beginning of the year . . . . . $ 88 $ 86 $ 83
Provision charged to operations. . . . . 43 36 31
Amounts written off. . . . . . . . . . . (32) (25) (24)
Transfers related to retail note sales . (6) (9) (4)
----- ----- -----
Balance, end of the year . . . . . . . . $ 93 $ 88 $ 86
----- ----- -----
----- ----- -----
OTHER RECEIVABLES
Other receivables at October 31 consisted of the following in millions of
dollars:
1996 1995
---------------------------------------------------------------------------
Insurance and health care premiums receivable. . . $ 127 $ 114
Reinsurance receivables. . . . . . . . . . . . . . 119 145
Receivables relating to asset backed
securitizations. . . . . . . . . . . . . . . . . 196 188
Other. . . . . . . . . . . . . . . . . . . . . . . 108 45
------ ------
Other receivables. . . . . . . . . . . . . . . . . $ 550 $ 492
------ ------
------ ------
Other receivables are primarily held by the Financial Services
subsidiaries. The credit subsidiaries' receivables related to asset backed
securitizations are equal to the unamortized present value of deposits made with
other entities pursuant to recourse provisions, and other payments to be
received under the retail note sales agreements.
EQUIPMENT ON OPERATING LEASES
Operating leases arise from the leasing of John Deere equipment to retail
customers in the United States and Canada. Initial lease terms range from 12 to
72 months. The net value of equipment on operating leases was $430 million and
$259 million at October 31, 1996 and 1995, respectively. Of these leases, at
October 31, 1996, $153 million was financed by the Equipment Operations and $277
million by the credit subsidiaries. The accumulated depreciation on this
equipment was $86 million and $71 million at October 31, 1996 and 1995,
respectively. The corresponding depreciation expense was $53 million in 1996,
$35 million in 1995 and $31 million in 1994.
Future payments to be received on operating leases totaled $249 million at
October 31, 1996 and are scheduled as follows:
1997 - $93, 1998 - $80, 1999 - $45, 2000 - $25 and 2001 - $6.
INVENTORIES
Substantially all inventories owned by Deere & Company and its
United States equipment subsidiaries are valued at cost, on the "last-in, first-
out" (LIFO) 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 83 percent and 79 percent of worldwide
gross inventories at FIFO value on October 31, 1996 and 1995, respectively.
38
Raw material, work-in-process and finished goods inventories at October 31,
1996 totaled $829 million on a LIFO basis compared with $721 million one year
ago. If all inventories had been valued on a FIFO basis, estimated inventories
by major classification at October 31 in millions of dollars would have been as
follows:
1996 1995
---------------------------------------------------------------------------
Raw materials and supplies . . . . . . . . . . . . $ 228 $ 223
Work-in-process. . . . . . . . . . . . . . . . . . 397 343
Finished machines and parts. . . . . . . . . . . . 1,232 1,100
------ ------
Total FIFO value . . . . . . . . . . . . . . . . 1,857 1,666
Adjustment to LIFO basis . . . . . . . . . . . . . 1,028 945
------ ------
Inventories. . . . . . . . . . . . . . . . . . . . $ 829* $ 721
------ ------
------ ------
*Includes $44 million of inventories for the acquired Mexico operations.
PROPERTY AND DEPRECIATION
A summary of property and equipment at October 31 in millions of dollars
follows:
1996 1995
---------------------------------------------------------------------------
Land . . . . . . . . . . . . . . . . . . . . . . . $ 46 $ 42
Buildings and building equipment . . . . . . . . . 914 891
Machinery and equipment. . . . . . . . . . . . . . 2,157 2,219
Dies, patterns, tools, etc . . . . . . . . . . . . 561 516
All other. . . . . . . . . . . . . . . . . . . . . 518 476
Construction in progress . . . . . . . . . . . . . 109 69
------- -------
Total at cost. . . . . . . . . . . . . . . . . . 4,305 4,213
Less accumulated depreciation. . . . . . . . . . . 2,953 2,877
------- -------
Property and equipment - net . . . . . . . . . . . $ 1,352 $ 1,336
------- -------
------- -------
Leased property under capital leases amounting to $4 million and $7 million
at October 31, 1996 and 1995, respectively, is included primarily in machinery
and equipment and all other.
Property and equipment additions and depreciation are reported on page 33.
Property and equipment expenditures for new and revised products, increased
capacity and the replacement or major renewal of significant items of property
and equipment are capitalized. Expenditures for maintenance, repairs and minor
renewals are generally charged to expense as incurred. Most of the company's
property and equipment is depreciated using the straight-line method for
financial accounting purposes. Depreciation for United States federal income tax
purposes is computed using accelerated depreciation methods.
It is not expected that the cost of compliance with foreseeable
environmental requirements will have a material effect on the company's
financial position or results of operations.
INTANGIBLE ASSETS
Net intangible assets totaled $286 million and $305 million at
October 31, 1996 and 1995, respectively. The Equipment Operations' balance of
$276 million at October 31, 1996 consisted primarily of a $143 million
intangible asset related to the minimum pension liability required by FASB
Statement No. 87, and unamortized goodwill which resulted from the purchase cost
of assets acquired exceeding their fair value. The intangible pension asset
decreased by $33 million during 1996.
Intangible assets, excluding the intangible pension asset, are being
amortized over 25 years or less, and the accumulated amortization was $39
million and $30 million at October 31, 1996 and 1995, respectively. The
intangible pension asset is remeasured and adjusted annually. The unamortized
goodwill is reviewed periodically for potential impairment.
SHORT-TERM BORROWINGS
Short-term borrowings at October 31 consisted of the following in millions of
dollars:
1996 1995
---------------------------------------------------------------------------
Equipment Operations
Commercial paper . . . . . . . . . . . . . . . . . $ 106 $ 54
Notes payable to banks . . . . . . . . . . . . . . 38 23
Long-term borrowings due within one year . . . . . 79 319
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . 223 396
------- -------
Financial Services
Commercial paper . . . . . . . . . . . . . . . . . 2,030 2,398
Notes payable to banks . . . . . . . . . . . . . . 27 2
Long-term borrowings due within one year . . . . . 864 344
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . 2,921 2,744
------- -------
Short-term borrowings. . . . . . . . . . . . . . . $ 3,144 $ 3,140
------- -------
------- -------
The weighted average interest rates on total short-term borrowings,
excluding current maturities of long-term borrowings, at October 31, 1996 and
1995 were 5.1 percent and 5.9 percent, respectively. All of the Financial
Services' short-term borrowings represent obligations of the credit
subsidiaries.
Unsecured lines of credit available from United States and foreign banks
were $4,361 million at October 31, 1996. Some of these credit lines are
available to both the Equipment Operations and certain credit subsidiaries. At
October 31, 1996, $2,159 million of the worldwide lines of credit were unused.
For the purpose of computing the unused credit lines, total short-term
borrowings, excluding the current 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 on February 27, 2001 for $3,675 million. This agreement is
mutually extendable and the annual facility fee is .08 percent.
The credit agreement has various requirements of John Deere Capital
Corporation, including the maintenance of its consolidated ratio of earnings
before fixed charges to fixed charges at not less than 1.05 to 1 for each fiscal
quarter. In addition, the Capital Corporation's ratio of senior debt to total
stockholder's equity plus subordinated debt may not be more than 8 to 1 at
the end of any fiscal quarter. In October 1996, Deere & Company formalized in a
contractual agreement its long-standing previously expressed intention of
conducting business with the Capital Corporation on such terms that the Capital
Corporation will continue to satisfy these ratio requirements. Deere & Company
also agreed to maintain the Capital Corporation's tangible net worth at not less
than $50 million and 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. The credit
agreement also contains a provision requiring Deere & Company to maintain
consolidated tangible net worth of $500 million according to United States
generally accepted accounting principles in effect at October 31, 1994. Under
this provision, the company's total retained earnings balance was free of
restriction at October 31, 1996.
39
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at October 31 consisted of the following
in millions of dollars:
1996 1995
---------------------------------------------------------------------------
Equipment Operations
Accounts payable:
Trade. . . . . . . . . . . . . . . . . . . . . . $ 882 $ 841
Dividends payable. . . . . . . . . . . . . . . . 52 52
Other. . . . . . . . . . . . . . . . . . . . . . 37 32
Accrued expenses:
Employee benefits. . . . . . . . . . . . . . . . 151 145
Dealer commissions . . . . . . . . . . . . . . . 178 153
Other. . . . . . . . . . . . . . . . . . . . . . 675 637
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 1,975 1,860
------- -------
Financial Services
Accounts payable:
Deposits withheld from dealers and merchants . . 155 144
Other. . . . . . . . . . . . . . . . . . . . . . 132 121
Accrued expenses:
Unearned premiums. . . . . . . . . . . . . . . . 145 160
Unpaid loss adjustment expenses. . . . . . . . . 88 90
Interest payable . . . . . . . . . . . . . . . . 44 36
Other. . . . . . . . . . . . . . . . . . . . . . 137 123
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 701 674
------- -------
Intercompany eliminations. . . . . . . . . . . . . (1)
------- -------
Accounts payable and accrued expenses. . . . . . . $ 2,676 $ 2,533
------- -------
------- -------
LONG-TERM BORROWINGS
Long-term borrowings at October 31 consisted of the following in millions of
dollars:
1996 1995
---------------------------------------------------------------------------
Equipment Operations
Notes and debentures:
Medium-term notes due 1998 - 2006:
Average interest rate of 8.9%
as of year end 1996 and 1995 . . . . . . . . . $ 171 $ 239
Adjustable rate senior notes due 2002:
Interest rate of 7.8% as of year end
1996 and 7.1% as of year end 1995. . . . . . . 50 60
8.95% debentures due 2019. . . . . . . . . . . . 200 200
8-1/2% debentures due 2022 . . . . . . . . . . . 200 200
Other. . . . . . . . . . . . . . . . . . . . . . 5 4
------- -------
Total . . . . . . . . . . . . . . . . . . . $ 626 $ 703
------- -------
Financial Services
Notes and debentures:
Medium-term notes due 1997 - 2006:
Average interest rate of 6.7% as of year end
1996 and 7.0% as of year end 1995. . . . . . . $ 1,402 $ 826
7.20% notes due 1997 . . . . . . . . . . . . . . 100
Floating rate notes due 1998 (federal funds rate):
Swapped to an alternative variable interest
rate of 5.6% as of year end 1996 and 6.0% as
of year end 1995 . . . . . . . . . . . . . . . 150 150
5% Swiss franc bonds due 1999: Swapped to U.S.
dollars and a variable interest rate of 6.0%
as of year end 1996 and 6.4% as of year end
1995 . . . . . . . . . . . . . . . . . . . . . 97 97
------- -------
Total notes and debentures. . . . . . . . . 1,649 1,173
------- -------
Subordinated debt:
9-5/8% subordinated notes due 1998: Swapped
to variable interest rate of 6.0% as of
year end 1996 and 6.5% as of year end 1995 . . 150 150
8-5/8% subordinated debentures due 2019:
Swapped to variable interest rate of 5.7%
as of year end 1995* . . . . . . . . . . . . . 150
------- -------
Total subordinated debt . . . . . . . . . . 150 300
------- -------
Total. . . . . . . . . . . . . . . . . . 1,799 1,473
------- -------
Long-term borrowings . . . . . . . . . . . . . . . $ 2,425 $ 2,176
------- -------
------- -------
*Reclassified to short-term borrowings in 1996 because the obligation is
callable by the creditors in 1997. Swapped to variable interest rate of 5.3% as
of year end 1996.
All of the Financial Services' long-term borrowings represent obligations
of John Deere Capital Corporation.
The approximate amounts of the Equipment Operations' long-term borrowings
maturing and sinking fund payments required in each of the next five years in
millions of dollars are as follows: 1997 - $79, 1998 - $49, 1999 - $210, 2000 -
$15 and 2001 - $79. The approximate amounts of the Capital Corporation's long-
term borrowings maturing and sinking fund payments required in each of the next
five years in millions of dollars are as follows: 1997 - $864, 1998 - $893, 1999
- $373, 2000 - $290 and 2001 - $140.
LEASES
At October 31, 1996, future minimum lease payments under capital leases totaled
$1 million in 1997. Total rental expense for operating leases during 1996 was
$56 million compared with $50 million in 1995 and $49 million in 1994. At
October 31, 1996, future minimum lease payments under operating leases amounted
to $96 million as follows: 1997 - $32, 1998 - $24, 1999 - $11, 2000 - $7, 2001 -
$5 and later years - $17.
COMMITMENTS AND CONTINGENT LIABILITIES
On October 31, 1996, the company's maximum exposure under all credit receivable
recourse provisions was $196 million for retail notes sold by both the Financial
Services subsidiaries and the Equipment Operations. In addition, certain foreign
subsidiaries have pledged assets with a balance sheet value of $49 million as
collateral for borrowings. Also, at October 31, 1996, the company had
commitments of approximately $68 million for construction and acquisition of
property and equipment.
40
--------------------------------------------------------------------------------
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 matters, and 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.
CAPITAL STOCK
--------------------------------------------------------------------------------
Changes in the common stock account in 1994, 1995 and 1996 were as follows:
--------------------------------------------------------------------------------
Number of Amount
Shares Issued* (in millions)
--------------------------------------------------------------------------------
Balance at October 31, 1993. . . . . . . . . 257,241,105 $1,437
Stock options exercised with newly issued
shares . . . . . . . . . . . . . . . . . 2,582,703 37
Debenture conversions. . . . . . . . . . . . 91,776 1
Other . . . . . . . . . . . . . . . . . . 16
----------- -----------
Balance at October 31,1994 . . . . . . . . . 259,915,584 1,491
Transfer from retained earnings for
three-for-one stock split (see below) . . 175
Stock options exercised with newly issued
shares . . . . . . . . . . . . . . . . . 2,604,114 44
Debenture conversions. . . . . . . . . . . . 4,386
Other . . . . . . . . . . . . . . . . . . 19
----------- -----------
Balance at October 31, 1995. . . . . . . . . 262,524,084 1,729
Stock options exercised with newly issued
shares . . . . . . . . . . . . . . . . . 1,305,541 26
Debenture conversions. . . . . . . . . . . . 3,474
Other . . . . . . . . . . . . . . . . . . 15
----------- -----------
BALANCE AT OCTOBER 31, 1996. . . . . . . . . 263,833,099 $1,770
----------- -----------
----------- -----------
*Adjusted for three-for-one stock split.
--------------------------------------------------------------------------------
On November 15, 1995, the company declared a three-for-one stock split
effected in the form of a 200 percent stock dividend to stockholders of record
on November 17, 1995. This stock split was recorded as of October 31, 1995 by a
transfer of $175 million from retained earnings to common stock, representing a
$1 par value for each additional share issued. The number of common shares the
company is authorized to issue was also increased from 200 million to 600
million and the number of authorized preferred shares, none of which has been
issued, was increased from three million to nine million.
On February 28, 1996, the company announced its intention to repurchase up
to $500 million of Deere & Company common stock. At the company's discretion,
repurchases of common stock will be made from time to time in the open market
and through privately negotiated transactions. The major changes during 1996
affecting common stock in treasury included the repurchase of 4,970,700 shares
of common stock at a cost of $200 million related to the repurchase program and
1,819,143 shares at a cost of $75 million for ongoing stock option and
restricted stock plans. In addition, 772,223 shares of treasury stock at
original cost of $21 million were issued under the stock option and restricted
stock plans.
The calculation of net income per share is based on the average number of
shares outstanding during the year. The calculation of net income per share,
assuming full dilution, recognizes the dilutive effect of the assumed exercise
of stock appreciation rights and stock options, contingent shares and conversion
of convertible debentures. The calculation also reflects adjustment for interest
expense relating to the convertible debentures, net of applicable income taxes.
RESTRICTED STOCK
--------------------------------------------------------------------------------
Restricted shares of the company's stock are issued to key employees and
nonemployee directors under restricted stock plans approved by stockholders.
Under the plans for employees, the company establishes the performance goals and
periods of restriction for each award. The restrictions for the nonemployee
directors lapse when a director retires from the Board. Under these plans,
5,340,000 shares may be granted as restricted stock.
The market value of the restricted stock at the time of grant is recorded
as unamortized restricted stock compensation in a separate component of
stockholders' equity and adjusted to current market value for performance based
plans. This compensation is amortized to expense over the periods of
restriction. At October 31, 1996, 3,750,272 shares remained available for award
under all plans.
Changes in the unamortized restricted stock compensation account in 1994,
1995 and 1996 were as follows:
--------------------------------------------------------------------------------
Number of Amount
Shares Granted* (in millions)
--------------------------------------------------------------------------------
Outstanding at October 31, 1993. . . . . . . 753,063 $ 8
Granted . . . . . . . . . . . . . . . . . . 201,999 5
Amortized and vested . . . . . . . . . . . . (147,285) (4)
------------ -----------
Outstanding at October 31, 1994. . . . . . . 807,777 9
Granted . . . . . . . . . . . . . . . . . . 305,127 9
Amortized and vested . . . . . . . . . . . . (216,366) (6)
------------ -----------
Outstanding at October 31, 1995. . . . . . . 896,538 12
Granted . . . . . . . . . . . . . . . . . . 95,016 4
Amortized and vested . . . . . . . . . . . . (295,236) (5)
------------ -----------
OUTSTANDING AT OCTOBER 31, 1996. . . . . . . 696,318 $ 11
------------ -----------
------------ -----------
*Adjusted for three-for-one stock split.
--------------------------------------------------------------------------------
If the company exceeds the goals required for the vesting of certain
performance based restricted stock included in the table above, a maximum of
174,442 additional shares of company stock could be awarded at the end of the
restricted period. The probable cost of the additional shares at current market
value is amortized to expense over the restricted period of the related
restricted stock.
STOCK OPTIONS
--------------------------------------------------------------------------------
Options for the purchase of the company's common stock are issued to key
employees under stock option plans approved by stockholders. Options outstanding
at October 31, 1996 generally become exercisable one to nine and one-half years
after the date of grant and remain exercisable up to 10 years after the date of
grant.
The stock option plan includes authority to grant stock appreciation
rights, either concurrently with the grant of options or subsequently, and to
accept stock of the company in payment for shares under the options. At October
31, 1996, 16,237,045 shares remained available for the granting of options.
41
--------------------------------------------------------------------------------
During the last three fiscal years, changes in shares under option were as
follows:
--------------------------------------------------------------------------------
Shares* Option Price Per Share*
--------------------------------------------------------------------------------
Outstanding at October 31, 1993. . . 6,933,987 $ 7.77- $20.02
Granted . . . . . . . . . . . . . 1,785,966 $23.56
Exercised . . . . . . . . . . . . . (2,582,703) $ 7.77- $20.02
Expired or cancelled . . . . . . . . (762,207) $ 7.77- $23.56
-----------
Outstanding at October 31, 1994. . . 5,375,043 $ 7.77- $23.56
Granted . . . . . . . . . . . . . 4,229,448 $21.02- $34.07
Exercised . . . . . . . . . . . . . (2,604,114) $ 7.77- $23.56
Expired or cancelled . . . . . . . . (148,434) $ 9.04- $23.56
-----------
Outstanding at October 31, 1995. . . 6,851,943 $ 7.77- $34.07
Granted . . . . . . . . . . . . . 1,819,462 $34.13 -$47.36
Exercised . . . . . . . . . . . . . (2,001,791) $ 7.77- $34.07
Expired or cancelled . . . . . . . . (342,378) $21.02- $34.13
-----------
OUTSTANDING AT OCTOBER 31, 1996. . . 6,327,236 $ 7.77- $47.36
-----------
-----------
*Adjusted for three-for-one stock split.
--------------------------------------------------------------------------------
For options outstanding at October 31, 1996, the average exercise price was
$26.56 per share and expiration dates ranged from December 1996 to December
2005. Of the outstanding options, 55,324 may be exercised in the form of stock
appreciation rights.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS
--------------------------------------------------------------------------------
The company maintains the following significant plans for eligible
employees:
John Deere Savings and Investment Plan, for salaried employees
John Deere Stock Purchase Plan, for salaried employees
John Deere Tax Deferred Savings Plan, for hourly and incentive paid
employees
Company contributions under these plans were $35 million in 1996, $30
million in 1995 and $12 million in 1994.
RETAINED EARNINGS
--------------------------------------------------------------------------------
An analysis of the company's retained earnings follows in millions
of dollars:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
Balance, beginning of the year . . . . . . . . . . $1,690 $1,354 $ 926
Net income . . . . . . . . . . . . . . . . . . . . 817 706 604
Dividends declared . . . . . . . . . . . . . . . . (207) (195) (176)
Transfer to capital stock for
three-for-one stock split . . . . . . . . . . (175)
------ ------ ------
BALANCE, END OF THE YEAR . . . . . . . . . . . . . $2,300 $1,690 $1,354
------ ------ ------
------ ------ ------
--------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENT
--------------------------------------------------------------------------------
An analysis of the company's cumulative translation adjustment
follows in millions of dollars:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
Balance, beginning of the year . . . . . . . . . . $ 12 $ 18 $ 42
Translation adjustments for the year.. . . . . . . (1) (6) (25)
Income taxes applicable to translation adjustments 3 1
---- ---- ----
BALANCE, END OF THE YEAR . . . . . . . . . . . . . $ 14 $ 12 $ 18
---- ---- ----
---- ---- ----
--------------------------------------------------------------------------------
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:
--------------------------------------------------------------------------------
FAIR VALUE ESTIMATES
Fair values of marketable securities were estimated using quoted market prices.
Fair values of the long-term credit receivables with fixed rates were based
on the discounted values of their related cash flows at current market interest
rates. The fair values of the remaining credit receivables approximated the
carrying amounts. The fair values of receivables related to asset backed
securitizations were based on the discounted values of their related cash flows.
Fair values of long-term borrowings with fixed rates were based on the
Interest discounted values of their related cash flows at current market
interest rates. Certain long-term borrowings of John Deere Capital Corporation
have been swapped to current variable interest rates and United States dollars.
Fair values of these swaps were based on quotes from dealers.
Fair values and carrying values of the company's other interest rate swaps
and caps associated with short-term borrowings, foreign exchange forward
contracts and options were not material.
DERIVATIVES
The company enters into derivative transactions only to hedge exposures arising
in the normal course of business, and not for the purpose of creating
speculative positions or trading. The following notional or contract amounts do
not represent amounts exchanged by the parties and, therefore, are not
representative of the company's risk. The net amounts exchanged are calculated
on the basis of the notional amounts and other terms of the derivatives such as
interest rates and exchange rates, and represent only a small portion of the
notional amounts. The credit and market 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 AND CAPS
The company's credit subsidiaries enter into interest rate swap and interest
rate cap agreements related to their borrowings in order to more closely match
the type of interest rates of the borrowings to those of the assets being
funded. The differential to be paid or received on all swap and cap agreements
is accrued as interest rates change and is recognized over the lives of the
agreements in interest expense. Premiums are amortized to interest expense over
the lives of the agreements.
42
At October 31, 1996 and 1995, the total notional principal amounts of
interest rate swap agreements hedging short-term borrowings were $346 million
and $137 million, having rates of 5.2 to 7.4 percent and 6.5 to 7.0 percent,
terminating in up to 12 months and four months, respectively. There were no
interest rate cap agreements at October 31, 1996 or 1995.
The Capital Corporation has entered into interest rate swap agreements with
independent parties that change the effective rate of interest on certain
long-term borrowings. The "Long-Term Borrowings" table on page 40 reflects the
effective year-end variable interest rates relating to these swap agreements.
The notional principal amounts and maturity dates of these swap agreements are
the same as the principal amounts and maturities of the related borrowings. In
addition, the Capital Corporation in 1995 had interest rate swap agreements
corresponding to a portion of their fixed-rate long-term borrowings. At October
31, 1995, the total notional principal amount of these interest rate swap
agreements was $116 million, having variable interest rates of 6.1 to 6.5
percent, terminating in up to 16 months.
The Capital Corporation also has interest rate swap agreements associated
with medium-term notes. The "Long-Term Borrowings" table on page 40 reflects the
interest rates relating to these swap agreements. At October 31, 1996 and 1995,
the total notional principal amounts of these swap agreements were $520 million
and $260 million, terminating in up to 113 months and 83 months, respectively.
FOREIGN EXCHANGE FORWARD CONTRACTS, SWAPS AND OPTIONS
The company has entered into foreign exchange forward contracts, swaps and
options in order to hedge the currency exposure of certain assets, liabilities
and expected inventory purchases. Depending on the item being hedged, the
foreign exchange forward contract and swap gains or losses are accrued as
foreign exchange rates change or deferred until expiration of the contract, and
the contract premiums are either amortized or deferred over the terms of the
contracts. The option premiums and any gains are deferred and recorded as part
of the cost of future inventory purchases. At October 31, 1996 and 1995, the
company had foreign exchange forward contracts maturing in up to 11 months and
seven months for $390 million and $349 million, respectively, and a foreign
currency swap agreement maturing in up to 27 months and 39 months, respectively,
for $97 million. At October 31, 1996 and 1995, the company had options maturing
in up to 21 months and 24 months for $164 million and $190 million,
respectively. The total deferred gains or losses on these foreign exchange
hedges were not material at October 31, 1996 and 1995.
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:
--------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------
Interest:
Equipment Operations . . . . . . . . . . . . $ 120 $ 129 $ 123
Financial Services . . . . . . . . . . . . . 298 262 202
Intercompany eliminations. . . . . . . . . . (6) (6) (6)
------ ------ ------
CONSOLIDATED . . . . . . . . . . . . . . . . . . $ 412 $ 385 $ 319
------ ------ ------
------ ------ ------
Income taxes:
Equipment Operations . . . . . . . . . . . . $ 513 $ 297 $ 259
Financial Services . . . . . . . . . . . . . 104 99 88
Intercompany eliminations. . . . . . . . . . (92) (88) (66)
------ ------ ------
CONSOLIDATED . . . . . . . . . . . . . . . . . . $ 525 $ 308 $ 281
------ ------ ------
------ ------ ------
--------------------------------------------------------------------------------
SUPPLEMENTAL QUARTERLY INFORMATION AND DIVIDEND
(UNAUDITED)
--------------------------------------------------------------------------------
Quarterly information with respect to net sales and revenues and
earnings is shown in the following schedule. Such information is shown in
millions of dollars except for per share amounts.
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------------------------
1996
Net sales and revenues . . . . . . . . $ 2,318 $ 3,089 $ 2,905 $ 2,917
Income before income taxes . . . . . . 258 425 317 287
Net income . . . . . . . . . . . . . . 166 273 204 174
Net income per share . . . . . . . . . .63 1.04 .79 .68
Dividends declared per share . . . . . .20 .20 .20 .20
Dividends paid per share . . . . . . . .20 .20 .20 .20
1995
Net sales and revenues . . . . . . . . $ 2,088 $ 2,812 $ 2,673 $ 2,718
Income before income taxes . . . . . . 221 371 273 228
Net income . . . . . . . . . . . . . . 138 237 180 151
Net income per share*. . . . . . . . . .53 .92 .69 .57
Dividends declared per share*. . . . . .18 1/3 .18 1/3 .18 1/3 .20
Dividends paid per share*. . . . . . . .18 1/3 .18 1/3 .18 1/3 .18 1/3
*Adjusted for three-for-one stock split.
--------------------------------------------------------------------------------
Common stock per share sales prices from New York Stock Exchange composite
transactions quotations follow:
--------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------------------------
1996 MARKET PRICE
High . . . . . . . . . . . . . . . $37.13 $45.00 $43.38 $44.88
Low . . . . . . . . . . . . . . . $28.33 $35.63 $34.50 $34.75
1995 MARKET PRICE*
High . . . . . . . . . . . . . . . $25.04 $28.50 $31.75 $30.58
Low . . . . . . . . . . . . . . . $20.42 $23.58 $26.96 $26.71
*Adjusted for three-for-one stock split.
--------------------------------------------------------------------------------
At October 31, 1996, there were 29,304 holders of record of the company's
$1 par value common stock and 19 holders of record of the company's 51/2%
convertible subordinated debentures due 2001.
DIVIDEND
A quarterly cash dividend of $.20 per share was declared at the Board of
Directors' meeting held on December 4, 1996, payable on February 3, 1997.
43
(THIS PAGE INTENTIONALLY LEFT BLANK.)
44
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Deere & Company:
We have audited the accompanying consolidated balance sheets of Deere & Company
and subsidiaries as of October 31, 1996 and 1995 and the related statements of
consolidated income and of consolidated cash flows for each of the three years
in the period ended October 31, 1996. Our audits also included the financial
statement schedule listed in the Index under Part IV, Item 14(a)(2). These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Deere & Company and subsidiaries at
October 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended October 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/Deloitte & Touche LLP
November 26, 1996
[LOGO]
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DEERE & COMPANY
By: /s/ Hans W. Becherer
-------------------------------
Hans W. Becherer
Chairman and Chief Executive
Officer
Date: 15 January 1997
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.
47
SCHEDULE II
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended October 31, 1996, 1995 and 1994
(In thousands of dollars)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Column D Column E
-------- --------
Deductions Balance
-------------------------------------------------------- at end
Description Amount of period
----------- ------ ---------
Dealer receivable write-offs . . . . . . . . . . .$ 8,112 $ 34,850
Transfers related to
retail note sales. . . . . . . . . . . . . . . . 6,316
Credit receivable write-offs . . . . . . . . . . . 30,616 93,498
------- --------
$45,044 $128,348
------- --------
------- --------
Dealer receivable write-offs . . . . . . . . . . .$ 4,123 $ 24,012
Transfers related to
retail note sales. . . . . . . . . . . . . . . . 9,138
Credit receivable write-offs . . . . . . . . . . . 25,063 87,715
------- --------
$38,324 $111,727
------- --------
------- --------
Dealer receivable write-offs . . . . . . . . . . .$ 3,549 $ 23,003
Transfers related to
retail note sales. . . . . . . . . . . . . . . . 3,584
Credit receivable write-offs . . . . . . . . . . . 24,406 85,791
------- --------
$31,539 $108,794
------- --------
------- --------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
48
INDEX TO EXHIBITS
Exhibit
-------
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, 1995*)
3.2 Certificate of Designation Preferences and Rights of Series A
Participating Preferred Stock (Exhibit 3.2 to Form 10-Q of
registrant for the period ended April 30, 1993*)
3.3 By-laws, as amended August 28, 1996
4.1 Indenture dated February 15, 1991 between registrant and
Citibank, N.A., as Trustee (Exhibit 4.1 to Form 10-Q of
registrant for the quarter ended April 30, 1993*)
4.2 Credit agreements among registrant, John Deere Capital
Corporation, various financial institutions, and Chemical
Bank, The Chase Manhattan Bank (National Association), Bank of
Americas National Trust and Savings Association, Deutsche Bank
AG, and The Toronto Dominion Bank, as Managing Agents, dated
as of April 5, 1995 (Exhibit 4.1(a) and 4.1(b) to 1993 Form
10-Q of registrant for the period ended April 30, 1995*)
4.3 Credit agreements among John Deere Limited, John Deere Finance
Limited, various financial institutions and The Toronto-Dominion
Bank as agent, dated as of April 5, 1995 (Exhibit 4.2(a) and
4.2(b) to Form 10-Q of registrant for the quarter ended April
30, 1995*)
4.4 Form common stock certificates (Exhibit 4.4 to Form 10-Q of
registrant for the quarter ended April 30, 1993*)
4.5 Rights Agreement dated as of December 9, 1987 as amended
between registrant and Morgan Shareholder Services Trust
Company (Exhibit 4.5 to Form 10-Q of registrant for the
quarter ended April 30, 1993*)
4.6 First Amendment to Rights Agreement, dated as of February 28,
1990 between registrant and First Chicago Trust Co. of New York
(Exhibit 4.6 to Form 10-Q of registrant for the quarter ended
April 30, 1993*)
4.7 Second Amendment to Rights Agreement, dated as of March 1, 1991
between registrant and First Chicago Trust Co. of New York
(Exhibit 4.7 to Form 10-Q of registrant for the quarter ended
April 30, 1993*)
50
Exhibit
-------
Certain instruments relating to long-term debt constituting
less than 10% of the registrant's total assets, are not filed
as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K. The registrant will file copies of such
instruments upon request of the Commission.
9. Not applicable
10.1 Agreement dated May 11, 1993 between registrant and John Deere
Capital Corporation concerning agricultural retail notes
(Exhibit 10.1 to Form 10-Q of registrant for the quarter ended
April 30, 1993*)
10.2 Agreement dated May 11, 1993 between registrant and John Deere
Capital Corporation relating to commercial and consumer retail
notes (Exhibit 10.2 to Form 10-Q of registrant for the quarter
ended April 30, 1993*)
10.3 Agreement dated May 11, 1993 between John Deere Industrial
Equipment Company, a wholly-owned subsidiary of registrant and
John Deere Capital Corporation concerning industrial retail
notes (Exhibit 10.3 to Form 10-Q of registrant for the quarter
ended April 30, 1993*)
10.4 Agreement dated January 26, 1983 between registrant and John
Deere Capital Corporation relating to agreements on retail
notes with United States sales branches (Exhibit 10.4 to Form
10-Q of registrant for the quarter ended April 30, 1993*)
10.5 John Deere Supplemental Pension Benefit Plan, as amended
December 4, 1996**
10.6 1986 John Deere Stock Option Plan (Exhibit 10.7 to Form 10-Q
of registrant for the quarter ended April 30, 1993*)**
10.7 1991 John Deere Stock Option Plan (Appendix to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 28, 1996*)**
10.8 Deere & Company Voluntary Deferred Compensation Plan (Exhibit
10.9 to Form 10-Q of registrant for the quarter ended April 30,
1993*)**
10.9 John Deere Restricted Stock Plan (Appendix to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 28, 1996*)**
10.10 1993 Nonemployee Director Stock Ownership Plan (Exhibit to
Notice and Proxy Statement of registrant for the annual
shareholder meeting on February 24, 1993*)**
10.11 John Deere Performance Bonus Plan (Exhibit A to Notice and
Proxy Statement of registrant for the annual shareholder
meeting on February 22, 1995*)**
10.12 John Deere Equity Incentive Plan (Exhibit B to Notice and
Proxy Statement of registrant for the annual shareholder
meeting on February 22, 1995*)**
51
Exhibit
-------
10.13 Deere & Company Nonemployee Director Deferred Compensation Plan**
10.14 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 end October 31, 1996 Securities and Exchange Commission
file number 1-6458*)
11. Computation of net income per share
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. Not applicable
27. Financial Data Schedule
99.1 Press Release dated December 9, 1987 announcing adoption of
Shareholder Rights Plan (Exhibit 99.1 to Form 10-Q of registrant
for the quarter ended April 30, 1993*)
99.2 Form of Letter to Shareholders dated December 10, 1987 describing
Shareholder Rights Plan (Exhibit 99.2 to Form 10-Q of registrant
for the quarter ended April 30, 1993*)
* Incorporated by reference. Copies of these exhibits are available from the
Company upon request.
** Compensatory plan or arrangement filed as an exhibit pursuant to Item 14(c)
of Form 10-K.
52