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<SEC-DOCUMENT>0001047469-99-002236.txt : 19990505
<SEC-HEADER>0001047469-99-002236.hdr.sgml : 19990505
ACCESSION NUMBER: 0001047469-99-002236
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 15
CONFORMED PERIOD OF REPORT: 19981031
FILED AS OF DATE: 19990126
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DEERE & CO
CENTRAL INDEX KEY: 0000315189
STANDARD INDUSTRIAL CLASSIFICATION: 3523
IRS NUMBER: 362382580
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1031
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-04121
FILM NUMBER: 99513049
BUSINESS ADDRESS:
STREET 1: ONE JOHN DEERE PLACE
CITY: MOLINE
STATE: IL
ZIP: 61265
BUSINESS PHONE: 3097658000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>10-K405
<TEXT>
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K 405
----------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
Commission file number 1-4121
DEERE & COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-2382580
(State of incorporation) (IRS Employer Identification No.)
ONE JOHN DEERE PLACE, MOLINE, ILLINOIS 61265 (309) 765-8000
(Address of principal executive offices) (Zip Code) (Telephone Number)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
Common stock, $1 par value REGISTERED
New York Stock Exchange
Chicago Stock Exchange
5-1/2% Convertible Subordinated Frankfurt (Germany) Stock Exchange
Debentures Due 2001
8.95% Debentures Due 2019 New York Stock Exchange
8-1/2% Debentures Due 2022 New York Stock Exchange
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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. [ ]
The aggregate quoted market price of voting stock of registrant held by
nonaffiliates at December 31, 1998 was $7,584,500,778. At December 31, 1998,
231,713,158 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 24,
1999 are incorporated by reference in Part III.
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<PAGE>
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 worldwide AGRICULTURAL EQUIPMENT segment manufactures and distributes a
full line of farm equipment -- including tractors; combine, cotton and
sugarcane harvesters; tillage, seeding and soil preparation machinery;
sprayers; hay and forage equipment; materials handling equipment; and
integrated precision farming technology.
The worldwide CONSTRUCTION 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 worldwide COMMERCIAL AND CONSUMER EQUIPMENT segment manufactures and
distributes equipment for commercial and residential uses -- including
small tractors for lawn, garden, commercial and utility purposes; riding
and walk-behind mowers; golf course equipment; snowblowers; handheld
products such as chain saws, string trimmers and leaf blowers; skid-steer
loaders; utility vehicles; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and major retail outlets.
The 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 products. In
addition, it provides wholesale financing to dealers of the foregoing
equipment and finances retail revolving charge accounts.
The 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 HEALTH CARE segment provides health management programs and related
administrative services in the United States to John Deere and commercial
clients.
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John Deere's worldwide agricultural, construction and commercial and consumer
equipment operations and subsidiaries are sometimes referred to as the
"Equipment Operations." The 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 in its
industry. It also believes that John Deere is an important provider of most
of the types of construction equipment that it markets, and the leader in
some size ranges. The Company also believes that it is the world's largest
producer of premium turf care equipment and utility vehicles. 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
Grain and oilseed prices declined significantly during the fourth quarter on
prospects for record or near-record crop production and the effects of
weakening demand from Asia. Pork prices moved substantially lower as well. As
a result, United States farm income is expected to decline in 1999, despite a
recently enacted emergency government-aid package. At the same time, farm
income declines are expected in other parts of the world, and unsettled
financial conditions should continue to have an unfavorable impact on credit
availability in emerging markets. Accordingly, retail demand for agricultural
equipment in 1999 is now projected to decline by 20 percent in North America,
by 10 percent in Europe, and by 15 percent in Latin America and Australia.
The Company's first quarter financial results will be significantly affected
by the reduced production schedules for large tractors and combines
associated with this lower level of demand.
North American construction equipment industry sales and housing starts are
expected to decline slightly next year, but remain at favorable levels. In
addition, the Company is implementing an initiative aimed at better matching
production schedules to customer orders, leading to lower field inventories
and improved product availability. Initial stages of implementation will
result in lower shipments to dealers.
Sales of commercial and consumer equipment should continue to increase in
1999 following strong gains in 1998. New product introductions are expected
to expand the Company's position in the many growing markets served by this
division.
Credit operations are expected to improve in 1999 because of a larger
portfolio, primarily due to recent growth in leasing. Insurance and health
care operations also are well-positioned for improved results. At the same
time, the Company's Financial Services subsidiaries are expected to see
continued margin pressure, resulting from their highly competitive markets.
Based on these conditions, the Company's worldwide physical volume of sales
is currently projected to decline by approximately 13 to 15 percent in 1999,
compared with 1998. In this environment, the previously stated goal of
reporting flat earnings per share in 1999 is not achievable. First quarter
physical volume in 1999 is projected to be 23 to 25 percent below the
comparable level of the first quarter of 1998.
2
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The present economic situation is challenging the Company to balance its
response to current conditions with its ongoing need for investment in its
future. In this regard, the Company has reduced capital spending and is
aggressively managing costs and assets, while pursuing further efficiency
gains through various quality and supply management initiatives. At the same
time, the Company fully intends to maintain its commitment to the key
projects that underlie its plans for global growth and long-term market-share
improvement.
1998 CONSOLIDATED RESULTS COMPARED WITH 1997
Deere & Company achieved record worldwide net income in 1998, totaling $1,021
million, or $4.20 per share ($4.16 diluted), compared with last year's net
income of $960 million, or $3.78 per share ($3.74 diluted). The Equipment
Operations and the Financial Services operations both contributed to the
higher level of earnings.
Worldwide net sales and revenues increased 8 percent to a record $13,822
million in 1998 compared with $12,791 million in 1997. Net sales of the
Equipment Operations increased 8 percent in 1998 to $11,926 million from
$11,082 million last year. Export sales from the United States totaled $1,970
million for 1998 compared with $2,013 million last year. Overseas sales,
which were affected by weaker economic conditions and adverse currency
fluctuations, were slightly lower in 1998. Overall, the Company's worldwide
physical volume of sales increased 8 percent for the year.
Finance and interest income increased 16 percent to $1,007 million in 1998
compared with $867 million last year, while insurance and health care
premiums increased 4 percent to $693 million in the current year compared
with $668 million in 1997.
The Company's worldwide Equipment Operations, which exclude income from the
credit, insurance and health care operations and unconsolidated affiliates,
had record income of $831 million in 1998 compared with $817 million in 1997.
Net income of the Company's Financial Services operations in 1998 was $175
million compared with $138 million in 1997. 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, farm land prices,
farmers' debt levels, interest rates, agricultural trends and the levels of
costs associated with farming. Weather and climatic conditions can also
affect buying decisions of equipment purchasers.
Innovations to machinery and technology also influence buying. 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.
3
<PAGE>
Additionally, the Company has developed a precision farming approach using
advanced technology and satellite positioning that should enable farmers to
better control input costs and yields and to improve environmental management.
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 acquisitions of
short-line and specialty manufacturers by large integrated competitors, the
competitive environment is undergoing significant change.
In addition to the agricultural equipment manufactured by the Equipment
Operations, a number of agricultural products are purchased from other
manufacturers for resale by John Deere outside the United States and Canada.
CONSTRUCTION EQUIPMENT
The construction 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 construction
applications, including uses in the mining industry. The Equipment Operations
provide types and sizes of equipment that compete for approximately
two-thirds of the estimated total United States market for all types and
sizes of construction equipment (other than the market for cranes and
specialized mining equipment). Retail sales of John Deere construction
equipment are influenced by prevailing levels of residential, industrial and
public construction and the condition of the forest products industry. Sales
are also influenced by general economic conditions and the level of interest
rates.
John Deere construction equipment falls into three broad categories: utility
tractors and smaller earthmoving equipment; medium capacity construction and
earthmoving equipment; and forestry
4
<PAGE>
machines. The Equipment Operations' construction equipment business began in
the late 1940s with wheel and crawler tractors of a size and horsepower range
similar to agricultural tractors, utilizing common components. Through the
years, the Equipment Operations substantially increased production capacity
for construction equipment, adding to the line larger machines such as
crawler loaders and dozers, log skidders, motor graders, hydraulic excavators
and four-wheel-drive loaders. 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 construction 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 Mexico and for the distribution of excavators in North,
Central and South America. The Company also has supply agreements with
Hitachi under which a broad range of construction products manufactured by
John Deere in the United States, including four-wheel-drive loaders and small
crawler dozers, are distributed by Hitachi in Japan and other Far East
markets.
The division has also taken a number of initiatives in the rental equipment
market for construction machinery including specially designed rental
programs for Deere dealers, expanded cooperation with major national
equipment rental companies, and direct participation in the rental market,
through the Company's minority ownership in Sunstate Equipment Co., LLC.
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
John Deere commercial and consumer equipment includes rear-engine riding
mowers, front-engine lawn tractors, lawn and garden tractors, compact utility
tractors, utility tractors, skid steer loaders, front mowers, small utility
vehicles, handheld products such as chain saws, string trimmers and leaf
blowers, and a broad line of associated implements for mowing, tilling, snow
and debris handling, aerating, and many other residential, commercial, golf
and sports turf care applications. The product line also includes walk-behind
mowers, snow throwers and other outdoor power products. Retail sales of
commercial and consumer equipment products are influenced by weather
conditions, consumer spending patterns and general economic conditions.
The division sells entry-level lawn, yard and garden tractors and walk-behind
mowers under the name "Sabre by John Deere" in North America. The division
also sells consumer products under the Homelite and Green Machine brand names
and sells walk-behind mowers in Europe under the SABO brand name and
commercial mowing equipment under the Roberine brand name. The division also
builds products for sale by others. Beginning in 1999, the Company will build
products under the Scott's-TM- brand for sale through Home Depot stores.
5
<PAGE>
In addition to the equipment manufactured by the commercial and consumer
division, certain products are purchased from other manufacturers for resale
by John Deere.
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 $444 million, or 3.7 percent of net sales of equipment
in 1998, and $412 million, or 3.7 percent in 1997.
MANUFACTURING
MANUFACTURING PLANTS. In the United States and Canada, the Equipment
Operations own and operate 19 factory locations, which contain approximately
30.0 million square feet of floor space. Six of the factories are devoted
primarily to the manufacture of agricultural equipment, eight to commercial
and consumer equipment, two to construction equipment, one to engines, one to
hydraulics and power train components, 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, the Netherlands and South Africa; engine factories
in France, Mexico and Argentina; a component factory in Spain; an axle
facility in Mexico; and commercial and consumer facilities in Germany, Mexico
and the Netherlands. These overseas facilities contain approximately 7.9
million square feet of floor space. The Equipment Operations also have
financial interests in other manufacturing organizations, which include
agricultural equipment manufacturers in Brazil, China and the United States
and a joint venture that builds construction excavators in the United States.
John Deere's facilities are well maintained, in good operating condition and
are suitable for their present purposes. These facilities, together with
planned capital expenditures, are expected to meet John Deere's manufacturing
needs in the foreseeable future.
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 agricultural, construction and commercial and consumer
equipment.
The physical volume of sales in 1998 was 8 percent higher than in 1997.
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 pursue continuous improvements in manufacturing
processes. These include steps to streamline manufacturing processes and
enhance customer responsiveness. The Company has implemented flexible
assembly lines that can handle a wider product mix and deliver products at
6
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the times when dealers and customers require them. Additionally, considerable
effort is being directed to manufacturing cost reduction through process
improvement, product design, advanced manufacturing technology, enhanced
environmental management systems, and compensation incentives related to
productivity and organizational structure. The Equipment Operations also
pursue the sale to other companies of selected parts and components that can
be manufactured and supplied to third parties on a competitive basis.
CAPITAL EXPENDITURES. The Equipment Operations' capital expenditures were
$425 million in 1998 compared with $479 million in 1997 and $258 million in
1996. Provisions for depreciation applicable to the Equipment Operations'
property, plant and equipment during these years were $267 million, $253
million and $253 million, respectively. The Equipment Operations' capital
expenditures for 1999 are currently estimated to approximate $335 million.
The 1999 expenditures will be associated with new products, operations
improvement programs and the manufacture and marketing of products in new
markets such as Mexico, India, China, Brazil and the former Soviet Union.
Future levels of capital expenditures will depend on business conditions.
PATENTS AND TRADEMARKS
John Deere owns a significant number of patents, licenses and trademarks
which have been obtained over a period of years. The Company believes that,
in the aggregate, the rights under these patents, licenses and trademarks are
generally important to its operations, but does not consider that any patent,
license, trademark or group of them (other than its house trademarks) is of
material importance in relation to John Deere's business.
MARKETING
In the United States and Canada, the Equipment Operations, excluding certain
consumer product lines, distribute equipment and service parts through one
agricultural equipment sales and administration office supported by seven
agricultural equipment sales branches, one construction equipment sales and
administration office and one commercial and consumer equipment sales and
administration office (collectively called sales branches). In addition, the
Equipment Operations operate a centralized parts distribution warehouse in
coordination with several regional parts depots in the United States and
Canada and have an agreement with a third party to operate a high-volume
parts warehouse in Indiana.
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. 1,685 sell agricultural equipment, while 420 sell construction
equipment. Smaller construction equipment is sold by nearly all of the
construction equipment dealers and larger construction equipment, forestry
equipment and a line of light construction equipment are sold by most of
these dealers. Commercial and consumer equipment is sold by most John Deere
agricultural equipment dealers, a few construction equipment dealers, and
about 1,300 commercial and consumer equipment dealers, many of whom also
handle competitive brands and dissimilar lines of products. In addition, the
Sabre, Homelite, Green Machine and Scott's-TM- product lines are sold through
independent dealers and various general and mass merchandisers.
7
<PAGE>
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, Uruguay
and Australia, by export sales branches in Europe and the United States, and
by associated companies in Brazil and China. Commercial and consumer
equipment sales overseas occur primarily in Europe and Australia. Outside
North America, construction equipment is sold primarily by an export sales
branch located in the United States.
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 one to twelve months for agricultural tractors,
one to five months for construction equipment, and two to 24 months for most
other equipment. Financing is also provided to dealers on used equipment
accepted in trade, on repossessed equipment, and on approved equipment from
other manufacturers. A security interest is obtained in such equipment.
Dealer defaults in recent years have not been significant.
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 overseas and a security
interest is not always retained in the equipment sold.
Receivables from dealers, which largely represent dealer inventories, were
$4.1 billion at October 31, 1998 compared with $3.3 billion at October 31,
1997 and $3.2 billion at October 31, 1996. At those dates, the ratios of
worldwide net dealer receivables to fiscal year net sales, were 34 percent,
30 percent and 33 percent, respectively. The highest month-end balance of
such receivables during each of the past two fiscal years was $4.4 billion at
April 30, 1998 and $3.6 billion at April 30, 1997. Wholesale financing is
also provided by the Company's credit segment. See "Financial
Services--Credit Operations" below.
8
<PAGE>
FINANCIAL SERVICES
CREDIT OPERATIONS
UNITED STATES, CANADA, MEXICO, AUSTRALIA, GERMANY 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, construction and commercial and consumer equipment. The
Company's credit subsidiaries include John Deere Capital Corporation (Capital
Corporation) and its subsidiaries (Deere Credit, Inc., Farm Plan Corporation,
Deere Credit Services, Inc., John Deere Receivables, Inc., John Deere Funding
Corporation, Arrendadora John Deere, S.A. de C.V., and John Deere Credit
Limited-Australia, among others), and John Deere Credit Inc. (Canada)
(collectively referred to as the Credit Companies). Deere & Company and John
Deere Construction Equipment Company are referred to as the "sales
companies." The Capital Corporation purchases retail installment sales and
loan contracts (retail notes) from the sales companies. These retail notes
are acquired by the sales companies through John Deere retail dealers in the
United States and Mexico. John Deere Credit Inc. purchases and finances
retail notes acquired by John Deere's equipment sales branches in Canada. The
terms of retail notes and the basis on which the Credit Companies acquire
retail notes from the sales companies are governed by agreements with the
sales companies. Certain subsidiaries of the Capital Corporation lease John
Deere agricultural, construction and commercial and consumer equipment to
retail customers in the United States, Mexico and Australia.
The Credit Companies also purchase and finance retail notes unrelated to John
Deere, representing primarily recreational product notes acquired from
independent dealers of recreational vehicles and from marine product mortgage
service companies. The Credit Companies also finance and service revolving
charge accounts through merchants or leading farm input providers in the
agricultural, construction, lawn and grounds care and yacht retail markets
and, additionally, provide wholesale financing for wholesale inventories of
recreational vehicles, manufactured housing units, yachts, John Deere engine
inventories and John Deere agricultural and John Deere construction equipment
owned by dealers of those products.
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 construction equipment, 10 percent on lawn and grounds care
equipment used for personal use, 10 percent for recreational vehicles and 20
percent for yachts. Finance charges are sometimes waived for specified
periods or reduced on certain John Deere products sold or leased in advance
of the season of use or in other sales promotions. The Credit Companies
generally receive compensation from the Equipment Operations equal to a
competitive interest rate for periods during
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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, Mexico,
the United Kingdom and Australia. A small number of leases are executed with
units of local government. Leases are usually written for periods of one to
six years, and frequently contain an option permitting the customer to
purchase the equipment at the end of the lease term. Retail leases are also
offered in a generally similar manner to customers in Canada through John
Deere Credit Inc. and the Company's Canadian subsidiary, John Deere Limited.
The Company has an agreement with the Capital Corporation to make income
maintenance payments to the Capital Corporation such that its ratio of
earnings before fixed charges to fixed charges is not less than 1.05 to 1 for
each fiscal quarter. For 1998 and 1997, the Capital Corporation's ratios were
1.63 to 1 and 1.64 to 1, respectively. The Company has also committed to own
at least 51 percent of the voting shares of capital stock of the Capital
Corporation and to maintain the Capital Corporation's consolidated tangible
net worth at not less than $50 million. These arrangements are not intended
to make the Company responsible for the payment of any indebtedness,
obligation or liability of the Capital Corporation or any of its direct or
indirect subsidiaries. No payments were necessary under this agreement in
1997 or 1998. Additional information on the Credit Companies appears under
the caption "Credit Operations" on pages 27 and 28.
OVERSEAS. John Deere Credit Limited (United Kingdom) offers equipment
financing products within the United Kingdom. John Deere Credit-Germany, a
partnership, offers equipment financing within Germany. John Deere Credit
Limited (Australia) offers equipment financing products within Australia.
Retail sales financing outside of the United States and Canada is affected by
a diversity of customs and regulations.
INSURANCE
The Company's insurance subsidiaries consist of John Deere Insurance Group,
Inc. and its subsidiaries. The insurance group's 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 particular market segments. The Dealer
Operations business unit insures dealership organizations in the United
States, with primary focus on agricultural equipment, construction 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 that provide physical
damage insurance on equipment utilized in forestry, construction and
agricultural operations, extended warranty protection on Deere equipment,
group accident and health insurance for employees of participating John Deere
dealers and a small amount of long-term disability insurance for John Deere
employees.
For additional financial information on insurance operations, see the
material under the caption "Insurance Operations" on pages 28 and 29.
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<PAGE>
HEALTH CARE
In 1985, the Company formed John Deere Health Care, Inc. to commercialize the
Company's expertise in the field of health care, which had been developed
from efforts to control its own health care costs. John Deere Health Care
currently provides health management programs and related administrative
services, through its health maintenance organization 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, 1998,
approximately 428,000 individuals were enrolled in these programs, of which
approximately 69,800 were John Deere employees, retirees and their
dependents. The Company has announced its intention to discontinue its health
care operations in Georgia during 1999.
For additional financial information on health care operations, see the
material under the caption "Health Care Operations" on page 29.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of state, federal and international
environmental laws, rules and regulations. These laws, rules and regulations
may affect the way the Company conducts its operations and failure to comply
with these regulations could lead to fines and other penalties. The Company
is also involved in the evaluation and clean-up of a limited number of sites.
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, 1998, John Deere had approximately 37,000 full-time employees,
including approximately 26,700 employees in the United States and Canada.
From time to time, John Deere also retains consultants, independent
contractors, and temporary and part-time workers. Unions are certified as
bargaining agents for approximately 49 percent of John Deere's United States
employees. Most of the Company's United States production and maintenance
workers are covered by a collective bargaining agreement with the United Auto
Workers (UAW), with an expiration date of September 30, 2003.
The majority of employees at John Deere facilities overseas are also
represented by unions.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Following are the names and ages of the executive officers of the Company,
their positions with the Company and summaries of their backgrounds and
business experience. All executive officers are elected or appointed by the
Board of Directors and hold office until the annual meeting of the Board of
Directors following the annual meeting of stockholders in each year.
<TABLE>
<CAPTION>
NAME, AGE AND OFFICE (AT DECEMBER 31, 1998), AND YEAR PRINCIPAL OCCUPATION DURING LAST FIVE YEARS OTHER
ELECTED TO OFFICE THAN OFFICE OF THE COMPANY CURRENTLY HELD
<S> <C> <C> <C>
Hans W. Becherer 63 Chairman 1990 1990 and prior, President
Bernard L. Hardiek 58 Division President 1995 1994-95 Executive Vice President;
1994 and prior, Senior Vice President
Ferdinand F. Korndorf 49 Division President 1995 1994-95 Senior Vice President; 1991-94 Vice President
Pierre E. Leroy 50 Division President 1996 1994-96 Senior Vice President and Chief Financial
Officer; 1994 and prior, Vice President and Treasurer
Michael P. Orr 51 Division President 1997 1997 and prior, President, John Deere Credit
Joseph W. England 58 Senior Vice President 1981
Nathan J. Jones 42 Senior Vice President and 1998 1995-98 Vice President and Treasurer;
Chief Financial Officer 1994 and prior, Assistant Treasurer
Robert W. Lane 49 Senior Vice President, Ag 1998 1996-98 Senior Vice President and Chief Financial Officer;
Division, and Managing 1995-96 Senior Vice President, Ag Division;
Director, Region II 1992-95 Director Latin America, the Far East,
Australia and South Africa
John K. Lawson 58 Senior Vice President 1996 1995-96 Division President; 1992-95 Senior Vice President;
Frank S. Cottrell 56 Senior Vice President, 1998 1993-98, Vice President, Secretary and General Counsel
Secretary and General
Counsel
</TABLE>
ITEM 2. PROPERTIES.
See "Manufacturing" in Item 1.
The Equipment Operations also own and operate buildings housing seven sales
branches, one centralized parts depot, five regional parts depots and several
transfer houses and warehouses throughout the United States and Canada. These
facilities contain approximately 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 920,000 square feet of floor
space.
Deere & Company administrative offices, offices for insurance, 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 0.5 million square feet.
John Deere also leases space in various locations totaling about 2.3 million
square feet.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to various unresolved legal actions which arise in the
normal course of its business, the most prevalent of which relate to product
liability, retail credit, software licensing, patent and trademark matters.
Although it is not possible to predict with certainty the outcome of these
unresolved legal actions or the range of possible loss, the Company believes
these unresolved legal actions will not have a material effect on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
- - -------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the New York Stock Exchange, the
Chicago Stock Exchange and the Frankfurt (Germany) Stock Exchange. See the
information concerning quoted prices of the Company's common stock and the
number of stockholders in the second table and the third paragraph, and the
data on dividends declared and paid per share in the first table, under the
caption "Supplemental Information (Unaudited)" on page 43.
ITEM 6. SELECTED FINANCIAL DATA.
Financial Summary
<TABLE>
<CAPTION>
(Millions of dollars except per share amounts) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
For the Year Ended October 31:
Total net sales and revenues $ 13,822 $ 12,791 $ 11,229 $ 10,291 $ 8,977
Net income $ 1,021 $ 960 $ 817 $ 706 $ 604
Net income per share $ 4.20 $ 3.78 $ 3.14 $ 2.71 $ 2.34
Net income per share - diluted(1) $ 4.16 $ 3.74 $ 3.11 $ 2.69 $ 2.32
Dividends declared per share $ .88 $ .80 $ .80 $ .75 $ .68-1/3
At October 31:
Total assets $ 18,002 $ 16,320 $ 14,653 $ 13,847 $ 12,781
Long-term borrowings $ 2,792 $ 2,623 $ 2,425 $ 2,176 $ 2,054
</TABLE>
(1) Restated for adoption of FASB Statement No. 128 in 1998.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See the information under the caption "Management's Discussion and Analysis" on
pages 24 through 30.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to a variety of market risks, including interest rates
and currency exchange rates. The Company attempts to actively manage these
risks. See the information under "Management's Discussion and Analysis" on page
30, the "Financial Instruments" note on page 42 and the supplementary data under
"Financial Instrument Risk Information" on page 43.
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 16,
1998 (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". Information required
under Item 405 of Regulation S-K is incorporated herein by reference from the
proxy statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION.
The information in the proxy statement under the captions "Compensation of
Executive Officers" and "Compensation of Directors" is incorporated herein by
reference.
14
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The information on the security ownership of a certain beneficial owner in
the proxy statement under the caption "Principal Holders of Voting
Securities" is incorporated herein by reference.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
The information on shares of common stock of the Company beneficially owned
by, and under option to (i) each director 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
<PAGE>
PART IV
- - -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
<S> <C>
(a)(1) FINANCIAL STATEMENTS
Statement of Consolidated Income for the years ended
October 31, 1998, 1997 and 1996 18
Consolidated Balance Sheet, October 31, 1998 and 1997
20
Statement of Consolidated Cash Flows for the years ended
October 31, 1998, 1997 and 1996 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, 1998, 1997 and 1996 48
</TABLE>
(a)(3) EXHIBITS
SEE THE "INDEX TO EXHIBITS" ON PAGES 49 AND 50 OF THIS REPORT.
Certain instruments relating to long-term borrowings, constituting less
than 10 percent of registrant's total assets, are not filed as exhibits
herewith pursuant to Item 601(b)4(iii)(A) of Regulation S-K. Registrant
agrees to file copies of such instruments upon request of the Commission.
(b) REPORTS ON FORM 8-K.
Current reports on Form 8-K dated September 14, 1998 (Item 7) and
August 18, 1998 (Item 7).
FINANCIAL STATEMENT SCHEDULES OMITTED
The following schedules for the Company and consolidated subsidiaries are
omitted because of the absence of the conditions under which they are
required: I, III, IV and V.
16
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
17
<PAGE>
DEERE & COMPANY
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
(DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES)
- - -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Net sales of equipment...................................... $11,925.8 $11,081.7 $ 9,640.0
Finance and interest income................................. 1,007.1 867.4 763.4
Insurance and health care premiums.......................... 692.9 668.1 658.1
Investment income........................................... 73.1 67.2 66.2
Other income................................................ 122.6 107.0 101.7
--------- --------- ---------
Total................................................... 13,821.5 12,791.4 11,229.4
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold.......................................... 9,233.7 8,481.1 7,460.2
Research and development expenses........................... 444.4 412.3 370.3
Selling, administrative and general expenses................ 1,309.4 1,320.7 1,146.6
Interest expense............................................ 519.4 422.2 402.2
Insurance and health care claims and benefits............... 579.0 554.0 502.1
Other operating expenses.................................... 175.6 94.0 61.4
--------- --------- ---------
Total................................................... 12,261.5 11,284.3 9,942.8
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES............ 1,560.0 1,507.1 1,286.6
Provision for income taxes.................................. 553.9 550.9 479.8
--------- --------- ---------
INCOME OF CONSOLIDATED GROUP................................ 1,006.1 956.2 806.8
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED SUBSIDIARIES
AND AFFILIATES
Credit.................................................. .1 (1.4)
Insurance...............................................
Health care............................................. .2
Other................................................... 15.0 5.3 10.5
--------- --------- ---------
Total.............................................. 15.3 3.9 10.5
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 1,021.4 $ 960.1 $ 817.3
--------- --------- ---------
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income.................................................. $ 4.20 $ 3.78 $ 3.14
Net income - diluted........................................ $ 4.16 $ 3.74 $ 3.11
Dividends declared.......................................... $ .88 $ .80 $ .80
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in
this statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations"
(Deere & Company with Financial Services on the Equity Basis) reflect the
basis of consolidation described on page 31 of the notes to the consolidated
financial statements. The consolidated group data in the "Equipment
Operations" income statement reflect the results of the agricultural
equipment, construction 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.
18
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(DEERE & COMPANY WITH FINANCIAL
SERVICES ON THE EQUITY BASIS)
- - -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31 YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES AND REVENUES
Net sales of equipment...................................... $11,925.8 $11,081.7 $9,640.0
Finance and interest income................................. 131.1 114.8 120.5 $ 887.0 $ 757.6 $ 648.5
Insurance and health care premiums.......................... 720.8 697.2 690.6
Investment income........................................... 73.1 67.2 66.2
Other income................................................ 40.4 47.6 28.8 85.9 63.1 76.2
--------- --------- -------- -------- -------- --------
Total................................................... 12,097.3 11,244.1 9,789.3 1,766.8 1,585.1 1,481.5
--------- --------- -------- -------- -------- --------
- - -----------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold.......................................... 9,252.7 8,499.3 7,486.1
Research and development expenses........................... 444.4 412.3 370.3
Selling, administrative and general expenses................ 932.5 940.3 817.7 382.8 388.9 337.1
Interest expense............................................ 128.0 80.8 107.4 402.3 346.4 300.3
Insurance and health care claims and benefits............... 585.8 560.2 503.8
Other operating expenses.................................... 50.4 19.5 24.3 125.2 74.4 37.1
--------- --------- -------- -------- -------- --------
Total................................................... 10,808.0 9,952.2 8,805.8 1,496.1 1,369.9 1,178.3
--------- --------- -------- -------- -------- --------
- - -----------------------------------------------------------------------------------------------------------------------------------
INCOME OF CONSOLIDATED GROUP BEFORE INCOME TAXES............ 1,289.3 1,291.9 983.5 270.7 215.2 303.2
Provision for income taxes.................................. 458.1 475.2 373.5 95.8 75.7 106.4
--------- --------- -------- -------- -------- --------
INCOME OF CONSOLIDATED GROUP................................ 831.2 816.7 610.0 174.9 139.5 196.8
--------- --------- -------- -------- -------- --------
- - -----------------------------------------------------------------------------------------------------------------------------------
EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED SUBSIDIARIES
AND AFFILIATES
Credit.................................................. 162.8 147.2 146.6 .1 (1.4)
Insurance............................................... 8.9 29.6 32.7
Health care............................................. 3.5 (38.7) 17.5 .2
Other................................................... 15.0 5.3 10.5
--------- --------- -------- -------- -------- --------
Total.............................................. 190.2 143.4 207.3 .3 (1.4)
--------- --------- -------- -------- -------- --------
- - -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 1,021.4 $ 960.1 $ 817.3 $ 175.2 $ 138.1 $ 196.8
--------- --------- -------- -------- -------- --------
--------- --------- -------- -------- -------- --------
- - -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income..................................................
Net income - diluted........................................
Dividends declared..........................................
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
DEERE & COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------
CONSOLIDATED
(DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES)
- - --------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) OCTOBER 31
ASSETS 1998 1997
- - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and short-term investments............................. $ 309.7 $ 330.0
Cash deposited with unconsolidated subsidiaries.............
--------- ---------
Cash and cash equivalents............................... 309.7 330.0
Marketable securities....................................... 867.3 819.6
Receivables from unconsolidated subsidiaries and
affiliates................................................ 36.2 14.6
Trade accounts and notes receivable - net................... 4,059.2 3,333.8
Financing receivables - net................................. 6,332.7 6,404.7
Other receivables........................................... 536.8 412.7
Equipment on operating leases - net......................... 1,209.2 774.6
Inventories................................................. 1,286.7 1,072.7
Property and equipment - net................................ 1,700.3 1,524.1
Investments in unconsolidated subsidiaries and affiliates... 172.0 149.9
Intangible assets - net..................................... 217.6 157.8
Prepaid pension costs....................................... 674.3 592.9
Other assets................................................ 109.7 107.2
Deferred income taxes....................................... 396.3 543.6
Deferred charges............................................ 93.5 81.6
--------- ---------
- - --------------------------------------------------------------------------------------------------
Total....................................................... $18,001.5 $16,319.8
--------- ---------
--------- ---------
- - --------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings....................................... $ 5,322.1 $ 3,774.6
Payables to unconsolidated subsidiaries and affiliates...... 31.1 48.7
Accounts payable and accrued expenses....................... 2,853.2 2,839.7
Insurance and health care claims and reserves............... 411.3 414.7
Accrued taxes............................................... 144.9 117.5
Deferred income taxes....................................... 19.7 21.4
Long-term borrowings........................................ 2,791.7 2,622.8
Retirement benefit accruals and other liabilities........... 2,347.7 2,333.2
--------- ---------
Total liabilities....................................... 13,921.7 12,172.6
--------- ---------
- - --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value (authorized - 600,000,000 shares;
issued - 263,852,871 shares in 1998 and 263,849,303
shares in 1997), at stated value.......................... 1,789.8 1,778.5
Retained earnings........................................... 3,839.5 3,048.4
Minimum pension liability adjustment........................ (18.7) (14.0)
Cumulative translation adjustment........................... (80.5) (57.4)
Unrealized gain on marketable securities.................... 24.5 22.2
Unamortized restricted stock compensation................... (7.2) (17.4)
Common stock in treasury, 31,542,845 shares in 1998 and
13,556,164 shares in 1997, at cost........................ (1,467.6) (613.1)
--------- ---------
Total stockholders' equity.............................. 4,079.8 4,147.2
--------- ---------
- - --------------------------------------------------------------------------------------------------
Total....................................................... $18,001.5 $16,319.8
--------- ---------
--------- ---------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated" data.
The information on pages 24 through 43 is an integral part of this statement.
20
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(DEERE & COMPANY WITH FINANCIAL SERVICES ON THE EQUITY BASIS)
- - ------------------------------------------------------------------------------------------------------------------------
OCTOBER 31 OCTOBER 31
1998 1997 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and short-term investments............................. $ 68.3 $ 61.2 $ 241.5 $ 268.8
Cash deposited with unconsolidated subsidiaries............. 139.6 350.0
--------- -------- -------- --------
Cash and cash equivalents............................... 207.9 411.2 241.5 268.8
Marketable securities....................................... 867.3 819.6
Receivables from unconsolidated subsidiaries and
affiliates................................................ 95.5 57.3 6.1
Trade accounts and notes receivable - net................... 4,059.2 3,333.8
Financing receivables - net................................. 85.8 83.5 6,246.9 6,321.2
Other receivables........................................... 139.4 2.1 397.3 410.6
Equipment on operating leases - net......................... 218.6 193.9 990.6 580.7
Inventories................................................. 1,286.7 1,072.7
Property and equipment - net................................ 1,653.9 1,479.1 46.4 45.0
Investments in unconsolidated subsidiaries and affiliates... 1,620.4 1,494.7 20.3 13.0
Intangible assets - net..................................... 210.1 148.4 7.6 9.4
Prepaid pension costs....................................... 674.3 592.9
Other assets................................................ 78.3 66.6 31.4 40.6
Deferred income taxes....................................... 372.6 490.8 23.7 52.8
Deferred charges............................................ 63.3 57.2 30.1 24.4
--------- -------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------
Total....................................................... $10,766.0 $9,484.2 $8,903.1 $8,592.2
--------- -------- -------- --------
--------- -------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Short-term borrowings....................................... $ 1,512.4 $ 171.1 $3,809.7 $3,603.5
Payables to unconsolidated subsidiaries and affiliates...... 43.0 54.8 187.0 392.7
Accounts payable and accrued expenses....................... 2,098.1 2,134.1 755.1 705.6
Insurance and health care claims and reserves............... 411.3 414.7
Accrued taxes............................................... 142.1 114.2 2.8 3.2
Deferred income taxes....................................... 19.7 21.4
Long-term borrowings........................................ 552.9 539.9 2,238.8 2,082.9
Retirement benefit accruals and other liabilities........... 2,318.0 2,301.5 29.7 31.8
--------- -------- -------- --------
Total liabilities....................................... 6,686.2 5,337.0 7,434.4 7,234.4
--------- -------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1 par value (authorized - 600,000,000 shares;
issued - 263,852,871 shares in 1998 and 263,849,303
shares in 1997), at stated value.......................... 1,789.8 1,778.5 237.1 238.4
Retained earnings........................................... 3,839.5 3,048.4 1,223.2 1,104.5
Minimum pension liability adjustment........................ (18.7) (14.0)
Cumulative translation adjustment........................... (80.5) (57.4) (16.1) (7.3)
Unrealized gain on marketable securities.................... 24.5 22.2 24.5 22.2
Unamortized restricted stock compensation................... (7.2) (17.4)
Common stock in treasury, 31,542,845 shares in 1998 and
13,556,164 shares in 1997, at cost........................ (1,467.6) (613.1)
--------- -------- -------- --------
Total stockholders' equity.............................. 4,079.8 4,147.2 1,468.7 1,357.8
--------- -------- -------- --------
- - --------------------------------------------------------------------------------------------------------------------
Total....................................................... $10,766.0 $9,484.2 $8,903.1 $8,592.2
--------- -------- -------- --------
--------- -------- -------- --------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
DEERE & COMPANY
STATEMENT OF CONSOLIDATED CASH FLOW
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED
(DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES)
- - -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 1,021.4 $ 960.1 $ 817.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful receivables...................... 57.0 51.0 59.9
Provision for depreciation.............................. 418.0 365.6 311.4
Undistributed earnings of unconsolidated subsidiaries
and affiliates........................................ (9.7) (.3) (2.6)
Provision (credit) for deferred income taxes............ 141.9 (6.9) (65.0)
Changes in assets and liabilities:
Receivables........................................... (724.6) (175.2) 89.9
Inventories........................................... (192.6) (255.2) (75.1)
Accounts payable and accrued expenses................. (40.7) 186.3 162.1
Insurance and health care claims and reserves......... (3.5) (22.9) (39.7)
Retirement benefit accruals........................... (84.9) 41.0 72.0
Other................................................. (165.4) 13.2 14.2
--------- --------- ---------
Net cash provided by operating activities........... 416.9 1,156.7 1,344.4
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of financing receivables......................... 5,685.3 5,324.1 4,353.4
Proceeds from sales of financing receivables................ 1,859.9 968.0 960.3
Proceeds from maturities and sales of marketable
securities................................................ 187.3 226.0 104.4
Proceeds from sales of equipment on operating leases........ 154.5 101.9 86.0
Cost of financing receivables acquires...................... (7,521.5) (6,805.0) (5,902.6)
Purchases of marketable securities.......................... (224.9) (166.7) (127.3)
Purchases of property and equipment......................... (434.8) (484.9) (275.9)
Cost of operating leases acquired........................... (752.3) (540.8) (299.4)
Acquisitions of businesses.................................. (103.0) (45.7) (112.4)
Other....................................................... 27.6 39.0 (2.0)
--------- --------- ---------
Net cash used for investing activities.............. (1,121.9) (1,384.1) (1,215.5)
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings................ 802.3 524.5 (283.2)
Change in intercompany receivables/payables.................
Proceeds from long-term borrowings.......................... 2,067.6 1,150.0 1,190.0
Principal payments on long-term borrowings.................. (1,106.4) (816.8) (661.4)
Proceeds from issuance of common stock...................... 22.7 34.8 39.0
Repurchases of common stock................................. (885.9) (419.1) (274.7)
Dividends paid.............................................. (212.4) (204.3) (209.3)
Other....................................................... (1.2) (.2) (.4)
--------- --------- ---------
Net cash provided by (used for) financing
activities........................................ 686.7 268.9 (200.0)
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (2.0) (3.0) (1.1)
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT......... (20.3) 38.5 (72.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 330.0 291.5 363.7
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 309.7 $ 330.0 $ 291.5
--------- --------- ---------
--------- --------- ---------
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The "Consolidated" (Deere & Company and Consolidated Subsidiaries) data in this
statement conform with the requirements of FASB Statement No. 94. In the
supplemental consolidating data in this statement, "Equipment Operations" (Deere
& Company with Financial Services on the Equity Basis) reflect the basis of
consolidation described on page 31 of the notes to the consolidated financial
statements. The supplemental "Financial Services" consolidating data in this
statement include Deere & Company's credit, insurance and health care
subsidiaries. Transactions between the "Equipment Operations" and "Financial
Services" have been eliminated to arrive at the "Consolidated"data.
The information on pages 24 through 43 is an integral part of this statement.
22
<PAGE>
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT OPERATIONS FINANCIAL SERVICES
(DEERE & COMPANY WITH FINANCIAL SERVICES ON THE EQUITY BASIS)
- - -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31 YEAR ENDED OCTOBER 31
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $1,021.4 $ 960.1 $ 817.3 $ 175.2 $ 138.1 $ 196.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful receivables..................... 6.4 12.8 17.2 50.6 38.2 42.7
Provision for depreciation............................. 282.6 272.0 264.9 135.4 93.5 46.5
Undistributed earnings of unconsolidated subsidiaries (127.9) (3.0) (51.5) (.2) 1.5
and affiliates....................................... 115.3 (4.6) (70.7) 26.6 (2.4) 5.6
Provision (credit) for deferred income taxes...........
Changes in assets and liabilities:
Receivables.......................................... (739.1) (232.8) 82.7 14.4 57.7 8.1
Inventories.......................................... (192.6) (255.2) (75.1)
Accounts payable and accrued expenses................ (70.0) 198.2 130.1 29.3 (11.9) 31.0
Insurance and health care claims and reserves........ (3.5) (22.9) (39.7)
Retirement benefit accruals.......................... (82.9) 26.7 70.9 (2.1) 14.2 1.1
Other................................................ (101.3) 31.7 27.4 (63.9) (18.4) (13.0)
-------- -------- -------- --------- -------- ---------
Net cash provided by operating activities.......... 111.9 1,005.9 1,213.2 361.8 287.6 279.1
-------- -------- -------- --------- -------- ---------
- - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of financing receivables........................ 36.1 55.4 58.2 5,649.2 5,268.7 4,295.2
Proceeds from sales of financing receivables............... .1 .3 1,859.9 967.9 960.0
Proceeds from maturities and sales of marketable 187.3 226.0 104.4
securities............................................... 65.7 48.8 32.6 88.8 53.1 53.4
Proceeds from sales of equipment on operating leases....... (41.0) (36.4) (41.3) (7,480.5) (6,768.6) (5,861.3)
Cost of financing receivables acquires..................... (224.9) (166.7) (127.3)
Purchases of marketable securities......................... (421.6) (473.8) (256.8) (13.1) (11.2) (19.2)
Purchases of property and equipment........................ (123.5) (111.4) (76.6) (628.8) (429.4) (222.8)
Cost of operating leases acquired.......................... (95.9) (37.2) (106.2) (7.2) (8.5) (6.2)
Acquisitions of businesses................................. 13.3 2.0 6.2 15.6 8.0 (7.9)
Other...................................................... -------- -------- -------- --------- -------- ---------
(566.9) (552.5) (383.6) (553.7) (860.7) (831.7)
Net cash used for investing activities............. -------- -------- -------- --------- -------- ---------
- - -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings............... 1,184.8 (2.8) 67.2 (382.5) 527.3 (350.4)
Change in intercompany receivables/payables................
Proceeds from long-term borrowings......................... (15.0) 55.5 (39.0) (195.4) (250.4) 123.7
Principal payments on long-term borrowings................. 199.4 1,868.2 1,150.0 1,190.0
Proceeds from issuance of common stock..................... (38.9) (128.0) (317.5) (1,067.5) (688.8) (344.0)
Repurchases of common stock................................ 22.7 34.8 39.0 29.0
Dividends paid............................................. (885.9) (419.1) (274.7)
Other...................................................... (212.4) (204.3) (209.3) (56.8) (136.8) (147.8)
(1.1) (.2) (.4) (1.3)
Net cash provided by (used for) financing -------- -------- -------- --------- -------- ---------
activities....................................... 253.6 (664.1) (734.7) 164.7 630.3 471.5
-------- -------- -------- --------- -------- ---------
- - -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (1.9) (2.9) (1.2) (.1)
-------- -------- -------- --------- -------- ---------
- - -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENT........ (203.3) (213.6) 93.7 (27.3) 57.2 (81.1)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 411.2 624.8 531.1 268.8 211.6 292.7
-------- -------- -------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 207.9 $ 411.2 $ 624.8 $ 241.5 $ 268.8 $ 211.6
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE YEARS ENDED
OCTOBER 31, 1998, 1997 AND 1996 (UNAUDITED)
Deere & Company and its subsidiaries manufacture, distribute and finance a
full line of agricultural equipment; a broad range of 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.
1998 COMPARED WITH 1997 (UNAUDITED)
CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income in 1998, totaling $1,021
million, or $4.20 per share ($4.16 diluted), compared with last year's income
of $960 million, or $3.78 per share ($3.74 diluted). The Equipment Operations
and the Financial Services operations both contributed to the higher level of
earnings.
Worldwide net sales and revenues increased 8 percent to a record $13,822
million in 1998, compared with $12,791 million in 1997. Net sales of the
Equipment Operations increased 8 percent in 1998 to $11,926 million from
$11,082 million last year. Export sales from the United States totaled $1,970
million for 1998, compared with $2,013 million last year. Overseas sales,
which were affected by weaker economic conditions and adverse currency
fluctuations, were slightly lower in 1998. Overall, the company's worldwide
physical volume of sales increased 8 percent for the year.
Finance and interest income increased 16 percent to $1,007 million in
1998, compared with $867 million last year, while insurance and health care
premiums increased 4 percent to $693 million in the current year, compared
with $668 million in 1997.
The company's worldwide Equipment Operations, which exclude income from
the credit, insurance and health care operations and unconsolidated
affiliates, had income of $831 million in 1998, compared with $817 million in
1997. The strong performances of the commercial and consumer equipment and
construction equipment operations led to the record results. Overall, the
improvement was due to higher sales and production volumes, partially offset
by higher sales incentive costs, growth expenditures, interest expense and
unfavorable currency fluctuations. Operating profit, as defined below,
represented 12.4 percent of net sales in 1998, compared to 12.6 percent in
1997.
Net income of the company's Financial Services operations improved in
1998 totaling $175 million, compared with $138 million in 1997. 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 income before interest expense, foreign exchange gains and losses, income
taxes and certain corporate expenses. However, operating profit of the credit
segment includes the effect of interest expense.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1998 NET SALES AND REVENUES
BY BUSINESS SEGMENT
- - --------------------------------------------------------------------------------
<S> <C>
Agricultural Equipment 53%
Construction Equipment 19%
Commercial and Consumer Equipment 15%
Health Care 3%
Insurance 3%
Credit 7%
- - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE AGRICULTURAL EQUIPMENT
- - -----------------------------------------------------------------------------------------
NET SALES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$6.1 $7.0 $7.2 $821 $1,072 $962
- - -----------------------------------------------------------------------------------------
</TABLE>
Operating profit of the worldwide agricultural equipment segment
decreased to $962 million in 1998, compared with $1,072 million in 1997, as a
result of higher sales incentive costs, an unfavorable sales mix and
inefficiencies associated with production cuts, partially offset by an
increase in sales. Agricultural equipment sales increased 2 percent in 1998,
compared with 1997. However, during the fourth quarter of 1998, sales of
agricultural equipment decreased 18 percent compared with the fourth quarter
of 1997, as lower farm commodity prices and weaker farm economic conditions
adversely affected retail demand. As a result, the company reduced production
of large tractors and combines in order to keep inventories in balance. These
conditions are expected to continue to affect the agricultural equipment
operations in 1999, as explained further in the "Market Conditions and
Outlook" section on pages 25 and 26.
<TABLE>
<CAPTION>
WORLDWIDE CONSTRUCTION EQUIPMENT
- - --------------------------------------------------------------------------------------------
NET SALES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.9 $2.3 $2.6 $186 $216 $300
- - --------------------------------------------------------------------------------------------
</TABLE>
The worldwide construction equipment operations generated a
significantly higher operating profit of $300 million this year, compared
with $216 million in 1997. The increased operating profit in 1998 reflected
higher sales and production
24
<PAGE>
volumes, lower operating expenses and improved operating efficiencies, partially
offset by higher sales incentive costs and production start-up expenses at the
engine facility in Torreon, Mexico. In 1998, construction equipment sales
increased 14 percent, compared with last year.
<TABLE>
<CAPTION>
WORLDWIDE COMMERCIAL AND CONSUMER EQUIPMENT
- - -----------------------------------------------------------------------------------------
NET SALES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.6 $1.8 $2.1 $118 $114 $214
- - -----------------------------------------------------------------------------------------
</TABLE>
The worldwide commercial and consumer equipment segment's operating profit
increased significantly to $214 million in 1998, compared with $114 million
in 1997, as a result of higher sales and production volumes driven by strong
retail demand for the company's products, as well as improved operating
efficiencies. Partially offsetting these benefits were higher expenses for
the promotion of new products and the start-up of new facilities. Last year's
results were adversely affected by write-offs related to the Homelite product
line. Commercial and consumer equipment sales increased 20 percent in 1998,
compared with 1997.
<TABLE>
<CAPTION>
FINANCIAL SERVICES
- - -----------------------------------------------------------------------------------------
REVENUES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1.4 $1.6 $1.7 $303 $214 $271
- - -----------------------------------------------------------------------------------------
</TABLE>
The combined operating profit of the credit, insurance and health care
business segments improved to $271 million in 1998, compared with $214
million in 1997 as discussed on pages 27 through 29.
<TABLE>
<CAPTION>
UNITED STATES AND CANADA EQUIPMENT OPERATIONS
- - -----------------------------------------------------------------------------------------
NET SALES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$6.9 $8.0 $8.9 $867 $1,101 $1,177
- - -----------------------------------------------------------------------------------------
</TABLE>
On a geographic basis, the United States and Canadian equipment
operations had a higher operating profit of $1,177 million in 1998, compared
with $1,101 million last year, as a result of higher sales and production
volumes. Partially offsetting these benefits were higher sales incentive
costs, a less favorable sales mix, inefficiencies associated with production
schedule reductions and higher expenses related to the promotion of new
products and start-up costs. Last year was affected by the previously
mentioned Homelite product line write-offs. Sales increased 11 percent in
1998 and the physical volume of sales increased 10 percent, compared with
last year.
<TABLE>
<CAPTION>
OVERSEAS EQUIPMENT OPERATIONS
- - -----------------------------------------------------------------------------------------
NET SALES 96 97 98 OPERATING PROFIT 96 97 98
(IN BILLIONS) (IN MILLIONS)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$2.7 $3.1 $3.0 $258 $301 $299
- - -----------------------------------------------------------------------------------------
</TABLE>
The overseas equipment operations had a slightly lower operating profit
of $299 million in 1998, compared with $301 million last year, primarily due
to higher sales incentive costs and start-up expenses at the Torreon engine
facility. Overseas sales were slightly lower than last year, while the
physical volume of sales increased 3 percent in 1998, compared with 1997.
MARKET CONDITIONS AND OUTLOOK
Grain and oilseed prices declined significantly during the fourth quarter on
prospects for record or near-record crop production and the effects of
weakening demand from Asia. Pork prices moved substantially lower as well. As
a result, United States farm income is expected to decline in 1999, despite a
recently enacted emergency government aid package. At the same time, farm
income declines are expected in other parts of the world, and unsettled
financial conditions should continue to have an unfavorable impact on credit
availability in emerging markets. Accordingly, retail demand for agricultural
equipment in 1999 is now projected to decline by 20 percent in North America,
by 10 percent in Europe and by 15 percent in Latin America and Australia. The
company's financial results for the first quarter will be significantly
affected by the production cuts of large tractors and combines associated
with this lower level of demand.
North American construction equipment industry sales and housing starts
are expected to decline slightly next year, but remain at favorable levels.
In addition, the company is implementing an initiative aimed at better
matching production schedules to customer orders, leading to lower field
inventories and improved product availability. Initial stages of
implementation will result in lower shipments to dealers.
Sales of commercial and consumer equipment should continue to increase
in 1999 following strong gains in 1998. New product introductions are
expected to expand the company's position in the many growing markets served
by this division.
25
<PAGE>
Credit operations are expected to improve in 1999 because of a larger
portfolio, primarily due to recent growth in leasing. Insurance and health
care operations also are well positioned for improved results. At the same
time, the company's Financial Services subsidiaries are expected to see
continued margin pressure, resulting from their highly competitive markets.
Based on these conditions, the company's worldwide physical volume of
sales is currently projected to decline by approximately 13 to 15 percent in
1999, compared with 1998. In this environment, the previously stated goal of
reporting flat earnings per share in 1999 is not achievable. Physical volume
in the first quarter of 1999 is projected to be 23 to 25 percent below the
comparable level in the first quarter of 1998.
The present economic situation is challenging the company to balance its
response to current conditions with its ongoing need for investment in the
future. In this regard, the company has reduced capital spending and is
aggressively managing costs and assets, while pursuing further efficiency
gains through various quality and supply management initiatives. At the same
time, the company fully intends to maintain its commitment to the key
projects that underlie its plans for global growth and long-term market share
improvement.
YEAR 2000
The company has established a global program (the "Year 2000 Program") to
address the inability of certain computer and infrastructure systems to
process dates in the Year 2000 and later. The major assessment areas include
information systems, mainframe computers, personal computers, the distributed
network, the shop floor, facilities systems, the company's products, product
research and development facilities, and the readiness of the company's
suppliers and distribution network. The program includes the following
phases: identification and assessment, business criticality analysis,
project work prioritization, compliance plan development, remediation and
testing, production implementation, and contingency plan development for
mission critical systems.
The company is on schedule to become Year 2000 compliant with its
mission critical activities and systems, allowing substantial time for
further testing, verification and the final conversion of less important
systems. Over 90 percent of the company's systems identified as being mission
critical have been tested and verified as being Year 2000 compliant. The
company's goal has been to have all remaining mission critical and
non-mission critical systems compliant by October 31, 1999, and the progress
to date makes this goal realistic. The company has initiated information and
infrastructure systems modifications to ensure that both information
technology (IT) and non-IT systems are compliant.
The company is assessing the Year 2000 readiness of its suppliers and
dealers, raising awareness among its supply base by sponsoring seminars and
developing contingency plans for its mission critical suppliers. The company
is surveying over 3,000 of its major suppliers and is following up as
appropriate with prioritization based on mission criticality. The company is
requiring suppliers of new software or equipment and third parties who
develop or modify software to provide a written warranty that their product
is Year 2000 compliant and has been tested accordingly. In some instances,
the company is independently testing the software.
The total cost of the modifications and upgrades to date has not been
material and the future costs to become Year 2000 compliant are not expected
to be material. These costs are expensed as incurred and do not include the
cost of scheduled replacement software. Other major systems projects have not
been deferred due to the Year 2000 compliance projects.
Although no assurances can be given as to the company's compliance,
particularly as it relates to third-parties, based upon the progress to date,
the company does not expect the consequences of any of the company's
unanticipated or unsuccessful modifications to have a material adverse effect
on its financial position or results of operations. However, the failure to
correct a material Year 2000 problem could result in the interruption of
certain normal business activities and operations. The company's most
reasonably likely worst case scenario is that the Year 2000 noncompliance of
a critical third party, such as an energy supplier, could cause the supplier
to fail to deliver, with the result that production is interrupted at one or
more facilities. Such a disruption in production could result in lost sales
or profits. The company is developing contingency plans, which should be
complete by early 1999, should any Year 2000 failures occur in any of the
assessment areas noted above.
EURO CONVERSION
The company is well advanced in the process of identification, implementation
and testing of its systems to adopt the euro currency in its operations
affected by this change. The company's affected suppliers, distribution
network and financial institutions have been contacted and the company does
not believe the currency change will significantly impact these
relationships. As a result, the company expects to have its systems ready to
process the euro conversion during the transition period from January 1, 1999
through January 1, 2002. The cost of information systems modifications,
effects on product pricing and purchase contracts, and the impact on foreign
currency financial instruments, including derivatives, are not expected to be
material.
SAFE HARBOR STATEMENT
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Statements under the "Market Conditions and Outlook", "Year 2000" and
"Euro Conversion" headings above, the "Supplemental Information (Unaudited)"
on page 43 and other statements herein that relate to future operating
periods are subject to important risks and uncertainties that could cause
actual results to differ materially. Forward-looking statements relating to
the company's businesses involve certain factors that are subject to change,
including: the many interrelated factors that affect farmers' confidence,
including worldwide demand for agricultural products (including the impact on
United States grain and meat exports of economic difficulties in Asia and
other parts of the world), world grain stocks, commodity prices, weather
conditions, real estate values, animal diseases, crop pests, harvest yields,
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 (including the effect
of conversion to the euro); technological difficulties (including Year 2000
compliance); accounting standards; and other risks and uncertainties. Further
information, 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.
26
<PAGE>
1997 COMPARED WITH 1996 (UNAUDITED)
CONSOLIDATED RESULTS
Deere & Company achieved record worldwide net income in 1997, totaling $960
million, or $3.78 per share ($3.74 diluted), compared with $817 million, or
$3.14 per share ($3.11 diluted), in 1996. The higher profit resulted from
strong worldwide demand for the company's products. Operating margins
remained at strong levels as a result of the company's continuous improvement
and quality initiatives.
Worldwide net sales and revenues increased 14 percent to $12,791 million
in 1997, compared with $11,229 million in 1996. Net sales of the Equipment
Operations increased 15 percent in 1997 to $11,082 million from $9,640
million in 1996. International demand remained at strong levels, with export
sales from the United States totaling $2,013 million for 1997, compared with
$1,584 million in 1996. Overseas sales for 1997 also increased, rising by 11
percent, compared with 1996. Overall, the company's worldwide physical volume
of sales (excluding the sales of the newly consolidated Mexican subsidiaries)
increased 15 percent for 1997, reflecting the strong worldwide demand for the
company's products.
Finance and interest income increased 14 percent to $867 million in
1997, compared with $763 million in 1996, while insurance and health care
premiums increased 2 percent to $668 million in 1997, compared with $658
million in 1996.
The company's worldwide Equipment Operations, which exclude income from
the credit, insurance and health care operations and unconsolidated
affiliates, had record income of $817 million in 1997, compared with $610
million in 1996. The agricultural equipment and construction equipment
operations both contributed to the improved results in 1997, as explained
below. The worldwide ratio of cost of goods sold to net sales was 76.7
percent in 1997, compared with 77.7 percent in 1996. The Equipment
Operations' ratio of year-end assets to net sales decreased from 71 percent
in 1996 to 70 percent in 1997.
Net income of the company's Financial Services operations was $138
million in 1997, compared with $197 million in 1996. 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 the worldwide agricultural equipment segment
increased significantly to $1,072 million in 1997, compared with $821 million
in 1996, as a result of an increase in sales and production volumes and
improved efficiencies, partially offset by higher selling, administrative and
general expenses. Agricultural equipment sales increased 16 percent in 1997,
compared with 1996.
The worldwide construction equipment operations generated an operating
profit of $216 million in 1997, compared with $186 million in 1996. The
increased operating profit in 1997 reflected higher sales and production
volumes and improved efficiencies, partially offset by growth expenditures
and start-up expenses primarily at the new engine facility in Torreon,
Mexico. In 1997, construction equipment sales increased 18 percent, compared
with 1996.
The worldwide commercial and consumer equipment operations had an
operating profit of $114 million in 1997, compared with $118 million in 1996.
The benefits from increased sales were offset by write-offs associated with
the hand-held product line, start-up costs at new facilities and growth
expenditures. Commercial and consumer equipment sales increased 9 percent in
1997, compared with 1996.
The combined operating profit of the credit, insurance and health care
business segments was $214 million in 1997, compared with $303 million in
1996 as discussed on pages 27 through 29.
On a geographic basis, the United States and Canadian equipment
operations had an operating profit of $1,101 million in 1997, compared with
$867 million in 1996 as a result of higher sales and production volumes and
improved efficiencies, which were partially offset by growth expenditures and
write-offs associated with the hand-held product line. Sales increased 16
percent in 1997 and the physical volume of sales increased 15 percent,
compared with 1996.
The overseas equipment operations generated a higher operating profit of
$301 million in 1997, compared with $258 million in 1996, primarily due to
the higher volumes of sales and production, which were partially offset by
start-up expenses primarily at the Torreon engine facility. Overseas sales
increased 11 percent and the physical volume of sales (excluding the newly
consolidated Mexican subsidiaries) increased 15 percent in 1997, compared
with 1996.
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 Inc.
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 products. In addition, these operations provide wholesale
financing to dealers of the foregoing equipment and finance retail revolving
charge accounts.
Condensed combined financial information of the credit operations in
millions of dollars follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . $ 191 $ 205
------ ------
Financing receivables and leases:
Equipment retail notes . . . . . . . . . . 3,658 3,834
Recreational product retail notes . . . . 684 1,015
Revolving charge accounts. . . . . . . . . 764 630
Wholesale notes. . . . . . . . . . . . . . 894 653
Financing leases . . . . . . . . . . . . . 336 283
Equipment on operating leases. . . . . . . 991 581
------ ------
Total financing receivables and leases. 7,327 6,996
Less allowance for credit losses . . . . . 90 94
------ ------
Total - net . . . . . . . . . . . . . . 7,237 6,902
------ ------
Other receivables. . . . . . . . . . . . . . 173 170
------ ------
Net property and other assets. . . . . . . . 73 88
------ ------
Total assets . . . . . . . . . . . . . . . $ 7,674 $ 7,365
-------- --------
-------- --------
</TABLE>
(continued)
27
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Short-term borrowings. . . . . . . . . . . . . . . $ 3,810 $ 3,603
Payables to Deere & Company. . . . . . . . . . . . 144 363
Deposits withheld from dealers and merchants . . . 176 164
Other liabilities. . . . . . . . . . . . . . . . . 288 238
Long-term borrowings . . . . . . . . . . . . . . . 2,239 2,083
Stockholder's equity . . . . . . . . . . . . . . . 1,017 914
-------- --------
Total liabilities and stockholder's equity $ 7,674 $ 7,365
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $973 $820 $723
------ ------ ------
Expenses:
Interest . . . . . . . . . . . . . . . . . . . 400 346 301
Selling, administrative and general. . . . . . 142 129 113
Provision for credit losses. . . . . . . . . . 50 38 43
Depreciation . . . . . . . . . . . . . . . . . 125 74 37
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . 717 587 494
------ ------ ------
Income of consolidated group
before income taxes. . . . . . . . . . . . . . 256 233 229
Provision for income taxes . . . . . . . . . . . 93 85 82
------ ------ ------
Income of consolidated group . . . . . . . . . . 163 148 147
Equity in losses of unconsolidated affiliates . (1)
------ ------ ------
Net income . . . . . . . . . . . . . . . . . . . $163 $147 $147
------ ------ ------
------ ------ ------
Ratio of earnings to fixed charges . . . . . . . 1.63 1.67 1.75
- - --------------------------------------------------------------------------------
</TABLE>
Total acquisition volumes of financing receivables and leases by the
credit subsidiaries increased 13 percent in 1998 to $8,109 million, compared
with $7,198 million in 1997. During 1998, the volumes of leases, wholesale
notes, revolving charge accounts and retail notes increased 34 percent, 30
percent, 16 percent and 2 percent, respectively, driven primarily by the
growth in agricultural and construction equipment finance products. The
credit operations also sold retail notes which more than offset the increase
in acquisition volumes, receiving proceeds of $1,860 million during 1998,
compared with $968 million last year. At October 31, 1998 and 1997, net
financing receivables and leases administered, which include receivables
previously sold but still administered, were $9,625 million and $8,416
million, respectively. The discussion of "Financing Receivables" on pages 37
and 38 presents additional information.
Net income of the credit operations was $163 million in 1998, compared
with $147 million in 1997 and 1996. Net income in 1998 was higher than in
1997 due primarily to higher earnings from a larger average receivable and
lease portfolio financed and higher gains from retail note sales, partially
offset by higher operating expenses and narrower financing spreads. Total
revenues of the credit operations increased 19 percent in 1998, reflecting
the larger average portfolio financed, compared with 1997. The average
balance of credit receivables and leases financed was 13 percent higher in
1998, compared with 1997. Higher average borrowings in 1998 resulted in a 16
percent increase in interest expense, compared with 1997.
Net income in 1997 was approximately equal to 1996 due primarily to
higher earnings from a larger average receivable and lease portfolio financed
and higher gains from the sales of retail notes, which were offset by lower
securitization and servicing fee income, narrower financing spreads and
higher expenditures associated with several growth initiatives. Total
revenues of the credit operations increased 13 percent in 1997, reflecting
the larger average portfolio financed, compared with 1996. The average
balance of credit receivables and leases financed was 17 percent higher in
1997, compared with 1996. Higher average borrowings in 1997 resulted in a 15
percent increase in interest expense, compared with 1996.
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:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . $ 22 $ 45
Marketable securities . . . . . . . . . . . . . . 733 695
Other assets . . . . . . . . . . . . . . . . . . . 240 254
-------- --------
Total assets . . . . . . . . . . . . . . . . $ 995 $ 994
-------- --------
-------- --------
Claims and reserves. . . . . . . . . . . . . . . . $ 349 $ 348
Unearned premiums. . . . . . . . . . . . . . . . . 131 124
Other liabilities . . . . . . . . . . . . . . . . 134 145
Stockholder's equity . . . . . . . . . . . . . . . 381 377
-------- --------
Total liabilities and stockholder's equity . $ 995 $ 994
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums . . . . . . . . . . . . . . . . $ 284 $ 311 $ 345
Investment and other income. . . . . . . 57 54 56
------ ------ ------
Total revenues . . . . . . . . . . . . 341 365 401
------ ------ ------
Expenses:
Claims and benefits. . . . . . . . . . 241 223 255
Selling, administrative and general. . 90 101 100
------ ------ ------
Total. . . . . . . . . . . . . . . 331 324 355
------ ------ ------
Income of consolidated group before
income taxes . . . . . . . . . . . . . 10 41 46
Provision for income taxes . . . . . . . 1 11 13
------ ------ ------
Net income . . . . . . . . . . . . . . . $ 9 $ 30 $ 33
------ ------ ------
------ ------ ------
- - --------------------------------------------------------------------------------
</TABLE>
Net income of the insurance operations totaled $9 million in 1998, compared
with $30 million in 1997 and $33 million in 1996. The decrease in 1998 net
income, compared with 1997 was primarily due to unfavorable underwriting
results related to adverse claims development in the transportation business
and abnormally high weather-related property claims, partially offset by
higher investment income from realized capital gains. Premiums decreased 9
percent in 1998, while total claims, benefits, and selling, administrative
and general expenses increased 2 percent from 1997.
The decrease in 1997 net income, compared with 1996 was due to lower
underwriting results and a small gain from
28
<PAGE>
the sale of the personal lines business in 1996. Premiums decreased 10
percent in 1997, while total claims, benefits, and selling, administrative
and general expenses decreased 9 percent from 1996.
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 Deere & Company and commercial clients.
Condensed combined financial information of the health care operations
in millions of dollars follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
OCTOBER 31
FINANCIAL POSITION 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . $ 29 $ 18
Marketable securities. . . . . . . . . . . . . . . 134 125
Other assets . . . . . . . . . . . . . . . . . . . 71 90
-------- --------
Total assets . . . . . . . . . . . . . . . . . . $ 234 $ 233
-------- --------
-------- --------
Claims and reserves. . . . . . . . . . . . . . . . $ 62 $ 68
Unearned premiums. . . . . . . . . . . . . . . . . 10 16
Payables to Deere & Company. . . . . . . . . . . . 43 24
Other liabilities. . . . . . . . . . . . . . . . . 48 58
Stockholder's equity . . . . . . . . . . . . . . . 71 67
-------- --------
Total liabilities and stockholder's equity . . . $ 234 $ 233
-------- --------
-------- --------
- - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
SUMMARY OF OPERATIONS 1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and administrative services . . . . . . . $ 437 $ 387 $ 346
Investment and other income. . . . . . . . . . . . 17 13 12
------ ------ ------
Total revenues . . . . . . . . . . . . . . . . . 454 400 358
------ ------ ------
Expenses:
Claims and benefits. . . . . . . . . . . . . . . 344 337 249
Selling, administrative and general. . . . . . . 105 122 81
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . 449 459 330
------ ------ ------
Income (loss) of consolidated group before
income taxes . . . . . . . . . . . . . . . . . . 5 (59) 28
Provision (credit) for income taxes. . . . . . . . 2 (20) 11
------ ------ ------
Net income (loss) . . . . . . . . . . . . . . . . $ 3 $ (39) $ 17
------ ------ ------
------ ------ ------
- - --------------------------------------------------------------------------------
</TABLE>
The health care operations had net income of $3 million in 1998,
compared to a net loss of $39 million in 1997 and net income of $17 million
in 1996. The improved results in 1998 were primarily due to higher premium
revenues, improved margins and lower selling, administrative and general
expenses, compared to last year. Premiums and administrative services
revenues increased 13 percent, while claims, benefits and selling,
administrative and general expenses decreased 2 percent from 1997.
The loss in 1997 reflected reduced margins caused by unusually
competitive industry conditions, higher claims costs, strengthening of health
care claims reserves and higher selling, administrative and general expenses.
Additionally, charges for projected losses on certain insured contracts were
recorded in 1997. Premiums and administrative services revenues increased 12
percent, while claims, benefits and selling, administrative and general
expenses increased 39 percent from 1996.
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.
<TABLE>
<CAPTION>
- - ----------------------------------------------------
EQUIPMENT OPERATIONS 1996-1998
(IN MILLIONS)
<S> <C>
- - ----------------------------------------------------
Cash Provided by Operations . . . . . . $2,331
Repurchases of Common Stock . . . . . . $1,580
Purchases of Property and Equipment . . $1,152
- - ----------------------------------------------------
</TABLE>
The positive cash flows provided by operating activities in 1998 were
primarily the result of the record net income, partially offset by an
increase in trade receivables and company-owned inventories. The aggregate
amount of these operating cash flows of $112 million, an increase in
borrowings of $1,345 million and cash and cash equivalents at the beginning
of the year were used primarily to fund repurchases of common stock of $886
million, purchases of property and equipment of $422 million and the payment
of dividends to stockholders of $212 million.
Over the last three years, operating activities have provided an
aggregate of $2,331 million in cash, including dividends received from the
Financial Services subsidiaries of $341 million. In addition, borrowings
increased $964 million and cash and cash equivalents decreased $323 million.
The aggregate amount of these cash flows was used mainly to fund repurchases
of common stock of $1,580 million, purchases of property and equipment of
$1,152 million, stockholders' dividends of $626 million and acquisitions of
businesses for $239 million.
The Equipment Operations' ratio of year-end assets to net sales was 76
percent in 1998, compared to 70 percent in 1997. The higher ratio primarily
reflected higher receivables and inventories. As expected, trade receivables
and inventories declined during the fourth quarter while remaining above year
ago levels. The reduced level of agricultural equipment production, initiated
during the year, is intended to bring receivables and inventories into better
balance with current levels of demand.
Net trade accounts and notes receivable result mainly from sales to
dealers of equipment that is being carried in their inventories. Trade
receivables increased by $725 million during 1998. North American
agricultural equipment trade receivables increased approximately $500 million
and commercial and
29
<PAGE>
consumer equipment receivables increased approximately $155 million, while
construction equipment receivables decreased approximately $60 million. Total
overseas equipment receivables were approximately $130 million higher than
one year ago. The ratios of worldwide net trade accounts and notes receivable
at October 31 to fiscal year net sales were 34 percent in 1998, compared with
30 percent in 1997 and 33 percent in 1996.
The collection period for trade receivables averages less than 12
months. The percentage of receivables outstanding for a period exceeding 12
months was 8 percent at October 31, 1998, compared with 5 percent at October
31, 1997 and 8 percent at October 31, 1996.
Company-owned inventories increased by $214 million in 1998. Since most
of these inventories are valued on the last-in, first-out (LIFO) method,
lower prevailing costs from prior years are assigned to beginning
inventories. Inventories valued on an approximate current cost basis
increased by 12 percent during 1998, compared to an increase in net sales of
8 percent during the same period.
Total interest-bearing debt of the Equipment Operations was $2,065
million at the end of 1998, compared with $711 million at the end of 1997 and
$849 million at the end of 1996. The ratio of total debt to total capital
(total interest-bearing debt and stockholders' equity) at the end of 1998,
1997 and 1996 was 33.6 percent, 14.6 percent and 19.3 percent, respectively.
During 1998, Deere & Company issued $200 million of 6.55% debentures due
in 2028 and retired $37 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
intercompany loans.
Cash flows from the company's Financial Services operating activities
were $362 million in 1998. Cash provided by financing activities totaled $165
million in 1998, representing mainly an increase in total borrowings of $223
million, which was partially offset by $57 million of dividends paid to the
Equipment Operations. The aggregate cash provided by operating and financing
activities was used primarily to increase total receivables and leases. Cash
used for investing activities totaled $554 million in 1998, primarily due to
acquisitions of receivables and leases exceeding collections by $2,371
million, which was partially offset by proceeds of $1,860 million from the
sale of receivables.
Over the past three years, the Financial Services operating activities
have provided $929 million in cash. In addition, the sale of receivables and
an increase in borrowings have provided $3,788 million and $1,580 million,
respectively. These amounts have been used mainly to fund receivable and
lease acquisitions, which exceeded collections by $5,983 million, and $341
million of dividend payments to the Equipment Operations.
Marketable securities increased $48 million during 1998. These
securities consist primarily of debt securities held by the insurance and
health care operations in support of their obligations to policyholders.
Financing receivables and leases increased by $336 million in 1998,
compared with 1997. The discussion of "Credit Operations" on pages 27 and 28,
the "Financing Receivables" note on page 37 and the "Equipment on Operating
Leases" note on page 38 provide further information.
Total outside interest-bearing debt of the credit subsidiaries was
$6,049 million at the end of 1998, compared with $5,686 million at the end of
1997 and $4,720 million at the end of 1996. The credit subsidiaries' ratio of
total interest-bearing debt to total stockholder's equity was 6.1 to 1 at the
end of 1998, compared with 6.6 to 1 at the end of 1997 and 6.3 to 1 at the
end of 1996.
During 1998, the credit subsidiaries issued $200 million of 5.85% notes
due in 2001, $150 million of 6.125% notes due in 2003 and $200 million of
5.35% notes due in 2001, and retired $150 million of floating rate notes due
in 1998. In 1998, these subsidiaries also issued $1,321 million and retired
$918 million of medium-term notes.
CONSOLIDATED
The company maintains unsecured lines of credit with various United States
and foreign banks. The discussion of "Short-Term Borrowings" on page 39
provides further information.
The company is naturally exposed to various interest rate and foreign
currency risks. As a result, the company enters into derivative transactions
to hedge certain of these exposures that arise in the normal course of
business, and not for the purpose of creating speculative positions or
trading. Similar to other large credit companies, the company's credit
operations 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
operations enter into interest rate swap 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 page 42 and the "Supplemental
Information (Unaudited)" on page 43.
Stockholders' equity was $4,080 million at October 31, 1998, compared
with $4,147 million and $3,557 million at October 31, 1997 and 1996,
respectively. The decrease in 1998 was caused primarily by an increase in
common stock in treasury of $855 million related to the company's stock
repurchase and employee benefit programs and cash dividends declared of $213
million, partially offset by net income of $1,021 million.
30
<PAGE>
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.
Consolidated retained earnings at October 31, 1998 include undistributed
earnings of the unconsolidated affiliates of $48 million. Dividends from
unconsolidated affiliates were $6 million in 1998, $4 million in 1997 and $8
million in 1996.
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, construction 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 subsidiaries.
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.
In 1998, the company adopted FASB Statement No. 128, Earnings per Share.
This Statement had no effect on the company's previously reported primary net
income per share. Diluted net income per share was restated for all prior
periods for dilutions not considered material under the previous standard.
The reconciliation of basic and diluted net income per share is included in
the "Capital Stock" note on page 40.
In 1997 and 1998, the FASB issued Statements No. 130, Reporting
Comprehensive Income, No. 131, Disclosures about Segments of an Enterprise
and Related Information, and No. 132, Employers' Disclosures about Pensions
and Other Postretirement Benefits, which must be adopted by fiscal year 1999.
These Statements will have no effect on the company's financial position or
net income. In 1998, the FASB also issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. Under the new standard, all
derivatives will be recorded at fair value in the financial statements. This
statement must be adopted by fiscal year 2000 and its effect on the company's
financial position or net income is not expected to be material.
In December 1997, the company announced the extension of its stock
repurchase program. At the company's discretion, repurchases of an additional
$1 billion of Deere & Company common stock were to be made from time to time
in the open market and through privately negotiated transactions. Additional
information is included in the "Capital Stock" note on page 40.
In December 1997 and September 1998, the company invested $39 million
and $43 million, respectively, for a 100 percent interest in Cameco
Industries, Inc., primarily a manufacturer of sugarcane harvesters and
forestry equipment headquartered in Thibodaux, Louisiana. The total goodwill
was $57 million, which is being amortized to expense over 10 years. The
purchase did not have a material effect on Deere & Company's financial
position or operating results.
Certain amounts for prior years have been reclassified to conform with
1998 financial statement presentations.
31
<PAGE>
INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA FOR THE
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
- - -------------------------------------------------
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; combine,
cotton and sugarcane harvesters; tillage, seeding and soil preparation
machinery; sprayers; hay and forage equipment; materials handling equipment;
and integrated precision farming technology.
The company's worldwide construction 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
manufactures and distributes equipment for commercial and residential uses
- - -including small tractors for lawn, garden, commercial and utility purposes;
riding and walk-behind mowers; golf course equipment; snowblowers; handheld
products such as chain saws, string trimmers and leaf blowers; skid-steer
loaders; utility vehicles; and other outdoor power products.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and major 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 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 the company and
commercial clients.
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 with related comments included in Management's Discussion and
Analysis. In addition to the following unaffiliated sales and revenues by
segment, intersegment sales and revenues in 1998, 1997, and 1996 were as
follows: agricultural equipment net sales of $154 million, $126 million and
$119 million; construction equipment net sales of $53 million, $33 million
and $31 million; credit revenues of $2 million, $2 million and $3 million;
insurance revenues of $8 million, $9 million and $4 million; and health care
revenues of $21 million, $20 million and $29 million, respectively.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Unaffiliated customers:
Agricultural equipment net sales . . . . . . $ 7,217 $ 7,048 $ 6,097
Construction equipment net sales . . . . . . 2,585 2,262 1,919
Commercial and consumer equipment
net sales . . . . . . . . . . . . . . . . 2,124 1,772 1,624
Credit revenues. . . . . . . . . . . . . . . 971 818 720
Insurance revenues . . . . . . . . . . . . . 333 356 397
Health care revenues . . . . . . . . . . . . 433 380 329
------ ------ ------
Total. . . . . . . . . . . . . . . . . . . . 13,663 12,636 11,086
Other revenues . . . . . . . . . . . . . . . . 159 155 143
------ ------ ------
NET SALES AND REVENUES . . . . . . . . . . . . $13,822 $12,791 $11,229
------ ------ ------
------ ------ ------
OPERATING PROFIT
Agricultural equipment . . . . . . . . . . . . $ 962 $ 1,072 $ 821
Construction equipment . . . . . . . . . . . . 300 216 186
Commercial and consumer equipment. . . . . . . 214 114 118
Credit* . . . . . . . . . . . . . . . . . . . 256 232 229
Insurance* . . . . . . . . . . . . . . . . . . 10 41 46
Health care* . . . . . . . . . . . . . . . . . 5 (59) 28
------ ------ ------
Total operating profit . . . . . . . . . . . 1,747 1,616 1,428
------ ------ ------
OTHER INCOME AND (EXPENSE)
Interest income. . . . . . . . . . . . . . . . 13 4 7
Interest expense . . . . . . . . . . . . . . . (126) (79) (104)
Foreign exchange gain (loss) . . . . . . . . . (24) 7 (2)
Corporate expenses-net . . . . . . . . . . . . (35) (37) (32)
Income taxes . . . . . . . . . . . . . . . . . (554) (551) (480)
------ ------ ------
Total. . . . . . . . . . . . . . . . . . . . (726) (656) (611)
------ ------ ------
NET INCOME . . . . . . . . . . . . . . . . . . $ 1,021 $ 960 $ 817
------ ------ ------
------ ------ ------
</TABLE>
* 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
includes investment income.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS
<S> <C> <C> <C>
Agricultural equipment . . . . . . . . . . . . $ 5,124 $ 4,194 $ 3,851
Construction equipment . . . . . . . . . . . . 1,207 1,160 1,072
Commercial and consumer equipment. . . . . . . 1,524 1,232 1,129
Credit . . . . . . . . . . . . . . . . . . . . 7,674 7,365 6,542
Insurance. . . . . . . . . . . . . . . . . . . 995 994 1,068
Health care. . . . . . . . . . . . . . . . . . 234 233 236
Corporate. . . . . . . . . . . . . . . . . . . 1,244 1,142 755
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . $18,002 $16,320 $14,653
------- ------- -------
------- ------- -------
- - --------------------------------------------------------------------------------
</TABLE>
(continued)
32
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
INDUSTRY SEGMENTS 1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL ADDITIONS
Agricultural equipment . . . . . . . . . . . . $ 227 $ 241 $ 157
Construction equipment . . . . . . . . . . . . 113 123 49
Commercial and consumer equipment. . . . . . . 89 115 52
Credit . . . . . . . . . . . . . . . . . . . . 9 6 4
Insurance. . . . . . . . . . . . . . . . . . . 2 1 2
Health care. . . . . . . . . . . . . . . . . . 2 6 13
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . $ 442 $ 492 $ 277
------- ------- -------
------- ------- -------
- - --------------------------------------------------------------------------------
DEPRECIATION EXPENSE
Agricultural equipment . . . . . . . . . . . . $ 172 $ 166 $ 172
Construction equipment . . . . . . . . . . . . 48 45 41
Commercial and consumer equipment. . . . . . . 47 42 39
Credit . . . . . . . . . . . . . . . . . . . . 4 4 3
Insurance. . . . . . . . . . . . . . . . . . . 2 1 1
Health care. . . . . . . . . . . . . . . . . . 6 7 5
Corporate. . . . . . . . . . . . . . . . . . . 1
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . $ 279 $ 265 $ 262
------- ------- -------
------- ------- -------
- - --------------------------------------------------------------------------------
</TABLE>
The company views and has historically disclosed its operations as
consisting of two geographic areas, the United States and Canada, and
overseas, shown below in millions of dollars. The percentages shown in the
captions for net sales and revenues, operating profit 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 1998, 1997
and 1996. In addition to the following geographic unaffiliated sales,
interarea sales in 1998, 1997 and 1996 were as follows: United States and
Canada equipment net sales of $1,125 million, $1,235 million and $981
million, and overseas net sales of $668 million, $520 million and $415
million, respectively.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1998 1997 1996
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES AND REVENUES
Unaffiliated customers:
United States and Canada:
Equipment operations net sales (90%) . . . $ 8,877 $ 8,018 $ 6,886
Financial Services revenues (95%). . . . . 1,737 1,554 1,446
------- ------- -------
Total. . . . . . . . . . . . . . . . . . 10,614 9,572 8,332
Overseas net sales (71%) . . . . . . . . . . 3,049 3,064 2,754
------- ------- -------
Total. . . . . . . . . . . . . . . . . . 13,663 12,636 11,086
Other revenues . . . . . . . . . . . . . . . . 159 155 143
------- ------- -------
NET SALES AND REVENUES . . . . . . . . . . . . $13,822 $12,791 $11,229
------- ------- -------
------- ------- -------
OPERATING PROFIT
United States and Canada:
Equipment operations (93%) . . . . . . . . . $ 1,177 $ 1,101 $ 867
Financial Services (92%) . . . . . . . . . . 271 214 303
------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . 1,448 1,315 1,170
Overseas equipment operations (84%). . . . . . 299 301 258
------- ------- -------
Total operating profit . . . . . . . . . . . $ 1,747 $ 1,616 $ 1,428
- - ----------------------------------------------------------------------------------
GEOGRAPHIC AREAS 1998 1997 1996
- - ----------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States and Canada:
Equipment operations (89%) . . . . . . . . . $ 6,001 $ 4,969 $ 4,689
Financial Services (92%) . . . . . . . . . . 8,903 8,592 7,846
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . 14,904 13,561 12,535
Overseas equipment operations (61%) . . . . . 1,854 1,617 1,363
Corporate. . . . . . . . . . . . . . . . . . . 1,244 1,142 755
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . $18,002 $16,320 $14,653
------- ------- -------
------- ------- -------
- - ----------------------------------------------------------------------------------
CAPITAL ADDITIONS
United States and Canada:
Equipment operations . . . . . . . . . . . . $ 319 $ 331 $ 204
Financial Services . . . . . . . . . . . . . 13 13 19
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . 332 344 223
Overseas equipment operations . . . . . . . . 110 148 54
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . $ 442 $ 492 $ 277
------- ------- -------
------- ------- -------
- - ----------------------------------------------------------------------------------
DEPRECIATION EXPENSE
United States and Canada:
Equipment operations . . . . . . . . . . . . $ 202 $ 192 $ 183
Financial Services . . . . . . . . . . . . . 12 12 9
------- ------- -------
Total . . . . . . . . . . . . . . . . . 214 204 192
Overseas equipment operations . . . . . . . . 65 61 69
Corporate. . . . . . . . . . . . . . . . . . . 1
------- ------- -------
Total . . . . . . . . . . . . . . . . $ 279 $ 265 $ 262
------- ------- -------
------- ------- -------
- - ----------------------------------------------------------------------------------
NUMBER OF EMPLOYEES
United States and Canada:
Equipment operations . . . . . . . . . . . . 24,000 22,400 22,600
Financial Services . . . . . . . . . . . . . 2,700 2,600 2,600
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . 26,700 25,000 25,200
Overseas equipment operations . . . . . . . . 10,300 9,400 8,700
------- ------- -------
Total . . . . . . . . . . . . . . . . . . . 37,000 34,400 33,900
------- ------- -------
------- ------- -------
- - ----------------------------------------------------------------------------------
</TABLE>
Total exports from the United States were $1,970 million in 1998, $2,013
million in 1997 and $1,584 million in 1996. Exports from the Europe, Africa
and Middle East division were $614 million in 1998, $563 million in 1997 and
$522 million in 1996. Most of these exports were to the United States and
Canada.
REINSURANCE
The company's insurance subsidiaries utilize reinsurance to limit
their losses and reduce their exposure to large claims. Although reinsurance
contracts permit recovery of certain claims from reinsurers, the insurance
subsidiaries are not relieved of their primary obligations to the
policyholders. The financial condition of the reinsurers is evaluated to
minimize any exposure to losses from insolvencies.
33
<PAGE>
Insurance and health care premiums earned consisted of the following in millions
of dollars:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Premiums earned:
Direct from policyholders. . . . . . . . . . $ 739 $ 711 $ 706
Reinsurance assumed. . . . . . . . . . . . . 7 5 19
Reinsurance ceded. . . . . . . . . . . . . . (25) (19) (34)
-------- -------- -------
Financial Services premiums . . . . . . . . 721 697 691
Intercompany premiums. . . . . . . . . . . . . (28) (29) (33)
-------- -------- -------
PREMIUMS . . . . . . . . . . . . . . . . . . . $ 693 $ 668 $ 658
-------- -------- -------
-------- -------- -------
</TABLE>
The difference between premiums earned and written is not material. Reinsurance
recoveries on ceded reinsurance contracts during 1998, 1997 and 1996 totaled $31
million, $13 million and $6 million, respectively, and are deducted from
"Insurance and Health Care Claims and Benefits" expense.
At October 31, 1998 and 1997, reinsurance receivables of $27 million and $38
million and prepaid insurance premiums of $9 million and $10 million,
respectively, were associated with a single reinsurer.
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:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . $ 94 $ 88 $ 86
Interest cost. . . . . . . . . . . . . . . . 361 339 322
Return on assets:. . . . . . . . . . . . . .
Actual gain. . . . . . . . . . . . . . . . (345) (749) (733)
Deferred gain (loss) . . . . . . . . . . . (99) 350 363
Net amortization . . . . . . . . . . . . . . 68 75 58
-------- -------- -------
NET COST . . . . . . . . . . . . . . . . . . $ 79 $ 103 $ 96
-------- -------- -------
-------- -------- -------
Discount rates for obligations . . . . . . . 7.0% 7.5% 7.5%
Discount rate for expenses . . . . . . . . . 7.5% 7.5% 7.5%
Assumed rate of compensation increases . . . 5.0% 5.0% 5.0%
Expected long-term rate of return. . . . . . 9.7% 9.7% 9.7%
</TABLE>
A reconciliation of the funded status of the United States plans at October 31
in millions of dollars follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
---------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS
Vested benefit obligation. . . . $ (4,284) $ (71) $ (3,940) $ (65)
Nonvested benefit obligation . (601) (19) (532) (14)
----------- -------- ---------- -------
Accumulated benefit obligation (4,885) (90) (4,472) (79)
Excess of projected benefit
obligation over accumulated
benefit obligation. . . . . . . (443) (7) (389) (9)
----------- -------- ---------- -------
Projected benefit obligation . . . (5,328) (97) (4,861) (88)
Plan assets at fair value. . . . . 5,492 12 5,259 11
----------- -------- ---------- -------
Projected benefit obligation
(in excess of) or less than
plan assets. . . . . . . . . . . 164 (85) 398 (77)
Unrecognized net (gain) loss . . . 231 33 (184) 28
Prior service cost not yet
recognized in net periodic
pension cost . . . . . . . . . . 199 20 245 21
Remaining unrecognized
transition net (asset) liability
from November 1, 1985 . . . . . (33) 2 (46) 3
Adjustment required to
recognize minimum liability . . (48) (43)
----------- -------- ---------- -------
PREPAID PENSION COST
(PENSION LIABILITY)
RECOGNIZED IN THE
CONSOLIDATED
BALANCE SHEET. . . . . . . . . . $ 561 $ (78) $ 413 $ (68)
----------- -------- ---------- -------
----------- -------- ---------- -------
</TABLE>
The components of net periodic pension cost and the
significant assumptions for the foreign plans consisted of the
following in millions of dollars and in percents:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . $ 8 $ 9 $ 9
Interest cost. . . . . . . . . . . 25 27 28
Return on assets:
Actual (gain) loss . . . . . . . 1 (35) (18)
Deferred gain (loss). . . . . . (13) 23 7
Net amortization . . . . . . . . . 7 7
-------- ------- ------
NET COST . . . . . . . . . . . . . $ 21 $ 31 $ 33
-------- ------- ------
-------- ------- ------
Discount rates for obligations . . 6.5-8.3% 6.5-8.3% 7.0-8.3%
Discount rates for expenses. . . . 6.5-8.3% 7.0-8.3% 7.0-8.3%
Assumed rates of compensation
increases. . . . . . . . . . . . 2.5-5.8% 2.5-5.8% 4.0-7.0%
Expected long-term rate of return. 8.3% 8.3% 8.3%
</TABLE>
34
<PAGE>
A reconciliation of the funded status of the foreign plans at October 31 in
millions of dollars follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
1998 1997
---------------------------- -----------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS
Vested benefit obligation. . . . $ (82) $ (280) $ (85) $ (266)
Nonvested benefit obligation . . (4) (3)
-------- --------- -------- ---------
Accumulated benefit obligation . (82) (284) (85) (269)
Excess of projected benefit
obligation over accumulated
benefit obligation . . . . . . . (9) (30) (11) (29)
-------- --------- -------- ---------
Projected benefit obligation . . . (91) (314) (96) (298)
Plan assets at fair value. . . . . 157 181
-------- --------- -------- ---------
Projected benefit obligation
(in excess of) or
less than plan assets. . . . . 66 (314) 85 (298)
Unrecognized net gain. . . . . . . (27) (6) (44) (2)
Prior service cost not yet recognized
in net periodic pension cost . . 3 1 1
Remaining unrecognized
transition net (asset) obligation
from November 1, 1987. . . . . . (6) 14 (9) 16
-------- --------- -------- ---------
PREPAID PENSION COST
(PENSION LIABILITY) RECOGNIZED
IN THE CONSOLIDATED
BALANCE SHEET. . . . . . . . . . $ 36 $ (306) $ 33 $ (283)
-------- --------- -------- ---------
-------- --------- -------- ---------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company generally provides defined benefit health care and life insurance
plans for retired employees in the United States and Canada. Provisions of the
benefit plans for hourly employees are, in large part, subject to collective
bargaining. The plans for salaried employees include certain cost-sharing
provisions. It is the company's policy to fund a portion of its obligations for
the United States postretirement health care benefit plans under provisions of
Internal Revenue Code Section 401(h). Plan assets consist primarily of common
stocks, common trust funds, government securities and corporate debt securities.
The components of net periodic postretirement benefits cost and the
significant assumptions for the United States and Canadian plans consisted of
the following in millions of dollars and in percents:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
1998 1997 1996
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
HEALTH CARE
Service cost . . . . . . . . . . . $ 71 $ 69 $ 61
Interest cost. . . . . . . . . . . 153 148 135
Return on assets:. . . . . . . . .
Actual gain. . . . . . . . . . . (20) (45) (37)
Deferred gain (loss) . . . . . . (11) 18 17
Net amortization . . . . . . . . . (6) (10) (23)
----- ------ -----
Net cost . . . . . . . . . . . . 187 180 153
----- ------ -----
LIFE INSURANCE
Service cost . . . . . . . . . . . 3 3 3
Interest cost. . . . . . . . . . . 19 18 17
Net amortization . . . . . . . . . 2 1 1
----- ------ -----
Net cost . . . . . . . . . . . . 24 22 21
----- ------ -----
TOTAL NET COST . . . . . . . . . . $ 211 $ 202 $ 174
----- ------ -----
----- ------ -----
Discount rates for obligations . . 7.25% 7.75% 7.75%
Discount rate for expense. . . . . 7.75% 7.75% 7.75%
Expected long-term rate of return. 9.7% 9.7% 9.7%
- - -----------------------------------------------------------------------
</TABLE>
A reconciliation of the funded status of the United States and Canadian
plans at October 3l in millions of dollars follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1998 1997
---------------------- -------------------
HEALTH LIFE HEALTH LIFE
CARE INSURANCE CARE INSURANCE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATIONS
Retirees . . . . . . . . . . . . $ (1,501) $ (174) $(1,407) $ (157)
Fully eligible active
plan participants. . . . . . . . . (250) (42) (254) (37)
Other active plan participants . (485) (65) (399) (54)
----------- -------- --------- --------
Total. . . . . . . . . . . . . . (2,236) (281) (2,060) (248)
Plan assets at fair value. . . . . 359 316
----------- -------- --------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (1,877) (281) (1,744) (248)
Unrecognized net loss. . . . . . . 274 56 181 34
Prior service credit not yet recognized
in net periodic postretirement
benefits cost. . . . . . . . . . (12) (19)
----------- -------- --------- --------
POSTRETIREMENT BENEFIT LIABILITY
RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET. . . . . . . . . . $ (1,615) $ (225) $(1,582) $ (214)
----------- -------- --------- --------
----------- -------- --------- --------
- - --------------------------------------------------------------------------------
</TABLE>
The annual rate of increase in the per capita cost of covered health care
benefits (the health care cost trend rate) used to determine 1998 cost was
assumed to be 9.1 percent for 1999, decreasing gradually to 4.5 percent by the
year 2003. The rate used to determine 1997 cost was assumed to be 9.0 percent
for 1998, decreasing gradually to 4.5 percent by the year 2003. The rate used to
determine 1996 cost was assumed to be 9.2 percent for 1997, decreasing gradually
to 4.5 percent by the year 2003. An increase of one percentage point in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligations at October 31, 1998 by $240 million and the
net periodic postretirement benefits cost for the year then ended by $31
million.
INCOME TAXES
The provision for income taxes by taxing jurisdiction and by
significant component consisted of the following in millions
of dollars:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------
1998 1997 1996
- - -----------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States:
Federal. . . . . . . . . . . . . $ 216 $ 434 $ 406
State . . . . . . . . . . . . . 30 37 42
Foreign . . . . . . . . . . . . 164 88 98
-------- ------- -------
Total current. . . . . . . . . . 410 559 546
-------- ------- -------
Deferred:
United States:
Federal. . . . . . . . . . . . . 138 (22) (51)
State . . . . . . . . . . . . . 10 (7)
Foreign . . . . . . . . . . . . . (4) 14 (8)
-------- ------- -------
Total deferred . . . . . . . . . 144 (8) (66)
-------- ------- -------
PROVISION FOR INCOME TAXES . . . . $ 554 $ 551 $ 480
-------- ------- -------
-------- ------- -------
- - -----------------------------------------------------------------------
</TABLE>
35
<PAGE>
Based upon location of the company's operations, the consolidated income
before income taxes in the United States in 1998, 1997 and 1996 was $1,158
million, $1,057 million and $929 million, respectively, and in foreign countries
was $402 million, $450 million and $358 million, respectively. Certain foreign
operations are branches of Deere & Company and are, therefore, subject to United
States as well as foreign income tax regulations. The pretax income by location
and the preceding analysis of the income tax provision by taxing jurisdiction
are, therefore, not directly related.
A comparison of the statutory and effective income tax provision and reasons
for related differences in millions of dollars follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
UNITED STATES FEDERAL INCOME TAX PROVISION
AT A STATUTORY RATE OF 35 PERCENT. . . . . . $ 546 $ 527 $ 450
INCREASE (DECREASE) RESULTING FROM:
State and local income taxes, net of
federal income tax benefit . . . . . . . . 25 25 23
Taxes on foreign income which differ from
the United States statutory rate . . . . . 3 12 24
Benefit of Foreign Sales Corporation . . . . (20) (15) (7)
Other adjustments - net. . . . . . . . . . . 2 (10)
-------- ------- --------
PROVISION FOR INCOME TAXES . . . . . . . . . $ 554 $ 551 $ 480
-------- ------- --------
-------- ------- --------
- - --------------------------------------------------------------------------------
</TABLE>
Deferred income taxes arise because there are certain items that are treated
differently for financial accounting than for income tax reporting purposes. An
analysis of the deferred income tax assets and liabilities at October 31 in
millions of dollars follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
1998 1997
----------------------------- ---------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred installment sales income. . . . . . $ 429 $ 346
Tax over book depreciation . . . . . . . . . 123 113
Deferred lease income. . . . . . . . . . . . 30 7
Accrual for retirement and
postemployment benefits. . . . . . . . . . $ 546 $ 580
Accrual for sales allowances . . . . . . . . 259 246
Accrual for vacation pay . . . . . . . . . . 51 46
Allowance for doubtful receivables . . . . . 47 52
Claims and reserves. . . . . . . . . . . . . 21 19
Tax loss and tax credit carryforwards. . . . 19 12
Minimum pension liability
adjustment . . . . . . . . . . . . . . . . 10 7
Unearned premiums. . . . . . . . . . . . . . 7 8
Other items. . . . . . . . . . . . . . . . . 96 95 114 84
Less valuation allowance . . . . . . . . . . (2) (12)
-------- ------- --------- -------
DEFERRED INCOME TAX
ASSETS AND LIABILITIES . . . . . . . . . . $1,054 $ 677 $ 1,072 $ 550
-------- ------- --------- -------
-------- ------- --------- -------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, accumulated earnings in certain overseas subsidiaries
totaled $666 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, 1998, certain foreign tax loss and tax credit carryforwards
for $19 million were available with an unlimited expiration date.
MARKETABLE SECURITIES
Marketable securities are held by the insurance and health care subsidiaries.
All marketable securities are classified as available-for-sale under FASB
Statement No. 115, with unrealized gains and losses shown as a component of
stockholders' equity. Realized gains or losses from the sales of marketable
securities are based on the specific identification method.
The amortized cost and fair value of marketable securities in millions of
dollars follow:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
Amortized Gross Gross
Cost Unrealized Unrealized Fair
or Cost Gains Losses Value
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OCTOBER 31, 1998
Equity securities. . . . . . . . . $ 99 $ 5 $ 7 $ 97
U.S. government and agencies . . . 125 8 133
States and municipalities. . . . . 175 11 186
Corporate. . . . . . . . . . . . . 226 11 237
Mortgage-backed securities . . . . 203 10 213
Other. . . . . . . . . . . . . . . 1 1
------- ------ ------ -------
MARKETABLE SECURITIES. . . . . . . $ 829 $ 45 $ 7 $ 867
------- ------ ------ -------
------- ------ ------ -------
OCTOBER 31, 1997
Equity securities. . . . . . . . . $ 3 $ 2 $ 5
U.S. government and agencies . . . 160 5 165
States and municipalities. . . . . 160 11 171
Corporate. . . . . . . . . . . . . 237 9 $ 1 245
Mortgage-backed securities . . . . 224 8 232
Other. . . . . . . . . . . . . . . 2 2
------- ------ ------ -------
MARKETABLE SECURITIES. . . . . . . $ 786 $ 35 $ 1 $ 820
------- ------ ------ -------
------- ------ ------ -------
- - -------------------------------------------------------------------------------------
</TABLE>
The contractual maturities of debt securities at October 31, 1998 in millions of
dollars follow:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------
Amortized Fair
Cost Value
- - ---------------------------------------------------------
<S> <C> <C>
Due in one year or less. . . . . . $ 47 $ 48
Due after one through five years . 209 217
Due after five through 10 years. . 124 131
Due after 10 years . . . . . . . . 349 373
------- ------
DEBT SECURITIES. . . . . . . . . . $ 729 $ 769
------- ------
------- ------
- - ---------------------------------------------------------
</TABLE>
Actual maturities may differ from contractual maturities because some
borrowers have the right to call or prepay obligations. Proceeds from the sales
of available-for-sale securities were $105 million in 1998, $114 million in 1997
and $11 million in 1996. Gross realized gains and losses on those sales were
not significant. The increase in the net unrealized holding gain after income
taxes was $3 million, $8 million and $11 million during 1998, 1997 and 1996,
respectively.
36
<PAGE>
TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable at October 31 consisted of
the following in millions of dollars:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------
1998 1997
- - ---------------------------------------------------------------------
<S> <C> <C>
Trade accounts and notes:
Agricultural . . . . . . . . . . $ 2,756 $ 2,137
Construction . . . . . . . . . . 322 388
Commercial and consumer. . . . . 784 624
--------- ---------
Total. . . . . . . . . . . . . . 3,862 3,149
Other receivables. . . . . . . . . 228 220
--------- ---------
Total. . . . . . . . . . . . . . 4,090 3,369
Less allowance for doubtful receivables 31 35
--------- ---------
TRADE ACCOUNTS AND NOTES RECEIVABLE-NET $ 4,059 $ 3,334
--------- ---------
--------- ---------
</TABLE>
At October 31, 1998 and 1997, dealer notes included above were $955 million
and $788 million, respectively.
Trade accounts and notes receivable arise from sales to dealers of John Deere
agricultural, construction 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 one to 12 months for agricultural tractors, one to five months for
construction equipment, and from two to 24 months for most other equipment.
Trade accounts and notes receivable have significant concentrations of credit
risk in the agricultural, construction 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.
FINANCING RECEIVABLES
Financing receivables at October 31 consisted of the following in millions of
dollars:
<TABLE>
<CAPTION>
- - --------------------------------------------------------
1998 1997
- - --------------------------------------------------------
<S> <C> <C>
Retail notes:
Equipment:
Agricultural. . . . . . . . . $ 3,030 $ 3,412
Construction . . . . . . . . . . 953 877
Commercial and consumer. . . . . 351 282
Recreational products. . . . . . 1,044 1,606
--------- --------
Total . . . . . . . . . . . . . 5,378 6,177
Revolving charge accounts. . . . . 764 630
Financing leases . . . . . . . . . 387 331
Wholesale notes. . . . . . . . . . 894 653
--------- --------
Total financing receivables. . . 7,423 7,791
--------- --------
Less:
Unearned finance income:
Equipment notes. . . . . . . . . 590 654
Recreational product notes . . . 360 590
Financing leases . . . . . . . . 50 48
--------- --------
Total. . . . . . . . . . . . . . 1,000 1,292
--------- --------
Allowance for doubtful
receivables. . . . . . . . . . . . 90 94
--------- --------
Financing receivables - net. . . . $ 6,333 $ 6,405
--------- --------
--------- --------
</TABLE>
Financing receivables have significant concentrations of credit risk in the
agricultural, construction, commercial and consumer, and recreational product
business sectors as shown in the previous table. On a geographic basis, there is
not a disproportionate concentration of credit risk in any area. The company
retains as collateral a security interest in the equipment associated with
retail notes, wholesale notes and financing leases.
Financing receivable installments, including unearned finance income, at
October 31 are scheduled as follows in millions of dollars:
<TABLE>
<CAPTION>
- - --------------------------------------------------------
1998 1997
- - --------------------------------------------------------
<S> <C> <C>
Due in months:
0 - 12 . . . . . . . . . . . . . $ 2,954 $ 2,765
13 - 24. . . . . . . . . . . . . 1,585 1,685
25 - 36. . . . . . . . . . . . . 1,100 1,186
37 - 48. . . . . . . . . . . . . 722 782
49 - 60. . . . . . . . . . . . . 451 471
Thereafter . . . . . . . . . . . 611 902
--------- ---------
TOTAL. . . . . . . . . . . . . . . $ 7,423 $ 7,791
--------- ---------
--------- ---------
</TABLE>
The maximum terms for retail notes are generally eight years for agricultural
equipment, five years for construction equipment, six years for commercial and
consumer equipment and 20 years for recreational products. The maximum term
for financing leases is generally five years, while the maximum term for
wholesale notes is generally 12 months.
The company's United States and Canadian credit subsidiaries received
proceeds of $1,860 million in 1998, $968 million in 1997 and $960 million in
1996 from the sale of retail notes. At October 31, 1998 and 1997, the unpaid
balances of retail notes previously sold were $2,388 million and $1,514 million,
respectively. The company's maximum exposure under all retail note recourse
provisions at October 31, 1998 and 1997 was $193 million and $177 million,
respectively. There is no anticipated credit risk related to nonperformance by
the counterparties. The retail notes sold are collateralized by security
interests in the related equipment sold to customers. At October 31, 1998 and
1997, worldwide financing receivables administered, which include financing
receivables previously sold but still administered, totaled $8,721 million and
$7,919 million, respectively.
Total financing receivable amounts 60 days or more past due were $29 million
at October 31, 1998 compared with $24 million at October 31, 1997. These
past-due amounts represented .44 percent of the receivables financed at October
31, 1998 and .38 percent at October 31, 1997. The allowance for doubtful
financing receivables represented 1.40 percent and 1.44 percent of financing
receivables outstanding at October 31, 1998 and 1997, respectively. In addition,
at October 31, 1998 and 1997, the company's credit subsidiaries had $176 million
and $164 million, respectively, of deposits withheld from dealers
37
<PAGE>
and merchants available for potential credit losses. An analysis of the
allowance for doubtful credit receivables follows in millions of dollars:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . $ 94 $ 93 $ 88
Provision charged to operations. . . . . . . 50 38 43
Amounts written off. . . . . . . . . . . . . (36) (31) (32)
Transfers related to retail note sales . . . (18) (6) (6)
------- ------ ------
BALANCE, END OF THE YEAR . . . . . . . . . . $ 90 $ 94 $ 93
------- ------ ------
------- ------ ------
</TABLE>
- - -------------------------------------------------------------------------------
OTHER RECEIVABLES
Other receivables at October 31 consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------
1998 1997
- - -------------------------------------------------------------------------------
<S> <C> <C>
Insurance and health care
premiums receivable. . . . . . . . . . . . . $ 94 $ 90
Reinsurance receivables. . . . . . . . . . . 94 91
Receivables relating to asset
backed securitizations . . . . . . . . . . . 162 165
Taxes receivable . . . . . . . . . . . . . . 129 2
Other. . . . . . . . . . . . . . . . . . . 58 65
------- -------
Other receivables. . . . . . . . . . . . . . $ 537 $ 413
------- -------
------- -------
- - --------------------------------------------------------------------------------
</TABLE>
The credit subsidiaries' receivables related to asset backed securitizations
are equal to the present value of payments to be received for retained interests
and deposits made with other entities for recourse provisions under the retail
note sales agreements.
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 generally range
from 36 to 60 months. The net value of equipment on operating leases was $1,209
million and $775 million at October 31, 1998 and 1997, respectively. Of these
leases, at October 31, 1998, $218 million was financed by the Equipment
Operations and $991 million by the credit subsidiaries. The equipment is
depreciated on a straight-line basis over the terms of the leases. The
accumulated depreciation on this equipment was $226 million and $140 million at
October 31, 1998 and 1997, respectively. The corresponding depreciation expense
was $146 million in 1998, $95 million in 1997 and $53 million in 1996.
Future payments to be received on operating leases totaled $530 million at
October 31, 1998 and are scheduled as follows:
1999 - $219, 2000 - $171, 2001 - $86, 2002 - $43 and 2003 - $11.
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
84 percent and 85 percent of worldwide gross inventories at FIFO value on
October 31, 1998 and 1997, respectively. If all inventories had been valued on a
FIFO basis, estimated inventories by major classification at October 31 in
millions of dollars would have been as follows:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------
1998 1997
- - -------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . $ 250 $ 228
Work-in-process . . . . . . . . . . . . . . 475 427
Finished machines and parts. . . . . . . . . 1,612 1,430
--------- ---------
Total FIFO value . . . . . . . . . . . . . 2,337 2,085
Adjustment to LIFO basis . . . . . . . . . . 1,050 1,012
--------- ---------
INVENTORIES. . . . . . . . . . . . . . . . . $ 1,287 $ 1,073
--------- ---------
--------- ---------
- - --------------------------------------------------------------------
</TABLE>
PROPERTY AND DEPRECIATION
A summary of property and equipment at October 31 in millions
of dollars follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . $ 56 $ 54
Buildings and building equipment . . . . . . 1,042 958
Machinery and equipment. . . . . . . . . . . 2,206 2,099
Dies, patterns, tools, etc . . . . . . . . . 654 555
All other . . . . . . . . . . . . . . . . . 566 557
Construction in progress . . . . . . . . . . 164 157
---------- --------
Total at cost. . . . . . . . . . . . . . . 4,688 4,380
Less accumulated depreciation. . . . . . . . 2,988 2,856
---------- --------
PROPERTY AND EQUIPMENT - NET . . . . . . . . $ 1,700 $ 1,524
---------- --------
---------- --------
</TABLE>
Leased property under capital leases amounting to $5 million and $3 million
at October 31, 1998 and 1997, respectively, is included primarily in machinery
and equipment.
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 $218 million and $158 million at October 31, 1998
and 1997, respectively. The Equipment Operations' balance of $210 million at
October 31, 1998 consisted primarily of unamortized goodwill, which resulted
from the purchase cost of assets acquired exceeding their fair value, and an
intangible asset of $22 million related to the additional minimum pension
liability required by FASB Statement No. 87.
Intangible assets, excluding the intangible pension asset, are being
amortized over 25 years or less, and the accumulated amortization was $66
million and $58 million at October 31, 1998 and 1997, respectively. The
intangible pension asset is remeasured and adjusted annually. The unamortized
goodwill is reviewed periodically for potential impairment.
38
<PAGE>
SHORT-TERM BORROWINGS
Short-term borrowings at October 31 consisted of the following
in millions of dollars:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------
1998 1997
- - --------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Commercial paper . . . . . . . . . . . . . . $ 1,268 $ 98
Notes payable to banks . . . . . . . . . . . 44 35
Long-term borrowings due within one year . . 200 38
--------- ---------
Total . . . . . . . . . . . . . . . . . 1,512 171
--------- ---------
FINANCIAL SERVICES
Commercial paper . . . . . . . . . . . . . . 2,124 2,559
Notes payable to banks . . . . . . . . . . . 7 2
Long-term borrowings due within one year . . 1,679 1,043
--------- ---------
Total . . . . . . . . . . . . . . . . . 3,810 3,604
--------- ---------
SHORT-TERM BORROWINGS. . . . . . . . . . . . $ 5,322 $ 3,775
--------- ---------
--------- ---------
</TABLE>
The weighted average interest rates on total short-term borrowings,
excluding current maturities of long-term borrowings, at October 31, 1998 and
1997 were 5.4 percent and 5.2 percent, respectively. All of the Financial
Services' short-term borrowings represent obligations of the credit
subsidiaries.
Unsecured lines of credit available from United States and foreign banks
were $5,435 million at October 31, 1998. Some of these credit lines are
available to both the Equipment Operations and certain credit subsidiaries. At
October 31, 1998, $1,974 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 in February 2003 for $3,500 million. The agreement is
mutually extendable and the annual facility fee is not significant. The credit
agreement has various requirements of John Deere Capital Corporation, including
the maintenance of its consolidated ratio of earnings to fixed charges at not
less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt to
total stockholder's equity plus subordinated debt at not more than 8 to 1 at the
end of any fiscal quarter. The credit agreement also contains a provision
requiring Deere & Company to maintain consolidated tangible net worth of $500
million according to 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, 1998.
Deere & Company has a contractual agreement to conduct business with the
John Deere Capital Corporation on such terms that the Capital Corporation will
continue to satisfy the ratio requirement discussed above for earnings to fixed
charges, the Capital Corporation's tangible net worth will be maintained at not
less than $50 million and Deere & Company will 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.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at October 31 consisted
of the following in millions of dollars:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------
1998 1997
- - -------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Accounts payable:
Trade . . . . . . . . . . . . . . . . . $ 913 $ 967
Dividends payable . . . . . . . . . . . 52 50
Other . . . . . . . . . . . . . . . . . 45 37
Accrued expenses:
Employee benefits . . . . . . . . . . . 177 160
Dealer commissions. . . . . . . . . . . 217 201
Other . . . . . . . . . . . . . . . . . 694 719
-------- -------
Total . . . . . . . . . . . . . . . 2,098 2,134
-------- -------
FINANCIAL SERVICES
Accounts payable:
Deposits withheld from
dealers and merchants. . . . . . . . . . . . 176 164
Other . . . . . . . . . . . . . . . . . 161 140
Accrued expenses:
Unearned premiums . . . . . . . . . . . 141 141
Unpaid loss adjustment expenses . . . . 85 92
Interest payable. . . . . . . . . . . . 57 49
Other . . . . . . . . . . . . . . . . . 135 120
-------- -------
Total . . . . . . . . . . . . . . . 755 706
-------- -------
Accounts payable and accrued expenses . . . $ 2,853 $ 2,840
-------- -------
-------- -------
</TABLE>
LONG-TERM BORROWINGS
Long-term borrowings at October 31 consisted of the following
in millions of dollars:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------
1998 1997
- - ----------------------------------------------------------------------
<S> <C> <C>
EQUIPMENT OPERATIONS
Notes and debentures:
Medium-term notes due 2000 - 2006:
Average interest rate of 8.9% as of
year end 1998 and 1997 $ 134 $ 134
8.95% debentures due 2019*. . . . . . . 200
8-1/2% debentures due 2022 . . . . . . 200 200
6.55% debentures due 2028 . . . . . . . 200
Other . . . . . . . . . . . . . . . . . 19 6
------- -------
Total $ 553 $ 540
------- -------
</TABLE>
*Reclassified to short-term borrowings in 1998 because
the obligation is callable by creditors in 1999.
(continued)
39
<PAGE>
(continued)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES
Notes and debentures:
Medium-term notes due 1999 - 2007:
Average interest rate of 6.4% as of year end
1998 and 6.7% as of year end 1997 . . . $ 1,549 $ 1,286
5% Swiss franc bonds due 1999: Swapped to U.S.
dollars and a variable interest rate of 6.1%
as of year end 1997 . . . . . . . . . . . . . . . 97
6% notes due 1999. . . . . . . . . . . . . . . . . . 200
6.30% notes due 1999 . . . . . . . . . . . . . . . . 200
5.85% notes due 2001 . . . . . . . . . . . . . . . . 200
5.35% notes due 2001 . . . . . . . . . . . . . . . . 200
6.125% U.S. dollar notes due 2003: Swapped to
Canadian dollars and a variable interest rate of
6.3% as of year end 1998. . . . . . . . . . . . . 140
-------- ---------
Total notes and debentures. . . . . . . . . . . 2,089 1,783
-------- ---------
Subordinated debt:
9-5/8% subordinated notes due 1998:
Swapped to variable interest rate of 6.1% as
of year end 1997. . . . . . . . . . . . . . . . . 150
8-5/8% subordinated debentures due 2019. . . . . . . 150 150
-------- ---------
Total subordinated debt . . . . . . . . . . . . 150 300
-------- ---------
Total. . . . . . . . . . . . . . . . . . . . 2,239 2,083
-------- ---------
LONG-TERM BORROWINGS . . . . . . . . . . . . . . . . . $ 2,792 $ 2,623
-------- ---------
-------- ---------
- - ----------------------------------------------------------------------------------
</TABLE>
All of the Financial Services' long-term borrowings
represent obligations of the credit subsidiaries.
The approximate amounts of the Equipment Operations' long-term borrowings
maturing and sinking fund payments required in each of the next five years in
millions of dollars are as follows: 1999 - $200, 2000 - $7, 2001 - $70, 2002 -
$25 and 2003 - $8. The approximate amounts of the credit subsidiaries' long-term
borrowings maturing and sinking fund payments required in each of the next five
years in millions of dollars are as follows: 1999 - $1,679, 2000 - $830, 2001 -
$690, 2002 - $255 and 2003 - $215.
LEASES
At October 31, 1998, future minimum lease payments under capital leases totaled
$4 million. Total rental expense for operating leases during 1998 was $73
million compared with $61 million in 1997 and $56 million in 1996. At October
31, 1998, future minimum lease payments under operating leases amounted to $125
million as follows: 1999 - $41, 2000 - $29, 2001 - $14, 2002 - $7, 2003 - $6 and
later years - $28.
COMMITMENTS AND CONTINGENT LIABILITIES
On October 31, 1998, the company's maximum exposure under all credit receivable
recourse provisions was $193 million for retail notes sold by the Financial
Services subsidiaries. Also, at October 31, 1998, the company had commitments of
approximately $101 million for construction and acquisition of property and
equipment.
The company is subject to various unresolved legal actions which arise in
the normal course of its business, the most prevalent of which relate to product
liability, retail credit, software licensing, patent and trademark matters.
Although it is not possible to predict with certainty the outcome of these
unresolved legal actions or the range of possible loss, the company believes
these unresolved legal actions will not have a material effect on its financial
position or results of operations.
CAPITAL STOCK
Changes in the common stock account in 1996, 1997 and 1998
were as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
Number of Amount
Shares Issued (in millions)
- - ------------------------------------------------------------------------------
<S> <C> <C>
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
Debenture conversions. . . . . . . . . . . . 16,204
Other . . . . . . . . . . . . . . . . . 9
------------- ---------
Balance at October 31, 1997. . . . . . . . . 263,849,303 1,779
Debenture conversions. . . . . . . . . . . . 3,568
Other . . . . . . . . . . . . . . . . . 11
------------- ---------
Balance at October 31, 1998. . . . . . . . . 263,852,871 $ 1,790
------------- ---------
------------- ---------
- - ----------------------------------------------------------------------------
</TABLE>
The number of common shares the company is authorized to issue is 600
million and the number of authorized preferred shares, none of which has been
issued, is 9 million.
In December 1997, the company announced it would extend the repurchase
program for an additional $1 billion of Deere & Company common stock. This is in
addition to the $500 million of stock repurchased under the original program
during 1996 and 1997. The major changes during 1998 affecting common stock in
treasury included the repurchase of 16,413,200 shares of common stock at a cost
of $762 million related to the repurchase program and 2,293,205 shares at a cost
of $123 million for ongoing stock option and restricted stock plans. In
addition, 719,724 shares of treasury stock at an original cost of $30 million
were issued under these plans.
A reconciliation of basic and diluted net income per share follows in
millions, except per share amounts:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . $ 1,021.4 $ 960.1 $ 817.3
Average shares outstanding . . . . . . . . . 243.3 253.7 260.5
BASIC NET INCOME PER SHARE . . . . . . . . . $ 4.20 $ 3.78 $ 3.14
---------- -------- ---------
---------- -------- ---------
Average shares outstanding . . . . . . . . . 243.3 253.7 260.5
Effect of dilutive securities:
Stock options. . . . . . . . . . . . . . . 2.1 2.7 2.4
Other. . . . . . . . . . . . . . . . . . .. 3 .2 .3
---------- -------- ---------
Total potential shares outstanding . . . . 245.7 256.6 263.2
---------- -------- ---------
---------- -------- ---------
Diluted net income per share . . . . . . . . $ 4.16 $ 3.74* $ 3.11*
---------- -------- ---------
---------- -------- ---------
</TABLE>
*Restated for adoption of FASB
Statement No. 128 in 1998.
- - -------------------------------------------------------------------------------
Stock options to purchase .5 million, none and .1 million shares during 1998,
1997 and 1996 were outstanding, but not included in the above diluted per share
computation because the options' exercise prices were greater than the average
market price of the company's common stock during the related periods.
40
<PAGE>
STOCK OPTION AND RESTRICTED STOCK AWARDS
The company issues stock options and restricted stock to key employees under
plans approved by stockholders. Restricted stock is also issued to
nonemployee directors. Options are generally awarded with the exercise price
equal to the market price and become exercisable in one year. Certain other
options are awarded with the exercise prices greater than the market price
and become exercisable in one to five years, depending on the achievement of
company performance goals. Options generally expire 10 years after the date
of grant. The period of restriction for restricted stock issued to employees
is normally four years and may depend on the achievement of company
performance goals. If the company exceeds these goals, additional shares
could be granted at the end of the restricted period. According to these
plans at October 31, 1998, the company is authorized to grant stock options
and restricted stock for an additional 12.6 million and 3.5 million shares,
respectively.
The company has retained the intrinsic value method of accounting for
its plans in accordance with APB Opinion No. 25, and no compensation expense
for stock options was recognized under this method. For disclosure purposes
only under FASB Statement No. 123, Accounting for Stock Based Compensation,
the Black-Scholes option pricing model was used to calculate the "fair
values" of stock options. Based on this model, the fair values of stock
options awarded during 1998, 1997 and 1996 with the exercise price equal to
the market price were $19.84, $13.70 and $9.40 per option, respectively.
Stock options awarded during 1998 with the exercise price greater than the
market price were valued at $14.81 per option.
Pro forma net income and earnings per share, as if the fair value method
in FASB Statement No. 123 had been used to account for stock-based
compensation, and the assumptions used are as follow:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions)
As reported. . . . . . . . . . . . . . . . $ 1,021 $ 960 $ 817
Pro forma. . . . . . . . . . . . . . . . . $ 997 $ 948 $ 808
Net income per share
As reported - basic. . . . . . . . . . . . $ 4.20 $ 3.78 $ 3.14
Pro forma - basic. . . . . . . . . . . . . $ 4.10 $ 3.74 $ 3.10
As reported - diluted. . . . . . . . . . . $ 4.16 $ 3.74 $ 3.11
Pro forma - diluted. . . . . . . . . . . . $ 4.06 $ 3.70 $ 3.07
Black-Scholes assumptions*
Risk-free interest rate. . . . . . . . . . 5.8% 6.2% 5.6%
Dividend yield . . . . . . . . . . . . . . 1.6% 1.9% 2.3%
Stock volatility . . . . . . . . . . . . . 34.7% 30.0% 25.2%
Expected option life . . . . . . . . . . . 5.3 years 5.3 years 5.9 years
- - ------------------------------------------------------------------------------------
</TABLE>
*Weighted-averages
The pro forma stock-based compensation expense included in net income
above may not be representative of future years since only awards of stock
options and restricted stock after November 1, 1995 have been included in
accordance with FASB Statement No. 123.
During the last three fiscal years, changes in shares under option in
millions were as follows:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------- ----------------- ------------------
Exercise Exercise Exercise
Shares Price* Shares Price* Shares Price*
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year. . . . . . 6.2 $30.90 6.3 $26.54 6.9 $22.33
Granted . . . . . . . . . . . . . . . . . . 2.2** 62.02** 1.5 42.69 1.8 34.90
Exercised . . . . . . . . . . . . . . . . . (.7) 29.55 (1.5) 24.23 (2.0) 19.98
Expired or forfeited . . . . . . . . . . . (.1) 48.67 (.1) 28.70 (.4) 25.10
---- ---- ----
Outstanding at end of year. . . . . . . . . 7.6 39.95 6.2 30.90 6.3 26.54
Exercisable at end of year. . . . . . . . . 3.8 30.52 3.1 24.70 3.1 19.35
- - ------------------------------------------------------------------------------------------------------------
* Weighted-averages
** Includes 1.7 granted at market price of $56.50
and .5 granted above market price at $82.19
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Options outstanding and exercisable in millions at October 31, 1998 were
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Remaining
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (yrs)* Price* Shares Price*
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13.63 - $23.56 . . . . . . . . . . . 1.7 5.0 $19.74 1.7 $19.74
$28.39 - $34.13 . . . . . . . . . . . 2.4 6.5 32.37 1.0 34.13
$40.60 - $47.36 . . . . . . . . . . . 1.3 8.0 42.83 1.1 42.69
$56.50 . . . . . . . . . . . . . . . 1.7 9.1 56.50
$82.19 . . . . . . . . . . . . . . . .5 9.1 82.19
---- ----
Total . . . . . . . . . . . . . . . . 7.6 3.8
*Weighted-averages
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
In 1998, 1997, and 1996, the company granted 33,239, 292,681 and 95,016
shares of restricted stock with weighted-average fair values of $55.60,
$43.14 and $41.17 per share, respectively. The total compensation expense for
the restricted stock plans, which are being amortized over the restricted
periods, was $2 million, $15 million and $9 million in 1998, 1997 and 1996,
respectively.
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 $45 million in 1998, $41
million in 1997 and $35 million in 1996.
RETAINED EARNINGS
An analysis of the company's retained earnings follows in millions of dollars:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
1998 1997 1996
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . $ 3,048 $ 2,300 $ 1,690
Net income . . . . . . . . . . . . . . . . . 1,021 960 817
Dividends declared . . . . . . . . . . . . . (213) (202) (207)
Other. . . . . . . . . . . . . . . . . . . . (16) (10)
-------- ------- --------
BALANCE, END OF THE YEAR . . . . . . . . . . $ 3,840 $ 3,048 $ 2,300
- - -----------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
CUMULATIVE TRANSLATION ADJUSTMENT
An analysis of the company's cumulative translation adjustment follows in
millions of dollars:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of the year . . . . . . . . . . . . . . . $ (57) $ (14) $ (12)
Translation adjustments for the year.. . . . . . . . . . . . (21) (37) 1
Income taxes applicable to translation adjustments . . . . . (3) (6) (3)
------ ------ ------
BALANCE, END OF THE YEAR . . . . . . . . . . . . . . . . . . $ (81) $ (57) $ (14)
------ ------ ------
------ ------ ------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL INSTRUMENTS
The fair values of financial instruments which do not approximate the
carrying values in the financial statements at October 31 in millions of
dollars follow:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financing receivables. . . . . . . . . . . . . . . $ 6,333 $ 6,344 $ 6,405 $ 6,381
------- ------- ------- -------
------- ------- ------- -------
Long-term borrowings and related swaps:
Equipment Operations borrowings . . . . . . . . $ 553 $ 604 $ 540 $ 629
Financial Services borrowings . . . . . . . . . 2,249 2,307 2,089 2,127
Interest rate and
foreign currency swaps. . . . . . . . . . . . (10) (30) (6) (19)
------- ------- ------- -------
Total . . . . . . . . . . . . . . . . . . $ 2,792 $ 2,881 $ 2,623 $ 2,737
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
FAIR VALUE ESTIMATES
Fair values of the long-term financing receivables with fixed rates were based
on the discounted values of their related cash flows at current market interest
rates. The fair values of the remaining financing receivables approximated the
carrying amounts.
Fair values of long-term borrowings with fixed rates were based on the
discounted values of their related cash flows at current market interest
rates. Certain long-term borrowings of the credit operations have been
swapped to current variable interest rates. Fair values of these swaps were
also based on discounted values of their related cash flows at current market
interest rates.
Fair values and carrying values of the company's other interest rate
swaps associated with short-term borrowings, foreign exchange forward
contracts and options were not material.
DERIVATIVES
The company enters into derivative transactions only to 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
The company's credit operations enter into interest rate swap 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 agreements is accrued as
interest rates change and is recognized over the lives of the agreements in
interest expense.
At October 31, 1998 and 1997, the total notional principal amounts of
interest rate swap agreements related to short-term borrowings were $1,063
million and $795 million, having rates of 4.0 to 6.4 percent and 3.4 to 6.3
percent, terminating in up to 58 months and 36 months, respectively.
The credit operations have entered into interest rate swap agreements
with independent parties that change the effective rate of interest on
certain long-term borrowings. The "Long-Term Borrowings" table on pages 39
and 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. The credit operations also have interest rate swap
agreements associated with medium-term notes. The "Long-Term Borrowings"
table reflects the interest rates relating to these swap agreements. At
October 31, 1998 and 1997, the total notional principal amounts of these swap
agreements were $375 million and $380 million, terminating in up to 104
months and 116 months, respectively.
FOREIGN EXCHANGE FORWARD CONTRACTS, SWAPS AND OPTIONS
The company has entered into foreign exchange forward contracts, swaps and
purchased options in order to hedge the currency exposure of certain
receivables, liabilities, expected inventory purchases and equipment sales.
The foreign exchange forward contract and swap gains or losses are accrued as
foreign exchange rates change for hedges of receivables and liabilities or
deferred until expiration of the contract for hedges of future commitments.
The contract gains or losses and premiums are recognized in other operating
expenses, cost of sales or interest expense, and the premiums are either
amortized or deferred over the terms of the contracts depending on the items
being hedged. The foreign exchange purchased option premiums and any gains
are deferred and recognized in cost of sales for future inventory purchases
or sales for future sales of equipment. At October 31, 1998 and 1997, the
company had foreign exchange forward contracts of $697 million and $415
million, respectively, maturing in up to 12 months for both years and foreign
currency swap agreements for $237 million and $97 million maturing in up to
55 months and 15 months, respectively. At October 31, 1998 and 1997, the
company had purchased options for $215 million and $280 million maturing in
up to 27 months and 23 months, respectively. The total deferred gains or
losses on these foreign exchange hedges were not material at October 31, 1998
and 1997.
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.
42
<PAGE>
Cash payments for interest and income taxes consisted of the following in
millions of dollars:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest:
Equipment Operations. . . . . . . . . . . . . . . . $ 125 $ 83 $ 120
Financial Services. . . . . . . . . . . . . . . . . 414 366 298
Intercompany eliminations . . . . . . . . . . . . . (10) (5) (6)
------ ----- ------
CONSOLIDATED . . . . . . . . . . . . . . . . . . . . . . $ 529 $ 444 $ 412
------ ----- ------
------ ----- ------
Income taxes:
Equipment Operations. . . . . . . . . . . . . . . . $ 449 $ 522 $ 513
Financial Services. . . . . . . . . . . . . . . . . 80 112 104
Intercompany eliminations . . . . . . . . . . . . . (63) (97) (92)
------ ----- ------
CONSOLIDATED . . . . . . . . . . . . . . . . . . . . . . $ 466 $ 537 $ 525
------ ----- ------
------ ----- ------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL INFORMATION (UNAUDITED)
Quarterly information with respect to net sales and revenues and earnings is
shown in the following schedule. Such information is shown in millions of
dollars except for per share amounts.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net sales and revenues . . . . . . . . . . . . . $ 2,846 $ 4,070 $ 3,694 $ 3,212
Income before income taxes . . . . . . . . . . . 321 567 437 235
Net income . . . . . . . . . . . . . . . . . . . 203 365 291 162
Net income per share . . . . . . . . . . . . . . .81 1.48 1.20 .71
Net income per share - diluted . . . . . . . . . .81 1.45 1.19 .71
Dividends declared per share . . . . . . . . . . .22 .22 .22 .22
Dividends paid per share . . . . . . . . . . . . .20 .44 * .22
1997
Net sales and revenues . . . . . . . . . . . . . $ 2,396 $ 3,521 $ 3,430 $ 3,444
Income before income taxes . . . . . . . . . . . 285 508 400 314
Net income . . . . . . . . . . . . . . . . . . . 177 319 253 211
Net income per share . . . . . . . . . . . . . . .69 1.25 1.00 .84
Net income per share - diluted . . . . . . . . . .68 1.24 .99 .83
Dividends declared per share . . . . . . . . . . .20 .20 .20 .20
Dividends paid per share . . . . . . . . . . . . .20 .20 .20 .20
*The payment date was included in the second quarter.
- - ---------------------------------------------------------------------------------------------------
</TABLE>
Common stock per share sales prices from New York Stock Exchange
composite transactions quotations follow:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 MARKET PRICE
High . . . . . . . . . . . . . . . . . . . $ 59.88 $ 64.13 $ 59.50 $ 43.56
Low . . . . . . . . . . . . . . . . . . . $ 49.38 $ 53.38 $ 39.69 $ 28.38
1997 MARKET PRICE
High . . . . . . . . . . . . . . . . . . . $ 47.13 $ 46.75 $ 60.50 $ 59.00
Low . . . . . . . . . . . . . . . . . . . $ 39.13 $ 40.88 $ 44.38 $ 48.75
- - ---------------------------------------------------------------------------------------------------
</TABLE>
At October 31, 1998, there were 32,127 holders of record of the company's $1
par value common stock and 13 holders of record of the company's 5 1/2%
convertible subordinated debentures due 2001.
DIVIDEND
A quarterly cash dividend of $.22 per share was declared at the board of
directors' meeting held on December 2, 1998, payable on February 1, 1999.
FINANCIAL INSTRUMENT RISK INFORMATION (UNAUDITED)
SENSITIVITY ANALYSIS
The following is a sensitivity analysis for the company's derivatives and
other financial instruments which have interest rate risk. These instruments
are held for other than trading purposes. The gains or losses in the table
below represent the changes in the financial instruments' fair values which
would be caused by increasing the interest rates by 10 percent of the current
market rates at October 31, 1998 and 1997. The fair values were determined
based on the discounted values of their related cash flows. The gains or
losses in fair values would have been as follows in millions of dollars:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------
Fair Value
Gains (Losses)
---------------
1998 1997
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Marketable securities. . . . . . . . . . . . . . . . $ (13) $ (14)
Financing receivables. . . . . . . . . . . . . . . . (37) (39)
Long-term borrowings and related swaps:
Equipment Operations borrowings . . . . . . . . 28 30
Financial Services borrowings . . . . . . . . . 24 27
Interest rate and foreign currency swaps . . (7) (7)
------ ------
Total . . . . . . . . . . . . . . . . . . . $ (5) $ (3)
------ ------
------ ------
- - ---------------------------------------------------------------------------------
</TABLE>
TABULAR INFORMATION
The following foreign exchange forward contracts were held by the company to
hedge certain currency exposures. All contracts have maturity dates of less
than one year. The notional amounts and fair values in millions of dollars
follow:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
Average Fair Value
Contractual Notional Gains
Rate* Amount (Losses)
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OCTOBER 31, 1998
Buy US$ / Sell Canadian dollar . . . . . . . . . . . . . . . 1.5390 $ 240 $ 2.2
Buy Deutsche Mark / Sell US$ . . . . . . . . . . . . . . . . 1.6233 187 (1.7)
Buy US$ / Sell Australian dollar . . . . . . . . . . . . . . 1.6189 86 (1.1)
Buy British Pound / Sell US$ . . . . . . . . . . . . . . . . .5956 37 (.1)
Buy French Franc / Sell US$. . . . . . . . . . . . . . . . . 5.6281 34 .5
Buy Spanish Peseta / Sell US$. . . . . . . . . . . . . . . . 140.44 28 (1.9)
Other contracts. . . . . . . . . . . . . . . . . . . . . . . 85 (3.1)
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 697 $ (5.2)
------ ------
------ ------
OCTOBER 31, 1997
Buy US$ / Sell Canadian dollar . . . . . . . . . . . . . . . 1.3758 $ 144 $ 2.9
Buy Deutsche Mark / Sell US$ . . . . . . . . . . . . . . . . 1.7337 113 1.8
Buy British Pound / Sell US$ . . . . . . . . . . . . . . . . .5991 47 .1
Buy Australian dollar / Sell US$ . . . . . . . . . . . . . . 1.4266 22
Buy French Franc / Sell US$. . . . . . . . . . . . . . . . . 5.9095 20 .5
Buy Spanish Peseta / Sell US$. . . . . . . . . . . . . . . . 148.53 19 .4
Other contracts. . . . . . . . . . . . . . . . . . . . . . . 50 2.0
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 415 $ 7.7
------ ------
------ ------
*Currency per United States dollar (US$)
- - ---------------------------------------------------------------------------------------------------
</TABLE>
At October 31, 1998 and 1997, the company had $215 million and $280 million
of foreign exchange purchased options with a deferred premium of $5 million
and $3 million, respectively. The premium is the maximum potential loss on
these options, which are primarily held as hedges of expected inventory
purchases. See pages 30 and 42 for further discussion of financial
instruments including derivatives.
43
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
44
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Deere & Company:
We have audited the accompanying consolidated balance sheets of Deere &
Company and subsidiaries as of October 31, 1998 and 1997 and the related
statements of consolidated income and of consolidated cash flows for each of
the three years in the period ended October 31, 1998. 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, 1998 and 1997 and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 1998
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.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 24, 1998
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Each person signing below also hereby appoints Hans W. Becherer,
Nathan J. Jones and Frank S. Cottrell, and each of them singly, his or her
lawful attorney-in-fact with full power to execute and file any and all
amendments to this report together with exhibits thereto and generally to do
all such things as such attorney-in-fact may deem appropriate to enable Deere
& Company to comply with the provisions of the Securities Exchange Act of
1934 and all requirements of the Securities and Exchange Commission.
DEERE & COMPANY
By: /s/ Hans W. Becherer
------------------------
Hans W. Becherer
Chairman and Chief Executive Officer
Date: 25 January 1999
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Hans W. Becherer Chairman, Director and )
------------------------
Hans W. Becherer Chief Executive Officer )
)
/s/ John R. Block Director ) 25 January 1999
------------------------
John R. Block )
)
/s/ Leonard A. Hadley Director )
------------------------
Leonard A. Hadley )
)
/s/ Regina E. Herzlinger Director )
------------------------
Regina E. Herzlinger )
)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Samuel C. Johnson Director )
------------------------
Samuel C. Johnson )
Senior Vice President, )
/s/ Nathan J. Jones Principal Financial Officer )
------------------------ Principal Accounting Officer )
Nathan J. Jones
)
/s/ Arthur L. Kelly Director ) 25 January 1999
------------------------
Arthur L. Kelly )
)
/s/ Antonio Madero B. Director )
------------------------
Antonio Madero B. )
)
/s/ William A. Schreyer Director )
------------------------
William A. Schreyer )
)
/s/ John R. Stafford Director )
------------------------
John R. Stafford )
)
/s/ John R. Walter Director )
------------------------
John R. Walter )
)
/s/ Arnold R. Weber Director )
------------------------
Arnold R. Weber )
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended October 31, 1998, 1997 and 1996
(in thousands of dollars)
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C
- - -------------------------------------- ---------- ----------------------------------------------------
Additions
----------------------------------------------------
Balance at Charged to Charged to other accounts
beginning costs and ----------------------------------------
Description of period expenses Description Amount
- - -------------------------------------- ---------- --------- ----------------------- --------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances $ 34,801 $ 6,347 Bad debt recoveries $ 1,840
FINANCIAL SERVICES
Credit receivable allowances 93,656 50,500
---------- --------- --------
Consolidated receivable allowances $ 128,457 $ 56,847 $ 1,840
---------- --------- --------
---------- --------- --------
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances $ 34,850 $ 12,768 Bad debt recoveries $ 1,419
FINANCIAL SERVICES
Credit receivable allowances 93,498 38,206
---------- --------- --------
Consolidated receivable allowances $ 128,348 $ 50,974 $ 1,419
---------- --------- --------
---------- --------- --------
YEAR ENDED OCTOBER 31, 1996
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances $ 24,012 $ 17,210 Bad debt recoveries $ 1,306
Purchase of Mexico 434
operations
FINANCIAL SERVICES
Credit receivable allowances 87,715 42,715
---------- --------- --------
Consolidated receivable allowances $ 111,727 $ 59,925 $ 1,740
---------- --------- --------
---------- --------- --------
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
Column D Column E
--------------------------------------------------------- ----------
Deductions Balance
--------------------------------------------------------- at end
Description Description Amount of Period
- - -------------------------------------- -------------------------------------- ----------- ----------
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances Dealer receivable write-offs $ 11,649 $ 31,339
FINANCIAL SERVICES Transfers related to retail note sales 18,572
Credit receivable allowances Credit receivable write-offs 35,784 89,800
----------- ----------
Consolidated receivable allowances $ 66,005 $ 121,139
----------- ----------
----------- ----------
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances Dealer receivable write-offs $ 14,236 $ 34,801
FINANCIAL SERVICES Transfers related to retail note sales 6,157
Credit receivable allowances Credit receivable write-offs 31,891 93,656
----------- ----------
Consolidated receivable allowances $ 52,284 $ 128,457
----------- ----------
----------- ----------
YEAR ENDED OCTOBER 31, 1996
Allowance for doubtful receivables:
EQUIPMENT OPERATIONS
Dealer receivable allowances Dealer receivable write-offs $ 8,112 $ 34,850
FINANCIAL SERVICES Transfers related to retail note sales 6,316
Credit receivable allowances Credit receivable write-offs 30,616 93,498
----------- ----------
Consolidated receivable allowances $ 45,044 $ 128,348
----------- ----------
----------- ----------
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C>
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
3.3 By-laws, as amended (Exhibit 3.3 to Form 10-K of registrant for the year
ended October 31, 1997*)
4.1 Indenture dated October 1, 1998 between registrant and The Chase
Manhattan Bank, as Trustee
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
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 Amended and restated credit agreements among the registrant, John Deere
Capital Corporation, various financial institutions and The Chase
Manhattan Bank, Bank of America National Trust and Savings Association,
Deutsche Bank AG New York Branch, The Toronto-Dominion Bank, Morgan
Guaranty Trust Company of New York, NationsBank, N.A. and The First
National Bank of Chicago as Managing Agents dated as of February 24,
1998 (Exhibit 4.1 to Form 10-Q of the registrant for the quarter ended
April 30, 1998*)
4.5 Third Amending Agreements to Loan Agreements among John Deere Limited,
John Deere Credit Inc., various financial institutions and The Toronto-
Dominion Bank as agent, dated as of February 24, 1998 (Exhibit 4.2 to
Form 10-Q of the registrant for the quarter ended April 30, 1998*)
4.6 Form of common stock certificate
4.7 Rights Agreement dated as of December 3, 1997 between registrant and The
Bank of New York (Exhibit 1 to the registration statement on Form 8-A of
registrant filed December 10, 1997*)
Certain instruments relating to long-term debt constituting less than 10%
of the registrant's total assets, are not filed as exhibits herewith
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will
file copies of such instruments upon request of the Commission.
9. Not applicable
10.1 Agreement as amended November 1, 1994 between registrant and John
Deere Capital Corporation concerning agricultural retail notes
10.2 Agreement as amended November 1, 1994 between registrant and John
Deere Capital Corporation relating to lawn and grounds care retail
notes
10.3 Agreement as amended November 1, 1994 between John Deere Industrial
Equipment Company, a wholly-owned subsidiary of registrant and John
Deere Capital Corporation concerning industrial retail notes
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
10.5 Agreement dated July 14, 1997 between the John Deere Construction
Equipment Company and John Deere Capital Corporation concerning
construction retail notes (Exhibit 10.8 to John Deere Capital
Corporation Form 10-K for the year ended October 31, 1997 Securities
and Exchange Commission file number 1-6458*)
10.6 John Deere Supplemental Pension Benefit Plan, as amended December 4,
1996 (Exhibit 10.5 to Form 10-K of registrant for the year ended
October 31, 1996*)**
10.7 1986 John Deere Stock Option Plan
10.8 1991 John Deere Stock Option Plan (Appendix to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 28, 1996*)**
10.9 Deere & Company Voluntary Deferred Compensation Plan
10.10 John Deere Restricted Stock Plan (Appendix to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 28, 1996*)**
10.11 1993 Nonemployee Director Stock Ownership Plan
10.12 John Deere Performance Bonus Plan (Exhibit A to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 22, 1995*)**
10.13 John Deere Equity Incentive Plan (Exhibit B to Notice and Proxy
Statement of registrant for the annual shareholder meeting on
February 22, 1995*)**
10.14 Deere & Company Nonemployee Director Deferred Compensation Plan
(Exhibit 10.13 to Form 10-K of registrant for the year ended
October 31, 1996*)**
10.15 John Deere Defined Contribution Restoration Plan (Exhibit 10.15 to
Form 10-K of the registrant for the year ended October 31, 1997*)
10.16 Agreement dated October 15, 1996 between registrant and John Deere
Capital Corporation relating to fixed charges ratio, ownership and
minimum net worth of John Deere Capital Corporation. (Exhibit 10.7 to
John Deere Capital Corporation Form 10-K for the year ended
October 31, 1996 Securities and Exchange Commission file
number 1-6458*)
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
</TABLE>
- - --------------------------------
* 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.
50
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>2
<DESCRIPTION>EXHIBIT 3.2
<TEXT>
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS OF SERIES A
PARTICIPATING PREFERRED STOCK
DEERE & COMPANY
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Robert A. Hanson, Chairman of the Board, and Frank S. Cottrell,
Secretary, of Deere & Company, a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation of the said Corporation, the said
Board of Directors on December 9, 1987, adopted the following resolution
creating a series of 1,000,000 shares of Preferred Stock designated as Series A
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Participating Preferred Stock" and the number of
shares constituting such series shall be 1,000,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) The dividend rate on the shares of Series A Participating
Preferred Stock for each quarterly dividend period (Hereinafter referred to as a
"quarterly dividend period"), which quarterly dividend periods shall commence on
February 1, May 1, August 1 and November 1 in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date") (or in the case of
original issuance, from the date of original issuance) and shall end on and
include the day next preceding the first date of the next quarterly dividend
period,
<PAGE>
- 2 -
shall be equal (rounded to the nearest cent) to the greater of (a) $5 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in cash, based upon the fair market value at the
time the non-cash dividend or other distribution is declared as determined in
good faith by the Board of Directors) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared (but not withdrawn) on the Common Stock, $1.00 par
value, of this Corporation (the "Common Stock") during the immediately
preceding quarterly dividend period, or, with respect to the first quarterly
dividend period, since the first issuance of any share or fraction of a share
of Series A Participating Preferred Stock. In the event the Corporation
shall at any time after December 9, 1987 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Participating Preferred Stock
were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares Common Stock that were outstanding immediately prior to such event.
(B) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such
shares of Series A Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Participating Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for
<PAGE>
- 3 -
the determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 45 days prior to the date fixed for the
payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of
Series A Participating Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, by the Restated Certificate
of Incorporation or by law, the holders of shares of Series A Participating
Preferred Stock and the holders of shares of Common Stock shall vote together as
one class on all matters submitted to a vote of stockholders of the Corporation.
(C) The provisions of Section 2.7 of the Corporation's Restated
Certificate of Incorporation are hereby expressly made applicable to the Series
A Participating Preferred Stock.
Section 4. REACQUIRED SHARES. Any shares of Series A Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 5. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any voluntary or involuntary liquidation,
<PAGE>
- 4 -
dissolution or winding up of the Corporation, the holders of the Series A
Participating Preferred Stock shall be entitled to receive the greater of (a)
$100 per share, plus accrued dividends to the date of distribution, whether
or not earned or declared, or (b) an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock. In
the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Participating Preferred Stock
were entitled immediately prior to such event pursuant to clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
of the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 6. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case
the shares of Series A Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series
A Participating Preferred Stock shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. OPTIONAL REDEMPTION. (A) The Corporation shall have
the option to redeem the whole or any part of the Series A Participating
Preferred Stock at any time in accordance with the provisions of Section 2.5
of the
<PAGE>
- 5 -
Corporation's Restated Certificate of Incorporation at a redemption price equal
to, subject to the provision for adjustment hereinafter set forth, 100 times the
"current per share market price" of the Common Stock on the date of the mailing
of the notice of redemption, together with unpaid accumulated dividends to the
date of such redemption. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series A Participating
Preferred Stock were otherwise entitled immediately prior to such event under
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. The "current per share market price" on any date shall be deemed to be
the average of the closing price per share of such Common Stock for the 10
consecutive Trading Days (as such terms is hereinafter defined) immediately
prior to such date. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted the
average of the high bid and low asked prices in the over-the-counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use or, if on any such
date the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the
Corporation. If on such date no such market maker is making a market in the
Common Stock, the fair value of the Common Stock on such date as determined in
good faith by the Board of Directors of the Corporation shall be used. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the
<PAGE>
- 6 -
Common Stock is not listed or admitted to trading on any national securities
exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of New York are not authorized or obligated by law or
executive order to close.
(B) The provisions of Section 2.5 of the Corporation's Restated
Certificate of Incorporation are hereby expressly made applicable to the Series
A Preferred Stock.
Section 8. FRACTIONAL SHARES. Series A Participating Preferred Stock may
be issued in fractions of a share which shall entitle the holder, in proportion
to such holders fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this 18th day of
December 1987.
/s/ Robert A. Hanson
----------------------------------------
Chairman of the Board
Attest:
/s/ Frank S. Cottrell
- - ------------------------------
Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>3
<DESCRIPTION>EXHIBIT 4.1
<TEXT>
<PAGE>
EXHIBIT 4.1
- - -------------------------------------------------------------------------------
Deere & Company
To
The Chase Manhattan Bank,
Trustee
--------------------------------
Indenture
Dated as of October 1, 1998
--------------------------------
Providing for the Issuance
of
Senior Debt Securities
<PAGE>
DEERE & COMPANY
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of October 1, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
ss. 310 (a)(1) 607(a)
(a)(2) 607(a)
(b) 607(b), 608
ss. 312 (c) 701
ss. 314 (a) 703
(a)(4) 1005
(c)(1) 102
(c)(2) 102
(e) 102
ss. 315 (b) 601
ss. 316 (a) (last sentence) 101 ("Outstanding")
(a)(1)(A) 502, 512
(a)(1)(B) 513
(b) 508
ss. 317 (a)(1) 503
(a)(2) 504
ss. 318 (a) 111
(c) 111
</TABLE>
- - --------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C> <C>
SECTION 101. Definitions......................................................1
SECTION 102. Compliance Certificates and Opinions............................11
SECTION 103. Form of Documents Delivered to Trustee..........................12
SECTION 104. Acts of Holders.................................................12
SECTION 105. Notices, etc., to Trustee and Company...........................14
SECTION 106. Notice to Holders; Waiver.......................................14
SECTION 107. Effect of Headings and Table of Contents........................16
SECTION 108. Successors and Assigns..........................................16
SECTION 109. Separability Clause.............................................16
SECTION 110. Benefits of Indenture...........................................16
SECTION 111. Governing Law...................................................16
SECTION 112. Legal Holidays..................................................16
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities.............................................17
SECTION 202. Form of Trustee's Certificate of Authentication.................17
SECTION 203. Securities Issuable in Global Form..............................17
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series............................19
SECTION 302. Denominations...................................................23
SECTION 303. Execution, Authentication, Delivery and Dating..................23
SECTION 304. Temporary Securities............................................25
SECTION 305. Registration, Registration of Transfer and Exchange.............28
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities................31
SECTION 307. Payment of Interest; Interest Rights Preserved; Optional
Interest Reset.......................................................33
SECTION 308. Optional Extension of Maturity..................................36
SECTION 309. Persons Deemed Owners...........................................37
<PAGE>
ii
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<S> <C> <C>
SECTION 310. Cancellation....................................................38
SECTION 311. Computation of Interest.........................................38
SECTION 312. Currency and Manner of Payments in Respect of Securities........38
SECTION 313. Appointment and Resignation of Successor Exchange Rate Agent....42
SECTION 314. CUSIP Numbers...................................................43
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.........................43
SECTION 402. Application of Trust Funds......................................45
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default...............................................45
SECTION 502. Acceleration of Maturity; Rescission and Annulment..............47
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.48
SECTION 504. Trustee May File Proofs of Claim................................49
SECTION 505. Trustee May Enforce Claims Without Possession of Securities
or Coupons...........................................................50
SECTION 506. Application of Money Collected..................................50
SECTION 507. Limitation on Suits.............................................50
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.........................................................51
SECTION 509. Restoration of Rights and Remedies..............................51
SECTION 510. Rights and Remedies Cumulative..................................51
SECTION 511. Delay or Omission Not Waiver....................................52
SECTION 512. Control by Holders of Securities................................52
SECTION 513. Waiver of Past Defaults.........................................52
SECTION 514. Waiver of Stay or Extension Laws................................53
<PAGE>
iii
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ARTICLE SIX
THE TRUSTEE
<S> <C> <C>
SECTION 601. Notice of Defaults..............................................53
SECTION 602. Certain Rights of Trustee.......................................53
SECTION 603. Not Responsible for Recitals or Issuance of Securities..........55
SECTION 604. May Hold Securities.............................................55
SECTION 605. Money Held in Trust.............................................55
SECTION 606. Compensation and Reimbursement..................................55
SECTION 607. Corporate Trustee Required; Eligibility.........................56
SECTION 608. Resignation and Removal; Appointment of Successor...............56
SECTION 609. Acceptance of Appointment by Successor..........................58
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.....59
SECTION 611. Appointment of Authenticating Agent.............................60
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders....................61
SECTION 702. Reports by Trustee..............................................62
SECTION 703. Reports by Company..............................................62
SECTION 704. Calculation of Original Issue Discount..........................63
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 801. Company May Consolidate, etc., Only on Certain Terms............63
SECTION 802. Successor Person Substituted....................................64
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders..............64
SECTION 902. Supplemental Indentures with Consent of Holders.................66
SECTION 903. Execution of Supplemental Indentures............................67
<PAGE>
iv
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<S> <C> <C>
SECTION 904. Effect of Supplemental Indentures...............................67
SECTION 905. Conformity with Trust Indenture Act.............................67
SECTION 906. Reference in Securities to Supplemental Indentures..............68
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.....................68
SECTION 1002. Maintenance of Office or Agency................................68
SECTION 1003. Money for Securities Payments to Be Held in Trust..............70
SECTION 1004. Additional Amounts.............................................71
SECTION 1005. Statement as to Compliance.....................................72
SECTION 1006. Limitation on Liens............................................72
SECTION 1007. Limitation on Sale and Lease-back Transactions.................77
SECTION 1008. Waiver of Certain Covenants....................................78
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.......................................78
SECTION 1102. Election to Redeem; Notice to Trustee..........................78
SECTION 1103. Selection by Trustee of Securities to Be Redeemed..............78
SECTION 1104. Notice of Redemption...........................................79
SECTION 1105. Deposit of Redemption Price....................................80
SECTION 1106. Securities Payable on Redemption Date..........................81
SECTION 1107. Securities Redeemed in Part....................................82
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.......................................82
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities..........83
SECTION 1203. Redemption of Securities for Sinking Fund......................83
<PAGE>
v
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ARTICLE THIRTEEN
REPAYMENT AT THE OPTION OF HOLDERS
<S> <C> <C>
SECTION 1301. Applicability of Article.......................................83
SECTION 1302. Repayment of Securities........................................84
SECTION 1303. Exercise of Option.............................................84
SECTION 1304. When Securities Presented for Repayment Become Due and
Payable..............................................................84
SECTION 1305. Securities Repaid in Part......................................85
ARTICLE FOURTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1401. Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance....................................86
SECTION 1402. Defeasance and Discharge.......................................86
SECTION 1403. Covenant Defeasance............................................87
SECTION 1404. Conditions to Defeasance or Covenant Defeasance................87
SECTION 1405. Deposited Money and Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.............................89
ARTICLE FIFTEEN
MEETINGS OF HOLDERS OF SECURITIES
SECTION 1501. Purposes for Which Meetings May Be Called......................90
SECTION 1502. Call, Notice and Place of Meetings.............................90
SECTION 1503. Persons Entitled to Vote at Meetings...........................91
SECTION 1504. Quorum; Action.................................................91
SECTION 1505. Determination of Voting Rights; Conduct and Adjournment
of Meetings..........................................................92
SECTION 1506. Counting Votes and Recording Action of Meetings................93
</TABLE>
ACKNOWLEDGMENTS
EXHIBIT A - FORMS OF CERTIFICATION
<PAGE>
1
INDENTURE, dated as of October 1, 1998, between DEERE &
COMPANY, a Delaware corporation (hereinafter called the "Company"), having its
principal office at John Deere Road, Moline, Illinois 61265 and THE CHASE
MANHATTAN BANK, a New York banking corporation, as Trustee (hereinafter called
the "Trustee"), having its Corporate Trust Office at Global Trust Services, 450
West 33rd Street, New York, New York 10001.
RECITALS OF THE COMPANY
The Company deems it necessary to issue from time to time for
its lawful purposes senior debt securities (hereinafter called the "Securities")
evidencing its unsecured and unsubordinated indebtedness, which may or may not
be convertible into or exchangeable for any securities of any Person (including
the Company), and has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of the Securities,
unlimited as to principal amount, to bear such rates of interest, to mature at
such times and to have such other provisions as shall be fixed as hereinafter
provided.
This Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
All things necessary to make this Indenture a valid agreement
of the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities and
coupons, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311,
<PAGE>
2
shall have the meanings assigned to them in the rules of the Commission
adopted under the Trust Indenture Act;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Three, Article
Five, Article Six and Article Ten, are defined in those Articles.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Additional Amounts" means any additional amounts which are
required by a Security or by or pursuant to a Board Resolution, under
circumstances specified therein, to be paid by the Company in respect of certain
taxes imposed on certain Holders and which are owing to such Holders.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any authenticating agent
appointed by the Trustee pursuant to Section 611.
"Authorized Newspaper" means a newspaper, in the English
language or in an official language of the country of publication, customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays, and of general circulation in each place in connection with which
the term is used or in the financial community of each such place. Where
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different newspapers in
the same city meeting the foregoing requirements and in each case on any
Business Day.
"Bearer Security" means any Security established pursuant to
Section 201 which is payable to bearer.
<PAGE>
3
"Board of Directors" means the board of directors of the
Company, the executive committee or any committee of that board duly authorized
to act hereunder.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment
or any other particular location referred to in this Indenture or in the
Securities, means, unless otherwise specified with respect to any Securities
pursuant to Section 301, each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in that Place of Payment or
particular location are authorized or obligated by law or executive order to
close.
"CEDEL" means Centrale de Livraison de Valeurs Mobilieres,
S.A., or its successor.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after execution of this instrument such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties on such date.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" and "Company Order" mean, respectively, a
written request or order signed in the name of the Company by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Comptroller or an Assistant Comptroller, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Conversion Date" has the meaning specified in Section 312(d).
"Conversion Event" means the cessation of use of (i) a Foreign
Currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit (or composite currency) other than the ECU for the purposes for which it
was established.
<PAGE>
4
"Corporate Trust Office" means the office of the Trustee at
which, at any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at Global Trust
Services, 450 West 33rd Street, New York, New York 10001, Attention: USA Service
Delivery.
"corporation" includes corporations, associations, companies
and business trusts.
"coupon" means any interest coupon appertaining to a Bearer
Security.
"Currency" means any currency or currencies, composite
currency or currency unit or currency units, including, without limitation, the
ECU, issued by the government of one or more countries or by any reorganized
confederation or association of such governments.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Dollar" or "$" means a dollar or other equivalent unit in
such coin or currency of the United States of America as at the time shall be
legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised
from time to time by the Council of the European Communities.
"Election Date" has the meaning specified in Section 312(h).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, or its successor as operator of the Euroclear System.
"European Communities" means the European Union, the European
Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Event of Default" has the meaning specified in Article Five.
<PAGE>
5
"Exchange Rate Agent", with respect to Securities of or within
any series, means, unless otherwise specified with respect to any Securities
pursuant to Section 301, a New York Clearing House bank designated pursuant to
Section 301 or Section 313.
"Exchange Rate Officer's Certificate" means a certificate
setting forth (i) the applicable Market Exchange Rate or the applicable bid
quotation and (ii) the Dollar or Foreign Currency amounts of principal (and
premium, if any) and interest, if any (on an aggregate basis and on the basis of
a Security having the lowest denomination principal amount determined in
accordance with Section 302 in the relevant currency or currency unit), payable
with respect to a Security of any series on the basis of such Market Exchange
Rate or the applicable bid quotation signed by the Treasurer, any Vice President
or any Assistant Treasurer of the Company.
"Foreign Currency" means any Currency, including, without
limitation, the ECU issued by the government of one or more countries other than
the United States of America or by any recognized confederation or association
of such governments.
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
Foreign Currency in which the Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
"Holder" means, in the case of a Registered Security, the
Person in whose name a Security is registered in the Security Register and, in
the case of a Bearer Security, the bearer thereof and, when used with respect to
any coupon, shall mean the bearer thereof.
"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
and shall include the terms of particular
<PAGE>
6
series of Securities established as contemplated by Section 301; provided,
however, that, if at any time more than one Person is acting as Trustee under
this instrument, "Indenture" shall mean, with respect to any one or more series
of Securities for which such Person is Trustee, this instrument as originally
executed or as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of the or those particular series
of Securities for which such Person is Trustee established as contemplated by
Section 301, exclusive, however, of any provisions or terms which relate solely
to other series of Securities for which such Person is not Trustee, regardless
of when such terms or provisions were adopted, and exclusive of any provisions
or terms adopted by means of one or more indentures supplemental hereto executed
and delivered after such Person had become such Trustee but to which such
Person, as such Trustee, was not a party.
"Indexed Security" means a Security as to which all or certain
interest payments and/or the principal amount payable at Maturity are determined
by reference to prices, changes in prices, or differences between prices, of
securities, Currencies, intangibles, goods, articles or commodities or by such
other objective price, economic or other measures as are specified in Section
301 hereof.
"interest", when used with respect to an Original Issue
Discount Security which by its terms bears interest only after Maturity, shall
mean interest payable after Maturity, and, when used with respect to a Security
which provides for the payment of Additional Amounts pursuant to Section 1004,
includes such Additional Amounts.
"Interest Payment Date", when used with respect to any
Security, means the Stated Maturity of an installment of interest on such
Security.
"Market Exchange Rate" means, unless otherwise specified with
respect to any Securities pursuant to Section 301, (i) for any conversion
involving a currency unit on the one hand and Dollars or any Foreign Currency on
the other, the exchange rate between the relevant currency unit and Dollars or
such Foreign Currency calculated by the method specified pursuant to Section 301
for the Securities of the relevant series, (ii) for any conversion of Dollars
into any Foreign Currency, the noon buying rate for such Foreign Currency for
cable transfers quoted in New York City as certified for customs purposes by the
Federal Reserve Bank of New York and (iii) for any conversion of one Foreign
Currency into Dollars or another Foreign Currency, the spot rate at noon local
time in the relevant market at which, in accordance with normal banking
procedures, the Dollars or Foreign Currency into which conversion is being made
could be purchased with the Foreign Currency from which conversion is being made
from major banks located in either New York City, London or any other principal
market for Dollars or such purchased Foreign Currency, in each case determined
by the Exchange Rate Agent. Unless otherwise specified with respect to any
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7
Securities pursuant to Section 301, in the event of the unavailability of any of
the exchange rates provided for in the foregoing clauses (i), (ii) and (iii),
the Exchange Rate Agent shall use, in its sole discretion and without liability
on its part, such quotation of the Federal Reserve Bank of New York as of the
most recent available date, or quotations from one or more major banks in New
York City, London or other principal market for such currency or currency unit
in question, or such other quotations as the Exchange Rate Agent shall deem
appropriate. Unless otherwise specified by the Exchange Rate Agent, if there is
more than one market for dealing in any currency or currency unit by reason of
foreign exchange regulations or otherwise, the market to be used in respect of
such currency or currency unit shall be that upon which a nonresident issuer of
securities designated in such currency or currency unit would purchase such
currency or currency unit in order to make payments in respect of such
securities.
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment, notice of exchange or conversion, or otherwise.
"Officers' Certificate" means a certificate signed by the
Chairman, the President or any Vice President and by the Treasurer, an Assistant
Treasurer, the Comptroller or an Assistant Comptroller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company or who may be an employee of or other counsel for
the Company.
"Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502.
"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company)
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8
in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such
Securities and any coupons appertaining thereto, provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(iii) Securities, except to the extent provided in Sections
1402 and 1403, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Fourteen;
and
(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, (i) the principal amount of an
Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal thereof that would be (or
shall have been declared to be) due and payable, at the time of such
determination, upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502, (ii) the principal amount of any Security denominated
in a Foreign Currency that may be counted in making such determination or
calculation and that shall be deemed Outstanding for such purpose shall be equal
to the Dollar equivalent, determined as of the date such Security is originally
issued by the Company as set forth in an Exchange Rate Officer's Certificate
delivered to the Trustee, of the principal amount (or, in the case of an
Original Issue Discount Security or Indexed Security, the Dollar equivalent as
of such date of original issuance of the amount determined as provided in clause
(i) above or (iii) below, respectively) of such Security, (iii) the principal
amount of any Indexed Security that may be counted in making such determination
or calculation and that shall be deemed outstanding for such purpose shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided with respect to such Security pursuant to
Section 301, and (iv) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making such calculation or in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Securities which the Trustee actually
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9
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to
pay the principal of (or premium, if any) or interest, if any, on any Securities
or coupons on behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment", when used with respect to the Securities
of or within any series, means the place or places where the principal of (and
premium, if any) and interest, if any, on such Securities are payable as
specified and as contemplated by Sections 301 and 1002.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen coupon
appertains.
"Redemption Date", when used with respect to any Security to
be redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to
be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Security" shall mean any Security which is
registered in the Security Register.
"Regular Record Date" for the interest payable on any Interest
Payment Date on the Registered Securities of or within any series means the date
specified for that purpose as contemplated by Section 301, whether or not a
Business Day.
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10
"Repayment Date" means, when used with respect to any Security
to be repaid at the option of the Holder, the date fixed for such repayment by
or pursuant to this Indenture.
"Repayment Price" means, when used with respect to any
Security to be repaid at the option of the Holder, the price at which it is to
be repaid by or pursuant to this Indenture.
"Responsible Officer", when used with respect to the Trustee,
means any officer of the Trustee assigned by the Trustee to administer its
corporate trust matters.
"Security" or "Securities" has the meaning stated in the first
recital of this Indenture and, more particularly, means any Security or
Securities authenticated and delivered under this Indenture; provided, however,
that, if at any time there is more than one Person acting as Trustee under this
Indenture, "Securities" with respect to the Indenture as to which such Person is
Trustee shall have the meaning stated in the first recital of this Indenture and
shall more particularly mean Securities authenticated and delivered under this
Indenture, exclusive, however, of Securities of any series as to which such
Person is not Trustee.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Special Record Date" for the payment of any Defaulted
Interest on the Registered Securities of or within any series means a date fixed
by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or
any installment of principal thereof or interest thereon, means the date
specified in such Security or a coupon representing such installment of interest
as the fixed date on which the principal of such Security or such installment of
principal or interest is due and payable, as such date may be extended pursuant
to the provisions of Section 308.
"Subsidiary" means any corporation a majority of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries of the Company. For the purposes of
this definition, "voting stock" means stock having voting power for the election
of directors, whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in force at the date as of which this Indenture was executed, except
as provided in Section 905.
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11
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder;
provided, however, that if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities of any series shall mean only
the Trustee with respect to Securities of that series.
"United States" means, unless otherwise specified with respect
to any Securities pursuant to Section 301, the United States of America
(including the states and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.
"United States person" means, unless otherwise specified with
respect to any Securities pursuant to Section 301, an individual who is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
"Valuation Date" has the meaning specified in Section 312(c).
"Yield to Maturity" means the yield to maturity, computed at
the time of issuance of a Security (or, if applicable, at the most recent
redetermination of interest on such Security) and as set forth in such Security
in accordance with generally accepted United States bond yield computation
principles.
SECTION 102. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1005) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such condition or covenant and the definitions
herein relating thereto;
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12
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such condition
or covenant has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion as to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
as to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders of the Outstanding Securities of
all series or one or more series, as the case may be, may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Holders in person or by agents duly appointed in writing. If Securities of
a series are issuable as Bearer Securities, any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or
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13
taken by Holders of Securities of such series may, alternatively, be embodied in
and evidenced by the record of Holders of Securities of such series voting in
favor thereof, either in person or by proxies duly appointed in writing, at any
meeting of Holders of Securities of such series duly called and held in
accordance with the provisions of Article Fifteen, or a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments or so voting
at any such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security, shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company and any agent of the Trustee or the Company, if made in
the manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 1506.
(b) The fact and date of the execution of any such instrument
or writing, or the authority of the Person executing the same, may be proved in
any manner that the Trustee deems reasonably sufficient.
(c) The ownership of Registered Securities shall be proved by
the Security Register.
(d) The ownership of Bearer Securities may be proved by the
production of such Bearer Securities or by a certificate executed, as
depositary, by any trust company, bank, banker or other depositary, wherever
situated, if such certificate shall be deemed by the Trustee to be satisfactory,
showing that at the date therein mentioned such Person had on deposit with such
depositary, or exhibited to it, the Bearer Securities therein described; or such
facts may be proved by the certificate or affidavit of the Person holding such
Bearer Securities, if such certificate or affidavit is deemed by the Trustee to
be satisfactory. The Trustee and the Company may assume that such ownership of
any Bearer Security continues until (1) another certificate or affidavit bearing
a later date issued in respect of the same Bearer Security is produced, or (2)
such Bearer Security is produced to the Trustee by some other Person, or (3)
such Bearer Security is surrendered in exchange for a Registered Security, or
(4) such Bearer Security is no longer Outstanding. The ownership of Bearer
Securities may also be proved in any other manner that the Trustee deems
sufficient.
(e) If the Company shall solicit from the Holders of
Registered Securities any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company may, at its option, in or pursuant to
a Board Resolution, fix in advance a record date for the determination of
Holders entitled to give such request, demand, authorization,
<PAGE>
14
direction, notice, consent, waiver or other Act, but the Company shall have no
obligation to do so. Notwithstanding TIA Section 316(c), such record date shall
be the record date specified in or pursuant to such Board Resolution, which
shall be a date not earlier than the date 30 days prior to the first
solicitation of Holders generally in connection therewith and not later than the
date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(f) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, any
Security Registrar, any Paying Agent, any Authenticating Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, etc., to Trustee and Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: USA Service Delivery, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver. Where this Indenture
provides for notice of any event to Holders of Registered Securities by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each such Holder affected by such event, at his address as
it appears in the Security Register, not later than the latest date, and not
earlier
<PAGE>
15
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders of Registered Securities is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to
Holders of Bearer Securities given as provided herein. Any notice mailed to a
Holder in the manner herein prescribed shall be conclusively deemed to have been
received by such Holder, whether or not such Holder actually receives such
notice.
If by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause it shall be impracticable to give
such notice by mail, then such notification to Holders of Registered Securities
as shall be made with the approval of the Trustee shall constitute a sufficient
notification to such Holders for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise
specified with respect to any Securities pursuant to Section 301, where this
Indenture provides for notice to Holders of Bearer Securities of any event, such
notice shall be sufficiently given if published in an Authorized Newspaper in
The City of New York and in such other city or cities as may be specified in
such Securities on a Business Day, such publication to be not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. Any such notice shall be deemed to have been given on the date
of such publication or, if published more than once, on the date of the first
such publication.
If by reason of the suspension of publication of any
Authorized Newspaper or Authorized Newspapers or by reason of any other cause it
shall be impracticable to publish any notice to Holders of Bearer Securities as
provided above, then such notification to Holders of Bearer Securities as shall
be given with the approval of the Trustee shall constitute sufficient notice to
such Holders for every purpose hereunder. Neither the failure to give notice by
publication to Holders of Bearer Securities as provided above, nor any defect in
any notice so published, shall affect the sufficiency of such notice with
respect to other Holders of Bearer Securities or the sufficiency of any notice
to Holders of Registered Securities given as provided herein.
Any request, demand, authorization, direction, notice, consent
or waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
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SECTION 107. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns. All covenants and
agreements in this Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 109. Separability Clause. In case any provision in
this Indenture or in any Security or coupon shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture. Nothing in this Indenture
or in the Securities or coupons, express or implied, shall give to any Person,
other than the parties hereto, any Security Registrar, any Paying Agent, any
Authenticating Agent and their successors hereunder and the Holders any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law. This Indenture and the Securities
and coupons shall be governed by and construed in accordance with the law of the
State of New York, without regard to principles of conflicts of laws. This
Indenture is subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
SECTION 112. Legal Holidays. In any case where any Interest
Payment Date, Redemption Date, Repayment Date, sinking fund payment date, Stated
Maturity or Maturity of any Security shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or any
Security or coupon other than a provision in the Securities of any series which
specifically states that such provision shall apply in lieu of this Section),
payment of principal (or premium, if any) or interest, if any, need not be made
at such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund
payment date, or at the Stated Maturity or Maturity; provided that no interest
shall accrue on the amount so payable for the period from and after such
Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment
date, Stated Maturity or Maturity, as the case may be.
<PAGE>
17
ARTICLE TWO
SECURITIES FORMS
SECTION 201. Forms of Securities. The Registered Securities,
if any, of each series and the Bearer Securities, if any, of each series and
related coupons shall be in substantially the forms as shall be established in
one or more indentures supplemental hereto or approved from time to time by or
pursuant to a Board Resolution in accordance with Section 301, shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture or any indenture supplemental hereto,
and may have such letters, numbers or other marks of identification or
designation and such legends or endorsements placed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 301,
Bearer Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed,
lithographed or engraved or produced by any combination of these methods on a
steel engraved border or steel engraved borders or may be produced in any other
manner, all as determined by the officers executing such Securities or coupons,
as evidenced by their execution of such Securities or coupons.
SECTION 202. Form of Trustee's Certificate of Authentication.
Subject to Section 611, the Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By_________________________________
Authorized Officer
SECTION 203. Securities Issuable in Global Form. If Securities
of or within a series are issuable in global form, as specified as contemplated
by Section 301, then,
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18
notwithstanding clause (8) of Section 301 and the provisions of Section 302, any
such Security shall represent such of the Outstanding Securities of such series
as shall be specified therein and may provide that it shall represent the
aggregate amount of Outstanding Securities of such series from time to time
endorsed thereon and that the aggregate amount of Outstanding Securities of such
series represented thereby may from time to time be increased or decreased to
reflect exchanges. Any endorsement of a Security in global form to reflect the
amount, or any increase or decrease in the amount, of Outstanding Securities
represented thereby shall be made by the Trustee in such manner and upon
instructions given by such Person or Persons as shall be specified therein or in
the Company Order to be delivered to the Trustee pursuant to Section 303 or 304.
Subject to the provisions of Section 303 and, if applicable, Section 304, the
Trustee shall deliver and redeliver any Security in permanent global form in the
manner and upon instructions given by the Person or Persons specified therein or
in the applicable Company Order. If a Company Order pursuant to Section 303 or
304 has been, or simultaneously is, delivered, any instructions by the Company
with respect to endorsement, delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 303 shall apply
to any Security represented by a Security in global form if such Security was
never issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 303.
Notwithstanding the provisions of Section 307, unless
otherwise specified as contemplated by Section 301, payment of principal of (and
premium, if any) and interest, if any, on any Security in permanent global form
shall be made to the Person or Persons specified therein.
Notwithstanding the provisions of Section 309 and except as
provided in the preceding paragraph, the Company, the Trustee and any agent of
the Company and the Trustee shall treat as the Holder of such principal amount
of Outstanding Securities represented by a permanent global Security (i) in the
case of a permanent global Security in registered form, the Holder of such
permanent global Security in registered form, or (ii) in the case of a permanent
global Security in bearer form, Euroclear or CEDEL.
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19
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series. The
aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities shall rank equally and pari passu and may be
issued in one or more series. There shall be established in one or more Board
Resolutions or pursuant to authority granted by one or more Board Resolutions
and, subject to Section 303, set forth, or determined in the manner provided, in
an Officers' Certificate, or established in one or more indentures supplemental
hereto, prior to the issuance of Securities of any series, any or all of the
following, as applicable (each of which (except for the matters set forth in
clauses (1), (2) and (15) below), if so provided, may be determined from time to
time by the Company with respect to unissued Securities of the series when
issued from time to time):
(1) the title of the Securities of the series (which shall
distinguish the Securities of such series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the
Securities of the series that may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Section 304, 305, 306, 906, 1107
or 1305);
(3) the date or dates, or the method by which such date or
dates will be determined or extended, on which the principal of the
Securities of the series shall be payable;
(4) the rate or rates at which the Securities of the series
shall bear interest, if any, or the method by which such rate or rates
shall be determined, the date or dates from which such interest shall
accrue or the method by which such date or dates shall be determined,
the Interest Payment Dates on which such interest will be payable and
the Regular Record Date, if any, for the interest payable on any
Registered Security on any Interest Payment Date, or the method by
which such date shall be determined, and the basis upon which such
interest shall be calculated if other than that of a 360-day year of
twelve 30-day months;
(5) the place or places, if any, other than or in addition to
the Borough of Manhattan, The City of New York, where the principal of
(and premium, if any) and
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20
interest, if any, on Securities of the series shall be payable, any
Registered Securities of the series may be surrendered for registration
of transfer, Securities of the series may be surrendered for exchange,
where Securities of that series that are convertible or exchangeable
may be surrendered for conversion or exchange, as applicable, and where
notices or demands to or upon the Company in respect of the Securities
of the series and this Indenture may be served;
(6) the period or periods within which, the price or prices at
which, the Currency or Currencies in which, and other terms and
conditions upon which Securities, of the series may be redeemed, in
whole or in part, at the option of the Company, if the Company is to
have the option;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the
period or periods within which or the date or dates on which, the price
or prices at which, the Currency or Currencies in which, and other
terms and conditions upon which, Securities of the series shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(8) if other than denominations of $1,000 and any integral
multiple thereof, the denomination or denominations in which any
Registered Securities of the series shall be issuable and, if other
than denominations of $5,000, the denomination or denominations in
which any Bearer Securities of the series shall be issuable;
(9) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
(10) if other than the principal amount thereof, the portion
of the principal amount of Securities of the series that shall be
payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502 or the method by which such portion shall be
determined;
(11) if other than Dollar, the Currency or Currencies in which
payment of the principal of (or premium, if any) or interest, if any,
on the Securities of the series shall be made or in which the
Securities of the series shall be denominated and the particular
provisions applicable thereto in accordance with, in addition to or in
lieu of any of the provisions of Section 312;
(12) whether the amount of payments of principal of (or
premium, if any) or interest, if any, on the Securities of the series
may be determined with reference to an index, formula or other method
(which index, formula or method may be based,
<PAGE>
21
without limitation, on one or more Currencies, commodities, equity
indices or other indices), and the manner in which such amounts shall
be determined;
(13) whether the principal of (or premium, if any) or
interest, if any, on the Securities of the series are to be payable, at
the election of the Company or a Holder thereof, in one or more
Currencies, other than that in which such Securities are denominated or
stated to be payable, the period or periods within which (including the
Election Date), and the terms and conditions upon which, such election
may be made, and the time and manner of determining the exchange rate
between the Currency or Currencies in which such Securities are
denominated or stated to be payable and the Currency or Currencies in
which such Securities are to be paid, in each case in accordance with,
in addition to or in lieu of any of the provisions of Section 312;
(14) provisions, if any, granting special rights to the
Holders of Securities of the series upon the occurrence of such events
as may be specified;
(15) any deletions from, modifications of or additions to the
Events of Default or covenants (including any deletions from,
modifications of or additions to any of the provisions of Section 1008)
of the Company with respect to Securities of the series, whether or not
such Events of Default or covenants are consistent with the Events of
Default or covenants set forth herein;
(16) whether Securities of the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or
both, any restrictions applicable to the offer, sale or delivery of
Bearer Securities and the terms upon which Bearer Securities of the
series may be exchanged for Registered Securities of the series and
vice versa (if permitted by applicable laws and regulations), whether
any Securities of the series are to be issuable initially in temporary
global form and whether any Securities of the series are to be issuable
in permanent global form with or without coupons and, if so, whether
beneficial owners of interests in any such permanent global Security
may exchange such interests for Securities of such series in
certificated form and of like tenor of any authorized form and
denomination and the circumstances under which any such exchanges may
occur, if other than in the manner provided in Section 305, and, if
Registered Securities of the series are to be issuable as a global
Security, the identity of the depository for such series;
(17) the date as of which any Bearer Securities of the series
and any temporary global Security representing Outstanding Securities
of the series shall be dated if other than the date of original
issuance of the first Security of the series to be issued;
<PAGE>
22
(18) the Person to whom any interest on any Registered
Security of the series shall be payable, if other than the Person in
whose name such Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, the manner in which, or the Person to whom, any interest on
any Bearer Security of the series shall be payable, if otherwise than
upon presentation and surrender of the coupons appertaining thereto as
they severally mature, and the extent to which, or the manner in which,
any interest payable on a temporary global Security on an Interest
Payment Date will be paid if other than in the manner provided in
Section 304;
(19) the applicability, if any, of Sections 1402 and/or 1403
to the Securities of the series and any provisions in modification of,
in addition to or in lieu of any of the provisions of Article Fourteen;
(20) if the Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a
temporary Security of such series) only upon receipt of certain
certificates or other documents or satisfaction of other conditions,
then the form and/or terms of such certificates, documents or
conditions;
(21) whether, under what circumstances and the Currency in
which, the Company will pay Additional Amounts as contemplated by
Section 1004 on the Securities of the series to any Holder who is not a
United States person (including any modification to the definition of
such term) in respect of any tax, assessment or governmental charge
and, if so, whether the Company will have the option to redeem such
Securities rather than pay such Additional Amounts (and the terms of
any such option);
(22) the designation of the initial Exchange Rate Agent, if
any;
(23) if the Securities of the series are to be convertible
into or exchangeable for any securities of any Person (including the
Company), the terms and conditions upon which such Securities will be
so convertible or exchangeable; and
(24) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture or the requirements
of the Trust Indenture Act);
All Securities of any one series and the coupons appertaining
to any Bearer Securities of such series shall be substantially identical except,
in the case of Registered Securities, as to denomination and except as may
otherwise be provided in or pursuant to such Board Resolution (subject to
Section 303) and set forth in such Officers' Certificate or in any such
indenture supplemental hereto. All Securities of any one series need not be
issued at the
<PAGE>
23
same time and, unless otherwise provided, a series may be reopened, without the
consent of the Holders, for issuances of additional Securities of such series.
If any of the terms of the Securities of any series are
established by action taken pursuant to one or more Board Resolutions, a copy of
an appropriate record of such action(s) shall be certified by the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee at or prior
to the delivery of the Officers' Certificate setting forth the terms of the
Securities of such series.
SECTION 302. Denominations. The Securities of each series
shall be issuable in such denominations as shall be specified as contemplated by
Section 301. With respect to Securities of any series denominated in Dollars, in
the absence of any such provisions with respect to the Securities of any series,
the Registered Securities of such series, other than Registered Securities
issued in global form (which may be of any denomination) shall be issuable in
denominations of $1,000 and any integral multiple thereof, and the Bearer
Securities of such series, other than Bearer Securities issued in global form
(which may be of any denomination), shall be issuable in a denomination of
$5,000.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities and any coupons appertaining thereto shall be executed on behalf
of the Company by its Chairman, its President or one of its Vice Presidents,
under its corporate seal reproduced thereon, and attested by its Secretary or
one of its Assistant Secretaries. The signature of any of these officers on the
Securities and coupons may be manual or facsimile signatures of the present or
any future such authorized officer and may be imprinted or otherwise reproduced
on the Securities.
Securities or coupons bearing the manual or facsimile
signatures of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Securities or did not hold such offices at the date of such Securities
or coupons.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of any series,
together with any coupon appertaining thereto, executed by the Company, to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities; provided, however, that,
in connection with its original issuance, no Bearer Security shall be mailed or
otherwise delivered to any location in the United States; and provided further
that, unless otherwise specified with respect to any series of Securities
pursuant to Section 301, a Bearer Security may be delivered in connection with
its original issuance only if the Person
<PAGE>
24
entitled to receive such Bearer Security shall have furnished a certificate in
the form set forth in Exhibit A-1 to this Indenture or such other certificate as
may be specified with respect to any series of Securities pursuant to Section
301, dated no earlier than 15 days prior to the earlier of the date on which
such Bearer Security is delivered and the date on which any temporary Security
first becomes exchangeable for such Bearer Security in accordance with the terms
of such temporary Security and this Indenture. If any Security shall be
represented by a permanent global Bearer Security, then, for purposes of this
Section and Section 304, the notation of a beneficial owner's interest therein
upon original issuance of such Security or upon exchange of a portion of a
temporary global Security shall be deemed to be delivery in connection with its
original issuance of such beneficial owner's interest in such permanent global
Security. Except as permitted by Section 306, the Trustee shall not authenticate
and deliver any Bearer Security unless all appurtenant coupons for interest then
matured have been detached and cancelled. If all the Securities of any series
are not to be issued at one time and if the Board Resolution or supplemental
indenture establishing such series shall so permit, such Company Order may set
forth procedures acceptable to the Trustee for the issuance of such Securities
and determining the terms of particular Securities of such series, such as
interest rate, maturity date, date of issuance and date from which interest
shall accrue. In authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to TIA Section 315(a) through
315(d)) shall be fully protected in relying upon,
(i) an Opinion of Counsel stating,
(a) that the form or forms of such Securities and any
coupons have been established in conformity with the
provisions of this Indenture;
(b) that the terms of such Securities and any coupons
have been established in conformity with the provisions of
this Indenture; and
(c) that such Securities, together with any coupons
appertaining thereto, when completed by appropriate insertions
and executed and delivered by the Company to the Trustee for
authentication in accordance with this Indenture,
authenticated and delivered by the Trustee in accordance with
this Indenture and issued by the Company in the manner and
subject to any conditions specified in such Opinion of
Counsel, will constitute legal, valid and binding obligations
of the Company, enforceable in accordance with their terms,
subject to applicable bankruptcy, insolvency, reorganization
and other similar laws of general applicability relating to or
affecting the enforcement of creditors' rights, to general
equitable principles and to such other qualifications as such
counsel shall conclude do not materially affect the rights of
Holders of such Securities and any coupons; and
<PAGE>
25
(ii) an Officers' Certificate stating, to the best of the
knowledge of the signers of such certificate, that no Event of Default
with respect to any of the Securities shall have occurred and be
continuing.
Notwithstanding the provisions of Section 301 and of this
Section 303, if all the Securities of any series are not to be issued at one
time, it shall not be necessary to deliver an Officers' Certificate otherwise
required pursuant to Section 301 or the Company Order, Opinion of Counsel or
Officers' Certificate otherwise required pursuant to the preceding paragraph at
the time of issuance of each Security of such series, but such order, opinion
and certificates, with appropriate modifications to cover such future issuances,
shall be delivered at or before the time of issuance of the first Security of
such series.
If such form or terms have been so established, the Trustee
shall not be required to authenticate such Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties, obligations or immunities under the Securities and this Indenture or
otherwise in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the generality of the foregoing, the Trustee will not be
required to authenticate Securities denominated in a Foreign Currency if the
Trustee reasonably believes that it would be unable to perform its duties with
respect to such Securities.
Each Registered Security shall be dated the date of its
authentication and each Bearer Security shall be dated as of the date specified
as contemplated by Section 301.
No Security or coupon shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears on
such Security or Security to which such coupon appertains a certificate of
authentication substantially in the form provided for herein duly executed by
the Trustee by manual signature of an authorized signatory, and such certificate
upon any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder and is entitled to
the benefits of this Indenture. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but never issued and sold
by the Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 310 together with a written statement (which
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
SECTION 304. Temporary Securities. (a) Pending the preparation
of definitive Securities of any series, the Company may execute, and upon
Company Order the Trustee shall authenticate and deliver, temporary Securities
which are printed, lithographed,
<PAGE>
26
typewritten, mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form, or, if authorized, in bearer form with one or
more coupons or without coupons, and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Securities may determine, as conclusively evidenced by their execution of such
Securities. In the case of Securities of any series, such temporary Securities
may be in global form.
Except in the case of temporary Securities in global form
(which shall be exchanged in accordance with Section 304(b) or as otherwise
provided in or pursuant to a Board Resolution), if temporary Securities of any
series are issued, the Company will cause definitive Securities of that series
to be prepared without unreasonable delay. After the preparation of definitive
Securities of such series, the temporary Securities of such series shall be
exchangeable for definitive Securities of such series upon surrender of the
temporary Securities of such series at the office or agency of the Company in a
Place of Payment for that series, without charge to the Holder. Upon surrender
for cancellation of any one or more temporary Securities of any series
(accompanied by any non-matured coupons appertaining thereto), the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Securities of the same series of authorized
denominations; provided, however, that no definitive Bearer Security shall be
delivered in exchange for a temporary Registered Security; and provided further
that a definitive Bearer Security shall be delivered in exchange for a temporary
Bearer Security only in compliance with the conditions set forth in Section 303.
Until so exchanged, the temporary Securities of any series shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities
of such series.
(b) Unless otherwise provided in or pursuant to a Board
Resolution, this Section 304(b) shall govern the exchange of temporary
Securities issued in global form. If temporary Securities of any series are
issued in global form, any such temporary global Security shall, unless
otherwise provided therein, be delivered to the London office of a depositary or
common depositary (the "Common Depositary"), for the benefit of Euroclear and
CEDEL, for credit to the respective accounts of the beneficial owners of such
Securities (or to such other accounts as they may direct).
Without unnecessary delay but in any event not later than the
date specified in, or determined pursuant to the terms of, any such temporary
global Security (the "Exchange Date"), the Company shall deliver to the Trustee
definitive Securities, in aggregate principal amount equal to the principal
amount of such temporary global Security, executed by the Company. On or after
the Exchange Date, such temporary global Security shall be surrendered by the
Common Depositary to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or from time to time in part, for definitive Securities
<PAGE>
27
without charge, and the Trustee shall authenticate and deliver, in exchange for
each portion of such temporary global Security, an equal aggregate principal
amount of definitive Securities of the same series of authorized denominations
and of like tenor as the portion of such temporary global Security to be
exchanged. The definitive Securities to be delivered in exchange for any such
temporary global Security shall be in bearer form, registered form, permanent
global bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 301, and, if any combination
thereof is so specified, as requested by the beneficial owner thereof; provided,
however, that, unless otherwise specified in such temporary global Security,
upon such presentation by the Common Depositary, such temporary global Security
is accompanied by a certificate dated the Exchange Date or a subsequent date and
signed by Euroclear as to the portion of such temporary global Security held for
its account then to be exchanged and a certificate dated the Exchange Date or a
subsequent date and signed by CEDEL as to the portion of such temporary global
Security held for its account then to be exchanged, each in the form set forth
in Exhibit A-2 to this Indenture or in such other form as may be established
pursuant to Section 301; and provided further that definitive Bearer Securities
shall be delivered in exchange for a portion of a temporary global Security only
in compliance with the requirements of Section 303.
Unless otherwise specified in such temporary global Security,
the interest of a beneficial owner of Securities of a series in a temporary
global Security shall be exchanged for definitive Securities of the same series
and of like tenor following the Exchange Date when the account holder instructs
Euroclear or CEDEL, as the case may be, to request such exchange on his behalf
and delivers to Euroclear or CEDEL, as the case may be, a certificate in the
form set forth in Exhibit A-1 to this Indenture (or in such other form as may be
established pursuant to Section 301), dated no earlier than 15 days prior to the
Exchange Date, copies of which certificate shall be available from the offices
of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such
series of Securities and each Paying Agent. Unless otherwise specified in such
temporary global Security, any such exchange shall be made free of charge to the
beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such definitive
Securities in person at the offices of Euroclear or CEDEL. Definitive Securities
in bearer form to be delivered in exchange for any portion of a temporary global
Security shall be delivered only outside the United States.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of the same series and of like
tenor authenticated and delivered hereunder, except that, unless otherwise
specified as contemplated by Section 301, interest payable on a temporary global
Security on an Interest Payment Date for Securities of such series occurring
prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on
such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee
of a certificate
<PAGE>
28
or certificates in the form set forth in Exhibit A-2 to this Indenture (or in
such other forms as may be established pursuant to Section 301), for credit
without further interest on or after such Interest Payment Date to the
respective accounts of Persons who are the beneficial owners of such temporary
global Security on such Interest Payment Date and who have each delivered to
Euroclear or CEDEL, as the case may be, a certificate dated no earlier than 15
days prior to the Interest Payment Date occurring prior to such Exchange Date in
the form set forth as Exhibit A-1 to this Indenture (or in such other forms as
may be established pursuant to Section 301). Notwithstanding anything to the
contrary herein contained, the certifications made pursuant to this paragraph
shall satisfy the certification requirements of the preceding two paragraphs of
this Section 304(b) and of the third paragraph of Section 303 of this Indenture
and the interests of the Persons who are the beneficial owners of the temporary
global Security with respect to which such certification was made will be
exchanged for definitive Securities of the same series and of like tenor on the
Exchange Date or the date of certification if such date occurs after the
Exchange Date, without further act or deed by such beneficial owners. Except as
otherwise provided in this paragraph, no payments of principal (or premium, if
any) or interest, if any, owing with respect to a beneficial interest in a
temporary global Security will be made unless and until such interest in such
temporary global Security shall have been exchanged for an interest in a
definitive Security. Any interest so received by Euroclear and CEDEL and not
paid as herein provided shall be returned to the Trustee prior to the expiration
of two years after such Interest Payment Date in order to be repaid to the
Company.
SECTION 305. Registration, Registration of Transfer and
Exchange. The Company shall cause to be kept at the Corporate Trust Office of
the Trustee or in any office or agency of the Company in a Place of Payment a
register for each series of Securities (the registers maintained in such office
or in any such office or agency of the Company in a Place of Payment being
herein sometimes referred to collectively as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Registered Securities and of transfers of
Registered Securities. The Security Register shall be in written form or any
other form capable of being converted into written form within a reasonable
time. The Trustee, at its Corporate Trust Office, is hereby initially appointed
"Security Registrar" for the purpose of registering Registered Securities and
transfers of Registered Securities on such Security Register as herein provided.
In the event that the Trustee shall cease to be Security Registrar, it shall
have the right to examine the Security Register at all reasonable times.
Upon surrender for registration of transfer of any Registered
Security of any series at any office or agency of the Company in a Place of
Payment for that series, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Registered Securities of the same series, of any
authorized denominations and of a like aggregate principal amount, bearing a
number not contemporaneously outstanding and containing identical terms and
provisions.
<PAGE>
29
At the option of the Holder, Registered Securities of any
series may be exchanged for other Registered Securities of the same series, of
any authorized denomination or denominations and of a like aggregate principal
amount, containing identical terms and provisions, upon surrender of the
Registered Securities to be exchanged at any such office or agency. Whenever any
Registered Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Registered
Securities which the Holder making the exchange is entitled to receive. Unless
otherwise specified with respect to any series of Securities as contemplated by
Section 301, Bearer Securities may not be issued in exchange for Registered
Securities.
If (but only if) permitted by the applicable Board Resolution
and (subject to Section 303) set forth in the applicable Officers' Certificate,
or in any indenture supplemental hereto, delivered as contemplated by Section
301, at the option of the Holder, Bearer Securities of any series may be
exchanged for Registered Securities of the same series of any authorized
denominations and of a like aggregate principal amount and tenor, upon surrender
of the Bearer Securities to be exchanged at any such office or agency, with all
unmatured coupons and all matured coupons in default thereto appertaining. If
the Holder of a Bearer Security is unable to produce any such unmatured coupon
or coupons or matured coupon or coupons in default, any such permitted exchange
may be effected if the Bearer Securities are accompanied by payment in funds
acceptable to the Company in an amount equal to the face amount of such missing
coupon or coupons, or the surrender of such missing coupon or coupons may be
waived by the Company and the Trustee if there is furnished to them such
security or indemnity as they may require to save each of them and any Paying
Agent harmless. If thereafter the Holder of such Security shall surrender to any
Paying Agent any such missing coupon in respect of which such a payment shall
have been made, such Holder shall be entitled to receive the amount of such
payment; provided, however, that, except as otherwise provided in Section 1002,
interest represented by coupons shall be payable only upon presentation and
surrender of those coupons at an office or agency located outside the United
States. Notwithstanding the foregoing, in case a Bearer Security of any series
is surrendered at any such office or agency in a permitted exchange for a
Registered Security of the same series and like tenor after the close of
business at such office or agency on (i) any Regular Record Date and before the
opening of business at such office or agency on the relevant Interest Payment
Date, or (ii) any Special Record Date and before the opening of business at such
office or agency on the related proposed date for payment of Defaulted Interest,
such Bearer Security shall be surrendered without the coupon relating to such
Interest Payment Date or proposed date for payment, as the case may be, and
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon when due in accordance
with the provisions of this Indenture.
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30
Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified
as contemplated by Section 301, any permanent global Security shall be
exchangeable only as provided in this paragraph. If any beneficial owner of an
interest in a permanent global Security is entitled to exchange such interest
for Securities of such series and of like tenor and principal amount of another
authorized form and denomination, as specified as contemplated by Section 301
and provided that any applicable notice provided in the permanent global
Security shall have been given, then without unnecessary delay but in any event
not later than the earliest date on which such interest may be so exchanged, the
Company shall deliver to the Trustee definitive Securities in aggregate
principal amount equal to the principal amount of such beneficial owner's
interest in such permanent global Security, executed by the Company. On or after
the earliest date on which such interests may be so exchanged, such permanent
global Security shall be surrendered by the Common Depositary or such other
depositary as shall be specified in the Company Order with respect thereto to
the Trustee, as the Company's agent for such purpose, to be exchanged, in whole
or from time to time in part, for definitive Securities without charge and the
Trustee shall authenticate and deliver, in exchange for each portion of such
permanent global Security, an equal aggregate principal amount of definitive
Securities of the same series of authorized denominations and of like tenor as
the portion of such permanent global Security to be exchanged which, unless the
Securities of the series are not issuable both as Bearer Securities and as
Registered Securities, as specified as contemplated by Section 301, shall be in
the form of Bearer Securities or Registered Securities, or any combination
thereof, as shall be specified by the beneficial owner thereof; provided,
however, that no such exchanges may occur during a period beginning at the
opening of business 15 days before any selection of Securities to be redeemed
and ending on the relevant Redemption Date if the Security for which exchange is
requested may be among those selected for redemption; and provided further that
no Bearer Security delivered in exchange for a portion of a permanent global
Security shall be mailed or otherwise delivered to any location in the United
States. If a Registered Security is issued in exchange for any portion of a
permanent global Security after the close of business at the office or agency
where such exchange occurs on (i) any Regular Record Date and before the opening
of business at such office or agency on the relevant Interest Payment Date, or
(ii) any Special Record Date and before the opening of business at such office
or agency on the related proposed date for payment of Defaulted Interest,
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of such Registered Security, but will be payable on such Interest
Payment Date or proposed date for payment, as the case may be, only to the
Person to whom interest in respect of such portion of such permanent global
Security is payable in accordance with the provisions of this Indenture.
<PAGE>
31
All Securities issued upon any registration of transfer or
exchange of Securities shall be valid obligations of the Company, evidencing the
same debt and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company or
the Security Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1107 or 1305 not involving any
transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Security if such Security may be among those
selected for redemption during a period beginning at the opening of business 15
days before selection of the Securities to be redeemed under Section 1103 and
ending at the close of business on (A) if such Securities are issuable only as
Registered Securities, the day of the mailing of the relevant notice of
redemption and (B) if such Securities are issuable as Bearer Securities, the day
of the first publication of the relevant notice of redemption or, if such
Securities are also issuable as Registered Securities and there is no
publication, the mailing of the relevant notice of redemption, or (ii) to
register the transfer of or exchange any Registered Security so selected for
redemption in whole or in part, except, in the case of any Registered Security
to be redeemed in part, the portion thereof not to be redeemed, or (iii) to
exchange any Bearer Security so selected for redemption except that such a
Bearer Security may be exchanged for a Registered Security of that series and
like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Security not to be so repaid.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security or a Security with a mutilated coupon appertaining to
it is surrendered to the Trustee or the Company, together with, in proper cases,
such security or indemnity as may be required by the Company or the Trustee to
save each of them or any agent of either of them harmless, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and principal amount, containing identical terms
and
<PAGE>
32
provisions and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to the surrendered Security.
If there shall be delivered to the Company and to the Trustee
(i) evidence to their satisfaction of the destruction, loss or theft of any
Security or coupon, and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security or coupon has
been acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of the same series and principal
amount, containing identical terms and provisions and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions of the previous two paragraphs,
in case any such mutilated, destroyed, lost or stolen Security or coupon has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, with coupons corresponding to the coupons, if
any, appertaining to such mutilated, destroyed, lost or stolen Security or to
the Security to which such mutilated, destroyed, lost or stolen coupon
appertains, pay such Security or coupon; provided, however, that payment of
principal of (and premium, if any) and interest, if any, on Bearer Securities
shall, except as otherwise provided in Section 1002, be payable only at an
office or agency located outside the United States and, unless otherwise
specified as contemplated by Section 301, any interest on Bearer Securities
shall be payable only upon presentation and surrender of the coupons
appertaining thereto.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any series with its coupons, if any,
issued pursuant to this Section in lieu of any destroyed, lost or stolen
Security, or in exchange for a Security to which a destroyed, lost or stolen
coupon appertains, shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Security
and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities of that
series and their coupons, if any, duly issued hereunder.
<PAGE>
33
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities or
coupons.
SECTION 307. Payment of Interest; Interest Rights Preserved;
Optional Interest Reset. (a) Except as otherwise specified with respect to a
series of Securities in accordance with the provisions of Section 301, interest,
if any, on any Registered Security that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest, if any, on any
Registered Security may at the Company's option be paid by (i) mailing a check
for such interest, payable to or upon the written order of the Person entitled
thereto pursuant to Section 309, to the address of such Person as it appears on
the Security Register or (ii) transfer to an account maintained by the payee
inside the United States.
Unless otherwise provided as contemplated by Section 301 with
respect to the Securities of any series, payment of interest, if any, may be
made, in the case of a Bearer Security, by transfer to an account maintained by
the payee with a bank located outside the United States.
Unless otherwise provided as contemplated by Section 301,
every permanent global Security will provide that interest, if any, payable on
any Interest Payment Date will be paid to each of Euroclear and CEDEL with
respect to that portion of such permanent global Security held for its account
by the Common Depositary, for the purpose of permitting each of Euroclear and
CEDEL to credit the interest, if any, received by it in respect of such
permanent global Security to the accounts of the beneficial owners thereof.
In case a Bearer Security of any series is surrendered in
exchange for a Registered Security of such series after the close of business
(at an office or agency in a Place of Payment for such series) on any Regular
Record Date and before the opening of business (at such office or agency) on the
next succeeding Interest Payment Date, such Bearer Security shall be surrendered
without the coupon relating to such Interest Payment Date and interest will not
be payable on such Interest Payment Date in respect of the Registered Security
issued in exchange for such Bearer Security, but will be payable only to the
Holder of such coupon when due in accordance with the provisions of this
Indenture.
Except as otherwise specified with respect to a series of
Securities in accordance with the provisions of Section 301, any interest on any
Registered Security of any series that is payable, but is not punctually paid or
duly provided for, on any Interest Payment Date (herein
<PAGE>
34
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder thereof on the relevant Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company,
at its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Registered
Securities of such series (or their respective Predecessor
Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Registered
Security of such series and the date of the proposed payment
(which shall not be less than 20 days after such notice is
received by the Trustee), and at the same time the Company
shall deposit with the Trustee an amount of money in the
Currency in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 301 for the
Securities of such series and except, if applicable, as
provided in Sections 312(b), 312(d) and 312(e)) equal to the
aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the
proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of
such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Registered
Securities of such series at his address as it appears in the
Security Register not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to
the Persons in whose names the Registered Securities of such
series (or their respective Predecessor Securities) are
registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following
clause (2). In case a Bearer Security of any series is
surrendered at the office or agency in a Place of Payment for
such series in exchange for a Registered Security of such
series after the close of business at such office or agency on
any Special Record Date and before the opening of business at
such office or agency on the related proposed date for payment
of Defaulted Interest, such Bearer Security shall be
<PAGE>
35
surrendered without the coupon relating to such proposed date
of payment and Defaulted Interest will not be payable on such
proposed date of payment in respect of the Registered Security
issued in exchange for such Bearer Security, but will be
payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest on
the Registered Securities of any series in any other lawful
manner not inconsistent with the requirements of any
securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
(b) The provisions of this Section 307(b) may be made
applicable to any series of Securities pursuant to Section 301 (with such
modifications, additions or substitutions as may be specified pursuant to such
Section 301). The interest rate (or the spread or spread multiplier used to
calculate such interest rate, if applicable) on any Security of such series may
be reset by the Company on the date or dates specified on the face of such
Security (each an "Optional Reset Date"). The Company may exercise such option
with respect to such Security by notifying the Trustee of such exercise at least
45 but not more than 60 days prior to an Optional Reset Date for such Security.
Not later than 40 days prior to each Optional Reset Date, the Trustee shall
transmit, in the manner provided for in Section 106, to the Holder of any such
Security a notice (the "Reset Notice") indicating whether the Company has
elected to reset the interest rate (or the spread or spread multiplier used to
calculate such interest rate, if applicable), and if so (i) such new interest
rate (or such new spread or spread multiplier, if applicable) and (ii) the
provisions, if any, for redemption during the period from such Optional Reset
Date to the next Optional Reset Date or if there is no such next Optional Reset
Date, to the Stated Maturity Date of such Security (each such period a
"Subsequent Interest Period"), including the date or dates on which or the
period or periods during which and the price or prices at which such redemption
may occur during the Subsequent Interest Period.
Notwithstanding the foregoing, not later than 20 days prior to
the Optional Reset Date, the Company may, at its option, revoke the interest
rate (or the spread or spread multiplier used to calculate such interest rate,
if applicable) provided for in the Reset Notice and establish an interest rate
(or a spread or spread multiplier used to calculate such interest rate, if
applicable) that is higher than the interest rate (or the spread or spread
multiplier, if applicable) provided for in the Reset Notice, for the Subsequent
Interest Period by causing the Trustee to transmit, in the manner provided for
in Section 106, notice of such higher interest rate (or such higher spread or
spread multiplier, if applicable) to the Holder of such Security.
<PAGE>
36
Such notice shall be irrevocable. All Securities with respect to which the
interest rate (or the spread or spread multiplier used to calculate such
interest rate, if applicable) is reset on an Optional Reset Date, and with
respect to which the Holders of such Securities have not tendered such
Securities for repayment (or have validly revoked any such tender) pursuant to
the next succeeding paragraph, will bear such higher interest rate (or such
higher spread or spread multiplier, if applicable).
The Holder of any such Security will have the option to elect
repayment by the Company of the principal of such Security on each Optional
Reset Date at a price equal to the principal amount thereof plus interest
accrued to such Optional Reset Date. In order to obtain repayment on an Optional
Reset Date, the Holder must follow the procedures set forth in Article Thirteen
for repayment at the option of Holders except that the period for delivery or
notification to the Trustee shall be at least 25 but not more than 35 days prior
to such Optional Reset Date and except that, if the Holder has tendered any
Security for repayment pursuant to the Reset Notice, the Holder may, by written
notice to the Trustee, revoke such tender or repayment until the close of
business on the tenth day before such Optional Reset Date.
Subject to the foregoing provisions of this Section and
Section 305, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by such
other Security.
SECTION 308. Optional Extension of Maturity. The provisions of
this Section 308 may be made applicable to any series of Securities pursuant to
Section 301 (with such modifications, additions or substitutions as may be
specified pursuant to such Section 301). The Stated Maturity of any Security of
such series may be extended at the option of the Company for the period or
periods specified on the face of such Security (each an "Extension Period") up
to but not beyond the date (the "Final Maturity") set forth on the face of such
Security. The Company may exercise such option with respect to any Security by
notifying the Trustee of such exercise at least 45 but not more than 60 days
prior to the Stated Maturity of such Security in effect prior to the exercise of
such option (the "Original Stated Maturity"). If the Company exercises such
option, the Trustee shall transmit, in the manner provided for in Section 106,
to the Holder of such Security not later than 40 days prior to the Original
Stated Maturity a notice (the "Extension Notice") indicating (i) the election of
the Company to extend the Stated Maturity, (ii) the new Stated Maturity, (iii)
the interest rate, if any, applicable to the Extension Period and (iv) the
provisions, if any, for redemption during such Extension Period. Upon the
Trustee's transmittal of the Extension Notice, the Stated Maturity of such
Security shall be extended automatically and, except as modified by the
Extension Notice and as described in the next paragraph, such Security will have
the same terms as prior to the transmittal of such Extension Notice.
<PAGE>
37
Notwithstanding the foregoing, not later than 20 days before
the Original Stated Maturity of such Security, the Company may, at its option,
revoke the interest rate provided for in the Extension Notice and establish a
higher interest rate for the Extension Period by causing the Trustee to
transmit, in the manner provided for in Section 106, notice of such higher
interest rate to the Holder of such Security. Such notice shall be irrevocable.
All Securities with respect to which the Stated Maturity is extended will bear
such higher interest rate.
If the Company extends the Stated Maturity of any Security,
the Holder will have the option to elect repayment of such Security by the
Company on the Original Stated Maturity at a price equal to the principal amount
thereof, plus interest accrued to such date. In order to obtain repayment on the
Original Stated Maturity once the Company has extended the Stated Maturity
thereof, the Holder must follow the procedures set forth in Article Thirteen for
repayment at the option of Holders, except that the period for delivery or
notification to the Trustee shall be at least 25 but not more than 35 days prior
to the Original Stated Maturity and except that, if the Holder has tendered any
Security for repayment pursuant to an Extension Notice, the Holder may by
written notice to the Trustee revoke such tender for repayment until the close
of business on the tenth day before the Original Stated Maturity.
SECTION 309. Persons Deemed Owners. Prior to due presentment
of a Registered Security for registration of transfer, the Company, the Trustee
and any agent of the Company or the Trustee may treat the Person in whose name
such Registered Security is registered as the owner of such Security for the
purpose of receiving payment of principal of (and premium, if any) and (subject
to Sections 305 and 307) interest, if any, on such Registered Security and for
all other purposes whatsoever, whether or not such Registered Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
Title to any Bearer Security and any coupons appertaining
thereto shall pass by delivery. The Company, the Trustee and any agent of the
Company or the Trustee may treat the bearer of any Bearer Security and the
bearer of any coupon as the absolute owner of such Security or coupon for the
purpose of receiving payment thereof or on account thereof and for all other
purposes whatsoever, whether or not such Security or coupon be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the
Security Registrar will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
<PAGE>
38
Notwithstanding the foregoing, with respect to any global
Security, nothing herein shall prevent the Company, the Trustee, or any agent of
the Company or the Trustee, from giving effect to any written certification,
proxy or other authorization furnished by any depositary, as a Holder, with
respect to such global Security or impair, as between such depositary and owners
of beneficial interests in such global Security, the operation of customary
practices governing the exercise of the rights of such depositary (or its
nominee) as Holder of such global Security.
SECTION 310. Cancellation. All Securities and coupons
surrendered for payment, redemption, repayment at the option of the Holder,
registration of transfer or exchange or for credit against any sinking fund
payment shall, if surrendered to any Person other than the Trustee, be delivered
to the Trustee, and any such Securities and coupons and Securities and coupons
surrendered directly to the Trustee for any such purpose shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and may deliver to
the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered shall be promptly
cancelled by the Trustee. If the Company shall so acquire any of the Securities,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. Cancelled
Securities and coupons held by the Trustee shall be destroyed by the Trustee and
the Trustee shall deliver a certificate of such destruction to the Company,
unless by a Company Order the Company directs their return to it.
SECTION 311. Computation of Interest. Except as otherwise
specified as contemplated by Section 301 with respect to Securities of any
series, interest, if any, on the Securities of each series shall be computed on
the basis of a 360-day year consisting of twelve 30-day months.
SECTION 312. Currency and Manner of Payments in Respect of
Securities. (a) Unless otherwise specified with respect to any Securities
pursuant to Section 301, with respect to Registered Securities of any series not
permitting the election provided for in paragraph (b) below or the Holders of
which have not made the election provided for in paragraph (b) below, and with
respect to Bearer Securities of any series, except as provided in paragraph (d)
below, payment of the principal of (and premium, if any) and interest, if any,
on any Registered or Bearer Security of such series will be made in the Currency
in which such Registered Security or Bearer Security, as the case may be, is
payable. The provisions of
<PAGE>
39
this Section 312 may be modified or superseded with respect to any Securities
pursuant to Section 301.
(b) It may be provided pursuant to Section 301 with respect to
Registered Securities of any series that Holders shall have the option, subject
to paragraphs (d) and (e) below, to receive payments of principal of (or
premium, if any) or interest, if any, on such Registered Securities in any of
the Currencies which may be designated for such election by delivering to the
Trustee for such series of Registered Securities a written election with
signature guarantees and in the applicable form established pursuant to Section
301, not later than the close of business on the Election Date immediately
preceding the applicable payment date. If a Holder so elects to receive such
payments in any such Currency, such election will remain in effect for such
Holder or any transferee of such Holder until changed by such Holder or such
transferee by written notice to the Trustee for such series of Registered
Securities (but any such change must be made not later than the close of
business on the Election Date immediately preceding the next payment date to be
effective for the payment to be made on such payment date and no such change of
election may be made with respect to payments to be made on any Registered
Security of such series with respect to which an Event of Default has occurred
or with respect to which the Company has deposited funds pursuant to Article
Four or Fourteen or with respect to which a notice of redemption has been given
by the Company or a notice of option to elect repayment has been sent by such
Holder or such transferee). Any Holder of any such Registered Security who shall
not have delivered any such election to the Trustee of such series of Registered
Securities not later than the close of business on the applicable Election Date
will be paid the amount due on the applicable payment date in the relevant
Currency as provided in Section 312(a). The Trustee for each such series of
Registered Securities shall notify the Exchange Rate Agent as soon as
practicable after the Election Date of the aggregate principal amount of
Registered Securities for which Holders have made such written election.
(c) Unless otherwise specified pursuant to Section 301, if the
election referred to in paragraph (b) above has been provided for pursuant to
Section 301, then, unless otherwise specified pursuant to Section 301, not later
than the fourth Business Day after the Election Date for each payment date for
Registered Securities of any series, the Exchange Rate Agent will deliver to the
Company a written notice specifying the Currency in which Registered Securities
of such series are payable, the respective aggregate amounts of principal of
(and premium, if any) and interest, if any, on the Registered Securities to be
paid on such payment date, specifying the amounts in such Currency so payable in
respect of the Registered Securities as to which the Holders of Registered
Securities denominated in any Currency shall have elected to be paid in another
Currency as provided in paragraph (b) above. If the election referred to in
paragraph (b) above has been provided for pursuant to Section 301 and if at
least one Holder has made such election, then, unless otherwise specified
pursuant to Section 301, on the second Business Day preceding such payment date
the Company will deliver to the
<PAGE>
40
Trustee for such series of Registered Securities an Exchange Rate Officer's
Certificate in respect of the Dollar or Foreign Currency or Currencies payments
to be made on such payment date. Unless otherwise specified pursuant to Section
301, the Dollar or Foreign Currency or Currencies amount receivable by Holders
of Registered Securities who have elected payment in a Currency as provided in
paragraph (b) above shall be determined by the Company on the basis of the
applicable Market Exchange Rate in effect on the second Business Day (the
"Valuation Date") immediately preceding each payment date, and such
determination shall be conclusive and binding for all purposes, absent manifest
error.
(d) If a Conversion Event occurs with respect to a Foreign
Currency in which any of the Securities are denominated or payable other than
pursuant to an election provided for pursuant to paragraph (b) above, then with
respect to each date for the payment of principal of (and premium, if any) and
interest, if any on the applicable Securities denominated or payable in such
Foreign Currency occurring after the last date on which such Foreign Currency
was used (the "Conversion Date"), the Dollar shall be the currency of payment
for use on each such payment date. Unless otherwise specified pursuant to
Section 301, the Dollar amount to be paid by the Company to the Trustee of each
such series of Securities and by such Trustee or any Paying Agent to the Holders
of such Securities with respect to such payment date shall be, in the case of a
Foreign Currency other than a currency unit, the Dollar Equivalent of the
Foreign Currency or, in the case of a currency unit, the Dollar Equivalent of
the Currency Unit, in each case as determined by the Exchange Rate Agent in the
manner provided in paragraph (f) or (g) below.
(e) Unless otherwise specified pursuant to Section 301, if the
Holder of a Registered Security denominated in any Currency shall have elected
to be paid in another Currency as provided in paragraph (b) above, and a
Conversion Event occurs with respect to such elected Currency, such Holder shall
receive payment in the Currency in which payment would have been made in the
absence of such election; and if a Conversion Event occurs with respect to the
Currency in which payment would have been made in the absence of such election,
such Holder shall receive payment in Dollars as provided in paragraph (d) of
this Section 312.
(f) The "Dollar Equivalent of the Foreign Currency" shall be
determined by the Exchange Rate Agent and shall be obtained for each subsequent
payment date by converting the specified Foreign Currency into Dollars at the
Market Exchange Rate on the Conversion Date.
(g) The "Dollar Equivalent of the Currency Unit" shall be
determined by the Exchange Rate Agent and subject to the provisions of paragraph
(h) below shall be the sum of each amount obtained by converting the Specified
Amount of each Component Currency into
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41
Dollars at the Market Exchange Rate for such Component Currency on the Valuation
Date with respect to each payment.
(h) For purposes of this Section 312, the following terms
shall have the following meanings:
A "Component Currency" shall mean any currency which, on the
Conversion Date, was a component currency of the relevant
currency unit, including, but not limited to, the ECU.
A "Specified Amount" of a Component Currency shall mean the
number of units of such Component Currency or fractions
thereof which were represented in the relevant currency unit,
including, but not limited to, the ECU, on the Conversion
Date. If after the Conversion Date the official unit of any
Component Currency is altered by way of combination or
subdivision, the Specified Amount of such Component Currency
shall be divided or multiplied in the same proportion. If
after the Conversion Date two or more Component Currencies are
consolidated into a single currency, the respective Specified
Amounts of such Component Currencies shall be replaced by an
amount in such single currency equal to the sum of the
respective Specified Amounts of such consolidated Component
Currencies expressed in such single currency, and such amount
shall thereafter be a Specified Amount and such single
currency shall thereafter be a Component Currency. If after
the Conversion Date any Component Currency shall be divided
into two or more currencies, the Specified Amount of such
Component Currency shall be replaced by amounts of such two or
more currencies, having an aggregate Dollar Equivalent value
at the Market Exchange Rate on the date of such replacement
equal to the Dollar Equivalent of the Specified Amount of such
former Component Currency at the Market Exchange Rate
immediately before such division, and such amounts shall
thereafter be Specified Amounts and such currencies shall
thereafter be Component Currencies. If, after the Conversion
Date of the relevant currency unit, including, but not limited
to, the ECU, a Conversion Event (other than any event referred
to above in this definition of "Specified Amount") occurs with
respect to any Component Currency of such currency unit and is
continuing on the applicable Valuation Date, the Specified
Amount of such Component Currency shall, for purposes of
calculating the Dollar Equivalent of the Currency Unit, be
converted into Dollars at the Market Exchange Rate in effect
on the Conversion Date of such Component Currency.
"Election Date" shall mean the Regular Record Date for the
applicable series of Registered Securities or at least 16 days
prior to Maturity, as the case may be,
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42
or such other prior date for any series of Registered
Securities as specified pursuant to clause 13 of Section 301
by which the written election referred to in Section 312(b)
may be made.
All decisions and determinations of the Exchange Rate Agent
regarding the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent
of the Currency Unit, the Market Exchange Rate and changes in the Specified
Amounts as specified above shall be in its sole discretion and shall, in the
absence of manifest error, be conclusive for all purposes and irrevocably
binding upon the Company, the Trustee for the appropriate series of Securities
and all Holders of such Securities denominated or payable in the relevant
Currency. The Exchange Rate Agent shall promptly give written notice to the
Company and the Trustee for the appropriate series of Securities of any such
decision or determination.
In the event that the Company determines in good faith that a
Conversion Event has occurred with respect to a Foreign Currency, the Company
will immediately give written notice thereof to the Trustee of the appropriate
series of Securities and to the Exchange Rate Agent (and such Trustee will
promptly thereafter give notice in the manner provided in Section 106 to the
affected Holders) specifying the Conversion Date. In the event the Company so
determines that a Conversion Event has occurred with respect to the ECU or any
other currency unit in which Securities are denominated or payable, the Company
will immediately give written notice thereof to the Trustee of the appropriate
series of Securities and to the Exchange Rate Agent (and such Trustee will
promptly thereafter give notice in the manner provided in Section 106 to the
affected Holders) specifying the Conversion Date and the Specified Amount of
each Component Currency on the Conversion Date. In the event the Company
determines in good faith that any subsequent change in any Component Currency as
set forth in the definition of Specified Amount above has occurred, the Company
will similarly give written notice to the Trustee of the appropriate series of
Securities and to the Exchange Rate Agent.
The Trustee of the appropriate series of Securities shall be
fully justified and protected in relying and acting upon information received by
it from the Company and the Exchange Rate Agent and shall not otherwise have any
duty or obligation to determine the accuracy or validity of such information
independent of the Company or the Exchange Rate Agent.
SECTION 313. Appointment and Resignation of Successor Exchange
Rate Agent. (a) Unless otherwise specified pursuant to Section 301, if and so
long as the Securities of any series (i) are denominated in a Foreign Currency
or (ii) may be payable in a Foreign Currency, or so long as it is required under
any other provision of this Indenture, then the Company will maintain with
respect to each such series of Securities, or as so required, at least one
Exchange Rate Agent. The Company will cause the Exchange Rate Agent to make
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43
the necessary foreign exchange determinations at the time and in the manner
specified pursuant to Section 301 for the purpose of determining the applicable
rate of exchange and, if applicable, for the purpose of converting the issued
Foreign Currency into the applicable payment Currency for the payment of
principal (and premium, if any) and interest, if any, pursuant to Section 312.
(b) No resignation of the Exchange Rate Agent and no
appointment of a successor Exchange Rate Agent pursuant to this Section shall
become effective until the acceptance of appointment by the successor Exchange
Rate Agent as evidenced by a written instrument delivered to the Company and the
Trustee of the appropriate series of Securities accepting such appointment
executed by the successor Exchange Rate Agent.
(c) If the Exchange Rate Agent shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the office of the
Exchange Rate Agent for any cause, with respect to the Securities of one or more
series, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Exchange Rate Agent or Exchange Rate Agents with respect to
the Securities of that or those series (it being understood that any such
successor Exchange Rate Agent may be appointed with respect to the Securities of
one or more or all of such series and that, unless otherwise specified pursuant
to Section 301, at any time there shall only be one Exchange Rate Agent with
respect to the Securities of any particular series that are originally issued by
the Company on the same date and that are initially denominated and/or payable
in the same Currency.
SECTION 314. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall indicate the "CUSIP" numbers of the Securities in notices of
redemption as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture. This
Indenture shall upon Company Request cease to be of further effect with respect
to any series of Securities specified in such Company Request (except as to any
surviving rights of registration of transfer or exchange of Securities of such
series expressly provided for herein or pursuant
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44
hereto and any right to receive Additional Amounts, as provided in Section
1004), and the Trustee, upon receipt of a Company Order, and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture as to such series when
(1) either
(A) all Securities of such series theretofore
authenticated and delivered and all coupons, if any,
appertaining thereto (other than (i) coupons appertaining to
Bearer Securities surrendered for exchange for Registered
Securities and maturing after such exchange, whose surrender
is not required or has been waived as provided in Section 305,
(ii) Securities and coupons of such series which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 306, (iii) coupons appertaining to
Securities called for redemption and maturing after the
relevant Redemption Date, whose surrender has been waived as
provided in Section 1106, and (iv) Securities and coupons of
such series for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(B) all Securities of such series and, in the case of
(i) or (ii) below, any coupons appertaining thereto not
theretofore delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) if redeemable at the option of the
Company, are to be called for redemption within one
year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee
in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount in
the Currency in which the Securities of such series are
payable, sufficient to pay and discharge the entire
indebtedness on such Securities and such coupons not
theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest, if any, to the
date
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45
of such deposit (in the case of Securities which have become
due and payable) or to the Stated Maturity or Redemption Date,
as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 606, the obligations of the Company to any Authenticating Agent under
Section 611 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Funds. Subject to the
provisions of the last paragraph of Section 1003, all money deposited with the
Trustee pursuant to Section 401 shall be held in trust and applied by it, in
accordance with the provisions of the Securities, the coupons and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest, if any, for whose payment such money has been deposited with
or received by the Trustee, but such money need not be segregated from other
funds except to the extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default. "Event of Default", wherever
used herein with respect to any particular series of Securities, means any one
of the following events (whatever the reason for such Event of Default and
whether or not it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security
of that series or of any coupon appertaining thereto, when such
interest or coupon becomes due and payable, and continuance of such
default for a period of 30 days; or
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46
(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series when it becomes due and payable at
its Maturity; or
(3) default in the deposit of any sinking fund payment, when
and as due by the terms of any Security of that series; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture with respect to any Security
of that series (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of
60 days after there has been given, by registered or certified mail, to
the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding
Securities of that series a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is
a "Notice of Default" hereunder; or
(5) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company in an
involuntary case,
(B) appoints a Custodian of the Company or for all or
substantially all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 90 days; or
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47
(7) any other Event of Default provided with respect to
Securities of that series.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or other similar official under any Bankruptcy
Law.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default with respect to Securities of any series at
the time Outstanding occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series may declare the principal (or, if any
Securities are Original Issue Discount Securities or Indexed Securities, such
portion of the principal as may be specified in the terms thereof) of all the
Securities of that series to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by the Holders), and upon
any such declaration such principal or specified portion thereof shall become
immediately due and payable.
At any time after such a declaration of acceleration with
respect to Securities of any series has been made and before a judgment or
decree for payment of the money due has been obtained by the Trustee as
hereinafter provided in this Article, the Holders of a majority in principal
amount of the Outstanding Securities of that series, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay in the Currency in which the Securities of such
series are payable (except as otherwise specified pursuant to Section
301 for the Securities of such series and except, if applicable, as
provided in Sections 312(b), 312(d) and 312(e)):
(A) all overdue installments of interest, if any, on
all Outstanding Securities of that series and any related
coupons,
(B) the principal of (and premium, if any, on) all
Outstanding Securities of that series which have become due
otherwise than by such declaration of acceleration and
interest thereon at the rate or rates borne by or provided for
in such Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest at the
rate or rates borne by or provided for in such Securities, and
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48
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default with respect to Securities of that
series, other than the nonpayment of the principal of (or premium, if
any) or interest on Securities of that series which have become due
solely by such declaration of acceleration, have been cured or waived
as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee. The Company covenants that if:
(1) default is made in the payment of any installment of
interest on any Security of any series and any related coupon when such
interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security of any series at its Maturity,
then the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of Securities of such series and coupons, the whole
amount then due and payable on such Securities and coupons for principal (and
premium, if any) and interest, if any, with interest upon any overdue principal
(and premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installments of interest, if any, at the
rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, and may prosecute such proceeding to judgment or final decree, and may
enforce the same against the Company or any other obligor upon Securities of
such series and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon Securities of such series, wherever situated.
If an Event of Default with respect to Securities of any
series occurs and is continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the
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49
rights of the Holders of Securities of such series and any related coupons by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Securities of any series
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of any overdue principal, premium or interest) shall
be entitled and empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of
principal (or in the case of Original Issue Discount Securities or
Indexed Securities, such portion of the principal as may be provided in
the terms thereof)(and premium, if any) and interest, if any, owing and
unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series and coupons to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee and any predecessor Trustee, their agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder of
a Security or coupon any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or coupons or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder of a Security or coupon in any such proceeding.
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50
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities or Coupons. All rights of action and claims under this Indenture or
any of the Securities or coupons may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or coupons or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable benefit of the Holders of the
Securities and coupons in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected. Any money
collected by the Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal (or premium, if any) or
interest, if any, upon presentation of the Securities or coupons, or both, as
the case may be, and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities and coupons for principal (and premium, if any) and
interest, if any, in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of
any kind, according to the aggregate amounts due and payable on such
Securities and coupons for principal (and premium, if any) and
interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company
or any other Person or Persons entitled thereto.
SECTION 507. Limitation on Suits. No Holder of any Security of
any series or any related coupon shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities
of that series;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities of that series shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
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51
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities of that
series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Security or coupon shall have the right which is
absolute and unconditional to receive payment of the principal of (and premium,
if any) and (subject to Sections 305 and 307) interest, if any, on such Security
or payment of such coupon on the respective due dates expressed in such Security
or coupon (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies. If the
Trustee or any Holder of a Security or coupon has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and the Holders of Securities and coupons shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. Rights and Remedies Cumulative. Except as
otherwise provided with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities or coupons in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders of Securities or coupons is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent
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52
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Security or coupon to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders of Securities or
coupons, as the case may be.
SECTION 512. Control by Holders of Securities. The Holders of
a majority in principal amount of the Outstanding Securities of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee with respect to the Securities of such series, provided
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders of
Securities of such series not consenting.
SECTION 513. Waiver of Past Defaults. The Holders of not less
than a majority in principal amount of the Outstanding Securities of any series
may on behalf of the Holders of all the Securities of such series and any
related coupons waive any past default hereunder with respect to such series and
its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest, if any, on any Security of such series or any related
coupons, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series affected.
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53
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. Waiver of Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults. Within 90 days after the
occurrence of any Default hereunder with respect to the Securities of any
series, the Trustee shall transmit in the manner and to the extent provided in
TIA Section 313(c), notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of (or premium,
if any) or interest, if any, on any Security of such series, or in the payment
of any sinking or purchase fund installment with respect to the Securities of
such series, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interests of the Holders of the
Securities and coupons of such series; and provided further that in the case of
any Default or breach of the character specified in Section 501(4) with respect
to the Securities and coupons of such series, no such notice to Holders shall be
given until at least 60 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee. Subject to the
provisions of TIA Section 315(a) through 315(d):
(1) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, coupon or other paper or
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54
document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(2) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
(other than delivery of any Security, together with any coupons
appertaining thereto, to the Trustee for authentication and delivery
pursuant to Section 303 which shall be sufficiently evidenced as
provided therein) and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution.
(3) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon a Board Resolution,
an Opinion of Counsel or an Officers' Certificate.
(4) The Trustee may consult with counsel and the advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon.
(5) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders of Securities of any series or any
related coupons pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.
(6) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, coupon or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney.
(7) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
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(8) The Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 603. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, and in any coupons shall be taken as
the statements of the Company, and neither the Trustee nor any Authenticating
Agent assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. Neither the Trustee
nor any Authenticating Agent shall be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities. The Trustee, any Paying
Agent, Security Registrar, Authenticating Agent or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and coupons and, subject to TIA Sections 310(b) and 311,
may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar, Authenticating Agent or such
other agent.
SECTION 605. Money Held in Trust. Money held by the Trustee in
trust hereunder need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement. The Company
agrees:
(1) To pay to the Trustee from time to time such compensation
for all services rendered by it hereunder as has been agreed upon in
writing (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust).
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(2) Except as otherwise expressly provided herein, to
reimburse each of the Trustee and any predecessor Trustee upon its
request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith.
(3) To indemnify each of the Trustee and any predecessor
Trustee for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its own part,
arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (or premium, if any)
or interest, if any, on particular Securities or any coupons.
SECTION 607. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall be eligible to act as
Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
State, Territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to the
Company.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series delivered to the Trustee and to the
Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with the
provisions of TIA Section 310(b) after written request
therefor by the Company or by any Holder of a Security who has
been a bona fide Holder of a Security for at least six months,
or
(2) the Trustee shall cease to be eligible under
Section 607(a) and shall fail to resign after written request
therefor by the Company or by any Holder of a Security who has
been a bona fide Holder of a Security for at least six months,
or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by or pursuant to a Board Resolution may
remove the Trustee and appoint a successor Trustee with respect to all
Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who
has been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.
(e) If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
a notice of resignation or the delivery of an Act of removal, the Trustee
resigning or being removed may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause with respect to the Securities of one or more series, the Company, by
or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or
Trustees with respect to the Securities of that or those series (it being
understood that any such successor Trustee may be appointed with respect to the
Securities of one or more or all of such series and that at any time there shall
be only one Trustee with respect to the Securities of any particular series).
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to the Securities
of any series shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered to the
Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its
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acceptance of such appointment, become the successor Trustee with respect to the
Securities of such series and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the Securities
of any series shall have been so appointed by the Company or the Holders of
Securities and accepted appointment in the manner hereinafter provided, any
Holder of a Security who has been a bona fide Holder of a Security of such
series for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to Securities of such series.
(g) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
in the manner provided for notices to the Holders of Securities in Section 106.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor. (a) In
case of the appointment hereunder of a successor Trustee with respect to all
Securities, every such successor Trustee shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its claim, if any, provided for in
Section 606.
(b) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of one or more (but not all) series, the
Company, the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the
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provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts
referred to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities or coupons shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities or coupons so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities or coupons. In case any Securities or coupons
shall not have been authenticated by such predecessor Trustee, any such
successor Trustee may authenticate and deliver such Securities or coupons, in
either its own name or that of its predecessor Trustee, with the full force and
effect which this Indenture provides for the certificate of authentication of
the Trustee.
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SECTION 611. Appointment of Authenticating Agent. At any time
when any of the Securities remain Outstanding, the Trustee may appoint an
Authenticating Agent or Agents with respect to one or more series of Securities
which shall be authorized to act on behalf of the Trustee to authenticate
Securities of such series issued upon exchange, registration of transfer or
partial redemption thereof, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Any such appointment
shall be evidenced by an instrument in writing signed by a Responsible Officer
of the Trustee, a copy of which instrument shall be promptly furnished to the
Company. Wherever reference is made in this Indenture to the authentication and
delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and, except as may
otherwise be provided pursuant to Section 301, shall at all times be a bank or
trust company or corporation organized and doing business and in good standing
under the laws of the United States of America or of any State or the District
of Columbia, authorized under such laws to act as Authenticating Agent, having a
combined capital and surplus of not less than $1,500,000 and subject to
supervision or examination by Federal or State authorities. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at
any time resign by giving written notice of resignation to the Trustee for such
series and to the Company. The Trustee for any series of Securities may at any
time terminate the agency of an Authenticating Agent by giving written notice of
termination to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
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provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 106. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation including reimbursement of its reasonable
expenses for its services under this Section.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication substantially in the
following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
By
-----------------------------------
as Authenticating Agent
By
-----------------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities or coupons, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any Authenticating Agent nor
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any Paying Agent nor any Security Registrar shall be held accountable by reason
of the disclosure of any information as to the names and addresses of the
Holders of Securities in accordance with TIA Section 312, regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under TIA Section 312(b).
SECTION 702. Reports by Trustee. Within 60 days after May 15
of each year commencing with the first May 15 after the first issuance of
Securities pursuant to this Indenture, the Trustee shall transmit by mail to all
Holders of Securities as provided in TIA Section 313(c) a brief report dated as
of such May 15 if required by TIA Section 313(a).
A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange, if
any, upon which the Securities are listed, with the Commission and with the
Company. The Company will promptly notify the Trustee of the listing of the
Securities on any stock exchange.
SECTION 703. Reports by Company. The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents, and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of such Sections, then it will file with the Trustee
and the Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and
periodic information, documents and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations;
(2) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(3) transmit by mail to the Holders of Securities, within 30
days after the filing thereof with the Trustee, in the manner and to
the extent provided in TIA Section 313(c), such summaries of any
information, documents and reports required to be filed
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by the Company pursuant to paragraphs (1) and (2) of this Section as
may be required by rules and regulations prescribed from time to time
by the Commission.
SECTION 704. Calculation of Original Issue Discount. Upon
request of the Trustee, the Company shall file with the Trustee promptly at the
end of each calendar year a written notice specifying the amount of original
issue discount (including daily rates and accrual periods), if any, accrued on
Outstanding Securities as of the end of such year.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms. The Company shall not consolidate with or merge with or into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any Person, unless:
(1) either the Company shall be the continuing corporation, or
the corporation (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the principal of (and premium, if any) and interest, if any, on all the
Securities and the performance of every covenant of this Indenture on
the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no
Default or Event of Default shall have happened and be continuing;
(3) if as a result thereof any property or assets of the
Company or a Restricted Subsidiary would become subject to any
mortgage, lien, pledge, charge or other encumbrance not permitted by
(i) through (xi) of paragraph (a) of Section 1006 or paragraph (b) of
Section 1006, compliance shall be effected with the first clause of
paragraph (a) of Section 1006; and
(4) the Company and the successor Person have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger, conveyance or transfer and such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
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SECTION 802. Successor Person Substituted. Upon any
consolidation or merger, or any conveyance or transfer of the properties and
assets of the Company substantially as an entirety in accordance with Section
801, the successor corporation formed by such consolidation or into which the
Company is merged or the successor Person to which such conveyance or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor had been named as the Company herein; and in the event of any such
conveyance or transfer, the Company shall be discharged from all obligations and
covenants under this Indenture and the Securities and coupons and may be
dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders. Without the consent of any Holders of Securities or coupons, the
Company, when authorized by or pursuant to a Board Resolution, and the Trustee,
at any time and from time to time,