**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

 

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**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended April 30, 2005**

 

**Commission file no: 1-6458**

 

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## **JOHN DEERE CAPITAL CORPORATION**

 
| **Delaware**             | ** ** | **36-2386361**                    |
|--------------------------|------------|-----------------------------------|
| (State of Incorporation) | ** ** | (IRS Employer Identification No.) |

 

**1 East First Street, Suite 600Reno, Nevada  89501**(Address of principal executive offices)

 

Telephone Number:  **(775) 786-5527**

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.

Yes ýNo o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes oNo ý

 

At April 30, 2005,2,500 shares of common stock, without par value, of the registrant wereoutstanding, all of which were owned by John Deere Credit Company, awholly-owned subsidiary of Deere & Company.

 

The registrant meets theconditions set forth in General Instruction H(1)(a) and (b) of Form 10-Qand is therefore filing this Form with certain reduced disclosures aspermitted by those instructions.

 

 

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## **PART I.  FINANCIAL INFORMATION**

## ** **

## **Item 1.**             Financial Statements.

 

## **JohnDeere Capital Corporation and Subsidiaries**

**Statements of Consolidated Income andRetained Earnings**

**(Unaudited)**

(in millions)

 
| ** **                                           | ** ** | **Three Months Ended   April 30,** | ** ** | **Six Months Ended   April 30,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **2005**                                | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues**                                         |       |                                    |       |                                  |       |   |   |   |   |
| Finance income earned on retail notes                |       | $                                       | 124.0      |                                  | $          | 95.7 |   | $ | 236.7 |   | $ | 192.8 |   |
| Lease revenues                                       |       | 62.3                                    |       | 65.8                                  |       | 125.9 |   | 135.5 |   |
| Revolving charge account income                      |       | 44.2                                    |       | 39.2                                  |       | 85.3 |   | 75.2 |   |
| Finance income earned on wholesale receivables       |       | 73.1                                    |       | 63.0                                  |       | 133.5 |   | 118.0 |   |
| Operating loan income                                |       | 5.8                                     |       | 6.4                                   |       | 11.1 |   | 12.4 |   |
| Securitization and servicing fee income              |       | 9.5                                     |       | 11.7                                  |       | 20.7 |   | 24.4 |   |
| Net gain on receivables sold                         |       | .9                                      |       | 17.6                                  |       | 4.8 |   | 31.7 |   |
| Other income                                         |       | 13.6                                    |       | 15.3                                  |       | 21.1 |   | 23.9 |   |
| Total revenues                                       |       | 333.4                                   |       | 314.7                                 |       | 639.1 |   | 613.9 |   |
| **Expenses**                                         |       |                                    |       |                                  |       |   |   |   |   |
| Interest expense                                     |       | 108.0                                   |       | 80.8                                  |       | 200.6 |   | 162.5 |   |
| Operating expenses:                                  |       |                                    |       |                                  |       |   |   |   |   |
| Administrative and operating expenses                |       | 69.1                                    |       | 64.0                                  |       | 123.2 |   | 115.8 |   |
| Provision for credit losses                          |       | 6.0                                     |       | 16.9                                  |       | 4.2 |   | 24.5 |   |
| Fees paid to John Deere                              |       | 14.6                                    |       | 8.5                                   |       | 28.5 |   | 15.8 |   |
| Depreciation of equipment on operating leases        |       | 41.8                                    |       | 42.6                                  |       | 84.0 |   | 87.4 |   |
| Total operating expenses                             |       | 131.5                                   |       | 132.0                                 |       | 239.9 |   | 243.5 |   |
| Total expenses                                       |       | 239.5                                   |       | 212.8                                 |       | 440.5 |   | 406.0 |   |
| **Income of consolidated group before income taxes** |       | 93.9                                    |       | 101.9                                 |       | 198.6 |   | 207.9 |   |
| **Provision for income taxes**                       |       | 32.5                                    |       | 34.6                                  |       | 69.2 |   | 71.5 |   |
| **Income of consolidated group**                     |       | 61.4                                    |       | 67.3                                  |       | 129.4 |   | 136.4 |   |
| **Equity in income of unconsolidated affiliates**    |       | .1                                      |       | .1                                    |       | .3 |   | .3 |   |
| **Net income**                                       |       | 61.5                                    |       | 67.4                                  |       | 129.7 |   | 136.7 |   |
| **Cash dividends paid**                              |       | (35.0                                   | )          | (15.0                                 | )          | (120.0 | ) | (80.0 | ) |
| **Retained earnings at beginning of period**         |       | 953.2                                   |       | 1,123.7                               |       | 970.0 |   | 1,119.4 |   |
| **Retained earnings at end of period**               |       | $                                       | 979.7      |                                  | $          | 1,176.1 |   | $ | 979.7 |   | $ | 1,176.1 |   |

 

See Notes toInterim Financial Statements.

 

2

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## **JohnDeere Capital Corporation and Subsidiaries**

**Consolidated Balance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                       | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                                                                       | ** ** | **2005**           | ** ** | **2004**             | ** ** | **2004**           | ** ** |
| **Assets**                                                                                                       |       |               |       |                 |       |               |       |
| Cash and cash equivalents                                                                                        |       | $                  | 261.3      |                 | $          | 209.5              |       | $ | 299.2 |   |
| Receivables:                                                                                                     |       |               |       |                 |       |               |       |
| Retail notes                                                                                                     |       | 7,356.4            |       | 6,873.7              |       | 5,757.3            |       |
| Restricted securitized retail notes                                                                              |       | 602.3              |       |                 |       |               |       |
| Revolving charge accounts                                                                                        |       | 1,321.8            |       | 1,443.8              |       | 1,209.6            |       |
| Operating loans                                                                                                  |       | 406.0              |       | 380.5                |       | 512.4              |       |
| Wholesale receivables                                                                                            |       | 4,554.5            |       | 3,480.5              |       | 3,831.8            |       |
| Financing leases                                                                                                 |       | 395.7              |       | 406.0                |       | 399.8              |       |
| Total receivables                                                                                                |       | 14,636.7           |       | 12,584.5             |       | 11,710.9           |       |
| Allowance for credit losses                                                                                      |       | (105.5             | )          | (112.6               | )          | (123.6             | )          |
| Total receivables – net                                                                                     |       | 14,531.2           |       | 12,471.9             |       | 11,587.3           |       |
| Other receivables                                                                                                |       | 81.3               |       | 121.1                |       | 132.2              |       |
| Equipment on operating leases – net                                                                         |       | 728.5              |       | 757.6                |       | 751.3              |       |
| Investment in unconsolidated affiliates                                                                          |       | 4.3                |       | 3.9                  |       | 3.4                |       |
| Other assets                                                                                                     |       | 284.9              |       | 324.7                |       | 298.1              |       |
| **Total Assets**                                                                                                 |       | $                  | 15,891.5   |                 | $          | 13,888.7           |       | $ | 13,071.5 |   |
| **Liabilities and Stockholder’s Equity**                                                                    |       |               |       |                 |       |               |       |
| Short-term borrowings:                                                                                           |       |               |       |                 |       |               |       |
| Commercial paper                                                                                                 |       | $                  | 1,895.2    |                 | $          | 1,553.8            |       | $ | 1,299.8 |   |
| Other notes payable                                                                                              |       | 630.4              |       | 6.7                  |       | 11.8               |       |
| John Deere                                                                                                       |       | 1,286.5            |       | 1,241.2              |       | 1,095.9            |       |
| Current maturities of long-term borrowings                                                                       |       | 1,825.7            |       | 1,187.8              |       | 711.5              |       |
| Total short-term borrowings                                                                                      |       | 5,637.8            |       | 3,989.5              |       | 3,119.0            |       |
| Accounts payable and accrued expenses                                                                            |       | 457.0              |       | 448.0                |       | 447.7              |       |
| Deposits withheld from dealers and merchants                                                                     |       | 155.3              |       | 167.6                |       | 163.6              |       |
| Long-term borrowings:                                                                                            |       |               |       |                 |       |               |       |
| Senior debt                                                                                                      |       | 7,811.2            |       | 7,476.7              |       | 7,190.2            |       |
| Subordinated debt                                                                                                |       |               |       |                 |       | 150.0              |       |
| Total long-term borrowings                                                                                       |       | 7,811.2            |       | 7,476.7              |       | 7,340.2            |       |
| Total liabilities                                                                                                |       | 14,061.3           |       | 12,081.8             |       | 11,070.5           |       |
| Stockholder’s equity:                                                                                       |       |               |       |                 |       |               |       |
| Common stock, without par value (issued and outstanding  – 2,500 shares owned by John Deere Credit Company) |       | 812.8              |       | 812.8                |       | 812.8              |       |
| Retained earnings                                                                                                |       | 979.7              |       | 970.0                |       | 1,176.1            |       |
| Cumulative translation adjustment                                                                                |       | 28.8               |       | 23.7                 |       | 17.4               |       |
| Unrealized gain (loss) on derivatives                                                                            |       | 2.3                |       | (5.1                 | )          | (10.1              | )          |
| Unrealized gain on investments                                                                                   |       | 6.6                |       | 5.5                  |       | 4.8                |       |
| Total accumulated other comprehensive income                                                                     |       | 37.7               |       | 24.1                 |       | 12.1               |       |
| Total stockholder’s equity                                                                                  |       | 1,830.2            |       | 1,806.9              |       | 2,001.0            |       |
| **Total Liabilities and Stockholder’s Equity**                                                              |       | $                  | 15,891.5   |                 | $          | 13,888.7           |       | $ | 13,071.5 |   |

 

See Notes to Interim Financial Statements.

 

3

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## **JohnDeere Capital Corporation and Subsidiaries**

**Statements of Consolidated Cash Flows**

**For the Six Months Ended April 30,2005 and 2004**

**(Unaudited)**

(in millions)

 
| ** **                                                                         | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating Activities:**                                          |       |      |       |      |       |
| Net income                                                                         |       | $         | 129.7      |      | $          | 136.7 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |      |       |      |       |
| Provision for credit losses                                                        |       | 4.2       |       | 24.5      |       |
| Provision for depreciation and amortization                                        |       | 86.8      |       | 90.3      |       |
| Credit for deferred income taxes                                                   |       | (15.1     | )          | (17.2     | )          |
| Undistributed earnings of unconsolidated affiliates                                |       | (.3       | )          | (.3       | )          |
| Other                                                                              |       | (49.7     | )          | (15.6     | )          |
| Net cash provided by operating activities                                          |       | 155.6     |       | 218.4     |       |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Investing Activities:**                                          |       |      |       |      |       |
| Cost of receivables acquired                                                       |       | (13,708.5 | )          | (12,283.2 | )          |
| Collections of receivables                                                         |       | 11,642.1  |       | 10,117.0  |       |
| Cost of operating leases acquired                                                  |       | (178.0    | )          | (140.0    | )          |
| Proceeds from sales of equipment on operating leases                               |       | 128.9     |       | 198.4     |       |
| Change in notes receivable – unconsolidated  affiliates                       |       |      |       | 274.3     |       |
| Proceeds from sales of receivables                                                 |       | 82.0      |       | 1,602.6   |       |
| Other                                                                              |       | 15.5      |       | (5.1      | )          |
| Net cash used for investing activities                                             |       | (2,018.0  | )          | (236.0    | )          |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Financing Activities:**                                          |       |      |       |      |       |
| Increase (decrease) in commercial paper                                            |       | 333.2     |       | (405.8    | )          |
| Increase (decrease) in other notes payable                                         |       | 623.5     |       | (55.5     | )          |
| Increase in payable with John Deere                                                |       | 45.3      |       | 929.9     |       |
| Proceeds from issuance of long-term borrowings                                     |       | 1,214.0   |       | 647.6     |       |
| Principal payments on long-term borrowings                                         |       | (182.9    | )          | (1,068.4  | )          |
| Dividends paid                                                                     |       | (120.0    | )          | (80.0     | )          |
| Net cash provided by (used for) financing activities                               |       | 1,913.1   |       | (32.2     | )          |
|                                                                               |       |      |       |      |       |
| **Effect of exchange rate changes on cash**                                        |       | 1.1       |       | 6.5       |       |
| **Net increase (decrease) in cash and cash  equivalents**                          |       | 51.8      |       | (43.3     | )          |
| **Cash and cash equivalents at beginning of period**                               |       | 209.5     |       | 342.5     |       |
| **Cash and cash equivalents at end of period**                                     |       | $         | 261.3      |      | $          | 299.2 |   |

 

See Notes to Interim Financial Statements.

 

4

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# **JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**(Unaudited)**

 
| (1)    |   | The  consolidated financial statements of John Deere Capital Corporation (Capital  Corporation) and its subsidiaries (collectively called the Company) have been  prepared by the Company, without audit, pursuant to the rules and  regulations of the U.S. Securities and Exchange Commission. Certain  information and footnote disclosures normally included in annual financial  statements prepared in accordance with accounting principles generally  accepted in the U.S. 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 year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | The preparation of financial statements in  conformity with accounting principles generally accepted in the U.S. requires  management to make estimates and assumptions that affect the reported amounts  and related disclosures. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|   |   | Certain amounts for prior years have been reclassified  to conform with 2005 financial statement presentations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (2)    |   | The Company provides and administers financing for  retail purchases of new equipment manufactured by Deere & Company’s  agricultural equipment, commercial and consumer equipment, and construction  and forestry divisions and used equipment taken in trade for this equipment.  The Company purchases retail installment sales and loan contracts (retail  notes) from Deere & Company and its wholly-owned subsidiaries  (collectively called John Deere). John Deere acquires these retail notes  through John Deere retail dealers. The Company also purchases and finances a  limited amount of non-Deere retail notes and continues to service a small  portfolio of recreational products and other retail notes. In addition, the  Company leases John Deere equipment and a limited amount of non-Deere  equipment to retail customers (financing and operating leases). The Company  also finances and services revolving charge accounts, in most cases acquired  from and offered through merchants in the agricultural, commercial and  consumer, and construction and forestry markets (revolving charge accounts).  Further, the Company finances and services operating loans, in most cases  offered through and acquired from farm input providers or through direct  relationships with agricultural producers (operating loans). The Company also  provides wholesale financing for inventories of John Deere engines and John  Deere agricultural, commercial and consumer and construction and forestry  equipment owned by dealers of those products (wholesale receivables), most of  which are originated by John Deere. The Company also offers insured  international export financing to select customers which generally involves  John Deere products. In addition, the Company offers certain crop risk  mitigation products. Retail notes, revolving charge accounts, operating  loans, financing leases and wholesale receivables are collectively called “Receivables.”  Receivables and operating leases are collectively called “Receivables and  Leases.” |

 
| (3) |   | The Company’s ratio of earnings to fixed charges was  1.86 to 1 for the second quarter of 2005, compared with 2.23 to 1 for the  second quarter of 2004. The ratio of earnings to fixed charges was 1.97 to 1  for the first six months of 2005 and 2.25 to 1 for the first six months of  2004. “Earnings” consist of income before income taxes, the cumulative effect  of changes in accounting and fixed charges. “Fixed charges” consist of  interest on indebtedness, amortization of debt discount and expense, an  estimated amount of rental expense under capitalized leases that is deemed to  be representative of the interest factor and rental expense under operating  leases. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

5

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| (4) |   | Comprehensive income, which includes all changes in  the Company’s equity during the period except transactions with the  stockholder, was as follows in millions of dollars: |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                     | ** ** | **Three Months Ended   April 30,** | ** ** | **Six Months Ended   April 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **2005**                                | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net Income                                     |       | $                                       | 61.5       |                                  | $          | 67.4 |   | $ | 129.7 |   | $ | 136.7 |   |
|                                           |       |                                    |       |                                  |       |   |   |   |   |
| Other comprehensive income (loss), net of tax: |       |                                    |       |                                  |       |   |   |   |   |
| Change in cumulative translation adjustment    |       |                                    |       | (5.4                                  | )          | 5.1 |   | 3.9 |   |
| Unrealized gain (loss) on investments          |       | 1.3                                     |       | (6.6                                  | )          | 1.1 |   | (1.8 | ) |
| Unrealized gain on derivatives                 |       | .8                                      |       | 7.6                                   |       | 7.4 |   | 9.2 |   |
| Total comprehensive income                     |       | $                                       | 63.6       |                                  | $          | 63.0 |   | $ | 143.3 |   | $ | 148.0 |   |

 
| (5) |   | In the second quarter of 2005, the Company’s new  securitizations of receivables held by a special purpose entity (SPE) met the  criteria for secured financings rather than sales of receivables under  Financial Accounting Standards Board (FASB) Statement No. 140,  Accounting for Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities. The borrowings related to these securitizations  of retail notes are included in short-term borrowings on the balance sheet as  shown in the following table. The securitized retail notes are recorded as “Restricted  securitized retail notes” on the balance sheet. The total restricted assets  recorded on the balance sheet related to these securitizations include the  restricted securitized retail notes less an allowance for credit losses, and  other assets representing restricted cash as shown in the following table. In  addition to the restricted assets, the creditors of the SPE involved in the  secured borrowings (a $2 billion revolving conduit facility described more  fully under “Capital Resources and Liquidity” in Management’s Discussion and  Analysis) have recourse to a letter of credit issued by the Company totaling  approximately $80 million as of April 30, 2005. A portion of the  previous transfers of retail notes to this facility qualified as sales of  receivables under FASB Statement No. 140. As a result, this letter of  credit is also included in the maximum exposure to losses for receivables  that have been sold, discussed below. The Company recognizes finance income  on these restricted retail notes on an effective-yield basis and provides for  credit losses incurred over the life of the retail notes in the allowance for  credit losses. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   |   | The total components of consolidated restricted  assets related to securitizations were as follows (in millions of dollars): |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                          | ** ** | **April 30,  2005** | ** ** |
|-------------------------------------|------------|--------------------------|------------|
| Restricted securitized retail notes |       | $                        | 602.3      |   |
| Allowance for credit losses         |       | (2.0                     | )          |
| Other assets                        |       | 22.6                     |       |
| Total restricted securitized assets |       | $                        | 622.9      |   |

 
|   |   | The components of consolidated secured liabilities  related to securitizations were as follows (in millions of dollars): |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                      | ** ** | **April 30,  2005** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|
| Other notes payable                             |       | $                        | 620.9      |   |
| Accounts payable and accrued expenses           |       | .7                       |       |
| Total liabilities related to securitized assets |       | $                        | 621.6      |   |

 
|   |   | The restricted retail notes on the balance sheet  were transferred to a SPE that is not consolidated since the Company is not  the primary beneficiary, however, the transfer qualified as a secured  financing rather than a sale. The borrowings shown above are the obligations  to this SPE that are payable as the retail notes are liquidated. SPEs  utilized in securitizations of retail notes differ from other entities  included in the Company’s consolidated statements because the assets they  hold are legally isolated. For bankruptcy analysis purposes, the Capital  Corporation has sold the receivables to the SPE in a true sale |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   |   | and  the SPE is a separate legal entity from the Capital Corporation. Use of the  assets held by the SPE is restricted by terms of governing documents.  Repayment of the secured borrowings depends primarily on cash flows generated  by the restricted assets and the letter of credit mentioned above. At April 30,  2005, the maximum remaining term of the restricted receivables included in  the restricted assets was approximately six years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | The Company has guarantees for certain recourse obligations  on Receivables which it has sold in prior periods. These transactions  qualified as sales of receivables and the retail notes are not included on  the balance sheet. If the Receivables sold are not collected, the Company  would be required to cover those losses up to the amount of its recourse  obligation. At April 30, 2005, the maximum amount of exposure to losses  under these agreements was $166 million. The estimated risk associated with  the sold receivables totaled $15 million at April 30, 2005. This risk of  loss is recognized primarily in the retained interests on the Company’s  balance sheet related to these sold Receivables. The retained interests are  related to assets held by unconsolidated SPEs. At April 30, 2005, the  assets of these SPEs related to the Company’s securitization and sale of  retail notes totaled approximately $2,255 million. The Company may recover a  portion of any required payments incurred under these agreements from the  repossession of the equipment collateralizing the Receivables. At April 30,  2005, the maximum remaining term of these guaranteed Receivables was  approximately five years.                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | At April 30, 2005, John Deere Credit Inc., the  John Deere finance subsidiary in Canada, had $146 million of commercial  paper and $399 million of medium-term notes outstanding that were guaranteed  by the Company. In addition, the Company has provided letters of credit for  John Deere Credit Inc. as part of retail note sales. At April 30, 2005,  the Company’s maximum exposure under these agreements was approximately $7  million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | At April 30, 2005, the Company had  approximately $10 million of guarantees issued primarily to banks outside the  U.S. related to third-party receivables for the retail financing of John  Deere equipment. The Company may recover a portion of any required payments  incurred under these agreements from repossession of the equipment  collateralizing the receivables. At April 30, 2005, the Company had  accrued losses of approximately $.2 million under these agreements. The maximum  remaining term of the receivables guaranteed at April 30, 2005 was  approximately three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | At April 30, 2005, the Company had guaranteed  $30 million of residual value related to property being used by the Company  under an operating lease. The Company is obligated at the end of the lease  term to pay to the lessor any reduction in market value of the leased  property up to the guaranteed residual value. The Company recognizes the  expense for this future estimated lease payment over the life of the  operating lease and had accrued expenses of $6 million related to this  agreement at April 30, 2005. The lease term expires in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | The Company’s subsidiary, John Deere Risk Protection, Inc.,  offers crop insurance products through a managing general agency agreement  (MGA) with an insurance company rated “A” with A.M. Best Company (Insurance  Carrier). As a managing general agent, John Deere Risk Protection, Inc.  will receive commissions from the Insurance Carrier for selling crop  insurance to producers. The Company has guaranteed certain obligations under  the MGA, including the obligation to pay the Insurance Carrier for any  uncollected premiums. At April 30, 2005 the maximum exposure for  uncollected premiums was approximately $37 million. Substantially all of the Company's  crop insurance risk under the MGA has been mitigated by public and private  reinsurance. All private reinsurance companies are rated “A” or higher by A.M.  Best Company. In the event of a complete crop failure on every policy written  under the MGA in 17 states and the default of the U.S. Department of  Agriculture and a syndicate of highly rated private reinsurance companies on  their reinsurance obligations, the Company would be required to reimburse the  Insurance Carrier for the maximum exposure under the MGA of approximately  $445 million at April 30, 2005. The Company believes that the likelihood of the  occurrence of substantially all of the events that give rise to the exposure  under this MGA is extremely remote and as a result, at April 30, 2005,  the Company has accrued losses of approximately $.2 million under the MGA. |

 
| (6) |   | In December 2004, the FASB issued Statement No. 123  (revised 2004), Share-Based Payment. This Statement eliminated the  alternative of accounting for share-based compensation under Accounting  Principles Board (APB) Opinion No. 25. The revised standard generally  requires the recognition of the cost of employee services for share-based  compensation based on the grant date fair value of the equity or liability  instruments issued. The effective date for the Company was recently revised  to the beginning of |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

7

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|   |   | fiscal  year 2006. The adoption of this Statement is not expected to have a material  effect on the Company’s financial position or net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (7)    |   | On October 22, 2004, the American Jobs Creation  Act of 2004 (the Act) was signed into law. The Act introduces a special  one-time dividends received deduction on the repatriation of certain foreign  earnings to a U.S. taxpayer (repatriation provision), provided certain  criteria are met. The deduction would be 85 percent of certain foreign  earnings that are repatriated in either an enterprise’s last tax year that  began before the enactment date (the Company’s 2004 fiscal tax year), or the  first tax year that begins during the one-year period beginning on the date  of enactment (the Company’s 2005 fiscal tax year).  The impact of the  provisions of the Act is not expected to have a material effect on the  Company’s financial position or net income. |

 
| (8) |   | The Company is a participating employer in certain  Deere & Company defined benefit pension plans for employees in the  U.S. and certain defined benefit pension plans outside the U.S. These pension  plans provide for benefits that are based primarily on years of service and  employee compensation. Pension expense is actuarially determined based on the  Company’s employees included in the plan. The Company’s pension expense  amounted to $2.1 million in the first six months of 2005. The  accumulated benefit obligation and plan net assets for the employees of the  Company are not determined separately from Deere & Company. The  Company generally provides defined benefit health care and life insurance  plans for retired employees in the U.S. as a participating employer in Deere &  Company’s sponsored plans. Health care and life insurance benefits expense is  actuarially determined based on the Company’s employees included in the plans  and amounted to $2.8 million during the first six months of 2005.  Further disclosure for these plans is included in Deere & Company’s Form 10-Q  for the quarter ended April 30, 2005. |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Item2.             Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

 

Resultsof Operations

 

Overview

 

The Company primarily generates revenues and cash byfinancing sales and leases of new and used agricultural, commercial andconsumer, and construction and forestry equipment by John Deere dealers.  In addition, the Company also provideswholesale financing to dealers of the foregoing equipment, provides operatingloans and finances retail revolving charge accounts.

 

The Company’s business is currently affected by thefollowing key trends and economic conditions. The Company’s business is closelyrelated to John Deere’s business.  TheU.S. farm sector is expected to remain in solid condition for the remainder of2005 as a result of a high level of cash receipts, including increasedgovernment payments, and strong farmer balance sheets. Cash receipts for 2005are forecast to be near last year’s record total. Deere & Company’sagricultural equipment sales were up 17 percent for the second quarter of 2005and 20 percent for the first six months. These sales are forecast to be upapproximately 9 to 11 percent for the year, excluding the impact of exchangerates. Currency is expected to add approximately three percentage points tothese sales for the year. Deere & Company’s commercial and consumerequipment sales decreased 6 percent in the second quarter of 2005 and 7 percentfor the six months, reflecting the impact of unseasonably cold, wet weather onsales of lawn equipment. For the year, these sales are expected to be flat toup approximately 3 percent due to extensive product introductions of commercialequipment. Deere & Company’s construction and forestry sales increased28 percent in the second quarter of 2005, 30 percent for the six months and areforecast to increase 18 to 20 percent for the year. The Company expects toreport net income of approximately $260 million in 2005.

 

2005Compared with 2004

 

Net income was $61.5 million for the second quarterand $129.7 million for the first six months of 2005, compared with $67.4million and $136.7 million, respectively, last year. Last year’s resultsbenefited from gains on retail notes sold during the quarter and first sixmonths, while results for the quarter and the first six months of 2005benefited from growth in the portfolio and a lower provision for credit losses,partially offset by lower financing spreads.

 

8

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Revenues totaled $333.4 million for the second quarterand $639.1 million for the first six months of 2005, compared to $314.7 millionand $613.9 million, respectively, last year. The increase was primarily due toa 14 percent increase in the average balance of Receivables and Leases financedduring the first six months of 2005 compared to the first six months of 2004,partially offset by lower gains on receivable sales. Finance income earned onretail notes totaled $236.7 million for the first six months of 2005, comparedto $192.8 million for the same period in 2004. This increase was primarilydue to a 22 percent increase in the average retail note portfolio balances andincreasing yields. Lease revenues decreased $9.6 million, to$125.9 million in the first six months of 2005, from $135.5 million in thefirst six months of 2004 primarily due to an 8 percent decrease in theaverage amount of equipment on operating leases. The operating lease levels continue todecrease as a result of more attractive financing options offered on retailnote products in recent years. Revenues earned on revolving chargeaccounts amounted to $85.3 million in the first six months of 2005, a 13percent increase over revenues of $75.2 million during the same periodlast year.  The increase was primarilydue to growth of Farm Planä and John DeereCredit Revolving Plan receivables in the first six months of 2005, comparedwith the same period last year. Finance income earned on wholesale receivablestotaled $133.5 million for the first six months of 2005, compared to $118.0million for the same period in 2004. This increase was primarily due to a 13percent increase in the average balance of wholesale receivables. Operating loanincome amounted to $11.1 million in the first six months of 2005, comparedto $12.4 million in the first six months of 2004. The decrease was due to alower average balance of operating loan accounts, partially offset byincreasing yields. Revenues earned from Deere & Company totaled$103.9 million for the second quarter and $190.4 million for the first sixmonths of 2005, compared to $99.8 million and $180.2 million for the sameperiods last year.

 

The net gain on receivables sold, includingadjustments to prior sales related to cleanup calls and revaluations ofretained interests and the related permanent impairments, totaled $.9 millionfor the second quarter and $4.8 million for the first six months of 2005,compared to $17.6 million and $31.7 million for the same periods a year ago.During the first six months of 2004, the Company benefited from the sale ofagricultural and construction and forestry retail notes of approximately $1,562million total principal value.

 

Interest expense totaled $108.0 million for the secondquarter and $200.6 million for the first six months of 2005, compared to $80.8million and $162.5 million for the same periods in 2004. The increases were dueto higher average borrowings and increases in borrowing rates.

 

Administrative and operating expenses were $69.1million in the second quarter and $123.2 million for the first six months of2005, compared with $64.0 million and $115.8 million for the same periodsin 2004. The increases were primarily due to higher employment costs.

 

During the second quarter and first six months of2005, the provision for credit losses totaled $6.0 million and $4.2 million,respectively, compared with $16.9 million and $24.5 million in the same periodslast year. The year-to-date decrease reflects continued strong portfolioperformance as well as decreases in write-offs as compared to the same period ayear ago. For the first six months of 2005, the Company has experienced lowerwrite-offs of retail notes, operating loans, wholesale receivables and financingleases. The annualized provision for credit losses, as a percentage of theaverage balance of total Receivables financed, was .18 percent for the secondquarter and .06 percent for the first six months of 2005, compared with .60percent and .43 percent for the same periods last year.

 

Fees paid to John Deere for interest and support were$14.6 million in the second quarter and $28.5 million for the first six monthsof 2005, compared with $8.5 million and $15.8 million for the same periodsin 2004. The increases were primarily due to higher average borrowings fromDeere & Company.

 

Depreciation of equipment on operating leases was$41.8 million in the second quarter and $84.0 million for the first six monthsof 2005, compared to $42.6 million and $87.4 million for the same periods in2004. The decreases were primarily the result of lower average amounts ofequipment on operating leases.

 

9

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Receivable and Lease acquisition volumes were asfollows (in millions of dollars):

 
| ** **                          | ** ** | **Three Months   Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|-----------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2005**                                | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                                    |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                       | 1,101.3    |       | $          | 1,029.3           |       | $ | 72.0 |   | 7 | % |
| Construction and forestry equipment |       | 320.1                                   |       | 283.8      |       | 36.3              |       | 13 |   |
| Commercial and consumer equipment   |       | 157.6                                   |       | 158.6      |       | (1.0              | )          | (1 | ) |
| Total retail notes                  |       | 1,579.0                                 |       | 1,471.7    |       | 107.3             |       | 7 |   |
| Revolving charge accounts           |       | 848.3                                   |       | 882.0      |       | (33.7             | )          | (4 | ) |
| Operating loans                     |       | 304.6                                   |       | 471.1      |       | (166.5            | )          | (35 | ) |
| Wholesale receivables               |       | 5,430.5                                 |       | 4,567.4    |       | 863.1             |       | 19 |   |
| Financing leases                    |       | 55.9                                    |       | 47.6       |       | 8.3               |       | 17 |   |
| Equipment on operating leases       |       | 99.8                                    |       | 89.8       |       | 10.0              |       | 11 |   |
| Total Receivables and Leases        |       | $                                       | 8,318.1    |       | $          | 7,529.6           |       | $ | 788.5 |   | 10 | % |

 
| ** **                          | ** ** | **Six Months   Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2005**                              | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                                  |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                     | 2,023.6    |       | $          | 1,835.6           |       | $ | 188.0 |   | 10 | % |
| Construction and forestry equipment |       | 622.5                                 |       | 527.0      |       | 95.5              |       | 18 |   |
| Commercial and consumer equipment   |       | 243.3                                 |       | 290.2      |       | (46.9             | )          | (16 | ) |
| Total retail notes                  |       | 2,889.4                               |       | 2,652.8    |       | 236.6             |       | 9 |   |
| Revolving charge accounts           |       | 1,454.7                               |       | 1,437.6    |       | 17.1              |       | 1 |   |
| Operating loans                     |       | 617.1                                 |       | 1,010.5    |       | (393.4            | )          | (39 | ) |
| Wholesale receivables               |       | 8,652.5                               |       | 7,101.9    |       | 1,550.6           |       | 22 |   |
| Financing leases                    |       | 94.8                                  |       | 80.3       |       | 14.5              |       | 18 |   |
| Equipment on operating leases       |       | 178.0                                 |       | 140.1      |       | 37.9              |       | 27 |   |
| Total Receivables and Leases        |       | $                                     | 13,886.5   |       | $          | 12,423.2          |       | $ | 1,463.3 |   | 12 | % |

 

Retailnote volumes increased during the second quarter and first six months of 2005,when compared to last year, primarily due to increases in retail sales of JohnDeere agricultural and construction and forestry equipment. Wholesalereceivable volumes increased during the second quarter and first six months of2005, when compared to last year, primarily due to increased shipments of JohnDeere equipment as a result of strong retail demand in the agricultural andconstruction and forestry markets.

 

10

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TotalReceivables and Leases held were as follows (in millions of dollars):

 
| ** **                          | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|-------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                          | ** ** | **2005**           | ** ** | **2004**             | ** ** | **2004**           | ** ** |
| Retail notes:                       |       |               |       |                 |       |               |       |
| Agricultural equipment              |       | $                  | 5,310.9    |                 | $          | 4,450.4            |       | $ | 3,692.7 |   |
| Construction and forestry equipment |       | 1,647.9            |       | 1,406.1              |       | 1,120.2            |       |
| Commercial and consumer equipment   |       | 972.7              |       | 983.9                |       | 902.3              |       |
| Recreational products               |       | 27.2               |       | 33.3                 |       | 42.1               |       |
| Total retail notes                  |       | 7,958.7            |       | 6,873.7              |       | 5,757.3            |       |
| Revolving charge accounts           |       | 1,321.8            |       | 1,443.8              |       | 1,209.6            |       |
| Operating loans                     |       | 406.0              |       | 380.5                |       | 512.4              |       |
| Wholesale receivables               |       | 4,554.5            |       | 3,480.5              |       | 3,831.8            |       |
| Financing leases                    |       | 395.7              |       | 406.0                |       | 399.8              |       |
| Equipment on operating leases       |       | 728.5              |       | 757.6                |       | 751.3              |       |
| Total Receivables and Leases        |       | $                  | 15,365.2   |                 | $          | 13,342.1           |       | $ | 12,462.2 |   |

 

Receivables and Leases administered by the Companywere as follows (in millions of dollars):

 
| ** **                                                     | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|----------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                     | ** ** | **2005**           | ** ** | **2004**             | ** ** | **2004**           | ** ** |
| Receivables and Leases administered:                           |       |               |       |                 |       |               |       |
| Owned by the Company                                           |       | $                  | 14,762.9   |                 | $          | 13,342.1           |       | $ | 12,462.2 |   |
| Owned by the Company – restricted due to  securitization* |       | 602.3              |       |                 |       |               |       |
| Total Receivables and Leases owned by the Company              |       | 15,365.2           |       | 13,342.1             |       | 12,462.2           |       |
| Sold and serviced – with limited recourse*                |       | 2,119.1            |       | 3,027.6              |       | 3,079.6            |       |
| Sold and serviced – without recourse**                    |       | 20.9               |       | 24.5                 |       | 29.6               |       |
| Total Receivables and Leases administered                      |       | $                  | 17,505.2   |                 | $          | 16,394.2           |       | $ | 15,571.4 |   |

 

----

*                                         TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat April 30, 2005, October 31, 2004 and April 30, 2004 was $166million, $203 million and $201 million, respectively. In addition, the Companyhas provided letters of credit for John Deere Credit Inc., the John Deerefinance subsidiary in Canada, as part of retail note sales. At April 30,2005, October 31, 2004 and April 30, 2004, the Company’s maximumexposure under these agreements was approximately $7 million, $8 millionand $10 million, respectively. The Company does not record the recourseobligations as liabilities as they are contingent liabilities that are remoteat this time. However, the probable loss on receivables that have been sold wasaccrued at the time of sale, and any subsequent necessary adjustments are madeas part of ongoing reviews.

 

**                                  Thesereceivables represent recreational product retail notes that the Company hassold but continues to administer for a fee.

 

11

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Total Receivable amounts 60 days or more past due inthe table below represent the amount of all customer payments past due 60 daysor more, by product, and as a percent of the respective receivables.  They are as follows (in millions of dollars):

 
| ** **                          | ** ** | **April 30,  2005** | ** ** | **October 31,  2004** | ** ** | **April 30,  2004** | ** ** |
|-------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Dollars**              | ** ** | **Percent**                | ** ** | **Dollars**              | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                     |       |                       |       |                     |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                        | 10.0       |                       | .19        | %                        | $          | 9.9 |   | .22 | % | $ | 13.8 |   | .37 | % |
| Construction and forestry equipment |       | 4.1                      |       | .25                        |       | 4.7                      |       | .33 |   | 8.6 |   | .77 |   |
| Commercial and consumer equipment   |       | 1.0                      |       | .10                        |       | 1.1                      |       | .11 |   | 1.2 |   | .13 |   |
| Recreational products               |       | .1                       |       | .37                        |       | .1                       |       | .30 |   | .1 |   | .24 |   |
| Total retail notes                  |       | 15.2                     |       | .19                        |       | 15.8                     |       | .23 |   | 23.7 |   | .41 |   |
| Revolving charge accounts*          |       | 12.1                     |       | .92                        |       | 12.6                     |       | .87 |   | 11.7 |   | .97 |   |
| Operating loans                     |       | .8                       |       | .20                        |       | .9                       |       | .24 |   | 1.0 |   | .20 |   |
| Wholesale receivables               |       | 2.6                      |       | .06                        |       | 7.9                      |       | .23 |   | 11.6 |   | .30 |   |
| Financing leases                    |       | 4.1                      |       | 1.04                       |       | 3.2                      |       | .79 |   | 3.9 |   | .98 |   |
| Total Receivables                   |       | $                        | 34.8       |                       | .24        | %                        | $          | 40.4 |   | .32 | % | $ | 51.9 |   | .44 | % |

 

----

*                                         Dueto the nature of revolving charge accounts, the customer payments past due 60days or more also represent the total balance.

 

The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer who has any portion of his note 60days or more past due. These amounts were $77 million, $71 million and $90million at April 30, 2005, October 31, 2004 and April 30, 2004,respectively. The balances of retail notes held on which any installment was 60days or more past due as a percentage of the ending retail notes receivable was..97, 1.03 and 1.56 percent at April 30, 2005, October 31, 2004 and April 30,2004, respectively.

 

Total non-performing Receivables, which representloans the Company has ceased accruing interest for, by product, and as apercent of the respective receivables were as follows (in millions of dollars):

 
| ** **                          | ** ** | **April 30,  2005** | ** ** | **October 31,  2004** | ** ** | **April 30,  2004** | ** ** |
|-------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Dollars**              | ** ** | **Percent**                | ** ** | **Dollars**              | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                     |       |                       |       |                     |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                        | 13.2       |                       | .25        | %                        | $          | 15.1 |   | .34 | % | $ | 19.0 |   | .51 | % |
| Construction and forestry equipment |       | 7.5                      |       | .46                        |       | 7.1                      |       | .51 |   | 12.7 |   | 1.13 |   |
| Commercial and consumer equipment   |       | 3.9                      |       | .40                        |       | 2.5                      |       | .25 |   | 2.6 |   | .29 |   |
| Recreational products               |       | .5                       |       | 1.84                       |       | .4                       |       | 1.20 |   | .2 |   | .48 |   |
| Total retail notes                  |       | 25.1                     |       | .32                        |       | 25.1                     |       | .37 |   | 34.5 |   | .60 |   |
| Revolving charge accounts           |       | .3                       |       | .02                        |       |                     |       |   |   |   |   |   |   |
| Operating loans                     |       | 23.8                     |       | 5.88                       |       | 24.1                     |       | 6.33 |   | 20.8 |   | 4.06 |   |
| Wholesale receivables               |       |                     |       |                       |       | 1.1                      |       | .03 |   | 19.0 |   | .50 |   |
| Financing leases                    |       | 8.5                      |       | 2.15                       |       | 6.6                      |       | 1.63 |   | 11.0 |   | 2.75 |   |
| Total Receivables                   |       | $                        | 57.7       |                       | .39        | %                        | $          | 56.9 |   | .45 | % | $ | 85.3 |   | .73 | % |

 

12

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Total Receivable write-off amounts, net of recoveries,by product, and as an annualized percentage of average balances held during theperiod, are as follows (in millions of dollars):

 
| ** **                          | ** ** | **Three Months Ended   April 30,  2005** | ** ** | **Three Months Ended   April 30,  2004** | ** ** |
|-------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                                   | ** ** | **Percent**                                   | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                          |       |                                          |       |   |   |   |   |
| Agricultural equipment              |       | $                                             | .0         |                                          | .00        | % | $ | (.2 | ) | (.02 | )% |
| Construction and forestry equipment |       | .7                                            |       | .18                                           |       | 1.1 |   | .36 |   |
| Commercial and consumer equipment   |       | .2                                            |       | .08                                           |       |   |   |   |   |
| Recreational products               |       | .2                                            |       | 3.22                                          |       | .1 |   | .86 |   |
| Total retail notes                  |       | 1.1                                           |       | .06                                           |       | 1.0 |   | .07 |   |
| Revolving charge accounts           |       | 5.8                                           |       | 1.96                                          |       | 4.7 |   | 1.80 |   |
| Operating loans                     |       | (.4                                           | )          | (.43                                          | )          | .8 |   | .68 |   |
| Wholesale receivables               |       | .4                                            |       | .04                                           |       | .1 |   | .01 |   |
| Financing leases                    |       | .3                                            |       | .30                                           |       | 1.1 |   | 1.08 |   |
| Total Receivables                   |       | $                                             | 7.2        |                                          | .22        | % | $ | 7.7 |   | .28 | % |

 
| ** **                          | ** ** | **Six Months Ended   April 30,  2005** | ** ** | **Six Months Ended   April 30,  2004** | ** ** |
|-------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                                 | ** ** | **Percent**                                 | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                        |       |                                        |       |   |   |   |   |
| Agricultural equipment              |       | $                                           | (.5        | )                                           | (.02       | )% | $ | .2 |   | .01 | % |
| Construction and forestry equipment |       | 1.1                                         |       | .15                                         |       | 3.2 |   | .51 |   |
| Commercial and consumer equipment   |       | .3                                          |       | .06                                         |       | .4 |   | .09 |   |
| Recreational products               |       | .5                                          |       | 3.04                                        |       | .4 |   | 1.70 |   |
| Total retail notes                  |       | 1.4                                         |       | .04                                         |       | 4.2 |   | .14 |   |
| Revolving charge accounts           |       | 10.3                                        |       | 1.70                                        |       | 8.3 |   | 1.57 |   |
| Operating loans                     |       | (.6                                         | )          | (.32                                        | )          | 1.5 |   | .63 |   |
| Wholesale receivables               |       | (.1                                         | )          | (.01                                        | )          | .3 |   | .02 |   |
| Financing leases                    |       | .9                                          |       | .46                                         |       | 2.0 |   | .97 |   |
| Total Receivables                   |       | $                                           | 11.9       |                                        | .18        | % | $ | 16.3 |   | .29 | % |

 

Deposits withheld from dealers and merchants, representingmainly the aggregate dealer retail note and lease withholding accounts fromindividual John Deere dealers to which losses from retail notes and leasesoriginating from the respective dealers can be charged, amounted to $155million at April 30, 2005 compared with $168 million at October 31,2004 and $164 million at April 30, 2004.

 

The Company’s allowance for credit losses on allReceivables financed totaled $106 million at April 30, 2005, $113 millionat October 31, 2004 and $124 million at April 30, 2004. The allowancefor credit losses represented .72 percent of the total Receivablesfinanced at April 30, 2005, .89 percent at October 31, 2004 and 1.06percent at April 30, 2004. The level of the allowance is based on manyquantitative and qualitative factors, including historical loss experience byproduct category, portfolio duration, delinquency trends, economic conditionsand credit risk quality. The Company believes its allowance is sufficient toprovide for losses in its existing receivable portfolio.

 

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SafeHarbor Statement

 

*Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995:*Statementsherein that relate to future operating periods are subject to important risksand uncertainties that could cause actual results to differ materially. Actionsby the U.S. Federal Reserve Board and other central banks may affect the costsand expenses of financing the Company and the rates it is able to offer. TheCompany’s business is affected by general economic conditions in and thepolitical instability of the global markets in which the Company operatesbecause deteriorating economic conditions and political instability can resultin higher loan losses. The Company’s business is also affected by actions ofbanks, financing and leasing companies and other lenders that compete with theCompany for customers. In addition, the Company’s business is closely relatedto John Deere’s business. Further information, including factors that potentiallycould materially affect the Company’s and John Deere’s financial results, isincluded in the most recent Deere & Company Form 10-K and otherDeere & Company and Capital Corporation filings with the Securitiesand Exchange Commission.

 

CriticalAccounting Policies

 

See the Company’s critical accounting policiesdiscussed in the Management’s Discussion and Analysis of the most recent annualreport filed on Form 10-K.  Therehave been no material changes to these policies.

 

CapitalResources and Liquidity

 

The Company relies on its ability to raise substantialamounts of funds to finance its Receivable and Lease portfolios. During thefirst six months of 2005, the Company issued $1,214 million of term debt,maintained an average commercial paper balance of $1,727 million and receivedproceeds of $82 million from sales of Receivables. At April 30, 2005,the Company’s funding profile included $1,895 million of commercial paper, $621million of notes payable related to on-balance sheet securitization funding,$1,287 million of intercompany loans from Deere & Company, $9,637million of unsecured term debt, $2,061 million of off-balance sheetsecuritization funding and $1,830 million of equity capital. The Company’sfunding profile may be altered to reflect such factors as relative costs offunding sources, assets available for securitizations and capital marketaccessibility.

 

During the first six months of 2005, the aggregate netcash provided by operating and financing activities was used primarily to increaseReceivables and Leases. Net cash provided by operating activities was $156million in the first six months of 2005. Cash provided by financing activitiestotaled $1,913 million in the first six months of 2005, resulting primarilyfrom a net increase in total external borrowings, partially offset by dividendspaid to John Deere Credit Company, which in turn paid comparable dividends toDeere & Company. Net cash used for investing activities totaled $2,018million in the first six months of 2005, primarily due to the cost ofReceivables and Leases acquired exceeding the collections of Receivables andLeases. Cash and cash equivalents increased $52 million during the firstsix months of 2005.

 

During the first six months of 2004, the aggregate netcash provided by operating activities was used primarily to increaseReceivables and Leases. Net cash provided by operating activities was $218million in the first six months of 2004. Net cash used for investing activitiestotaled $236 million in the first six months of 2004, primarily due to the costof Receivables and Leases acquired exceeding the collections of Receivables andLeases, partially offset by proceeds from sales of Receivables. Cash used forfinancing activities totaled $32 million in the first six months of 2004,resulting primarily from a net decrease in total external borrowings anddividends paid to John Deere Credit Company, which in turn paid comparabledividends to Deere & Company, partially offset by an increase inpayables to Deere & Company. Cash and cash equivalents decreased$43 million during the first six months of 2004.

 

Because of the multiple funding sources that have beenand continue to be available to the Company, the Company expects to havesufficient sources of liquidity to meet its ongoing funding needs.  The Company’s commercial paper outstanding atApril 30, 2005, October 31, 2004 and April 30, 2004 wasapproximately $1,895 million, $1,554 million and $1,300 million,respectively, while the total cash and cash equivalents position wasapproximately $261 million, $210 million and $299 million, respectively.  Additionally, the Company had access toapproximately $2,728 million, $2,915 million and $2,654 million, respectively,of cash and cash equivalents held by its parent, Deere & Company(if Deere & Company had chosen to make these funds available to theCompany).  In addition, the Company hasfor many years accessed diverse funding sources, including short-term andlong-term unsecured debt capital markets globally, as well as public andprivate securitization markets in the U.S. The Company also has access tounsecured bank lines of credit.

 

14

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The Company’s ability to obtain funding is affected byits debt ratings, which are closely related to the outlook for and thefinancial condition of Deere & Company, and the nature andavailability of support facilities, such as its lines of credit and the supportagreement from Deere & Company. For information regarding Deere &Company and its business, see the Company’s most recently filed annual reporton Form 10-K.

 

To access public debt capital markets, the Companyrelies on selected credit rating agencies to assign short-term and long-termcredit ratings to the Company’s securities as an indicator of credit qualityfor fixed income investors.  A securityrating is not a recommendation by the rating agency to buy, sell or holdCompany securities.  A credit ratingagency may change or withdraw Company ratings based on its assessment of theCompany’s current and future ability to meet interest and principal repaymentobligations.  Lower credit ratingsgenerally result in higher borrowing costs and reduced access to debt capitalmarkets.

 

The senior long-term and short-term debt ratings and outlookcurrently assigned to unsecured Company securities by the rating agenciesengaged by the Company are the same as those for Deere & Company.  Those ratings are as follows:

 
| ** **                                | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** | ** ** |
|-------------------------------------------|------------|----------------------|------------|----------------|------------|-------------|------------|
| Moody’s Investors Service, Inc. |       | A3                   |       | Prime-2        |       | Stable      |       |
| Standard & Poor’s           |       | A-                   |       | A-2            |       | Stable      |       |

 

Total interest-bearing indebtedness amounted to$13,449 million at April 30, 2005, which included $621 million ofon-balance sheet secured borrowings (see Note 5), compared with$11,467 million at October 31, 2004 and $10,459 million at April 30,2004, generally corresponding with the level of Receivables and Leases financedand the level of cash and cash equivalents. Total short-term indebtednessamounted to $5,638 million at April 30, 2005, which included $621 millionof on-balance sheet secured borrowings, compared with $3,990 million at October 31,2004 and $3,119 million at April 30, 2004, while total long-termindebtedness amounted to $7,811 million, $7,477 million and $7,340 million at thesedates, respectively. The ratio of total interest-bearing debt to stockholder’sequity was 7.3 to 1, 6.3 to 1 and 5.2 to 1 at April 30, 2005, October 31,2004 and April 30, 2004, respectively. In the second quarter of fiscal2005, the Company accounted for new securitization funding on-balance sheet(see Note 5).

 

The Company issued $1,214 million and retired $183million of unsecured borrowings during the first six months of 2005, which wereprimarily medium-term notes.

 

On May 26, 2005, the Company borrowed $741million in a separate public securitization of retail notes. The securedfinancing and the related retail notes remained on the balance sheet. Thesecuritized retail notes were recorded as “Restricted  securitized retail notes”.

 

The Company’s ability to meet its debt obligations issupported in a number of ways. All commercial paper issued is backed byunsecured, committed bank credit lines from various banks. The assets of theCompany are self-liquidating in nature. A strong equity position is availableto absorb unusual losses on these assets. Liquidity is also provided by theCompany’s ability to sell these assets. The Company also maintains uncommitted,unsecured lines of credit with various banks.

 

At April 30, 2005, the Capital Corporation andDeere & Company jointly maintained $2,633 million of unsecured linesof credit with various banks, $389 million of which were unused. For the purpose of computing unused credit lines,commercial paper and short-term bank borrowings, excluding on-balance sheetsecured borrowings and the current portion of long-term borrowings of theCapital Corporation and Deere & Company, were considered to constituteutilization. In February 2005, the Company replaced its existing short-term$1,250 million revolving credit facility agreement with a $625 millionshort-term credit facility agreement, expiring in February 2006, and a $625million long-term credit facility agreement, expiring in February 2010. Includedin the total credit lines at April 30,2005 was a long-term credit facility agreement of $1,250 million,expiring in February 2009, and the previously mentioned long-term creditfacility agreement of $625 million, expiring in February 2010, for a totalof $1,875 million long-term. The facility fees payable under these lines ofcredit are divided between Deere & Company and the Capital Corporationbased on the proportion of their respective commercial paper outstanding.

 

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The Company utilizes a revolving conduit facility, specialpurpose entity (SPE), to securitize floating rate agricultural retail notes. Thisfacility has the capacity, or “purchase limit”, of up to $2 billion in securedfinancings or sales outstanding at any time. Multiple conduits participate inthis facility, which has no final maturity date. Instead, upon the Company’srequest, each conduit may elect to renew its commitment on an annual basis. However,if this facility is not renewed, the Company would liquidate thesecuritizations as the retail notes are collected. At April 30, 2005, $2billion was outstanding under the facility of which $621 million was recordedon the balance sheet (see Note 5). At April 30, 2004, $1.75 billion wasoutstanding under the facility of which none was included on the balance sheet.The amounts of borrowings and retail notes that are recorded on the balancesheet depend on whether terms of the transfer of retail notes to the SPE meetthe criteria for a secured borrowing or a sale of receivables under FASB StatementNo. 140, Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities.

 

Stockholder’s equity was $1,830 million at April 30,2005, compared with $1,807 million at October 31, 2004 and $2,001 millionat April 30, 2004. The increase in the first six months of 2005 resultedprimarily from net income of $130 million and a $14 million increase inaccumulated other comprehensive income, partially offset by dividend paymentsof $120 million.

 

The Capital Corporation declared and paid cashdividends of $120 million to John Deere Credit Company during the first sixmonths of fiscal 2005. John Deere Credit Company paid comparable dividends toDeere & Company. On May 18, 2005, the Capital Corporationdeclared an additional $30 million dividend, to be paid to John Deere CreditCompany on June 3, 2005. John Deere Credit Company, in turn, declared a$30 million dividend to Deere & Company, also payable on June 3,2005.

 

The financing of retail purchases and leases of JohnDeere products and of wholesale receivables owed by John Deere dealersrepresented approximately 85 percent of the Company’s acquisition volume forthe six months ended April 30, 2005, compared with approximately 80percent for the same period in 2004. Any extended reduction or suspension ofJohn Deere’s sale or production of products due to a decline in demand orproduction, technological difficulties, governmental actions or other eventscould have an adverse effect on the Company’s acquisition volume of Receivablesand Leases.  For additional informationon the Company’s dependence on and relationships with Deere & Company,see the Company’s most recently filed annual report on Form 10-K.

 

Item3.                                     Quantitativeand Qualitative Disclosures About Market Risk.

 

See the Company’s most recent annual report filed on Form 10-K(Item 7A). There has been no material change in this information.

 

Item4.                                     Controlsand Procedures.

 

The Company’s principal executive officer and itsprincipal financial officer have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended (“the Act”)) were effective asof April 30, 2005, based on the evaluation of these controls andprocedures required by Rule 13a-15(b) or 15d-15(b) of the Act.

 

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PART II.  OTHER INFORMATION

 
| Item 1. |   | Legal  Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   | The Company is  subject to various unresolved legal actions which arise in the normal course  of its business, the most prevalent of which relate to state and federal laws  and regulations concerning retail credit. Although it is not possible to  predict with certainty the outcome of these unresolved legal actions or the  range of possible loss, the Company believes these unresolved legal actions  will not have a material effect on its financial statements. |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item 2. |   | Unregistered  Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   | Omitted pursuant  to instruction H.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item 3. |   | Defaults Upon  Senior Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   | Omitted pursuant  to instruction H.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item 4. |   | Submission of  Matters to a Vote of Security Holders.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   | Omitted pursuant  to instruction H.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item 5. |   | Other  Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |   | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Item 6. |   | 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.                                                                                                                                                                       |

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |               |   | JOHN  DEERE CAPITAL CORPORATION |
|--------|--------------------|--------|---------------------------------|
|   |               |   |                            |
|   |               |   |                            |
| Date:  | May 27,  2005 |   | By:                             | */s/ Nathan J. Jones* |
|   |               |   |                            | Nathan  J. Jones   Senior Vice President,   Principal Financial Officer |

 

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INDEX TO EXHIBITS

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                          |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                |
| 3.1         |       | Certificate of  Incorporation, as amended (Exhibit 3.1 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission file number 1-6458*) |
|        |       |                                                                                                                                                                                                |
| 3.2         |       | Bylaws, as  amended (Exhibit 3.2 to Form 10-K of the registrant for the year  ended October 31, 1999, Securities and Exchange Commission file number 1-6458*)                        |
|        |       |                                                                                                                                                                                                |
| 12.         |       | Computation  of Ratio of Earnings to Fixed Charges                                                                                                                                                  |
|        |       |                                                                                                                                                                                                |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|        |       |                                                                                                                                                                                                |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|        |       |                                                                                                                                                                                                |
| 32.         |       | Section 1350  Certifications                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                |
| 99.         |       | Part I of  Deere & Company Form 10-Q for the quarter ended April 30, 2005  (Securities and Exchange Commission file number 1-4121*)                                    |

 

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*                           Incorporatedby reference.  Copies of these exhibitsare available from the Company upon request.

 

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