**UNITED STATES**

##### **SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-K**

 

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**ANNUAL REPORT PURSUANT TO SECTION 13OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF1934**

** **

**FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005**

 

**Commission file number 1-6458**

 

**JOHN DEERE CAPITAL CORPORATION**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                             |   |       |       | **36-2386361**                        |
|------------------------------------------|--------|------------|------------|---------------------------------------|
| (State of incorporation)                 |   |       | ** ** | (IRS employer identification  number) |
|                                     |   |       |       |                                  |
| **1 East First Street, Suite 600**  |   |       |       |                                  |
| **Reno, Nevada**                         |   | **89501**  |       | **(775) 786-5527**                    |
| (Address of principal executive offices) |   | (Zip Code) |       | (Telephone number)                    |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OFTHE ACT:**

 
| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|-------------------------|------------|-----------------------------------------------|
| 6% Debentures  Due 2009 |       | New York Stock Exchange                       |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OFTHE ACT: NONE**

 

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

Yes ý     No o

 

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

Yes o     No ý

 

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

Yes o     No ý

 

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

 

The registrant meets theconditions set forth in General Instruction I(1)(a) and (b) of Form 10-Kand is therefore filing this Form with certain reduced disclosures aspermitted by Instruction I(2).

 

 

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**PART I**

 

**Item 1.  Business.**

 

The Company

 

John Deere Capital Corporation (Capital Corporation)and its subsidiaries are collectively called the Company.  John Deere Credit Company, a wholly-ownedfinance holding subsidiary of Deere & Company, owns all of theoutstanding common stock of the Capital Corporation. See “Relationships of theCompany with John Deere” for additional information regarding agreementsbetween the Company and Deere & Company. The Company offers equipmentfinancing products in Argentina, Australia, France (through a joint venture),Germany, Ireland, Italy, Luxembourg, Mexico, New Zealand, Portugal (through acooperation agreement), South Africa (through a cooperation agreement), Spain,the United Kingdom and the U.S.

 

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 purchases retailinstallment sales and loan contracts (retail notes) from Deere &Company and its wholly-owned subsidiaries (collectively called John Deere).John Deere acquires these retail notes through John Deere retail dealers. TheCompany also purchases and finances a limited amount of non-Deere retail notesand continues to service a small portfolio of recreational products and otherretail notes. In addition, the Company leases John Deere equipment and alimited amount of non-Deere equipment to retail customers (financing andoperating leases). The Company also finances and services revolving chargeaccounts, in most cases acquired from and offeredthrough merchants in the agricultural, commercial and consumer, andconstruction and forestry markets (revolving charge accounts). Further, theCompany finances and services operating loans, in most cases offered throughand acquired from farm input providers or through direct relationships withagricultural producers (operating loans). The Company also provides wholesalefinancing for inventories of John Deere engines and John Deere agricultural,commercial and consumer and construction and forestry equipment owned bydealers of those products (wholesale receivables). The Company also offers insuredinternational export financing to select customers which generally involvesJohn Deere products and offers certain crop risk mitigation products in theU.S. In addition, the Company invests in wind energy development by makingloans to certain affiliated companies that have directly invested in windenergy projects. Further, the Company has agreed to purchase certain windturbine equipment. This wind turbine equipment will be used in wind energyprojects by the Company or by certain affiliated companies. Retail notes,revolving charge accounts, operating loans, financing leases and wholesalereceivables are collectively called “Receivables.” Receivables and operatingleases are collectively called “Receivables and Leases.”

 

TheCapital Corporation was incorporated under the laws of Delaware and commencedoperations in 1958. At November 30, 2005, the Company had 1,470 full-timeand part-time employees.

 

Business of JohnDeere

 

John Deere’s operations are categorized into fourmajor business segments:

 

The *agricultural equipment* segment manufactures and distributesa full line of farm equipment and related service parts – including tractors;combine, cotton and sugarcane harvesters; tillage, seeding and soil preparationmachinery; sprayers; hay and forage equipment; material handling equipment; andintegrated agricultural management systems technology.

 

The *commercial and consumer equipment*segment manufactures anddistributes equipment, products and service parts for commercial andresidential uses – including tractors for lawn, garden, commercial and utilitypurposes; mowing equipment, including walk-behind mowers; golf courseequipment; utility vehicles (including those commonly referred to asall-terrain vehicles, or “ATVs”); landscape products and irrigation equipment;and other outdoor power products.

 

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The *construction and forestry*segment manufactures, distributesto dealers and sells at retail a broad range of machines and service parts usedin construction, earthmoving, material handling and timber harvesting –including backhoe loaders; crawler dozers and loaders; four-wheel-driveloaders; excavators; motor graders; articulated dump trucks; landscape loaders;skid-steer loaders; and log skidders, feller bunchers, log loaders, logforwarders, log harvesters and related attachments.

 

JohnDeere’s worldwide agricultural equipment, commercial and consumer equipment,and construction and forestry operations are commonly referred to as theEquipment Operations. The products and services produced by the segments aboveare marketed primarily through independent retail dealer networks and majorretail outlets.

 

The *credit operations*segmentincludes the operations of the Company (described herein), John Deere CreditCompany, John Deere Credit Inc. (Canada), Banco John Deere, S.A. (Brazil) andJohn Deere Credit Oy (Finland), and primarily finances sales and leases by JohnDeere dealers of new and used agricultural, commercial and consumer, andconstruction and forestry equipment. In addition, it provides wholesalefinancing to dealers of the foregoing equipment, provides operating loans,finances retail revolving charge accounts, offers certain crop risk mitigationproducts and invests in wind energy development.

 

JohnDeere had net income of $1,447 million, or $5.87 per share diluted ($5.95 pershare basic), in 2005, compared with $1,406 million, or $5.56 per share diluted($5.69 per share basic), in 2004.

 

JohnDeere’s net sales and revenues increased 10 percent to $21,931 million in2005, compared with $19,986 million in 2004. Net sales of the EquipmentOperations increased 10 percent in 2005 to $19,401 million from $17,673million last year. Net sales in the U.S. and Canada rose 10 percent in 2005.Outside the U.S. and Canada, net sales increased by 6 percent, excludingcurrency translation, and by 10 percent on a reported basis.

 

The agricultural equipment segment had net sales of $10,567million in 2005, compared to $9,717 million in 2004. The commercial and consumerequipment segment had net sales of $3,605 million in 2005, compared to $3,742 millionin 2004. The construction and forestry segment had net sales of $5,229 millionin 2005, compared to $4,214 million in 2004. The credit operations segmenthad revenues of $1,450 million in 2005, compared to $1,276 million in 2004.

 

Outlook for JohnDeere 

 

JohnDeere’s equipment sales are expected to increase by 1 to 3 percent for fiscalyear 2006 and by 11 to 14 percent for the first quarter, compared to thesame periods in 2005. Production levels are expected to be down slightly forthe year, but up about 4 percent in the quarter. As previously announced, Deere& Company will sell its health care operations for a gain of approximately$225 million after-tax. Based on the above, net income is forecast to be around$1.7 billion (approximately $1.5 billion excluding the gain on the sale of thehealth care operations) for the year and in a range of $175 million to $200million for the first quarter.

 

*Agricultural Equipment.*  Although the farm sector is expected toremain in solid condition, John Deere agricultural equipment sales in the U.S.and Canada are forecast to be down 5 to 10 percent in 2006. Factorscontributing to the decline include concerns over higher farm input costs,especially for fuel and fertilizer, the absence of U.S. tax incentives whichhelped sales in the first part of 2005, and slightly lower cash receipts.Farmers are expected to benefit from debt levels that remain well under controland from rising land values.

 

In other parts of theworld, industry retail sales in Western Europe are forecast to be down about 5percent for the year. Concerns over higher input costs, government policies andthe future direction of farm subsidies are expected to put downward pressure onsales in the region for the year. In South America, industry sales are forecastto be down about 5 percent as a result of a relatively strong Braziliancurrency, a reduction in soybean acreage in Brazil and concerns regarding foot-and-mouthdisease.

 

Based on these factors andmarket conditions, worldwide sales of John Deere agricultural equipment areforecast to be down 2 to 4 percent for the year. John Deere sales are expectedto benefit from a number of newly introduced products, including a line of morepowerful and fuel efficient large tractors.

 

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*Commercialand Consumer Equipment*. Sales of John Deere commercial and consumer equipment are forecast to beup 10 to 12 percent for the year with the benefit from newly introducedproducts, an assumed return to more normal weather patterns and a full year ofsales from John Deere’s recent landscapes-business acquisition. Commercial andconsumer equipment sales are also expected to be helped by an expanded presenceof John Deere products in the mass channel.

 

*Constructionand Forestry.*  Marketsfor construction equipment are forecast to experience further growth in 2006 asa result of U.S. economic conditions conducive to a healthy level of constructionspending, especially in the nonresidential sector. On this basis, contractorsand rental companies are expected to continue updating and expanding theirfleets. Forestry equipment markets are projected to remain near last year’slevel in the U.S. and Canada and to be lower in Europe. In this environment,John Deere’s worldwide sales of construction and forestry equipment areforecast to rise by 5 to 7 percent in fiscal 2006.

 

*CreditOperations*.  The credit operations are expected to reportnet income of about $330 million for the year as a result of further growth inthe loan portfolio. The Company’s net income for 2006, which does notinclude the credit operations in Canada, Brazil and Finland, is projected to increaseto $285 million for 2006.

 

Relationships ofthe Company with John Deere

 

Theresults of operations of the Company are affected by its relationships withJohn Deere, including among other items, the terms on which the Companyacquires Receivables and Leases and borrows funds from John Deere, thereimbursement for interest waiver and low-rate finance programs from JohnDeere, the compensation paid by John Deere in connection with the Company’spurchase of trade receivables from John Deere and the payment to John Deere forvarious expenses applicable to the Company’s operations. In addition, theCompany and John Deere have joint access to certain lines of credit of theCompany.

 

TheCompany’s acquisition volume of Receivables and Leases is largely dependentupon the level of retail sales and leases of John Deere products. The level ofJohn Deere retail sales and leases is responsive to a variety of economic,financial, climatic, legislative and other factors that influence demand forits products. All of the Company’s businesses are affected by changes ininterest rates, demand for credit and competition.

 

TheCompany bears substantially all of the credit risk (net of recovery fromwithholdings from certain John Deere dealers, and Farm Planäand PowerPlanâ merchants) associated with its holding ofReceivables and Leases. A small portion of the Receivables and Leases held(less than 5 percent) is guaranteed by the Equipment Operations. The Companyalso performs substantially all servicing and collection functions. Servicingand collection functions for a small portion of the Receivables and Leases held(less than 5 percent) are provided by John Deere. John Deere is reimbursed forstaff and other administrative services at estimated cost, and for credit linesprovided to the Company based on utilization of those lines.

 

Theterms and the basis on which the Company acquires retail notes and certainwholesale receivables from John Deere are governed by agreements with JohnDeere, generally terminable by either John Deere or the Company on 30 daysnotice. As provided in these agreements, the Company agrees to the terms andconditions for purchasing the retail notes and wholesale receivables from JohnDeere. Under these agreements, John Deere is not obligated to sell notes to theCompany, and the Company is obligated to purchase notes from John Deere only ifthe notes comply with the terms and conditions set by the Company.

 

Thebasis on which John Deere acquires retail notes and wholesale receivables fromthe dealers is governed by agreements with the John Deere dealers, terminableat will by either the dealers or John Deere. In acquiring these notes fromdealers, the terms and conditions, as set forth in agreements with the dealers,conform with the terms and conditions adopted by the Company in determining theacceptability of retail and certain wholesale notes to be purchased from JohnDeere. The dealers are not obligated to sell these notes to John Deere and JohnDeere is not obligated to accept these notes from the dealers. In practice,retail and wholesale notes are acquired from dealers only if the terms of thesenotes and the creditworthiness of the customers are acceptable to the Companyfor purchase of these

 

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notes from John Deere. The Company acts on behalf of both itself andJohn Deere in determining the acceptability of the notes and in acquiringacceptable notes from dealers.

 

Thebasis on which the Company enters into leases with retail customers throughJohn Deere dealers is governed by agreements between dealers and the Company.Leases are accepted based on the terms and conditions, the lessees’creditworthiness, the anticipated residual values of the equipment and theintended uses of the equipment.

 

Deere &Company has an agreement with the Company pursuant to which it has agreed tocontinue to own at least 51 percent of the voting shares of capital stock ofthe Company and to maintain the Company’s consolidated tangible net worth atnot less than $50 million. This agreement also obligates Deere &Company to make income maintenance payments to the Company such that itsconsolidated ratio of earnings to fixed charges is not less than 1.05 to 1 forany fiscal quarter. For 2005 and 2004, the Company’s ratios were 1.88 to 1 and 2.23to 1, respectively, and never less than 1.74 to 1 and 2.19 to 1 for any fiscalquarter of 2005 and 2004, respectively. Deere & Company’sobligations to make payments to the Company under the agreement are independentof whether the Company is in default on its indebtedness obligations or otherliabilities. Further, Deere & Company’s obligations under theagreement are not measured by the amount of the Company’s indebtedness,obligations or other liabilities. Deere & Company’s obligations tomake payments under this agreement are expressly stated not to be a guaranty ofany specific indebtedness, obligation or liability of the Company and areenforceable only by or in the name of the Company. No payments were requiredunder this agreement during the periods included in the financial statements.

 

 The Company purchases certain wholesalereceivables (trade receivables) from John Deere. These trade receivables arisefrom John Deere’s sales of goods to dealers. Under the terms of the sales todealers, interest is charged to dealers on outstanding balances, from theearlier of the date when goods are sold to retail customers by the dealer orthe expiration of certain interest-free periods granted to the dealer at thetime of the sale, until payment is received by the Company.  Dealers cannot cancel purchases after goodsare shipped and are responsible for payment even if the equipment is not soldto retail customers. The interest-free periods are determined based on the typeof equipment sold and the time of year of the sale. These periods range fromone to 12 months for most equipment. Interest-free periods may not be extended.Interest charged may not be forgiven and interest rates, which exceed the primerate, are set based on market factors. The Company receives compensation fromJohn Deere equal to competitive market interest rates for these interest-freeperiods. The Company computes the compensation from John Deere forinterest-free periods based on the Company’s estimated funding costs,administrative and operating expenses, credit losses, and required return onequity. The finance income earned following the interest-free period is notsignificantly different from the compensation earned from John Deere.

 

Description of Receivables and Leases

 

Receivablesand Leases arise mainly from retail and wholesale sales and leases of JohnDeere products and used equipment accepted in trade for them, and from retailsales of equipment of unrelated manufacturers. Receivables and Leases alsoinclude revolving charge accounts receivable and operating loans. At October 31,2005, approximately 90 percent of the Receivables and Leases administered bythe Company were for financing John Deere products, compared with 85 percent in2004.

 

FPC Financial, f.s.b. (Thrift), a wholly-owned subsidiaryof the Company, holds a federal charter issued by the Office of ThriftSupervision. The Thrift is headquartered in Madison, Wisconsin and offersrevolving charge products such as John Deere Credit Revolving Plan, Farm Planä and PowerPlanâ on a nationwide basis. John DeereCredit Revolving Plan is used primarily by retail customers of John Deeredealers to finance purchases of commercial and consumer equipment. Through itsFarm Planä product, the Thriftfinances revolving charge accounts offered by approximately 5,000 participatingagri-businesses to their retail customers for the purchase of goods andservices. Farm Planä account holders purchase equipment parts and service atimplement dealerships and farm inputs such as feed, seed, fertilizer, bulk fueland building supplies from other agribusinesses. The PowerPlanâ revolving charge account is usedby construction and forestry customers to finance the purchase of parts andservice work performed at John Deere construction and forestry dealers. See Note2 to the Consolidated Financial Statements under “Revolving Charge AccountsReceivable.”

 

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TheCompany also works with several leading farm input providers to offer cropinput production loans for materials such as seeds and fertilizer.Additionally, the Company provides production loans directly to farmers fortheir total operating needs. Generally, these loans are secured by crops andequipment.

 

TheCompany finances wholesale inventories of John Deere agricultural equipment,commercial and consumer equipment, construction and forestry equipment and JohnDeere engines. A large portion of the wholesale financing provided by theCompany is with dealers from whom it also purchases agricultural, commercial andconsumer and construction and forestry retail notes. See Note 2 to theConsolidated Financial Statements under “Wholesale Receivables.”

 

TheCompany requires that theft and physical damage insurance be carried on allgoods leased or securing retail notes. The customers may, at their expense,have the Company or the seller of the goods purchase this insurance or obtainit from other sources. Theft and physical damage insurance is also required ongoods securing wholesale notes and can be purchased through the Company or fromother sources. Insurance is not required for goods purchased under revolvingcharge accounts.

 

Receivablesand Leases are eligible for acceptance if they conform to prescribed financeand lease plan terms. Guidelines relating to down payments and contract termson retail notes and leases are described in Note 2 and Note 5 to theConsolidated Financial Statements.

 

Inlimited circumstances, Receivables and Leases may be accepted and acquired eventhough they do not conform in all respects to the established guidelines. TheCompany determines whether Receivables and Leases should be accepted and howthey should be serviced. Acceptance of these Receivables and Leases isdependent on having one or more of the following risk mitigation enhancements:pledging additional collateral as security, assignment of specific earnings tothe Company or accelerated payment schedules. Officers of the Company areresponsible for establishing policies and reviewing the performance of theCompany in accepting and collecting Receivables and Leases. The Companynormally makes all of its own routine collections, settlements andrepossessions on Receivables and Leases.

 

Retailnotes and wholesale receivables provide for retention by John Deere or theCompany of security interests in the goods financed under laws such as theUniform Commercial Code, certain federal statutes and state motor vehicle laws.Security interest filings are also made for leases. However, filings foroperating leases are made for informational purposes only.

 

Finance Rates onRetail Notes

 

As of October 31,2005 and 2004, approximately 75 and 80 percent, respectively, of the retailnotes held by the Company bore a fixed finance rate. A portion of the financeincome earned by the Company arises from reimbursements from John Deere inconnection with financing the retail sales of John Deere equipment on whichfinance charges are waived or reduced by John Deere for a period from the dateof sale to a specified subsequent date. See Note 2 to the ConsolidatedFinancial Statements for additional information.

 

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Average OriginalTerm and Average Actual Life of Retail Notes and Leases

 

Due toprepayments (often from trade-ins and refinancing), the average actual life ofretail notes and financing leases is considerably shorter than the averageoriginal term. The following table shows the average original term for retailnotes and leases acquired and the average actual life for retail notes andleases liquidated (in months):

 
| ** **                           | ** ** | **Average Original Term** | ** ** | **Average Actual Life** | ** ** |
|--------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **2005**                  | ** ** | **2004**                | ** ** | **2005** | ** ** | **2004** | ** ** |
| Retail notes                         |       | 53                        |       | 54                      |       | 35 |   | 35 |   |
| New equipment:                       |       |                      |       |                    |       |   |   |   |   |
| Agricultural  equipment              |       | 57                        |       | 57                      |       | 31 |   | 34 |   |
| Construction and  forestry equipment |       | 46                        |       | 46                      |       | 35 |   | 36 |   |
| Commercial and  consumer equipment   |       | 51                        |       | 52                      |       | 35 |   | 33 |   |
| Used equipment:                      |       |                      |       |                    |       |   |   |   |   |
| Agricultural  equipment              |       | 58                        |       | 58                      |       | 37 |   | 36 |   |
| Construction and  forestry equipment |       | 43                        |       | 42                      |       | 29 |   | 30 |   |
| Commercial and  consumer equipment   |       | 54                        |       | 55                      |       | 32 |   | 30 |   |
| Financing leases                     |       | 41                        |       | 39                      |       | 35 |   | 41 |   |
| Equipment on  operating leases       |       | 39                        |       | 39                      |       | 38 |   | 38 |   |

 

Maturities

 

The following table presents the maturities of netReceivables and Leases owned by the Company at October 31, 2005 (inmillions of dollars), and a summary of net Receivables and Leases owned by theCompany at the end of the last five years (in millions of dollars):

 
| ** **                           | ** ** | ** **    | ** ** | **One to five years** | ** ** | **Over five years** | ** ** | ** **      | ** ** | ** **         | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **One  year** | ** ** | **Fixed  rate**       | ** ** | **Variable  rate**  | ** ** | **Fixed  rate** | ** ** | **Variable  rate** | ** ** | **2005  Total** | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002** | ** ** | **2001** | ** ** |
|                                 |       |          |       |                  |       |                |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Retail notes:                        |       |          |       |                  |       |                |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Agricultural  equipment              |       | $             | 1,616      |                  | $          | 2,662               |       | $               | 1,743      |               | $          | 91              |       | $          | 97         |       | $          | 6,209 |   | $ | 4,451 |   | $ | 3,954 |   | $ | 3,305 |   | $ | 3,610 |   |
| Construction and  forestry equipment |       | 736           |       | 1,235                 |       | 9                   |       |            |       |               |       | 1,980           |       | 1,406      |       | 1,196      |       | 1,198 |   | 1,293 |   |
| Commercial and  consumer equipment   |       | 372           |       | 610                   |       | 13                  |       | 27              |       |               |       | 1,022           |       | 984        |       | 909        |       | 730 |   | 611 |   |
| Recreational  products               |       | 4             |       | 10                    |       |                |       | 9               |       |               |       | 23              |       | 33         |       | 51         |       | 79 |   | 111 |   |
| Total retail  notes                  |       | 2,728         |       | 4,517                 |       | 1,765               |       | 127             |       | 97                 |       | 9,234           |       | 6,874      |       | 6,110      |       | 5,312 |   | 5,625 |   |
| Revolving charge  accounts           |       |          |       |                  |       |                |       |            |       |               |       | 1,527           |       | 1,444      |       | 1,118      |       | 896 |   | 814 |   |
| Operating loans                      |       |          |       |                  |       |                |       |            |       |               |       | 384             |       | 380        |       | 541        |       | 561 |   | 501 |   |
| Wholesale  receivables               |       |          |       |                  |       |                |       |            |       |               |       | 3,651           |       | 3,480      |       | 2,905      |       | 2,942 |   | 2,996 |   |
| Financing leases                     |       |          |       |                  |       |                |       |            |       |               |       | 412             |       | 406        |       | 427        |       | 468 |   | 480 |   |
| Equipment on  operating leases       |       |          |       |                  |       |                |       |            |       |               |       | 794             |       | 758        |       | 879        |       | 1,180 |   | 1,485 |   |
| Total Receivables  and Leases        |       |          |       |                  |       |                |       |            |       |               |       | $               | 16,002     |       | $          | 13,342     |       | $ | 11,980 |   | $ | 11,359 |   | $ | 11,901 |   |
|                                      |            |               |            |                       |            |                     |            |                 |            |                    |            |                 |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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TotalReceivables and Leases by geographic area are as follows (in millions ofdollars):

 
| ** **                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.                          |       | $        | 13,753     |     | $          | 11,145   |       | $        | 10,244     |     | $          | 10,224 |   | $ | 11,103 |   |
| Outside the U.S.              |       | 2,249    |       | 2,197    |       | 1,736    |       | 1,135    |       | 798      |       |
| Total  Receivables and Leases |       | $        | 16,002     |     | $          | 13,342   |       | $        | 11,980     |     | $          | 11,359 |   | $ | 11,901 |   |

 

Delinquencies

 

TotalReceivable amounts 60 days or more past due represent the amount of allcustomer payments past due 60 days or more are as follows (in millions ofdollars):

 
| ** **         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.               |       | $        | 27.1       |     | $          | 36.2     |       | $        | 43.4       |     | $          | 42.4 |   | $ | 38.2 |   |
| Outside the U.S.   |       | 5.5      |       | 4.2      |       | 4.2      |       | 2.6      |       | 3.2      |       |
| Total  Receivables |       | $        | 32.6       |     | $          | 40.4     |       | $        | 47.6       |     | $          | 45.0 |   | $ | 41.4 |   |

 

Totalnon-performing Receivables, which represent loans the Company has ceasedaccruing interest for are as follows (in millions of dollars):

 
| ** **         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.               |       | $        | 55.4       |     | $          | 48.0     |       | $        | 65.9       |     | $          | 38.9 |   | $ | 14.6 |   |
| Outside the U.S.   |       | 11.7     |       | 8.9      |       | 20.1     |       | 5.4      |       |     |       |
| Total  Receivables |       | $        | 67.1       |     | $          | 56.9     |       | $        | 86.0       |     | $          | 44.3 |   | $ | 14.6 |   |

 

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Write-offs andRecoveries

 

TotalReceivable write-offs and recoveries, by product, were as follows (in millionsof dollars):

 

| ** **                                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**                                  |       | $        | 112.6      |     | $          | 123.8    |       | $        | 118.3      |     | $          | 110.4 |   | $ | 93.3 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Provision for  credit losses                                                         |       | 5.9      |       | 32.3     |       | 72.2     |       | 126.9    |       | 74.5     |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs:                                                                          |       |     |       |     |       |     |       |     |       |     |       |
| Retail notes:                                                                        |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                                              |       | (1.4     | )          | (5.3     | )          | (5.5     | )          | (6.7     | )          | (10.0    | )          |
| Construction and  forestry equipment                                                 |       | (4.2     | )          | (7.0     | )          | (18.6    | )          | (17.3    | )          | (16.9    | )          |
| Commercial and  consumer equipment                                                   |       | (.9      | )          | (.9      | )          | (1.1     | )          | (1.2     | )          | (.5      | )          |
| Recreational  products                                                               |       | (1.3     | )          | (1.7     | )          | (1.3     | )          | (3.3     | )          | (3.5     | )          |
| Total retail  notes                                                                  |       | (7.8     | )          | (14.9    | )          | (26.5    | )          | (28.5    | )          | (30.9    | )          |
| Revolving charge  accounts                                                           |       | (29.7    | )          | (21.5    | )          | (27.0    | )          | (23.4    | )          | (17.7    | )          |
| Operating loans                                                                      |       | (3.0     | )          | (6.5     | )          | (4.2     | )          | (47.4    | )          | (2.5     | )          |
| Wholesale  receivables                                                               |       | (2.4     | )          | (8.1     | )          | (6.8     | )          | (7.7     | )          | (6.8     | )          |
| Financing leases                                                                     |       | (1.3     | )          | (5.0     | )          | (8.7     | )          | (12.0    | )          | (9.4     | )          |
| Total write-offs                                                                     |       | (44.2    | )          | (56.0    | )          | (73.2    | )          | (119.0   | )          | (67.3    | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Recoveries:                                                                          |       |     |       |     |       |     |       |     |       |     |       |
| Retail notes:                                                                        |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                                              |       | 3.3      |       | 3.6      |       | 2.7      |       | 3.5      |       | 2.4      |       |
| Construction and  forestry equipment                                                 |       | 2.1      |       | 2.2      |       | 2.4      |       | 1.5      |       | .6       |       |
| Commercial and  consumer equipment                                                   |       | .4       |       | .5       |       | .2       |       | .2       |       | .2       |       |
| Recreational  products                                                               |       | .6       |       | .7       |       | .7       |       | .9       |       | 1.1      |       |
| Total retail  notes                                                                  |       | 6.4      |       | 7.0      |       | 6.0      |       | 6.1      |       | 4.3      |       |
| Revolving charge  accounts                                                           |       | 9.3      |       | 7.7      |       | 5.7      |       | 4.0      |       | 3.2      |       |
| Operating loans                                                                      |       | 3.3      |       | 3.8      |       | 1.5      |       | 1.1      |       | 1.6      |       |
| Wholesale  receivables                                                               |       | 2.0      |       | 1.3      |       | 2.9      |       | .8       |       | (.6      | )          |
| Financing leases                                                                     |       | .9       |       | 1.9      |       | 1.0      |       | 1.1      |       | .8       |       |
| Total recoveries                                                                     |       | 21.9     |       | 21.7     |       | 17.1     |       | 13.1     |       | 9.3      |       |
| Total net  write-offs                                                                |       | (22.3    | )          | (34.3    | )          | (56.1    | )          | (105.9   | )          | (58.0    | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Other changes  related to receivable sales and purchases and translation adjustments |       | .2       |       | (9.2     | )          | (10.6    | )          | (13.1    | )          | .6       |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                                        |       | $        | 96.4       |     | $          | 112.6    |       | $        | 123.8      |     | $          | 118.3 |   | $ | 110.4 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables                         |       | .16      | %          | .30      | %          | .50      | %          | 1.09     | %          | .79      | %          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as a  percentage of total Receivables, end of year                         |       | .63      | %          | .89      | %          | 1.12     | %          | 1.16     | %          | 1.06     | %          |

 

8

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Total Receivable write-offs and recoveries fromoutside the U.S. were as follows (in millions of dollars):

 
| ** **                                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**                                  |       | $        | 17.0       |     | $          | 16.0     |       | $        | 10.1       |     | $          | 7.1 |   | $ | 4.7 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Provision for  credit losses                                                         |       | (5.7     | )          | (.7      | )          | 4.9      |       | 3.0      |       | 3.4      |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs                                                                           |       | (1.8     | )          | (1.5     | )          | (1.5     | )          | (1.0     | )          | (1.7     | )          |
| Recoveries                                                                           |       | .5       |       | 1.1      |       | .4       |       | .5       |       |     |       |
| Total net  write-offs                                                                |       | (1.3     | )          | (.4      | )          | (1.1     | )          | (.5      | )          | (1.7     | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Other changes  related to receivable sales and purchases and translation adjustments |       | (.4      | )          | 2.1      |       | 2.1      |       | .5       |       | .7       |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                                        |       | $        | 9.6        |     | $          | 17.0     |       | $        | 16.0       |     | $          | 10.1 |   | $ | 7.1 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables from outside the U.S.   |       | .06      | %          | .02      | %          | .07      | %          | .06      | %          | .24      | %          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as a  percentage of total Receivables from outside the U.S., end of year   |       | .43      | %          | .78      | %          | .94      | %          | .91      | %          | .91      | %          |

 

Allowance forCredit Losses

 

**The total Receivable allowance for creditlosses, by product, at October 31, and the Receivable portfolio, byproduct, as a percent of total portfolio is presented below (in millions ofdollars):**

 
| ** **                           | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** | **2001**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 17.2       |        |       | 41          | %          | $           | 19.3       |        |       | 36 | % | $ | 23.4 |   |   | 36 | % | $ | 19.2 |   |   | 32 | % | $ | 20.6 |   |   | 35 | % |
| Construction and  forestry equipment |       | 32.1        |       | 13          |       | 30.9        |       | 11          |       | 30.8        |       | 11 |   | 33.2 |   | 12 |   | 23.7 |   | 12 |   |
| Commercial and  consumer equipment   |       | 3.1         |       | 7           |       | 3.7         |       | 8           |       | 7.6         |       | 8 |   | 6.9 |   | 7 |   | 6.0 |   | 6 |   |
| Recreational  products               |       | 1.3         |       |        |       | 2.1         |       |        |       | 2.1         |       |   |   | 2.5 |   | 1 |   | 3.5 |   | 1 |   |
| Total retail  notes                  |       | 53.7        |       | 61          |       | 56.0        |       | 55          |       | 63.9        |       | 55 |   | 61.8 |   | 52 |   | 53.8 |   | 54 |   |
| Revolving charge  accounts           |       | 16.9        |       | 10          |       | 22.3        |       | 11          |       | 19.7        |       | 10 |   | 15.9 |   | 9 |   | 23.2 |   | 8 |   |
| Operating loans                      |       | 9.1         |       | 2           |       | 9.1         |       | 3           |       | 9.7         |       | 5 |   | 7.9 |   | 5 |   | 6.8 |   | 5 |   |
| Wholesale  receivables               |       | 7.6         |       | 24          |       | 15.1        |       | 28          |       | 19.6        |       | 26 |   | 19.8 |   | 29 |   | 15.8 |   | 29 |   |
| Financing leases                     |       | 9.1         |       | 3           |       | 10.1        |       | 3           |       | 10.9        |       | 4 |   | 12.9 |   | 5 |   | 10.8 |   | 4 |   |
| Total Receivables                    |       | $           | 96.4       |        | 100        | %           | $          | 112.6       |       | 100         | %          | $ | 123.8 |   | 100 | % | $ | 118.3 |   | 100 | % | $ | 110.4 |   | 100 | % |
|                                      |            |             |            |             |            |             |            |             |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

9

----

 

**The totalReceivable allowance for credit losses, by geographic area, at October 31,and the Receivable portfolio, by geographic area, as a percent of totalportfolio is presented below (in millions of dollars):**

 

| ** **        | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** | **2001**    | ** ** |
|-------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **        | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| U.S.              |       | $           | 86.8       |        |       | 86          | %          | $           | 95.6       |        |       | 84 | % | $ | 107.8 |   |   | 86 | % | $ | 108.2 |   |   | 90 | % | $ | 103.3 |   |   | 93 | % |
| Outside the U.S.  |       | 9.6         |       | 14          |       | 17.0        |       | 16          |       | 16.0        |       | 14 |   | 10.1 |   | 10 |   | 7.1 |   | 7 |   |
| Total Receivables |       | $           | 96.4       |        | 100        | %           | $          | 112.6       |       | 100         | %          | $ | 123.8 |   | 100 | % | $ | 118.3 |   | 100 | % | $ | 110.4 |   | 100 | % |
|                   |            |             |            |             |            |             |            |             |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The allowance for credit losses is an estimate of the losses expectedfrom the Company’s Receivable portfolio. The level of the allowance is based on many quantitative and qualitativefactors, including historical loss experience by product category, portfolioduration, delinquency trends, economic conditions and credit risk quality. TheCompany has an established process to calculate a range of possible outcomesand determine the adequacy of the allowance. No single statistic or measurementdetermines the adequacy of the allowance. Historical receivable recoveries andcharge-offs are considered as part of the loss experience by productcategory.  The adequacy of the allowanceis assessed quarterly in accordance with Financial Accounting Standards Board(FASB) Statement No. 5, Accounting for Contingencies, and FASB Statement No. 114,Accounting by Creditors for Impairment of a Loan. Different assumptions orchanges in economic conditions would result in changes to the allowance forcredit losses and provision for credit losses.

 

The allowance is determined at an aggregate level by product categoryfor all Receivables that are performing in accordance with payment terms andare not materially past due. The Company assigns loss factors to eachaggregation and loss factors are applied to the applicable Receivable balanceto determine the allowance level for each product category. The loss factorsare determined based on quantitative and qualitative factors, includinghistorical loss experience by product category, portfolio duration, delinquencytrends, economic conditions and credit risk quality.

 

TheCompany also separately reviews non-performing Receivables for impairment basedon delinquencies and changes in cash flows or collateral. These non-performingReceivables consist of materially past due Receivables, customers that haveprovided bankruptcy notification and other Receivables requiring significantcollection efforts including litigation. The Company identifies theseReceivables during reviews of portfolio credit quality. The Company includesthe impairment on non-performing Receivables as a separate component includedin the allowance unless it has already been recognized as a loss.

 

Inaddition to the calculations discussed above, other qualitative factors aretaken into account to arrive at the allowance balance. The total allowancereflects management’s estimate of credit losses inherent in the Receivablesportfolio at the balance sheet date. See further discussion of the allowancefor credit losses in the Critical Accounting Policies.

 

Competition

 

Thebusinesses in which the Company is engaged are highly competitive. The Companycompetes for customers with commercial banks and finance and leasing companiesbased upon its service, finance rates charged and other finance terms. Theproportion of John Deere equipment retail sales and leases financed by theCompany is influenced by conditions prevailing in the agricultural equipment,commercial and consumer equipment, and construction and forestry equipmentindustries, in the financial markets, and in business generally. The Companyfinanced a significant portion of John Deere equipment retail sales and leasesin the U.S. during 2005 and 2004.

 

TheCompany emphasizes convenient service to customers and endeavors to offer termsdesired in its specialized markets such as seasonal schedules of repayment andrentals. The Company’s retail note finance rates and lease rental rates aregenerally believed to be in the range offered by other sales finance andleasing companies, although not as low as those of some banks and other lendersand lessors.

 

10

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Regulation

 

In anumber of states, state law limits the maximum finance rate on receivables. Thepresent state limitations have not, thus far, significantly limitedvariable-rate finance charges or the fixed-rate finance charges established bythe Company. However, if interest rate levels should increase significantly,maximum state rates could affect the Company by preventing the variable rateson outstanding variable-rate retail notes from increasing above the maximumstate rate, and by limiting the fixed rates on new notes. In some states, theCompany may be able to qualify new retail notes for a higher maximum rate limitby using retail installment sales contracts (rather than loan contracts) or byusing fixed-rate rather than variable-rate contracts.

 

Inaddition to rate regulation, various state and federal laws and regulationsapply to some Receivables and Leases, principally retail notes for goods soldfor personal, family or household use and Farm Planä,PowerPlanâ and John Deere Credit Revolving Plan accountsreceivable for such goods. To date, these laws and regulations have not had asignificant adverse effect on the Company.

 

FPCFinancial, f.s.b. (Thrift), a wholly-owned subsidiary of the Company, holds afederal charter issued by the Office of Thrift Supervision (OTS) and is subjectto federal regulation and examination by the OTS. The Thrift is headquarteredin Madison, Wisconsin and offers revolving charge products such as John DeereCredit Revolving Plan, Farm Planäand PowerPlanâ on a nationwide basis.

 

Financingoutside the U.S. is affected by a variety of laws, customs and regulations.

 

**Item 2.  Properties.**

 

TheCompany’s properties principally consist of office equipment, a Company-ownedoffice building in Madison, Wisconsin; and leased office space in Johnston,Iowa; Urbandale, Iowa; Reno, Nevada; Pittsburgh, Pennsylvania; Rosario,Argentina; Brisbane, Australia; Gloucester, England; Langar, England; Bruchsal,Germany; Vignate, Italy; Luxembourg City, Luxembourg; Monterrey, Mexico; andGetafe, Spain.

 

**Item 3.  Legal Proceedings.**

 

TheCompany is subject to various unresolved legal actions which arise in thenormal course of its business, the most prevalent of which relate to state andfederal laws and regulations concerning retail credit. Although it is notpossible to predict with certainty the outcome of these unresolved legalactions or the range of possible loss, the Company believes these unresolvedlegal actions will not have a material effect on its financial statements.

 

**Item 4.  Submission of Matters to a Vote ofSecurity Holders.**

 

Omittedpursuant to instruction I(2).

 

**PART II**

 

**Item 5.  Market for Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.**

 

(a)          All of the Company’scommon stock is owned by John Deere Credit Company, a finance holding companythat is wholly-owned by Deere & Company. The Company declared and paidcash dividends to John Deere Credit Company of $150 million in 2005 and $420 millionin 2004. In each case, John Deere Credit Company paid comparable dividends toDeere & Company.

 

(b)         Not applicable.

 

(c)          Not applicable.

 

11

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**Item 6.  Selected Financial Data.**

 

Omittedpursuant to instruction I(2).

 

**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

Results ofOperations 

 

Overview

 

Organization

 

TheCompany primarily generates revenues and cash by financing sales and leases ofnew and used agricultural, commercial and consumer, and construction andforestry equipment by John Deere dealers. In addition, the Company also provides wholesale financing to dealers ofthe foregoing equipment, provides operating loans, finances retail revolvingcharge accounts, offers certain crop risk mitigation products and invests inwind energy development.

 

Trendsand Economic Conditions

 

TheCompany’s business is currently affected by the following key trends andeconomic conditions. The Company’s business is closely related to John Deere’sbusiness. Although the farm sector is expected to remain in solid financialcondition, Deere & Company’s sales in the U.S. and Canada are forecastto be down 5 to 10 percent in 2006. Deere & Company’s retail sales inWestern Europe and South America are each forecast to be down approximately 5 percentfor the year. Deere & Company’s agricultural equipment sales were up 9percent for 2005 and are forecast to be down approximately 2 to 4 percent in2006. Deere & Company’s commercial and consumer equipment salesdeclined 4 percent in 2005 reflecting the impact of unfavorable weatherconditions. Sales of commercial and consumer equipment are forecast to be up 10to 12 percent in 2006 benefiting primarily from newly introduced products and anassumed return to more normal weather patterns. Markets for constructionequipment are forecast to experience further growth in 2006 as a result of U.S.economic conditions. On this basis, contractors and rental companies areexpected to continue updating and expanding their fleets. Forestry equipmentmarkets are projected to remain near last year’s level in the U.S. and Canadaand to be lower in Europe. Deere & Company’s construction and forestrysales increased 24 percent in 2005 and are forecast to increase 5 to 7 percentin 2006. The Company expects to report net income of approximately $285 millionin 2006 as a result of further growthin the loan portfolio.

 

2005 Compared with2004

 

Consolidatednet income was $274.7 million for the year, compared with $270.6 million lastyear. The higher results for the year were primarily due to growth in theportfolio and a lower provision for credit losses, partially offset by narrowerfinancing spreads and lower gains on retail note sales. The ratio of earningsto fixed charges was 1.88 to 1 for 2005, compared with 2.23 to 1 for 2004.

 

Revenuestotaled $1,377 million in 2005, compared to $1,219 million a year ago. Revenuesincreased primarily due to a 19 percent increase in the average balance ofReceivables and Leases financed, partially offset by lower gains on receivablesales. Finance income earned on retail notes totaled $522 million in 2005, up $138million compared to $384 millionin 2004. The increase was primarily due to a 30 percent increase in the averageretail note portfolio balances and increasing yields. Lease revenues decreased$7 million to $256 million in 2005, primarily due to a 3 percent decreasein the average balance of equipment on operating leases. Revenues earned onrevolving charge accounts amounted to $193 million in 2005, a 14 percentincrease over revenues of $169 million earned during 2004. The increase wasprimarily due to growth of Farm Planä and John DeereCredit Revolving Plan average receivables in 2005, compared with 2004. Financeincome earned on wholesale receivables increased $46 million, to $291 millionin 2005, from $245 million in 2004. The increase was primarily due to a 15percent increase in the average balance of wholesale receivables. Revenuesearned on operating loans amounted to $24 million in 2005, compared with

 

12

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$23 million in 2004. Revenues earned from Deere & Companytotaled $401 million in 2005 compared to $365 million a year ago.

 

Thenet gains on Receivables sold, including adjustments to prior sales related tocleanup calls and revaluations of retained interests and the related permanentimpairments, totaled $5 million during 2005, compared with $46 million for 2004.During 2004, the Company benefited from the sale of agricultural andconstruction and forestry retail notes of approximately $2,156 million totalprincipal value. Securitization and servicing fee income totaled $40 millionin 2005, compared with $51 million during 2004. Securitization and servicingfee income relates to Receivables sold to other financial institutions orlimited-purpose business trusts and primarily includes the interest earned onretained interests and reimbursed administrative expenses received.

 

Interestexpense totaled $473 million in 2005, compared with $327 million in 2004. The increasewas primarily due to higher average borrowings and an increase in theweighted-average annual interest rate incurred on all borrowings from 3.1 percentin 2004 to 3.9 percent in 2005.

 

Administrativeand operating expenses totaled $251 million in 2005, compared with $245 millionin 2004. Administrative and operating expenses as a percent of averageReceivables and Leases administered were 1.48 percent in 2005, compared with 1.61percent in 2004.

 

Depreciationof equipment on operating leases totaled $169 million in 2005, compared with $170million in 2004.

 

Interestand support fees paid to John Deere were $53 million in 2005, compared with $34 millionin 2004. The increase was primarily due to higher average borrowings from Deere &Company and an increase in the weighted-average annual interest rate in 2005.

 

The provision for credit losses was $6 million in2005, compared with $32 million in 2004. The decrease reflects solid portfolioquality. The Company has experienced lower write-offs of retail notes, operatingloans, wholesale receivables and financing leases. The provision for creditlosses, as a percentage of the total average balance of Receivables financed,was .04 percent for 2005 and .28 percent for 2004. Total net write-offs ofReceivables financed were $22 million during 2005, compared with $34 millionin 2004.

 

Receivablesand Leases Acquired and Held

 

Receivablesand Leases acquired by the Company during 2005 totaled $29,088 million, anincrease of 10 percent, compared with volumes of $26,443 million during2004. These higher volumes in 2005 resulted mainly from increased volumes ofwholesale receivables, retail notes, and revolving charge accounts. Excludingthe trade receivables acquired from John Deere, acquisitions of Receivables andLeases were 7 percent higher in 2005 compared to last year. Receivables andLeases held by the Company at October 31, 2005 totaled $16,002 million,compared with $13,342 million at October 31, 2004. For the 2005 and2004 fiscal years, Receivable and Lease acquisition volumes and balances heldwere as follows (in millions of dollars):

 

13

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| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **2005**                | ** ** | **2004**                        | ** ** | **% Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                    |       |                            |       |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                       | 3,993.1    |                            | $          | 3,825.6 |   | 4 | % | $ | 6,208.8 |   | $ | 4,450.4 |   | 40 | % |
| Construction and  forestry equipment |       | 1,422.3                 |       | 1,168.6                         |       | 22 |   | 1,980.4 |   | 1,406.1 |   | 41 |   |
| Commercial and  consumer equipment   |       | 551.7                   |       | 594.9                           |       | (7 | ) | 1,021.7 |   | 983.9 |   | 4 |   |
| Recreational  products               |       |                    |       |                            |       |   |   | 22.7 |   | 33.3 |   | (32 | ) |
| Total retail  notes                  |       | 5,967.1                 |       | 5,589.1                         |       | 7 |   | 9,233.6 |   | 6,873.7 |   | 34 |   |
| Revolving charge  accounts           |       | 3,271.5                 |       | 3,140.2                         |       | 4 |   | 1,527.5 |   | 1,443.8 |   | 6 |   |
| Operating loans                      |       | 1,331.7                 |       | 1,658.3                         |       | (20 | ) | 384.4 |   | 380.5 |   | 1 |   |
| Wholesale  receivables               |       | 17,864.4                |       | 15,500.2                        |       | 15 |   | 3,651.2 |   | 3,480.5 |   | 5 |   |
| Financing leases                     |       | 220.3                   |       | 196.5                           |       | 12 |   | 411.7 |   | 406.0 |   | 1 |   |
| Equipment on  operating leases       |       | 433.4                   |       | 358.3                           |       | 21 |   | 793.9 |   | 757.6 |   | 5 |   |
| Total Receivables  and Leases        |       | $                       | 29,088.4   |                            | $          | 26,442.6 |   | 10 | % | $ | 16,002.3 |   | $ | 13,342.1 |   | 20 | % |

 

Retailnote volumes increased by approximately $378 million in 2005, compared with 2004.Lease volumes increased $99 million in 2005, compared with 2004. The increases inretail note and lease volumes were primarily due to increases in retail salesof John Deere agricultural and construction and forestry equipment. Revolvingcharge accounts volumes increased primarily as a result of increased market coverage.Wholesale receivable volumes increased primarily due to increased shipments ofJohn Deere equipment as a result of increased retail sales activity in theagricultural and construction and forestry markets.

 

Thebalance of retail notes at October 31, 2005 and 2004 was $9,234 millionand $6,874 million, respectively. The increase was due to retail note volumesexceeding collections and a change in structure of new securitizations ofretail notes. Beginning in 2005, the Company’s new securitizations of retailnotes held by special purpose entities met the criteria for secured borrowingsrather than sales of receivables under FASB Statement No. 140, Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities. As a result, these securitized retail notes are classified as “Restrictedsecuritized retail notes” on the balance sheet. See Note 4 to the ConsolidatedFinancial Statements.

 

Receivables and Leases administered by the Company,which include retail notes sold, were as follows (in millions):

 
| ** **                                                    | ** ** | **October 31,  2005** | ** ** | **October 31,  2004** | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Receivables and Leases administered:**                      | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| Owned by the  Company                                         |       | $                          | 14,662.2   |                       | $          | 13,342.1 |   |
| Owned by the  Company – restricted due to securitization |       | 1,340.1                    |       |                       |       |
| Total  Receivables and Leases owned by the Company            |       | 16,002.3                   |       | 13,342.1                   |       |
| Sold and  serviced - with limited recourse*                   |       | 1,699.2                    |       | 3,027.6                    |       |
| Sold and  serviced - without recourse**                       |       | 20.1                       |       | 24.5                       |       |
| Total  Receivables and Leases administered                    |       | $                          | 17,721.6   |                       | $          | 16,394.2 |   |

 

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*                                         The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2005 and 2004 was $140 million and $203 million, respectively. In addition, theCompany has provided letters of credit for John Deere Credit Inc., the JohnDeere finance subsidiary in Canada, as part of retail note sales. At October 31, 2005and 2004, the Company’s maximum exposure under these agreements wasapproximately $7 million and $8 million, respectively. The Company doesnot record the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onreceivables that have been sold was accrued at the time of sale, and anysubsequent necessary adjustments are made as part of ongoing reviews.

 

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**                                  These receivables represent recreationalproduct retail notes that the Company has sold but continues to administer fora fee.

 

Retailnotes bearing fixed finance rates totaled 75 percent of the total retail note portfolioat October 31, 2005, compared with 80 percent at October 31, 2004.

 

Total Receivable amounts 60 days or more past duerepresent the amount of all customer payments past due 60 days or more.These amounts were $33 million at October 31, 2005, compared with $40 millionat October 31, 2004. In addition, these past due amounts represented..21 percent and .32 percent of the total Receivables held at those respectivedates. The balance of retail notes held (principal plus accrued interest) withany installment 60 days or more past due represents the total retail notebalance for a customer that has any portion of his note 60 days or more pastdue. These amounts were $78 million and $71 million at October 31, 2005and 2004, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was .84 percent at October 31, 2005 and 1.03 percentat October 31, 2004. See Note 3 to the Consolidated Financial Statementsfor additional past due information.

 

Depositswithheld from dealers and merchants, representing mainly the aggregate dealerretail note and lease withholding accounts from individual John Deere dealersto which losses from retail notes and leases originating from the respectivedealers can be charged, amounted to $166 million at October 31, 2005,compared to $168 million at October 31, 2004. The Company’s allowance forcredit losses on all Receivables financed at October 31, 2005 totaled $96 millionand represented .63 percent of the total Receivables financed, compared with $113million and .89 percent, respectively, one year earlier. The allowance issubject to an ongoing evaluation based on many quantitative and qualitativefactors, including historical loss experience by product category, portfolioduration, delinquency trends, economic conditions and credit risk quality. TheCompany believes its allowance is sufficient to provide for losses in itsexisting receivable portfolio.

 

2004 Compared with2003

 

Consolidatednet income for the fiscal year ended October 31, 2004 was $270.6 million,compared with $280.5 million in 2003. The lower results for 2004 were primarilydue to higher administrative costs, partly related to a higher provision forperformance bonuses in connection with overall John Deere profitability, andlower margins. Partially offsetting these factors was a lower provision forcredit losses, reflecting solid portfolio quality. The ratio of earnings tofixed charges was 2.23 to 1 for 2004, compared with 2.17 to 1 for 2003.

 

Revenuestotaled $1,219 million in 2004, compared to $1,297 million in 2003. Revenuesdecreased primarily reflecting lower rental income from operating leasesrelated to the lower level of leases, and lower average finance rates. Financeincome earned on retail notes totaled $384 million in 2004, down $20 millioncompared to $404 million in 2003. The decrease was primarily due todeclining yields earned on the average retail note portfolio balance, partiallyoffset by higher average retail note portfolio balances. Lease revenuesdecreased $67 million to $263 million in 2004, primarily due to a 22percent decrease in the average balance of equipment on operating leases andlower yields. The operating lease levels decreased as a result of moreattractive financing options offered on retail note products in recent years.Revenues earned on revolving charge accounts amounted to $169 million in 2004,an 11 percent increase over revenues of $152 million earned during 2003.The increase was primarily due to growth of Farm Planäand John Deere Credit Revolving Plan receivables in 2004, compared with 2003.Finance income earned on wholesale receivables increased $6 million, to$245 million in 2004, from $239 million in 2003. Revenues earned onoperating loans decreased 26 percent to $23 million in 2004, from $31 millionin 2003, primarily due to an 18 percent decrease in the average balance ofoperating loans. Revenues earned from Deere & Company totaled $365 millionin 2004 compared to $358 million in 2003.

 

Thenet gains on Receivables sold, including adjustments to prior sales related tocleanup calls and revaluations of retained interests and the related permanentimpairments, totaled $46 million during 2004, compared with $47 million for2003. The Company sold approximately $2,156 million total principal valueduring 2004, compared to approximately $1,675 million total principal value in2003. Although the principal value sold in 2004 increased,

 

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the net gain on Receivables sold for 2004 decreased primarily due tolower margins. Securitization and servicing fee income totaled $51 millionin 2004, compared with $53 million during 2003. Securitization andservicing fee income relates to Receivables sold to other financialinstitutions or limited-purpose business trusts and primarily includes theinterest earned on retained interests and reimbursed administrative expensesreceived.

 

Interestexpense totaled $327 million in 2004, compared with $360 million in 2003. Thedecrease was primarily due to a decrease in the weighted-average annualinterest rate incurred on all borrowings from 3.5 percent in 2003 to3.1 percent in 2004.

 

Administrativeand operating expenses totaled $245 million in 2004, compared with $202 millionin 2003. The increase was primarily due to higher employment costs related inpart to a higher provision for employee performance bonuses in connection withoverall John Deere profitability, higher postretirement benefits and highercosts associated with administering a larger Receivable and Lease portfolio.

 

Depreciationof equipment on operating leases decreased to $170 million in 2004, compared to$209 million in 2003 as a result of a lower average amount of equipment on operating leases.

 

Interestand support fees paid to John Deere were $34 million in 2004, compared to$26 million in 2003. The increase was primarily due to higher averageborrowings from Deere & Company in 2004.

 

The provision for credit losses was $32 million in2004, compared with $72 million in 2003. The decrease reflected solid portfolioquality. The Company experienced lower write-offs of John Deere constructionand forestry equipment retail notes, revolving charge accounts and financingleases. The provision for credit losses, as a percentage of the total averagebalance of Receivables financed, was .28 percent for 2004 and .64 percent for2003. Total net write-offs of Receivables financed were $34 million during2004, compared with $56 million in 2003.

 

Receivablesand Leases Acquired and Held

 

Receivablesand Leases acquired by the Company during 2004 totaled $26,443 million, anincrease of 26 percent, compared with volumes of $21,019 million during2003. The higher volumes in 2004 resulted mainly from increased volumes ofwholesale receivables, retail notes, revolving charge accounts and operatingloans. Excluding the trade receivables acquired from John Deere, acquisitionsof Receivables and Leases were 17 percent higher in 2004 compared to 2003.Receivables and Leases held by the Company at October 31, 2004 totaled$13,342 million, compared with $11,980 million at October 31, 2003.For the 2004 and 2003 fiscal years, Receivable and Lease acquisition volumesand balances held were as follows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **2004**                | ** ** | **2003**                        | ** ** | **% Change** | ** ** | **2004** | ** ** | **2003** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                    |       |                            |       |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                       | 3,825.6    |                            | $          | 3,346.0 |   | 14 | % | $ | 4,450.4 |   | $ | 3,954.0 |   | 13 | % |
| Construction and  forestry equipment |       | 1,168.6                 |       | 938.8                           |       | 24 |   | 1,406.1 |   | 1,195.6 |   | 18 |   |
| Commercial and  consumer equipment   |       | 594.9                   |       | 535.6                           |       | 11 |   | 983.9 |   | 908.7 |   | 8 |   |
| Recreational  products               |       |                    |       |                            |       |   |   | 33.3 |   | 51.4 |   | (35 | ) |
| Total retail  notes                  |       | 5,589.1                 |       | 4,820.4                         |       | 16 |   | 6,873.7 |   | 6,109.7 |   | 13 |   |
| Revolving charge  accounts           |       | 3,140.2                 |       | 2,858.4                         |       | 10 |   | 1,443.8 |   | 1,117.4 |   | 29 |   |
| Operating loans                      |       | 1,658.3                 |       | 1,424.2                         |       | 16 |   | 380.5 |   | 541.4 |   | (30 | ) |
| Wholesale  receivables               |       | 15,500.2                |       | 11,471.8                        |       | 35 |   | 3,480.5 |   | 2,904.6 |   | 20 |   |
| Financing leases                     |       | 196.5                   |       | 169.3                           |       | 16 |   | 406.0 |   | 427.3 |   | (5 | ) |
| Equipment on  operating leases       |       | 358.3                   |       | 274.7                           |       | 30 |   | 757.6 |   | 879.2 |   | (14 | ) |
| Total  Receivables and Leases        |       | $                       | 26,442.6   |                            | $          | 21,018.8 |   | 26 | % | $ | 13,342.1 |   | $ | 11,979.6 |   | 11 | % |

 

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Retailnote volumes increased by approximately $769 million in 2004, compared with2003. The increase was primarily due to increased retail sales of John Deereagricultural, construction and forestry and commercial and consumer equipment.Revolving charge accounts and operating loan volumes increased primarily as aresult of increased market coverage. Wholesale receivable volumes increasedprimarily due to increased shipments of John Deere equipment as a result ofincreased retail sales activity. Lease volumes increased due to increased retail sales activity in theconstruction and forestry market.

 

Receivables and Leases administered by the Company,which include retail notes sold, were as follows (in millions):

 
| ** **                                  | ** ** | **October 31,  2004** | ** ** | **October 31,  2003** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Receivables  and Leases administered:**   |       |                       |       |                       |       |
| Owned by the  Company                       |       | $                          | 13,342.1   |                       | $          | 11,979.6 |   |
| Sold and  serviced - with limited recourse* |       | 3,027.6                    |       | 2,559.4                    |       |
| Sold and  serviced - without recourse**     |       | 24.5                       |       | 35.4                       |       |
| Total  Receivables and Leases administered  |       | $                          | 16,394.2   |                       | $          | 14,574.4 |   |

 

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*                                         The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2004 and 2003 was $203 million and $221 million, respectively. In addition, theCompany provided letters of credit for John Deere Credit Inc., the John Deerefinance subsidiary in Canada, as part of retail note sales. At October 31, 2004and 2003, the Company’s maximum exposure under these agreements wasapproximately $8 million and $10 million, respectively. The Company didnot record the recourse obligations as liabilities as they are contingentliabilities that were remote at that time. However, the probable loss onreceivables that have been sold was accrued at the time of sale, and anysubsequent necessary adjustments are made as part of ongoing reviews.

 

**                                  These receivables represent recreationalproduct retail notes that the Company has sold but continues to administer fora fee.

 

Retailnotes bearing fixed finance rates totaled 80 percent of the total retail noteportfolio at October 31, 2004, compared with 76 percent at October 31,2003.

 

Total Receivable amounts 60 days or more past duerepresent the amount of all customer payments past due 60 days or more.These amounts were $40 million at October 31, 2004, compared with $48million at October 31, 2003. In addition, these past due amountsrepresented .32 percent and .43 percent of the total Receivables held at thoserespective dates. The balance of retail notes held (principal plus accruedinterest) with any installment 60 days or more past due represents the totalretail note balance for a customer that has any portion of his note 60 days ormore past due. These amounts were $71 million and $96 million at October 31, 2004and 2003, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was 1.03 percent at October 31, 2004 and1.57 percent at October 31, 2003. See Note 3 to the ConsolidatedFinancial Statements for additional past due information.

 

Depositswithheld from dealers and merchants, representing mainly the aggregate dealerretail note and lease withholding accounts from individual John Deere dealersto which losses from retail notes and leases originating from the respectivedealers can be charged, amounted to $168 million at October 31, 2004,compared to $160 million at October 31, 2003. The Company’s allowance forcredit losses on all Receivables financed at October 31, 2004 totaled $113million and represented .89 percent of the total Receivables financed, comparedwith $124 million and 1.12 percent, respectively, at October 31, 2003.The allowance is subject to an ongoing evaluation based on many quantitativeand qualitative factors, including historical loss experience by productcategory, portfolio duration, delinquency trends, economic conditions andcredit risk quality. The Company believes its allowance is sufficient toprovide for losses in its existing receivable portfolio.

 

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Capital Resourcesand Liquidity

 

TheCompany relies on its ability to raise substantial amounts of funds to financeits Receivable and Lease portfolios. During 2005, the Company issued $3,379million of term debt, obtained $1,584 million of secured borrowings, maintainedan average commercial paper balance of $1,720 million and received proceeds of$133 million from sales of Receivables. At October 31, 2005, theCompany’s funding profile included $1,696 million of commercial paper, $1,353 millionof notes payable related to on-balance sheet securitization funding, $275 millionof intercompany loans from Deere & Company, $10,622 million ofunsecured term debt, $1,619 million of off-balance sheet securitization fundingand $1,940 million of equity capital. The Company’s funding profile may bealtered to reflect such factors as relative costs of funding sources, assetsavailable for securitizations and capital market accessibility. During 2005 and2004, $133 million and $2,219 million, respectively, of funding was sourcedfrom Receivables sales.

 

The aggregate net cash provided by operating andfinancing activities was primarily used to acquire additional Receivables andLeases. Net cash provided by operating activities was $383 million in 2005.Cash provided by financing activities totaled $2,578 million resulting from anet increase in total external borrowings, partially offset by a decrease inpayables to Deere & Company and dividends paid to John Deere CreditCompany, which in turn paid comparable dividends to Deere & Company.Net cash used for investing activities totaled $2,917 million in 2005,primarily due to Receivable and Lease acquisitions exceeding collections. Cashand cash equivalents increased $41 million during 2005.

 

Overthe last three years, operating activities have provided $1,359 million incash. In addition, the sale of Receivables and Leases provided $5,056 million andan increase in total net borrowings provided $4,159 million. These amounts havebeen used mainly to fund Receivable and Lease acquisitions, which exceededcollections by $9,898 million, and to pay $775 million in dividends. Cashand cash equivalents also increased $102 million.

 

Becauseof the multiple funding sources that have been and continue to be available tothe Company, the Company expects to have sufficient sources of liquidity tomeet its funding needs. The Company’s commercial paper outstanding at October 31,2005 and 2004 was approximately $1,696 million and $1,554 million,respectively, while the total cash and cash equivalents position was $250 millionand $210 million, respectively. Additionally, the Company had access toapproximately $1,944 million and $2,915 million at October 31, 2005and 2004, respectively, of cash and cash equivalents held by its parent, Deere &Company (if Deere & Company would have chosen to make these fundsavailable to the Company).  In addition,the Company has for many years accessed diverse funding sources, includingshort-term and long-term unsecured debt capital markets in the U.S., Europe andAustralia, as well as public and private securitization markets in the U.S. TheCompany also has access to unsecured bank lines of credit. See Note 6 to theConsolidated Financial Statements.

 

TheCompany’s ability to obtain funding is affected by its debt ratings, which areclosely related to the outlook for and the financial condition of Deere &Company, and the nature and availability of support facilities, such as itslines of credit and the support agreement from Deere & Company. At October 31,2005, the Company and Deere & Company jointly maintained $2,514million of lines of credit with various banks throughout the world, $272million of which was unused. For thepurpose of computing unused credit lines, commercial paper and short-term bankborrowings, excluding secured borrowings and the current portion of long-termborrowings, of the Company and John Deere were considered to constituteutilization. Included in the total credit lines at October 31, 2005 werelong-term credit facility agreements for $1,250 million, expiring February 2009,and $625 million, expiring in 2010, for a total of $1,875 million long-term. Forinformation regarding Deere & Company and its business, see Businessof John Deere, Outlook for John Deere, Relationships of the Company with JohnDeere above and Exhibit 99.

 

Toaccess public debt capital markets, the Company relies on credit ratingagencies to assign short-term and long-term credit ratings to the Company’ssecurities as an indicator of credit quality for fixed income investors. Asecurity rating is not a recommendation by the rating agency to buy, sell orhold Company securities.  A credit ratingagency may change or withdraw Company ratings based on its assessment of theCompany’s current and future ability to meet interest and principal repaymentobligations. Lower credit ratings generally result in higher borrowing costsand reduced access to debt capital markets.

 

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The senior long-term and short-term debt ratings andoutlook currently assigned to unsecured Company securities by the ratingagencies 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            |       | Positive    |       |

 

Totalinterest-bearing indebtedness amounted to $13,958 million at October 31,2005, which included $1,353 million of secured borrowings, compared with $11,467 millionat October 31, 2004. Total borrowings have increased generallycorresponding with the level of the Receivable and Lease portfolio and thelevel of cash and cash equivalents. Total short-term indebtedness amounted to $5,767million at October 31, 2005, which included $1,353 million of securedborrowings, compared with $3,990 million at October 31, 2004 while totallong-term indebtedness amounted to $8,191 million at October 31, 2005 and$7,477 million at October 31, 2004. The ratio of total interest-bearingdebt to stockholder’s equity was 7.2 to 1 and 6.3 to 1 at October 31, 2005and 2004, respectively. The ratio of total interest-bearing debt, excludingsecured borrowings, to stockholder’s equity was 6.5 to 1 at October 31,2005.

 

The Company utilizes arevolving bank conduit facility, special purpose entity (SPE), to securitizefloating rate retail notes. This facility has the capacity, or “purchase limit,”of up to $2 billion in secured financings or sales outstanding at any time.Multiple bank conduits participate in this facility, which has no finalmaturity date. Instead, upon the Company’s request each bank conduit may electto renew its commitment on an annual basis. If this facility is not renewed,the Company would liquidate the securitizations as the retail notes arecollected. At October 31, 2005, $1,755 million was outstanding under thefacility of which $695 million was recorded on the balance sheet.  See Note 4 to the Consolidated FinancialStatements.

 

TheCompany issued $3,379 million and retired $1,190 million of otherborrowings during the year, which were primarily medium-term notes.

 

TheCompany’s ability to meet its debt obligations is supported in a number ofways. All commercial paper issued is backed by unsecured, committed creditlines from various banks. The assets of the Company are self-liquidating innature. A strong equity position is available to absorb unusual losses on theseassets. Liquidity is also provided by the Company’s ability to securitize theseassets. The Company also maintains uncommitted, unsecured lines of credit withvarious banks. See Note 6 to the Consolidated Financial Statements.

 

Stockholder’s equity was $1,940 million at October 31,2005, compared with $1,807 million and $1,933 million at October 31, 2004and 2003, respectively.  The increase in2005 was primarily due to net income of $275 million and an increase in theunrealized gain on derivatives of $12 million, partially offset by dividendpayments of $150 million. Unrealized gains occur on cash flow hedges when ratesincrease. As a result of the Company’s match-funding policy, the Company hasentered into interest rate swaps (pay fixed/receive floating rates) hedging theinterest costs of the Company’s floating rate borrowings. If interest ratesremain unchanged, the unrealized gain will be realized in income and will beoffset by the higher interest expense on the floating rate borrowings,effectively providing fixed rate funding.

 

TheCapital Corporation declared and paid cash dividends to John Deere CreditCompany of $150 million in 2005 and $420 million in 2004. In each case, JohnDeere Credit Company paid comparable dividends to Deere & Company.

 

The financing of retail purchases and leases of JohnDeere products and of wholesale receivables owed by John Deere dealers representedapproximately 84 percent of the Company’s acquisition volume for 2005, comparedwith 82 percent for 2004. Any extended reduction or suspension of John Deere’ssale or production of products due to a decline in demand or production,technological difficulties, governmental actions or other events could have anadverse effect on the Company’s acquisition volume of Receivables and Leases.

 

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Safe Harbor Statement

 

*Safe Harbor Statement under the Private SecuritiesLitigation Reform Act of 1995:*Statements herein that relateto future operating periods are subject to important risks and uncertaintiesthat could cause actual results to differ materially. Actions by the U.S.Federal Reserve Board and other central banks may affect the costs and expensesof financing the Company and the rates it is able to offer. The Company’sbusiness is affected by general economic conditions in and the politicalinstability of the global markets in which the Company operates becausedeteriorating economic conditions and political instability can result inhigher loan losses. The Company’s business is also affected by actions ofbanks, financing and leasing companies and other lenders that compete with theCompany for customers. In addition, the Company’s business is closely relatedto John Deere’s business. Further information, including factors thatpotentially could materially affect the Company’s and John Deere’s financialresults, is included in the most recent Deere & Company Form 10-Kand other Deere & Company and Capital Corporation filings with theSecurities and Exchange Commission.

 

Off-Balance Sheet Arrangements

 

TheCompany has periodically securitized and sold retail notes to special purposeentities (SPEs) in securitizations of retail notes.  The Company used these SPEs in a mannerconsistent with conventional practices in the securitization industry toisolate the retail notes for the benefit of securitization investors. The useof the SPEs enabled the Company to access the highly liquid and efficientsecuritization markets for the sales of these types of financial assets. Theamount of funding the Company chooses to obtain from securitizations reflectsuch factors as capital market accessibility, relative costs of funding sourcesand assets available for securitization. The Company’s total exposure torecourse provisions related to securitized retail notes, which were sold inprior periods, was $138 million and the total assets held by SPEs related to thesesecuritizations were $1,754 million at October 31, 2005.

 

At October 31,2005, the Company had guaranteed approximately $30 million of residual valuerelated to property being used by the Company under an operating lease. TheCompany is obligated at the end of the lease term to pay to the lessor anyreduction in market value of the leased property up to the guaranteed residualvalue. The Company recognizes the expense for this future estimated leasepayment over the life of the operating lease and had accrued expenses of $7 millionrelated to this agreement at October 31, 2005. The lease term expires in2007.

 

At October 31, 2005, the Company hadapproximately $10 million of guarantees issued primarily to banks outside theU.S. related to third-party receivables for the retail financing of John Deereequipment. The Company may recover a portion of any required payments incurredunder these agreements from repossession of the equipment collateralizing thereceivables. At October 31, 2005, the Company had accrued losses ofapproximately $.2 million under these agreements. The maximum remaining term ofthe receivables guaranteed at October 31, 2005 was approximately two years.

 

The Company’s subsidiary,John Deere Risk Protection, Inc., offers crop insurance products through amanaging general agency agreement (MGA) with an insurance company (InsuranceCarrier) rated “Excellent” by A.M. Best Company. As a managing generalagent, John Deere Risk Protection, Inc. will receive commissions from theInsurance Carrier for selling crop insurance to producers.  The Company has guaranteed certainobligations under the MGA, including the obligation to pay the InsuranceCarrier for any uncollected premiums. At October 31, 2005 the maximumexposure for uncollected premiums was approximately $14 million. Substantiallyall of the Company’s crop insurance risk under the MGA has been mitigated bypublic and private reinsurance. All private reinsurance companies are rated “Excellent”or higher by A.M. Best Company. In the event of a complete crop failure onevery policy written under the MGA in 17 states and the default of the U.S.Department of Agriculture and a syndicate of highly rated private reinsurancecompanies on their reinsurance obligations, the Company would be required to reimbursethe Insurance Carrier for the maximum exposure under the MGA of approximately$633 million at October 31, 2005. The Company believes that thelikelihood of the occurrence of substantially all of the events that give riseto the exposure under this MGA is extremely remote and as a result, at October 31,2005, the Company has accrued probable losses of approximately $.1 millionunder the MGA.

 

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Aggregate Contractual Obligations

 

Most of the Company’s contractual obligations tomake payments to third parties are debt obligations. In addition, the Companyhas off-balance sheet obligations for the purchase of services and equipment alongwith agreements for future lease payments. The payment schedule for thesecontractual obligations in millions of dollars is as follows:

 
| ** **            | ** ** | **Total** | ** ** | **Less than 1  year** | ** ** | **1 – 3  years** | ** ** | **3 – 5 years** | ** ** | **More than 5  years** | ** ** |
|-----------------------|------------|-----------|------------|-----------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|
| Total debt*           |       | $         | 13,912     |                  | $          | 5,760                 | **         | $                    | 4,373      |                   | $          | 1,629 |   | $ | 2,150 |   |
| Purchase  obligations |       | 210       |       | 209                   |       | 1                     |       |                 |       |                   |       |
| Operating leases      |       | 38        |       | 2                     |       | 34                    |       | 2                    |       |                   |       |
| Total  obligations    |       | $         | 14,160     |                  | $          | 5,971                 |       | $                    | 4,408      |                   | $          | 1,631 |   | $ | 2,150 |   |

 

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*                                         Principalpayments

**                                  SeeNote 6 to the Consolidated Financial Statements

 

These contractual obligations do not include unusedcommitments to extend credit to customers and John Deere dealers as discussedin Note 15 to the Consolidated Financial Statements.

 

Critical Accounting Policies

 

The preparation of the Company’s consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect reported amounts of assets, liabilities, revenues and expenses. Changesin these estimates and assumptions could have a significant effect on thefinancial statements. The accounting policies below are those managementbelieves are the most critical to the preparation of the Company’s financialstatements and require the most difficult, subjective or complex judgments. TheCompany’s other accounting policies are described in the Notes to theConsolidated Financial Statements.

 

Allowance for Credit Losses

 

The allowance for credit losses represents anestimate of the losses expected from the Company’s Receivable portfolio.  The level of the allowance is based on manyquantitative and qualitative factors, including historical loss experience byproduct category, portfolio duration, delinquency trends, economic conditionsand credit risk quality. The adequacy of the allowance is assessed quarterly.  Different assumptions or changes in economicconditions would result in changes to the allowance for credit losses and theprovision for credit losses.

 

Thetotal allowance for credit losses at October 31, 2005, 2004, and 2003 were$96 million, $113 million, and $124 million, respectively.  The decreases in 2005 and 2004 were primarilydue to improved credit quality and delinquency trends.

 

Theassumptions used in evaluating the Company’s exposure to credit losses involveestimates and significant judgment. The historical loss experience on theReceivable portfolios represents one of the key assumptions involved indetermining the allowance for credit losses. Over the last five fiscal years,the average loss experience has fluctuated between 1 basis point and 11 basispoints in any given fiscal year over the applicable prior period. Holding otherestimates constant, a 5 basis point increase or decrease in estimated lossexperience on the Receivable portfolios would result in an increase or decreaseof approximately $8 million to the allowance for credit losses at October 31,2005.

 

Operating Lease Residual Values

 

The carrying value of the equipment on operatingleases is affected by the estimated fair values of the equipment at the end ofthe lease (residual values).  Upon terminationof the lease, the equipment is either purchased by the lessee or sold to athird party, in which case the Company may record a gain or a loss for thedifference between the

 

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estimated residual value and thesales price.  The residual values aredependent on current economic conditions and are reviewed quarterly.  Changes in residual value assumptions wouldaffect the amount of depreciation expense and the amount of investment inequipment on operating leases.

 

Thetotal operating lease residual values at October 31, 2005, 2004, and 2003were $450 million, $461 million, and $587 million, respectively.  The decrease in 2005 was primarily due to thechange in product mix of operating leases. The decrease in 2004 was primarily due to a decrease in the level ofoperating leases.

 

Estimatesused in determining end of lease market values for equipment on operatingleases significantly impact the amount and timing of depreciation expense.  If future market values for equipment were todecrease 5 percent from the Company’s present estimates, the total impactwould be to increase the Company’s depreciation on equipment on operatingleases by approximately $23 million. This amount would be charged to depreciationexpense during the remaining lease terms such that the net investment inoperating leases at the end of the lease terms would be equal to the revisedresidual values. Initial lease terms generally range from three to five years.

 

**Item 7A.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

Financial Instrument Risk Information

 

TheCompany is naturally exposed to various interest rate and foreign currencyrisks. As a result, the Company enters into derivative transactions to managecertain of these exposures that arise in the normal course of business and notfor the purpose of creating speculative positions or trading. The Companymanages the relationship of the types and amounts of its funding sources to itsReceivable and Lease portfolios in an effort to diminish risk due to interestrate and foreign currency fluctuations, while responding to favorable financingopportunities. Accordingly, from time to time, the Company enters into interestrate swap agreements to manage its interest rate exposure. The Company also hasforeign currency exposures at some of its foreign and domestic operationsrelated to financing in currencies other than the local currencies. The Companyhas entered into agreements related to the management of these currency transactionrisks. The credit risk under these interest rate and foreign currencyagreements is not considered to be significant. See Note 17 to the ConsolidatedFinancial Statements for additional detailed financial instrument information.

 

Interest Rate Risk

 

Quarterly,the Company uses a combination of cash flow models to assess the sensitivity ofits financial instruments with interest rate exposure to changes in marketinterest rates. The models calculate the effect of adjusting interest rates asfollows. Cash flows for Receivables are discounted at the current prevailingrate for each Receivable portfolio. Cash flows for borrowings are discounted atthe treasury yield curve plus a market credit spread for similarly ratedborrowers. Cash flows for securitized borrowings are discounted at theindustrial composite bond curve for similarly rated borrowers. Cash flows forinterest rate swaps are projected and discounted using forecasted rates fromthe swap yield curve at the repricing dates. The net loss in these financialinstruments’ fair values which would be caused by increasing the interest ratesby 10 percent from the market rates at October 31, 2005 and October 31,2004 would have been approximately $35 million and $38 million, respectively.

 

Foreign Currency Risk

 

TheCompany’s policy is to hedge the foreign currency risk if the currency of theborrowings does not match the currency of the Receivable portfolio.  As a result, a hypothetical 10 percentadverse change in the value of the U.S. dollar relative to all other foreigncurrencies would not have a material effect on the Company’s cash flows.

 

**Item 8.  Financial Statements and SupplementaryData.**

 

Seeaccompanying table of contents of financial statements.

 

22

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**Item 9.  Changes in and Disagreements withAccountants on Accounting and Financial Disclosure.**

 

Notapplicable.

 

**Item 9A.  Controls and Procedures.**

 

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

 

**PART III**

 

**Item 10.  Directors and Executive Officers of theRegistrant.**

 

Omittedpursuant to instruction I(2).

 

**Item 11.  Executive Compensation.**

 

Omittedpursuant to instruction I(2).

 

**Item 12.  Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

 

Omittedpursuant to instruction I(2).

 

**Item 13.  Certain Relationships and RelatedTransactions.**

 

Omittedpursuant to instruction I(2).

 

**Item14.  PrincipalAccountant Fees and Services.**

 

For the years ended October 31, 2005 and 2004,professional services were performed by Deloitte & Touche LLP, themember firms of Deloitte Touche Tohmatsu, and their respective affiliates(collectively, “Deloitte & Touche”).

 

Audit Fees

 

The aggregate fees billed include amounts for theaudit of the Company’s annual financial statements, the reviews of thefinancial statements included in the Company’s Quarterly Reports on Form 10-Q,including services related thereto such as comfort letters, statutory audits,attest services, consents, and assistance with and review of documents filedwith the SEC and other regulatory bodies. Audit fees for the fiscal years endedOctober 31, 2005 and 2004, were $1,959 thousand and $1,209 thousand,respectively.

 

Audit-Related Fees

 

During the last two fiscal years, Deloitte &Touche has provided the Company with assurance and related services that arereasonably related to the performance of the audit of our financial statements.The aggregate fees billed for such audit-related services for the fiscal yearsended October 31, 2005 and 2004, were $156 thousand and $190 thousand,respectively. These services included the general assistance with theimplementation of the Securities and Exchange Commission (SEC) rules pursuantto the Sarbanes-Oxley Act of 2002 and various attest services.

 

23

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Tax Fees

 

The aggregate fees billed for professional servicesprovided by Deloitte & Touche in connection with tax advice and taxplanning services for the fiscal year ended October 31, 2005 was $4 thousand.The aggregate fees billed for professional services provided by Deloitte &Touche in connection with tax compliance, tax advice and tax planning servicesfor the fiscal year ended October 31, 2004 was $57 thousand.

 

All Other Fees

 

There were no aggregatefees billed for services not included above for the fiscal years ended October 31,2005 and 2004.

 

Pre-approval of Services by the External Auditor

 

As a wholly-owned subsidiary of Deere &Company, audit and non-audit services provided by the Company’s externalauditor are subject to Deere & Company’s Audit Review Committeepre-approval policies and procedures as described in the Deere &Company 2005 proxy statement.  During thefiscal year ended October 31, 2005, all services provided by the externalauditor were pre-approved by Deere & Company’s Audit Review Committeein accordance with such policy.

 

**PART IV**

 

**Item 15.  Exhibits and Financial Statement Schedules.**

 
| (1)    |   | Financial  Statements                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                 |
| (2)    |   | Financial  Statement Schedules                                                                                                                                       |
|   |   |                                                                                                                                                                 |
|   |   | See the table of  contents to financial statements and schedules immediately preceding the  financial statements and schedules to consolidated financial statements. |
|   |   |                                                                                                                                                                 |
| (3)    |   | Exhibits                                                                                                                                                             |
|   |   |                                                                                                                                                                 |
|   |   | See the index to  exhibits immediately preceding the exhibits filed with this report.                                                                                |

 

24

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|   | JOHN DEERE  CAPITAL CORPORATION |
|--------|---------------------------------|
|   |                            |   |
|   | By:                             | */s/  R. W. Lane* | * * |
|   |                            | R. W. Lane |
|   |                            | Chairman and Chief Executive Officer |

 

 

Date:       December 21, 2005

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the date indicated.

 

Eachperson signing below also hereby appoints Robert W. Lane, Jon D. Volkert andJames H. Becht, and each of them singly, his or her lawful attorney-in-factwith full power to execute and file any and all amendments to this reporttogether with exhibits thereto and generally to do all such things as suchattorney-in-fact may deem appropriate to enable John Deere Capital Corporationto comply with the provisions of the Securities Exchange Act of 1934 and allrequirements of the Securities and Exchange Commission.

 
| **Signature**             | ** ** | **Title**                | ** ** | **Date**                |
|---------------------------|------------|--------------------------|------------|-------------------------|
|                      |       |                     |       |                    |
| */s/  R. W. Lane*    |       | Director,  Chairman and  | )          |                    |
| R.  W. Lane               |       | Chief Executive  Officer | )          |                    |
|                      |       |                     | )          |                    |
|                      |       |                     | )          |                    |
| */s/  Samuel R. Allen*    |       | Director                 | )          |                    |
| Samuel  R. Allen          |       |                     | )          |                    |
|                      |       |                     | )          |                    |
|                      |       |                     | )          |                    |
| */s/  David C. Everitt*   |       | Director                 | )          | December 21,  2005 |
| David  C. Everitt         |       |                     | )          |                    |
|                      |       |                     | )          |                    |
|                      |       |                     | )          |                    |
| */s/  James R. Jabanoski* |       | Director                 | )          |                    |
| James  R. Jabanoski       |       |                     | )          |                    |
|                      |       |                     | )          |                    |
|                      |       |                     | )          |                    |
| */s/  John J. Jenkins*    |       | Director                 | )          |                    |
| John  J. Jenkins          |       |                     | )          |                    |

 

25

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| **Signature**              | ** ** | **Title**                        | ** ** | **Date**                |
|----------------------------|------------|----------------------------------|------------|-------------------------|
|                       |       |                             |       |                    |
| */s/  Nathan J. Jones*     |       | Director, Senior  Vice President | )          |                    |
| Nathan  J. Jones           |       | and Principal  Financial Officer | )          |                    |
|                       |       |                             | )          |                    |
|                       |       |                             | )          |                    |
| */s/  H. J. Markley*       |       | Director                         | )          |                    |
| H.  J. Markley             |       |                             | )          |                    |
|                       |       |                             | )          |                    |
|                       |       |                             | )          |                    |
| */s/  Stephen Pullin*      |       | Director                         | )          | December 21,  2005 |
| Stephen  Pullin            |       |                             | )          |                    |
|                       |       |                             | )          |                    |
|                       |       |                             | )          |                    |
| */s/  Lawrence W. Sidwell* |       | Director                         | )          |                    |
| Lawrence  W. Sidwell       |       |                             | )          |                    |
|                       |       |                             | )          |                    |
|                       |       |                             | )          |                    |
| */s/  Jon D. Volkert*      |       | Director and  President          | )          |                    |
| Jon D. Volkert             |       |                             | )          |                    |

 

26

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**Table of Contents**

 
| **Financial  Statements:**                                                                                                |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                      |   |
| John  Deere Capital Corporation and Subsidiaries:                                                                         |   |
|                                                                                                                      |   |
| Statements  of Consolidated Income and Retained Earnings  For the Years Ended October 31, 2005, 2004 and 2003        |   |
|                                                                                                                      |   |
| Consolidated  Balance Sheets, as of October 31, 2005 and 2004                                                        |   |
|                                                                                                                      |   |
| Statements  of Consolidated Cash Flows  For the Years Ended October 31, 2005, 2004 and 2003                          |   |
|                                                                                                                      |   |
| Statement  of Changes in Consolidated Stockholder’s Equity  For the Years Ended October 31, 2003, 2004 and 2005 |   |
|                                                                                                                      |   |
| Notes to  Consolidated Financial Statements                                                                               |   |

 

**SCHEDULES OMITTED**

 

Thefollowing schedules are omitted because of the absence of conditions underwhich they are required or because the required information is included in theNotes to the Consolidated Financial Statements:

 

I, II, III,IV, and V.

 

27

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Deloitte & Touche LLP

111 S. Wacker Drive

Chicago, Illinois 60606

 

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

John Deere CapitalCorporation:

 

We have audited theaccompanying consolidated balance sheets of John Deere Capital Corporation andsubsidiaries as of October 31, 2005 and 2004 and the related statements ofconsolidated income and retained earnings, of changes in consolidatedstockholder’s equity and of consolidated cash flows for each of the three yearsin the period ended October 31, 2005. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of John Deere Capital Corporation and subsidiaries’internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of John Deere Capital Corporation and subsidiaries at October 31,2005 and 2004 and the results of their operations and their cash flows for eachof the three years in the period ended October 31, 2005 in conformity withaccounting principles generally accepted in the United States of America.

 

 

DELOITTE &TOUCHE LLP

Chicago, Illinois

 

December 16, 2005

 

28

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

**Statements of Consolidated Incomeand Retained Earnings**

**For the Years Ended October 31, 2005, 2004 and2003**

(in millions)

 
| ** **                                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues**                                          |       |     |       |     |       |     |       |
| Finance income  earned on retail notes                |       | $        | 521.9      |     | $          | 384.4    |       | $ | 403.6 |   |
| Lease revenues                                        |       | 255.7    |       | 262.6    |       | 329.9    |       |
| Revolving charge  account income                      |       | 192.6    |       | 168.6    |       | 151.6    |       |
| Finance income  earned on wholesale receivables       |       | 291.4    |       | 244.7    |       | 239.0    |       |
| Operating loan  income                                |       | 23.8     |       | 22.8     |       | 30.8     |       |
| Securitization  and servicing fee income              |       | 39.6     |       | 50.7     |       | 52.5     |       |
| Net gain on  receivables sold                         |       | 5.1      |       | 46.2     |       | 46.6     |       |
| Other income                                          |       | 46.8     |       | 39.2     |       | 42.9     |       |
| Total revenues                                        |       | 1,376.9  |       | 1,219.2  |       | 1,296.9  |       |
| **Expenses**                                          |       |     |       |     |       |     |       |
| Interest expense                                      |       | 473.2    |       | 327.4    |       | 360.1    |       |
| Operating  expenses:                                  |       |     |       |     |       |     |       |
| Administrative  and operating expenses                |       | 250.7    |       | 244.7    |       | 202.4    |       |
| Provision for  credit losses                          |       | 5.9      |       | 32.3     |       | 72.2     |       |
| Fees paid to  John Deere                              |       | 53.2     |       | 34.4     |       | 25.5     |       |
| Depreciation of  equipment on operating leases        |       | 169.1    |       | 169.8    |       | 208.8    |       |
| Total operating  expenses                             |       | 478.9    |       | 481.2    |       | 508.9    |       |
| Total expenses                                        |       | 952.1    |       | 808.6    |       | 869.0    |       |
| **Income  of consolidated group before income taxes** |       | 424.8    |       | 410.6    |       | 427.9    |       |
| **Provision  for income taxes**                       |       | 150.7    |       | 140.6    |       | 147.7    |       |
| **Income  of consolidated group**                     |       | 274.1    |       | 270.0    |       | 280.2    |       |
| **Equity  in income of unconsolidated affiliates**    |       | .6       |       | .6       |       | .3       |       |
| **Net  income**                                       |       | 274.7    |       | 270.6    |       | 280.5    |       |
| **Cash  dividends paid**                              |       | (150.0   | )          | (420.0   | )          | (205.0   | )          |
| **Retained  earnings at beginning of the year**       |       | 970.0    |       | 1,119.4  |       | 1,043.9  |       |
| **Retained  earnings at end of the year**             |       | $        | 1,094.7    |     | $          | 970.0    |       | $ | 1,119.4 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of this statement.

 

29

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**John DeereCapital Corporation and Subsidiaries**

**ConsolidatedBalance Sheets**

**As of October 31, 2005 and2004**

(in millions)

 
| ** **                                                                                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Assets**                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash  equivalents                                                                                   |       | $          | 250.2      |       | $          | 209.5 |   |
| Receivables:                                                                                                 |       |       |       |       |       |
| Retail notes                                                                                                 |       | 7,893.5    |       | 6,873.7    |       |
| Restricted  securitized retail notes                                                                         |       | 1,340.1    |       |       |       |
| Revolving charge  accounts                                                                                   |       | 1,527.5    |       | 1,443.8    |       |
| Operating loans                                                                                              |       | 384.4      |       | 380.5      |       |
| Wholesale  receivables                                                                                       |       | 3,651.2    |       | 3,480.5    |       |
| Financing leases                                                                                             |       | 411.7      |       | 406.0      |       |
| Total  receivables                                                                                           |       | 15,208.4   |       | 12,584.5   |       |
| Allowance for  credit losses                                                                                 |       | (96.4      | )          | (112.6     | )          |
| Total  receivables – net                                                                                |       | 15,112.0   |       | 12,471.9   |       |
| Other  receivables                                                                                           |       | 118.4      |       | 121.1      |       |
| Equipment on  operating leases – net                                                                    |       | 793.9      |       | 757.6      |       |
| Investments in  unconsolidated affiliates                                                                    |       | 4.1        |       | 3.9        |       |
| Other assets                                                                                                 |       | 288.8      |       | 324.7      |       |
| **Total  Assets**                                                                                            |       | $          | 16,567.4   |       | $          | 13,888.7 |   |
| **Liabilities  and Stockholder’s Equity**                                                               |       |       |       |       |       |
| Short-term  borrowings:                                                                                      |       |       |       |       |       |
| Commercial paper                                                                                             |       | $          | 1,696.0    |       | $          | 1,553.8 |   |
| Other notes  payable                                                                                         |       | 1,364.8    |       | 6.7        |       |
| John Deere                                                                                                   |       | 275.0      |       | 1,241.2    |       |
| Current maturities  of long-term borrowings                                                                  |       | 2,431.6    |       | 1,187.8    |       |
| Total short-term  borrowings                                                                                 |       | 5,767.4    |       | 3,989.5    |       |
| Accounts payable  and accrued expenses                                                                       |       | 503.3      |       | 448.0      |       |
| Deposits  withheld from dealers and merchants                                                                |       | 166.0      |       | 167.6      |       |
| Long-term  borrowings                                                                                        |       | 8,190.7    |       | 7,476.7    |       |
| Total  liabilities                                                                                           |       | 14,627.4   |       | 12,081.8   |       |
| Stockholder’s  equity:                                                                                  |       |       |       |       |       |
| Common stock,  without par value (issued and outstanding - 2,500 shares owned by John Deere  Credit Company) |       | 812.8      |       | 812.8      |       |
| Retained  earnings                                                                                           |       | 1,094.7    |       | 970.0      |       |
| Cumulative translation  adjustment                                                                           |       | 18.4       |       | 23.7       |       |
| Unrealized gain  (loss) on derivatives                                                                       |       | 7.3        |       | (5.1       | )          |
| Unrealized gain  on investments                                                                              |       | 6.8        |       | 5.5        |       |
| Total  accumulated other comprehensive income                                                                |       | 32.5       |       | 24.1       |       |
| Total  stockholder’s equity                                                                             |       | 1,940.0    |       | 1,806.9    |       |
| **Total  Liabilities and Stockholder’s Equity**                                                         |       | $          | 16,567.4   |       | $          | 13,888.7 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of this statement.

 

30

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**John Deere Capital Corporation and Subsidiaries**

**Statements of Consolidated CashFlows**

**For the Years Ended October 31, 2005, 2004and 2003**

(in millions)

 
| ** **                                                                         | ** ** | **2005**  | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| **Cash  Flows from Operating Activities:**                                         |       |      |       |      |       |      |       |
| Net income                                                                         |       | $         | 274.7      |      | $          | 270.6     |       | $ | 280.5 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |      |       |      |       |      |       |
| Provision for  credit losses                                                       |       | 5.9       |       | 32.3      |       | 72.2      |       |
| Provision for  depreciation and amortization                                       |       | 173.9     |       | 175.9     |       | 214.9     |       |
| Provision  (credit) for deferred income taxes                                      |       | (17.2     | )          | 1.9       |       | 14.7      |       |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.6       | )          | (.6       | )          | (.3       | )          |
| Other                                                                              |       | (54.0     | )          | 4.6       |       | (90.6     | )          |
| Net cash  provided by operating activities                                         |       | 382.7     |       | 484.7     |       | 491.4     |       |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Investing Activities:**                                         |       |      |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (28,655.0 | )          | (26,084.3 | )          | (20,744.1 | )          |
| Collections of  receivables                                                        |       | 25,869.1  |       | 22,528.5  |       | 18,254.7  |       |
| Cost of  operating leases acquired                                                 |       | (433.4    | )          | (358.3    | )          | (274.7    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 236.1     |       | 332.7     |       | 405.5     |       |
| Change in notes  receivable - unconsolidated affiliates                            |       |      |       | 274.3     |       | (14.5     | )          |
| Proceeds from  sales of receivables                                                |       | 132.7     |       | 2,219.3   |       | 1,729.7   |       |
| Other                                                                              |       | (66.4     | )          | (14.2     | )          | (1.0      | )          |
| Net cash used  for investing activities                                            |       | (2,916.9  | )          | (1,102.0  | )          | (644.4    | )          |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Financing Activities:**                                         |       |      |       |      |       |      |       |
| Increase  (decrease) in commercial paper                                           |       | 147.9     |       | (179.1    | )          | 204.1     |       |
| Increase  (decrease) in other notes payable                                        |       | 1,357.6   |       | (62.9     | )          | 31.8      |       |
| Increase  (decrease) in payable with John Deere                                    |       | (966.2    | )          | 1,075.2   |       | (515.8    | )          |
| Proceeds from  issuance of long-term borrowings                                    |       | 3,378.7   |       | 1,824.2   |       | 2,992.0   |       |
| Principal  payments on long-term borrowings                                        |       | (1,190.4  | )          | (1,762.6  | )          | (2,175.1  | )          |
| Dividends paid                                                                     |       | (150.0    | )          | (420.0    | )          | (205.0    | )          |
| Other                                                                              |       | .2        |       |      |       |      |       |
| Net cash  provided by financing activities                                         |       | 2,577.8   |       | 474.8     |       | 332.0     |       |
|                                                                               |       |      |       |      |       |      |       |
| **Effect  of exchange rate changes on cash**                                       |       | (2.9      | )          | 9.5       |       | 15.7      |       |
| **Net  increase (decrease) in cash and cash equivalents**                          |       | 40.7      |       | (133.0    | )          | 194.7     |       |
| **Cash  and cash equivalents at the beginning of year**                            |       | 209.5     |       | 342.5     |       | 147.8     |       |
| **Cash  and cash equivalents at the end of year**                                  |       | $         | 250.2      |      | $          | 209.5     |       | $ | 342.5 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of this statement.

 

31

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**John Deere Capital Corporation and Subsidiaries**

**Statement of Changes inConsolidated Stockholder’s Equity**

**For the Years Ended October 31, 2003, 2004and 2005**

(in millions)

 
| ** **                         | ** ** | **Total  Equity** | ** ** | **Common  Stock** | ** ** | **Retained  Earnings** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|-----------------------------------------|------------|
| ** **                         |       |              |       |              |       |                   |       |                                    |       |
| **Balance  October 31, 2002** |       | $                 | 1,812.0    |              | $          | 812.8                  |       | $                                       | 1,043.9    |   | $ | (44.7 | ) |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                    |       |
| Net income                         |       | 280.5             |       |              |       | 280.5                  |       |                                    |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment |       | 15.7              |       |              |       |                   |       | 15.7                                    |       |
| Unrealized gain  on derivatives    |       | 24.8              |       |              |       |                   |       | 24.8                                    |       |
| Unrealized gain  on investments    |       | 5.0               |       |              |       |                   |       | 5.0                                     |       |
| **Total  comprehensive income**    |       | 326.0             |       |              |       |                   |       |                                    |       |
| Dividends paid                     |       | (205.0            | )          |              |       | (205.0                 | )          |                                    |       |
| **Balance  October 31, 2003** |       | 1,933.0           |       | 812.8             |       | 1,119.4                |       | .8                                      |       |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                    |       |
| Net income                         |       | 270.6             |       |              |       | 270.6                  |       |                                    |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment |       | 10.2              |       |              |       |                   |       | 10.2                                    |       |
| Unrealized gain  on derivatives    |       | 14.2              |       |              |       |                   |       | 14.2                                    |       |
| Unrealized loss  on investments    |       | (1.1              | )          |              |       |                   |       | (1.1                                    | )          |
| **Total  comprehensive income**    |       | 293.9             |       |              |       |                   |       |                                    |       |
| Dividends paid                     |       | (420.0            | )          |              |       | (420.0                 | )          |                                    |       |
| **Balance  October 31, 2004** |       | 1,806.9           |       | 812.8             |       | 970.0                  |       | 24.1                                    |       |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                    |       |
| Net income                         |       | 274.7             |       |              |       | 274.7                  |       |                                    |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment |       | (5.3              | )          |              |       |                   |       | (5.3                                    | )          |
| Unrealized gain  on derivatives    |       | 12.4              |       |              |       |                   |       | 12.4                                    |       |
| Unrealized gain  on investments    |       | 1.3               |       |              |       |                   |       | 1.3                                     |       |
| **Total  comprehensive income**    |       | 283.1             |       |              |       |                   |       |                                    |       |
| Dividends paid                     |       | (150.0            | )          |              |       | (150.0                 | )          |                                    |       |
| **Balance  October 31, 2005** |       | $                 | 1,940.0    |              | $          | 812.8                  |       | $                                       | 1,094.7    |   | $ | 32.5 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of this statement.

 

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**John Deere Capital Corporation and Subsidiaries**

**Notes to Consolidated FinancialStatements**

 

**Note 1.****   Summaryof Significant Accounting Policies**

 

Thefollowing are significant accounting policies in addition to those included inother notes to the consolidated financial statements.

 

CorporateOrganization

 

JohnDeere Capital Corporation (Capital Corporation) and its subsidiaries arecollectively called the Company. John Deere Credit Company, a wholly-ownedfinance holding subsidiary of Deere & Company, is the parent of theCompany. The Company conducts business in Argentina, Australia, France (througha joint venture), Germany, Ireland, Italy, Luxembourg, Mexico, New Zealand,Portugal (through a cooperation agreement), South Africa (through a cooperationagreement), Spain, the United Kingdom and the U.S. Deere & Company andits wholly-owned subsidiaries are collectively called John Deere.

 

Retailnotes, revolving charge accounts, operating loans, financing leases andwholesale receivables are collectively called “Receivables.” Receivables andoperating leases are collectively called “Receivables and Leases.”

 

TheCompany bears substantially all of the credit risk (net of recovery fromwithholdings from certain John Deere dealers, and customer guarantees fromcertain John Deere dealers and Farm Planäand PowerPlanâ merchants) associated with its holding ofReceivables and Leases. A small portion of the Receivables and Leases held(less than 5 percent) is guaranteed by the Equipment Operations. The Companyalso performs substantially all servicing and collection functions. Servicingand collection functions for a small portion of the Receivables and Lease held(less than 5 percent) are provided by John Deere. John Deere is reimbursed forstaff and other administrative services at estimated cost, and for credit linesprovided to the Company based on utilization of those lines.

 

Principles of Consolidation

 

Theconsolidated financial statements include the financial statements of theCapital Corporation and its subsidiaries. The consolidated financial statementsrepresent the consolidation of all companies in which the Capital Corporationhas a controlling interest. The Capital Corporation records its investment ineach unconsolidated affiliated company at its related equity in the net assetsof such affiliate. Certain special purpose entities (SPEs) related to thesecuritization of financing receivables for secured borrowings, which are alsovariable interest entities (VIEs), are consolidated since the Company is theprimary beneficiary for these VIEs. Certain other SPEs related to thesecuritization and sale of financing receivables, which are also VIEs, are notconsolidated since the Company does not control these entities, and they eithermeet the requirements of qualified SPEs or the Company is not the primarybeneficiary.  In addition, the specifiedassets in these unconsolidated VIEs related to the Company’s securitizationsare not the only source of payment for specified liabilities or other interestsof these VIEs and, therefore, do not require consolidation (see Note 4).

 

Certainamounts for prior years have been reclassified to conform with 2005 financialstatement presentations.  

 

Use of Estimates in Financial Statements

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the U.S. requires management to make estimates andassumptions that affect the reported amounts and related disclosures. Actualresults could differ from those estimates.

 

RevenueRecognition

 

Financing revenue is recorded over the lives of therelated receivables using the interest method. Deferred

 

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costs on the origination of receivables are recognized as a reduction infinance revenue over the expected lives of the receivables using the interestmethod. Income from operating leases is recognized on a straight-line basisover the scheduled lease terms.

 

Securitization of Receivables 

 

Certainfinancing receivables are periodically transferred to SPEs in securitizationtransactions (see Note 4). For securitizations that qualify as sales ofreceivables, the gains or losses from the sales are recognized in the period ofsale based on the relative fair value of the portion sold and the portionallocated to retained interests. The retained interests are recorded at fairvalue estimated by discounting future cash flows. Changes in these fair valuesare recorded after-tax in other comprehensive income, which is part ofstockholder’s equity. Other-than-temporary impairments are recorded in netincome. For securitizations that qualify as collateral for secured borrowings,no gains or losses are recognized at the time of securitization. Thesereceivables remain on the balance sheet and are classified as “Restrictedsecuritized retail notes.” The Company recognizes finance income over the livesof these retail notes using the interest method.

 

Depreciation

 

Equipment on operating leases is depreciated over theterms of the leases using the straight-line method (see Note 5).

 

Derivative FinancialInstruments

 

It isthe Company’s policy that derivative transactions are executed only to manageexposures arising in the normal course of business and not for the purpose ofcreating speculative positions or trading. The Company manages the relationshipof the types and amounts of funding sources to the receivable and leaseportfolio in an effort to diminish risk due to interest rate and foreigncurrency fluctuations, while responding to favorable financing opportunities.The Company also has foreign currency exposures at some of its foreign anddomestic operations related to buying, selling and financing in currenciesother than the local currencies.

 

Allderivatives are recorded at fair value on the balance sheet. Each derivative isdesignated as either a cash flow hedge or a fair value hedge, or remainsundesignated. Changes in the fair value of derivatives that are designated andeffective as cash flow hedges are recorded in other comprehensive income andreclassified to the income statement when the effects of the item being hedgedare recognized in the income statement. Changes in the fair value ofderivatives that are designated and effective as fair value hedges arerecognized currently in net income and offset to the extent the hedge was effectiveby the fair value changes in the hedged item. Changes in the fair value ofundesignated hedges are recognized currently in the income statement. Allineffective changes in derivative fair values are recognized currently in netincome.

 

Alldesignated hedges are formally documented as to the relationship with thehedged item as well as the risk-management strategy. Both at inception and onan ongoing basis the hedging instrument is assessed as to its effectiveness. Ifand when a derivative is determined not to be highly effective as a hedge, orthe underlying hedged transaction is no longer likely to occur, or thederivative is terminated, the hedge accounting discussed above is discontinuedand any past or future changes in the derivative’s fair value that will not be effectiveas an offset to the income effects of the item being hedged are recognizedcurrently in the income statement (see Note 17 for further information).

 

Foreign Currency Translation

 

Thefunctional currencies for most of the Company’s foreign operations are theirrespective local currencies. The assets and liabilities of these operations aretranslated into U.S. dollars at the end of the period exchange rates, and therevenues and expenses are translated at weighted-average rates for the period.The gains or losses from these translations are included in other comprehensiveincome, which is part of stockholder’s equity. Gains or losses fromtransactions denominated in a currency other than the functional currency ofthe subsidiary involved and foreign

 

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exchange forwardcontracts and options are included in net income. The total foreign exchangepretax net loss for 2005 was $.5 million and for 2004 was $1.0 million, comparedto a foreign exchange pretax net gain of $1.7 million in 2003.

 

New AccountingStandards to be Adopted 

 

In December 2004, the FinancialAccounting Standards Board (FASB) issued Statement No. 123 (revised 2004),Share-Based Payment. This Statement eliminated the alternative of accountingfor share-based compensation under Accounting Principles Board (APB) Opinion No. 25.The revised standard generally requires the recognition of the cost of employeeservices for share-based compensation based on the grant date fair value of theequity or liability instruments issued. The effective date for the Company isthe beginning of fiscal year 2006. Certain employees of the Company participatein Deere & Company share-based compensation plans. The expected impactof the adoption on the Company’s net income in fiscal year 2006 will be anexpense of approximately $5 million after-tax.

 

In May 2005, the FASBissued Statement No. 154, Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3. ThisStatement requires voluntary changes in accounting principles to be recordedretrospectively for prior periods presented rather than a cumulative adjustmentin the current period.  This treatmentwould also be required for new accounting pronouncements if there are nospecific transition provisions.  Theaccounting for changes in estimates in the current period and the accountingfor errors as restatements of prior periods has not changed.  The effective date is the beginning of fiscalyear 2007. The adoption of this Statement is not expected to have a materialeffect on the Company’s financial position or net income.

 

**Note 2.****   Receivables**

 

Retail NotesReceivable

 

TheCompany provides and administers financing for retail purchases of newequipment manufactured by John Deere’s agricultural, construction and forestry,and commercial and consumer equipment divisions and used equipment taken intrade for this equipment. The Company purchases retail installment sales andloan contracts (retail notes) from John Deere. These retail notes are acquiredby John Deere through John Deere equipment retail dealers. The Company alsopurchases and finances a limited amount of retail notes unrelated to JohnDeere.

 

Retailnotes receivable by product category at October 31 are as follows (inmillions of dollars):

 
| ** **                                      | ** ** | **2005**         | ** ** | **2004**       | ** ** |
|-------------------------------------------------|------------|------------------|------------|----------------|------------|
| ** **                                      | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** |
| Agricultural equipment – new               |       | $                | 3,814.1    |           | $          | 588.2 |   | $ | 3,548.6 |   |
| Agricultural equipment – used              |       | 1,864.1          |       | 699.7          |       | 1,343.5 |   |
| Construction and forestry equipment – new  |       | 1,808.2          |       | 164.5          |       | 1,364.4 |   |
| Construction and forestry equipment – used |       | 140.2            |       | 73.8           |       | 173.0 |   |
| Commercial and consumer equipment – new    |       | 1,060.1          |       |           |       | 1,023.9 |   |
| Commercial and consumer equipment – used   |       | 78.6             |       |           |       | 69.9 |   |
| Recreational products                           |       | 35.5             |       |           |       | 51.9 |   |
| Total                                           |       | 8,800.8          |       | 1,526.2        |       | 7,575.2 |   |
| Unearned finance income:                        |       |             |       |           |       |   |   |
| Equipment                                       |       | (894.5           | )          | (186.1         | )          | (683.0 | ) |
| Recreational  products                          |       | (12.8            | )          |           |       | (18.5 | ) |
| Total                                           |       | (907.3           | )          | (186.1         | )          | (701.5 | ) |
| Retail notes  receivable                        |       | $                | 7,893.5    |           | $          | 1,340.1 |   | $ | 6,873.7 |   |

 

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Retail notes acquired by the Company during the yearsended October 31, 2005, 2004 and 2003 had an estimated average originalterm (based on dollar amounts) of 53, 54 and 54 months, respectively.Historically, because of prepayments, the average actual life of retail noteshas been considerably shorter than the average original term. The averageactual life for retail notes liquidated in 2005, 2004 and 2003 was 35 months.

 

Grossretail note installments at October 31 are scheduled to be received asfollows (in millions of dollars):

 
| ** **     | ** ** | **2005**         | ** ** | **2004**       | ** ** |
|----------------|------------|------------------|------------|----------------|------------|
| ** **     | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** |
| Due in:        |       |             |       |           |       |   |   |
| 0-12 months    |       | $                | 2,722.5    |           | $          | 376.2 |   | $ | 2,507.0 |   |
| 13-24 months   |       | 2,245.0          |       | 367.4          |       | 1,951.7 |   |
| 25-36 months   |       | 1,712.3          |       | 330.7          |       | 1,455.1 |   |
| 37-48 months   |       | 1,162.6          |       | 278.2          |       | 918.8 |   |
| 49-60 months   |       | 735.7            |       | 153.2          |       | 540.2 |   |
| Over 60 months |       | 222.7            |       | 20.5           |       | 202.4 |   |
| Total          |       | $                | 8,800.8    |           | $          | 1,526.2 |   | $ | 7,575.2 |   |

 

Companyguidelines relating to down payment requirements and contract terms on retailnotes are generally as follows:

 
| ** **                                        | ** ** | **Down  Payment** | ** ** | **Contract  Terms** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| Agricultural equipment (new and used):            |       |              |       |                |       |
| Seasonal  payments                                |       | 30                | %          | 3-7 crop years      |       |
| Monthly payments                                  |       | 20                | %          | 36-84 months        |       |
| Construction and forestry equipment:              |       |              |       |                |       |
| New                                               |       | 10                | %          | 48-60 months        |       |
| Used                                              |       | 15                | %          | 36-48 months        |       |
| Commercial and consumer equipment (new and used): |       |              |       |                |       |
| Seasonal  payments                                |       | 10                | %          | 3-7 years           |       |
| Monthly payments                                  |       | 10                | %          | 36-84 months        |       |

 

During2005, 2004 and 2003, the Company received proceeds from the sale of Receivables(including securitized sales) of $133 million, $2,219 million and $1,730 million,respectively. The Company acts as agent for the buyers in collection andadministration for virtually all of the Receivables it has sold. AllReceivables sold are collateralized by security agreements on the relatedequipment. The Company’s estimated maximum exposure under all Receivable andLease recourse provisions at October 31, 2005, 2004 and 2003 was $140 million,$203 million and $221 million, respectively. In addition, the Company hasprovided letters of credit for John Deere Credit Inc., the John Deere financesubsidiary in Canada, as part of retail note sales. At October 31, 2005and 2004, the maximum exposure under these agreements was approximately $7 millionand $8 million, respectively. The Company does not record the recourseobligations as liabilities as they are contingent liabilities that are remoteat this time. However, the probable loss on receivables that have been sold wasaccrued at the time of sale, and any subsequent necessary adjustments are madeas part of ongoing reviews. At October 31, 2005, 2004 and 2003, thebalance of all Receivables and Leases previously sold, but still administeredby the Company, was $1,719 million, $3,052 million and $2,595 million,respectively.

 

Financeincome is recognized over the lives of the retail notes using the interestmethod. During 2005, the average effective yield on retail notes held by theCompany was approximately 6.6 percent, compared with 6.3 percent in 2004 and7.1 percent in 2003. Unearned finance income on variable-rate retail notes isadjusted monthly based on fluctuations in the base rate of a specified bank.Costs incurred in the acquisition of retail notes are deferred and recognizedover the expected lives of the retail notes using the interest method.

 

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Aportion of the finance income earned by the Company arises from financing ofretail sales of John Deere equipment on which finance charges are waived orreduced by John Deere for a period from the date of sale to a specifiedsubsequent date. The Company receives compensation from John Deere equal tocompetitive market interest rates for periods during which finance charges havebeen waived or reduced on retail notes and leases.  The Company computes the compensation fromJohn Deere for waived or reduced finance charges based on the Company’sestimated funding costs, administrative and operating expenses, credit losses,and required return on equity. The finance income earned following the waiveror interest reduction period is not significantly different from thecompensation earned from John Deere. The portions of the Company’s financeincome earned that were received from John Deere on retail notes containingwaiver of finance charges or reduced rates were 22 percent in 2005, 25 percentin 2004 and 28 percent in 2003.

 

Adeposit equal to one percent of the face amount of certain John Deereagricultural and commercial and consumer equipment retail notes originatingfrom each dealer is withheld by the Company from that dealer. Any subsequentretail note losses are charged against the withheld deposits. At the end ofeach calendar quarter, the balance of each dealer’s withholding account inexcess of a specified percent (ranging from one to three percent based ondealer qualifications) of the total balance outstanding on retail notesoriginating with that dealer is remitted to the dealer. To the extent that thesedeposits withheld from the dealer from whom the retail note was acquired cannotabsorb a loss on a retail note, it is charged against the Company’s allowancefor credit losses. There is no withholding of dealer deposits on John Deereconstruction and forestry equipment retail notes or recreational product retailnotes.

 

TheCompany requires that theft and physical damage insurance be carried on allgoods leased or securing retail notes and wholesale receivables. The customermay, at his own expense, have the Company or the seller of the goods purchasethis insurance or obtain it from other sources.

 

Revolving ChargeAccounts Receivable

 

Revolvingcharge account income is generated primarily by three revolving creditproducts: Farm Planä, PowerPlanâand the John Deere Credit Revolving Plan. Farm Planäis primarily used by farmers and ranchers to finance day-to-day operatingexpenses, such as parts and services. Merchants offer Farm Planäas an alternative to carrying in-house accounts receivable, and can initiallysell existing balances to the Company under a recourse arrangement. Farm Planäincome includes a discount paid by merchants for transaction processing andsupport, and finance charges paid by customers on their outstanding accountbalances. PowerPlanâ is primarily usedby construction companies to finance day-to-day operating expenses, such asparts and service, and is otherwise similar to Farm Planä.  Merchants offer PowerPlanâas an alternative to carrying in-house accounts receivable, and can initiallysell existing balances to the Company under a recourse arrangement. PowerPlanâincome includes a discount paid by merchants for transaction processing andsupport and finance charges paid by customers on their outstanding accountbalances.  The John Deere CreditRevolving Plan is used primarily by retail customers of John Deere dealers tofinance commercial and consumer equipment. Income includes a discount paid bydealers on most transactions and finance charges paid by customers on theiroutstanding account balances. Revolving charge accounts receivable at October 31,2005 and 2004 totaled $1,528 million and $1,444 million, respectively.Generally, account holders may pay the account balance in full at any time, ormake payments over a number of months according to a payment schedule.

 

Operating Loans

 

Operatingloan income is generated primarily by operating loans that are offered throughseveral leading farm input providers or through direct relationships withagricultural producers to finance the acquisition of materials such as seedsand fertilizers. Income on this product is generated from finance charges paidby customers on their outstanding account balances. Operating loan receivablestotaled $384 million and $381 million at October 31, 2005 and 2004,respectively.

 

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Financing Leases

 

TheCompany leases agricultural, construction and forestry, commercial and consumerand certain other equipment directly to retail customers. At the time of acceptinga lease that qualifies as a financing lease under FASB Statement No. 13,Accounting for Leases, the Company records the gross amount of lease paymentsreceivable, estimated residual value of the leased equipment and unearnedfinance income. The unearned finance income is equal to the excess of the grosslease receivable plus the estimated residual value over the cost of theequipment. The unearned finance income is recognized as revenue over the leaseterm using the interest method. Lease acquisition costs are accounted for in amanner similar to the procedures for retail notes.

 

Financingleases receivable by product category at October 31 are as follows (inmillions of dollars):

 
| ** **                          | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Agricultural equipment              |       | $        | 219.5      |     | $          | 203.5 |   |
| Construction and forestry equipment |       | 117.4    |       | 89.8     |       |
| Commercial and consumer equipment   |       | 95.0     |       | 98.8     |       |
| Other equipment                     |       | 7.4      |       | 47.4     |       |
| Total                               |       | 439.3    |       | 439.5    |       |
| Estimated residual values           |       | 37.0     |       | 30.9     |       |
| Unearned finance income             |       | (64.6    | )          | (64.4    | )          |
| Financing leases  receivable        |       | $        | 411.7      |     | $          | 406.0 |   |

 

Initiallease terms for financing leases generally range from 36 months to 60 months.Payments on financing leases receivable at October 31 are scheduled asfollows (in millions of dollars):

 
| ** **     | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Due in:        |       |     |       |     |       |
| 0-12 months    |       | $        | 185.3      |     | $          | 180.7 |   |
| 13-24 months   |       | 118.5    |       | 121.3    |       |
| 25-36 months   |       | 77.1     |       | 79.5     |       |
| 37-48 months   |       | 38.8     |       | 37.5     |       |
| Over 48 months |       | 19.6     |       | 20.5     |       |
| Total          |       | $        | 439.3      |     | $          | 439.5 |   |

 

Depositswithheld from John Deere dealers and related losses on financing leases arehandled in a manner similar to the procedures for retail notes. As with retailnotes, there are no deposits withheld from dealers on financing leases relatedto construction and forestry equipment. In addition, a lease payment discountprogram, allowing reduced payments over the term of the lease, is administeredin a manner similar to finance waiver on retail notes.

 

Equipmentreturned to the Company upon termination of leases and held for subsequent saleor lease is recorded at the lower of net book value or estimated market valueof the equipment.

 

WholesaleReceivables

 

The Company also finances wholesale inventories ofJohn Deere engines, agricultural equipment, commercial and consumer equipmentand construction and forestry equipment owned by dealers of those products inthe form of wholesale receivables. Wholesale finance income related to thesenotes is generally recognized monthly based on the daily balance of wholesalereceivables outstanding and the applicable effective interest rate. Interestrates vary with a bank base rate, the type of equipment financed and thebalance outstanding. Substantially all of

 

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wholesale receivables are secured by equipment financed. The averageactual life for wholesale receivables is less than 12 months.

 

TheCompany purchases certain wholesale receivables (trade receivables) from JohnDeere. These trade receivables arise from John Deere’s sales of goods todealers. Under the terms of the sales to dealers, interest is charged todealers on outstanding balances, from the earlier of the date when goods aresold to retail customers by the dealer or the expiration of certaininterest-free periods granted to the dealer at the time of the sale, untilpayment is received by the Company. Dealers cannot cancel purchases after goods are shipped and areresponsible for payment even if the equipment is not sold to retail customers.The interest-free periods are determined based on the type of equipment soldand the time of year of the sale. These periods range from one to 12 months formost equipment. Interest-free periods may not be extended. Interest charged maynot be forgiven and interest rates, which exceed the prime rate, are set basedon market factors. The Company receives compensation from John Deere equal tocompetitive market interest rates for these interest-free periods. The Companycomputes the compensation from John Deere for interest-free periods based onthe Company’s estimated funding costs, administrative and operating expenses,credit losses, and required return on equity. The finance income earnedfollowing the interest-free period is not significantly different from thecompensation earned from John Deere.

 

Other Receivables

 

TheCompany has sold retail notes to limited-purpose business trusts and to privatethird parties, which utilize the notes as collateral for asset-backedsecurities issued. Other receivables related to securitizations are recorded atnet present value and relate to payments to be received for retained interests.These retained interests are subsequently carried at estimated fair value withimpairments to fair value included in income. Securitization and servicing feeincome includes the interest earned on these retained interests and reimbursedadministrative expenses.

 

Concentration ofCredit Risk

 

Receivableshave significant concentrations of credit risk in the agricultural,construction and forestry, and commercial and consumer business sectors asshown in the previous tables. On a geographic basis, there is not adisproportionate concentration of credit risk in any area in which the Companyoperates. The Company retains as collateral a security interest in the goodsassociated with Receivables other than certain revolving charge accounts.

 

**Note 3.****   Allowancefor Credit Losses, Delinquencies and Write-offs**

 

Allowance forCredit Losses

 

Allowancesfor credit losses on Receivables are maintained in amounts considered to beappropriate in relation to the Receivables outstanding based on collectionexperience, economic conditions and credit risk quality.

 

Ananalysis of the allowance for credit losses on total Receivables follows (inmillions of dollars):

 
| ** **                                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of the year                                                      |       | $        | 112.6      |     | $          | 123.8    |       | $ | 118.3 |   |
| Provision for  credit losses                                                         |       | 5.9      |       | 32.3     |       | 72.2     |       |
| Total net  write-offs                                                                |       | (22.3    | )          | (34.3    | )          | (56.1    | )          |
| Other changes  related to receivable sales and purchases and translation adjustments |       | .2       |       | (9.2     | )          | (10.6    | )          |
| Balance, end of  the year                                                            |       | $        | 96.4       |     | $          | 112.6    |       | $ | 123.8 |   |

 

Theallowance for credit losses represented .63 percent, .89 percent and 1.12percent of Receivables financed at October 31, 2005, 2004 and 2003,respectively. In addition, the Company had $166 million, $168 million and$160 million at October 31, 2005, 2004 and 2003, respectively, ofdeposits primarily withheld from John Deere

 

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dealers available for certainpotential credit losses originating from those dealers.

 

Delinquencies

 

Generally,when retail notes become 120 days delinquent, accrual of finance income issuspended, the collateral is repossessed or the account is designated forlitigation and the estimated uncollectible amount, after charging the dealer’swithholding account, if any, is written off to the allowance for credit losses.Accrual of revolving charge account income is suspended generally when theaccount becomes 120 days delinquent. Accounts are deemed to be uncollectibleand written off to the allowance for credit losses when delinquency reaches 120days for a Farm Planä, PowerPlanâor John Deere Credit Revolving Plan account. When a financing lease accountbecomes 120 days delinquent, the accrual of lease revenue is suspended,the equipment is repossessed or the account is designated for litigation, andthe estimated uncollectible amount, after charging the dealer’s withholdingaccount, if any, is written off to the allowance for credit losses. Generally,when a wholesale receivable becomes 60 days delinquent, the Company determineswhether the accrual of finance income on interest-bearing wholesale receivablesshould be suspended, the collateral should be repossessed or the account shouldbe designated for litigation and the estimated uncollectible amount written offto the allowance for credit losses.

 

TotalReceivable amounts 60 days or more past due in the table below represent theamount of all customer payments past due 60 days or more, by product, and as apercent of the respective receivables. They are as follows (in millions of dollars):

 
| ** **                           | ** ** | **October 31,  2005** | ** ** | **October 31,  2004** | ** ** | **October 31,  2003** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **Dollars**                | ** ** | **Percent**                | ** ** | **Dollars**                | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                          | 8.1        |                       | .13        | %                          | $          | 9.9 |   | .22 | % | $ | 10.7 |   | .27 | % |
| Construction and  forestry equipment |       | 4.6                        |       | .23                        |       | 4.7                        |       | .33 |   | 12.1 |   | 1.01 |   |
| Commercial and  consumer equipment   |       | 1.1                        |       | .11                        |       | 1.1                        |       | .11 |   | 1.3 |   | .14 |   |
| Recreational  products               |       | .1                         |       | .44                        |       | .1                         |       | .30 |   | .1 |   | .19 |   |
| Total retail  notes                  |       | 13.9                       |       | .15                        |       | 15.8                       |       | .23 |   | 24.2 |   | .40 |   |
| Revolving charge  accounts*          |       | 12.5                       |       | .82                        |       | 12.6                       |       | .87 |   | 12.0 |   | 1.07 |   |
| Operating loans                      |       |                       |       |                       |       | .9                         |       | .24 |   | 1.3 |   | .24 |   |
| Wholesale  receivables               |       | 1.7                        |       | .05                        |       | 7.9                        |       | .23 |   | 5.9 |   | .20 |   |
| Financing leases                     |       | 4.5                        |       | 1.09                       |       | 3.2                        |       | .79 |   | 4.2 |   | .98 |   |
| Total  Receivables                   |       | $                          | 32.6       |                       | .21        |                       | $          | 40.4 |   | .32 |   | $ | 47.6 |   | .43 |   |

 

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*                 Due to the nature of revolvingcharge accounts, the customer payments past due 60 days or more also representthe total balance.

 

40

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Totalnon-performing Receivables, which represent loans the Company has ceasedaccruing interest for, by product, and as a percent of the respectivereceivables were as follows (in millions of dollars):

 
| ** **                           | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 15.6       |        | .25        | %           | $          | 15.1 |   | .34 | % | $ | 20.3 |   | .51 | % |
| Construction and  forestry equipment |       | 10.3        |       | .52         |       | 7.1         |       | .51 |   | 15.7 |   | 1.31 |   |
| Commercial and  consumer equipment   |       | 5.2         |       | .51         |       | 2.5         |       | .25 |   | 3.0 |   | .33 |   |
| Recreational  products               |       | .4          |       | 1.76        |       | .4          |       | 1.20 |   | .6 |   | 1.17 |   |
| Total retail  notes                  |       | 31.5        |       | .34         |       | 25.1        |       | .37 |   | 39.6 |   | .65 |   |
| Revolving charge  accounts           |       | .5          |       | .03         |       |        |       |   |   |   |   |   |   |
| Operating loans                      |       | 23.9        |       | 6.22        |       | 24.1        |       | 6.33 |   | 21.8 |   | 4.03 |   |
| Wholesale  receivables               |       | 1.6         |       | .04         |       | 1.1         |       | .03 |   | 11.2 |   | .39 |   |
| Financing leases                     |       | 9.6         |       | 2.33        |       | 6.6         |       | 1.63 |   | 13.4 |   | 3.14 |   |
| Total  Receivables                   |       | $           | 67.1       |        | .44        |        | $          | 56.9 |   | .45 |   | $ | 86.0 |   | .77 |   |

 

Write-offs 

 

TotalReceivable write-off amounts, net of recoveries, by product, and as apercentage of average balances held during the year, were as follows (inmillions of dollars):

 
| ** **                           | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | (1.9       | )           | (.04       | )%          | $          | 1.7 |   | .04 | % | $ | 2.8 |   | .08 | % |
| Construction and  forestry equipment |       | 2.1         |       | .13         |       | 4.8         |       | .38 |   | 16.2 |   | 1.37 |   |
| Commercial and  consumer equipment   |       | .5          |       | .05         |       | .4          |       | .04 |   | .9 |   | .12 |   |
| Recreational  products               |       | .7          |       | 2.49        |       | 1.0         |       | 2.37 |   | .6 |   | .94 |   |
| Total retail  notes                  |       | 1.4         |       | .02         |       | 7.9         |       | .13 |   | 20.5 |   | .36 |   |
| Revolving charge  accounts           |       | 20.4        |       | 1.51        |       | 13.8        |       | 1.16 |   | 21.3 |   | 2.14 |   |
| Operating loans                      |       | (.3         | )          | (.08        | )          | 2.7         |       | .59 |   | 2.7 |   | .53 |   |
| Wholesale  receivables               |       | .4          |       | .01         |       | 6.8         |       | .20 |   | 3.9 |   | .11 |   |
| Financing leases                     |       | .4          |       | .10         |       | 3.1         |       | .75 |   | 7.7 |   | 1.76 |   |
| Total  Receivables                   |       | $           | 22.3       |        | .16        |        | $          | 34.3 |   | .30 |   | $ | 56.1 |   | .50 |   |

 

**Note 4.****   RetailNote Securitizations**

 

Secured Borrowings

 

Beginning in 2005, the Company’s new securitizationsof receivables held by special purpose entities (SPEs) met the criteria forsecured borrowings rather than sales of receivables under FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities. The borrowings related to these securitizations of retail notesare included in short-term borrowings on the balance sheet as shown in thefollowing table. The securitized retail notes are classified as “Restrictedsecuritized retail notes” on the balance sheet. The total restricted assets onthe balance sheet related to these securitizations include the restrictedsecuritized retail notes less

 

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anallowance for credit losses, and other assets representing restricted cash asshown in the following table. In addition to the restricted assets, thecreditors of an unconsolidated SPE involved in secured borrowings and sales ofreceivables related to a $2.0 billion revolving bank conduit facility haverecourse to a reserve fund held by the SPE totaling approximately $42 millionas of October 31, 2005. A portion of the previous transfers of retailnotes to this facility qualified as sales of receivables. As a result, this reservefund is also included in the maximum exposure to losses for receivables thathave been sold, discussed below. The Company recognizes finance income on theserestricted retail notes using the interest method and provides for creditlosses incurred over the lives of the retail notes in the allowance for creditlosses.

 

The total components of consolidated restrictedassets related to securitization borrowings at October 31 were as follows(in millions of dollars):

 
| ** **                           | ** ** | **2005** | ** ** |
|--------------------------------------|------------|----------|------------|
| Restricted securitized retail notes  |       | $        | 1,340.1    |   |
| Allowance for credit losses          |       | (6.3     | )          |
| Other assets                         |       | 62.5     |       |
| Total restricted  securitized assets |       | $        | 1,396.3    |   |

 

The components of consolidated secured liabilitiesrelated to securitizations at October 31 were as follows (in millions ofdollars):

 
| ** **                                                  | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|
| Other notes payable                                         |       | $        | 1,353.0    |   |
| Accounts payable and accrued expenses                       |       | 2.1      |       |
| Total  liabilities related to restricted securitized assets |       | $        | 1,355.1    |   |

 

A portion of the restricted retail notes totaling $690million on the balance sheet were transferred to a SPE that is not consolidatedsince the Company is not the primary beneficiary, however, the transferqualified as a secured financing rather than a sale. The borrowings related tothese restricted retail notes included above are the obligations to this SPEthat are payable as the retail notes are liquidated. The remaining restrictedretail notes totaling $650 million were transferred to a SPE that has beenconsolidated since the Company is the primary beneficiary. This SPE is not aqualified SPE under FASB Statement No. 140 and, therefore, not exempt fromconsolidation. These restricted retail notes are the primary assets of theconsolidated SPE. The borrowings included above for the consolidated SPE areobligations to the creditors of the SPE that are also payable as the retailnotes are liquidated. SPEs utilized in securitizations of retail notes differfrom other entities included in the Company’s consolidated statements becausethe assets they hold are legally isolated. For bankruptcy analysis purposes,the Capital Corporation has sold the receivables to the SPEs in a true sale andthe SPEs are separate legal entities from the Capital Corporation. Use of theassets held by the SPEs is restricted by terms of the governing documents.Repayment of the secured borrowings depends primarily on cash flows generatedby the restricted assets and the reserve fund mentioned above. At October 31,2005, the maximum remaining term of the restricted receivables included in therestricted assets was approximately six years.

 

Sales of Receivables

 

Prior to 2005 the Company periodically sold receivablesto special purpose entities (SPEs) in securitizations of retail notes.  It retains interest-only strips, servicingrights and, in some cases, reserve accounts and subordinated certificates, allof which are retained interests in the securitized receivables. The retainedinterests are carried at estimated fair value in “Other receivables” or “Otherassets” on the balance sheet. Gains or losses on sales of the receivablesdepended in part on the previous carrying amount of the financial assetsinvolved in the transfer, allocated between the assets sold and the retainedinterest based on their relative fair values at the date of transfer. TheCompany generally estimates fair values based on the present value of futureexpected cash flows using management’s key assumptions as discussed below. TheCompany retains the rights to certain future cash flows and in the U.S.transactions receive annual servicing fees approximating one percent of theoutstanding balance. No significant balances for servicing assets orliabilities exist because the benefits received for servicing are offset by

 

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thecosts of providing the servicing. The Company’s maximum exposure under recourseprovisions related to securitizations at October 31, 2005 and 2004 was $138million and $202 million, respectively. The recourse provisions includethe fair value of the retained interests and all other recourse obligationscontractually specified in the securitization agreements. The Company does notrecord the other recourse obligations as liabilities as they are contingentliabilities that are remote at this time. Except for this exposure, the investors and securitization trusts haveno recourse to the Company for failure of debtors to pay when due.  The Company’s retained interests are subordinateto investor’s interests and their values are subject to certain key assumptionsas shown below. The total assets of the unconsolidated SPEs related to these securitizationsat October 31, 2005 and 2004 were $1,754 million and $3,166 million,respectively.

 

Pretax gains on securitized retail notes sold (nonein 2005) and key assumptions used to initially determine the fair value of theretained interests were as follows:

 
| ** **                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
| Pretax gains in  millions                                     |       | $        | 45         |     | $          | 43 |   |
| Weighted-average  maturity in months                          |       | 20       |       | 21       |       |
| Average annual  prepayment rate                               |       | 20       | %          | 19       | %          |
| Average expected  annual credit losses                        |       | .37      | %          | .40      | %          |
| Discount rate on  retained interests and subordinate tranches |       | 13       | %          | 13       | %          |
|                                                               |            |          |            |          |            |  |  |

 

Cash flows received from securitization trusts forretail notes sold in millions of dollars were as follows:

 
| ** **                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds from new securitizations |       |     |       | $        | 2,146      |     | $          | 1,666 |   |
| Servicing fees received           |       | $        | 22         |     | 30         |     | 24         |   |
| Other cash flows received         |       | 38       |       | 60       |       | 47       |       |
|                                   |            |          |            |          |            |          |            |  |  |  |

 

Components of retained interest in securitized retailnotes sold at October 31 are as follows (in millions of dollars):

 
| ** **                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
| Interest only strips                                          |       | $        | 48         |     | $          | 66 |   |
| Reserve accounts held for benefit of securitization  entities |       | 69       |       | 43       |       |
| Subordinated certificates                                     |       | 7        |       | 16       |       |
| Total retained interests                                      |       | $        | 124        |     | $          | 125 |   |

 

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The total retainedinterests, weighted-average life, weighted-average current key economicassumptions and the sensitivity analysis showing the hypothetical effects onthe retained interests from immediate 10 percent and 20 percent adversechanges in those assumptions with dollars in millions were as follows:

 
| ** **                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| **Securitized retail notes sold**                 |       |     |       |     |       |
| Carrying  amount/fair value of retained interests |       | $        | 124        |     | $          | 125 |   |
| Weighted-average  life (in months)                |       | 14       |       | 16       |       |
| Prepayment speed  assumption (annual rate)        |       | 19       | %          | 20       | %          |
| Impact on fair  value of 10% adverse change       |       | $        | .6         |     | $          | 1.7 |   |
| Impact on fair  value of 20% adverse change       |       | $        | 1.2        |     | $          | 3.4 |   |
| Expected credit  losses (annual rate)             |       | .48      | %          | .38      | %          |
| Impact on fair  value of 10% adverse change       |       | $        | .8         |     | $          | 1.8 |   |
| Impact on fair  value of 20% adverse change       |       | $        | 1.6        |     | $          | 3.7 |   |
| Residual cash  flows discount rate (annual)       |       | 10       | %          | 13       | %          |
| Impact on fair  value of 10% adverse change       |       | $        | 2.5        |     | $          | 3.5 |   |
| Impact on fair  value of 20% adverse change       |       | $        | 4.9        |     | $          | 6.8 |   |

 

These sensitivities arehypothetical changes in fair value and cannot be extrapolated because therelationship of the changes in assumption to the changes in fair value may notbe linear.  Also, the effect of avariation in a particular assumption is calculated without changing any otherassumption, whereas changes in one factor may result in changes inanother.  Accordingly, no assurance canbe given that actual results would be consistent with the results of theseestimates.

 

Principalbalances of owned, securitized retail notes sold and total managed retailnotes, past due amounts and net credit losses, as of and for the years ended October 31,2005 and October 31, 2004 in millions of dollars follow:

 
| ** **                    | ** ** | **Principal  Outstanding** | ** ** | **Principal 60 Days  or More Past Due** | ** ** | **Net Credit  Losses** | ** ** |
|-------------------------------|------------|----------------------------|------------|-----------------------------------------|------------|------------------------|------------|
| **2005**                      |       |                       |       |                                    |       |                   |       |
| Owned                         |       | $                          | 8,983      |                                    | $          | 13                     |       | $ | 1 |   |
| Securitized retail notes sold |       | 1,619                      |       | 6                                       |       | 3                      |       |
| Managed                       |       | $                          | 10,602     |                                    | $          | 19                     |       | $ | 4 |   |
|                          |       |                       |       |                                    |       |                   |       |
| **2004**                      |       |                       |       |                                    |       |                   |       |
| Owned                         |       | $                          | 6,749      |                                    | $          | 16                     |       | $ | 8 |   |
| Securitized retail notes sold |       | 2,955                      |       | 8                                       |       | 5                      |       |
| Managed                       |       | $                          | 9,704      |                                    | $          | 24                     |       | $ | 13 |   |

 

Theamount of actual and projected future credit losses as a percent of theoriginal balance of retail notes securitized (expected static pool losses) wereas follows:

 
| ** **                                    | ** ** | **Securitized Retail Notes Sold In** | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|
| ** **                                    | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| **Actual and Projected Credit Losses as of:** |       |                                 |       |   |   |
| October 31, 2005                         |       | .40                                  | %          | .36 | % |
| October 31, 2004                         |       | .58                                  | %          | .50 | % |
| October 31, 2003                         |       |                                 |       | .64 | % |

 

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**Note 5.****   Equipmenton Operating Leases**

 

Rentalpayments applicable to equipment on operating leases are recorded as income ona straight-line method over the lease terms. Operating lease assets arerecorded at cost and depreciated to their estimated residual value generally ona straight-line method over the terms of the leases. Residual values representestimates of the value of the leased assets at the end of the contract termsand are initially determined based upon appraisals and estimates. Residualvalues are continually reviewed to determine that estimated amounts areappropriate.

 

Thecost of equipment on operating leases by product category at October 31 isas follows (in millions of dollars):

 
| ** **                                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Agricultural equipment                    |       | $        | 377.6      |     | $          | 437.4 |   |
| Construction and forestry equipment       |       | 528.3    |       | 439.9    |       |
| Commercial and consumer equipment         |       | 153.4    |       | 157.1    |       |
| Other equipment                           |       | 16.0     |       | 29.2     |       |
| Total                                     |       | 1,075.3  |       | 1,063.6  |       |
| Accumulated depreciation                  |       | (281.4   | )          | (306.0   | )          |
| Equipment on  operating leases – net |       | $        | 793.9      |     | $          | 757.6 |   |

 

Initial lease terms for equipment on operating leasesgenerally range from 36 months to 60 months. Rental payments for equipment onoperating leases at October 31 are scheduled as follows (in millions ofdollars):

 
| ** **     | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Due in:        |       |     |       |     |       |
| 0-12 months    |       | $        | 196.4      |     | $          | 176.1 |   |
| 13-24 months   |       | 125.5    |       | 109.6    |       |
| 25-36 months   |       | 65.8     |       | 50.6     |       |
| 37-48 months   |       | 26.9     |       | 20.7     |       |
| Over 48 months |       | 9.3      |       | 9.3      |       |
| Total          |       | $        | 423.9      |     | $          | 366.3 |   |

 

Aswith construction and forestry retail notes, there are no deposits withheldfrom dealers on operating leases related to construction and forestryequipment. In addition, a lease payment discount program, allowing reducedpayments over the term of the lease, is administered in a manner similar tofinance waiver on retail notes.

 

Equipmentreturned to the Company upon termination of leases and held for subsequent saleor lease is recorded at the lower of net book value or estimated market valueof the equipment.

 

Total operating leaseamounts 60 days or more past due represent the amount of all customer paymentspast due 60 days or more. These amounts were $1 million, $1 million and $2 millionat October 31, 2005, 2004 and 2003, respectively.

 

**Note 6.****   Short-TermBorrowings**

 

On October 31,2005, short-term borrowings were $5,767 million, $1,696 million of which wascommercial paper. Short-term borrowings were $3,990 million on October 31,2004, $1,554 million of which was commercial paper. The Company’s short-termborrowings include $1,353 million of secured borrowings at October 31,2005 (see Note 4). Although these notes payable are classified as short-termsince payment is required if the retail notes are liquidated early, the paymentschedule for these borrowings based on the expected liquidations of theretail notes

 

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in millions of dollars isas follows: 2006 - $522, 2007 - $363, 2008 - $248, 2009 - $157, 2010 - $56 andlater years $7. The Company’s short-term debt also includes amounts borrowedfrom John Deere, which totaled $275 million and $1,241 million at October 31,2005 and 2004, respectively. The Company pays interest on a monthly basis toJohn Deere for these borrowings based on a current market rate. Theweighted-average interest rate on total short-term borrowings at October 31,2005 and 2004, excluding current maturities of long-term borrowings, was 4.0percent and 2.6 percent, respectively.

 

At October 31,2005, the Company and Deere & Company jointly maintained $2,514 millionof lines of credit with various banks throughout the world, $272 million ofwhich was unused. For the purpose ofcomputing unused credit lines, commercial paper and short-term bank borrowings,excluding secured borrowings and the current portion of long-term borrowings,of the Company and John Deere were considered to constitute utilization.Included in the total credit lines at October 31, 2005 were long-termcredit facility agreements for $1,250 million, expiring February 2009, and$625 million, expiring in 2010, for a total of $1,875 million long-term.The agreements are mutually extendable and the annual facility fee is notsignificant. The credit agreements have various requirements of the Company,including the maintenance of its consolidated ratio of earnings to fixedcharges at not less than 1.05 to 1 for each fiscal quarter (as described below)and the Company’s ratio of senior debt, excluding secured borrowings, to totalstockholder’s equity at not more than 8 to 1 at the end of any fiscalquarter. “Senior debt” consists of the Company’s total interest-bearingobligations, excluding subordinated debt and certain securitizationindebtedness, but including borrowings from John Deere. The Company’s ratio ofsenior debt to total stockholder’s equity was 6.5 to 1 at October 31, 2005compared to 6.3 to 1 at October 31, 2004. The facility fee on theselines of credit is divided between Deere & Company and the Companybased on the proportion of their respective commercial paper outstanding.

 

Deere &Company has an agreement with the Company pursuant to which it has agreed tocontinue to own at least 51 percent of the voting shares of capital stock ofthe Company and to maintain the Company’s consolidated tangible net worth atnot less than $50 million.  Thisagreement also obligates Deere & Company to make income maintenancepayments to the Company such that its consolidated ratio of earnings to fixedcharges is not less than 1.05 to 1 for any fiscal quarter. For 2005 and 2004,the Company’s ratios were 1.88 to 1 and 2.23 to 1, respectively, and never lessthan 1.74 to 1 and 2.19 to 1 for any fiscal quarter of 2005 and 2004,respectively. Deere & Company’s obligations to make payments tothe Company under the agreement are independent of whether the Company is indefault on its indebtedness, obligations or other liabilities. Further, Deere &Company’s obligations under the agreement are not measured by the amount of theCompany’s indebtedness, obligations or other liabilities. Deere &Company’s obligations to make payments under this agreement are expresslystated not to be a guaranty of any specific indebtedness, obligation orliability of the Company and are enforceable only by or in the name of theCompany. No payments were required under this agreement during the periodsincluded in the financial statements.

 

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**Note 7.****   Long-TermBorrowings**

 

Long-term borrowings of the Company at October 31consisted of the following (in millions of dollars):

 
| ** **                                                                    | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior Debt:**                                                                |       |     |       |     |       |
| Medium-term  notes due 2005-2010 (principal $4,308 - 2005, $2,809 - 2004):    |       |     |       |     |       |   |   |
| Average interest  rate of 4.2% - 2005, 3.7% - 2004                            |       | $        | 4,296      | *   | $          | 2,815 | * |
| 5.125% Notes due  2006 ($600 principal):                                      |       |     |       |     |       |
| Swapped $300  million to variable interest rate of 2.7% - 2004                |       |     |       | 620      | *          |
| 4.5% Notes due  2007 ($500 principal):                                        |       |     |       |     |       |
| Swapped $300  million to variable interest rate of 4.5% - 2005, 2.4% - 2004   |       | 498      | *     | 510      | *          |
| 3.9% Notes due  2008 ($850 principal):                                        |       |     |       |     |       |
| Swapped $350  million to variable interest rate of 4.7% - 2005                |       | 835      | *     | 850      | *          |
| Swapped $525  million to variable interest rate of 2.6% - 2004                |       |     |       |     |       |
| 6% Notes due  2009 ($300 principal):                                          |       |     |       |     |       |
| Swapped to  variable interest rate of 4.0% - 2005, 1.9% - 2004                |       | 308      | *     | 327      | *          |
| 7% Notes due  2012 ($1,500 principal):                                        |       |     |       |     |       |
| Swapped $1,225  million to variable interest rate of 4.8% - 2005, 2.9% - 2004 |       | 1,592    | *     | 1,674    | *          |
| 5.1% Debentures  due 2013 ($650 principal):                                   |       |     |       |     |       |
| Swapped to  variable interest rate of 4.8% - 2005, 2.7% - 2004                |       | 627      | *     | 658      | *          |
| Other Notes                                                                   |       | 44       |       | 35       |       |
| Total senior  debt                                                            |       | 8,200    |       | 7,489    |       |
| Unamortized debt  discount                                                    |       | (9       | )          | (12      | )          |
| Total                                                                         |       | $        | 8,191      |     | $          | 7,477 |   |

 

----

*                                         Includesfair value adjustments related to interest rate swaps.

 

**                                  Allinterest rates are as of year-end.

 

Theapproximate principal amounts of long-term borrowings maturing in each of thenext five years, in millions of dollars, are as follows: 2006 - $2,424, 2007 -$2,448, 2008 - $1,925, 2009 - $1,103 and 2010 - $526.

 

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**Note 8.****   Leases**

 

Total rental expense for operating leases was $5 million,$4 million and $5 million for 2005, 2004 and 2003, respectively. At October 31, 2005,future minimum lease payments under operating leases amounted to $38 million asfollows (in millions of dollars): 2006 - $2, 2007 - $32, 2008 - $1, 2009 - $1,2010 - $1 and later years $1.

 

**Note 9.****   CommonStock**

 

All ofthe Company’s common stock is owned by John Deere Credit Company, awholly-owned finance holding subsidiary of Deere & Company. No sharesof common stock of the Company were reserved for officers or employees or foroptions, warrants, conversions or other rights at October 31, 2005 or 2004.At October 31, 2005, the Company had authorized, but not issued, 10,000shares of $1 par value preferred stock.  

 

**Note 10.Dividends**

 

TheCapital Corporation declared and paid $150 million in dividends to John DeereCredit Company in 2005 and $420 million in 2004.  In each case, John Deere Credit Company paidcomparable dividends to Deere & Company. 

 

**Note 11.Pension and Other Retirement Benefits**

 

The Company is a participating employer in certainDeere & Company sponsored defined benefit pension plans for employeesin the U.S. and certain defined benefit pension plans outside the U.S. Thesepension plans provide for benefits that are based primarily on years of serviceand employee compensation. Pension expense is actuarially determined based onthe Company’s employees included in the plan. The Company’s pension expenseamounted to $4.1 million in 2005, $3.9 million in 2004 and $7.0 million in2003. The accumulated benefit obligation and plan net assets for the employeesof the Company are not determined separately from Deere &Company.  The Company generally providesdefined benefit health care and life insurance plans for retired employees inthe U.S. as a participating employer in Deere & Company’s sponsoredplans. Health care and life insurance benefits expense is actuariallydetermined based on the Company’s employees included in the plans and amountedto $5.5 million in 2005, $6.5 million in 2004 and $4.2 million in 2003.Further disclosure for these plans is included in the notes to the Deere &Company 2005 Annual Report on Form 10-K.

 

**Note 12.  Income Taxes**

 

Taxes on Incomeand Income Tax Credits

 

Thetaxable income of the Company is included in the consolidated U.S. income taxreturn of Deere & Company. Provisions for income taxes are madegenerally as if the Capital Corporation and each of its subsidiaries filedseparate income tax returns.

 

48

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Deferred IncomeTaxes

 

Deferredincome taxes arise because certain items are treated differently for financialaccounting than for income tax reporting purposes. An analysis of deferredincome tax assets and liabilities at October 31 is as follows (in millionsof dollars):

 
| ** **                                 | ** ** | **2005**                  | ** ** | **2004**                       | ** ** |
|--------------------------------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** |
| Deferred lease  income                     |       |                      |       | $                              | 154.3      |   |   |   | $ | 157.4 |   |
| Income and gains  from securitizations     |       |                      |       | 16.6                           |       |   |   | 25.2 |   |
| Tax over book  depreciation                |       |                      |       | 4.9                            |       |   |   | 6.4 |   |
| Deferred retail  note finance income       |       |                      |       | 2.8                            |       |   |   | 3.2 |   |
| Allowance for  credit losses               |       | $                         | 42.6       |                           |       |   | $ | 50.6 |   |   |   |
| Accrual for  retirement and other benefits |       | 20.9                      |       |                           |       | 11.5 |   |   |   |
| Unrealized  gain/loss on derivatives       |       |                      |       | 3.9                            |       | 2.8 |   |   |   |
| Net operating  loss carry forward          |       | 3.9                       |       |                           |       | 3.5 |   |   |   |
| Miscellaneous  accruals and other          |       | 2.4                       |       |                           |       | 1.5 |   |   |   |
| Total                                      |       | $                         | 69.8       |                           | $          | 182.5 |   | $ | 69.9 |   | $ | 192.2 |   |

 

The provision for income taxesconsisted of the following (in millions of dollars):

 
| ** **                        | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current                           |       | $        | 167.9      |     | $          | 138.7    |       | $ | 133.0 |   |
| Deferred                          |       | (17.2    | )          | 1.9      |       | 14.7     |       |
| Total provision  for income taxes |       | $        | 150.7      |     | $          | 140.6    |       | $ | 147.7 |   |

 

At October 31,2005, certain tax loss and tax credit carryforwards for $3.9 million wereavailable with $3.6 million expiring from 2006 through 2022 and $.3million with an unlimited expiration date.

 

Effective Income Tax Provision

 

Acomparison of the statutory and effective income tax provisions and reasons forrelated differences follows (in millions of dollars):

 
| ** **                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| U.S. federal  income tax provision at a statutory rate of 35 percent |       | $        | 148.7      |     | $          | 143.7    |       | $ | 149.8 |   |
| Municipal lease income not taxable                                   |       | (1.3     | )          | (1.3     | )          | (1.3     | )          |
| Taxes on foreign activities                                          |       | .3       |       | (.8      | )          | (1.3     | )          |
| Nondeductible costs and other – net                             |       | 3.0      |       | (1.0     | )          | .5       |       |
| Total provision  for income taxes                                    |       | $        | 150.7      |     | $          | 140.6    |       | $ | 147.7 |   |

 

In October 2004, theAmerican Jobs Creation Act of 2004 (the Act) was signed into law. The Actintroduced a special one-time dividends received deduction on the repatriationof certain foreign earnings to a U.S. taxpayer (repatriation provision),provided certain criteria are met. The deduction is 85 percent of certainforeign earnings that are repatriated. During 2005, the Company did notrecognize a tax benefit related to the repatriation of foreign earnings underthe Act.

 

49

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**Note 13.  Administrative and Operating Expenses**

 

Themajor components of administrative and operating expenses are as follows (inmillions of dollars):

 
| ** **                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
| Compensation and benefits |       | $        | 169.3      |     | $          | 168.0    |       | $ | 131.7 |   |
| Other                     |       | 81.4     |       | 76.7     |       | 70.7     |       |
| Total                     |       | $        | 250.7      |     | $          | 244.7    |       | $ | 202.4 |   |

 

**Note 14.  Cash Flow Information**

 

Forpurposes of the statements of consolidated cash flows, the Company considersinvestments with original maturities of three months or less to be cashequivalents. Substantially all of the Company’s short-term borrowings,excluding the current maturities of long-term borrowings, mature or may requirepayment within three months or less.

 

Cashpayments by the Company for interest incurred on borrowings in 2005, 2004 and2003 were $484 million, $325 million and $348 million, respectively. Cashpayments for income taxes during these same periods were $164 million, $136 millionand $131 million, respectively.

 

**Note 15.  Commitments and Contingent Liabilities**

 

The Company has guaranteed certain recourseobligations on Receivables that it has sold. If the Receivables sold are notcollected, the Company would be required to cover those losses up to the amountof its recourse obligation. At October 31, 2005, the maximum amount ofexposure to losses under these agreements was $140 million. The estimatedcredit risk associated with sold receivables totaled $9 million at October 31,2005. This risk of loss is recognized primarily in the retained interests recordedon the Company’s balance sheet (See Note 4). The Company may recover a portionof any required payments incurred under these agreements from the repossessionof the equipment collateralizing the Receivables. At October 31, 2005, themaximum remaining term of the Receivables guaranteed was approximately five years.

 

At October 31, 2005, John Deere Credit Inc.,the John Deere finance subsidiary in Canada, had $206 million of commercialpaper and $555 million of medium-term notes outstanding that were guaranteed bythe Company. In addition, the Company has provided letters of credit for JohnDeere Credit Inc. as part of retail note sales. At October 31, 2005,the Company’s maximum exposure under these agreements was approximately $7 million.

 

At October 31,2005, the Company had guaranteed $30 million of residual value related toproperty being used by the Company under an operating lease.  The Company is obligated at the end of thelease term to pay to the lessor any reduction in market value of the leasedproperty up to the guaranteed residual value. The Company recognizes theexpense for this future estimated lease payment over the life of the operatinglease and had accrued expenses of $7 million related to this agreement at October 31,2005. The lease term expires in 2007.

 

At October 31, 2005, the Company hadapproximately $10 million of guarantees issued primarily to overseas banksrelated to third-party receivables for the retail financing of John Deereequipment. The Company may recover a portion of any required payments incurredunder these agreements from repossession of the equipment collateralizing thereceivables. At October 31, 2005, the Company had accrued losses ofapproximately $.2 million under these agreements. The maximum remaining term ofthe receivables guaranteed at October 31, 2005 was approximately two years.

 

The Company’s subsidiary,John Deere Risk Protection, Inc., offers crop insurance products through amanaging general agency agreement (MGA) with an insurance company (InsuranceCarrier) rated “Excellent” by A.M. Best Company. As a managing generalagent, John Deere Risk Protection, Inc. will receive commissions from theInsurance Carrier for selling crop insurance to producers.  The Company has guaranteed certainobligations under the MGA, including the obligation to pay the InsuranceCarrier for any uncollected premiums. At October 31,

 

50

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2005 the maximum exposure for uncollectedpremiums was approximately $14 million. Substantially all of the Company’s cropinsurance risk under the MGA has been mitigated by public and privatereinsurance. All private reinsurance companies are rated “Excellent” or higherby A.M. Best Company. In the event of a complete crop failure on everypolicy written under the MGA in 17 states and the default of the U.S.Department of Agriculture and a syndicate of highly rated private reinsurancecompanies on their reinsurance obligations, the Company would be required toreimburse the Insurance Carrier for the maximum exposure under the MGA ofapproximately $633 million at October 31, 2005. The Company believesthat the likelihood of the occurrence of substantially all of the events thatgive rise to the exposure under this MGA is extremely remote and as a result,at October 31, 2005, the Company has accrued probable losses ofapproximately $.1 million under the MGA.

 

At October 31, 2005, the Company hadcommitments of approximately $205 million for the purchase of wind turbine equipment.

 

TheCompany has commitments to extend credit to customers and John Deere dealersthrough lines of credit and pre-approved Receivables. These commitmentsgenerally have fixed expiration dates or other termination clauses. Asignificant portion of these commitments are expected to expire without beingfully drawn upon, therefore, the total commitment amounts do not necessarilyrepresent a future cash requirement. The Company applies the same credit policiesand approval process for these commitments to extend credit as it does for itsReceivables.  Collateral is not requiredfor these commitments, but if credit is extended, collateral may be requiredupon funding. The amount of unused commitments to extend credit to John Deeredealers was $1.7 billion and $1.1 billion at October 31, 2005 and2004, respectively. The amount of unused commitments to extend credit tocustomers was $28.7 billion and $24.8 billion at October 31, 2005 and2004, respectively. Over 95 percent of these unused commitments to customersrelate to revolving charge accounts.

 

TheCompany is subject to various unresolved legal actions which arise in thenormal course of its business, the most prevalent of which relate to state andfederal laws and regulations concerning retail credit. Although it is notpossible to predict with certainty the outcome of these unresolved legalactions or the range of possible loss, the Company believes these unresolvedlegal actions will not have a material effect on its financial statements.

 

51

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**Note 16.Other Comprehensive Income Items**

 

Othercomprehensive income items under FASB Statement No. 130, ReportingComprehensive Income, are transactions recorded in stockholder’s equity duringthe year, excluding net income and transactions with the stockholder. Followingare the items included in other comprehensive income (loss) and the related taxeffects in millions of dollars:

 
| ** **                                            | ** ** | **Before Tax  Amount** | ** ** | **Tax  (Expense)  Credit** | ** ** | **After Tax  Amount** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-----------------------|------------|
| **2003**                                              |       |                   |       |                       |       |                  |       |
| Change in  cumulative translation adjustment          |       | $                      | 15.7       |                       |       |                  | $          | 15.7 |   |
| Unrealized  holding gain and net gain on investments* |       | 7.7                    |       | $                          | (2.7       | )                     | 5.0        |   |
| Unrealized gain  (loss) on derivatives:               |       |                   |       |                       |       |                  |       |
| Hedging loss                                          |       | (32.9                  | )          | 11.8                       |       | (21.1                 | )          |
| Reclassification  of realized net loss to net income  |       | 69.5                   |       | (23.6                      | )          | 45.9                  |       |
| Net unrealized  gain on derivatives                   |       | 36.6                   |       | (11.8                      | )          | 24.8                  |       |
| Total other  comprehensive income                     |       | $                      | 60.0       |                       | $          | (14.5                 | )          | $ | 45.5 |   |
| ** **                                            | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **            | ** ** |
| **2004**                                              |       |                   |       |                       |       |                  |       |
| Change in cumulative  translation adjustment          |       | $                      | 10.2       |                       |       |                  | $          | 10.2 |   |
| Unrealized  holding loss and net loss on investments* |       | (1.7                   | )          | $                          | .6         |                  | (1.1       | ) |
| Unrealized gain  (loss) on derivatives:               |       |                   |       |                       |       |                  |       |
| Hedging loss                                          |       | (20.0                  | )          | 6.4                        |       | (13.6                 | )          |
| Reclassification  of realized net loss to net income  |       | 42.0                   |       | (14.2                      | )          | 27.8                  |       |
| Net unrealized  gain on derivatives                   |       | 22.0                   |       | (7.8                       | )          | 14.2                  |       |
| Total other  comprehensive income                     |       | $                      | 30.5       |                       | $          | (7.2                  | )          | $ | 23.3 |   |
|                                                  |       |                   |       |                       |       |                  |       |
| **2005**                                              |       |                   |       |                       |       |                  |       |
| Change in  cumulative translation adjustment          |       | $                      | (5.3       | )                          |       |                  | $          | (5.3 | ) |
| Unrealized  holding gain and net gain on investments* |       | 2.0                    |       | $                          | (.7        | )                     | 1.3        |   |
| Unrealized gain  (loss) on derivatives:               |       |                   |       |                       |       |                  |       |
| Hedging gain                                          |       | 8.1                    |       | (3.2                       | )          | 4.9                   |       |
| Reclassification  of realized net loss to net income  |       | 11.0                   |       | (3.5                       | )          | 7.5                   |       |
| Net unrealized  gain on derivatives                   |       | 19.1                   |       | (6.7                       | )          | 12.4                  |       |
| Total other  comprehensive income                     |       | $                      | 15.8       |                       | $          | (7.4                  | )          | $ | 8.4 |   |

 

----

*              Reclassificationof retained interest realized gains or losses to net income were not material.

 

**Note 17.  Financial Instruments**

 

Thefair values of financial instruments which do not approximate the carryingvalues in the financial statements at October 31 are as follows (inmillions of dollars):

 
| ** **                                  | ** ** | **2005**            | ** ** | **2004**        | ** ** |
|---------------------------------------------|------------|---------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| ** **                                  | ** ** | ** **          | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Receivables financed (excluding restricted) |       | $                   | 13,778     |            | $          | 13,609 |   | $ | 12,472 |   | $ | 12,414 |   |
|                                        |       |                |       |            |       |   |   |   |   |
| Restricted securitized retail notes         |       | $                   | 1,334      |            | $          | 1,315 |   |   |   |   |   |
|                                        |       |                |       |            |       |   |   |   |   |
| Short-term secured borrowings*              |       | $                   | 1,353      |            | $          | 1,347 |   |   |   |   |   |
|                                        |       |                |       |            |       |   |   |   |   |
| Long-term borrowings                        |       | $                   | 8,191      |            | $          | 8,244 |   | $ | 7,477 |   | $ | 7,838 |   |

 

----

*              SeeNote 6.

 

52

----

 

Fair ValueEstimates

 

Fairvalues of the long-term Receivables with fixed rates were based on thediscounted values of their related cash flows at current market interest rates.The fair values of the remaining Receivables approximated the carrying amounts.

 

Fair values of long-term borrowings and short-termsecured borrowings with fixed rates were based on the discounted values oftheir related cash flows at current market interest rates. Certain long-termborrowings have been swapped to current variable interest rates. The carryingvalues of these long-term borrowings include adjustments related to fair valuehedges.               

 

Derivatives

 

Allderivative instruments are recorded at fair values and classified as eitherother assets or accounts payable and accrued expenses on the balance sheet (seeNote 1).

 

Interest RateSwaps

 

TheCompany enters into interest rate swap agreements primarily to more closelymatch the fixed or floating interest rates of the borrowings to those of theassets being funded.

 

Certain interest rate swaps were designated ashedges of future cash flows from commercial paper and variable interest rateborrowings.  The effective portion of thefair value gains or losses on these cash flow hedges are recorded in othercomprehensive income and subsequently reclassified into interest expense aspayments are accrued and the swaps approach maturity.  These amounts offset the effects of interest ratechanges on the related borrowings.  Theamount of the gain recorded in other comprehensive income at October 31,2005 that is expected to be reclassified to earnings in the next 12 months ifinterest rates remain unchanged is approximately $5 million after-tax. Theseswaps mature in up to 44 months.

 

Certaininterest rate swaps were designated as fair value hedges of fixed-rate,long-term borrowings. The effective portion of the fair value gains or losseson these swaps was offset by fair value adjustments in the underlyingborrowings.

 

Anyineffective portions of the gains or losses on all cash flow and fair valueinterest rate swaps designated as hedges were recognized currently in interestexpense and were not material. The amounts of gains or losses reclassified fromunrealized in other comprehensive income to realized in earnings as a result ofthe discontinuance of cash flow hedges were not material. There were nocomponents of cash flow or fair value hedges that were excluded from theassessment of effectiveness.

 

TheCompany has certain interest rate swap agreements that are not designated ashedges under FASB Statement No. 133, Accounting for Derivative Instrumentsand Hedging Activities, and the fair value gains or losses are recognized currentlyin earnings. These instruments relate to swaps that are used to facilitatecertain borrowings.

 

Foreign Exchange Forward Contracts and Swaps

 

TheCompany has entered into foreign exchange forward contracts and swaps in orderto manage the currency exposure of certain receivables and liabilities. Thesederivatives were not designated as hedges under FASB Statement No. 133.The fair value gains or losses from these foreign currency derivatives arerecognized currently in earnings, generally offsetting the foreign exchangegains or losses on the exposures being managed.

 

53

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TheCompany has designated cross currency interest rate swaps as fair value hedgesof certain borrowings. The effective portion of the fair value gains or losseson these swaps is offset by fair value adjustments in the underlying borrowingsand the ineffectiveness was not material. The Company has also designatedforeign exchange forward contracts and currency swaps as cash flow hedges of certainborrowings. The effective portion of the fair value gains or losses on theseforward contracts and swaps is recorded in other comprehensive income andsubsequently reclassified into other operating expenses as payments are accruedand these instruments approach maturity. This offsets the exchange rate effectson the borrowing being hedged included in other operating expenses.

 

Any ineffective portions of the gains or losses onall cash flow and fair value foreign exchange contracts, swaps, or options designatedas hedges were recognized currently in earnings and were not material. Theamounts of gains or losses reclassified from unrealized in other comprehensiveincome to realized in earnings as a result of the discontinuance of cash flowhedges were not material. There were no components of cash flow or fair valuehedges that were excluded from the assessment of effectiveness.

 

**Note 18.  Geographic Area Information**

 

Basedon the way the operations are managed and evaluated by management andmateriality considerations, the Company is viewed as one operating segment.However, geographic area information for revenues and operating profit, whichis net income before income taxes, attributed to the U.S. and countries outsidethe U.S. is disclosed below. Geographic area information for the years ended October 31,2005, 2004, and 2003 is presented below (in millions of dollars):

 
| ** **            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues:**         |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 1,200      |     | $          | 1,062    |       | $ | 1,172 |   |
| Outside the U.S.      |       | 177      |       | 157      |       | 125      |       |
| Total                 |       | $        | 1,377      |     | $          | 1,219    |       | $ | 1,297 |   |
|                  |       |     |       |     |       |     |       |
| **Operating profit:** |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 384        |     | $          | 377      |       | $ | 406 |   |
| Outside the U.S.      |       | 42       |       | 34       |       | 22       |       |
| Total                 |       | $        | 426        |     | $          | 411      |       | $ | 428 |   |
|                  |       |     |       |     |       |     |       |
| **Receivables:**      |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 12,979     |     | $          | 10,411   |       | $ | 9,389 |   |
| Outside the U.S.      |       | 2,229    |       | 2,174    |       | 1,711    |       |
| Total                 |       | $        | 15,208     |     | $          | 12,585   |       | $ | 11,100 |   |

 

54

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**Note 19.  Unconsolidated Affiliated Companies**

 

The Capital Corporation’s affiliated companies arethose in which it generally maintains 20 to 50 percent ownership. Thesecompanies are not controlled by the Capital Corporation and are accounted forby the equity method. The Company’s equity in the income of these affiliates isreported in the consolidated income statement under “Equity in income ofunconsolidated affiliates.” The investment in these companies is recorded inthe consolidated balance sheet under “Investments in unconsolidated affiliates.”

 

Summarized financial information of the affiliatedcompanies is as follows (in millions of dollars):

 
| ** **                               | ** ** | **Year Ended October 31,** | ** ** |
|------------------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operations:**                          |       |                            |       |   |   |   |   |
| Finance income                           |       | $                               | 5.2        |   | $ | 5.0 |   | $ | 3.7 |   |
| Net income                               |       | 1.2                             |       | 1.2 |   | .5 |   |
| The Company’s  equity in net income |       | .6                              |       | .6 |   | .3 |   |
|                                          |            |                                 |            |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **October 31,** | ** ** |
|-----------------------------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2005**             | ** ** | **2004** | ** ** |
| **Financial Position:**                 |       |                 |       |   |   |
| Total assets                            |       | $                    | 42.2       |   | $ | 38.3 |   |
| Total external  debt                    |       | 26.3                 |       | 25.6 |   |
| Total net assets                        |       | 8.2                  |       | 7.8 |   |
| The Company’s  share of net assets |       | 4.1                  |       | 3.9 |   |
|                                         |            |                      |            |  |  |  |  |

 

**SupplementalInformation (Unaudited)**

 

QuarterlyInformation

 

Supplementalquarterly information for the Company follows (in millions of dollars):

 
| ** **                                     | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Fiscal  Year** | ** ** |
|------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|
| 2005:                                          |       |               |       |                |       |               |       |                |       |             |       |
| Revenues                                       |       | $                  | 305.7      |                | $          | 333.4              |       | $                   | 363.5      |             | $          | 374.3 |   | $ | 1,376.9 |   |
| Interest expense                               |       | 92.6               |       | 108.0               |       | 128.0              |       | 144.6               |       | 473.2            |       |
| Operating  expenses                            |       | 108.4              |       | 131.5               |       | 117.6              |       | 121.4               |       | 478.9            |       |
| Provision for  income taxes                    |       | 36.7               |       | 32.5                |       | 41.7               |       | 39.8                |       | 150.7            |       |
| Equity in income  of unconsolidated affiliates |       | .2                 |       | .1                  |       | .1                 |       | .2                  |       | .6               |       |
| Net income                                     |       | $                  | 68.2       |                | $          | 61.5               |       | $                   | 76.3       |             | $          | 68.7 |   | $ | 274.7 |   |
|                                           |       |               |       |                |       |               |       |                |       |             |       |
| 2004:                                          |       |               |       |                |       |               |       |                |       |             |       |
| Revenues                                       |       | $                  | 299.2      |                | $          | 314.7              |       | $                   | 300.8      |             | $          | 304.5 |   | $ | 1,219.2 |   |
| Interest expense                               |       | 81.7               |       | 80.8                |       | 79.2               |       | 85.7                |       | 327.4            |       |
| Operating  expenses                            |       | 111.5              |       | 132.0               |       | 123.3              |       | 114.4               |       | 481.2            |       |
| Provision for  income taxes                    |       | 36.9               |       | 34.6                |       | 33.7               |       | 35.4                |       | 140.6            |       |
| Equity in income  of unconsolidated affiliates |       | .2                 |       | .1                  |       | .1                 |       | .2                  |       | .6               |       |
| Net income                                     |       | $                  | 69.3       |                | $          | 67.4               |       | $                   | 64.7       |             | $          | 69.2 |   | $ | 270.6 |   |
|                                                |            |                    |            |                     |            |                    |            |                     |            |                  |            |  |  |  |  |  |  |  |  |

 

55

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Indexto Exhibits

 
| 2.                                                                                                                                                                                                                                                                                                       | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.1                                                                                                                                                                                                                                                                                                      | Certificate of  Incorporation, as amended (Exhibit 3.1 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission File No. 1-6458*)                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.2                                                                                                                                                                                                                                                                                                      | Bylaws, as  amended (Exhibit 3.2 to Form 10-K of the registrant for the year  ended October 31, 1999, Securities and Exchange Commission File No. 1-6458*)                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.1                                                                                                                                                                                                                                                                                                      | Five-Year Credit Agreement among registrant, Deere &  Company, various financial institutions, JPMorgan Chase Bank N.A. as  administrative agent, Citibank N.A. and Credit Suisse First Boston as  documentation agents, Merrill Lynch Bank USA as co-documentation agent, and  Bank of America, N.A. and Deutsche Bank AG, New York Branch as syndication  agents, et al, dated as of February 15, 2005 (Exhibit 4.1 to Form 10-Q  of Deere & Company for the quarter ended January 31, 2005,  Securities and Exchange Commission file number 1-4121*)    |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.2                                                                                                                                                                                                                                                                                                      | 364-Day Credit Agreement among registrant, Deere & Company,  various financial institutions, JPMorgan Chase Bank N.A as administrative  agent, Citibank N.A. and Credit Suisse First Boston as documentation agents,  Merrill Lynch Bank USA as co-documentation agent, and Bank of America, N.A.  and Deutsche Bank AG, New York Branch as syndication agents, et al, dated as  of February 15, 2005 (Exhibit 4.2 to Form 10-Q of  Deere & Company for the quarter ended January 31, 2005,  Securities and Exchange Commission file number 1-4121*)       |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.3                                                                                                                                                                                                                                                                                                      | Five-Year Credit Agreement  among registrant, Deere & Company, various financial institutions,  JPMorgan Chase Bank, N. A. as administrative agent, Citibank N.A. and Credit  Suisse First Boston as documentation agents, Merrill Lynch Bank USA as  co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, New  York Branch as syndication agents, et al, dated as of February 17, 2004  (Exhibit 4.1 to Form 10-Q of Deere & Company for the  quarter ended January 31, 2004, Securities and Exchange Commission file  number 1-4121*) |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.4                                                                                                                                                                                                                                                                                                      | Senior Indenture  dated as of March 15, 1997 between the registrant and JP Morgan Chase  Bank (formerly The Chase Manhattan Bank National Association), as Trustee  (Exhibit 4.1 to registration statement on Form S-3 no. 333-68355,  filed December 4, 1998*)                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.5                                                                                                                                                                                                                                                                                                      | Subordinated  Indenture dated as of September 1, 2003 between the registrant and U.S.  Bank National Association, as Trustee (Exhibit 4.3 to registration  statement on Form S-3 no. 333-108705, filed September 11, 2003*)                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.6                                                                                                                                                                                                                                                                                                      | Terms and  Conditions of the Notes, published on May 31, 2002, applicable to the  U.S.$3,000,000,000 Euro Medium Term Note Programme of registrant, John Deere  Capital Corporation, John Deere Bank S.A., John Deere Finance S.A., John  Deere Credit Limited, John Deere B.V., John Deere Credit Inc. and John Deere  Limited. (Exhibit 4.5 to Form 10-K of Deere & Company for  the year ended October 31, 2002, Securities and Exchange Commission file  number 1-4121*)                                                                                        |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Certain  instruments relating to long-term debt constituting less than 10% of the  registrant’s total assets may not be 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. |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 9.                                                                                                                                                                                                                                                                                                       | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1                                                                                                                                                                                                                                                                                                     | Agreement as  amended November 1, 1994 between the registrant and Deere &  Company concerning agricultural retail notes (Exhibit 10.1 to  Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                                                                                                                                      |

 

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| 10.2   | Agreement as  amended November 1, 1994 between the registrant and Deere &  Company concerning lawn and grounds care retail notes (Exhibit 10.2 to  the Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.3   | Agreement as amended  November 1, 1994 between the registrant and John Deere Industrial  Equipment Company concerning industrial retail notes (Exhibit 10.3 to  the Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)             |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.4   | Agreement dated  November 1, 2003 between the registrant and Deere & Company  relating to fixed charges ratio, ownership and minimum net worth  (Exhibit 10.5 to Form 10-K of Deere & Company for the year  ended October 31, 2003, Securities and Exchange Commission File  No. 1-4121*)     |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.5   | Agreement dated  July 14, 1997 between the registrant and John Deere Construction  Equipment Company concerning construction retail notes (Exhibit 10.4 to  Form 10-K of Deere & Company for the year ended October 31,  2003, Securities and Exchange Commission File No. 1-4121*)                    |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.6   | Asset Purchase  Agreement dated October 29, 2001 between Deere & Company and  Deere Capital, Inc. concerning the sale of trade receivables  (Exhibit 10.6 to Form 10-K of the registrant for the year ended  October 31, 2001*)                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.7   | Asset Purchase  Agreement dated October 29, 2001 between John Deere  Construction & Forestry Company and Deere Capital, Inc.  concerning the sale of trade receivables (Exhibit 10.7 to Form 10-K  of the registrant for the year ended October 31, 2001*)                                             |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.8   | Factoring  Agreement between John Deere Finance S.A. and John Deere Vertrieb, a branch  of Deere & Company, concerning the sale of trade receivables  (Exhibit 10.21 to the Form 10-K of Deere & Company for the  year ended October 31, 2002, Securities and Exchange Commission file  number 1-4121*) |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 10.9   | Receivables  Purchase Agreement between John Deere Finance S.A. and John Deere Limited  (Scotland) concerning the sale of trade receivables (Exhibit 10.22 to  the Form 10-K of Deere & Company for the year ended  October 31, 2002, Securities and Exchange Commission file number  1-4121*)                   |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 11.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 12.    | Computation of  Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 13.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 14.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 16.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 18.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 21.    | Omitted pursuant  to instruction I(2)                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 22.    | Not applicable                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 23.    | Consent of Deloitte &  Touche LLP                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 24.    | Power of  Attorney (included on signature page)                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 31.1   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                     |
| 31.2   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                         |

 

57

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| 32.    | Section 1350 Certifications                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                      |
| 99     | Parts I and II  of the Deere & Company Form 10-K for the fiscal year ended  October 31, 2005 (Securities and Exchange Commission file number  1-4121*) |

 

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* Incorporated byreference. Copies of these exhibits are available from the Company upon request.

 

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