UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003

Commission file number 1-6458

JOHN DEERE CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State of incorporation)

36-2386361
(IRS employer identification number)

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

89501
(Zip Code)

(775) 786-5527
(Telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange

6 % Debentures Due 2009
8-5/8% Subordinated Debentures Due 2019

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 November 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.

The registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with certain reduced disclosures as permitted by Instruction I(2).

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-owned finance holding subsidiary of Deere & Company, owns all of the outstanding common stock of the Capital Corporation. See "Relationships of the Company with John Deere" for additional information regarding agreements between the Company and Deere & Company. The Company offers equipment financing products in Argentina, Australia, France (through a joint venture), Germany, Italy, Luxembourg, Mexico, New Zealand, Portugal (through a cooperation agreement), Spain, the United Kingdom and the United States.

                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 offered through and acquired from farm input providers or through direct relationships with agricultural producers, 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 a nd operating leases are collectively called "Receivables and Leases."

                The Capital Corporation was incorporated under the laws of Delaware and commenced operations in 1958. At November 30, 2003, the Company had 1,494 full-time and part-time employees.

Business of John Deere

John Deere's operations are categorized into four major business segments:

The agricultural equipment segment manufactures and distributes a full line of farm equipment and service parts - including tractors; combine, cotton and sugarcane harvesters; tillage, seeding and soil preparation machinery; sprayers; hay and forage equipment; material handling equipment; and integrated agricultural management systems technology.

The commercial and consumer equipment segment manufactures and distributes equipment and service parts for commercial and residential uses - including small tractors for lawn, garden, commercial and utility purposes; walk-behind mowers; golf course equipment; utility vehicles; landscape and irrigation equipment; and other outdoor power products.

The construction and forestry segment manufactures, distributes to dealers and sells at retail a broad range of machines and service parts used in construction, earthmoving, material handling and 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, loaders, forwarders, harvesters and related attachments.

John Deere's worldwide agricultural equipment, commercial and consumer equipment, construction and forestry and special technologies operations are commonly referred to as the Equipment Operations. The products and services produced by the segments above are marketed primarily through independent retail dealer networks and major retail outlets.

The credit operations segment includes the operations of the Company (described herein), John Deere Credit Company, John Deere Credit Inc. (Canada), Banco John Deere, S.A. (Brazil) and John Deere Credit Oy (Finland), and primarily finances sales and leases by John Deere dealers of new and used agricultural, commercial and consumer, and construction and forestry equipment. In addition, it provides wholesale financing to dealers of the foregoing equipment, provides operating loans and finances retail revolving charge accounts.

                John Deere had net income of $643 million, or $2.64 per share diluted ($2.68 per share basic), in 2003, compared with net income of $319 million, or $1.33 per share diluted ($1.34 per share basic), in 2002. The success of new products and ongoing efforts to manage costs and asset intensity were evident in the results for 2003. Improved market conditions also contributed to the stronger performance of John Deere's construction and forestry and commercial and consumer equipment segments. Additionally, as a result of disciplined asset management, trade receivables ended the year at their lowest level in more than a decade.

                John Deere's net sales and revenues increased 11 percent to $15,535 million in 2003, compared with $13,947 million in 2002. Net sales of the Equipment Operations increased 14 percent in 2003 to $13,349 million from $11,703 million last year. Net sales increased primarily due to higher physical volumes of commercial and consumer equipment and construction and forestry equipment. In addition, the increases were due to the translation effect of stronger foreign currency exchange rates and improved price realization. Net sales outside the United States and Canada increased 17 percent in 2003. Excluding the impact of changes in currency exchange rates, these sales were up 5 percent for the year.

                The agricultural equipment segment had net sales of $7,349 million in 2003, compared to $6,738 million in 2002. The commercial and consumer equipment segment had net sales of $3,231 million in 2003, compared to $2,712 million in 2002. The construction and forestry segment had net sales of $2,728 million in 2003, compared to $2,199 million in 2002. The credit operations segment had revenues of $1,347 million in 2003, compared to $1,426 million in 2002.

Outlook for John Deere

                As a result of the factors and conditions outlined below, sales for the full 2004 fiscal year are expected to increase between 9 and 11 percent and net income is forecast to be in a range of $750 million to $850 million. John Deere's net equipment sales for the first quarter of 2004 are currently forecast to be up approximately 25 percent in comparison with depressed sales levels in the first quarter of 2003, although production levels are expected to increase only 9 to 11 percent for the first quarter. John Deere net income for the first quarter in 2004 is forecasted in a range of $100 million to $150 million. Excluding the impact of currency and price, sales are expected to increase 18 to 20 percent for the quarter and 6 to 8 percent for the year.

               John Deere's yearly earnings estimate also includes an increase of approximately $125 million pretax in postretirement benefit costs, based on John Deere's assumptions that reflect recent trends in medical inflation and interest rates.

                Agricultural Equipment. After hitting a record level in 2003, United States farm income is expected to remain strong in the coming year as a result of continuing high crop and livestock prices, as well as favorable levels of carryover stocks in farm commodities. In addition, tax provisions that offer expanded depreciation and expense write-offs should lend further support to farm machinery sales. As a result of these positive factors, industry retail sales in the United States and Canada are now expected to be up 5 to 10 percent for fiscal 2004. In other parts of the world, industry retail sales in Western Europe are expected to be flat to down 5 percent for the year mainly as result of lower farm income due to the impact of drought on

 the livestock sector. John Deere believes industry sales in South America will be flat in 2004. While favorable conditions support further industry growth in South America, John Deere believes this could be offset by the timing and availability of Brazilian government financing. On a worldwide basis, sales of John Deere agricultural equipment are now forecast to be up between 8 to 10 percent for the year with an increase in physical volume of 5 to 7 percent.

                Commercial and Consumer Equipment. John Deere commercial and consumer equipment sales are expected to continue benefiting from the success of new products, including an expanded utility-vehicle line and the 100 series lawn tractor introduced in the mass and dealer channels in 2003. As a result, the segment's sales are forecast to be up between 10 to 12 percent for the year.

                Construction and Forestry. Retail activity in the construction and forestry sectors rose at a healthy rate in 2003 mainly as a result of strong replacement demand. John Deere sales for 2003 rose sharply in virtually all market segments and outpaced the industry. Further replacement demand is expected to lead to modest growth in the industry in 2004. In 2004, John Deere shipments of construction and forestry equipment are projected to be up 2 to 4 percent. John Deere consolidated Nortrax, Inc. during the first quarter of 2004. Nortrax, Inc. and Nortrax Investments, Inc. (collectively called Nortrax) are ventures involved in the ownership and development of several construction equipment dealer locations. Including Nortrax in the consolidated results will add an additional estimated $275 million to sales for the year.

                Credit Operations. Although the credit operations are expected to benefit from further growth in the loan portfolio, net income for 2004 is forecast to be down slightly as a result of lower gains on receivable sales. The credit operations expect net income of about $300 million for the year. The Company's net income for 2004, which does not include the credit operations in Canada, Brazil and Finland, is projected to remain unchanged from 2003.

Relationships of the Company with John Deere

                The results of operations of the Company are affected by its relationships with John Deere, including among other items, the terms on which the Company acquires Receivables and Leases and borrows funds from John Deere, the reimbursement for interest waiver and low-rate finance programs from John Deere, the compensation paid by John Deere in connection with the Company's purchase of trade receivables from John Deere and the payment to John Deere for various expenses applicable to the Company's operations. In addition, the Company and John Deere have joint access to certain lines of credit of the Company.

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

                The Company bears substantially all of the credit risk (net of recovery from withholdings from certain John Deere dealers, and Farm Planä and PowerPlanâ merchants) associated with its holding of Receivables and Leases. A small portion of the Receivables and Leases held (less than 5 percent) is guaranteed by the Equipment Operations. The Company also performs all servicing and collection functions in North America. John Deere is reimbursed for staff and other administrative services at estimated cost, and for credit lines provided to the Company based on utilization of those lines.

                The terms and the basis on which the Company acquires retail notes and certain wholesale receivables from John Deere are governed by agreements with John Deere, terminable by either John Deere or the Company on 30 days notice. As provided in these agreements, the Company agrees to the terms and conditions for purchasing the retail notes and wholesale receivables from John Deere. Under these agreements, John Deere is not obligated to sell notes to the Company, and the Company is obligated to purchase notes from John Deere only if the notes comply with the terms and conditions set by the Company.

                The basis on which John Deere acquires retail notes and wholesale receivables from the dealers is governed by agreements with the 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 forth in agreements with the dealers, conform with the terms and conditions adopted by the Company in determining the acceptability of retail and certain wholesale notes to be purchased from John Deere. The dealers are not obligated to sell these notes to John Deere and John Deere is not obligated to accept these notes from the dealers. In practice, retail and wholesale notes are acquired from dealers only if the terms of these notes and the creditworthiness of the customers are acceptable to the Company for purchase of these notes from John Deere. The Company acts on behalf of both itself and John Deere in determining the acceptability o f the notes and in acquiring acceptable notes from dealers.

                The basis on which the Company enters into leases with retail customers through John Deere dealers is governed by agreements between dealers and the Company. Leases are accepted based on the terms and conditions, the lessees' creditworthiness, the anticipated residual values of the equipment and the intended uses of the equipment.

                 Deere & Company has an agreement with the Company pursuant to which it has agreed to continue to own at least 51 percent of the voting shares of capital stock of the Company and to maintain the Company's consolidated tangible net worth at not less than $50 million. This agreement also obligates Deere & Company to make income maintenance payments to the Company such that its consolidated ratio of earnings to fixed charges is not less than 1.05 to 1 for any fiscal quarter. For 2003 and 2002, the Company's ratios were 2.17 to 1 and 1.97 to 1, respectively, and never less than 2.05 to 1 and 1.81 to 1 for any fiscal quarter of 2003 and 2002, respectively. Deere & Company's obligations to make payments to the Company under the agreement are independent of whether the Company is in default on its indebtedness obligations or other liabilities. Further, Deere & Company's obligations under the agreement are not measured by the amount of the Company's indebtedness, obligations or other liabilities. Deere & Company's obligations to make payments under this agreement are expressly stated not to be a guaranty of any specific indebtedness, obligation or liability of the Company and are enforceable only by or in the name of the Company. No payments were required under this agreement during the periods included in the financial statements.

                The Company purchases certain 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. Dealers cannot cancel purchases after goods are shipped and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one 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 prime r ate, are set based on market factors. John Deere compensates the Company for the carrying costs related to these interest-free periods.

Description of Receivables and Leases

                Receivables and Leases arise mainly from retail and wholesale sales and leases of John Deere products and used equipment accepted in trade for them, and from retail sales of equipment of unrelated manufacturers. Receivables and Leases also include revolving charge accounts receivable and operating loans. At October 31, 2003 and 2002, approximately 85 percent of the Receivables and Leases administered by the Company were for financing John Deere products.

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

                FPC Financial, f.s.b. (Thrift), a wholly-owned subsidiary of the Company, holds a federal charter issued by the Office of Thrift Supervision. The Thrift is headquartered in Madison, Wisconsin and offers revolving charge products such as John Deere Credit Revolving Plan, Farm Planä and PowerPlanâ on a nationwide basis. John Deere Credit Revolving Plan is used primarily by retail customers of John Deere dealers to finance purchases of commercial and consumer equipment. Through its Farm Planä product, the Thrift finances revolving charge accounts offered by approximately 5,000 participating agri-businesses to their retail customers for the purchase of goods and services. Farm Planä account holders consist mainly of farmers

purchasing equipment parts and service at implement dealerships. Farm Planä is also used by customers patronizing other agri-businesses, including farm supply, feed and seed, parts supply, bulk fuel, building supply merchants and veterinarians. The PowerPlanâ revolving charge account is used by construction and forestry customers to finance the purchase of parts and service work performed at John Deere construction dealers. See Note 2 to the Consolidated Financial Statements under "Revolving Charge Accounts Receivable."

                The Company also offers insured international export financing to select customers which generally involves John Deere products.

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

                The Company finances wholesale inventories of John Deere engines, and John Deere agricultural, commercial and consumer and construction and forestry equipment. A large portion of the wholesale financing provided by the Company is with dealers from whom it also purchases agricultural, commercial and consumer and construction and forestry retail notes. See Note 2 to the Consolidated Financial Statements under "Wholesale Receivables."

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

                Receivables and Leases are eligible for acceptance if they conform to prescribed finance and lease plan terms. Guidelines relating to down payments and contract terms on retail notes and leases are described in Note 2 and Note 5 to the Consolidated Financial Statements.

                In some circumstances, Receivables and Leases may be accepted and acquired even though they do not conform in all respects to the established guidelines. The Company determines whether Receivables and Leases should be accepted and how they should be serviced. These determinations are made according to the finance plans and retail terms, although some exceptions are made. Officers of the Company are responsible for reviewing the performance of the Company in accepting and collecting Receivables and Leases. The Company normally makes all of its own routine collections, settlements and repossessions on Receivables and Leases.

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

Finance Rates on Retail Notes

                As of October 31, 2003 and 2002, approximately 24 percent of the retail notes held by the Company bore a variable finance rate. With the exception of agricultural retail notes, a majority of retail notes are fixed rate notes. A portion of the finance income earned by the Company arises from reimbursements from John Deere in connection with financing the retail sales of John Deere equipment on which finance charges are waived or reduced by John Deere for a period from the date of sale to a specified subsequent date. See Note 2 to the Consolidated Financial Statements for additional information.

Average Original Term and Average Actual Life of Retail Notes and Leases

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

Average Original Term

Average Actual Life

2003

2002

2003

2002

Retail notes

54

54

35

29

  New equipment:

     Agricultural equipment

57

58

35

29

     Construction and forestry equipment

46

44

36

31

     Commercial and consumer equipment

52

54

33

28

  Used equipment:

     Agricultural equipment

58

57

34

30

     Construction and forestry equipment

42

42

31

26

     Commercial and consumer equipment

55

53

31

27

Financing leases

45

46

39

41

Equipment on operating leases

37

40

38

36

Maturities

                The following table presents the maturities of net Receivables and Leases owned by the Company at October 31, 2003 (in millions of dollars), and a summary of net Receivables 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

2003 Total

2002

2001

2000

1999

Retail notes:

  Agricultural equipment

$

1,191

$

1,664

$

976

$

57

$

66

$

3,954

$

3,305

$

3,610

$

2,983

$

2,602

  Construction and forestry equipment

505

683

7

1

1,196

1,198

1,293

1,000

611

  Commercial and consumer equipment

270

607

12

20

909

730

611

465

347

  Recreational products

8

22

21

51

79

111

140

156

     Total retail notes

1,974

2,976

995

99

66

6,110

5,312

5,625

4,588

3,716

Revolving charge accounts

1,118

896

814

688

604

Operating loans

541

561

501

422

297

Wholesale receivables

2,905

2,942

2,996

937

957

Financing leases

427

468

480

457

402

Equipment on operating leases

879

1,180

1,485

1,517

1,255

     Total

$

11,980

$

11,359

$

11,901

$

8,609

$

7,231

Write-offs and Recoveries

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

2003

2002

2001

2000

1999

Allowance for credit losses, beginning of year

$

118.3

$

110.4

$

93.3

$

83.6

$

81.3

Provision for credit losses

72.2

126.9

74.5

52.6

62.3

Write-offs:

   Retail notes:

     Agricultural equipment

(5.5

)

(6.7

)

(10.0

)

(7.7

)

(15.6

)

     Construction and forestry equipment

(18.6

)

(17.3

)

(16.9

)

(7.3

)

(5.7

)

     Commercial and consumer equipment

(1.1

)

(1.2

)

(.5

)

(.5

)

(.3

)

     Recreational products

(1.3

)

(3.3

)

(3.5

)

(4.0

)

(5.4

)

          Total retail notes

(26.5

)

(28.5

)

(30.9

)

(19.5

)

(27.0

)

   Revolving charge accounts

(27.0

)

(23.4

)

(17.7

)

(11.5

)

(13.5

)

   Operating loans

(4.2

)

(47.4

)

(2.5

)

(6.5

)

(1.1

)

   Wholesale receivables

(6.8

)

(7.7

)

(6.8

)

(4.2

)

(2.4

)

   Financing leases

(8.7

)

(12.0

)

(9.4

)

(8.5

)

(6.7

)

          Total write-offs

(73.2

)

(119.0

)

(67.3

)

(50.2

)

(50.7

)

Recoveries:

   Retail notes:

     Agricultural equipment

2.7

3.5

2.4

2.3

1.7

     Construction and forestry equipment

2.4

1.5

.6

.8

1.1

     Commercial and consumer equipment

.2

.2

.2

.2

.2

     Recreational products

.7

.9

1.1

1.1

1.9

          Total retail notes

6.0

6.1

4.3

4.4

4.9

   Revolving charge accounts

5.7

4.0

3.2

3.3

3.5

   Operating loans

1.5

1.1

1.6

5.1

.5

   Wholesale receivables

2.9

.8

(.6

)

.7

.5

   Financing leases

1.0

1.1

.8

.5

1.1

          Total recoveries

17.1

13.1

9.3

14.0

10.5

            Total net write-offs

(56.1

)

(105.9

)

(58.0

)

(36.2

)

(40.2

)

Transfers primarily related to receivable sales and purchases

(10.6

)

(13.1

)

.6

(6.7

)

(19.8

)

Allowance for credit losses, end of year

$

123.8

$

118.3

$

110.4

$

93.3

$

83.6

Total net write-offs as a percentage of average Receivables

.50

%

1.09

%

.79

%

.56

%

.65

%

Allowance as a percentage of total Receivables, end of year

1.12

%

1.16

%

1.06

%

1.32

%

1.40

%

Allowance for Credit Losses

                The total Receivable allowance for credit losses, by product, at October 31, and the Receivable portfolio, by product, as a percent of total portfolio is presented below (in millions of dollars):

2003

2002

2001

2000

1999

Dollars

Percent

Dollars

Percent

Dollars

Percent

Dollars

Percent

Dollars

Percent

  Retail notes:

     Agricultural equipment

$

23.4

36

%

$

19.2

32

%

$

20.6

35

%

$

16.3

42

%

$

14.5

44

%

     Construction and forestry equipment

30.8

11

33.2

12

23.7

12

22.5

14

15.5

10

     Commercial and consumer equipment

7.6

8

6.9

7

6.0

6

4.5

7

3.5

6

     Recreational products

2.1

2.5

1

3.5

1

4.6

2

4.7

2

        Total retail notes

63.9

55

61.8

52

53.8

54

47.9

65

38.2

62

   Revolving charge accounts

19.7

10

15.9

9

23.2

8

19.0

10

17.4

10

   Operating loans

9.7

5

7.9

5

6.8

5

7.2

6

5.0

5

   Wholesale receivables

19.6

26

19.8

29

15.8

29

10.1

13

15.0

16

   Financing leases

10.9

4

12.9

5

10.8

4

9.1

6

8.0

7

         Total

$

123.8

100

%

$

118.3

100

%

$

110.4

100

%

$

93.3

100

%

$

83.6

100

%

Competition

                The businesses in which the Company is engaged are highly competitive. The Company competes for customers with commercial banks and finance and leasing companies based upon its service, finance rates charged and other finance terms. The proportion of John Deere equipment retail sales and leases financed by the Company is influenced by conditions prevailing in the agricultural equipment, commercial and consumer equipment, and construction and forestry equipment industries, in the financial markets, and in business generally. The Company financed a significant portion of John Deere equipment retail sales and leases during 2003 and 2002.

                The Company emphasizes convenient service to customers and endeavors to offer terms desired in its specialized markets such as seasonal schedules of repayment and rentals. The Company's retail note finance rates and lease rental rates are generally believed to be in the range offered by other sales finance and leasing companies, although not as low as those of some banks and other lenders and lessors.

Regulation

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

                In addition to rate regulation, various state and federal laws and regulations apply to some Receivables and Leases, principally retail notes for goods sold for personal, family or household use and Farm Planä , PowerPlanâ and John Deere Credit Revolving Plan accounts receivable for such goods. To date, these laws and regulations have not had a significant adverse effect on the Company.

                FPC Financial, f.s.b. (Thrift), a wholly-owned subsidiary of the Company, holds a federal charter issued by the Office of Thrift Supervision. The Thrift is headquartered in Madison, Wisconsin and offers revolving charge products such as John Deere Credit Revolving Plan, Farm Planä and PowerPlanâ on a nationwide basis.

                Financing outside the United States is affected by a variety of laws, customs and regulations.

Item 2.

Properties.

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

Item 3.

Legal Proceedings.

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

Item 4.

Submission of Matters to a Vote of Security Holders.

               Omitted pursuant to instruction I(2).

PART II

Item 5.

Market for Registrant's Common Equity and Related Stockholder Matters.

                All of the Company's common stock is owned by John Deere Credit Company, a finance holding company that is wholly-owned by Deere & Company. The Company declared and paid cash dividends to John Deere Credit Company of $205 million in 2003 and $350 million in 2002. In each case, John Deere Credit Company paid comparable dividends to Deere & Company.

Item 6.

Selected Financial Data.

                Omitted pursuant to instruction I(2).

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

2003 Compared with 2002

                Consolidated net income was $280.5 million for the year, compared with $230.6 million last year. The results for this year benefited primarily from lower loan losses, growth in the portfolio and the absence of losses from Argentina related to the peso devaluation, partially offset by narrower financing spreads, lower gains from a lower volume of retail note sales and higher selling, administrative and general expenses. The ratio of earnings to fixed charges was 2.17 to 1 for 2003, compared with 1.97 to 1 for 2002.

                Revenues totaled $1,297 million in 2003, compared to $1,356 million a year ago. Revenues decreased primarily due to lower lease revenues and the reduction in the net gain on Receivables and Leases sold during 2003. Finance income earned on retail notes totaled $404 million in 2003, down $1 million compared to $405 million in 2002. Lease revenues decreased $80 million to $330 million in 2003, primarily due to a 24 percent decrease in the average balance of equipment on operating leases. Finance income earned on wholesale receivables increased $18 million, to $239 million in 2003, from $221 million in 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. Revenues earned on revolving charge accounts amounted to $152 million in 2003, a 12 percent increase over revenues of $136 million earned during 2002. The increase was primarily due to growth of Farm Planä and 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 average balance of operating loans. Revenues earned from Deere & Company totaled $358 million in 2003 compared to $383 million a year ago. The decrease was primarily the result of a reduction in waiver compensation paid by Deere & Company. This compensation paid to the Company is mark et-based and is intended to approximate an amount which a third party would be required to pay.

                The net gain on Receivables and Leases sold, including adjustments to prior sales, totaled $47 million during 2003, compared with $82 million for 2002. The lower net gain for 2003 was primarily due to decreased sales of agricultural and construction and forestry retail notes. The Company sold approximately $1,675 million total principal value during 2003, compared to approximately $2,895 million total principal value in 2002. Securitization and servicing fee income totaled $53 million in 2003, compared with $46 million during 2002. The increase was primarily due to higher accretable yields on the securitized receivables in 2003 compared to 2002. Securitization and servicing fee income relates to Receivables and Leases sold to other financial institutions or limited-purpose business trusts and primarily includes the interest earned on retained interests and reimbursed administrative expenses received. Addit ional sales of Receivables and Leases are expected to be made in the future.

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

                Administrative and operating expenses totaled $202 million in 2003, compared with $209 million in 2002. This decrease was primarily due to the absence this year of the $22 million loss related to the Argentine peso devaluation in 2002, partially offset by higher postretirement benefit costs and higher costs associated with administering a larger Receivable and Lease portfolio.

                Depreciation of equipment on operating leases decreased to $209 million in 2003, compared to $255 million in 2002 as a result of a 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 $26 million in 2003, compared to $30 million in 2002. The decrease was primarily due to the decreased average borrowings from Deere & Company in 2003.

                The provision for credit losses was $72 million in 2003, compared with $127 million in 2002. The decrease was primarily due to a $45 million loan-loss provision taken during 2002 related to two international trade finance customers, Allied Deals, Inc. and one of its affiliates (collectively called "Allied Deals"). The provision for credit losses, as a percentage of the total average balance of Receivables financed, was .64 percent for 2003 and 1.31 percent for 2002. Total net write-offs of Receivables financed 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 Deals in 2002.

Receivables and Leases Acquired and Held

                Receivables and Leases acquired by the Company during 2003 totaled $21,019 million, an increase of 22 percent, compared with volumes of $17,235 million during 2002. These higher volumes in 2003 resulted mainly from increased volumes of retail notes, wholesale receivables, revolving charge accounts and operating loans, partially offset by decreases in operating and financing lease volumes. Excluding the balance of trade receivables from John Deere at October 31, 2003, acquisitions of Receivables and Leases were 13 percent higher in 2003 compared to last year. 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 volumes and 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

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

$

21,018.8

$

17,234.7

22

%

$

11,979.6

$

11,358.6

5

%

                Retail note volumes increased by approximately $340 million in 2003, compared with 2002. The increase was primarily due to increases in retail sales of John Deere agricultural, construction and forestry and commercial and consumer equipment. Revolving charge account volumes increased primarily as a result of incentive programs offered and increased market coverage. Operating loan volumes increased primarily due to additional sales personnel increasing market coverage. Wholesale receivable volumes increased in 2003 primarily as a result of the Company purchasing European wholesale receivables (trade receivables) from John Deere beginning in the fourth quarter of 2002. Lease volumes decreased due to the 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

*

The Company's maximum exposure under all Receivable and Lease recourse provisions at October 31, 2003 and 2002 was $221 million and $204 million, respectively. In addition, the Company has provided letters of credit for John Deere Credit Inc., the John Deere finance subsidiary in Canada, as part of two retail note sales. At October 31, 2003 and 2002, exposure under these agreements was approximately $10 million and $7 million, respectively. The Company does not record the recourse obligations as liabilities as they are contingent liabilities that are not probable at this time. However, the probable loss on receivables that have been sold was accrued at the time of sale, and any subsequent necessary adjustments are made as part of ongoing reviews.