UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------
FORM 10-Q
------------------------
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 30, 1999
--------------------------
Commission file no: 1-4121
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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 April 30, 1999, 233,262,551 shares of common stock, $1
par value, of the registrant were outstanding.
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Page 1 of 21 Pages.
Index to Exhibits: Page 20
<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 Three Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $2,957.1 $3,609.9
Finance and interest income 274.9 239.1
Insurance and health care premiums 186.1 174.7
Investment income 16.0 16.5
Other income 34.3 29.4
Total 3,468.4 4,069.6
Costs and Expenses
Cost of goods sold 2,438.7 2,737.2
Research and development expenses 113.1 114.2
Selling, administrative and general
expenses 340.6 340.6
Interest expense 142.8 129.2
Insurance and health care claims
and benefits 152.3 139.1
Other operating expenses 50.1 41.9
Total 3,237.6 3,502.2
Income of Consolidated Group
Before Income Taxes 230.8 567.4
Provision for income taxes 82.7 205.2
Income of Consolidated Group 148.1 362.2
Equity in Income of Unconsolidated
Subsidiaries and Affiliates
Credit .2 .2
Insurance
Health Care .1
Other 1.8 2.7
Total 2.0 3.0
Net Income $ 150.1 $ 365.2
Per Share:
Net income - basic $ .65 $ 1.48
Net income - diluted $ .65 $ 1.45
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>
DEERE & COMPANY EQUIPMENT OPERATIONS
STATEMENT OF CONSOLIDATED INCOME (Deere & Company with
Financial Services
on the Equity Basis)
Millions of dollars except per Three Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $2,957.1 $3,609.9
Finance and interest income 24.0 30.6
Insurance and health care premiums
Investment income
Other income 17.2 9.4
Total 2,998.3 3,649.9
Costs and Expenses
Cost of goods sold 2,442.8 2,741.9
Research and development expenses 113.1 114.2
Selling, administrative and general
expenses 237.1 243.1
Interest expense 42.7 33.7
Insurance and health care claims
and benefits
Other operating expenses 1.5 13.6
Total 2,837.2 3,146.5
Income of Consolidated Group
Before Income Taxes 161.1 503.4
Provision for income taxes 58.3 182.1
Income of Consolidated Group 102.8 321.3
Equity in Income of Unconsolidated
Subsidiaries and Affiliates
Credit 42.3 35.3
Insurance 1.6 4.3
Health Care 1.6 1.6
Other 1.8 2.7
Total 47.3 43.9
Net Income $ 150.1 $ 365.2
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per Three Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment
Finance and interest income $ 255.1 $ 212.3
Insurance and health care premiums 192.5 182.0
Investment income 16.0 16.5
Other income 23.2 21.0
Total 486.8 431.8
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 104.9 98.9
Interest expense 104.3 99.3
Insurance and health care claims
and benefits 153.7 141.2
Other operating expenses 54.3 28.4
Total 417.2 367.8
Income of Consolidated Group
Before Income Taxes 69.6 64.0
Provision for income taxes 24.3 23.1
Income of Consolidated Group 45.3 40.9
Equity in Income of Unconsolidated
Subsidiaries and Affiliates
Credit .2 .2
Insurance
Health Care .1
Other
Total .2 .3
Net Income $ 45.5 $ 41.2
Page 2
<PAGE>
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Consolidated
Subsidiaries)
Millions of dollars except per Six Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $4,930.3 $6,014.6
Finance and interest income 534.0 472.4
Insurance and health care premiums 365.9 343.7
Investment income 34.7 33.5
Other income 62.1 51.5
Total 5,927.0 6,915.7
Costs and Expenses
Cost of goods sold 4,092.5 4,603.7
Research and development expenses 209.0 208.8
Selling, administrative and general
expenses 642.5 623.7
Interest expense 276.9 244.0
Insurance and health care claims
and benefits 306.2 277.7
Other operating expenses 92.8 69.5
Total 5,619.9 6,027.4
Income of Consolidated Group
Before Income Taxes 307.1 888.3
Provision for income taxes 109.2 323.0
Income of Consolidated Group 197.9 565.3
Equity in Income of Unconsolidated
Subsidiaries and Affiliates
Credit .5
Insurance
Health Care .1 .1
Other 1.3 3.1
Total 1.9 3.2
Net Income $ 199.8 $ 568.5
Per Share:
Net income - basic $ .86 $ 2.29
Net income - diluted $ .86 $ 2.26
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>
DEERE & COMPANY EQUIPMENT OPERATIONS
STATEMENT OF CONSOLIDATED INCOME (Deere & Company with
Financial Services
on the Equity Basis)
Millions of dollars except per Six Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $4,930.3 $6,014.6
Finance and interest income 45.8 62.8
Insurance and health care premiums
Investment income
Other income 32.7 20.2
Total 5,008.8 6,097.6
Costs and Expenses
Cost of goods sold 4,101.2 4,612.9
Research and development expenses 209.0 208.8
Selling, administrative and general
expenses 444.9 437.7
Interest expense 82.7 55.4
Insurance and health care claims
and benefits
Other operating expenses (.7) 15.3
Total 4,837.1 5,330.1
Income of Consolidated Group
Before Income Taxes 171.7 767.5
Provision for income taxes 62.2 279.3
Income of Consolidated Group 109.5 488.2
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 83.9 68.1
Insurance .6 9.8
Health Care 4.5 (.7)
Other 1.3 3.1
Total 90.3 80.3
Net Income $ 199.8 $ 568.5
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per Six Months Ended
share amounts April 30
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment
Finance and interest income $ 495.8 $ 415.5
Insurance and health care premiums 379.1 357.4
Investment income 34.7 33.5
Other income 44.0 33.5
Total 953.6 839.9
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 200.1 189.8
Interest expense 201.9 194.5
Insurance and health care claims
and benefits 309.4 280.6
Other operating expenses 106.8 54.2
Total 818.2 719.1
Income of Consolidated Group
Before Income Taxes 135.4 120.8
Provision for income taxes 47.0 43.7
Income of Consolidated Group 88.4 77.1
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .5
Insurance
Health Care .1 .1
Other
Total .6 .1
Net Income $ 89.0 $ 77.2
Page 3
<PAGE>
DEERE & COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED (Deere & Company and
BALANCE SHEET Consolidated Subsidiaries)
Millions of dollars April 30 October 31 April 30
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 295.3 $ 309.7 $ 334.4
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 295.3 309.7 334.4
Marketable securities 858.0 867.3 867.0
Receivables from
unconsolidated subsidiaries
and affiliates 42.7 36.2 31.3
Trade accounts and notes
receivable - net 4,271.8 4,059.2 4,383.8
Financing receivables - net 7,521.6 6,332.7 6,880.6
Other receivables 407.0 536.8 364.7
Equipment on operating
leases - net 1,417.5 1,209.2 988.8
Inventories 1,584.4 1,286.7 1,511.1
Property and equipment - net 1,672.7 1,700.3 1,554.1
Investments in unconsolidated
subsidiaries and affiliates 181.4 172.0 154.6
Intangible assets - net 273.9 217.6 186.4
Prepaid pension costs 651.7 674.3 563.6
Deferred income taxes 456.8 396.3 529.6
Other assets and
deferred charges 224.5 203.2 203.2
Total $19,859.3 $18,001.5 $18,553.2
Liabilities and Stockholders'
Equity
Short-term borrowings $ 6,648.9 $ 5,322.1 $ 5,993.3
Payables to unconsolidated
subsidiaries and affiliates 51.1 31.1 33.9
Accounts payable and
accrued expenses 2,586.6 2,853.2 2,704.4
Insurance and health care
claims and reserves 405.8 411.3 392.6
Accrued taxes 94.5 144.9 229.4
Deferred income taxes 18.4 19.7 21.5
Long-term borrowings 3,485.1 2,791.7 2,517.0
Retirement benefit accruals
and other liabilities 2,394.3 2,347.7 2,395.8
Total liabilities 15,684.7 13,921.7 14,287.9
Common stock, $1 par value
(issued shares at
April 30, 1999 - 265,350,839) 1,838.6 1,789.8 1,778.5
Retained earnings 3,922.9 3,839.5 3,502.7
Minimum pension liability
adjustment (18.8) (18.7) (14.0)
Cumulative translation adjustment (92.0) (80.5) (79.4)
Unrealized gain on
marketable securities 26.7 24.5 22.8
Unamortized restricted stock
compensation (28.0) (7.2) (15.2)
Common stock in treasury (1,474.8) (1,467.6) (930.1)
Stockholders' equity 4,174.6 4,079.8 4,265.3
Total $19,859.3 $18,001.5 $18,553.2
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>
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED CONSOLIDATED (Deere & Company with Financial
BALANCE SHEET Services on the Equity Basis)
Millions of dollars April 30 October 31 April 30
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 61.1 $ 68.3 $ 91.3
Cash deposited with
unconsolidated subsidiaries 68.1 139.6 222.7
Cash and cash equivalents 129.2 207.9 314.0
Marketable securities
Receivables from
unconsolidated subsidiaries
and affiliates 242.2 95.5 281.5
Trade accounts and notes
receivable - net 4,271.8 4,059.2 4,383.8
Financing receivables - net 93.5 85.8 79.7
Other receivables 43.8 139.4
Equipment on operating
leases - net 218.6 194.7
Inventories 1,584.4 1,286.7 1,511.1
Property and equipment - net 1,624.4 1,653.9 1,508.6
Investments in unconsolidated
subsidiaries and affiliates 1,756.1 1,620.4 1,539.3
Intangible assets - net 267.0 210.1 178.2
Prepaid pension costs 651.7 674.3 563.6
Deferred income taxes 435.7 372.6 485.5
Other assets and
deferred charges 147.5 141.6 134.5
Total $11,247.3 $10,766.0 $11,174.5
Liabilities and Stockholders'
Equity
Short-term borrowings $ 2,191.7 $ 1,512.4 $ 1,741.5
Payables to unconsolidated
subsidiaries and affiliates 51.1 43.0 33.9
Accounts payable and
accrued expenses 1,781.6 2,098.1 1,979.0
Insurance and health care
claims and reserves
Accrued taxes 86.4 142.1 219.8
Deferred income taxes 5.0 19.7 21.1
Long-term borrowings 596.5 552.9 551.7
Retirement benefit accruals
and other liabilities 2,360.4 2,318.0 2,362.2
Total liabilities 7,072.7 6,686.2 6,909.2
Common stock, $1 par value
(issued shares at
April 30, 1999 - 265,350,839) 1,838.6 1,789.8 1,778.5
Retained earnings 3,922.9 3,839.5 3,502.7
Minimum pension liability
adjustment (18.8) (18.7) (14.0)
Cumulative translation adjustment (92.0) (80.5) (79.4)
Unrealized gain on
marketable securities 26.7 24.5 22.8
Unamortized restricted stock
compensation (28.0) (7.2) (15.2)
Common stock in treasury (1,474.8) (1,467.6) (930.1)
Stockholders' equity 4,174.6 4,079.8 4,265.3
Total $11,247.3 $10,766.0 $11,174.5
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED CONSOLIDATED
BALANCE SHEET
Millions of dollars April 30 October 31 April 30
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 234.1 $ 241.5 $ 243.2
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 234.1 241.5 243.2
Marketable securities 858.0 867.3 867.0
Receivables from
unconsolidated subsidiaries
and affiliates 5.1
Trade accounts and notes
receivables - net
Financing receivables - net 7,428.1 6,246.9 6,801.0
Other receivables 363.2 397.3 364.7
Equipment on operating
leases - net 1,417.5 990.6 794.1
Inventories
Property and equipment - net 48.3 46.4 45.5
Investments in unconsolidated
subsidiaries and affiliates 10.2 20.3 17.6
Intangible assets - net 6.9 7.6 8.2
Prepaid pension costs
Deferred income taxes 21.1 23.7 44.1
Other assets and
deferred charges 77.0 61.5 68.6
Total $10,469.5 $8,903.1 $9,254.0
Liabilities and Stockholders'
Equity
Short-term borrowings $ 4,457.2 $3,809.7 $4,251.8
Payables to unconsolidated
subsidiaries and affiliates 272.7 187.0 473.0
Accounts payable and
accrued expenses 804.9 755.1 725.4
Insurance and health care
claims and reserves 405.8 411.3 392.6
Accrued taxes 8.1 2.8 9.6
Deferred income taxes 13.4 .4
Long-term borrowings 2,888.6 2,238.8 1,965.3
Retirement benefit accruals
and other liabilities 33.9 29.7 33.6
Total liabilities 8,884.6 7,434.4 7,851.7
Common stock 247.5 237.1 237.1
Retained earnings 1,325.1 1,223.2 1,150.2
Minimum pension liability
adjustment
Cumulative translation adjustment (14.4) (16.1) (7.8)
Unrealized gain on
marketable securities 26.7 24.5 22.8
Unamortized restricted stock
compensation
Common stock in treasury
Stockholders' equity 1,584.9 1,468.7 1,402.3
Total $10,469.5 $ 8,903.1 $ 9,254.0
Page 4
<PAGE>
DEERE & COMPANY CONSOLIDATED
CONDENSED STATEMENT OF (Deere & Company and
CONSOLIDATED CASH FLOWS Consolidated Subsidiaries)
Six Months Ended
April 30
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 199.8 $ 568.5
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities (527.4) (1,210.9)
Net cash provided by (used for)
operating activities (327.6) (642.4)
Cash Flows from Investing Activities
Collections and sales of
financing receivables 3,378.8 3,130.8
Proceeds from maturities and
sales of marketable securities 76.6 73.1
Cost of financing receivables
acquired (4,007.1) (3,603.1)
Purchases of marketable securities (62.5) (117.3)
Purchases of property and
equipment (116.5) (161.2)
Cost of operating leases acquired (389.6) (345.6)
Acquisitions of businesses (62.2) (48.4)
Other 105.6 95.9
Net cash used for investing
activities (1,076.9) (975.8)
Cash Flows from Financing Activities
Increase in short-term
borrowings 904.2 1,659.7
Change in intercompany
receivables/payables
Proceeds from long-term borrowings 1,548.9 781.0
Principal payments on long-term
borrowings (915.2) (334.2)
Proceeds from issuance of
common stock 3.1 20.7
Repurchases of common stock (46.1) (346.8)
Dividends paid (102.7) (157.5)
Other (1.2) .9
Net cash provided by
financing activities 1,391.0 1,623.8
Effect of Exchange Rate
Changes on Cash (.9) (1.2)
Net Increase (Decrease) in Cash
and Cash Equivalents (14.4) 4.4
Cash and Cash Equivalents at
Beginning of Period 309.7 330.0
Cash and Cash Equivalents at
End of Period $ 295.3 $ 334.4
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>
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED STATEMENT OF (Deere & Company with
CONSOLIDATED CASH FLOWS Financial Services on the
Equity Basis)
Six Months Ended
April 30
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 199.8 $ 568.5
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities (658.4) (1,344.6)
Net cash provided by (used for)
operating activities (458.6) (776.1)
Cash Flows from Investing Activities
Collections and sales of
financing receivables 12.3 15.3
Proceeds from maturities and
sales of marketable securities
Cost of financing receivables
acquired (22.2) (11.7)
Purchases of marketable securities
Purchases of property and
equipment (110.2) (156.6)
Cost of operating leases acquired (37.5)
Acquisitions of businesses (41.5) (43.7)
Other 4.7 43.3
Net cash used for investing
activities (156.9) (190.9)
Cash Flows from Financing Activities
Increase in short-term
borrowings 637.9 1,593.8
Change in intercompany
receivables/payables (2.3) (213.5)
Proceeds from long-term borrowings 48.9
Principal payments on long-term
borrowings (26.7)
Proceeds from issuance of
common stock 3.1 20.7
Repurchases of common stock (46.1) (346.8)
Dividends paid (102.7) (157.5)
Other (1.1) .9
Net cash provided by
financing activities 537.7 870.9
Effect of Exchange Rate
Changes on Cash (.9) (1.1)
Net Increase (Decrease) in Cash
and Cash Equivalents (78.7) (97.2)
Cash and Cash Equivalents at
Beginning of Period 207.9 411.2
Cash and Cash Equivalents at
End of Period $ 129.2 $ 314.0
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED STATEMENT OF Six Months Ended
CONSOLIDATED CASH FLOWS April 30
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 89.0 $ 77.2
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities 51.9 88.3
Net cash provided by (used for)
operating activities 140.9 165.5
Cash Flows from Investing Activities
Collections and sales of
financing receivables 3,366.5 3,115.5
Proceeds from maturities and
sales of marketable securities 76.6 73.1
Cost of financing receivables
acquired (3,984.9) (3,591.4)
Purchases of marketable securities (62.5) (117.3)
Purchases of property and
equipment (6.3) (4.7)
Cost of operating leases acquired (389.6) (308.2)
Acquisitions of businesses (20.7) (4.6)
Other 100.8 53.9
Net cash used for investing
activities (920.1) (783.7)
Cash Flows from Financing Activities
Increase in short-term
borrowings 266.3 65.9
Change in intercompany
receivables/payables (69.3) 86.3
Proceeds from long-term borrowings 1,500.0 781.0
Principal payments on long-term
borrowings (915.2) (307.5)
Proceeds from issuance of
common stock
Repurchases of common stock
Dividends paid (10.0) (31.8)
Other (1.3)
Net cash provided by
financing activities 771.8 592.6
Effect of Exchange Rate
Changes on Cash
Net Increase (Decrease) in Cash
and Cash Equivalents (7.4) (25.6)
Cash and Cash Equivalents at
Beginning of Period 241.5 268.8
Cash and Cash Equivalents at End
of Period $234.1 $243.2
Page 5
<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 operations.
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 Ended Six Months Ended
April 30 April 30
1999 1998 1999 1998
Balance, beginning of
period $3,824.3 $3,194.3 $3,839.5 $3,048.4
Net income 150.1 365.2 199.8 568.5
Dividends declared (51.0) (54.0) (101.7) (108.8)
Other (.5) (2.8) (14.7) (5.4)
Balance, end of period $3,922.9 $3,502.7 $3,922.9 $3,502.7
Page 6
<PAGE>
4. An analysis of the cumulative translation adjustment
follows in millions of dollars:
Three Months Ended Six Months
April 30 April 30
1999 1998 1999 1998
Balance, beginning of
period $(89.6) $(87.5) $(80.5) $(57.4)
Translation adjustment (2.5) (.1) (9.9) (21.7)
Income taxes applicable
to translation
adjustments .1 8.2 (1.6) (.3)
Balance, end of period $(92.0) $(79.4) $(92.0) $(79.4)
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:
April 30 October 31 April 30
1999 1998 1998
Raw materials and supplies $ 350 $ 250 $ 268
Work-in-process 499 475 516
Finished machines and parts 1,789 1,612 1,740
Total FIFO value 2,638 2,337 2,524
Adjustment to LIFO basis 1,054 1,050 1,013
Inventories $1,584 $1,287 $1,511
6. During the first six months of 1999, the Financial
Services subsidiaries received proceeds from the sale of
retail notes of $297 million. At April 30, 1999, the net
unpaid balance of all retail notes previously sold by the
Financial Services subsidiaries was $1,548 million and the
Company's maximum exposure under all related recourse
provisions was $126 million.
At April 30, 1999, the Company had commitments of
approximately $83 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 Six Months Ended
April 30 April 30
1999 1998 1999 1998
Dividends declared $.22 $.22 $.44 $.44
Dividends paid * $.22 $.44 $.44 $.64
* In 1998, the payment dates for the dividends declared in
the first and second quarters were both included in the second
quarter. Each dividend was $.22 per share.
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8. Worldwide net sales and revenues and operating profit in
millions of dollars follow:
Three Months Ended
April 30
%
1999 1998 Change
Net sales:
Agricultural equipment $1,545 $2,217 -30
Construction equipment 617 715 -14
Commercial and consumer equipment 795 678 +17
Total net sales 2,957 3,610 -18
Financial Services revenues 480 424 +13
Other revenues 31 36 -14
Total net sales and revenues $3,468 $4,070 -15
United States and Canada:
Equipment net sales $2,190 $2,733 -20
Financial Services revenues 480 424 +13
Total 2,670 3,157 -15
Overseas Net sales 767 877 -13
Other revenues 31 36 -14
Total net sales and revenues $3,468 $4,070 -15
Operating profit**:
Agricultural equipment $ 58 $ 364 -84
Construction equipment 54 91 -41
Commercial and consumer equipment 96 96
Equipment Operations* 208 551 -62
Financial Services 70 64 + 9
Total operating profit 278 615 -55
Interest and corporate expenses-net (45) (45)
Income taxes (83) (205) -60
Net income $ 150 $ 365 -59
* Includes overseas operating profit
as follows: $ 99 $ 105 - 6
** 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>
Six Months Ended
April 30
%
1999 1998 Change
Net sales:
Agricultural equipment $2,667 $3,668 -27
Construction equipment 1,060 1,293 -18
Commercial and consumer equipment 1,203 1,054 +14
Total net sales 4,930 6,015 -18
Financial Services revenues 940 825 +14
Other revenues 57 76 -25
Total net sales and revenues $5,927 $6,916 -14
United States and Canada:
Equipment net sales $3,592 $4,548 -21
Financial Services revenues 940 825 +14
Total 4,532 5,373 -16
Overseas Net sales 1,338 1,467 - 9
Other revenues 57 76 -25
Total net sales and revenues $5,927 $6,916 -14
Operating profit**:
Agricultural equipment $ 82 $ 570 -86
Construction equipment 67 155 -57
Commercial and consumer equipment 110 114 - 4
Equipment Operations* 259 839 -69
Financial Services 136 121 +12
Total operating profit 395 960 -59
Interest and corporate expenses-net (86) (69) +25
Income taxes (109) (323) -66
Net income $ 200 $ 568 -65
* Includes overseas operating profit
as follows: $ 152 $ 162 - 6
** 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.
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9. A reconciliation of basic and diluted net income per share
in millions, except per share amounts, follows:
Six Months
Ended
April 30
1999 1998
Net income $199.8 $568.5
Average shares outstanding 232.2 248.1
Basic net income per share $ .86 $ 2.29
Average shares outstanding 232.2 248.1
Effect of dilutive securities:
Stock options 1.2 2.8
Other .2
Total potential shares
outstanding 233.4 251.1
Diluted net income per share $ .86 $ 2.26
Stock options to purchase 4.2 million shares during the
first six months of 1999 and .5 million shares during the
first six 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.
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 the first quarter of 1999, the Company adopted FASB
Statement No. 130, Reporting Comprehensive Income.
Comprehensive income includes all changes in the Company's
equity during the period, except transactions with
stockholders of the Company. Comprehensive income consisted
of the following in millions of dollars:
Three Months Ended Six Months
Ended
April 30 April 30
1999 1998 1999 1998
Net income $150.1 $365.2 $199.8 $568.5
Other comprehensive income:
Change in cumulative
translation adjustment (2.4) 8.1 (11.5) (22.0)
Unrealized gain (loss) on
marketable securities (2.3) (3.8) 2.2 .6
Comprehensive income $145.4 $369.5 $190.5 $547.1
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12. In the second quarter of 1999, the Company purchased the
remaining 50 percent interest in InterAg Technologies, Inc.
and its subsidiaries headquartered in Atlanta, Georgia for $55
million. The company manufactures electronic controls and
develops agribusiness software. The acquisition cost includes
1.5 million shares of Deere & Company common stock valued at
$48 million with the remainder in cash. In the second quarter
of 1999, the Company also purchased for $29 million a 32
percent interest in Bell Equipment Company, a manufacturer of
articulated dump trucks, located in Richards Bay, South
Africa. These acquisitions did not have a material effect on
the Company's financial position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Deere & Company's worldwide net income was $150.1 million, or
$.65 per share (basic and diluted), for the second quarter of
1999, compared with $365.2 million, or $1.48 per share ($1.45
diluted), in last year's second quarter. Net income for the
first six months of 1999 was $199.8 million, or $.86 per share
(basic and diluted), compared with $568.5 million, or $2.29
per share ($2.26 diluted), last year. Farm equipment demand
continued to decline during the quarter as a result of
depressed agricultural commodity prices, which are reducing
farm income. Most affected by the downturn has been high-
horsepower, high-margin farm machinery, the area in which the
Company has a particularly strong market position. Although
demand has moved down, the Company is continuing to gain
market share in many categories of agricultural equipment.
Despite the impact of the sharp downturn in commodity prices
and continuing weakness in domestic farm income, the Company
has remained on a profitable course, largely due to efforts to
expand its non-agricultural businesses and to strengthen its
international presence. At the same time, the Company's many
process-excellence and supply management initiatives are
moving ahead and are expected to bring future benefits in
terms of quality improvement and cost efficiency.
Worldwide net sales and revenues were $3,468 million for the
second quarter and $5,927 million for the first six months of
1999, compared with $4,070 million and $6,916 million,
respectively, last year. Net sales of the agricultural,
construction, and commercial and consumer equipment divisions
were $2,957 million for the second quarter and $4,930 million
for the first six months of 1999, compared with $3,610 million
and $6,015 million for the same periods a year ago. Overseas
sales were down 13 percent for the second quarter and 9
percent for the first six months of 1999, compared with last
year. Overseas physical volume of sales decreased 14 percent
for the second quarter and 11 percent for the first six months
of 1999. Overall, the Company's worldwide physical volume of
sales decreased 17 percent for both the quarterly and six-
month periods, compared with the same periods a year ago.
Worldwide Equipment Operations, which exclude the Financial
Services operations and unconsolidated affiliates, had income
of $102.8 million for the second quarter and $109.5 million
for the first six months of 1999, compared with $321.3 million
and $488.2 million, respectively, last year. Worldwide
equipment operating profit, which excludes interest costs,
taxes and certain other corporate expenses, was $208 million
for the quarter and $259 million for six months, compared with
$551 million and $839 million last year.
. Worldwide agricultural equipment operating profit was $58
million for the second quarter and $82 million for the first
six months, compared with $364 million and $570 million last
year. Results continued to be adversely affected by lower
sales and production levels, especially of high-horsepower,
high-margin equipment, as well as by inefficiencies primarily
related to the production
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<PAGE>
cutbacks. In addition, sales incentive costs remained higher
than last year with an emphasis on used goods. Overseas
operations, which continued to benefit from many management
initiatives, were again primary contributors to the segment's
profit. Largely due to the success of innovative products,
the Company's European operations experienced strong
performance and saw further growth in market share.
. Worldwide construction equipment operating profit totaled
$54 million for the second quarter and $67 million for the
first six months of 1999, compared with $91 million and $155
million for the same periods last year. Initial stages of the
Company's Estimate to Cash order-fulfillment program resulted
in lower sales to dealers and had an adverse impact on
operating results. The process, launched earlier in the year,
is aimed at better matching product availability to customer
requirements while reducing field inventories. Also having a
negative effect on second-quarter results were higher growth
expenditures for the construction equipment division, as well
as lower sales and production volumes of the power systems
operations.
. Worldwide commercial and consumer equipment operating
profit was $96 million for the quarter and $110 million for
six months, compared with $96 million and $114 million last
year. Current year results were adversely affected by higher
costs for the development, promotion and introduction of new
products. This was partly offset by higher worldwide sales
and production volumes resulting from a continuation of strong
retail demand driven by the success of new products.
Additional information on business segments is presented in
Note 8 to the interim financial statements.
Net income of the Company's credit operations was $42.3
million in the second quarter of 1999, compared with $35.3
million in last year's second quarter. For the first six
months of 1999, net income of these subsidiaries was $83.9
million, compared with $68.1 million last year. The 1999
second quarter and year-to-date results benefited from higher
income on a larger average receivable and lease portfolio and
a reduction in leverage position, partially offset by higher
operating expenses. In addition, year-to-date results
benefited from higher gains on the sales of retail notes.
Total revenues of the credit operations increased 19 percent
from $233 million in the second quarter of 1998 to $278
million in the current quarter and increased 20 percent in the
first six months from $449 million last year to $540 million
this year. The average balance of receivables and leases
financed was 14 percent higher in the second quarter and 13
percent higher in the first six months of 1999, compared with
the same periods last year. Interest expense increased 5
percent in the current quarter and 4 percent in the first six
months of 1999, compared with 1998, primarily as a result of
an increase in average borrowings. The credit operations'
consolidated ratio of earnings to fixed charges was 1.62 to 1
for the second quarter this year, compared with 1.55 to 1 in
1998. This ratio was 1.64 to 1 for the first six months this
year, compared with 1.55 to 1 in the same period of 1998.
Net income from insurance operations was $1.6 million in the
second quarter of 1999, compared with $4.3 million last year.
For the first six months, net income from these operations was
$.6 million this year, compared with $9.8 million in 1998.
The decreases primarily reflected unfavorable underwriting
results. For the second quarter, insurance premiums increased
6 percent in 1999, compared with the same period last year,
while total claims, benefits, and selling, administrative and
general expenses increased 12 percent this year. For the six-
month period, insurance premiums increased 5 percent in 1999,
while total claims, benefits, and selling, administrative and
general expenses increased 14 percent, compared with last
year.
Net income from health care operations was $1.6 million in the
second quarters of both 1999 and 1998. In the first six
months, net income was $4.5 million this year, compared with a
net loss of $.7 million in 1998. The 1999 year-to-date
results benefited primarily from improved margins and higher
premium revenues. For the second quarter, health care
premiums and administrative services revenues increased 6
percent in 1999, compared with the same period last year,
while total claims, benefits, and selling, administrative and
general
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<PAGE>
expenses also increased 6 percent this year. For the six-
month period, health care premiums and administrative services
revenues increased 7 percent in 1999, while total claims,
benefits, and selling, administrative and general expenses
increased 5 percent, compared with last year.
MARKET CONDITIONS AND OUTLOOK
. AGRICULTURAL EQUIPMENT. Due to extremely depressed
agricultural commodity prices, the farm sector remains under
pressure. United States Department of Agriculture estimates
of net farm cash income deteriorated during the quarter and
farm real estate values have been declining in many parts of
the country. These trends reflect a continued imbalance
between rising worldwide supplies of grain and oilseeds and
soft demand for these commodities resulting from the economic
problems in Asia and other parts of the world. Although there
are indications that the Asian economies have begun to
stabilize, demand from that region for farm commodities is not
anticipated to increase this year. Commodity prices are also
suffering from a strong harvest in key growing regions of
South America. In addition, credit availability for equipment
purchases in emerging markets is expected to remain limited.
As a consequence of these factors, retail demand for farm
equipment is now projected to decline by 25 to 30 percent in
North America this year, with declines of 5 to 15 percent
expected in other major markets. Accordingly, the Company
intends to proceed with further reductions in factory
schedules to bring down field inventories.
. CONSTRUCTION EQUIPMENT. As a result of an environment of
low inflation and interest rates, housing starts are expected
to be near last year's levels. Nonresidential construction is
expected to show little growth this year, but public
construction, led by highway expenditures, is forecast to
increase by approximately 2 percent. However, Company sales
will be negatively affected by the Estimate to Cash program,
which is resulting in reduced field inventories and, in its
initial phases, lower sales to dealers. In addition, the
construction equipment market has experienced increased
discounting and become more competitive. These factors are
expected to lead to lower results for the Company's
construction equipment operations than previously anticipated.
. COMMERCIAL AND CONSUMER EQUIPMENT. Retail demand for the
Company's commercial and consumer products is expected to
remain at strong levels this year, driven principally by
positive customer acceptance of the many innovative products
recently introduced. This outlook assumes a continuation of
current economic conditions and normal weather during the
important spring selling season.
. FINANCIAL SERVICES. A larger overall receivable and lease
portfolio should provide the basis for continued improvement
in the credit operations this year. Health care operations
are also well positioned for improved results, while the
insurance operations face an increasingly challenging
environment.
Based on these conditions, the Company's worldwide physical
volume of sales is currently projected to decrease by 18 to 20
percent for the year, compared with 1998. Third-quarter
physical volumes are also projected to be 18 to 20 percent
lower than in the comparable 1998 period. As a result, the
Company's major United States agricultural equipment
manufacturing facilities are scheduled to be shut down for
approximately 25 percent of the working days during the second
half of fiscal 1999, compared to 11 percent in the first half
of this year and 5 percent for the second half of last year.
Even though the decline in physical volume is steeper than had
been anticipated in the first quarter, especially for large,
high-margin products, the Company remains committed to
balancing its receivables and inventories with the latest
estimates of demand.
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<PAGE>
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, 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 is on schedule to become Year 2000 ready with its
mission critical activities and systems, allowing substantial
time for further testing, verification and the final
conversion of less important systems. Over 95 percent of the
Company's systems identified as being mission critical have
been tested and verified as being Year 2000 compliant. The
Company's goal has been to have all remaining mission critical
and non-mission critical systems compliant by October 31,
1999, and the progress to date makes this goal realistic. The
Company has initiated information and infrastructure systems
modifications in its effort to ensure that both information
technology (IT) and non-IT systems are compliant. The Company
is requiring suppliers of new software or equipment and third
parties who develop or modify software to provide written
certification that their products are Year 2000 compliant and
have been tested accordingly. In some instances, the Company
is independently testing the software. The Company is also
working with suppliers to confirm embedded systems are
compliant and perform the necessary testing.
The Company is assessing the Year 2000 readiness of its
product suppliers and dealers, raising awareness among its
supply base by sponsoring seminars and developing contingency
plans for its mission critical suppliers. The Company has
surveyed its major suppliers and is following up as
appropriate with risk assessment and prioritization based on
mission criticality. Date testing is in process with many
suppliers and has been completed for 60 percent of the
Company's mission critical suppliers. Surveys of the
Company's dealers are also in process and readiness progress
will be assessed throughout 1999. A dealer communications
team continues to provide dealers with pertinent information,
possible areas of investigation and follow-up on dealers'
readiness.
The total cost of the modifications and upgrades including
internal costs to date has been immaterial or approximately
$25 to $30 million pretax since the beginning of 1997. The
future costs to become Year 2000 ready are expected to be
approximately $10 million pretax. These costs are expensed as
incurred and do not include the cost of scheduled replacement
software. Other major systems projects have not been deferred
due to the Year 2000 compliance projects.
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 the
consequences of any of the Company's unanticipated or
unsuccessful modifications to have a material adverse effect
on its financial position or results of operations. 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 cause the supplier to fail to
deliver, with the result that production is interrupted at one
or more facilities. Such a disruption in production could
result in lost sales or profits. The Company is developing
contingency plans, which will be an ongoing activity during
1999, should any Year 2000 failures occur in any of the
assessment areas noted above.
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<PAGE>
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 affected by this change. The
Company's affected suppliers, distribution network and
financial institutions have been contacted and the Company
does not believe the currency change will significantly impact
these relationships. As a result, the Company expects to have
its systems ready to process the euro conversion during the
transition period from January 1, 1999 through January 1,
2002. 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
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995: Statements under the "Market Conditions
and Outlook", "Year 2000" and "Euro Conversion" headings 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. Forward-
looking statements relating to the Company's 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, real
estate values, animal diseases, crop pests, harvest yields 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; levels of new and
used field inventories; production difficulties, including
capacity and supply constraints; dealer practices; labor
relations; interest and currency exchange rates (including the
effect of conversion to the euro); technological difficulties
(including Year 2000 readiness); accounting standards; and
other risks and uncertainties. Economic difficulties in Asia
and other parts of the world could continue to adversely
affect North American grain and meat exports. Retail sales of
agricultural equipment is especially affected by the weather
in the summer, while the number of housing starts is
especially important to sales of construction equipment. The
Company's outlook is based upon assumptions relating to the
factors described above, which are sometimes based upon
estimates and data prepared by government agencies. Such
estimates and data are often revised. 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.
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 six months of 1999, negative cash flows from
operating activities of $459 million resulted primarily from
increases in Company-owned inventories and trade receivables,
and a decrease in accounts payable and accrued expenses.
Partially offsetting these operating cash outflows were
positive cash flows from net income and dividends received
from the Financial Services operations. The resulting net
cash requirement for operating activities, along with purchases
of property and equipment, payment of dividends,
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<PAGE>
repurchases of common stock and acquisitions of businesses
were provided primarily from an increase in borrowings and a
decrease in cash and cash equivalents.
Negative cash flows from operating activities in the first six
months of 1998 of $776 million resulted primarily from the
normal seasonal increases in trade receivables and Company-
owned inventories, and a decrease in accounts payable and
accrued expenses. Partially offsetting these operating cash
outflows were positive cash flows from net income and
dividends received from the Financial Services operations.
The resulting net cash requirement for operating activities,
along with repurchases of common stock, an increase in
receivables from Financial Services, payment of dividends and
repurchases of property and equipment were provided primarily
from an increase in borrowings and a decrease in cash and cash
equivalents.
Net trade accounts and notes receivable result mainly from
sales to dealers of equipment that is being carried in their
inventories. Trade receivables increased $213 million during
the first six months. However, trade receivables decreased
$112 million, compared to a year ago. Agricultural and
construction equipment receivables were lower than a year ago
due to agricultural equipment production volumes trailing
retail demand and the impact on construction equipment of the
previously mentioned Estimate to Cash program. Receivables
related to used agricultural equipment, although declining,
continued at high levels. Commercial and consumer equipment
receivables increased as a result of higher sales volumes and
seasonal requirements. North American agricultural and
construction equipment trade receivables decreased
approximately $40 million and $180 million, respectively,
while commercial and consumer equipment receivables increased
approximately $120 million, compared with the levels 12 months
earlier. Total overseas trade receivables were approximately
$10 million lower than a year ago. The ratios of worldwide
net trade accounts and notes receivable to the last 12 months'
net sales were 39 percent at April 30, 1999, compared to 34
percent at October 31, 1998 and 37 percent at April 30, 1998.
The percentage of total worldwide trade receivables
outstanding for periods exceeding 12 months was 8 percent, 8
percent and 4 percent at April 30, 1999, October 31, 1998 and
April 30, 1998.
Company-owned inventories at April 30, 1999 increased by $298
million during the first six months and $73 million compared
to one year ago, due to the construction equipment Estimate to
Cash program, as well as the introduction of new products,
seasonal requirements and the start-up of new facilities for
the manufacture of commercial and consumer equipment. 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 5 percent from a year ago.
Total interest-bearing debt of the Equipment Operations was
$2,788 million at April 30, 1999, compared with $2,065 million
at the end of fiscal year 1998 and $2,293 million at April 30,
1998, generally corresponding with the levels of trade
receivables, inventories and treasury stock. The ratio of
total debt to total capital (total interest-bearing debt and
stockholders' equity) was 40 percent, 34 percent and 35
percent at April 30, 1999, October 31, 1998 and April 30,
1998, respectively. During the first six months, Deere &
Company issued $50 million of medium-term notes.
FINANCIAL SERVICES
The Financial Services' credit operations 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 operations
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 six months of 1999, 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 $141
million in the first six months of this year. Cash provided
by financing activities totaled
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<PAGE>
$772 million in the first half 1999, resulting from a $782
million increase in total borrowings, which was partially
offset by payment of a $10 million dividend to the Equipment
Operations. Cash used for investing activities totaled $920
million in the first six months of 1999, primarily due to the
cost of financing receivables and leases exceeding collections
by $1,305 million, partially offset by $297 million of
proceeds from the sales of retail notes.
In the first six 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 $166 million in
the first six months of 1998. Cash provided by financing
activities totaled $593 million in the first half of 1998,
primarily resulting from a $626 million increase in total
borrowings, which was partially offset by payment of a $32
million dividend to the Equipment Operations. Cash used for
investing activities totaled $784 million in the first six
months of 1998, due to the cost of financing receivables and
leases exceeding collections and sales of financing
receivables. Cash and cash equivalents decreased $26 million
during the first half of 1998.
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 six
months of 1999 and last 12 months, the balance has not changed
significantly.
Financing receivables and leases held by the credit operations
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. These receivables and leases
increased by $1,608 million in the first six months of 1999
and $1,251 million during the past 12 months, primarily due to
the cost of financing receivables and leases acquired
exceeding collections and sales of retail notes, and the
consolidation of the portfolio of a credit subsidiary in
Gloucester, England, pursuant to an acquisition of a
controlling interest. Acquisitions of financing receivables
and leases were 12 percent higher in the first six months of
1999, compared with the same period last year. Acquisition
volumes of retail notes, wholesale receivables, revolving
charge accounts and leases were all higher in the first six
months of 1999, compared to the same period last year.
Financing receivables and leases administered by the credit
operations, which include receivables previously sold,
amounted to $10,393 million at April 30, 1999, compared with
$9,625 million at October 31, 1998 and $8,713 million at April
30, 1998. At April 30, 1999, the unpaid balance of all retail
notes previously sold was $1,548 million, compared with $2,388
million at October 31, 1998 and $1,118 million at April 30,
1998.
Total outside interest-bearing debt of the credit subsidiaries
was $7,346 million at April 30, 1999, compared with $6,049
million at the end of fiscal year 1998 and $6,217 million at
April 30, 1998. Total outside borrowings increased during the
first six months of 1999 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 operations' ratio of total interest-bearing debt to
stockholder's equity was 6.8 to 1 at April 30, 1999, compared
with 6.1 to 1 at October 31, 1998 and 6.9 to 1 at April 30,
1998.
During the first six months of 1999, John Deere Capital
Corporation issued $300 million of 6% notes due in 2009 and
retired $150 million of 9-5/8% subordinated notes, $97 million
of 5% Swiss franc bonds and $200 million of 6% notes all due
in the first six months of 1999. The Capital Corporation also
issued $1,200 million and retired $450 million of medium-term
notes during the first six months of 1999.
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
operations. Worldwide lines of
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credit totaled $5,948 million at April 30, 1999, $1,416
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 $4,175 million at April 30, 1999,
compared with $4,080 million at October 31, 1998 and $4,265
million at April 30, 1998. The increase of $95 million in the
first six months of 1999 resulted primarily from net income of
$200 million, partially offset by dividends declared of $102
million.
The Board of Directors at its meeting on May 26, 1999 declared
a quarterly dividend of 22 cents per share payable August 2,
1999 to stockholders of record on June 30, 1999.
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.
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
During the quarter, the Company issued 5,400 shares of
restricted stock as compensation to the Company's nonemployee
directors. These shares were not registered under the
Securities Act of 1933 (the "Securities Act") pursuant to an
exemption from registration. The Company also issued
1,495,680 shares of stock in connection with an acquisition
during the quarter. These shares were not registered under
the Securities Act in reliance upon the exemption provided by
Section 4 (2) of the Securities Act for transactions by an
issuer not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held February 24, 1999:
a. the following directors were elected for terms expiring at
the annual meeting in 2002:
Votes For Votes Withheld
John R. Block 201,754,321 1,300,928
Regina E. Herzlinger 201,765,357 1,289,892
Arnold R. Weber 201,727,144 1,328,105
Leonard A. Hadley, Samuel C. Johnson, Arthur L. Kelly and
William A. Schreyer continue to serve as directors of the
Company for terms expiring at the annual meeting in 2000.
Page 17
<PAGE>
Hans W. Becherer, Antonio Madero B., John R. Stafford and John
R. Walter continue to serve as directors of the Company for
terms expiring at the annual meeting in 2001.
b. pursuant to a nomination from the floor, Melroy Buhr
received 2 votes for his election as a director, with
203,055,247 shares withheld.
c. pursuant to a resolution from the floor, a proposal to
establish an office of the ombudsman received 2 votes for the
proposal and 203,055,247 votes against.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
Certain instruments relating to long-term debt constituting
less than 10% of the registrant's total assets are not filed
as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of
Regulation S-K. The registrant will file copies of such
instruments upon request of the Commission.
(b) Reports on Form 8-K
Current Report on Form 8-K dated February 16, 1999 (Item 7).
Current Report on Form 8-K dated April 29, 1999 (Item 7).
Page 18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
DEERE & COMPANY
Date: June 8, 1999 By: s/ Nathan J. Jones
------------- ------------------------
Nathan J. Jones
Senior Vice President,
Principal Financial Officer
and Principal Accounting
Officer
Page 19
<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 20
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Year
Ended Ended
April 30 October 31
1999 1998 1998
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $307,078 $ 888,258 $1,560,032
Dividends received from
less-than-fifty percent
owned affiliates 5,734 2,073 5,555
Fixed charges excluding
capitalized interest 283,130 250,336 531,817
Total earnings $595,942 $1,140,667 $2,097,404
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $277,775 $ 245,867 $ 521,418
Portion of rental charges
deemed to be interest 6,226 6,368 12,451
Total fixed charges $284,001 $ 252,235 $ 533,869
Ratio of earnings to
fixed charges* 2.10 4.52 3.93
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>
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended
October 31
1997 1996 1995
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $1,507,070 $1,286,634 $1,092,751
Dividends received from
less-than-fifty percent
owned affiliates 3,591 7,937 2,023
Fixed charges excluding
capitalized interest 433,673 410,764 399,056
Total earnings $1,944,334 $1,705,335 $1,493,830
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $ 422,588 $ 402,168 $ 392,408
Portion of rental charges
deemed to be interest 11,497 8,596 6,661
Total fixed charges $ 434,085 $ 410,764 $ 399,069
Ratio of earnings to
fixed charges* 4.48 4.15 3.74
<PAGE>
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended
October 31
1994
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $ 920,920
Dividends received from
less-than-fifty percent
owned affiliates 2,329
Fixed charges excluding
capitalized interest 310,047
Total earnings $1,233,296
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $ 303,080
Portion of rental charges
deemed to be interest 7,008
Total fixed charges $ 310,088
Ratio of earnings to
fixed charges* 3.98
Page 21
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This schedule contains summary financial information extracted from
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