10-Q 1 d10q.txt FORM 10-Q ================================================================================ 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, 2002 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: (775) 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, 2002, 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 January 31, --------------------- ------------------- 2002 2001 -------------------- -------------------- Revenues Finance income earned on retail notes $ 102.7 $ 113.6 Lease revenues 110.1 106.7 Finance income earned on wholesale receivables 50.6 23.4 Revolving charge account income 29.3 27.5 Operating loan income 6.4 8.7 Securitization and servicing fee income 9.6 8.1 Net gain on receivables and leases sold 29.8 9.6 Interest income from short-term investments 2.8 .9 Other income 7.6 5.0 ----------------------------------------------------------------------------------------------- Total revenues 348.9 303.5 ----------------------------------------------------------------------------------------------- Expenses Interest expense 97.6 123.4 Operating expenses: Administrative and operating expenses 46.4 39.8 Provision for credit losses 20.3 7.6 Fees paid to John Deere 5.4 3.8 Depreciation of equipment on operating leases 67.2 62.7 ----------------------------------------------------------------------------------------------- Total operating expenses 139.3 113.9 ----------------------------------------------------------------------------------------------- Total expenses 236.9 237.3 ----------------------------------------------------------------------------------------------- Income of consolidated group before income taxes 112.0 66.2 Provision for income taxes 39.2 22.2 ----------------------------------------------------------------------------------------------- Income of consolidated group 72.8 44.0 Equity in income (loss) of unconsolidated affiliates (0.9) .5 ----------------------------------------------------------------------------------------------- Net income 71.9 44.5 Cash dividends declared (140.0) Retained earnings at beginning of period 1,163.3 1,005.5 ----------------------------------------------------------------------------------------------- Retained earnings at end of period $ 1,095.2 $ 1,050.0 ===============================================================================================
See Notes to Interim Financial Statements. 2 John Deere Capital Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (in millions)
January 31, October 31, January 31, 2002 2001 2001 --------------------------------------------- Assets Cash and cash equivalents $ 425.1 $ 502.2 $ 154.8 Receivables and leases: Retail notes 4,323.2 5,625.3 4,176.1 Revolving charge accounts 678.7 814.3 573.0 Operating loans 472.8 501.2 384.5 Wholesale receivables 2,757.0 2,995.5 847.5 Financing leases 465.3 479.5 449.3 ------------------------------------------------------------------------------------------------------------------- Total receivables 8,697.0 10,415.8 6,430.4 Equipment on operating leases - net 1,382.3 1,484.8 1,482.9 ------------------------------------------------------------------------------------------------------------------- Total receivables and leases 10,079.3 11,900.6 7,913.3 Allowance for credit losses (101.1) (110.4) (87.7) ------------------------------------------------------------------------------------------------------------------- Total receivables and leases - net 9,978.2 11,790.2 7,825.6 ------------------------------------------------------------------------------------------------------------------- Notes receivable - unconsolidated affiliates 297.2 313.9 141.9 Notes receivable - John Deere 320.2 259.0 Other receivables 140.5 77.7 111.1 Investment in unconsolidated affiliates 5.3 5.9 4.0 Other assets 206.4 236.6 136.5 ------------------------------------------------------------------------------------------------------------------- Total Assets $ 11,372.9 $ 12,926.5 $ 8,632.9 =================================================================================================================== Liabilities and Stockholder's Equity Short-term borrowings: Commercial paper $ 2,430.9 $ 2,358.5 $ 1,486.2 Extendible commercial notes and other notes payable 27.6 23.9 13.7 John Deere 1,612.4 Current maturities of long-term borrowings 2,693.0 2,528.7 1,963.9 ------------------------------------------------------------------------------------------------------------------- Total short-term borrowings 5,151.5 6,523.5 3,463.8 ------------------------------------------------------------------------------------------------------------------- Accounts payable and accrued liabilities: Accrued interest on debt 54.2 44.4 82.2 Other payables 508.5 459.0 542.1 ------------------------------------------------------------------------------------------------------------------- Total accounts payable and accrued liabilities 562.7 503.4 624.3 ------------------------------------------------------------------------------------------------------------------- Deposits withheld from dealers and merchants 132.0 134.2 133.5 ------------------------------------------------------------------------------------------------------------------- Long-term borrowings: Senior debt 3,521.9 3,708.8 3,127.9 Subordinated debt 150.0 150.0 150.0 ------------------------------------------------------------------------------------------------------------------- Total long-term borrowings 3,671.9 3,858.8 3,277.9 ------------------------------------------------------------------------------------------------------------------- Total liabilities 9,518.1 11,019.9 7,499.5 ------------------------------------------------------------------------------------------------------------------- Stockholder's equity: Common stock, without par value (issued and outstanding - 2,500 shares owned by John Deere Credit Company) 812.8 812.8 112.8 Retained earnings 1,095.2 1,163.3 1,050.0 Accumulated other comprehensive income (loss) (53.2) (69.5) (29.4) ------------------------------------------------------------------------------------------------------------------- Total stockholder's equity 1,854.8 1,906.6 1,133.4 ------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $ 11,372.9 $ 12,926.5 $ 8,632.9 ===================================================================================================================
See Notes to Interim Financial Statements. 3 John Deere Capital Corporation and Subsidiaries Statements of Consolidated Cash Flows (Unaudited) (in millions)
Three Months Ended January 31, -------------------------------------- 2002 2001 -------------------------------------- Cash Flows from Operating Activities: Net income $ 71.9 $ 44.5 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 20.3 7.6 Provision for depreciation and amortization 68.6 63.7 Undistributed earnings of unconsolidated affiliates .9 (.5) Other (115.2) 2.9 ---------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 46.5 118.2 ---------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Cost of receivables and leases acquired (3,226.4) (1,873.1) Collections of receivables 3,087.4 1,499.7 Change in notes receivable - unconsolidated affiliates 16.7 (1.9) Proceeds from sales of receivables and leases 1,702.8 973.9 Acquisitions of businesses (2.3) Other 234.0 123.5 ---------------------------------------------------------------------------------------------------------- Net cash provided by investing activities 1,812.2 722.1 ---------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Change in commercial paper 59.4 (987.9) Change in extendible commercial notes and other notes payable 3.4 10.0 Change in receivable from/payable to John Deere (1,874.9) (739.9) Proceeds from issuance of long-term borrowings 691.3 1,400.0 Principal payments on long-term borrowings (675.0) (523.6) Dividends paid (140.0) ---------------------------------------------------------------------------------------------------------- Net cash used for financing activities (1,935.8) (841.4) ---------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash ---------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (77.1) (1.1) Cash and cash equivalents at beginning of period 502.2 155.9 ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 425.1 $ 154.8 ==========================================================================================================
See Notes to Interim Financial Statements. 4 John Deere Capital Corporation and Subsidiaries Notes to Interim Financial Statements (Unaudited) (1) The consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (collectively called 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 accounting principles generally accepted in the United States 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 year. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. Certain amounts for prior years have been reclassified to conform with 2002 financial statement presentation. Based on the way the Company's operations are managed and evaluated by management, the Company is viewed as having one operating segment. (2) The Company provides and administers financing for retail purchases of new and used equipment manufactured by Deere & Company's agricultural equipment, commercial and consumer equipment, and construction and forestry 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 John Deere retail dealers. The Company also purchases and finances certain agricultural, commercial and consumer, and construction and forestry retail notes unrelated to John Deere. In addition, the Company leases equipment to retail customers (financing and operating leases). The Company also finances and services revolving charge accounts and operating loans acquired from and offered through merchants or farm input providers in the agricultural, commercial and consumer, and construction and forestry markets as well as insured international export financing products (revolving charge accounts and operating loans). The Company also finances John Deere engines, John Deere agricultural, John Deere commercial and consumer, and John Deere construction and forestry equipment owned by dealers of those products (wholesale receivables). In addition, the Company purchases and administers certain trade receivables from John Deere which are included in wholesale receivables. Retail notes, revolving charge accounts, operating loans, financing leases and wholesale receivables are collectively called "Receivables." Receivables and operating leases are collectively called "Receivables and Leases." (3) The Company's ratio of earnings before fixed charges to fixed charges was 2.13 to 1 for the first quarter of 2002 compared with 1.53 to 1 for the first quarter of 2001. "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 (4) Comprehensive income, which includes all changes in the Company's equity during the period except for transactions with the stockholder, was as follows in millions of dollars:
Three Months Ended January 31, --------------------------------------- 2002 2001 --------------------------------------- Net income $ 71.9 $ 44.5 Other comprehensive income (loss), net of tax: Change in cumulative translation adjustment (.3) 3.4 Unrealized gain (loss) on derivatives 15.0 (22.6) Unrealized gain (loss) on investments 1.6 --------------------------------------- Comprehensive income $ 88.2 $ 25.3 ---------------------------------------
(5) In October 2001, the Company purchased $2.2 billion of trade receivables from John Deere. During the first quarter of 2002, a significant portion of newly originated trade receivables were purchased from John Deere. These trade receivables arise from John Deere's sales of goods to dealers. Under the terms of the sales to dealers, interest is charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted to the dealer at the time of the sale, until payment is received by the Company. John Deere will compensate the Company for the carrying costs related to these interest-free periods. (6) In February 2002, the Company securitized and sold approximately $680 million of retail notes, which were included in total Receivables and Leases at January 31, 2002. Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations. ------------- Results of Operations --------------------- Net income was $71.9 million for the first quarter of 2002, compared with $44.5 million last year. As stated in Note 5 to the financial statements, beginning at the end of the last fiscal year, Deere Capital, Inc., a wholly-owned subsidiary of the Capital Corporation, began acquiring most of the United States dealer receivables from Deere & Company's equipment operations. The income earned on these receivables accounts for a majority of the increase in net income. Higher income from the sale of retail notes, improved financing spreads, and a larger average portfolio of other Receivables and Leases also contributed to the improvement. Partially offsetting these factors was an increase in the provision for credit losses and a $6 million after-tax loss related to the Argentine peso devaluation. Revenues totaled $348.9 million for the first quarter of 2002, compared to $303.5 million for the same period a year ago. Revenues increased primarily due to a 32 percent increase in the average balance of Receivables and Leases financed during the first three months of the year. Finance income earned on retail notes totaled $102.7 million for the first three months of 2002, compared to $113.6 million for the same period in 2001. This decrease was primarily due to declining interest rates earned on the average retail note portfolio balance. Lease revenues increased $3.4 million, to $110.1 million in the first three months of 2002, from $106.7 million in the first three months of 2001. Finance income earned on wholesale receivables increased $27.2 million, to $50.6 million for the first three months of 2002, from $23.4 million in the first three months of 2001. This increase was primarily the result of the Company purchasing trade receivables from John Deere, as disclosed in Note 5 above. Revolving charge account income was $29.3 million for the first three months of 2002, compared to $27.5 million during the same period last year. Operating loan income decreased $2.3 million to $6.4 million in the first three months of 2002, from $8.7 million in the first 6 three months of 2001. This decrease was primarily due to declining interest rates earned on the average operating loan portfolio balance. The net gain on Receivables and Leases sold totaled $29.8 million for the first three months of 2002, compared to $9.6 million for the same period a year ago. The increase was primarily due to sales of agricultural and construction and forestry retail notes (approximately $1,750 million total principal value) during the first quarter of 2002, compared to the sale of agricultural retail notes (approximately $800 million total principal value) during the first quarter of 2001. Additional sales of Receivables and Leases are expected to be made in the future. Interest expense totaled $97.6 million for the first three months of 2002, compared to $123.4 million for the same period in 2001. This decrease was primarily due to lower average borrowing rates. Administrative and operating expenses were $46.4 million in the first quarter of 2002, compared with $39.8 million for the same period in 2001. This increase is primarily due to the loss related to the Argentine peso devaluation and the higher costs associated with administering a larger Receivable and Lease portfolio. Depreciation of equipment on operating leases increased to $67.2 million in the first quarter of 2002, compared to $62.7 million for the same period in 2001 as a result of lower residual values on newly originated operating leases and an increase in the depreciation of equipment on operating leases. During the first quarter of 2002, the provision for credit losses totaled $20.3 million, compared with $7.6 million in the same period last year. This increase was primarily due to increased write-offs and a larger portfolio financed. The annualized provision for credit losses, as a percentage of the total average balance of Receivables and Leases financed, was .76 percent for the first quarter of 2002, compared with .36 percent for the same period last year. Receivable and Lease acquisition volumes were as follows (in millions of dollars):
Three Months Ended January 31, ------------------------ 2002 2001 $ Change % Change ------------------------------------------------- Retail notes: Agricultural equipment $ 883 $ 615 $ 268 44% Construction and forestry equipment 206 167 39 23 Commercial and consumer equipment 62 43 19 44 Recreational products 88 (88) (100) ------------------------------------ Total 1,151 913 238 26 Revolving charge accounts 404 354 50 14 Operating loans 262 243 19 8 Wholesale receivables 1,309 239 1,070 448 Financing leases 32 34 (2) (6) Equipment on operating leases 68 90 (22) (24) ------------------------------------ Total $ 3,226 $ 1,873 $ 1,353 72% ====================================
Wholesale receivable volumes increased $1,070 million in the first three months of 2002, when compared to the first three months of 2001, primarily as a result of the Company's purchase of trade receivables from John Deere beginning in October 2001, as described in Note 5. Retail note volumes increased $238 million for the same period primarily due to aggressive retail finance programs on discontinued models of equipment. This increase was partially offset by an $88 million decrease in recreational product retail note volumes in the first three months of 2002 when compared to the same period last year. Recreational product retail note volumes decreased due to the Company discontinuing offering financing for recreational vehicles and yachts. 7 Total Receivables and Leases held were as follows (in millions of dollars):
January 31, October 31, January 31, 2002 2001 2001 ------------------------------------- Retail notes: Agricultural equipment $ 2,619 $ 3,610 $ 2,545 Construction and forestry equipment 1,003 1,293 1,043 Commercial and consumer equipment 599 611 463 Recreational products 102 111 125 -------------------------------------- Total 4,323 5,625 4,176 Revolving charge accounts 679 814 573 Operating loans 473 501 385 Wholesale receivables 2,757 2,996 847 Financing leases 465 480 449 Equipment on operating leases 1,382 1,485 1,483 ------------------------------------- Total $10,079 $11,901 $ 7,913 =====================================
Receivables and Leases administered by the Company were as follows (in millions of dollars):
January 31, October 31, January 31, 2002 2001 2001 ------------------------------------ Receivables and Leases administered: Owned by the Company $10,079 $11,901 $ 7,913 Sold and serviced - with limited recourse* 2,686 1,371 2,301 Sold and serviced - without recourse** 66 71 90 Serviced - without recourse*** 10 20 ------------------------------------- Total Receivables and Leases administered $12,831 $13,353 $10,324 =====================================
* The Company's maximum exposure under all Receivable and Lease recourse provisions at January 31, 2002, October 31, 2001 and January 31, 2001 was $248 million, $166 million and $172 million, respectively. In addition, the Company has guaranteed letters of credit on behalf of John Deere Credit Inc., the John Deere finance subsidiary in Canada, as part of three retail note sales. At January 31, 2002, October 31, 2001 and January 31, 2001, the maximum exposure under these agreements was approximately $9 million, $9 million and $8 million, respectively. ** These Receivables and Leases represent recreational product retail notes, which the Company has sold but continues to administer for a fee until the servicing rights are assumed by their owners. *** On February 1, 1999, the Company began servicing a receivable portfolio on behalf of Farming and Agricultural Financing Limited, an unaffiliated entity. These servicing rights were obtained in conjunction with the Company's acquisition of John Deere Credit Limited (United Kingdom). This receivable portfolio was sold during the first quarter of 2002. 8 Total Receivable and Lease amounts 60 days or more past due, by product and as a percent of total balances held, were as follows (in millions of dollars):
January 31, October 31, January 31, 2002 2001 2001 ------------------------------------------------------------------- Dollars Percent Dollars Percent Dollars Percent ------------------------------------------------------------------- Retail notes: Agricultural equipment $ 14.6 .56% $ 13.3 .37% $ 11.2 .44% Construction and forestry equipment 5.4 .54 4.9 .38 4.7 .45 Commercial and consumer equipment 1.7 .28 1.4 .23 1.0 .22 Recreational products .3 .29 .3 .27 .1 .08 ----------- ----------- ----------- Total retail notes 22.0 .51 19.9 .35 17.0 .41 Revolving charge accounts 14.7 2.17 9.5 1.17 12.1 2.11 Operating loans .5 .11 .1 .02 1.6 .42 Wholesale receivables 15.0 .54 9.9 .33 6.0 .71 Leases 8.1 .44 7.7 .39 6.7 .35 ----------- ----------- ----------- Total Receivables and Leases $ 60.3 .60% $ 47.1 .40% $ 43.4 .55% =========== =========== ===========
The balance of retail notes held (principal plus accrued interest) with any installment 60 days or more past due was $106 million, $100 million and $86 million at January 31, 2002, October 31, 2001 and January 31, 2001, respectively. The balance of retail notes held on which any installment is 60 days or more past due as a percent of retail notes held represented 2.45, 1.78 and 2.06 percent of the ending retail notes receivable at January 31, 2002, October 31, 2001 and January 31, 2001, respectively. Total Receivable and Lease write-off amounts, by product, and as an annualized percentage of average balances held during the quarter, were as follows (in millions of dollars):
Three Months Ended Three Months Ended January 31, January 31, 2002 2001 --------------------------------------------------------- Dollars Percent Dollars Percent --------------------------------------------------------- Retail notes: Agricultural equipment $ 1.8 .24% $ 1.5 .22% Construction and forestry equipment 3.9 1.65 2.8 1.14 Commercial and consumer equipment .2 .14 .1 .10 Recreational products 1.6 6.09 .6 1.89 --------------- -------------- Total retail notes 7.5 .64 5.0 .47 Revolving charge accounts 3.2 1.60 2.3 1.30 Operating loans .2 .24 .1 .09 Wholesale receivables .1 .00 .4 .16 Leases 5.2 1.12 2.0 .42 --------------- -------------- Total Receivables and Leases $ 16.2 .60% $ 9.8 .48% =============== ==============
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 $132 million at January 31, 2002, compared with $134 million at October 31, 2001 and $134 million at January 31, 2001. 9 The Company's allowance for credit losses on all Receivables and Leases held totaled $101 million at January 31, 2002, $110 million at October 31, 2001 and $88 million at January 31, 2001. The allowance for credit losses represented 1.0 percent of the total Receivables and Leases held at January 31, 2002, 0.9 percent at October 31, 2001 and 1.1 percent at January 31, 2001. The allowance is subject to an ongoing evaluation based on loss experience. The Company believes the allowance is sufficient to provide for losses in its existing Receivable and Lease portfolio. FASB Statements to be Adopted ----------------------------- In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which requires that goodwill related to acquisitions after June 30, 2001 not be amortized and only written down for impairments. Upon adoption of Statement No. 142, the same accounting requirements will apply to goodwill related to acquisitions prior to June 30, 2001. The Company will adopt this Statement in the first quarter of 2003. In the first quarter of 2002, the Company did not have goodwill or goodwill amortization. This Statement will not have an effect on the Company's financial position or net income. Safe Harbor Statement --------------------- Statements under "Financial Instrument Risk Information" and other statements incorporated herein by reference that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Interest rate changes by the Federal Reserve Board may affect the cost of financing the Company and the rates it is able to offer. In addition, the Company's business is closely related to John Deere's business. 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-Q and other Deere & Company and Capital Corporation filings with the Securities and Exchange Commission. Accounting Policies ------------------- In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States, management must make a variety of decisions that impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching these decisions, management applies judgment based on its understanding and analysis of the relevant circumstances. Note 1 to the consolidated financial statements in the annual report on Form 10-K provides a summary of the significant accounting policies followed in the preparation of the financial statements; other footnotes describe various elements of the financial statements and the assumptions on which specific amounts were determined. While actual results could, in fact, differ from those estimated at the time of preparation of the financial statements, management is committed to preparing financial statements that incorporate accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in the financial statements. 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 source of funds for this purpose is 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 10 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 quarter of 2002, the aggregate net cash provided by operating and investing activities was used primarily to decrease borrowings from Deere & Company. Net cash provided by operating activities was $47 million in the first three months of 2002. Cash provided by investing activities totaled $1,812 million in the first three months of 2002, primarily due to the collections of Receivables and Leases and proceeds from sales of Receivables and Leases exceeding the cost of Receivables and Leases acquired. Cash used for financing activities totaled $1,936 million in the first three months of 2002, resulting primarily from a decrease in borrowings from Deere & Company and a dividend paid to John Deere Credit Company, which in turn declared and paid a comparable dividend to Deere & Company. Cash and cash equivalents decreased $77 million during the first three months of 2002. During the first three months of 2001, the aggregate net cash provided by operating and investing activities was used primarily to decrease borrowings. Cash provided by operating activities was $118 million in the first three months of 2001. Cash provided by investing activities totaled $722 million in the first quarter of 2001, primarily due to the collections of Receivables and Leases and proceeds from sales of Receivables and Leases exceeding the cost of Receivables and Leases acquired. Cash used for financing activities totaled $841 million in the first three months of 2001, resulting primarily from a decrease in total borrowings. Cash and cash equivalents decreased $1 million during the first three months of 2001. Total interest-bearing indebtedness amounted to $8,823 million at January 31, 2002, compared with $10,383 million at October 31, 2001 and $6,742 million at January 31, 2001, generally corresponding with the level of Receivables and Leases financed and the level of cash and cash equivalents. Total short-term indebtedness amounted to $5,152 million at January 31, 2002, compared with $6,524 million at October 31, 2001 and $3,464 million at January 31, 2001, while total long-term indebtedness amounted to $3,672 million, $3,859 million and $3,278 million at these dates, respectively. The ratio of total interest-bearing debt to stockholder's equity was 4.8 to 1, 5.4 to 1 and 5.9 to 1 at January 31, 2002, October 31, 2001 and January 31, 2001, respectively. During the first three months of 2002, the Capital Corporation issued $580 million and retired $675 million of long-term debt. Additionally, the Capital Corporation's subsidiary, John Deere Bank S.A. (Luxembourg), issued $111 million of long-term debt. Sources of liquidity for the Company include cash and short-term investments, funds from operations, the issuance of commercial paper and term debt, the securitization and sale of retail notes, and committed, unsecured bank lines of credit. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company's securities as an indicator of credit quality for fixed income investors. A credit rating agency may change Company ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. Such rating changes may impact the availability and cost of funds. The short-term and long-term debt ratings assigned to Company securities by Moody's Investors Service, Inc., Standard & Poor's and Fitch Ratings are investment grade ratings. On March 11, 2002, Standard & Poor's placed its "A" long-term and "A-1" short-term ratings on the Company under review with negative implications. On February 15, 2002, Moody's Investors Service lowered the long-term rating of the Company to "A3" from "A2", and the short-term rating to "Prime-2" from "Prime-1". Moody's assigned a stable 11 outlook as part of this rating action. In September 2001, Fitch Ratings placed a negative outlook on the Company's ratings. The Company expects to have sufficient sources of liquidity to meet its funding needs. Although the Company's worldwide commercial paper outstanding at January 31, 2002 totaled approximately $2.4 billion, the total cash and short-term investment position exceeded $400 million and it had access to approximately $2 billion of cash and short-term investments held by its parent, Deere & Company. In addition, the Company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the United States, Europe and Australia, as well as public and private securitization markets in the United States. At January 31, 2002, the Capital Corporation and Deere & Company jointly maintained $4,356 million of unsecured lines of credit with various banks in North America and overseas, $983 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding the current portion of long-term borrowings of the Capital Corporation and Deere & Company, were considered to constitute utilization. These agreements include a $2,150 million long-term bank credit agreement expiring on February 20, 2006. The facility fees payable under these credit agreements are divided between Deere & Company and the Capital Corporation based on the proportion of their respective commercial paper outstanding. Stockholder's equity was $1,855 million at January 31, 2002, compared with $1,907 million at October 31, 2001 and $1,133 million at January 31, 2001. The decrease of $52 million in the first three months of 2002 resulted primarily from a dividend payment of $140 million, offset by net income of $72 million and a decrease in the unrealized loss on derivatives of $15 million. The Capital Corporation declared and paid a cash dividend of $140 million to John Deere Credit Company during the first three months of fiscal 2002. John Deere Credit Company paid a comparable dividend to Deere & Company. On February 25, 2002, the Capital Corporation also declared a $60 million dividend, to be paid to John Deere Credit Company on March 8, 2002. John Deere Credit Company, in turn, declared a $60 million dividend to Deere & Company, also payable on March 8, 2002. Item 3. Quantitative and Qualitative Disclosures About Market Risk. ----------------------------------------------------------- See the information under "Management's Discussion and Analysis" on pages 8 to 14, under Note 15 "Financial Instruments," and under "Supplemental Information (Unaudited)" on pages 40 to 42 in the Company's most recent annual report filed on Form 10-K. There has been no material change in this information. 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- The Company is subject to various unresolved legal actions that 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 20, 2001 (Items 5 and 7). 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 12, 2002 By: /s/ Nathan J. Jones -------------------------- ------------------------------------- Nathan J. Jones Senior Vice President and Principal Financial Officer 14 INDEX TO EXHIBITS Exhibit Page No. ------- ------- 4.1 364-Day Credit Agreement among registrant, Deere & Company, various financial institutions, JPMorgan Chase Bank, as administrative agent, Citibank, N.A. and Credit Suisse First Boston, as documentation agents, and Bank of America, N.A. and Deutsche Bank AG, New York Branch, as syndication agents, et al, dated as of February 19, 2002. (Exhibit 4.1 to Form 10-Q --- of Deere & Company for the quarter ended January 31, 2002, Securities and Exchange Commission file number 1-4121*). 12. Computation of ratio of earnings to fixed charges. 16 99. Part I of Deere & Company Form 10-Q for the quarter ended January 31, 2002 (Securities and Exchange Commission file --- number 1-4121*). --------------------- *Incorporated by reference. Copies of these exhibits are available from the Company upon request. 15