Business Context and Reporting Period
Company: DEERE & CO
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2000
Business Overview: Deere & Company operates in two primary segments: Equipment Operations (agricultural, construction, and commercial/consumer equipment) and Financial Services (credit, insurance, and health care). The insurance operations were sold in the fourth quarter of 1999.
Key Financial Metrics
Consolidated Results (Three Months Ended April 30, 2000):
- Net Sales and Revenues: $3,789.7 million (vs. $3,468.4 million in 1999)
- Net Income: $204.3 million ($0.87 per share basic/diluted)
- Income Before Taxes: $353.2 million
- Operating Profit (Total): $400 million
Consolidated Results (Six Months Ended April 30, 2000):
- Net Sales and Revenues: $6,129.1 million (vs. $5,927.0 million in 1999)
- Net Income: $242.0 million ($1.03 per share basic/diluted)
- Income Before Taxes: $413.0 million
- Operating Profit (Total): $490 million
Liquidity and Balance Sheet (April 30, 2000):
- Cash and Cash Equivalents: $370.4 million
- Total Assets: $20,205.2 million
- Total Liabilities: $15,989.0 million
- Stockholders' Equity: $4,216.2 million
- Short-term Borrowings: $6,562.7 million
- Long-term Borrowings: $3,960.4 million
Cash Flow (Six Months Ended April 30, 2000):
- Net Cash Used in Operating Activities: $(454.7) million
- Net Cash Used in Investing Activities: $(1,522.3) million
- Net Cash Provided by Financing Activities: $2,054.0 million
- Net Increase in Cash: $74.9 million
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net sales increased 9% for the quarter and 3% for the six-month period compared to the prior year. Equipment sales rose 12% for the quarter and 6% year-to-date, driven by a 15% increase in physical sales volume for the quarter.
- Profitability: Net income increased 36% for the quarter and 21% for the six-month period. This was driven by improved manufacturing efficiencies, higher production volumes, and lower pension/health care costs.
- Segment Performance:
- Agricultural Equipment: Operating profit surged 161% for the quarter ($159 million vs. $61 million) due to efficiency gains and higher volumes.
- Commercial & Consumer: Operating profit increased 29% for the quarter ($115 million vs. $89 million) on strong retail demand.
- Construction: Operating profit rose 29% for the quarter ($81 million vs. $63 million).
- Credit: Operating profit declined 14% for the quarter ($56 million vs. $65 million) due to lower gains on retail note sales and higher expenses.
- Acquisition: On April 28, 2000, the company acquired Timberjack Group for approximately $600 million, adding $420 million in goodwill. This acquisition is expected to broaden the forestry product line.
- Insurance Divestiture: Insurance and health care premiums and investment income decreased significantly compared to 1999 due to the sale of insurance subsidiaries in late 1999.
Guidance, Outlook, and Risks
Outlook and Guidance:
- Physical Volume: The company projects worldwide physical sales volume to increase approximately 15% for full-year 2000 versus 1999. Third-quarter volumes are projected to be 21% higher than the prior year.
- Agricultural: North American retail sales expected to be flat to down 5%; other major markets expected to decline 5-10%.
- Construction: Industry retail sales expected to be down 5-10%, though company sales are expected to be higher due to the Timberjack acquisition and expanded product line.
- Commercial/Consumer: Expected to achieve further growth driven by market share gains and new products.
Risks and Contingencies:
- Market Conditions: Agricultural results depend on commodity prices, weather, and government programs. Construction results depend on housing starts and public spending.
- Acquisition Integration: Risks associated with integrating Timberjack Group and the impact of increased amortization of intangibles.
- Legal: Subject to unresolved legal actions regarding product liability, retail credit, and intellectual property, though management does not expect a material effect.
- Currency: Weaker European currencies negatively impacted reported sales and profits.
Investor Verification Checklist
- Acquisition Impact: Verify the integration progress and financial contribution of the Timberjack Group acquisition in subsequent quarters.
- Cash Flow Dynamics: Monitor the negative operating cash flow ($454.7 million for six months) driven by increases in trade receivables and inventories.
- Debt Levels: Review the high level of short-term borrowings ($6.56 billion) and the credit operations' debt-to-equity ratio (6.4 to 1).
- Agricultural Cycle: Assess the sensitivity of the agricultural segment to commodity prices and weather conditions given the projected flat-to-down sales outlook.
- Goodwill Amortization: Track the impact of the $420 million goodwill amortization from the Timberjack acquisition on future earnings.