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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
Commission file number 1-6458
JOHN DEERE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2386361
(State of incorporation) (IRS employer identification
number)
1 East First Street, Suite 600
Reno, Nevada 89501 (775) 786-5527
(Address of principal executive offices) (Zip Code) (Telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
5.35% Notes Due 2001 New York Stock Exchange
8-5/8% Subordinated Debentures Due 2019 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 __
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At January 1, 2001, 2,500 shares of common stock, without par value, of the
registrant were outstanding, all of which were owned by John Deere Credit
Company.
The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore filing this Form with certain reduced
disclosures as permitted by Instruction I(2).
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PART I
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Item 1. Business.
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The Company
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John Deere Capital Corporation (Capital Corporation) and its subsidiaries
are collectively called the Company. John Deere Credit Company, a wholly-owned
finance holding subsidiary of Deere & Company, is the parent of the Capital
Corporation. The Company conducts business in Argentina, Australia, France
(through a joint venture), Germany, Luxembourg, Mexico, New Zealand, the United
Kingdom and the United States.
The Company provides and administers financing for retail purchases of new
and used equipment manufactured by Deere & Company's agricultural, commercial
and consumer and construction equipment divisions. The Company purchases retail
installment sales and loan contracts (retail notes) from Deere & Company and its
wholly-owned subsidiaries (collectively called John Deere). John Deere acquires
these retail notes through John Deere equipment retail dealers. The Company also
purchases and finances certain agricultural, construction and lawn and grounds
care retail notes unrelated to John Deere. In addition, the Company purchases
and finances recreational vehicle and manufactured housing unit retail notes
acquired from dealers (recreational product retail notes). The Company leases
equipment to retail customers (financing and operating leases). The Company also
finances and services revolving charge accounts and operating loans acquired
from and offered through merchants or farm input providers in the agricultural,
construction, and lawn and grounds care markets as well as insured international
export financing products (revolving charge accounts), and provides wholesale
financing for inventories of yachts, John Deere engines, and John Deere
agricultural and John Deere construction equipment owned by dealers of those
products (wholesale notes). Retail notes, revolving charge accounts, financing
leases and wholesale notes receivable are collectively called "Receivables."
Receivables and operating leases are collectively called "Receivables and
Leases."
The Capital Corporation was incorporated under the laws of Delaware and
commenced operations in 1958. At January 1, 2001, the Company had 1,364 full-
time and part-time employees.
Business of John Deere
- ----------------------
John Deere's operations are categorized into four major business segments:
The worldwide agricultural equipment segment manufactures and distributes a
full line of farm equipment -- including tractors; combine, cotton and
sugarcane harvesters; tillage, seeding and soil preparation machinery;
sprayers; hay and forage equipment; materials handling equipment; and
integrated precision farming technology.
The worldwide commercial and consumer equipment segment manufactures and
distributes equipment for commercial and residential uses -- including
small tractors for lawn, garden, commercial and utility purposes; riding
and walk-behind mowers; golf course equipment; snowblowers; handheld
products such as chain saws, string trimmers and leaf blowers; skid-steer
loaders; utility vehicles; and other outdoor power products.
The worldwide construction equipment segment manufactures and distributes a
broad range of machines used in construction, earthmoving, material
handling and timber harvesting - including backhoe loaders; crawler dozers
and loaders; four-wheel-drive loaders; excavators; motor graders;
articulated dump trucks; forklifts; landscape loaders; and log skidders,
feller bunchers, loaders, forwarders, harvesters and related attachments.
The products produced by the equipment segments are marketed primarily
through independent retail dealer networks and major retail outlets.
1
The credit segment includes the operations of the Company (described
herein), John Deere Credit Company, John Deere Credit Inc. (Canada), Banco
John Deere, S.A. (Brazil) and John Deere Credit Oy (Finland), and primarily
finances sales and leases by John Deere dealers of new and used
agricultural, commercial and consumer, and construction equipment and sales
by non-Deere dealers of recreational products. In addition, it provides
wholesale financing to dealers of the foregoing equipment, provides
operating loans and finances retail revolving charge accounts.
John Deere's net income in 2000 totaled $486 million, or $2.06 per share
diluted ($2.07 basic), compared with $239 million, or $1.02 per share diluted
($1.03 basic), in 1999. The earnings more than doubled this year primarily due
to improved manufacturing efficiencies associated with higher sales and
production volumes. John Deere's net sales and revenues increased 12 percent to
$13,137 million in 2000, compared with $11,751 million in 1999. Net sales of the
equipment operations increased 15 percent in 2000 to $11,169 million from $9,701
million last year. Despite weakness in John Deere's major markets, sales rose
due to production and shipments to dealers being better aligned with retail
demand this year, market share gains and the inclusion of the sales of
Timberjack Group, the recently acquired manufacturer of forestry machines,
partially offset by the impact of weaker European currencies. Overseas net sales
increased 8 percent and excluding the impact of weaker foreign currencies were
up 17 percent for the year. Overall, John Deere's worldwide physical volume of
sales increased 18 percent for the year.
Outlook for John Deere
- ----------------------
Based on a favorable outlook for further growth in the Equipment
Operations, John Deere's worldwide physical volume of sales is currently
forecast to increase by 28 percent for the first quarter of 2001, in comparison
with the corresponding 2000 period, and by 11 percent for the full year.
Agricultural Equipment. John Deere expects North American industry retail
sales of farm machinery to be slightly higher next year. Lower than anticipated
global production of grain and oilseeds has resulted in a modest price
improvement for these commodities in recent weeks as well as a reduction in
carryover stocks. At the same time, farmers remain in sound overall financial
condition. In other areas, industry retail sales are expected to be down 5
percent next year in Europe and flat in Latin America and Australia. Sales of
John Deere farm equipment are expected to move higher next year due in large
part to the continued success of newly introduced products and this year's
reduction in used goods inventories held by dealers. Partially offsetting these
factors will be continued expenditures related to growth.
Commercial and Consumer Equipment. In a slowing economic environment,
industry retail sales for these products -- which include lawn care equipment
and worksite and utility vehicles -- are expected to be slightly lower in 2001
than in 2000. However, the segment's sales and financial results are expected to
improve on the strength of new products and recent steps to improve
profitability.
Construction Equipment. Housing starts, though remaining high by historical
standards, are expected to be lower in 2001 than in 2000. Lumber production in
this environment is expected to be scaled back, but pulp production should
continue to expand in light of global economic growth and higher pulp prices. As
a result of these factors, industry sales of construction equipment are expected
to fall by 7 to 10 percent in 2001. John Deere's construction equipment
operations are expected to experience further growth next year due in large part
to the success of new products and the full year inclusion of the sales of
Timberjack. These factors will be partially offset by further growth related
expenditures.
Credit Operations. Credit is expected to benefit next year from continued
growth in its receivable portfolio both in North American and international
markets.
John Deere is in position to improve its financial and operating
performance in 2001 and is encouraged by the firming tone of farm commodity
prices. In addition, customers have responded positively to John
2
Deere's many new, innovative products, and significant progress has been made in
bringing down used equipment inventories. At the same time, John Deere's
initiatives aimed at growth and quality improvement remain well on track.
Relationships of the Company with John Deere
- --------------------------------------------
The results of operations of the Company are affected by its relationships
with John Deere, including among other things, the terms on which the Company
acquires Receivables and Leases and borrows funds from John Deere, the
reimbursement for interest waiver and low-rate finance programs from John Deere
and the payment to John Deere for various expenses applicable to the Company's
operations. In addition, the Company and John Deere have joint access to all of
the Company's lines of credit.
The Company's acquisition volume of Receivables and Leases is largely
dependent upon the level of retail sales and leases of John Deere products. The
level of John Deere retail sales and leases is responsive to a variety of
economic, financial, climatic, legislative and other factors that influence
demand for its products. All of the Company's businesses are affected by changes
in interest rates, demand for credit and competition.
The Company bears all of the credit risk (net of recovery from withholdings
from certain John Deere dealers and Farm Plan(TM) merchants) associated with its
holding of Receivables and Leases, and performs all servicing and collection
functions. John Deere is reimbursed for staff and other administrative services
at estimated cost, and for credit lines provided to the Company based on
utilization of those lines.
The terms and the basis on which the Company acquires retail and certain
wholesale notes from John Deere are governed by agreements with John Deere,
terminable by either John Deere or the Company on 30 days notice. As provided in
these agreements, the Company sets its terms and conditions for purchasing the
notes from John Deere. Under these agreements, John Deere is not obligated to
sell notes to the Company, and the Company is obligated to purchase notes from
John Deere only if the notes comply with the terms and conditions set by the
Company.
The basis on which John Deere acquires retail and certain wholesale notes
from the dealers is governed by agreements with the John Deere dealers,
terminable at will by either the dealers or John Deere. In acquiring these notes
from dealers, the terms and conditions, as set forth in agreements with the
dealers, conform with the terms and conditions adopted by the Company in
determining the acceptability of retail and certain wholesale notes to be
purchased from John Deere. The dealers are not obligated to send these notes to
John Deere and John Deere is not obligated to accept these notes from the
dealers. In practice, retail and certain wholesale notes are acquired from
dealers only if the terms of these notes and the creditworthiness of the
customers are acceptable to the Company for purchase of these notes from John
Deere. The Company acts on behalf of both itself and John Deere in determining
the acceptability of the notes and in acquiring acceptable notes from dealers.
The basis on which the Company enters into leases with retail customers
through John Deere dealers is governed by agreements between dealers and the
Company. Leases are accepted based on the terms and conditions, the lessees'
creditworthiness, the anticipated residual values of the equipment and the
intended uses of the equipment.
Deere & Company has an agreement with the Company to make income
maintenance payments to the Company such that its consolidated ratio of earnings
before fixed charges to fixed charges is not less than 1.05 to 1 for each fiscal
quarter. For 2000 and 1999, the Company's ratios were 1.48 to 1 and 1.64 to 1,
respectively, and never less than 1.05 to 1 for any fiscal quarter. Deere &
Company also has committed to continue to own at least 51 percent of the voting
shares of capital stock of the Company and to maintain the Company's
consolidated tangible net worth at not less than $50 million. These arrangements
are not intended to make Deere & Company responsible for the payment of any
indebtedness, obligation or liability of the Company.
3
Description of Receivables and Leases
- -------------------------------------
Receivables and Leases arise mainly from retail sales and leases of John
Deere products and used equipment accepted in trade for them, and from retail
sales of equipment of unrelated manufacturers. Receivables and Leases also
include revolving charge accounts receivable and wholesale notes receivable. The
great majority of these Receivables and Leases are derived from retail sales and
leases of agricultural equipment, commercial and consumer equipment and
construction equipment sold by John Deere dealers.
The Company also provides retail sales financing of recreational vehicles
and manufactured houses, primarily by acquiring notes from independent dealers.
Recreational vehicle retail notes conform to industry standards different from
those for John Deere retail notes and often have smaller down payments and
longer repayment terms. In addition, the acquisition volumes, margins and
collectibility of recreational vehicle retail notes are affected by economic,
marketing and competitive factors and cycles, such as fluctuations in fuel
prices and recreational spending patterns, that are different from those
affecting retail notes arising from the sale of John Deere equipment.
Recreational vehicle retail notes are acquired from more than 700 recreational
vehicle dealers and directly from some customers. The Company continuously sells
recreational vehicle retail note portfolios to several outside financial
institutions. These portfolio sales typically require an immediate release of
servicing by the Company.
Through Senstar Finance Company, the Company holds retail notes, leases and
revolving charge receivables related to mining, transportation and other
commercial equipment.
The Company offers several revolving charge products. The John Deere Credit
Revolving Plan is used primarily by retail customers of John Deere dealers to
finance purchases of lawn and grounds care equipment. Through its Farm Plan(TM)
product, the Company finances revolving charge accounts offered by approximately
5,000 participating agri-businesses to their retail customers for the purchase
of goods and services. Farm Plan(TM) account holders consist mainly of farmers
purchasing equipment parts and service at implement dealerships. Farm Plan(TM)
is also used by customers patronizing other agri-businesses, including farm
supply, feed and seed, parts supply, bulk fuel, building supply merchants and
veterinarians. The Company also works with several leading farm input providers
to offer crop input production loans for materials such as seeds and fertilizer.
These loans are secured by the crops being grown. Additionally, the Company
provides production loans directly to farmers for their total operating needs.
These loans are secured by crops and equipment. The PowerPlan(R) revolving
charge account is used by commercial customers to finance the purchase of parts
and service work performed at John Deere construction dealers. The Company also
offers insured international export financing products to select customers. See
Note 2 to the Consolidated Financial Statements under "Revolving Charge Accounts
Receivable."
The Company finances wholesale inventories of yachts, John Deere engines
and John Deere agricultural and construction equipment. A large portion of the
wholesale financing provided by the Company is with dealers from whom it also
purchases agricultural, construction and recreational product retail notes. See
Note 2 to the Consolidated Financial Statements under "Wholesale Notes
Receivable."
The Company requires theft and physical damage insurance be carried on all
goods leased or securing retail notes. In most cases, the customers may, at
their expense, have the Company or the seller of the goods purchase this
insurance or obtain it from other sources. Theft and physical damage insurance
is also required on goods securing wholesale notes and can be purchased through
the Company or from other sources. Insurance is not required for goods purchased
pursuant to revolving charge accounts.
Receivables and Leases are eligible for acceptance if they conform to
prescribed finance and lease plan terms. Guidelines relating to down payments
and contract terms on retail notes and leases are described in Note 2 to the
Consolidated Financial Statements.
4
In some circumstances, Receivables and Leases may be accepted and acquired
even though they do not conform in all respects to the established guidelines.
Acceptability and servicing of retail notes, wholesale notes and leases,
according to the finance plans and retail terms, including any waiver of
conformity with such plans and terms, is determined by Company personnel.
Officers of the Company are responsible for reviewing the performance of the
Company in accepting and collecting retail notes, wholesale notes, revolving
charge accounts and leases. The Company normally makes all its own routine
collections, settlements and repossessions on Receivables and Leases.
Retail notes provide for retention by John Deere or the Company of security
interests in the goods financed under certain statutes, including the Uniform
Commercial Code, certain federal statutes and state motor vehicle laws. Security
interest filings are also made for leases. However, filings for operating leases
are made for informational purposes only.
Finance Rates on Retail Notes
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As of October 31, 2000 and 1999, approximately 46 percent and 49 percent of
the retail notes held by the Company bore a variable finance rate, respectively.
With the exception of agricultural retail notes, a majority of retail notes are
fixed rate notes. A portion of the finance income earned by the Company arises
from reimbursements from John Deere in connection with financing the retail
sales of John Deere equipment on which finance charges are waived or reduced by
John Deere for a period from the date of sale to a specified subsequent date.
See Note 2 to the Consolidated Financial Statements for additional information.
Average Original Term and Average Actual Life of Retail Notes and Leases
- ------------------------------------------------------------------------
Due to prepayments (often from trade-ins and refinancings), the average
actual life of retail notes is considerably shorter than the average original
term. The following table shows the average original term for retail notes and
leases acquired and the average actual life for retail notes and leases
liquidated (in months):
Average Original Term Average Actual Life
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2000 1999 2000 1999
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Retail notes 64 65 27 26
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New equipment:
Agricultural equipment 56 57 29 25
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Construction equipment 46 45 31 30
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Lawn and grounds care equipment 52 47 25 25
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Recreational products* 183 188 21 30
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Used equipment:
Agricultural equipment 56 57 27 24
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Construction equipment 44 44 25 25
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Lawn and grounds care equipment 52 52 26 27
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Recreational products* 168 171 10 22
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Leases 46 44 29 34
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*The average actual life for recreational products in 2000 has declined from
prior periods as a result of the Company's decision to continuously sell the
portfolio to several outside financial institutions.
The average original term for recreational products is longer than other
equipment notes because of customer preferences and industry convention.
5
Competition
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The businesses in which the Company is engaged are highly competitive. The
Company competes for customers with commercial banks and finance and leasing
companies based upon its service and finance rates charged. The proportion of
John Deere equipment retail sales and leases financed by the Company is
influenced by conditions prevailing in the agricultural equipment, commercial
and consumer equipment, and construction equipment industries, in the financial
markets, and in business generally. The Company financed a significant portion
of John Deere equipment retail sales and leases during 2000.
The Company emphasizes convenient service to customers and endeavors to
offer terms desired in its specialized markets such as seasonal schedules of
repayment and rentals. The Company's retail note finance rates and lease rental
rates are generally believed to be in the range offered by other sales finance
and leasing companies, although not as low as those of some banks and other
lenders and lessors.
Regulation
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In a number of states, state law limits the maximum finance rate on
receivables. The present state limitations have not, thus far, significantly
limited the Company's variable-rate finance charges or the fixed-rate finance
charges established by the Company. However, if interest rate levels should
increase significantly, maximum state rates could affect the Company by
preventing the variable rates on outstanding variable-rate retail notes from
increasing above the maximum state rate, and by limiting the fixed rates on new
notes. In some states, the Company may be able to qualify new retail notes for a
higher maximum rate limit by using retail installment sales contracts (rather
than loan contracts) or by using fixed-rate rather than variable-rate contracts.
In addition to rate regulation, various state and federal laws and
regulations apply to some Receivables and Leases, principally retail notes for
goods sold for personal, family or household use and Farm Plan(TM) and John
Deere Credit Revolving Plan accounts receivable for such goods. To date, such
laws and regulations have not had a significant adverse effect on the Company's
financial position or results of operations.
Financing outside the United States is affected by a diversity of laws,
customs and regulations.
Item 2. Properties.
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The Company's properties principally consist of office equipment, a
Company-owned office building in Madison, Wisconsin; and leased office space in
Reno, Nevada; Johnston, Iowa; Pittsburgh, Pennsylvania; Bloomington, Illinois;
Brisbane, Australia; Gloucester, England; Monterrey, Mexico; Luxembourg City,
Luxembourg; and Rosario, Argentina.
Item 3. Legal Proceedings.
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The Company is subject to various unresolved legal actions which arise in
the normal course of its business, the most prevalent of which relate to state
and federal laws and regulations concerning retail credit. Although it is not
possible to predict with certainty the outcome of these unresolved legal actions
or the range of possible loss, the Company believes these unresolved legal
actions will not have a material effect on its financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
Omitted pursuant to instruction I(2).
6
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- ------ ---------------------------------------------------------------------
All of the Capital Corporation's common stock is owned by John Deere Credit
Company, a finance holding company that is wholly-owned by Deere & Company. The
Capital Corporation declared and paid cash dividends to John Deere Credit
Company of $20 million in 2000 and $75 million in 1999. In each case, John Deere
Credit Company paid a comparable dividend to Deere & Company.
Item 6. Selected Financial Data.
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Omitted pursuant to instruction I(2).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations.
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Results of Operations
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2000 Compared with 1999
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Consolidated net income was $31.7 million for the fourth quarter and $140.8
million for the year, compared with $29.2 million and $153.3 million,
respectively, last year. The results for this year were adversely affected by
higher operating expenses as well as a reduced level of receivable sales, which
resulted in lower gains. Partially offsetting these factors was higher income
from a larger Receivable and Lease portfolio. The ratio of earnings to fixed
charges was 1.48 to 1 for 2000, compared with 1.64 to 1 for 1999.
Revenues totaled $1,106 million in 2000, compared to $959 million a year
ago. Revenues increased primarily due to a 10 percent increase in the average
balance of Receivables and Leases financed and an increase in yield on variable
rate contracts. Finance income earned on retail notes totaled $404 million in
2000, up slightly, compared to $396 million in 1999. Lease revenues increased
$119 million to $389 million in 2000, primarily due to a 40 percent increase in
the average balance of financing and operating leases financed. Finance income
earned on wholesale notes increased $23 million, to $95 million in 2000, from
$72 million in 1999. This increase was primarily the result of continued growth
in the financing for dealer inventories of John Deere construction equipment and
John Deere agricultural equipment, partially offset by the decrease in financing
manufactured housing dealer inventories.
Revenues earned on revolving charge accounts amounted to $142 million in
2000, an 18 percent increase over revenues of $120 million earned during 1999.
The increase was primarily due to growth of operating loans in 2000, compared
with 1999.
The net gain on retail Receivables and Leases sold totaled $21 million
during 2000, compared with $40 million for 1999. The lower net gain for 2000 was
primarily the result of a reduction in Receivables and Leases sold when compared
to last year. Securitization and servicing fee income totaled $30 million in
2000, compared with $31 million during 1999. Securitization and servicing fee
income relates to Receivables and Leases sold to other financial institutions or
limited-purpose business trusts and primarily includes the interest earned on
retained interests and reimbursed administrative expenses received. Additional
sales of Receivables and Leases are expected to be made in the future.
Interest expense totaled $440 million in 2000, compared with $361 million
in 1999. This increase was primarily due to an increase in the weighted average
annual interest rate incurred on all borrowings from 5.8
7
percent in 1999 to 6.6 percent in 2000 and a 10 percent increase in average
borrowings from $6,021 million in 1999 to $6,624 million in 2000.
Administrative and operating expenses increased 22 percent from $128
million in 1999 to $156 million in 2000. These increases were attributable to
the higher costs associated with administering a larger Receivable and Lease
portfolio as well as increased start-up costs related to international growth.
Depreciation of equipment on operating leases increased to $225 million in 2000,
compared to $162 million in 1999 as a result of the increase in equipment on
operating leases financed. In addition, the Company paid higher fees to John
Deere.
The provision for credit losses was $53 million in 2000, compared with $62
million in 1999. Total write-offs of Receivables and Leases financed were $36
million during 2000, compared with $40 million in 1999. The decrease in write-
offs from 1999 was primarily related to a decrease in agricultural equipment
retail note write-offs, partially offset by an increase in lease and wholesale
note write-offs.
Receivables and Leases Acquired and Held
----------------------------------------
Receivables and Leases acquired by the Company during 2000 totaled $8,909
million, an increase of 10 percent, compared with volumes of $8,090 million
during 1999. The higher volumes in 2000 resulted mainly from increased volumes
of revolving charge accounts, John Deere equipment retail notes and leases,
partially offset by a decrease in wholesale note volumes. Receivables and Leases
held by the Company at October 31, 2000 totaled $8,609 million, compared with
$7,231 million at October 31, 1999. For the 2000 and 1999 fiscal years,
Receivable and Lease acquisition volumes and balances held were as follows (in
millions of dollars):
Fiscal Year Volumes Balance at October 31,
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2000 1999 % Change 2000 1999 % Change
---------------------------------------- -----------------------------------------
Retail notes:
Agricultural equipment $2,600.5 $2,489.4 4% $2,983.0 $2,602.4 15%
Construction equipment 752.3 641.2 17 1,000.1 611.5 64
Lawn and grounds care equipment 330.1 250.9 32 465.0 346.7 34
Recreational products 339.3 326.3 4 139.6 155.6 (10)
----------------------- -------------------------
Total 4,022.2 3,707.8 8 4,587.7 3,716.2 23
Revolving charge accounts 2,420.3 1,907.6 27 1,110.5 900.6 23
Wholesale notes 1,517.8 1,683.9 (10) 937.0 957.2 (2)
Financing leases 224.5 149.3 50 456.4 402.2 13
Equipment on operating leases 723.8 641.8 13 1,517.1 1,254.8 21
----------------------- -------------------------
Total $8,908.6 $8,090.4 10% $8,608.7 $7,231.0 19%
======================= =========================
Retail note volumes increased by approximately $314 million in 2000,
compared with 1999, primarily due to an increase in the volumes of agricultural,
construction and lawn and grounds care equipment retail notes. Revolving charge
account volumes increased primarily due to the increased demand for operating
loans, Farm Plan(TM) and John Deere Credit Revolving Plan products. Wholesale
note volumes decreased in 2000 primarily because the Company discontinued
offering wholesale note financing for manufactured housing dealer inventory.
Additional information is presented in Note 1 to the Consolidated Financial
Statements.
8
Receivables and Leases administered by the Company, which include retail
notes sold, were as follows (in millions):
October 31, October 31,
2000 1999
------------------------
Receivables and Leases administered:
Owned by the Company $ 8,608.7 $7,231.0
Sold and serviced - with limited recourse* 1,867.4 2,274.9
Sold and serviced - without recourse** 91.4 117.9
Serviced - without recourse*** 23.7 46.1
------------------------
Total Receivables and Leases administered $10,591.2 $9,669.9
========================
* The Company's maximum exposure under all Receivable and Lease recourse
provisions at October 31, 2000 and 1999 was $168 million and $161 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 two retail note sales. At October 31, 2000 and 1999, the maximum
exposure under these agreements was approximately $6 million and $8 million,
respectively.
** On recreational product retail note sales, the Company continues to
administer the portfolios outstanding 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 Finance Limited (FAF). These servicing rights
were obtained in conjunction with the Company's acquisition of John Deere Credit
Limited (JDCL).
Retail notes bearing variable finance rates totaled 46 percent of the total
retail note portfolio at October 31, 2000, compared with 49 percent at October
31, 1999.
Total Receivable and Lease amounts 60 days or more past due were $33
million at October 31, 2000, compared with $30 million at October 31, 1999.
These past due amounts represented .38 percent and .41 percent of the total
Receivables and Leases held at those respective dates. The balance of retail
notes held (principal plus accrued interest) with any installment 60 days or
more past due was $68 million and $54 million at October 31, 2000 and 1999,
respectively. The balances of retail notes held on which any installment was 60
days or more past due as a percentage of the ending retail notes receivable was
1.48 percent at October 31, 2000 and 1.45 percent at October 31, 1999. See Note
3 to the Consolidated Financial Statements for additional information on past
dues.
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 $133 million at October 31, 2000,
compared to $123 million at October 31, 1999. The Company's allowance for credit
losses on all Receivables and Leases financed at October 31, 2000 totaled $93
million and represented 1.1 percent of the total Receivables and Leases
financed, compared with $84 million and 1.2 percent, respectively, one year
earlier. The allowance is subject to an ongoing evaluation based on loss
experience and related estimates to ensure the allowance for credit losses is
maintained at an adequate level.
1999 Compared with 1998
-----------------------
Consolidated net income for the fiscal year ended October 31, 1999 was $153
million, compared with $151 million in 1998. Results for 1999 reflect increased
income on a 5 percent higher average balance of Receivables and Leases financed,
a reduction in leverage position and a gain on the sale of the yacht retail note
portfolio and related intangibles, partially offset by lower financing spreads,
higher receivable write-offs and higher operating expenses. The ratio of
earnings to fixed charges was 1.64 to 1 for 1999, compared with 1.63 to 1 for
1998.
9
Revenues totaled $959 million in 1999, compared to $887 million in 1998.
Revenues increased primarily due to a 5 percent increase in the average balance
of Receivables and Leases financed. Finance income earned on retail notes
totaled $396 million in 1999, compared to $431 million in 1998. This decrease
was primarily due to a 56 percent decrease in the average balance of
recreational product retail notes financed. Lease revenues increased $78 million
to $270 million in 1999, primarily due to a 42 percent increase in the average
balance of financing and operating leases financed. Finance income earned on
wholesale notes increased $11 million, to $72 million in 1999, from $61 million
earned in 1998 primarily as a result of the continued growth in the financing
for inventories of construction equipment, yachts and recreational vehicles.
Revenues earned on revolving charge accounts amounted to $120 million in
1999, a 6 percent increase over revenues of $113 million earned during 1998. The
increase was primarily due to growth of operating loans in 1999, compared with
1998.
The net gain on Receivables and Leases sold totaled $40 million during
1999, compared with $39 million for 1998. Securitization and servicing fee
income totaled $31 million in 1999, compared with $28 million during 1998.
Securitization and servicing fee income relates to Receivables and Leases sold
to other financial institutions or limited-purpose business trusts and primarily
includes the interest earned on retained interests and reimbursed administrative
expenses received.
Interest expense totaled $361 million in 1999, compared with $368 million
in 1998. Average borrowings were $6,021 million in 1999, compared with $5,875
million in 1998, an increase of 2 percent. The weighted average annual interest
rate incurred on all interest-bearing borrowings during 1999 was 5.8 percent,
compared to 6.1 percent in 1998.
Administrative and operating expenses increased 9 percent from $117 million
in 1998 to $128 million in 1999. These increases were attributable to the costs
associated with administering a larger Receivable and Lease portfolio as well as
higher employment costs relating to the increasing level of new acquisition
volumes.
The provision for credit losses was $62 million in 1999 and $46 million in
1998. Total write-offs of Receivables and Leases financed were $40 million
during 1999, compared with $32 million in 1998. The increase in write-offs from
1998 primarily related to a $10.5 million increase in agricultural equipment
retail note write-offs, partially offset by a $2.8 million decrease in
recreational product retail note write-offs.
10
Receivables and Leases Acquired and Held
----------------------------------------
Receivables and Leases acquired by the Company during 1999 totaled $8,090
million, an increase of 10 percent, compared with volumes of $7,349 million
during 1998. The higher volumes in 1999 resulted mainly from increased volumes
of John Deere construction and lawn and grounds care equipment retail notes,
revolving charge accounts, wholesale receivables and leases. Receivables and
Leases held by the Company at October 31, 1999 totaled $7,231 million, compared
with $6,528 million at October 31, 1998. For the 1999 and 1998 fiscal years,
Receivable and Lease acquisition volumes and balances held were as follows (in
millions of dollars):
Fiscal Year Volumes* Balance at October 31,**
--------------------------------------------- ----------------------------------------------
1999 1998 % Change 1999 1998 % Change
--------------------------------------------- ----------------------------------------------
Retail notes:
Agricultural equipment $2,489.4 $2,482.0 0% $2,602.4 $2,284.8 14%
Construction equipment 641.2 461.8 39 611.5 703.5 (13)
Lawn and grounds care equipment 250.9 188.8 33 346.7 269.7 29
Recreational products 326.3 354.4 (8) 155.6 581.4 (73)
----------------------------- ------------------------------
Total 3,707.8 3,487.0 6 3,716.2 3,839.4 (3)
Revolving charge accounts 1,907.6 1,685.9 13 900.6 751.1 20
Wholesale notes 1,683.9 1,483.1 14 957.2 803.9 19
Financing leases 149.3 136.4 9 402.2 241.8 66
Equipment on operating leases 641.8 556.6 15 1,254.8 891.5 41
----------------------------- ------------------------------
Total $8,090.4 $7,349.0 10 $7,231.0 $6,527.7 11
============================= ==============================
* Does not include the acquisition of JDCL, FAF and Senstar Finance Company
(Senstar) installment, lease and revolving charge balances.
** Agricultural equipment retail notes at October 31, 1999 include the JDCL and
FAF balances. Construction equipment retail notes, revolving charge accounts,
financing leases and equipment on operating leases include the Senstar balances
at October 31, 1999.
Retail note volumes increased by approximately $221 million in 1999,
compared with 1998, primarily due to an increase in the volumes of construction
equipment and lawn and grounds care equipment retail notes. However,
agricultural retail note volumes remained relatively unchanged in 1999 due to
the weakened United States agricultural market. Recreational products retail
note volumes declined in 1999 primarily due to decreases in yacht installment
financing.
Revolving charge account volumes increased primarily due to the increased
demand for operating loans, Farm Plan(TM) and John Deere Credit Revolving Plan
products. Wholesale note volumes increased significantly in 1999 primarily due
to higher recreational vehicle and yacht wholesale notes, construction equipment
wholesale notes, and a used agricultural equipment wholesale program introduced
in April 1998. Operating lease volumes increased in 1999 due to agricultural
low-rate and guaranteed residual value leasing programs sponsored by the Company
or John Deere.
Retail notes receivable decreased primarily due to the Company selling
retail notes, receiving proceeds of $2,281 million during 1999, compared to
$1,738 million during 1998. This decrease was partially offset by retail note
acquisition volumes exceeding collections during 1999 and the acquisition of
JDCL, FAF and Senstar installment portfolios.
11
Receivables and Leases administered by the Company, which include retail
notes sold, were as follows (in millions):
October 31, October 31,
1999 1998
--------------------------
Receivables and Leases administered:
Owned by the Company $7,231.0 $6,527.7
Sold and serviced - with limited recourse* 2,274.9 1,812.1
Sold and serviced - without recourse** 117.9 376.4
Serviced - without recourse*** 46.1
------------------------
Total Receivables and Leases administered $9,669.9 $8,716.2
========================
* The Company's maximum exposure under all Receivable and Lease recourse
provisions at October 31, 1999 and 1998 was $161 million and $181 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 two retail note sales. At October 31, 1999, the maximum exposure
under these agreements was approximately $8 million.
** On recreational product retail note sales, the Company continues to
administer the portfolio outstanding for a fee until the servicing rights are
assumed by their owner.
*** On February 1, 1999, the Company began servicing a receivable portfolio on
behalf of FAF. These servicing rights were obtained in conjunction with the
Company's acquisition of JDCL.
Retail notes bearing variable finance rates totaled 49 percent of the total
retail note portfolio at October 31, 1999, compared with 45 percent at October
31, 1998.
Total Receivable and Lease amounts 60 days or more past due were $30
million at October 31, 1999, compared with $25 million at October 31, 1998.
These past due amounts represented .41 percent and .39 percent of the total
Receivables and Leases held at those respective dates. The balance of retail
notes held (principal plus accrued interest) with any installment 60 days or
more past due was $54 million at both October 31, 1999 and 1998, respectively.
The balances of retail notes held on which any installment was 60 days or more
past due as a percentage of the ending retail notes receivable was 1.45 percent
at October 31, 1999 and 1.42 percent at October 31, 1998. While past due
amounts, as a percentage of total Receivables and Leases held, increased in
1999, these amounts compare favorably with historical levels.
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 $123 million at October 31, 1999,
compared to $156 million at October 31, 1998. During the second quarter of 1999,
the U.S. John Deere agricultural dealer reserve program was modified to evaluate
and adjust reserves outstanding quarterly rather than annually as under the
previous program. In addition, the minimum required reserve for select dealers
was adjusted from 3 percent to 2 percent of the aggregate balance outstanding on
all installment contracts originated through that dealer. The Company's
allowance for credit losses on all Receivables and Leases financed at October
31, 1999 totaled $84 million and represented 1.2 percent of the total
Receivables and Leases financed, compared with $81 million and 1.2 percent,
respectively, at October 31, 1998. The Company's allowance for credit losses, as
a percentage of total Receivables and Leases, remained relatively unchanged in
1999. The allowance is subject to an ongoing evaluation based on loss experience
and related estimates to ensure the allowance for credit losses is maintained at
an adequate level.
Capital Resources and Liquidity
- -------------------------------
The Company relies on its ability to raise substantial amounts of funds to
finance its Receivable and Lease portfolios. The Company's primary sources of
funds for this purpose are a combination of borrowings and equity capital.
Additionally, the Company periodically sells substantial amounts of retail notes
in the public market and in
12
private sales. The Company's ability to obtain funds is affected by its debt
ratings, which are closely related to the outlook for and the financial
condition of Deere & Company, and the nature and availability of support
facilities, such as its lines of credit. For information regarding Deere &
Company and its business, see Exhibit 99.
The Company's ability to meet its debt obligations is supported in a number
of ways. All commercial paper issued is backed by bank credit lines. The assets
of the Company are self-liquidating in nature. A strong equity position is
available to absorb unusual losses on these assets. Liquidity is also provided
by the Company's ability to sell these assets.
The Company's business is somewhat seasonal, with overall acquisition
volumes of Receivables and Leases traditionally higher in the second half of the
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.
The aggregate net cash provided by operating and financing activities was
primarily used to increase Receivables and Leases. Net cash provided by
operating activities was $514 million in 2000. Financing activities provided
$1,292 million during the same period, resulting from a $1,312 million net
increase in total borrowings, which was partially offset by dividend payments
totaling $20 million to John Deere Credit Company. Net cash used for investing
activities totaled $1,800 million in 2000, primarily due to Receivable and Lease
acquisitions exceeding collections by $2,858 million, which was partially offset
by the $978 million of proceeds from the sale of receivables. Cash and cash
equivalents increased $7 million during 2000. See "Statements of Consolidated
Cash Flows."
Over the past three years, operating activities provided $1,163 million in
cash. In addition, the sale of receivables provided $4,997 million and an
increase in total net borrowings provided $1,282 million. These amounts were
used mainly to fund Receivable and Lease acquisitions, which exceeded
collections by $7,578 million, and to pay $145 million in dividends.
The Company is naturally exposed to various interest rate and foreign
currency risks. As a result, the Company enters into derivative transactions to
manage certain of these exposures that arise in the normal course of business,
and not for the purpose of creating speculative positions or trading. Similar to
other large credit companies, the Company manages the relationship of the types
and amounts of its funding sources to its Receivable and Lease portfolios in an
effort to diminish risk due to interest rate fluctuations, while responding to
favorable financing opportunities. Accordingly, from time to time, the Company
enters into interest rate swap agreements to manage its interest rate exposure
in amounts corresponding to a portion of its borrowings. The credit and market
risks under these interest rate and foreign currency agreements are not
considered to be significant. See Note 13 to the Consolidated Financial
Statements for further details.
Total interest-bearing indebtedness amounted to $7,330 million at October
31, 2000, compared with $6,028 million at October 31, 1999, generally
corresponding with the level of Receivables and Leases financed and the level of
cash and cash equivalents. Total short-term indebtedness amounted to $4,743
million at October 31, 2000, compared with $3,526 million at October 31, 1999.
Total long-term indebtedness amounted to $2,587 million at October 31, 2000 and
$2,501 million at October 31, 1999. The ratio of total interest-bearing debt to
stockholder's equity was 6.6 to 1 and 6.0 to 1 at October 31, 2000 and 1999,
respectively.
The Company maintained unsecured lines of credit with various banks in
North America and overseas. See Note 4 to the Consolidated Financial Statements.
During 2000, the Capital Corporation's subsidiary, John Deere Credit
Limited in Gloucester, England, retired $168 million of long-term debt due in
2000. The Capital Corporation also issued $1,865 million and retired $1,980
million of medium-term notes during 2000.
13
The Capital Corporation paid cash dividends to John Deere Credit Company of
$20 million in 2000 and $75 million in 1999. In each case, John Deere Credit
Company paid a comparable dividend to Deere & Company.
Safe Harbor Statement
- ---------------------
Statements under the "Outlook for John Deere" heading above, the
"Supplemental Information (Unaudited)" on page 38, and other statements herein
that relate to future operating periods are subject to important risks and
uncertainties that could cause actual results to differ materially. Interest
rate changes by the Federal Reserve Board may affect the cost of financing the
Company and the rates it is able to offer. Further information, including
factors that potentially could materially affect the Company's and John Deere's
financial results, is included in the Deere & Company Form 10-K for the fiscal
year ended October 31, 2000 filed with the Securities and Exchange Commission
and filed with this report as Exhibit 99.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- ------- ----------------------------------------------------------
See the information under "Management's Discussion and Analysis", the
"Financial Instruments", and the supplementary data under "Sensitivity
Analysis".
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
See accompanying table of contents of financial statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
Omitted pursuant to instruction I(2).
Item 11. Executive Compensation.
- ------- ----------------------
Omitted pursuant to instruction I(2).
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
Omitted pursuant to instruction I(2).
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Omitted pursuant to instruction I(2).
14
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- ------- ----------------------------------------------------------------
(a) (1) Financial Statements
(2) Financial Statement Schedules
See the table of contents to financial statements and schedules
immediately preceding the financial statements and schedules to
consolidated financial statements.
(3) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
(b) Reports on Form 8-K
Current Reports on Form 8-K dated August 15, 2000 (Items 5 and 7) and
October 19, 2000 (Item 7).
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Each person signing below also hereby appoints Robert W. Lane, Jon D.
Volkert and Michael A. Harring, and each of them singly, his or her lawful
attorney-in-fact with full power to execute and file any and all amendments to
this report together with exhibits thereto and generally to do all such things
as such attorney-in-fact may deem appropriate to enable John Deere Capital
Corporation to comply with the provisions of the Securities Exchange Act of 1934
and all requirements of the Securities and Exchange Commission.
JOHN DEERE CAPITAL CORPORATION
By: /s/ R. W. LANE
-------------------------------
R. W. Lane
Chairman and Chief
Executive Officer
Date: 17 January 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ R. W. LANE Director, Chairman and )
- ------------------------
R. W. Lane Chief Executive Officer )
)
)
/s/ JAMES W. EILER Director ) 17 January 2001
- ------------------------
James W. Eiler )
)
)
/s/ JAMES R. HESEMAN Director )
- ------------------------
James R. Heseman )
)
)
/s/ JAMES A. ISRAEL Director )
- ------------------------
James A. Israel )
)
)
/s/ JOHN J. JENKINS Director )
- ------------------------
John J. Jenkins )
16
Signature Title Date
--------- ----- ----
/s/ NATHAN J. JONES Director, Senior Vice President )
- ------------------------
Nathan J. Jones and Principal Financial Officer )
)
)
/s/ F. F. KORNDORF Director ) 17 January 2001
- ------------------------
F. F. Korndorf )
)
)
/s/ PIERRE E. LEROY Director )
- ------------------------
Pierre E. Leroy )
)
)
/s/ M. P. ORR Director )
- ------------------------
M. P. Orr )
)
)
/s/ JON D. VOLKERT Director and President )
- ------------------------
Jon D. Volkert )
)
)
/s/ STEVEN E. WARREN Director, Senior Vice President )
- ------------------------
Steven E. Warren and Principal Accounting Officer )
17
[Letterhead]
Deloitte & Touche LLP
Two Prudential Plaza
180 North Stetson Avenue
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' REPORT
- ----------------------------
John Deere Capital Corporation:
We have audited the accompanying consolidated balance sheets of John Deere
Capital Corporation and subsidiaries as of October 31, 2000 and 1999 and the
related statements of consolidated income and retained earnings and of
consolidated cash flows for each of the three years in the period ended October
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of John Deere Capital Corporation and
subsidiaries at October 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended October 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 21, 2000
18
Table of Contents
-----------------
Page
----
Financial Statements:
John Deere Capital Corporation and Subsidiaries:
Statements of Consolidated Income and Retained Earnings
For the Years Ended October 31, 2000, 1999 and 1998............... 20
Consolidated Balance Sheets, October 31, 2000 and 1999.............. 21
Statements of Consolidated Cash Flows
For the Years Ended October 31, 2000, 1999 and 1998............... 22
Notes to Consolidated Financial Statements.......................... 23
SCHEDULES OMITTED
The following schedules are omitted because of the absence of conditions
under which they are required or because the required information is included in
the Notes to the Consolidated Financial Statements:
I, II, III, IV, and V.
19
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Income and Retained Earnings
(in millions)
For the Year Ended October 31,
-----------------------------------------------------
2000 1999 1998
-----------------------------------------------------
Revenues
Finance income earned on retail notes $ 403.8 $395.8 $430.8
Lease revenues 388.9 269.8 191.9
Revolving charge account income 141.7 120.1 112.8
Finance income earned on wholesale notes 95.1 71.6 61.4
Securitization and servicing fee income 29.8 31.1 28.5
Net gain on receivables and leases sold 20.6 40.4 38.8
Interest income from short-term investments 8.4 7.4 8.9
Other income 17.6 22.7 14.0
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 1,105.9 958.9 887.1
- -----------------------------------------------------------------------------------------------------------------------
Expenses
Interest expense 440.2 361.0 368.4
Operating expenses:
Administrative and operating expenses 156.0 127.6 116.7
Provision for credit losses 52.6 62.3 46.1
Fees paid to John Deere 15.5 9.9 10.2
Depreciation of equipment on operating leases 224.8 162.4 112.2
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 448.9 362.2 285.2
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 889.1 723.2 653.6
- -----------------------------------------------------------------------------------------------------------------------
Income of consolidated group before income taxes 216.8 235.7 233.5
Provision for income taxes 76.6 82.1 82.4
- -----------------------------------------------------------------------------------------------------------------------
Income of consolidated group 140.2 153.6 151.1
Equity in income (loss) of unconsolidated affiliates .6 (.3) .1
- -----------------------------------------------------------------------------------------------------------------------
Net income 140.8 153.3 151.2
Cash dividends declared (20.0) (75.0) (50.0)
Retained earnings at beginning of the year 884.7 806.4 705.2
- -----------------------------------------------------------------------------------------------------------------------
Retained earnings at end of the year $1,005.5 $884.7 $806.4
=======================================================================================================================
Ratio of earnings to fixed charges 1.48 1.64 1.63
=======================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
20
John Deere Capital Corporation and Subsidiaries
Consolidated Balance Sheets
(in millions)
October 31,
-----------------------------------
2000 1999
-----------------------------------
Assets
Cash and cash equivalents $ 155.9 $ 149.4
Receivables and leases:
Retail notes 4,587.7 3,716.2
Revolving charge accounts 1,110.5 900.6
Wholesale notes 937.0 957.2
Financing leases 456.4 402.2
- ------------------------------------------------------------------------------------------------------------
Total receivables 7,091.6 5,976.2
Equipment on operating leases - net 1,517.1 1,254.8
- ------------------------------------------------------------------------------------------------------------
Total receivables and leases 8,608.7 7,231.0
Allowance for credit losses (93.3) (83.6)
- ------------------------------------------------------------------------------------------------------------
Total receivables and leases - net 8,515.4 7,147.4
- ------------------------------------------------------------------------------------------------------------
Other receivables 86.2 83.0
Notes receivable - unconsolidated affiliates 140.0
Investments in unconsolidated affiliates 9.7 9.5
Other assets 130.8 116.0
- ------------------------------------------------------------------------------------------------------------
Total Assets $9,038.0 $7,505.3
============================================================================================================
Liabilities and Stockholder's Equity
Short-term borrowings:
Commercial paper $2,474.1 $1,264.7
Extendible commercial notes and other notes payable 3.7 6.4
John Deere 495.4 117.7
Current maturities of long-term borrowings 1,769.5 2,137.6
- ------------------------------------------------------------------------------------------------------------
Total short-term borrowings 4,742.7 3,526.4
- ------------------------------------------------------------------------------------------------------------
Accounts payable and accrued liabilities:
Accrued interest on debt 52.3 33.1
Other payables 415.5 324.2
- ------------------------------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities 467.8 357.3
- ------------------------------------------------------------------------------------------------------------
Deposits withheld from dealers and merchants 132.6 122.8
- ------------------------------------------------------------------------------------------------------------
Long-term borrowings:
Senior debt 2,436.8 2,351.1
Subordinated debt 150.0 150.0
- ------------------------------------------------------------------------------------------------------------
Total long-term borrowings 2,586.8 2,501.1
- ------------------------------------------------------------------------------------------------------------
Total liabilities 7,929.9 6,507.6
- ------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock, without par value (issued and outstanding -
2,500 shares owned by John Deere Credit Company) 112.8 112.8
Retained earnings 1,005.5 884.7
Accumulated other comprehensive income (loss) -
cumulative translation adjustment (10.2) .2
- ------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,108.1 997.7
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $9,038.0 $7,505.3
============================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
21
John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
(in millions)
For the Year Ended October 31,
-------------------------------------------------------
2000 1999 1998
-------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 140.8 $ 153.3 $ 151.2
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 52.6 62.3 46.1
Provision for depreciation 228.2 165.4 115.4
Provision for deferred income taxes 17.6 38.1 23.0
Equity in loss (income) of unconsolidated affiliates (.6) .3 (.1)
Other 75.6 (78.3) (28.1)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 514.2 341.1 307.5
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Cost of receivables and leases acquired (8,908.6) (8,090.4) (7,349.0)
Collections of receivables 6,050.4 5,508.4 5,211.7
Change in notes receivable - unconsolidated affiliates (135.2) (5.1)
Proceeds from sales of receivables 978.3 2,281.0 1,737.6
Acquisitions of businesses (59.2) (7.2)
Other 215.0 140.4 83.8
- -------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,800.1) (224.9) (323.1)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Change in commercial paper 1,209.4 (650.8) (319.9)
Change in extendible commercial notes and other notes payable (2.7) 63.2 (285.7)
Change in payable with John Deere 388.4 (.3) 4.4
Proceeds from issuance of long-term borrowings 1,865.0 2,282.0 1,721.0
Principal payments on long-term borrowings (2,147.7) (1,777.0) (1,067.5)
Dividends paid (20.0) (75.0) (50.0)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 1,292.4 (157.9) 2.3
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6.5 (41.7) (13.3)
Cash and cash equivalents at the beginning of year 149.4 191.1 204.4
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of year $ 155.9 $ 149.4 $ 191.1
=========================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
22
John Deere Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
- ------ ------------------------------------------
The following are significant accounting policies in addition to those
included in other notes to the consolidated financial statements.
Corporate Organization
- ----------------------
John Deere Capital Corporation (Capital Corporation) and its subsidiaries are
collectively called the Company. John Deere Credit Company, a wholly-owned
finance holding subsidiary of Deere & Company, is the parent of the Capital
Corporation. The Company conducts business in Argentina, Australia, France
(through a joint venture), Germany, Luxembourg, Mexico, New Zealand, the United
Kingdom and the United States.
Retail notes, revolving charge accounts, financing leases and wholesale notes
receivable are collectively called "Receivables." Receivables and operating
leases are collectively called "Receivables and Leases."
In 2000, Deere & Company acquired minority ownership interests in certain John
Deere construction equipment dealers. Wholesale notes associated with these
dealers have been classified on the financial statements as "Notes receivable -
unconsolidated affiliates".
The risk of credit losses applicable to John Deere retail notes and leases,
net of recovery from withholdings from John Deere dealers, is borne by the
Company. John Deere is also reimbursed by the Company for staff support and
other administrative services at estimated cost, and for credit lines provided
by John Deere based on utilization of the lines.
During the second quarter of fiscal 2000, the Company expanded its operations
by forming two additional entities, John Deere Bank S.A. (JDB) and John Deere
Credit Compania Financiera S.A. (JDCCF). JDB, a wholly-owned subsidiary of the
Capital Corporation located in Luxembourg, will act as the European Regional
Headquarters for the Company, as operations are expanded in that area. JDCCF is
an indirect wholly-owned subsidiary of the Capital Corporation. The principal
business of JDCCF is to support Deere & Company and John Deere retail dealers by
offering financing products specific to the market in Argentina. Both entities
are fully consolidated into the Company's results.
During the second quarter of fiscal 2000, the Company discontinued offering
wholesale note financing for manufactured housing dealer inventory. The Company
will continue to administer and service the existing portfolio until it is fully
liquidated. Acquisition volumes for this product totaled $103 million for
fiscal 2000 and the wholesale notes outstanding were $46 million at October 31,
2000.
During the third quarter of fiscal 2000, the Company received approval from
the Office of Thrift Supervision to charter a new thrift, to be known as FPC
Financial, f.s.b., which is headquartered in Madison, Wisconsin. FPC Financial,
f.s.b. commenced operations on December 24, 2000. It offers credit cards, such
as Farm Plan(TM), PowerPlan(R) and the John Deere Credit Revolving Plan, on a
nationwide basis, and provides retail financing for manufactured housing. The
primary customers of the thrift are expected to be the purchasers of
agricultural, commercial and consumer goods and services.
During the first quarter of fiscal 2001, the Company discontinued offering
wholesale note financing for recreational vehicle dealer inventory. The Company
will continue to administer and service the portfolio until it is fully
liquidated. Acquisition volumes for this product totaled $361 million for
fiscal 2000 and the wholesale notes outstanding were $141 million at October 31,
2000.
23
In the first quarter of fiscal 2001, JDB purchased the portfolio held by the
partnership, John Deere Credit - Germany. Future equipment financing in Germany
will be offered through JDB. The purchase of this portfolio added approximately
$176 million to the Company's Receivables and Leases held at the acquisition
date.
In the first quarter of 2001, the Company formed a joint venture company,
iVesta Financial Solutions LLC (iVesta). iVesta will develop and manage a new
service that will enable customers to execute secure financial transactions with
companies selling goods or services in an e-business environment. The service,
named Isis, will provide the electronic financial network for the agricultural
market. Agricultural customers will be able to use the service to select from a
choice of Isis network lenders when purchasing a product or seeking financing
and complete entire loan transactions online. The investment in iVesta is being
accounted for as an equity basis investment.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the financial statements of the
Capital Corporation and its subsidiaries.
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.
The functional currencies for the Company's foreign operations are their
respective local currencies. The assets and liabilities of these operations are
translated to U.S. dollars at the end of the period exchange rates, and the
revenues and expenses are translated at weighted-average rates for the period.
The gains or losses from these translations are included in other comprehensive
income, which is part of stockholder's equity. Gains or losses from
transactions denominated in a currency other than the functional currency of the
subsidiary involved are included in net income.
Accounting Pronouncements
- -------------------------
In 2000, the Company adopted AICPA Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. This SOP requires the capitalization of costs for software developed
internally for internal use, which were previously expensed. The amount of
total capitalized software costs, including purchased and internally developed
software, classified as "Other Assets" at October 31, 2000 was $8 million, less
accumulated amortization of $5 million. Amortization of these software costs
was $1 million in 2000. The SOP's effect on the Company's financial position or
net income was not material.
In 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which was amended by Statement No. 138 in
2000. Under the new standards, all derivatives will be recorded at fair value
in the financial statements. The Company will adopt these statements in fiscal
year 2001 and its effect on the Company's financial position or net income will
not be material.
In 2000, the FASB issued Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The standard
revises FASB Statement No. 125 and requires additional disclosure. The
statement will be effective March 31, 2001 and will have no material effect on
the company's financial position or net income.
In 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. The SAB
summarizes the SEC staff's views on applying generally accepted accounting
principles to revenue recognition in financial statements. The Company has
24
reviewed its revenue recognition policies and has determined that they comply
with the principles as set forth in SAB No. 101. Accordingly, the adoption of
the SAB will have no effect on the Company's financial position or net income.
Reclassifications
- -----------------
Certain amounts for prior years have been reclassified to conform with 2000
financial statement presentations.
Note 2. Receivables and Leases
- ------ ----------------------
Retail Notes Receivable
- -----------------------
The Company provides and administers financing for retail purchases of new
and used equipment manufactured by John Deere's agricultural, commercial and
consumer, and construction equipment divisions. The Company purchases retail
installment sales and loan contracts (retail notes) from John Deere. These
retail notes are acquired by John Deere through John Deere equipment retail
dealers. The Company also purchases and finances certain agricultural,
construction, lawn and grounds care and recreational product retail notes
unrelated to John Deere.
Retail notes receivable by product category at October 31 are as follows
(in millions of dollars):
2000 1999
--------------------------------
Agricultural equipment - new $1,794.3 $1,646.5
Agricultural equipment - used 1,809.6 1,412.7
Construction equipment - new 1,016.6 615.8
Construction equipment - used 152.1 89.4
Lawn and grounds care equipment - new 511.9 378.8
Lawn and grounds care equipment - used 35.1 31.5
Recreational products 219.6 235.4
--------------------------------------------------------------------------------------------
Total 5,539.2 4,410.1
--------------------------------------------------------------------------------------------
Unearned finance income:
Equipment (871.5) (614.0)
Recreational products (80.0) (79.9)
--------------------------------------------------------------------------------------------
Total (951.5) (693.9)
--------------------------------------------------------------------------------------------
Retail notes receivable $4,587.7 $3,716.2
============================================================================================
Retail notes acquired by the Company during the year ended October 31, 2000
had an estimated average original term (based on dollar amounts) of 64 months.
During 1999 and 1998, the estimated average original term was 65 and 54 months,
respectively. Historically, because of prepayments, the average actual life of
retail notes has been considerably shorter than the average original term. The
average actual life for retail notes liquidated in 2000, 1999 and 1998 was 27,
26 and 25 months, respectively.
25
Retail note installments at October 31 are scheduled as follows (in millions of
dollars):
2000 1999
--------------------------------
Due in:
0-12 months $1,595.9 $1,391.4
13-24 months 1,354.0 1,064.0
25-36 months 1,085.9 813.1
37-48 months 769.8 596.2
49-60 months 479.9 360.0
Over 60 months 253.7 185.4
---------------------------------------------------------------------
Total $5,539.2 $4,410.1
=====================================================================
Company guidelines relating to down payment requirements and contract terms on
retail notes are generally as follows:
Down Contract
Payment Terms
----------------------------------
Agricultural equipment (new and used):
Seasonal payments 30% 4-8 crop years
Monthly payments 20% 48-96 months
Construction equipment:
New 20% 48-60 months
Used 20% 36 months
Lawn and grounds care equipment (new and used):
Seasonal payments 10% 3-6 years
Monthly payments 10% 36-72 months
Recreational products:
New 10% 180 months
Used 10% 144 months
During 2000, 1999 and 1998, the Company received proceeds of $978 million,
$2,281 million and $1,738 million, respectively, from the sale of Receivables
and Leases (including securitized sales). The Company acts as agent for the
buyers in collection and administration for a majority of the Receivables and
Leases it has sold. All Receivables and Leases sold are collateralized by
security agreements on the related equipment sold to the customers. The
Company's estimated maximum exposure under all Receivable and Lease recourse
provisions at October 31, 2000, 1999 and 1998 was $168 million, $161 million and
$181 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 two retail note sales. At October 31, 2000 and 1999, the
maximum exposure under these agreements was approximately $6 million and $8
million, respectively. At October 31, 2000, 1999 and 1998, the balance of all
Receivables and Leases previously sold, but still administered by the Company,
was $1,959 million, $2,393 million and $2,189 million, respectively.
Finance income is recognized over the lives of the retail notes on the
effective-yield basis. During 2000, the average effective yield on retail notes
held by the Company was approximately 10.2 percent, compared with 9.5 percent in
1999 and 9.6 percent in 1998. Unearned finance income on variable-rate notes is
adjusted monthly based on fluctuations in the base rate of a specified bank.
Costs incurred in the acquisition of retail notes are deferred and recognized
over the expected lives of the notes on the effective-yield basis.
26
A portion of the finance income earned by the Company arises from financing of
retail sales of John Deere equipment on which finance charges are waived or
reduced by John Deere for a period from the date of sale to a specified
subsequent date. The Company generally receives compensation from John Deere
equal to a competitive interest rate for periods during which finance charges
have been waived or reduced on retail notes and leases. The portions of the
Company's finance income earned that were received from John Deere on retail
notes containing waiver of finance charges or reduced rates were 30 percent in
2000, 29 percent in 1999 and 23 percent in 1998.
A deposit equal to one percent of the face amount of certain John Deere
agricultural and commercial and consumer equipment retail notes originating from
each dealer is withheld by the Company from that dealer. Any subsequent retail
note losses are charged against the withheld deposits. At the end of each
calendar quarter, the balance of each dealer's withholding account in excess of
a specified percent (generally 3 percent, 2 percent for select dealers) of the
total balance outstanding on retail notes originating with that dealer is
remitted to the dealer. To the extent that these deposits withheld from the
dealer from whom the retail note was acquired cannot absorb a loss on a retail
note, it is charged against the Company's allowance for credit losses. There is
no withholding of dealer deposits on John Deere construction equipment retail
notes or recreational product retail notes.
The Company requires that theft and physical damage insurance be carried on
all goods leased or securing retail notes and wholesale notes. In most cases,
the customer may, at his own expense, have the Company or the seller of the
goods purchase this insurance or obtain it from other sources.
Revolving Charge Accounts Receivable
- ------------------------------------
Revolving charge account income is generated primarily by three revolving
credit products: Farm Plan(TM), the John Deere Credit Revolving Plan and
operating loans. Farm Plan(TM) is primarily used by farmers and ranchers to
finance day-to-day operating expenses, such as parts and services. Merchants
offer Farm Plan(TM) as an alternative to carrying in-house accounts receivable,
and can initially sell existing balances to the Company under a recourse
arrangement. Farm Plan(TM) income includes a discount paid by merchants for
transaction processing and support and finance charges paid by customers on
their outstanding account balances. The John Deere Credit Revolving Plan is used
primarily by retail customers of John Deere dealers to finance lawn and grounds
care equipment. Income includes a discount paid by dealers on most transactions
and finance charges paid by customers on their outstanding account balances.
Primarily operating loans are offered through several leading farm input
providers to finance the acquisition of seeds and fertilizers. Income on this
product is generated from finance charges paid by customers on their outstanding
account balances.
Revolving charge accounts receivable at October 31, 2000 totaled $1,111
million, compared with $901 million at October 31, 1999. Generally, account
holders may pay the account balance in full at any time, or make payments over a
number of months according to a payment schedule.
Financing Leases and Equipment on Operating Leases
- --------------------------------------------------
The Company leases agricultural, construction, lawn and grounds care and
certain other equipment directly to retail customers. At the time of accepting a
lease that qualifies as a financing lease under FASB Statement No. 13,
Accounting for Leases, the Company records the gross amount of lease payments
receivable, estimated residual value of the leased equipment and unearned
finance income. The unearned finance income is equal to the excess of the gross
lease receivable plus the estimated residual value over the cost of the
equipment. The unearned finance income is recognized as revenue over the lease
term on the effective-yield method. Rental payments applicable to equipment on
operating leases are recorded as income on a straight-line method over the lease
terms. Operating lease assets are recorded at cost and depreciated to their
estimated residual value generally on a straight-line method over the terms of
the leases. Residual values represent estimates of the value of the leased
assets at the end of the contract terms and are initially determined based
27
upon appraisals and estimates. Residual values are continually reviewed to
determine that estimated amounts are appropriate. Lease acquisition costs are
accounted for in a manner similar to the procedures for retail notes.
Financing leases receivable by product category at October 31 are as follows (in
millions of dollars):
2000 1999
------------------------
Agricultural equipment $138.7 $ 95.4
Construction equipment 122.0 124.3
Lawn and grounds care equipment 85.8 69.4
Other equipment 143.3 137.6
-------------------------------------------------------------------------------
Total 489.8 426.7
Estimated residual values 54.6 57.6
Unearned finance income (88.0) (82.1)
-------------------------------------------------------------------------------
Financing leases receivable $456.4 $402.2
===============================================================================
Initial lease terms for financing leases generally range from 36 months to 60
months. Payments on financing leases receivable at October 31 are scheduled as
follows (in millions of dollars):
2000 1999
-----------------------
Due in:
0-12 months $172.0 $139.9
13-24 months 134.4 115.1
25-36 months 90.8 84.9
37-48 months 52.5 52.5
Over 48 months 40.1 34.3
------------------------------------------------------------------
Total $489.8 $426.7
==================================================================
The cost of equipment on operating leases by product category at October 31 is
as follows (in millions of dollars):
2000 1999
------------------------
Agricultural equipment $1,230.6 $1,010.3
Construction equipment 488.6 363.7
Lawn and grounds care equipment 122.1 88.3
Other equipment 61.6 71.3
----------------------------------------------------------------------------------
Total 1,902.9 1,533.6
Accumulated depreciation (385.8) (278.8)
----------------------------------------------------------------------------------
Equipment on operating leases - net $1,517.1 $1,254.8
==================================================================================
28
Initial lease terms for equipment on operating leases generally range from 36
months to 60 months. Rental payments for equipment on operating leases at
October 31 are scheduled as follows (in millions of dollars):
2000 1999
---------------------------
Due in:
0-12 months $279.0 $230.4
13-24 months 191.9 160.1
25-36 months 91.3 72.5
37-48 months 41.4 36.4
Over 48 months 17.8 13.6
-------------------------------------------------
Total $621.4 $513.0
=================================================
Deposits withheld from John Deere dealers and related losses on financing and
operating leases are handled in a manner similar to the procedures for retail
notes. In addition, a lease payment discount program, allowing reduced payments
over the term of the lease, is administered in a manner similar to finance
waiver on retail notes.
Equipment returned to the Company upon termination of leases and held for
subsequent sale or lease is recorded at the lower of net book value or estimated
market value of the equipment.
Wholesale Notes Receivable
- --------------------------
The Company finances wholesale inventories of recreational vehicles,
manufactured housing units, yachts, John Deere engines, John Deere agricultural
equipment, and John Deere construction equipment owned by dealers of those
products. Wholesale finance income is generally recognized monthly based on the
daily balance of wholesale receivables outstanding and the applicable effective
interest rate. Interest rates vary with a prevailing bank base rate, the type of
equipment financed and the balance outstanding. Wholesale receivables are
secured by equipment financed. The Company has discontinued to offer wholesale
note financing for manufactured housing and recreational vehicle dealer
inventory. Additional information is presented in Note 1 to the Consolidated
Financial Statements.
Wholesale notes receivable totaled $937 million at October 31, 2000, compared
with $957 million at October 31, 1999. Generally, the maximum maturity for
wholesale notes is 12 months.
Other Receivables
- -----------------
The Company has sold retail notes to limited-purpose business trusts and to
private third parties, which utilize the notes as collateral for asset-backed
securities issued. Other receivables related to securitizations are recorded at
net present value and relate to payments to be received for retained interests.
These retained interests are subsequently carried at estimated fair value with
changes in fair value included in income. Securitization and servicing fee
income includes the interest earned on these retained interests and reimbursed
administrative expenses.
Concentration of Credit Risk
- ----------------------------
Receivables and Leases have significant concentrations of credit risk in the
agricultural, construction, lawn and grounds care, and recreational product
business sectors as shown in the previous tables. On a geographic basis, there
is not a disproportionate concentration of credit risk in any area in which the
Company operates. The Company retains as collateral a security interest in the
goods associated with Receivables and Leases other than certain revolving charge
accounts.
29
Note 3. Allowance for Credit Losses, Delinquencies and Write-offs
- ------ ---------------------------------------------------------
Allowance for Credit Losses
- ---------------------------
Allowances for credit losses on Receivables and Leases are maintained in
amounts considered to be appropriate in relation to the Receivables and Leases
outstanding based on estimated collectibility and collection experience.
An analysis of the allowance for credit losses on total Receivables and Leases
follows (in millions of dollars):
2000 1999 1998
--------------------------------------------------
Balance, beginning of the year $ 83.6 $ 81.3 $ 85.9
Provision charged to operations 52.6 62.3 46.1
Amounts written off (36.2) (40.2) (32.2)
Transfers primarily related to receivable and lease sales (6.7) (19.8) (18.5)
---------------------------------------------------------------------------------------------------------------
Balance, end of the year $ 93.3 $ 83.6 $ 81.3
===============================================================================================================
The allowance for credit losses represented 1.1 percent, 1.2 percent and 1.2
percent of Receivables and Leases financed at October 31, 2000, 1999 and 1998,
respectively. In addition, the Company had $133 million, $123 million and $156
million at October 31, 2000, 1999 and 1998, respectively, of deposits primarily
withheld from John Deere dealers available for certain potential credit losses
originating from those dealers.
Delinquencies
- -------------
Generally, when retail notes become 120 days delinquent, accrual of finance
income is suspended, the collateral is repossessed or the account is designated
for litigation and the estimated uncollectible amount, after charging the
dealer's withholding account, if any, is written off to the allowance for credit
losses. Accrual of revolving charge account income is suspended generally when
the account becomes 120 days delinquent. Accounts are deemed to be uncollectible
and written off to the allowance for credit losses when delinquency reaches 180
days for a Farm Plan(TM) account and 150 days for a John Deere Credit Revolving
Plan account. When a lease account becomes 120 days delinquent, the accrual of
lease revenue is suspended, the equipment is repossessed or the account is
designated for litigation, and the estimated uncollectible amount, after
charging the dealer's withholding account, if any, is written off to the
allowance for credit losses. When a wholesale account becomes 60 days
delinquent, accrual of finance income is suspended, the collateral is
repossessed or the account is designated for litigation, and the estimated
uncollectible amount is written off to the allowance for credit losses. Although
amounts are not withheld from dealers to cover uncollectible wholesale
receivables, there are usually repurchase agreements with manufacturers for new
inventories held by dealers.
30
Total Receivable and Lease amounts 60 days or more past due, by product and
as a percentage of total balances held were as follows (dollars in millions):
October 31, October 31, October 31,
2000 1999 1998
-------------------------------------------------------------------------
Dollars Percent Dollars Percent Dollars Percent
-------------------------------------------------------------------------
Retail notes:
Agricultural equipment $ 8.9 .30% $ 11.7 .45% $ 9.5 .42%
Construction equipment 4.5 .45 2.1 .34 2.0 .28
Lawn and grounds care equipment .9 .19 .8 .23 .7 .26
Recreational products .1 .07 .1 .06 .2 .03
---------- ---------- ----------
Total retail notes 14.4 .31 14.7 .40 12.4 .32
Revolving charge accounts 10.0 .90 8.9 .99 8.4 1.12
Wholesale notes 3.0 .32 1.1 .11 .6 .07
Leases 5.5 .28 5.2 .31 3.8 .34
---------- ---------- ----------
Total Receivables and Leases $ 32.9 .38 $ 29.9 .41 $ 25.2 .39
========== ========== ==========
Write-offs
- ----------
Total Receivable and Lease write-off amounts, by product and as a
percentage of average balances held during the year were as follows (dollars in
millions):
2000 1999 1998
-------------------------------------------------------------------------
Dollars Percent Dollars Percent Dollars Percent
-------------------------------------------------------------------------
Retail notes:
Agricultural equipment $ 5.4 .20% $13.9 .47% $ 3.3 .11%
Construction equipment 6.5 .85 4.6 .76 5.3 .79
Lawn and grounds care equipment .3 .08 .1 .01 .6 .25
Recreational products 2.9 2.03 3.5 .96 6.3 .76
---------- ----------- -----------
Total retail notes 15.1 .38 22.1 .52 15.5 .33
Revolving charge accounts 9.6 1.03 10.6 1.42 11.1 1.75
Wholesale notes 3.5 .34 1.9 .22 2.0 .33
Leases 8.0 .44 5.6 .43 3.6 .38
---------- ----------- -----------
Total Receivables and Leases $36.2 .46 $40.2 .56 $32.2 .47
========== =========== ===========
Note 4. Short-Term Borrowings
- ------ ---------------------
On October 31, 2000, short-term borrowings were $4,743 million, $2,474
million of which was commercial paper. Short-term borrowings were $3,526 million
on October 31, 1999, $1,265 million of which was commercial paper. The Capital
Corporation's short-term debt also includes amounts borrowed from John Deere,
which totaled $495 million and $118 million at October 31, 2000 and 1999,
respectively. The Capital Corporation pays a market rate of interest to John
Deere based on the average outstanding borrowings each month. The weighted
average interest rate on total short-term borrowings at October 31, 2000 and
1999, excluding current maturities of long-term borrowings, was 6.5 percent and
5.4 percent, respectively.
At October 31, 2000, the Company and Deere & Company jointly maintained
$4,710 million of unsecured lines of credit with various banks in North America
and overseas, $953 million of which was unused.
31
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 $2,338 million long-term commitment of
the banks expiring on February 22, 2005. The credit agreement has various
requirements of the Company, including the maintenance of its consolidated ratio
of earnings before fixed charges to fixed charges at not less than 1.05 to 1 for
each fiscal quarter (as described below) and the Company's ratio of senior debt
to total stockholder's equity plus subordinated debt may not be more than 8 to 1
at the end of any fiscal quarter. "Senior debt" consists of the Company's total
interest-bearing obligations, excluding subordinated debt, but including
borrowings from John Deere. The Company's ratio of senior debt to total
stockholder's equity plus subordinated debt was 5.7 to 1 at October 31, 2000,
compared to 5.1 to 1 at October 31, 1999. An annual facility fee on the credit
agreement is charged to the Capital Corporation based on utilization.
Deere & Company has an agreement with the Capital Corporation to make
income maintenance payments to the Capital Corporation such that its
consolidated ratio of earnings before fixed charges to fixed charges is not less
than 1.05 to 1 for each fiscal quarter. For purposes of these calculations,
"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. The Company's ratio of earnings before fixed charges to fixed charges
was 1.48 to 1, 1.64 to 1 and 1.63 to 1 in 2000, 1999 and 1998, respectively.
Deere & Company also agreed to maintain the Capital Corporation's tangible net
worth at not less than $50 million and to continue to own at least 51 percent of
Capital Corporation's voting capital stock. This arrangement is not intended to
make Deere & Company responsible for the payment of any indebtedness, obligation
or liability of the Company or any of its direct or indirect subsidiaries.
Note 5. Long-Term Borrowings
- ------ --------------------
Long-term borrowings of Capital Corporation at October 31 consisted of the
following (in millions of dollars):
2000 1999
-------------------------------
Senior Debt:
Medium-term notes due 2001-2007:
Average interest rate of 7.1% as of year end 2000 and 6.2% as of
year end 1999 $1,775.0 $1,252.0
5.35% Notes due 2001 200.0
5.85% Notes due 2001 200.0
7% Notes due 2002:
Swapped to variable interest rate of 7.1% as of year end 2000 and 300.0 300.0
6.5% as of year end 1999
Other Notes due up to 2008:
Average rate of 7.5% as of year end 2000 and 7.2% as of year end 63.4 100.9
1999
6% Notes due 2009:
Swapped to variable interest rate of 6.9% as of year end 2000 and 300.0 300.0
5.5% as of year end 1999
- -------------------------------------------------------------------------------------------------------------------
Total senior debt 2,438.4 2,352.9
Unamortized debt discount (1.6) (1.8)
- -------------------------------------------------------------------------------------------------------------------
Net senior debt 2,436.8 2,351.1
- -------------------------------------------------------------------------------------------------------------------
Subordinated Debt:
8-5/8% Subordinated Debentures due 2019 150.0 150.0
- -------------------------------------------------------------------------------------------------------------------
Total subordinated debt 150.0 150.0
- -------------------------------------------------------------------------------------------------------------------
Total $2,586.8 $2,501.1
===================================================================================================================
32
The approximate amounts of long-term borrowings maturing and sinking fund
payments required in each of the next five years, in millions of dollars, are as
follows: 2001 - $1,770, 2002 - $1,513, 2003 - $524, 2004 - $1 and 2005 - $1.
Note 6. Leases
- ------ ------
Total rental expense for operating leases was $6 million, $5 million and $4
million for the years 2000, 1999 and 1998, respectively. At October 31, 2000
future minimum lease payments under operating leases amounted to $38 million as
follows: 2001 - $8, 2002 - $6, 2003 - $6, 2004 - $5 and later years $13.
Note 7. Common Stock
- ------ ------------
All of the Capital Corporation's common stock is owned by John Deere Credit
Company, a wholly-owned finance holding subsidiary of Deere & Company. No shares
of common stock of the Company were reserved for officers or employees or for
options, warrants, conversions or other rights at October 31, 2000 or 1999. At
October 31, 2000, the Company had authorized, but not issued, 10,000 shares of
$1 par value preferred stock.
Note 8. Dividends
- ------ ---------
The Capital Corporation paid cash dividends to John Deere Credit Company of
$20 million in 2000 and $75 million in 1999. In each case, John Deere Credit
Company paid a comparable dividend to Deere & Company.
Note 9. Pension and Other Retirement Benefits
- ------ -------------------------------------
The Company participates in the Deere & Company salaried pension plan, which
is a defined benefit plan in which benefits are based primarily on years of
service and employee compensation. Pension expense is actuarially determined
based on the Company's employees included in the plan. The Company's pension
expense amounted to $2.5 million in 2000, $2.0 million in 1999 and $1.6 million
in 1998. The Company generally provides defined benefit health care and life
insurance plans for retired employees through participation in Deere & Company's
plans. Health care and life insurance benefits expense is actuarially determined
based on the Company's employees included in the plans and amounted to $1.3
million in 2000, $1.5 million in 1999 and $1.0 million in 1998. Further
disclosure for these plans is included in the notes to the Deere & Company 2000
Annual Report on Form 10-K.
Note 10. Income Taxes
- ------- ------------
Taxes on Income and Income Tax Credits
- --------------------------------------
The taxable income of the Company is included in the consolidated United
States income tax return of Deere & Company. Provisions for income taxes are
made generally as if the Capital Corporation and each of its subsidiaries filed
separate income tax returns.
33
Deferred Income Taxes
- ---------------------
Deferred income taxes arise because certain items are treated differently for
financial accounting than for income tax reporting purposes. An analysis of
deferred income tax assets and liabilities at October 31 is as follows (in
millions of dollars):
2000 1999
------------------------------- ------------------------------
Deferred Tax Deferred Tax Deferred Deferred Tax
Assets Liabilities Tax Assets Liabilities
------------------------------- ------------------------------
Deferred lease income $100.9 $71.7
Deferred retail note finance income 5.4 5.5
Allowance for credit losses $39.0 $33.1
Accrual for retirement and other benefits 4.5 4.0
Securitization income 9.1 3.5
Miscellaneous accruals and other 0.7 1.2
- ---------------------------------------------------------------------------------------- ------------------------------
Total deferred income tax assets and liabilities $53.3 $106.3 $41.8 $77.2
======================================================================================== ==============================
The provision for income taxes consisted of the following (in millions of
dollars):
2000 1999 1998
---------------------------
Current $59.0 $44.0 $59.4
Deferred 17.6 38.1 23.0
-------------------------------------------------------------------
Total provision for income taxes $76.6 $82.1 $82.4
===================================================================
Effective Income Tax Provision
- ------------------------------
A comparison of the statutory and effective income tax provisions and reasons
for related differences follows (in millions of dollars):
2000 1999 1998
----------------------
United States federal income tax provision
at a statutory rate of 35 percent $75.8 $82.5 $81.7
Municipal lease income not taxable (1.7) (1.5) (1.2)
Taxes on foreign income which differ
from the United States statutory rate .4 (.4)
Other adjustments - net 2.1 1.5 1.9
-------------------------------------------------------------------
Total provision for income taxes $76.6 $82.1 $82.4
===================================================================
Note 11. Cash Flow Information
- ------- ---------------------
For purposes of the statements of consolidated cash flows, the Company
considers investments with original maturities of three months or less to be
cash equivalents. Substantially all of the Company's short-term investments
mature within three months or less.
Cash payments by the Company for interest incurred on borrowings in 2000, 1999
and 1998 were $428 million, $381 million and $380 million, respectively. Cash
payments for income taxes during these same periods were $55 million, $47
million and $61 million, respectively.
34
Note 12. Legal Proceedings
- ------- -----------------
The Company is subject to various unresolved legal actions which arise in
the normal course of its business, the most prevalent of which relate to state
and federal laws and regulations concerning retail credit. Although it is not
possible to predict with certainty the outcome of these unresolved legal actions
or the range of possible loss, the Company believes these unresolved legal
actions will not have a material effect on its financial position or results of
operations.
Note 13. Comprehensive Income Items
- -----------------------------------
Comprehensive income includes all changes in the Company's equity during
the period, except transactions with stockholders of the Company. Comprehensive
income for the twelve months ended October 31, 2000, 1999 and 1998 consisted of
the following (in millions of dollars):
2000 1999 1998
---------------------------------------
Net income $140.8 $153.3 $151.2
Change in cumulative translation adjustment (10.4) 1.0 (.6)
(net of tax)
-----------------------------------------------------------------------------------------------
Comprehensive income $130.4 $154.3 $150.6
===============================================================================================
Note 14. Financial Instruments
- ------- ---------------------
The fair values of financial instruments that do not approximate the carrying
values in the financial statements at October 31 are as follows (in millions of
dollars):
2000 1999
--------------------------- ------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------- ------------------------------
Receivables financed $6,998 $6,991 $5,893 $5,866
===================================================================================== ==============================
Long-term borrowings and related swaps:
Long-term borrowings $2,587 $2,574 $2,501 $2,478
Interest rate and foreign currency swaps 26 21
- ------------------------------------------------------------------------------------- ------------------------------
Total $2,587 $2,600 $2,501 $2,499
===================================================================================== ==============================
Fair Value Estimates
- --------------------
Fair values of the long-term financing receivables with fixed rates were based
on the discounted values of their related cash flows at current market interest
rates. The fair values of the remaining financing receivables approximated the
carrying amounts.
Fair values of long-term borrowings with fixed rates were based on the
discounted values of their related cash flows at current market interest rates.
Certain long-term borrowings of the Company have been swapped to current
variable interest rates. Fair values of these swaps were based on discounted
values of their related cash flows at current market interest rates.
Fair values and carrying values of the Company's other interest rate swaps
associated with short-term borrowings and foreign exchange forward contracts
were not material.
35
Derivatives
- -----------
The Company enters into derivative transactions only to manage exposures
arising in the normal course of business, and not for the purpose of creating
speculative positions or trading. The following notional or contract amounts do
not represent amounts exchanged by the parties and, therefore, are not
representative of the Company's risk. The net amounts exchanged are calculated
on the basis of the notional amounts and other terms of the derivatives such as
interest rates and exchange rates, and represent only a small portion of the
notional amounts. The credit and market risks under these agreements are not
considered to be significant since the counterparties have high credit ratings
and the fair values and carrying values are not material.
Interest Rate Swaps
- -------------------
The Company enters into interest rate swap agreements related to its
borrowings in order to more closely match the type of interest rates of the
borrowings to those of the assets being funded. The differential to be paid or
received on all swap agreements is accrued as interest rates change and is
recognized over the lives of the agreements in interest expense.
At October 31, 2000 and 1999, the total notional principal amounts of
interest rate swap agreements related to short-term borrowings were $1,195
million and $426 million, having rates of 4.9 to 7.5 percent and 4.9 to 6.8
percent, terminating in up to 64 months and 59 months, respectively.
The Company has entered into interest rate swap agreements with independent
parties that change the effective rate of interest on certain long-term
borrowings. See the table in Note 5 - Long-Term Borrowings, which reflects the
effective year-end variable interest rates relating to these swap agreements.
The notional principal amounts and maturity dates of these swap agreements are
the same as the principal amounts and maturities of the related borrowings. The
Company also has interest rate swap agreements associated with medium-term
notes. Note 5 - Long-Term Borrowings also includes a table that reflects the
interest rates relating to these swap agreements. At October 31, 2000 and 1999,
the total notional principal amounts of these swap agreements were $1,130
million and $462 million, terminating in up to 100 months and 92 months,
respectively.
Note 15. Geographic Area Information
- ------- ---------------------------
In 1999, the Company adopted FASB Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information. Based on the way the
operations are managed and evaluated by management and materiality
considerations, the Company is viewed as one operating segment. However,
geographic area information for revenues and operating profit, which is income
before income taxes, attributed to the United States and foreign countries for
the year ended October 31, 2000 and 1999 are shown below (in millions of
dollars)*:
2000 1999
------------------------------
Revenues:
United States $1,047 $ 919
Foreign countries 59 40
---------------------------------------------------------------------
Total $1,106 $ 959
=====================================================================
Operating profit:
United States $ 215 $ 233
Foreign countries 2 3
---------------------------------------------------------------------
Total $ 217 $ 236
=====================================================================
* Operations in foreign countries were not significant in 1998. No individual
foreign country's revenues were material for disclosure purposes. Total property
and equipment disclosure for the United States and foreign countries also were
not material for disclosure purposes. Geographic operating profit has been given
in addition to the reporting requirements.
36
Supplemental Information (Unaudited)
- ------------------------------------
Quarterly Information
- ---------------------
Supplemental quarterly information for the Company follows (in millions
of dollars):
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
-----------------------------------------------------------------
2000:
Revenues $251.1 $261.3 $292.5 $301.0 $1,105.9
Interest expense 99.1 103.4 116.7 121.0 440.2
Operating expenses 96.8 108.5 113.7 129.9 448.9
Provision for income taxes 19.1 17.1 21.8 18.6 76.6
Equity in income of unconsolidated
affiliates .1 .1 .2 .2 .6
----------------------------------------------------------------------------------------------------------------------
Net income $ 36.2 $ 32.4 $ 40.5 $ 31.7 $ 140.8
======================================================================================================================
1999:
Revenues $221.2 $236.6 $261.4 $239.7 $ 958.9
Interest expense 86.0 92.4 91.2 91.4 361.0
Operating expenses 78.0 88.9 93.7 101.6 362.2
Provision for income taxes 20.2 19.0 26.0 16.9 82.1
Equity in income (loss) of unconsolidated
affiliates .4 .2 (.3) (.6) (.3)
----------------------------------------------------------------------------------------------------------------------
Net income $ 37.4 $ 36.5 $ 50.2 $ 29.2 $ 153.3
======================================================================================================================
Sensitivity Analysis
- --------------------
The following is a sensitivity analysis for the Company's derivatives and
other financial instruments that have interest rate risk. The gains or losses in
the table below represent the changes in the financial instruments' fair values
that would be caused by increasing the interest rates by 10 percent of the
current market rates at October 31, 2000 and 1999. The fair values were
determined based on the discounted values of their related cash flows. The gains
or losses in fair values at October 31, 2000 and 1999 would have been (in
millions of dollars):
Fair Value Gains (Losses)
------------------------------
October 31, October 31,
2000 1999
------------------------------
Financing receivables $ (43) $ (32)
Long-term borrowings and related swaps:
Long-term borrowings 28 34
Interest rate and foreign currency swaps (11) (22)
-------------------------------------------------------------------------------------------------
Total $ (26) $ (20)
=================================================================================================
37
Index to Exhibits
-----------------
2. Not applicable.
3.1 Certificate of Incorporation, as amended (Exhibit 3.1 to Form 10-K of the registrant for
the year ended October 31, 1999*).
3.2 Bylaws, as amended (Exhibit 3.2 to Form 10-K of the registrant for the year ended October
31, 1999*).
4.1 Five Year Credit Agreement among registrant, Deere & Company, various financial institutions, The
Chases Manhattan Bank, as administrative agent, Bank of America, N.A. and Bank One, NA as
documentation agents, and Deutsche Bank AG, New York Branch as syndication agent, et al,
dated as of February 22, 2000. (Exhibit 4.1 to Form 10-Q of Deere & Company for the
quarter ended April 30, 2000, Securities and Exchange Commission file number 1-4121*)
4.2 364-Day Credit Agreement among registrant, Deere & Company, various financial institutions,
The Chase Manhattan Bank, as administrative agent, Bank of America, N.A. and Bank One, NA
as documentation agents, and Deutsche Bank AG, New York Branch as syndication agent, et al,
dated as of February 22, 2000. (Exhibit 4.2 to Form 10-Q of Deere & Company for the quarter
ended April 30, 2000, Securities and Exchange Commission file number 1-4121*)
4.3 Senior Indenture dated as of March 15, 1997 between the registrant and The Chase Manhattan
Bank (National Association), as Trustee (Exhibit 4.1 to registration statement on Form S-3
no. 333-68355, filed December 4, 1998*).
4.4 Subordinated Indenture dated as of March 15, 1997 between the registrant and Bank One Trust
Company, National Association (successor by merger to the First National Bank of Chicago),
as Trustee (Exhibit 4.3 to registration statement on Form S-3 no. 333-68355, filed December
4, 1998*).
4.5 Form of certificate for common stock (Exhibit 4.6 to Form 10-K of the registrant for the
year ended October 31, 1998*).
Certain instruments relating to long-term debt constituting less than 10% of the registrant's total
assets may not be filed as exhibits herewith pursuant to Item 604(b)(4)(iii)(A) of Regulation S-K.
The registrant will file copies of such instruments upon request of the Commission.
9. Not applicable.
10.1 Agreement as amended November 1, 1994 between the registrant and Deere & Company concerning
agricultural retail notes (Exhibit 10.1 to Form 10-K of Deere & Company for the year ended
October 31, 1998*).
10.2 Agreement as amended November 1, 1994 between the registrant and Deere & Company concerning
lawn and grounds care retail notes (Exhibit 10.2 to the Form 10-K of Deere & Company for
the year ended October 31, 1998*).
38
10.3 Agreement as amended November 1, 1994 between the registrant and John Deere Industrial
Equipment Company concerning industrial retail notes (Exhibit 10.3 to the Form 10-K of
Deere & Company for the year ended October 31, 1998*).
10.4 Agreement dated October 15, 1996 between the registrant and Deere & Company relating to
fixed charges ratio, ownership and minimum net worth (Exhibit 10.7 to Form 10-K of the
registrant for the year ended October 31, 1996*).
10.5 Agreement dated July 14, 1997 between the registrant and John Deere Construction Equipment
Company concerning construction retail notes (Exhibit 10.8 to Form 10-K of the registrant
for the year ended October 31, 1997*).
11. Not applicable.
12. Computation of Ratio of Earnings to Fixed Charges for each of the five years in the period
ended October 31, 2000.
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Omitted pursuant to instruction I(2).
22. Not applicable.
23. Consent of Deloitte & Touche LLP.
24. Not applicable.
99. Parts I and II of the Deere & Company Form 10-K for the fiscal year ended October 31, 2000
(Securities and Exchange Commission file number 1-4121*).
______________________
* Incorporated by reference. Copies of these exhibits are available from the
Company upon request.
39