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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: 1-6458
-------------------------
JOHN DEERE CAPITAL CORPORATION
Delaware 36-2386361
(State of incorporation) (IRS employer identification no.)
1 East First Street, Suite 600
Reno, Nevada 89501
(Address of principal executive offices)
Telephone Number: (775) 786-5527
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
------- -------
At January 31, 2002, 2,500 shares of common stock, without par value,
of the registrant were outstanding, all of which were owned by John Deere Credit
Company, a wholly-owned subsidiary of Deere & Company.
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain
reduced disclosures as permitted by those instructions.
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Page 1 of 16 Pages
Index to Exhibits: Page 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Income and Retained Earnings
(Unaudited)
(in millions)
Three Months Ended
January 31,
--------------------- -------------------
2002 2001
-------------------- --------------------
Revenues
Finance income earned on retail notes $ 102.7 $ 113.6
Lease revenues 110.1 106.7
Finance income earned on wholesale receivables 50.6 23.4
Revolving charge account income 29.3 27.5
Operating loan income 6.4 8.7
Securitization and servicing fee income 9.6 8.1
Net gain on receivables and leases sold 29.8 9.6
Interest income from short-term investments 2.8 .9
Other income 7.6 5.0
- -----------------------------------------------------------------------------------------------
Total revenues 348.9 303.5
- -----------------------------------------------------------------------------------------------
Expenses
Interest expense 97.6 123.4
Operating expenses:
Administrative and operating expenses 46.4 39.8
Provision for credit losses 20.3 7.6
Fees paid to John Deere 5.4 3.8
Depreciation of equipment on operating leases 67.2 62.7
- -----------------------------------------------------------------------------------------------
Total operating expenses 139.3 113.9
- -----------------------------------------------------------------------------------------------
Total expenses 236.9 237.3
- -----------------------------------------------------------------------------------------------
Income of consolidated group before income taxes 112.0 66.2
Provision for income taxes 39.2 22.2
- -----------------------------------------------------------------------------------------------
Income of consolidated group 72.8 44.0
Equity in income (loss) of unconsolidated affiliates (0.9) .5
- -----------------------------------------------------------------------------------------------
Net income 71.9 44.5
Cash dividends declared (140.0)
Retained earnings at beginning of period 1,163.3 1,005.5
- -----------------------------------------------------------------------------------------------
Retained earnings at end of period $ 1,095.2 $ 1,050.0
===============================================================================================
See Notes to Interim Financial Statements.
2
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(in millions)
January 31, October 31, January 31,
2002 2001 2001
---------------------------------------------
Assets
Cash and cash equivalents $ 425.1 $ 502.2 $ 154.8
Receivables and leases:
Retail notes 4,323.2 5,625.3 4,176.1
Revolving charge accounts 678.7 814.3 573.0
Operating loans 472.8 501.2 384.5
Wholesale receivables 2,757.0 2,995.5 847.5
Financing leases 465.3 479.5 449.3
- -------------------------------------------------------------------------------------------------------------------
Total receivables 8,697.0 10,415.8 6,430.4
Equipment on operating leases - net 1,382.3 1,484.8 1,482.9
- -------------------------------------------------------------------------------------------------------------------
Total receivables and leases 10,079.3 11,900.6 7,913.3
Allowance for credit losses (101.1) (110.4) (87.7)
- -------------------------------------------------------------------------------------------------------------------
Total receivables and leases - net 9,978.2 11,790.2 7,825.6
- -------------------------------------------------------------------------------------------------------------------
Notes receivable - unconsolidated affiliates 297.2 313.9 141.9
Notes receivable - John Deere 320.2 259.0
Other receivables 140.5 77.7 111.1
Investment in unconsolidated affiliates 5.3 5.9 4.0
Other assets 206.4 236.6 136.5
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 11,372.9 $ 12,926.5 $ 8,632.9
===================================================================================================================
Liabilities and Stockholder's Equity
Short-term borrowings:
Commercial paper $ 2,430.9 $ 2,358.5 $ 1,486.2
Extendible commercial notes and other notes payable 27.6 23.9 13.7
John Deere 1,612.4
Current maturities of long-term borrowings 2,693.0 2,528.7 1,963.9
- -------------------------------------------------------------------------------------------------------------------
Total short-term borrowings 5,151.5 6,523.5 3,463.8
- -------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities:
Accrued interest on debt 54.2 44.4 82.2
Other payables 508.5 459.0 542.1
- -------------------------------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities 562.7 503.4 624.3
- -------------------------------------------------------------------------------------------------------------------
Deposits withheld from dealers and merchants 132.0 134.2 133.5
- -------------------------------------------------------------------------------------------------------------------
Long-term borrowings:
Senior debt 3,521.9 3,708.8 3,127.9
Subordinated debt 150.0 150.0 150.0
- -------------------------------------------------------------------------------------------------------------------
Total long-term borrowings 3,671.9 3,858.8 3,277.9
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,518.1 11,019.9 7,499.5
- -------------------------------------------------------------------------------------------------------------------
Stockholder's equity:
Common stock, without par value (issued and outstanding -
2,500 shares owned by John Deere Credit Company) 812.8 812.8 112.8
Retained earnings 1,095.2 1,163.3 1,050.0
Accumulated other comprehensive income (loss) (53.2) (69.5) (29.4)
- -------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,854.8 1,906.6 1,133.4
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 11,372.9 $ 12,926.5 $ 8,632.9
===================================================================================================================
See Notes to Interim Financial Statements.
3
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(Unaudited)
(in millions)
Three Months Ended January 31,
--------------------------------------
2002 2001
--------------------------------------
Cash Flows from Operating Activities:
Net income $ 71.9 $ 44.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 20.3 7.6
Provision for depreciation and amortization 68.6 63.7
Undistributed earnings of unconsolidated affiliates .9 (.5)
Other (115.2) 2.9
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46.5 118.2
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Cost of receivables and leases acquired (3,226.4) (1,873.1)
Collections of receivables 3,087.4 1,499.7
Change in notes receivable - unconsolidated affiliates 16.7 (1.9)
Proceeds from sales of receivables and leases 1,702.8 973.9
Acquisitions of businesses (2.3)
Other 234.0 123.5
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,812.2 722.1
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Change in commercial paper 59.4 (987.9)
Change in extendible commercial notes and other notes payable 3.4 10.0
Change in receivable from/payable to John Deere (1,874.9) (739.9)
Proceeds from issuance of long-term borrowings 691.3 1,400.0
Principal payments on long-term borrowings (675.0) (523.6)
Dividends paid (140.0)
- ----------------------------------------------------------------------------------------------------------
Net cash used for financing activities (1,935.8) (841.4)
- ----------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash
- ----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (77.1) (1.1)
Cash and cash equivalents at beginning of period 502.2 155.9
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 425.1 $ 154.8
==========================================================================================================
See Notes to Interim Financial Statements.
4
John Deere Capital Corporation and Subsidiaries
Notes to Interim Financial Statements
(Unaudited)
(1) The consolidated financial statements of John Deere Capital Corporation
(Capital Corporation) and its subsidiaries (collectively called the
Company) have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted as permitted
by such rules and regulations. All adjustments, consisting of normal
recurring adjustments, have been included. Management believes that the
disclosures are adequate to present fairly the financial position, results
of operations and cash flows at the dates and for the periods presented. It
is suggested that these interim financial statements be read in conjunction
with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. Results for interim periods
are not necessarily indicative of those to be expected for the year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts and related
disclosures. Actual results could differ from those estimates. Certain
amounts for prior years have been reclassified to conform with 2002
financial statement presentation.
Based on the way the Company's operations are managed and evaluated by
management, the Company is viewed as having one operating segment.
(2) The Company provides and administers financing for retail purchases of new
and used equipment manufactured by Deere & Company's agricultural
equipment, commercial and consumer equipment, and construction and forestry
divisions. The Company purchases retail installment sales and loan
contracts (retail notes) from Deere & Company and its wholly-owned
subsidiaries (collectively called John Deere). John Deere acquires these
retail notes through John Deere retail dealers. The Company also purchases
and finances certain agricultural, commercial and consumer, and
construction and forestry retail notes unrelated to John Deere. In
addition, the Company leases equipment to retail customers (financing and
operating leases). The Company also finances and services revolving charge
accounts and operating loans acquired from and offered through merchants or
farm input providers in the agricultural, commercial and consumer, and
construction and forestry markets as well as insured international export
financing products (revolving charge accounts and operating loans). The
Company also finances John Deere engines, John Deere agricultural, John
Deere commercial and consumer, and John Deere construction and forestry
equipment owned by dealers of those products (wholesale receivables). In
addition, the Company purchases and administers certain trade receivables
from John Deere which are included in wholesale receivables. Retail notes,
revolving charge accounts, operating loans, financing leases and wholesale
receivables are collectively called "Receivables." Receivables and
operating leases are collectively called "Receivables and Leases."
(3) The Company's ratio of earnings before fixed charges to fixed charges was
2.13 to 1 for the first quarter of 2002 compared with 1.53 to 1 for the
first quarter of 2001. "Earnings before fixed charges" consist of income
before income taxes, the cumulative effect of changes in accounting and
fixed charges. "Fixed charges" consist of interest on indebtedness,
amortization of debt discount and expense, an estimated amount of rental
expense under capitalized leases which is deemed to be representative of
the interest factor and rental expense under operating leases.
5
(4) Comprehensive income, which includes all changes in the Company's equity
during the period except for transactions with the stockholder, was as
follows in millions of dollars:
Three Months Ended
January 31,
---------------------------------------
2002 2001
---------------------------------------
Net income $ 71.9 $ 44.5
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment (.3) 3.4
Unrealized gain (loss) on derivatives 15.0 (22.6)
Unrealized gain (loss) on investments 1.6
---------------------------------------
Comprehensive income $ 88.2 $ 25.3
---------------------------------------
(5) In October 2001, the Company purchased $2.2 billion of trade receivables
from John Deere. During the first quarter of 2002, a significant portion
of newly originated trade receivables were purchased from John Deere.
These trade receivables arise from John Deere's sales of goods to
dealers. Under the terms of the sales to dealers, interest is charged to
dealers on outstanding balances, from the earlier of the date when goods
are sold to retail customers by the dealer or the expiration of certain
interest-free periods granted to the dealer at the time of the sale,
until payment is received by the Company. John Deere will compensate the
Company for the carrying costs related to these interest-free periods.
(6) In February 2002, the Company securitized and sold approximately $680
million of retail notes, which were included in total Receivables and
Leases at January 31, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
Results of Operations
- ---------------------
Net income was $71.9 million for the first quarter of 2002, compared with $44.5
million last year. As stated in Note 5 to the financial statements, beginning at
the end of the last fiscal year, Deere Capital, Inc., a wholly-owned subsidiary
of the Capital Corporation, began acquiring most of the United States dealer
receivables from Deere & Company's equipment operations. The income earned on
these receivables accounts for a majority of the increase in net income. Higher
income from the sale of retail notes, improved financing spreads, and a larger
average portfolio of other Receivables and Leases also contributed to the
improvement. Partially offsetting these factors was an increase in the provision
for credit losses and a $6 million after-tax loss related to the Argentine peso
devaluation.
Revenues totaled $348.9 million for the first quarter of 2002, compared to
$303.5 million for the same period a year ago. Revenues increased primarily due
to a 32 percent increase in the average balance of Receivables and Leases
financed during the first three months of the year. Finance income earned on
retail notes totaled $102.7 million for the first three months of 2002, compared
to $113.6 million for the same period in 2001. This decrease was primarily due
to declining interest rates earned on the average retail note portfolio balance.
Lease revenues increased $3.4 million, to $110.1 million in the first three
months of 2002, from $106.7 million in the first three months of 2001. Finance
income earned on wholesale receivables increased $27.2 million, to $50.6 million
for the first three months of 2002, from $23.4 million in the first three months
of 2001. This increase was primarily the result of the Company purchasing trade
receivables from John Deere, as disclosed in Note 5 above. Revolving charge
account income was $29.3 million for the first three months of 2002, compared to
$27.5 million during the same period last year. Operating loan income decreased
$2.3 million to $6.4 million in the first three months of 2002, from $8.7
million in the first
6
three months of 2001. This decrease was primarily due to declining interest
rates earned on the average operating loan portfolio balance.
The net gain on Receivables and Leases sold totaled $29.8 million for the first
three months of 2002, compared to $9.6 million for the same period a year ago.
The increase was primarily due to sales of agricultural and construction and
forestry retail notes (approximately $1,750 million total principal value)
during the first quarter of 2002, compared to the sale of agricultural retail
notes (approximately $800 million total principal value) during the first
quarter of 2001. Additional sales of Receivables and Leases are expected to be
made in the future.
Interest expense totaled $97.6 million for the first three months of 2002,
compared to $123.4 million for the same period in 2001. This decrease was
primarily due to lower average borrowing rates.
Administrative and operating expenses were $46.4 million in the first quarter of
2002, compared with $39.8 million for the same period in 2001. This increase is
primarily due to the loss related to the Argentine peso devaluation and the
higher costs associated with administering a larger Receivable and Lease
portfolio. Depreciation of equipment on operating leases increased to $67.2
million in the first quarter of 2002, compared to $62.7 million for the same
period in 2001 as a result of lower residual values on newly originated
operating leases and an increase in the depreciation of equipment on operating
leases.
During the first quarter of 2002, the provision for credit losses totaled $20.3
million, compared with $7.6 million in the same period last year. This increase
was primarily due to increased write-offs and a larger portfolio financed. The
annualized provision for credit losses, as a percentage of the total average
balance of Receivables and Leases financed, was .76 percent for the first
quarter of 2002, compared with .36 percent for the same period last year.
Receivable and Lease acquisition volumes were as follows (in millions of
dollars):
Three Months
Ended January 31,
------------------------
2002 2001 $ Change % Change
-------------------------------------------------
Retail notes:
Agricultural equipment $ 883 $ 615 $ 268 44%
Construction and forestry equipment 206 167 39 23
Commercial and consumer equipment 62 43 19 44
Recreational products 88 (88) (100)
------------------------------------
Total 1,151 913 238 26
Revolving charge accounts 404 354 50 14
Operating loans 262 243 19 8
Wholesale receivables 1,309 239 1,070 448
Financing leases 32 34 (2) (6)
Equipment on operating leases 68 90 (22) (24)
------------------------------------
Total $ 3,226 $ 1,873 $ 1,353 72%
====================================
Wholesale receivable volumes increased $1,070 million in the first three months
of 2002, when compared to the first three months of 2001, primarily as a result
of the Company's purchase of trade receivables from John Deere beginning in
October 2001, as described in Note 5. Retail note volumes increased $238 million
for the same period primarily due to aggressive retail finance programs on
discontinued models of equipment. This increase was partially offset by an $88
million decrease in recreational product retail note volumes in the first three
months of 2002 when compared to the same period last year. Recreational product
retail note volumes decreased due to the Company discontinuing offering
financing for recreational vehicles and yachts.
7
Total Receivables and Leases held were as follows (in millions of dollars):
January 31, October 31, January 31,
2002 2001 2001
-------------------------------------
Retail notes:
Agricultural equipment $ 2,619 $ 3,610 $ 2,545
Construction and forestry equipment 1,003 1,293 1,043
Commercial and consumer equipment 599 611 463
Recreational products 102 111 125
--------------------------------------
Total 4,323 5,625 4,176
Revolving charge accounts 679 814 573
Operating loans 473 501 385
Wholesale receivables 2,757 2,996 847
Financing leases 465 480 449
Equipment on operating leases 1,382 1,485 1,483
-------------------------------------
Total $10,079 $11,901 $ 7,913
=====================================
Receivables and Leases administered by the Company were as follows (in millions
of dollars):
January 31, October 31, January 31,
2002 2001 2001
------------------------------------
Receivables and Leases administered:
Owned by the Company $10,079 $11,901 $ 7,913
Sold and serviced - with limited recourse* 2,686 1,371 2,301
Sold and serviced - without recourse** 66 71 90
Serviced - without recourse*** 10 20
-------------------------------------
Total Receivables and Leases administered $12,831 $13,353 $10,324
=====================================
* The Company's maximum exposure under all Receivable and Lease recourse
provisions at January 31, 2002, October 31, 2001 and January 31, 2001 was
$248 million, $166 million and $172 million, respectively. In addition,
the Company has guaranteed letters of credit on behalf of John Deere
Credit Inc., the John Deere finance subsidiary in Canada, as part of three
retail note sales. At January 31, 2002, October 31, 2001 and January 31,
2001, the maximum exposure under these agreements was approximately $9
million, $9 million and $8 million, respectively.
** These Receivables and Leases represent recreational product retail notes,
which the Company has sold but continues to administer for a fee until the
servicing rights are assumed by their owners.
*** On February 1, 1999, the Company began servicing a receivable portfolio on
behalf of Farming and Agricultural Financing Limited, an unaffiliated
entity. These servicing rights were obtained in conjunction with the
Company's acquisition of John Deere Credit Limited (United Kingdom). This
receivable portfolio was sold during the first quarter of 2002.
8
Total Receivable and Lease amounts 60 days or more past due, by product and as a
percent of total balances held, were as follows (in millions of dollars):
January 31, October 31, January 31,
2002 2001 2001
-------------------------------------------------------------------
Dollars Percent Dollars Percent Dollars Percent
-------------------------------------------------------------------
Retail notes:
Agricultural equipment $ 14.6 .56% $ 13.3 .37% $ 11.2 .44%
Construction and forestry equipment 5.4 .54 4.9 .38 4.7 .45
Commercial and consumer equipment 1.7 .28 1.4 .23 1.0 .22
Recreational products .3 .29 .3 .27 .1 .08
----------- ----------- -----------
Total retail notes 22.0 .51 19.9 .35 17.0 .41
Revolving charge accounts 14.7 2.17 9.5 1.17 12.1 2.11
Operating loans .5 .11 .1 .02 1.6 .42
Wholesale receivables 15.0 .54 9.9 .33 6.0 .71
Leases 8.1 .44 7.7 .39 6.7 .35
----------- ----------- -----------
Total Receivables and Leases $ 60.3 .60% $ 47.1 .40% $ 43.4 .55%
=========== =========== ===========
The balance of retail notes held (principal plus accrued interest) with any
installment 60 days or more past due was $106 million, $100 million and $86
million at January 31, 2002, October 31, 2001 and January 31, 2001,
respectively. The balance of retail notes held on which any installment is 60
days or more past due as a percent of retail notes held represented 2.45, 1.78
and 2.06 percent of the ending retail notes receivable at January 31, 2002,
October 31, 2001 and January 31, 2001, respectively.
Total Receivable and Lease write-off amounts, by product, and as an annualized
percentage of average balances held during the quarter, were as follows (in
millions of dollars):
Three Months Ended Three Months Ended
January 31, January 31,
2002 2001
---------------------------------------------------------
Dollars Percent Dollars Percent
---------------------------------------------------------
Retail notes:
Agricultural equipment $ 1.8 .24% $ 1.5 .22%
Construction and forestry equipment 3.9 1.65 2.8 1.14
Commercial and consumer equipment .2 .14 .1 .10
Recreational products 1.6 6.09 .6 1.89
--------------- --------------
Total retail notes 7.5 .64 5.0 .47
Revolving charge accounts 3.2 1.60 2.3 1.30
Operating loans .2 .24 .1 .09
Wholesale receivables .1 .00 .4 .16
Leases 5.2 1.12 2.0 .42
--------------- --------------
Total Receivables and Leases $ 16.2 .60% $ 9.8 .48%
=============== ==============
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 $132 million at January 31, 2002,
compared with $134 million at October 31, 2001 and $134 million at January 31,
2001.
9
The Company's allowance for credit losses on all Receivables and Leases held
totaled $101 million at January 31, 2002, $110 million at October 31, 2001 and
$88 million at January 31, 2001. The allowance for credit losses represented 1.0
percent of the total Receivables and Leases held at January 31, 2002, 0.9
percent at October 31, 2001 and 1.1 percent at January 31, 2001. The allowance
is subject to an ongoing evaluation based on loss experience. The Company
believes the allowance is sufficient to provide for losses in its existing
Receivable and Lease portfolio.
FASB Statements to be Adopted
- -----------------------------
In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets, which requires that goodwill related to acquisitions after June 30, 2001
not 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 2003. In the first quarter of 2002, the
Company did not have goodwill or goodwill amortization. This Statement will not
have an effect on the Company's financial position or net income.
Safe Harbor Statement
- ---------------------
Statements under "Financial Instrument Risk Information" and other statements
incorporated herein by reference that relate to future operating periods are
subject to important risks and uncertainties that could cause actual results to
differ materially. Interest rate changes by the Federal Reserve Board may affect
the cost of financing the Company and the rates it is able to offer. In
addition, the Company's business is closely related to John Deere's business.
Further information, including factors that potentially could materially affect
the Company's and John Deere's financial results, is included in the most recent
Deere & Company Form 10-Q and other Deere & Company and Capital Corporation
filings with the Securities and Exchange Commission.
Accounting Policies
- -------------------
In preparing the consolidated financial statements in conformity with accounting
principles generally accepted in the United States, 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 Company relies on its ability to raise substantial amounts of funds to
finance its Receivable and Lease portfolios. The Company's primary source of
funds for this purpose is 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. All commercial paper issued is backed by bank credit lines. The assets of
the Company are self-liquidating in nature. A strong equity
10
position is available to absorb unusual losses on these assets. Liquidity is
also provided by the Company's ability to sell these assets.
The Company's business is somewhat seasonal, with overall acquisition volumes of
Receivables and Leases traditionally higher in the second half of the fiscal
year than in the first half, and overall collections of Receivables and Leases
traditionally somewhat higher in the first six months than in the last six
months of the fiscal year.
During the first quarter of 2002, the aggregate net cash provided by operating
and investing activities was used primarily to decrease borrowings from Deere &
Company. Net cash provided by operating activities was $47 million in the first
three months of 2002. Cash provided by investing activities totaled $1,812
million in the first three months of 2002, primarily due to the collections of
Receivables and Leases and proceeds from sales of Receivables and Leases
exceeding the cost of Receivables and Leases acquired. Cash used for financing
activities totaled $1,936 million in the first three months of 2002, resulting
primarily from a decrease in borrowings from Deere & Company and a dividend paid
to John Deere Credit Company, which in turn declared and paid a comparable
dividend to Deere & Company. Cash and cash equivalents decreased $77 million
during the first three months of 2002.
During the first three months of 2001, the aggregate net cash provided by
operating and investing activities was used primarily to decrease borrowings.
Cash provided by operating activities was $118 million in the first three months
of 2001. Cash provided by investing activities totaled $722 million in the first
quarter of 2001, primarily due to the collections of Receivables and Leases and
proceeds from sales of Receivables and Leases exceeding the cost of Receivables
and Leases acquired. Cash used for financing activities totaled $841 million in
the first three months of 2001, resulting primarily from a decrease in total
borrowings. Cash and cash equivalents decreased $1 million during the first
three months of 2001.
Total interest-bearing indebtedness amounted to $8,823 million at January 31,
2002, compared with $10,383 million at October 31, 2001 and $6,742 million at
January 31, 2001, generally corresponding with the level of Receivables and
Leases financed and the level of cash and cash equivalents. Total short-term
indebtedness amounted to $5,152 million at January 31, 2002, compared with
$6,524 million at October 31, 2001 and $3,464 million at January 31, 2001, while
total long-term indebtedness amounted to $3,672 million, $3,859 million and
$3,278 million at these dates, respectively. The ratio of total interest-bearing
debt to stockholder's equity was 4.8 to 1, 5.4 to 1 and 5.9 to 1 at January 31,
2002, October 31, 2001 and January 31, 2001, respectively.
During the first three months of 2002, the Capital Corporation issued $580
million and retired $675 million of long-term debt. Additionally, the Capital
Corporation's subsidiary, John Deere Bank S.A. (Luxembourg), issued $111 million
of long-term debt.
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.
The short-term and long-term debt ratings assigned to Company securities by
Moody's Investors Service, Inc., Standard & Poor's and Fitch Ratings 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 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
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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. Although the Company's worldwide commercial paper outstanding at January
31, 2002 totaled approximately $2.4 billion, the total cash and short-term
investment position exceeded $400 million and it had access to approximately $2
billion of cash and short-term investments held by its parent, Deere & Company.
In addition, the Company has for many years accessed diverse funding sources,
including short-term and long-term unsecured debt capital markets in the United
States, Europe and Australia, as well as public and private securitization
markets in the United States.
At January 31, 2002, the Capital Corporation and Deere & Company jointly
maintained $4,356 million of unsecured lines of credit with various banks in
North America and overseas, $983 million of which were unused. For the purpose
of computing unused credit lines, commercial paper and short-term bank
borrowings, excluding the current portion of long-term borrowings of the
Capital Corporation and Deere & Company, were considered to constitute
utilization. These agreements include a $2,150 million long-term bank credit
agreement expiring on February 20, 2006. The facility fees payable under these
credit agreements are divided between Deere & Company and the Capital
Corporation based on the proportion of their respective commercial paper
outstanding.
Stockholder's equity was $1,855 million at January 31, 2002, compared with
$1,907 million at October 31, 2001 and $1,133 million at January 31, 2001. The
decrease of $52 million in the first three months of 2002 resulted primarily
from a dividend payment of $140 million, offset by net income of $72 million and
a decrease in the unrealized loss on derivatives of $15 million.
The Capital Corporation declared and paid a cash dividend of $140 million to
John Deere Credit Company during the first three months of fiscal 2002. John
Deere Credit Company paid a comparable dividend to Deere & Company. On February
25, 2002, the Capital Corporation also declared a $60 million dividend, to be
paid to John Deere Credit Company on March 8, 2002. John Deere Credit Company,
in turn, declared a $60 million dividend to Deere & Company, also payable on
March 8, 2002.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
See the information under "Management's Discussion and Analysis" on pages 8 to
14, under Note 15 "Financial Instruments," and under "Supplemental Information
(Unaudited)" on pages 40 to 42 in the Company's most recent annual report filed
on Form 10-K. There has been no material change in this information.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is subject to various unresolved legal actions that
arise in the normal course of its business, the most prevalent of
which relate to state and federal laws and regulations concerning
retail credit. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the
range of possible loss, the Company believes these unresolved
legal actions will not have a material effect on its financial
position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Omitted pursuant to instruction H(2).
Item 3. Defaults Upon Senior Securities.
-------------------------------
Omitted pursuant to instruction H(2).
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Omitted pursuant to instruction H(2).
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
See the index to exhibits immediately preceding the exhibits
filed with this report.
Certain instruments relating to long-term debt, constituting
less than 10% of the registrant's total assets, are not
filed as exhibits herewith pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K. The registrant will
file copies of such instruments upon request of the
Commission.
(b) Reports on Form 8-K.
Current report on Form 8-K dated November 20, 2001 (Items
5 and 7).
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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: March 12, 2002 By: /s/ Nathan J. Jones
-------------------------- -------------------------------------
Nathan J. Jones
Senior Vice President and
Principal Financial Officer
14
INDEX TO EXHIBITS
Exhibit Page No.
- ------- -------
4.1 364-Day Credit Agreement among registrant, Deere & Company,
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. (Exhibit 4.1 to Form 10-Q ---
of Deere & Company for the quarter ended January 31, 2002,
Securities and Exchange Commission file number 1-4121*).
12. Computation of ratio of earnings to fixed charges. 16
99. Part I of Deere & Company Form 10-Q for the quarter ended
January 31, 2002 (Securities and Exchange Commission file ---
number 1-4121*).
- ---------------------
*Incorporated by reference. Copies of these exhibits are available from the
Company upon request.
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