-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UAgRsla51Yp/P5k2HdV4hlUva9yZe0Lio0pF2dADf6zPjwCILrQj9hHOfPc6cuK/ unUFMqU0F1fX1tdxkoYrvg== 0000027673-99-000018.txt : 19990311 0000027673-99-000018.hdr.sgml : 19990311 ACCESSION NUMBER: 0000027673-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEERE JOHN CAPITAL CORP CENTRAL INDEX KEY: 0000027673 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 362386361 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06458 FILM NUMBER: 99561535 BUSINESS ADDRESS: STREET 1: FIRST INTERSTATE BANK BLDG STREET 2: 1 E FIRST ST STE 600 CITY: RENO STATE: NV ZIP: 89501 BUSINESS PHONE: 7027865527 MAIL ADDRESS: STREET 1: JOHN DEERE RD CITY: MOLINE STATE: IL ZIP: 61265 FORMER COMPANY: FORMER CONFORMED NAME: DEERE JOHN CREDIT CO DATE OF NAME CHANGE: 19890130 10-Q 1 =============================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 Commission file no: 1-6458 __________________________ JOHN DEERE CAPITAL CORPORATION Delaware 36-2386361 State of incorporation)(IRS employer identification no.) 1 East First Street, Suite 600 Reno, Nevada 89501 (Address of principal executive offices) Telephone Number: (702) 786-5527 _________________________________ 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 At January 31, 1999, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Credit Company, a wholly-owned subsidiary of Deere & Company. The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions. =============================================================== PART I. FINANCIAL INFORMATION Item 1. Financial Statements John Deere Capital Corporation and Subsidiaries Statements of Consolidated Income and Retained Earnings (Unaudited) (in millions) Three Months Ended January 31, ------------------------------ 1999 1998 ---- ---- Revenues Finance income earned on retail notes $95.7 $104.4 Lease revenues 58.9 39.7 Revolving charge account income 27.2 25.3 Finance income earned on wholesale notes 18.9 13.9 Securitization and servicing fee income 8.8 7.8 Net gain on retail notes sold 5.8 2.1 Interest income from short-term Investments 2.6 2.6 Other income 3.3 2.4 - -------------------------------------------------------- Total revenues 221.2 198.2 - -------------------------------------------------------- Expenses Interest expense 86.0 88.3 Operating expenses: Administrative and operating expenses 28.4 26.5 Provision for credit losses 11.3 9.3 Fees paid to John Deere 3.1 3.2 Depreciation of equipment on operating leases 35.2 23.4 - -------------------------------------------------------- Total operating expenses 78.0 62.4 - -------------------------------------------------------- Total expenses 164.0 150.7 - -------------------------------------------------------- Income of consolidated group before income taxes 57.2 47.5 Provision for income taxes 20.2 16.7 - -------------------------------------------------------- Income of consolidated group 37.0 30.8 Equity in income (loss) of unconsolidated affiliates .4 (.2) - -------------------------------------------------------- Net income 37.4 30.6 Cash dividends declared (5.0) (12.5) Retained earnings at beginning of period 806.4 705.2 - -------------------------------------------------------- Retained earnings at end of period $838.8 $723.3 ======================================================= See Notes to Interim Financial Statements. Page 2 John Deere Capital Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (in millions) January 31, October 31, January 31, 1999 1998 1998 ----------- ----------- ----------- Assets Cash and cash equivalents $ 182.8 $ 191.1 $ 197.5 Receivables and leases: Retail notes 4,272.5 3,839.4 4,662.3 Revolving charge accounts 609.4 751.1 504.5 Wholesale notes 831.2 803.9 600.0 Financing leases 242.5 241.8 212.0 - -------------------------------------------------------- Total receivables 5,955.6 5,636.2 5,978.8 Equipment on operating leases - net 923.6 891.5 577.1 - -------------------------------------------------------- Total receivables and leases 6,879.2 6,527.7 6,555.9 Allowance for credit losses (83.0) (81.3) (88.0) - -------------------------------------------------------- Total receivables and leases - net 6,796.2 6,446.4 6,467.9 - -------------------------------------------------------- Other receivables 146.1 154.8 143.4 Investment in unconsolidated affiliates 20.5 20.0 12.6 Other assets 155.2 54.1 65.1 - --------------------------------------------------------- Total Assets $7,300.8 $6,866.4 $6,886.5 ========================================================= Liabilities and Stockholder's Equity Short-term borrowings: Commercial paper $1,540.0 $1,672.0 $2,098.6 John Deere 93.2 59.9 181.5 Current maturities of long-term borrowings 1,673.0 1,678.5 1,248.5 Other notes payable 7.2 6.8 3.7 - --------------------------------------------------------- Total short-term borrowings 3,313.4 3,417.2 3,532.3 - --------------------------------------------------------- Accounts payable and accrued liabilities: Accrued interest on debt 64.4 45.5 58.7 Other payables 285.7 229.7 227.8 - --------------------------------------------------------- Total accounts payable and accrued liabilities 350.1 275.2 286.5 - --------------------------------------------------------- Deposits withheld from dealers and merchants 154.2 156.4 141.5 - --------------------------------------------------------- Long-term borrowings: Senior debt 2,382.3 1,949.2 1,940.4 Subordinated debt 150.0 150.0 150.0 - --------------------------------------------------------- Total long-term borrowings 2,532.3 2,099.2 2,090.4 - --------------------------------------------------------- Total liabilities 6,350.0 5,948.0 6,050.7 - --------------------------------------------------------- Stockholder's equity Common stock, without par value (issued and outstanding - 2,500 shares owned by John Deere Credit Company) 112.8 112.8 112.8 Retained earnings 838.8 806.4 723.3 Cumulative translation adjustment (.8) (.8) (.3) - --------------------------------------------------------- Total stockholder's equity 950.8 918.4 835.8 - --------------------------------------------------------- Total Liabilities and Stockholder's Equity $7,300.8 $6,866.4 $6,886.5 ========================================================= See Notes to Interim Financial Statements. Page 3 John Deere Capital Corporation and Subsidiaries Statements of Consolidated Cash Flows (Unaudited) (in millions) Three Months Ended January 31, ------------------------------ 1999 1998 ---- ---- Cash Flows from Operating Activities: Net income $ 37.4 $ 30.6 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 11.3 9.3 Provision for depreciation 35.8 24.2 Equity in loss (income) of unconsolidated affiliates (.4) .2 Other 8.8 14.4 - ------------------------------------------------------ Net cash provided by operating activities 92.9 78.7 - ------------------------------------------------------ Cash Flows from Investing Activities: Cost of receivables and leases acquired (1,977.2)(1,675.4) Collections of receivables 1,478.4 1,375.5 Proceeds from sales of receivables 102.2 12.1 Other 82.6 69.3 - ------------------------------------------------------ Net cash used for investing activities (314.0) (218.5) - ------------------------------------------------------ Cash Flows from Financing Activities: Change in commercial paper (132.0) 106.7 Change in receivable/payable with John Deere 21.9 (177.1) Increase in other notes payable .4 1.3 Proceeds from issuance of long-term borrowings 625.0 306.0 Principal payments on long-term borrowings (297.5) (91.5) Dividends paid (5.0) (12.5) - ------------------------------------------------------ Net cash provided by financing activities 212.8 132.9 - ------------------------------------------------------ Net decrease in cash and cash equivalents (8.3) (6.9) Cash and cash equivalents at the beginning of period 191.1 204.4 - ------------------------------------------------------ Cash and cash equivalents at the end of period $ 182.8 $ 197.5 ====================================================== See Notes to Interim Financial Statements. Page 4 John Deere Capital Corporation and Subsidiaries Notes to Interim Financial Statements (1) The consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (the Company) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. 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. (2) In January 1999, the Company expanded its operations by forming two additional entities, John Deere Credit Group Plc (JDCG) and John Deere Credit S.A.S. (JDC S.A.S.). JDCG, a wholly-owned subsidiary of the Capital Corporation, is a limited-purpose organization to be used in certain financing transactions for the Company's international operations. JDC S.A.S. is a 50 percent joint venture formed with Caisse Nationale de Credit Agricole. The principal business of JDC S.A.S. is to support John Deere and independent John Deere retail dealers by offering financing products specific to the market in France. This investment is accounted for under the equity method of accounting. At January 31, 1999, the Company owned 50 percent of John Deere Credit Limited (JDCL), a joint venture located in Gloucester, England. During the quarter, the Company and Lombard North Central Plc (Lombard), the finance house subsidiary of NatWest Group, reached an agreement whereby the Company acquired in February 1999 the 50 percent share in JDCL held by Lombard's subsidiary, Farming and Agricultural Finance (FAF). The joint venture's total assets, stockholders' equity and net income for its year ended September 30, 1998 were $315 million, $32 million and $1 million, respectively. The Company also purchased an additional receivable portfolio of approximately $251 million from FAF in February 1999. (3) The principal business of the Company is providing and administering financing for retail purchases of new and used equipment manufactured by Deere & Company's agricultural, construction, and commercial and consumer equipment divisions. The Company purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly- owned subsidiaries (collectively called John Deere). John Deere acquires these retail notes through independent John Deere retail dealers. The Company also purchases and finances certain agricultural, construction, and lawn and grounds care retail notes unrelated to John Deere. In addition, the Company purchases and finances recreational product retail notes acquired from independent dealers and marine product mortgage service companies (recreational product retail notes). The Company also leases equipment to retail customers, finances and services revolving charge accounts acquired from and offered through merchants or farm input providers in the agricultural, construction, lawn and grounds care, and yacht markets (revolving charge accounts), and provides wholesale financing for inventories of recreational vehicles, manufactured housing units, yachts, John Deere engines, and John Deere agricultural and John Deere construction equipment owned by dealers of those products (wholesale notes). Retail notes, revolving charge accounts, financing leases and wholesale notes receivable are collectively called "Receivables". Receivables and operating leases are collectively called "Receivables and Leases". Page 5 (4) The Company's ratio of earnings before fixed charges to fixed charges was 1.66 to 1 for the first quarter of 1999 compared with 1.53 to 1 for the first quarter of 1998. "Earnings before fixed charges" consist of income before income taxes, the cumulative effect of changes in accounting and fixed charges. "Fixed charges" consist of interest on indebtedness, amortization of debt discount and expense, an estimated amount of rental expense under capitalized leases which is deemed to be representative of the interest factor and rental expense under operating leases. (5) In the first quarter of 1999, the Company adopted FASB Statement No. 130, Reporting Comprehensive Income. Comprehensive income includes all changes in the Company's equity during the period, except transactions with stockholders of the Company. Comprehensive income for the first quarter of 1999 and 1998 consisted of the following in millions of dollars: Three Months Ended January 31, ------------------ 1999 1998 ------------------ Net Income $37.4 $30.6 Change in cumulative translation adjustment -- (.1) ------------------ Comprehensive income $37.4 $30.5 ================== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Net income for the first quarter of 1999 was $37.4 million compared with $30.6 million last year. First quarter results for 1999 benefited from higher gains on retail note sales, higher income on a larger average receivable and lease portfolio, a temporary reduction in leverage position, and improved financing spreads, partially offset by higher operating costs. Revenues totaled $221.2 million for the first quarter of 1999 compared to $198.2 million for the same period a year ago. Revenues increased primarily due to a 6 percent increase in the average balance of Receivables and Leases financed. Finance income earned on retail notes totaled $95.7 million for the first three months of 1999 compared to $104.4 million for the same period in 1998. This decrease was primarily the result of recreational product retail note sales over the last twelve months. Lease revenues increased $19.2 million, to $58.9 million in the first three months of 1999, from $39.7 million in the first three months of 1998 due to a 48 percent increase in the average balance of equipment on operating leases and financing leases. Finance income earned on wholesale notes increased $5.0 million, to $18.9 million for the first three months of 1999, from $13.9 million in the first three months of 1998. This increase was primarily the result of the continued growth in the financing for inventories of construction equipment, yachts and recreational vehicles. Page 6 Net gains on the sales of retail notes, including adjustments related to prior sales, totaled $5.8 million for the first quarter of 1999 compared to $2.1 million for the same period a year ago. The increase is primarily related to the sale of recreational vehicle retail notes ($83 million total principal value) during the first quarter of 1999. There were no similar sales during the first quarter of 1998. Additional sales of retail notes are expected to be made in the future. Interest expense totaled $86.0 million for the first quarter of 1999 compared to $88.3 million for the same period in 1998. This decrease is primarily due to a reduction in the weighted average annual interest rate incurred on all interest-bearing borrowings from 6.2 percent for the first quarter of 1998 to 5.9 percent for the first quarter of 1999. This decrease was partially offset by higher average borrowings of $5.686 billion in the first three months of 1999 compared to $5.534 billion in the first three months of 1998. Administrative and operating expenses increased 7 percent from $26.5 million in the first quarter of 1998 to $28.4 million in the first quarter of 1999. These increases were attributable to the costs associated with administering a larger Receivable and Lease portfolio as well as higher employment costs relating to the increasing level of new acquisition volumes. Depreciation of equipment on operating leases increased to $35.2 million in the first quarter of 1999 compared to $23.4 million for the same period in 1998, as a result of the increase in operating leases financed. During the first quarter of 1999, the provision for credit losses totaled $11.3 million compared with $9.3 million for the same period last year. The increase in the provision for credit losses was primarily the result of an increase in the average portfolio of Receivables and Leases financed. The annualized provision for credit losses, as a percentage of the total average portfolio outstanding, was .67 percent for the first quarter of 1999 compared with .58 percent for the same period last year. Receivable and Lease acquisition volumes were as follows (in millions of dollars): Three Months Ended January 31, ----------------- 1999 1998 $ Change % Change --------------------------------- Retail notes: Agricultural equipment $906 $838 $ 68 8% Construction equipment 117 97 20 21 Lawn and grounds care equipment 38 21 17 81 Recreational products 84 65 19 29 -------------------------------- Total 1,145 1,021 124 12 Revolving charge Accounts 321 256 65 25 Wholesale notes 394 279 115 41 Financing leases 27 23 4 17 Equipment on operating leases 90 96 (6) (6) -------------------------------- Total $1,977 $1,675 $302 18 ================================ Page 7 Total Receivables and Leases held were as follows (in millions of dollars): Jan 31, Oct 31, Jan 31, 1999 1998 1998 --------------------------------- Retail notes: Agricultural equipment $2,751 $2,285 $2,863 Construction equipment 722 703 666 Lawn and grounds care equipment 273 270 205 Recreational products 526 581 928 -------------------------------- Total 4,272 3,839 4,662 Revolving charge accounts 609 751 505 Wholesale notes 831 804 600 Financing leases 243 242 212 Equipment on operating leases 924 892 577 -------------------------------- Total $6,879 $6,528 $6,556 ================================ Retail note volumes increased by $124 million for the first quarter of 1999 compared to the first quarter of 1998, due to increases in all retail note categories. Wholesale note volumes increased significantly during the first quarter of 1999 primarily due to higher construction equipment floor planning notes and the introduction of a used agricultural equipment floor planning program in April 1998. Revolving charge volumes increased primarily due to the strong demand for the Farm Plan product, agricultural production loans and operating loans offered to select golf & turf commercial customers. Receivables and Leases administered by the Company, which include retail notes sold, were as follows (in millions of dollars): Jan 31, Oct 31, Jan 31, 1999 1998 1998 ------------------------------- Receivables and Leases administered: Receivables and Leases owned by the Company $6,879 $6,528 $6,556 Retail notes sold and securitized (with limited recourse)* 1,348 1,812 1,014 Retail notes sold (without recourse)** 429 376 --------------------------------- Total Receivables and Leases administered $8,656 $8,716 $7,570 ================================= * The Company's maximum exposure under all retail note recourse provisions at January 31, 1999, October 31, 1998 and January 31, 1998 was $174 million, $181 million and $163 million, respectively. In addition, the Company has guaranteed a letter of credit on behalf of John Deere Credit Inc., the John Deere finance subsidiary in Canada, as part of a retail note sale. At January 31, 1999, the maximum exposure under this agreement was approximately $3 million. ** On February 12, 1999, servicing rights on a majority of recreational vehicle retail notes previously sold and administered by the Company were assumed by their owner. Approximately $269 million principal value was removed from the portfolio, reducing the amount of Receivables and Leases administered accordingly. The Company continues to administer the remaining portfolio outstanding. Page 8 Total Receivable and Lease amounts 60 days or more past due, by product and as a percentage of total balances held were as follows (in millions of dollars): January 31, October 31, January 31, 1999 1998 1998 ------------------------------------- Dollars % Dollars % Dollars % ------------------------------------- Retail notes: Agricultural equipment $10.8 .39% $9.5 .42% $8.3 .29% Construction equipment 2.8 .39 2.0 .28 2.7 .40 Lawn and grounds care equipment .8 .29 .7 .26 .7 .32 Recreational products .2 .04 .2 .03 .2 .03 ----- ----- ----- Total retail notes 14.6 .34 12.4 .32 11.9 .26 Revolving charge accounts 9.7 1.59 8.4 1.12 10.6 2.11 Wholesale notes 1.0 .12 .6 .07 2.2 .37 Leases 5.9 .51 3.8 .34 3.2 .40 ----- ----- ----- Total Receivables and Leases $31.2 .45 $25.2 .39 $27.9 .43 ===== ===== ===== The balance of retail notes held (principal plus accrued interest) with any installment 60 days or more past due was $63 million, $54 million and $56 million at January 31, 1999, October 31, 1998 and January 31, 1998, respectively. The balance of retail notes held on which any installment is 60 days or more past due as a percentage of ending retail notes receivable was 1.47 percent, 1.42 percent and 1.20 percent at January 31, 1999, October 31, 1998 and January 31, 1998, respectively. During the first quarter of 1999, write-offs (net of recoveries) of Receivables and Leases totaled $7.2 million compared with $7.2 million in the same period last year. Annualized write-offs, as a percentage of the total average portfolio outstanding, were .43 percent for the first quarter of 1999 compared with .44 percent during the same period last year. Write-offs relating to retail notes increased 26 percent, or $0.8 million, in the first three months of 1999, when compared with the first three months of 1998, primarily due to increased write-offs of agricultural equipment and recreational product retail notes. Wholesale note write-offs decreased $0.8 million in the first quarter of 1999 when compared to the same period last year. Lease and revolving charge account write-offs in the first quarter of 1999 remained relatively stable when compared to last year. Deposits withheld from dealers and merchants, representing mainly the aggregate dealer retail note and lease withholding accounts from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged, amounted to $154 million at January 31, 1999, compared with $156 million at October 31, 1998 and $142 million at January 31, 1998. The Company's allowance for credit losses on all Receivables and Leases financed totaled $83 million at January 31, 1999, $81 million at October 31, 1998 and $88 million at January 31, 1998. The allowance for credit losses represented 1.21 percent of the total Receivables and Leases financed at January 31, 1999, 1.25 percent at October 31, 1998 and 1.34 percent at January 31, 1998. The Company's allowance for credit losses, as a percentage of total Receivables and Leases, has declined during the last twelve months due to an ongoing evaluation of loss experience and related estimates to ensure the allowance for credit losses is maintained at an adequate level. Management believes the allowance for credit losses at January 31, 1999 is sufficient to provide adequate protection against losses. Page 9 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 business information systems, mainframe and personal computers, software, the distributed network, facilities systems, the Company's products, 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 ready with its mission critical activities and systems, allowing substantial time for further testing, verification and the final conversion of less important systems. Over 95 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 in its effort to ensure that both information technology (IT) and non- IT systems are compliant. The Company is requiring suppliers of new software or equipment and third parties who develop or modify software to provide written certification that their products are Year 2000 compliant and have been tested accordingly. In some instances, the Company is independently testing this software. The Company is working with suppliers to confirm embedded systems are compliant and perform the necessary testing. The Company is assessing the Year 2000 readiness of its critical suppliers and merchants. The Company is surveying its major suppliers and is surveying the largest volume generating merchants; following up as appropriate with prioritization based on mission criticality. The total cost of the modifications and upgrades to date has not been material and the future costs to become Year 2000 ready 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 readiness, particularly as it relates to third parties, based upon the progress to date, the Company does not expect consequences of any of the Company's unanticipated or unsuccessful modifications to have a material adverse effect on the Company's 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 could result in lost revenues or profits. The Company is developing contingency plans, which will be an ongoing activity for the first three calendar quarters of 1999, should any Year 2000 failures occur in any of the assessment areas noted above. Safe Harbor Statement Statements under the "Year 2000" heading 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. Further information, including factors that potentially could materially affect the Company's and John Deere's financial results, is included in the most recent Deere & Company Form 10-K and other John Deere and Company filings with the Securities and Exchange Commission. Page 10 Capital Resources and Liquidity The Company relies on its ability to raise substantial amounts of funds to finance its Receivable and Lease portfolios. The Company's primary sources of funds for this purpose are a combination of borrowings and equity capital. Additionally, the Company periodically sells substantial amounts of retail notes in the public market and in private sales. The Company's ability to obtain funds is affected by its debt ratings, which are closely related to the outlook for and the financial condition of Deere & Company, and the nature and availability of support facilities, such as its lines of credit. For information regarding Deere & Company and its business, see Exhibit 99. The Company's ability to meet its debt obligations is supported in a number of ways. All commercial paper issued is backed by bank credit lines. The assets of the Company are self- liquidating in nature. A strong equity position is available to absorb unusual losses on these assets. Liquidity is also provided by the Company's ability to sell these assets. The Company's business is somewhat seasonal, with overall acquisition volumes of Receivables and Leases traditionally higher in the second half of the fiscal year than in the first half, and overall collections of Receivables and Leases traditionally somewhat higher in the first six months than in the last six months of the fiscal year. During the first three months of 1999, the aggregate net cash provided by operating and financing activities was primarily used to increase Receivables and Leases. Net cash provided by operating activities was $93 million in the first three months of 1999. Financing activities provided $213 million during the same period, resulting from a $218 million net increase in total borrowings, which was partially offset by a $5 million dividend payment to John Deere Credit Company. Net cash used for investing activities totaled $314 million in the first three months of 1999, primarily due to Receivable and Lease acquisitions exceeding collections by $499 million, which was partially offset by the $102 million of proceeds from the sale of receivables. Cash and cash equivalents decreased $8 million during the first three months of 1999. During the first three months of 1998, the aggregate net cash provided by operating and financing activities was primarily used to increase Receivables and Leases. Net cash provided by operating activities was $79 million in the first three months of 1998. Financing activities provided $133 million during the same period, resulting from $145 million of proceeds from total borrowings, which was partially offset by a $12.5 million dividend payment to John Deere Credit Company. Net cash used for investing activities totaled $219 million in the first three months of 1998, primarily due to Receivable and Lease acquisitions exceeding collections by $300 million. Cash and cash equivalents decreased $7 million during the first three months of 1998. Total interest-bearing indebtedness amounted to $5.846 billion at January 31, 1999, compared with $5.516 billion at October 31, 1998 and $5.623 billion at January 31, 1998, generally corresponding with the level of Receivables and Leases financed and the level of cash and cash equivalents. Total short-term indebtedness amounted to $3.313 billion at January 31, 1999, compared with $3.417 billion at October 31, 1998 and $3.532 billion at January 31, 1998. Total long-term indebtedness amounted to $2.532 billion, $2.099 billion and $2.090 billion at January 31, 1999, October 31, 1998 and January 31, 1998, respectively. The ratio of total interest-bearing debt to stockholder's equity was 6.1 to 1, 6.0 to 1 and 6.7 to 1 at January 31, 1999, October 31, 1998 and January 31, 1998, respectively. Page 11 During the first quarter of 1999, the Capital Corporation retired $150 million of 9-5/8% subordinated notes, $97 million of Swiss franc bonds and $50 million of medium-term notes all due in the first quarter. The Capital Corporation also received proceeds of $625 million from the issuance of medium-term notes during the first three months of 1999. At January 31, 1999, the Capital Corporation, Deere & Company, John Deere Limited (Canada) and John Deere Credit Inc. (Canada), jointly, maintained $5.026 billion of unsecured lines of credit with various banks in North America and overseas, $1.072 billion of which was unused. For the purpose of computing unused credit lines, total short-term borrowings, excluding the current portion of long-term borrowings, of the Capital Corporation, Deere & Company, John Deere Limited (Canada) and John Deere Credit Inc. (Canada) were considered to constitute utilization. Included in the total credit lines is a long-term credit agreement commitment for $3.500 billion expiring on February 24, 2003. An annual facility fee on the credit agreement is charged to the Capital Corporation based on utilization. The Capital Corporation declared and paid a cash dividend of $5 million to John Deere Credit Company on December 15, 1998. John Deere Credit Company paid a comparable dividend to Deere & Company. On February 26, 1999, the Capital Corporation declared a cash dividend of $5 million to John Deere Credit Company, which in turn declared a cash dividend of $5 million to Deere & Company, each payable on March 9, 1999. Item 3. Quantitative and Qualitative Disclosures About Market Risk. See the information under "Management's Discussion and Analysis," Note 12 "Financial Instruments" and "Supplemental Information (Unaudited)" in the Company's most recent annual report filed on Form 10-K. There has been no material change in this information. Page 12 PART II. OTHER INFORMATION Item 1. 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 state and federal laws and regulations concerning retail credit. 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 2. Changes in Securities and Use of Proceeds. Omitted pursuant to instruction H(2). Item 3. Defaults Upon Senior Securities. Omitted pursuant to instruction H(2). Item 4. Submission of Matters to a Vote of Security Holders. Omitted pursuant to instruction H(2). Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. See the index to exhibits immediately preceding the exhibits filed with this report. 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. (b) Reports on Form 8-K. Current Report on Form 8-K dated November 24, 1998 (Items 5 and 7). Current Report on Form 8-K dated December 16, 1998 (Items 5 and 7). Page 13 SIGNATURES Pursuant to the requirements 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. JOHN DEERE CAPITAL CORPORATION Date: March 9, 1999 By: s/ Nathan J. Jones ------------------------------ Nathan J. Jones Senior Vice President and Principal Financial Officer Page 14 INDEX TO EXHIBITS Exhibit - ------- (12) Computation of ratio of earnings to fixed charges (27) Financial data schedule (99) Part I of Deere & Company Form 10-Q for the quarter ended January 31, 1999 (Securities and Exchange Commission file number 1-4121*). __________________________ * Incorporated by reference. Copies of these exhibits are available from the Company upon request. Page 15 EX-12 2 Exhibit 12 John Deere Capital Corporation and Subsidiaries Computation of Ratio of Earnings to Fixed Charges (thousands of dollars) Three Months Ended January 31, ------------------------------ 1999 1998 ----------- ----------- Earnings: Income before income taxes and changes in accounting $57,129 $47,530 Fixed charges 87,120 89,278 ----------- ---------- Total earnings $144,249 $136,808 =========== ========== Fixed charges: Interest expense $85,983 $88,258 Rent expense 1,137 1,020 ----------- ---------- Total fixed charges $87,120 $89,278 =========== ========== Ratio of earnings to fixed charges * 1.66 1.53 =========== ========== For the Years Ended October 31, ------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Earnings: Income before income taxes and changes in accounting $233,534 $211,251 $206,588 $175,360 $161,809 Fixed charges 373,236 330,648 276,726 240,913 168,507 -------- -------- -------- -------- -------- Total earnings $606,771 $541,899 $483,314 $416,273 $330,316 ======== ======== ======== ======== ======== Fixed charges: Interest expense $368,381 $326,866 $273,748 $238,445 $166,591 Rent expense 4,856 3,782 2,978 2,468 1,916 -------- -------- -------- -------- -------- Total fixed charges $373,236 $330,648 $276,726 $240,913 $168,507 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges * 1.63 1.64 1.75 1.73 1.96 ======== ======== ======== ======== ======== _______ "Earnings" consist of income before income taxes, the cumulative effect of changes in accounting and fixed charges. "Fixed charges" consist of interest on indebtedness, amortization of debt discount and expense, an estimated amount of rental expense under capitalized leases which is deemed to be representative of the interest factor and rental expense under operating leases. * The Company has not issued preferred stock. Therefore, the ratios of earnings to combined fixed charges and preferred stock dividends are the same as the ratios presented above. EX-27 3
5 This schedule contains summary financial information extracted from Form 10-Q and is qualified in its entirety by reference to such financial information. 0000027673 JOHNDEERECAPITALCORP 1,000,000 U.S. DOLLARS 3-MOS OCT-31-1999 NOV-01-1998 JAN-31-1999 1 183 0 6,102 83 0 0 33 15 7,301 0 2,532 0 0 113 838 7,301 0 221 0 35 0 11 86 57 20 37 0 0 0 37 0 0
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