===============================================================
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, 2001
Commission file no: 1-6458
__________________________
JOHN DEERE CAPITAL CORPORATION
Delaware 36-2386361
(State of incorporation) (IRS employer identification no.)
1 East First Street, Suite 600
Reno, Nevada 89501
(Address of principal executive offices)
Telephone Number: (775) 786-5527
_________________________________
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
At April 30, 2001, 2,500 shares of common stock,
without par value, of the registrant were outstanding, all of
which were owned by John Deere Credit Company, a wholly-owned
subsidiary of Deere & Company.
The registrant meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is
therefore filing this Form with certain reduced disclosures as
permitted by those instructions.
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Page 1 of 19 Pages
Index to Exhibits: Page 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Income and Retained Earnings
(Unaudited)
(in millions)
Three Months Ended Six Months Ended
April 30, April 30,
-----------------------------------
2001 2000 2001 2000
-----------------------------------
Revenues
Finance income earned
on retail notes $ 109.2 $ 97.7 $ 222.8 $ 185.3
Lease revenues 107.8 94.7 214.5 183.6
Finance income earned on
wholesale notes 20.0 22.4 43.4 44.2
Revolving charge account
income 28.2 23.2 55.7 49.9
Operating loan income 9.1 7.0 17.8 13.5
Securitization and servicing
fee income 9.2 7.1 17.3 15.2
Net gain on receivables and
leases sold 7.3 3.2 16.9 7.0
Interest income from
short-term investments 6.3 2.2 7.2 4.7
Other income 5.9 3.8 10.9 9.0
- - -------------------------------------------------------------
Total revenues 303.0 261.3 606.5 512.4
- - -------------------------------------------------------------
Expenses
Interest expense 119.8 103.4 243.2 202.6
Operating expenses:
Administrative and
operating expenses 39.7 35.9 79.5 69.2
Provision for credit 20.6 17.4 28.2 25.8
losses
Fees paid to John Deere 4.1 2.8 7.9 5.9
Depreciation of equipment
on operating leases 60.7 52.4 123.4 104.4
- - -------------------------------------------------------------
Total operating expenses 125.1 108.5 239.0 205.3
- - -------------------------------------------------------------
Total expenses 244.9 211.9 482.2 407.9
- - -------------------------------------------------------------
Income of consolidated group
before income taxes 58.1 49.4 124.3 104.5
Provision for income taxes 21.2 17.1 43.4 36.2
- - -------------------------------------------------------------
Income of consolidated group 36.9 32.3 80.9 68.3
Equity in income (loss) of
unconsolidated affiliates (1.5) .1 (1.0) .2
- - -------------------------------------------------------------
Net income 35.4 32.4 79.9 68.5
Cash dividends declared (5.0) (10.0)
Retained earnings at
beginning of period 1,050.0 915.8 1,005.5 884.7
- - -------------------------------------------------------------
Retained earnings at
end of period $1,085.4 $ 943.2 $1,085.4 $ 943.2
=
==============================================================
See Notes to Interim Financial Statements.
Page 2
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(in millions)
April 30, October 31, April 30,
2001 2000 2000
-------------------------------
Assets
Cash and cash equivalents $ 289.4 $ 155.9 $ 187.5
Receivables and leases:
Retail notes 4,592.0 4,587.7 4,221.9
Wholesale notes 725.3 937.0 938.6
Revolving charge accounts 640.9 688.3 640.2
Operating loans 428.7 422.2 295.2
Financing leases 444.8 456.4 427.9
- - -------------------------------------------------------------
Total receivables 6,831.7 7,091.6 6,523.8
Equipment on operating
leases - net 1,489.0 1,517.1 1,415.0
- - -------------------------------------------------------------
Total receivables
and leases 8,320.7 8,608.7 7,938.8
Allowance for credit losses (90.6) (93.3) (91.2)
- - -------------------------------------------------------------
Total receivables and
leases - net 8,230.1 8,515.4 7,847.6
- - -------------------------------------------------------------
Notes receivable -
unconsolidated affiliates 195.3 140.0 92.7
Other receivables 97.4 86.2 75.2
Investment in unconsolidated
affiliates 7.0 9.7 10.9
Other assets 180.2 130.8 135.2
- - -------------------------------------------------------------
Total Assets $ 8,999.4 $ 9,038.0 $ 8,349.1
= =============================================================
Liabilities and Stockholder's Equity
Short-term borrowings:
Commercial paper $ 1,128.4 $ 2,474.1 $ 2,129.1
Extendible commercial notes
and other notes payable 23.3 3.7 7.6
John Deere 67.6 495.4 125.8
Current maturities of
long-term borrowings 2,179.4 1,769.5 1,893.2
- - -------------------------------------------------------------
Total short-term
Borrowings 3,398.7 4,742.7 4,155.7
- - -------------------------------------------------------------
Accounts payable and accrued
liabilities:
Accrued interest on debt 52.7 52.3 37.2
Other payables 559.1 415.5 405.1
- - -------------------------------------------------------------
Total accounts payable and
accrued liabilities 611.8 467.8 442.3
- - -------------------------------------------------------------
Deposits withheld from dealers
and merchants 131.0 132.6 122.2
- - -------------------------------------------------------------
Long-term borrowings:
Senior debt 3,553.9 2,436.8 2,425.2
Subordinated debt 150.0 150.0 150.0
- - -------------------------------------------------------------
Total long-term borrowings 3,703.9 2,586.8 2,575.2
- - -------------------------------------------------------------
Total liabilities 7,845.4 7,929.9 7,295.4
- - -------------------------------------------------------------
Stockholder's equity:
Common stock, without par value
(issued and outstanding --
2,500 shares owned by
John Deere Credit Company) 112.8 112.8 112.8
Retained earnings 1,085.4 1,005.5 943.2
Accumulated other comprehensive
income (loss) (44.2) (10.2) (2.3)
- - -------------------------------------------------------------
Total stockholder's equity 1,154.0 1,108.1 1,053.7
- - -------------------------------------------------------------
Total Liabilities and
Stockholder's Equity $ 8,999.4 $ 9,038.0 $ 8,349.1
= =============================================================
See Notes to Interim Financial Statements.
Page 3
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Unaudited)
(in millions)
Six Months Ended April 30,
2001 2000
-----------------------------
Cash Flows from Operating Activities:
Net income $ 79.9 $ 68.5
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 28.2 25.8
Provision for depreciation
and amortization 125.5 105.6
Undistributed earnings of
unconsolidated affiliates 1.0 (.2)
Other 38.4 61.0
- - -------------------------------------------------------------
Net cash provided by
operating activities 273.0 260.7
- - -------------------------------------------------------------
Cash Flows from Investing Activities:
Cost of Receivables acquired (3,883.8) (3,792.7)
Collections of Receivables 2,915.3 3,074.6
Cost of operating leases acquired (274.0) (377.5)
Proceeds from sale of equipment on
operating leases 154.8 101.0
Change in notes receivable -
unconsolidated affiliates (55.3) (87.8)
Proceeds from sales of receivables 1,204.6 154.1
Acquisition of business (5.1)
Other 56.2 17.7
- - -------------------------------------------------------------
Net cash provided by (used for)
investing activities 112.7 (910.6)
- - -------------------------------------------------------------
Cash Flows from Financing Activities:
Change in commercial paper (1,340.6) 864.4
Change in extendible commercial
notes and other notes payable 19.6 1.2
Change in receivable from/payable
to John Deere (439.0) (2.8)
Proceeds from issuance of long-term
borrowings 2,427.2 945.0
Principal payments on long-term
Borrowings (919.4) (1,115.4)
Dividends paid (10.0)
- - -------------------------------------------------------------
Net cash provided by (used for)
financing activities (252.2) 688.0
- - -------------------------------------------------------------
Net increase in cash and cash
equivalents 133.5 38.1
Cash and cash equivalents at
beginning of period 155.9 149.4
- - -------------------------------------------------------------
Cash and cash equivalents at end
of period $ 289.4 $ 187.5
= =============================================================
See Notes to Interim Financial Statements.
Page 4
John Deere Capital Corporation and Subsidiaries
Notes to Interim Financial Statements
(Unaudited)
(1) The consolidated financial statements of John Deere
Capital Corporation (Capital Corporation) and its subsidiaries
(collectively called the Company) have been prepared by the
Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America 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
year.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts and related
disclosures. Actual results could differ from those estimates.
Certain amounts for prior years have been reclassified to
conform with 2001 financial statement presentation.
Based on the way the Company's operations are managed and
evaluated by management, the Company is viewed as having one
operating segment.
(2) The Company provides and administers financing for
retail purchases of new and used equipment manufactured by Deere
& Company's agricultural, commercial and consumer, and
construction equipment divisions. The Company purchases retail
installment sales and loan contracts (retail notes) from Deere &
Company and its wholly-owned subsidiaries (collectively called
John Deere). John Deere acquires these retail notes through
John Deere equipment retail dealers. The Company also purchases
and finances certain agricultural, construction and lawn and
grounds care retail notes unrelated to John Deere. In addition,
the Company purchases and finances recreational vehicle and
manufactured housing unit retail notes acquired from dealers
(recreational product retail notes). The Company leases
equipment to retail customers (financing and operating leases).
The Company also finances and services revolving charge accounts
and operating loans acquired from and offered through merchants
or farm input providers in the agricultural and construction and
lawn and grounds care markets as well as insured international
export financing products (revolving charge accounts and
operating loans), and provides wholesale financing for
inventories of John Deere engines and agricultural and
construction equipment owned by dealers of those products
(wholesale notes). Retail notes, revolving charge accounts,
operating loans, financing leases and wholesale notes receivable
are collectively called "Receivables." Receivables and operating
leases are collectively called "Receivables and Leases."
(3) In the first quarter of fiscal 2001, John Deere Bank
S.A. (JDB), a wholly-owned subsidiary of the Capital
Corporation, purchased the portfolio held by John Deere Credit
- - Germany, which had been one of the Company's joint ventures
accounted for under the equity method. Future equipment
financing in Germany will be offered through JDB. The purchase
of this portfolio added approximately $176 million to the
Company's Receivables and Leases held at the acquisition date.
Page 5
(4) In the first quarter of 2001, the Company formed a
joint venture company, iVesta Financial Solutions LLC (iVesta).
iVesta will develop and manage a new service designed to enable
customers to execute secure financial transactions with
companies selling goods or services in an e-business
environment. The service, named Isis, will provide an
electronic financial network for the agricultural market.
Agricultural customers will be able to use the service to
select from a choice of Isis network lenders when purchasing a
product or seeking financing and are expected to be able to
complete entire loan transactions online. The investment in
iVesta is being accounted for as an equity basis investment.
(5) During the second quarter of 2001, the Company
discontinued offering wholesale note financing for yacht dealer
inventories. Acquisition volumes for this product totaled $37
million for the first six months of 2001. The Company sold
this portfolio during the second quarter of 2001.
(6) The Company's ratio of earnings before fixed charges to
fixed charges was 1.48 to 1 for the second quarter of 2001
compared with 1.46 to 1 for the second quarter of 2000. The
ratios of earnings before fixed charges was 1.50 to 1 for the
first six months of 2001 and 1.51 to 1 for the first six months
of 2000. "Earnings before fixed charges" consist of income
before income taxes, the cumulative effect of changes in
accounting and fixed charges. "Fixed charges" consist of
interest on indebtedness, "amortization of debt discount and
expense," an estimated amount of rental expense under
capitalized leases which is deemed to be representative of the
interest factor, and rental expense under operating leases.
(7) In the first quarter of 2001, the Company adopted
Financial Accounting Standards Board (FASB) Statement 133,
Accounting for Derivative Instruments and Hedging Activities,
as amended by FASB 138. Under the new standards, all
derivatives have been recorded at fair value in the financial
statements. Changes in fair values of the derivatives are
recognized periodically in other comprehensive income (equity)
for derivatives designated as hedges of future cash flows or in
net income for all other derivatives. The after-tax transition
adjustments for adopting the new standards at November 1, 2000
were an unrealized loss of $3.6 million recorded in "Unrealized
loss on Derivatives" (other comprehensive income) and a loss of
$.1 million recorded in income. The amount of the transition
adjustment loss which was recorded in other comprehensive
income at November 1, 2000 that will be reclassified to
earnings in fiscal year 2001 is approximately $1 million. The
effects of the adoption of the new standards on the Company's
financial position and net income were not material.
The Company enters into derivative transactions only to manage
exposures arising in the normal course of business and not for
the purpose of creating speculative positions or trading. The
Company manages the relationship of the types and amounts of
its funding sources to its receivable and lease portfolio in an
effort to diminish risk due to interest rate and foreign
currency fluctuations, while responding to favorable financing
opportunities. The Company also has foreign currency exposures
at some of its foreign and domestic operations related to
financing in currencies other than the local currencies.
Interest Rate Swaps
Certain interest rate swaps were designated as hedges of future
cash flows from commercial paper and variable interest rate
borrowings. The fair value gains or losses on these swaps are
recorded in other comprehensive income with the effective
portion of the gains or losses subsequently recognized in
interest expense, offsetting the effects of interest rate
changes on the related borrowings. Certain interest rate swaps
were designated as fair value hedges of fixed-rate, long-term
borrowings. The effective portion of the fair value gains or
losses on these swaps were
Page 6
offset by fair value adjustments in the underlying borrowings.
The ineffective portions of the gains or losses on all the cash
flow and fair value interest rate swaps designated as hedges
were recognized immediately in interest expense and were not
material in the first six months of 2001. There were no
components of the cash flow or fair value hedges that were
excluded from the assessment of the hedge's effectiveness.
Foreign Exchange Forward Contracts, Swaps and Options
The Company has entered into foreign exchange forward contracts
in order to manage the currency exposure of certain receivables
and liabilities. These derivatives were not designated as
hedges. The fair value gains or losses from these foreign
currency derivatives are recorded in earnings, generally
offsetting the foreign exchange gains or losses on the
exposures being managed.
(8) In 2000, the FASB issued Statement No. 140, Accounting
for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This standard revises FASB
Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and
requires additional disclosure as presented below. The
Statement was effective for sales of receivables after March
31, 2001 and did not have a material impact on the Company's
financial position or net income.
When the Company sells receivables in securitizations of retail
notes, it retains interest-only strips, servicing rights, and
in some cases a cash reserve account, all of which are retained
interests in the securitized receivables. Gains or losses on
sales of the receivables depend in part on the previous
carrying amount of the financial assets involved in the
transfer, allocated between the assets sold and the retained
interests based on their relative fair values at the date of
transfer. The Company generally estimates fair values based on
the present value of future expected cash flows using
management's key assumptions as discussed below. The Company
receives annual servicing fees approximating 1 percent of the
outstanding balance and rights to future cash flows The
Company's maximum exposure under recourse provisions related to
securitizations was $188 million at April 30, 2001. Except for
this exposure, the investors and securitization trusts have no
recourse to the Company for failure of debtors to pay when due.
The Company's retained interests, which are included in the
recourse provision, are subordinate to investor's interests and
their values are subject to the key assumptions as shown below
on the transferred financial assets.
The Company recognized a pretax gain of $7 million on retail
notes securitized during the first six months of 2001. Key
assumptions used to initially determine the fair value of the
retained interests included a weighted-average maturity of 20
months, average annual prepayment rate of 20 percent, expected
annual credit losses of .29 percent, and a discount rate on
retained interests and subordinate tranches of 13 percent.
The table below summarizes cash flows received from and paid to
securitization trusts (in millions):
Six Months Ended
April 30, 2001
Proceeds from new securitizations $ 800
Servicing fees received 10
Other cash flows received 28
Page 7
The total retained interests, weighted-average life, current
key economic assumptions and the sensitivity analysis showing
the hypothetical effects on the retained interests from
immediate 10 percent and 20 percent adverse changes in those
assumptions were as follows ($ in millions):
Retail Note Securitizations April 30, 2001
- --------------------------- --------------
Carrying amount/fair value of retained
interests $111
Weighted-average life (in months) 15
Prepayment speed assumption (annual rate) 19%
Impact on fair value of 10% adverse change $ .5
Impact on fair value of 20% adverse change $ .8
Expected credit losses (annual rate) .38%
Impact on fair value of 10% adverse change $ .7
Impact on fair value of 20% adverse change $ 1.5
Residual cash flows discount rate (annual) 13%
Impact on fair value of 10% adverse change $ 2.5
Impact on fair value of 20% adverse $ 5.0
These sensitivities are hypothetical changes in fair value and
cannot be extrapolated because the relationship of the changes
in assumption to the changes in fair value may not be linear.
Also, the effect of a variation in a particular assumption is
calculated without changing any other assumption, whereas
changes in one factor may result in changes in another.
Accordingly, no assurance can be given that actual results
would be consistent with the results of these estimates.
The following table presents information about principal
balances of managed and securitized retail note receivables as
of and for the six months ended April 30, 2001 (in millions):
Principal Principal Net credit
outstanding 60 days or more losses
past due
---------------------------------------------
Owned $4,292 $16 $11
Securitized 1,696 19 4
---------------------------------------------
Managed $5,988 $35 $15
=============================================
The amount of expected static pool losses (actual and projected
future credit losses) for securitizations during the first six
months of 2001 was .53 percent of the retail notes sold.
(9) Comprehensive income, which includes all changes in the
Company's equity during the period except for transactions with
the stockholder, was as follows in millions of dollars:
Three Months Ended Six Months Ended
April 30, April 30,
2001 2000 2001 2000
---------------------------------------
Net income $ 35.4 $ 32.4 $ 79.9 $ 68.5
Other comprehensive income
(loss), net of tax:
Change in cumulative
translation adjustment (2.8) (2.0) .6 (2.5)
Unrealized loss on
derivatives (12.0) (34.6)
---------------------------------------
- -
Comprehensive income $ 20.6 $ 30.4 $ 45.9 $ 66.0
=======================================
Page 8
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
Results of Operations
- ---------------------
Net income was $35.4 million for the second quarter and $79.9
million for the first six months of 2001, compared with $32.4
million and $68.5 million, respectively, last year. The
improvements for both periods were primarily due to growth of
the receivable and lease portfolio and higher income from
increased sales of retail notes, partially offset by higher
selling and administrative expenses and increased receivable
write-offs primarily related to construction equipment.
Revenues totaled $303.0 million and $606.5 million for the
second quarter and for the first six months, respectively, of
2001, compared to $261.3 million and $512.4 million for the
same periods a year ago. Revenues increased primarily due to a
12 percent increase in the average balance of Receivables and
Leases financed. Finance income earned on retail notes totaled
$222.8 million for the first six months of 2001, compared to
$185.3 million for the same period in 2000. This increase was
primarily due to the increase in the average balance of
Receivables financed and higher yields on variable rate
contracts compared to one year ago. Lease revenues increased
$30.9 million, to $214.5 million in the first six months of
2001, from $183.6 million in the first six months of 2000, due
to a 10 percent increase in the average balance of equipment on
operating leases and financing leases. Finance income earned
on wholesale notes decreased $.8 million, to $43.4 million for
the first six months of 2001, from $44.2 million in the first
six months of 2000. This decrease occurred primarily because
the Company discontinued offering wholesale note financing for
manufactured housing, recreational vehicle and yacht dealer
inventories. Revolving charge account income was $55.7 million
for the first six months of 2001, compared to $49.9 million
during the same period last year. Operating loan income
increased $4.3 million to $17.8 million, from $13.5 million in
the first six months of 2000.
Net gains on the sales of retail notes, including adjustments
to prior sales, totaled $7.3 million and $16.9 million for the
second quarter and for the first six months of 2001,
respectively, compared to $3.2 million and $7.0 million for the
same periods a year ago. The increase was primarily related to
the sale of agricultural retail notes (approximately $800
million total principal value) during the first six months of
2001. There were no similar sales during the first six months
of 2000. Additional sales of receivables and leases are
expected to be made in the future.
Interest expense totaled $119.8 million for the second quarter
of 2001 and $243.2 million for the first six months of 2001,
compared to $103.4 million and $202.6 million for the same
periods in 2000. This increase was primarily due to average
borrowings increasing 11 percent to $7,010 million in the first
six months of 2001 compared to $6,311 million in the first six
months of 2000. In addition, the weighted-average annual
interest rate incurred on all borrowings increased from 6.3
percent for the first six months of 2000 to 6.8 percent for the
first six months of 2001.
Administrative and operating expenses were $39.7 million in the
second quarter of 2001 and $79.5 million for the first six
months of 2001, compared with $35.9 million and $69.2 million
for the same periods in 2000. These increases were
attributable to the higher costs associated with administering
a larger Receivable and Lease portfolio. Depreciation of
equipment on operating leases increased to $60.7 million in the
second quarter of 2001 and $123.4 million for the first six
months of 2001, compared to $52.4 million and $104.4 million
for the same periods in 2000, as a result of the increase in
average balance of equipment on operating leases financed.
During the second quarter and the first six months of 2001, the
provision for credit losses totaled $20.6 million and $28.2
million, respectively, compared with $17.4 million and $25.8
million in the same periods last year. The annualized provision
for credit losses, as a percentage of the total average
portfolio
Page 9
outstanding, was 1.03 percent for the second quarter of 2001
and .68 percent for the first six months of 2001, compared with
.92 percent and .70 percent for the same periods last year.
Receivable and Lease acquisition volumes were as follows (in
millions of dollars):
Three Months
Ended April 30,
2001 2000 $ Change % Change
-------------------------------------
Retail notes:
Agricultural equipment $ 647 $ 639 $ 8 1%
Construction equipment 180 185 (5) (3)
Lawn and grounds care
equipment 99 85 14 16
Recreational products 202 72 130 181
----------------------------
Total 1,128 981 147 15
----------------------------
Wholesale notes 216 411 (195) (47)
Revolving charge accounts 459 433 26 6
Operating loans 254 192 62 32
Financing leases 44 48 (4) (8)
Equipment on operating
leases 184 217 (33) (15)
----------------------------
Total $ 2,285 $ 2,282 $ 3 0%
============================
Six Months
Ended April 30,
-----------------
2001 2000 $ Change % Change
--------------------------------------
Retail notes:
Agricultural equipment $ 1,262 $ 1,309 $ (47) (4)%
Construction equipment 347 318 29 9
Lawn and grounds care
equipment 142 130 12 9
Recreational products 290 144 146 101
-----------------------------
Total 2,041 1,901 140 7
-----------------------------
Wholesale notes 455 763 (308) (40)
Revolving charge accounts 813 757 56 7
Operating loans 497 288 209 73
Financing leases 78 83 (5) (6)
Equipment on operating
Leases 274 378 (104) (28)
----------------------------
Total $ 4,158 $ 4,170 $ (12) 0%
============================
Wholesale note volumes decreased in the first six months of 2001
when compared to the same period last year primarily because the
Company discontinued offering wholesale note financing for
manufactured housing, recreational vehicle and yacht dealer
inventories. Operating lease volumes decreased $104 million
when compared to the same period one year ago primarily due to a
decrease in agricultural operating lease volumes. These
decreases were partially offset by increases in recreational
product retail note and operating loan volumes in the first six
months of 2001, when compared to the same period last year.
Page 10
Total Receivables and Leases held were as follows (in millions
of dollars):
April 30, October 31, April 30,
2001 2000 2000
--------------------------------------
Retail notes:
Agricultural equipment $ 2,858 $ 2,983 $ 2,925
Construction equipment 1,096 1,000 781
Lawn and grounds care
equipment 506 465 380
Recreational products 132 140 136
-------------------------------------
Total 4,592 4,588 4,222
-------------------------------------
Wholesale notes 725 937 939
Revolving charge accounts 641 689 640
Operating loans 429 422 295
Financing leases 445 456 428
Equipment on operating leases 1,489 1,517 1,415
-------------------------------------
Total $ 8,321 $ 8,609 $ 7,939
=====================================
Receivables and Leases administered by the Company were as
follows (in millions of dollars):
April 30, October 31, April 30,
2001 2000 2000
--------------------------------------
Receivables and Leases administered:
Owned by the Company $ 8,321 $ 8,609 $ 7,939
Sold and serviced -
with limited recourse* 1,865 1,867 1,611
Sold and serviced - without
recourse** 85 91 104
Serviced - without
recourse*** 15 24 32
--------------------------------------
Total Receivables and
Leases administered $ 10,286 $ 10,591 $ 9,686
======================================
* The Company's maximum exposure under all Receivable and
Lease recourse provisions at April 30, 2001, October 31, 2000
and April 30, 2000 was $188 million, $168 million and $144
million, respectively. In addition, the Company has guaranteed
letters of credit on behalf of John Deere Credit Inc., the John
Deere finance subsidiary in Canada, as part of three retail
note sales. At April 30, 2001, October 31, 2000 and April 30,
2000, the maximum exposure under these agreements was
approximately $11 million, $6 million and $7 million,
respectively.
** These Receivables and Leases represent a portfolio of
recreational product retail notes which the Company continues
to administer for a fee until the servicing rights are assumed
by their owners.
*** On February 1, 1999, the Company began servicing a
receivable portfolio on behalf of Farming and Agricultural
Financing Limited. These servicing rights were obtained in
conjunction with the Company's acquisition of the remaining 50
percent interest in John Deere Credit Limited. (John Deere
Credit Limited since has been liquidated, and its Receivables
have been transferred to John Deere Bank S.A.)
Page 11
Total Receivable and Lease amounts 60 days or more past due, by
product and as a percent of total balances held, were as
follows (in millions of dollars):
April 30, October 31, April 30,
2001 2000 2000
------------------------------------
$ % $ % $ %
------------------------------------
Retail notes:
Agricultural equipment $10.9 .38% $ 8.9 .30% $12.0 .41%
Construction equipment 5.1 .47 4.5 .45 2.2 .28
Lawn and grounds care
equipment 1.0 .20 .9 .19 .9 .24
Recreational products .1 .08 .1 .07 .1 .07
------ ----- ------
Total 17.1 .37 14.4 .31 15.2 .36
Wholesale notes 8.7 1.20 3.0 .32 1.2 .13
Revolving charge accounts 12.2 1.90 9.3 1.35 7.5 1.17
Operating loans 2.6 .61 .7 .17 8.5 2.88
Leases 10.0 .52 5.5 .28 5.8 .31
------ ------ ------
Total $50.6 .61% $32.9 .38% $38.2 .48%
====== ====== ======
The balance of retail notes held (principal plus accrued
interest) with any installment 60 days or more past due was $81
million, $68 million and $55 million at April 30, 2001, October
31, 2000 and April 30, 2000, respectively. The balance of
retail notes held on which any installment is 60 days or more
past due as a percent of retail notes held represented 1.76,
1.48 and 1.30 percent of the ending retail notes receivable at
April 30, 2001, October 31, 2000 and April 30, 2000,
respectively.
During the second quarter and the first six months of 2001,
write-offs (net of recoveries) of Receivables and Leases
totaled $15.6 million and $25.4 million, respectively, compared
with $10.1 million and $16.5 million in the same periods last
year. Annualized write-offs, as a percentage of the average
total receivables and leases held, were .78 percent for the
second quarter of 2001 and .61 percent for the first six months
of 2001, compared with .53 percent and .45 percent for the same
periods last year. Write-offs relating to retail notes
increased $4.4 million in the first six months of 2001, when
compared with the first six months of 2000, primarily due to
increased write-offs of construction equipment retail notes.
Lease write-offs increased $1.3 million in the first six months
of 2001 when compared to last year primarily due to higher
write-offs on construction leases. Wholesale note write-offs
increased $2.6 million in the first six months of 2001 when
compared to the same period last year primarily due to
increased write-offs of recreational vehicle dealer inventory
notes.
Deposits withheld from dealers and merchants, representing
mainly the aggregate dealer retail note and lease withholding
accounts from individual John Deere dealers to which losses
from retail notes and leases originating from the respective
dealers can be charged, amounted to $131 million at April 30,
2001, compared with $133 million at October 31, 2000 and $122
million at April 30, 2000.
The Company's allowance for credit losses on all Receivables
and Leases held totaled $91 million at April 30, 2001, $93
million at October 31, 2000 and $91 million at April 30, 2000.
The allowance for credit losses represented 1.09 percent of the
total Receivables and Leases held at April 30, 2001, 1.08
percent at October 31, 2000 and 1.15 percent at April 30, 2000.
The allowance is subject to an ongoing evaluation based on loss
experience. The Company believes the allowance is sufficient to
provide for losses in its existing Receivable and Lease
portfolio.
Page 12
Safe Harbor Statement
- ---------------------
Statements under "Financial Instrument Risk Information" 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. Interest rate
changes by the Federal Reserve Board may affect the cost of
financing the Company and the rates it is able to offer. In
addition, the Company's business is closely related to John
Deere's business. Further information, including factors that
potentially could materially affect the Company's and John
Deere's financial results, is included in the most recent Deere
& Company Form 10-Q and other Deere & Company and Capital
Corporation filings with the Securities and Exchange
Commission.
Capital Resources and Liquidity
- -------------------------------
The Company relies on its ability to raise substantial amounts
of funds to finance its Receivables and Leases. The Company's
primary sources of funds for this purpose are a combination of
borrowings and equity capital. Additionally, the Company
periodically sells substantial amounts of receivables and
leases in the public market and in private sales. The
Company's ability to obtain funds is affected by its debt
ratings, which are closely related to the outlook for and the
financial condition of Deere & Company, and the nature and
availability of support facilities, such as its lines of
credit. For information regarding Deere & Company and its
business, see Exhibit 99.
The Company's ability to meet its debt obligations is supported
in a number of ways. All commercial paper issued is backed by
bank credit lines. The assets of the Company are self-
liquidating in nature. A strong equity position is available
to absorb unusual losses on these assets. Liquidity is also
provided by the Company's ability to sell these assets.
The Company's business is somewhat seasonal, with overall
acquisition volumes of Receivables and Leases traditionally
higher in the second half of the year than in the first half,
and overall collections of Receivables and Leases traditionally
somewhat higher in the first six months than in the last six
months of the year.
During the first six months of 2001, the aggregate net cash
provided by operating and investing activities was primarily
used to decrease borrowings. Net cash provided by operating
activities was $273 million in the first six months of 2001.
Investing activities provided $113 million in the first six
months of 2001. Receivable and Lease sales provided $1,205
million, which was partially offset by Receivable and Lease
acquisitions exceeding collections by $1,088 million.
Financing activities used $252 million during the same period,
resulting primarily from a decrease in total borrowings,
including a reduction in amounts payable to John Deere. Cash
and cash equivalents increased $134 million during the first
six months of 2001. See "Statement of Consolidated Cash
Flows."
During the first six months of 2000, the aggregate net cash
provided by operating and financing activities was primarily
used to increase Receivables and Leases. Net cash provided by
operating activities was $261 million in the first six months
of 2000. Net cash used for investing activities totaled $911
million in the first six months of 2000, primarily due to
Receivable and Lease acquisitions exceeding collections by
$1,096 million, which was partially offset by the $154 million
in proceeds from the sale of receivables. Financing activities
provided $688 million during the same period, resulting from a
$698 million net increase in total borrowings, which was
partially offset by a $10 million dividend payment to John
Deere Credit Company. Cash and cash equivalents increased $38
million during the first six months of 2000.
Total interest-bearing indebtedness amounted to $7,103 million
at April 30, 2001, compared with $7,330 million at October 31,
2000 and $6,731 million at April 30, 2000, generally
corresponding with the level
Page 13
of Receivables and Leases financed and the level of cash and
cash equivalents. Total short-term indebtedness amounted to
$3,399 million at April 30, 2001, compared with $4,743 million
at October 31, 2000 and $4,156 million at April 30, 2000, while
total long-term indebtedness amounted to $3,704 million, $2,587
million and $2,575 million at these dates, respectively. The
ratio of total interest-bearing debt to stockholder's equity
was 6.2 to 1, 6.6 to 1 and 6.4 to 1 at April 30, 2001, October
31, 2000 and April 30, 2000, respectively.
During the first six months of 2001, the Company retired $200
million of 5.85% long-term notes due in 2001. During the same
period, the Capital Corporation's subsidiary, John Deere Credit
Limited in Gloucester, England, retired $44 million of long-
term debt. The Capital Corporation's subsidiary, John Deere
Bank S.A., issued $227 million of medium-term notes and the
Capital Corporation issued $2,200 million and retired $675
million of medium-term notes during the first six months of
2001.
At April 30, 2001, the Capital Corporation and Deere & Company
jointly maintained $4,254 million of unsecured lines of credit
with various banks in North America and overseas, $932 million
of which were unused. For the purpose of computing unused
credit lines, commercial paper and short-term bank borrowings,
excluding the current portion of long-term borrowings, of the
Capital Corporation and Deere & Company, were considered to
constitute utilization. These agreements include a $2,113
million long-term commitment of the banks expiring on February
20, 2006. The facility fees payable under these credit
agreements are divided between Deere & Company and the Capital
Corporation based on the proportion of their respective
commercial paper outstanding.
Stockholder's equity was $1,154 million at April 30, 2001,
compared with $1,108 million at October 31, 2000 and $1,054
million at April 30, 2000. The increase of $46 million in the
first six months of 2001 resulted primarily from net income of
$80 million, partially offset by an unrealized loss on
derivatives of $35 million. This loss is primarily due to an
unrealized loss on interest rate swaps (pay fixed rates /
receive floating rates) hedging the interest costs of the
credit operations' short-term borrowings resulting from a
decrease in interest rates. If interest rates remain
unchanged, the unrealized loss will be realized in income and
will be offset by lower future interest expense on the credit
operations' short-term borrowings, which will be based on the
lower interest rates.
Item 3. Quantitative and Qualitative Disclosures About Market
-----------------------------------------------------
Risk.
----
Financial Instrument Risk Information
- -------------------------------------
Sensitivity Analysis
- --------------------
The following is a sensitivity analysis for the Company's
derivatives and other financial instruments that have interest
rate risk. These instruments are held for other than trading
purposes. The Company uses a combination of cash flow models
to assess the sensitivity of earnings to changes in market
interest rates. The models calculate the effect of adjusting
interest rates as follows. Cash flows for financing
receivables are discounted at the prevailing rate for each
receivable portfolio in effect at the end of the quarter. Cash
flows for borrowings are discounted at the treasury yield curve
plus a market credit spread for similarly rated borrowers in
similar industries. Cash flows for interest rate swaps are
projected and discounted using forecasted rates from the swap
yield curve at the repricing dates as of the end of the
quarter.
Page 14
The gains or losses in the following table represent the
changes in the financial instruments fair values which would be
caused by instantaneously increasing the interest rates by 10
percent of the current market rates at April 30, 2001. The
gains or losses in fair values would have been as follows in
millions of dollars:
Fair Value
Gains (Losses)
April 30, 2001
------------------
Financing receivables $ (38)
Long-term interest rate swaps
related to short-term borrowings 8
Long-term borrowings and related swaps:
Long-term borrowings 20
Interest rate swaps (9)
------------------
Total $ (19)
==================
Tabular Information
- -------------------
The following foreign exchange forward contracts were held by
the company related to certain currency exposures. All
contracts have maturity dates of less than one year. The
notional amounts and fair values in millions of dollars at
April 30, 2001 were as follows:
- ---------------------------------------------------------------
Average Notional Fair Value
Contractual Amount Gains
Rate* (Losses)
- ---------------------------------------------------------------
Buy US$ / Sell Australian
dollars 1.9798 $161.2 $ (1.7)
Buy Yen / Sell Euro 122.7226 36.7 ( .1)
Buy US$ / Sell Euro 1.1092 35.7 ( .1)
Other 35.8 .1
----------------------------------
Total $269.4 $ (1.8)
==================================
*Currency per United States dollar (US$)
- ---------------------------------------------------------------
The Company held certain financial instruments in currencies
other than the functional currencies. These amounts, excluding
short-term receivables and payables, in millions of dollars at
April 30, 2001 by maturity dates and average interest rates
were as follows:
- ---------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------
Last
Functional 6 Mos. Fair
Currency(FC) 2001 2002 2003 2004 2005 2006 Total Value
- ---------------------------------------------------------------
Euro (FC)
Short-term borrowings
(US$) $ 45 $ 45 *
Average interest
rates 5.0%
Short-term borrowings
(Yen) $ 37 $ 37 *
Average interest
rates .11%
Australian Dollar (FC)
Short-term borrowings
(US$) $161 $161 *
Average interest
rates 4.9%
*These fair values were approximately equal to the values in
the total column.
- ---------------------------------------------------------------
Page 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is various unresolved legal actions
which arise in the normal course of its business,
the most prevalent of which relate to state and
federal laws and regulations concerning retail
credit. Although it is not possible to predict
with certainty the outcome of these unresolved
legal actions or the range of possible loss, the
Company believes these unresolved legal actions
will not have a material effect on its financial
position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Omitted pursuant to instruction H(2).
Item 3. Defaults Upon Senior Securities.
-------------------------------
Omitted pursuant to instruction H(2).
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Omitted pursuant to instruction H(2).
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
See the index to exhibits immediately
preceding the exhibits filed with this report.
Certain instruments relating to long-term
debt, constituting less than 10% of the
registrant's total assets, are not filed as
exhibits herewith pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K. The
registrant will file copies of such
instruments upon request of the Commission.
(b) Reports on Form 8-K.
Current report on Form 8-K dated February
13,2001 (Items 5 and 7).
Page 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
JOHN DEERE CAPITAL CORPORATION
Date: June 7, 2001 By: /s/ Nathan J. Jones
------------------------------
Nathan J. Jones
Senior Vice President and
Principal Financial Officer
Page 17
INDEX TO EXHIBITS
Exhibit
(12) Computation of ratio of earnings to fixed charges
(99) Part I of Deere & Company Form 10-Q for the quarter
ended April 30, 2001 (Securities and Exchange
Commission file number 1-4121*).
__________________________
*Incorporated by reference. Copies of these exhibits are
available from the Company upon request.
Page 18