-----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, UM0lBzoz/44TsAvogDjiIubWBLFU0dEPieHAR3kguc1E4+lORXHLhekhppoIMDzR reNyJcVRoh6zYeKmmkvO5Q== 0000027673-99-000025.txt : 19990610 0000027673-99-000025.hdr.sgml : 19990610 ACCESSION NUMBER: 0000027673-99-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990609 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: 99643230 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 April 30, 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 April 30, 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. =========================================================== Page 1 of 16 Pages Index to Exhibits: Page 15 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 Six Months Ended April 30, April 30, 1999 1998 1999 1998 ----------------------------------- Revenues Finance income earned on retail notes $ 108.0 $ 107.2 $ 203.7 $ 211.6 Lease revenues 64.0 44.8 122.9 84.5 Revolving charge account income 26.5 24.6 53.7 49.9 Finance income earned on wholesale notes 15.5 14.4 34.4 28.3 Securitization and servicing fee income 6.8 6.6 15.6 14.4 Net gain on retail notes sold 9.5 10.5 15.3 12.6 Interest income from short-term investments 2.0 2.4 4.6 5.0 Other income 4.3 3.0 7.6 5.4 - - ------------------------------------------------------------ Total revenues 236.6 213.5 457.8 411.7 - - ------------------------------------------------------------ Expenses Interest expense 92.4 91.1 178.4 179.4 Operating expenses: Administrative and operating expenses 32.7 28.5 61.1 55.0 Provision for credit losses 14.6 15.2 25.9 24.5 Fees paid to John Deere 3.0 2.7 6.1 5.9 Depreciation of equipment on operating leases 38.6 25.4 73.8 48.8 - - ------------------------------------------------------------ Total operating expenses 88.9 71.8 166.9 134.2 - - ------------------------------------------------------------ Total expenses 181.3 162.9 345.3 313.6 - - ------------------------------------------------------------ Income of consolidated group before income taxes 55.3 50.6 112.5 98.1 Provision for income taxes 19.0 17.9 39.2 34.6 - - ------------------------------------------------------------ Income of consolidated group 36.3 32.7 73.3 63.5 Equity in income of unconsolidated affiliates .2 .2 .6 - - ------------------------------------------------------------ Net income 36.5 32.9 73.9 63.5 Cash dividends declared (5.0) (12.5) (10.0) (25.0) Retained earnings at beginning of period 838.8 723.3 806.4 705.2 - - ------------------------------------------------------------ Retained earnings at end of period $ 870.3 $ 743.7 $ 870.3 $ 743.7 = ============================================================ See Notes to Interim Financial Statements. Page 2 John Deere Capital Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (in millions) April 30, October 31, April 30, 1999 1998 1998 ---------------------------------- Assets Cash and cash equivalents $ 196.3 $ 191.1 $ 188.6 Receivables and leases: Retail notes 4,849.1 3,839.4 4,671.1 Revolving charge accounts 730.0 751.1 627.0 Wholesale notes 877.6 803.9 669.7 Financing leases 254.5 241.8 218.1 - - ------------------------------------------------------------- Total receivables 6,711.2 5,636.2 6,185.9 Equipment on operating leases -- net 1,066.2 891.5 712.2 - - ------------------------------------------------------------- Total receivables and leases 7,777.4 6,527.7 6,898.1 Allowance for credit losses (87.8) (81.3) (85.7) - - ------------------------------------------------------------- Total receivables and leases -- net 7,689.6 6,446.4 6,812.4 - - ------------------------------------------------------------- Other receivables 87.5 154.8 133.6 Investment in unconsolidated affiliates 9.8 20.0 17.5 Other assets 93.6 54.1 73.3 - - ------------------------------------------------------------- Total Assets $8,076.8 $6,866.4 $7,225.4 = ============================================================= Liabilities and Stockholder's Equity Short-term borrowings: Commercial paper $1,891.4 $1,672.0 $2,131.7 John Deere 34.2 59.9 229.5 Current maturities of long-term borrowings 1,977.3 1,678.5 1,632.5 Other notes payable 6.8 5.2 - - ------------------------------------------------------------- Total short-term borrowings 3,902.9 3,417.2 3,998.9 - - ------------------------------------------------------------- Accounts payable and accrued liabilities: Accrued interest on debt 38.9 45.5 41.0 Other payables 287.4 229.7 220.2 - - ------------------------------------------------------------- Total accounts payable and accrued liabilities 326.3 275.2 261.2 - - ------------------------------------------------------------- Deposits withheld from dealers and merchants 123.3 156.4 143.9 - - ------------------------------------------------------------- Long-term borrowings: Senior debt 2,591.1 1,949.2 1,815.2 Subordinated debt 150.0 150.0 150.0 - - ------------------------------------------------------------- Total long-term borrowings 2,741.1 2,099.2 1,965.2 - - ------------------------------------------------------------- Total liabilities 7,093.6 5,948.0 6,369.2 - - ------------------------------------------------------------- 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 870.3 806.4 743.7 Cumulative translation adjustment .1 (.8) (.3) - - ------------------------------------------------------------- Total stockholder's equity 983.2 918.4 856.2 - - ------------------------------------------------------------- Total Liabilities and Stockholder's Equity $8,076.8 $6,866.4 $7,225.4 = ============================================================= See Notes to Interim Financial Statements. Page 3 John Deere Capital Corporation and Subsidiaries Statements of Consolidated Cash Flows (Unaudited) (in millions) Six Months Ended April 30, 1999 1998 ------------------------- Cash Flows from Operating Activities: Net income $ 73.9 $ 63.5 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 25.9 24.5 Provision for depreciation 75.3 50.3 Equity in income of unconsolidated affiliates (.6) Other (40.8) 2.1 - - ------------------------------------------------------------ Net cash provided by operating activities 133.7 140.4 - - ------------------------------------------------------------ Cash Flows from Investing Activities: Cost of receivables and leases acquired (4,010.4) (3,590.0) Collections of receivables 2,847.0 2,678.5 Proceeds from sales of receivables 297.4 243.4 Other 36.0 45.2 - - ------------------------------------------------------------ Net cash used for investing activities (830.0) (622.9) - - ------------------------------------------------------------ Cash Flows from Financing Activities: Increase in commercial paper 166.5 139.8 Change in receivable/payable with John Deere (33.0) (124.4) Change in other notes payable (6.8) 2.8 Proceeds from issuance of long-term borrowings 1,500.0 781.0 Principal payments on long-term borrowings (915.2) (307.5) Dividends paid (10.0) (25.0) - - ------------------------------------------------------------ Net cash provided by financing activities 701.5 466.7 - - ------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 5.2 (15.8) Cash and cash equivalents at beginning of period 191.1 204.4 - - ------------------------------------------------------------ Cash and cash equivalents at end of period $ 196.3 $ 188.6 = ============================================================ 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) On February 1, 1999, the Company purchased the remaining 50 percent interest in John Deere Credit Limited (JDCL) located in Gloucester, England from Farming and Agricultural Finance Limited (FAF), a subsidiary of Lombard North Central Plc, for approximately $18 million, which included a premium on portfolios owned by JDCL of approximately $2 million. In addition, the Company acquired an installment receivable portfolio from FAF and began administering a separate receivable portfolio of FAF in exchange for a servicing fee. An additional $2 million was paid representing a premium on the FAF receivable portfolio. Both of these premiums will be amortized to expense over approximately three years. The purchase of JDCL and the acquisition of FAF's receivable portfolio added approximately $437 million to the Company's net agricultural installment portfolio owned at acquisition date. (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." (4) The Company's ratio of earnings before fixed charges to fixed charges was 1.59 to 1 for the second quarter of 1999 compared with 1.55 to 1 for the second quarter of 1998. The ratio of earnings before fixed charges to fixed charges was 1.62 to 1 for the first six months of 1999 and 1.54 to 1 for the first six months of 1998. "Earnings before fixed charges" consist of income before income Page 5 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 Financial Accounting Standards Board (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 six months of 1999 and 1998 consisted of the following in millions of dollars: Three Months Ended Six Months Ended April 30, April 30, 1999 1998 1999 1998 ------------------------------------ Net Income $36.5 $32.9 $73.9 $63.5 Change in cumulative translation adjustment .9 .9 (.1) ------------------------------------ Comprehensive income $37.4 $32.9 $74.8 $63.4 ==================================== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Net income was $36.5 million in the second quarter and $73.9 million for the first six months of 1999, compared with $32.9 million and $63.5 million for the same periods last year. The 1999 second quarter and year-to-date results benefited from higher income on an 8 percent increase in the average balance of Receivables and Leases financed during the first six months and a reduction in leverage position, partially offset by higher operating expenses. In addition, year-to-date results benefited from higher gains on the sales of retail notes. Revenues totaled $236.6 million and $457.8 million for the second quarter and for the first six months, respectively, of 1999, compared to $213.5 million and $411.7 million for the same periods a year ago. Finance income earned on retail notes totaled $203.7 million for the first six months of 1999, compared to $211.6 million for the same period in 1998. This decrease was primarily the result of a 6 percent lower average retail note portfolio outstanding due to recreational product retail note sales over the last twelve months. Lease revenues increased $38.4 million, to $122.9 million in the first six months of 1999, from $84.5 million in the first six months of 1998, due to a 50 percent increase in the average balance of equipment on operating leases and financing leases. Finance income earned on wholesale notes increased $6.1 million, to $34.4 million for the first six months of 1999, from $28.3 million in the first six months of 1998. This increase was primarily the result of continued growth in the financing for inventories of John Deere construction equipment, used agricultural equipment, yachts and recreational vehicles. Net gains on the sales of retail notes, including adjustments to prior sales, totaled $9.5 million and $15.3 million for the second quarter and for the first six months of 1999, compared to $10.5 million and $12.6 million for the same periods a year ago. The year-to-date increase is primarily related to the increased sale of recreational vehicle retail notes in the first six months of 1999, compared to the same period last year. Additional sales of retail notes are expected to be made in the future. Interest expense totaled $92.4 million for the second quarter of 1999 and $178.4 million for the first six months of 1999, compared to $91.1 million and $179.4 million for the same periods in 1998. This decrease in the first six months of 1999 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 six months of 1998 to 5.9 percent Page 6 for the first six months of 1999. This decrease was mostly offset by higher average borrowings of $6.040 billion in the first six months of 1999, compared to $5.667 billion in the first six months of 1998. Administrative and operating expenses were $32.7 million in the second quarter of 1999 and $61.1 million for the first six months of 1999, compared with $28.5 million and $55.0 million for the same periods in 1998. These increases were attributable to the costs associated with administering a larger Receivables 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 $38.6 million in the second quarter of 1999 and $73.8 million for the first six months of 1999, compared to $25.4 million and $48.8 million for the same periods in 1998, as a result of the increase in operating leases financed. During the second quarter and the first six months of 1999, the provision for credit losses totaled $14.6 million and $25.9 million, respectively, compared with $15.2 million and $24.5 million in the same periods last year. This increase in the provision for credit losses for the first six months of 1999 was primarily the result of an increase in the average portfolio of Receivables and Leases financed, which was partially offset by lower write-offs on the owned portfolio. The annualized provision for credit losses, as a percentage of the total average portfolio outstanding, was .79 percent for the second quarter of 1999 and .73 percent for the first six months of 1999, compared with .90 percent and .74 percent for the same periods last year. Receivable and Lease acquisition volumes were as follows (in millions of dollars): Three Months Ended April 30, 1999 1998 $ Change % Change -------------------------------- Retail notes: Agricultural equipment* $ 601 $ 607 $(6) (1)% Construction equipment 112 109 3 3 Lawn and grounds care Equipment 60 46 14 30 Recreational products 95 100 (5) (5) ------------------------------- Total 868 862 6 1 ------------------------------- Revolving charge accounts 492 441 51 12 Wholesale notes 416 395 21 5 Financing leases 29 29 Equipment on operating leases 228 188 40 21 ------------------------------- Total $2,033 $1,915 $118 6 =============================== Six Months Ended April 30, 1999 1998 $ Change % Change -------------------------------- Retail notes: Agricultural equipment* $1,507 $1,445 $ 62 4% Construction equipment 229 206 23 11 Lawn and grounds care Equipment 98 67 31 46 Recreational products 179 165 14 8 ------------------------------- Total 2,013 1,883 130 7 ------------------------------- Revolving charge accounts 813 697 116 17 Wholesale notes 810 674 136 20 Financing leases 56 52 4 8 Equipment on operating leases 318 284 34 12 ------------------------------- Total $4,010 $3,590 $420 12 =============================== * Does not include the acquisition of JDCL or FAF installment portfolios. (See Note 2 to the Interim Financial Statements.) Page 7 Retail note volumes, excluding the acquisition of the JDCL and FAF installment portfolios, increased by $130 million for the first six months of 1999, compared to the first six months of 1998, due to increases in all retail note categories. However, the agricultural retail note volumes declined in the second quarter of 1999 due to the weakening of the U.S. agricultural market. Recreational product retail note volumes also declined in the second quarter of 1999 primarily due to lower acceptances in the yacht market. Revolving charge volumes increased primarily due to the strong demand for the Farm Plan and John Deere Credit Revolving Plan products and operating loans offered to agricultural customers. Wholesale note volumes increased significantly during the first six months of 1999 primarily due to higher construction equipment floor planning notes, recreational vehicle and yacht wholesale notes, and a used agricultural equipment floor planning program introduced in April 1998. Operating lease volumes increased in the second quarter and year-to-date over last year due to agricultural low-rate and guaranteed residual value leasing programs sponsored by the Company or John Deere. Total Receivables and Leases held were as follows (in millions of dollars): April 30, October 31, April 30, 1999 1998 1998 ------------------------------- Retail notes: Agricultural equipment* $3,423 $2,285 $3,039 Construction equipment 732 703 677 Lawn and grounds care equipment 292 270 220 Recreational products 402 581 735 ------------------------------- Total 4,849 3,839 4,671 ------------------------------- Revolving charge accounts 730 751 627 Wholesale notes 878 804 670 Financing leases 254 242 218 Equipment on operating leases 1,066 892 712 ------------------------------- Total $7,777 $6,528 $6,898 =============================== * Increases in the portfolio balance from October 31, 1998 and April 30, 1998 are due to increased acquisition volumes and the addition of the JDCL and FAF installment portfolios. (See Note 2 to the Interim Financial Statements.) Receivables and Leases administered by the Company, which include retail notes sold, were as follows (in millions of dollars): April 30, October 31, April 30, 1999 1998 1998 ------------------------------- Receivables and Leases administered: Receivables and Leases owned by the Company $7,777 $6,528 $6,898 Retail notes sold and securitized (with limited recourse)* 1,027 1,812 782 Retail notes sold (without recourse)** 308 376 196 Receivables serviced (without recourse)*** 61 ------------------------------- Total Receivables and Leases Administered $9,173 $8,716 $7,876 ================================ * The Company's maximum exposure under all retail note recourse provisions at April 30, 1999, October 31, 1998 and April 30, 1998 was $123 million, $181 million and $150 million, respectively. In addition, the Company has guaranteed a letter of credit on behalf of John Deere Credit Inc., the Page 8 John Deere finance subsidiary in Canada, as part of a retail note sale. At April 30, 1999, the maximum exposure under this agreement was approximately $2 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. Beginning May 17, 1999, servicing rights on future sales of recreational vehicle retail notes will be assumed by their owner immediately. The Company continues to administer the remaining portfolio outstanding. *** On February 1, 1999, the Company began servicing a receivable portfolio on behalf of FAF. These servicing rights were obtained in conjunction with the Company's acquisition of JDCL. (See Note 2 to the Interim Financial Statements.) 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): April 30, October 31, April 30, 1999 1998 1998 $ % $ % $ % ------------------------------------ Retail notes: Agricultural equipment $12.9 .38% $9.5 .42% $10.0 .33% Construction equipment 2.1 .29 2.0 .28 2.4 .36 Lawn and grounds care Equipment .8 .27 .7 .26 .7 .31 Recreational products .1 .02 .2 .03 .1 .02 ------------------------------------- Total 15.9 .33 12.4 .32 13.2 .28 ------------------------------------- Revolving charge accounts 9.6 1.32 8.4 1.12 8.8 1.41 Wholesale notes 1.2 .14 .6 .07 2.3 .34 Leases 6.0 .45 3.8 .34 4.1 .44 ------------------------------------- Total $32.7 .42 $25.2 .39 $28.4 .41 ===================================== The balance of retail notes owned (principal plus accrued interest) with any installment 60 days or more past due was $59 million, $54 million and $57 million at April 30, 1999, October 31, 1998 and April 30, 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 1.21 percent, 1.42 percent and 1.23 percent at April 30, 1999, October 31, 1998 and April 30, 1998, respectively. During the second quarter and the first six months of 1999, write-offs (net of recoveries) of Receivables and Leases totaled $8.7 million and $15.9 million, respectively, compared with $11.6 million and $18.8 million in the same periods last year. Annualized write-offs, as a percentage of the total average portfolio outstanding, were .47 percent for the second quarter of 1999 and .45 percent for the first six months of 1999, compared with .69 percent and .57 percent for the same periods last year. Write-offs relating to retail notes decreased 22 percent, or $2.2 million, in the first six months of 1999, when compared with the first six months of 1998, primarily due to decreased write-offs of construction equipment and recreational product retail notes, partially offset by increased write-offs of agricultural equipment retail notes. Wholesale note write-offs decreased $1.0 million in the first six months of 1999 when compared to the same period last year. Lease and revolving charge account write-offs in the first six months of 1999 remained relatively stable when compared to last year. Page 9 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 $123 million at April 30, 1999, compared with $156 million at October 31, 1998 and $144 million at April 30, 1998. Effective February 1, 1999, the U.S. John Deere agricultural dealer reserve program was modified to evaluate and adjust reserves outstanding quarterly rather than annually under the previous program. In addition, the minimum required reserve for select dealers was adjusted from 3 percent to 2 percent of the aggregate balance outstanding on all installment contracts originated through that dealer. Approximately 48 percent of U.S. John Deere agricultural dealers qualified for the lower reserve program. The Company's allowance for credit losses on all Receivables and Leases financed totaled $88 million at April 30, 1999, $81 million at October 31, 1998 and $86 million at April 30, 1998. The allowance for credit losses represented 1.13 percent of the total Receivables and Leases financed at April 30, 1999, 1.25 percent at October 31, 1998, and 1.24 percent at April 30, 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 April 30, 1999 is sufficient to provide adequate protection against losses. 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 has surveyed its major suppliers and has surveyed the largest volume generating merchants and is following up as appropriate with prioritization based on mission criticality. The total cost of the modifications and upgrades including internal costs to date has been immaterial or approximately $5 million pretax since the beginning of 1997. Future costs to become Year 2000 ready are expected to be less than $1 million pretax. 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. Page 10 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 operation. 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 during 1999, should any Year 2000 failures occur in any to 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. 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 six 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 $134 million in the first six months of 1999. Financing activities provided $702 million during the same period, resulting from a $712 million net increase in total borrowings, which was partially offset by $10 million in dividend payments to John Deere Credit Company. Net cash used for investing activities totaled $830 million in the first six months of 1999, primarily due to Receivable and Lease acquisitions exceeding collections by $1,170 million. Cash and cash equivalents increased $5 million during the first six months of 1999. During the first six 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 $140 million in the first six months of 1998. Financing activities provided $467 million during the same period, resulting from a $492 million net increase in total borrowings, which was partially offset by $25 million in dividend payments to John Deere Credit Company. Net cash used for investing activities totaled $623 Page 11 million in the first six months of 1998, primarily due to Receivable and Lease acquisitions exceeding collections by $912 million. Cash and cash equivalents decreased $16 million during the first six months of 1998. Total interest-bearing indebtedness amounted to $6.644 billion at April 30, 1999, compared with $5.516 billion at October 31, 1998 and $5.963 billion at April 30, 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 $3.903 billion at April 30, 1999, compared with $3.417 billion at October 31, 1998 and $3.998 billion at April 30, 1998. Total long-term indebtedness amounted to $2.741 billion, $2.099 billion and $1.965 billion at April 30, 1999, October 31, 1998 and April 30, 1998, respectively. The ratio of total interest-bearing debt to stockholder's equity was 6.8 to 1, 6.0 to 1 and 7.0 to 1 at April 30, 1999, October 31, 1998 and April 30, 1998, respectively. During the first six months of 1999, the Capital Corporation issued $300 million of 6% notes due in 2009, and retired $150 million of 9-5/8% subordinated notes, $97 million of 5% Swiss franc bonds and $200 million of 6% notes all due in the first six months of 1999. The Capital Corporation also issued $1,200 million and retired $450 million of medium-term notes during the same period. At April 30, 1999, the Capital Corporation, Deere & Company, John Deere Limited (Canada) and John Deere Credit Inc. (Canada), jointly, maintained $5.528 billion of unsecured lines of credit with various banks in North America and overseas, $1.079 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 in each of the first two quarters of 1999. John Deere Credit Company paid comparable dividends to Deere & Company. On June 4, 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 June 15, 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 February 16, 1999 (Item 7). Page 13 SIGNATURE 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: June 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 April 30, 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) Six Months Ended April 30, ------------------------------ 1999 1998 ----------- ----------- Earnings: Income before income taxes and changes in accounting $112,558 $98,064 Fixed charges 180,842 181,540 ----------- ---------- Total earnings $293,400 $279,604 =========== ========== Fixed charges: Interest expense $178,363 $179,408 Rent expense 2,479 2,132 ----------- ---------- Total fixed charges $180,842 $181,540 =========== ========== Ratio of earnings to fixed charges * 1.62 1.54 =========== ========== 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 373,237 330,648 276,726 240,913 168,507 -------- -------- -------- -------- -------- Total earnings $606,771 $541,899 $483,314 $416,273 $330,316 ======== ======== ======== ======== ======== Fixed charges: Interest expense $368,381 $326,867 $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. Page 16 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 6-MOS OCT-31-1999 NOV-01-1998 APR-30-1999 1 196 0 6,799 88 0 0 34 16 8,077 0 2,741 0 0 113 870 8,077 0 458 0 74 0 26 178 113 39 73 0 0 0 73 0 0
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