UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended July 31, 1999
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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 July 31, 1999, 233,686,243 shares of common stock, $1 par
value, of the registrant were outstanding.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Three Months Ended July 31 Consolidated
Subsidiaries)
Millions of dollars except per Three Months Ended
share amounts July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $2,489.4 $3,218.3
Finance and interest income 280.1 263.2
Insurance and health care premiums 184.8 171.9
Investment income 14.2 15.9
Other income 67.1 24.1
Total 3,035.6 3,693.4
Costs and Expenses
Cost of goods sold 2,099.2 2,485.1
Research and development expenses 114.7 110.7
Selling, administrative and general
expenses 338.9 324.7
Interest expense 138.9 138.4
Insurance and health care claims
and benefits 153.1 143.9
Other operating expenses 66.0 53.6
Total 2,910.8 3,256.4
Income of Consolidated Group
Before Income Taxes 124.8 437.0
Provision for income taxes 61.0 154.8
Income of Consolidated Group 63.8 282.2
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit (.2) .1
Insurance
Health Care .1
Other 5.3 8.4
Total 5.1 8.6
Net Income $ 68.9 $ 290.8
Per Share:
Net income $ .30 $ 1.20
Net income - diluted $ .29 $ 1.19
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 July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $2,489.4 $3,218.3
Finance and interest income 19.4 33.4
Insurance and health care premiums
Investment income
Other income 26.5 9.6
Total 2,535.3 3,261.3
Costs and Expenses
Cost of goods sold 2,103.1 2,490.3
Research and development expenses 114.7 110.7
Selling, administrative and general
expenses 235.1 235.6
Interest expense 38.0 37.6
Insurance and health care claims
and benefits
Other operating expenses 12.0 20.0
Total 2,502.9 2,894.2
Income of Consolidated Group
Before Income Taxes 32.4 367.1
Provision for income taxes 29.7 131.6
Income of Consolidated Group 2.7 235.5
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 57.6 43.1
Insurance 1.1 2.0
Health Care 2.2 1.8
Other 5.3 8.4
Total 66.2 55.3
Net Income $ 68.9 $ 290.8
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per Three Months Ended
share amounts July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment
Finance and interest income $ 264.4 $ 233.6
Insurance and health care premiums 193.0 179.1
Investment income 14.2 15.9
Other income 47.3 15.1
Total 518.9 443.7
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 104.0 90.0
Interest expense 104.5 104.6
Insurance and health care claims
and benefits 156.5 145.6
Other operating expenses 61.5 33.7
Total 426.5 373.9
Income of Consolidated Group
Before Income Taxes 92.4 69.8
Provision for income taxes 31.3 23.1
Income of Consolidated Group 61.1 46.7
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit (.2) .1
Insurance
Health Care .1
Other
Total (.2) .2
Net Income $ 60.9 $ 46.9
<Page 2>
DEERE & COMPANY CONSOLIDATED
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and
Consolidated
Subsidiaries)
Millions of dollars except per Nine Months Ended
share amounts July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $ 7,419.7 $ 9,232.9
Finance and interest income 814.1 735.6
Insurance and health care premiums 550.7 515.6
Investment income 48.9 49.4
Other income 129.1 75.6
Total 8,962.5 10,609.1
Costs and Expenses
Cost of goods sold 6,191.7 7,088.8
Research and development expenses 323.8 319.5
Selling, administrative and general
expenses 981.3 948.4
Interest expense 415.8 382.3
Insurance and health care claims
and benefits 459.3 421.5
Other operating expenses 158.7 123.3
Total 8,530.6 9,283.8
Income of Consolidated Group
Before Income Taxes 431.9 1,325.3
Provision for income taxes 170.1 477.8
Income of Consolidated Group 261.8 847.5
Equity in Income of Unconsolidated
Subsidiaries and Affiliates
Credit .2 .1
Insurance
Health Care .1 .1
Other 6.6 11.6
Total 6.9 11.8
Net Income $ 268.7 $ 859.3
Per Share:
Net income $ 1.16 $ 3.49
Net income - diluted $ 1.15 $ 3.45
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 Nine Months Ended
share amounts July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment $7,419.7 $9,232.9
Finance and interest income 65.1 96.2
Insurance and health care premiums
Investment income
Other income 59.3 29.8
Total 7,544.1 9,358.9
Costs and Expenses
Cost of goods sold 6,204.3 7,103.2
Research and development expenses 323.8 319.5
Selling, administrative and general
expenses 680.0 673.3
Interest expense 120.7 93.0
Insurance and health care claims
and benefits
Other operating expenses 11.2 35.3
Total 7,340.0 8,224.3
Income of Consolidated Group
Before Income Taxes 204.1 1,134.6
Provision for income taxes 91.8 411.0
Income of Consolidated Group 112.3 723.6
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit 141.4 111.2
Insurance 1.7 11.8
Health Care 6.7 1.1
Other 6.6 11.6
Total 156.4 135.7
Net Income $ 268.7 $ 859.3
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME
Millions of dollars except per Nine Months Ended
share amounts July 31
(Unaudited) 1999 1998
Net Sales and Revenues
Net sales of equipment
Finance and interest income $ 760.2 $ 649.2
Insurance and health care premiums 572.1 536.5
Investment income 48.9 49.4
Other income 91.2 48.6
Total 1,472.4 1,283.7
Costs and Expenses
Cost of goods sold
Research and development expenses
Selling, administrative and general
expenses 304.0 279.8
Interest expense 306.4 299.1
Insurance and health care claims
and benefits 465.9 426.2
Other operating expenses 168.3 87.9
Total 1,244.6 1,093.0
Income of Consolidated Group
Before Income Taxes 227.8 190.7
Provision for income taxes 78.3 66.8
Income of Consolidated Group 149.5 123.9
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit .2 .1
Insurance
Health Care .1 .1
Other
Total .3 .2
Net Income $ 149.8 $ 124.1
<Page 3>
DEERE & COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED (Deere & Company and
BALANCE SHEET Consolidated Subsidiaries)
Millions of dollars July 31 October 31 July 31
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 352.3 $ 309.7 $ 331.1
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 352.3 309.7 331.1
Marketable securities 845.4 867.3 868.0
Receivables from
unconsolidated subsidiaries
and affiliates 37.7 36.2 39.9
Trade accounts and notes
receivable - net 3,739.5 4,059.2 4,209.3
Financing receivables - net 6,781.5 6,332.7 6,985.6
Other receivables 396.6 536.8 397.4
Equipment on operating
leases - net 1,499.6 1,209.2 1,123.4
Inventories 1,428.0 1,286.7 1,337.3
Property and equipment - net 1,735.3 1,700.3 1,566.6
Investments in unconsolidated
subsidiaries and affiliates 145.5 172.0 163.9
Intangible assets - net 300.9 217.6 191.3
Prepaid pension costs 637.0 674.3 689.1
Deferred income taxes 568.9 396.3 534.2
Other assets and
deferred charges 262.4 203.2 188.8
Total $18,730.6 $18,001.5 $18,625.9
Liabilities and Stockholders'
Equity
Short-term borrowings $ 5,358.9 $ 5,322.1 $ 6,569.4
Payables to unconsolidated
subsidiaries and affiliates 22.3 31.1 49.4
Accounts payable and
accrued expenses 2,548.5 2,853.2 2,705.0
Insurance and health care
claims and reserves 402.5 411.3 403.6
Accrued taxes 158.3 144.9 109.5
Deferred income taxes 19.0 19.7 20.3
Long-term borrowings 3,627.9 2,791.7 2,287.0
Retirement benefit accruals
and other liabilities 2,408.7 2,347.7 2,318.2
Total liabilities 14,546.1 13,921.7 14,462.4
Common stock, $1 par value
(issued shares at July 31,
1999 - 265,759,755) 1,849.2 1,789.8 1,778.5
Retained earnings 3,939.2 3,839.5 3,732.9
Minimum pension liability
adjustment (18.8) (18.7) (14.0)
Cumulative translation
adjustment (101.9) (80.5) (99.7)
Unrealized gain on marketable
securities 14.0 24.5 25.7
Unamortized restricted stock
compensation (23.4) (7.2) (9.7)
Common stock in treasury (1,473.8) (1,467.6) (1,250.2)
Stockholders' equity 4,184.5 4,079.8 4,163.5
Total $18,730.6 $18,001.5 $18,625.9
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 July 31 October 31 July 31
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 138.3 $ 68.3 $ 58.4
Cash deposited with
unconsolidated subsidiaries 75.1 139.6 282.4
Cash and cash equivalents 213.4 207.9 340.8
Marketable securities
Receivables from
unconsolidated subsidiaries
and affiliates 252.1 95.5 136.2
Trade accounts and notes
receivable - net 3,739.5 4,059.2 4,209.3
Financing receivables - net 95.6 85.8 113.7
Other receivables 15.3 139.4
Equipment on operating
leases - net 218.6 209.6
Inventories 1,428.0 1,286.7 1,337.3
Property and equipment - net 1,687.5 1,653.9 1,520.1
Investments in unconsolidated
subsidiaries and affiliates 1,758.7 1,620.4 1,579.0
Intangible assets - net 294.2 210.1 183.4
Prepaid pension costs 637.0 674.3 689.1
Deferred income taxes 540.9 372.6 490.1
Other assets and
deferred charges 149.3 141.6 128.7
Total $10,811.5 $10,766.0 $10,937.3
Liabilities and Stockholders'
Equity
Short-term borrowings $ 1,337.5 $ 1,512.4 $ 2,017.1
Payables to unconsolidated
subsidiaries and affiliates 22.3 43.0 49.4
Accounts payable and
accrued expenses 1,707.3 2,098.1 1,950.4
Insurance and health care
claims and reserves
Accrued taxes 141.8 142.1 101.1
Deferred income taxes 6.3 19.7 19.9
Long-term borrowings 1,039.2 552.9 353.3
Retirement benefit accruals
and other liabilities 2,372.6 2,318.0 2,282.6
Total liabilities 6,627.0 6,686.2 6,773.8
Common stock, $1 par value
(issued shares at July 31,
1999 - 265,759,755) 1,849.2 1,789.8 1,778.5
Retained earnings 3,939.2 3,839.5 3,732.9
Minimum pension liability
adjustment (18.8) (18.7) (14.0)
Cumulative translation
adjustment (101.9) (80.5) (99.7)
Unrealized gain on marketable
securities 14.0 24.5 25.7
Unamortized restricted stock
compensation (23.4) (7.2) (9.7)
Common stock in treasury (1,473.8) (1,467.6) (1,250.2)
Stockholders' equity 4,184.5 4,079.8 4,163.5
Total $10,811.5 $10,766.0 $10,937.3
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED CONSOLIDATED
BALANCE SHEET
Millions of dollars July 31 October 31 July 31
(Unaudited) 1999 1998 1998
Assets
Cash and short-term
investments $ 213.9 $ 241.5 $ 272.7
Cash deposited with
unconsolidated subsidiaries
Cash and cash equivalents 213.9 241.5 272.7
Marketable securities 845.4 867.3 868.0
Receivables from
unconsolidated subsidiaries
and affiliates 5.2
Trade accounts and notes
receivables - net
Financing receivables - net 6,685.9 6,246.9 6,871.9
Other receivables 381.3 397.3 397.4
Equipment on operating
leases - net 1,499.6 990.6 913.8
Inventories
Property and equipment - net 47.8 46.4 46.4
Investments in unconsolidated
subsidiaries and affiliates 9.9 20.3 19.1
Intangible assets - net 6.7 7.6 7.9
Prepaid pension costs
Deferred income taxes 28.0 23.7 44.0
Other assets and
deferred charges 113.1 61.5 60.3
Total $9,836.8 $8,903.1 $9,501.5
Liabilities and Stockholders'
Equity
Short-term borrowings $4,021.4 $3,809.7 $4,552.3
Payables to unconsolidated
subsidiaries and affiliates 294.5 187.0 378.7
Accounts payable and
accrued expenses 841.3 755.1 754.6
Insurance and health care
claims and reserves 402.5 411.3 403.6
Accrued taxes 16.5 2.8 8.3
Deferred income taxes 12.7 .4
Long-term borrowings 2,588.7 2,238.8 1,933.7
Retirement benefit accruals
and other liabilities 36.1 29.7 35.7
Total liabilities 8,213.7 7,434.4 8,067.3
Common stock, $1 par value
(issued shares at July 31,
1999 - 265,759,755) 247.5 237.1 237.1
Retained earnings 1,381.0 1,223.2 1,184.6
Minimum pension liability
adjustment
Cumulative translation
adjustment (19.4) (16.1) (13.2)
Unrealized gain on marketable
securities 14.0 24.5 25.7
Unamortized restricted stock
compensation
Common stock in treasury
Stockholders' equity 1,623.1 1,468.7 1,434.2
Total $9,836.8 $8,903.1 $9,501.5
<Page 4>
DEERE & COMPANY CONSOLIDATED
CONDENSED STATEMENT OF (Deere & Company and
CONSOLIDATED CASH FLOWS Consolidated Subsidiaries)
Nine Months Ended
July 31
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 268.7 $ 859.3
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities 344.6 (1,117.7)
Net cash provided by (used for)
operating activities 613.3 (258.4)
Cash Flows from Investing Activities
Collections and sales of
financing receivables 6,085.1 5,000.8
Proceeds from maturities and
sales of marketable securities 98.0 115.0
Cost of financing receivables
acquired (6,043.2) (5,636.5)
Purchases of marketable securities (91.0) (157.8)
Purchases of property and
equipment (181.0) (250.8)
Cost of operating leases acquired (594.9) (567.4)
Acquisitions of businesses (167.3) (51.7)
Other 168.4 117.1
Net cash used for investing
activities (725.9) (1,431.3)
Cash Flows from Financing Activities
Increase (decrease) in short-term
borrowings (523.1) 1,861.0
Change in intercompany
receivables/payables
Proceeds from long-term borrowings 2,249.8 996.0
Principal payments on long-term
borrowings (1,372.3) (358.9)
Proceeds from issuance of
common stock 3.5 22.4
Repurchases of common stock (46.2) (668.3)
Dividends paid (154.0) (159.3)
Other (1.6) .8
Net cash provided by
financing activities 156.1 1,693.7
Effect of Exchange Rate
Changes on Cash (.9) (2.9)
Net Increase (Decrease) in Cash
and Cash Equivalents 42.6 1.1
Cash and Cash Equivalents at
Beginning of Period 309.7 330.0
Cash and Cash Equivalents at
End of Period $ 352.3 $ 331.1
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>
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED STATEMENT OF (Deere & Company with
CONSOLIDATED CASH FLOWS Financial Services on the
Equity Basis)
Nine Months Ended
July 31
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 268.7 $ 859.3
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities 26.4 (1,370.9)
Net cash provided by (used for)
operating activities 295.1 (511.6)
Cash Flows from Investing Activities
Collections and sales of
financing receivables 17.1 23.1
Proceeds from maturities and
sales of marketable securities
Cost of financing receivables
acquired (22.7) (55.5)
Purchases of marketable securities
Purchases of property and
equipment (172.0) (242.8)
Cost of operating leases acquired (77.8)
Acquisitions of businesses (146.5) (45.7)
Other 26.0 55.0
Net cash used for investing
activities (298.1) (343.7)
Cash Flows from Financing Activities
Increase (decrease) in short-term
borrowings (263.1) 1,678.1
Change in intercompany
receivables/payables (10.4) (59.9)
Proceeds from long-term borrowings 499.8
Principal payments on long-term
borrowings (18.6) (26.4)
Proceeds from issuance of
common stock 3.5 22.4
Repurchases of common stock (46.2) (668.3)
Dividends paid (154.0) (159.3)
Other (1.6) .7
Net cash provided by
financing activities 9.4 787.3
Effect of Exchange Rate
Changes on Cash (.9) (2.4)
Net Increase (Decrease) in Cash
and Cash Equivalents 5.5 (70.4)
Cash and Cash Equivalents at
Beginning of Period 207.9 411.2
Cash and Cash Equivalents at
End of Period $ 213.4 $ 340.8
<PAGE>
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED STATEMENT OF Nine Months Ended
CONSOLIDATED CASH FLOWS July 31
Millions of dollars (Unaudited) 1999 1998
Cash Flows from Operating Activities
Net income $ 149.8 $ 124.1
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities 183.5 173.4
Net cash provided by (used for)
operating activities 333.3 297.5
Cash Flows from Investing Activities
Collections and sales of
financing receivables 6,068.0 4,977.8
Proceeds from maturities and
sales of marketable securities 98.0 115.0
Cost of financing receivables
acquired (6,020.5) (5,581.0)
Purchases of marketable securities (91.0) (157.8)
Purchases of property and
equipment (9.0) (8.0)
Cost of operating leases acquired (594.9) (489.6)
Acquisitions of businesses (20.7) (6.0)
Other 142.1 63.2
Net cash used for investing
activities (428.0) (1,086.4)
Cash Flows from Financing Activities
Increase (decrease) in short-term
borrowings (260.0) 183.0
Change in intercompany
receivables/payables (54.2) (7.6)
Proceeds from long-term borrowings 1,750.0 996.0
Principal payments on long-term
borrowings (1,353.7) (332.5)
Proceeds from issuance of
common stock
Repurchases of common stock
Dividends paid (15.0) (44.3)
Other (1.3)
Net cash provided by
financing activities 67.1 793.3
Effect of Exchange Rate
Changes on Cash (.5)
Net Increase (Decrease) in Cash
and Cash Equivalents (27.6) 3.9
Cash and Cash Equivalents at
Beginning of Period 241.5 268.8
Cash and Cash Equivalents at End
of Period $213.9 $272.7
<Page 5>
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 Nine Months Ended
July 31 July 31
1999 1998 1999 1998
Balance, beginning of
period $3,922.9 $3,502.7 $3,839.5 $3,048.4
Net income 68.9 290.8 268.7 859.3
Dividends declared (51.2) (52.9) (153.0) (161.7)
Other (1.4) (7.7) (16.0) (13.1)
Balance, end of period $3,939.2 $3,732.9 $3,939.2 $3,732.9
<Page 6>
4. An analysis of the cumulative translation adjustment
follows in millions of dollars:
Three Months Ended Nine Months
July 31 July 31
1999 1998 1999 1998
Balance, beginning of
period $ (92.0) $(79.4) $ (80.5) $(57.4)
Translation adjustment (9.3) (19.7) (19.2) (41.4)
Income taxes applicable
to translation
adjustments (.6) (.6) (2.2) (.9)
Balance, end of period $(101.9) $(99.7) $(101.9) $(99.7)
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) method. If all of the
Company's inventories had been valued on a "first-in, first-
out" (FIFO) method, estimated inventories by major
classification in millions of dollars would have been as
follows:
July 31 October 31 July 31
1999 1998 1998
Raw materials and supplies $ 351 $ 250 $ 270
Work-in-process 482 475 489
Finished machines and parts 1,649 1,612 1,593
Total FIFO value 2,482 2,337 2,352
Adjustment to LIFO basis (1,054) (1,050) (1,015)
Inventories $1,428 $1,287 $1,337
6. During the first nine months of 1999, the Financial
Services subsidiaries received proceeds from the sale of retail
notes of $1,545 million. At July 31, 1999, the net unpaid
balance of all retail notes previously sold by the Financial
Services subsidiaries was $2,541 million and the Company's
maximum exposure under all related recourse provisions was $186
million.
At July 31, 1999, the Company had commitments of approximately
$86 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
July 31 July 31
1999 1998 1999 1998
Dividends declared $.22 $.22 $.66 $.66
Dividends paid * $.22 $ * $.66 $.64
* In 1998, the payment date for the dividend normally paid in
the third quarter was included in the second quarter.
<Page 7>
8. Worldwide net sales and revenues and operating profit in
millions of dollars follow:
Three Months Ended
July 31
Net sales:
Agricultural equipment $1,199 $1,969 -39
Construction equipment 595 709 -16
Commercial and consumer equipment 695 540 +29
Total net sales 2,489 3,218 -23
Financial Services revenues 510 435 +17
Other revenues 37 40 - 8
Total net sales and revenues $3,036 $3,693 -18
United States and Canada:
Equipment net sales $1,781 $2,319 -23
Financial Services revenues 510 435 +17
Total 2,291 2,754 -17
Overseas net sales 708 899 -21
Other revenues 37 40 - 8
Total net sales and revenues $3,036 $3,693 -18
Operating profit:
Agricultural equipment $ (8) $ 282
Construction equipment 40 103 -61
Commercial and consumer equipment 50 46 + 9
Equipment Operations* 82 431 -81
Financial Services 92 70 +31
Total operating profit 174 501 -65
Interest and corporate
expenses - net (44) (55) -20
Income taxes (61) (155) -61
Net income $ 69 $ 291 -76
* Includes overseas operating profit
as follows $ 56 $ 106 -47
** 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>
Nine Months Ended
July 31
%
1999 1998 Change
Net sales:
Agricultural equipment $3,867 $ 5,638 -31
Construction equipment 1,655 2,001 -17
Commercial and consumer equipment 1,898 1,594 +19
Total net sales 7,420 9,233 -20
Financial Services revenues 1,450 1,261 +15
Other revenues 93 115 -19
Total net sales and revenues $8,963 $10,609 -16
United States and Canada:
Equipment net sales $5,373 $ 6,867 -22
Financial Services revenues 1,450 1,261 +15
Total 6,823 8,128 -16
Overseas net sales 2,047 2,366 -13
Other revenues 93 115 -19
Total net sales and revenues $8,963 $10,609 -16
Operating profit:
Agricultural equipment $ 74 $ 852 -91
Construction equipment 107 258 -59
Commercial and consumer equipment 160 160
Equipment Operations* 341 1,270 -73
Financial Services 228 191 +19
Total operating profit 569 1,461 -61
Interest and corporate
expenses - net (130) (124) + 5
Income taxes (170) (478) -64
Net income $ 269 $ 859 -69
* Includes overseas operating profit
as follows $ 208 $ 268 -22
** 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 8>
9. A reconciliation of basic and diluted net income per share
in millions, except per share amounts, follows:
Nine Months
Ended
July 31
1999 1998
Net income $268.7 $859.3
Average shares outstanding 232.6 246.0
Basic net income per share $ 1.16 $ 3.49
Average shares outstanding 232.6 246.0
Effect of dilutive securities:
Stock options 1.4 2.5
Other .1 .2
Total potential shares
outstanding 234.1 248.7
Diluted net income per share $ 1.15 $ 3.45
Stock options to purchase 4.2 million shares during the first
nine months of 1999 and .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.
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 Nine Months
Ended
July 31 July 31
1999 1998 1999 1998
Net income $68.9 $290.8 $268.7 $859.3
Other comprehensive
income (loss):
Change in cumulative
translation adjustment (9.9) (20.3) (21.4) (42.3)
Unrealized gain (loss) on
marketable securities (12.7) 2.9 (10.5) 3.5
Comprehensive income $46.3 $273.4 $236.8 $820.5
<Page 9>
12. In June 1999, the FASB issued Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133.
Under the new effective date, the Company currently expects to
adopt FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, in year 2001. The effect
on the Company's financial position and net income is not
expected to be material.
13. In the third quarter of 1999, the Company purchased the
remaining 60 percent interest in SLC-John Deere, a Brazilian
farm equipment manufacturer of combines, tractors and planters.
Deere & Company previously owned 40 percent of the Brazilian
company. The acquisition cost was $174 million, including $41
million of goodwill, which will be amortized over 20 years. In
the third quarter, the Company also announced it reached an
agreement for the sale of John Deere Insurance Group, Inc.
(JDIG) to Sentry Insurance a Mutual Company, pending regulatory
approvals. JDIG provides certain lines of property and
casualty coverages and had net income in the first nine months
of 1999 and 1998 of $1.7 million and $11.8 million,
respectively. Neither the acquisition or the sale had a
material effect on the Company's financial position or
operating results.
<Page 10>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Deere & Company's worldwide net income was $68.9 million, or
$.29 per share diluted ($.30 basic), for the third quarter of
1999, compared with $290.8 million, or $1.19 per share diluted
($1.20 basic), last year. Nine-month net income was $268.7
million, or $1.15 per share diluted ($1.16 basic), compared
with last year's $859.3 million, or $3.45 per share diluted
($3.49 basic). Demand for agricultural equipment in North
America, especially high-horsepower, high-margin tractors and
combines, continued to be adversely affected by depressed
agricultural commodity prices. In line with the Company's
emphasis on cash-flow management, production schedules at major
North American agricultural equipment factories have been set
below the anticipated level of retail sales. This action
facilitates the reduction of Company and field inventories.
The positive contributions from the Company's non-agricultural
businesses and overseas agricultural operations have kept the
Company on a profitable course through this severe downturn in
the farm economy. In addition, the Company is continuing to
focus on supply-management, process-excellence and growth
initiatives aimed at improving profitability and strengthening
its market position. At the same time, the Company's
aggressive asset-management effort, designed to reduce
receivables, is resulting in improved cash flow and will allow
the Company to operate at a more efficient level once the
inventory correction is complete.
Worldwide net sales and revenues were $3,036 million for the
third quarter and $8,963 million for the first nine months,
compared with $3,693 million and $10,609 million, respectively,
last year. Net equipment sales were $2,489 million for the
quarter and $7,420 million for the first nine months, compared
with $3,218 million and $9,233 million last year. Overseas net
sales were $708 million for the quarter and $2,047 million for
the first nine months, compared with $899 million and $2,366
million in the comparable periods last year. Overseas physical
volume of sales decreased 21 percent for the third quarter and
15 percent for the first nine months of 1999. Overall, the
Company's worldwide physical volume of sales decreased 23
percent for the third quarter and 19 percent for the first nine
months, compared with the same periods a year ago.
Worldwide Equipment Operations, which exclude the Financial
Services operations and unconsolidated affiliates, had income
of $2.7 million for the third quarter and $112.3 million for
the first nine months of 1999, compared with $235.5 million and
$723.6 million last year. Lower sales and production volumes,
an adverse product mix and a higher effective tax rate impacted
the 1999 results. Operating profit, which excludes interest
costs, taxes and certain other corporate expenses, was $82
million for the third quarter and $341 million for the first
nine months, compared with $431 million and $1,270 million last
year.
Worldwide agricultural equipment had an $8 million operating
loss for the third quarter and a $74 million operating profit
for the first nine months, compared with operating profit of
$282 million and $852 million last year. Lower sales and
production volumes especially of high-horsepower, high-margin
tractors and combines continued to negatively affect results.
The lower production volumes have facilitated reductions in
trade receivables from year-ago levels. Receivables related to
used equipment, although declining, continue at high levels.
Results for the first nine months were also affected by higher
sales incentive costs with an emphasis on used goods. Overseas
operations, which continue to be positive contributors to the
segment's results, have experienced a more moderate decline in
sales than has been seen in North America. These operations,
as well, are benefiting from increased market shares and a
strong customer reception to innovative products.
<Page 11>
Operating profit for worldwide construction equipment totaled
$40 million for the third quarter and $107 million for the
first nine months, compared with $103 million and $258 million
for the comparable periods last year. Despite healthy retail
demand, sales and production volumes have decreased as
anticipated, as dealers have reduced field inventories to below
year-ago levels primarily due to the segment's Estimate to Cash
order-fulfillment initiative. The reduction is also in
response to a weaker business outlook. In addition, the
segment's results were negatively affected by high growth
expenditures, as well as by lower sales and production volumes
of the power systems operations.
Worldwide commercial and consumer equipment operating profit
was $50 million for the current quarter and $160 million for
the first nine months, compared with $46 million and $160
million for the same periods last year. The 1999 results
benefited from higher sales and production volumes driven by a
continuation of strong retail demand and the success of
recently introduced products. Partially offsetting these
factors were higher costs for the development, promotion and
introduction of new products. Trade receivables for the
segment declined during the quarter, but are higher than a year
ago to support increased retail sales.
Additional information on business segments is presented in
Note 8 to the interim financial statements.
Net income of the Company's credit operations was $57.6 million
in the third quarter of 1999, compared with $43.1 million in
last year's third quarter. For the first nine months of 1999,
net income of these subsidiaries was $141.4 million, compared
with $111.2 million last year. The 1999 third quarter and
year-to-date results benefited from higher gains on the sale of
retail notes, the sale of the yacht retail note portfolio and
related intangibles, and higher income on a larger average
receivable and lease portfolio. Total revenues of the credit
operations increased 25 percent from $249 million in the third
quarter of 1998 to $312 million in the current quarter and
increased 22 percent in the first nine months from $698 million
last year to $851 million this year. The average balance of
receivables and leases financed was 4 percent higher in the
third quarter and 7 percent higher in the first nine months of
1999, compared with the same periods last year. Interest
expense was approximately the same in the current quarter and
increased 3 percent in the first nine months of 1999, compared
with 1998, primarily as a result of an increase in average
borrowings in the first nine months. The credit subsidiaries'
consolidated ratio of earnings to fixed charges was 1.85 to 1
for the third quarter this year, compared with 1.64 to 1 in
1998. This ratio was 1.71 to 1 for the first nine months this
year, compared with 1.58 to 1 in the same period of 1998.
Net income from insurance operations was $1.1 million in the
third quarter of 1999, compared with $2.0 million last year.
For the first nine months, net income from these operations was
$1.7 million this year, compared with $11.8 million in 1998.
The decrease for the quarter was due to lower investment
income, while the decrease for the first nine months primarily
reflected unfavorable underwriting results. For the third
quarter, insurance premiums increased 13 percent in 1999,
compared with the same period last year, while total claims,
benefits, and selling, administrative and general expenses
increased 10 percent this year. For the nine-month period,
insurance premiums increased 7 percent in 1999, while total
claims, benefits, and selling, administrative and general
expenses increased 13 percent, compared with last year. In the
third quarter, the Company announced the pending sale of the
insurance operations. See Note 13 to the financial statements.
<Page 12>
Net income from health care operations was $2.2 million in the
third quarter of 1999, compared with $1.8 million last year.
In the first nine months, net income was $6.7 million this
year, compared with $1.1 million in 1998. The 1999 results
benefited primarily from improved margins and higher premium
revenues. For the third quarter, health care premiums and
administrative services revenues increased 4 percent in 1999,
compared with the same period last year, while total claims,
benefits, and selling, administrative and general expenses
increased 4 percent this year. For the nine-month period,
health care premiums and administrative services revenues
increased 6 percent in 1999, while total claims, benefits, and
selling, administrative and general expenses increased 4
percent, compared with last year.
Market Conditions and Outlook
Agricultural Equipment. Worldwide demand for agricultural
equipment continued to decline during the quarter as a result
of very depressed grain and oilseeds prices. In addition,
lower proceeds from agricultural exports and prospects for
another good crop in the United States are expected to continue
adversely affecting demand for agricultural equipment.
Particularly affected are high-horsepower, high-margin tractors
and combines, a sector in which the Company has a strong market
position. Drought conditions in certain North American areas
and the uncertain outcome of additional United States
governmental financial assistance are not expected to
significantly change this year's outlook. As a result of these
factors, retail demand for farm equipment is now projected to
decline by 30 to 35 percent in North America this fiscal year,
with declines of 10 to 15 percent anticipated in other major
markets. In light of this situation, the segment is
aggressively implementing previously announced production
shutdowns in order to achieve a further reduction in
inventories In addition, the agricultural equipment operation
is initiating a voluntary early-retirement program in the
United States that will have an estimated fourth-quarter pretax
cost of $50 million to $80 million. Although forecasts for
next year have not been finalized, initial indications imply
that North American retail demand for farm machinery will be 5
to 10 percent lower than in 1999. Resulting from a number of
innovative products being introduced in the coming months, the
Company is expected to be well positioned to achieve further
market share gains.
Construction Equipment. The outlook for North American
construction equipment has weakened during the quarter due to
less positive prospects for housing starts. Dealers are
reducing inventories in response to the more cautious housing
outlook and the Company's Estimate to Cash order-fulfillment
initiative. In addition, the market for forestry equipment
remains under pressure as a result of low pulp prices. In this
environment, construction equipment sales for the remainder of
this year are expected to be below last year's levels.
Commercial and Consumer Equipment. Retail demand for the
Company's commercial and consumer products is expected to
maintain its strong momentum for the remainder of this year,
assuming normal weather patterns and a continuation of current
economic conditions. Retail sales for the segment are expected
to continue benefiting from market share growth and positive
customer response to a number of innovative new products.
Financial Services. Although the credit operations should
continue to benefit from a larger overall receivable and lease
portfolio, competitive market conditions and a weakening farm
economy are expected to keep pressure on margins and portfolio
growth. During the quarter, the Company announced that it has
agreed to sell the property and casualty insurance operations
of its Financial Services division, pending regulatory
approvals. See Note 13 to the financial statements. In health
care, the Company's operations are well positioned for
continued improved results.
<Page 13>
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. Fourth-quarter
physical volumes are also projected to be 14 to 17 percent
lower than in the comparable 1998 period. As a result, the
Company's major United States agricultural equipment facilities
are scheduled to be shut down for approximately one-third of
the working days during the fourth quarter of 1999.
Despite the severity of the agricultural downturn, the Company
has made great progress bringing down receivables and
controlling asset levels. Such steps support higher levels of
cash flow and put the Company in good position to return to
more efficient volumes of production and sales even under
present market conditions. In addition, with relatively low
inventories and a number of innovative products being
introduced, the Company is poised to achieve considerable
growth once the farm economy starts moving ahead.
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. Approximately 99 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 mission critical and non-
mission critical systems compliant by October 31, 1999, and the
progress to date makes this goal appear realistic. The Company
has initiated information and infrastructure systems
modifications in its effort to ensure that both information
technology (IT) and non-IT systems are compliant. The Company
is requiring suppliers of new software or equipment and third
parties who develop or modify software to provide written
certification that their products are Year 2000 compliant and
have been tested accordingly. In some instances, the Company
is independently testing 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. It has attempted to raise awareness
among its supply base by sponsoring seminars. The Company is
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
approximately 70 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 has been immaterial or approximately $35 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 hardware or software.
Other major systems projects have not been deferred due to the
Year 2000 compliance projects.
<Page 14>
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.
<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. The transition period for this
change is January 1, 1999 through January 1, 2002. The
Company's affected suppliers, distribution network and
financial institutions have been contacted and to date the
currency change has not had a significant impact on these
relationships. The cost of information systems modifications,
effects on product pricing and purchase contracts, and the
impact on foreign currency financial instruments, including
derivatives, are not expected to be material.
Safe Harbor Statement
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
conversion to the euro); technological difficulties (including
Year 2000 compliance); accounting standards; and other risks
and uncertainties. Economic difficulties in various parts of
the world could continue to adversely affect North American
grain and meat exports. The outlook for harvest prices
especially affects retail sales of agricultural equipment in
the fall, 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. The cost of the voluntary early-retirement
program in the United States is based upon estimates pertaining
to the number and category of employees accepting the Company's
program. 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 15>
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 1999, positive cash flows from
operating activities were $295 million resulting primarily from
a decrease in trade receivables and from net income. Partially
offsetting these operating cash inflows were negative cash
flows from a decrease in accounts payable and accrued expenses
and an increase in Company-owned inventories. The resulting
net cash inflow from operating activities and an increase in
borrowings provided the cash requirements for purchases of
property and equipment, payment of dividends, acquisitions of
businesses and repurchases of common stock.
Negative cash flows from operating activities in the first nine
months of 1998 of $512 million resulted primarily from
increases in trade receivables and Company-owned 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.
Net trade accounts and notes receivable result mainly from
sales to dealers of equipment that is being carried in their
inventories. Trade receivables decreased $320 million during
the first nine months and $470 million, compared to a year ago,
as previously discussed in the results of operations by
segment. North American agricultural and construction
equipment trade receivables decreased approximately $370
million and $200 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 $20 million lower
than a year ago. The ratios of total worldwide net trade
accounts and notes receivable to the last 12 months' net sales
were 33 percent at July 31, 1999, compared to 34 percent at
October 31, 1998 and 34 percent at July 31, 1998. The
percentage of total worldwide trade receivables outstanding for
periods exceeding 12 months was 10 percent, 8 percent and 5
percent at July 31, 1999, October 31, 1998 and July 31, 1998.
Company-owned inventories at July 31, 1999 increased by $141
million during the first nine months and $91 million compared
to one year ago due to the construction equipment Estimate to
Cash program, as well as the introduction of new products and
the start-up of new facilities for the manufacture of
commercial and consumer equipment. Also contributing to higher
inventory levels was the financial consolidation of the
Company's agricultural equipment subsidiary in Brazil. The
Company acquired the remaining ownership interest of this
operation during the quarter. See Note 13 to the financial
statements. 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 6 percent from a
year ago.
<Page 16>
Total interest-bearing debt of the Equipment Operations was
$2,377 million at July 31, 1999, compared with $2,065 million
at the end of fiscal year 1998 and $2,370 million at July 31,
1998. The ratio of total debt to total capital (total interest
bearing debt and stockholders' equity) was 36 percent, 34
percent and 36 percent at July 31, 1999, October 31, 1998 and
July 31, 1998, respectively.
During the first nine months of 1999, Deere & Company issued
$250 million of 6.55% notes due in 2004 and $250 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 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 nine 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 $333
million in the first nine months of this year. Cash provided
by financing activities totaled $67 million in the first nine
months of 1999, resulting from an $82 million increase in total
borrowings, which was partially offset by payment of a $15
million dividend to the Equipment Operations. Cash used for
investing activities totaled $428 million in the first nine
months of 1999, primarily due to the cost of financing
receivables and leases exceeding collections by $2,092 million,
partially offset by $1,545 million of proceeds from the sale of
retail notes. Cash and cash equivalents decreased $28 million
during the first nine months of 1999.
In 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 of 1998. 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 a payment of
$44 million in dividends to the Equipment Operations. Cash
used for investing activities totaled $1,086 million in the
first nine months of 1998, 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.
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
1999 and last 12 months, the balance has not changed
significantly.
Financing receivables and leases held by the credit operations
consist of retail notes originated 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 $948 million in the first nine months of 1999 and
$400 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,
due to an acquisition of a controlling interest. Acquisitions
of financing receivables and leases were 6 percent higher in
the first nine months of 1999, compared with the same period
last year. Acquisition volumes of wholesale receivables,
revolving charge accounts, retail notes and leases were all
higher in the first nine 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
<Page 17>
to $10,727 million at July 31, 1999, compared with $9,625
million at October 31, 1998 and $9,325 million at July 31,
1998. At July 31, 1999, the unpaid balance of all retail notes
previously sold was $2,541 million, compared with $2,388
million at October 31, 1998 and $1,540 million at July 31,
1998.
Total outside interest-bearing debt of the credit subsidiaries
was $6,610 million at July 31, 1999, compared with $6,049
million at the end of fiscal year 1998 and $6,486 million at
July 31, 1998. Total outside borrowings increased during the
first nine 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 subsidiaries' ratio of total interest-bearing debt to
stockholder's equity was 5.9 to 1 at July 31, 1999, compared
with 6.1 to 1 at October 31, 1998 and 6.8 to 1 at July 31,
1998.
During the first nine 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, $200 million of 6% notes and $200
million of 6.3% notes all due in the first nine months of 1999.
The Capital Corporation's subsidiary, John Deere Limited in
Gloucester, England, also retired $67 million of long-term debt
due in 1999. The Capital Corporation issued $1,450 million and
retired $640 million of medium-term notes during the first nine
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
subsidiaries. Worldwide lines of credit totaled $5,842 million
at July 31, 1999, $2,739 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 $4,185 million at July 31, 1999,
compared with $4,080 million at October 31, 1998 and $4,164
million at July 31, 1998. The increase of $105 million in the
first nine months of 1999 resulted primarily from net income of
$269 million, partially offset by dividends declared of $153
million.
The Board of Directors at its meeting on August 25, 1999
declared a quarterly dividend of 22 cents per share payable
November 1, 1999 to stockholders of record on September 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.
<Page 18>
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
The Company issued 408,459 shares of stock during the quarter
in connection with an acquisition made during the previous
quarter. These shares were not registered under the Securities
Act of 1933 (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
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 18, 1999 (Item 7).
Current Report on Form 8-K dated June 29, 1999 (Item 7).
Current Report on Form 8-K dated July 28, 1999 (Item 7).
<Page 19>
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 3, 1999 By: s/ Nathan J. Jones
Nathan J. Jones
Senior Vice President,
Principal Financial Officer
and Principal Accounting
Officer
<Page 20>
INDEX TO EXHIBITS
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 21>
EXHIBIT 12
DEERE & COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Year
Ended Ended
July 31 October 31
1999 1998 1998
------------------- ----------
(In thousands of dollars)
Earnings:
Income of consolidated group
before income taxes
and changes in accounting $431,911 $1,325,271 $1,560,032
Dividends received from less-
than-fifty percent owned
affiliates 5,734 5,482 5,555
Fixed charges excluding
capitalized interest 425,163 391,885 531,817
Total earnings $862,808 $1,722,638 $2,097,404
Fixed charges:
Interest expense of con-
solidated group including
capitalized interest $416,963 $ 384,506 $ 521,418
Portion of rental charges
deemed to be interest 9,338 9,552 12,451
Total fixed charges $426,301 $ 394,058 $ 533,869
Ratio of earnings to
fixed charges* 2.02 4.37 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
lelss-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
<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>
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