**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

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**FORM 10-Q**

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

 

**For the quarterly period ended July 31, 2004**

 

**Commission file no: 1-6458**

 

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**JOHN DEERE CAPITAL CORPORATION**

 
| **Delaware**                                                 | ** ** | **36-2386361**                    |
|--------------------------------------------------------------|------------|-----------------------------------|
| (State of incorporation)                                     | ** ** | (IRS employer identification no.) |
| ** **                                                   | ** ** | ** **                        |
| **1 East First Street, Suite 600  Reno, Nevada  89501** |
| (Address of principal executive offices)                     |
|                                                         |       |                              |
| Telephone Number:  **(775) 786-5527**                   |

 

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Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý  No  o

 

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

Yes  o  No  ý

 

At July 31, 2004, 2,500 sharesof common stock, without par value, of the registrant were outstanding, all ofwhich were owned by John Deere Credit Company, a wholly-owned subsidiary ofDeere & Company.

 

The registrant meets theconditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and istherefore filing this Form with certain reduced disclosures as permitted bythose instructions.

 

 

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PART I.  FINANCIAL INFORMATION

 

Item 1.     Financial Statements.

 

**John Deere Capital Corporation andSubsidiariesStatements of Consolidated Income and Retained Earnings(Unaudited)**

(in millions)

 
| ** **                                            | ** ** | **Three Months Ended****July 31,** | ** ** | **Nine Months Ended****July 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ** **                                            | ** ** | **2004**                           | ** ** | **2003**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Revenues**                                          |       |                               |       |                              |       |   |   |   |   |
| Finance income earned on retail notes                 |       | $                                  | 91.1       |                              | $          | 105.8 |   | $ | 283.9 |   | $ | 306.0 |   |
| Lease revenues                                        |       | 63.5                               |       | 79.2                              |       | 199.0 |   | 256.1 |   |
| Revolving charge account income                       |       | 45.5                               |       | 40.6                              |       | 120.7 |   | 106.8 |   |
| Finance income earned on wholesale  receivables       |       | 66.1                               |       | 64.3                              |       | 180.4 |   | 180.4 |   |
| Operating loan income                                 |       | 5.4                                |       | 7.9                               |       | 17.8 |   | 23.6 |   |
| Securitization and servicing fee income               |       | 12.6                               |       | 11.5                              |       | 37.0 |   | 36.9 |   |
| Net gain on receivables sold                          |       | 7.5                                |       | 23.8                              |       | 39.2 |   | 38.1 |   |
| Interest income from short–term investments      |       | .5                                 |       | 4.8                               |       | 7.4 |   | 11.1 |   |
| Other income                                          |       | 8.6                                |       | 5.1                               |       | 29.3 |   | 20.1 |   |
| Total revenues                                        |       | 300.8                              |       | 343.0                             |       | 914.7 |   | 979.1 |   |
| **Expenses**                                          |       |                               |       |                              |       |   |   |   |   |
| Interest expense                                      |       | 79.2                               |       | 93.4                              |       | 241.7 |   | 274.7 |   |
| Operating expenses:                                   |       |                               |       |                              |       |   |   |   |   |
| Administrative and operating expenses                 |       | 65.5                               |       | 50.3                              |       | 181.3 |   | 146.0 |   |
| Provision for credit losses                           |       | 7.5                                |       | 22.7                              |       | 32.0 |   | 55.5 |   |
| Fees paid to John Deere                               |       | 9.3                                |       | 6.6                               |       | 25.1 |   | 21.0 |   |
| Depreciation of equipment on operating  leases        |       | 41.0                               |       | 47.3                              |       | 128.4 |   | 160.1 |   |
| Total operating expenses                              |       | 123.3                              |       | 126.9                             |       | 366.8 |   | 382.6 |   |
| Total expenses                                        |       | 202.5                              |       | 220.3                             |       | 608.5 |   | 657.3 |   |
| **Income of consolidated group before income  taxes** |       | 98.3                               |       | 122.7                             |       | 306.2 |   | 321.8 |   |
| **Provision for income taxes**                        |       | 33.7                               |       | 43.0                              |       | 105.2 |   | 112.4 |   |
| **Income of consolidated group**                      |       | 64.6                               |       | 79.7                              |       | 201.0 |   | 209.4 |   |
| **Equity in income of unconsolidated  affiliates**    |       | .1                                 |       | .1                                |       | .4 |   | .2 |   |
| **Net income**                                        |       | 64.7                               |       | 79.8                              |       | 201.4 |   | 209.6 |   |
| **Cash dividends paid**                               |       | (25.0                              | )          | (40.0                             | )          | (105.0 | ) | (90.0 | ) |
| **Retained earnings at beginning of period**          |       | 1,176.1                            |       | 1,123.7                           |       | 1,119.4 |   | 1,043.9 |   |
| **Retained earnings at end of period**                |       | $                                  | 1,215.8    |                              | $          | 1,163.5 |   | $ | 1,215.8 |   | $ | 1,163.5 |   |

 

See Notes to Interim Financial Statements.

 

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**John Deere Capital Corporation andSubsidiaries**

**Consolidated Balance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                       | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** | **July 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| **Assets**                                                                                                       |       |               |       |                  |       |               |       |
| Cash and cash equivalents                                                                                        |       | $                  | 220.6      |                  | $          | 342.5              |       | $ | 344.5 |   |
| Receivables:                                                                                                     |       |               |       |                  |       |               |       |
| Retail notes                                                                                                     |       | 6,219.2            |       | 6,109.7               |       | 5,497.8            |       |
| Revolving charge accounts                                                                                        |       | 1,415.9            |       | 1,117.4               |       | 1,116.5            |       |
| Operating loans                                                                                                  |       | 391.0              |       | 541.4                 |       | 619.3              |       |
| Wholesale receivables                                                                                            |       | 3,682.2            |       | 2,904.6               |       | 3,523.9            |       |
| Financing leases                                                                                                 |       | 402.9              |       | 427.3                 |       | 430.9              |       |
| Total receivables                                                                                                |       | 12,111.2           |       | 11,100.4              |       | 11,188.4           |       |
| Allowance for credit losses                                                                                      |       | (117.9             | )          | (123.8                | )          | (126.5             | )          |
| Total receivables – net                                                                                     |       | 11,993.3           |       | 10,976.6              |       | 11,061.9           |       |
| Notes receivable – unconsolidated  affiliates                                                               |       |               |       | 274.3                 |       | 300.3              |       |
| Other receivables                                                                                                |       | 128.3              |       | 142.9                 |       | 141.8              |       |
| Equipment on operating leases – net                                                                         |       | 740.4              |       | 879.2                 |       | 908.8              |       |
| Investment in unconsolidated affiliates                                                                          |       | 3.5                |       | 3.0                   |       | 2.9                |       |
| Other assets                                                                                                     |       | 303.9              |       | 337.1                 |       | 377.1              |       |
| **Total Assets**                                                                                                 |       | $                  | 13,390.0   |                  | $          | 12,955.6           |       | $ | 13,137.3 |   |
| **Liabilities and Stockholder’s Equity**                                                                    |       |               |       |                  |       |               |       |
| Short-term borrowings:                                                                                           |       |               |       |                  |       |               |       |
| Commercial paper                                                                                                 |       | $                  | 1,349.2    |                  | $          | 1,691.8            |       | $ | 1,995.0 |   |
| Other notes payable                                                                                              |       | 6.2                |       | 66.4                  |       | 15.0               |       |
| John Deere                                                                                                       |       | 765.5              |       | 166.0                 |       | 117.3              |       |
| Current maturities of long-term borrowings                                                                       |       | 1,509.8            |       | 1,592.2               |       | 1,402.3            |       |
| Total short-term borrowings                                                                                      |       | 3,630.7            |       | 3,516.4               |       | 3,529.6            |       |
| Accounts payable and accrued liabilities:                                                                        |       |               |       |                  |       |               |       |
| Accrued interest on debt                                                                                         |       | 91.5               |       | 65.1                  |       | 89.4               |       |
| Other payables                                                                                                   |       | 387.3              |       | 374.2                 |       | 425.8              |       |
| Total accounts payable and accrued  liabilities                                                                  |       | 478.8              |       | 439.3                 |       | 515.2              |       |
| Deposits withheld from dealers and  merchants                                                                    |       | 171.0              |       | 159.5                 |       | 150.2              |       |
| Long-term borrowings:                                                                                            |       |               |       |                  |       |               |       |
| Senior debt                                                                                                      |       | 7,064.1            |       | 6,757.4               |       | 6,841.8            |       |
| Subordinated debt                                                                                                |       |               |       | 150.0                 |       | 150.0              |       |
| Total long-term borrowings                                                                                       |       | 7,064.1            |       | 6,907.4               |       | 6,991.8            |       |
| Total liabilities                                                                                                |       | 11,344.6           |       | 11,022.6              |       | 11,186.8           |       |
| 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                                                                                                |       | 1,215.8            |       | 1,119.4               |       | 1,163.5            |       |
| Cumulative translation adjustment                                                                                |       | 17.6               |       | 13.5                  |       | 8.9                |       |
| Unrealized loss on derivatives                                                                                   |       | (7.0               | )          | (19.3                 | )          | (35.6              | )          |
| Unrealized gain on investments                                                                                   |       | 6.2                |       | 6.6                   |       | .9                 |       |
| Total accumulated other comprehensive  income (loss)                                                             |       | 16.8               |       | .8                    |       | (25.8              | )          |
| Total stockholder’s equity                                                                                  |       | 2,045.4            |       | 1,933.0               |       | 1,950.5            |       |
| **Total Liabilities and Stockholder’s Equity**                                                              |       | $                  | 13,390.0   |                  | $          | 12,955.6           |       | $ | 13,137.3 |   |

 

See Notes to Interim Financial Statements.

 

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**John Deere Capital Corporation andSubsidiaries**

**Condensed Statements of Consolidated CashFlows**

**For the Nine Months Ended July 31, 2004 and2003**

**(Unaudited)**

(in millions)

 
| ** **                                                                        | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating Activities:**                                         |       |      |       |      |       |
| Net income                                                                        |       | $         | 201.4      |      | $          | 209.6 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities |       | 153.3     |       | 166.6     |       |
| Net cash provided by operating activities                                         |       | 354.7     |       | 376.2     |       |
|                                                                              |       |      |       |      |       |
| **Cash Flows from Investing Activities:**                                         |       |      |       |      |       |
| Cost of receivables acquired                                                      |       | (19,448.6 | )          | (15,311.8 | )          |
| Collections of receivables                                                        |       | 16,538.9  |       | 12,882.9  |       |
| Cost of operating leases acquired                                                 |       | (229.7    | )          | (190.6    | )          |
| Proceeds from sales of equipment on operating  leases                             |       | 259.4     |       | 320.4     |       |
| Change in notes receivable – unconsolidated  affiliates                      |       | 274.3     |       | (40.4     | )          |
| Proceeds from sales of receivables                                                |       | 1,932.6   |       | 1,542.9   |       |
| Other                                                                             |       | 3.9       |       | 20.3      |       |
| Net cash used for investing activities                                            |       | (669.2    | )          | (776.3    | )          |
|                                                                              |       |      |       |      |       |
| **Cash Flows from Financing Activities:**                                         |       |      |       |      |       |
| Increase (decrease) in commercial paper                                           |       | (355.4    | )          | 529.6     |       |
| Decrease in other notes payable                                                   |       | (61.7     | )          | (20.7     | )          |
| Increase (decrease) in payable with John  Deere                                   |       | 599.5     |       | (564.5    | )          |
| Proceeds from issuance of long-term borrowings                                    |       | 1,254.2   |       | 2,620.1   |       |
| Principal payments on long-term borrowings                                        |       | (1,145.9  | )          | (1,887.7  | )          |
| Dividends paid                                                                    |       | (105.0    | )          | (90.0     | )          |
| Net cash provided by financing activities                                         |       | 185.7     |       | 586.8     |       |
|                                                                              |       |      |       |      |       |
| **Effect of exchange rate changes on cash**                                       |       | 6.9       |       | 10.0      |       |
| **Net increase (decrease) in cash and cash  equivalents**                         |       | (121.9    | )          | 196.7     |       |
| **Cash and cash equivalents at beginning of  period**                             |       | 342.5     |       | 147.8     |       |
| **Cash and cash equivalents at end of period**                                    |       | $         | 220.6      |      | $          | 344.5 |   |

 

See Notes to Interim Financial Statements.

 

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**John Deere Capital Corporation andSubsidiaries**

**Notes to Interim Financial Statements**

**(Unaudited)**

 

(1)                                                                                  Theconsolidated financial statements of John Deere Capital Corporation (CapitalCorporation) and its subsidiaries (collectively called the Company) have beenprepared by the Company, without audit, pursuant to the rules and regulationsof the U.S. Securities and Exchange Commission. Certain information andfootnote disclosures normally included in annual financial statements preparedin accordance with accounting principles generally accepted in the U.S. havebeen condensed or omitted as permitted by such rules and regulations. Alladjustments, consisting of normal recurring adjustments, have been included. Managementbelieves that the disclosures are adequate to present fairly the financialposition, results of operations and cash flows at the dates and for the periodspresented. It is suggested that these interim financial statements be read inconjunction with the financial statements and the notes thereto included in theCompany’s latest annual report on Form 10-K. Results for interim periodsare not necessarily indicative of those to be expected for the year.

 

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 2004 financial statementpresentations.

 

(2)                                                                                  TheCompany provides and administers financing for retail purchases of newequipment manufactured by Deere & Company’s agricultural equipment,commercial and consumer equipment, and construction and forestry divisions andused equipment taken in trade for this equipment. The Company primarilypurchases retail installment sales and loan contracts (retail notes) from Deere& Company and its wholly-owned subsidiaries (collectively called JohnDeere). John Deere acquires these retail notes through John Deere retaildealers. The Company also purchases and finances a limited amount of non-Deereretail notes and continues to service a small portfolio of recreationalproducts and other retail notes. In addition, the Company leases John Deereequipment and a limited amount of non-Deere equipment to retail customers(financing and operating leases). The Company also finances and servicesrevolving charge accounts, in most cases acquired from and offered throughmerchants in the agricultural, commercial and consumer, and construction andforestry markets (revolving charge accounts). Further, the Company finances andservices operating loans, in most cases offered through and acquired from farminput providers or through direct relationships with agricultural producers(operating loans). The Company also provides wholesale financing forinventories of John Deere engines and John Deere agricultural, commercial andconsumer and construction and forestry equipment owned by dealers of thoseproducts (wholesale receivables), most of which are originated by John Deere.Retail notes, revolving charge accounts, operating loans, financing leases andwholesale receivables are collectively called “Receivables.” Receivables andoperating leases are collectively called “Receivables and Leases.”

 

(3)                                                                                  TheCompany’s ratio of earnings to fixed charges was 2.21 to 1 for the thirdquarter of 2004, compared with 2.29 to 1 for the third quarter of 2003. The ratioof earnings to fixed charges was 2.24 to 1 for the first nine months of 2004and 2.15 to 1 for the first nine months of 2003. “Earnings” consist of incomebefore income taxes, the cumulative effect of changes in accounting and fixedcharges. “Fixed charges” consist of interest on indebtedness, amortization ofdebt discount and expense, an estimated amount of rental expense undercapitalized leases that is deemed to be representative of the interest factorand rental expense under operating leases.

 

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(4)                                                                             Comprehensiveincome, which includes all changes in the Company’s equity during the periodexcept transactions with the stockholder, was as follows in millions ofdollars:

 
| ** **                                      | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **2004**                         | ** ** | **2003**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Net Income                                      |       | $                                | 64.7       |                            | $          | 79.8 |   | $ | 201.4 |   | $ | 209.6 |   |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Other comprehensive income (loss), net of  tax: |       |                             |       |                            |       |   |   |   |   |
| Change in cumulative translation adjustment     |       | .2                               |       | 6.0                             |       | 4.1 |   | 11.1 |   |
| Unrealized gain (loss) on investments           |       | 1.4                              |       | (6.7                            | )          | (.4 | ) | (.7 | ) |
| Unrealized gain on derivatives                  |       | 3.1                              |       | 7.7                             |       | 12.3 |   | 8.5 |   |
| Total comprehensive income                      |       | $                                | 69.4       |                            | $          | 86.8 |   | $ | 217.4 |   | $ | 228.5 |   |

 

(5)                                                                             TheCompany has guaranteed certain recourse obligations on Receivables and Leasesthat it has sold. If the Receivables and Leases sold are not collected, theCompany would be required to cover those losses up to the amount of itsrecourse obligation. At July 31, 2004, the maximum amount of exposure to lossesunder these agreements was $203 million, which is net of accrued losses of$21 million related to these agreements. The Company may recover a portionof any required payments incurred under these agreements from the repossessionof the equipment collateralizing the Receivables and Leases. At July 31,2004, the maximum remaining term of the Receivables and Leases guaranteed wasapproximately six years.

 

In January 2004,the Company began guaranteeing all new commercial paper and medium-term noteissuances for John Deere Credit Inc., the John Deere finance subsidiary inCanada.  At July 31, 2004, John DeereCredit Inc. had $175 million of commercial paper and $189 million ofmedium-term notes outstanding that were guaranteed by the Company.

 

The Company hasalso guaranteed $30 million of residual value related to property being used bythe Company under an operating lease at July 31, 2004. The Company is obligatedat the end of the lease term to pay to the lessor any reduction in market valueof the leased property up to the guaranteed residual value. The Companyrecognizes the expense for this future estimated lease payment over the life ofthe operating lease and had accrued expenses of $5 million related to thisagreement at July 31, 2004. The lease term expires in 2007.

 

(6)                                                                             InDecember 2003, the Financial Accounting Standards Board (FASB) revisedInterpretation (FIN) No. 46, Consolidation of Variable Interest Entities (asrevised, the “Interpretation”), which addresses the consolidation and related disclosuresof these entities by business enterprises. These are entities in which either the equity investment at risk is notsufficient to absorb the probable losses without additional subordinatedfinancial support from other parties or the investors with equity at risk lackcertain essential characteristics of a controlling interest.  Under the Interpretation, the Company mustconsolidate any variable interest entities (VIEs) in which the Company holdsvariable interests and is deemed the primary beneficiary.  The effective date for adoption for newlycreated VIEs was immediate upon issuance and had no effect.  The effective date for previously existingVIEs that are also special purpose entities (SPEs) was the end of the firstfiscal quarter of 2004 and had no effect on the Company’s financial position ornet income (see below).  The effectivedate for previously existing VIEs that are not SPEs was the end of the secondfiscal quarter of 2004 and had no effect on the Company’s financial position ornet income.

 

As disclosed inNote 4 to the Company’s 2003 Annual Report filed on Form 10-K, the Companyholds retained interests in certain SPEs related to the securitization and saleof retail notes.  Under theInterpretation, most of the Company’s retained interests are not deemedvariable interests because they are interests in a VIE’s specified assets witha fair value that is less than half the fair value of the VIE’s totalassets.  The Company’s remaining retainedinterests are with qualified special purpose entities (QSPEs) as defined byFASB Statement No. 140, Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities, which are exempt from consolidation.At July 31, 2004, the assets of these entities related to the Company’ssecuritization and sale of retail notes totaled approximately $3,208 millionand the maximum exposure to losses from recourse obligations related to theseentities was $202

 

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million. The adoption ofthis standard did not require the consolidation of these entities.

 

(7)                                                                                  TheCompany recognized pretax gains of $37.7 million on the retail notessecuritized during the first nine months of 2004. Key assumptions used toinitially determine the fair value of the retained interests included aweighted-average remaining maturity of 20 months, average annual prepaymentrate of 20 percent, expected annual credit losses of 0.39 percent, and adiscount rate on retained interests and subordinate tranches of 13 percent.

 

(8)                                                                                  TheCompany participates in certain Deere & Company defined benefit pensionplans for employees in the U.S. and certain defined benefit pension plansoutside the U.S. These pension plans provide for benefits that are basedprimarily on years of service and employee compensation. Pension expense isactuarially determined based on the Company’s employees included in the plan.The Company’s pension expense amounted to $3.0 million in the first ninemonths of 2004. The Company generally provides defined benefit health care andlife insurance plans for retired employees in the U.S. through participation inDeere & Company’s plans. Health care and life insurance benefits expense isactuarially determined based on the Company’s employees included in the plansand amounted to $4.8 million during the first nine months of 2004. Furtherdisclosure for these plans is included in Deere & Company’s Form 10-Qfor the quarter ended July 31, 2004.

 

(9)                                                                                  InDecember 2003, John Deere acquired a majority interest in Nortrax, Inc., and itwas consolidated with John Deere’s financial statements. The Company’swholesale receivables from Nortrax, Inc., disclosed as “Notes Receivable –unconsolidated affiliates” on the financial statements, were settled inDecember 2003. In March 2004, John Deere acquired the remaining interests inNortrax, Inc. and Nortrax Investments, Inc. Further disclosure is included inDeere & Company’s Form 10-Q for the quarter ended July 31, 2004.

 

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| Item 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Management’s Discussion  and Analysis of Financial Condition and Results of Operations. |
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| Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                         |
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| The Company primarily  generates revenues and cash by financing sales and leases of new and used  agricultural, commercial and consumer, and construction and forestry  equipment by John Deere dealers.  In  addition, the Company also provides wholesale financing to dealers of the  foregoing equipment, provides operating loans and finances retail revolving  charge accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| The Company’s business  is currently affected by the following key trends and economic conditions.  The Company’s business is closely related to John Deere’s business.  Deere & Company expects significant  increases in agricultural equipment retail sales in 2004 due to record levels  of U.S. farm cash receipts. Retail activity for construction and forestry  equipment continues to be robust as a result of fleet replenishment by  construction and forestry contractors and rental operations.  Deere & Company’s commercial and  consumer equipment sales are also expected to continue to benefit from the  success of new products. As a result of the strengthening of Deere &  Company’s retail sales, the Company expects to benefit from further growth in  the loan portfolio in 2004.  However,  net income is forecast to be down slightly due to lower gains on receivable  sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 2004 Compared with 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                         |
| Net income was $64.7  million for the third quarter and $201.4 million for the first nine months of  2004, compared with $79.8 million and $209.6 million, respectively, last  year. The lower results for the current quarter were primarily due to lower  gains on retail note sales and an increase in administrative costs, partly  related to a higher provision for employee performance bonuses in connection  with overall Deere & Company profitability. Partially offsetting these  factors was a lower provision for credit losses reflecting solid portfolio  quality. The lower results in the first nine months were mainly due to higher  administrative costs, partially offset by a lower provision for credit  losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Revenues totaled $300.8  million for the third quarter and $914.7 million for the first nine months of  2004, compared to $343.0 and $979.1 million, respectively, last year. The  decrease for the third quarter was primarily due to lower gains on receivable  sales, lower levels of operating leases and lower yields. The decrease for  the first nine months was primarily due to lower levels of operating leases  and lower yields. Finance income earned on retail notes totaled $283.9  million for the first nine months of 2004, compared to $306.0 million  for the same period in 2003. This decrease was primarily due to declining  yields earned on the average retail note portfolio balance, partially offset  by higher average retail note portfolio balances. Lease revenues decreased  $57.1 million, to $199.0 million in the first nine months of 2004,  from $256.1 million in the first nine months of 2003 primarily due to a  23 percent decrease in the average amount of equipment on operating  leases. The operating  lease levels continue to decrease as a result of more attractive financing  options offered on retail note products in recent years. Finance  income earned on wholesale receivables totaled $180.4 million for both the  first nine months of 2004 and the first nine months of 2003. Revenues earned  on revolving charge accounts amounted to $120.7 million in the first nine  months of 2004, a 13 percent increase over revenues of $106.8 million  during the same period last year.  The  increase was primarily due to growth of Farm Planä  and John Deere Credit Revolving Plan receivables in the first nine months of  2004, compared with the same period last year. Operating loan income  decreased $5.8 million to $17.8 million in the first nine months of  2004, from $23.6 million in the first nine months of 2003. The decrease was  due to declining yields earned on a lower average balance of operating loan  accounts. Revenues earned from Deere & Company totaled $98.0 million  for the third quarter and $278.2 million for the first nine months of 2004,  compared to $91.4 and $271.3 million, respectively, for the same periods  last year. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                         |
| The net gain on  receivables sold, including adjustments to prior sales, totaled $7.5 million  and $39.2 million for the third quarter and first nine months of 2004,  respectively, compared to $23.8 million and $38.1 million for the same  periods a year ago. The decrease in the third quarter was primarily due to  lower sales of agricultural and construction and forestry retail notes. The  increase for the first nine months was primarily due to higher sales of  agricultural and construction and forestry retail notes of approximately  $1,883 million total principal value during 2004, compared to the sale of  approximately $1,517 million total principal value during 2003. Additional  sales of receivables are expected to be made in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                         |
| Interest expense  totaled $79.2 million for the third quarter and $241.7 million for the first  nine months of 2004, compared to $93.4 million and $274.7 million for the  same periods in 2003. The decreases were due to lower average borrowing rates  in both periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

8

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| Administrative and  operating expenses were $65.5 million in the third quarter and $181.3 million  for the first nine months of 2004, compared with $50.3 million and  $146.0 million for the same periods in 2003. The increase was primarily due  to higher employment costs related in part to a higher provision for employee  performance bonuses in connection with overall Deere & Company  profitability.                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
| During the third  quarter and first nine months of 2004, the provision for credit losses  totaled $7.5 million and $32.0 million, respectively, compared with $22.7  million and $55.5 million in the same periods last year. The decreases in  both periods reflect solid portfolio quality. For the first nine months, the  Company has experienced lower write-offs of John Deere construction and  forestry equipment retail notes, revolving charge accounts and financing  leases. The annualized provision for credit losses, as a percentage of the  average balance of total Receivables financed, was .26 percent for the  third quarter of 2004 and .37 percent for the first nine months of 2004,  compared with .81 percent and .67 percent for the same periods last year. |

 
| Fees paid to John Deere  for interest and support were $9.3 million in the third quarter and $25.1  million for the first nine months of 2004, compared with $6.6 million  and $21.0 million for the same periods in 2003. The increase was primarily  due to higher average borrowings from Deere & Company in 2004.  Depreciation of equipment on operating leases was $41.0 million in the third  quarter and $128.4 million for the first nine months of 2004, compared to  $47.3 million and $160.1 million for the same periods in 2003. The decrease  was primarily the result of the lower average amount of equipment on  operating leases. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Receivable and Lease  acquisition volumes were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 
| ** **                          | ** ** | **Three Months  Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|----------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2004**                         | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                             |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                | 890        |       | $          | 810               |       | $ | 80 |   | 10 | % |
| Construction and forestry equipment |       | 321                              |       | 253        |       | 68                |       | 27 |   |
| Commercial and consumer equipment   |       | 176                              |       | 200        |       | (24               | )          | (12 | ) |
| Total retail notes                  |       | 1,387                            |       | 1,263      |       | 124               |       | 10 |   |
| Revolving charge accounts           |       | 947                              |       | 901        |       | 46                |       | 5 |   |
| Operating loans                     |       | 416                              |       | 351        |       | 65                |       | 19 |   |
| Wholesale receivables               |       | 4,355                            |       | 3,313      |       | 1,042             |       | 31 |   |
| Financing leases                    |       | 60                               |       | 44         |       | 16                |       | 36 |   |
| Equipment on operating leases       |       | 90                               |       | 72         |       | 18                |       | 25 |   |
| Total Receivables and Leases        |       | $                                | 7,255      |       | $          | 5,944             |       | $ | 1,311 |   | 22 | % |
|                                |       |                             |       |       |       |              |       |   |   |
| ** **                          | ** ** | **Nine Months  Ended July 31,**  | ** ** | ** ** | ** ** | ** **        | ** ** |
|                                | ** ** | **2004**                         | ** ** | **2003**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                             |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                | 2,726      |       | $          | 2,417             |       | $ | 309 |   | 13 | % |
| Construction and forestry equipment |       | 848                              |       | 606        |       | 242               |       | 40 |   |
| Commercial and consumer equipment   |       | 466                              |       | 381        |       | 85                |       | 22 |   |
| Total retail notes                  |       | 4,040                            |       | 3,404      |       | 636               |       | 19 |   |
| Revolving charge accounts           |       | 2,384                            |       | 2,057      |       | 327               |       | 16 |   |
| Operating loans                     |       | 1,427                            |       | 1,096      |       | 331               |       | 30 |   |
| Wholesale receivables               |       | 11,457                           |       | 8,649      |       | 2,808             |       | 32 |   |
| Financing leases                    |       | 140                              |       | 105        |       | 35                |       | 33 |   |
| Equipment on operating leases       |       | 230                              |       | 191        |       | 39                |       | 20 |   |
| Total Receivables and Leases        |       | $                                | 19,678     |       | $          | 15,502            |       | $ | 4,176 |   | 27 | % |

 
| Retail note volumes for  agricultural and construction and forestry equipment increased during the  third quarter and first nine months of 2004, when compared to last year,  primarily due to increases in retail sales of John Deere equipment. Although  down during the third quarter, retail note volumes for commercial and  consumer equipment increased during the |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

9

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| first nine months of 2004, when compared to last  year, also due to increases in retail sales of John Deere equipment.  Revolving charge accounts and operating loan volumes increased in the third  quarter and first nine months of 2004, when compared to last year, primarily  as a result of increased market coverage. Wholesale receivable volumes  increased during the third quarter and first nine months of 2004, when  compared to last year, primarily due to increased shipments of John Deere  equipment as a result of increased retail sales activity. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| Total Receivables and  Leases held were as follows (in millions of dollars): |
|------------------------------------------------------------------------------|

 
| ** **                          | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** | **July 31,  2003** | ** ** |
|-------------------------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| Retail notes:                       |       |               |       |                  |       |               |       |
| Agricultural equipment              |       | $                  | 3,944      |                  | $          | 3,954              |       | $ | 3,522 |   |
| Construction and forestry equipment |       | 1,271              |       | 1,196                 |       | 1,061              |       |
| Commercial and consumer equipment   |       | 967                |       | 909                   |       | 857                |       |
| Recreational products               |       | 37                 |       | 51                    |       | 58                 |       |
| Total retail notes                  |       | 6,219              |       | 6,110                 |       | 5,498              |       |
| Revolving charge accounts           |       | 1,416              |       | 1,118                 |       | 1,116              |       |
| Operating loans                     |       | 391                |       | 541                   |       | 619                |       |
| Wholesale receivables               |       | 3,682              |       | 2,905                 |       | 3,524              |       |
| Financing leases                    |       | 403                |       | 427                   |       | 431                |       |
| Equipment on operating leases       |       | 740                |       | 879                   |       | 909                |       |
| Total Receivables and Leases        |       | $                  | 12,851     |                  | $          | 11,980             |       | $ | 12,097 |   |

 
| Receivables and Leases  administered by the Company were as follows (in millions of dollars): |
|-----------------------------------------------------------------------------------------------|

 
| ** **                                      | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** | **July 31,  2003** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| Receivables and Leases administered:            |       |               |       |                  |       |               |       |
| Owned by the Company                            |       | $                  | 12,851     |                  | $          | 11,980             |       | $ | 12,097 |   |
| Sold and serviced – with limited recourse* |       | 3,083              |       | 2,559                 |       | 2,740              |       |
| Sold and serviced – without recourse**     |       | 27                 |       | 35                    |       | 39                 |       |
| Total Receivables and Leases administered       |       | $                  | 15,961     |                  | $          | 14,574             |       | $ | 14,876 |   |

 
| *      | The Company’s maximum exposure under all Receivable  and Lease recourse provisions at July 31, 2004, October 31, 2003 and July 31,  2003 was $203 million, $221 million and $218 million, respectively. In  addition, the Company has provided letters of credit for John Deere Credit  Inc., the John Deere finance subsidiary in Canada, as part of retail note  sales. At July 31, 2004, October 31, 2003 and July 31, 2003, the  Company’s maximum exposure under these agreements was approximately  $5 million, $10 million and $4 million, respectively. The Company does  not record the recourse obligations as liabilities as they are contingent  liabilities that are not probable at this time. However, the probable loss on  receivables that have been sold was accrued at the time of sale, and any  subsequent necessary adjustments are made as part of ongoing reviews. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
| **     | These receivables represent recreational product  retail notes that the Company has sold but continues to administer for a fee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

10

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

 
| ** **                          | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** | **July 31,  2003** | ** ** |
|-------------------------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                          | ** ** | **Dollars**        | ** ** | **Percent**           | ** ** | **Dollars**        | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |               |       |                  |       |               |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                  | 12.0       |                  | .30        | %                  | $          | 10.7 |   | .27 | % | $ | 16.5 |   | .47 | % |
| Construction and forestry equipment |       | 6.9                |       | .54                   |       | 12.1               |       | 1.01 |   | 11.4 |   | 1.07 |   |
| Commercial and consumer equipment   |       | 1.3                |       | .13                   |       | 1.3                |       | .14 |   | 1.3 |   | .15 |   |
| Recreational products               |       | .1                 |       | .27                   |       | .1                 |       | .19 |   | .1 |   | .17 |   |
| Total retail notes                  |       | 20.3               |       | .33                   |       | 24.2               |       | .40 |   | 29.3 |   | .53 |   |
| Revolving charge accounts*          |       | 10.2               |       | .72                   |       | 12.0               |       | 1.07 |   | 13.4 |   | 1.20 |   |
| Operating loans                     |       | 3.7                |       | .95                   |       | 1.3                |       | .24 |   | 2.5 |   | .40 |   |
| Wholesale receivables               |       | 9.6                |       | .26                   |       | 5.9                |       | .20 |   | 7.1 |   | .20 |   |
| Financing leases                    |       | 3.3                |       | .82                   |       | 4.2                |       | .98 |   | 4.7 |   | 1.09 |   |
| Total Receivables                   |       | $                  | 47.1       |                  | .39        | %                  | $          | 47.6 |   | .43 | % | $ | 57.0 |   | .51 | % |

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

 
| The balance of retail  notes held (principal plus accrued interest) with any installment 60 days or  more past due represents the total retail note balance for a customer who has  any portion of his note 60 days or more past due. These amounts were $77  million, $96 million and $124 million at July 31, 2004, October 31, 2003 and  July 31, 2003, respectively. The balances of retail notes held on which any  installment was 60 days or more past due as a percentage of the ending retail  notes receivable was 1.24, 1.57 and 2.26 percent at July 31, 2004, October  31, 2003 and July 31, 2003, respectively. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Total non-performing  Receivables, which represent loans the Company has ceased accruing interest  for, by product, and as a percent of the respective receivables were as  follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                 |

 
| ** **                          | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** | **July 31,  2003** | ** ** |
|-------------------------------------|------------|--------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                          | ** ** | **Dollars**        | ** ** | **Percent**           | ** ** | **Dollars**        | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |               |       |                  |       |               |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                  | 19.1       |                  | .48        | %                  | $          | 20.3 |   | .51 | % | $ | 22.7 |   | .64 | % |
| Construction and forestry equipment |       | 10.3               |       | .81                   |       | 15.7               |       | 1.31 |   | 24.7 |   | 2.33 |   |
| Commercial and consumer equipment   |       | 2.9                |       | .30                   |       | 3.0                |       | .33 |   | 2.6 |   | .31 |   |
| Recreational products               |       | .1                 |       | .27                   |       | .6                 |       | 1.17 |   | .6 |   | 1.03 |   |
| Total retail notes                  |       | 32.4               |       | .52                   |       | 39.6               |       | .65 |   | 50.6 |   | .92 |   |
| Operating loans                     |       | 24.5               |       | 6.27                  |       | 21.8               |       | 4.03 |   | 21.9 |   | 3.53 |   |
| Wholesale receivables               |       | 6.9                |       | .19                   |       | 11.2               |       | .39 |   | 11.6 |   | .33 |   |
| Financing leases                    |       | 8.8                |       | 2.18                  |       | 13.4               |       | 3.14 |   | 18.0 |   | 4.17 |   |
| Total Receivables                   |       | $                  | 72.6       |                  | .60        | %                  | $          | 86.0 |   | .77 | % | $ | 102.1 |   | .91 | % |

 
| The increase in  non-performing operating loans was due to the default of an operating loan to  an agricultural producer. A loan-loss provision was recorded for the  estimated uncollectible amount. At July 31, 2004, $20.5 million of the  non-performing operating loans was due to the default of a commercial and  consumer equipment customer. The operating loan was restructured in the first  quarter of 2004, and the Company continues to classify the loan as  non-performing until the customer consistently demonstrates the ability to  perform in accordance with the restructured loan. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

11

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

 
| ** **                          | ** ** | **Three Months Ended  July 31,  2004** | ** ** | **Three Months Ended  July 31,  2003** | ** ** |
|-------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                            | ** ** | **Percent**                            | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                   |       |                                   |       |   |   |   |   |
| Agricultural equipment              |       | $                                      | 1.3        |                                   | .14        | % | $ | 2.1 |   | .24 | % |
| Construction and forestry equipment |       | .8                                     |       | .27                                    |       | 1.3 |   | .43 |   |
| Commercial and consumer equipment   |       | (.1                                    | )          | (.04                                   | )          | .3 |   | .16 |   |
| Recreational products               |       | .3                                     |       | 3.05                                   |       | .3 |   | 1.76 |   |
| Total retail notes                  |       | 2.3                                    |       | .16                                    |       | 4.0 |   | .29 |   |
| Revolving charge accounts           |       | 2.2                                    |       | .67                                    |       | 4.7 |   | 2.02 |   |
| Operating loans                     |       | .8                                     |       | .74                                    |       | .4 |   | .31 |   |
| Wholesale receivables               |       | 6.2                                    |       | .68                                    |       | .6 |   | .06 |   |
| Financing leases                    |       | .6                                     |       | .60                                    |       | 1.9 |   | 1.73 |   |
| Total Receivables                   |       | $                                      | 12.1       |                                   | .41        | % | $ | 11.6 |   | .41 | % |

 
| ** **                          | ** ** | **Nine Months Ended  July 31,  2004** | ** ** | **Nine Months Ended  July 31,  2003** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                           | ** ** | **Percent**                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                  |       |                                  |       |   |   |   |   |
| Agricultural equipment              |       | $                                     | 1.5        |                                  | .05        | % | $ | 4.7 |   | .18 | % |
| Construction and forestry equipment |       | 4.0                                   |       | .44                                   |       | 10.8 |   | 1.20 |   |
| Commercial and consumer equipment   |       | .3                                    |       | .04                                   |       | .7 |   | .13 |   |
| Recreational products               |       | .7                                    |       | 2.10                                  |       | .3 |   | .60 |   |
| Total retail notes                  |       | 6.5                                   |       | .14                                   |       | 16.5 |   | .40 |   |
| Revolving charge accounts           |       | 10.5                                  |       | 1.26                                  |       | 16.6 |   | 2.41 |   |
| Operating loans                     |       | 2.3                                   |       | .62                                   |       | 2.0 |   | .52 |   |
| Wholesale receivables               |       | 6.5                                   |       | .25                                   |       | 2.2 |   | .08 |   |
| Financing leases                    |       | 2.6                                   |       | .85                                   |       | 7.5 |   | 2.31 |   |
| Total Receivables                   |       | $                                     | 28.4       |                                  | .33        | % | $ | 44.8 |   | .54 | % |

 
| Deposits withheld from  dealers and merchants, representing mainly the aggregate dealer retail note  and lease withholding accounts from individual John Deere dealers to which  losses from retail notes and leases originating from the respective dealers  can be charged, amounted to $171 million at July 31, 2004, compared with $160  million at October 31, 2003 and $150 million at July 31, 2003.                                                                                                                                                                                                                    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| The Company’s allowance  for credit losses on all Receivables financed totaled $118 million at July  31, 2004, $124 million at October 31, 2003 and $127 million at July 31, 2003.  The allowance for credit losses represented .97 percent of the total  Receivables financed at July 31, 2004, 1.12 percent at October 31, 2003 and  1.14 percent at July 31, 2003. The allowance is subject to an ongoing  evaluation based on collection experience, economic conditions and credit  risk quality. The Company believes its allowance is sufficient to provide for  losses in its existing receivable portfolio. |

 

12

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| Safe Harbor Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *Safe  Harbor Statement under the Private Securities Litigation Reform Act of 1995:*Statements  herein that relate to future operating periods are subject to important risks  and uncertainties that could cause actual results to differ materially.  Actions by the U.S. Federal Reserve Board and other central banks may affect  the costs and expenses of financing the Company and the rates it is able to  offer. The Company’s business is affected by general economic conditions in  and the political instability of the global markets in which the Company  operates because deteriorating economic conditions and political instability  can result in higher loan losses. The Company’s business is also affected by  actions of banks, financing and leasing companies and other lenders that  compete with the Company for customers. In addition, the Company’s business  is closely related to John Deere’s business. Further information, including  factors that potentially could materially affect the Company’s and John  Deere’s financial results, is included in the most recent Deere & Company  Form 10-K and other Deere & Company and Capital Corporation filings with  the Securities and Exchange Commission. |

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

 
| Capital Resources and  Liquidity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| The Company relies on  its ability to raise substantial amounts of funds to finance its Receivable  and Lease portfolios. During the first nine months of 2004, the Company  issued $1,254 million of term debt, obtained a $750 million term loan from  Deere & Company, maintained an average commercial paper balance of $1,547  million and received proceeds of $1,933 million from sales of  Receivables. At July 31, 2004, the Company’s funding profile included $1,349  million of commercial paper,  $766  million of intercompany loans from Deere & Company, $8,574  million of unsecured term debt, $3,022 million of securitization funding and  $2,045 million of equity capital. The Company’s funding profile may be  altered to reflect such factors as relative costs of funding sources, assets  available for securitizations and capital market accessibility. For  additional information regarding current securitization gains and  assumptions, see Note 7 to the Interim Financial Statements. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| During the first nine  months of 2004, the aggregate net cash provided by operating and financing  activities was used primarily to increase Receivables and Leases. Net cash  provided by operating activities was $355 million in the first nine months of  2004. Cash provided by financing activities totaled $186 million in the first  nine months of 2004, resulting primarily from a net increase in payables to  Deere & Company, partially offset by a decrease in total external  borrowings and dividends paid to John Deere Credit Company, which in turn  paid comparable dividends to Deere & Company. Net cash used for investing  activities totaled $669 million in the first nine months of 2004, primarily  due to the cost of Receivables and Leases acquired exceeding the collections  of Receivables and Leases, partially offset by proceeds from sales of  Receivables. Cash and cash equivalents decreased $122 million during the  first nine months of 2004.                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| During the first nine  months of 2003, the aggregate net cash provided by operating and financing  activities was used primarily to increase Receivables and Leases. Net cash  provided by operating activities was $376 million in the first nine months of  2003. Cash provided by financing activities totaled $587 million in the first  nine months of 2003, resulting from a net increase in total external borrowings,  partially offset by a decrease in payables to Deere & Company and  dividends paid to John Deere Credit Company, which in turn paid comparable  dividends to Deere & Company. Cash used for investing activities totaled  $776 million in the first nine months of 2003, primarily due to the cost of  Receivables and Leases acquired exceeding collections of Receivables and  Leases, partially offset by proceeds from sales of Receivables. Cash and cash  equivalents increased $197 million during the first nine months of 2003.                                                                                  |

 

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| Because of the multiple  funding sources that have been and continue to be available to the Company,  the Company expects to have sufficient sources of liquidity to meet its  ongoing funding needs.  The Company’s  commercial paper outstanding at July 31, 2004, October 31, 2003 and July 31,  2003 was approximately $1,349 million, $1,692 million and $1,995  million, respectively, while the total cash and cash equivalents position was  approximately $221 million, $343 million and $345 million, respectively.  Additionally, the Company had access to  approximately $3,057 million, $4,009 million and $3,373 million,  respectively, of cash and cash equivalents held by its parent,  Deere & Company (if Deere & Company would have chosen to  make these funds available to the Company).   In addition, the Company has for many years accessed diverse funding  sources, including short-term and long-term unsecured debt capital markets in  the U.S., Europe and Australia, and public and private securitization markets  in the U.S. The Company also has access to unsecured bank lines of credit. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| The Company’s ability  to obtain funds is affected by its debt ratings, which are closely related to  the outlook for and the financial condition of Deere & Company, and the  nature and availability of support facilities, such as its lines of credit.  For information regarding Deere & Company and its business, see the  Company’s most recently filed annual report on Form 10-K. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

 
| Total interest-bearing  indebtedness amounted to $10,695 million at July 31, 2004, compared with  $10,423 million at October 31, 2003 and $10,521 million at July 31,  2003, generally corresponding with the level of Receivables and Leases  financed and the level of cash and cash equivalents. Total short-term  indebtedness amounted to $3,631 million at July 31, 2004, compared with  $3,516 million at October 31, 2003 and $3,530 million at July 31, 2003, while  total long-term indebtedness amounted to $7,064 million, $6,907 million and  $6,992 million at these dates, respectively. The ratio of total  interest-bearing debt to stockholder’s equity was 5.2 to 1, 5.4 to 1 and 5.4  to 1 at July 31, 2004, October 31, 2003 and July 31, 2003, respectively.      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| During the first nine  months of 2004, the Company issued $1,254 million and retired $1,146 million  of borrowings, which were primarily medium-term notes. On August 2, 2004, the  Company redeemed its outstanding 8-5/8% Subordinated Debentures due August  2019 totaling $150 million. The redemption price was equal to the par value  plus accrued interest. On August 24, 2004 (settlement date), the Company  issued $200 million of variable rate medium-term notes due in 2006.                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| The Company’s ability  to meet its debt obligations is supported in a number of ways. All commercial  paper issued is backed by unsecured, committed bank credit lines from various  banks. The assets of the Company are self-liquidating in nature. A strong  equity position is available to absorb unusual losses on these assets.  Liquidity is also provided by the Company’s ability to sell these assets. The  Company also maintains uncommitted, unsecured lines of credit with various  banks.                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| At July 31, 2004, the  Capital Corporation and Deere & Company jointly maintained $2,596 million  of unsecured lines of credit with various banks, $816 million of which were  unused. For the purpose of computing  unused credit lines, commercial paper and short-term bank borrowings,  excluding the current portion of long-term borrowings of the Capital  Corporation and Deere & Company, were considered to constitute utilization. Included in the  total credit lines is a long-term credit  agreement commitment totaling $1,250 million, expiring in February 2009. The  facility fees payable under these lines of credit are divided between Deere  & Company and the Capital Corporation based on the proportion of their  respective commercial paper outstanding.  |

 

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| Stockholder’s equity  was $2,045 million at July 31, 2004, compared with $1,933 million at October  31, 2003 and $1,951 million at July 31, 2003. The increase in the first nine  months of 2004 resulted from net income of $201 million and a $16 million  increase in other comprehensive income, which were offset by dividend  payments of $105 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| The Capital Corporation  declared and paid cash dividends of $105 million to John Deere Credit Company  during the first nine months of fiscal 2004. John Deere Credit Company paid  comparable dividends to Deere & Company. On August 26, 2004, the Capital  Corporation declared an additional $315 million dividend, to be paid to John  Deere Credit Company on September 3, 2004. John Deere Credit Company, in  turn, declared a $315 million dividend to Deere & Company, also  payable on September 3, 2004.                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| The financing of retail  purchases and leases of John Deere products and of wholesale receivables owed  by John Deere dealers represented approximately 80 percent of the Company’s  acquisition volume for the nine months ended July 31, 2004, compared  with approximately 79 percent for the same period in 2003. Any extended  reduction or suspension of John Deere’s sale or production of products due to  a decline in demand or production, technological difficulties, governmental  actions or other events could have an adverse effect on the Company’s  acquisition volume of Receivables and Leases.   For additional information 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.                                                                                                                                                                                                                                                                                                                                                                                                                     | Quantitative and  Qualitative Disclosures About Market Risk. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                        |
| See the Company’s most  recent annual report filed on Form 10-K (Item 7A). There has been no material  change in this information.                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Item 4.                                                                                                                                                                                                                                                                                                                                                                                                                     | Controls and  Procedures.                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                         |
| The Company’s principal  executive officer and its principal financial officer have concluded that the  Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)  of the Securities Exchange Act of 1934, as amended (“the Act”)) were  effective as of July 31, 2004, based on the evaluation of these controls and  procedures required by Rule 13a-15(b) or 15d-15(b) of the Act. |

 

15

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| PART  II.  OTHER INFORMATION |
|----------------------------------------|
|                                   |
| Item 1.                                | Legal  Proceedings. |
|                                   |   |
|                                   | The Company  is subject to various unresolved legal actions which arise in the normal  course of its business, the most prevalent of which relate to state and  federal laws and regulations concerning retail credit. Although it is not  possible to predict with certainty the outcome of these unresolved legal  actions or the range of possible loss, the Company believes these unresolved  legal actions will not have a material effect on its financial statements. |
|                                   |   |
| Item 2.                                | Unregistered  Sales of Equity Securities and Use of Proceeds. |
|                                   |   |
|                                   | Omitted  pursuant to instruction H. |
|                                   |   |
| Item 3.                                | Defaults  Upon Senior Securities. |
|                                   |   |
|                                   | Omitted  pursuant to instruction H. |
|                                   |   |
| Item 4.                                | Submission  of Matters to a Vote of Security Holders. |
|                                   |   |
|                                   | Omitted  pursuant to instruction H. |
|                                   |   |
| Item 5.                                | Other  Information. |
|                                   |   |
|                                   | None. |
|                                   |   |
| Item 6.                                | Exhibits. |
|                                   |   |
|                                   | See the  index to exhibits immediately preceding the exhibits filed with this report. |
|                                   |   |   |
|                                   | Certain  instruments relating to long-term debt, constituting less than 10% of the  registrant’s total assets, are not filed as exhibits herewith pursuant to  Item 601(b)(4)(iii)(A) of Regulation S-K.   The registrant will file copies of such instruments upon request of  the Commission. |

 

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| SIGNATURES                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                        |
| Pursuant to  the requirements of the Securities Exchange Act of 1934, the registrant has  duly caused this report to be signed on its behalf by the undersigned  thereunto duly authorized. |

 
|   |            | JOHN DEERE CAPITAL CORPORATION |
|--------|-----------------|--------------------------------|
|   |            |                           |   |
|   |            |                           |   |
| Date:  | August 27, 2004 |                           | 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*)                |       |
|        |       |                                                                                                                                        |       |
| 3.2         |       | Bylaws, as  amended (Exhibit 3.2 to Form 10-K of the registrant for the year ended  October 31, 1999*)                                      |       |
|        |       |                                                                                                                                        |       |
| 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, 2004  (Securities and Exchange Commission file number 1-4121*) |       |

 

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

 

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