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: 1-4121
--------------------------
DEERE & COMPANY
Delaware 36-2382580
(State of incorporation) (IRS employer identification no.)
One John Deere Place
Moline, Illinois 61265
(Address of principal executive offices)
Telephone Number: (309) 765-8000
----------------------------
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, 238,510,863 shares of common stock, $1 par
value, of the registrant were outstanding.
- -----------------------------------------------------------------
Page 1 of 32 Pages.
Index to Exhibits: Page 28
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Consolidated Subsidiaries)
Millions of dollars except per
share amounts Three Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment $3,218.3 $2,992.6
Finance and interest income 263.2 224.5
Insurance and health care premiums 171.9 166.6
Investment income 15.9 16.8
Other income 24.1 29.8
Total 3,693.4 3,430.3
Costs and Expenses
Cost of goods sold 2,485.1 2,311.5
Research and development expenses 110.7 99.5
Selling, administrative and general
expenses 324.7 335.3
Interest expense 138.4 111.0
Insurance and health care claims
and benefits 143.9 155.6
Other operating expenses 53.6 17.8
Total 3,256.4 3,030.7
Income of Consolidated Group
Before Income Taxes 437.0 399.6
Provision for income taxes 154.8 151.4
Income of Consolidated Group 282.2 248.2
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .1 (.3)
Insurance
Health care .1
Other 8.4 4.8
Total 8.6 4.5
Net Income $ 290.8 $ 252.7
Per Share:
Net income $ 1.20 $ 1.00
Net income - diluted $ 1.19 $ .99
See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY EQUIPMENT OPERATIONS
STATEMENT OF CONSOLIDATED INCOME (Deere & Company with
Financial Services on the
Equity Basis)
Millions of dollars except per
share amounts Three Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment $3,218.3 $2,992.6
Finance and interest income 33.4 26.7
Insurance and health care premiums
Investment income
Other income 9.6 12.7
Total 3,261.3 3,032.0
Costs and Expenses
Cost of goods sold 2,490.3 2,317.4
Research and development expenses 110.7 99.5
Selling, administrative and general
expenses 235.6 236.8
Interest expense 37.6 20.4
Insurance and health care claims
and benefits
Other operating expenses 20.0 (.3)
Total 2,894.2 2,673.8
Income of Consolidated Group
Before Income Taxes 367.1 358.2
Provision for income taxes 131.6 137.1
Income of Consolidated Group 235.5 221.1
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 43.1 41.6
Insurance 2.0 6.6
Health care 1.8 (21.4)
Other 8.4 4.8
Total 55.3 31.6
Net Income $ 290.8 $ 252.7
Page 3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per
share amounts Three Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment
Finance and interest income $233.6 $199.3
Insurance and health care premiums 179.1 174.7
Investment income 15.9 16.8
Other income 15.1 18.0
Total 443.7 408.8
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 90.0 99.7
Interest expense 104.6 92.1
Insurance and health care claims
and benefits 145.6 157.4
Other operating expenses 33.7 18.1
Total 373.9 367.3
Income of Consolidated Group
Before Income Taxes 69.8 41.5
Provision for income taxes 23.1 14.4
Income of Consolidated Group 46.7 27.1
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .1 (.3)
Insurance
Health care .1
Other
Total .2 (.3)
Net Income $ 46.9 $ 26.8
Page 4
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Consolidated Subsidiaries)
Millions of dollars except per
share amounts Nine Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment $ 9,232.9 $8,102.8
Finance and interest income 735.6 622.7
Insurance and health care premiums 515.6 499.8
Investment income 49.4 48.6
Other income 75.6 73.4
Total 10,609.1 9,347.3
Costs and Expenses
Cost of goods sold 7,088.8 6,160.5
Research and development expenses 319.5 292.5
Selling, administrative and general
expenses 948.4 932.8
Interest expense 382.3 309.5
Insurance and health care claims
and benefits 421.5 407.1
Other operating expenses 123.3 52.2
Total 9,283.8 8,154.6
Income of Consolidated Group
Before Income Taxes 1,325.3 1,192.7
Provision for income taxes 477.8 446.3
Income of Consolidated Group 847.5 746.4
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .1 (1.1)
Insurance
Health care .1
Other 11.6 3.5
Total 11.8 2.4
Net Income $ 859.3 $ 748.8
Per Share:
Net income $ 3.49 $ 2.94
Net income - diluted $ 3.45 $ 2.91
See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
Page 5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY EQUIPMENT OPERATIONS
STATEMENT OF CONSOLIDATED INCOME (Deere & Company with
Financial Services on the
Equity Basis)
Millions of dollars except per
share amounts Nine Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment $9,232.9 $8,102.8
Finance and interest income 96.2 81.2
Insurance and health care premiums
Investment income
Other income 29.8 33.2
Total 9,358.9 8,217.2
Costs and Expenses
Cost of goods sold 7,103.2 6,175.1
Research and development expenses 319.5 292.5
Selling, administrative and general
expenses 673.3 662.4
Interest expense 93.0 62.4
Insurance and health care claims
and benefits
Other operating expenses 35.3 3.7
Total 8,224.3 7,196.1
Income of Consolidated Group
Before Income Taxes 1,134.6 1,021.1
Provision for income taxes 411.0 386.0
Income of Consolidated Group 723.6 635.1
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 111.2 106.1
Insurance 11.8 23.7
Health care 1.1 (19.6)
Other 11.6 3.5
Total 135.7 113.7
Net Income $ 859.3 $ 748.8
Page 6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per
share amounts Nine Months Ended
(Unaudited) July 31
1998 1997
Net Sales and Revenues
Net sales of equipment
Finance and interest income $ 649.2 $ 545.1
Insurance and health care premiums 536.5 523.9
Investment income 49.4 48.6
Other income 48.6 43.1
Total $1,283.7 $1,160.7
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 279.8 278.1
Interest expense 299.1 250.7
Insurance and health care claims
and benefits 426.2 411.8
Other operating expenses 87.9 48.5
Total 1,093.0 989.1
Income of Consolidated Group
Before Income Taxes 190.7 171.6
Provision for income taxes 66.8 60.3
Income of Consolidated Group 123.9 111.3
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .1 (1.1)
Insurance
Health care .1
Other
Total .2 (1.1)
Net Income $ 124.1 $ 110.2
Page 7
<PAGE>
DEERE & COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company and
Consolidated Subsidiaries)
Jul 31 Oct 31 Jul 31
Millions of dollars (Unaudited) 1998 1997 1997
Assets
Cash and short-term investments $ 331.1 $ 330.0 $ 250.1
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 331.1 330.0 250.1
Marketable securities 868.0 819.6 868.1
Receivables from unconsolidated
subsidiaries and affiliates 39.9 14.6 10.7
Trade accounts and notes
receivable - net 4,209.3 3,333.8 3,512.7
Financing receivables - net 6,985.6 6,404.7 6,431.0
Other receivables 397.4 412.7 438.0
Equipment on operating
leases - net 1,123.4 774.6 630.4
Inventories 1,337.3 1,072.7 1,170.8
Property and equipment - net 1,566.6 1,524.1 1,365.8
Investments in unconsolidated
subsidiaries and affiliates 163.9 149.9 138.5
Intangible assets - net 191.3 157.8 292.4
Prepaid pension costs 689.1 592.9
Deferred income taxes 534.2 543.6 643.3
Other assets and
deferred charges 188.8 188.8 198.3
Total $18,625.9 $16,319.8 $15,950.1
Liabilities and Stockholders' Equity
Short-term borrowings $ 6,569.4 $ 3,774.6 $ 3,796.6
Payables to unconsolidated
subsidiaries and affiliates 49.4 48.7 44.3
Accounts payable and
accrued expenses 2,705.0 2,839.7 2,619.0
Insurance and health care
claims and reserves 403.6 414.7 413.7
Accrued taxes 109.5 117.5 140.9
Deferred income taxes 20.3 21.4 10.3
Long-term borrowings 2,287.0 2,622.8 2,905.5
Retirement benefit accruals
and other liabilities 2,318.2 2,333.2 2,175.9
Total liabilities 14,462.4 12,172.6 12,106.2
Common stock, $1 par value
(issued shares at
Jul 31, 1998 - 263,851,041 1,778.5 1,778.5 1,760.7
Retained earnings 3,732.9 3,048.4 2,890.6
Minimum pension liability
adjustment (14.0) (14.0) (235.4)
Cumulative translation adjustment (99.7) (57.4) (62.2)
Unrealized gain on
marketable securities 25.7 22.2 21.1
Unamortized restricted
stock compensation (9.7) (17.4) (21.5)
Common stock in treasury,
at cost (1,250.2) (613.1) (509.4)
Total stockholders' equity 4,163.5 4,147.2 3,843.9
Total $18,625.9 $16,319.8 $15,950.1
See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the "Consolidated" data.
Page 8
<PAGE>
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company with
Financial Services on
the Equity Basis)
Jul 31 Oct 31 Jul 31
Millions of dollars (Unaudited) 1998 1997 1997
Assets
Cash and short-term investments $ 58.4 $ 61.2 $ 52.3
Cash deposited with unconsolidated
subsidiaries 282.4 350.0 123.6
Cash and cash equivalents 340.8 411.2 175.9
Marketable securities
Receivables from unconsolidated
subsidiaries and affiliates 136.2 57.3 132.0
Trade accounts and notes
receivable - net 4,209.3 3,333.8 3,512.7
Financing receivables - net 113.7 83.5 79.7
Other receivables 2.1
Equipment on operating
leases - net 209.6 193.9 170.5
Inventories 1,337.3 1,072.7 1,170.8
Property and equipment - net 1,520.1 1,479.1 1,317.2
Investments in unconsolidated
subsidiaries and affiliates 1,579.0 1,494.7 1,476.4
Intangible assets - net 183.4 148.4 282.7
Prepaid pension costs 689.1 592.9
Deferred income taxes 490.1 490.8 593.3
Other assets and deferred charges 128.7 123.8 131.0
Total $10,937.3 $9,484.2 $9,042.2
Liabilities and Stockholders' Equity
Short-term borrowings $ 2,017.1 $ 171.1 $ 401.5
Payables to unconsolidated
subsidiaries and affiliates 49.4 54.8 44.3
Accounts payable and accrued
expenses 1,950.4 2,134.1 1,909.0
Insurance and health care
claims and reserves
Accrued taxes 101.1 114.2 134.8
Deferred income taxes 19.9 21.4 10.0
Long-term borrowings 353.3 539.9 551.8
Retirement benefit accruals
and other liabilities 2,282.6 2,301.5 2,146.9
Total liabilities 6,773.8 5,337.0 5,198.3
Common stock, $1 par value
(issued shares at
Jul 31, 1998 - 1,778.5 1,778.5 1,760.7
Retained earnings 3,732.9 3,048.4 2,890.6
Minimum pension liability
adjustment (14.0) (14.0) (235.4)
Cumulative translation adjustment (99.7) (57.4) (62.2)
Unrealized gain on marketable
securities 25.7 22.2 21.1
Unamortized restricted stock
compensation (9.7) (17.4) (21.5)
Common stock in treasury, at cost (1,250.2) (613.1) (509.4)
Total stockholders' equity 4,163.5 4,147.2 3,843.9
Total $10,937.3 $9,484.2 $9,042.2
Page 9
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEET
Jul 31 Oct 31 Jul 31
Millions of dollars (Unaudited) 1998 1997 1997
Assets
Cash and short-term investments $ 272.7 $ 268.8 $ 197.8
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 272.7 268.8 197.8
Marketable securities 868.0 819.6 868.1
Receivables from unconsolidated
subsidiaries and affiliates 6.1
Trade accounts and notes
receivable - net
Financing receivables - net 6,871.9 6,321.2 6,351.3
Other receivables 397.4 410.6 438.0
Equipment on operating leases - net 913.8 580.7 459.9
Inventories
Property and equipment - net 46.4 45.0 48.6
Investments in unconsolidated
subsidiaries and affiliates 19.1 13.0 8.5
Intangible assets - net 7.9 9.4 9.7
Prepaid pension costs
Deferred income taxes 44.0 52.8 50.0
Other assets and deferred charges 60.3 65.0 67.3
Total $9,501.5 $8,592.2 $8,499.2
Liabilities and Stockholders' Equity
Short-term borrowings $4,552.3 $3,603.5 $3,395.1
Payables to unconsolidated
subsidiaries and affiliates 378.7 392.7 245.0
Accounts payable and accrued
expenses 754.6 705.6 710.0
Insurance and health care
claims and reserves 403.6 414.7 413.7
Accrued taxes 8.3 3.2 6.1
Deferred income taxes .4 .3
Long-term borrowings 1,933.7 2,082.9 2,353.7
Retirement benefit accruals
and other liabilities 35.7 31.8 28.9
Total liabilities 8,067.3 7,234.4 7,152.8
Common stock, $1 par value
(issued shares at
July 31, 1998 - 237.1 238.4 238.4
Retained earnings 1,184.6 1,104.5 1,091.6
Minimum pension liability
adjustment
Cumulative translation
adjustment (13.2) (7.3) (4.7)
Unrealized gain on marketable
securities 25.7 22.2 21.1
Unamortized restricted stock
compensation
Common stock in treasury, at cost
Total stockholders' equity 1,434.2 1,357.8 1,346.4
Total $9,501.5 $8,592.2 $8,499.2
Page 10
<PAGE>
DEERE & COMPANY CONSOLIDATED
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Deere & Company
and
Consolidated Subsidiaries
Nine Months Ended
July 31
Millions of dollars (Unaudited) 1998 1997
Cash Flows from Operating Activities
Net income $ 859.3 $ 748.8
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities (1,117.7) (447.8)
Net cash provided by (used for)
operating activities (258.4) 301.0
Cash Flows from Investing Activities
Collections and sales of
financing receivables 5,000.8 4,468.4
Proceeds from maturities and
sales of marketable securities 115.0 114.3
Cost of financing receivables acquired (5,636.5) (4,981.0)
Purchases of marketable securities (157.8) (102.9)
Purchases of property and equipment (250.8) (271.8)
Cost of operating leases acquired (567.4) (332.6)
Acquisitions of businesses (51.7) (36.9)
Other 117.1 83.0
Net cash used for investing activities (1,431.3) (1,059.5)
Cash Flows from Financing Activities
Increase in short-term borrowings 1,861.0 949.7
Change in intercompany receivables/payables
Proceeds from long-term borrowings 996.0 885.0
Principal payments on long-term borrowings (358.9) (678.5)
Proceeds from issuance of common stock 22.4 31.4
Repurchases of common stock (668.3) (310.9)
Dividends paid (159.3) (153.7)
Other .8 (.6)
Net cash provided by (used for)
financing activities 1,693.7 722.4
Effect of Exchange Rate Changes on Cash (2.9) (5.3)
Net Increase (Decrease) in Cash and
Cash Equivalents 1.1 (41.4)
Cash and Cash Equivalents at
Beginning of Period 330.0 291.5
Cash and Cash Equivalents at End of Period $ 331.1 $ 250.1
See Notes to Interim Financial Statements. Supplemental
consolidating data are shown for the "Equipment Operations" and
"Financial Services". Transactions between the "Equipment
Operations" and "Financial Services" have been eliminated to
arrive at the Consolidated" data.
Page 11
<PAGE>
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Deere & Company
Nine Months Ended July 31 with Financial
Services on
Millions of dollars (Unaudited) the Equity Basis)
Nine Months Ended
July 31
1998 1997
Cash Flows from Operating Activities
Net income $ 859.3 $ 748.8
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities (1,370.9) (535.9)
Net cash provided by (used for)
operating activities (511.6) 212.9
Cash Flows from Investing Activities
Collections and sales of financing receivables 23.1 48.1
Proceeds from maturities and sales of
marketable securities
Cost of financing receivables acquired (55.5) (24.4)
Purchases of marketable securities
Purchases of property and equipment (242.8) (264.7)
Cost of operating leases acquired (77.8) (63.9)
Acquisitions of businesses (45.7) (33.2)
Other 55.0 25.3
Net cash used for investing activities (343.7) (312.8)
Cash Flows from Financing Activities
Increase in short-term borrowings 1,678.1 220.1
Change in intercompany receivables/payables (59.9) (29.1)
Proceeds from long-term borrowings
Principal payments on long-term borrowings (26.4) (101.0)
Proceeds from issuance of common stock 22.4 31.4
Repurchases of common stock (668.3) (310.9)
Dividends paid (159.3) (153.7)
Other .7 (.6)
Net cash provided by (used for)
financing activities 787.3 (343.8)
Effect of Exchange Rate Changes on Cash (2.4) (5.2)
Net Increase (Decrease) in Cash and
Cash Equivalents (70.4) (448.9)
Cash and Cash Equivalents at
Beginning of Period 411.2 624.8
Cash and Cash Equivalents at End of Period $ 340.8 $ 175.9
Page 12
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
Nine Months Ended July 31
Nine Months Ended
Millions of dollars (Unaudited July 31
1998 1997
Cash Flows from Operating Activities
Net income $ 124.1 $ 110.2
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities 173.4 99.7
Net cash provided by (used for)
operating activities 297.5 209.9
Cash Flows from Investing Activities
Collections and sales of
financing receivables 4,977.8 4,420.3
Proceeds from maturities and
sales of marketable securities 115.0 114.3
Cost of financing receivables acquired (5,581.0) (4,956.6)
Purchases of marketable securities (157.8) (102.9)
Purchases of property and equipment (8.0) (7.2)
Cost of operating leases acquired (489.6) (268.8)
Acquisitions of businesses (6.0) (3.7)
Other 63.2 28.9
Net cash used for investing activities (1,086.4) (775.7)
Cash Flows from Financing Activities
Increase in short-term borrowings 183.0 729.6
Change in intercompany receivables/payables (7.6) (392.1)
Proceeds from long-term borrowings 996.0 885.0
Principal payments on long-term borrowings (332.5) (577.5)
Proceeds from issuance of common stock 29.0
Repurchases of common stock
Dividends paid (44.3) (121.8)
Other (1.3)
Net cash provided by (used for)
financing activities 793.3 552.2
Effect of Exchange Rate Changes on Cash (.5) (.2)
Net Increase (Decrease) in Cash and
Cash Equivalents 3.9 (13.8)
Cash and Cash Equivalents at
Beginning of Period 268.8 211.6
Cash and Cash Equivalents at End of Period $ 272.7 $ 197.8
Page 13
<PAGE>
Notes to Interim Financial Statements
1. The consolidated financial statements of Deere & Company and
consolidated subsidiaries 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 Company's consolidated financial statements and some
information in the notes and related commentary are presented in
a format which includes data grouped as follows:
Equipment Operations - These data include the Company's
agricultural equipment, construction equipment and commercial and
consumer equipment operations with Financial Services reflected
on the equity basis. Data relating to the above equipment
operations, including the consolidated group data in the income
statement, are also referred to as "Equipment Operations" in this
report.
Financial Services - These data include the Company's credit,
insurance and health care subsidiaries.
Consolidated - These data represent the consolidation of the
Equipment Operations and Financial Services in conformity with
Financial Accounting Standards Board (FASB) Statement No. 94.
References to "Deere & Company" or "the Company" refer to the
entire enterprise.
3. An analysis of the Company's retained earnings follows in
millions of dollars:
Three Months Nine Months
Ended Ended
July 31 July 31
1998 1997 1998 1997
Balance, beginning of
period $3,502.7 $2,694.0 $3,048.4 $2,299.5
Net income 290.8 252.7 859.3 748.8
Dividend declared (52.9) (50.6) (161.7) (152.2)
Other (7.7) (5.5) (13.1) (5.5)
Balance, end of period $3,732.9 $2,890.6 $3,732.9 $2,890.6
Page 14
<PAGE>
4. An analysis of the cumulative translation adjustment follows
in millions of dollars:
Three Months Nine Months
Ended Ended
July 31 July 31
1998 1997 1998 1997
Balance, beginning of
period $(79.4) $(48.8) $(57.4) $(14.0)
Translation adjustment (19.7) (13.5) (41.4) (42.7)
Income taxes applicable
to translation
adjustments (.6) .1 (.9) (5.5)
Balance, end of period $(99.7) $(62.2) $(99.7) $(62.2)
5. Substantially all inventories owned by Deere & Company and
its United States equipment subsidiaries are valued at cost on
the last-in, first-out (LIFO) basis. If all of the Company's
inventories had been valued on an approximate first-in, first-out
(FIFO) basis, estimated inventories by major classification in
millions of dollars would have been as follows:
July 31 October 31 July 31
1998 1997 1997
Raw materials and supplies $ 270 $ 228 $ 215
Work-in-process 489 427 441
Finished machines and parts 1,593 1,430 1,527
Total FIFO value 2,352 2,085 2,183
Adjustment to LIFO basis 1,015 1,012 1,012
Inventories $1,337 $1,073 $1,171
6. During the first nine months of 1998, the Financial Services
subsidiaries received proceeds from the sale of retail notes of
$805 million. At July 31, 1998, the net unpaid balance of all
retail notes previously sold by the Financial Services
subsidiaries was $1,540 million and the Company's maximum
exposure under all related recourse provisions was $172 million.
At July 31, 1998, the Company had commitments of approximately
$138 million for construction and acquisition of property and
equipment.
7. Dividends declared and paid on a per share basis were as
follows:
Three Months Ended Nine Months Ended
Jul 31 July 31
1998 1997 1998 1997
Dividends declared $.22 $.20 $.66 $.60
Dividends paid $ * $.20 $.64 $.60
* In 1998, the payment date for the dividend normally paid in the
third quarter was included in the second quarter.
Page 15
<PAGE>
8. Worldwide net sales and revenues and operating profit in
millions of dollars follow:
Three Months Ended
July 31
%
1998 1997 Change
Net sales:
Agricultural equipment $1,969 $1,907 + 3
Construction equipment 709 579 + 22
Commercial and consumer equipment 540 507 + 7
Total net sales 3,218 2,993 + 8
Financial Services revenues 435 400 + 9
Other revenues 40 37 + 8
Total net sales and revenues $3,693 $3,430 + 8
United States and Canada:
Equipment net sales $2,319 $2,113 + 10
Financial Services revenues 435 400 + 9
Total 2,754 2,513 + 10
Overseas Net sales 899 880 + 2
Other revenues 40 37 + 8
Total net sales and revenues $3,693 $3,430 + 8
Operating profit**:
Agricultural equipment $ 282 $ 279 + 1
Construction equipment 103 60 + 72
Commercial and consumer equipment 46 45 + 2
Equipment Operations 431 384 + 12
Financial Services 70 41 + 71
Total operating profit* 501 425 + 18
Interest and corporate expenses-net (55) (21) +162
Income taxes (155) (151) + 3
Net income $ 291 $ 253 + 15
* Includes overseas operating profit
as follows: $ 106 $ 109 - 3
** Operating profit is income before interest expense, foreign
exchange gains and losses, income taxes and certain corporate
expenses. However, operating profit of Financial Services
includes the effect of interest expense.
Page 16
<PAGE>
Nine Months Ended
July 31
%
1998 1997 Change
Net sales:
Agricultural equipment $ 5,638 $5,128 +10
Construction equipment 2,001 1,631 +23
Commercial and consumer equipment 1,594 1,344 +19
Total net sales 9,233 8,103 +14
Financial Services revenues 1,261 1,135 +11
Other revenues 115 109 + 6
Total net sales and revenues $10,609 $9,347 +14
United States and Canada:
Equipment net sales $ 6,867 $5,748 +19
Financial Services revenues 1,261 1,135 +11
Total 8,128 6,883 +18
Overseas Net sales 2,366 2,355
Other revenues 115 109 + 6
Total net sales and revenues $10,609 $9,347 +14
Operating profit**:
Agricultural equipment $ 852 $ 813 + 5
Construction equipment 258 175 +47
Commercial and consumer equipment 160 107 +50
Equipment Operations 1,270 1,095 +16
Financial Services 191 171 +12
Total operating profit* 1,461 1,266 +15
Interest and corporate expenses-net (124) (71) +75
Income taxes (478) (446) + 7
Net income $ 859 $ 749 +15
* Includes overseas operating profit
as follows: $ 268 $ 290 - 8
** Operating profit is income before interest expense, foreign
exchange gains and losses, income taxes and certain corporate
expenses. However, operating profit of Financial Services
includes the effect of interest expense.
Page 17
<PAGE>
9. In the first quarter of 1998, the Company adopted FASB
Statement No. 128, Earnings per Share. This Statement requires
the presentation of basic and diluted net income per share, and a
reconciliation between these two amounts. Diluted net income per
share was restated for the prior period.
A reconciliation of basic and diluted net income per share in
millions, except per share amounts, follows:
Nine Months
Ended
July 31
1998 1997
Net income $859.3 $748.8
Average shares outstanding 246.0 254.5
Basic net income per share $ 3.49 $ 2.94
Average shares outstanding 246.0 254.5
Effect of dilutive securities:
Stock options 2.5 2.6
Other .2 .2
Total potential shares
outstanding 248.7 257.3
Diluted net income per share $ 3.45 $ 2.91
Stock options to purchase .5 million shares during the first nine
months of 1998 were outstanding, but not included in the above
diluted per share computation because the options' exercise
prices were greater than the average market price of the
Company's common stock during the period. During the same period
in 1997, no outstanding options were excluded because all the
options' exercise prices were less than the average market price
during that period.
10. 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 product liability, retail credit
matters, software and patent and trademark matters. 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.
11. In December 1997, the Company announced the extension of its
stock repurchase program and authorized an additional $1 billion
of such repurchases. At the Company's discretion, repurchases of
common stock are being made from time to time in the open market
and through privately negotiated transactions. During the first
nine months of 1998, the Company repurchased $551 million of
common stock under the extended program and $117 million for
ongoing stock option and restricted stock plans.
12. In December 1997, the Company invested $39 million for a 49
percent interest in Cameco Industries, Inc., primarily a
manufacturer of sugarcane harvesters and forestry equipment
located in Thibodaux, Louisiana. The initial goodwill acquired
was $27 million, which will be amortized to expense over 10
years. The Company has also agreed to purchase the remaining 51
percent interest for $40 million within 12 months of the first
investment. Cameco has been consolidated beginning in the first
quarter of 1998 and the purchase did not have a material effect
on the Company's operating results.
13. 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 18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Deere & Company achieved record third quarter net income of
$290.8 million, or $1.20 per share, compared with $252.7 million,
or $1.00 per share, for the same quarter last year. This
represented an increase of 15 percent in net income and 20
percent in earnings per share. Nine month net income was $859.3
million, or $3.49 per share, an increase of 15 percent in net
income and 19 percent in earnings per share, compared with last
year's $748.8 million, or $2.94 per share. Earnings per share
continued to benefit from the Company's share repurchase program.
Revenue growth, driven by a continuation of favorable demand for
Company products, as well as cost reductions and progress in
quality initiatives, led to the record performance. Third
quarter profits reflected positive contributions from all
business segments and remained at record levels despite continued
expenditures for new products and growth opportunities, and
increasingly challenging agricultural market conditions.
Worldwide net sales and revenues rose 8 percent for the quarter,
to $3,693 million, and 14 percent for nine months, to $10,609
million, compared with $3,430 million and $9,347 million,
respectively, last year. Net equipment sales increased 8 percent
for the quarter, to $3,218 million, and 14 percent for nine
months, to $9,233 million. This compared with sales of $2,993
million and $8,103 million for the same periods a year ago.
Export sales from the United States remained at favorable levels,
totaling $551 million for the third quarter and $1,565 million
year-to-date, compared to $585 million and $1,524 million for the
same periods last year. Despite an adverse foreign exchange
translation impact, overseas sales were slightly higher in dollar
terms for both the quarter and year-to-date. Overseas physical
volume of sales increased 6 percent for the year-to-date,
compared with last year. Overall, the Company's physical volume
of sales increased 15 percent for the first nine months, compared
with last year.
Worldwide Equipment Operations, which exclude the Financial
Services subsidiaries and unconsolidated affiliates, had record
income of $235.5 million for the third quarter and $723.6 million
for the first nine months, compared with $221.1 million and
$635.1 million last year. Operating margins remained at
favorable levels despite competitive pricing actions and spending
on growth opportunities. In addition, this year's results were
affected by adverse currency fluctuations and higher interest
expense. Worldwide equipment operating profit increased to $431
million for the quarter, and to $1,270 million for the first nine
months, compared with $384 million and $1,095 million last year.
Operating profit as a percent of net sales was unchanged compared
with last year, at 13 percent for the quarter and 14 percent for
the first nine months.
- - Worldwide agricultural equipment operating profit increased 1
percent for the quarter, to $282 million, and 5 percent for the
first nine months, to $852 million. This was in comparison with
$279 million and $813 million last year. For both periods,
higher sales and lower operating expenses were partially offset
by higher sales incentive costs, higher expenditures for growth
initiatives and a less favorable sales mix.
- - Worldwide construction equipment operating profit increased 72
percent for the quarter, to $103 million, and 47 percent for the
first nine months, to $258 million, compared to $60 million and
$175 million for the periods last year. Revenue growth and
higher production volumes associated with strong market
acceptance of new products, as well as better efficiencies, led
to the improvement. Partially offsetting these factors were
higher sales incentive costs, mainly in the first half of this
year, and start-up expenses at the Torreon, Mexico, engine
facility.
Page 19
<PAGE>
- - Worldwide commercial and consumer equipment operating profit
rose 2 percent for the quarter, to $46 million, and increased 50
percent for nine months, to $160 million, despite continued
investment in new products and manufacturing facilities. Last
year's operating profit was $45 million and $107 million for the
respective periods. The improvements were due to higher sales
and production volumes, driven by strong retail demand, and also
improved operating efficiencies. Results in 1998 included higher
expenses for the development and introduction of new products and
the start-up of new manufacturing facilities. Last year's
results were adversely affected by a second quarter write-off
related to a Homelite product.
The ratio of cost of goods sold to net sales of the Equipment
Operations was 77.4 percent in the third quarter of 1998 and
1997. During the first nine months of 1998, the ratio of cost of
goods sold to net sales was 76.9 percent compared to 76.2 percent
in the first nine months of last year. The increased year-to-
date ratio was primarily due to the previously mentioned higher
sales incentive costs, higher expenses related to the development
of new products, start-up costs and a less favorable sales mix.
Additional information on business segments is presented in Note
8 to the interim financial statements.
The Company's research and development expenses were $111 million
in the third quarter and $320 million in the first nine months of
this year, compared to $100 million and $293 million for the same
periods last year.
Net income of the Company's credit operations was $43.1 million
in the third quarter of 1998, compared with $41.6 million in last
year's third quarter. For the first nine months of 1998, net
income of these subsidiaries was $111.2 million, compared with
$106.1 million last year. The 1998 third quarter and year-to-
date results benefited from higher income on a larger average
receivable and lease portfolio, partially offset by higher
operating expenses and narrower financing spreads. In addition,
the year-to-date earnings benefited from higher gains on the sale
of retail notes. Total revenues of the credit operations
increased 15 percent from $217 million in the third quarter of
1997 to $249 million in the current quarter and increased 19
percent in the first nine months from $588 million last year to
$698 million this year. The average balance of receivables and
leases financed was 13 percent higher in the third quarter and
the first nine months of 1998, compared with the same periods
last year. Interest expense increased 14 percent in the current
quarter and 19 percent in the first nine months of 1998, compared
with 1997, primarily as a result of an increase in average
borrowings. The credit subsidiaries' consolidated ratio of
earnings to fixed charges was 1.64 to 1 for the third quarter
this year, compared with 1.71 to 1 in 1997. This ratio was 1.58
to 1 for the first nine months this year, compared with 1.66 to 1
in the same period of 1997.
Net income from insurance operations was $2.0 million in the
third quarter of 1998, compared with $6.6 million last year. For
the first nine months, net income from these operations was $11.8
million this year, compared with $23.7 million in 1997. The
quarterly decrease primarily reflected unfavorable underwriting
results caused by abnormally high weather-related property
claims. Nine month underwriting results were also affected by
adverse loss development in the transportation business. In
addition, premium volumes were lower than last year due to
competitive market conditions. For the third quarter, insurance
premiums decreased 13 percent in 1998 compared with the same
period last year, while total claims, benefits, and selling,
administrative and general expenses were approximately the same
as last year. For the nine month period, insurance premiums
decreased 11 percent in 1998, while total claims, benefits, and
selling, administrative and general expenses decreased 3 percent,
compared with last year.
Net income from health care operations was $1.8 million in the
third quarter of 1998, compared with a net loss of $21.4 million
last year. In the first nine months, net income was $1.1 million
this year, compared with a net loss of $19.6 million in 1997.
The 1998 results benefited from higher premium revenues, improved
margins and lower administrative expenses. Last year, results
were adversely affected by high claims costs, unfavorable
margins, a strengthening of claims reserves and charges for the
planned closures of two health care centers. For the third
quarter, health
Page 20
<PAGE>
care premiums and administrative services revenues increased 15
percent in 1998, compared with the same period last year, while
total claims, benefits, and selling, administrative and general
expenses decreased 17 percent this year. For the nine month
period, health care premiums and administrative services revenues
increased 13 percent in 1998 while total claims, benefits, and
selling, administrative and general expense decreased 2 percent
compared with last year.
Year 2000
The Company's Year 2000 Program addresses major assessment areas
that include information systems, mainframe computers, personal
computers, the distributed network, the shop floor, facilities
systems, the Company's products, product research and development
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.
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.
Outlook
With regard to the Company's agricultural equipment operations,
worldwide farm commodity prices continued on a downward course
during the quarter as a result of prospects for increased global
supplies of grains and oilseeds, as well as fears about the Asian
economic crisis. United States crop conditions remained
generally good throughout the Midwest, with federal financial
assistance expected to offset some of the drought related losses
being experienced in the South. Under these conditions, it is
expected that retail demand for agricultural equipment will
decline for the rest of 1998 and 1999. In light of this outlook
and the Company's continuing commitment to aggressive asset
management, production schedules have been reduced in the fourth
quarter of 1998 and are expected to be reduced in 1999.
In the construction equipment sector, low interest rates and
generally favorable economic conditions have continued to
strengthen demand. Housing starts are expected to average above
1.5 million units in 1998, their highest level in more than a
decade. In addition, a new highway bill, the Transportation
Equity Act for the 21st Century, will provide a significant
increase in highway funding over the next six years. Although
the retail environment is expected to remain healthy, fourth
quarter production volumes of Deere construction equipment will
decline
Page 21
<PAGE>
with the introduction of a new product distribution system. It
is designed to more closely align production with retail demand
and thus reduce inventory levels. Next quarter's construction
equipment production schedules have been set lower as a result.
Sales of John Deere commercial and consumer equipment should
continue benefiting from low unemployment, low interest rates,
rising incomes and the strong housing market. In addition, the
division's growing line of new products is expected to continue
meeting strong success in the marketplace.
In Financial Services, credit operations should continue
benefiting from higher portfolio balances. Insurance operations
results, however, are expected to be significantly below last
year's as a result of competitive market conditions and
continuing unfavorable loss experience. While health care
margins remain under pressure due to a very competitive industry
environment, improvement plans are on target and are expected to
result in significantly better financial results for the
remainder of 1998 versus last year.
Based on these conditions, the Company's worldwide physical
volume of sales is currently projected to increase by
approximately 10 percent in 1998, compared with 1997. Fourth
quarter physical volumes are projected to be approximately 2
percent below comparable levels for fourth quarter 1997.
Assessing the outlook, the Company is well positioned for
continued good results despite a prospective slowdown in the farm
economy. The Company is confident that its continuing investment
in new products and facilities, and geographic expansions, will
help it deliver solid returns through all phases of the business
cycle. At the same time, initiatives geared to process and
quality improvement are moving ahead and are expected to yield
substantial efficiency gains in the future.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: Statements under the "Outlook" heading,
which relate to future operating periods, are subject to
important risks and uncertainties that could cause actual results
to differ materially. The Company's businesses include Equipment
Operations (agricultural, construction, and commercial and
consumer) and Financial Services (credit, insurance and health
care). Forward-looking statements relating to these businesses
involve certain factors that are subject to change, including:
the many interrelated factors that affect farmers' confidence,
including
worldwide demand for agricultural products, world grain stocks,
commodities prices, weather conditions such as El Nino, animal
diseases, crop pests, harvest yields, real estate values and
government farm programs; general economic conditions and housing
starts; legislation, primarily legislation relating to
agriculture, the environment, commerce and government spending on
infrastructure; actions of competitors in the various industries
in which the Company competes; production difficulties, including
capacity and supply constraints; dealer practices; labor
relations; interest and currency exchange rates (including the
effect of conversion to the Euro by the European Union);
technological difficulties (especially difficulties arising from
Year 2000 compliance); accounting standards; and other risks and
uncertainties. Dealers' retail sales of agricultural equipment
are especially affected by the weather in the summer, while the
number of housing starts are especially important to sales of
construction equipment. Economic difficulties in Asia could
affect North American grain and meat export prospects. The
Company's outlook is based upon assumptions relating to the
factors described above. These assumptions are sometimes based
upon estimates and data prepared by government agencies. Such
estimates and data may be subject to revision. Further
information concerning the Company and its businesses, including
factors that potentially could materially affect the Company's
financial results, is included in the Company's most recent
annual report on Form 10-K and other filings with the Securities
and Exchange Commission.
Page 22
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
The discussion of capital resources and liquidity has been
organized to review separately, where appropriate, the Company's
Equipment Operations, Financial Services operations and the
consolidated totals.
Equipment Operations
The Company's equipment businesses are capital intensive and are
subject to large seasonal variations in financing requirements
for trade receivables from dealers and inventories. Accordingly,
to the extent necessary, funds provided from operations are
supplemented from external borrowing sources.
In the first nine months of 1998, negative cash flows from
operating activities of $512 million resulted primarily from
increases in trade receivables and Company inventories, a
decrease in accounts payable and accrued expenses and
contributions to the pension fund. Partially offsetting these
operating cash outflows were positive cash flows from the record
level of net income and dividends received from the Financial
Services operations. The resulting net cash requirement for
operating activities, along with repurchases of common stock,
purchases of property and equipment, payment of dividends, an
increase in receivables from Financial Services and acquisitions
of businesses were provided primarily from an increase in
borrowings and a decrease in cash and cash equivalents.
Positive cash flows from operating activities in the first nine
months of 1997 resulted primarily from the record level of net
income and dividends received from the Financial Services
operations, which were partially offset by normal seasonal
increases in trade receivables and Company inventories. The
aggregate amount of these operating cash flows of $213 million,
along with cash and cash equivalents at the beginning of the
period and increased borrowings were used primarily for
repurchases of common stock, purchases of property and equipment
and payment of dividends. Purchases of property and equipment
increased, compared to 1996, primarily due to construction of new
facilities for the production of engines and commercial and
consumer equipment.
Equipment Operations assets at July 31, 1998 were 74.7 percent of
the last 12 months net sales, compared with 70.4 percent a year
ago. The higher ratio primarily reflected an increase in prepaid
pension cost assets.
Net trade accounts and notes receivable result mainly from sales
to dealers of equipment that is being carried in their
inventories. As expected, trade receivables increased $697
million, compared to one year ago and $876 million during the
first nine months. However, the ratios of worldwide net trade
accounts and notes receivable to the last 12 months' net sales
were 34 percent at July 31, 1998, compared to 33 percent at July
31, 1997 and 30 percent at October 31, 1997. The increase from a
year ago was primarily due to the higher level of sales and the
resulting increase in receivables related to agricultural
equipment used goods this year. In the first nine months, trade
receivables also reflected a seasonal increase. North American
agricultural, and commercial and consumer equipment trade
receivables increased approximately $500 million and $90 million,
respectively, while construction equipment receivables decreased
approximately $40 million, compared with the levels 12 months
earlier. Total overseas trade receivables were approximately
$150 million higher than a year ago. The percentage of total
worldwide trade receivables outstanding for periods exceeding 12
months was 5 percent at July 31, 1998, October 31, 1997 and July
31, 1997.
Company inventories at July 31, 1998 increased by $265 million,
compared with the end of the previous fiscal year and $167
million, compared to one year ago, primarily reflecting a
seasonal increase in the first nine months and increased
production and sales volumes from a year ago. Most of the
Company's inventories are valued on the last-in, first-out (LIFO)
basis. Inventories valued on an approximate current cost basis
increased by only 8 percent from a year ago, compared to an
increase in net sales of 14 percent during the same period.
Page 23
<PAGE>
Total interest-bearing debt of the Equipment Operations was
$2,370 million at July 31, 1998, compared with $711 million at
the end of fiscal year 1997 and $953 million at July 31, 1997.
The ratio of total debt to total capital (total interest bearing
debt and stockholders' equity) was 36 percent, 15 percent and 20
percent at July 31, 1998, October 31, 1997 and July 31, 1997,
respectively. During the first nine months, Deere & Company
retired $25 million of medium-term notes.
Financial Services
The Financial Services' credit subsidiaries rely on their ability
to raise substantial amounts of funds to finance their receivable
and lease portfolios. Their primary sources of funds for this
purpose are a combination of borrowings and equity capital.
Additionally, the credit subsidiaries periodically sell
substantial amounts of retail notes. The insurance and health
care operations generate their funds through internal operations
and intercompany loans.
During the first nine months of 1998, the aggregate cash provided
from operating and financing activities was used primarily to
increase financing receivables and leases. Cash provided from
Financial Services operating activities was $298 million in the
first nine months. Cash provided by financing activities totaled
$793 million in the first nine months of 1998, primarily
resulting from an $839 million increase in total borrowings,
which was partially offset by payment of a $44 million dividend
to the Equipment Operations. Cash used for investing activities
totaled $1,086 million in the first nine months, primarily due to
the cost of financing receivables and leases exceeding
collections by $1,898 million, partially offset by $805 million
of proceeds from the sale of retail notes. Cash and cash
equivalents increased $4 million during the first nine months of
1998.
In the first nine months of 1997, the aggregate cash provided
from operating and financing activities was used for investing
activities. Cash provided from Financial Services operating
activities was $210 million in the first nine months of 1997.
Cash provided by financing activities totaled $552 million in the
first nine months of 1997, primarily representing a $645 million
increase in total borrowings, partially offset by a $122 million
dividend to the Equipment Operations. Investing activities used
$776 million of cash in the first nine months of 1997, primarily
due to acquisitions of financing receivables and leases exceeding
collections by $1,370 million, partially offset by $565 million
of proceeds from the sale of retail notes. Cash and cash
equivalents decreased $14 million during the first nine months of
1997.
Marketable securities consist primarily of debt securities held
by the insurance and health care operations in support of their
obligations to policyholders. During the first nine months of
1998, marketable securities increased $48 million and were
approximately equal to a year ago. The increase in the first
nine months was primarily due to the investing of cash and cash
equivalents held at the beginning of the year, cash from
intercompany loans and cash generated from operating activities.
Financing receivables and leases increased by $884 million in the
first nine months of 1998 and $975 million during the past 12
months. These receivables and leases consist of retail notes
originating in connection with retail sales of new and used
equipment by dealers of John Deere products, retail notes from
non-Deere-related customers, revolving charge accounts, wholesale
notes receivable, and financing and operating leases.
The credit subsidiaries' receivables and leases increased during
the last 12 months due to the cost of financing receivables and
leases acquired exceeding collections, which was partially offset
by the sale of retail notes during the same period. Total
acquisitions of financing receivables and leases were 16 percent
higher in the first nine months of 1998, compared with the same
period last year. At July 31, 1998, the levels of retail notes,
wholesale receivables, revolving charge accounts and leases were
all higher than one year ago. Financing receivables and leases
administered by the credit subsidiaries, which include
receivables
Page 24
<PAGE>
previously sold, amounted to $9,325 million at July 31, 1998,
compared with $8,416 million at October 31, 1997 and $8,100
million at July 31, 1997. At July 31, 1998, the unpaid balance
of all retail notes previously sold was $1,540 million, compared
with $1,515 million at October 31, 1997 and $1,288 million at
July 31, 1997.
Total outside interest-bearing debt of the credit subsidiaries
was $6,486 million at July 31, 1998, compared with $5,686 million
at the end of fiscal year 1997 and $5,749 million at July 31,
1997. Total outside borrowings increased during the first nine
months of 1998 and the last 12 months, generally corresponding
with the level of the financing receivable and lease portfolio,
the level of cash and cash equivalents and the change in payables
owed to the Equipment Operations. The credit subsidiaries' ratio
of total interest-bearing debt to stockholder's equity was 6.8 to
1 at July 31, 1998, compared with 6.6 to 1 at October 31, 1997
and 6.7 to 1 at July 31, 1997.
During the first nine months of 1998, John Deere Capital
Corporation issued $200 million of 5.85% notes due in 2001 and
retired $150 million of floating rate notes due in 1998. The
Capital Corporation also issued $796 million and retired $183
million of medium-term notes during the first nine months of
1998.
Consolidated
The Company maintains unsecured lines of credit with various
banks in North America and overseas. Some of the lines are
available to both the Equipment Operations and certain credit
subsidiaries. Worldwide lines of credit totaled $5,341 million
at July 31, 1998, $960 million of which were unused. For the
purpose of computing unused credit lines, total short-term
borrowings, excluding the current portion of long-term
borrowings, were considered to constitute utilization. Included
in the total credit lines is a long-term credit agreement
commitment totaling $3,500 million.
Stockholders' equity was $4,164 million at July 31, 1998,
compared with $4,147 million at October 31, 1997 and $3,844
million at July 31, 1997. The increase of $17 million in the
first nine months of 1998 resulted primarily from net income of
$859 million, partially offset by an increase in common stock in
treasury of $637 million related to the Company's stock
repurchase and employee benefit programs, dividends declared of
$162 million and a $42 million change in the cumulative
translation adjustment.
The Board of Directors at its meeting on August 26, 1998 declared
a quarterly dividend of 22 cents per share payable November 2,
1998 to stockholders of record on September 30, 1998.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See the Company's most recent annual report filed on Form 10-K
(Item 7A). There has been no material change in this
information.
Page 25
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note (10) to the Interim Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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 19, 1998 (Item 7).
Page 26
<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.
DEERE & COMPANY
Date: September 2, 1998 By s/ Nathan J. Jones
Nathan J. Jones
Senior Vice President,
Principal Financial Officer
and Principal Accounting
Officer
Page 27
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
2 Not applicable
3 Not applicable
4 Not applicable
10 Not applicable
11 Not applicable
12 Computation of ratio of earnings to
fixed charges
15 Not applicable
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial data schedule
99 Not applicable
Page 28
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Year
Ended Ended
July 31, October 31,
1998 1997 1997
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $1,325,271 $1,192,701 $1,507,070
Dividends received from less-
than-fifty percent owned
affiliates 5,482 3,268 3,591
Fixed charges excluding
capitalized interest 391,885 315,988 433,673
Total earnings $1,722,638 $1,511,957 $1,944,334
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $ 384,506 $ 309,541 $ 422,588
Portion of rental charges
deemed to be interest 9,552 6,447 11,497
Total fixed charges $ 394,058 $ 315,988 $ 434,085
Ratio of earnings to
fixed charges* 4.37 4.78 4.48
The computation of the ratio of earnings to fixed charges is
based on applicable amounts of the Company and its consolidated
subsidiaries plus dividends received from less-than-fifty
percent owned affiliates. "Earnings" consist of income before
income taxes, the cumulative effect of changes in accounting and
fixed charges excluding capitalized interest. "Fixed charges"
consist of interest on indebtedness, amortization of debt
discount and expense, an estimated amount of rental expense
which is deemed to be representative of the interest factor, and
capitalized interest.
* The Company has not issued preferred stock. Therefore, the
ratios of earnings to combined fixed charges and preferred stock
dividends are the same as the ratios presented above.
<PAGE>
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year
Ended
October 31,
1996 1995
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $1,286,634 $1,092,751
Dividends received from less-
than-fifty percent owned
affiliates 7,937 2,023
Fixed charges excluding
capitalized interest 410,764 399,056
Total earnings $1,705,335 $1,493,830
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $ 402,168 $ 392,408
Portion of rental charges
deemed to be interest 8,596 6,661
Total fixed charges $ 410,764 $ 399,069
Ratio of earnings to
fixed charges* 4.15 3.74
<PAGE>
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year
Ended
October 31,
1994 1993
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $ 920,920 $ 272,345
Dividends received from less-
than-fifty percent owned
affiliates 2,329 1,706
Fixed charges excluding
capitalized interest 310,047 375,238
Total earnings $1,233,296 $649,289
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $ 303,080 $369,325
Portion of rental charges
deemed to be interest 7,008 6,127
Total fixed charges $ 310,088 $375,452
Ratio of earnings to
fixed charges* 3.98 1.73
<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 statements.
</LEGEND>
<RESTATED>
<CIK> 0000315189
<NAME> DEERE&COMPANY
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 331
<SECURITIES> 868
<RECEIVABLES> 11,758
<ALLOWANCES> 126
<INVENTORY> 1,337
<CURRENT-ASSETS> 0
<PP&E> 4,485
<DEPRECIATION> 2,918
<TOTAL-ASSETS> 18,626
<CURRENT-LIABILITIES> 0
<BONDS> 2,287
0
0
<COMMON> 1,779
<OTHER-SE> 2,385
<TOTAL-LIABILITY-AND-EQUITY> 18,626
<SALES> 9,233
<TOTAL-REVENUES> 10,609
<CGS> 7,089
<TOTAL-COSTS> 7,953
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 382
<INCOME-PRETAX> 1,325
<INCOME-TAX> 478
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> 3.49
<EPS-DILUTED> 3.45
</TABLE>
