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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, 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 July 31, 1999, 2,500 shares of common stock, without
par value, of the registrant were outstanding, all of which
were owned by John Deere Credit Company, a wholly-owned
subsidiary of Deere & Company.
The registrant meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is
therefore filing this Form with certain reduced disclosures as
permitted by those instructions.
=============================================================
<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,
1999 1998 1999 1998
-----------------------------------------
Revenues
Finance income earned
on retail notes $ 100.7 $ 112.1 $ 304.4 $ 323.7
Lease revenues 69.7 51.1 192.6 135.6
Revolving charge
account income 31.8 30.4 85.5 80.3
Finance income earned
on wholesale notes 18.0 15.8 52.4 44.1
Securitization and
servicing fee income 7.6 6.4 23.2 20.8
Net gain on retail
notes sold 22.4 4.3 37.7 16.9
Interest income from
short-term investments 1.4 1.9 6.0 6.9
Other income 9.8 4.4 17.4 9.8
- - ----------------------------------------------------------------
Total revenues 261.4 226.4 719.2 638.1
- - ----------------------------------------------------------------
Expenses
Interest expense 91.2 95.3 269.6 274.7
Operating expenses:
Administrative and
operating expenses 33.4 29.1 94.5 84.1
Provision for credit
losses 15.3 7.9 41.2 32.4
Fees paid to John Deere 1.8 2.4 7.9 8.3
Depreciation of equipment
on operating leases 43.2 30.3 117.0 79.1
- - -----------------------------------------------------------------
Total operating
expenses 93.7 69.7 260.6 203.9
- - -----------------------------------------------------------------
Total expenses 184.9 165.0 530.2 478.6
- - -----------------------------------------------------------------
Income of consolidated group
before income taxes 76.5 61.4 189.0 159.5
Provision for income taxes 26.0 21.6 65.2 56.2
- - -----------------------------------------------------------------
Income of consolidated group 50.5 39.8 123.8 103.3
Equity in income (loss) of
unconsolidated affiliates (.3) .1 .3 .1
- - -----------------------------------------------------------------
Net income $ 50.2 $ 39.9 $ 124.1 $ 103.4
Cash dividends declared (5.0) (12.5) (15.0) (37.5)
Retained earnings at
beginning of period 870.3 743.7 806.4 705.2
- - -----------------------------------------------------------------
Retained earnings at
end of period $ 915.5 $ 771.1 $ 915.5 $ 771.1
= =================================================================
See Notes to Interim Financial Statements.
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<PAGE>
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(in millions)
July 31, October 31, July 31,
1999 1998 1998
----------------------------------------
Assets
Cash and cash equivalents $ 167.9 $ 191.1 $ 175.9
Receivables and leases:
Retail notes 4,116.3 3,839.4 4,521.7
Revolving charge accounts 842.5 751.1 730.6
Wholesale notes 891.3 803.9 725.8
Financing leases 263.8 241.8 234.2
- - ------------------------------------------------------------------
Total receivables 6,113.9 5,636.2 6,212.3
Equipment on operating
leases - net 1,136.4 891.5 826.2
- - ------------------------------------------------------------------
Total receivables and
Leases 7,250.3 6,527.7 7,038.5
Allowance for credit
Losses (80.6) (81.3) (86.1)
- - ------------------------------------------------------------------
Total receivables and
leases - net 7,169.7 6,446.4 6,952.4
- - ------------------------------------------------------------------
Other receivables 95.1 154.8 152.7
Investment in unconsolidated
affiliates 9.5 20.0 18.9
Other assets 117.8 54.1 70.8
- - ------------------------------------------------------------------
Total Assets $7,560.0 $6,866.4 $7,370.7
= ==================================================================
Liabilities and Stockholder's Equity
Short-term borrowings:
Commercial paper $1,465.8 $1,672.0 $1,968.2
John Deere 69.7 59.9 290.6
Current maturities of
long-term borrowings 2,084.7 1,678.5 1,997.5
Other notes payable 6.8 7.5
- - ------------------------------------------------------------------
Total short-term
Borrowings 3,620.2 3,417.2 4,263.8
- - ------------------------------------------------------------------
Accounts payable and
accrued liabilities:
Accrued interest
on debt 60.7 45.5 65.8
Other payables 285.1 229.7 216.4
- - ------------------------------------------------------------------
Total accounts payable and
accrued liabilities 345.8 275.2 282.2
- - ------------------------------------------------------------------
Deposits withheld from dealers
and merchants 121.2 156.4 151.0
- - ------------------------------------------------------------------
Long-term borrowings:
Senior debt 2,295.3 1,949.2 1,640.3
Subordinated debt 150.0 150.0 150.0
- - ------------------------------------------------------------------
Total long-term
Borrowings 2,445.3 2,099.2 1,790.3
- - ------------------------------------------------------------------
Total liabilities 6,532.5 5,948.0 6,487.3
- - ------------------------------------------------------------------
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 915.5 806.4 771.1
Cumulative translation
Adjustment (.8) (.8) (.5)
- - ------------------------------------------------------------------
Total stockholder's equity 1,027.5 918.4 883.4
- - ------------------------------------------------------------------
Total Liabilities and
Stockholder's Equity $7,560.0 $6,866.4 $7,370.7
= ==================================================================
See Notes to Interim Financial Statements
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John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Unaudited)
(in millions)
Nine Months Ended July 31,
1999 1998
--------------------------
Cash Flows from Operating Activities:
Net income $ 124.1 $ 103.4
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for credit losses 41.2 32.4
Provision for depreciation 119.1 81.3
Equity in income of
unconsolidated affiliates (.3) (.1)
Other (13.7) 40.2
- - ----------------------------------------------------------------
Net cash provided by
operating activities 270.4 257.2
- - ----------------------------------------------------------------
Cash Flows from Investing Activities:
Cost of receivables and leases
acquired (6,008.2) (5,591.4)
Collections of receivables 4,181.2 3,909.8
Proceeds from sales of receivables 1,344.5 804.9
Other 63.3 41.3
- - ----------------------------------------------------------------
Net cash used for investing
activities (419.2) (835.4)
- - ----------------------------------------------------------------
Cash Flows from Financing Activities:
Decrease in commercial paper (259.1) (23.7)
Change in receivable/payable with
John Deere 10.2 (57.7)
Change in other notes payable (6.8) 5.1
Proceeds from issuance of long-term
borrowings 1,750.0 996.0
Principal payments on long-term
borrowings (1,353.7) (332.5)
Dividends paid (15.0) (37.5)
- - ----------------------------------------------------------------
Net cash provided by financing
activities 125.6 549.7
- - ----------------------------------------------------------------
Net decrease in cash and cash
equivalents (23.2) (28.5)
Cash and cash equivalents at
beginning of period 191.1 204.4
- - ----------------------------------------------------------------
Cash and cash equivalents at end of
period $ 167.9 $ 175.9
= =================================================================
See Notes to Interim Financial Statements.
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John Deere Capital Corporation and Subsidiaries
Notes to Interim Financial Statements
(1) The consolidated financial statements of John Deere Capital
Corporation (Capital Corporation) and its subsidiaries (the
Company) have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted as permitted by such rules and regulations. All
adjustments, consisting of normal recurring adjustments, have been
included. Management believes that the disclosures are adequate to
present fairly the financial position, results of operations and
cash flows at the dates and for the periods presented. It is
suggested that these interim financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
Results for interim periods are not necessarily indicative of those
to be expected for the fiscal year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and
related disclosures. Actual results could differ from those
estimates.
(2) In the third quarter of 1999, the Company sold the yacht
retail note portfolio ($107 million principal value) to Republic
Security Bank and recognized a gain on the sale of $2.5 million.
In addition, the Company sold intangible assets related to this
lending activity and recognized a gain of $5.7 million, which is
classified in "Other income". The Company continues to offer
wholesale financing for yacht products.
(3) In the second quarter of 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 $18 million, which included a premium on portfolios owned by
JDCL of $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.
(4) 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
(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, and lawn and
grounds care 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
Page 5
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wholesale notes receivable are
collectively called "Receivables." Receivables and operating leases
are collectively called "Receivables and Leases."
(5) The Company's ratio of earnings before fixed charges to
fixed charges was 1.83 to 1 for the third quarter of 1999 compared
with 1.63 to 1 for the third quarter of 1998. The ratio of
earnings before fixed charges to fixed charges was 1.69 to 1 for
the first nine months of 1999 and 1.57 to 1 for the first nine
months of 1998. "Earnings before fixed charges" consist of income
before income taxes, the cumulative effect of changes in accounting
and fixed charges. "Fixed charges" consist of interest on
indebtedness, amortization of debt discount and expense, an
estimated amount of rental expense under capitalized leases which
is deemed to be representative of the interest factor and rental
expense under operating leases.
(6) 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 reporting period, except
transactions with stockholders of the Company. Comprehensive
income for the first nine months of 1999 and 1998 consisted of the
following in millions of dollars:
Three Months Ended Nine Months Ended
July 31, July 31,
--------------------------------------
1999 1998 1999 1998
--------------------------------------
Net income $50.2 $39.9 $124.1 $103.4
Change in cumulative
translation adjustment (.9) (.2) (.3)
--------------------------------------
Comprehensive income $49.3 $39.7 $124.1 $103.1
======================================
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Net income was $50.2 million in the third quarter and $124.1
million for the first nine months of 1999, compared with $39.9
million and $103.4 million for the same periods last year. The
1999 third quarter and year-to-date results benefited from higher
gains on the sale of retail notes, the sale of the yacht retail
note portfolio and related intangibles (see Note 2 to the Interim
Financial Statements), and higher income on a 6 percent increase in
the average balance of Receivables and Leases financed during the
first nine months.
Revenues totaled $261.4 million and $719.2 million for the third
quarter and for the first nine months, respectively, of 1999,
compared to $226.4 million and $638.1 million for the same periods
a year ago. Finance income earned on retail notes totaled $304.4
million for the first nine months of 1999, compared to $323.7
million for the same period in 1998. This decrease was primarily
the result of a 7 percent lower average retail note portfolio
outstanding due to recreational product retail note sales over the
last twelve months. Lease revenues increased $57.0 million, to
$192.6 million in the first nine months of 1999, from $135.6
million in the first nine months of 1998, due to a 46 percent
increase in the average balance of equipment on operating leases
and financing leases. Finance income earned on wholesale notes
increased $8.3 million, to $52.4 million for the first nine months
of 1999, from $44.1 million in the first nine 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, recreational vehicles and yachts.
Revolving charge account income increased $5.2 million, to $85.5
million for the first nine months of 1999, from $80.3 million in
the first nine months of 1998. This increase was primarily due to
growth in the agricultural operating loan portfolio.
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Net gains on the sales of retail notes, including adjustments to
prior sales, totaled $22.4 million and $37.7 million for the third
quarter and for the first nine months of 1999, compared to $4.3
million and $16.9 million for the same periods a year ago. The
third quarter and year-to-date increases were primarily related to
the increased sale of recreational vehicle, agricultural and
construction retail notes compared to the same periods last year.
The sale of the yacht retail note portfolio on July 30, 1999 also
contributed to the third quarter and year-to-date increases (see
Note 2 to the Interim Financial Statements). Additional sales of
retail notes are expected to be made in the future.
Interest expense totaled $91.2 million for the third quarter of
1999 and $269.6 million for the first nine months of 1999, compared
to $95.3 million and $274.7 million for the same periods in 1998.
This decrease in the first nine months of 1999 was primarily due to
a reduction in the weighted average annual interest rate incurred
on all interest-bearing borrowings from 6.13 percent for the first
nine months of 1998 to 5.83 percent for the first nine months of
1999. This decrease was mostly offset by higher average borrowings
of $6.068 billion in the first nine months of 1999, compared to
$5.836 billion in the first nine months of 1998.
Administrative and operating expenses were $33.4 million in the
third quarter of 1999 and $94.5 million for the first nine months
of 1999, compared with $29.1 million and $84.1 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 $43.2 million in the
third quarter of 1999 and $117.0 million for the first nine months
of 1999, compared to $30.3 million and $79.1 million for the same
periods in 1998, as a result of the increase in operating leases
financed.
During the third quarter and the first nine months of 1999, the
provision for credit losses totaled $15.3 million and $41.2
million, respectively, compared with $7.9 million and $32.4 million
in the same periods last year. This increase in the provision for
credit losses for the first nine months of 1999 was primarily the
result of an increase in the average portfolio of Receivables and
Leases financed as well as higher write-offs on the owned
portfolio. The annualized provision for credit losses, as a
percentage of the total average portfolio outstanding, was 0.84
percent for the third quarter of 1999 and 0.77 percent for the
first nine months of 1999, compared with 0.45 percent and 0.64
percent for the same periods last year.
Receivable and Lease acquisition volumes were as follows (in
millions of dollars):
Three Months
Ended July 31,
1999 1998 $ Change % Change
--------------------------------------
Retail notes:
Agricultural equipment* $431 $565 $(134) (24)%
Construction equipment 185 123 62 50
Lawn and grounds care
equipment 87 71 16 23
Recreational products 77 106 (29) (27)
------------------------------
Total 780 865 (85) (10)
------------------------------
Revolving charge accounts 601 535 66 12
Wholesale notes 416 403 13 3
Financing leases 47 43 4 9
Equipment on operating
leases 147 155 (8) (5)
--------------------------------
Total $1,991 $2,001 $(10) 0
================================
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Nine Months
Ended July 31,
1999 1998 $ Change % Change
--------------------------------------
Retail notes:
Agricultural equipment* $1,935 $2,010 $(72) (4)%
Construction equipment 414 329 85 26
Lawn and grounds care
equipment 188 138 47 34
Recreational products 256 271 (15) (6)
------------------------------
Total 2,793 2,748 45 2
------------------------------
Revolving charge accounts 1,414 1,232 182 15
Wholesale notes 1,226 1,077 149 14
Financing leases 103 95 8 8
Equipment on operating
leases 465 439 26 6
-------------------------------
Total $6,001 $5,591 $410 7
===============================
*Does not include the acquisition of JDCL or FAF installment
portfolios. (See Note 3 to the Interim Financial Statements.)
Retail note volumes, excluding the acquisition of the JDCL and FAF
installment portfolios, increased by $45 million for the first nine
months of 1999 compared to the first nine months of 1998, primarily
due to increases in the construction and lawn and grounds care
equipment retail note volumes. However, the agricultural retail
note volumes declined in the third quarter and the first nine months
of 1999 due to the weakening of the U.S. agricultural market.
Recreational product retail note volumes also declined in the third
quarter and the first nine months of 1999 primarily due to lower
acceptances in the yacht market. (See Note 2 to the Interim
Financial Statements.)
Revolving charge volumes increased 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 nine 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 first nine months
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):
July 31, October 31, July 31,
1999 1998 1998
--------------------------------------
Retail notes:
Agricultural equipment* $3,191 $2,285 $2,800
Construction equipment 434 703 682
Lawn and grounds care
equipment 333 270 256
Recreational products 158 581 783
------------------------------------
Total 4,116 3,839 4,521
------------------------------------
Revolving charge accounts 843 751 731
Wholesale notes 891 804 726
Financing leases 264 242 234
Equipment on operating
leases 1,136 892 826
------------------------------------
Total $7,250 $6,528 $7,038
====================================
* Agricultural equipment retail notes at July 31, 1999 include
the JDCL and FAF installment portfolio balances. (See Note 3 to
the Interim Financial Statements.)
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Receivables and Leases administered by the Company, which include
retail notes sold, were as follows (in millions of dollars):
July 31, October 31, July 31,
1999 1998 1998
-----------------------------------
Receivables and Leases administered:
Receivables and Leases owned
by the Company $7,250 $6,528 $7,038
Retail notes sold and
securitized (with limited
recourse)* 1,658 1,812 1,246
Retail notes sold
(without recourse)** 511 376 183
Receivables serviced
(without recourse)*** 52
-----------------------------------
Total Receivables and Leases
Administered $9,471 $8,716 $8,467
===================================
* The Company's maximum exposure under all retail note recourse
provisions at July 31, 1999, October 31, 1998 and July 31, 1998 was
$170 million, $184 million and $169 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 two retail note sales. At July 31, 1999, the
maximum exposure under these agreements was approximately $8
million.
** On recreational product retail note sales, the Company
continues to administer the portfolio outstanding for a fee until
the servicing rights are assumed by their owner. The Company
anticipates the servicing relationship will terminate within twelve
months from the date of sale.
*** 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 3
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):
July 31, October 31, July 31,
1999 1998 1998
$ % $ % $ %
----------------------------------------
Retail notes:
Agricultural equipment $11.2 .35% $9.5 .42% $8.6 .31%
Construction equipment 2.2 .51 2.0 .28 2.0 .29
Lawn and grounds care
equipment .8 .24 .7 .26 .7 .29
Recreational products .1 .06 .2 .03 .2 .02
-----------------------------------------
Total 14.3 .35 12.4 .32 11.5 .25
-----------------------------------------
Revolving charge accounts 8.4 1.00 8.4 1.12 7.2 .98
Wholesale notes 1.8 .20 .6 .07 1.3 .18
Leases 6.4 .46 3.8 .34 3.4 .32
-----------------------------------------
Total $30.9 .43 $25.2 .39 $23.4 .33
=========================================
The balance of retail notes owned (principal plus accrued interest)
with any installment 60 days or more past due was $54 million, $54
million and $46 million at July 31, 1999, October 31, 1998 and July
31, 1998, respectively. The balance of retail notes held on which
any installment is 60 days or more past due as a percentage of
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ending retail notes receivable was 1.30 percent, 1.42 percent and
1.02 percent at July 31, 1999, October 31, 1998 and July 31, 1998,
respectively. Increases in past due leases are primarily in the
agricultural and construction portfolios.
During the third quarter and the first nine months of 1999, write-
offs (net of recoveries) of Receivables and Leases totaled $11.1
million and $27.0 million, respectively, compared with $4.5 million
and $23.3 million in the same periods last year. Annualized write-
offs, as a percentage of the total average portfolio outstanding,
were 0.62 percent for the third quarter of 1999 and 0.50 percent
for the first nine months of 1999, compared with 0.26 percent and
0.46 percent for the same periods last year. Write-offs relating
to retail notes increased 21 percent, or $2.4 million, in the first
nine months of 1999, when compared with the first nine months of
1998, primarily due to increased write-offs of agricultural
equipment retail notes, partially offset by decreased write-offs of
construction equipment and recreational product retail notes. Lease
write-offs increased $.8 million in the first nine months of 1999
when compared to last year primarily due to higher write-offs on
agricultural leases. Revolving charge account write-offs increased
$1.1 million in the first nine months of 1999 when compared to last
year primarily due to higher write-offs on agricultural accounts.
Wholesale note write-offs decreased $.7 million in the first nine
months of 1999 when compared to the same period 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 $121 million at July 31, 1999, compared with
$156 million at October 31, 1998 and $151 million at July 31, 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 $81 million at July 31, 1999, $81 million
at October 31, 1998 and $86 million at July 31, 1998. The
allowance for credit losses represented 1.11 percent of the total
Receivables and Leases financed at July 31, 1999, 1.25 percent at
October 31, 1998, and 1.22 percent at July 31, 1998. The Company's
allowance for credit losses, as a percentage of total Receivables
and Leases, has declined during the last twelve months due to an
ongoing evaluation of loss experience and related estimates to
ensure the allowance for credit losses is maintained at an adequate
level. Management believes the allowance for credit losses at July
31, 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. Approximately 99 percent of the Company's
systems identified as being mission critical have been tested
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and verified as being Year 2000 compliant. The Company's goal has been
to have all mission critical and non-mission critical systems
compliant by October 31, 1999, and the progress to date makes this
goal appear 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 hardware or software. Other major systems
projects have not been deferred due to the Year 2000 compliance
projects.
Although no assurances can be given as to the Company's readiness,
particularly as it relates to third parties, based upon the
progress to date, the Company does not expect consequences of any
of the Company's unanticipated or unsuccessful modifications to
have a material adverse effect on the Company's financial position
or results of 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.
Euro Conversion
The Company is well advanced in the process of identification,
implementation and testing of its systems to adopt the euro
currency in its operations. The transition period for this change
is January 1, 1999 through January 1, 2002. The Company's affected
suppliers, distribution network and financial institutions have
been contacted and to date the currency change has not had a
significant impact on these relationships. The cost of information
systems modifications, effects on product pricing and purchase
contracts, and the impact on foreign currency financial
instruments, including derivatives, are not expected to be
material.
Safe Harbor Statement
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
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<PAGE>
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 nine 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 $270 million in the first nine months of 1999.
Financing activities provided $126 million during the same period,
resulting from a $141 million net increase in total borrowings,
which was partially offset by $15 million in dividend payments to
John Deere Credit Company. Net cash used for investing activities
totaled $419 million in the first nine months of 1999, primarily
due to Receivable and Lease acquisitions exceeding collections by
$1,827 million, which was partially offset by the $1,345 million in
proceeds from the sale of receivables. Cash and cash equivalents
decreased $23 million during the first nine months of 1999.
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 million, which was 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.
Total interest-bearing indebtedness amounted to $6.065 billion at
July 31, 1999, compared with $5.516 billion at October 31, 1998 and
$6.054 billion at July 31, 1998, generally corresponding with the
level of Receivables and Leases financed and the level of cash and
cash equivalents. Total short-term indebtedness amounted to $3.620
billion at July 31, 1999, compared with $3.417 billion at October
31, 1998 and $4.264 billion at July 31, 1998. Total long-term
indebtedness amounted to $2.445 billion, $2.099 billion and $1.790
billion at July 31, 1999, October 31, 1998 and July 31, 1998,
respectively. The ratio of total interest-bearing debt to
stockholder's equity was 5.9 to 1, 6.0 to 1 and 6.9 to 1 at July
31, 1999, October 31, 1998 and July 31, 1998, respectively.
During the first nine 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, $200 million of 6% notes and $200 million of 6.3% notes all
due in the first nine months of 1999. The Capital Corporation's
subsidiary, John Deere Credit Limited in Gloucester, England, also
retired $67 million of long-term debt due in 1999. The Capital
Corporation issued $1,450 million and retired $640 million of
medium-term notes during the same period.
At July 31, 1999, the Capital Corporation, Deere & Company, John
Deere Limited (Canada) and John Deere Credit Inc. (Canada),
jointly, maintained $5.527 billion of unsecured lines of credit
with various
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<PAGE>
banks in North America and overseas, $2.588 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 three
quarters of 1999. John Deere Credit Company paid comparable
dividends to Deere & Company. On August 27, 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 September 7, 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.
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<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.
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 May 18, 1999 (Items 5
and 7).
Page 14
<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 3, 1999 By: /s/ Nathan J. Jones
--------------------------------
Nathan J. Jones
Senior Vice President and
Principal Financial Officer
Page 15
<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, 1999 --(Securities and Exchange
Commission file number 1-4121*).
__________________________
*Incorporated by reference. Copies of these exhibits are
available from the Company upon request.
Exhibit 12
John Deere Capital Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(thousands of dollars)
Nine Months Ended July 30,
------------------------------
1999 1998
----------- -----------
Earnings:
Income before income
taxes and changes
in accounting $189,047 $159,519
Fixed charges 273,500 278,524
----------- ----------
Total earnings $462,547 $438,043
=========== ==========
Fixed charges:
Interest expense $269,626 $274,837
Rent expense 3,874 3,687
----------- ----------
Total fixed
charges $273,500 $278,524
=========== ==========
Ratio of earnings to
fixed charges * 1.69 1.57
=========== ==========
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 373,237 330,649 276,726 240,913 168,507
-------- -------- -------- -------- --------
Total earnings $606,771 $541,900 $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 $373,237 $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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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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