UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------ FORM 10-Q ------------------------ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended July 31, 1999 -------------------------- Commission file no: 1-4121 -------------------------- DEERE & COMPANY Delaware 36-2382580 (State of incorporation) (IRS employer identification no.) One John Deere Place Moline, Illinois 61265 (Address of principal executive offices) Telephone Number: (309) 765-8000 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No At July 31, 1999, 233,686,243 shares of common stock, $1 par value, of the registrant were outstanding. - ---------------------------------------------------------------- - -
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEERE & COMPANY CONSOLIDATED STATEMENT OF CONSOLIDATED INCOME (Deere & Company and Three Months Ended July 31 Consolidated Subsidiaries) Millions of dollars except per Three Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment $2,489.4 $3,218.3 Finance and interest income 280.1 263.2 Insurance and health care premiums 184.8 171.9 Investment income 14.2 15.9 Other income 67.1 24.1 Total 3,035.6 3,693.4 Costs and Expenses Cost of goods sold 2,099.2 2,485.1 Research and development expenses 114.7 110.7 Selling, administrative and general expenses 338.9 324.7 Interest expense 138.9 138.4 Insurance and health care claims and benefits 153.1 143.9 Other operating expenses 66.0 53.6 Total 2,910.8 3,256.4 Income of Consolidated Group Before Income Taxes 124.8 437.0 Provision for income taxes 61.0 154.8 Income of Consolidated Group 63.8 282.2 Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Credit (.2) .1 Insurance Health Care .1 Other 5.3 8.4 Total 5.1 8.6 Net Income $ 68.9 $ 290.8 Per Share: Net income $ .30 $ 1.20 Net income - diluted $ .29 $ 1.19 See Notes to Interim Financial Statements. Supplemental consolidating data are shown for the "Equipment Operations" and "Financial Services". Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS STATEMENT OF CONSOLIDATED INCOME (Deere & Company with Financial Services on the Equity Basis) Millions of dollars except per Three Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment $2,489.4 $3,218.3 Finance and interest income 19.4 33.4 Insurance and health care premiums Investment income Other income 26.5 9.6 Total 2,535.3 3,261.3 Costs and Expenses Cost of goods sold 2,103.1 2,490.3 Research and development expenses 114.7 110.7 Selling, administrative and general expenses 235.1 235.6 Interest expense 38.0 37.6 Insurance and health care claims and benefits Other operating expenses 12.0 20.0 Total 2,502.9 2,894.2 Income of Consolidated Group Before Income Taxes 32.4 367.1 Provision for income taxes 29.7 131.6 Income of Consolidated Group 2.7 235.5 Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Credit 57.6 43.1 Insurance 1.1 2.0 Health Care 2.2 1.8 Other 5.3 8.4 Total 66.2 55.3 Net Income $ 68.9 $ 290.8
DEERE & COMPANY FINANCIAL SERVICES STATEMENT OF CONSOLIDATED INCOME Millions of dollars except per Three Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment Finance and interest income $ 264.4 $ 233.6 Insurance and health care premiums 193.0 179.1 Investment income 14.2 15.9 Other income 47.3 15.1 Total 518.9 443.7 Costs and Expenses Cost of goods sold Research and development expenses Selling, administrative and general expenses 104.0 90.0 Interest expense 104.5 104.6 Insurance and health care claims and benefits 156.5 145.6 Other operating expenses 61.5 33.7 Total 426.5 373.9 Income of Consolidated Group Before Income Taxes 92.4 69.8 Provision for income taxes 31.3 23.1 Income of Consolidated Group 61.1 46.7 Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Credit (.2) .1 Insurance Health Care .1 Other Total (.2) .2 Net Income $ 60.9 $ 46.9 <Page 2> DEERE & COMPANY CONSOLIDATED STATEMENT OF CONSOLIDATED INCOME (Deere & Company and Consolidated Subsidiaries) Millions of dollars except per Nine Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment $ 7,419.7 $ 9,232.9 Finance and interest income 814.1 735.6 Insurance and health care premiums 550.7 515.6 Investment income 48.9 49.4 Other income 129.1 75.6 Total 8,962.5 10,609.1 Costs and Expenses Cost of goods sold 6,191.7 7,088.8 Research and development expenses 323.8 319.5 Selling, administrative and general expenses 981.3 948.4 Interest expense 415.8 382.3 Insurance and health care claims and benefits 459.3 421.5 Other operating expenses 158.7 123.3 Total 8,530.6 9,283.8 Income of Consolidated Group Before Income Taxes 431.9 1,325.3 Provision for income taxes 170.1 477.8 Income of Consolidated Group 261.8 847.5 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit .2 .1 Insurance Health Care .1 .1 Other 6.6 11.6 Total 6.9 11.8 Net Income $ 268.7 $ 859.3 Per Share: Net income $ 1.16 $ 3.49 Net income - diluted $ 1.15 $ 3.45 See Notes to Interim Financial Statements. Supplemental consolidating data are shown for the "Equipment Operations" and "Financial Services". Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS STATEMENT OF CONSOLIDATED INCOME (Deere & Company with Financial Services on the Equity Basis) Millions of dollars except per Nine Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment $7,419.7 $9,232.9 Finance and interest income 65.1 96.2 Insurance and health care premiums Investment income Other income 59.3 29.8 Total 7,544.1 9,358.9 Costs and Expenses Cost of goods sold 6,204.3 7,103.2 Research and development expenses 323.8 319.5 Selling, administrative and general expenses 680.0 673.3 Interest expense 120.7 93.0 Insurance and health care claims and benefits Other operating expenses 11.2 35.3 Total 7,340.0 8,224.3 Income of Consolidated Group Before Income Taxes 204.1 1,134.6 Provision for income taxes 91.8 411.0 Income of Consolidated Group 112.3 723.6 Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Credit 141.4 111.2 Insurance 1.7 11.8 Health Care 6.7 1.1 Other 6.6 11.6 Total 156.4 135.7 Net Income $ 268.7 $ 859.3
DEERE & COMPANY FINANCIAL SERVICES STATEMENT OF CONSOLIDATED INCOME Millions of dollars except per Nine Months Ended share amounts July 31 (Unaudited) 1999 1998 Net Sales and Revenues Net sales of equipment Finance and interest income $ 760.2 $ 649.2 Insurance and health care premiums 572.1 536.5 Investment income 48.9 49.4 Other income 91.2 48.6 Total 1,472.4 1,283.7 Costs and Expenses Cost of goods sold Research and development expenses Selling, administrative and general expenses 304.0 279.8 Interest expense 306.4 299.1 Insurance and health care claims and benefits 465.9 426.2 Other operating expenses 168.3 87.9 Total 1,244.6 1,093.0 Income of Consolidated Group Before Income Taxes 227.8 190.7 Provision for income taxes 78.3 66.8 Income of Consolidated Group 149.5 123.9 Equity in Income (Loss) of Unconsolidated Subsidiaries and Affiliates Credit .2 .1 Insurance Health Care .1 .1 Other Total .3 .2 Net Income $ 149.8 $ 124.1 <Page 3> DEERE & COMPANY CONSOLIDATED CONDENSED CONSOLIDATED (Deere & Company and BALANCE SHEET Consolidated Subsidiaries) Millions of dollars July 31 October 31 July 31 (Unaudited) 1999 1998 1998 Assets Cash and short-term investments $ 352.3 $ 309.7 $ 331.1 Cash deposited with unconsolidated subsidiaries Cash and cash equivalents 352.3 309.7 331.1 Marketable securities 845.4 867.3 868.0 Receivables from unconsolidated subsidiaries and affiliates 37.7 36.2 39.9 Trade accounts and notes receivable - net 3,739.5 4,059.2 4,209.3 Financing receivables - net 6,781.5 6,332.7 6,985.6 Other receivables 396.6 536.8 397.4 Equipment on operating leases - net 1,499.6 1,209.2 1,123.4 Inventories 1,428.0 1,286.7 1,337.3 Property and equipment - net 1,735.3 1,700.3 1,566.6 Investments in unconsolidated subsidiaries and affiliates 145.5 172.0 163.9 Intangible assets - net 300.9 217.6 191.3 Prepaid pension costs 637.0 674.3 689.1 Deferred income taxes 568.9 396.3 534.2 Other assets and deferred charges 262.4 203.2 188.8 Total $18,730.6 $18,001.5 $18,625.9 Liabilities and Stockholders' Equity Short-term borrowings $ 5,358.9 $ 5,322.1 $ 6,569.4 Payables to unconsolidated subsidiaries and affiliates 22.3 31.1 49.4 Accounts payable and accrued expenses 2,548.5 2,853.2 2,705.0 Insurance and health care claims and reserves 402.5 411.3 403.6 Accrued taxes 158.3 144.9 109.5 Deferred income taxes 19.0 19.7 20.3 Long-term borrowings 3,627.9 2,791.7 2,287.0 Retirement benefit accruals and other liabilities 2,408.7 2,347.7 2,318.2 Total liabilities 14,546.1 13,921.7 14,462.4 Common stock, $1 par value (issued shares at July 31, 1999 - 265,759,755) 1,849.2 1,789.8 1,778.5 Retained earnings 3,939.2 3,839.5 3,732.9 Minimum pension liability adjustment (18.8) (18.7) (14.0) Cumulative translation adjustment (101.9) (80.5) (99.7) Unrealized gain on marketable securities 14.0 24.5 25.7 Unamortized restricted stock compensation (23.4) (7.2) (9.7) Common stock in treasury (1,473.8) (1,467.6) (1,250.2) Stockholders' equity 4,184.5 4,079.8 4,163.5 Total $18,730.6 $18,001.5 $18,625.9 See Notes to Interim Financial Statements. Supplemental consolidating data are shown for the "Equipment Operations" and "Financial Services." Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS CONDENSED CONSOLIDATED (Deere & Company with Financial BALANCE SHEET Services on the Equity Basis) Millions of dollars July 31 October 31 July 31 (Unaudited) 1999 1998 1998 Assets Cash and short-term investments $ 138.3 $ 68.3 $ 58.4 Cash deposited with unconsolidated subsidiaries 75.1 139.6 282.4 Cash and cash equivalents 213.4 207.9 340.8 Marketable securities Receivables from unconsolidated subsidiaries and affiliates 252.1 95.5 136.2 Trade accounts and notes receivable - net 3,739.5 4,059.2 4,209.3 Financing receivables - net 95.6 85.8 113.7 Other receivables 15.3 139.4 Equipment on operating leases - net 218.6 209.6 Inventories 1,428.0 1,286.7 1,337.3 Property and equipment - net 1,687.5 1,653.9 1,520.1 Investments in unconsolidated subsidiaries and affiliates 1,758.7 1,620.4 1,579.0 Intangible assets - net 294.2 210.1 183.4 Prepaid pension costs 637.0 674.3 689.1 Deferred income taxes 540.9 372.6 490.1 Other assets and deferred charges 149.3 141.6 128.7 Total $10,811.5 $10,766.0 $10,937.3 Liabilities and Stockholders' Equity Short-term borrowings $ 1,337.5 $ 1,512.4 $ 2,017.1 Payables to unconsolidated subsidiaries and affiliates 22.3 43.0 49.4 Accounts payable and accrued expenses 1,707.3 2,098.1 1,950.4 Insurance and health care claims and reserves Accrued taxes 141.8 142.1 101.1 Deferred income taxes 6.3 19.7 19.9 Long-term borrowings 1,039.2 552.9 353.3 Retirement benefit accruals and other liabilities 2,372.6 2,318.0 2,282.6 Total liabilities 6,627.0 6,686.2 6,773.8 Common stock, $1 par value (issued shares at July 31, 1999 - 265,759,755) 1,849.2 1,789.8 1,778.5 Retained earnings 3,939.2 3,839.5 3,732.9 Minimum pension liability adjustment (18.8) (18.7) (14.0) Cumulative translation adjustment (101.9) (80.5) (99.7) Unrealized gain on marketable securities 14.0 24.5 25.7 Unamortized restricted stock compensation (23.4) (7.2) (9.7) Common stock in treasury (1,473.8) (1,467.6) (1,250.2) Stockholders' equity 4,184.5 4,079.8 4,163.5 Total $10,811.5 $10,766.0 $10,937.3
DEERE & COMPANY FINANCIAL SERVICES CONDENSED CONSOLIDATED BALANCE SHEET Millions of dollars July 31 October 31 July 31 (Unaudited) 1999 1998 1998 Assets Cash and short-term investments $ 213.9 $ 241.5 $ 272.7 Cash deposited with unconsolidated subsidiaries Cash and cash equivalents 213.9 241.5 272.7 Marketable securities 845.4 867.3 868.0 Receivables from unconsolidated subsidiaries and affiliates 5.2 Trade accounts and notes receivables - net Financing receivables - net 6,685.9 6,246.9 6,871.9 Other receivables 381.3 397.3 397.4 Equipment on operating leases - net 1,499.6 990.6 913.8 Inventories Property and equipment - net 47.8 46.4 46.4 Investments in unconsolidated subsidiaries and affiliates 9.9 20.3 19.1 Intangible assets - net 6.7 7.6 7.9 Prepaid pension costs Deferred income taxes 28.0 23.7 44.0 Other assets and deferred charges 113.1 61.5 60.3 Total $9,836.8 $8,903.1 $9,501.5 Liabilities and Stockholders' Equity Short-term borrowings $4,021.4 $3,809.7 $4,552.3 Payables to unconsolidated subsidiaries and affiliates 294.5 187.0 378.7 Accounts payable and accrued expenses 841.3 755.1 754.6 Insurance and health care claims and reserves 402.5 411.3 403.6 Accrued taxes 16.5 2.8 8.3 Deferred income taxes 12.7 .4 Long-term borrowings 2,588.7 2,238.8 1,933.7 Retirement benefit accruals and other liabilities 36.1 29.7 35.7 Total liabilities 8,213.7 7,434.4 8,067.3 Common stock, $1 par value (issued shares at July 31, 1999 - 265,759,755) 247.5 237.1 237.1 Retained earnings 1,381.0 1,223.2 1,184.6 Minimum pension liability adjustment Cumulative translation adjustment (19.4) (16.1) (13.2) Unrealized gain on marketable securities 14.0 24.5 25.7 Unamortized restricted stock compensation Common stock in treasury Stockholders' equity 1,623.1 1,468.7 1,434.2 Total $9,836.8 $8,903.1 $9,501.5 <Page 4> DEERE & COMPANY CONSOLIDATED CONDENSED STATEMENT OF (Deere & Company and CONSOLIDATED CASH FLOWS Consolidated Subsidiaries) Nine Months Ended July 31 Millions of dollars (Unaudited) 1999 1998 Cash Flows from Operating Activities Net income $ 268.7 $ 859.3 Adjustments to reconcile net income to net cash provided by (used for) operating activities 344.6 (1,117.7) Net cash provided by (used for) operating activities 613.3 (258.4) Cash Flows from Investing Activities Collections and sales of financing receivables 6,085.1 5,000.8 Proceeds from maturities and sales of marketable securities 98.0 115.0 Cost of financing receivables acquired (6,043.2) (5,636.5) Purchases of marketable securities (91.0) (157.8) Purchases of property and equipment (181.0) (250.8) Cost of operating leases acquired (594.9) (567.4) Acquisitions of businesses (167.3) (51.7) Other 168.4 117.1 Net cash used for investing activities (725.9) (1,431.3) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings (523.1) 1,861.0 Change in intercompany receivables/payables Proceeds from long-term borrowings 2,249.8 996.0 Principal payments on long-term borrowings (1,372.3) (358.9) Proceeds from issuance of common stock 3.5 22.4 Repurchases of common stock (46.2) (668.3) Dividends paid (154.0) (159.3) Other (1.6) .8 Net cash provided by financing activities 156.1 1,693.7 Effect of Exchange Rate Changes on Cash (.9) (2.9) Net Increase (Decrease) in Cash and Cash Equivalents 42.6 1.1 Cash and Cash Equivalents at Beginning of Period 309.7 330.0 Cash and Cash Equivalents at End of Period $ 352.3 $ 331.1 See Notes to Interim Financial Statements. Supplemental consolidating data are shown for the "Equipment Operations" and "Financial Services". Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the "Consolidated" data.
DEERE & COMPANY EQUIPMENT OPERATIONS CONDENSED STATEMENT OF (Deere & Company with CONSOLIDATED CASH FLOWS Financial Services on the Equity Basis) Nine Months Ended July 31 Millions of dollars (Unaudited) 1999 1998 Cash Flows from Operating Activities Net income $ 268.7 $ 859.3 Adjustments to reconcile net income to net cash provided by (used for) operating activities 26.4 (1,370.9) Net cash provided by (used for) operating activities 295.1 (511.6) Cash Flows from Investing Activities Collections and sales of financing receivables 17.1 23.1 Proceeds from maturities and sales of marketable securities Cost of financing receivables acquired (22.7) (55.5) Purchases of marketable securities Purchases of property and equipment (172.0) (242.8) Cost of operating leases acquired (77.8) Acquisitions of businesses (146.5) (45.7) Other 26.0 55.0 Net cash used for investing activities (298.1) (343.7) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings (263.1) 1,678.1 Change in intercompany receivables/payables (10.4) (59.9) Proceeds from long-term borrowings 499.8 Principal payments on long-term borrowings (18.6) (26.4) Proceeds from issuance of common stock 3.5 22.4 Repurchases of common stock (46.2) (668.3) Dividends paid (154.0) (159.3) Other (1.6) .7 Net cash provided by financing activities 9.4 787.3 Effect of Exchange Rate Changes on Cash (.9) (2.4) Net Increase (Decrease) in Cash and Cash Equivalents 5.5 (70.4) Cash and Cash Equivalents at Beginning of Period 207.9 411.2 Cash and Cash Equivalents at End of Period $ 213.4 $ 340.8
DEERE & COMPANY FINANCIAL SERVICES CONDENSED STATEMENT OF Nine Months Ended CONSOLIDATED CASH FLOWS July 31 Millions of dollars (Unaudited) 1999 1998 Cash Flows from Operating Activities Net income $ 149.8 $ 124.1 Adjustments to reconcile net income to net cash provided by (used for) operating activities 183.5 173.4 Net cash provided by (used for) operating activities 333.3 297.5 Cash Flows from Investing Activities Collections and sales of financing receivables 6,068.0 4,977.8 Proceeds from maturities and sales of marketable securities 98.0 115.0 Cost of financing receivables acquired (6,020.5) (5,581.0) Purchases of marketable securities (91.0) (157.8) Purchases of property and equipment (9.0) (8.0) Cost of operating leases acquired (594.9) (489.6) Acquisitions of businesses (20.7) (6.0) Other 142.1 63.2 Net cash used for investing activities (428.0) (1,086.4) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings (260.0) 183.0 Change in intercompany receivables/payables (54.2) (7.6) Proceeds from long-term borrowings 1,750.0 996.0 Principal payments on long-term borrowings (1,353.7) (332.5) Proceeds from issuance of common stock Repurchases of common stock Dividends paid (15.0) (44.3) Other (1.3) Net cash provided by financing activities 67.1 793.3 Effect of Exchange Rate Changes on Cash (.5) Net Increase (Decrease) in Cash and Cash Equivalents (27.6) 3.9 Cash and Cash Equivalents at Beginning of Period 241.5 268.8 Cash and Cash Equivalents at End of Period $213.9 $272.7 <Page 5> Notes to Interim Financial Statements 1. The consolidated financial statements of Deere & Company and consolidated subsidiaries have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates. 2. The Company's consolidated financial statements and some information in the notes and related commentary are presented in a format which includes data grouped as follows: Equipment Operations - These data include the Company's agricultural equipment, construction equipment and commercial and consumer equipment operations with Financial Services reflected on the equity basis. Data relating to the above equipment operations, including the consolidated group data in the income statement, are also referred to as "Equipment Operations" in this report. Financial Services - These data include the Company's credit, insurance and health care operations. Consolidated - These data represent the consolidation of the Equipment Operations and Financial Services in conformity with Financial Accounting Standards Board (FASB) Statement No. 94. References to "Deere & Company" or "the Company" refer to the entire enterprise. 3. An analysis of the Company's retained earnings follows in millions of dollars: Three Months Ended Nine Months Ended July 31 July 31 1999 1998 1999 1998 Balance, beginning of period $3,922.9 $3,502.7 $3,839.5 $3,048.4 Net income 68.9 290.8 268.7 859.3 Dividends declared (51.2) (52.9) (153.0) (161.7) Other (1.4) (7.7) (16.0) (13.1) Balance, end of period $3,939.2 $3,732.9 $3,939.2 $3,732.9 <Page 6> 4. An analysis of the cumulative translation adjustment follows in millions of dollars: Three Months Ended Nine Months July 31 July 31 1999 1998 1999 1998 Balance, beginning of period $ (92.0) $(79.4) $ (80.5) $(57.4) Translation adjustment (9.3) (19.7) (19.2) (41.4) Income taxes applicable to translation adjustments (.6) (.6) (2.2) (.9) Balance, end of period $(101.9) $(99.7) $(101.9) $(99.7) 5. Substantially all inventories owned by Deere & Company and its United States equipment subsidiaries are valued at cost on the "last-in, first-out" (LIFO) method. If all of the Company's inventories had been valued on a "first-in, first- out" (FIFO) method, estimated inventories by major classification in millions of dollars would have been as follows: July 31 October 31 July 31 1999 1998 1998 Raw materials and supplies $ 351 $ 250 $ 270 Work-in-process 482 475 489 Finished machines and parts 1,649 1,612 1,593 Total FIFO value 2,482 2,337 2,352 Adjustment to LIFO basis (1,054) (1,050) (1,015) Inventories $1,428 $1,287 $1,337 6. During the first nine months of 1999, the Financial Services subsidiaries received proceeds from the sale of retail notes of $1,545 million. At July 31, 1999, the net unpaid balance of all retail notes previously sold by the Financial Services subsidiaries was $2,541 million and the Company's maximum exposure under all related recourse provisions was $186 million. At July 31, 1999, the Company had commitments of approximately $86 million for construction and acquisition of property and equipment. 7. Dividends declared and paid on a per share basis were as follows: Three Months Ended Nine Months Ended July 31 July 31 1999 1998 1999 1998 Dividends declared $.22 $.22 $.66 $.66 Dividends paid * $.22 $ * $.66 $.64 * In 1998, the payment date for the dividend normally paid in the third quarter was included in the second quarter. <Page 7> 8. Worldwide net sales and revenues and operating profit in millions of dollars follow: Three Months Ended July 31 Net sales: Agricultural equipment $1,199 $1,969 -39 Construction equipment 595 709 -16 Commercial and consumer equipment 695 540 +29 Total net sales 2,489 3,218 -23 Financial Services revenues 510 435 +17 Other revenues 37 40 - 8 Total net sales and revenues $3,036 $3,693 -18 United States and Canada: Equipment net sales $1,781 $2,319 -23 Financial Services revenues 510 435 +17 Total 2,291 2,754 -17 Overseas net sales 708 899 -21 Other revenues 37 40 - 8 Total net sales and revenues $3,036 $3,693 -18 Operating profit: Agricultural equipment $ (8) $ 282 Construction equipment 40 103 -61 Commercial and consumer equipment 50 46 + 9 Equipment Operations* 82 431 -81 Financial Services 92 70 +31 Total operating profit 174 501 -65 Interest and corporate expenses - net (44) (55) -20 Income taxes (61) (155) -61 Net income $ 69 $ 291 -76 * Includes overseas operating profit as follows $ 56 $ 106 -47 ** Operating profit is income before interest expense, foreign exchange gains and losses, income taxes and certain corporate expenses. However, operating profit of Financial Services includes the effect of interest expense.
Nine Months Ended July 31 % 1999 1998 Change Net sales: Agricultural equipment $3,867 $ 5,638 -31 Construction equipment 1,655 2,001 -17 Commercial and consumer equipment 1,898 1,594 +19 Total net sales 7,420 9,233 -20 Financial Services revenues 1,450 1,261 +15 Other revenues 93 115 -19 Total net sales and revenues $8,963 $10,609 -16 United States and Canada: Equipment net sales $5,373 $ 6,867 -22 Financial Services revenues 1,450 1,261 +15 Total 6,823 8,128 -16 Overseas net sales 2,047 2,366 -13 Other revenues 93 115 -19 Total net sales and revenues $8,963 $10,609 -16 Operating profit: Agricultural equipment $ 74 $ 852 -91 Construction equipment 107 258 -59 Commercial and consumer equipment 160 160 Equipment Operations* 341 1,270 -73 Financial Services 228 191 +19 Total operating profit 569 1,461 -61 Interest and corporate expenses - net (130) (124) + 5 Income taxes (170) (478) -64 Net income $ 269 $ 859 -69 * Includes overseas operating profit as follows $ 208 $ 268 -22 ** Operating profit is income before interest expense, foreign exchange gains and losses, income taxes and certain corporate expenses. However, operating profit of Financial Services includes the effect of interest expense. <Page 8> 9. A reconciliation of basic and diluted net income per share in millions, except per share amounts, follows: Nine Months Ended July 31 1999 1998 Net income $268.7 $859.3 Average shares outstanding 232.6 246.0 Basic net income per share $ 1.16 $ 3.49 Average shares outstanding 232.6 246.0 Effect of dilutive securities: Stock options 1.4 2.5 Other .1 .2 Total potential shares outstanding 234.1 248.7 Diluted net income per share $ 1.15 $ 3.45 Stock options to purchase 4.2 million shares during the first nine months of 1999 and .5 million shares during the first nine months of 1998 were outstanding, but not included in the above diluted per share computation because the options' exercise prices were greater than the average market price of the Company's common stock during the period. 10. The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability, retail credit matters, software and patent and trademark matters. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its financial position or results of operations. 11. In the first quarter of 1999, the Company adopted FASB Statement No. 130, Reporting Comprehensive Income. Comprehensive income includes all changes in the Company's equity during the period, except transactions with stockholders of the Company. Comprehensive income consisted of the following in millions of dollars: Three Months Ended Nine Months Ended July 31 July 31 1999 1998 1999 1998 Net income $68.9 $290.8 $268.7 $859.3 Other comprehensive income (loss): Change in cumulative translation adjustment (9.9) (20.3) (21.4) (42.3) Unrealized gain (loss) on marketable securities (12.7) 2.9 (10.5) 3.5 Comprehensive income $46.3 $273.4 $236.8 $820.5 <Page 9> 12. In June 1999, the FASB issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133. Under the new effective date, the Company currently expects to adopt FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, in year 2001. The effect on the Company's financial position and net income is not expected to be material. 13. In the third quarter of 1999, the Company purchased the remaining 60 percent interest in SLC-John Deere, a Brazilian farm equipment manufacturer of combines, tractors and planters. Deere & Company previously owned 40 percent of the Brazilian company. The acquisition cost was $174 million, including $41 million of goodwill, which will be amortized over 20 years. In the third quarter, the Company also announced it reached an agreement for the sale of John Deere Insurance Group, Inc. (JDIG) to Sentry Insurance a Mutual Company, pending regulatory approvals. JDIG provides certain lines of property and casualty coverages and had net income in the first nine months of 1999 and 1998 of $1.7 million and $11.8 million, respectively. Neither the acquisition or the sale had a material effect on the Company's financial position or operating results. <Page 10> Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Deere & Company's worldwide net income was $68.9 million, or $.29 per share diluted ($.30 basic), for the third quarter of 1999, compared with $290.8 million, or $1.19 per share diluted ($1.20 basic), last year. Nine-month net income was $268.7 million, or $1.15 per share diluted ($1.16 basic), compared with last year's $859.3 million, or $3.45 per share diluted ($3.49 basic). Demand for agricultural equipment in North America, especially high-horsepower, high-margin tractors and combines, continued to be adversely affected by depressed agricultural commodity prices. In line with the Company's emphasis on cash-flow management, production schedules at major North American agricultural equipment factories have been set below the anticipated level of retail sales. This action facilitates the reduction of Company and field inventories. The positive contributions from the Company's non-agricultural businesses and overseas agricultural operations have kept the Company on a profitable course through this severe downturn in the farm economy. In addition, the Company is continuing to focus on supply-management, process-excellence and growth initiatives aimed at improving profitability and strengthening its market position. At the same time, the Company's aggressive asset-management effort, designed to reduce receivables, is resulting in improved cash flow and will allow the Company to operate at a more efficient level once the inventory correction is complete. Worldwide net sales and revenues were $3,036 million for the third quarter and $8,963 million for the first nine months, compared with $3,693 million and $10,609 million, respectively, last year. Net equipment sales were $2,489 million for the quarter and $7,420 million for the first nine months, compared with $3,218 million and $9,233 million last year. Overseas net sales were $708 million for the quarter and $2,047 million for the first nine months, compared with $899 million and $2,366 million in the comparable periods last year. Overseas physical volume of sales decreased 21 percent for the third quarter and 15 percent for the first nine months of 1999. Overall, the Company's worldwide physical volume of sales decreased 23 percent for the third quarter and 19 percent for the first nine months, compared with the same periods a year ago. Worldwide Equipment Operations, which exclude the Financial Services operations and unconsolidated affiliates, had income of $2.7 million for the third quarter and $112.3 million for the first nine months of 1999, compared with $235.5 million and $723.6 million last year. Lower sales and production volumes, an adverse product mix and a higher effective tax rate impacted the 1999 results. Operating profit, which excludes interest costs, taxes and certain other corporate expenses, was $82 million for the third quarter and $341 million for the first nine months, compared with $431 million and $1,270 million last year. Worldwide agricultural equipment had an $8 million operating loss for the third quarter and a $74 million operating profit for the first nine months, compared with operating profit of $282 million and $852 million last year. Lower sales and production volumes especially of high-horsepower, high-margin tractors and combines continued to negatively affect results. The lower production volumes have facilitated reductions in trade receivables from year-ago levels. Receivables related to used equipment, although declining, continue at high levels. Results for the first nine months were also affected by higher sales incentive costs with an emphasis on used goods. Overseas operations, which continue to be positive contributors to the segment's results, have experienced a more moderate decline in sales than has been seen in North America. These operations, as well, are benefiting from increased market shares and a strong customer reception to innovative products. <Page 11> Operating profit for worldwide construction equipment totaled $40 million for the third quarter and $107 million for the first nine months, compared with $103 million and $258 million for the comparable periods last year. Despite healthy retail demand, sales and production volumes have decreased as anticipated, as dealers have reduced field inventories to below year-ago levels primarily due to the segment's Estimate to Cash order-fulfillment initiative. The reduction is also in response to a weaker business outlook. In addition, the segment's results were negatively affected by high growth expenditures, as well as by lower sales and production volumes of the power systems operations. Worldwide commercial and consumer equipment operating profit was $50 million for the current quarter and $160 million for the first nine months, compared with $46 million and $160 million for the same periods last year. The 1999 results benefited from higher sales and production volumes driven by a continuation of strong retail demand and the success of recently introduced products. Partially offsetting these factors were higher costs for the development, promotion and introduction of new products. Trade receivables for the segment declined during the quarter, but are higher than a year ago to support increased retail sales. Additional information on business segments is presented in Note 8 to the interim financial statements. Net income of the Company's credit operations was $57.6 million in the third quarter of 1999, compared with $43.1 million in last year's third quarter. For the first nine months of 1999, net income of these subsidiaries was $141.4 million, compared with $111.2 million last year. The 1999 third quarter and year-to-date results benefited from higher gains on the sale of retail notes, the sale of the yacht retail note portfolio and related intangibles, and higher income on a larger average receivable and lease portfolio. Total revenues of the credit operations increased 25 percent from $249 million in the third quarter of 1998 to $312 million in the current quarter and increased 22 percent in the first nine months from $698 million last year to $851 million this year. The average balance of receivables and leases financed was 4 percent higher in the third quarter and 7 percent higher in the first nine months of 1999, compared with the same periods last year. Interest expense was approximately the same in the current quarter and increased 3 percent in the first nine months of 1999, compared with 1998, primarily as a result of an increase in average borrowings in the first nine months. The credit subsidiaries' consolidated ratio of earnings to fixed charges was 1.85 to 1 for the third quarter this year, compared with 1.64 to 1 in 1998. This ratio was 1.71 to 1 for the first nine months this year, compared with 1.58 to 1 in the same period of 1998. Net income from insurance operations was $1.1 million in the third quarter of 1999, compared with $2.0 million last year. For the first nine months, net income from these operations was $1.7 million this year, compared with $11.8 million in 1998. The decrease for the quarter was due to lower investment income, while the decrease for the first nine months primarily reflected unfavorable underwriting results. For the third quarter, insurance premiums increased 13 percent in 1999, compared with the same period last year, while total claims, benefits, and selling, administrative and general expenses increased 10 percent this year. For the nine-month period, insurance premiums increased 7 percent in 1999, while total claims, benefits, and selling, administrative and general expenses increased 13 percent, compared with last year. In the third quarter, the Company announced the pending sale of the insurance operations. See Note 13 to the financial statements. <Page 12> Net income from health care operations was $2.2 million in the third quarter of 1999, compared with $1.8 million last year. In the first nine months, net income was $6.7 million this year, compared with $1.1 million in 1998. The 1999 results benefited primarily from improved margins and higher premium revenues. For the third quarter, health care premiums and administrative services revenues increased 4 percent in 1999, compared with the same period last year, while total claims, benefits, and selling, administrative and general expenses increased 4 percent this year. For the nine-month period, health care premiums and administrative services revenues increased 6 percent in 1999, while total claims, benefits, and selling, administrative and general expenses increased 4 percent, compared with last year. Market Conditions and Outlook Agricultural Equipment. Worldwide demand for agricultural equipment continued to decline during the quarter as a result of very depressed grain and oilseeds prices. In addition, lower proceeds from agricultural exports and prospects for another good crop in the United States are expected to continue adversely affecting demand for agricultural equipment. Particularly affected are high-horsepower, high-margin tractors and combines, a sector in which the Company has a strong market position. Drought conditions in certain North American areas and the uncertain outcome of additional United States governmental financial assistance are not expected to significantly change this year's outlook. As a result of these factors, retail demand for farm equipment is now projected to decline by 30 to 35 percent in North America this fiscal year, with declines of 10 to 15 percent anticipated in other major markets. In light of this situation, the segment is aggressively implementing previously announced production shutdowns in order to achieve a further reduction in inventories In addition, the agricultural equipment operation is initiating a voluntary early-retirement program in the United States that will have an estimated fourth-quarter pretax cost of $50 million to $80 million. Although forecasts for next year have not been finalized, initial indications imply that North American retail demand for farm machinery will be 5 to 10 percent lower than in 1999. Resulting from a number of innovative products being introduced in the coming months, the Company is expected to be well positioned to achieve further market share gains. Construction Equipment. The outlook for North American construction equipment has weakened during the quarter due to less positive prospects for housing starts. Dealers are reducing inventories in response to the more cautious housing outlook and the Company's Estimate to Cash order-fulfillment initiative. In addition, the market for forestry equipment remains under pressure as a result of low pulp prices. In this environment, construction equipment sales for the remainder of this year are expected to be below last year's levels. Commercial and Consumer Equipment. Retail demand for the Company's commercial and consumer products is expected to maintain its strong momentum for the remainder of this year, assuming normal weather patterns and a continuation of current economic conditions. Retail sales for the segment are expected to continue benefiting from market share growth and positive customer response to a number of innovative new products. Financial Services. Although the credit operations should continue to benefit from a larger overall receivable and lease portfolio, competitive market conditions and a weakening farm economy are expected to keep pressure on margins and portfolio growth. During the quarter, the Company announced that it has agreed to sell the property and casualty insurance operations of its Financial Services division, pending regulatory approvals. See Note 13 to the financial statements. In health care, the Company's operations are well positioned for continued improved results. <Page 13> Based on these conditions, the Company's worldwide physical volume of sales is currently projected to decrease by 18 to 20 percent for the year, compared with 1998. Fourth-quarter physical volumes are also projected to be 14 to 17 percent lower than in the comparable 1998 period. As a result, the Company's major United States agricultural equipment facilities are scheduled to be shut down for approximately one-third of the working days during the fourth quarter of 1999. Despite the severity of the agricultural downturn, the Company has made great progress bringing down receivables and controlling asset levels. Such steps support higher levels of cash flow and put the Company in good position to return to more efficient volumes of production and sales even under present market conditions. In addition, with relatively low inventories and a number of innovative products being introduced, the Company is poised to achieve considerable growth once the farm economy starts moving ahead. Year 2000 The Company has established a global program (the "Year 2000 Program") to address the inability of certain computer and infrastructure systems to process dates in the Year 2000 and later. The major assessment areas include business information systems, mainframe and personal computers, software, the distributed network, the shop floor, facilities systems, the Company's products, product research and development facilities, and the readiness of the Company's suppliers and distribution network. The program includes the following phases: identification and assessment, business criticality analysis, project work prioritization, compliance plan development, remediation and testing, production implementation, and contingency plan development for mission critical systems. The Company is on schedule to become Year 2000 ready with its mission critical activities and systems, allowing substantial time for further testing, verification and the final conversion of less important systems. Approximately 99 percent of the Company's systems identified as being mission critical have been tested and verified as being Year 2000 compliant. The Company's goal has been to have all mission critical and non- mission critical systems compliant by October 31, 1999, and the progress to date makes this goal appear realistic. The Company has initiated information and infrastructure systems modifications in its effort to ensure that both information technology (IT) and non-IT systems are compliant. The Company is requiring suppliers of new software or equipment and third parties who develop or modify software to provide written certification that their products are Year 2000 compliant and have been tested accordingly. In some instances, the Company is independently testing the software. The Company is also working with suppliers to confirm embedded systems are compliant and perform the necessary testing. The Company is assessing the Year 2000 readiness of its product suppliers and dealers. It has attempted to raise awareness among its supply base by sponsoring seminars. The Company is developing contingency plans for its mission critical suppliers. The Company has surveyed its major suppliers and is following up as appropriate with risk assessment and prioritization based on mission criticality. Date testing is in process with many suppliers and has been completed for approximately 70 percent of the Company's mission critical suppliers. Surveys of the Company's dealers are also in process and readiness progress will be assessed throughout 1999. A dealer communications team continues to provide dealers with pertinent information, possible areas of investigation and follow-up on dealers' readiness. The total cost of the modifications and upgrades including internal costs has been immaterial or approximately $35 million pretax since the beginning of 1997. The future costs to become Year 2000 ready are expected to be approximately $10 million pretax. These costs are expensed as incurred and do not include the cost of scheduled replacement hardware or software. Other major systems projects have not been deferred due to the Year 2000 compliance projects. <Page 14> Although no assurances can be given as to the Company's readiness, particularly as it relates to third parties, based upon the progress to date, the Company does not expect the consequences of any of the Company's unanticipated or unsuccessful modifications to have a material adverse effect on its financial position or results of operations. However, the failure to correct a material Year 2000 problem could result in the interruption of certain normal business activities and operations. The Company's most reasonably likely worst case scenario is that the Year 2000 noncompliance of a critical third party could cause the supplier to fail to deliver, with the result that production is interrupted at one or more facilities. Such a disruption in production could result in lost sales or profits. The Company is developing contingency plans, which will be an ongoing activity during 1999, should any Year 2000 failures occur in any of the assessment areas noted above.
Euro Conversion The Company is well advanced in the process of identification, implementation and testing of its systems to adopt the euro currency in its operations. The transition period for this change is January 1, 1999 through January 1, 2002. The Company's affected suppliers, distribution network and financial institutions have been contacted and to date the currency change has not had a significant impact on these relationships. The cost of information systems modifications, effects on product pricing and purchase contracts, and the impact on foreign currency financial instruments, including derivatives, are not expected to be material. Safe Harbor Statement Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under the "Market Conditions and Outlook", "Year 2000" and "Euro Conversion" headings 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. Forward- looking statements relating to the Company's businesses involve certain factors that are subject to change, including: the many interrelated factors that affect farmers' confidence, including worldwide demand for agricultural products, world grain stocks, commodities prices, weather conditions, real estate values, animal diseases, crop pests, harvest yields and government farm programs; general economic conditions and housing starts; legislation, primarily legislation relating to agriculture, the environment, commerce and government spending on infrastructure; actions of competitors in the various industries in which the Company competes; levels of new and used field inventories; production difficulties, including capacity and supply constraints; dealer practices; labor relations; interest and currency exchange rates (including conversion to the euro); technological difficulties (including Year 2000 compliance); accounting standards; and other risks and uncertainties. Economic difficulties in various parts of the world could continue to adversely affect North American grain and meat exports. The outlook for harvest prices especially affects retail sales of agricultural equipment in the fall, while the number of housing starts is especially important to sales of construction equipment. The Company's outlook is based upon assumptions relating to the factors described above, which are sometimes based upon estimates and data prepared by government agencies. Such estimates and data are often revised. The cost of the voluntary early-retirement program in the United States is based upon estimates pertaining to the number and category of employees accepting the Company's program. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, is included in the Company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission. <Page 15> CAPITAL RESOURCES AND LIQUIDITY The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company's Equipment Operations, Financial Services operations and the consolidated totals. Equipment Operations The Company's equipment businesses are capital intensive and are subject to large seasonal variations in financing requirements for trade receivables from dealers and inventories. Accordingly, to the extent necessary, funds provided from operations are supplemented from external borrowing sources. In the first nine months of 1999, positive cash flows from operating activities were $295 million resulting primarily from a decrease in trade receivables and from net income. Partially offsetting these operating cash inflows were negative cash flows from a decrease in accounts payable and accrued expenses and an increase in Company-owned inventories. The resulting net cash inflow from operating activities and an increase in borrowings provided the cash requirements for purchases of property and equipment, payment of dividends, acquisitions of businesses and repurchases of common stock. Negative cash flows from operating activities in the first nine months of 1998 of $512 million resulted primarily from increases in trade receivables and Company-owned inventories, a decrease in accounts payable and accrued expenses and contributions to the pension fund. Partially offsetting these operating cash outflows were positive cash flows from the record level of net income and dividends received from the Financial Services operations. The resulting net cash requirement for operating activities, along with repurchases of common stock, purchases of property and equipment, payment of dividends, an increase in receivables from Financial Services and acquisitions of businesses were provided primarily from an increase in borrowings and a decrease in cash and cash equivalents. Net trade accounts and notes receivable result mainly from sales to dealers of equipment that is being carried in their inventories. Trade receivables decreased $320 million during the first nine months and $470 million, compared to a year ago, as previously discussed in the results of operations by segment. North American agricultural and construction equipment trade receivables decreased approximately $370 million and $200 million, respectively, while commercial and consumer equipment receivables increased approximately $120 million, compared with the levels 12 months earlier. Total overseas trade receivables were approximately $20 million lower than a year ago. The ratios of total worldwide net trade accounts and notes receivable to the last 12 months' net sales were 33 percent at July 31, 1999, compared to 34 percent at October 31, 1998 and 34 percent at July 31, 1998. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 10 percent, 8 percent and 5 percent at July 31, 1999, October 31, 1998 and July 31, 1998. Company-owned inventories at July 31, 1999 increased by $141 million during the first nine months and $91 million compared to one year ago due to the construction equipment Estimate to Cash program, as well as the introduction of new products and the start-up of new facilities for the manufacture of commercial and consumer equipment. Also contributing to higher inventory levels was the financial consolidation of the Company's agricultural equipment subsidiary in Brazil. The Company acquired the remaining ownership interest of this operation during the quarter. See Note 13 to the financial statements. Most of the Company's inventories are valued on the last-in, first-out (LIFO) basis. Inventories valued on an approximate current cost basis increased by 6 percent from a year ago. <Page 16> Total interest-bearing debt of the Equipment Operations was $2,377 million at July 31, 1999, compared with $2,065 million at the end of fiscal year 1998 and $2,370 million at July 31, 1998. The ratio of total debt to total capital (total interest bearing debt and stockholders' equity) was 36 percent, 34 percent and 36 percent at July 31, 1999, October 31, 1998 and July 31, 1998, respectively. During the first nine months of 1999, Deere & Company issued $250 million of 6.55% notes due in 2004 and $250 million of medium-term notes. Financial Services The Financial Services' credit subsidiaries rely on their ability to raise substantial amounts of funds to finance their receivable and lease portfolios. Their primary sources of funds for this purpose are a combination of borrowings and equity capital. Additionally, the credit operations periodically sell substantial amounts of retail notes. The insurance and health care operations generate their funds through internal operations and intercompany loans. During the first nine months of 1999, the aggregate cash provided from operating and financing activities was used primarily to increase financing receivables and leases. Cash provided from Financial Services operating activities was $333 million in the first nine months of this year. Cash provided by financing activities totaled $67 million in the first nine months of 1999, resulting from an $82 million increase in total borrowings, which was partially offset by payment of a $15 million dividend to the Equipment Operations. Cash used for investing activities totaled $428 million in the first nine months of 1999, primarily due to the cost of financing receivables and leases exceeding collections by $2,092 million, partially offset by $1,545 million of proceeds from the sale of retail notes. Cash and cash equivalents decreased $28 million during the first nine months of 1999. In the first nine months of 1998, the aggregate cash provided from operating and financing activities was used primarily to increase financing receivables and leases. Cash provided from Financial Services operating activities was $298 million in the first nine months of 1998. Cash provided by financing activities totaled $793 million in the first nine months of 1998, primarily resulting from an $839 million increase in total borrowings, which was partially offset by a payment of $44 million in dividends to the Equipment Operations. Cash used for investing activities totaled $1,086 million in the first nine months of 1998, primarily due to the cost of financing receivables and leases exceeding collections by $1,898 million, partially offset by $805 million of proceeds from the sale of retail notes. Cash and cash equivalents increased $4 million during the first nine months of 1998. Marketable securities consist primarily of debt securities held by the insurance and health care operations in support of their obligations to policyholders. During the first nine months of 1999 and last 12 months, the balance has not changed significantly. Financing receivables and leases held by the credit operations consist of retail notes originated in connection with retail sales of new and used equipment by dealers of John Deere products, retail notes from non-Deere-related customers, revolving charge accounts, wholesale notes receivable, and financing and operating leases. These receivables and leases increased by $948 million in the first nine months of 1999 and $400 million during the past 12 months, primarily due to the cost of financing receivables and leases acquired exceeding collections and sales of retail notes, and the consolidation of the portfolio of a credit subsidiary in Gloucester, England, due to an acquisition of a controlling interest. Acquisitions of financing receivables and leases were 6 percent higher in the first nine months of 1999, compared with the same period last year. Acquisition volumes of wholesale receivables, revolving charge accounts, retail notes and leases were all higher in the first nine months of 1999, compared to the same period last year. Financing receivables and leases administered by the credit operations, which include receivables previously sold, amounted <Page 17> to $10,727 million at July 31, 1999, compared with $9,625 million at October 31, 1998 and $9,325 million at July 31, 1998. At July 31, 1999, the unpaid balance of all retail notes previously sold was $2,541 million, compared with $2,388 million at October 31, 1998 and $1,540 million at July 31, 1998. Total outside interest-bearing debt of the credit subsidiaries was $6,610 million at July 31, 1999, compared with $6,049 million at the end of fiscal year 1998 and $6,486 million at July 31, 1998. Total outside borrowings increased during the first nine months of 1999 and the last 12 months, generally corresponding with the level of the financing receivable and lease portfolio, the level of cash and cash equivalents and the change in payables owed to the Equipment Operations. The credit subsidiaries' ratio of total interest-bearing debt to stockholder's equity was 5.9 to 1 at July 31, 1999, compared with 6.1 to 1 at October 31, 1998 and 6.8 to 1 at July 31, 1998. During the first nine months of 1999, John Deere Capital Corporation issued $300 million of 6% notes due in 2009 and retired $150 million of 9-5/8% subordinated notes, $97 million of 5% Swiss franc bonds, $200 million of 6% notes and $200 million of 6.3% notes all due in the first nine months of 1999. The Capital Corporation's subsidiary, John Deere Limited in Gloucester, England, also retired $67 million of long-term debt due in 1999. The Capital Corporation issued $1,450 million and retired $640 million of medium-term notes during the first nine months of 1999. Consolidated The Company maintains unsecured lines of credit with various banks in North America and overseas. Some of the lines are available to both the Equipment Operations and certain credit subsidiaries. Worldwide lines of credit totaled $5,842 million at July 31, 1999, $2,739 million of which were unused. For the purpose of computing unused credit lines, total short-term borrowings, excluding the current portion of long-term borrowings, were considered to constitute utilization. Included in the total credit lines is a long-term credit agreement commitment totaling $3,500 million. Stockholders' equity was $4,185 million at July 31, 1999, compared with $4,080 million at October 31, 1998 and $4,164 million at July 31, 1998. The increase of $105 million in the first nine months of 1999 resulted primarily from net income of $269 million, partially offset by dividends declared of $153 million. The Board of Directors at its meeting on August 25, 1999 declared a quarterly dividend of 22 cents per share payable November 1, 1999 to stockholders of record on September 30, 1999. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's most recent annual report filed on Form 10-K (Item 7A). There has been no material change in this information. <Page 18> PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note (10) to the Interim Financial Statements. Item 2. Changes in Securities and Use of Proceeds The Company issued 408,459 shares of stock during the quarter in connection with an acquisition made during the previous quarter. These shares were not registered under the Securities Act of 1933 (the "Securities Act") in reliance upon the exemption provided by Section 4 (2) of the Securities Act for transactions by an issuer not involving a public offering. Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See the index to exhibits immediately preceding the exhibits filed with this report. Certain instruments relating to long-term debt constituting less than 10% of the registrant's total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii) (A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission. (b) Reports on Form 8-K Current Report on Form 8-K dated May 18, 1999 (Item 7). Current Report on Form 8-K dated June 29, 1999 (Item 7). Current Report on Form 8-K dated July 28, 1999 (Item 7). <Page 19> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DEERE & COMPANY Date: September 3, 1999 By: s/ Nathan J. Jones Nathan J. Jones Senior Vice President, Principal Financial Officer and Principal Accounting Officer <Page 20> INDEX TO EXHIBITS Number 2 Not applicable 3 Not applicable 4 Not applicable 10 Not applicable 11 Not applicable 12 Computation of ratio of earnings to fixed charges 15 Not applicable 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial data schedule 99 Not applicable <Page 21>