**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 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended July 31, 2005**

 

**Commissionfile no: 1-6458**

 

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## **JOHN DEERE CAPITALCORPORATION**

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

 

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

 

TelephoneNumber:  **(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  ý  No  o

 

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

Yes  o  Noý

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o  No  ý

 

At July 31, 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.           FinancialStatements.

 

## **John Deere Capital Corporation and Subsidiaries**

**Statementsof Consolidated Income and Retained Earnings**

**(Unaudited)**

(in millions)

** **
| ** **                                            | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                            | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Revenues**                                          |       |                                  |       |                                 |       |   |   |   |   |
| Finance income  earned on retail notes                |       | $                                     | 136.2      |                                 | $          | 91.1 |   | $ | 372.9 |   | $ | 283.9 |   |
| Lease revenues                                        |       | 63.8                                  |       | 63.5                                 |       | 189.7 |   | 199.0 |   |
| Revolving charge  account income                      |       | 52.3                                  |       | 45.5                                 |       | 137.6 |   | 120.7 |   |
| Finance income  earned on wholesale receivables       |       | 79.4                                  |       | 66.1                                 |       | 212.9 |   | 184.1 |   |
| Operating loan  income                                |       | 6.2                                   |       | 5.4                                  |       | 17.3 |   | 17.8 |   |
| Securitization  and servicing fee income              |       | 10.1                                  |       | 12.6                                 |       | 30.8 |   | 37.0 |   |
| Net gain on  receivables sold                         |       | .1                                    |       | 7.5                                  |       | 4.9 |   | 39.2 |   |
| Other income                                          |       | 15.4                                  |       | 9.1                                  |       | 36.5 |   | 33.0 |   |
| Total revenues                                        |       | 363.5                                 |       | 300.8                                |       | 1,002.6 |   | 914.7 |   |
| **Expenses**                                          |       |                                  |       |                                 |       |   |   |   |   |
| Interest expense                                      |       | 128.0                                 |       | 79.2                                 |       | 328.6 |   | 241.7 |   |
| Operating  expenses:                                  |       |                                  |       |                                 |       |   |   |   |   |
| Administrative  and operating expenses                |       | 66.8                                  |       | 65.5                                 |       | 190.0 |   | 181.3 |   |
| Provision  (credit) for credit losses                 |       | (6.1                                  | )          | 7.5                                  |       | (1.9 | ) | 32.0 |   |
| Fees paid to  John Deere                              |       | 15.2                                  |       | 9.3                                  |       | 43.7 |   | 25.1 |   |
| Depreciation of  equipment on operating leases        |       | 41.7                                  |       | 41.0                                 |       | 125.7 |   | 128.4 |   |
| Total operating  expenses                             |       | 117.6                                 |       | 123.3                                |       | 357.5 |   | 366.8 |   |
| Total expenses                                        |       | 245.6                                 |       | 202.5                                |       | 686.1 |   | 608.5 |   |
| **Income  of consolidated group before income taxes** |       | 117.9                                 |       | 98.3                                 |       | 316.5 |   | 306.2 |   |
| **Provision  for income taxes**                       |       | 41.7                                  |       | 33.7                                 |       | 110.9 |   | 105.2 |   |
| **Income  of consolidated group**                     |       | 76.2                                  |       | 64.6                                 |       | 205.6 |   | 201.0 |   |
| **Equity  in income of unconsolidated affiliates**    |       | .1                                    |       | .1                                   |       | .4 |   | .4 |   |
| **Net  income**                                       |       | 76.3                                  |       | 64.7                                 |       | 206.0 |   | 201.4 |   |
| **Cash  dividends paid**                              |       | (30.0                                 | )          | (25.0                                | )          | (150.0 | ) | (105.0 | ) |
| **Retained  earnings at beginning of period**         |       | 979.7                                 |       | 1,176.1                              |       | 970.0 |   | 1,119.4 |   |
| **Retained  earnings at end of period**               |       | $                                     | 1,026.0    |                                 | $          | 1,215.8 |   | $ | 1,026.0 |   | $ | 1,215.8 |   |

 

See Notes toInterim Financial Statements.

 

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## **John Deere Capital Corporation and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                        | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** | **July 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| **Assets**                                                                                                        |       |                    |       |                       |       |                    |       |
| Cash and cash  equivalents                                                                                        |       | $                       | 195.7      |                       | $          | 209.5                   |       | $ | 220.6 |   |
| Receivables:                                                                                                      |       |                    |       |                       |       |                    |       |
| Retail notes                                                                                                      |       | 7,061.4                 |       | 6,873.7                    |       | 6,219.2                 |       |
| Restricted  securitized retail notes                                                                              |       | 1,447.1                 |       |                       |       |                    |       |
| Revolving charge  accounts                                                                                        |       | 1,494.8                 |       | 1,443.8                    |       | 1,415.9                 |       |
| Operating loans                                                                                                   |       | 374.8                   |       | 380.5                      |       | 391.0                   |       |
| Wholesale  receivables                                                                                            |       | 4,335.2                 |       | 3,480.5                    |       | 3,682.2                 |       |
| Financing leases                                                                                                  |       | 408.5                   |       | 406.0                      |       | 402.9                   |       |
| Total  receivables                                                                                                |       | 15,121.8                |       | 12,584.5                   |       | 12,111.2                |       |
| Allowance for  credit losses                                                                                      |       | (95.4                   | )          | (112.6                     | )          | (117.9                  | )          |
| Total  receivables – net                                                                                     |       | 15,026.4                |       | 12,471.9                   |       | 11,993.3                |       |
| Other  receivables                                                                                                |       | 77.3                    |       | 121.1                      |       | 128.3                   |       |
| Equipment on  operating leases – net                                                                         |       | 762.8                   |       | 757.6                      |       | 740.4                   |       |
| Investment in  unconsolidated affiliates                                                                          |       | 3.9                     |       | 3.9                        |       | 3.5                     |       |
| Other assets                                                                                                      |       | 319.2                   |       | 324.7                      |       | 303.9                   |       |
| **Total  Assets**                                                                                                 |       | $                       | 16,385.3   |                       | $          | 13,888.7                |       | $ | 13,390.0 |   |
| **Liabilities  and Stockholder’s Equity**                                                                    |       |                    |       |                       |       |                    |       |
| Short-term  borrowings:                                                                                           |       |                    |       |                       |       |                    |       |
| Commercial paper                                                                                                  |       | $                       | 1,918.2    |                       | $          | 1,553.8                 |       | $ | 1,349.2 |   |
| Other notes  payable                                                                                              |       | 1,471.3                 |       | 6.7                        |       | 6.2                     |       |
| John Deere                                                                                                        |       | 526.3                   |       | 1,241.2                    |       | 765.5                   |       |
| Current  maturities of long-term borrowings                                                                       |       | 1,647.7                 |       | 1,187.8                    |       | 1,509.8                 |       |
| Total short-term  borrowings                                                                                      |       | 5,563.5                 |       | 3,989.5                    |       | 3,630.7                 |       |
| Accounts payable  and accrued expenses                                                                            |       | 536.3                   |       | 448.0                      |       | 478.8                   |       |
| Deposits  withheld from dealers and merchants                                                                     |       | 160.7                   |       | 167.6                      |       | 171.0                   |       |
| Long-term  borrowings                                                                                             |       | 8,257.0                 |       | 7,476.7                    |       | 7,064.1                 |       |
| Total  liabilities                                                                                                |       | 14,517.5                |       | 12,081.8                   |       | 11,344.6                |       |
| 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                                                                                                |       | 1,026.0                 |       | 970.0                      |       | 1,215.8                 |       |
| Cumulative  translation adjustment                                                                                |       | 18.2                    |       | 23.7                       |       | 17.6                    |       |
| Unrealized gain  (loss) on derivatives                                                                            |       | 3.4                     |       | (5.1                       | )          | (7.0                    | )          |
| Unrealized gain  on investments                                                                                   |       | 7.4                     |       | 5.5                        |       | 6.2                     |       |
| Total  accumulated other comprehensive income                                                                     |       | 29.0                    |       | 24.1                       |       | 16.8                    |       |
| Total  stockholder’s equity                                                                                  |       | 1,867.8                 |       | 1,806.9                    |       | 2,045.4                 |       |
| **Total  Liabilities and Stockholder’s Equity**                                                              |       | $                       | 16,385.3   |                       | $          | 13,888.7                |       | $ | 13,390.0 |   |

 

See Notes toInterim Financial Statements.

 

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## **John Deere Capital Corporation and Subsidiaries**

**Statementsof Consolidated Cash Flows**

**Forthe Nine Months Ended July 31, 2005 and 2004**

**(Unaudited)**

(in millions)

 
| ** **                                                                         | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash  Flows from Operating Activities:**                                         |       |      |       |      |       |
| Net income                                                                         |       | $         | 206.0      |      | $          | 201.4 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |      |       |      |       |
| Provision  (credit) for credit losses                                              |       | (1.9      | )          | 32.0      |       |
| Provision for  depreciation and amortization                                       |       | 129.9     |       | 132.9     |       |
| Credit for  deferred income taxes                                                  |       | (8.0      | )          | (17.8     | )          |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.4       | )          | (.4       | )          |
| Other                                                                              |       | (27.3     | )          | 6.6       |       |
| Net cash  provided by operating activities                                         |       | 298.3     |       | 354.7     |       |
|                                                                               |       |      |       |      |       |
| **Cash  Flows from Investing Activities:**                                         |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (21,436.0 | )          | (19,448.6 | )          |
| Collections of  receivables                                                        |       | 18,739.4  |       | 16,538.9  |       |
| Cost of  operating leases acquired                                                 |       | (307.9    | )          | (229.7    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 181.2     |       | 259.4     |       |
| Change in notes  receivable – unconsolidated affiliates                       |       |      |       | 274.3     |       |
| Proceeds from  sales of receivables                                                |       | 127.4     |       | 1,932.6   |       |
| Other                                                                              |       | (3.1      | )          | 3.9       |       |
| Net cash used  for investing activities                                            |       | (2,699.0  | )          | (669.2    | )          |
|                                                                               |       |      |       |      |       |
| **Cash Flows  from Financing Activities:**                                         |       |      |       |      |       |
| Increase  (decrease) in commercial paper                                           |       | 375.0     |       | (355.4    | )          |
| Increase  (decrease) in other notes payable                                        |       | 1,464.1   |       | (61.7     | )          |
| Increase  (decrease) in payable with John Deere                                    |       | (714.9    | )          | 599.5     |       |
| Proceeds from  issuance of long-term borrowings                                    |       | 2,321.2   |       | 1,254.2   |       |
| Principal  payments on long-term borrowings                                        |       | (907.7    | )          | (1,145.9  | )          |
| Dividends paid                                                                     |       | (150.0    | )          | (105.0    | )          |
| Other                                                                              |       | .2        |       |      |       |
| Net cash  provided by financing activities                                         |       | 2,387.9   |       | 185.7     |       |
|                                                                               |       |      |       |      |       |
| **Effect  of exchange rate changes on cash**                                       |       | (1.0      | )          | 6.9       |       |
| **Net  decrease in cash and cash equivalents**                                     |       | (13.8     | )          | (121.9    | )          |
| **Cash  and cash equivalents at beginning of period**                              |       | 209.5     |       | 342.5     |       |
| **Cash  and cash equivalents at end of period**                                    |       | $         | 195.7      |      | $          | 220.6 |   |

 

See Notes toInterim Financial Statements.

 

4

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# **JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**(Unaudited)**

 

(1)                                                 The consolidated financialstatements of John Deere Capital Corporation (Capital Corporation) and itssubsidiaries (collectively called the Company) have been prepared by theCompany, without audit, pursuant to the rules and regulations of the U.S.Securities and Exchange Commission. Certain information and footnotedisclosures normally included in annual financial statements prepared inaccordance with accounting principles generally accepted in the U.S. have beencondensed or omitted as permitted by such rules and regulations. Alladjustments, consisting of normal recurring adjustments, have been included.Management believes that the disclosures are adequate to present fairly thefinancial position, results of operations and cash flows at the dates and forthe periods presented. It is suggested that these interim financial statementsbe read in conjunction with the financial statements and the notes theretoincluded in the Company’s latest annual report on Form 10-K. Results forinterim periods are not necessarily indicative of those to be expected for theyear.

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect the reported amounts and related disclosures. Actual results coulddiffer from those estimates.

 

Certain amountsfor prior years have been reclassified to conform with 2005 financial statementpresentations.

 

(2)                                                 The Company provides andadministers financing for retail purchases of new equipment manufactured byDeere & Company’s agricultural equipment, commercial and consumerequipment, and construction and forestry divisions and used equipment taken intrade for this equipment. The Company purchases retail installment sales andloan contracts (retail notes) from Deere & Company and itswholly-owned subsidiaries (collectively called John Deere). John Deere acquiresthese retail notes through John Deere retail dealers. The Company alsopurchases and finances a limited amount of non-Deere retail notes and continuesto service a small portfolio of recreational products and other retail notes.In addition, the Company leases John Deere equipment and a limited amount ofnon-Deere equipment to retail customers (financing and operating leases). TheCompany also finances and services revolving charge accounts, in most casesacquired from and offered through merchants in the agricultural, commercial andconsumer, and construction and forestry markets (revolving charge accounts).Further, the Company finances and services operating loans, in most casesoffered through and acquired from farm input providers or through directrelationships with agricultural producers (operating loans). The Company alsoprovides wholesale financing for inventories of John Deere engines and JohnDeere agricultural, commercial and consumer and construction and forestryequipment owned by dealers of those products (wholesale receivables), most ofwhich are originated by John Deere. The Company also offers insuredinternational export financing to select customers which generally involvesJohn Deere products. In addition, the Company offers certain crop riskmitigation 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 andLeases.”

 

(3)                                                 The Company’s ratio of earningsto fixed charges was 1.91 to 1 for the third quarter of 2005, compared with2.21 to 1 for the third quarter of 2004. The ratio of earnings to fixed chargeswas 1.95 to 1 for the first nine months of 2005 and 2.24 to 1 for the firstnine months of 2004. “Earnings” consist of income before income taxes, thecumulative 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 deemedto be representative of the interest factor and rental expense under operatingleases.

 

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(4)                                                 Comprehensive income, whichincludes all changes in the Company’s equity during the period excepttransactions with the stockholder, was as follows in millions of dollars:

 
| ** **                                      | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                      | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                            |       |                                  |       |                                 |       |   |   |   |   |
| Net Income                                      |       | $                                     | 76.3       |                                 | $          | 64.7 |   | $ | 206.0 |   | $ | 201.4 |   |
|                                            |       |                                  |       |                                 |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax: |       |                                  |       |                                 |       |   |   |   |   |
| Change in  cumulative translation adjustment    |       | (10.6                                 | )          | .2                                   |       | (5.5 | ) | 4.1 |   |
| Unrealized gain  on derivatives                 |       | 1.1                                   |       | 3.1                                  |       | 8.5 |   | 12.3 |   |
| Unrealized gain  (loss) on investments          |       | .8                                    |       | 1.4                                  |       | 1.9 |   | (.4 | ) |
| Total  comprehensive income                     |       | $                                     | 67.6       |                                 | $          | 69.4 |   | $ | 210.9 |   | $ | 217.4 |   |

 

(5)                                                 Beginning in the second quarterof 2005, the Company’s new securitizations of receivables held by specialpurpose entities (SPEs) met the criteria for secured financings rather thansales of receivables under Financial Accounting Standards Board (FASB)Statement No. 140, Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities. The borrowings related to thesesecuritizations of retail notes are included in short-term borrowings on thebalance sheet as shown in the following table. The securitized retail notes arerecorded as “Restricted securitized retail notes” on the balance sheet. Thetotal restricted assets recorded on the balance sheet related to thesesecuritizations include the restricted securitized retail notes less anallowance for credit losses, and other assets representing restricted cash asshown in the following table. In addition to the restricted assets, thecreditors of a SPE involved in secured borrowings and sales of receivablesrelated to a $2 billion revolving conduit facility have recourse to a letter ofcredit issued by the Company totaling approximately $78 million as of July 31,2005. A portion of the previous transfers of retail notes to this facilityqualified as sales of receivables under FASB Statement No. 140. As aresult, this letter of credit is also included in the maximum exposure to lossesfor receivables that have been sold, discussed below. The Company recognizesfinance income on these restricted retail notes on an effective-yield basis andprovides for credit losses incurred over the life of the retail notes in theallowance for credit losses.

 

The total components of consolidated restricted assetsrelated to securitizations were as follows (in millions of dollars):

 
| ** **                           | ** ** | **July 31,  2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| Restricted  securitized retail notes |       | $                       | 1,447.1    |   |
| Allowance for  credit losses         |       | (8.4                    | )          |
| Other assets                         |       | 36.8                    |       |
| Total restricted  securitized assets |       | $                       | 1,475.5    |   |

 

The components ofconsolidated secured liabilities related to securitizations were as follows (inmillions of dollars):

 
| ** **                                                  | ** ** | **July 31,  2005** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|
| Other notes  payable                                        |       | $                       | 1,464.0    |   |
| Accounts payable  and accrued expenses                      |       | 2.1                     |       |
| Total  liabilities related to restricted securitized assets |       | $                       | 1,466.1    |   |

 

Certain restricted retailnotes totaling $750 million on the balance sheet were transferred to a SPE thatis not consolidated since the Company is not the primary beneficiary, however,the transfer qualified as a secured financing rather than a sale. Theborrowings related to these restricted retail notes included above are theobligations to this SPE that are payable as the retail notes are liquidated.The other restricted retail notes totaling $697 million were transferred to aSPE that has been consolidated since the Company is the primary beneficiary.This SPE is not a qualified SPE under FASB Statement No. 140 and,therefore, not exempt from consolidation. These restricted retail notes are theprimary assets of this consolidated

 

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SPE. The borrowings included above for theconsolidated SPE are obligations to the creditors of the SPE that are alsopayable as the retail notes are liquidated. SPEs utilized in securitizations ofretail notes differ from other entities included in the Company’s consolidatedstatements because the assets they hold are legally isolated. For bankruptcyanalysis purposes, the Capital Corporation has sold the receivables to the SPEsin a true sale and the SPEs are separate legal entities from the CapitalCorporation. Use of the assets held by the SPEs is restricted by terms of thegoverning documents. Repayment of the secured borrowings depends primarily oncash flows generated by the restricted assets and the letter of creditmentioned above. At July 31, 2005, the maximum remaining term of therestricted receivables included in the restricted assets was approximately sixyears. 

 

The Company hasguarantees for certain recourse obligations on Receivables which it has sold inprior periods. These transactions qualified as sales of receivables and theretail notes are not included on the balance sheet. If the Receivables sold arenot collected, the Company would be required to cover those losses up to theamount of its recourse obligation. At July 31, 2005, the maximum amount ofexposure to losses under these agreements was $175 million. The estimated riskassociated with the sold receivables totaled $10 million at July 31, 2005.This risk of loss is recognized primarily in the retained interests on theCompany’s balance sheet related to these sold Receivables. The retainedinterests are related to assets held by unconsolidated SPEs. At July 31,2005, the assets of these SPEs related to the Company’s securitization and saleof retail notes totaled approximately $1,963 million. The Company may recover aportion of any required payments incurred under these agreements from therepossession of the equipment collateralizing the Receivables. At July 31,2005, the maximum remaining term of these guaranteed Receivables wasapproximately five years.

 

At July 31, 2005,John Deere Credit Inc., the John Deere finance subsidiary in Canada, had$55 million of commercial paper and $528 million of medium-term notesoutstanding that were guaranteed by the Company. In addition, the Company hasprovided letters of credit for John Deere Credit Inc. as part of retail notesales. At July 31, 2005, the Company’s maximum exposure under theseagreements was approximately $7 million.

 

At July 31, 2005,the Company had approximately $10 million of guarantees issued primarily tobanks outside the U.S. related to third-party receivables for the retailfinancing of John Deere equipment. The Company may recover a portion of anyrequired payments incurred under these agreements from repossession of theequipment collateralizing the receivables. At July 31, 2005, the Companyhad accrued losses of approximately $.2 million under these agreements. Themaximum remaining term of the receivables guaranteed at July 31, 2005 wasapproximately three years.

 

At July 31, 2005,the Company had guaranteed $30 million of residual value related to propertybeing used by the Company under an operating lease. The Company is obligated atthe end of the lease term to pay to the lessor any reduction in market value ofthe leased property up to the guaranteed residual value. The Company recognizesthe expense for this future estimated lease payment over the life of theoperating lease and had accrued expenses of $6 million related to thisagreement at July 31, 2005. The lease term expires in 2007.

 

The Company’s subsidiary,John Deere Risk Protection, Inc., offers crop insurance products through amanaging 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 theInsurance Carrier for selling crop insurance to producers.  The Company has guaranteed certainobligations under the MGA, including the obligation to pay the InsuranceCarrier for any uncollected premiums. At July 31, 2005 the maximumexposure for uncollected premiums was approximately $39 million. Substantiallyall of the Company’s crop insurance risk under the MGA has been mitigated bypublic 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 onevery 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 reinsurancecompanies on their reinsurance obligations, the Company would be required toreimburse the Insurance Carrier for the maximum exposure under the MGA ofapproximately $532 million at July 31, 2005. The Company believesthat the likelihood of the occurrence of substantially all of the events thatgive rise to the exposure under this MGA is extremely remote and as a result,at July 31, 2005, the Company has accrued probable losses of approximately$.1 million under the MGA.

 

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(6)                                                 In December 2004, the FASBissued Statement No. 123 (revised 2004), Share-Based Payment.  This Statement eliminated the alternative ofaccounting for share-based compensation under Accounting Principles Board (APB)Opinion No. 25. The revised standard generally requires the recognition ofthe cost of employee services for share-based compensation based on the grantdate fair value of the equity or liability instruments issued. The effectivedate for the Company is the beginning of fiscal year 2006. The adoption of thisStatement is not expected to have a material effect on the Company’s financialposition or net income.

 

In May 2005, theFASB issued Statement No. 154, Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3. ThisStatement requires voluntary changes in accounting principles to be recordedretrospectively for prior periods presented rather than a cumulative adjustmentin the current period.  This treatmentwould also be required for new accounting pronouncements if there are nospecific transition provisions.  Theaccounting for changes in estimates in the current period and the accountingfor errors as restatements of prior periods has not changed.  The adoption of this Statement is notexpected to have a material effect on the Company’s financial position or netincome.

 

(7)                                                 In October 2004, theAmerican Jobs Creation Act of 2004 (the Act) was signed into law. The Actintroduces a special one-time dividends received deduction on the repatriationof certain foreign earnings to a U.S. taxpayer (repatriation provision),provided certain criteria are met. The deduction would be 85 percent ofcertain foreign earnings that are repatriated in either an enterprise’s lasttax year that began before the enactment date (the Company’s 2004 fiscal taxyear), or the first tax year that begins during the one-year period beginningon the date of enactment (the Company’s 2005 fiscal tax year).  The impactof the provisions of the Act is not expected to have a material effect on theCompany’s financial position or net income.

 

(8)                                                 The Company is a participatingemployer in certain Deere & Company defined benefit pension plans foremployees in the U.S. and certain defined benefit pension plans outside theU.S. These pension plans provide for benefits that are based primarily on yearsof service and employee compensation. Pension expense is actuarially determinedbased on the Company’s employees included in the plan. The Company’s pensionexpense amounted to $3.2 million in the first nine months of 2005. Theaccumulated benefit obligation and plan net assets for the employees of theCompany are not determined separately from Deere & Company. TheCompany generally provides defined benefit health care and life insurance plansfor retired employees in the U.S. as a participating employer in Deere &Company’s sponsored plans. Health care and life insurance benefits expense isactuarially determined based on the Company’s employees included in the plansand amounted to $4.1 million during the first nine months of 2005. Furtherdisclosure for these plans is included in Deere & Company’s Form 10-Qfor the quarter ended July 31, 2005.

 

Item 2.             Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.

 

Results of 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.

 

8

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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. Despite solid overall financial condition in the U.S. farm sector, dryweather centered in important farm machinery markets has caused Deere &Company to turn more cautious with respect to its near-term outlook. However,farm cash receipts for 2005 are still expected to remain near last year’srecord, while the decline in corn and soybean production currently beingforecasted has benefited commodity prices. Deere & Company’sagricultural equipment sales were up 9 percent for the third quarter of 2005and 16 percent for the first nine months. These sales are forecast to be upapproximately 6 percent for the year, excluding the impact of exchange rates.Currency is expected to add approximately two percentage points to these salesfor the year. Deere & Company’s commercial and consumer equipmentsales decreased 3 percent in the third quarter of 2005 and 5 percent for thenine months as extreme weather patterns have contributed to a sharp drop in thesale of many types of lawn equipment. For the year, these sales are expected tobe down approximately 5 percent. Construction and forestry markets arecontinuing to experience growth as a result of positive U.S. economicconditions, a strong housing market, an overall increase in construction spendingand a rising global demand for paper products and lumber. Deere &Company’s construction and forestry sales increased 29 percent in the thirdquarter of 2005, 30 percent for the first nine months and are forecast toincrease approximately 21 percent for the year. The Company expects to reportnet income of approximately $270 million in 2005.

 

2005 Compared with 2004

 

Net income was $76.3million for the third quarter and $206.0 million for the first nine months of2005, compared with $64.7 million and $201.4 million, respectively, last year.The increases were primarily due to growth in the portfolio, as well as a lowercredit loss provision, partially offset by lower financing spreads. Last year,the results benefited from gains on retail notes sold during the third quarterand first nine months.

 

Revenues totaled $363.5million for the third quarter and $1,002.6 million for the first nine months of2005, compared to $300.8 million and $914.7 million, respectively, last year.The increase was primarily due to a 17 percent increase in the average balanceof Receivables and Leases financed during the first nine months of 2005compared to the first nine months of 2004, partially offset by lower gains onreceivable sales. Finance income earned on retail notes totaled $372.9 millionfor the first nine months of 2005, compared to $283.9 million for the sameperiod in 2004. This increase was primarily due to a 27 percent increase in theaverage retail note portfolio balances and increasing yields. Lease revenues decreased$9.3 million, to $189.7 million in the first nine months of 2005, from$199.0 million in the first nine months of 2004 primarily due to a6 percent decrease in the average amount of equipment on operating leases.Revenues earned on revolving charge accounts amounted to $137.6 million in thefirst nine months of 2005, a 14 percent increase over revenues of$120.7 million during the same period last year.  The increase was primarily due to growth ofFarm Planä and John DeereCredit Revolving Plan receivables in the first nine months of 2005, comparedwith the same period last year. Finance income earned on wholesale receivablestotaled $212.9 million for the first nine months of 2005, compared to $184.1million for the same period in 2004. This increase was primarily due to a 15percent increase in the average balance of wholesale receivables. Operatingloan income amounted to $17.3 million in the first nine months of 2005,compared to $17.8 million in the first nine months of 2004. The decrease was dueto a lower average balance of operating loan accounts, partially offset byincreasing yields. Revenues earned from Deere & Company totaled$109.1 million for the third quarter and $299.5 million for the first ninemonths of 2005, compared to $98.0 million and $278.2 million for the sameperiods last year.

 

The net gain onreceivables sold, including adjustments to prior sales related to cleanup callsand revaluations of retained interests and the related permanent impairments,totaled $.1 million for the third quarter and $4.9 million for the first ninemonths of 2005, compared to $7.5 million and $39.2 million for the same periodsa year ago. During the first nine months of 2004, the Company benefited fromthe sale of agricultural and construction and forestry retail notes ofapproximately $1,883 million total principal value.

 

Interest expense totaled$128.0 million for the third quarter and $328.6 million for the first ninemonths of 2005, compared to $79.2 million and $241.7 million for the sameperiods in 2004. The increases were due to higher average borrowings andincreases in borrowing rates.

 

Administrative andoperating expenses were $66.8 million in the third quarter and $190.0 millionfor the first nine months of 2005, compared with $65.5 million and $181.3million for the same periods in 2004. The increase for the first nine monthswas primarily due to higher employment costs.

 

9

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During the third quarterand first nine months of 2005, the credit for credit losses totaled $6.1million and $1.9 million, respectively, compared with the provision forcredit losses of $7.5 million and $32.0 million in the same periods last year.The year-to-date decrease reflects continued strong portfolio performance aswell as decreases in write-offs as compared to the same period a year ago. Forthe first nine months of 2005, the Company has experienced lower write-offs ofretail notes, operating loans, wholesale receivables and financing leases. Theannualized provision (credit) for credit losses, as a percentage of the averagebalance of total Receivables financed, was (.17) percent for the thirdquarter and (.02) percent for the first nine months of 2005, compared with .26percent and .37 percent for the same periods last year.

 

Fees paid to John Deerefor interest and support were $15.2 million in the third quarter and $43.7million for the first nine months of 2005, compared with $9.3 million and$25.1 million for the same periods in 2004. The increases were primarily due tohigher average borrowings from Deere & Company.

 

Depreciation of equipmenton operating leases was $41.7 million in the third quarter and $125.7 millionfor the first nine months of 2005, compared to $41.0 million and $128.4 millionfor the same periods in 2004. The decrease for the first nine months wasprimarily the result of lower average amounts of equipment on operating leases.

 

Receivable andLease acquisition volumes were as follows (in millions of dollars):

 
| ** **                           | ** ** | **Three Months  Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **2005**                              | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                                  |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                                     | 888.4      |       | $          | 890.1             |       | $ |  (1.7 | ) | 0 | % |
| Construction and  forestry equipment |       | 396.2                                 |       | 321.6      |       | 74.6              |       | 23 |   |
| Commercial and  consumer equipment   |       | 183.1                                 |       | 175.7      |       | 7.4               |       | 4 |   |
| Total retail  notes                  |       | 1,467.7                               |       | 1,387.4    |       | 80.3              |       | 6 |   |
| Revolving charge  accounts           |       | 986.1                                 |       | 946.6      |       | 39.5              |       | 4 |   |
| Operating loans                      |       | 333.0                                 |       | 417.0      |       | (84.0             | )          | (20 | ) |
| Wholesale  receivables               |       | 4,874.6                               |       | 4,354.5    |       | 520.1             |       | 12 |   |
| Financing leases                     |       | 66.0                                  |       | 60.1       |       | 5.9               |       | 10 |   |
| Equipment on  operating leases       |       | 129.9                                 |       | 89.6       |       | 40.3              |       | 45 |   |
| Total  Receivables and Leases        |       | $                                     | 7,857.3    |       | $          | 7,255.2           |       | $ | 602.1 |   | 8 | % |

 
| ** **                           | ** ** | **Nine Months  Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **2005**                             | ** ** | **2004**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                                 |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                                    | 2,912.0    |       | $          | 2,725.6           |       | $ | 186.4 |   | 7 | % |
| Construction and  forestry equipment |       | 1,018.7                              |       | 848.6      |       | 170.1             |       | 20 |   |
| Commercial and  consumer equipment   |       | 426.4                                |       | 466.0      |       | (39.6             | )          | (8 | ) |
| Total retail  notes                  |       | 4,357.1                              |       | 4,040.2    |       | 316.9             |       | 8 |   |
| Revolving charge  accounts           |       | 2,440.8                              |       | 2,384.2    |       | 56.6              |       | 2 |   |
| Operating loans                      |       | 950.1                                |       | 1,427.5    |       | (477.4            | )          | (33 | ) |
| Wholesale  receivables               |       | 13,527.1                             |       | 11,456.4   |       | 2,070.7           |       | 18 |   |
| Financing leases                     |       | 160.8                                |       | 140.4      |       | 20.4              |       | 15 |   |
| Equipment on  operating leases       |       | 307.9                                |       | 229.7      |       | 78.2              |       | 34 |   |
| Total Receivables  and Leases        |       | $                                    | 21,743.8   |       | $          | 19,678.4          |       | $ | 2,065.4 |   | 10 | % |

 

Retail note volumes increased during the third quarterof 2005, when compared to last year, primarily due to increases in retail salesof John Deere construction and forestry equipment. Retail note volumesincreased during the first nine months of 2005, when compared to last year,primarily due to increases in retail sales of John Deere agricultural andconstruction and forestry equipment. Wholesale receivable volumes increasedduring the third quarter and first nine months of 2005, when compared to lastyear, primarily due to increased shipments of John Deere equipment as a resultof strong retail demand in the agricultural and construction and forestrymarkets.

 

10

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Total Receivables and Leases held were as follows (inmillions of dollars):

 
| ** **                           | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** | **July 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Retail notes:                        |       |                    |       |                       |       |                    |       |
| Agricultural  equipment              |       | $                       | 5,647.6    |                       | $          | 4,450.4                 |       | $ | 3,944.2 |   |
| Construction and  forestry equipment |       | 1,813.0                 |       | 1,406.1                    |       | 1,270.9                 |       |
| Commercial and  consumer equipment   |       | 1,023.1                 |       | 983.9                      |       | 966.9                   |       |
| Recreational  products               |       | 24.8                    |       | 33.3                       |       | 37.2                    |       |
| Total retail  notes                  |       | 8,508.5                 |       | 6,873.7                    |       | 6,219.2                 |       |
| Revolving charge  accounts           |       | 1,494.8                 |       | 1,443.8                    |       | 1,415.9                 |       |
| Operating loans                      |       | 374.8                   |       | 380.5                      |       | 391.0                   |       |
| Wholesale  receivables               |       | 4,335.2                 |       | 3,480.5                    |       | 3,682.2                 |       |
| Financing leases                     |       | 408.5                   |       | 406.0                      |       | 402.9                   |       |
| Equipment on  operating leases       |       | 762.8                   |       | 757.6                      |       | 740.4                   |       |
| Total  Receivables and Leases        |       | $                       | 15,884.6   |                       | $          | 13,342.1                |       | $ | 12,851.6 |   |

 

Receivables and Leasesadministered by the Company were as follows (in millions of dollars):

 
| ** **                                                    | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** | **July 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Receivables and  Leases administered:                         |       |                    |       |                       |       |                    |       |
| Owned by the  Company                                         |       | $                       | 14,437.5   |                       | $          | 13,342.1                |       | $ | 12,851.6 |   |
| Owned by the  Company – restricted due to securitization |       | 1,447.1                 |       |                       |       |                    |       |
| Total  Receivables and Leases owned by the Company            |       | 15,884.6                |       | 13,342.1                   |       | 12,851.6                |       |
| Sold and  serviced – with limited recourse*              |       | 1,894.9                 |       | 3,027.6                    |       | 3,082.7                 |       |
| Sold and  serviced – without recourse**                  |       | 19.0                    |       | 24.5                       |       | 26.8                    |       |
| Total  Receivables and Leases administered                    |       | $                       | 17,798.5   |                       | $          | 16,394.2                |       | $ | 15,961.1 |   |

 

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*                                         TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat July 31, 2005, October 31, 2004 and July 31, 2004 was $175million, $203 million and $203 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 July 31,2005, October 31, 2004 and July 31, 2004, the Company’s maximumexposure under these agreements was approximately $7 million, $8 millionand $5 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 amounts60 days or more past due in the table below represent the amount of allcustomer payments past due 60 days or more, by product, and as a percent of therespective receivables.  They are asfollows (in millions of dollars):

 
| ** **                           | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** | **July 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **Dollars**             | ** ** | **Percent**                | ** ** | **Dollars**             | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                    |       |                       |       |                    |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                       | 10.0       |                       | .18        | %                       | $          | 9.9 |   | .22 | % | $ | 12.0 |   | .30 | % |
| Construction and  forestry equipment |       | 4.3                     |       | .24                        |       | 4.7                     |       | .33 |   | 6.9 |   | .54 |   |
| Commercial and  consumer equipment   |       | 1.0                     |       | .10                        |       | 1.1                     |       | .11 |   | 1.3 |   | .13 |   |
| Recreational products                |       | .1                      |       | .40                        |       | .1                      |       | .30 |   | .1 |   | .27 |   |
| Total retail  notes                  |       | 15.4                    |       | .18                        |       | 15.8                    |       | .23 |   | 20.3 |   | .33 |   |
| Revolving charge  accounts*          |       | 9.7                     |       | .65                        |       | 12.6                    |       | .87 |   | 10.2 |   | .72 |   |
| Operating loans                      |       | .5                      |       | .13                        |       | .9                      |       | .24 |   | 3.7 |   | .95 |   |
| Wholesale  receivables               |       | 2.9                     |       | .07                        |       | 7.9                     |       | .23 |   | 9.6 |   | .26 |   |
| Financing leases                     |       | 4.0                     |       | .98                        |       | 3.2                     |       | .79 |   | 3.3 |   | .82 |   |
| Total  Receivables                   |       | $                       | 32.5       |                       | .21        | %                       | $          | 40.4 |   | .32 | % | $ | 47.1 |   | .39 | % |

 

----

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

 

The balance of retailnotes held (principal plus accrued interest) with any installment 60 days ormore past due represents the total retail note balance for a customer who hasany portion of his note 60 days or more past due. These amounts were $74million, $71 million and $77 million at July 31, 2005, October 31,2004 and July 31, 2004, respectively. The balances of retail notes held onwhich any installment was 60 days or more past due as a percentage of theending retail notes receivable was .86, 1.03 and 1.24 percent at July 31,2005, October 31, 2004 and July 31, 2004, respectively.

 

Total non-performingReceivables, which represent loans the Company has ceased accruing interestfor, by product, and as a percent of the respective receivables were as follows(in millions of dollars):

 
| ** **                           | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** | **July 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **Dollars**             | ** ** | **Percent**                | ** ** | **Dollars**             | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                    |       |                       |       |                    |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                       | 13.6       |                       | .24        | %                       | $          | 15.1 |   | .34 | % | $ | 19.1 |   | .48 | % |
| Construction and  forestry equipment |       | 7.9                     |       | .44                        |       | 7.1                     |       | .51 |   | 10.3 |   | .81 |   |
| Commercial and  consumer equipment   |       | 3.0                     |       | .30                        |       | 2.5                     |       | .25 |   | 2.9 |   | .30 |   |
| Recreational  products               |       | .5                      |       | 2.02                       |       | .4                      |       | 1.20 |   | .1 |   | .27 |   |
| Total retail  notes                  |       | 25.0                    |       | .29                        |       | 25.1                    |       | .37 |   | 32.4 |   | .52 |   |
| Revolving charge  accounts           |       | .5                      |       | .03                        |       |                    |       |   |   |   |   |   |   |
| Operating loans                      |       | 24.6                    |       | 6.56                       |       | 24.1                    |       | 6.33 |   | 24.5 |   | 6.27 |   |
| Wholesale  receivables               |       | .2                      |       | .00                        |       | 1.1                     |       | .03 |   | 6.9 |   | .19 |   |
| Financing leases                     |       | 7.8                     |       | 1.92                       |       | 6.6                     |       | 1.63 |   | 8.8 |   | 2.18 |   |
| Total  Receivables                   |       | $                       | 58.1       |                       | .38        | %                       | $          | 56.9 |   | .45 | % | $ | 72.6 |   | .60 | % |

 

12

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Total Receivablewrite-off amounts, net of recoveries, by product, and as an annualizedpercentage of average balances held during the period, are as follows (inmillions of dollars):

 
| ** **                           | ** ** | **Three Months Ended  July 31,  2005** | ** ** | **Three Months Ended  July 31,  2004** | ** ** |
|--------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                           | ** ** | **Dollars**                                 | ** ** | **Percent**                                 | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                                        |       |                                        |       |   |   |   |   |
| Agricultural  equipment              |       | $                                           | .1         |                                        | .00        | % | $ | 1.3 |   | .14 | % |
| Construction and  forestry equipment |       | .3                                          |       | .07                                         |       | .8 |   | .27 |   |
| Commercial and  consumer equipment   |       | .1                                          |       | .06                                         |       | (.1 | ) | (.04 | ) |
| Recreational  products               |       | .2                                          |       | 3.08                                        |       | .3 |   | 3.05 |   |
| Total retail  notes                  |       | .7                                          |       | .03                                         |       | 2.3 |   | .16 |   |
| Revolving charge  accounts           |       | 4.0                                         |       | 1.12                                        |       | 2.2 |   | .67 |   |
| Operating loans                      |       | (.3                                         | )          | (.32                                        | )          | .8 |   | .74 |   |
| Wholesale  receivables               |       | (.2                                         | )          | (.02                                        | )          | 6.2 |   | .68 |   |
| Financing leases                     |       | (.6                                         | )          | (.60                                        | )          | .6 |   | .60 |   |
| Total  Receivables                   |       | $                                           | 3.6        |                                        | .09        | % | $ | 12.1 |   | .41 | % |

 
| ** **                           | ** ** | **Nine Months Ended  July 31,  2005** | ** ** | **Nine Months Ended  July 31,  2004** | ** ** |
|--------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | **Dollars**                                | ** ** | **Percent**                                | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                                       |       |                                       |       |   |   |   |   |
| Agricultural  equipment              |       | $                                          | (.4        | )                                          | (.01       | )% | $ | 1.5 |   | .05 | % |
| Construction and  forestry equipment |       | 1.3                                        |       | .11                                        |       | 4.0 |   | .44 |   |
| Commercial and  consumer equipment   |       | .5                                         |       | .07                                        |       | .3 |   | .04 |   |
| Recreational  products               |       | .7                                         |       | 3.15                                       |       | .7 |   | 2.10 |   |
| Total retail  notes                  |       | 2.1                                        |       | .04                                        |       | 6.5 |   | .14 |   |
| Revolving charge  accounts           |       | 14.3                                       |       | 1.48                                       |       | 10.5 |   | 1.26 |   |
| Operating loans                      |       | (.9                                        | )          | (.32                                       | )          | 2.3 |   | .62 |   |
| Wholesale  receivables               |       | (.4                                        | )          | (.01                                       | )          | 6.5 |   | .25 |   |
| Financing leases                     |       | .3                                         |       | .10                                        |       | 2.6 |   | .85 |   |
| Total  Receivables                   |       | $                                          | 15.4       |                                       | .14        | % | $ | 28.4 |   | .33 | % |

 

Deposits withheld fromdealers and merchants, representing mainly the aggregate dealer retail note andlease withholding accounts from individual John Deere dealers to which lossesfrom retail notes and leases originating from the respective dealers can becharged, amounted to $161 million at July 31, 2005 compared with $168million at October 31, 2004 and $171 million at July 31, 2004.

 

The Company’s allowancefor credit losses on all Receivables financed totaled $95 million at July 31,2005, $113 million at October 31, 2004 and $118 million at July 31,2004. The allowance for credit losses represented .63 percent of the totalReceivables financed at July 31, 2005, .89 percent at October 31,2004 and .97 percent at July 31, 2004. The level of the allowance is basedon many quantitative and qualitative factors, including historical lossexperience by product category, portfolio duration, delinquency trends,economic conditions and credit risk quality. The Company believes its allowanceis sufficient to provide for losses in its existing receivable portfolio.

 

13

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Safe Harbor Statement

 

*SafeHarbor Statement under the Private 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 thatpotentially could materially affect the Company’s and John Deere’s financialresults, is included in the most recent Deere & Company Form 10-Kand other Deere & Company and Capital Corporation filings with theSecurities and Exchange Commission.

 

Critical AccountingPolicies

 

See the Company’scritical accounting policies discussed in the Management’s Discussion andAnalysis of the most recent annual report filed on Form 10-K.  There have been no material changes to thesepolicies.

 

Capital Resources andLiquidity

 

The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. During the first nine months of 2005, the Company issued$2,321 million of term debt and $1,584 million of on-balance sheet securedborrowings, maintained an average commercial paper balance of $1,705 millionand received proceeds of $127 million from sales of Receivables. At July 31,2005, the Company’s funding profile included $1,918 million of commercialpaper, $1,464 million of notes payable related to on-balance sheetsecuritization funding, $526 million of intercompany loans from Deere & Company,$9,905 million of unsecured term debt, $1,827 million of off-balance sheetsecuritization funding and $1,868 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 market accessibility.

 

During the first ninemonths of 2005, the aggregate net cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Net cashprovided by operating activities was $298 million in the first nine months of2005. Cash provided by financing activities totaled $2,388 million in the firstnine months of 2005, resulting primarily from a net increase in total externalborrowings, partially offset by a decrease in payables to Deere &Company and dividends paid to John Deere Credit Company, which in turn paidcomparable dividends to Deere & Company. Net cash used for investingactivities totaled $2,699 million in the first nine months of 2005, primarilydue to the cost of Receivables and Leases acquired exceeding the collections ofReceivables and Leases. Cash and cash equivalents decreased $14 millionduring the first nine months of 2005.

 

During the first ninemonths of 2004, the aggregate net cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Net cashprovided by operating activities was $355 million in the first nine months of2004. Cash provided by financing activities totaled $186 million in the firstnine months of 2004, resulting primarily from a net increase in payables toDeere & Company, partially offset by a decrease in total externalborrowings and dividends paid to John Deere Credit Company, which in turn paidcomparable dividends to Deere & Company. Net cash used for investingactivities totaled $669 million in the first nine months of 2004, primarily dueto the cost of Receivables and Leases acquired exceeding the collections ofReceivables and Leases, partially offset by proceeds from sales of Receivables.Cash and cash equivalents decreased $122 million during the first ninemonths of 2004.

 

Because of the multiplefunding sources that have been and continue to be available to the Company, theCompany expects to have sufficient sources of liquidity to meet its ongoingfunding needs.  The Company’s commercialpaper outstanding at July 31, 2005, October 31, 2004 and July 31,2004 was approximately $1,918 million, $1,554 million and $1,349 million,respectively, while the total cash and cash equivalents position wasapproximately $196 million, $210 million and $221 million, respectively.Additionally, the Company had access to approximately $1,827 million, $2,915million and $3,057 million, respectively, of cash and cash equivalents held byits parent, Deere & Company (if Deere & Company had chosento make these funds available to the Company). In addition, the Company has for many years accessed diverse fundingsources, including short-term and long-term unsecured debt capital marketsglobally, as well as public and private securitization markets in the U.S. TheCompany also has access to unsecured bank lines of credit.

 

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The Company’s ability toobtain funding is affected by its debt ratings, which are closely related tothe outlook for and the financial condition of Deere & Company, andthe nature and availability of support facilities, such as its lines of creditand the support agreement from Deere & Company. For informationregarding Deere & Company and its business, see the Company’s most recentlyfiled annual report on Form 10-K and quarterly report on Form 10-Q.

 

To access public debtcapital markets, the Company relies on selected credit rating agencies toassign short-term and long-term credit ratings to the Company’s securities asan indicator of credit quality for fixed income investors.  A security rating is not a recommendation bythe rating agency to buy, sell or hold Company securities.  A credit rating agency may change or withdrawCompany ratings based on its assessment of the Company’s current and futureability to meet interest and principal repayment obligations.  Lower credit ratings generally result inhigher borrowing costs and reduced access to debt capital markets.

 

The senior long-term andshort-term debt ratings and outlook currently assigned to unsecured Companysecurities by the rating agencies engaged by the Company are the same as thosefor Deere & Company.  Thoseratings are as follows:

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

 

Total interest-bearingindebtedness amounted to $13,821 million at July 31, 2005, which included$1,464 million of on-balance sheet secured borrowings (see Note 5), comparedwith $11,467 million at October 31, 2004 and $10,695 million at July 31,2004, generally corresponding with the level of Receivables and Leases financedand the level of cash and cash equivalents. Total short-term indebtednessamounted to $5,564 million at July 31, 2005, which included $1,464 millionof on-balance sheet secured borrowings, compared with $3,990 million at October 31,2004 and $3,631 million at July 31, 2004, while total long-termindebtedness amounted to $8,257 million, $7,477 million and $7,064 million atthese dates, respectively. The ratio of total interest-bearing debt tostockholder’s equity was 7.4 to 1, 6.3 to 1 and 5.2 to 1 at July 31,2005, October 31, 2004 and July 31, 2004, respectively.  This increase in the ratio of totalinterest-bearing debt to stockholder’s equity is partly due to the on-balancesheet secured borrowings. The ratio of total interest-bearing debt tostockholder’s equity excluding any on-balance sheet secured borrowings is 6.6to 1 at July 31, 2005.

 

The Company issued $2,321million and retired $908 million of unsecured borrowings during the first ninemonths of 2005, which were primarily medium-term notes.

 

The Company’s ability tomeet its debt obligations is supported in a number of ways. All commercialpaper issued is backed by unsecured, committed bank credit lines from variousbanks. The assets of the Company are self-liquidating in nature. A strongequity position is available to absorb unusual losses on these assets.Liquidity is also provided by the Company’s ability to sell these assets. TheCompany also maintains uncommitted, unsecured lines of credit with variousbanks.

 

At July 31, 2005,the Capital Corporation and Deere & Company jointly maintained $2,642million of unsecured lines of credit with various banks, $516 million of whichwere unused. For the purpose of computingunused credit lines, commercial paper and short-term bank borrowings, excludingon-balance sheet secured borrowings and the current portion of long-termborrowings of the Capital Corporation and Deere & Company, wereconsidered to constitute utilization. Included in the total credit lines at July 31, 2005 wasa long-term credit facility agreement of $1,250 million, expiring in February 2009,and a long-term credit facility agreement of $625 million, expiring in February 2010,for a total of $1,875 million long-term. The facility fees payable under theselines of credit are divided between Deere & Company and the CapitalCorporation based on the proportion of their respective commercial paperoutstanding.

 

The Company utilizes arevolving conduit facility, special purpose entity (SPE), to securitizefloating rate agricultural retail notes. This facility has a capacity, or “purchaselimit,” of up to $2 billion in secured financings or sales outstanding at anytime. Multiple conduits participate in this facility, which has no finalmaturity date. Instead, upon the Company’s request, each conduit may elect torenew its commitment on an annual basis. However, if this facility is notrenewed, the Company would liquidate the securitizations as the retail notesare collected. At July 31, 2005, $1,951 million was outstanding under thefacility of which $758 million was recorded on the Company’s balance sheet (seeNote 5). At July 31, 2004, $1,850 million was outstanding under thefacility of which none was included on the balance sheet. The amounts ofborrowings and retail notes that are recorded on the balance sheet depend onwhether terms of the transfer of retail notes to the SPE meet the criteria fora secured borrowing or a sale of receivables under FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities.

 

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Stockholder’s equity was$1,868 million at July 31, 2005, compared with $1,807 million at October 31,2004 and $2,045 million at July 31, 2004. The increase in the first ninemonths of 2005 resulted primarily from net income of $206 million and a $5million increase in accumulated other comprehensive income, partially offset bydividend payments of $150 million.

 

The Capital Corporationdeclared and paid cash dividends of $150 million to John Deere Credit Companyduring the first nine months of fiscal 2005. John Deere Credit Company paidcomparable dividends to Deere & Company.

 

The financing of retailpurchases and leases of John Deere products and of wholesale receivables owedby John Deere dealers represented approximately 84 percent of the Company’sacquisition volume for the nine months ended July 31, 2005, compared withapproximately 80 percent for the same period in 2004. Any extended reduction orsuspension of John Deere’s sale or production of products due to a decline indemand or production, technological difficulties, governmental actions or otherevents could have an adverse effect on the Company’s acquisition volume ofReceivables and Leases.  For additionalinformation on the Company’s dependence on and relationships with Deere &Company, see the Company’s most recently filed annual report on Form 10-K.

 

Item 3.                                                    Quantitativeand Qualitative Disclosures About Market Risk.

 

See the Company’s mostrecent annual report filed on Form 10-K (Item 7A). There has been nomaterial change in this information.

 

Item 4.                                                    Controlsand Procedures.

 

The Company’s principalexecutive officer and its principal financial officer have concluded that theCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (“the Act”))were effective as of July 31, 2005, based on the evaluation of thesecontrols and procedures required by Rule 13a-15(b) or 15d-15(b) ofthe Act.

 

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PART II.  OTHERINFORMATION

 
| 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:  | September 2, 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  July 31, 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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