News Column

DEERE & CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 27, 2014

RESULTS OF OPERATIONS Overview Organization



The Company's equipment operations generate revenues and cash primarily from the sale of equipment to John Deere dealers and distributors. The equipment operations manufacture and distribute a full line of agricultural equipment; a variety of commercial, consumer equipment and products; and a broad range of equipment for construction and forestry. The Company's financial services primarily provide credit services, which mainly finance sales and leases of equipment by John Deere dealers and trade receivables purchased from the equipment operations. In addition, financial services offer certain crop risk mitigation products and extended equipment warranties. The information in the following discussion is presented in a format that includes information grouped as consolidated, equipment operations and financial services. The Company also views its operations as consisting of two geographic areas, the U.S. and Canada, and outside the U.S. and Canada. The Company's operating segments consist of agriculture and turf, construction and forestry, and financial services.

Trends and Economic Conditions

Industry sales of agricultural machinery in the U.S. and Canada are forecast to decrease 5 to 10 percent for 2014. Industry sales in the European Union (EU)28 nations are forecast to decrease about 5 percent. South American industry sales are projected to decrease 5 to 10 percent. Industry sales in the Commonwealth of Independent States are expected to be down slightly in 2014, while Asian sales are projected to be slightly higher. Industry sales of turf and utility equipment in the U.S. and Canada are expected to increase about 5 percent in 2014. The Company's agriculture and turf segment sales increased 2 percent for the first quarter of 2014 and are forecast to decrease by about 6 percent for fiscal year 2014. Construction equipment markets reflect further economic recovery in the U.S. and sales increases outside the U.S. and Canada, while forestry market sales are expected to increase in 2014. The Company's construction and forestry sales increased 4 percent in the first quarter of 2014 and are forecast to increase about 10 percent for 2014. Net income attributable to Deere & Company for the Company's financial services operations is forecast to be approximately $600 million in 2014.

Items of concern include the uncertainty of the effectiveness of governmental actions in respect to monetary and fiscal policies, the global economic recovery, the impact of sovereign and state debt, eurozone issues, capital market disruptions and trade agreements. Significant volatility in the price of many commodities could also impact the Company's results. Designing and producing products with engines that continue to meet high performance standards and increasingly stringent emissions regulations is one of the Company's major priorities.

Although the demand for agriculture equipment is moderating, the Company believes its investments in new products and new markets, while holding the line on costs, will keep its strategic plans moving forward. These plans will help it meet the world's growing need for food, shelter and infrastructure and benefit the Company's investors and customers over the long term.

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2014 Compared with 2013



Net income attributable to Deere & Company was $681.1 million, or $1.81 per share, for the first quarter of 2014, compared with $649.7 million, or $1.65 per share, for the same period last year. Worldwide net sales and revenues for the first quarter increased 3 percent to $7,654 million, compared with $7,421 million in 2013. Net sales of the equipment operations rose 2 percent to $6,949 million for the first quarter of 2014, compared with $6,793 million a year ago, which included price increases of 2 percent and an unfavorable currency translation effect of 2 percent. Equipment net sales in the U.S. and Canada increased 3 percent for the first quarter. Outside the U.S. and Canada, net sales increased 2 percent for the first quarter, including an unfavorable currency translation effect of 3 percent.

The Company's equipment operations reported operating profit of $891 million for the first quarter, compared with $837 million for the same period last year. Results benefited from price realization, partially offset by a less favorable product mix and the unfavorable effects of foreign currency exchange. Net income of the Company's equipment operations was $543 million for the first quarter of 2014, compared with $525 million last year.

The Company's financial services operations reported net income attributable to Deere & Company of $142.2 million for the first quarter of 2014, compared with $132.9 million last year. The improvement was primarily related to growth in the credit portfolio and a more favorable tax rate. These factors were partially offset by lower crop insurance margins, increased selling, administrative and general expenses and less favorable financing spreads.

Business Segment Results Agriculture and Turf. Segment sales increased 2 percent



for the first quarter of 2014 due largely to price realization and higher shipment volumes, partially offset by the unfavorable effects of currency translation. Operating profit was $797 million, compared with $766 million for the same quarter last year. The improvement was due primarily to price realization, partially offset by a less favorable product mix and the unfavorable effects of foreign currency exchange.

Construction and Forestry. Segment sales increased 4



percent for the first quarter, with operating profit of $94 million, compared with $71 million a year ago. The improvement in operating profit was due primarily to lower production costs, decreased research and development expenses and price realization. These factors were partially offset by the impact of lower production volumes.

Financial Services. The operating profit of the financial



services segment was $182 million for the first quarter of 2014, compared with $197 million in the same period last year. The decrease was primarily related to lower crop insurance margins, increased selling, administrative and general expenses and less favorable financing spreads, partially offset by growth in the credit portfolio. Total financial services revenues, including intercompany revenues, increased 11 percent to $634 million in the current quarter from $572 million in the first quarter of 2013. The average balance of receivables and leases financed was 15 percent higher in the first quarter, compared with the same period last year. Interest expense decreased 10 percent in the first quarter, compared with last year, primarily as a result of lower average interest rates, partially offset by higher average borrowings. The financial services' consolidated ratio of earnings to fixed charges was 2.82 to 1 for the first quarter this year, compared with 2.74 to 1 in the same period last year.

The cost of sales to net sales ratios for the first quarter of 2014 and 2013 were 74.8 percent and 73.8 percent, respectively. The increase was due primarily to a less favorable product mix and the unfavorable effects of foreign currency exchange, partially offset by price realization.

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Finance and interest income increased in the first quarter of 2014 due to a larger average credit portfolio, partially offset by lower average financing rates. Other income increased due primarily to higher crop insurance premiums in 2014. Research and development costs decreased due primarily to the completion of certain product developments in the first quarter of 2014 compared to the same period last year. Selling, administrative and general expenses decreased due primarily to the deconsolidation of Landscapes (see Note 18). Interest expense decreased due to lower average borrowing rates, partially offset by higher average borrowings. Other operating expenses increased due primarily to higher crop insurance claims and higher depreciation of equipment on operating leases.

Market Conditions and Outlook



Company equipment sales are projected to decrease about 3 percent for fiscal year 2014 and be about 6 percent lower for the second quarter, compared with the same periods of 2013. For the fiscal year, net income attributable to Deere & Company is anticipated to be approximately $3,300 million.

Agriculture and Turf. Worldwide sales of the Company's



agriculture and turf segment are forecast to decrease by about 6 percent for fiscal year 2014. Although farm incomes are expected to remain at healthy levels in 2014, they are forecast to be lower than in the previous years. In the Company's view, the decline will have a dampening effect on demand, especially for larger models of equipment. Partly as a result of these factors, industry sales for agricultural machinery in the U.S. and Canada are forecast to be down 5 to 10 percent for the fiscal year, with the decline mainly reflecting lower sales of high-horsepower tractors and combines.

Fiscal year industry sales in the EU28 are forecast to decrease about 5 percent due to lower crop prices and farm incomes. In South America, industry sales of tractors and combines are projected to decrease 5 to 10 percent from strong 2013 levels. Industry sales in the Commonwealth of Independent States are expected to be down slightly for the year, while Asian sales are projected to increase slightly.

In the U.S. and Canada, industry sales of turf and utility equipment are expected to increase about 5 percent for 2014 as a result of improved market conditions.

Construction and Forestry. The Company's worldwide sales



of construction and forestry equipment are forecast to increase by about 10 percent for 2014. The increase reflects further economic recovery and higher housing starts in the U.S. as well as sales increases outside the U.S. and Canada. Global forestry sales are expected to increase for the year due to general economic growth and improved sales in European markets.

Financial Services. Fiscal year 2014 net income



attributable to Deere & Company for the financial services segment is expected to be approximately $600 million. The outlook reflects improvement primarily due to expected growth in the credit portfolio and a more favorable tax rate. These factors are projected to be partially offset by an increase in the provision for credit losses from the low level in 2013, less favorable financing spreads, and higher selling, administrative and general expenses.

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Safe Harbor Statement



Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under "Overview," "Market Conditions and Outlook," and other forward-looking statements herein that relate to future events, expectations, trends and operating periods involve certain factors that are subject to change, and important risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of the Company's businesses.

The Company's agricultural equipment business is subject to a number of uncertainties including the many interrelated factors that affect farmers' confidence. These factors include worldwide economic conditions, demand for agricultural products, world grain stocks, weather conditions (including its effects on timely planting and harvesting), soil conditions (including low subsoil moisture from recent drought conditions), harvest yields, prices for commodities and livestock, crop and livestock production expenses, availability of transport for crops, the growth and sustainability of non-food uses for some crops (including ethanol and biodiesel production), real estate values, available acreage for farming, the land ownership policies of various governments, changes in government farm programs and policies (including those in Argentina, Brazil, China, the European Union, India, Russia and the U.S.), international reaction to such programs, changes in and effects of crop insurance programs, global trade agreements, animal diseases and their effects on poultry, beef and pork consumption and prices, crop pests and diseases, and the level of farm product exports (including concerns about genetically modified organisms).

Factors affecting the outlook for the Company's turf and utility equipment include general economic conditions, consumer confidence, weather conditions, customer profitability, consumer borrowing patterns, consumer purchasing preferences, housing starts, infrastructure investment, spending by municipalities and golf courses, and consumable input costs.

General economic conditions, consumer spending patterns, real estate and housing prices, the number of housing starts and interest rates are especially important to sales of the Company's construction and forestry equipment. The levels of public and non-residential construction also impact the results of the Company's construction and forestry segment. Prices for pulp, paper, lumber and structural panels are important to sales of forestry equipment.

All of the Company's businesses and its reported results are affected by general economic conditions in the global markets in which the Company operates, especially material changes in economic activity in these markets; customer confidence in general economic conditions; foreign currency exchange rates and their volatility, especially fluctuations in the value of the U.S. dollar; interest rates; and inflation and deflation rates. General economic conditions can affect demand for the Company's equipment as well. Uncertainty about and actual government spending and taxing could adversely affect the economy, employment, consumer and corporate spending, and Company results.

Customer and Company operations and results could be affected by changes in weather patterns (including the effects of drought conditions in parts of the U.S. and dryer than normal conditions in certain other markets); the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts and the threat thereof; and the spread of major epidemics.

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Significant changes in market liquidity conditions and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company's earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of the Company's products and customer confidence and purchase decisions; borrowing and repayment practices; and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, suppliers, and Company operations and results. State debt crises also could negatively impact customers, suppliers, demand for equipment, and Company operations and results. The Company's investment management activities could be impaired by changes in the equity and bond markets, which would negatively affect earnings.

Additional factors that could materially affect the Company's operations, access to capital, expenses and results include changes in and the impact of governmental trade, banking, monetary and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs and other areas, and governmental programs, policies and tariffs in particular jurisdictions or for the benefit of certain industries or sectors (including protectionist and expropriation policies and trade and licensing restrictions that could disrupt international commerce); actions by the U.S. Federal Reserve Board and other central banks; actions by the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission and other financial regulators; actions by environmental, health and safety regulatory agencies, including those related to engine emissions (in particular Interim Tier 4/Stage IIIb and Final Tier 4/Stage IV non-road diesel emission requirements in the U.S. and European Union), carbon and other greenhouse gas emissions, noise and the risk of climate change; changes in labor regulations; changes to accounting standards; changes in tax rates, estimates, and regulations and Company actions related thereto; compliance with U.S. and foreign laws when expanding to new markets and otherwise; and actions by other regulatory bodies including changes in laws and regulations affecting the sectors in which the Company operates. Customer and Company operations and results also could be affected by changes to GPS radio frequency bands or their permitted uses.

Other factors that could materially affect results include production, design and technological innovations and difficulties, including capacity and supply constraints and prices; the availability and prices of strategically sourced materials, components and whole goods; delays or disruptions in the Company's supply chain or the loss of liquidity by suppliers; the failure of suppliers to comply with laws, regulations and Company policy pertaining to employment, human rights, health, safety, the environment and other ethical business practices; events that damage the Company's reputation or brand; start-up of new plants and new products; the success of new product initiatives and customer acceptance of new products; changes in customer product preferences and sales mix whether as a result of changes in equipment design to meet government regulations or for other reasons; gaps or limitations in rural broadband coverage, capacity and speed needed to support technology solutions; oil and energy prices and supplies; the availability and cost of freight; actions of competitors in the various industries in which the Company competes, particularly price discounting; dealer practices especially as to levels of new and used field inventories; labor relations; acquisitions and divestitures of businesses, the integration of new businesses; the implementation of organizational changes; difficulties related to the conversion and implementation of enterprise resource planning systems that disrupt business, negatively impact supply or distribution relationships or create higher than expected costs; security breaches and other disruptions to the Company's information technology infrastructure; changes in Company declared dividends and common stock issuances and repurchases.

Company results are also affected by changes in the level and funding of employee retirement benefits, changes in market values of investment assets, the level of interest and discount rates, and compensation, retirement and mortality rates which impact retirement benefit costs, and significant changes in health care costs including those which may result from governmental action.

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The liquidity and ongoing profitability of John Deere Capital Corporation and other credit subsidiaries depend largely on timely access to capital to meet future cash flow requirements and fund operations and the costs associated with engaging in diversified funding activities and to fund purchases of the Company's products. If market uncertainty increases or general economic conditions worsen, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact write-offs and provisions for credit losses. The failure of reinsurers of the Company's insurance business also could materially affect results.

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 Company, except as required by law, undertakes no obligation to update or revise its outlook, whether as a result of new developments or otherwise. 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 other filings with the SEC (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company's most recent annual report on Form 10-K and quarterly reports on Form 10-Q).

Critical Accounting Policies



See the Company's critical accounting policies discussed in the Management's Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.

CAPITAL RESOURCES AND LIQUIDITY

The discussion of capital resources and liquidity has been organized to review separately, where appropriate, the Company's consolidated totals, equipment operations and financial services operations.

Consolidated



Negative cash flows from consolidated operating activities in the first three months of 2014 were $746 million. This resulted primarily from a decrease in accounts payable and accrued expenses and a seasonal increase in inventories, which were partially offset by net income adjusted for non-cash provisions, a change in accrued income taxes payable/receivable, a decrease in receivables related to sales and a decrease in insurance receivables. Cash inflows from investing activities were $673 million in the first three months of this year, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $495 million, proceeds from sales of businesses of $304 million, proceeds from maturities and sales exceeding purchases of marketable securities by $181 million, partially offset by purchases of property and equipment of $251 million. Negative cash flows from financing activities were $210 million in the first three months of 2014, primarily due to repurchases of common stock of $477 million, dividends paid of $193 million, partially offset by an increase in borrowings of $404 million and proceeds from issuance of common stock of $54 million (resulting from the exercise of stock options). Cash and cash equivalents decreased $315 million during the current quarter.

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Negative cash flows from consolidated operating activities in the first three months of 2013 were $1,249 million. This resulted primarily from a seasonal increase in inventories and a decrease in accounts payable and accrued expenses, which were partially offset by net income adjusted for non-cash provisions and a decrease in insurance receivables. Cash inflows from investing activities were $217 million in the first three months of last year, primarily due to collections of receivables (excluding receivables related to sales) and proceeds from sales of equipment on operating leases exceeding the cost of receivables and equipment on operating leases acquired by $460 million and proceeds from maturities and sales of marketable securities exceeding purchases by $90 million, partially offset by purchases of property and equipment of $294 million. Cash inflows from financing activities were $48 million in the first three months of 2013, primarily due to an increase in borrowings of $190 million and proceeds from issuance of common stock of $118 million (resulting from the exercise of stock options), which were partially offset by dividends paid of $179 million and repurchases of common stock of $96 million. Cash and cash equivalents decreased $980 million during the first quarter of 2013.

The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. The Company's exposures to receivables from customers in European countries experiencing economic strains are not significant. Sources of liquidity for the Company include cash and cash equivalents, marketable securities, funds from operations, the issuance of commercial paper and term debt, the securitization of retail notes (both public and private markets) and committed and uncommitted bank lines of credit. The Company's commercial paper outstanding at January 31, 2014, October 31, 2013 and January 31, 2013 was $2,932 million, $3,162 million and $2,528 million, respectively, while the total cash and cash equivalents and marketable securities position was $4,627 million, $5,129 million and $5,048 million, respectively. The total cash and cash equivalents and marketable securities held by foreign subsidiaries, in which earnings are considered indefinitely reinvested, was $575 million, $559 million and $572 million at January 31, 2014, October 31, 2013 and January 31, 2013, respectively.

Lines of Credit. The Company also has access to bank lines of credit with various banks throughout the world. Worldwide lines of credit totaled $6,509 million at January 31, 2014, $3,168 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding secured borrowings and the current portion of long-term borrowings, were primarily considered to constitute utilization. Included in the total credit lines at January 31, 2014 were long-term credit facility agreements of $2,500 million, expiring in April 2017, and $2,500 million, expiring in April 2018. In February 2014, the Company revised its credit facility agreements, which extended the expiration dates to April 2018 and April 2019, respectively. These credit agreements require John Deere Capital Corporation (Capital Corporation) to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and the ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder's equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. The credit agreements also require the equipment operations to maintain a ratio of total debt to total capital (total debt and stockholders' equity excluding accumulated other comprehensive income (loss)) of 65 percent or less at the end of each fiscal quarter. Under this provision, the Company's excess equity capacity and retained earnings balance free of restriction at January 31, 2014 was $9,520 million. Alternatively under this provision, the equipment operations had the capacity to incur additional debt of $17,680 million at January 31, 2014. All of these requirements of the credit agreement have been met during the periods included in the consolidated financial statements.

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Debt Ratings. To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company's securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. Each agency's rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets. The senior long-term and short-term debt ratings and outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are as follows:

Senior Long-Term Short-Term Outlook



Moody's Investors Service, Inc. A2 Prime-1 Stable Standard & Poor's

A A-1 Stable



Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Trade receivables decreased $41 million during the first three months of 2014. These receivables decreased $210 million, compared to a year ago, primarily due to the deconsolidation of Landscapes (see Note 18) and currency translation. The ratios of worldwide trade accounts and notes receivable to the last 12 months' net sales were 11 percent at January 31, 2014, compared to 11 percent at October 31, 2013 and 12 percent at January 31, 2013. Agriculture and turf trade receivables decreased $172 million and construction and forestry receivables decreased $38 million, compared to a year ago. The percentage of total worldwide trade receivables outstanding for periods exceeding 12 months was 1 percent at January 31, 2014, 1 percent at October 31, 2013 and 2 percent at January 31, 2013.

Deere & Company stockholders' equity was $10,256 million at January 31, 2014, compared with $10,266 million at October 31, 2013 and $7,484 million at January 31, 2013. The decrease of $10 million during the first quarter of 2014 resulted primarily from an increase in treasury stock of $432 million, a change in cumulative translation adjustment of $168 million and dividends declared of $190 million, which were partially offset by net income attributable to Deere & Company of $681 million, a change in the retirement benefits adjustment of $50 million and an increase in common stock of $47 million.

Equipment Operations



The Company's equipment businesses are capital intensive and are subject to seasonal variations in financing requirements for inventories and certain receivables from dealers. The equipment operations sell a significant portion of their trade receivables to financial services. To the extent necessary, funds provided from operations are supplemented by external financing sources.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2014 was $718 million. This resulted primarily from a decrease in accounts payable and accrued expenses and a seasonal increase in inventories. Partially offsetting these operating cash outflows were positive cash flows from net income adjusted for non-cash provisions, a reduction in trade receivables and a change in accrued income taxes payable/receivable.

Cash used for operating activities of the equipment operations, including intercompany cash flows, in the first three months of 2013 was $1,009 million. This resulted primarily from a seasonal increase in inventories and a decrease in accounts payable and accrued expenses. Partially offsetting these operating cash outflows were positive cash flows from net income adjusted for non-cash provisions.

Trade receivables held by the equipment operations decreased $214 million during the first three months and decreased $182 million from a year ago. The equipment operations sell a significant portion of their trade receivables to financial services. See the previous consolidated discussion of trade receivables.

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Inventories increased by $620 million during the first three months, primarily due to a seasonal increase. Inventories decreased $688 million, compared to a year ago, primarily due to the deconsolidation of Landscapes operations (see Note 18) and currency translation. Most of these inventories are valued on the last-in, first-out (LIFO) method. The ratios of inventories on a first-in, first-out (FIFO) basis (see Note 12), which approximates current cost, to the last 12 months' cost of sales were 27 percent at January 31, 2014, compared to 25 percent at October 31, 2013 and 30 percent at January 31, 2013.

Total interest-bearing debt of the equipment operations was $6,588 million at January 31, 2014, compared with $5,951 million at the end of fiscal year 2013 and $6,592 million at January 31, 2013. The ratios of debt to total capital (total interest-bearing debt and stockholders' equity) were 39 percent, 37 percent and 47 percent at January 31, 2014, October 31, 2013 and January 31, 2013, respectively.

Property and equipment cash expenditures for the equipment operations in the first three months of 2014 were $251 million, compared with $293 million in the first quarter last year. Capital expenditures for the equipment operations in 2014 are estimated to be approximately $1,200 million.

Financial Services



The financial services operations 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 commercial paper, term debt, securitization of retail notes, equity capital and borrowings from Deere & Company.

During the first quarter of 2014, the cash provided by operating and investing activities was used for financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $268 million in the current quarter. Cash provided by investing activities totaled $135 million in the first three months of 2014 primarily due to the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of these receivables and cost of equipment on operating leases acquired by $348 million, partially offset by an increase in trade and wholesale receivables of $149 million and other miscellaneous investing activities of $48 million. Cash used for financing activities totaled $339 million, resulting primarily from a decrease in external borrowings of $289 million and a decrease in borrowings from Deere & Company of $79 million. Cash and cash equivalents increased $48 million in the current quarter.

During the first quarter of 2013, the cash provided by operating activities was used for investing and financing activities. Cash flows provided by operating activities, including intercompany cash flows, were $207 million in the quarter. Cash used for investing activities totaled $4 million in the first three months of 2013 primarily due to an increase in trade and wholesale receivables of $325 million, other miscellaneous investing activities of $36 million and purchases exceeding maturities and sales of marketable securities by $10 million, mostly offset by the collection of receivables (excluding trade and wholesale) and proceeds from sales of equipment on operating leases exceeding the cost of these receivables and cost of equipment on operating leases acquired by $367 million. Cash used for financing activities totaled $445 million, resulting primarily from a decrease in external borrowings of $544 million and dividends paid to Deere & Company of $30 million, partially offset by an increase in borrowings from Deere & Company of $96 million. Cash and cash equivalents decreased $249 million in the first quarter of 2013.

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Receivables and leases held by the financial services 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 equipment customers, trade receivables, wholesale notes, revolving charge accounts, operating loans, insured international export financing generally involving John Deere products, and financing and operating leases. During the first quarter of 2014, total receivables and leases decreased $899 million, primarily due to seasonal payments on revolving charge accounts. In the past 12 months, receivables and leases increased $4,176 million. Acquisition volumes of receivables (excluding trade and wholesale) and leases were 8 percent higher in the first three months of 2014, compared with the same period last year, as volumes of operating leases, retail notes and financing leases were higher, while volumes of revolving charge accounts and operating loans were lower. The amount of total trade receivables and wholesale notes also increased, compared to October 31, 2013 and was approximately the same as at January 31, 2013. Total receivables and leases administered by the financial services operations, which include receivables administered but not owned, amounted to $35,653 million at January 31, 2014, compared with $36,559 million at October 31, 2013 and $31,519 million at January 31, 2013. At January 31, 2014, the unpaid balance of all receivables administered but not owned was $75 million, compared with $120 million at October 31, 2013 and $118 million at January 31, 2013.

Total external interest-bearing debt of the financial services operations was $27,826 million at January 31, 2014, compared with $28,524 million at the end of fiscal year 2013 and $25,954 million at January 31, 2013. Total external borrowings have changed generally corresponding with the level of the receivable and lease portfolio, the level of cash and cash equivalents, the change in payables owed to Deere & Company and the change in investment from Deere & Company. The financial services operations' ratio of interest-bearing debt to stockholder's equity was 7.0 to 1 at January 31, 2014, compared with 7.3 to 1 at October 31, 2013 and 6.8 to 1 at January 31, 2013.

The Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes (see Note 11). During November 2013, the agreement was renewed for the same total capacity, or "financing limit," of $3,000 million of secured financings at any time. After a three-year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At January 31, 2014, $1,332 million of secured short-term borrowings was outstanding under the agreement.

In the first three months of 2014, the financial services operations retired $618 million of retail note securitization borrowings. In addition, during the first three months of 2014, the financial services operations issued $2,235 million and retired $1,084 million of long-term borrowings, which were primarily medium-term notes.

Dividend and Other Events



The Company's Board of Directors at its meeting on February 26, 2014 declared a quarterly dividend of $.51 per share payable May 1, 2014 to stockholders of record on March 31, 2014.

In February 2014, the Company's financial services operations issued medium-term notes with $550 million due in February 2016, $400 million due in March 2019 and $500 million due in March 2021.


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Source: Edgar Glimpses


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