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, 1995 ______________________________ Commission file no: 1-4121 ______________________________ DEERE & COMPANY Delaware 36-2382580 (State of incorporation) (IRS employer identification no.) John Deere Road 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, 1995, 87,304,949 shares of common stock, $1 par value, of the registrant were outstanding. Page 1 of 37 Pages. Index to Exhibits: Page 20.
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 share amounts (Unaudited) Three Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment $ 2,304.5 $1,979.0 Finance and interest income 162.5 139.2 Insurance and health care premiums 186.8 173.8 Investment income 28.6 22.7 Other income 17.1 11.9 Total 2,699.5 2,326.6 Costs and Expenses Cost of goods sold 1,820.8 1,565.3 Research and development expenses 81.6 66.8 Selling, administrative and general expenses 252.0 214.3 Interest expense 99.7 77.6 Insurance and health care claims and benefits 161.7 153.2 Other operating expenses 10.5 8.7 Total 2,426.3 2,085.9 Income of Consolidated Group Before Income Taxes 273.2 240.7 Provision for income taxes 97.5 87.8 Income of Consolidated Group 175.7 152.9 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit Insurance and health care 1.4 Other 4.4 3.4 Total 4.4 4.8 Net Income $ 180.1 $ 157.7 Net income per share, primary and fully diluted $ 2.07 $ 1.82
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.
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEERE & COMPANY EQUIPMENT OPERATIONS STATEMENT OF CONSOLIDATED INCOME (Deere & Company with Financial Three Months Ended July 31 Services on the Equity Basis) Millions of dollars except per share amounts (Unaudited) Three Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment $ 2,304.5 $ 1,979.0 Finance and interest income 25.6 19.5 Insurance and health care premiums Investment income Other income 7.2 6.6 Total 2,337.3 2,005.1 Costs and Expenses Cost of goods sold 1,828.3 1,568.5 Research and development expenses 81.6 66.8 Selling, administrative and general expenses 179.1 155.5 Interest expense 35.0 28.8 Insurance and health care claims and benefits Other operating expenses .8 3.5 Total 2,124.8 1,823.1 Income of Consolidated Group Before Income Taxes 212.5 182.0 Provision for income taxes 77.2 68.1 Income of Consolidated Group 135.3 113.9 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit 28.1 28.1 Insurance and health care 12.3 12.3 Other 4.4 3.4 Total 44.8 43.8 Net Income $ 180.1 $ 157.7
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DEERE & COMPANY FINANCIAL SERVICES STATEMENT OF CONSOLIDATED INCOME Three Months Ended July 31 Millions of dollars except per share amounts (Unaudited) Three Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment Finance and interest income $ 139.1 $121.3 Insurance and health care premiums 229.0 208.6 Investment income 28.6 22.7 Other income 10.7 6.5 Total 407.4 359.1 Costs and Expenses Cost of goods sold Research and development expenses Selling, administrative and general expenses 76.0 61.5 Interest expense 66.8 50.4 Insurance and health care claims and benefits 194.1 183.3 Other operating expenses 9.8 5.2 Total 346.7 300.4 Income of Consolidated Group Before Income Taxes 60.7 58.7 Provision for income taxes 20.3 19.7 Income of Consolidated Group 40.4 39.0 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit Insurance and health care 1.4 Other Total 1.4 Net Income $ 40.4 $ 40.4
DEERE & COMPANY CONSOLIDATED STATEMENT OF CONSOLIDATED INCOME (Deere & Company and Nine Months Ended July 31 Consolidated Subsidiaries Millions of dollars except per share amounts (Unaudited) Nine Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment $ 6,487.9 $5,513.8 Finance and interest income 476.1 391.8 Insurance and health care premiums 548.1 498.3 Investment income 77.6 68.7 Other income 56.2 41.0 Total 7,645.9 6,513.6 Costs and Expenses Cost of goods sold 5,027.7 4,333.2 Research and development expenses 230.9 195.8 Selling, administrative and general expenses 727.4 637.3 Interest expense 290.6 220.1 Insurance and health care claims and benefits 461.7 432.9 Other operating expenses 42.1 25.1 Total 6,780.4 5,844.4 Income of Consolidated Group Before Income Taxes 865.5 669.2 Provision for income taxes 317.9 243.9 Income of Consolidated Group 547.6 425.3 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit Insurance and health care .7 3.5 Other 7.2 5.2 Total 7.9 8.7 Net Income $ 555.5 $ 434.0 Net income per share, primary and fully diluted $ 6.41 $ 5.04
DEERE & COMPANY EQUIPMENT OPERATIONS STATEMENT OF CONSOLIDATED INCOME (Deere & Company with Financial Nine Months Ended July 31 Services on the Equity Basis) Millions of dollars except per share amounts (Unaudited) Nine Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment $ 6,487.9 $ 5,513.8 Finance and interest income 71.3 58.1 Insurance and health care premiums Investment income Other income 19.1 16.8 Total 6,578.3 5,588.7 Costs and Expenses Cost of goods sold 5,049.1 4,343.6 Research and development expenses 230.9 195.8 Selling, administrative and general expenses 514.9 452.9 Interest expense 97.5 89.7 Insurance and health care claims and benefits Other operating expenses 17.0 9.5 Total 5,909.4 5,091.5 Income of Consolidated Group Before Income Taxes 668.9 497.2 Provision for income taxes 246.2 187.8 Income of Consolidated Group 422.7 309.4 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit 92.2 82.1 Insurance and health care 33.4 37.3 Other 7.2 5.2 Total 132.8 124.6 Net Income $ 555.5 $ 434.0
DEERE & COMPANY FINANCIAL SERVICES STATEMENT OF CONSOLIDATED INCOME Nine Months Ended July 31 Millions of dollars except per share amounts (Unaudited) Nine Months Ended July 31 1995 1994 Net Sales and Revenues Net sales of equipment Finance and interest income $410.0 $ 337.0 Insurance and health care premiums 660.4 594.6 Investment income 77.6 68.7 Other income 39.4 27.7 Total 1,187.4 1,028.0 Costs and Expenses Cost of goods sold Research and development expenses Selling, administrative and general expenses 222.2 193.0 Interest expense 198.3 133.8 Insurance and health care claims and benefits 545.1 513.6 Other operating expenses 25.2 15.6 Total 990.8 856.0 Income of Consolidated Group Before Income Taxes 196.6 172.0 Provision for income taxes 71.7 56.1 Income of Consolidated Group 124.9 115.9 Equity in Income of Unconsolidated Subsidiaries and Affiliates Credit Insurance and health care .7 3.5 Other Total .7 3.5 Net Income $ 125.6 $ 119.4
DEERE & COMPANY CONSOLIDATED CONDENSED CONSOLIDATED BALANCE SHEET (Deere & Company and Consolidated Subsidiaries) July 31 Oct 31 July 31 Millions of dollars (Unaudited) 1995 1994 1994 Assets Cash and short-term investments $ 426.7 $ 245.4 $ 295.7 Cash deposited with unconsolidated subsidiaries Cash and cash equivalents 426.7 245.4 295.7 Marketable securities 804.3 1,126.3 1,108.1 Receivables from unconsolidated subsidiaries and affiliates 1.6 8.9 5.3 Dealer accounts and notes receivable - net 3,446.9 2,939.4 2,981.9 Credit receivables - net 4,896.4 4,501.7 4,577.8 Other receivables 474.8 429.7 381.8 Equipment on operating leases - net 246.3 219.5 205.7 Inventories 920.2 698.0 735.8 Property and equipment - net 1,301.2 1,314.1 1,201.2 Investments in unconsolidated subsidiaries and affiliates 103.9 154.3 148.1 Intangible assets - net 287.2 283.7 296.9 Deferred income taxes 666.1 679.8 685.5 Other assets and deferred charges 186.1 180.4 193.3 Total $13,761.7 $12,781.2 $12,817.1 Liabilities and Stockholders' Equity Short-term borrowings $ 3,248.0 $ 2,637.4 $ 3,046.0 Payables to unconsolidated subsidiaries and affiliates 47.7 34.0 31.3 Accounts payable and accrued expenses 2,220.6 2,285.2 2,157.6 Insurance and health care claims and reserves 465.5 761.3 732.4 Accrued taxes 133.4 80.2 97.1 Deferred income taxes 14.8 13.5 8.3 Long-term borrowings 2,377.1 2,053.9 1,964.9 Retirement benefit accruals and other liabilities 2,222.0 2,357.8 2,345.5 Total liabilities 10,729.1 10,223.3 10,383.1
Common stock, $1 par value (issued shares at July 31, 1995 - 87,476,078) 1,539.0 1,491.4 1,475.8 Retained earnings 1,766.9 1,353.9 1,231.7 Minimum pension liability adjustment (248.4) (248.4) (215.4) Cumulative translation adjustment (1.0) (17.9) (36.2) Unrealized gain on marketable securities available for sale 1.5 Unamortized restricted stock compensation (13.4) (8.8) (9.7) Common stock in treasury, at cost (12.0) (12.3) (12.2) Total stockholders' equity 3,032.6 2,557.9 2,434.0 Total $13,761.7 $12,781.2 $12,817.1 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 CONSOLIDATED BALANCE SHEET (Deere & Company with Financial Services on the Equity Basis) July 31 Oct 31 July 31 Millions of dollars (Unaudited) 1995 1994 1994 Assets Cash and short-term investments $ 133.8 $ 104.0 $ 48.1 Cash deposited with unconsolidated subsidiaries 100.2 Cash and cash equivalents 234.0 104.0 48.1 Marketable securities Receivables from unconsolidated subsidiaries and affiliates 24.3 196.9 256.7 Dealer accounts and notes receivable - net 3,446.9 2,939.4 2,981.9 Credit receivables - net 115.1 115.8 144.5 Other receivables 15.2 Equipment on operating leases - net 114.2 94.3 77.2 Inventories 920.2 698.0 735.8 Property and equipment - net 1,263.7 1,281.8 1,169.5 Investments in unconsolidated subsidiaries and affiliates 1,346.6 1,285.9 1,261.2 Intangible assets - net 277.4 266.8 279.4 Deferred income taxes 600.6 620.5 629.9 Other assets and deferred charges 111.3 91.8 104.9 Total $ 8,454.3 $7,710.4 $7,689.1 Liabilities and Stockholders' Equity Short-term borrowings $ 513.7 $ 53.8 $ 236.1 Payables to unconsolidated subsidiaries and affiliates 47.7 34.0 31.3 Accounts payable and accrued expenses 1,558.7 1,617.3 1,537.0 Insurance and health care claims and reserves Accrued taxes 125.0 79.7 93.2 Deferred income taxes 14.8 13.5 8.3 Long-term borrowings 963.2 1,019.4 1,019.5 Retirement benefit accruals and other liabilities 2,198.6 2,334.8 2,329.7 Total liabilities 5,421.7 5,152.5 5,255.1
Common stock, $1 par value (issued shares at July 31, 1995 - 87,476,078) 1,539.0 1,491.4 1,475.8 Retained earnings 1,766.9 1,353.9 1,231.7 Minimum pension liability adjustment (248.4) (248.4) (215.4) Cumulative translation adjustment (1.0) (17.9) (36.2) Unrealized gain on marketable securities available for sale 1.5 Unamortized restricted stock compensation (13.4) (8.8) (9.7) Common stock in treasury, at cost (12.0) (12.3) (12.2) Total stockholders' equity 3,032.6 2,557.9 2,434.0 Total $ 8,454.3 $7,710.4 $7,689.1
DEERE & COMPANY FINANCIAL SERVICES CONDENSED CONSOLIDATED BALANCE SHEET July 31 Oct 31 July 31 Millions of dollars (Unaudited) 1995 1994 1994 Assets Cash and short-term investments $ 292.9 $ 141.4 $ 247.6 Cash deposited with unconsolidated subsidiaries Cash and cash equivalents 292.9 141.4 247.6 Marketable securities 804.3 1,126.3 1,108.1 Receivables from unconsolidated subsidiaries and affiliates Dealer accounts and notes receivable - net Credit receivables - net 4,781.3 4,385.9 4,433.3 Other receivables 475.9 415.5 382.8 Equipment on operating leases - net 132.1 125.2 128.5 Inventories Property and equipment - net 37.5 32.3 31.7 Investments in unconsolidated subsidiaries and affiliates 55.1 54.2 Intangible assets - net 9.8 16.9 17.4 Deferred income taxes 65.6 59.2 55.6 Other assets and deferred charges 74.6 88.6 88.4 Total $ 6,674.0 $6,446.4 $6,547.6 Liabilities and Stockholders' Equity Short-term borrowings $ 2,734.3 $2,583.5 $2,809.9 Payables to unconsolidated subsidiaries and affiliates 122.9 187.9 251.4 Accounts payable and accrued expenses 663.0 668.9 621.5 Insurance and health care claims and reserves 465.5 761.3 732.4 Accrued taxes 8.4 .5 3.9 Deferred income taxes Long-term borrowings 1,413.8 1,034.5 945.3 Retirement benefit accruals and other liabilities 23.4 23.0 15.9 Total liabilities 5,431.3 5,259.6 5,380.3
Common stock, $1 par value (issued shares at July 31, 1995 - 87,476,078) 209.4 209.5 209.4 Retained earnings 1,035.5 980.3 962.9 Minimum pension liability adjustment Cumulative translation adjustment (3.7) (3.0) (5.0) Unrealized gain on marketable securities available for sale 1.5 Unamortized restricted stock compensation Common stock in treasury, at cost Total stockholders' equity 1,242.7 1,186.8 1,167.3 Total $ 6,674.0 $6,446.4 $6,547.6
DEERE & COMPANY CONSOLIDATED CONDENSED STATEMENT OF (Deere & Company and CONSOLIDATED CASH FLOWS Consolidated Subsidiaries) Nine Months Ended July 31 Nine Months Ended July 31 Millions of dollars (Unaudited) 1995 1994 Cash Flows from Operating Activities Net income $555.5 $ 434.0 Adjustments to reconcile net income to net cash provided by (used for) operating activities (627.3) (172.4) Net cash provided by (used for) operating activities (71.8) 261.6 Cash Flows from Investing Activities Collections and sales of credit receivables 3,152.5 2,239.8 Proceeds from sales of marketable securities 144.8 176.4 Proceeds from sales of businesses 86.7 Cost of credit receivables acquired (3,590.9) (3,048.2) Purchases of marketable securities (137.5) (282.3) Purchases of property and equipment (152.5) (120.2) Cost of operating leases acquired (105.5) (69.1) Other 27.4 37.9 Net cash used for investing activities (575.0) (1,065.7) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings 972.2 1,421.3 Change in intercompany receivables/payables Proceeds from long-term borrowings 515.0 10.0 Principal payments on long-term borrowings (554.1) (573.8) Proceeds from issuance of common stock 42.1 36.3 Dividends paid (142.7) (128.6) Other (6.5) (4.9) Net cash provided by (used for) financing activities 826.0 760.3 Effect of Exchange Rate Changes on Cash 2.1 1.3 Net Increase (Decrease) in Cash and Cash Equivalents 181.3 (42.5) Cash and Cash Equivalents at Beginning of Period 245.4 338.2 Cash and Cash Equivalents at End of Period $ 426.7 $ 295.7 See Notes to Interim Financial Statements. Supplemental consolidating data are shown for the "Equipment Operations" and "Financial Services". Transactions between the "Equipment Operations" and "Financial Services" have been eliminated to arrive at the "Consolidated" data.
DEERE & COMPANY CONDENSED STATEMENT OF CONSOLIDATED EQUIPMENT OPERATIONS CASH FLOWS (Deere & Company with Nine Months Ended July 31 Financial Services on the Equity Basis Nine Months Ended July 31 Millions of dollars (Unaudited) 1995 1994 Cash Flows from Operating Activities Net income $ 555.5 $ 434.0 Adjustments to reconcile net income to net cash provided by (used for) operating activities (719.3) (170.3) Net cash provided by (used for) operating activities (163.8) 263.7 Cash Flows from Investing Activities Collections and sales of credit receivables 40.9 51.2 Proceeds from sales of marketable securities Proceeds from sales of businesses Cost of credit receivables acquired (38.8) (75.1) Purchases of marketable securities Purchases of property and equipment (140.2) (109.9) Cost of operating leases acquired (66.1) (27.1) Other 36.9 20.6 Net cash used for investing activities (167.3) (140.3) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings 411.7 (127.3) Change in intercompany receivables/payables 165.2 256.6 Proceeds from long-term borrowings Principal payments on long-term borrowings (10.8) (180.4) Proceeds from issuance of common stock 42.1 36.3 Dividends paid (142.7) (128.6) Other (6.5) (4.9) Net cash provided by (used for) financing activities 459.0 (148.3) Effect of Exchange Rate Changes on Cash 2.1 1.3 Net Increase (Decrease) in Cash and Cash Equivalents 130.0 (23.6) Cash and Cash Equivalents at Beginning of Period 104.0 71.7 Cash and Cash Equivalents at End of Period $ 234.0 $ 48.1
DEERE & COMPANY FINANCIAL SERVICES CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS Nine Months Ended July 31 Nine Months Ended July 31 Millions of dollars (Unaudited) 1995 1994 Cash Flows from Operating Activities Net income $ 125.6 $119.4 Adjustments to reconcile net income to net cash provided by (used for) operating activities 36.8 81.6 Net cash provided by (used for) operating activities 162.4 201.0 Cash Flows from Investing Activities Collections and sales of credit receivables 3,111.6 2,203.6 Proceeds from sales of marketable securities 144.8 176.4 Proceeds from sales of businesses 86.7 Cost of credit receivables acquired (3,552.1)(2,988.0) Purchases of marketable securities (137.5) (282.3) Purchases of property and equipment (12.3) (10.3) Cost of operating leases acquired (39.4) (42.1) Other (9.5) 17.4 Net cash used for investing activities (407.7) (925.3) Cash Flows from Financing Activities Increase (decrease) in short-term borrowings 560.6 1,548.5 Change in intercompany receivables/payables (65.1) 256.6 Proceeds from long-term borrowings 515.0 10.0 Principal payments on long-term borrowings (543.3) (393.4) Proceeds from issuance of common stock Dividends paid 70.4 (203.1) Other Net cash provided by (used for) financing activities 396.8 705.4 Effect of Exchange Rate Changes on Cash Net Increase (Decrease) in Cash and Cash Equivalents 151.5 (18.9) Cash and Cash Equivalents at Beginning of Period 141.4 266.5 Cash and Cash Equivalents at End of Period $292.9 $ 247.6
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. (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, industrial equipment and lawn and grounds care 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 in millions of dollars follows: Three Months Nine Months Ended Ended July 31 July 31 1995 1994 1995 1994 Balance, beginning of period...... $1,634.6 $1,117.1 $1,353.9 $ 926.5 Net income......... 180.1 157.7 555.5 434.0 Dividends declared. (47.8) (43.1) (142.5) (128.8) Balance, end of period........ $1,766.9 $1,231.7 $1,766.9 $1,231.7 (4) An analysis of the cumulative translation adjustment in millions of dollars follows: Three Months Nine Months Ended Ended July 31 July 31 1995 1994 1995 1994 Balance, beginning of period.............. $ 8.0 $45.0 $ 17.9 $41.5 Translation adjustments... (7.1) (8.4) (17.5) (4.8) Income taxes applicable to translation adjustments.. .1 (.4) .6 (.5) Balance, end of period.....$ 1.0 $36.2 $ 1.0 $36.2 (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 Oct 31 July 31 1995 1994 1994 Raw materials and supplies................ $ 221 $ 206 $ 193 Work-in-process........... 413 357 385 Finished machines and parts................... 1,269 1,079 1,123 Total FIFO value.......... 1,903 1,642 1,701 Adjustment to LIFO basis................... 983 944 965 Inventories............... $ 920 $ 698 $ 736 (6) During the first nine months of 1995, the Financial Services subsidiaries and the Equipment Operations received proceeds from the sale of retail notes in the public market and to other financial institutions of $726 million. At July 31, 1995, the net unpaid balance of all retail notes previously sold by the Financial Services subsidiaries and the Equipment Operations was $1,302 million. At July 31, 1995, the Company's maximum exposure under all credit receivable recourse provisions was $176 million for all retail notes sold. Certain foreign subsidiaries have pledged assets with a balance sheet value of $64 million as collateral for bank advances of $1 million as of July 31, 1995. At July 31, 1995, the Company had commitments of approximately $74 million for construction and acquisition of property and equipment.
(7) Worldwide net sales and revenues and operating profit in millions of dollars follow: Three Months Nine Months Ended July 31 Ended July 31 % % 1995 1994 Change 1995 1994 Change Net sales: Agricultural equipment. $1,365 $1,194 +14 $3,821 $3,413 +12 Industrial equipment......504 453 +11 1,412 1,193 +18 Lawn and grounds care equipment*..............435 332 +31 1,255 908 +38 Total net sales... 2,304 1,979 +16 6,488 5,514 +18 Financial Services revenues.. 365 324 +13 1,074 931 +15 Other revenues............. 31 24 +29 84 69 +22 Total net sales and revenues.........$2,700 $2,327 +16 $7,646 $6,514 +17 United States and Canada: Equipment net sales*.. $1,661 $1,444 +15 $4,868 $4,227 +15 Financial Services revenues........ ... 365 324 +13 1,074 931 +15 Total............. 2,026 1,768 +15 5,942 5,158 +15 Overseas net sales*..... 643 535 +20 1,620 1,287 +26 Other revenues............ 31 24 +29 84 69 +22 Total net sales and revenues........ $2,700 $2,327 +16 $7,646 $6,514 +17 Operating profit: Agricultural equipment.$ 156 $ 133 $ 508 $ 401 Industrial equipment... 63 49 162 104 Lawn and grounds care equipment............ 38 41 130 108 Financial Services**... 61 60 197 176 Total operating profit. 318 283 997 789 Interest and corporate expenses-net......... (40) (37) (123) (111) Income taxes........... (98) (88) (318) (244) Net income....... $ 180 $ 158 $ 556 $ 434 * Third quarter 1995 worldwide lawn and grounds care equipment net sales, United States and Canada net sales and overseas net sales include $86 million, $75 million and $11 million, respectively, of net sales by Homelite, which was acquired in the fourth quarter of 1994. The first nine months of 1995 include $223 million, $188 million and $35 million, respectively, of Homelite's net sales. ** Operating profit of Financial Services includes the effect of interest expense.
(8) Dividends declared and paid on a per share basis were as follows: Three Months Nine Months Ended Ended July 31 July 31 1995 1994 1995 1994 Dividends declared.. $.55 $.50 $1.65 $1.50 Dividends paid........$.55 $.50 $1.65 $1.50 (9) The calculation of primary net income per share is based on the average number of shares outstanding during the nine months ended July 31, 1995 and 1994 of 86,699,000 and 86,068,000, respectively. The calculation of fully diluted net income per share recognizes the dilutive effect of the assumed exercise of stock options, stock appreciation rights and conversion of convertible debentures. The effect of the fully diluted calculation was immaterial. (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 and retail credit 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) During the second quarter of 1993, the Company initiated plans to downsize and rationalize its European operations. This resulted in a restructuring charge of $80 million after income taxes or $1.03 per share ($107 million before income taxes). The charge mainly represented the cost of employment reductions to be implemented during 1993 and the next few years. As of July 31, 1995, the expected employment reductions and the disbursement of the $107 million accrual were both approximately 76 percent complete. (12) In the first quarter of 1995, the Company adopted FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company designated approximately two-thirds of its debt securities as held-to- maturity with the remaining debt and equity securities classified as available-for-sale. The held-to-maturity debt securities are carried at cost and the available-for-sale securities are carried at fair value with unrealized gains and losses shown as a separate component of stockholders' equity. Previously, the Company valued all its securities on a cost basis. The Statement had an immaterial effect on stockholders' equity and no impact on the consolidated income statement.
(13) In January 1995, the Company's insurance subsidiaries agreed to sell their 3.1 million shares (43.8 percent) of Re Capital Corporation to Zurich Reinsurance Centre Holdings, Inc. for $18.50 a share. In April 1995, the insurance subsidiaries agreed to sell their wholly-owned subsidiary, John Deere Life Insurance Company, to Life Reassurance Corporation of America. These sales did not have a significant effect on the Company's consolidated financial position or net income for the third quarter or first nine months of 1995.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Deere & Company achieved record worldwide net income in the third quarter of 1995 of $180.1 million or $2.07 per share compared with $157.7 million or $1.82 per share last year. Worldwide net income improved by $22.4 million or 14 percent compared with last year's third quarter, primarily as a result of higher sales and production volumes. Year-to-date net income totaled $555.5 million or $6.41 per share compared with $434.0 million or $5.04 per share for the first nine months of 1994, also reflecting higher 1995 sales and production activity, which was partially offset by unfavorable currency fluctuations. Worldwide net sales and revenues increased 16 percent to $2,700 million in the third quarter and 17 percent to $7,646 million for the first nine months of 1995 compared with $2,327 million and $6,514 million, respectively, last year. Exports from the United States also continued to strengthen, totaling $1,009 million for the first nine months, which was 17 percent higher than last year. Worldwide production tonnage was up six percent in the quarter and eight percent year-to-date compared with the same periods last year. Market demand for all the Company's products continues to be positive. Increased export demand for agricultural commodities coupled with good domestic demand have increased commodity prices. Farmers have remained confident despite erratic weather in some parts of the United States, while the general economy has continued to expand at moderate rates. Although some uncertainty surrounds development of a new farm bill, conditions generally remain favorable for continued strong agricultural equipment demand. Additionally, general North American economic activity continues at relatively high levels, which should continue to support good industrial and lawn and grounds care equipment demand, as well as provide a sound basis for the expansion of the Company's Financial Services revenues. Net sales to dealers of agricultural, industrial and lawn and grounds care equipment were $2,304 million in the third quarter and $6,488 million year-to-date in 1995 compared with $1,979 million for the quarter and $5,514 million year-to-date a year ago. Net sales in 1995 include Homelite sales of $86 million during the quarter and $223 million in the first nine months. Homelite sales were not included in the comparable periods last year. The physical volume of worldwide net sales to dealers increased approximately 12 percent in the third quarter and 13 percent year-to-date in 1995. North American net sales of John Deere agricultural, industrial and lawn and grounds care equipment all increased during the third quarter and first nine months of 1995 compared with last year. Overseas net sales and physical volume of sales were also higher, increasing 26 percent and 13 percent, respectively, in the first nine months compared with a year ago. The Company's worldwide Equipment Operations, which exclude the Financial Services subsidiaries and unconsolidated affiliates, had income of $135.3 million for the third quarter of 1995 compared with $113.9 million last year. Both the agricultural and industrial equipment segments reported improved quarterly results due to higher sales and production volumes. However, the lawn and grounds care equipment segment reported lower third quarter income due to increased costs of imported components resulting from unfavorable currency fluctuations. The ratio of cost of goods sold to net sales of the Equipment Operations was 79.3 percent in the third quarter of 1995 and 1994. The 1995 year-to-date income of the Equipment Operations was $422.7 million compared with $309.4 million last year. All equipment segments reported improved year-to-date results due to higher sales and production volumes. During the first nine months of 1995, the ratio of cost of goods sold to net sales was 77.8 percent compared with 78.8 percent in the first nine months of last year. Additional information on business segments is presented in Note 7 to the interim financial statements. Net income of the Company's credit operations was $28.1 million in the third quarter of 1995 and 1994. For the first nine months of 1995, net income of these subsidiaries was $92.2 million compared with $82.1 million last year. This year's third quarter and year-to-date results continued to reflect higher earnings from a larger average portfolio, offset by lower financing margins. In addition, year-to-date results in 1995 benefited from higher gains from the sale of retail notes. Total revenues of the credit operations increased 16 percent from $128 million in the third quarter of 1994 to $149 million in the current quarter and increased 23 percent in the first nine months from $365 million last year to $449 million this year. Revenues increased primarily due to a higher overall yield on the receivables held, a larger average portfolio financed and increased gains on the sale of retail notes. The average balance of receivables and leases financed was six percent higher in the third quarter and 14 percent higher in the first nine months of 1995 compared with the same periods last year. The resulting increase in average borrowings coupled with higher borrowing rates this year resulted in a 34 percent increase in interest expense in the current quarter and a 49 percent increase in the first nine months of 1995 compared with 1994. The credit subsidiaries' consolidated ratio of earnings to fixed charges was 1.66 to 1 for the third quarter this year compared with 1.87 to 1 in 1994. This ratio was 1.73 to 1 for the first nine months this year compared with 1.95 to 1 in the comparable period of 1994. Net income from insurance and health care operations was $12.3 million in the third quarter of 1995 and 1994. For the first nine months, net income from these operations was $33.4 million this year compared with $37.3 million in 1994. The insurance operations' results in the first nine months of 1995 were unfavorably affected by a small net loss from the sale of the John Deere Life Insurance Company, a higher effective tax rate, and lower equity income due to the sale of the Company's interest in Re Capital Corporation. This decline was partially offset by an increase in investment income and an improvement in insurance and health care underwriting earnings compared to 1994. For the third quarter, insurance and health care premiums earned increased 10 percent in 1995 compared with the same period last year, while claims, policy benefits and selling, administrative and general expenses also increased 10 percent this year. For the nine-month period, insurance and health care premiums earned increased by 11 percent in 1995, while claims, policy benefits and selling, administrative and general expenses increased nine percent compared with last year. The sale of the life insurance subsidiary will not significantly affect the future profitability of these operations. Based on continued strong retail demand for the Company's products, fourth quarter earnings are expected to remain at strong levels. Worldwide production tonnage for the year is expected to increase by six percent over last year. However, production tonnage for the fourth quarter of 1995 will be lower than last year. Both fourth quarter production tonnage and earnings will be affected by the following initiatives planned for the quarter: Service parts inventories will be reduced to eliminate the planned additional inventory which was produced during the third and fourth quarters of 1994 and maintained in inventory during labor negotiations as a hedge against potential work stoppages. Interest waiver programs will be used to reduce dealer used goods inventories which are currently abnormally high due to the wet weather conditions which delayed spring planting, resulting in later than normal trade-in of used equipment. Both of these initiatives will be completed during the quarter and should enable the Company to enter 1996 well positioned to match the continuing improved conditions of the United States farm economy. However, these initiatives will result in 1995 fourth quarter earnings being lower than the record fourth quarter earnings of a year ago. Earnings for the entire 1995 fiscal year will be at record levels. 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 receivables from dealers and inventories. Accordingly, to the extent necessary, funds provided from operations are supplemented from external sources. Negative cash flows from operating activities in the first nine months of 1995 resulted from increases in dealer receivables and Company-owned inventories due to normal seasonal increases and higher retail demand, coupled with contributions of $285 million to the pension fund. Partially offsetting these operating cash outflows were positive cash flows from net income and dividends received from the Financial Services operations. The resulting net cash requirement for operating activities of $164 million, along with cash required for payment of dividends, purchases of property and equipment and an increase in cash and cash equivalents were provided primarily from an increase in borrowings and a decrease in receivables from the Financial Services operations. In the first nine months of 1994, positive cash flows from operating activities of $264 million resulted mainly from net income and dividends received from the Financial Services operations, which were partially offset by the normal seasonal increases in dealer receivables and Company-owned inventories, and contributions to the pension fund. Cash required for the payment of borrowings, payment of dividends and purchases of property and equipment was provided primarily from the cash flow from operations, a decrease in receivables from the Financial Services operations and a decrease in cash and cash equivalents. Net dealer accounts and notes receivable, which largely represent dealers' inventories financed by the Company, have increased $507 million since October 31, 1994 and $465 million compared to a year ago due primarily to a normal seasonal increase and higher retail demand, coupled with an increased level of dealer used goods inventories. The ratios of these receivables to the last 12 months net sales were 40 percent at July 31, 1995, 38 percent at October 31, 1994 and 40 percent at July 31, 1994. North American agricultural equipment and industrial equipment dealer receivables increased approximately $140 million and $120 million, respectively, compared with the levels 12 months earlier. North American lawn and grounds care dealer receivables increased approximately $135 million compared to a year earlier, which included an additional $51 million of Homelite receivables in 1995. Total overseas dealer receivables were approximately $70 million higher than a year ago, approximately two-thirds of which was due to higher foreign currency exchange rates in 1995. The percentage of total worldwide dealer receivables outstanding for periods exceeding 12 months was seven percent at July 31, 1995 and October 31, 1994, and eight percent at July 31, 1994. Company-owned inventories at July 31, 1995 have increased by $222 million compared with the end of the previous fiscal year and $184 million compared to one year ago, reflecting a normal seasonal increase as well as increased retail demand, higher foreign currency exchange rates and approximately $60 million of additional Homelite inventories at July 31, 1995 and October 31, 1994 compared to a year ago. Total interest-bearing debt of the Equipment Operations was $1,477 million at July 31, 1995 compared with $1,073 million at the end of fiscal year 1994 and $1,256 million at July 31, 1994. The ratio of total debt to total capital (total interest-bearing debt and stockholders' equity) was 33 percent, 30 percent and 34 percent at July 31, 1995, October 31, 1994 and July 31, 1994, respectively. 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 John Deere Capital Corporation (Capital Corporation), the Company's United States credit subsidiary, periodically sells substantial amounts of retail notes in the public market. The insurance and health care operations generate their funds through internal operations and have no external borrowings. During the first nine months of 1995, the aggregate cash provided from operating and financing activities was used primarily to increase credit receivables and cash and cash equivalents. Cash provided from Financial Services operating activities was $162 million in the first nine months. Financing activities provided $397 million during the same period, representing a $532 million increase in outside borrowings, partially offset by a $65 million decrease in payables to the Equipment Operations and payment of a $70 million dividend to the Equipment Operations. Cash used for investing activities totaled $408 million in the first nine months, primarily due to acquisitions of credit receivables exceeding collections by $1,167 million, which was partially offset by proceeds of $726 million received from the sale of retail notes in the public market. Cash and cash equivalents increased $151 million during the first nine months of 1995. During the first nine months of 1994, the aggregate cash provided from operating and financing activities was used primarily to increase credit receivables. Cash provided from Financial Services operating activities was $201 million during the first nine months of 1994. Financing activities provided $705 million during the same period, resulting from a $1,165 million increase in outside borrowings which was partially offset by a $257 million decrease in payables to the Equipment Operations and payment of a $203 million dividend to the Equipment Operations. Cash used for investing activities totaled $925 million in the first nine months of last year, primarily due to the cost of credit receivables acquired exceeding collections. Cash and cash equivalents also decreased $19 million in the first nine months of 1994. The positive cash flows from insurance and health care operations have been primarily invested in marketable securities. Marketable securities consist primarily of debt securities held by the insurance and health care operations in support of their obligations to policyholders. These investments decreased in the first nine months of 1995 and during the past 12 months, resulting primarily from the sale of the John Deere Life Insurance Company including its marketable securities. Credit receivables increased by $395 million in the first nine months of 1995 and $348 million during the past 12 months. These receivables consist of retail notes originating in connection with retail sales by dealers of John Deere products and used equipment, retail notes from non-Deere-related customers, revolving charge accounts, financing leases and wholesale notes receivable. The credit subsidiaries' receivables increased during the first nine months of 1995 due to acquisitions of credit receivables exceeding collections, which was partially offset by the sale of retail notes for proceeds of $726 million. Total acquisitions of credit receivables were 19 percent higher in the first nine months of 1995 compared with the same period last year. This significant increase resulted mainly from increased retail sales of John Deere equipment, an improvement in the credit subsidiaries' market share for the financing of John Deere agricultural equipment, and a higher revolving charge account and wholesale note volume. The increase in credit receivables from acquisitions exceeding collections in the past 12 months was partially offset by the sale of receivables for proceeds of $1,240 million during the same period. The levels of wholesale receivables, revolving charge accounts and financing lease receivables were higher than one year ago, while retail notes were slightly lower compared to last year. Credit receivables administered by the credit subsidiaries, which include receivables previously sold, amounted to $6,108 million at July 31, 1995 compared with $5,600 million at October 31, 1994 and $5,247 million at July 31, 1994. At July 31, 1995, the unpaid balance of all retail notes previously sold was $1,302 million compared with $1,175 million at October 31, 1994 and $773 million at July 31, 1994. Additional sales of retail notes are expected to be made in the future. Total interest-bearing debt of the credit subsidiaries was $4,148 million at July 31, 1995 compared with $3,618 million at the end of fiscal year 1994 and $3,755 million at July 31, 1994. Total outside borrowings increased during the first nine months of 1995 and the past 12 months, generally corresponding with the levels of the credit receivable and lease portfolio financed, the level of cash and cash equivalents and the change in the amounts of payables owed to the Equipment Operations. The credit subsidiaries' ratio of total interest-bearing debt to stockholder's equity was 5.6 to 1 at July 31, 1995 compared with 5.3 to 1 at October 31, 1994 and 5.7 to 1 at July 31, 1994. During the first nine months of 1995, the Capital Corporation issued $150 million of floating rate notes due in 1998 and retired $150 million of 5% debentures, $150 million of 11-5/8% debentures and $100 million of 6% debentures, all due in 1995. During the same period, the Capital Corporation also issued $365 million and retired $143 million of medium-term notes. 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 $4,112 million at July 31, 1995, $1,149 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 for $3,500 million. During the first nine months of 1995, the total increase in cash and cash equivalents on a consolidated basis was $181 million. This represents $130 million provided by the Equipment Operations and $151 million provided by Financial Services, reduced by $100 million of Equipment Operations' cash equivalents receivable from the Financial Services operations. Stockholders' equity was $3,033 million at July 31, 1995 compared with $2,558 million at October 31, 1994 and $2,434 million at July 31, 1994. The increase of $475 million in the first nine months of 1995 resulted primarily from net income of $556 million, an increase in common stock of $48 million and a $17 million change in the cumulative translations adjustment, partially offset by dividends declared of $143 million. The Board of Directors at its meeting on August 30, 1995 announced its intention to declare a 3-for-1 split of the Company's common stock, pending shareholder approval at a special meeting. The meeting is expected to be held on November 15, 1995. The stock split would be implemented by a stock dividend of two additional shares for each share outstanding. The Board also raised the quarterly dividend to 60 cents per share from 55 cents per share, payable November 1, 1995 to stockholders of record on September 30, 1995. The increased dividend is on a pre-split basis.
PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note (10) to the Interim Financial Statements. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See the index to exhibits immediately preceding the exhibits filed with this report. Certain instruments relating to long-term debt constituting less than 10% of the registrant's total assets are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii) (A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission. (b) Reports on Form 8-K Current Report on Form 8-K dated May 23, 1995 (Item 7).
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 11, 1995 By s/ Pierre E. Leroy Pierre E. Leroy Senior Vice President, Principal Financial Officer and Principal Accounting Officer
INDEX TO EXHIBITS Number Page 2 Not applicable - 3 By-laws, as amended 21 4 Not applicable - 10 Not applicable - 11 Computation of net income per share 35 12 Computation of ratio of earnings to fixed charges 36 15 Not applicable - 18 Not applicable - 19 Not applicable - 22 Not applicable - 23 Not applicable - 24 Not applicable - 27 Financial data schedule 37 99 Not applicable -