DEERE JOHN CAPITAL CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



	FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2003

Commission file no: 1-6458

JOHN DEERE CAPITAL CORPORATION

Delaware
(State of incorporation)

36-2386361
(IRS employer identification no.)


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

Telephone Number: (775) 786-5527


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes	x	No


Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes		No	x


At April 30, 2003, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Credit Company, a wholly-owned subsidiary of Deere & Company.
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced disclosures as permitted by those instructions.




	Page 1 of 22 Pages Index to Exhibits: Page 20

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statements of Consolidated Income and Retained Earnings

(Unaudited)

(in millions)

			Three Months Ended April 30,						Six Months Ended April 30,

			2003			2002			2003			2002

Revenues
	Finance income earned on retail notes	$	102.4		$	101.0		$	200.2		$	203.7
	Lease revenues		86.0			101.9			176.9			212.0
	Revolving charge account income		34.4			32.4			66.2			61.7
	Finance income earned on wholesale receivables		64.1			54.3			116.1			104.9
	Operating loan income		8.5			6.4			15.7			12.8
	Securitization and servicing fee income		11.1			13.7			25.4			23.3
	Net gain on receivables and leases sold		7.9			41.8			14.3			71.6
	Interest income from short-term investments		3.1			2.6			6.3			5.4
	Other income		9.0			2.0			15.0			9.6

	Total revenues		326.5			356.1			636.1			705.0

Expenses
	Interest expense		94.6			88.4			181.3			186.0
	Operating expenses:
	Administrative and operating expenses		48.2			60.1			95.7			106.5
	Provision for credit losses		19.9			69.1			32.8			89.4
	Fees paid to John Deere		6.3			5.3			14.4			10.7
	Depreciation of equipment on operating leases		54.3			60.8			112.8			128.0

	Total operating expenses		128.7			195.3			255.7			334.6

	Total expenses		223.3			283.7			437.0			520.6

Income of consolidated group before income taxes			103.2			72.4			199.1			184.4
Provision for income taxes			35.7			28.7			69.4			67.9

Income of consolidated group			67.5			43.7			129.7			116.5
Equity in income (loss) of unconsolidated affiliates						(1.1	)		0.1			(2.0	)

Net income			67.5			42.6			129.8			114.5
Cash dividends declared			(50.0	)		(60.0	)		(50.0	)		(200.0	)
Retained earnings at beginning of period			1,106.2			1,095.2			1,043.9			1,163.3

Retained earnings at end of period		$	1,123.7		$	1,077.8		$	1,123.7		$	1,077.8





See Notes to Interim Financial Statements.

Page 2

John Deere Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in millions)

							April 30, 2003			October 31, 2002			April 30, 2002


Assets
		Cash and cash equivalents				$	389.0		$	147.8		$	462.6
		Receivables
			Retail notes				5,729.8			5,311.7			4,273.2
			Revolving charge accounts				914.1			896.0			781.0
			Operating loans				568.9			561.2			490.4
			Wholesale receivables				3,854.6			2,942.2			3,187.5
			Financing leases				438.9			467.5			461.2

					Total receivables		11,506.3			10,178.6			9,193.3
			Allowance for credit losses				(122.2	)		(118.3	)		(157.5	)

					Total receivables - net		11,384.1			10,060.3			9,035.8

		Notes receivable - unconsolidated affiliates					291.9			259.9			273.2
		Other receivables					99.3			96.9			139.4
		Equipment on operating leases - net					975.1			1,180.0			1,276.8
		Investment in unconsolidated affiliates					2.6			7.1			10.5
		Other assets					417.5			350.4			237.7

Total Assets						$	13,559.5		$	12,102.4		$	11,436.0



Liabilities and Stockholder's Equity
	Short-term borrowings:
			Commercial paper			$	2,577.6		$	1,422.0		$	1,262.2
			Other notes payable				41.3			37.5			32.7
			John Deere				135.7			654.0			523.2
			Current maturities of long-term borrowings				1,617.5			2,158.6			2,489.1

				Total short-term borrowings			4,372.1			4,272.1			4,307.2

	Accounts payable and accrued liabilities
			Accrued interest on debt				69.2			52.3			49.3
			Other payables				412.9			446.3			299.3

				Total accounts payable and accrued liabilities			482.1			498.6			348.6

	Deposits withheld from dealers and merchants						141.4			138.4			130.8

	Long-term borrowings:
			Senior debt				6,510.2			5,231.3			4,651.2
			Subordinated debt				150.0			150.0			150.0

			Total long-term borrowings				6,660.2			5,381.3			4,801.2

			Total liabilities				11,655.8			10,290.4			9,587.8

	Stockholder's equity:
			Common stock, without par value (issued and outstanding - 2,500 shares owned by John Deere Credit Company)				812.8			812.8			812.8
			Retained earnings				1,123.7			1,043.9			1,077.8
			Cumulative translation adjustment				2.9			(2.2	)		(8.3	)
			Unrealized loss on derivatives				(43.3	)		(44.1	)		(36.0	)
			Unrealized gain on investments				7.6			1.6			1.9

			Total accumulated other comprehensive income (loss)				(32.8	)		(44.7	)		(42.4	)

			Total stockholder's equity				1,903.7			1,812.0			1,848.2

Total Liabilities and Stockholder's Equity						$	13,559.5		$	12,102.4		$	11,436.0





See Notes to Interim Financial Statements.

Page 3

John Deere Capital Corporation and Subsidiaries
Statements of Consolidated Cash Flows
For the Six Months Ended April 30, 2003 and 2002
(Unaudited)
(in millions)


	2003			2002

Cash Flows from Operating Activities:
Net income	$	129.8		$	114.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses		32.8			89.4
Provision for depreciation and amortization		115.7			130.7
Provision for deferred income taxes		(2.0	)		(11.2	)
Undistributed earnings of unconsolidated affiliates		(0.1	)		2.0
Other		(23.1	)		(101.9	)

Net cash provided by operating activities		253.1			223.5

Cash Flows from Investing Activities:
Cost of receivables acquired		(9,438.9	)		(7,504.4	)
Collections of receivables		7,616.2			6,018.2
Cost of operating leases acquired		(119.0	)		(173.7	)
Proceeds from sales of equipment on operating leases		233.7			261.9
Change in notes receivable - unconsolidated affiliates		(32.1	)		40.8
Proceeds from sales of receivables		606.2			2,613.0
Acquisition of businesses					(7.3	)
Other		(5.2	)		(85.2	)

Net cash provided by (used for) investing activities		(1,139.1	)		1,163.3

Cash Flows from Financing Activities:
Change in commercial paper		1,122.7			(1,118.2	)
Change in other notes payable		5.2			9.2
Change in payable with John Deere		(546.1	)		(1,031.5	)
Proceeds from issuance of long-term borrowings		1,900.0			2,213.6
Principal payments on long-term borrowings		(1,311.7	)		(1,298.1	)
Dividends paid		(50.0	)		(200.0	)

Net cash provided by (used for) financing activities		1,120.1			(1,425.0	)

Effect of exchange rate changes on cash		7.1			(1.4	)

Net increase (decrease) in cash and cash equivalents		241.2			(39.6	)
Cash and cash equivalents at beginning of period		147.8			502.2

Cash and cash equivalents at end of period	$	389.0		$	462.6

See Notes to Interim Financial Statements.

Page 4

John Deere Capital Corporation and Subsidiaries Notes to Interim Financial Statements (Unaudited)

(1)	The consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (collectively called the Company) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the year.
	The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.
	Certain amounts for prior years have been reclassified to conform with 2003 financial statement presentation.
(2)	The Company provides and administers financing for retail purchases of new equipment manufactured by Deere & Company's agricultural equipment, commercial and consumer equipment, and construction and forestry divisions and used equipment taken in trade for this equipment. The Company purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly-owned subsidiaries (collectively called John Deere). John Deere acquires these retail notes through John Deere retail dealers. The Company also purchases and finances a limited amount of non-Deere retail notes and continues to service a small portfolio of recreational products and other retail notes. In addition, the Company leases John Deere equipment and a limited amount of non-Deere equipment to retail customers (financing and operating leases). The Company also finances and services revolving charge accounts, in most cases acquired from and offered through merchants in the agricultural, commercial and consumer, and construction and forestry markets (revolving charge accounts). Further, the Company finances and services operating loans, in most cases acquired from and offered through farm input providers, and provides insured international export financing generally involving John Deere products (operating loans). The Company also provides wholesale financing for inventories of John Deere engines and John Deere agricultural, commercial and consumer and construction and forestry equipment owned by dealers of those products (wholesale receivables). In addition, the Company purchases and administers a significant portion of the trade receivables originated by John Deere, which are included in wholesale receivables. Retail notes, revolving charge accounts, operating loans, financing leases and wholesale receivables are collectively called "Receivables." Receivables and operating leases are collectively called "Receivables and Leases."
(3)	The Company's ratio of earnings before fixed charges to fixed charges was 2.07 to 1 for the second quarter of 2003 compared with 1.81 to 1 for the second quarter of 2002. The ratio of earnings to fixed charges was 2.08 to 1 for the first six months of 2003 and 1.98 to 1 for the first six months of 2002. "Earnings before fixed charges" consist of income before income taxes, the cumulative effect of changes in accounting and fixed charges. "Fixed charges" consist of interest on indebtedness, amortization of debt discount and expense, an estimated amount of rental expense under capitalized leases which is deemed to be representative of the interest factor and rental expense under operating leases.

Page 5

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

Three Months Ended
April 30,

Six Months Ended
April 30,

2003

2002

2003

2002

Net Income

$

67.5

$

42.6

$

129.8

$

114.5

Other comprehensive income (loss), net of tax:

  Change in cumulative translation adjustment

1.4

(.1

)

5.1

(.4

)

  Unrealized gain on derivatives

3.8

10.6

.8

25.6

  Unrealized gain on investments

3.3

.3

6.0

1.9

Total comprehensive income

$

76.0

$

53.4

$

141.7

$

141.6

(5)

     The Company has guaranteed certain recourse obligations on financing receivables that it has sold. If the receivables sold are not collected, the Company would be required to cover those losses up to the amount of its recourse obligation. At April 30, 2003, the Company's maximum amount of exposure to losses under these agreements was $174 million, which is net of accrued losses of $20 million related to these agreements. The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At April 30, 2003, the maximum remaining term of the receivables to which the recourse obligations relate was approximately six years.

     Additionally, at April 30, 2003, the Company had guaranteed $30 million of residual value related to property being used by the Company under an operating lease. The Company is obligated at the end of the lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value. The Company recognizes the expense for this future estimated lease payment over the life of the operating lease and had accrued expenses of $4 million related to these agreements at April 30, 2003. The lease term expires in 2007.

(6)

     In the first quarter of 2003, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires the purchase method of accounting for all business combinations and eliminates the pooling of interests method effective June 30, 2001. Statement No. 141 also specifies the types of acquired intangible assets to be included in goodwill and those to be reported separately from goodwill upon adoption of Statement No. 142. The Company does not have goodwill or goodwill amortization. This Statement did not have an effect on the Company's financial position or net income.

     In the first quarter of 2003, the Company also adopted the following accounting standards issued by the FASB. Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires the guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The Interpretation also requires certain disclosures for guarantees, which are included in Note 5. Statement No. 143, Accounting for Asset Retirement Obligations, requires legal obligations associated with the retirement of long-lived assets to be recorded as increases in costs of the related assets. Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. Statement No. 146, Accounting for the Costs Associated with Exit or Disposal Activities, requires companies to recognize liabilities and costs associated with exit or disposal activities initiated after December 31, 2002 when they are incurred, rather than when management commits to a plan to exit an activity. The adoption of these standards did not have a material effect on the Company's financial position or net income.

Page 6

	In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, which addresses the consolidation and related disclosures of these entities by business enterprises. These are entities in which either the equity investment at risk is not sufficient to absorb the probable losses without additional subordinated financial support from other parties, or the equity investors lack certain essential characteristics of control. As disclosed in Note 4 to the Company's 2002 Annual Report filed on Form 10-K, the Company holds retained interests in certain variable interest entities related to the securitization and sale of retail notes. Upon adoption of this Interpretation, the Company will not be required to consolidate any of these entities because it qualifies for the following exceptions. Under the Interpretation, most of the Company's retained interests are not deemed variable interests because they are interests in a variable intere st entity's specified assets with a fair value that is less than half the fair value of the entity's total assets. The Company's remaining retained interests are with qualified special purpose entities as defined by FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. At April 30, 2003, the assets of these entities related to the Company's securitizations and sales of retail notes totaled approximately $2,206 million and the maximum exposure to losses from recourse obligations related to these entities was $173 million. This Interpretation is effective for variable interests created after January 31, 2003 and is effective for preexisting variable interests in the Company's fourth quarter of fiscal year 2003. The Company does not expect the adoption of this standard to have a material effect on the Company's financial position or net income.
	In April 2003, the FASB issued Statement No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. This standard is primarily effective for transactions occurring after June 30, 2003. In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The Statement affects the accounting for certain obligations that a reporting entity can or must settle by issuing its own equity shares. It is effective for financial instruments entered into or modified after May 31, 2003 and is effective for the Company's previously existing financial instruments in the fourth quarter of 2003. The Company does not expect the adoption of these standards to have a material effect on the Company's financial position or net income.
(7)	The Company recognized a pretax gain of $13.0 million on the retail notes securitized during the first six months of 2003. Key assumptions used to initially determine the fair value of the retained interests included a weighted-average maturity of 22 months, average annual prepayment rate of 20 percent, expected annual credit losses of 0.28 percent, and a discount rate on retained interests and subordinate tranches of 13 percent.
(8)	In the fourth quarter of 2002, the Company began purchasing European wholesale receivables (trade receivables) from John Deere. These trade receivables arise from John Deere's sales of goods to dealers. Under the terms of the sales to dealers, interest is charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted to the dealer at the time of the sale, until payment is received by the Company. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. John Deere compensates the Company for the carrying costs related to these interest-free periods.

Page 7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Net income was $67.5 million for the second quarter and $129.8 million for the first six months of 2003, compared with $42.6 million and $114.5 million, respectively, last year. This year's results benefited primarily from lower loan losses, improved results in Argentina and a larger average portfolio. Partially offsetting these factors were lower gains resulting from a reduced volume of retail notes sold and narrower financing spreads.
Revenues totaled $326.5 million for the second quarter and $636.1 million for the first six months of 2003, compared to $356.1 million and $705.0 million, respectively, last year. Revenues decreased primarily due to the reduction in the net gain on Receivables and Leases sold. Finance income earned on retail notes totaled $200.2 million for the first six months of 2003, compared to $203.7 million for the same period in 2002. This decrease was primarily due to declining interest rates earned on the average retail note portfolio balance, partially offset by higher average retail note portfolio balances. Lease revenues decreased $35.1 million, to $176.9 million in the first six months of 2003, from $212.0 million in the first six months of 2002 due to a lower average amount of equipment on operating leases. Finance income earned on wholesale receivables increased $11.2 million, to $116.1 m illion for the first six months of 2003, from $104.9 million in the first six months of 2002. This increase was primarily due to a 12 percent increase in the average balance of wholesale receivables, resulting mainly from the Company purchasing European wholesale receivables (trade receivables) from John Deere beginning in the fourth quarter of 2002, as described in Note 8 to the Interim Financial Statements. Revolving charge account income was $66.2 million for the first six months of 2003, compared to $61.7 million during the same period last year. This increase was primarily due to a nine percent increase in the average balance of revolving charge accounts. Operating loan income increased $2.9 million to $15.7 million in the first six months of 2003, from $12.8 million in the first six months of 2002. The increase was primarily due to a 25 percent increase in the average balance of operating loan accounts. Revenues earned from Deere & Company totaled $95.6 million for the second quarter and $179.9 mil lion for the first six months of 2003, compared to $95.7 and $183.2 million, respectively, for the same periods last year.
The net gain on Receivables and Leases sold, including adjustments to prior sales, totaled $7.9 million and $14.3 million for the second quarter and first six months of 2003, respectively, compared to $41.8 million and $71.6 million for the same periods a year ago. The year-to-date decrease was primarily due to significantly lower sales of agricultural retail notes of approximately $572 million total principal value during the first six months of 2003, compared to the sale of agricultural and construction and forestry retail notes of approximately $2,631 million total principal value during the first six months of 2002. Additional sales of Receivables and Leases are expected to be made in the future.
Other income totaled $9.0 million for the second quarter of 2003, and $15.0 million for the first six months of 2003, compared to $2.0 million and $9.6 million for the same periods in 2002. The year-to-date increase was primarily due to increased gains on the sale of matured lease equipment inventories.
Interest expense totaled $94.6 million for the second quarter of 2003, and $181.3 million for the first six months of 2003, compared to $88.4 million and $186.0 million for the same periods in 2002. The quarter-to-date increase was due to higher average debt balances. The year-to-date decrease was due to lower average borrowing rates, partially offset by higher average debt balances.
Administrative and operating expenses were $48.2 million in the second quarter of 2003, and $95.7 million for the first six months of 2003, compared with $60.1 million and $106.5 million for the same periods in 2002. The year-to-date decrease was primarily due to the absence this year of the $21 million loss related to the Argentine peso devaluation during the first six months of 2002, partially offset by higher costs associated with administering a larger Receivable and Lease portfolio during the first six months of 2003.

Page 8

Depreciation of equipment on operating leases was $54.3 million in the second quarter of 2003, and $112.8 million for the first six months of 2003, compared to $60.8 million and $128.0 million for the same periods in 2002. The decrease was primarily the result of the lower average amount of equipment on operating leases, partially offset by lower residual values on newly originated operating leases. Interest and support fees paid to John Deere were $6.3 million in the second quarter of 2003, and $14.4 million for the first six months of 2003, compared with $5.3 million and $10.7 million for the same periods in 2002. The year-to-date increase was primarily due to increased average borrowings from Deere & Company.

During the second quarter and first six months of 2003, the provision for credit losses totaled $19.9 million, and $32.8 million, respectively, compared with $69.1 million and $89.4 million, in the same periods last year. The decrease was primarily due to a $44 million loan-loss provision taken in the second quarter of 2002 related to two international trade finance customers, Allied Deals Inc. and one of its affiliates (collectively called "Allied Deals"). For additional information, see Note 3 to the Company's most recently filed annual report on Form 10-K. The annualized provision for credit losses, as a percentage of the total average balance of Receivables financed, was .73 percent for the second quarter of 2003 and .62 percent for the first six months of 2003, compared with 3.77 percent and 2.48 percent for the same periods last year. The year-to-date decrease was primarily due to the default of Allied Deals in 2002.

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

	Three Months
	Ended April 30,

		2003		2002		$ Change		% Change

Retail notes:
Agricultural equipment	$	877	$	853	$	24		3	%
Construction and forestry equipment		193		281		(88	)	(31	)
Commercial and consumer equipment		117		137		(20	)	(15	)

Total		1,187		1,271		(84	)	(7	)
Revolving charge accounts		688		542		146		27
Operating loans		323		269		54		20
Wholesale receivables		3,295		2,220		1,075		48
Financing leases		35		44		(9	)	(20	)
Equipment on operating leases		77		106		(29	)	(27	)

Total	$	5,605	$	4,452	$	1,153		26	%

	Six Months
	Ended April 30,

		2003		2002		$ Change		% Change

Retail notes:
Agricultural equipment	$	1,607	$	1,736	$	(129	)	(7	)%
Construction and forestry equipment		353		487		(134	)	(28	)
Commercial and consumer equipment		181		199		(18	)	(9	)

Total		2,141		2,422		(281	)	(12	)
Revolving charge accounts		1,156		946		210		22
Operating loans		745		531		214		40
Wholesale receivables		5,336		3,529		1,807		51
Financing leases		61		76		(15	)	(20	)
Equipment on operating leases		119		174		(55	)	(32	)

Total	$	9,558	$	7,678	$	1,880		24	%

Page 9

Agricultural retail note volumes increased during the second quarter of 2003, when compared to last year, primarily due to an increase in international receivables. Agricultural retail note volumes decreased during the first six months of 2003, when compared to last year, primarily due to less aggressive finance programs offered in the first six months of 2003. Construction and forestry retail note volumes decreased during the second quarter and first six months of 2003, when compared to last year, primarily due to a decline in dealer retail sales. Commercial and consumer retail note volumes decreased during the second quarter and first six months of 2003, when compared to last year, primarily due to reduced golf and turf volumes. Revolving charge account volumes increased in the second quarter and first six months of 2003, when compared to last year, primarily as a result of incentive programs offered. Operating loan volumes increased in the second quarter and first six months of 2003, when compared to last year, primarily due to additional sales personnel increasing market coverage. Wholesale receivable volumes increased during the second quarter and first six months of 2003, when compared to last year, primarily as a result of the Company purchasing European wholesale receivables (trade receivables) from John Deere beginning in the fourth quarter of 2002, as described in Note 8 to the Interim Financial Statements. Financing and operating lease volumes decreased during the second quarter and first six months of 2003, when compared to last year, due to more attractive financing options available for retail note products.

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

		April 30,		October 31,		April 30,
		2003		2002		2002

Retail notes:
Agricultural equipment	$	3,666	$	3,305	$	2,393
Construction and forestry equipment		1,245		1,198		1,125
Commercial and consumer equipment		754		730		661
Recreational products		65		79		94

Total		5,730		5,312		4,273
Revolving charge accounts		914		896		781
Operating loans		569		561		490
Wholesale receivables		3,855		2,942		3,188
Financing leases		439		468		461
Equipment on operating leases		975		1,180		1,277

Total	$	12,482	$	11,359	$	10,470

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

		April 30,		October 31,		April 30,
		2003		2002		2002

Receivables and Leases administered:
Owned by the Company	$	12,482	$	11,359	$	10,470
Sold and serviced - with limited recourse*		2,055		2,482		2,967
Sold and serviced - without recourse**		43		51		61

Total Receivables and Leases administered	$	14,580	$	13,892	$	13,498


Receivables and Leases administered were higher at April 30, 2003 and October 31, 2002 compared to April 30, 2002, primarily due to the purchase of European trade receivables from John Deere beginning in the fourth quarter of 2002, as disclosed in Note 8 to the Interim Financial Statements.
*	The Company's maximum exposure under all recourse provisions at April 30, 2003, October 31, 2002 and April 30, 2002 was $174 million, $204 million and $283 million, respectively. In addition, the Company has guaranteed letters of credit on behalf of John Deere Credit Inc., the John Deere finance subsidiary in Canada, as part of a retail note sale. At April 30, 2003, October 31, 2002 and April 30, 2002, the exposure under these agreements was approximately $4 million, $7 million and $7 million, respectively.
**	These receivables represent recreational product retail notes which the Company has sold but continues to administer for a fee until the servicing rights are assumed by their owners.

Page 10

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

	April 30,				October 31,					April 30,
	2003				2002					2002

		Dollars	Percent				Dollars	Percent				Dollars	Percent

Retail notes:
Agricultural equipment	$	17.6	.48	%		$	6.9	.21	%		$	10.3	.43	%
Construction and forestry equipment		12.2	.98				6.8	.57				3.8	.34
Commercial and consumer equipment		1.3	.17				.6	.08				1.3	.20
Recreational products		.1	.15									.1	.11

Total retail notes		31.2	.54				14.3	.27				15.5	.36
Revolving charge accounts		14.9	1.63				14.5	1.62				16.1	2.06
Operating loans		5.7	1.00				3.0	.53				16.0	3.26
Wholesale receivables		8.6	.22				10.6	.36				17.2	.54
Financing leases		2.6	.59				2.6	.56				3.3	.72

Total Receivables	$	63.0	.55	%		$	45.0	.44	%		$	68.1	.74	%

The balance of retail notes held (principal plus accrued interest) with any installment 60 days or more past due represents the total retail note balance for a customer that has any portion of their note 60 days or more past due. These amounts were $131 million, $111 million and $69 million at April 30, 2003, October 31, 2002 and April 30, 2002, respectively. The balance of retail notes held on which any installment is 60 days or more past due as a percent of balances held at those dates, respectively, represented 2.29, 2.09 and 1.61 percent of the ending retail notes receivable at April 30, 2003, October 31, 2002 and April 30, 2002, respectively. Amounts of construction and forestry retail notes 60 days or more past due have increased primarily due to non-Deere commercial equipment.

Total non-performing Receivables, which represent loans the Company has ceased accruing interest for, by product, and as a percent of Receivables were as follows (in millions of dollars):

	April 30,				October 31,					April 30,
	2003				2002					2002

		Dollars	Percent				Dollars	Percent				Dollars	Percent

Retail notes:
Agricultural equipment	$	18.4	.50	%		$	9.9	.30	%		$	19.5	.81	%
Construction and forestry equipment		18.8	1.51				28.8	2.40				15.5	1.38
Commercial and consumer equipment		2.8	.37				1.2	.16				1.3	.19
Recreational products		.5	.77				.3	.38				.2	.24

Total retail notes		40.5	.71				40.2	.76				36.5	.85
Revolving charge accounts
Operating loans		22.1	3.89									43.7	8.92
Wholesale receivables		1.6	.04
Financing leases		17.4	3.96				4.1	.88				5.1	1.11

Total Receivables	$	81.6	.71	%		$	44.3	.44	%		$	85.3	.93	%

The balance of non-performing operating loans at April 30, 2003 was due to a payment default on an operating loan to a commercial and consumer equipment customer. The Company believes the operating loan is adequately collateralized. The balance of non-performing operating loans at April 30, 2002 was due to the Allied Deals international trade finance receivables that were subsequently written-off in the fourth quarter of 2002. The increase in non-performing financing leases presented above is primarily related to the uncertainty of interest collection related to a few John Deere construction and non-Deere commercial equipment financing leases.

Page 11

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

			Three Months Ended April 30, 2003					Three Months Ended April 30, 2002

			Dollars		Percent			Dollars		Percent

Retail notes:
	Agricultural equipment		$	1.5		.17	%	$	1.3	.19		%
	Construction and forestry equipment			5.1	1.69				2.3	.91
	Commercial and consumer equipment			.3	.14				.2	.13
	Recreational products								(.1	)	(.04	)

		Total retail notes		6.9		.50			3.7	.33
Revolving charge accounts				6.1		2.87			4.5	2.30
Operating loans				1.2		.94			.8	.81
Wholesale receivables				1.3		.14			2.2	.27
Financing leases				3.7		3.31			.2	.20

		Total Receivables	$	19.2		.70	%	$	11.4	.49		%

			Six Months Ended April 30, 2003					Six Months Ended April 30, 2002

			Dollars		Percent			Dollars		Percent

Retail notes:
	Agricultural equipment		$	2.6		.15	%	$	3.1	.23	%
	Construction and forestry equipment			9.5	1.62				6.2	1.24
	Commercial and consumer equipment			.4	.11				.4	.13
	Recreational products								1.5	2.97

		Total retail notes		12.5		.47			11.2	.51
Revolving charge accounts				11.9		2.86			7.7	1.91
Operating loans				1.6		.65			1.0	.57
Wholesale receivables				1.6		.09			2.3	.14
Financing leases				5.6		2.57			5.4	2.36

		Total Receivables	$	33.2		.62	%	$	27.6	.60	%

Deposits withheld from dealers and merchants, representing mainly the aggregate dealer retail note and lease withholding accounts from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged, amounted to $141 million at April 30, 2003, compared with $138 million at October 31, 2002 and $131 million at April 30, 2002.

The Company's allowance for credit losses on all Receivables held totaled $122 million at April 30, 2003, $118 million at October 31, 2002 and $158 million at April 30, 2002. The allowance for credit losses represented 1.06 percent of the total Receivables held at April 30, 2003, 1.16 percent at October 31, 2002 and 1.72 percent at April 30, 2002. The decrease in the allowance at April 30, 2003, compared to April 30, 2002, was primarily due to the write-off of the loan-loss accrued for Allied Deals in 2002. The allowance is subject to an ongoing evaluation based on collection experience, economic conditions and credit risk quality. The Company believes the allowance is sufficient to provide for losses in its existing receivable portfolio.

The Company's other assets totaled $418 million at April 30, 2003, $350 million at October 31, 2002, and $238 million at April 30, 2002. The increase was primarily the result of increases in fair values of interest rate swaps associated with fair value hedges of long-term borrowings. The offsetting amounts were recorded as fair value increases in the carrying values of the related borrowings according to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.

Page 12

Safe Harbor Statement

Statements herein that relate to future operating periods are subject to important risks and uncertainties that could cause actual results to differ materially. Actions by the United States Federal Reserve Board and other central banks may affect the costs and expenses of financing the Company and the rates it is able to offer. The Company's business is affected by general economic conditions in and the political instability of the global markets in which the Company operates (including Latin America), because deteriorating economic conditions and political instability can result in higher loan losses. In addition, the Company's business is closely related to John Deere's business. Further information, including factors that potentially could materially affect the Company's and John Deere's financial results, is included in the most recent Deere & Company Form 10-Q and other Deere & amp; Company and Capital Corporation filings with the Securities and Exchange Commission.

Capital Resources and Liquidity

The Company relies on its ability to raise substantial amounts of funds to finance its Receivable and Lease portfolios. During the first six months of 2003, the Company issued $1,900 million of term debt, maintained an average commercial paper balance of $1,454 million, and received proceeds of $606 million from sales of Receivables. At April 30, 2003, the Company's funding profile included $2,578 million of commercial paper, $8,278 million of unsecured term debt, $2,006 million of securitizations and $1,904 million of equity capital. For funding diversification purposes, the Company has historically sought to maintain securitizations at between 20 and 30 percent of its non-equity funding base. The Company's funding profile may be altered to reflect such factors as capital market accessibility, relative costs of funding sources and assets available for securitization. In the first six m onths of 2002, an assessment of these and other factors led to $2,613 million of funding sourced from Receivable sales. In contrast, only $606 million of funding was sourced from Receivable sales in the first six months of 2003, resulting in a higher commercial paper balance relative to 2002. Note 4 to the consolidated financial statements in the Company's annual report on Form 10-K provides a summary of retail note securitizations. For additional information regarding current securitization gains and assumptions, see Note 7 to the interim financial statements presented above.

During the first six months of 2003, the aggregate net cash provided by operating and financing activities was used primarily to increase Receivables and Leases. Net cash provided by operating activities was $253 million in the first six months of 2003. Cash provided by financing activities totaled $1,120 million in the first six months of 2003, resulting from a net increase in total external borrowings, partially offset by a decrease in payables to Deere & Company and dividends paid to John Deere Credit Company, which in turn paid comparable dividends to Deere & Company. Cash used for investing activities totaled $1,139 million in the first six months of 2003, primarily due to the cost of Receivables and Leases acquired exceeding collections of Receivables and Leases, partially offset by proceeds from sales of Receivables. Cash and cash equivalents increased $241 million during the first six months of 2003.

During the first six months of 2002, the aggregate net cash provided by operating and investing activities was used primarily to decrease borrowings. Net cash provided by operating activities was $223 million in the first six months of 2002. Cash provided by investing activities totaled $1,163 million in the first six months of 2002, primarily due to the collections of Receivables and Leases and proceeds from sales of Receivables and Leases exceeding the cost of Receivables and Leases acquired. Cash used for financing activities totaled $1,425 million in the first six months of 2002, resulting primarily from a decrease in borrowings and dividends paid to John Deere Credit Company, which in turn paid comparable dividends to Deere & Company. Cash and cash equivalents decreased $40 million during the first six months of 2002.

Page 13

Because of the multiple funding sources that have been and continue to be available to the Company, the Company expects to have sufficient sources of liquidity to meet its ongoing funding needs. The Company's commercial paper outstanding at April 30, 2003, October 31, 2002 and April 30, 2002 was approximately $2,578 million, $1,422 million and $1,262 million, respectively, while the total cash and short-term investment position was approximately $389 million, $148 million and $463 million, respectively. Additionally, the Company had access to approximately $2,880 million, $2,639 million and $2,123 million, respectively, of cash and cash equivalents held by its parent, Deere & Company (if Deere & Company would have chosen to make these funds available to the Company). In addition, the Company has for many years accessed diverse funding sources, including short-term and long-term unsecured debt capital markets in the United States, Europe and Australia, as well as public and private securitization markets in the United States.

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

To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company's securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell or hold Company securities. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company's current and future ability to meet interest and principal repayment obligations. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets.

The senior long-term and short-term debt ratings currently assigned to Company securities by the rating agencies listed below are investment grade ratings. Each rating should be evaluated independently of any other rating. The current Company ratings and ratings outlook are the same as those for Deere & Company. They are as follows:


	Senior Long-Term		Short-Term	Outlook
Moody's Investors Service, Inc.		A3	Prime-2	Stable
Standard & Poor's		A-*	A-2*	CreditWatch Negative (Long-Term only)
Fitch Ratings		A	F1	Negative

* On April 14, 2003, Standard & Poor's placed the senior long-term ratings of Deere & Company and the Company on CreditWatch with negative implications. The A-2 short-term ratings were affirmed and not placed on CreditWatch.

Total interest-bearing indebtedness amounted to $11,032 million at April 30, 2003, compared with $9,653 million at October 31, 2002 and $9,108 million at April 30, 2002, generally corresponding with the level of Receivables and Leases financed and the level of cash and cash equivalents. Total short-term indebtedness amounted to $4,372 million at April 30, 2003, compared with $4,272 million at October 31, 2002 and $4,307 million at April 30, 2002, while total long-term indebtedness amounted to $6,660 million, $5,381 million and $4,801 million at these dates, respectively. The ratio of total interest-bearing debt to stockholder's equity was 5.8 to 1, 5.3 to 1 and 4.9 to 1 at April 30, 2003, October 31, 2002 and April 30, 2002, respectively.

During the first six months of 2003, the Company issued $850 million of 3.90% Global Notes due in January 2008 and entered into interest rate swaps related to $650 million of these notes, which swapped the fixed rate to a variable rate of approximately 1.8% at April 30, 2003. Additionally during the first six months of 2003, the Company issued $650 million of 5.10% Global Debentures due in January 2013 and entered into interest rate swaps related to these notes, which swapped the fixed rate to a variable rate of approximately 2.0% at April 30, 2003. The Company also issued $400 million and retired $1,312 million of medium-term notes.

In May 2003, the Company issued $200 million of floating rate medium-term notes due in 2005. Interest rate swaps related to these notes swap the floating rate to a fixed rate of 2.2% as of May 20, 2003.

Page 14

The Company's ability to meet its debt obligations is supported in a number of ways. All commercial paper issued is backed by bank credit lines. The assets of the Company are self-liquidating in nature. A strong equity position is available to absorb unusual losses on these assets. Liquidity is also provided by the Company's ability to sell these assets.
At April 30, 2003, the Capital Corporation and Deere & Company jointly maintained $3,561 million of unsecured lines of credit with various banks in North America and overseas, $578 million of which were unused. For the purpose of computing unused credit lines, commercial paper and short-term bank borrowings, excluding the current portion of long-term borrowings of the Capital Corporation and Deere & Company, were considered to constitute utilization. These agreements include a $2,150 million long-term bank credit agreement expiring on February 20, 2006. The facility fees payable under these lines of credit are divided between Deere & Company and the Capital Corporation based on the proportion of their respective commercial paper outstanding.
Stockholder's equity was $1,904 million at April 30, 2003, compared with $1,812 million at October 31, 2002 and $1,848 million at April 30, 2002. The increase of $92 million in the first six months of 2003 resulted primarily from net income of $130 million, offset by a dividend payment of $50 million.
The Capital Corporation declared and paid cash dividends of $50 million to John Deere Credit Company during the first six months of fiscal 2003. John Deere Credit Company paid comparable dividends to Deere & Company. On May 29, 2003, the Capital Corporation declared an additional $40 million dividend, to be paid to John Deere Credit Company on June 6, 2003. John Deere Credit Company, in turn, declared a $40 million dividend to Deere & Company, also payable on June 6, 2003.
The financing of retail purchases and leases of John Deere products and of trade receivables owed by John Deere dealers represented approximately 79 percent of the Company's acquisition volume for both the six months ended April 30, 2003 and for the same period last year. Any extended reduction or suspension of John Deere's sale or production of products due to a decline in demand or production, technological difficulties, governmental actions or other events could have an adverse effect on the Company's acquisition volume of Receivables and Leases. For additional information on the Company's dependence on and relationships with Deere & Company, see the Company's most recently filed annual report on Form 10-K.
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.
	See the information under "Quantitative and Qualitative Disclosure About Market Risk" on page 19 in the John Deere Capital Corporation's most recent annual report filed on Form 10-K. There has been no material change in this information.
Item 4.	Controls and Procedures.
(a)	Evaluation of disclosure controls and procedures.
	The Company's principal executive officer and its principal financial officer, after an evaluation on May 29, 2003, have concluded that, as of such date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities. "Disclosure controls and procedures" are defined in Exchange Act Rules 13a-14(c) and 15d-14(c).
(b)	Changes in internal controls.
	There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures subsequent to the date of their evaluation.

Page 15


PART II. OTHER INFORMATION

Item 1.	Legal Proceedings.
			The Company is subject to various unresolved legal actions that arise in the normal course of its business, the most prevalent of which relate to state and federal laws and regulations concerning retail credit. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes these unresolved legal actions will not have a material effect on its financial statements.

Item 2.	Changes in Securities and Use of Proceeds.
		Omitted pursuant to instruction H.

Item 3.	Defaults Upon Senior Securities.
		Omitted pursuant to instruction H.

Item 4.	Submission of Matters to a Vote of Security Holders.
		Omitted pursuant to instruction H.

Item 5.	Other Information.
		None.

Item 6.	Exhibits and Reports on Form 8-K.

	(a)	Exhibits.
		See the index to exhibits immediately preceding the exhibits filed with this report.
		Certain instruments relating to long-term debt, constituting less than 10% of the registrant's total assets, are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of such instruments upon request of the Commission.
	(b)	Reports on Form 8-K.

Date of Report	Item	Financial Statements
February 11, 2003	Items 5 & 7	Earnings release of John Deere Capital Corporation and press release of Deere & Company

April 14, 2003	Item 9	None

Page 16

SIGNATURES

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

		JOHN DEERE CAPITAL CORPORATION


Date:	May 29, 2003	By:	/s/ Nathan J. Jones

			Nathan J. Jones Senior Vice President, Principal Financial Officer

Page 17

CERTIFICATIONS

I, R. W. Lane, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of John Deere Capital Corporation;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date:	May 29, 2003		By:	/s/ R. W. Lane

				R. W. Lane
				Principal Executive Officer

Page 18

CERTIFICATIONS

I, Nathan J. Jones, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of John Deere Capital Corporation;

2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

	c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.	The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date:	May 29, 2003		By:	/s/ Nathan J. Jones

				Nathan J. Jones
				Principal Financial Officer

Page 19

INDEX TO EXHIBITS

Exhibit		Page No.

3.1	Certificate of Incorporation, as amended (Exhibit 3.1 to Form 10-K of John Deere Capital Corporation for the year ended October 31, 1999*).	----

3.2	Bylaws, as amended (Exhibit 3.2 to Form 10-K of John Deere Capital Corporation for the year ended October 31, 1999*).	----

12.	Computation of ratio of earnings to fixed charges.	21

99.1	Part I of Deere & Company Form 10-Q for the quarter ended April 30, 2003	----
	(Securities and Exchange Commission file number 1-4121*).

99.2	Statement of Robert W. Lane, Chairman and Principal Executive Officer of John Deere Capital Corporation, and Nathan J. Jones, Senior Vice President and Principal Financial Officer of John Deere Capital Corporation, as required by Section 906 of the Sarbanes-Oxley Act of 2002.	22


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

Page 20


(5)	The Company has guaranteed certain recourse obligations on financing receivables that it has sold. If the receivables sold are not collected, the Company would be required to cover those losses up to the amount of its recourse obligation. At April 30, 2003, the Company's maximum amount of exposure to losses under these agreements was $174 million, which is net of accrued losses of $20 million related to these agreements. The Company may recover a portion of any required payments incurred under these agreements from the repossession of the equipment collateralizing the receivables. At April 30, 2003, the maximum remaining term of the receivables to which the recourse obligations relate was approximately six years.
	Additionally, at April 30, 2003, the Company had guaranteed $30 million of residual value related to property being used by the Company under an operating lease. The Company is obligated at the end of the lease term to pay to the lessor any reduction in market value of the leased property up to the guaranteed residual value. The Company recognizes the expense for this future estimated lease payment over the life of the operating lease and had accrued expenses of $4 million related to these agreements at April 30, 2003. The lease term expires in 2007.
(6)	In the first quarter of 2003, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires the purchase method of accounting for all business combinations and eliminates the pooling of interests method effective June 30, 2001. Statement No. 141 also specifies the types of acquired intangible assets to be included in goodwill and those to be reported separately from goodwill upon adoption of Statement No. 142. The Company does not have goodwill or goodwill amortization. This Statement did not have an effect on the Company's financial position or net income.
	In the first quarter of 2003, the Company also adopted the following accounting standards issued by the FASB. Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires the guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The Interpretation also requires certain disclosures for guarantees, which are included in Note 5. Statement No. 143, Accounting for Asset Retirement Obligations, requires legal obligations associated with the retirement of long-lived assets to be recorded as increases in costs of the related assets. Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. Statement No. 146, Accounting for the Costs Associated with Exit or Disposal Activities, requires companies to recognize liabilities and costs associated with exit or disposal activities initiated after December 31, 2002 when they are incurred, rather than when management commits to a plan to exit an activity. The adoption of these standards did not have a material effect on the Company's financial position or net income.