=============================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1998 Commission file no: 1-6458 ___________________________ JOHN DEERE CAPITAL CORPORATION Delaware 36-2386361 (State of incorporation) (IRS employer identification no.) 1 East First Street, Suite 600 Reno, Nevada 89501 (Address of principal executive offices) Telephone Number: (702) 786-5527 _________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No At July 31, 1998, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Credit Company, a wholly-owned subsidiary of Deere & Company. The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions. =============================================================== Page 1 of 16 Pages Index to Exhibits: Page 14 PART I. FINANCIAL INFORMATION Item 1. Financial Statements John Deere Capital Corporation and Subsidiaries Statements of Consolidated Income and Retained Earnings (Unaudited) (in millions) Three Months Nine Months Ended Ended July 31, July 31, ------------------------------ 1998 1997 1998 1997 Revenues ------ ------ ------ ------ Finance income earned on retail notes $112.1 $111.1 $323.7 $306.7 Revolving charge account income 30.4 26.6 80.3 71.2 Lease revenues 51.1 32.4 135.6 82.8 Finance income earned on wholesale notes 15.8 12.3 44.1 36.0 Net gain on retail notes sold 4.3 7.4 16.9 9.2 Interest income from short-term investments 1.9 2.6 6.9 7.6 Securitization and servicing fee income 6.4 5.9 20.8 23.5 Other income 4.4 2.0 9.8 5.9 - -------------------------------------------------------------- Total revenues 226.4 200.3 638.1 542.9 - -------------------------------------------------------------- Expenses Interest expense: 95.3 86.6 274.7 236.7 Operating expenses: Administrative and operating expenses 29.1 25.9 84.1 74.6 Provision for credit losses 7.9 8.8 32.4 25.0 Fees paid to Deere & Company 2.4 1.9 8.3 6.3 Depreciation of equipment on operating leases 30.3 18.8 79.1 50.6 - -------------------------------------------------------------- Total operating expenses 69.7 55.4 203.9 156.5 - -------------------------------------------------------------- Total expenses 165.0 142.0 478.6 393.2 - -------------------------------------------------------------- Income of consolidated group before income taxes 61.4 58.3 159.5 149.7 Provision for income taxes 21.6 20.3 56.2 52.1 - -------------------------------------------------------------- Income of consolidated group 39.8 38.0 103.3 97.6 Equity in income (loss) of unconsolidated affiliate .1 (.2) .1 (1.1) - -------------------------------------------------------------- Net income $ 39.9 $ 37.8 $103.4 $ 96.5 Cash dividends declared (12.5) (20.0) (37.5) (60.0) Retained earnings at beginning of period 743.7 663.1 705.2 644.4 - --------------------------------------------------------------- Retained earnings at end of period $771.1 $680.9 $771.1 $680.9 =============================================================== See Notes to Interim Financial Statements. Page 2 John Deere Capital Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (dollars in millions) July 31, October 31, July 31, 1998 1997 1997 Assets -------- -------- -------- Cash and cash equivalents $ 175.9 $ 204.4 $ 187.0 Receivables and leases: Retail notes 4,521.7 4,349.4 4,499.0 Wholesale notes 725.8 593.4 522.7 Revolving charge accounts 730.6 618.5 613.2 Financing leases 234.2 214.6 208.2 - --------------------------------------------------------------- Total receivables 6,212.3 5,775.9 5,843.1 Equipment on operating leases -- net 826.2 527.2 459.8 - --------------------------------------------------------------- Total receivables and leases 7,038.5 6,303.1 6,302.9 Allowance for credit losses (86.1) (85.9) (89.3) - --------------------------------------------------------------- Total receivables and leases -- net 6,952.4 6,217.2 6,213.6 - --------------------------------------------------------------- Other receivables 152.7 157.9 144.4 Investment in unconsolidated affiliates 18.9 12.8 8.4 Other assets 70.8 66.8 72.1 - --------------------------------------------------------------- Total Assets $7,370.7 $6,659.1 $6,625.5 =============================================================== Liabilities and Stockholder's Equity Short-term borrowings: Commercial paper $1,968.2 $1,991.9 $2,382.8 Deere & Company 290.6 349.9 123.6 Current maturities of long-term borrowings 1,997.5 1,042.5 618.8 Other notes payable 7.5 2.4 1.8 - --------------------------------------------------------------- Total short-term borrowings 4,263.8 3,386.7 3,127.0 - --------------------------------------------------------------- Accounts payable and accrued liabilities: Accrued interest on senior debt 65.8 39.2 51.4 Other payables 216.4 188.3 165.8 - --------------------------------------------------------------- Total accounts payable and accrued liabilities 282.2 227.5 217.2 - --------------------------------------------------------------- Deposits withheld from dealers and merchants 151.0 144.2 134.0 - --------------------------------------------------------------- Long-term borrowings: Senior debt 1,640.3 1,782.9 2,203.7 Subordinated debt 150.0 300.0 150.0 - --------------------------------------------------------------- Total long-term borrowings 1,790.3 2,082.9 2,353.7 - --------------------------------------------------------------- Total liabilities 6,487.3 5,841.3 5,831.9 - --------------------------------------------------------------- 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 771.1 705.2 680.9 Cumulative translation adjustment (.5) (.2) (.1) - --------------------------------------------------------------- Total stockholder's equity 883.4 817.8 793.6 - --------------------------------------------------------------- Total Liabilities and Stockholder's Equity $7,370.7 $6,659.1 $6,625.5 =============================================================== See Notes to Interim Financial Statements. Page 3 John Deere Capital Corporation and Subsidiaries Statements of Consolidated Cash Flows (Unaudited) (in millions) Nine Months Ended July 31 ------------------------- 1998 1997 ------------------------- Cash Flows from Operating Activities: Net income $ 103.4 $ 96.5 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 32.4 25.0 Provision for depreciation 81.3 50.5 Equity in loss (income) of unconsolidated affiliates (.1) 1.1 Other 40.2 24.4 - -------------------------------------------------------------- Net cash provided by operating activities 257.2 197.5 - -------------------------------------------------------------- Cash Flows from Investing Activities: Cost of receivables and leases acquired (5,591.4) (4,734.4) Collections of receivables 3,909.8 3,562.9 Proceeds from sales of receivables 804.9 433.0 Other 41.3 26.7 - -------------------------------------------------------------- Net cash used for investing activities (835.4) (711.8) - -------------------------------------------------------------- Cash Flows from Financing Activities: Change in commercial paper (23.7) 692.9 Change in receivable/payable with Deere & Company (57.7) (411.9) Increase in other notes payable 5.1 1.8 Proceeds from issuance of long-term borrowings 996.0 885.0 Principal payments on long-term borrowings (332.5) (577.5) Dividends paid (37.5) (60.0) - -------------------------------------------------------------- Net cash provided by financing activities 549.7 530.3 - -------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (28.5) 16.0 Cash and cash equivalents at the beginning of period 204.4 171.0 - -------------------------------------------------------------- Cash and cash equivalents at the end of period $ 175.9 $ 187.0 ============================================================== See Notes to Interim Financial Statements. Page 4 John Deere Capital Corporation and Subsidiaries Notes to Interim Financial Statements (1) The consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (the Company) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. (2) The principal business of the Company is providing and administering financing for retail purchases of new and used equipment manufactured by Deere & Company's agricultural, construction and commercial and consumer equipment divisions. The Company purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly- owned subsidiaries (collectively called John Deere). John Deere acquires these retail notes through independent John Deere retail dealers. The Company also purchases and finances certain agricultural, construction and lawn and grounds care retail notes unrelated to John Deere. In addition, the Company purchases and finances recreational product retail notes acquired from independent dealers and marine product mortgage service companies (recreational product retail notes). The Company also leases equipment to retail customers, finances and services revolving charge accounts acquired from and offered through merchants in the agricultural, construction, lawn and grounds care and yacht markets (revolving charge accounts), and provides wholesale financing for inventories of recreational vehicles, manufactured housing units, yachts, John Deere engines, and John Deere agricultural and John Deere construction equipment owned by dealers of those products (wholesale notes). Retail notes, revolving charge accounts, direct financing leases and wholesale notes receivable are collectively called "Receivables." Receivables and operating leases are collectively called "Receivables and Leases." (3) The Company's ratio of earnings to fixed charges was 1.63 to 1 for the third quarter of 1998 compared with 1.66 to 1 for the third quarter of 1997. The consolidated ratio of earnings to fixed charges was 1.57 to 1 for the first nine months of 1998 and 1.63 to 1 for the first nine months of 1997. "Earnings" consist of income before income taxes, the cumulative effect of changes in accounting and fixed charges. "Fixed charges" consist of interest on indebtedness, amortization of debt discount and expense, an estimated amount of rental expense under capitalized leases which is deemed to be representative of the interest factor and rental expense under operating leases. (4) Beginning in September 1997, certain notes from dealers for the financing of "purchase-for-rental" equipment were considered wholesale notes. Prior to that time, such notes were considered retail notes. During the first nine months of 1998, $142 million of these wholesale notes were acquired. Prior period volumes and ending balances have not been adjusted to reflect this change in policy. (5) In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which the Company will adopt in fiscal year 2000. This Statement is not expected to have a material effect on the Company's financial position or results of operations. Page 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Net income was $39.9 million in the third quarter of 1998 and $103.4 million for the first nine months of 1998 compared with $37.8 million and $96.5 million for the same periods last year. Third quarter and year-to-date earnings reflect higher income from an 11 percent increase in the average balance of Receivables and Leases financed during the first nine months. These results were partially offset by higher operating expenses and narrower financing spreads. In addition, the year- to-date earnings benefited from higher gains on the sales of retail notes. Revenues totaled $226.4 million and $638.1 million for the third quarter and for the first nine months of 1998, respectively, compared to $200.3 million and $542.9 million for the same periods a year ago. Revenues increased due to continued growth in operating leases, retail notes on John Deere equipment, wholesale notes and revolving charge accounts. Lease revenues increased $52.8 million to $135.6 million in the first nine months of 1998, from $82.8 million in the first nine months of 1997, largely due to increased leasing volumes as a result of a number of leasing incentives related to John Deere agricultural and construction equipment. Finance income earned on retail notes increased $17.0 million to $323.7 million for the first nine months of 1998 compared to $306.7 million for the same period in 1997. This increase was primarily due to a larger average retail installment portfolio financed. Finance income earned on wholesale notes increased $8.1 million to $44.1 million for the first nine months of 1998 from $36.0 million earned in the first nine months of 1997. The higher finance income earned on wholesale notes was primarily a result of increased activity for John Deere agricultural, construction, and lawn and grounds care equipment owned by dealers as well as a larger yacht wholesale portfolio (see note 4 to the interim financial statements for additional information.). Revolving charge accounts continued to benefit from strong demand for financing in the agricultural market. Gains on the sales of retail notes totaled $4.3 million and $16.9 million for the third quarter and for the first nine months of 1998, respectively, compared to $7.4 million and $9.2 million for the same periods a year ago. Additional sales of retail notes are expected to be made in the future. Total interest expense for the third quarter increased from $86.6 million in 1997 to $95.3 million in 1998. Interest expense increased from $236.7 million for the first nine months of 1997 to $274.7 million for the first nine months of 1998. These increases in interest expense were primarily the result of increased borrowings required to finance the higher average portfolio of Receivables and Leases. Total average borrowings during the first nine months of 1998 were $5.836 billion, compared to $5.310 billion in the first nine months of 1997. The weighted average interest rate on total borrowings for the nine months ended July 31, 1998 and 1997 were 6.13 percent and 6.03 percent, respectively. Administrative and operating expenses were $29.1 million in the third quarter of 1998 and $84.1 million for the first nine months of 1998, compared with $25.9 million and $74.6 million for the same periods in 1997. These increases were the result of higher employment costs associated with administering a larger Receivable and Lease portfolio. Depreciation of equipment on operating leases increased to $30.3 million in the third quarter of 1998 and $79.1 million for the first nine months of 1998, compared to $18.8 million and $50.6 million for the same periods in 1997, as a result of the increase in operating leases financed. During the third quarter and the first nine months of 1998, the provision for credit losses totaled $7.9 million and $32.4 million, respectively, compared with $8.8 million and $25.0 million in the same periods last year. The increase in the year-to-date provision for credit losses was primarily the result of increases in agricultural and construction retail note and lease write-offs in 1998 and an increase in the average portfolio of Receivables and Leases financed. The annualized provision for credit losses, as a percentage of the total average portfolio outstanding, was .45 percent for the third quarter of 1998 and .64 percent for the first nine months of 1998, compared with .55 percent and .56 percent for the same periods last year. Page 6 Receivable and Lease acquisition volumes were as follows (dollars in millions): Three Months Ended July 31, ---------------- 1998 1997 $ Chng % Chng ------------------------------------- Retail note volumes: Agricultural equipment $ 565 $ 459 $ 106 23% Construction equipment 123 92 31 34 Lawn and grounds care equipment 71 53 18 34 Recreational products 106 60 46 77 --------------------------- Total retail note volumes 865 664 201 30 Wholesale notes 403 279 124 44 Revolving charge accounts 535 463 72 16 Financing leases 43 32 11 34 Equipment on operating leases 155 93 62 67 --------------------------- Total Receivable and Lease volumes $2,001 $1,531 $ 470 31 =========================== Nine months Ended July 31, ---------------- 1998 1997 $ Chng % Chng ------------------------------------- Retail note volumes: Agricultural equipment $2,010 $1,909 $ 101 5% Construction equipment 329 277 52 19 Lawn and grounds care equipment 138 111 27 24 Recreational products 271 270 1 0 --------------------------- Total retail note volumes 2,748 2,567 181 7 Wholesale notes 1,077 791 286 36 Revolving charge accounts 1,232 1,018 214 21 Financing leases 95 85 10 12 Equipment on operating leases 439 274 165 60 --------------------------- Total Receivable and Lease volumes $ 5,591 $ 4,735 $ 856 18 ============================ Total Receivables and Leases held were as follows (in millions): July 31, October 31, July 31, 1998 1997 1997 ------------------------------- Retail notes held: Agricultural equipment $ 2,800 $ 2,556 $ 2,736 Construction equipment 682 660 637 Lawn and grounds care equipment 256 216 207 Recreational products 783 917 919 ------------------------------ Total retail notes held 4,521 4,349 4,499 Wholesale notes 726 593 523 Revolving charge accounts 731 619 613 Financing leases 234 215 208 Equipment on operating leases 826 527 460 ------------------------------ Total Receivables and Leases held $ 7,038 $ 6,303 $ 6,303 ============================== Page 7 For the third quarter and first nine months of 1998, agricultural retail note volumes increased 23 percent and 5 percent, respectively, compared to last year. Construction and lawn and grounds care retail notes increased in both periods of 1998 over 1997. Recreational product retail note volumes increased 77 percent in the third quarter of 1998, yet remained approximately the same year-to-date. The increase in the third quarter was due to a higher level of recreational vehicle retail note volume. Revolving charge account volumes increased in the third quarter and first nine months of 1998 compared to 1997, primarily due to increases in agricultural operating loans and Farm Plan. Wholesale note volumes also increased due to higher volumes of agricultural dealer purchase-for-rental notes and construction and recreational vehicle floor planning notes. Operating lease volumes continued to increase significantly over last year due to agricultural low-rate and guaranteed residual value leasing programs sponsored by the Company or John Deere. Receivables and Leases administered by the Company, which include retail notes previously sold, were as follows (in millions): July 31, October 31, July 31, 1998 1997 1997 ------------------------------- Receivables and Leases administered: Receivables and Leases owned by the Company $ 7,038 $ 6,303 $ 6,303 Retail notes sold and securitized (with recourse)* 1,246 1,314 1,040 Retail notes sold (without recourse) 183 --- --- ------------------------------- Total Receivables and Leases administered $ 8,467 $ 7,617 $ 7,343 =============================== * The Company's estimated maximum exposure under all retail note recourse provisions at July 31, 1998 was $166 million. Total Receivable and Lease amounts 60 days or more past due, by product and as a percentage of total balances held were as follows (dollars in millions): July 31, October 31, July 31, 1998 1997 1997 ----------------------------------------- Dollars % Dollars % Dollars % ----------------------------------------- Retail notes: Agricultural equipment $ 8.6 .31% $ 6.8 .27% $ 7.2 .26% Construction equipment 2.0 .29 2.0 .31 2.4 .38 Lawn and grounds care equipment .7 .29 .6 .28 .7 .33 Recreational products .2 .02 .3 .03 .1 .01 ----- ----- ----- Total retail notes 11.5 .25 9.7 .22 10.4 .23 Wholesale notes 1.3 .18 2.0 .33 1.2 .23 Revolving charge accounts 7.2 .98 8.3 1.34 9.4 1.54 Leases 3.4 .32 2.0 .27 2.3 .35 ----- ----- ----- Total Receivables and Leases $23.4 .33 $22.0 .35 $23.3 .37 ===== ===== ===== Page 8 The balance of retail notes held (principal plus accrued interest) with any installment 60 days or more past due was $46.1 million, $44.4 million and $54.3 million at July 31, 1998, October 31, 1997 and July 31, 1997, respectively. The balance of retail notes held on which any installment is 60 days or more past due as a percentage of ending retail notes receivable was 1.02 percent, 1.02 percent and 1.21 percent at July 31, 1998, October 31, 1997 and July 31, 1997, respectively. During the third quarter and the first nine months of 1998, write-offs (net of recoveries) of Receivables and Leases totaled $4.5 million and $23.3 million, respectively, compared with $6.2 million and $20.6 million in the same periods last year. Annualized write-offs, as a percentage of the total average portfolio outstanding, were .26 percent for the third quarter of 1998 and .46 percent for the first nine months of 1998, compared with .39 percent and .46 percent, respectively, during the same periods last year. Write-offs relating to retail notes increased 14 percent, or $1.4 million, in the first nine months of 1998, when compared with the first nine months of 1997, primarily due to increased write-offs of agricultural and construction equipment retail notes. Lease write-offs for the first nine months of 1998 increased 138 percent, or $1.4 million when compared to the first nine months of 1997. These increases were primarily due to the significant increases in the lease portfolios financed. Annualized lease write-offs, as a percentage of the total average lease portfolio outstanding, were .38 percent for the first nine months of 1998, compared to .25 percent during the same period last year. Revolving charge and wholesale account write-offs in 1998 remained relatively stable when compared to last year. Deposits withheld from dealers and merchants, representing mainly the aggregate dealer retail note and lease withholding accounts from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged, amounted to $151.0 million at July 31, 1998, compared with $144.2 million at October 31, 1997 and $134.0 million at July 31, 1997. The Company's allowance for credit losses on all Receivables and Leases financed totaled $86.1 million at July 31, 1998, $85.9 million at October 31, 1997 and $89.3 million at July 31, 1997. Allowance for credit losses represented 1.22 percent of the balance of Receivables and Leases financed at July 31, 1998, 1.36 percent at October 31, 1997, and 1.42 percent at July 31, 1997. The Company's allowance for credit losses, as a percentage of total Receivables and Leases, has declined during the last twelve months due to an ongoing reevaluation of loss experience and related adjustments to ensure that the allowance for credit losses is maintained at an adequate level. Management believes the allowance for credit losses at July 31, 1998 is sufficient to provide adequate protection against losses. Year 2000 The Company's Year 2000 Program addresses major assessment areas that include information systems, mainframe computers, personal computers, the distributed network, facilities, and the readiness of the Company's suppliers and distribution network. The program includes the following phases: identification and assessment, business criticality analysis, project work prioritization, compliance plan development, remediation and testing, production implementation, and contingency plan development for mission critical systems. The Company's objective is to become Year 2000 compliant with its mission critical activities and systems, including a contingency plan, by early 1999, allowing substantial time for further testing, verification and the final conversion of less important systems. The Company continues to be on schedule in its plans to accomplish this objective and has initiated infrastructure and information systems modifications to ensure that both hardware and software systems are compliant. The Company also is requesting assurances from its significant suppliers and dealers that they are addressing this issue to ensure there will be no major disruptions. Page 9 The total cost of the modifications and upgrades to date has not been material. Although no assurances can be given as to the Company's compliance, particularly as it relates to third- parties, including governmental entities, based upon the progress to date, the Company does not expect that either future costs of modifications or the consequences of any unsuccessful modifications will have a material adverse effect on the Company's financial position or results of operations. Accordingly, the Company believes that the most reasonably likely worst case Year 2000 scenario would not have a material adverse effect on the Company's financial position or results of operations. However, the Company is developing contingency plans, which should be complete by early 1999, should any Year 2000 failures occur in any of the assessment areas noted above. Capital Resources and Liquidity The Company relies on its ability to raise substantial amounts of funds to finance its Receivable and Lease portfolios. The Company's primary sources of funds for this purpose are a combination of borrowings and equity capital. Additionally, the Company periodically sells substantial amounts of retail notes in the public 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 as described below. 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 and securitize these assets. Asset-liability risk is also actively managed to minimize exposure to interest rate fluctuations. Total interest-bearing indebtedness amounted to $6.054 billion at July 31, 1998, compared with $5.470 billion at October 31, 1997 and $5.481 billion at July 31, 1997, generally corresponding with the level of Receivables and Leases financed. Total short-term indebtedness amounted to $4.624 billion at July 31, 1998, compared with $3.387 billion at October 31, 1997 and $3.127 billion at July 31, 1997. Total long-term indebtedness amounted to $1.790 billion, $2.083 billion and $2.354 billion at July 31, 1998, October 31, 1997 and July 31, 1997, respectively. The ratio of total interest- bearing debt to stockholder's equity was 6.9 to 1, 6.7 to 1 and 6.9 to 1 at July 31, 1998, October 31, 1997 and July 31, 1997, respectively. During the first nine months of 1998, the Capital Corporation issued $200 million of 5.85% notes due in 2001, and retired $150 million of floating rate notes due in 1998. Additionally, the Capital Corporation issued $796 million and retired $183 million of medium-term notes during the first nine months of 1998. At July 31, 1998, the Capital Corporation, Deere & Company, John Deere Limited (Canada) and John Deere Credit Inc. (Canada), jointly, maintained $5.028 billion of unsecured lines of credit with various banks in North America and overseas, $728 million of which was unused. For the purpose of computing unused credit lines, total short-term borrowings, excluding the current portion of long-term borrowings, of the Capital Corporation, Deere & Company, John Deere Limited (Canada) and John Deere Credit Inc. (Canada), were considered to constitute utilization. Included in the total credit lines is a long-term credit agreement commitment for $3.500 billion expiring on February 24, 2003. An annual facility fee on the credit agreement is charged to the Capital Corporation based on utilization. Page 10 The Company's business is somewhat seasonal, with overall acquisitions of Receivables and Leases traditionally higher in the second half of the fiscal year than in the first half, and overall collections of Receivables and Leases traditionally somewhat higher in the first half of the fiscal year. During the first nine months of 1998, the aggregate net cash provided by operating and financing activities was primarily used to increase Receivables and Leases. Net cash provided by operating activities was $257 million in the first nine months of 1998. Financing activities provided $550 million during the same period, resulting from a $588 million net increase in total borrowings, which was partially offset by $38 million in dividend payments to John Deere Credit Company. Net cash used for investing activities totaled $835 million in the first nine months of 1998, primarily due to Receivable and Lease acquisitions exceeding collections by $1.682 billion, partially offset by the $805 million in proceeds from the sale of receivables. Cash and cash equivalents decreased $29 million during the first nine months of 1998. During the first nine months of 1997, 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 $198 million in the first nine months of 1997. Financing activities provided $530 million during the same period, resulting from a $590 million net increase in total borrowings, which was partially offset by $60 million in dividend payments to John Deere Credit Company. Net cash used for investing activities totaled $712 million in 1997, primarily due to Receivable and Lease acquisitions exceeding collections by $1.172 billion, partially offset by the $433 million in proceeds from the sale of receivables. Cash and cash equivalents increased $16 million during the first nine months of 1997. The Capital Corporation paid a cash dividend to John Deere Credit Company of $12.5 million in each of the first three quarters of 1998. John Deere Credit Company paid comparable dividends to Deere & Company. On August 28, 1998, the Capital Corporation declared a cash dividend of $12.5 million to John Deere Credit Company, which in turn declared a cash dividend of $12.5 million to Deere & Company, each payable on September 8, 1998. Item 3. Quantitative and Qualitative Disclosures About Market Risk. See the information under "Management's Discussion and Analysis," Note 12 "Financial Instruments" and "Supplemental Information (Unaudited)" in the Company's most recent annual report filed on Form 10-K. There has been no material change in this information. Page 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to state and federal laws and regulations concerning retail credit. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its financial position or results of operations. Item 2. Changes in Securities and Use of Proceeds. On July 17, 1998, the Company announced that it would redeem on August 17, 1998 (the "Redemption Date") all of its outstanding 6.74% Medium-Term Notes, Series C due August 15, 2000 (the "Notes") at a redemption price equal to the principal amount of the Notes. Payment will be made upon presentation and surrender of the Notes: if by hand, at The Chase Manhattan Bank, Corporate Trust-Securities Window, 55 Water Street, Room 234, North Building, New York, New York 10041, or if by mail, to The Chase Manhattan Bank, c/o Texas Commerce Bank, Corporate Trust Services, P. O. Box 219052, Dallas, Texas 75221-9052. 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 reports on Form 8-K dated May 19, 1998 (items 5 and 7) and July 17, 1998 (Item 5). Page 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN DEERE CAPITAL CORPORATION Date: September 2, 1998 By: /s/ Nathan J. Jones -------------------------- Nathan J. Jones Senior Vice President (Principal Financial Officer) Page 13 INDEX TO EXHIBITS Exhibit - ------- (12) Computation of ratio of earnings to fixed charges (27) Financial data schedule (99) Part I of Deere & Company Form 10-Q for the quarter ended July 31, 1998 (Securities and Exchange Commission file number 1-4121*). - ------------------------------ * Incorporated by reference. Copies of these exhibits are available from the Company upon request. Page 14