===============================================================
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 July 31, 1998
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 July 31, 1998, 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 14
<PAGE>
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 Nine Months
Ended Ended
July 31, July 31,
------------------------------
1998 1997 1998 1997
Revenues ------ ------ ------ ------
Finance income earned
on retail notes $112.1 $111.1 $323.7 $306.7
Revolving charge account
income 30.4 26.6 80.3 71.2
Lease revenues 51.1 32.4 135.6 82.8
Finance income earned on
wholesale notes 15.8 12.3 44.1 36.0
Net gain on retail notes sold 4.3 7.4 16.9 9.2
Interest income from
short-term investments 1.9 2.6 6.9 7.6
Securitization and servicing
fee income 6.4 5.9 20.8 23.5
Other income 4.4 2.0 9.8 5.9
- --------------------------------------------------------------
Total revenues 226.4 200.3 638.1 542.9
- --------------------------------------------------------------
Expenses
Interest expense: 95.3 86.6 274.7 236.7
Operating expenses:
Administrative and
operating expenses 29.1 25.9 84.1 74.6
Provision for credit losses 7.9 8.8 32.4 25.0
Fees paid to Deere & Company 2.4 1.9 8.3 6.3
Depreciation of equipment on
operating leases 30.3 18.8 79.1 50.6
- --------------------------------------------------------------
Total operating expenses 69.7 55.4 203.9 156.5
- --------------------------------------------------------------
Total expenses 165.0 142.0 478.6 393.2
- --------------------------------------------------------------
Income of consolidated group
before income taxes 61.4 58.3 159.5 149.7
Provision for income taxes 21.6 20.3 56.2 52.1
- --------------------------------------------------------------
Income of consolidated group 39.8 38.0 103.3 97.6
Equity in income (loss) of
unconsolidated affiliate .1 (.2) .1 (1.1)
- --------------------------------------------------------------
Net income $ 39.9 $ 37.8 $103.4 $ 96.5
Cash dividends declared (12.5) (20.0) (37.5) (60.0)
Retained earnings at beginning
of period 743.7 663.1 705.2 644.4
- ---------------------------------------------------------------
Retained earnings at end
of period $771.1 $680.9 $771.1 $680.9
===============================================================
See Notes to Interim Financial Statements.
Page 2
<PAGE>
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(dollars in millions)
July 31, October 31, July 31,
1998 1997 1997
Assets -------- -------- --------
Cash and cash equivalents $ 175.9 $ 204.4 $ 187.0
Receivables and leases:
Retail notes 4,521.7 4,349.4 4,499.0
Wholesale notes 725.8 593.4 522.7
Revolving charge accounts 730.6 618.5 613.2
Financing leases 234.2 214.6 208.2
- ---------------------------------------------------------------
Total receivables 6,212.3 5,775.9 5,843.1
Equipment on operating
leases -- net 826.2 527.2 459.8
- ---------------------------------------------------------------
Total receivables
and leases 7,038.5 6,303.1 6,302.9
Allowance for credit losses (86.1) (85.9) (89.3)
- ---------------------------------------------------------------
Total receivables
and leases -- net 6,952.4 6,217.2 6,213.6
- ---------------------------------------------------------------
Other receivables 152.7 157.9 144.4
Investment in
unconsolidated affiliates 18.9 12.8 8.4
Other assets 70.8 66.8 72.1
- ---------------------------------------------------------------
Total Assets $7,370.7 $6,659.1 $6,625.5
===============================================================
Liabilities and Stockholder's Equity
Short-term borrowings:
Commercial paper $1,968.2 $1,991.9 $2,382.8
Deere & Company 290.6 349.9 123.6
Current maturities of
long-term borrowings 1,997.5 1,042.5 618.8
Other notes payable 7.5 2.4 1.8
- ---------------------------------------------------------------
Total short-term
borrowings 4,263.8 3,386.7 3,127.0
- ---------------------------------------------------------------
Accounts payable and accrued
liabilities:
Accrued interest on
senior debt 65.8 39.2 51.4
Other payables 216.4 188.3 165.8
- ---------------------------------------------------------------
Total accounts payable
and accrued liabilities 282.2 227.5 217.2
- ---------------------------------------------------------------
Deposits withheld from
dealers and merchants 151.0 144.2 134.0
- ---------------------------------------------------------------
Long-term borrowings:
Senior debt 1,640.3 1,782.9 2,203.7
Subordinated debt 150.0 300.0 150.0
- ---------------------------------------------------------------
Total long-term
borrowings 1,790.3 2,082.9 2,353.7
- ---------------------------------------------------------------
Total liabilities 6,487.3 5,841.3 5,831.9
- ---------------------------------------------------------------
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 771.1 705.2 680.9
Cumulative translation
adjustment (.5) (.2) (.1)
- ---------------------------------------------------------------
Total stockholder's
equity 883.4 817.8 793.6
- ---------------------------------------------------------------
Total Liabilities and
Stockholder's Equity $7,370.7 $6,659.1 $6,625.5
===============================================================
See Notes to Interim Financial Statements.
Page 3
<PAGE>
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Unaudited)
(in millions)
Nine Months Ended July 31
-------------------------
1998 1997
-------------------------
Cash Flows from Operating Activities:
Net income $ 103.4 $ 96.5
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 32.4 25.0
Provision for depreciation 81.3 50.5
Equity in loss (income) of
unconsolidated affiliates (.1) 1.1
Other 40.2 24.4
- --------------------------------------------------------------
Net cash provided by
operating activities 257.2 197.5
- --------------------------------------------------------------
Cash Flows from Investing Activities:
Cost of receivables and
leases acquired (5,591.4) (4,734.4)
Collections of receivables 3,909.8 3,562.9
Proceeds from sales of receivables 804.9 433.0
Other 41.3 26.7
- --------------------------------------------------------------
Net cash used for investing
activities (835.4) (711.8)
- --------------------------------------------------------------
Cash Flows from Financing Activities:
Change in commercial paper (23.7) 692.9
Change in receivable/payable
with Deere & Company (57.7) (411.9)
Increase in other notes payable 5.1 1.8
Proceeds from issuance of
long-term borrowings 996.0 885.0
Principal payments on
long-term borrowings (332.5) (577.5)
Dividends paid (37.5) (60.0)
- --------------------------------------------------------------
Net cash provided by
financing activities 549.7 530.3
- --------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (28.5) 16.0
Cash and cash equivalents
at the beginning of period 204.4 171.0
- --------------------------------------------------------------
Cash and cash equivalents
at the end of period $ 175.9 $ 187.0
==============================================================
See Notes to Interim Financial Statements.
Page 4
<PAGE>
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) 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 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, direct financing leases
and wholesale notes receivable are collectively called
"Receivables." Receivables and operating leases are collectively
called "Receivables and Leases."
(3) The Company's ratio of earnings to fixed charges was 1.63
to 1 for the third quarter of 1998 compared with 1.66 to 1 for
the third quarter of 1997. The consolidated ratio of earnings
to fixed charges was 1.57 to 1 for the first nine months of
1998 and 1.63 to 1 for the first nine months of 1997.
"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.
(4) Beginning in September 1997, certain notes from dealers
for the financing of "purchase-for-rental" equipment were
considered wholesale notes. Prior to that time, such notes were
considered retail notes. During the first nine months of 1998,
$142 million of these wholesale notes were acquired. Prior
period volumes and ending balances have not been adjusted to
reflect this change in policy.
(5) In June 1998, the FASB issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities,
which the Company will adopt in fiscal year 2000. This
Statement is not expected to have a material effect on the
Company's financial position or results of operations.
Page 5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net income was $39.9 million in the third quarter of 1998 and
$103.4 million for the first nine months of 1998 compared with
$37.8 million and $96.5 million for the same periods last
year. Third quarter and year-to-date earnings reflect higher
income from an 11 percent increase in the average balance of
Receivables and Leases financed during the first nine months.
These results were partially offset by higher operating
expenses and narrower financing spreads. In addition, the year-
to-date earnings benefited from higher gains on the sales of
retail notes.
Revenues totaled $226.4 million and $638.1 million for the
third quarter and for the first nine months of 1998,
respectively, compared to $200.3 million and $542.9 million for
the same periods a year ago. Revenues increased due to
continued growth in operating leases, retail notes on John
Deere equipment, wholesale notes and revolving charge accounts.
Lease revenues increased $52.8 million to $135.6 million in the
first nine months of 1998, from $82.8 million in the first nine
months of 1997, largely due to increased leasing volumes as a
result of a number of leasing incentives related to John Deere
agricultural and construction equipment. Finance income earned
on retail notes increased $17.0 million to $323.7 million for
the first nine months of 1998 compared to $306.7 million for
the same period in 1997. This increase was primarily due to a
larger average retail installment portfolio financed. Finance
income earned on wholesale notes increased $8.1 million to
$44.1 million for the first nine months of 1998 from $36.0
million earned in the first nine months of 1997. The higher
finance income earned on wholesale notes was primarily a result
of increased activity for John Deere agricultural,
construction, and lawn and grounds care equipment owned by
dealers as well as a larger yacht wholesale portfolio (see note
4 to the interim financial statements for additional
information.). Revolving charge accounts continued to benefit
from strong demand for financing in the agricultural market.
Gains on the sales of retail notes totaled $4.3 million and
$16.9 million for the third quarter and for the first nine
months of 1998, respectively, compared to $7.4 million and $9.2
million for the same periods a year ago. Additional sales of
retail notes are expected to be made in the future.
Total interest expense for the third quarter increased from
$86.6 million in 1997 to $95.3 million in 1998. Interest
expense increased from $236.7 million for the first nine months
of 1997 to $274.7 million for the first nine months of 1998.
These increases in interest expense were primarily the result
of increased borrowings required to finance the higher average
portfolio of Receivables and Leases. Total average borrowings
during the first nine months of 1998 were $5.836 billion,
compared to $5.310 billion in the first nine months of 1997.
The weighted average interest rate on total borrowings for the
nine months ended July 31, 1998 and 1997 were 6.13 percent and
6.03 percent, respectively.
Administrative and operating expenses were $29.1 million in the
third quarter of 1998 and $84.1 million for the first nine
months of 1998, compared with $25.9 million and $74.6 million
for the same periods in 1997. These increases were the result
of higher employment costs associated with administering a
larger Receivable and Lease portfolio. Depreciation of
equipment on operating leases increased to $30.3 million in the
third quarter of 1998 and $79.1 million for the first nine
months of 1998, compared to $18.8 million and $50.6 million for
the same periods in 1997, as a result of the increase in
operating leases financed.
During the third quarter and the first nine months of 1998, the
provision for credit losses totaled $7.9 million and $32.4
million, respectively, compared with $8.8 million and $25.0
million in the same periods last year. The increase in the
year-to-date provision for credit losses was primarily the
result of increases in agricultural and construction retail
note and lease write-offs in 1998 and 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 .45 percent for the
third quarter of 1998 and .64 percent for the first nine months
of 1998, compared with .55 percent and .56 percent for the same
periods last year.
Page 6
<PAGE>
Receivable and Lease acquisition volumes were as follows
(dollars in millions):
Three Months
Ended July 31,
----------------
1998 1997 $ Chng % Chng
-------------------------------------
Retail note volumes:
Agricultural equipment $ 565 $ 459 $ 106 23%
Construction equipment 123 92 31 34
Lawn and grounds care
equipment 71 53 18 34
Recreational products 106 60 46 77
---------------------------
Total retail note
volumes 865 664 201 30
Wholesale notes 403 279 124 44
Revolving charge accounts 535 463 72 16
Financing leases 43 32 11 34
Equipment on operating
leases 155 93 62 67
---------------------------
Total Receivable and
Lease volumes $2,001 $1,531 $ 470 31
===========================
Nine months
Ended July 31,
----------------
1998 1997 $ Chng % Chng
-------------------------------------
Retail note volumes:
Agricultural equipment $2,010 $1,909 $ 101 5%
Construction equipment 329 277 52 19
Lawn and grounds care
equipment 138 111 27 24
Recreational products 271 270 1 0
---------------------------
Total retail note
volumes 2,748 2,567 181 7
Wholesale notes 1,077 791 286 36
Revolving charge accounts 1,232 1,018 214 21
Financing leases 95 85 10 12
Equipment on operating
leases 439 274 165 60
---------------------------
Total Receivable and
Lease volumes $ 5,591 $ 4,735 $ 856 18
============================
Total Receivables and Leases held were as follows (in
millions):
July 31, October 31, July 31,
1998 1997 1997
-------------------------------
Retail notes held:
Agricultural equipment $ 2,800 $ 2,556 $ 2,736
Construction equipment 682 660 637
Lawn and grounds care
equipment 256 216 207
Recreational products 783 917 919
------------------------------
Total retail notes
held 4,521 4,349 4,499
Wholesale notes 726 593 523
Revolving charge accounts 731 619 613
Financing leases 234 215 208
Equipment on operating
leases 826 527 460
------------------------------
Total Receivables and
Leases held $ 7,038 $ 6,303 $ 6,303
==============================
Page 7
<PAGE>
For the third quarter and first nine months of 1998,
agricultural retail note volumes increased 23 percent and 5
percent, respectively, compared to last year. Construction and
lawn and grounds care retail notes increased in both periods of
1998 over 1997. Recreational product retail note volumes
increased 77 percent in the third quarter of 1998, yet remained
approximately the same year-to-date. The increase in the third
quarter was due to a higher level of recreational vehicle
retail note volume.
Revolving charge account volumes increased in the third quarter
and first nine months of 1998 compared to 1997, primarily due
to increases in agricultural operating loans and Farm Plan.
Wholesale note volumes also increased due to higher volumes of
agricultural dealer purchase-for-rental notes and construction
and recreational vehicle floor planning notes. Operating lease
volumes continued to increase significantly over last year due
to agricultural low-rate and guaranteed residual value leasing
programs sponsored by the Company or John Deere.
Receivables and Leases administered by the Company, which
include retail notes previously sold, were as follows (in
millions):
July 31, October 31, July 31,
1998 1997 1997
-------------------------------
Receivables and Leases
administered:
Receivables and Leases
owned by the Company $ 7,038 $ 6,303 $ 6,303
Retail notes sold and
securitized (with
recourse)* 1,246 1,314 1,040
Retail notes sold
(without recourse) 183 --- ---
-------------------------------
Total Receivables and
Leases administered $ 8,467 $ 7,617 $ 7,343
===============================
* The Company's estimated maximum exposure under all retail
note recourse provisions at July 31, 1998 was $166 million.
Total Receivable and Lease amounts 60 days or more past due, by
product and as a percentage of total balances held were as
follows (dollars in millions):
July 31, October 31, July 31,
1998 1997 1997
-----------------------------------------
Dollars % Dollars % Dollars %
-----------------------------------------
Retail notes:
Agricultural
equipment $ 8.6 .31% $ 6.8 .27% $ 7.2 .26%
Construction
equipment 2.0 .29 2.0 .31 2.4 .38
Lawn and grounds
care equipment .7 .29 .6 .28 .7 .33
Recreational
products .2 .02 .3 .03 .1 .01
----- ----- -----
Total retail
notes 11.5 .25 9.7 .22 10.4 .23
Wholesale notes 1.3 .18 2.0 .33 1.2 .23
Revolving charge
accounts 7.2 .98 8.3 1.34 9.4 1.54
Leases 3.4 .32 2.0 .27 2.3 .35
----- ----- -----
Total Receivables
and Leases $23.4 .33 $22.0 .35 $23.3 .37
===== ===== =====
Page 8
<PAGE>
The balance of retail notes held (principal plus accrued
interest) with any installment 60 days or more past due was
$46.1 million, $44.4 million and $54.3 million at July 31,
1998, October 31, 1997 and July 31, 1997, 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 1.02 percent, 1.02 percent and 1.21 percent at
July 31, 1998, October 31, 1997 and July 31, 1997,
respectively.
During the third quarter and the first nine months of 1998,
write-offs (net of recoveries) of Receivables and Leases
totaled $4.5 million and $23.3 million, respectively, compared
with $6.2 million and $20.6 million in the same periods last
year. Annualized write-offs, as a percentage of the total
average portfolio outstanding, were .26 percent for the third
quarter of 1998 and .46 percent for the first nine months of
1998, compared with .39 percent and .46 percent, respectively,
during the same periods last year. Write-offs relating to
retail notes increased 14 percent, or $1.4 million, in the
first nine months of 1998, when compared with the first nine
months of 1997, primarily due to increased write-offs of
agricultural and construction equipment retail notes. Lease
write-offs for the first nine months of 1998 increased 138
percent, or $1.4 million when compared to the first nine months
of 1997. These increases were primarily due to the significant
increases in the lease portfolios financed. Annualized lease
write-offs, as a percentage of the total average lease
portfolio outstanding, were .38 percent for the first nine
months of 1998, compared to .25 percent during the same period
last year. Revolving charge and wholesale account write-offs in
1998 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 $151.0 million at July 31,
1998, compared with $144.2 million at October 31, 1997 and
$134.0 million at July 31, 1997. The Company's allowance for
credit losses on all Receivables and Leases financed totaled
$86.1 million at July 31, 1998, $85.9 million at October 31,
1997 and $89.3 million at July 31, 1997. Allowance for credit
losses represented 1.22 percent of the balance of Receivables
and Leases financed at July 31, 1998, 1.36 percent at October
31, 1997, and 1.42 percent at July 31, 1997. 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 reevaluation of loss experience and
related adjustments to ensure that the allowance for credit
losses is maintained at an adequate level. Management believes
the allowance for credit losses at July 31, 1998 is sufficient
to provide adequate protection against losses.
Year 2000
The Company's Year 2000 Program addresses major assessment
areas that include information systems, mainframe computers,
personal computers, the distributed network, facilities, and
the readiness of the Company's suppliers and distribution
network. The program includes the following phases:
identification and assessment, business criticality analysis,
project work prioritization, compliance plan development,
remediation and testing, production implementation, and
contingency plan development for mission critical systems.
The Company's objective is to become Year 2000 compliant with
its mission critical activities and systems, including a
contingency plan, by early 1999, allowing substantial time for
further testing, verification and the final conversion of less
important systems. The Company continues to be on schedule in
its plans to accomplish this objective and has initiated
infrastructure and information systems modifications to ensure
that both hardware and software systems are compliant. The
Company also is requesting assurances from its significant
suppliers and dealers that they are addressing this issue to
ensure there will be no major disruptions.
Page 9
<PAGE>
The total cost of the modifications and upgrades to date has
not been material. Although no assurances can be given as to
the Company's compliance, particularly as it relates to third-
parties, including governmental entities, based upon the
progress to date, the Company does not expect that either
future costs of modifications or the consequences of any
unsuccessful modifications will have a material adverse effect
on the Company's financial position or results of operations.
Accordingly, the Company believes that the most reasonably
likely worst case Year 2000 scenario would not have a material
adverse effect on the Company's financial position or results
of operations. However, the Company is developing contingency
plans, which should be complete by early 1999, should any Year
2000 failures occur in any of the assessment areas noted above.
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 as described below. 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 and
securitize these assets. Asset-liability risk is also actively
managed to minimize exposure to interest rate fluctuations.
Total interest-bearing indebtedness amounted to $6.054 billion
at July 31, 1998, compared with $5.470 billion at October 31,
1997 and $5.481 billion at July 31, 1997, generally
corresponding with the level of Receivables and Leases
financed. Total short-term indebtedness amounted to $4.624
billion at July 31, 1998, compared with $3.387 billion at
October 31, 1997 and $3.127 billion at July 31, 1997. Total
long-term indebtedness amounted to $1.790 billion, $2.083
billion and $2.354 billion at July 31, 1998, October 31, 1997
and July 31, 1997, respectively. The ratio of total interest-
bearing debt to stockholder's equity was 6.9 to 1, 6.7 to 1 and
6.9 to 1 at July 31, 1998, October 31, 1997 and July 31, 1997,
respectively. During the first nine months of 1998, the Capital
Corporation issued $200 million of 5.85% notes due in 2001, and
retired $150 million of floating rate notes due in 1998.
Additionally, the Capital Corporation issued $796 million and
retired $183 million of medium-term notes during the first nine
months of 1998.
At July 31, 1998, the Capital Corporation, Deere & Company,
John Deere Limited (Canada) and John Deere Credit Inc.
(Canada), jointly, maintained $5.028 billion of unsecured lines
of credit with various banks in North America and overseas,
$728 million 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.
Page 10
<PAGE>
The Company's business is somewhat seasonal, with overall
acquisitions 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 half of the fiscal year.
During the first nine 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 $257 million in the first nine months
of 1998. Financing activities provided $550 million during the
same period, resulting from a $588 million net increase in
total borrowings, which was partially offset by $38 million in
dividend payments to John Deere Credit Company. Net cash used
for investing activities totaled $835 million in the first nine
months of 1998, primarily due to Receivable and Lease
acquisitions exceeding collections by $1.682 billion, partially
offset by the $805 million in proceeds from the sale of
receivables. Cash and cash equivalents decreased $29 million
during the first nine months of 1998.
During the first nine months of 1997, 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 $198 million in the first nine months
of 1997. Financing activities provided $530 million during the
same period, resulting from a $590 million net increase in
total borrowings, which was partially offset by $60 million in
dividend payments to John Deere Credit Company. Net cash used
for investing activities totaled $712 million in 1997,
primarily due to Receivable and Lease acquisitions exceeding
collections by $1.172 billion, partially offset by the $433
million in proceeds from the sale of receivables. Cash and cash
equivalents increased $16 million during the first nine months
of 1997.
The Capital Corporation paid a cash dividend to John Deere
Credit Company of $12.5 million in each of the first three
quarters of 1998. John Deere Credit Company paid comparable
dividends to Deere & Company. On August 28, 1998, the Capital
Corporation declared a cash dividend of $12.5 million to John
Deere Credit Company, which in turn declared a cash dividend of
$12.5 million to Deere & Company, each payable on September 8,
1998.
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 11
<PAGE>
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.
On July 17, 1998, the Company announced that it would redeem on
August 17, 1998 (the "Redemption Date") all of its outstanding
6.74% Medium-Term Notes, Series C due August 15, 2000 (the
"Notes") at a redemption price equal to the principal amount of
the Notes. Payment will be made upon presentation and surrender
of the Notes: if by hand, at The Chase Manhattan Bank,
Corporate Trust-Securities Window, 55 Water Street, Room 234,
North Building, New York, New York 10041, or if by mail, to The
Chase Manhattan Bank, c/o Texas Commerce Bank, Corporate Trust
Services, P. O. Box 219052, Dallas, Texas 75221-9052.
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 reports on Form 8-K dated May 19, 1998 (items 5
and 7) and July 17, 1998 (Item 5).
Page 12
<PAGE>
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: September 2, 1998
By: /s/ Nathan J. Jones
--------------------------
Nathan J. Jones
Senior Vice President
(Principal Financial Officer)
Page 13
<PAGE>
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
July 31, 1998 (Securities and Exchange Commission file
number 1-4121*).
- ------------------------------
* Incorporated by reference. Copies of these exhibits are
available from the Company upon request.
Page 14
Exhibit 12
John Deere Capital Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(thousands of dollars)
Nine Months Ended July 31,
-------------------------
1998 1997
----------- ------------
Earnings:
Income before income
taxes and changes
in accounting $159,519 $149,742
Fixed charges 278,524 239,501
-------- --------
Total earnings $438,043 $389,243
======== ========
Fixed charges:
Interest expense $274,837 $236,734
Rent expense 3,687 2,767
-------- --------
Total fixed
charges $278,524 $239,501
======== ========
Ratio of earnings to
fixed charges * 1.57 1.63
======== ========
For the Years Ended October 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Earnings:
Income before income
taxes and changes
in accounting $211,251 $206,588 $175,360 $161,809 $169,339
Fixed charges 330,648 276,726 240,913 168,507 170,226
-------- -------- -------- -------- --------
Total earnings $541,899 $483,314 $416,273 $330,316 $339,565
======== ======== ======== ======== ========
Fixed charges:
Interest expense $326,867 $273,748 $238,445 $166,591 $167,787
Rent expense 3,782 2,978 2,468 1,916 2,439
-------- -------- -------- -------- --------
Total fixed
charges $330,649 $276,726 $240,913 $168,507 $170,226
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges * 1.64 1.75 1.73 1.96 1.99
======== ======== ======== ======== ========
- ---------
"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.
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This schedule contains summary financial information extracted from
Form 10-Q and is qualified in its entirety by reference to such
financial information.
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<NAME> JOHNDEERECAPITALCORP
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0
0
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