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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 January 31, 2002
Commission file no: 1-4121
_____________________________________
DEERE & COMPANY
Delaware 36-2382580
(State of incorporation) (IRS employer identification no.)
One John Deere Place
Moline, Illinois 61265
(Address of principal executive offices)
Telephone Number: (309) 765-8000
_____________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No _______
-------
At January 31, 2002, 237,729,116 shares of common stock, $1 par value,
of the registrant were outstanding.
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Index to Exhibits: Page 20
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEERE & COMPANY CONSOLIDATED EQUIPMENT OPERATIONS FINANCIAL SERVICES
STATEMENT OF CONSOLIDATED INCOME (Deere & Company and (Deere & Company with Financial
Consolidated Subsidiaries) Services on the Equity Basis)
- ------------------------------------------------------------------------------------------------------------------------------------
Millions of dollars except per share amounts Three Months Three Months Three Months
Ended January 31 Ended January 31 Ended January 31
(Unaudited) 2002 2001 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales and Revenues
Net sales..................................... $ 1,937.5 $ 2,143.0 $ 1,937.5 $ 2,143.0
Finance and interest income................... 339.3 362.4 17.8 26.6 $ 362.7 $ 343.3
Health care premiums and fees................. 161.5 134.9 165.8 139.4
Investment income............................. 3.0 3.0 2.9 3.0
Other income.................................. 80.8 61.8 43.5 42.2 48.1 27.8
---------- ------------ ----------- ------------ ----------- ------------
Total....................................... 2,522.1 2,705.1 1,998.8 2,211.8 579.5 513.5
---------- ------------ ----------- ------------ ----------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Cost of sales................................. 1,678.6 1,720.4 1,682.0 1,724.3
Research and development expenses............. 127.2 134.3 127.2 134.3
Selling, administrative and general expenses.. 365.8 355.7 258.9 266.9 109.1 89.5
Interest expense.............................. 161.9 199.3 53.8 61.8 115.2 145.0
Interest compensation to Financial Services... 34.0
Health care claims and costs.................. 133.3 109.7 133.3 109.7
Other operating expenses...................... 108.8 93.2 21.7 17.9 96.6 83.4
---------- ------------ ----------- ------------ ----------- ------------
Total...................................... 2,575.6 2,612.6 2,177.6 2,205.2 454.2 427.6
---------- ------------ ----------- ------------ ----------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) of Consolidated Group
Before Income Taxes......................... (53.5) 92.5 (178.8) 6.6 125.3 85.9
Provision (credit) for income taxes........... (24.5) 32.6 (68.3) 2.5 43.8 30.1
---------- ------------ ----------- ------------ ----------- ------------
Income (Loss) of Consolidated Group........... (29.0) 59.9 (110.5) 4.1 81.5 55.8
---------- ------------ ----------- ------------ ----------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Equity in Income (Loss) of Unconsolidated
Subsidiaries and Affiliates
Credit...................................... (.9) 5 76.0 52.5 (.9) .5
Other....................................... (8.2) (4.0) (3.6) (.2)
---------- ------------ ----------- ------------ ----------- ------------
Total.................................... (9.1) (3.5) 72.4 52.3 (.9) .5
---------- ------------ ----------- ------------ ----------- ------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)............................. $ (38.1) $ 56.4 $ (38.1) $ 56.4 $ 80.6 $ 56.3
========== ============ =========== ============ =========== ============
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share:
Net income (loss) - basic................... $ (.16) $ .24
Net income (loss) - diluted................. $ (.16) $ .24
- ------------------------------------------------------------------------------------------------------------------------------------
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.
DEERE & COMPANY CONSOLIDATED
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company and
Consolidated Subsidiaries)
- ------------------------------------------------------------------------------------------------------
January 31 October 31 January 31
Millions of dollars (Unaudited) 2002 2001 2001
- ------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents..................................... $ 2,364.8 $ 1,030.0 $ 311.6
Cash equivalents deposited with unconsolidated subsidiaries...
------------ ------------ -----------
Cash and cash equivalents................................. 2,364.8 1,030.0 311.6
Marketable securities......................................... 205.0 176.2 139.1
Receivables from unconsolidated subsidiaries and affiliates... 296.6 316.6 245.7
Trade accounts and notes receivable - net..................... 2,678.6 2,922.5 3,440.8
Financing receivables - net................................... 7,635.6 9,198.9 7,426.0
Other receivables............................................. 421.8 388.9 325.8
Equipment on operating leases - net........................... 1,817.1 1,939.3 1,924.7
Inventories................................................... 1,830.7 1,505.7 2,185.8
Property and equipment - net.................................. 2,016.1 2,052.3 1,912.2
Investments in unconsolidated subsidiaries and affiliates..... 191.3 198.4 192.5
Intangible assets - net....................................... 864.0 874.0 819.6
Prepaid pension costs......................................... 668.2 652.0 644.3
Other assets.................................................. 408.8 420.8 317.2
Deferred income taxes......................................... 908.1 883.1 741.0
Deferred charges.............................................. 99.5 104.4 117.0
------------ ------------ -----------
Total................................................. $ 22,406.2 $ 22,663.1 $ 20,743.3
============ ============ ===========
- ------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings......................................... $ 6,455.9 $ 6,198.5 $ 5,560.9
Payables to unconsolidated subsidiaries and affiliates........ 13.3 16.6 36.8
Accounts payable and accrued expenses......................... 2,727.7 3,097.1 2,755.6
Health care claims and reserves............................... 112.5 100.3 73.0
Accrued taxes................................................. 66.5 44.1 48.4
Deferred income taxes......................................... 17.8 12.9 13.2
Long-term borrowings.......................................... 6,407.4 6,560.7 5,465.1
Retirement benefit accruals and other liabilities............. 2,662.7 2,640.7 2,468.4
------------ ------------ -----------
Total liabilities......................................... 18,463.8 18,670.9 16,421.4
------------ ------------ -----------
- ------------------------------------------------------------------------------------------------------
Common stock, $1 par value (issued shares
at January 31, 2002 - 268,215,602)....................... 1,947.7 1,948.6 1,865.0
Common stock in treasury...................................... (1,382.7) (1,405.5) (1,430.4)
Unamortized restricted stock compensation..................... (17.8) (16.8) (11.5)
Retained earnings............................................. 3,734.9 3,834.8 4,122.3
------------ ------------ -----------
Total.................................................... 4,282.1 4,361.1 4,545.4
Accumulated other comprehensive income (loss)................. (339.7) (368.9) (223.5)
------------ ------------ -----------
Stockholders' equity.......................................... 3,942.4 3,992.2 4,321.9
------------ ------------ -----------
Total................................................. $ 22,406.2 $ 22,663.1 $ 20,743.3
============ ============ ===========
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.
DEERE & COMPANY EQUIPMENT OPERATIONS
CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company with Financial
Services on the Equity Basis)
- -----------------------------------------------------------------------------------------------------------
January 31 October 31 January 31
Millions of dollars (Unaudited) 2002 2001 2001
- -----------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents..................................... $ 1,868.4 $ 455.4 $ 117.8
Cash equivalents deposited with unconsolidated subsidiaries... 1,643.2
------------ ---------- -------------
Cash and cash equivalents................................. 1,868.4 2,098.6 117.8
Marketable securities.........................................
Receivables from unconsolidated subsidiaries and affiliates... 20.3 271.8 369.1
Trade accounts and notes receivable - net..................... 906.3 1,050.7 3,440.8
Financing receivables - net................................... 44.8 49.7 85.3
Other receivables............................................. 238.2 260.8 162.0
Equipment on operating leases - net........................... 9.6 10.6 4.3
Inventories................................................... 1,830.7 1,505.7 2,185.8
Property and equipment - net.................................. 1,977.1 2,012.8 1,868.6
Investments in unconsolidated subsidiaries and affiliates..... 2,333.1 2,383.8 1,606.9
Intangible assets - net....................................... 863.2 873.1 818.6
Prepaid pension costs......................................... 668.2 652.0 644.3
Other assets.................................................. 161.6 151.4 145.5
Deferred income taxes......................................... 973.4 944.3 793.2
Deferred charges.............................................. 86.2 90.6 107.5
------------ ----------- -------------
Total................................................. $ 11,981.1 $12,355.9 $ 12,349.7
============ =========== =============
- -----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings......................................... $ 785.5 $ 773.4 $ 1,700.0
Payables to unconsolidated subsidiaries and affiliates........ 91.3 52.2 246.4
Accounts payable and accrued expenses......................... 2,274.2 2,676.4 1,937.7
Health care claims and reserves...............................
Accrued taxes................................................. 50.7 36.5 32.8
Deferred income taxes......................................... 3.1 4.5
Long-term borrowings.......................................... 2,202.9 2,210.2 1,667.8
Retirement benefit accruals and other liabilities............. 2,631.0 2,610.5 2,443.1
------------ ----------- -------------
Total liabilities......................................... 8,038.7 8,363.7 8,027.8
------------ ----------- -------------
- -----------------------------------------------------------------------------------------------------------
Common stock, $1 par value (issued shares
at January 31, 2002 - 268,215,602)....................... 1,947.7 1,948.6 1,865.0
Common stock in treasury...................................... (1,382.7) (1,405.5) (1,430.4)
Unamortized restricted stock compensation..................... (17.8) (16.8) (11.5)
Retained earnings............................................. 3,734.9 3,834.8 4,122.3
------------ ----------- -------------
Total.................................................... 4,282.1 4,361.1 4,545.4
Accumulated other comprehensive income (loss)................. (339.7) (368.9) (223.5)
------------ ----------- -------------
Stockholders' equity.......................................... 3,942.4 3,992.2 4,321.9
------------ ----------- -------------
Total................................................. $ 11,981.1 $12,355.9 $ 12,349.7
============ =========== =============
- -----------------------------------------------------------------------------------------------------------
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.
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------------------------------------------
January 31 October 31 January 31
Millions of dollars (Unaudited) 2002 2001 2001
- -----------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents..................................... $ 496.4 $ 574.7 $ 193.8
Cash equivalents deposited with unconsolidated subsidiaries...
-------------- -------------- ---------------
Cash and cash equivalents................................. 496.4 574.7 193.8
Marketable securities......................................... 205.0 176.2 139.1
Receivables from unconsolidated subsidiaries and affiliates... 357.7 333.0 351.3
Trade accounts and notes receivable - net..................... 2,098.8 2,225.6
Financing receivables - net................................... 7,590.8 9,149.2 7,340.8
Other receivables............................................. 183.6 128.1 163.8
Equipment on operating leases - net........................... 1,807.5 1,928.6 1,920.4
Inventories...................................................
Property and equipment - net.................................. 39.0 39.5 43.6
Investments in unconsolidated subsidiaries and affiliates..... 5.8 6.6 4.3
Intangible assets - net....................................... .8 .8 1.0
Prepaid pension costs.........................................
Other assets.................................................. 247.1 269.4 171.7
Deferred income taxes......................................... 1.1 .3 3.0
Deferred charges.............................................. 13.4 13.9 9.5
-------------- -------------- ---------------
Total................................................. $ 13,047.0 $ 14,845.9 $ 10,342.3
============== ============== ===============
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Short-term borrowings......................................... $ 5,670.3 $ 5,425.1 $ 3,860.8
Payables to unconsolidated subsidiaries and affiliates........ 3.6 1,895.8 265.4
Accounts payable and accrued expenses......................... 780.0 774.5 817.8
Health care claims and reserves............................... 112.5 100.3 73.0
Accrued taxes................................................. 15.8 7.6 15.6
Deferred income taxes......................................... 81.0 69.9 68.4
Long-term borrowings.......................................... 4,204.5 4,350.5 3,797.3
Retirement benefit accruals and other liabilities............. 31.6 30.2 25.3
-------------- -------------- ---------------
Total liabilities......................................... 10,899.3 12,653.9 8,923.6
-------------- -------------- ---------------
- ----------------------------------------------------------------------------------------------------------------
Common stock, $1 par value (issued shares
at January 31, 2002 - 268,215,602)....................... 968.6 968.6 268.6
Common stock in treasury......................................
Unamortized restricted stock compensation.....................
Retained earnings............................................. 1,270.7 1,333.2 1,198.2
-------------- -------------- ---------------
Total.................................................... 2,239.3 2,301.8 1,466.8
Accumulated other comprehensive income (loss)................. (91.6) (109.8) (48.1)
-------------- -------------- ---------------
Stockholders' equity.......................................... 2,147.7 2,192.0 1,418.7
-------------- -------------- ---------------
Total................................................. $ 13,047.0 $ 14,845.9 $ 10,342.3
============== ============== ===============
- ----------------------------------------------------------------------------------------------------------------
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.
DEERE & COMPANY CONSOLIDATED EQUIPMENT OPERATIONS
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS (Deere & Company and (Deere & Company with Financial
Consolidated Subsidiaries) Services on the Equity Basis)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended January 31 Three Months Ended January 31
Millions of dollars (Unaudited) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income (loss) ................................................ $ (38.1) $ 56.4 $ (38.1) $ 56.4
Adjustments to reconcile net income to net cash
provided by (used for) operating activities .................. (305.0) (1,047.8) (429.4) (1,216.6)
--------- --------- --------- ----------
Net cash provided by (used for) operating activities ..... (343.1) (991.4) (467.5) (1,160.2)
--------- --------- --------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Collections of receivables ....................................... 3,470.8 1,703.5 18.2 40.8
Proceeds from sales of financing receivables ..................... 1,702.8 1,110.1
Proceeds from maturities and sales of marketable securities ...... 10.8 4.5
Proceeds from sales of equipment on operating leases ............. 75.4 78.0 .7 1.2
Proceeds from sales of businesses ................................ 50.3 50.3
Cost of receivables acquired ..................................... (3,664.1) (1,994.1) (14.3) (.4)
Purchases of marketable securities ............................... (40.9) (13.4)
Purchases of property and equipment .............................. (68.2) (63.7) (66.4) (60.4)
Cost of operating leases acquired ................................ (68.6) (124.4) (.7) (.6)
Acquisitions of businesses, net of cash acquired ................. (4.6) (221.3) (2.4) (221.3)
Increase (decrease) in receivables with unconsolidated
affiliates ................................................... 5.2 (1.9)
Other ............................................................ 132.5 149.3 5.5 15.4
--------- --------- --------- ----------
Net cash provided by (used for) investing activities ..... 1,601.4 626.6 (9.1) (225.3)
--------- --------- --------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings ..................... 118.1 (514.3) 56.6 661.2
Change in intercompany receivables/payables ...................... 288.4 249.4
Proceeds from long-term borrowings ............................... 734.4 1,517.0 3.5 1.5
Principal payments on long-term borrowings ....................... (728.3) (570.0) (53.3) (1.0)
Proceeds from issuance of common stock ........................... 11.2 4.9 11.2 4.9
Repurchases of common stock ...................................... (.7) (1.2) (.7) (1.2)
Dividends paid ................................................... (51.7) (51.6) (51.7) (51.6)
Other ............................................................ (1.2) (.7) (1.2) (.7)
--------- --------- --------- ----------
Net cash provided by (used for) financing activities ..... 81.8 384.1 252.8 862.5
--------- --------- --------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash .......................... (5.3) .6 (6.4) 1.1
--------- --------- --------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents ............. 1,334.8 19.9 (230.2) (521.9)
Cash and Cash Equivalents at Beginning of Period ................. 1,030.0 291.7 2,098.6 639.7
--------- --------- --------- -----------
Cash and Cash Equivalents at End of Period ....................... $ 2,364.8 $ 311.6 $ 1,868.4 $ 117.8
========= ========= ========= ===========
- ------------------------------------------------------------------------------------------------------------------------------------
DEERE & COMPANY FINANCIAL SERVICES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended January 31
Millions of dollars (Unaudited) 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income (loss) ................................................ $ 80.6 $ 56.3
Adjustments to reconcile net income to net cash
provided by (used for) operating activities .................. 47.8 122.6
----------- -----------
Net cash provided by (used for) operating activities ..... 128.4 178.9
----------- -----------
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Collections of receivables ....................................... 3,339.6 1,662.7
Proceeds from sales of financing receivables ..................... 1,702.8 1,110.1
Proceeds from maturities and sales of marketable securities ...... 10.8 4.5
Proceeds from sales of equipment on operating leases ............. 74.8 76.8
Proceeds from sales of businesses ................................
Cost of receivables acquired ..................................... (3,409.5) (1,993.8)
Purchases of marketable securities ............................... (40.9) (13.4)
Purchases of property and equipment .............................. (1.8) (3.3)
Cost of operating leases acquired ................................ (67.9) (123.8)
Acquisitions of businesses, net of cash acquired ................. (2.3)
Increase (decrease) in receivables with unconsolidated
affiliates ................................................... 16.7 (1.9)
Other ............................................................ 126.9 123.9
----------- -----------
Net cash provided by (used for) investing activities ..... 1,749.2 841.8
----------- -----------
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in short-term borrowings ..................... 61.6 (1,175.4)
Change in intercompany receivables/payables ...................... (1,931.7) (797.7)
Proceeds from long-term borrowings ............................... 730.9 1,515.5
Principal payments on long-term borrowings ....................... (675.0) (569.0)
Proceeds from issuance of common stock ...........................
Repurchases of common stock ......................................
Dividends paid ................................................... (142.8) (10.1)
Other ............................................................ 10.0
----------- -----------
Net cash provided by (used for) financing activities ..... (1,957.0) (1,026.7)
----------- -----------
- -------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash .......................... 1.1 (.5)
----------- -----------
- -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents ............. (78.3) (6.5)
Cash and Cash Equivalents at Beginning of Period ................. 574.7 200.3
----------- -----------
Cash and Cash Equivalents at End of Period ....................... $ 496.4 $ 193.8
=========== ===========
- -------------------------------------------------------------------------------------------------------------------
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.
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 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 fiscal 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.
(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, commercial and consumer equipment, construction and forestry and
special technologies 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 and health
------------------
care operations.
Consolidated - These data represent the consolidation of the Equipment
------------
Operations and Financial Services. 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
January 31,
-----------------------------
2002 2001
----------- -----------
Balance, beginning of period $3,834.8 $4,117.2
Net income (loss) (38.1) 56.4
Dividends declared (52.2) (51.3)
Other adjustments (9.6)
----------- -----------
Balance, end of period $3,734.9 $4,122.3
=========== ===========
5
(4) Most 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:
January 31, October 31, January 31,
2002 2001 2001
----------- ----------- -----------
Raw materials and supplies $ 577 $ 516 $ 520
Work-in-process 420 376 450
Finished goods and parts 1,837 1,618 2,176
----------- ----------- -----------
Total FIFO value 2,834 2,510 3,146
Adjustment to LIFO basis 1,003 1,004 960
----------- ----------- -----------
Inventories $1,831 $1,506 $2,186
=========== =========== ===========
(5) At January 31, 2002, the net unpaid balance of all retail notes and leases
previously sold by the Financial Services operations was $2,910 million and the
Company's maximum exposure under all related recourse provisions was $258
million. At January 31, 2002, the Company had commitments of approximately $103
million for construction and acquisition of property and equipment. At January
31, 2002, the Company had guaranteed $14 million of lease payments of an
unconsolidated affiliate and had pledged assets of $23 million as collateral for
borrowings, primarily outside the United States. The Company had other
miscellaneous contingent liabilities totaling less than $10 million at January
31, 2002.
The Company has certain minority ownership interests in unconsolidated
affiliates in which the majority owners have put options to require the Company
to purchase their interests. These puts could be exercised over a two-year
window beginning December 2004 to March 2005 and total approximately $170
million to $250 million, depending on whether they are exercised on the first or
last day of the period. If the Company's rating on its senior unsecured debt
falls below Baa3 from Moody's Investors Service or BBB- from Standard & Poor's,
these puts could be exercised immediately for approximately $150 million. A
discussion of the Company's debt ratings is included in Management's Discussion
under Capital Resources and Liquidity.
(6) John Deere B.V., located in the Netherlands, is a consolidated indirect
wholly owned finance subsidiary of the Company. The debt securities of John
Deere B.V., including those which are registered with the United States
Securities and Exchange Commission, are fully and unconditionally guaranteed by
the Company.
(7) Dividends declared and paid on a per share basis were as follows:
Three Months Ended
January 31,
-------------------------
2002 2001
-------- --------
Dividends declared $.22 $.22
Dividends paid $.22 $.22
6
(8) Worldwide net sales and revenues, operating profit (loss) and
identifiable assets by segment in millions of dollars follow:
Three Months Ended
January 31, %
-----------------------------
2002 2001 Change
---- ---- ------
Net sales and revenues:
Agricultural equipment ** $ 1,180 $ 1,244 * -5
Commercial and consumer equipment 358 402 * -11
Construction and forestry 387 484 * -20
Other 13 13
------- -------
Total net sales *** 1,938 2,143 * -10
Credit revenues 375 367 +2
Other revenues 209 195 +7
------- -------
Total net sales and revenues *** $ 2,522 $ 2,705 * -7
======= =======
Operating profit (loss): ****
Agricultural equipment $ (15) $ 89
Commercial and consumer equipment (43) 6 *
Construction and forestry (66) (8)* +725
Credit 118 80 +48
Other (5) (11) -55
------- -------
Total operating profit *** (11) 156
Interest, corporate expenses-net and income taxes (27) (100) -73
------- -------
Net income (loss) $ (38) $ 56
======= =======
Identifiable assets:
Agricultural equipment $ 3,128 $ 4,590 -32
Commercial and consumer equipment 1,526 2,521 * -39
Construction and forestry 1,414 1,792 * -21
Credit 12,694 10,103 +26
Other 404 353 +14
Corporate 3,240 1,384 +134
------- -------
Total assets $22,406 $20,743 +8
======= =======
* As of November 1, 2001, the manufacture of skid steer loaders was
transferred from the commercial and consumer equipment segment to the
construction and forestry segment. First quarter 2001 results for these
segments were restated for sales of $31 million, an operating loss of
$5 million and assets of $160 million related to these operations. In
the fourth quarter of 2001, the Company adopted Emerging Issues Task
Force Issue No. 00-10, Accounting for Shipping and Handling Fees and
Costs. As a result, first quarter 2001 sales and cost of sales
increased by $25 million (agricultural equipment $16 million,
commercial and consumer equipment $4 million and construction and
forestry $5 million). Overseas sales increased $4 million.
** Additional intersegment sales of agricultural equipment $ 11 $ 18 -39
*** Includes overseas equipment operations as follows:
1 Net sales $ 610 $ 584 * +4
Operating profit 16 52 -69
**** Operating profit (loss) is income before interest expense, foreign
exchange gains and losses, income taxes and certain corporate expenses.
However, operating profit (loss) of the credit segment includes the
effect of interest expense.
7
(9) A reconciliation of basic and diluted net income (loss) per share in
millions, except per share amounts, follows:
Three Months Ended January 31,
----------------------------------
2002 2001
------------- -------------
Net income (loss) $ (38.1) $ 56.4
Average shares outstanding 237.5 234.6
Basic net income (loss) per share $ (.16) $ .24
============= =============
Average shares outstanding 237.5 234.6
Effect of dilutive stock options 2.0
------------- -------------
Total potential shares outstanding 237.5 236.6
============= =============
Diluted net income (loss) per share $ (.16) $ .24
============= =============
Diluted net loss per share in the first quarter of 2002 is based on the
average shares outstanding as the inclusion of 1.9 million of incremental shares
from stock options would have been antidilutive. Stock options to purchase 3.0
million shares during the first quarter of 2002 and 4.1 million shares during
the first quarter of 2001 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) Comprehensive income, which includes all changes in the Company's
equity during the period except transactions with stockholders, was as follows
in millions of dollars:
Three Months Ended January 31,
---------------------------------
2002 2001
------------- -------------
Net income (loss) $ (38.1) $ 56.4
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment 11.4 33.2
Unrealized gain on investments .1 1.8
Unrealized gain (loss) on derivatives 17.7 (28.7)
------------ ------------
Comprehensive income (loss) $ (8.9) $ 62.7
============ ============
(11) 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 (including asbestos related liability), retail credit,
software licensing, 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.
(12) In the fourth quarter of 2001, the Company adopted Emerging Issues Task
Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and
Costs. The Task Force reached a consensus that all shipping and handling amounts
billed to a customer in a sale transaction should be classified as revenue.
Prior to adoption, the Company offset the amounts billed to customers for
shipping and handling with the related costs in cost of sales. As a result of
the adoption, sales and cost of sales in the first quarter of 2001 were
increased by $25 million, or 1 percent of sales. The change had no effect on the
Company's financial position or net income.
8
(13) In December 2001, the Company granted options to employees for the
purchase of 4.3 million shares of common stock at an exercise price of $42.30
per share. At January 31, 2002, options for 24.3 million shares were outstanding
at option prices in a range of $13.63 to $82.19 per share and a weighted-average
exercise price of $41.09 per share. A total of 5.7 million shares remained
available for the granting of future options and restricted stock.
(14) In the fourth quarter of 2001, the Company recognized certain costs
related to the decision to exit the hand-held consumer products business and the
restructuring of certain construction and forestry manufacturing and marketing
operations. In the first quarter of 2002, the Company also recognized certain
costs related to the decision to close a factory in Tennessee included in the
construction and forestry operations. The liquidations, payments, accruals and
adjustments related to these reserves and liabilities in millions of dollars and
the number of employees terminated during the first quarter of 2002 were as
follows:
Reserves and Liquidations Accruals and Reserves and
Liabilities and Adjustments Liabilities
October 31, 2001 Payments (Income) Expense January 31, 2002
------------------- --------------- -------------------- --------------------
Property and equipment
reserves $ 38 $ (6) $ (6) $ 26
Inventory reserves 33 (18) 3 18
Termination benefits 24 (5)* 4 23
Contract terminations 27 (9) 16 34
Warranties and
product returns 16 (6) 10
Other costs 7 (1) 6
------------------- --------------- -------------------- --------------------
Total $ 145 $ (45) $ 17 $ 117
=================== =============== ==================== ====================
October 31, 2001 Terminated Additions January 31, 2002
------------------- --------------- -------------------- --------------------
Employees to be
terminated 1,000 (770) * 400 630
* The decrease in the termination benefits liability is not proportional to the
employees terminated since certain benefits related to past services will be
paid after the employee was terminated.
(15) In October 2001, the Equipment Operations sold $2.2 billion of trade
receivables to Deere Capital, Inc. (DCI), a wholly-owned Financial
Services subsidiary. During the first quarter of 2002, a significant
portion of newly originated trade receivables were sold to DCI, and the
Equipment Operations compensated DCI for carrying costs. Although this
arrangement had substantially no effect on consolidated net income, it
did shift net income and operating profit from the Equipment Operations
to the credit operations due to the compensation which began in the
first quarter of 2002. Responsibility for servicing these receivables
was also transferred to the credit operations.
(16) In February 2002, the Company's credit operations securitized and sold
approximately $680 million of retail notes, which were included in
financing receivables at January 31, 2002.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Deere & Company's net loss for the first quarter was $38.1 million, or $0.16 per
share, compared with net income of $56.4 million, or $0.24 per share, in the
first quarter last year. The Company's first quarter financial results were
affected by deep production cutbacks at its major North American factories,
which were made in line with plans for improved asset utilization. While these
reductions have had a negative impact on net income, they are also helping
achieve a decline in asset levels and should be supportive of higher
profitability in the future. Trade receivables and inventories carried by the
Company decreased by $1.1 billion over the past 12 months.
Worldwide net sales and revenues for the first quarter were $2,522 million,
compared with $2,705 million for the same period last year. Net sales were
$1,938 million, compared with $2,143 million for the 2001 period. All major
equipment operating segments experienced lower sales for the quarter. However,
overseas sales increased to $610 million, compared with $584 million last year,
primarily due to higher sales of agricultural equipment. Excluding the impact of
weaker foreign currencies, overseas sales would have shown an 8 percent
increase.
The operating loss of the Company's equipment segments, which excludes interest,
taxes and other corporate expenses, was $135 million for the first quarter,
compared with operating profit of $70 million in the first quarter last year.
The decline was primarily due to the planned production cutbacks. Also affecting
the quarter were higher costs associated with the introduction of new products
and increased postretirement benefit costs, partly offset by lower selling and
administrative and research and development expenses. In addition, the Company
booked a $16 million pretax charge in connection with the closing of a factory
in Tennessee and recorded a $12 million pretax loss in its equipment operations
in Argentina primarily related to the peso devaluation. Equipment operating
profit also was negatively affected by compensation paid to the Company's credit
operations for carrying and servicing dealer receivables. As previously
announced, the Company's equipment segments began selling a significant portion
of these receivables to the credit operations at the end of last fiscal year.
Consolidated net income is substantially unaffected by such sales.
Equipment Operations had a net loss of $110.5 million for the first quarter,
compared with net income of $4.1 million in the same period last year. The
deterioration was primarily due to the operating factors noted above, partially
offset by lower interest expense and a favorable swing in foreign exchange
gains.
Beginning in fiscal 2002, management responsibility for the skid steer
operations transferred to the construction and forestry segment from the
commercial and consumer equipment segment. For comparison purposes in the
following discussion, 2001 operating results have been restated to reflect the
current management responsibilities (See Note 8). The change had no impact on
the consolidated results of the equipment operations.
10
. The agricultural equipment segment had a $15 million operating loss for the
first quarter, compared with operating profit of $89 million last year. Net
sales decreased 5 percent mainly due to further steps to reduce asset
levels in a continued weak market environment. Production volumes for the
period were approximately 14 percent lower than last year. Results were
negatively affected by the manufacturing inefficiencies associated with
lower production volumes. Also having an adverse effect on segment profit
was compensation paid to the credit operations, as well as higher costs
related to the start-up of new products, increased postretirement benefit
costs and losses in Argentina.
. The commercial and consumer equipment segment had a $43 million operating
loss for the first quarter, compared with operating profit of $6 million
last year. Excluding the impact of acquisitions, first-quarter net sales
were down 29 percent while production volumes declined 39 percent. The
production decrease was due to aggressive actions to reduce asset levels in
an uncertain market environment. The quarter's operating loss was primarily
due to the lower sales and production volumes and related manufacturing
inefficiencies. Also having a negative impact was compensation paid to the
credit operations in conjunction with the trade receivable sales. These
factors were partially offset by the receipt of an insurance settlement for
last year's fire at an Iowa storage facility, and by lower selling and
administrative expenses, excluding acquisitions.
. The construction and forestry segment had a $66 million operating loss for
the first quarter, compared with an $8 million operating loss last year.
Net sales decreased 20 percent for the period, while production volumes
decreased 28 percent, compared with last year. The first-quarter operating
loss included a $16 million pretax charge related to the decision to close
a Tennessee factory. In addition, profit was negatively affected by the
continuation of a weak market environment, resulting in lower sales and
production volumes and related manufacturing inefficiencies, as well as by
higher sales incentive costs. Partially offsetting these factors was a
reduction in selling and administrative expenses.
. The credit segment had an operating profit of $118 million for the first
quarter, compared with $80 million last year. As described in Note 15, the
credit operations began acquiring most of the U.S. trade receivables from
the Equipment Operations as of fiscal year end 2001. The majority of the
improvement in profit was due to the income earned on these trade
receivables. Higher income from the sale of retail notes, improved
financing spreads and a larger average portfolio of other receivables and
leases also had a positive impact on first quarter results. Partially
offsetting these factors was an $8 million pretax loss related to the
Argentine peso devaluation. Total revenues of the credit operations
increased 11 percent from $371 million in the first quarter of 2001 to $410
million in the current quarter. The average balance of receivables and
leases financed was 27 percent higher in the first quarter, compared with
the same period last year, primarily due to the trade receivables purchased
from the Equipment Operations. Interest expense decreased 20 percent in the
current quarter, compared with last year, as a result of lower average
borrowing rates. The credit operations' consolidated ratio of earnings to
fixed charges was 2.01 to 1 for the first quarter this year, compared with
1.54 to 1 in 2001.
. The other segments had an operating loss of $5 million for the first
quarter, compared with an operating loss of $11 million last year. Results
for both years were negatively affected by goodwill amortization and by
costs related to the development of new products in special technologies.
The quarterly improvement was primarily due to lower costs of the special
technologies group and higher income from the health care operations.
Additional information on business segments is presented in Note 8.
11
The cost of sales to net sales ratio for the first quarter of 2002 was 86.6
percent, compared to 80.3 percent in the same period last year. The increase was
primarily due to manufacturing inefficiencies related to lower production and
sales. Health care premiums and fees and related health care claims and costs
increased in the current quarter compared to last year, primarily from increases
in enrollment, premium adjustments and medical cost inflation. Interest expense
decreased in the current quarter due to lower average borrowing rates. Other
operating expenses increased in the first quarter this year, primarily as a
result of losses from the Argentine operations related to the peso devaluation.
Finance and interest income decreased in the first quarter of this year,
primarily due to lower interest rates. Other income increased in the first
quarter of this year, primarily due to increased sales of retail notes.
Market Conditions and Outlook
- -----------------------------
Based on the market conditions outlined below, net sales are expected to be flat
to up slightly for the year, with operating profit ranging from breakeven to a
positive 1 percent of sales. For the second quarter, sales are currently
forecast to be flat to up slightly from the same period last year, with
operating profit as a percent of sales in a range of 4 to 5 percent.
. Agricultural Equipment: In the farm sector, commodity prices remain at
depressed levels although farmers' overall financial condition is being
supported by low interest rates and a continuation of significant
government payments. As a result, U.S. farm receipts and net cash income in
2002 are expected to be in line with last year's levels. In recent weeks,
the Company has been encouraged by retail activity for its new tractor
line, but the combine market has been weaker than expected. Combine
production is being curtailed in the second quarter as a result. On this
basis, the Company now projects industry sales of farm machinery made at
the retail level in the U.S. and Canada to be about the same for 2002 as
last year. European industry retail sales are expected to be flat to
slightly higher for 2002. John Deere is targeting improved sales in Europe
due to a record number of new products that are available this year. In
Latin America, retail activity is expected to be slightly higher as
improvements in Brazil and Mexico are projected to more than offset a
decline in Argentina.
. Commercial and Consumer Equipment: Excluding the impact of acquisitions and
divestitures, shipments of John Deere commercial and consumer equipment are
projected to be down 5 to 10 percent in 2002. The expected decline will
result from a cautious attitude on the part of consumers, coupled with
further aggressive steps to reduce asset levels.
. Construction and Forestry: The Company continues to believe that U.S. and
Canada industry retail sales of construction and forestry equipment for
2002 will be 10 to 15 percent lower than the prior year and that pricing
will remain under pressure. Markets continue to be hampered by an uncertain
outlook for general construction activity. In addition, purchases by
independent rental companies are expected to experience further weakness.
Global sales of forestry products are forecast to continue running below
year earlier levels in response to soft economic conditions.
. Credit: Company credit operations should benefit from continued growth in
the traditional receivable portfolio, as well as from lower loan losses and
additional note sales. These factors are expected to help increase the
segment's net income on its traditional business by 7 to 10 percent versus
last year. Carrying and servicing fees associated with the purchase of
trade receivables from the Equipment Operations are expected to contribute
an additional $70 million to credit net income in 2002.
12
While economic conditions are expected to keep financial results for the year at
a modest level, the Company is maintaining its focus on rigorous asset and
operating cost management. The Company is beginning to see early results from
its efforts to improve asset turns and profit margins. These benefits should be
more evident in future quarters even if economic conditions remain subdued. The
Company expects to strengthen its global competitive position this year as well,
due to positive customer response to a large number of new products coming to
market.
FASB Statement No. 142
- ----------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 142, Goodwill and Other Intangible Assets, which requires goodwill related
to acquisitions after June 30, 2001 not to be amortized and only written down
for impairments. Upon adoption of Statement No. 142, the same accounting
requirements will apply to goodwill related to acquisitions prior to June 30,
2001. The Company will adopt this Statement in the first quarter of fiscal 2003.
In the first quarter of 2002, the Company had goodwill amortization of $14
million pretax and $13 million after-tax.
Safe Harbor Statement
- ---------------------
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements under "Market Conditions and Outlook," 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. Some of
these risks and uncertainties could affect particular lines of business, while
others could affect all of the Company's businesses.
The results of the Company's agricultural equipment segment are strongly
influenced by the many interrelated factors that affect farmers' confidence,
including worldwide demand for agricultural products, world grain stocks, prices
realized for commodities and livestock, weather and soil conditions, real estate
values, the level and continuation of government farm programs, animal diseases,
crop pests and harvest yields. Factors that are particularly important to the
Company's outlook for this segment include the prices realized by farmers for
their crops and livestock, weather and soil conditions and the level of farm
product exports, as well as the level of payments under United States government
farm programs. Further outbreaks of "mad cow" or "foot and mouth" disease could
also adversely affect livestock and feed prices. Concerns pertaining to
genetically modified organisms, or GMOs, may affect farm exports.
The Company's outlook for its commercial and consumer equipment business is
affected by general economic conditions in the United States, consumer
confidence and weather conditions. Other important assumptions include continued
consumer acceptance of the Company's new products and a continuation of existing
consumer borrowing patterns. The financial impact resulting from exiting the
hand-held consumer products business and other restructuring costs are subject
to various uncertainties. Sales of commercial and consumer equipment during the
spring are also affected by the severity and timing of weather patterns.
The number of housing starts is especially important to sales of the Company's
construction equipment. The results of the Company's construction and forestry
segment are also impacted by levels of public construction and non-residential
construction. Prices for pulp, lumber and structural panels are important to
sales of forestry equipment.
All of the Company's businesses are affected by general economic conditions in
and the political stability of the global markets in which the Company operates.
More specifically for example, the Company's businesses could be affected if the
recent political and economic crisis in Argentina worsens, continues for a
sustained period or spreads to other countries. Globally, the Company's
businesses are also affected by fiscal and monetary policies of various
countries, actions by the Federal Reserve Board and other central banks,
13
actions by the Securities and Exchange Commission and other regulatory bodies,
actions by rating agencies, capital market disruptions, investor sentiment,
inflation rates, interest rate levels, and currency exchange rates; actions of
competitors in the various industries in which the Company competes,
particularly price cutting; dealer practices, especially as to levels of new and
used field inventories; production and technological difficulties, including
capacity and supply constraints; energy prices and supplies; labor relations;
changes to accounting standards; the effects of terrorism and the response
thereto; and legislation affecting the sectors in which the Company operates.
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 Company,
however, undertakes no obligation to update or revise its outlook, whether as a
result of new developments or otherwise. 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.
Accounting Policies
- -------------------
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management must
make a variety of decisions that impact the reported amounts and the related
disclosures. These decisions include the selection of the appropriate accounting
principles to be applied and the assumptions on which to base accounting
estimates. In reaching these decisions, management applies judgment based on its
understanding and analysis of the relevant circumstances. Note 1 to the
consolidated financial statements in the annual report on Form 10-K provides a
summary of the significant accounting policies followed in the preparation of
the financial statements; other footnotes describe various elements of the
financial statements and the assumptions on which specific amounts were
determined. While actual results could, in fact, differ from those estimated at
the time of preparation of the financial statements, management is committed to
preparing financial statements that incorporate accounting principles,
assumptions and estimates that promote the representational faithfulness,
verifiability, neutrality and transparency of the accounting information
included in the financial statements.
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 inventories and
receivables from dealers. Accordingly, to the extent necessary, funds provided
from operations are supplemented by external borrowing sources. Additionally,
beginning at the end of fiscal year 2001, most U.S. equipment trade receivables
originated by the Equipment Operations, which are subject to large seasonal
variations in financing requirements, have been sold by the Equipment Operations
to the Financial Services' credit operations.
In the first three months of 2002, negative cash flows from operating activities
of $468 million resulted primarily from a decrease in accounts payable and
accrued expenses, an increase in inventories and a net loss. Partially
offsetting these operating cash outflows was a positive cash flow from a
decrease in trade receivables and dividends from Financial Services. The
resulting net cash requirement for operating activities, along with purchases of
property and equipment and payment of dividends, were provided
14
primarily from a decrease in receivables from Financial Services and sales of
businesses, mainly the hand-held consumer products business.
Negative cash flows from operating activities in the first three months of 2001
of $1,160 million resulted primarily from increases in inventories and trade
receivables, and a decrease in accounts payable and accrued expenses. Partially
offsetting these operating cash outflows was a positive cash flow from net
income. The resulting net cash requirement for operating activities, along with
acquisitions of businesses, purchases of property and equipment and payment of
dividends, were provided primarily from an increase in borrowings.
Trade receivables held by the Equipment Operations decreased $144 million during
the first quarter and $2,535 million from a year ago. The Equipment Operations
sold $2.2 billion of trade receivables to the credit operations at fiscal year
end 2001 and a significant portion of newly-originated trade receivables during
the first quarter of 2002. See Note 15 and the following consolidated discussion
of trade receivables.
Inventories at January 31, 2002 increased by $325 million during the first three
months, primarily reflecting a seasonal increase in the first quarter.
Inventories decreased $355 million, compared to a year ago, primarily due to the
previously-mentioned production cutbacks. Most of the Company's inventories are
valued on the last-in, first-out (LIFO) basis. The ratios of inventories valued
on an approximate current cost basis to the last 12 months' cost of sales were
30 percent at January 31, 2002, compared to 27 percent at October 31, 2001 and
35 percent at January 31, 2001.
Total interest-bearing debt of the Equipment Operations was $2,988 million at
January 31, 2002, compared with $2,984 million at the end of fiscal year 2001
and $3,368 million at January 31, 2001. The ratios of debt to total capital
(total interest-bearing debt and stockholders' equity) were 43 percent, 43
percent and 44 percent at January 31, 2002, October 31, 2001 and January 31,
2001, respectively. However, due to the increase in cash and cash equivalents,
the ratios of net debt (interest-bearing debt less cash and cash equivalents) to
total net debt and stockholders' equity were 22 percent at January 31, 2002 and
18 percent at October 31, 2001, compared to 43 percent at January 31, 2001.
During the first quarter of 2002, the Equipment Operations retired $53 million
of long-term borrowings.
Financial Services
- ------------------
The Financial Services' credit operations rely on their ability to raise
substantial amounts of funds to finance their receivable and lease portfolios.
Their primary sources of funds for this purpose are a combination of borrowings
and equity capital. Additionally, the credit operations periodically securitize
and sell substantial amounts of retail notes.
During the first quarter of 2002, the aggregate cash provided from operating and
investing activities was used primarily to decrease borrowings from the
Equipment Operations. Cash provided from Financial Services operating activities
was $128 million in the current quarter. Cash provided by investing activities
totaled $1,749 million in the first three months of 2002, primarily due to the
collections of financing receivables, sales of retail notes and sales of
equipment on operating leases exceeding the cost of financing receivables and
leases acquired. Cash used for financing activities totaled $1,957 million in
the current quarter, resulting primarily from a decrease in total borrowings
from the Equipment Operations and a dividend paid to the Equipment Operations.
15
In the first quarter of 2001, the aggregate cash provided from operating and
investing activities was used primarily to decrease borrowings. Cash provided
from Financial Services operating activities was $179 million in the first
quarter of 2001. Cash provided by investing activities totaled $842 million in
the first quarter of 2001, primarily due to the collections of financing
receivables, sales of retail notes and sales of equipment on operating leases
exceeding the cost of financing receivables and leases acquired. Cash used for
financing activities totaled $1,027 million in the first three months of 2001,
resulting primarily from a decrease in total borrowings.
Receivables and leases held by the credit operations consist of retail notes
originating in connection with retail sales of new and used equipment by dealers
of John Deere products, retail notes from non-Deere equipment customers, trade
receivables, wholesale note receivables, revolving charge accounts, operating
loans, and financing and operating leases. Beginning at the end of fiscal year
2001, the credit operations began acquiring most of the U.S. trade receivables
from the Equipment Operations (See Note 15). As a result during the past 12
months, receivables and leases increased $2,236 million due to the cost of
receivables and leases acquired exceeding collections and sales of retail notes.
Receivables and leases decreased by $1,806 million in the first three months of
2002 due to the sale of retail notes. Total acquisitions of receivables and
leases were 64 percent higher in the first three months of 2002, compared with
the same period last year, primarily due to the acquisitions of trade
receivables in the first quarter of 2002. Acquisition volumes of retail notes,
revolving charge accounts, operating loans and wholesale notes also were all
higher in the first three months of 2002, compared to the same period last year.
Total receivables and leases administered by the credit operations, which
include receivables previously sold, amounted to $14,407 million at January 31,
2002, compared with $14,950 million at October 31, 2001 and $11,984 million at
January 31, 2001. At January 31, 2002, the unpaid balance of all retail notes
and leases previously sold was $2,910 million, compared with $1,647 million at
October 31, 2001 and $2,723 million at January 31, 2001.
Total outside interest-bearing debt of the credit operations was $9,875 million
at January 31, 2002, compared with $9,776 million at the end of fiscal year 2001
and $7,658 million at January 31, 2001. Total outside borrowings increased
during the first three months of 2002 and the past 12 months, generally
corresponding with the level of the receivable and lease portfolio, the level of
cash and cash equivalents and the change in payables owed to the Equipment
Operations. The credit operations' ratio of interest-bearing debt to
stockholder's equity was 4.8 to 1 at January 31, 2002, compared with 5.6 to 1 at
October 31, 2001 and 5.9 to 1 at January 31, 2001.
During the first quarter of 2002, the credit operations issued $731 million and
retired $675 million of long-term borrowings.
Consolidated
- ------------
Sources of liquidity for the Company include cash and short-term investments,
funds from operations, the issuance of commercial paper and term debt, the
securitization and sale of retail notes, and committed, unsecured bank lines of
credit.
To access public debt capital markets, the Company relies on credit rating
agencies to assign short-term and long-term credit ratings to the Company's
securities as an indicator of credit quality for fixed income investors. A
credit rating agency may change Company ratings based on its assessment of the
Company's current and future ability to meet interest and principal repayment
obligations. Such rating changes may impact the availability and cost of funds.
16
The short-term and long-term debt ratings assigned to Company securities by
Moody's Investors Service, Inc., Standard & Poor's, Fitch Ratings and Dominion
Bond Rating Service Limited are investment grade ratings. On March 11, 2002,
Standard & Poor's placed its "A" long-term and "A-1" short-term ratings on the
Company under review with negative implications. On March 8, 2002, Dominion Bond
Rating Service confirmed the Company's Canadian short-term rating and placed the
Company's Canadian long-term rating on review with negative implications. On
February 15, 2002, Moody's Investors Service lowered the long-term rating of the
Company to "A3" from "A2", and the short-term rating to "Prime-2" from
"Prime-1". Moody's assigned a stable outlook as part of this rating action. In
September 2001, Fitch Ratings placed a negative outlook on the Company's
ratings.
The Company expects to have sufficient sources of liquidity to meet its funding
needs in both the Equipment Operations and Financial Services businesses.
Although the Company's worldwide commercial paper outstanding at January 31,
2002 totaled approximately $3.3 billion, the total cash and short-term
investment position exceeded $2 billion. In addition, John Deere Capital
Corporation has for many years accessed diverse funding sources, including
short- and long-term unsecured debt capital markets in the United States,
Canada, Europe and Australia, as well as public and private securitization
markets in the United States and Canada.
The Company maintains unsecured lines of credit with various banks in North
America and overseas. Some of the lines are available to both the Equipment
Operations and certain credit operations. Worldwide lines of credit totaled
$4,774 million at January 31, 2002, $1,256 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, were
considered to constitute utilization. Included in the total credit lines is a
long-term credit agreement commitment totaling $2,150 million.
Trade accounts and notes receivable result mainly from sales to dealers of
equipment that is being carried in their inventories. Trade receivables
decreased $244 million during the first three months of 2002 and $762 million
compared to a year ago, primarily due to the previously-mentioned lower sales
and production volumes. The ratios of worldwide trade accounts and notes
receivable to the last 12 months' net sales were 25 percent at January 31, 2002,
compared to 26 percent at October 31, 2001 and 30 percent at January 31, 2001.
Agricultural equipment trade receivables decreased $344 million, commercial and
consumer equipment receivables decreased $317 million, construction and forestry
receivables decreased $99 million and other equipment receivables decreased $2
million, compared to a year ago. The percentage of total worldwide trade
receivables outstanding for periods exceeding 12 months was 11 percent, 11
percent and 7 percent at January 31, 2002, October 31, 2001 and January 31,
2001, respectively.
Stockholder's equity was $3,942 million at January 31, 2002, compared with
$3,992 million at October 31, 2001 and $4,322 million at January 31, 2001. The
decrease of $50 million during the first quarter of 2002 resulted primarily from
dividends declared of $52 million and a net loss of $38 million, which were
partially offset by a decrease in treasury stock of $23 million and an
unrealized gain on derivatives of $18 million.
The Board of Directors at its meeting on February 27, 2002 declared a quarterly
dividend of 22 cents per share payable May 1, 2002 to stockholders of record on
March 31, 2002.
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.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
See Note 11 to the Interim Financial Statements.
Item 2. Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
None
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
Certain instruments relating to long-term debt constituting less
than 10% of the registrant's total assets are not filed as
exhibits herewith pursuant to Item 601 (b) (4) (iii) (A) of
Regulation S-K. The registrant will file copies of such
instruments upon request of the Commission.
(b) Reports on Form 8-K
Current Report on Form 8-K dated November 13, 2001 (Item 9).
Current Report on Form 8-K dated November 20, 2001 (Item 7).
Current Report on Form 8-KA dated November 20, 2001 (Item 7).
Current Report on Form 8-K dated December 4, 2001 (Item 9).
Current Report on Form 8-K dated January 4, 2002 (Item 9).
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEERE & COMPANY
Date: March 12, 2002 By: /s/ Nathan J. Jones
-------------------------- -------------------------------------
Nathan J. Jones
Senior Vice President,
Principal Financial Officer
and Principal Accounting Officer
19
INDEX TO EXHIBITS
Number
- ------
2 Not applicable
3 Not applicable
4.1 364-Day Credit Agreement among registrant, John Deere Capital
Corporation, various financial institutions, JPMorgan Chase Bank, as
administrative agent, Citibank, N.A. and Credit Suisse First Boston as
documentation agents, and Bank of America, N.A. and Deutsche Bank AG
New York Branch as syndication agents, et al, dated as of February 19,
2002.
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
99 Not applicable
20