**UNITED STATES**

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

**WASHINGTON,D.C. 20549**

 

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**FORM10-K**

 

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**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004**

 

**Commissionfile number 1-6458**

 

**JOHN DEERE CAPITAL CORPORATION**

(Exact name of registrant asspecified 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 PURSUANTTO SECTION 12(b) OF THE ACT:

 

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

 

SECURITIES REGISTERED PURSUANTTO SECTION 12(g) OF THE ACT: **NONE**

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes ý             No o

 

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

Yes o             No ý

 

At November 30, 2004, 2,500 shares of common stock, without parvalue, of the registrant were outstanding, all of which were owned by JohnDeere Credit Company.

 

The registrant meets the conditions set forth in General InstructionI(1)(a) and (b) of Form 10-K and is therefore filing this Form with certainreduced disclosures as permitted 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 the outstandingcommon stock of the Capital Corporation. See “Relationships of the Company withJohn Deere” for additional information regarding agreements between the Companyand Deere & Company. The Company offers equipment financing products inArgentina, Australia, France (through a joint venture), Germany, Italy,Luxembourg, Mexico, New Zealand, Portugal (through a cooperation agreement),Spain, the United Kingdom and the U.S.

 

The Companyprovides and administers financing for retail purchases of new equipmentmanufactured by Deere & Company’s agricultural equipment, commercial andconsumer equipment, and construction and forestry divisions and used equipmenttaken in trade for this equipment. The Company purchases retail installmentsales and loan contracts (retail notes) from Deere & Company and itswholly-owned subsidiaries (collectively called John Deere). John Deere acquiresthese retail notes through John Deere retail dealers. The Company alsopurchases and finances a limited amount of non-Deere retail notes and continuesto service a small portfolio of recreational products and other retail notes.In addition, the Company leases John Deere equipment and a limited amount ofnon-Deere equipment to retail customers (financing and operating leases). TheCompany also finances and services revolving charge accounts, in most casesacquired from and offered through merchants in the agricultural, commercial andconsumer, and construction and forestry markets (revolving charge accounts).Further, the Company finances and services operating loans, in most casesoffered through and acquired from farm input providers or through directrelationships with agricultural producers (operating loans). The Company alsoprovides wholesale financing for inventories of John Deere engines and JohnDeere agricultural, commercial and consumer and construction and forestryequipment owned by dealers of those products (wholesale receivables), most ofwhich are originated by John Deere. The Company also offers insuredinternational export financing to select customers which generally involvesJohn Deere products.  Retail notes,revolving charge accounts, operating loans, financing leases and wholesalereceivables are collectively called “Receivables.” Receivables and operatingleases are collectively called “Receivables and Leases.”

 

The Capital Corporation was incorporatedunder the laws of Delaware and commenced operations in 1958. At November 30,2004, the Company had 1,457 full-time and part-time employees.

 

Business of John Deere

 

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

 

The *agricultural equipment*segment manufactures and distributes a full line of farm equipment and relatedservice parts – including tractors; combine, cotton and sugarcane harvesters;tillage, seeding and soil preparation machinery; sprayers; hay and forageequipment; material handling equipment; and integrated agricultural managementsystems technology.

 

The *commercial and consumerequipment*segment manufactures and distributes equipment, productsand service parts for commercial and residential uses – including smalltractors for lawn, garden, commercial and utility purposes; walk-behind mowers;golf course equipment; utility vehicles (including those commonly referred toas all-terrain vehicles, or “ATVs”); landscape products and irrigationequipment; and other outdoor power products.

 

The *construction and forestry*segmentmanufactures, distributes to dealers and sells at retail a broad range ofmachines and service parts used in construction, earthmoving, material handlingand timber harvesting – including backhoe loaders; crawler dozers and loaders;four-wheel-drive loaders; excavators; motor graders; articulated dump trucks;landscape loaders; skid-steer loaders; and log skidders, feller bunchers, logloaders, log forwarders, log harvesters and related attachments.

 

1

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John Deere’s worldwide agriculturalequipment, commercial and consumer equipment, and construction and forestryoperations are commonly referred to as the Equipment Operations. The productsand services produced by the segments above are marketed primarily throughindependent retail dealer networks and major retail outlets.

 

The *credit operations*segment includes the operations ofthe Company (described herein), John Deere Credit Company, John Deere CreditInc. (Canada), Banco John Deere, S.A. (Brazil) and John Deere Credit Oy(Finland), and primarily finances sales and leases by John Deere dealers of newand used agricultural, commercial and consumer, and construction and forestryequipment. In addition, it provides wholesale financing to dealers of theforegoing equipment, provides operating loans, finances retail revolving chargeaccounts and plans to offer certain crop risk mitigation products.

 

John Deere had net income of $1,406 million,or $5.56 per share diluted ($5.69 per share basic), in 2004, compared with $643million, or $2.64 per share diluted ($2.68 per share basic), in 2003. Incomeincreased primarily due to increased shipments and price realization. Theincrease was partially offset by a larger provision for employee bonuses andhigher raw material costs.

 

John Deere’s net sales and revenues increased29 percent to $19,986 million in 2004, compared with $15,535 millionin 2003. Net sales of the Equipment Operations increased 32 percent in2004 to $17,673 million from $13,349 million last year. Net sales increasedprimarily due to higher shipments. Net sales in the U.S. and Canada rose 33percent in 2004. Outside the U.S. and Canada, net sales increased by 20 percentfor the year, excluding currency translation, and by 30 percent on a reportedbasis.

 

The agricultural equipment segment had netsales of $9,717 million in 2004, compared to $7,390 million in 2003. Thecommercial and consumer equipment segment had net sales of $3,742 million in2004, compared to $3,231 million in 2003. The construction and forestrysegment had net sales of $4,214 million in 2004, compared to$2,728 million in 2003. The credit operations segment had revenues of$1,276 million in 2004, compared to $1,347 million in 2003.

 

Outlook for John Deere 

 

As a result of the factors and conditionsoutlined below, John Deere’s equipment sales for 2005 are expected to increaseby 2 to 7 percent with net income forecast to be approximately $1.5 billion.John Deere’s net equipment sales for the first quarter of 2005 are currentlyforecast to be up 20 to 25 percent in comparison with the same period in2004.  Production levels are expected toincrease by 11 to 13 percent for the first quarter of 2005, compared to thesame period in 2004. John Deere net income for the first quarter of 2005 isforecast to be in a range of $200 million to $225 million.

 

*Agricultural Equipment.*  On a worldwide basis, sales of John Deereagricultural equipment are forecast to be up 2 to 5 percent for the year.Despite a downturn in commodity prices, U.S. farmers are benefiting from recordproduction of corn and soybeans. In addition, the livestock and dairy sectorsare strong and government payments are expected to increase substantially in2005. As a result, U.S. farm cash receipts are forecast to be about the same in2005 as the record level in 2004. Given these conditions, John Deere expectsindustry retail sales in the U.S. and Canada to be up about 5 percent forfiscal 2005 in comparison with the very strong levels of 2004.

 

In other parts of the world,industry retail sales in Western Europe are forecast to be flat to down 5percent in 2005. Farmers in the region have benefited from a good harvest thisfall; however, they are expected to see little change in income as a result oflower grain prices, higher input costs and flat government support payments. InSouth America, industry sales are forecast to be down 10 to 20 percent on thebasis of lower commodity prices, increased input costs and a weaker U.S.dollar.

 

2

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*Commercial and Consumer Equipment*.  Sales of John Deere commercial and consumerequipment are expected to increase 2 to 5 percent in 2005 with help from newmodels of compact tractors, an updated utility-vehicle line, and higher salesof commercial mowing equipment.

 

3

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*Construction and Forestry.*  Markets are expected to be supported in 2005by moderate economic growth, relatively low interest rates and a favorablelevel of housing starts. In this environment, sales of construction andforestry equipment are expected to see further growth as contractors and rentaloperations continue to replenish their fleets. As a result, segment sales areforecast to be up 6 to 9 percent for the year.

 

*Credit Operations*.  Althoughthe credit operations are expected to benefit from further growth in the loanportfolio, net income is forecast to be down primarily due to increasedleverage in the portfolio. The credit operations are expected to report netincome of about $280 million for the year.  The Company’s net income for 2005, which doesnot include the credit operations in Canada, Brazil and Finland, is projectedto decrease to $250 million for 2005.

 

Relationships of the Company with John Deere

 

The results of operations of the Company areaffected by its relationships with John Deere, including among other items, theterms on which the Company acquires Receivables and Leases and borrows fundsfrom John Deere, the reimbursement for interest waiver and low-rate financeprograms from John Deere, the compensation paid by John Deere in connectionwith the Company’s purchase of trade receivables from John Deere and thepayment to John Deere for various expenses applicable to the Company’soperations. In addition, the Company and John Deere have joint access tocertain lines of credit of the Company.

 

The Company’s acquisition volume ofReceivables and Leases is largely dependent upon the level of retail sales andleases of John Deere products. The level of John Deere retail sales and leasesis responsive to a variety of economic, financial, climatic, legislative andother factors that influence demand for its products. All of the Company’sbusinesses are affected by changes in interest rates, demand for credit and competition.

 

The Company bears substantially all of thecredit risk (net of recovery from withholdings from certain John Deere dealers,and Farm Planä and PowerPlanâmerchants) associated with its holding of Receivables and Leases. A smallportion of the Receivables and Leases held (less than 5 percent) is guaranteedby the Equipment Operations. The Company also performs all servicing andcollection functions in the U.S. and Mexico. John Deere is reimbursed for staffand other administrative services at estimated cost, and for credit linesprovided to the Company based on utilization of those lines.

 

The terms and the basis on which the Companyacquires retail notes and certain wholesale receivables from John Deere aregoverned by agreements with John Deere, terminable by either John Deere or theCompany on 30 days notice. As provided in these agreements, the Company agreesto the terms and conditions for purchasing the retail notes and wholesalereceivables from John Deere. Under these agreements, John Deere is notobligated to sell notes to the Company, and the Company is obligated topurchase notes from John Deere only if the notes comply with the terms andconditions set by the Company.

 

The basis on which John Deere acquires retailnotes and wholesale receivables from the dealers is governed by agreements withthe John Deere dealers, terminable at will by either the dealers or John Deere.In acquiring these notes from dealers, the terms and conditions, as set forthin agreements with the dealers, conform with the terms and conditions adoptedby the Company in determining the acceptability of retail and certain wholesalenotes to be purchased from John Deere. The dealers are not obligated to sellthese notes to John Deere and John Deere is not obligated to accept these notesfrom the dealers. In practice, retail and wholesale notes are acquired fromdealers only if the terms of these notes and the creditworthiness of thecustomers are acceptable to the Company for purchase of these notes from JohnDeere. The Company acts on behalf of both itself and John Deere in determiningthe acceptability of the notes and in acquiring acceptable notes from dealers.

 

The basis on which the Company enters intoleases with retail customers through John Deere dealers is governed byagreements between dealers and the Company. Leases are accepted based on theterms and conditions, the lessees’ creditworthiness, the anticipated residualvalues of the equipment and the intended uses of the equipment.

 

4

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Deere & Company has an agreement with theCompany pursuant to which it has agreed to continue to own at least 51 percentof the voting shares of capital stock of the Company and to maintain theCompany’s consolidated tangible net worth at not 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 2004 and 2003,the Company’s ratios were 2.23 to 1 and 2.17 to 1, respectively, and never lessthan 2.19 to 1 and 2.05 to 1 for any fiscal quarter of 2004 and 2003,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 amountof the Company’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.

 

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 the timeof 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

 

Receivables and Leases arise mainly fromretail and wholesale sales and leases of John Deere products and used equipmentaccepted in trade for them, and from retail sales of equipment of unrelatedmanufacturers. Receivables and Leases also include revolving charge accountsreceivable and operating loans. At October 31, 2004 and 2003,approximately 85 percent of the Receivables and Leases administered by theCompany were for financing John Deere products.

 

Deere Credit, Inc., a wholly-owned subsidiaryof the Company, holds retail notes, leases and revolving charge receivablesrelated to mining, transportation and other commercial equipment.

 

FPC Financial, f.s.b. (Thrift), a wholly-ownedsubsidiary of the Company, holds a federal charter issued by the Office ofThrift Supervision. The Thrift is headquartered in Madison, Wisconsin andoffers revolving charge products such as John Deere Credit Revolving Plan, FarmPlanä 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. SeeNote 2 to the Consolidated Financial Statements under “Revolving ChargeAccounts Receivable.”

 

The Company also works with several leadingfarm input providers to offer crop input production loans for materials such asseeds and fertilizer. Additionally, the Company provides production loans directlyto farmers for their total operating needs. Generally, these loans are securedby crops and equipment.

 

5

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The Company finances wholesale inventories ofJohn Deere agricultural equipment, commercial and consumer equipment,construction and forestry equipment and John Deere engines. A large portion ofthe wholesale financing provided by the Company is with dealers from whom italso purchases agricultural, commercial and consumer and construction and forestryretail notes. See Note 2 to the Consolidated Financial Statements under “WholesaleReceivables.”

 

The Company requires that theft and physicaldamage insurance be carried on all goods leased or securing retail notes. Thecustomers may, at their expense, have the Company or the seller of the goodspurchase this insurance or obtain it from other sources. Theft and physicaldamage insurance is also required on goods securing wholesale notes and can bepurchased through the Company or from other sources. Insurance is not requiredfor goods purchased under revolving charge accounts.

 

Receivables and Leases are eligible foracceptance if they conform to prescribed finance and lease plan terms.Guidelines relating to down payments and contract terms on retail notes andleases are described in Note 2 and Note 5 to the ConsolidatedFinancial Statements.

 

In limited circumstances, Receivables andLeases may be accepted and acquired even though they do not conform in allrespects to the established guidelines. The Company determines whetherReceivables and Leases should be accepted and how they should be serviced.Acceptance of these Receivables and Leases is dependent on having one or moreof the following risk mitigation enhancements: pledging additional collateralas security, assignment of specific earnings to the Company or acceleratedpayment schedules. Officers of the Company are responsible for establishingpolicies and reviewing the performance of the Company in accepting andcollecting Receivables and Leases. The Company normally makes all of its ownroutine collections, settlements and repossessions on Receivables and Leases.

 

Retail notes and wholesale receivablesprovide for retention by John Deere or the Company of security interests in thegoods financed under laws such as the Uniform Commercial Code, certain federalstatutes and state motor vehicle laws. Security interest filings are also madefor leases. However, filings for operating leases are made for informationalpurposes only.

 

Finance Rates on Retail Notes

 

As of October 31, 2004 and 2003,approximately 80 and 76 percent, respectively, of the retail notes held by theCompany bore a fixed finance rate. A portion of the finance income earned bythe Company arises from reimbursements from John Deere in connection withfinancing the retail sales of John Deere equipment on which finance charges arewaived or reduced by John Deere for a period from the date of sale to aspecified subsequent date. See Note 2 to the Consolidated Financial Statementsfor additional information.

 

6

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Average Original Term and Average Actual Lifeof Retail Notes and Leases

 

Due to prepayments (often from trade-ins andrefinancing), the average actual life of retail notes and financing leases isconsiderably shorter than the average original term. The following table showsthe average original term for retail notes and leases acquired and the averageactual life for retail notes and leases liquidated (in months):

 
| ** **                           | ** ** | **Average Original Term** | ** ** | **Average Actual Life** | ** ** |
|--------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **2004**                  | ** ** | **2003**                | ** ** | **2004** | ** ** | **2003** | ** ** |
| Retail notes                         |       | 54                        |       | 54                      |       | 35 |   | 35 |   |
| New  equipment:                      |       |                      |       |                    |       |   |   |   |   |
| Agricultural  equipment              |       | 57                        |       | 57                      |       | 34 |   | 35 |   |
| Construction  and forestry equipment |       | 46                        |       | 46                      |       | 36 |   | 36 |   |
| Commercial  and consumer equipment   |       | 52                        |       | 52                      |       | 33 |   | 33 |   |
| Used  equipment:                     |       |                      |       |                    |       |   |   |   |   |
| Agricultural  equipment              |       | 58                        |       | 58                      |       | 36 |   | 34 |   |
| Construction  and forestry equipment |       | 42                        |       | 42                      |       | 30 |   | 31 |   |
| Commercial  and consumer equipment   |       | 55                        |       | 55                      |       | 30 |   | 31 |   |
| Financing  leases                    |       | 39                        |       | 45                      |       | 41 |   | 39 |   |
| Equipment on  operating leases       |       | 39                        |       | 37                      |       | 38 |   | 38 |   |

 

# Maturities

 

The followingtable presents the maturities of net Receivables and Leases owned by theCompany at October 31, 2004 (in millions of dollars), and a summary of netReceivables and Leases owned by the Company at the end of the last five years(in millions of dollars):

 
| ** **                          | ** ** | **One  year** | ** ** | **One to five years** | ** ** | **Over five years** | ** ** | ** **      | ** ** | ** **         | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------|------------|-----------------------|------------|---------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | ** **    | ** ** | **Fixed  rate**       | ** ** | **Variable  rate**  | ** ** | **Fixed  rate** | ** ** | **Variable  rate** | ** ** | **2004  Total** | ** ** | **2003**   | ** ** | **2002**   | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                |       |          |       |                  |       |                |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
|  Retail notes:                 |       |          |       |                  |       |                |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Agricultural equipment              |       | $             | 1,343      |                  | $          | 2,010               |       | $               | 954        |               | $          | 66              |       | $          | 78         |       | $          | 4,451 |   | $ | 3,954 |   | $ | 3,305 |   | $ | 3,610 |   | $ | 2,983 |   |
| Construction and forestry equipment |       | 544           |       | 852                   |       | 10                  |       |            |       |               |       | 1,406           |       | 1,196      |       | 1,198      |       | 1,293 |   | 1,000 |   |
| Commercial and consumer equipment   |       | 335           |       | 607                   |       | 12                  |       | 30              |       |               |       | 984             |       | 909        |       | 730        |       | 611 |   | 465 |   |
| Recreational products               |       | 6             |       | 14                    |       |                |       | 13              |       |               |       | 33              |       | 51         |       | 79         |       | 111 |   | 140 |   |
| Total retail notes                  |       | 2,228         |       | 3,483                 |       | 976                 |       | 109             |       | 78                 |       | 6,874           |       | 6,110      |       | 5,312      |       | 5,625 |   | 4,588 |   |
|  Revolving charge accounts     |       |          |       |                  |       |                |       |            |       |               |       | 1,444           |       | 1,118      |       | 896        |       | 814 |   | 688 |   |
|  Operating loans               |       |          |       |                  |       |                |       |            |       |               |       | 380             |       | 541        |       | 561        |       | 501 |   | 422 |   |
|  Wholesale receivables         |       |          |       |                  |       |                |       |            |       |               |       | 3,480           |       | 2,905      |       | 2,942      |       | 2,996 |   | 937 |   |
|  Financing leases              |       |          |       |                  |       |                |       |            |       |               |       | 406             |       | 427        |       | 468        |       | 480 |   | 457 |   |
|  Equipment on operating leases |       |          |       |                  |       |                |       |            |       |               |       | 758             |       | 879        |       | 1,180      |       | 1,485 |   | 1,517 |   |
| Total Receivables and Leases        |       |          |       |                  |       |                |       |            |       |               |       | $               | 13,342     |       | $          | 11,980     |       | $ | 11,359 |   | $ | 11,901 |   | $ | 8,609 |   |
|                                     |            |               |            |                       |            |                     |            |                 |            |                    |            |                 |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Total Receivables and Leases by geographicarea are as follows (in millions of dollars):

 
| ** **                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.                          |       | $        | 11,145     |     | $          | 10,244   |       | $        | 10,224     |     | $          | 11,103 |   | $ | 8,056 |   |
| Outside the  U.S.             |       | 2,197    |       | 1,736    |       | 1,135    |       | 798      |       | 553      |       |
| Total  Receivables and Leases |       | $        | 13,342     |     | $          | 11,980   |       | $        | 11,359     |     | $          | 11,901 |   | $ | 8,609 |   |

 

Delinquencies

 

Total Receivable amounts 60 days or more pastdue represent the amount of all customer payments past due 60 days or more areas follows (in millions of dollars):

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.               |       | $        | 36.2       |     | $          | 43.4     |       | $        | 42.4       |     | $          | 38.2 |   | $ | 26.7 |   |
| Outside the  U.S.  |       | 4.2      |       | 4.2      |       | 2.6      |       | 3.2      |       | 2.1      |       |
| Total  Receivables |       | $        | 40.4       |     | $          | 47.6     |       | $        | 45.0       |     | $          | 41.4 |   | $ | 28.8 |   |

 

Total non-performing Receivables, whichrepresent loans the Company has ceased accruing interest for are as follows (inmillions of dollars):

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.               |       | $        | 48.0       |     | $          | 65.9     |       | $        | 38.9       |     | $          | 14.6 |   | $ | 15.5 |   |
| Outside the  U.S.  |       | 8.9      |       | 20.1     |       | 5.4      |       |     |       |     |       |
| Total  Receivables |       | $        | 56.9       |     | $          | 86.0     |       | $        | 44.3       |     | $          | 14.6 |   | $ | 15.5 |   |

 

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Write-offs and Recoveries

 

Total Receivable write-offs and recoveries,by product, were as follows (in millions of dollars):

 
| ** **                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**                                  |       | $        | 123.8      |     | $          | 118.3    |       | $        | 110.4      |     | $          | 93.3 |   | $ | 83.6 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Provision  for credit losses                                                         |       | 32.3     |       | 72.2     |       | 126.9    |       | 74.5     |       | 52.6     |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs:                                                                          |       |     |       |     |       |     |       |     |       |     |       |
| Retail  notes:                                                                       |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                                              |       | (5.3     | )          | (5.5     | )          | (6.7     | )          | (10.0    | )          | (7.7     | )          |
| Construction  and forestry equipment                                                 |       | (7.0     | )          | (18.6    | )          | (17.3    | )          | (16.9    | )          | (7.3     | )          |
| Commercial  and consumer equipment                                                   |       | (.9      | )          | (1.1     | )          | (1.2     | )          | (.5      | )          | (.5      | )          |
| Recreational  products                                                               |       | (1.7     | )          | (1.3     | )          | (3.3     | )          | (3.5     | )          | (4.0     | )          |
| Total retail  notes                                                                  |       | (14.9    | )          | (26.5    | )          | (28.5    | )          | (30.9    | )          | (19.5    | )          |
| Revolving  charge accounts                                                           |       | (21.5    | )          | (27.0    | )          | (23.4    | )          | (17.7    | )          | (11.5    | )          |
| Operating  loans                                                                     |       | (6.5     | )          | (4.2     | )          | (47.4    | )          | (2.5     | )          | (6.5     | )          |
| Wholesale  receivables                                                               |       | (8.1     | )          | (6.8     | )          | (7.7     | )          | (6.8     | )          | (4.2     | )          |
| Financing  leases                                                                    |       | (5.0     | )          | (8.7     | )          | (12.0    | )          | (9.4     | )          | (8.5     | )          |
| Total  write-offs                                                                    |       | (56.0    | )          | (73.2    | )          | (119.0   | )          | (67.3    | )          | (50.2    | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Recoveries:                                                                          |       |     |       |     |       |     |       |     |       |     |       |
| Retail  notes:                                                                       |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                                              |       | 3.6      |       | 2.7      |       | 3.5      |       | 2.4      |       | 2.3      |       |
| Construction  and forestry equipment                                                 |       | 2.2      |       | 2.4      |       | 1.5      |       | .6       |       | .8       |       |
| Commercial  and consumer equipment                                                   |       | .5       |       | .2       |       | .2       |       | .2       |       | .2       |       |
| Recreational  products                                                               |       | .7       |       | .7       |       | .9       |       | 1.1      |       | 1.1      |       |
| Total retail  notes                                                                  |       | 7.0      |       | 6.0      |       | 6.1      |       | 4.3      |       | 4.4      |       |
| Revolving  charge accounts                                                           |       | 7.7      |       | 5.7      |       | 4.0      |       | 3.2      |       | 3.3      |       |
| Operating  loans                                                                     |       | 3.8      |       | 1.5      |       | 1.1      |       | 1.6      |       | 5.1      |       |
| Wholesale  receivables                                                               |       | 1.3      |       | 2.9      |       | .8       |       | (.6      | )          | .7       |       |
| Financing  leases                                                                    |       | 1.9      |       | 1.0      |       | 1.1      |       | .8       |       | .5       |       |
| Total  recoveries                                                                    |       | 21.7     |       | 17.1     |       | 13.1     |       | 9.3      |       | 14.0     |       |
| Total net  write-offs                                                                |       | (34.3    | )          | (56.1    | )          | (105.9   | )          | (58.0    | )          | (36.2    | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Other  changes related to receivable sales and purchases and translation adjustments |       | (9.2     | )          | (10.6    | )          | (13.1    | )          | .6       |       | (6.7     | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                                        |       | $        | 112.6      |     | $          | 123.8    |       | $        | 118.3      |     | $          | 110.4 |   | $ | 93.3 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables                         |       | .30      | %          | .50      | %          | 1.09     | %          | .79      | %          | .56      | %          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as  a percentage of total Receivables, end of year                         |       | .89      | %          | 1.12     | %          | 1.16     | %          | 1.06     | %          | 1.32     | %          |

 

9

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TotalReceivable write-offs and recoveries from outside the U.S. were as follows (inmillions of dollars):

 
| ** **                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**                                  |       | $        | 16.0       |     | $          | 10.1     |       | $        | 7.1        |     | $          | 4.7 |   | $ | 5.0 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Provision  for credit losses                                                         |       | (.7      | )          | 4.9      |       | 3.0      |       | 3.4      |       | 1.8      |       |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs                                                                           |       | (1.5     | )          | (1.5     | )          | (1.0     | )          | (1.7     | )          | (1.0     | )          |
| Recoveries                                                                           |       | 1.1      |       | .4       |       | .5       |       |     |       |     |       |
| Total net  write-offs                                                                |       | (.4      | )          | (1.1     | )          | (.5      | )          | (1.7     | )          | (1.0     | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Other  changes related to receivable sales and purchases and translation adjustments |       | 2.1      |       | 2.1      |       | .5       |       | .7       |       | (1.1     | )          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                                        |       | $        | 17.0       |     | $          | 16.0     |       | $        | 10.1       |     | $          | 7.1 |   | $ | 4.7 |   |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables from outside the U.S.   |       | .02      | %          | .07      | %          | .06      | %          | .24      | %          | .19      | %          |
|                                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as  a percentage of total Receivables from outside the U.S., end of year   |       | .78      | %          | .94      | %          | .91      | %          | .91      | %          | .88      | %          |

 

Allowance for Credit Losses

 

**The totalReceivable allowance for credit losses, by product, at October 31, and theReceivable portfolio, by product, as a percent of total portfolio is presentedbelow (in millions of dollars):**

 
| ** **                          | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** | **2001**    | ** ** | **2000**    | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                          | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |        |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Agricultural equipment              |       | $           | 19.3       |        | 36         | %           | $          | 23.4        |       | 36          | %          | $ | 19.2 |   | 32 | % | $ | 20.6 |   | 35 | % | $ | 16.3 |   | 42 | % |
| Construction and forestry equipment |       | 30.9        |       | 11          |       | 30.8        |       | 11          |       | 33.2        |       | 12 |   | 23.7 |   | 12 |   | 22.5 |   | 14 |   |
| Commercial and consumer equipment   |       | 3.7         |       | 8           |       | 7.6         |       | 8           |       | 6.9         |       | 7 |   | 6.0 |   | 6 |   | 4.5 |   | 7 |   |
| Recreational products               |       | 2.1         |       |        |       | 2.1         |       |        |       | 2.5         |       | 1 |   | 3.5 |   | 1 |   | 4.6 |   | 2 |   |
| Total retail notes                  |       | 56.0        |       | 55          |       | 63.9        |       | 55          |       | 61.8        |       | 52 |   | 53.8 |   | 54 |   | 47.9 |   | 65 |   |
| Revolving charge accounts           |       | 22.3        |       | 11          |       | 19.7        |       | 10          |       | 15.9        |       | 9 |   | 23.2 |   | 8 |   | 19.0 |   | 10 |   |
| Operating loans                     |       | 9.1         |       | 3           |       | 9.7         |       | 5           |       | 7.9         |       | 5 |   | 6.8 |   | 5 |   | 7.2 |   | 6 |   |
| Wholesale receivables               |       | 15.1        |       | 28          |       | 19.6        |       | 26          |       | 19.8        |       | 29 |   | 15.8 |   | 29 |   | 10.1 |   | 13 |   |
| Financing leases                    |       | 10.1        |       | 3           |       | 10.9        |       | 4           |       | 12.9        |       | 5 |   | 10.8 |   | 4 |   | 9.1 |   | 6 |   |
| Total Receivables                   |       | $           | 112.6      |        | 100        | %           | $          | 123.8       |       | 100         | %          | $ | 118.3 |   | 100 | % | $ | 110.4 |   | 100 | % | $ | 93.3 |   | 100 | % |

 

10

----

 

**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):**

** **
| ** **        | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** | **2001**    | ** ** | **2000**    | ** ** |
|-------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **        | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| U.S.              |       | $           | 95.6       |        | 84         | %           | $          | 107.8       |       | 86          | %          | $ | 108.2 |   | 90 | % | $ | 103.3 |   | 93 | % | $ | 88.6 |   | 94 | % |
| Outside the U.S.  |       | 17.0        |       | 16          |       | 16.0        |       | 14          |       | 10.1        |       | 10 |   | 7.1 |   | 7 |   | 4.7 |   | 6 |   |
| Total Receivables |       | $           | 112.6      |        | 100        | %           | $          | 123.8       |       | 100         | %          | $ | 118.3 |   | 100 | % | $ | 110.4 |   | 100 | % | $ | 93.3 |   | 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.

 

The Company also separately reviewsnon-performing Receivables for impairment based on delinquencies and changes incash flows or collateral. These non-performing Receivables consist ofmaterially past due Receivables, customers that have provided bankruptcynotification and other Receivables requiring significant collection effortsincluding litigation. The Company identifies these Receivables during reviewsof portfolio credit quality. The Company includes the impairment onnon-performing Receivables as a separate component included in the allowanceunless it has already been recognized as a loss.

 

In addition to the calculations discussedabove, other qualitative factors are taken into account to arrive at theallowance 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

 

The businesses in which the Company isengaged are highly competitive. The Company competes for customers withcommercial banks and finance and leasing companies based upon its service,finance rates charged and other finance terms. The proportion of John Deereequipment retail sales and leases financed by the Company is influenced byconditions prevailing in the agricultural equipment, commercial and consumerequipment, and construction and forestry equipment industries, in the financialmarkets, and in business generally. The Company financed a significant portionof John Deere equipment retail sales and leases in the U.S. during 2004 and2003.

 

The Company emphasizes convenient service tocustomers and endeavors to offer terms desired in its specialized markets suchas seasonal schedules of repayment and rentals. The Company’s retail notefinance rates and lease rental rates are generally believed to be in the rangeoffered by other sales finance and leasing companies, although not as low asthose of some banks and other lenders and lessors.

 

11

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Regulation

 

In a number of states, state law limits themaximum finance rate on receivables. The present state limitations have not,thus far, significantly limited variable-rate finance charges or the fixed-ratefinance charges established by the Company. However, if interest rate levelsshould increase significantly, maximum state rates could affect the Company bypreventing the variable rates on outstanding variable-rate retail notes fromincreasing above the maximum state rate, and by limiting the fixed rates on newnotes. In some states, the Company may be able to qualify new retail notes fora higher maximum rate limit by using retail installment sales contracts (ratherthan loan contracts) or by using fixed-rate rather than variable-ratecontracts.

 

In addition to rate regulation, various stateand federal laws and regulations apply to some Receivables and Leases,principally retail notes for goods sold for personal, family or household useand Farm Planä, PowerPlanâand John Deere Credit Revolving Plan accounts receivable for such goods. Todate, these laws and regulations have not had a significant adverse effect onthe Company.

 

FPC Financial, f.s.b. (Thrift), awholly-owned subsidiary of the Company, holds a federal charter issued by theOffice of Thrift Supervision (OTS) and is subject to federal regulation andexamination by the OTS. The Thrift is headquartered in Madison, Wisconsin andoffers revolving charge products such as John Deere Credit Revolving Plan, FarmPlanä and PowerPlanâon a nationwide basis.

 

Financing outside the U.S. is affected by avariety of laws, customs and regulations.

 

**Item 2.  Properties.**

 

The Company’s properties principally consistof office equipment, a Company-owned office building in Madison, Wisconsin; andleased office space in Johnston, Iowa; Urbandale, Iowa; Reno, Nevada;Pittsburgh, Pennsylvania; Rosario, Argentina; Brisbane, Australia; Gloucester,England; Bruchsal, Germany; Vignate, Italy; Luxembourg City, Luxembourg;Monterrey, Mexico; and Getafe, Spain.

 

**Item 3.  Legal Proceedings.**

 

The Company is subject to various unresolvedlegal actions which arise in the normal course of its business, the mostprevalent of which relate to state and federal laws and regulations concerningretail credit. Although it is not possible to predict with certainty the outcomeof these unresolved legal actions or the range of possible loss, the Companybelieves these unresolved legal actions will not have a material effect on itsfinancial statements.

 

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

 

Omitted pursuant to instruction I(2).

 

**PART II**

 

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

 

(a)          Allof the Company’s common stock is owned by John Deere Credit Company, a financeholding company that is wholly-owned by Deere & Company. The Companydeclared and paid cash dividends to John Deere Credit Company of$420 million in 2004 and $205 million in 2003. In each case, John DeereCredit Company paid comparable dividends to Deere & Company.

 

(b)         Notapplicable.

 

(c)          Notapplicable.

 

12

----

 

**Item 6.  Selected Financial Data.**

 

Omitted pursuant to instruction I(2).

 

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

 

Results of Operations 

 

Overview

 

Organization

 

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

 

Trends and Economic Conditions

 

The Company’s business is currently affectedby the following key trends and economic conditions. The Company’s business isclosely related to John Deere’s business. Farmers are benefiting from record production of corn and soybeans,strong livestock and dairy sectors, and government payments that are expectedto increase substantially in 2005. As a result, U.S. farm cash receipts areforecast to be about the same in 2005 as the record level in 2004. Deere &Company’s agricultural equipment sales were up 31 percent for 2004 and areforecast to be up approximately 2 to 5 percent in 2005. Construction andforestry markets are expected to be supported in 2005 by moderate economicgrowth, relatively low interest rates and a favorable level of housing starts.Deere & Company’s construction and forestry sales increased 54 percent in2004 and are forecast to increase 6 to 9 percent in 2005. Deere & Company’scommercial and consumer equipment sales increased 16 percent in 2004 and areexpected to increase 2 to 5 percent in 2005 due to new products and highersales of commercial mowing equipment. As a result of the strengthening of Deere& Company’s retail sales, the Company benefited from further growth in theloan portfolio, however net income for 2004 was down slightly as a result oflower margins and an increase in administrative costs, partly related to ahigher provision for performance bonuses in connection with overall enterpriseprofitability. Partially offsetting these factors was a lower provision forcredit losses, reflecting solid portfolio quality. Although the Company expectsto benefit from further growth in the loan portfolio, net income for 2005 isexpected to be down primarily due to increased leverage in the portfolio. TheCompany expects to report net income of approximately $250 million in2005.

 

2004 Compared with 2003

 

Consolidated net income was $270.6 millionfor the year, compared with $280.5 million last year. The lower results for theyear were primarily due to higher administrative costs, partly related to ahigher provision for performance bonuses in connection with overall John Deereprofitability, and lower margins. Partially offsetting these factors was alower provision for credit losses, reflecting solid portfolio quality. Theratio of earnings to fixed charges was 2.23 to 1 for 2004, compared with 2.17to 1 for 2003.

 

Revenues totaled $1,219 million in 2004,compared to $1,297 million a year ago. Revenues decreased primarily reflectinglower rental income from operating leases related to the lower level of leases,and lower average finance rates. Finance income earned on retail notes totaled$384 million in 2004, down $20 million compared to $404 million in 2003.The decrease was primarily due to declining yields earned on the average retailnote portfolio balance, partially offset by higher average retail noteportfolio balances. Lease revenues decreased $67 million to $263 millionin 2004, primarily due to a 22 percent decrease in the average balance ofequipment on operating leases and lower yields. The operating lease levels continueto decrease as a result of more attractive financing options offered on retailnote products in recent years. Revenues earned on revolving charge accountsamounted to $169 million in 2004, an 11 percent increase over revenues of$152 million earned during 2003. The increase was primarily due to growth ofFarm Planä and John DeereCredit Revolving Plan receivables in 2004, compared with 2003. Finance 

 

13

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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 a year ago.

 

The net gains on Receivables sold, includingadjustments to prior sales related to cleanup calls and revaluations ofretained interests and the related permanent impairments, totaled $46 millionduring 2004, compared with $47 million for 2003. The Company sold approximately$2,156 million total principal value during 2004, compared to approximately$1,675 million total principal value in 2003. Although the principal value soldin 2004 increased, the net gain on Receivables sold for 2004 decreasedprimarily due to lower margins. Securitization and servicing fee income totaled$51 million in 2004, compared with $53 million during 2003.Securitization and servicing fee income relates to Receivables sold to otherfinancial institutions or limited-purpose business trusts and primarilyincludes the interest earned on retained interests and reimbursedadministrative expenses received.

 

Interest expense totaled $327 million in2004, compared with $360 million in 2003. The decrease was primarily due to adecrease in the weighted-average annual interest rate incurred on allborrowings from 3.5 percent in 2003 to 3.1 percent in 2004.

 

Administrative and operating expenses totaled$245 million in 2004, compared with $202 million in 2003. The increase wasprimarily due to higher employment costs related in part to a higher provisionfor employee performance bonuses in connection with overall John Deereprofitability, higher postretirement benefits and higher costs associated withadministering a larger Receivable and Lease portfolio.

 

Depreciation of equipment on operating leasesdecreased to $170 million in 2004, compared to $209 million in 2003 as a resultof a lower average amount of equipment on operating leases.

 

Interest and support fees paid to John Deerewere $34 million in 2004, compared to $26 million in 2003. The increasewas primarily due to higher average borrowings from Deere & Company in2004.

 

The provision for credit losses was $32 million in2004, compared with $72 million in 2003. The decrease reflects solid portfolioquality. The Company has experienced lower write-offs of John Deereconstruction and forestry equipment retail notes, revolving charge accounts andfinancing leases. The provision for credit losses, as a percentage of the totalaverage balance of Receivables financed, was .28 percent for 2004 and .64percent for 2003. Total net write-offs of Receivables financed were $34 millionduring 2004, compared with $56 million in 2003.

 

Receivables and Leases Acquired and Held

 

Receivables and Leases acquired by theCompany during 2004 totaled $26,443 million, an increase of 26 percent,compared with volumes of $21,019 million during 2003. These higher volumes in2004 resulted mainly from increased volumes of wholesale receivables, retailnotes, revolving charge accounts and operating loans. Excluding the tradereceivables acquired from John Deere, acquisitions of Receivables and Leaseswere 17 percent higher in 2004 compared to last year. Receivables and Leasesheld by the Company at October 31, 2004 totaled $13,342 million, comparedwith $11,980 million at October 31, 2003. For the 2004 and 2003fiscal years, Receivable and Lease acquisition volumes and balances held wereas follows (in millions of dollars):

 

14

----

 
| ** **                           | ** ** | **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 | % |

 

Retail note volumes increased byapproximately $769 million in 2004, compared with 2003. The increase wasprimarily due to increases in retail sales of John Deere agricultural,construction and forestry and commercial and consumer equipment. Revolvingcharge accounts and operating loan volumes increased primarily as a result ofincreased market coverage. Wholesale receivable volumes increased primarily dueto increased shipments of John Deere equipment as a result of increased retail salesactivity. 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 |   |

 

----

*                                         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 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, 2004and 2003, the Company’s maximum exposure under these agreements wasapproximately $8 million and $10 million, respectively. The Companydoes not 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.

 

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

 

Retail notes bearing fixed finance ratestotaled 80 percent of the total retail note portfolio 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 those 

 

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respective dates. The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer that has any portion of his note 60days or more 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.

 

Deposits withheld from dealers and merchants,representing mainly the aggregate dealer retail note and lease withholdingaccounts from individual John Deere dealers to which losses from retail notesand leases originating from the respective dealers can be charged, amounted to$168 million at October 31, 2004, compared to $160 million at October 31,2003. The Company’s allowance for credit losses on all Receivables financed at October 31,2004 totaled $113 million and represented .89 percent of the total Receivablesfinanced, compared with $124 million and 1.12 percent, respectively, oneyear earlier. The allowance is subject to an ongoing evaluation based on manyquantitative and qualitative factors, including historical loss experience byproduct category, portfolio duration, delinquency trends, economic conditionsand credit risk quality. The Company believes its allowance is sufficient toprovide for losses in its existing receivable portfolio.

 

In December 2003, John Deere acquired amajority interest in Nortrax, Inc. and it was consolidated with John Deere’sfinancial statements. The Company’s wholesale receivables from Nortrax, Inc.,disclosed as “Notes Receivable – unconsolidated affiliates” on the financialstatements, were settled by a cash payment from John Deere in December 2003.In March 2004, John Deere acquired the remaining interests in Nortrax,Inc. and Nortrax Investments, Inc. Further disclosure is included in the notesto the Deere & Company 2004 Annual Report on Form 10-K.

 

2003 Compared with 2002

 

Consolidated net income for the fiscal yearended October 31, 2003 was $280.5 million, compared with $230.6 million in2002. The results for 2003 benefited primarily from lower loan losses, growthin the portfolio and the absence of losses from Argentina related to the pesodevaluation, partially offset by narrower financing spreads, lower gains from alower volume of retail note sales and higher selling, administrative andgeneral expenses. The ratio of earnings to fixed charges was 2.17 to 1 for2003, compared with 1.97 to 1 for 2002.

 

Revenues totaled $1,297 million in 2003,compared to $1,356 million in 2002. Revenues decreased primarily due to lowerlease revenues and the reduction in the net gain on Receivables and Leases soldduring 2003. Finance income earned on retail notes totaled $404 million in2003, down $1 million compared to $405 million in 2002. Lease revenuesdecreased $80 million to $330 million in 2003, primarily due to a 24 percentdecrease in the average balance of equipment on operating leases. Financeincome earned on wholesale receivables increased $18 million, to$239 million in 2003, from $221 million in 2002. This increase wasprimarily due to a 12 percent increase in the average balance of wholesalereceivables, resulting mainly from the Company purchasing European wholesalereceivables (trade receivables) from John Deere beginning in the fourth quarterof 2002. Revenues earned on revolving charge accounts amounted to $152 millionin 2003, a 12 percent increase over revenues of $136 million earned during2002. The increase was primarily due to growth of Farm Planäand John Deere Credit Revolving Plan receivables in 2003, compared with 2002.Revenues earned on operating loans increased 19 percent to $31 million in 2003,from $26 million in 2002, primarily due to a 15 percent increase in the averagebalance of operating loans. Revenues earned from Deere & Company totaled$358 million in 2003 compared to $383 million in 2002. The decrease wasprimarily the result of a reduction in waiver compensation paid by Deere &Company. This compensation paid to the Company is market-based and is intendedto approximate an amount which a third party would be required to pay.

 

The net gains on Receivables and Leases sold,including adjustments to prior sales related to cleanup calls and revaluationsof retained interests and the related permanent impairments, totaled $47million during 2003, compared with $82 million for 2002. The lower net gain for2003 was primarily due to decreased sales of agricultural and construction andforestry retail notes. The Company sold approximately $1,675 million totalprincipal value during 2003, compared to approximately $2,895 million totalprincipal value in 2002. Securitization and servicing fee income totaled $53million in 2003, compared with $46 million during 2002. The increase wasprimarily due to higher 

 

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accretable yields on the securitized receivables in 2003 compared to2002. Securitization and servicing fee income relates to Receivables and Leasessold to other financial institutions or limited-purpose business trusts andprimarily includes the interest earned on retained interests and reimbursedadministrative expenses received. Additional sales of Receivables and Leasesare expected to be made in the future.

 

Interest expense totaled $360 million in2003, compared with $363 million in 2002. This decrease was primarily due to adecrease in the weighted-average annual interest rate incurred on allborrowings from 3.9 percent in 2002 to 3.5 percent in 2003, partially offset bya 13 percent increase in average borrowings from $9,278 million in 2002 to $10,497million in 2003.

 

Administrative and operating expenses totaled$202 million in 2003, compared with $209 million in 2002. This decrease wasprimarily due to the absence in 2003 of the $22 million loss related to theArgentine peso devaluation in 2002, partially offset by higher postretirementbenefit costs and higher costs associated with administering a largerReceivable and Lease portfolio.

 

Depreciation of equipment on operating leasesdecreased to $209 million in 2003, compared to $255 million in 2002 as a resultof a lower average amount of equipment on operating leases, partially offset bylower residual values on newly originated operating leases. Interest andsupport fees paid to John Deere were $26 million in 2003, compared to$30 million in 2002. The decrease was primarily due to the decreasedaverage borrowings from Deere & Company in 2003.

 

The provision for credit losses was $72 million in2003, compared with $127 million in 2002. The decrease was primarily due to a$45 million loan-loss provision taken during 2002 related to two internationaltrade finance customers, Allied Deals, Inc. and one of its affiliates(collectively called “Allied Deals”). The provision for credit losses, as apercentage of the total average balance of Receivables financed, was .64percent for 2003 and 1.31 percent for 2002. Total net write-offs of Receivablesfinanced were $56 million during 2003, compared with $106 million in 2002.The decrease in net write-offs was primarily due to the default of Allied Dealsin 2002.

 

Receivables and Leases Acquired and Held

 

Receivables and Leases acquired by theCompany during 2003 totaled $21,019 million, an increase of 22 percent,compared with volumes of $17,235 million during 2002. These higher volumes in2003 resulted mainly from increased volumes of retail notes, wholesalereceivables, revolving charge accounts and operating loans, partially offset bydecreases in operating and financing lease volumes. Excluding the balance oftrade receivables from John Deere at October 31, 2003, acquisitions ofReceivables and Leases were 13 percent higher in 2003 compared to 2002.Receivables and Leases held by the Company at October 31, 2003 totaled$11,980 million, compared with $11,359 million at October 31, 2002.For the 2003 and 2002 fiscal years, Receivable and Lease acquisition volumesand balances held were as follows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **2003**                | ** ** | **2002**                        | ** ** | **% Change** | ** ** | **2003** | ** ** | **2002** | ** ** | **% Change** | ** ** |
| Retail  notes:                       |       |                    |       |                            |       |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                       | 3,346.0    |                            | $          | 3,212.6 |   | 4 | % | $ | 3,954.0 |   | $ | 3,304.7 |   | 20 | % |
| Construction  and forestry equipment |       | 938.8                   |       | 853.1                           |       | 10 |   | 1,195.6 |   | 1,198.2 |   | 0 |   |
| Commercial  and consumer equipment   |       | 535.6                   |       | 414.4                           |       | 29 |   | 908.7 |   | 729.8 |   | 25 |   |
| Recreational  products               |       |                    |       |                            |       |   |   | 51.4 |   | 79.0 |   | (35 | ) |
| Total retail  notes                  |       | 4,820.4                 |       | 4,480.1                         |       | 8 |   | 6,109.7 |   | 5,311.7 |   | 15 |   |
| Revolving  charge accounts           |       | 2,858.4                 |       | 2,253.5                         |       | 27 |   | 1,117.4 |   | 896.0 |   | 25 |   |
| Operating  loans                     |       | 1,424.2                 |       | 1,070.7                         |       | 33 |   | 541.4 |   | 561.2 |   | (4 | ) |
| Wholesale  receivables               |       | 11,471.8                |       | 8,888.8                         |       | 29 |   | 2,904.6 |   | 2,942.2 |   | (1 | ) |
| Financing  leases                    |       | 169.3                   |       | 190.0                           |       | (11 | ) | 427.3 |   | 467.5 |   | (9 | ) |
| Equipment on  operating leases       |       | 274.7                   |       | 351.6                           |       | (22 | ) | 879.2 |   | 1,180.0 |   | (25 | ) |
| Total  Receivables and Leases        |       | $                       | 21,018.8   |                            | $          | 17,234.7 |   | 22 | % | $ | 11,979.6 |   | $ | 11,358.6 |   | 5 | % |

 

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Retail note volumes increased byapproximately $340 million in 2003, compared with 2002. The increase wasprimarily due to increases in retail sales of John Deere agricultural,construction and forestry and commercial and consumer equipment. Revolvingcharge account volumes increased primarily as a result of incentive programsoffered and increased market coverage. Operating loan volumes increasedprimarily due to additional sales personnel increasing market coverage.Wholesale receivable volumes increased in 2003 primarily as a result of theCompany purchasing European wholesale receivables (trade receivables) from JohnDeere beginning in the fourth quarter of 2002. Lease volumes decreased due tothe more attractive financing options available for retail note products.

 

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

 
| ** **                                  | ** ** | **October 31,  2003** | ** ** | **October 31,  2002** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Receivables  and Leases administered:**   |       |                       |       |                       |       |
| Owned by the  Company                       |       | $                          | 11,979.6   |                       | $          | 11,358.6 |   |
| Sold and  serviced - with limited recourse* |       | 2,559.4                    |       | 2,481.6                    |       |
| Sold and  serviced - without recourse**     |       | 35.4                       |       | 51.6                       |       |
| Total  Receivables and Leases administered  |       | $                          | 14,574.4   |                       | $          | 13,891.8 |   |

 

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*                                         The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2003 and 2002 was $221 million and $204 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, 2003and 2002, the Company’s maximum exposure under these agreements wasapproximately $10 million and $7 million, respectively. The Companydid not record the recourse obligations as liabilities as they were 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.

 

Retail notes bearing fixed finance ratestotaled 76 percent of the total retail note portfolio at October 31, 2003and 2002.

 

Total Receivable amounts 60 days or more past duerepresent the amount of all customer payments past due 60 days or more.These amounts were $48 million at October 31, 2003, compared with $45million at October 31, 2002. In addition, these past due amountsrepresented .43 percent and .44 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 $96 million and $111 million at October 31, 2003and 2002, respectively. The balances of retail notes held on which any installmentwas 60 days or more past due as a percentage of the ending retail notesreceivable was 1.57 percent at October 31, 2003 and2.09 percent at October 31, 2002. See Note 3 to the ConsolidatedFinancial Statements for additional past due information.

 

Deposits withheld from dealers and merchants,representing mainly the aggregate dealer retail note and lease withholdingaccounts from individual John Deere dealers to which losses from retail notesand leases originating from the respective dealers can be charged, amounted to$160 million at October 31, 2003, compared to $138 million at October 31,2002. The Company’s allowance for credit losses on all Receivables financed at October 31,2003 totaled $124 million and represented 1.12 percent of the total Receivablesfinanced, compared with $118 million and 1.16 percent, respectively, oneyear earlier. The allowance is subject to an ongoing evaluation based oncollection experience, economic conditions and credit risk quality. The Companybelieves its allowance is sufficient to provide for losses in its existingreceivable portfolio.

 

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Capital Resources and Liquidity

 

The Company relies on its ability to raisesubstantial amounts of funds to finance its Receivable and Lease portfolios.During 2004, the Company issued $1,824 million of term debt, obtained a $1,000million term loan from Deere & Company, maintained an average commercialpaper balance of $1,454 million and received proceeds of $2,219 million fromsales of Receivables. At October 31, 2004, the Company’s fundingprofile included $1,554 million of commercial paper, $1,241 million ofintercompany loans from Deere & Company, $8,665 million of unsecured termdebt, $2,955 million of securitization funding and $1,807 million of equitycapital. The Company’s funding profile may be altered to reflect such factorsas relative costs of funding sources, assets available for securitizations andcapital market accessibility. During 2004 and 2003, $2,219 million and $1,730million, respectively, of funding was sourced from 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 $485 million in 2004.Cash provided by financing activities totaled $475 million resulting from a netincrease in payables to Deere & Company, partially offset by dividends paidto John Deere Credit Company, which in turn paid comparable dividends to Deere& Company. Net cash used for investing activities totaled $1,102 million in2004, primarily due to Receivable and Lease acquisitions exceeding collections,which was partially offset by proceeds from the sale of Receivables. Cash andcash equivalents decreased $133 million during 2004.

 

Over the past three years, operatingactivities provided $1,628 million in cash. In addition, the sale ofReceivables and Leases provided $8,072 million and an increase in total netborrowings provided $573 million. These amounts were used mainly to fundReceivable and Lease acquisitions, which exceeded collections by $9,811million, and to pay $975 million in dividends.

 

Because of the multiple funding sources thathave been and continue to be available to the Company, the Company expects tohave sufficient sources of liquidity to meet its ongoing funding needs. TheCompany’s commercial paper outstanding at October 31, 2004 and 2003 wasapproximately $1,554 million and $1,692 million, respectively, while thetotal cash and cash equivalents position was $210 million and$343 million, respectively. Additionally, the Company had access toapproximately $2,915 million and $4,009 million at October 31, 2004and 2003, 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, and 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.

 

The Company’s ability to obtain funds isaffected by its debt ratings, which are closely related to the outlook for andthe financial condition of Deere & Company, and the nature and availabilityof support facilities, such as its lines of credit. For information regardingDeere & Company and its business, see Business of John Deere, Outlook forJohn Deere, Relationships of the Company with John Deere above and Exhibit 99.

 

To access public debt capital markets, theCompany relies on selected credit rating agencies to assign short-term andlong-term credit ratings to the Company’s securities as an indicator of creditquality for fixed income investors. A security rating is not a recommendationby the rating agency to buy, sell or hold Company securities.  A credit rating agency may change or withdrawCompany ratings based on its assessment of the Company’s current and futureability to meet interest and principal repayment obligations. Lower creditratings generally result in higher borrowing costs and reduced access to debtcapital markets.

 

The senior long-term and short-term debt ratings andoutlook assigned to Company securities by rating agencies engaged by theCompany are the same as those for Deere & Company. Those ratings are asfollows:

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

 

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Total interest-bearing indebtedness amountedto $11,467 million at October 31, 2004, compared with $10,423 millionat October 31, 2003, generally corresponding with the level of Receivablesand Leases financed and the level of cash and cash equivalents. Totalshort-term indebtedness amounted to $3,990 million at October 31, 2004,compared with $3,516 million at October 31, 2003 while total long-termindebtedness amounted to $7,477 million at October 31, 2004 and $6,907million at October 31, 2003. The ratio of total interest-bearing debt tostockholder’s equity was 6.3 to 1 and 5.4 to 1 at October 31, 2004 and2003, respectively.

 

During 2004, the Company redeemed $150million of 8-5/8% Subordinated Debentures due August 2019. The redemptionprice was equal to the par value plus accrued interest. The Company also issued$1,824 million and retired $1,763 million of other borrowings during theyear, which were primarily medium-term notes.

 

The Company’s ability to meet its debtobligations is supported in a number of ways. All commercial paper issued isbacked by unsecured, committed bank credit lines from various banks. The assetsof the Company are self-liquidating in nature. A strong equity position isavailable to absorb unusual losses on these assets. Liquidity is also providedby the Company’s ability to sell these assets. The Company also maintainsuncommitted, unsecured lines of credit with various banks. See Note 6 to theConsolidated Financial Statements.

 

Stockholder’s equity was $1,807 million at October 31,2004, compared with $1,933 million and $1,812 million at October 31,2003 and 2002, respectively.  Thedecrease in 2004 was primarily due to dividend payments of $420 million,partially offset by net income of $271 million and a decrease in the unrealizedloss on derivatives of $14 million. Unrealized losses occur on cash flow hedgeswhen rates decline. Recent rate increases reduced the unrealized loss in 2004.As a result of the Company’s match-funding policy, the Company has entered intointerest rate swaps (pay fixed/receive floating rates) hedging the interestcosts of the Company’s floating rate borrowings. If interest rates remainunchanged, the unrealized loss will be realized in income and will be offset bythe lower interest expense on the floating rate borrowings, effectivelyproviding fixed rate funding.

 

The Capital Corporation declared and paidcash dividends to John Deere Credit Company of $420 million in 2004 and $205million in 2003. In each case, John Deere Credit Company paid comparabledividends to Deere & Company.

 

The financing of retail purchases and leases of JohnDeere products and of wholesale receivables owed by John Deere dealersrepresented approximately 82 percent of the Company’s acquisition volume for2004, compared with 79 percent for 2003. Any extended reduction or suspensionof John Deere’s sale or production of products due to a decline in demand orproduction, technological difficulties, governmental actions or other eventscould have an adverse effect on the Company’s acquisition volume of Receivablesand Leases.

 

# Safe Harbor Statement

 

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

 

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# Off-Balance Sheet Arrangements

 

The Company periodically securitizes andsells retail notes to special purpose entities (SPEs) in securitizations ofretail notes.  The Company uses SPEs in amanner consistent with conventional practices in the securitization industry toisolate the retail notes for the benefit of securitization investors. The useof the SPEs enables the Company to access the highly liquid and efficientsecuritization markets for the sales of these types of financial assets. Theamounts of funding from securitizations reflects such factors as capital marketaccessibility, relative costs of funding sources and assets available forsecuritization. Based on an assessment of these and other factors, the Company received$2,146 million of funding and recognized a pretax gain of $45 million relatedto these securitizations during 2004. The Company’s total exposure to recourseprovisions related to securitized retail notes was $202 million and the totalassets held by SPEs related to securitizations were $3,166 million at October 31,2004.

 

At October 31, 2004, the Company hadguaranteed approximately $30 million of residual value related to propertybeing used by the Company under an operating lease. The Company is obligated atthe end of the lease term to pay to the lessor any reduction in market value ofthe leased property up to the guaranteed residual value. The Company recognizesthe expense for this future estimated lease payment over the life of theoperating lease and had accrued expenses of $5 million related to thisagreement at October 31, 2004. The lease term expires in 2007.

 

# 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 along withagreements 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*           |       | $         | 11,233     |                  | $          | 3,990                |       | $                    | 3,678      |                   | $          | 1,390 |   | $ | 2,175 |   |
| Purchase  obligations |       | 7         |       | 3                     |       | 4                    |       |                 |       |                   |       |
| Operating  leases     |       | 41        |       | 2                     |       | 35                   |       | 4                    |       |                   |       |
| Total  obligations    |       | $         | 11,281     |                  | $          | 3,995                |       | $                    | 3,717      |                   | $          | 1,394 |   | $ | 2,175 |   |

 

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*                                         Principalpayments

 

# 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 assessedquarterly.  Different assumptions orchanges in economic conditions would result in changes to the allowance forcredit losses and the provision for credit losses.

 

The total allowance for credit losses at October 31,2004, 2003, and 2002 were $113 million, $124 million, and $118 million,respectively.  The decrease in 2004 wasprimarily due to improved credit quality and delinquency trends.  The increase in 2003 was primarily due to theincrease in receivables.

 

The assumptions used in evaluating theCompany’s exposure to credit losses involve estimates and significant judgment.The historical loss experience on the Receivable portfolios represents one ofthe key 

 

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assumptions involved in determining the allowance for credit losses.Over the last five fiscal years, the average loss experience has fluctuatedbetween 1 basis point and 11 basis points in any given fiscal year over theapplicable prior period. Holding other estimates constant, a 5 basis pointincrease or decrease in estimated loss experience on the Receivable portfolioswould result in an increase or decrease of approximately $6 million to theallowance for credit losses at October 31, 2004.

 

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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).  Upontermination of the lease, the equipment is either purchased by the lessee orsold to a third party, in which case the Company may record a gain or a lossfor the difference between the estimated residual value and the salesprice.  The residual values are dependenton 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.

 

The total operating lease residual values at October 31,2004, 2003, and 2002 were $461 million, $587 million, and $801 million,respectively.  The decreases in 2004 and2003 were primarily due to decreases in the level of operating leases.

 

Estimates used in determining end of leasemarket values for equipment on operating leases significantly impact the amountand timing of depreciation expense.  Iffuture market values for equipment were to decrease 5 percent from theCompany’s present estimates, the total impact would be to increase the Company’sdepreciation on equipment on operating leases by approximately $23 million.This amount would be charged to depreciation expense during the remaining leaseterms such that the net investment in operating leases at the end of the leaseterms would be equal to the revised residual values. Initial lease termsgenerally range from three to five years.

 

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

 

# Financial Instrument RiskInformation

 

The Company is naturally exposed to variousinterest rate and foreign currency risks. As a result, the Company enters intoderivative transactions to manage certain of these exposures that arise in thenormal course of business and not for the purpose of creating speculativepositions or trading. The Company manages the relationship of the types andamounts of its funding sources to its Receivable and Lease portfolios in aneffort to diminish risk due to interest rate and foreign currency fluctuations,while responding to favorable financing opportunities. Accordingly, from timeto time, the Company enters into interest rate swap agreements to manage itsinterest rate exposure. The Company also has foreign currency exposures at someof its foreign and domestic operations related to financing in currencies otherthan the local currencies. The Company has entered into agreements related tothe management of these currency transaction risks. The credit risk under theseinterest rate and foreign currency agreements is not considered to besignificant. See Note 17 to the Consolidated Financial Statements foradditional detailed financial instrument information.

 

# Interest Rate Risk

 

Quarterly, the Company uses a combination ofcash flow models to assess the sensitivity of its financial instruments withinterest rate exposure to changes in market interest rates. The modelscalculate the effect of adjusting interest rates as follows. Cash flows forfinancing receivables are discounted at the current prevailing rate for eachreceivable portfolio. Cash flows for borrowings are discounted at the treasuryyield curve plus a market credit spread for similarly rated borrowers. Cashflows for interest rate swaps are projected and discounted using forecastedrates from the swap yield curve at the repricing dates. The net loss in thesefinancial instruments’ fair values which would be caused by increasing theinterest rates by 10 percent from the market rates at October 31, 2004 andOctober 31, 2003 would have been approximately $38 million and $25million, respectively.

 

# Foreign Currency Risk

 

The Company’s policy is to hedge the foreigncurrency risk if the currency of the borrowings does not match the currency ofthe receivable portfolio.  As a result, ahypothetical 10 percent adverse change in the value of the U.S. dollar relativeto all other foreign currencies would not have a material effect on the Company’scash flows.

 

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**Item 8.  Financial Statements and Supplementary Data.**

 

See accompanying table of contents offinancial statements.

 

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

 

Not applicable.

 

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

 

The Company’s principal executive officer andits principal financial officer have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934, as amended (“the Act”)) were effective as of October 31,2004, based on the evaluation of these controls and procedures required by Rule13a-15(b) or 15d-15(b) of the Act.

 

**PART III**

 

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

 

Omitted pursuant to instruction I(2).

 

**Item 11.  Executive Compensation.**

 

Omitted pursuant to instruction I(2).

 

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

 

Omitted pursuant to instruction I(2).

 

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

 

Omitted pursuant to instruction I(2).

 

**Item 14.  Principal Accountant Fees and Services.**

 

For the years ended October 31, 2004 and 2003,professional services were performed by Deloitte & Touche LLP, the memberfirms 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, 2004 and 2003, were $1,209 thousand and $1,039 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, 2004 and 2003, were $190 thousand and $122 thousand,respectively. These services included various attest services.  Audit related fees for the fiscal year endedOctober 31, 2004 included general assistance with the implementation of the SECrules pursuant to the Sarbanes-Oxley Act of 2002.

 

24

----

 

Tax Fees

 

The aggregate fees billed for professional servicesprovided by Deloitte & Touche in connection with tax compliance, tax adviceand tax planning services for the fiscal years ended October 31, 2004 and2003 were $57 thousand and $85 thousand, respectively.

 

All Other Fees

 

There were no aggregate fees billed for services not included above forthe fiscal year ended October 31, 2004. There were $1 thousand of feesrelated to assistance with the computation of payroll taxes for aninternational subsidiary for the fiscal year ended October 31, 2003.

 

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 external auditor aresubject to Deere & Company’s Audit Review Committee pre-approval policiesand procedures as described in the Deere & Company 2004 proxystatement.  During the fiscal year endedOctober 31, 2004, all services provided by the external auditor werepre-approved by Deere & Company’s Audit Review Committee in accordance withsuch policy.

 

## **PARTIV**

 

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

 

(1)                                  Financial Statements

 

(2)                                  Financial StatementSchedules

 

See the table of contents to financialstatements and schedules immediately preceding the financial statements andschedules to consolidated financial statements.

 

(3)                                  Exhibits

 

See the index to exhibits immediatelypreceding the exhibits filed with this report.

 

25

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

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

 

 

Date:                    December 22,2004

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedate indicated.

 

Each person signing below also herebyappoints Robert W. Lane, Jon D. Volkert and James H. Becht, and each of themsingly, his or her lawful attorney-in-fact with full power to execute and fileany and all amendments to this report together with exhibits thereto andgenerally to do all such things as such attorney-in-fact may deem appropriateto enable John Deere Capital Corporation to comply with the provisions of theSecurities Exchange Act of 1934 and all requirements of the Securities andExchange 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 22,  2004 |
|          | David C. Everitt          |      |       | )                       |   |
|          |                      |      | )          |                    |
|          |                      |      | )          |                    |
| */s/*         | *James R. Jabanoski*      | * *  | * *   | Director                | ) |   |
|          |  James  R. Jabanoski |      |       | )                       |   |
|          |                      |      | )          |                    |
|          |                      |      | )          |                    |
| */s/*         | *John J. Jenkins*         | * *  | * *   | Director                | ) |   |
|          |  John  J. Jenkins    |      |       | )                       |   |

 

26

----

 
| **Signature** | ** **            | **Title** | ** **                      | **Date**                                 |
|---------------|-----------------------|-----------|---------------------------------|------------------------------------------|
|          |                  |      |                            |                                     |
| */s/*         | *Nathan J. Jones*     | * *  | * *                        | Director, Senior Vice President Director | ) |   |
|          | Nathan J. Jones       |      | and Principal Financial Officer | )                                        |   |
|          |                  |      |                            |                                     | ) |   |
|          |                  |      |                            |                                     | ) |   |
| */s/*         | *Pierre  E. Leroy*    | * *  | * *                        | Director                                 | ) |   |
|          | Pierre E. Leroy       |      |                            | )                                        |   |
|          |                  |      |                            |                                     | ) |   |
|          |                  |      |                            |                                     | ) |   |
| */s/*         | *H. J. Markley*       | * *  | * *                        | Director                                 | ) |   |
|          | H. J. Markley         |      |                            | )                                        |   |
|          |                  |      |                            |                                     | ) | December 22,  2004 |
|          |                  |      |                            |                                     | ) |   |
| */s/*         | *Stephen Pullin*      | * *  | * *                        | Director                                 | ) |   |
|          | Stephen Pullin        |      |                            | )                                        |   |
|          |                  |      |                            |                                     | ) |   |
|          |                  |      |                            |                                     | ) |   |
| */s/*         | *Lawrence W. Sidwell* | * *  | * *                        | Director                                 | ) |   |
|          | Lawrence W. Sidwell   |      |                            | )                                        |   |
|          |                  |      |                            |                                     | ) |   |
|          |                  |      |                            |                                     | ) |   |
| */s/*         | *Jon D. Volkert*      | * *  | * *                        | Director and President                   | ) |   |
|          | Jon D. Volkert        |      |                            | )                                        |   |

 

27

----

 

## **Tableof Contents**

 
| **Financial Statements:** |                                                               |
|---------------------------|--------------------------------------------------------------------|
|                      |                                                               |
|                      | John Deere Capital Corporation and  Subsidiaries:                  |   |
|                      |                                                               |   |
|                      | Statements of Consolidated Income and  Retained Earnings           |   |
|                      | For the Years Ended October 31, 2004, 2003 and 2002           |   |
|                      |                                                               |   |
|                      | Consolidated Balance Sheets, as of October 31,  2004 and 2003 |   |
|                      |                                                               |   |
|                      | Statements of Consolidated Cash Flows                              |   |
|                      | For the Years Ended October 31, 2004,  2003 and 2002          |   |
|                      |                                                               |   |
|                      | Statement of Changes in Consolidated  Stockholder’s Equity    |   |
|                      | For the Years Ended October 31, 2002, 2003 and 2004           |   |
|                      |                                                               |   |
|                      | Notes to Consolidated Financial Statements                         |   |

 

 

**SCHEDULES OMITTED**

 

The following schedules are omitted becauseof the absence of conditions under which they are required or because therequired information is included in the Notes to the Consolidated FinancialStatements:

 

I, II, III, IV, and V.

 

28

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[Letterhead]

 
|   | Deloitte & Touche LLP |
|--------|---------------------------|
|   | Two Prudential Plaza      |
|   | 180 North Stetson Avenue  |
|   | Chicago, Illinois 60601   |

 

REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

John Deere Capital Corporation:

 

We have audited theaccompanying consolidated balance sheets of John Deere Capital Corporation andsubsidiaries as of October 31, 2004 and 2003 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, 2004. 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 audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, 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 atOctober 31, 2004 and 2003 and the results of their operations and their cashflows for each of the three years in the period ended October 31, 2004 inconformity with accounting principles generally accepted in the United Statesof America.

 

 

DELOITTE & TOUCHE LLP

Chicago, Illinois

 

December 17, 2004

 

29

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

**Statementsof Consolidated Income and Retained Earnings**

**For theYears Ended October 31, 2004, 2003 and 2002**

(in millions)

 
| ** **                                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues**                                              |       |     |       |     |       |     |       |
| Finance  income earned on retail notes                    |       | $        | 384.4      |     | $          | 403.6    |       | $ | 404.6 |   |
| Lease  revenues                                           |       | 262.6    |       | 329.9    |       | 410.2    |       |
| Revolving  charge account income                          |       | 168.6    |       | 151.6    |       | 136.2    |       |
| Finance  income earned on wholesale receivables           |       | 244.7    |       | 239.0    |       | 220.7    |       |
| Operating  loan income                                    |       | 22.8     |       | 30.8     |       | 25.8     |       |
| Securitization  and servicing fee income                  |       | 50.7     |       | 52.5     |       | 46.5     |       |
| Net gain on  receivables sold                             |       | 46.2     |       | 46.6     |       | 82.1     |       |
| Other income                                              |       | 39.2     |       | 42.9     |       | 29.4     |       |
| Total  revenues                                           |       | 1,219.2  |       | 1,296.9  |       | 1,355.5  |       |
| **Expenses**                                              |       |     |       |     |       |     |       |
| Interest  expense                                         |       | 327.4    |       | 360.1    |       | 363.2    |       |
| Operating  expenses:                                      |       |     |       |     |       |     |       |
| Administrative  and operating expenses                    |       | 244.7    |       | 202.4    |       | 208.7    |       |
| Provision  for credit losses                              |       | 32.3     |       | 72.2     |       | 126.9    |       |
| Fees paid to  John Deere                                  |       | 34.4     |       | 25.5     |       | 30.4     |       |
| Depreciation  of equipment on operating leases            |       | 169.8    |       | 208.8    |       | 255.3    |       |
| Total  operating expenses                                 |       | 481.2    |       | 508.9    |       | 621.3    |       |
| Total  expenses                                           |       | 808.6    |       | 869.0    |       | 984.5    |       |
| **Income  of consolidated group before income taxes**     |       | 410.6    |       | 427.9    |       | 371.0    |       |
| **Provision  for income taxes**                           |       | 140.6    |       | 147.7    |       | 136.6    |       |
| **Income  of consolidated group**                         |       | 270.0    |       | 280.2    |       | 234.4    |       |
| **Equity  in income (loss) of unconsolidated affiliates** |       | .6       |       | .3       |       | (3.8     | )          |
| **Net  income**                                           |       | 270.6    |       | 280.5    |       | 230.6    |       |
| **Cash  dividends paid**                                  |       | (420.0   | )          | (205.0   | )          | (350.0   | )          |
| **Retained  earnings at beginning of the year**           |       | 1,119.4  |       | 1,043.9  |       | 1,163.3  |       |
| **Retained  earnings at end of the year**                 |       | $        | 970.0      |     | $          | 1,119.4  |       | $ | 1,043.9 |   |

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of this statement.

 

30

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**JohnDeere Capital Corporation and Subsidiaries**

**ConsolidatedBalance Sheets**

**As of October 31,2004 and 2003**

(in millions)

 
| ** **                                                                                                   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Assets**                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and  cash equivalents                                                                                   |       | $          | 209.5      |       | $          | 342.5 |   |
| Receivables:                                                                                                 |       |       |       |       |       |
| Retail notes                                                                                                 |       | 6,873.7    |       | 6,109.7    |       |
| Revolving  charge accounts                                                                                   |       | 1,443.8    |       | 1,117.4    |       |
| Operating  loans                                                                                             |       | 380.5      |       | 541.4      |       |
| Wholesale  receivables                                                                                       |       | 3,480.5    |       | 2,904.6    |       |
| Financing  leases                                                                                            |       | 406.0      |       | 427.3      |       |
| Total  receivables                                                                                           |       | 12,584.5   |       | 11,100.4   |       |
| Allowance  for credit losses                                                                                 |       | (112.6     | )          | (123.8     | )          |
| Total  receivables – net                                                                                |       | 12,471.9   |       | 10,976.6   |       |
| Notes  receivable – unconsolidated affiliates                                                           |       |       |       | 274.3      |       |
| Other receivables                                                                                            |       | 121.1      |       | 142.9      |       |
| Equipment on  operating leases – net                                                                    |       | 757.6      |       | 879.2      |       |
| Investments  in unconsolidated affiliates                                                                    |       | 3.9        |       | 3.0        |       |
| Other assets                                                                                                 |       | 324.7      |       | 337.1      |       |
| **Total  Assets**                                                                                            |       | $          | 13,888.7   |       | $          | 12,955.6 |   |
|                                                                                                         |       |       |       |       |       |
| **Liabilities  and Stockholder’s Equity**                                                               |       |       |       |       |       |
| Short-term  borrowings:                                                                                      |       |       |       |       |       |
| Commercial  paper                                                                                            |       | $          | 1,553.8    |       | $          | 1,691.8 |   |
| Other notes  payable                                                                                         |       | 6.7        |       | 66.4       |       |
| John Deere                                                                                                   |       | 1,241.2    |       | 166.0      |       |
| Current  maturities of long-term borrowings                                                                  |       | 1,187.8    |       | 1,592.2    |       |
| Total  short-term borrowings                                                                                 |       | 3,989.5    |       | 3,516.4    |       |
| Accounts  payable and accrued liabilities:                                                                   |       |       |       |       |       |
| Accrued  interest on debt                                                                                    |       | 67.3       |       | 65.1       |       |
| Other  payables                                                                                              |       | 380.7      |       | 374.2      |       |
| Total  accounts payable and accrued liabilities                                                              |       | 448.0      |       | 439.3      |       |
| Deposits  withheld from dealers and merchants                                                                |       | 167.6      |       | 159.5      |       |
| Long-term  borrowings:                                                                                       |       |       |       |       |       |
| Senior debt                                                                                                  |       | 7,476.7    |       | 6,757.4    |       |
| Subordinated  debt                                                                                           |       |       |       | 150.0      |       |
| Total  long-term borrowings                                                                                  |       | 7,476.7    |       | 6,907.4    |       |
| Total  liabilities                                                                                           |       | 12,081.8   |       | 11,022.6   |       |
| Stockholder’s  equity:                                                                                  |       |       |       |       |       |
| Common  stock, without par value (issued and outstanding - 2,500 shares owned by John  Deere Credit Company) |       | 812.8      |       | 812.8      |       |
| Retained  earnings                                                                                           |       | 970.0      |       | 1,119.4    |       |
| Cumulative  translation adjustment                                                                           |       | 23.7       |       | 13.5       |       |
| Unrealized  loss on derivatives                                                                              |       | (5.1       | )          | (19.3      | )          |
| Unrealized  gain on investments                                                                              |       | 5.5        |       | 6.6        |       |
| Total  accumulated other comprehensive income                                                                |       | 24.1       |       | .8         |       |
| Total  stockholder’s equity                                                                             |       | 1,806.9    |       | 1,933.0    |       |
| **Total  Liabilities and Stockholder’s Equity**                                                         |       | $          | 13,888.7   |       | $          | 12,955.6 |   |

 

The accompanying Notes toConsolidated Financial Statements are an integral part of this statement.

 

31

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**John DeereCapital Corporation and Subsidiaries**

**Statementsof Consolidated Cash Flows**

**For theYears Ended October 31, 2004, 2003 and 2002**

(in millions)

 
| ** **                                                                         | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| **Cash  Flows from Operating Activities:**                                         |       |      |       |      |       |      |       |
| Net income                                                                         |       | $         | 270.6      |      | $          | 280.5     |       | $ | 230.6 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |      |       |      |       |      |       |
| Provision  for credit losses                                                       |       | 32.3      |       | 72.2      |       | 126.9     |       |
| Provision for  depreciation and amortization                                       |       | 175.9     |       | 214.9     |       | 260.8     |       |
| Provision  for deferred income taxes                                               |       | 1.9       |       | 14.7      |       | 20.5      |       |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.6       | )          | (.3       | )          | 3.8       |       |
| Other                                                                              |       | 4.6       |       | (90.6     | )          | 9.0       |       |
| Net cash  provided by operating activities                                         |       | 484.7     |       | 491.4     |       | 651.6     |       |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Investing Activities:**                                         |       |      |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (26,084.3 | )          | (20,744.1 | )          | (16,883.1 | )          |
| Collections  of receivables                                                        |       | 22,528.5  |       | 18,254.7  |       | 14,101.8  |       |
| Cost of  operating leases acquired                                                 |       | (358.3    | )          | (274.7    | )          | (351.6    | )          |
| Proceeds  from sales of equipment on operating leases                              |       | 332.7     |       | 405.5     |       | 416.9     |       |
| Change in  notes receivable - unconsolidated affiliates                            |       | 274.3     |       | (14.5     | )          | 54.1      |       |
| Proceeds  from sales of receivables                                                |       | 2,219.3   |       | 1,729.7   |       | 2,967.8   |       |
| Acquisitions  of businesses                                                        |       |      |       |      |       | (9.7      | )          |
| Other                                                                              |       | (14.2     | )          | (1.0      | )          | (92.1     | )          |
| Net cash  provided by (used for) investing activities                              |       | (1,102.0  | )          | (644.4    | )          | 204.1     |       |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Financing Activities:**                                         |       |      |       |      |       |      |       |
| Increase  (decrease) in commercial paper                                           |       | (179.1    | )          | 204.1     |       | (970.3    | )          |
| Increase  (decrease) in other notes payable                                        |       | (62.9     | )          | 31.8      |       | 16.2      |       |
| Increase  (decrease) in payable with John Deere                                    |       | 1,075.2   |       | (515.8    | )          | (872.9    | )          |
| Proceeds  from issuance of long-term borrowings                                    |       | 1,824.2   |       | 2,992.0   |       | 3,502.1   |       |
| Principal  payments on long-term borrowings                                        |       | (1,762.6  | )          | (2,175.1  | )          | (2,533.8  | )          |
| Dividends  paid                                                                    |       | (420.0    | )          | (205.0    | )          | (350.0    | )          |
| Net cash  provided by (used for) financing activities                              |       | 474.8     |       | 332.0     |       | (1,208.7  | )          |
|                                                                               |       |      |       |      |       |      |       |
| **Effect  of exchange rate changes on cash**                                       |       | 9.5       |       | 15.7      |       | (1.4      | )          |
| **Net  increase (decrease) in cash and cash equivalents**                          |       | (133.0    | )          | 194.7     |       | (354.4    | )          |
| **Cash and  cash equivalents at the beginning of year**                            |       | 342.5     |       | 147.8     |       | 502.2     |       |
| **Cash and  cash equivalents at the end of year**                                  |       | $         | 209.5      |      | $          | 342.5     |       | $ | 147.8 |   |

 

The accompanying Notes to ConsolidatedFinancial Statements are an integral part of this statement.

 

32

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**John DeereCapital Corporation and Subsidiaries**

**Statementof Changes in Consolidated Stockholder’s Equity**

**For theYears Ended October 31, 2002, 2003 and 2004**

(in millions)

 
| ** **                         | ** ** | **Total  Equity** | ** ** | **Common  Stock** | ** ** | **Retained  Earnings** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|-----------------------------------------|------------|
|                               |       |              |       |              |       |                   |       |                                    |       |
| **Balance October 31,  2001** |       | $                 | 1,906.6    |              | $          | 812.8                  |       | $                                       | 1,163.3    |   | $ | (69.5 | ) |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                    |       |
| Net income                         |       | 230.6             |       |              |       | 230.6                  |       |                                    |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment |       | 5.7               |       |              |       |                   |       | 5.7                                     |       |
| Unrealized  gain on derivatives    |       | 17.5              |       |              |       |                   |       | 17.5                                    |       |
| Unrealized  gain on investments    |       | 1.6               |       |              |       |                   |       | 1.6                                     |       |
| **Total  comprehensive income**    |       | 255.4             |       |              |       |                   |       |                                    |       |
| Dividends  paid                    |       | (350.0            | )          |              |       | (350.0                 | )          |                                    |       |
| **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 |   |

 

The accompanying Notes toConsolidated Financial Statements are an integral part of this statement.

 

33

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**John DeereCapital Corporation and Subsidiaries**

**Notes toConsolidated Financial Statements**

 

**Note 1.****          Summary ofSignificant Accounting Policies**

 

The following are significant accountingpolicies in addition to those included in other notes to the consolidatedfinancial statements.

 

Corporate Organization

 

John Deere Capital Corporation (CapitalCorporation) and its subsidiaries are collectively called the Company. JohnDeere Credit Company, a wholly-owned finance holding subsidiary of Deere &Company, is the parent of the Company. The Company conducts business inArgentina, Australia, France (through a joint venture), Germany, Italy,Luxembourg, Mexico, New Zealand, Portugal (through a cooperation agreement),Spain, the United Kingdom and the U.S. Deere & Company and its wholly-ownedsubsidiaries are collectively called John Deere.

 

Retail notes, revolving charge accounts,operating loans, financing leases and wholesale receivables are collectivelycalled “Receivables.” Receivables and operating leases are collectively called “Receivablesand Leases.”

 

In December 2003, John Deere acquired amajority interest in Nortrax, Inc. and it was consolidated with John Deere’sfinancial statements. The Company’s wholesale receivables from Nortrax, Inc.,disclosed as “Notes Receivable – unconsolidated affiliates” on the financialstatements, were settled by a cash payment from John Deere in December 2003.In March 2004, John Deere acquired the remaining interests in Nortrax,Inc. and Nortrax Investments, Inc. Further disclosure is included in the notesto the Deere & Company 2004 Annual Report on Form 10-K.

 

The Company bears substantially all of thecredit risk (net of recovery from withholdings from certain John Deere dealers,and Farm Planä and PowerPlanâmerchants) associated with its holding of Receivables and Leases. A smallportion of the Receivables and Leases held (less than 5 percent) is guaranteedby the Equipment Operations. The Company also performs all servicing andcollection functions in North America. John Deere is reimbursed for staff andother administrative services at estimated cost, and for credit lines providedto the Company based on utilization of those lines.

 

# Principles of Consolidation

 

The consolidated financial statements includethe financial statements of the Capital Corporation and its subsidiaries. Theconsolidated financial statements represent the consolidation of all companiesin which the Capital Corporation has a controlling interest. The CapitalCorporation records its investment in each unconsolidated affiliated company atits related equity in the net assets of such affiliate. Special purposeentities (SPEs) related to the sale and securitization of financingreceivables, which are also variable interest entities (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 VIEs related to the Company’s securitizations are not the onlysource of payment for specified liabilities or other interests of these VIEsand, therefore, do not require consolidation. See Note 4 for additionalinformation on retail note securitizations.

 

Certain amounts for prior years have beenreclassified to conform with 2004 financial statement presentations.  

 

# Use of Estimates in Financial Statements

 

The preparation of financial statements inconformity with accounting principles generally accepted in the U.S. requiresmanagement to make estimates and assumptions that affect the reported amountsand related disclosures. Actual results could differ from those estimates.

 

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Revenue Recognition

 

Financing revenue is recorded over the terms of therelated receivables using the interest method. Income from operating leases isrecognized on a straight-line basis over the scheduled lease terms.

 

# Sales of Receivables 

 

Certain financing receivables areperiodically sold to SPEs in securitization transactions (see Note 4). Gains orlosses from these sales are recognized in the period of sale based on therelative fair value of the portion sold and the portion allocated to retainedinterests. The retained interests are recorded at fair value estimated bydiscounting future cash flows. Changes in these fair values are recordedafter-tax as a component of equity included in other comprehensive income untilrealized.

 

# Depreciation

 

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

 

# Foreign Currency Translation

 

The functional currencies for most of theCompany’s foreign operations are their respective local currencies. The assetsand liabilities of these operations are translated into U.S. dollars at the endof the period exchange rates, and the revenues and expenses are translated toU.S. dollars at weighted-average rates for the period. The gains or losses fromthese translations are included in other comprehensive income, which is part ofstockholder’s equity. Gains or losses from transactions denominated in acurrency other than the functional currency of the subsidiary involved andforeign exchange forward contracts and options are included in net income. Thetotal foreign exchange pretax net loss for 2004 was $1.0 million, compared to aforeign exchange pretax net gain of $1.7 million in 2003 and a foreign exchangepretax net loss of $9.6 million in 2002.

 

New Accounting Standards Adopted 

 

In 2004, the Company adopted Financial Accounting Standards Board(FASB) Interpretation (FIN) No. 46, Consolidation of Variable InterestEntities, which addresses the consolidation and related disclosures of theseentities by business enterprises.  Theseare entities in which either the equity investment at risk is not sufficient toabsorb the probable losses without additional subordinated financial supportfrom other parties or the investors with equity at risk lack certain essentialcharacteristics of a controlling interest. Under the Interpretation, the Company must consolidate any variableinterest entities (VIEs) in which the Company holds variable interests and theCompany is deemed the primary beneficiary. As disclosed in Note 4, the Company holds retained interests in certainspecial purpose entities (SPEs) related to the securitization and sale of theirretail notes. These SPEs are defined as VIEs. Under the Interpretation, most ofthe Company’s retained interests are not deemed variable interests because theyare interests in a VIE’s specified assets with a fair value that is less thanhalf the fair value of the VIE’s total assets. In addition, these specifiedassets are not the only source of payment for specified liabilities or otherinterests of the VIEs, and therefore do not require consolidation under theInterpretation. The Company’s remaining retained interests are with qualifiedspecial purpose entities (QSPEs) as defined by FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities, which are exempt from consolidation. The adoption of thisstandard did not require the consolidation of any of these SPEs related tosecuritizations. The effect of the adoption for other VIEs had no effect on theCompany’s financial position or net income.

 

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

 

Retail Notes Receivable

 

The Company provides and administersfinancing for retail purchases of new equipment manufactured by John Deere’sagricultural, construction and forestry, and commercial and consumer equipmentdivisions and used equipment taken in trade for this equipment. The Companypurchases retail installment sales and loan contracts (retail notes) from JohnDeere. These retail notes are acquired by John Deere through John Deereequipment retail dealers. The Company also purchases and finances a limitedamount of retail notes unrelated to John Deere.

 

Retail notes receivable by product categoryat October 31 are as follows (in millions of dollars):

 

| ** **                                       | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Agricultural  equipment – new               |       | $        | 3,548.6    |     | $          | 2,798.6 |   |
| Agricultural  equipment – used              |       | 1,343.5  |       | 1,562.5  |       |
| Construction  and forestry equipment – new  |       | 1,364.4  |       | 1,131.2  |       |
| Construction  and forestry equipment – used |       | 173.0    |       | 170.9    |       |
| Commercial  and consumer equipment – new    |       | 1,023.9  |       | 962.4    |       |
| Commercial  and consumer equipment – used   |       | 69.9     |       | 65.7     |       |
| Recreational  products                           |       | 51.9     |       | 79.8     |       |
| Total                                            |       | 7,575.2  |       | 6,771.1  |       |
| Unearned  finance income:                        |       |     |       |     |       |
| Equipment                                        |       | (683.0   | )          | (633.0   | )          |
| Recreational  products                           |       | (18.5    | )          | (28.4    | )          |
| Total                                            |       | (701.5   | )          | (661.4   | )          |
| Retail notes  receivable                         |       | $        | 6,873.7    |     | $          | 6,109.7 |   |

 

Retail notes acquired by the Company duringthe years ended October 31, 2004, 2003 and 2002 had an estimated averageoriginal term (based on dollar amounts) of 54 months. Historically, because ofprepayments, the average actual life of retail notes has been considerablyshorter than the average original term. The average actual life for retailnotes liquidated in 2004, 2003 and 2002 was 35, 35 and 29 months,respectively.

 

Gross retail note installments at October 31are scheduled to be received as follows (in millions of dollars):

 

| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Due in:         |       |     |       |     |       |
| 0-12 months     |       | $        | 2,507.0    |     | $          | 2,197.9 |   |
| 13-24 months    |       | 1,951.7  |       | 1,728.2  |       |
| 25-36 months    |       | 1,455.1  |       | 1,284.5  |       |
| 37-48 months    |       | 918.8    |       | 859.2    |       |
| 49-60 months    |       | 540.2    |       | 515.3    |       |
| Over 60  months |       | 202.4    |       | 186.0    |       |
| Total           |       | $        | 7,575.2    |     | $          | 6,771.1 |   |

 

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Company guidelines relating to down paymentrequirements and contract terms on retail notes are generally as follows:

 

| ** **                                         | ** ** | **Down  Payment** | ** ** | **Contract  Terms** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|---------------------|------------|
| Agricultural  equipment (new and used):            |       |              |       |                |       |
| Seasonal  payments                                 |       | 30                | %          | 4-8 crop  years     |       |
| Monthly  payments                                  |       | 20                | %          | 48-96 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                | %          | 3-6 years           |       |
| Monthly  payments                                  |       | 10                | %          | 36-72 months        |       |

 

During 2004, 2003 and 2002, the Companyreceived proceeds from the sale of Receivables (including securitized sales) of$2,219 million, $1,730 million and $2,968 million, respectively. TheCompany acts as agent for the buyers in collection and administration forvirtually all of the Receivables it has sold. All Receivables sold arecollateralized by security agreements on the related equipment. The Company’sestimated maximum exposure under all Receivable and Lease recourse provisionsat October 31, 2004, 2003 and 2002 was $203 million, $221 million and $204million, respectively. In addition, the Company has provided letters of creditfor John Deere Credit Inc., the John Deere finance subsidiary in Canada, aspart of retail note sales. At October 31, 2004 and 2003, the maximumexposure under these agreements was approximately $8 million and $10 million,respectively. The Company does not record the recourse obligations asliabilities as they are contingent liabilities that are remote at this time.However, the probable loss on receivables that have been sold was accrued atthe time of sale, and any subsequent necessary adjustments are made as part ofongoing reviews. At October 31, 2004, 2003 and 2002, the balance of allReceivables and Leases previously sold, but still administered by the Company,was $3,052 million, $2,595 million and $2,533 million, respectively.

 

Finance income is recognized over the livesof the retail notes on the effective-yield basis. During 2004, the averageeffective yield on retail notes held by the Company was approximately 6.3percent, compared with 7.1 percent in 2003 and 8.7 percent in 2002.Unearned finance income on variable-rate retail notes is adjusted monthly basedon fluctuations in the base rate of a specified bank. Costs incurred in theacquisition of retail notes are deferred and recognized over the expected livesof the retail notes on the effective-yield basis.

 

A portion of the finance income earned by theCompany arises from financing of 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. The Company receives compensation fromJohn Deere equal to competitive market interest rates for periods during whichfinance charges have been 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.   Thefinance income earned following the waiver or interest reduction period is notsignificantly different from the compensation earned from John Deere. Theportions of the Company’s finance income earned that were received from JohnDeere on retail notes containing waiver of finance charges or reduced rateswere 25 percent in 2004, 28 percent in 2003 and 34 percent in 2002.

 

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A deposit equal to one percent of the faceamount of certain John Deere agricultural and commercial and consumer equipmentretail notes originating from each dealer is withheld by the Company from thatdealer. Any subsequent retail note losses are charged against the withhelddeposits. At the end of each calendar quarter, the balance of each dealer’swithholding account in excess of a specified percent (ranging from one to threepercent based on dealer qualifications) of the total balance outstanding on retailnotes originating with that dealer is remitted to the dealer. To the extentthat these deposits withheld from the dealer from whom the retail note wasacquired cannot absorb a loss on a retail note, it is charged against theCompany’s allowance for credit losses. There is no withholding of dealerdeposits on John Deere construction and forestry equipment retail notes orrecreational product retail notes.

 

The Company requires that theft and physicaldamage insurance be carried on all goods leased or securing retail notes andwholesale receivables. The customer may, at his own expense, have the Companyor the seller of the goods purchase this insurance or obtain it from othersources.

 

Revolving Charge Accounts Receivable

 

Revolving charge account income is generatedprimarily by three revolving credit products: Farm Planä,PowerPlanâ and the John Deere Credit Revolving Plan. FarmPlanä is primarily used by farmers and ranchers tofinance day-to-day operating expenses, such as parts and services. Merchantsoffer Farm Planä as an alternative to carrying in-house accountsreceivable, and can initially sell existing balances to the Company under arecourse arrangement. Farm Planä income includes adiscount paid by merchants for transaction processing and support, and financecharges paid by customers on their outstanding account balances. PowerPlanâis primarily used by construction companies to finance day-to-day operatingexpenses, such as parts 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.  Revolvingcharge accounts receivable at October 31, 2004 and 2003 totaled $1,444million and $1,117 million, respectively. Generally, account holders may paythe account balance in full at any time, or make payments over a number ofmonths according to a payment schedule.

 

# Operating Loans

 

Operating loan income is generated primarilyby operating loans that are offered through several leading farm inputproviders or through direct relationships with agricultural producers tofinance the acquisition of materials such as seeds and fertilizers. Income onthis product is generated from finance charges paid by customers on theiroutstanding account balances. Operating loan receivables totaled$381 million and $541 million at October 31, 2004 and 2003,respectively.

 

Financing Leases

 

The Company leases agricultural, constructionand forestry, commercial and consumer and certain other equipment directly to retailcustomers. At the time of accepting a lease that qualifies as a financing leaseunder FASB Statement No. 13, Accounting for Leases, the Company records thegross amount of lease payments receivable, estimated residual value of theleased equipment and unearned finance income. The unearned finance income isequal to the excess of the gross lease receivable plus the estimated residualvalue over the cost of the equipment. The unearned finance income is recognizedas revenue over the lease term on the effective-yield method. Lease acquisitioncosts are accounted for in a manner similar to the procedures for retail notes.

 

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Financing leases receivable by productcategory at October 31 are as follows (in millions of dollars):

 

 

| ** **                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Agricultural  equipment              |       | $        | 203.5      |     | $          | 184.3 |   |
| Construction  and forestry equipment |       | 89.8     |       | 83.5     |       |
| Commercial  and consumer equipment   |       | 98.8     |       | 100.2    |       |
| Other  equipment                     |       | 47.4     |       | 88.7     |       |
| Total                                |       | 439.5    |       | 456.7    |       |
| Estimated  residual values           |       | 30.9     |       | 37.3     |       |
| Unearned  finance income             |       | (64.4    | )          | (66.7    | )          |
| Financing  leases receivable         |       | $        | 406.0      |     | $          | 427.3 |   |

 

Initial lease terms for financing leasesgenerally range from 36 months to 60 months. Payments on financing leasesreceivable at October 31 are scheduled as follows (in millions ofdollars):

 

| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Due in:         |       |     |       |     |       |
| 0-12 months     |       | $        | 180.7      |     | $          | 183.4 |   |
| 13-24 months    |       | 121.3    |       | 125.6    |       |
| 25-36 months    |       | 79.5     |       | 83.3     |       |
| 37-48 months    |       | 37.5     |       | 40.3     |       |
| Over 48  months |       | 20.5     |       | 24.1     |       |
| Total           |       | $        | 439.5      |     | $          | 456.7 |   |

 

Deposits withheld from John Deere dealers andrelated losses on financing leases are handled in a manner similar to theprocedures for retail notes. As with retail notes, there are no depositswithheld from dealers on financing 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.

 

Equipment returned to the Company upon terminationof leases and held for subsequent sale or lease is recorded at the lower of netbook value or estimated market value of the equipment.

 

Wholesale Receivables

 

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. Wholesale receivables are secured by equipment financed.The average actual life for wholesale receivables is approximately 12 months.

 

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

 

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equipment. Interest-free periods may not be extended. Interest chargedmay not be forgiven and interest rates, which exceed the prime rate, are setbased on market factors. The Company receives compensation from John Deereequal to competitive market interest rates for these interest-free periods. TheCompany computes the compensation from John Deere for interest-free periodsbased on the Company’s estimated funding costs, administrative and operatingexpenses, credit losses, and required return on equity. The finance incomeearned following the interest-free period is not significantly different fromthe compensation earned from John Deere.

 

Other Receivables

 

The Company has sold retail notes tolimited-purpose business trusts and to private third parties, which utilize thenotes as collateral for asset-backed securities issued. Other receivablesrelated to securitizations are recorded at net present value and relate topayments to be received for retained interests. These retained interests aresubsequently carried at estimated fair value with impairments to fair valueincluded in income. Securitization and servicing fee income includes theinterest earned on these retained interests and reimbursed administrativeexpenses.

 

Concentration of Credit Risk

 

Receivables have significant concentrationsof credit risk in the agricultural, construction and forestry, and commercialand consumer business sectors as shown in the previous tables. On a geographicbasis, there is not a disproportionate concentration of credit risk in any areain which the Company operates. The Company retains as collateral a securityinterest in the goods associated with Receivables other than certain revolvingcharge accounts.

 

**Note 3.****          Allowance for CreditLosses, Delinquencies and Write-offs**

 

Allowance for Credit Losses

 

Allowances for credit losses on Receivablesare maintained in amounts considered to be appropriate in relation to theReceivables outstanding based on collection experience, economic conditions andcredit risk quality.

 

An analysis of the allowance for creditlosses on total Receivables follows (in millions of dollars):

 
| ** **                                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of the year                                                      |       | $        | 123.8      |     | $          | 118.3    |       | $ | 110.4 |   |
| Provision  for credit losses                                                         |       | 32.3     |       | 72.2     |       | 126.9    |       |
| Total net  write-offs                                                                |       | (34.3    | )          | (56.1    | )          | (105.9   | )          |
| Other  changes related to receivable sales and purchases and translation adjustments |       | (9.2     | )          | (10.6    | )          | (13.1    | )          |
| Balance, end  of the year                                                            |       | $        | 112.6      |     | $          | 123.8    |       | $ | 118.3 |   |

 

The allowance for credit losses represented..89 percent, 1.12 percent and 1.16 percent of Receivables financed at October 31,2004, 2003 and 2002, respectively. In addition, the Company had $168 million,$160 million and $138 million at October 31, 2004, 2003 and 2002,respectively, of deposits primarily withheld from John Deere dealers availablefor certain potential credit losses originating from those dealers.

 

Delinquencies

 

Generally, when retail notes become 120 daysdelinquent, accrual of finance income is suspended, the collateral isrepossessed or the account is designated for litigation and the estimateduncollectible amount, after charging the dealer’s withholding account, if any,is written off to the allowance for credit losses. Accrual of revolving chargeaccount income is suspended generally when the account becomes 120 daysdelinquent. Accounts are deemed to be uncollectible and written off to theallowance for credit losses when delinquency reaches 120 days for a Farm Planä,PowerPlanâ or John Deere Credit Revolving Plan account.When a financing lease account 

 

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becomes 120 days delinquent, the accrual of lease revenue issuspended, the equipment 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.Generally, when a wholesale receivable becomes 60 days delinquent, the Companydetermines whether the accrual of finance income on interest-bearing wholesalereceivables should be suspended, the collateral should be repossessed or theaccount should be designated for litigation and the estimated uncollectibleamount written off to the allowance for credit losses.

 

Total Receivable amounts 60 days or more pastdue in the table below represent the amount of all customer payments past due60 days or more, by product, and as a percent of the respective receivables.They are as follows (in millions of dollars):

 
| ** **                           | ** ** | **October 31,  2004** | ** ** | **October 31,  2003** | ** ** | **October 31,  2002** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **Dollars**                | ** ** | **Percent**                | ** ** | **Dollars**                | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                          | 9.9        |                       | .22        | %                          | $          | 10.7 |   | .27 | % | $ | 6.9 |   | .21 | % |
| Construction  and forestry equipment |       | 4.7                        |       | .33                        |       | 12.1                       |       | 1.01 |   | 6.8 |   | .57 |   |
| Commercial  and consumer equipment   |       | 1.1                        |       | .11                        |       | 1.3                        |       | .14 |   | .6 |   | .08 |   |
| Recreational  products               |       | .1                         |       | .30                        |       | .1                         |       | .19 |   |   |   |   |   |
| Total retail  notes                  |       | 15.8                       |       | .23                        |       | 24.2                       |       | .40 |   | 14.3 |   | .27 |   |
| Revolving  charge accounts*          |       | 12.6                       |       | .87                        |       | 12.0                       |       | 1.07 |   | 14.5 |   | 1.62 |   |
| Operating  loans                     |       | .9                         |       | .24                        |       | 1.3                        |       | .24 |   | 3.0 |   | .53 |   |
| Wholesale  receivables               |       | 7.9                        |       | .23                        |       | 5.9                        |       | .20 |   | 10.6 |   | .36 |   |
| Financing  leases                    |       | 3.2                        |       | .79                        |       | 4.2                        |       | .98 |   | 2.6 |   | .56 |   |
| Total  Receivables                   |       | $                          | 40.4       |                       | .32        |                       | $          | 47.6 |   | .43 |   | $ | 45.0 |   | .44 |   |

 

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 *                                   Due to the nature ofrevolving charge accounts, the customer payments past due 60 days or more alsorepresent the total balance.

 

Total non-performing Receivables, whichrepresent loans the Company has ceased accruing interest for, by product, andas a percent of the respective receivables were as follows (in millions ofdollars):

 
| ** **                           | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 15.1       |        | .34        | %           | $          | 20.3 |   | .51 | % | $ | 9.9 |   | .30 | % |
| Construction  and forestry equipment |       | 7.1         |       | .51         |       | 15.7        |       | 1.31 |   | 28.8 |   | 2.40 |   |
| Commercial  and consumer equipment   |       | 2.5         |       | .25         |       | 3.0         |       | .33 |   | 1.2 |   | .16 |   |
| Recreational  products               |       | .4          |       | 1.20        |       | .6          |       | 1.17 |   | .3 |   | .38 |   |
| Total retail  notes                  |       | 25.1        |       | .37         |       | 39.6        |       | .65 |   | 40.2 |   | .76 |   |
| Revolving  charge accounts           |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Operating  loans                     |       | 24.1        |       | 6.33        |       | 21.8        |       | 4.03 |   |   |   |   |   |
| Wholesale  receivables               |       | 1.1         |       | .03         |       | 11.2        |       | .39 |   |   |   |   |   |
| Financing  leases                    |       | 6.6         |       | 1.63        |       | 13.4        |       | 3.14 |   | 4.1 |   | .88 |   |
| Total  Receivables                   |       | $           | 56.9       |        | .45        |        | $          | 86.0 |   | .77 |   | $ | 44.3 |   | .44 |   |

 

The increase in non-performing operatingloans was due to defaults of three agricultural producers. Loan-loss provisionswere recorded for the estimated uncollectible amounts. At October 31,2004, $19.8 million of the non-performing operating loans was due to aprior default of a commercial and consumer equipment customer. The operatingloan was restructured in the first quarter of 2004, and the Company continuesto classify the loan as non-

 

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performing until the customer consistently demonstrates the ability toperform in accordance with the restructured loan.

 

Write-offs 

 

Total Receivable write-off amounts, net ofrecoveries, by product, and as a percentage of average balances held during theyear, were as follows (in millions of dollars):

 
| ** **                           | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 1.7        |        | .04        | %           | $          | 2.8 |   | .08 | % | $ | 3.2 |   | .11 | % |
| Construction  and forestry equipment |       | 4.8         |       | .38         |       | 16.2        |       | 1.37 |   | 15.8 |   | 1.46 |   |
| Commercial  and consumer equipment   |       | .4          |       | .04         |       | .9          |       | .12 |   | 1.0 |   | .15 |   |
| Recreational  products               |       | 1.0         |       | 2.37        |       | .6          |       | .94 |   | 2.4 |   | 2.58 |   |
| Total retail  notes                  |       | 7.9         |       | .13         |       | 20.5        |       | .36 |   | 22.4 |   | .48 |   |
| Revolving  charge accounts           |       | 13.8        |       | 1.16        |       | 21.3        |       | 2.14 |   | 19.4 |   | 2.17 |   |
| Operating  loans                     |       | 2.7         |       | .59         |       | 2.7         |       | .53 |   | 46.3 |   | 11.45 |   |
| Wholesale  receivables               |       | 6.8         |       | .20         |       | 3.9         |       | .11 |   | 6.9 |   | .21 |   |
| Financing  leases                    |       | 3.1         |       | .75         |       | 7.7         |       | 1.76 |   | 10.9 |   | 2.37 |   |
| Total  Receivables                   |       | $           | 34.3       |        | .30        |        | $          | 56.1 |   | .50 |   | $ | 105.9 |   | 1.09 |   |

 

The decrease in write-offs in 2004 was primarily dueto solid portfolio quality. The decrease in write-offs in 2003 as compared tothe prior year was primarily due to a $45 million write-off of twointernational trade finance customers, Allied Deals, Inc. and one of itsaffiliates, in 2002.

 

**Note 4.****          Retail NoteSecuritizations**

 

The Companyperiodically sells receivables to special purpose entities (SPEs) insecuritizations of retail notes.  Itretains interest-only strips, servicing rights and, in some cases, reserveaccounts and subordinated certificates, all of which are retained interests inthe securitized receivables. These retained interests are carried at estimatedfair value in “Other receivables” or “Other assets” on the balance sheet. Gainsor losses on sales of the receivables depend in part on the previous carryingamount of the financial assets involved in the transfer, allocated between theassets sold and the retained interest based on their relative fair values atthe date of transfer.  The Companygenerally estimates fair values based on the present value of future expectedcash flows using management’s key assumptions as discussed below.  The Company receives annual servicing fees ofapproximately one percent of the outstanding balance, and rights to future cashflows.  No significant balances forservicing assets or liabilities exist because the benefits received forservicing are offset by the costs of providing the servicing. The Company’smaximum exposure under recourse provisions related to securitizations was $202million and $220 million at October 31, 2004 and 2003, respectively. Theserecourse provisions include the fair value of the retained interests and allother recourse obligations contractually specified in the securitizationagreements. The Company does not record the recourse obligations as liabilitiesas they are contingent liabilities that are remote at this time.  Except for this exposure, the investors andsecuritization trusts have no recourse to the Company for failure of debtors topay when due.  The Company’s retainedinterests are subordinate to investor’s interests and their values are subjectto certain key assumptions. The total assets of the unconsolidated SPEs relatedto securitizations at October 31, 2004 and 2003 were $3,166 millionand $2,696 million, respectively.

 

42

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Pretax gainson retail notes securitized and key assumptions used to initially determine thefair value of the retained interests were as follows:

 
| ** **                                                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Pretax gains  in millions                                     |       | $        | 45         |     | $          | 43       |       | $ | 71 |   |
| Weighted-average  maturity in months                          |       | 20       |       | 21       |       | 19       |       |
| Average  annual prepayment rate                               |       | 20       | %          | 19       | %          | 22       | %          |
| Average  expected annual credit losses                        |       | .37      | %          | .40      | %          | .42      | %          |
| Discount  rate on retained interests and subordinate tranches |       | 13       | %          | 13       | %          | 13       | %          |
|                                                               |            |          |            |          |            |          |            |  |  |  |

 

Cash flowsreceived from securitization trusts in millions of dollars were as follows:

 
| ** **                         | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Proceeds  from new securitizations |       | $        | 2,146      |     | $          | 1,666    |       | $ | 2,870 |   |
| Servicing  fees received           |       | 30       |       | 24       |       | 28       |       |
| Other cash  flows received         |       | 60       |       | 47       |       | 100      |       |
|                                    |            |          |            |          |            |          |            |  |  |  |

 

The components of retained interest insecuritizations of retail notes at October 31 are as follows (in millionsof dollars):

 
| ** **                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
| Interest  only strips                                         |       | $        | 66         |     | $          | 100 |   |
| Reserve  accounts held for benefit of securitization entities |       | 43       |       | 30       |       |
| Subordinated  certificates                                    |       | 16       |       | 11       |       |
| Total  retained interests                                     |       | $        | 125        |     | $          | 141 |   |

 

The totalretained interests, weighted-average life, weighted-average current keyeconomic assumptions and the sensitivity analysis showing the hypotheticaleffects on the retained interests from immediate 10 percent and 20 percentadverse changes in those assumptions with dollars in millions were as follows:

 
| ** **                                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| **Retail Note  Securitizations**                  |       |     |       |     |       |
| Carrying  amount/fair value of retained interests |       | $        | 125        |     | $          | 141 |   |
| Weighted-average  life (in months)                |       | 16       |       | 16       |       |
| Prepayment  speed assumption (annual rate)        |       | 20       | %          | 20       | %          |
| Impact on  fair value of 10% adverse change       |       | $        | 1.7        |     | $          | 1.8 |   |
| Impact on  fair value of 20% adverse change       |       | $        | 3.4        |     | $          | 3.6 |   |
| Expected  credit losses (annual rate)             |       | .38      | %          | .39      | %          |
| Impact on  fair value of 10% adverse change       |       | $        | 1.8        |     | $          | 1.6 |   |
| Impact on  fair value of 20% adverse change       |       | $        | 3.7        |     | $          | 3.2 |   |
| Residual  cash flows discount rate (annual)       |       | 13       | %          | 13       | %          |
| Impact on  fair value of 10% adverse change       |       | $        | 3.5        |     | $          | 3.4 |   |
| Impact on  fair value of 20% adverse change       |       | $        | 6.8        |     | $          | 6.7 |   |

 

These sensitivities arehypothetical changes in fair value and cannot be extrapolated because the relationshipof the changes in assumption to the changes in fair value may not belinear.  Also, the effect of a variationin a particular assumption is calculated without changing any other assumption,whereas changes in one factor may result in changes in another.  Accordingly, no assurance can be given thatactual results would be consistent with the 

 

43

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results of these estimates.

 

Principal balances of owned, securitized andtotal managed retail notes, past due amounts and net credit losses, as of andfor the years ended October 31, 2004 and October 31, 2003 in millionsof dollars follow:

 

 
| ** **  | ** ** | **Principal  Outstanding** | ** ** | **Principal 60 Days  or More Past Due** | ** ** | **Net Credit  Losses** | ** ** |
|-------------|------------|----------------------------|------------|-----------------------------------------|------------|------------------------|------------|
| **2004**    |       |                       |       |                                    |       |                   |       |
| Owned       |       | $                          | 6,749      |                                    | $          | 16                     |       | $ | 8 |   |
| Securitized |       | 2,955                      |       | 8                                       |       | 5                      |       |
| Managed     |       | $                          | 9,704      |                                    | $          | 24                     |       | $ | 13 |   |
|        |       |                       |       |                                    |       |                   |       |
| **2003**    |       |                       |       |                                    |       |                   |       |
| Owned       |       | $                          | 6,008      |                                    | $          | 24                     |       | $ | 21 |   |
| Securitized |       | 2,500                      |       | 12                                      |       | 11                     |       |
| Managed     |       | $                          | 8,508      |                                    | $          | 36                     |       | $ | 32 |   |

 

The amount of actual and projected futurecredit losses as a percent of the original balance of retail notes securitized(expected static pool losses) were as follows:

 
| ** **                                     | ** ** | **Notes Securitized  2004** | ** ** | **Notes Securitized  2003** | ** ** | **Notes Securitized  2002** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **Actual  and Projected Credit Losses as of:** |       |                        |       |                        |       |                        |       |
| October 31,  2004                         |       | .58                         | %          | .50                         | %          | .50                         | %          |
| October 31,  2003                         |       |                        |       | .64                         | %          | .53                         | %          |
| October 31,  2002                         |       |                        |       |                        |       | .61                         | %          |

 

**Note 5.****          Equipment onOperating Leases**

 

Rental payments applicable to equipment onoperating leases are recorded as income on a straight-line method over thelease terms. Operating lease assets are recorded at cost and depreciated totheir estimated residual value generally on a straight-line method over theterms of the leases. Residual values represent estimates of the value of theleased assets at the end of the contract terms and are initially determinedbased upon appraisals and estimates. Residual values are continually reviewedto determine that estimated amounts are appropriate.

 

The cost of equipment on operating leases byproduct category at October 31 is as follows (in millions of dollars):

 

| ** **                                | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Agricultural  equipment                   |       | $        | 437.4      |     | $          | 641.5 |   |
| Construction  and forestry equipment      |       | 439.9    |       | 415.0    |       |
| Commercial  and consumer equipment        |       | 157.1    |       | 160.2    |       |
| Other  equipment                          |       | 29.2     |       | 49.2     |       |
| Total                                     |       | 1,063.6  |       | 1,265.9  |       |
| Accumulated  depreciation                 |       | (306.0   | )          | (386.7   | )          |
| Equipment on  operating leases – net |       | $        | 757.6      |     | $          | 879.2 |   |

 

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

 

| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Due in:         |       |     |       |     |       |
| 0-12 months     |       | $        | 176.1      |     | $          | 184.6 |   |
| 13-24 months    |       | 109.6    |       | 112.5    |       |
| 25-36 months    |       | 50.6     |       | 46.5     |       |
| 37-48 months    |       | 20.7     |       | 16.7     |       |
| Over 48  months |       | 9.3      |       | 7.5      |       |
| Total           |       | $        | 366.3      |     | $          | 367.8 |   |

 

As with construction and forestry retailnotes, there are no deposits withheld from dealers on operating 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.

 

Equipment returned to the Company upontermination of leases and held for subsequent sale or lease is recorded at thelower of net book value or estimated market value of 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, $2 million and $7 millionat October 31, 2004, 2003 and 2002, respectively.

 

**Note 6.****          Short-Term Borrowings**

 

On October 31, 2004, short-termborrowings were $3,990 million, $1,554 million of which was commercial paper.Short-term borrowings were $3,516 million on October 31, 2003, $1,692million of which was commercial paper. The Company’s short-term debt alsoincludes amounts borrowed from John Deere, which totaled $1,241 millionand $166 million at October 31, 2004 and 2003, respectively. During 2004,the Company obtained a $1,000 million term loan from Deere & Company. TheCompany pays interest on a monthly basis to John Deere based on the weightedaverage commercial paper rate for the immediately preceding month. Theweighted-average interest rate on total short-term borrowings at October 31,2004 and 2003, excluding current maturities of long-term borrowings, was 2.6percent and 2.1 percent, respectively.

 

At October 31, 2004, the Company andDeere & Company jointly maintained $2,598 million of unsecured lines ofcredit with various banks throughout the world, $657 million of which wasunused. For the purpose of computing unusedcredit lines, commercial paper and short-term bank borrowings, excluding thecurrent portion of long-term borrowings, of the Company and John Deere wereconsidered to constitute utilization. Included in the total credit lines is along-term credit facility agreement totaling $1,250 million, expiring February 2009.The agreement is mutually extendable and the annual facility fee is notsignificant. The credit agreement has 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 to total stockholder’s equity plussubordinated debt may not be 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 plus subordinated debt was 6.3 to 1at October 31, 2004, compared to 4.9 to 1 at October 31, 2003.The facility fee on these lines of credit is divided between Deere &Company and the Company based on the proportion of their respective commercialpaper outstanding.

 

Deere & Company has an agreement with theCompany pursuant to which it has agreed to continue to own at least 51 percentof the voting shares of capital stock of the Company and to maintain theCompany’s consolidated tangible net worth at not less than $50 million.  This agreement also obligates Deere &Company to make income 

 

45

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maintenance payments to the Company such that its consolidated ratio ofearnings to fixed charges is not less than 1.05 to 1 for any fiscal quarter.For 2004 and 2003, the Company’s ratios were 2.23 to 1 and 2.17 to 1,respectively, and never less than 2.19 to 1 and 2.05 to 1 for any fiscalquarter of 2004 and 2003, 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 the agreement arenot measured by the amount of the Company’s indebtedness, obligations or otherliabilities. Deere & Company’s obligations to make payments under thisagreement are expressly stated not to be a guaranty of any specificindebtedness, obligation or liability of the Company and are enforceable onlyby or in the name of the Company. No payments were required under thisagreement during the periods included in the financial statements.

 

**Note 7.****          Long-Term Borrowings**

 

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

 
| ** **                                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior  Debt:**                                                               |       |     |       |     |       |
| Medium-term  notes due 2005-2009 (principal $2,809 - 2004, $2,106 - 2003):    |       |     |       |     |       |
| Average  interest rate of 3.7% - 2004, 3.2% - 2003                            |       | $        | 2,815      | *   | $          | 2,115 | * |
| 5.125% Notes  due 2006 ($600 principal):                                      |       |     |       |     |       |
| Swapped $300  million to variable interest rate of 2.7% - 2004, 1.8% - 2003   |       | 620      | *          | 632      | *          |
| 4.5% Notes  due 2007 ($500 principal):                                        |       |     |       |     |       |
| Swapped $300  million to variable interest rate of 2.4% - 2004                |       | 510      | *     | 511      | *          |
| Swapped $450  million to variable interest rate of 1.8% - 2003                |       |     |       |     |       |
| 3.9% Notes  due 2008 ($850 principal):                                        |       |     |       |     |       |
| Swapped $525  million to variable interest rate of 2.6% - 2004                |       | 850      | *          | 851      | *          |
| Swapped $650  million to variable interest rate of 1.7% - 2003                |       |     |       |     |       |
| 6% Notes due  2009 ($300 principal):                                          |       |     |       |     |       |
| Swapped to  variable interest rate of 1.9% - 2004, 1.4% - 2003                |       | 327      | *          | 329      | *          |
| 7% Notes due  2012 ($1,500 principal):                                        |       |     |       |     |       |
| Swapped  $1,225 million to variable interest rate of 2.9% - 2004, 2.1% - 2003 |       | 1,674    | *          | 1,665    | *          |
| 5.1%  Debentures due 2013 ($650 principal):                                   |       |     |       |     |       |
| Swapped to  variable interest rate of 2.7% - 2004, 1.8% - 2003                |       | 658      | *          | 641      | *          |
| Other Notes                                                                   |       | 35       |       | 28       |       |
| Total senior  debt                                                            |       | 7,489    |       | 6,772    |       |
| Unamortized debt  discount                                                    |       | (12      | )          | (15      | )          |
| Net senior  debt                                                              |       | 7,477    |       | 6,757    |       |
| Subordinated Debt:                                                            |       |     |       |     |       |
| 8-5/8%  Subordinated Debentures due 2019***                                   |       |     |       | 150      |       |
| Total  subordinated debt                                                      |       |     |       | 150      |       |
| Total                                                                         |       | $        | 7,477      |     | $          | 6,907 |   |

 

----

*                                         Includesfair value adjustments related to interest rate swaps.

 

**                                  Allinterest rates are as of year-end.

 

***                           Redeemedduring 2004.

 

The approximate amounts of long-termborrowings maturing in each of the next five years, in millions of dollars, areas follows: 2005 - $1,188, 2006 - $2,447, 2007 - $1,231, 2008 - $890 and 2009 -$500.

 

46

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

 

Total rental expense for operating leases was $4million, $5 million and $6 million for 2004, 2003 and 2002, respectively. At October 31, 2004,future minimum lease payments under operating leases amounted to $41 million asfollows (in millions of dollars): 2005 - $2, 2006 - $3, 2007 - $32, 2008 - $1,2009 - $3.

 

**Note 9.****          Common Stock**

 

All of the Company’s common stock is owned byJohn Deere Credit Company, a wholly-owned finance holding subsidiary of Deere& Company. No shares of common stock of the Company were reserved forofficers or employees or for options, warrants, conversions or other rights at October 31,2004 or 2003. At October 31, 2004, the Company had authorized, but notissued, 10,000 shares of $1 par value preferred stock.  

 

**Note 10. Dividends**

 

The Capital Corporation declared and paid$420 million in dividends to John Deere Credit Company in 2004 and $205 millionin 2003.  In each case, John Deere CreditCompany paid comparable dividends to Deere & Company. 

 

**Note 11. Pensionand Other Retirement Benefits**

 

The Company is a participating employer in certainDeere & Company sponsored defined benefit pension plans for employees inthe 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 $3.9 million in 2004, $7.0 million in 2003 and $1.8 million in2002. The accumulated benefit obligation and plan net assets for the employeesof the Company are not determined separately from Deere & Company.  The Company generally provides definedbenefit health care and life insurance plans for retired employees in the U.S.as a participating employer in Deere & Company’s sponsored plans. Healthcare and life insurance benefits expense is actuarially determined based on theCompany’s employees included in the plans and amounted to $6.5 million in 2004,$4.2 million in 2003 and $2.1 million in 2002. Further disclosure forthese plans is included in the notes to the Deere & Company 2004 AnnualReport on Form 10-K.

 

**Note 12.  Income Taxes**

 

Taxes on Income and Income Tax Credits

 

The taxable income of the Company is includedin the consolidated U.S. income tax return of Deere & Company. Provisionsfor income taxes are made generally as if the Capital Corporation and each ofits subsidiaries filed separate income tax returns.

 

47

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Deferred Income Taxes

 

Deferred income taxes arise because certainitems are treated differently for financial accounting than for income taxreporting purposes. An analysis of deferred income tax assets and liabilitiesat October 31 is as follows (in millions of dollars):

 
| ** **                                 | ** ** | **2004**                  | ** ** | **2003**                       | ** ** |
|--------------------------------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** |
| Deferred  lease income                     |       |                      |       | $                              | 157.4      |   |   |   | $ | 165.8 |   |
| Income and  gains from securitizations     |       |                      |       | 25.2                           |       |   |   | 16.4 |   |
| Tax over  book depreciation                |       |                      |       | 6.4                            |       |   |   | 3.8 |   |
| Deferred  retail note finance income       |       |                      |       | 3.2                            |       |   |   | 3.4 |   |
| Allowance  for credit losses               |       | $                         | 50.6       |                           |       |   | $ | 50.0 |   |   |   |
| Accrual for  retirement and other benefits |       | 11.5                      |       |                           |       | 11.0 |   |   |   |
| Unrealized  gain/loss on derivatives       |       | 2.8                       |       |                           |       | 10.6 |   |   |   |
| Net  operating loss carry forward          |       | 3.5                       |       |                           |       | 2.9 |   |   |   |
| Miscellaneous  accruals and other          |       | 1.5                       |       |                           |       | 1.7 |   |   |   |
| Total                                      |       | $                         | 69.9       |                           | $          | 192.2 |   | $ | 76.2 |   | $ | 189.4 |   |

 

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

 

| ** **                        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current                           |       | $        | 138.7      |     | $          | 133.0    |       | $ | 116.1 |   |
| Deferred                          |       | 1.9      |       | 14.7     |       | 20.5     |       |
| Total  provision for income taxes |       | $        | 140.6      |     | $          | 147.7    |       | $ | 136.6 |   |

 

# Effective Income Tax Provision

 

A comparison of the statutory and effectiveincome tax provisions and reasons for related differences follows (in millionsof dollars):

 

| ** **                                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| U.S. federal  income tax provision at a statutory rate of 35 percent |       | $        | 143.7      |     | $          | 149.8    |       | $ | 129.9 |   |
| Municipal  lease income not taxable                                  |       | (1.3     | )          | (1.3     | )          | (1.4     | )          |
| Taxes on  foreign activities                                         |       | (.8      | )          | (1.3     | )          | (.7      | )          |
| Nondeductible  costs and other – net                            |       | (1.0     | )          | .5       |       | 8.8      |       |
| Total  provision for income taxes                                    |       | $        | 140.6      |     | $          | 147.7    |       | $ | 136.6 |   |

 

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**Note 13.  Administrative and Operating Expenses**

 

The major components of administrative andoperating expenses are as follows (in millions of dollars):

 

 
| ** **                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Compensation  and benefits |       | $        | 168.0      |     | $          | 131.7    |       | $ | 108.4 |   |
| Other *                    |       | 76.7     |       | 70.7     |       | 100.3    |       |
| Total                      |       | $        | 244.7      |     | $          | 202.4    |       | $ | 208.7 |   |

 

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*                                         Includes Argentine peso devaluation losses of$22 million in 2002.

 

**Note 14.  Cash Flow Information**

 

For purposes of the statements ofconsolidated cash flows, the Company considers investments with originalmaturities of three months or less to be cash equivalents. Substantially all ofthe Company’s short-term borrowings, excluding the current maturities oflong-term borrowings, mature within three months or less.

 

Cash payments by the Company for interestincurred on borrowings in 2004, 2003 and 2002 were $325 million, $348million and $356 million, respectively. Cash payments for income taxes duringthese same periods were $136 million, $131 million and $118 million,respectively.

 

**Note 15.  Commitments and Contingent Liabilities**

 

The Company has guaranteed certain recourseobligations on Receivables and Leases that it has sold. If the Receivables andLeases sold are not collected, the Company would be required to cover thoselosses up to the amount of its recourse obligation. At October 31, 2004,the maximum amount of exposure to losses under these agreements was $203million. The estimated credit risk associated with sold receivables totaled $21million at October 31, 2004. This risk of loss is recognized in theretained interests (See Note 4). The Company believes it has adequatelyprovided for all probable losses related to these transactions. The Company mayrecover a portion of any required payments incurred under these agreements fromthe repossession of the equipment collateralizing the Receivables and Leases.At October 31, 2004, the maximum remaining term of the Receivables andLeases guaranteed was approximately six years.

 

In January 2004, the Company began guaranteeingall new commercial paper and medium-term note issuances for John Deere CreditInc., the John Deere finance subsidiary in Canada. At October 31, 2004,John Deere Credit Inc. had $75 million of commercial paper and $205 million ofmedium-term notes outstanding that were guaranteed by the Company. In addition,the Company has provided letters of credit for John Deere Credit Inc. as partof retail note sales. At October 31, 2004, the Company’s maximumexposure under these agreements was approximately $8 million.

 

At October 31, 2004, the Company hadguaranteed $30 million of residual value related to property being used by theCompany 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 $5 millionrelated to this agreement at October 31, 2004. The lease term expires in2007.

 

The Company is subject to various unresolvedlegal actions which arise in the normal course of its business, the mostprevalent of which relate to state and federal laws and regulations concerningretail credit. Although it is not possible to predict with certainty theoutcome of these unresolved legal actions or the range of possible loss, theCompany believes these unresolved legal actions will not have a material effecton its financial statements.

 

49

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**Note 16. OtherComprehensive Income Items**

 

Other comprehensive income items under FASBStatement No. 130, Reporting Comprehensive Income, are transactions recorded instockholder’s equity during the year, excluding net income and transactionswith the stockholder. Following are the items included in other comprehensiveincome (loss) and the related tax effects in millions of dollars:

 
| ** **                                            | ** ** | **Before Tax  Amount** | ** ** | **Tax  (Expense)  Credit** | ** ** | **After Tax  Amount** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-----------------------|------------|
| **2002**                                              |       |                   |       |                       |       |                  |       |
| Change in  cumulative translation adjustment          |       | $                      | 5.7        |                       |       |                  | $          | 5.7 |   |
| Unrealized  holding gain and net gain on investments* |       | 2.5                    |       | $                          | (.9        | )                     | 1.6        |   |
| Unrealized  gain (loss) on derivatives:               |       |                   |       |                       |       |                  |       |
| Hedging loss                                          |       | (57.7                  | )          | 20.2                       |       | (37.5                 | )          |
| Reclassification  of realized net loss to net income  |       | 84.6                   |       | (29.6                      | )          | 55.0                  |       |
| Net  unrealized gain on derivatives                   |       | 26.9                   |       | (9.4                       | )          | 17.5                  |       |
| Total other  comprehensive income                     |       | $                      | 35.1       |                       | $          | (10.3                 | )          | $ | 24.8 |   |
| ** **                                            | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **            | ** ** |
| **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 |   |
|                                                       |            |                        |            |                            |            |                       |            |  |  |  |  |

 

----

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

 

**Note 17.  Financial Instruments**

 

The fair values of financial instruments thatdo not approximate the carrying values in the financial statements at October 31are as follows (in millions of dollars):

 
| ** **            | ** ** | **2004**            | ** ** | **2003**        | ** ** |
|-----------------------|------------|---------------------|------------|-----------------|------------|
| ** **            | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| Receivables  financed |       | $                   | 12,472     |            | $          | 12,414 |   | $ | 10,977 |   | $ | 10,993 |   |
|                  |       |                |       |            |       |   |   |   |   |
| Long-term  borrowings |       | $                   | 7,477      |            | $          | 7,838 |   | $ | 6,907 |   | $ | 6,878 |   |

 

50

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Fair Value Estimates

 

Fair values of the long-term Receivables withfixed rates were based on the discounted values of their related cash flows atcurrent market interest rates. The fair values of the remaining Receivablesapproximated the carrying amounts.

 

Fair values of long-term borrowings with fixed rateswere based on the discounted values of their related cash flows at currentmarket interest rates. Certain long-term borrowings have been swapped tocurrent variable interest rates. The carrying values of these long-termborrowings include adjustments related to fair value hedges.

 

Derivatives

 

It is the Company’s policy that derivativetransactions are executed only to manage exposures arising in the normal courseof business and not for the purpose of creating speculative positions ortrading. The Company manages the relationship of the types and amounts offunding sources to the receivable and lease portfolio in an effort to diminishrisk due to interest rate and foreign currency fluctuations, while respondingto favorable financing opportunities. The Company also has foreign currency exposures at some of its foreignand domestic operations related to buying, selling and financing in currenciesother than the local currencies.

 

Interest Rate Swaps

 

The Company enters into interest rate swapagreements primarily to more closely match the fixed or floating interest ratesof the borrowings to those of the assets 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 interestrate changes on the related borrowings. The amount of the loss recorded in other comprehensive income at October 31,2004 that is expected to be reclassified to earnings in the next 12 months ifinterest rates remain unchanged is approximately $5 million after-tax.  These swaps mature in up to 43 months.

 

Certain interest rate swaps were designatedas fair value hedges of fixed-rate, long-term borrowings. The effective portionof the fair value gains or losses on these swaps was offset by fair valueadjustments in the underlying borrowings.

 

Any ineffective portions of the gains orlosses on all cash flow and fair value interest rate swaps designated as hedgeswere recognized immediately in interest expense 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.

 

The Company has certain interest rate swapagreements that are not designated as hedges under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities, and the fairvalue gains or losses are recognized directly in earnings. These instrumentsrelate to swaps that are used to facilitate certain borrowings.

 

# Foreign Exchange Forward Contracts and Swaps

 

The Company has entered into foreign exchangeforward contracts and swaps in order to manage the currency exposure of certainreceivables and liabilities.  Thesederivatives were not designated as hedges under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities.  The fair value gains or losses from theseforeign currency derivatives are recognized directly in earnings, generallyoffsetting the foreign exchange gains or losses on the exposures being managed.

 

51

----

 

The Company has designated cross currency interestrate swaps as fair value hedges of certain borrowings. The effective portion ofthe fair value gains or losses on these swaps are offset by fair valueadjustments in the underlying borrowings and the ineffectiveness was notmaterial. The Company has also designated foreign exchange forward contractsand currency swaps as cash flow hedges of certain borrowings. The effectiveportion of the fair value gains or losses on these forward contracts and swapsis recorded in other comprehensive income and subsequently reclassified intoearnings as payments are accrued and these instruments approach maturity. Thiswill offset the exchange rate effects on the borrowing being hedged and theineffectiveness was not material.

 

**Note 18.  Geographic Area Information**

 

Based on the way the operations are managed andevaluated by management and materiality considerations, the Company is viewedas one operating segment. However, geographic area information for revenues andoperating profit, which is net income before income taxes, attributed to theU.S. and countries outside the U.S. is disclosed below. The operating loss forcountries outside the U.S. in 2002 was primarily due to losses in Argentinarelated to the peso devaluation. Geographic area information for the yearsended October 31, 2004, 2003, and 2002 is presented below (in millions ofdollars):

 
| ** **                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues:**                 |       |     |       |     |       |     |       |
| U.S.                          |       | $        | 1,062      |     | $          | 1,172    |       | $ | 1,265 |   |
| Outside the  U.S.             |       | 157      |       | 125      |       | 91       |       |
| Total                         |       | $        | 1,219      |     | $          | 1,297    |       | $ | 1,356 |   |
|                          |       |     |       |     |       |     |       |
| **Operating  profit (loss):** |       |     |       |     |       |     |       |
| U.S.                          |       | $        | 377        |     | $          | 406      |       | $ | 379 |   |
| Outside the  U.S.             |       | 34       |       | 22       |       | (12      | )          |
| Total                         |       | $        | 411        |     | $          | 428      |       | $ | 367 |   |
|                          |       |     |       |     |       |     |       |
| **Receivables:**              |       |     |       |     |       |     |       |
| U.S.                          |       | $        | 10,411     |     | $          | 9,389    |       | $ | 9,069 |   |
| Outside the  U.S.             |       | 2,174    |       | 1,711    |       | 1,110    |       |
| Total                         |       | $        | 12,585     |     | $          | 11,100   |       | $ | 10,179 |   |

 

**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 (loss) ofunconsolidated affiliates.” The investment in these companies is recorded inthe consolidated balance sheet under “Investments in unconsolidated affiliates.”

 

52

----

 

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

 
| ** **                                      | ** ** | **Year Ended October 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **2004**                        | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Operations:**                                 |       |                            |       |   |   |   |   |
| Finance  income                                 |       | $                               | 5.0        |   | $ | 3.7 |   | $ | 3.2 |   |
| Net income  (loss)                              |       | 1.2                             |       | .5 |   | (3.7 | ) |
| The Company’s  equity in net income (loss) |       | .6                              |       | .3 |   | (3.8 | ) |
|                                                 |            |                                 |            |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **October 31,** | ** ** |
|-----------------------------------------|------------|----------------------|------------|
| ** **                              | ** ** | **2004**             | ** ** | **2003** | ** ** |
| **Financial  Position:**                |       |                 |       |   |   |
| Total assets                            |       | $                    | 38.3       |   | $ | 34.8 |   |
| Total external  debt                    |       | 25.6                 |       | 24.9 |   |
| Total net  assets                       |       | 7.8                  |       | 6.0 |   |
| The Company’s  share of net assets |       | 3.9                  |       | 3.0 |   |
|                                         |            |                      |            |  |  |  |  |

 

**Supplemental Information (Unaudited)**

 

Quarterly Information

 

Supplemental quarterly information for theCompany follows (in millions of dollars):

 
| ** **                                     | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Fiscal  Year** | ** ** |
|------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|
| 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 |   |
|                                           |       |               |       |                |       |               |       |                |       |             |       |
| 2003:                                          |       |               |       |                |       |               |       |                |       |             |       |
| Revenues                                       |       | $                  | 309.6      |                | $          | 326.5              |       | $                   | 343.0      |             | $          | 317.8 |   | $ | 1,296.9 |   |
| Interest  expense                              |       | 86.7               |       | 94.6                |       | 93.4               |       | 85.4                |       | 360.1            |       |
| Operating  expenses                            |       | 127.0              |       | 128.7               |       | 126.9              |       | 126.3               |       | 508.9            |       |
| Provision  for income taxes                    |       | 33.7               |       | 35.7                |       | 43.0               |       | 35.3                |       | 147.7            |       |
| Equity in income  of unconsolidated affiliates |       | .1                 |       |                |       | .1                 |       | .1                  |       | .3               |       |
| Net income                                     |       | $                  | 62.3       |                | $          | 67.5               |       | $                   | 79.8       |             | $          | 70.9 |   | $ | 280.5 |   |

 

###### Subsequent Events

 

On December 3, 2004, the Capital Corporationdeclared an $85 million dividend, which was paid to John Deere Credit Companyon December 10, 2004. John Deere Credit Company, in turn, declared an $85million dividend to Deere & Company, also paid on December 10, 2004.

 

53

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**Index toExhibits**

 
| 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*)                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2                                                                                                                                                                                                                                                                                                 | Bylaws, as amended (Exhibit 3.2 to Form  10-K of the registrant for the year ended October 31, 1999*)                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.1                                                                                                                                                                                                                                                                                                 | Five-Year Credit Agreement among registrant, Deere & Company,  various financial institutions, JPMorgan Chase Bank 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*) |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.2                                                                                                                                                                                                                                                                                                 | 364-Day Credit Agreement among registrant, Deere & Company,  various financial institutions, JPMorgan Chase Bank 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 4.2 to Form 10-Q of Deere & Company for the quarter ended January 31,  2004, Securities and Exchange Commission file number 1-4121*)   |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.3                                                                                                                                                                                                                                                                                                 | 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*)                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.4                                                                                                                                                                                                                                                                                                 | 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*)                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.5                                                                                                                                                                                                                                                                                                 | 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*)                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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*)                                                                                                                                                                                                                                                        |

 

54

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| 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                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                |
| 32.    | Section 1350 Certifications                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                |
| 99     | Parts I and II of the Deere & Company  Form 10-K for the fiscal year ended October 31, 2004 (Securities and  Exchange Commission file number 1-4121*)                                                                                                                                                      |

 

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* Incorporated by reference. Copies of these exhibits are availablefrom the Company upon request.

 

55

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