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, 2004

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, 2004, 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 18

PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statements of Consolidated Income and Retained Earnings

(Unaudited)

(in millions)

April 30,

April 30,

2004

2003

2004

2003

Revenues

Finance income earned on retail notes

$

95.7

$

102.4

$

192.8

$

200.2

Lease revenues

65.8

86.0

135.5

176.9

Revolving charge account income

39.2

34.4

75.2

66.2

Finance income earned on wholesale receivables

63.0

64.1

114.3

116.1

Operating loan income

6.4

8.5

12.4

15.7

Securitization and servicing fee income

11.7

11.1

24.4

25.4

Net gain on receivables sold

17.6

7.9

31.7

14.3

Interest income from short-term investments

1.2

3.1

6.9

6.3

Other income

14.1

9.0

20.7

15.0

     Total revenues

314.7

326.5

613.9

636.1

Expenses

Interest expense

80.8

94.6

162.5

181.3

Operating expenses:

Administrative and operating expenses

64.0

48.2

115.8

95.7

Provision for credit losses

16.9

19.9

24.5

32.8

Fees paid to John Deere

8.5

6.3

15.8

14.4

Depreciation of equipment on operating leases

42.6

54.3

87.4

112.8

     Total operating expenses

132.0

128.7

243.5

255.7

     Total expenses

212.8

223.3

406.0

437.0

Income of consolidated group before income taxes

101.9

103.2

207.9

199.1

Provision for income taxes

34.6

35.7

71.5

69.4

Income of consolidated group

67.3

67.5

136.4

129.7

Equity in income of unconsolidated affiliates

.1

.3

.1

Net income

67.4

67.5

136.7

129.8

Cash dividends paid

(15.0

)

(50.0

)

(80.0

)

(50.0

)

Retained earnings at beginning of period

1,123.7

1,106.2

1,119.4

1,043.9

Retained earnings at end of period

$

1,176.1

$

1,123.7

$

1,176.1

$

1,123.7

See Notes to Interim Financial Statements.

John Deere Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in millions)

April 30, 2004

October 31,
2003

April 30,
2003

Assets

Cash and cash equivalents

$

299.2

$

342.5

$

389.0

Receivables:

Retail notes

5,757.3

6,109.7

5,729.8

Revolving charge accounts

1,209.6

1,117.4

914.1

Operating loans

512.4

541.4

568.9

Wholesale receivables

3,831.8

2,904.6

3,854.6

Financing leases

399.8

427.3

438.9

Total receivables

11,710.9

11,100.4

11,506.3

Allowance for credit losses

(123.6

)

(123.8

)

(122.2

)

Total receivables - net

11,587.3

10,976.6

11,384.1

Notes receivable - unconsolidated affiliates

274.3

291.9

Other receivables

132.2

142.9

99.3

Equipment on operating leases - net

751.3

879.2

975.1

Investment in unconsolidated affiliates

3.4

3.0

2.6

Other assets

298.1

337.1

417.5

Total Assets

$

13,071.5

$

12,955.6

$

13,559.5

Liabilities and Stockholder's Equity

Short-term borrowings:

Commercial paper

$

1,299.8

$

1,691.8

$

2,577.6

Other notes payable

11.8

66.4

41.3

John Deere

1,095.9

166.0

135.7

Current maturities of long-term borrowings

711.5

1,592.2

1,617.5

Total short-term borrowings

3,119.0

3,516.4

4,372.1

Accounts payable and accrued liabilities:

Accrued interest on debt

65.5

65.1

69.2

Other payables

382.2

374.2

412.9

Total accounts payable and accrued liabilities

447.7

439.3

482.1

Deposits withheld from dealers and merchants

163.6

159.5

141.4

Long-term borrowings:

Senior debt

7,190.2

6,757.4

6,510.2

Subordinated debt

150.0

150.0

150.0

Total long-term borrowings

7,340.2

6,907.4

6,660.2

Total liabilities

11,070.5

11,022.6

11,655.8

Stockholder's equity:

owned by John Deere Credit Company)

812.8

812.8

812.8

Retained earnings

1,176.1

1,119.4

1,123.7

Cumulative translation adjustment

17.4

13.5

2.9

Unrealized loss on derivatives

(10.1

)

(19.3

)

(43.3

)

Unrealized gain on investments

4.8

6.6

7.6

   Total accumulated other comprehensive income (loss)

12.1

.8

(32.8

)

   Total stockholder's equity

2,001.0

1,933.0

1,903.7

Total Liabilities and Stockholder's Equity

$

13,071.5

$

12,955.6

$

13,559.5

See Notes to Interim Financial Statements.

John Deere Capital Corporation and Subsidiaries

Condensed Statements of Consolidated Cash Flows

For the Six Months Ended April 30, 2004 and 2003

(Unaudited)

(in millions)

2004

2003

Cash Flows from Operating Activities:

   Net income

$

136.7

$

129.8

   Adjustments to reconcile net income to net cash

          provided by operating activities

81.7

123.3

          Net cash provided by operating activities

218.4

253.1

Cash Flows from Investing Activities:

   Cost of receivables acquired

(12,283.2

)

(9,438.9

)

   Collections of receivables

10,117.0

7,616.2

   Cost of operating leases acquired

(140.0

)

(119.0

)

   Proceeds from sales of equipment on operating leases

198.4

233.7

   Change in notes receivable - unconsolidated affiliates

274.3

(32.1

)

   Proceeds from sales of receivables

1,602.6

606.2

   Other

(5.1

)

(5.2

)

           Net cash used for investing activities

(236.0

)

(1,139.1

)

Cash Flows from Financing Activities:

   Increase (decrease) in commercial paper

(405.8

)

1,122.7

   Increase (decrease) in other notes payable

(55.5

)

5.2

   Increase (decrease) in payable with John Deere

929.9

(546.1

)

   Proceeds from issuance of long-term borrowings

647.6

1,900.0

   Principal payments on long-term borrowings

(1,068.4

)

(1,311.7

)

   Dividends paid

(80.0

)

(50.0

)

          Net cash provided by (used for) financing activities

(32.2

)

1,120.1

Effect of exchange rate changes on cash

6.5

7.1

Net increase (decrease) in cash and cash equivalents

(43.3

)

241.2

Cash and cash equivalents at beginning of period

342.5

147.8

Cash and cash equivalents at end of period

$

299.2

$

389.0

See Notes to Interim Financial Statements.

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 U.S. 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 U.S. 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 U.S. 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 2004 financial statement presentations.

(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 primarily 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 (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), most of which are originated by John Deere. 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 to fixed charges was 2.23 to 1 for the second quarter of 2004, compared with 2.07 to 1 for the second quarter of 2003. The ratio of earnings to fixed charges was 2.25 to 1 for the first six months of 2004 and 2.08 to 1 for the first six months of 2003. "Earnings" 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 that is deemed to be representative of the interest factor and rental expense under operating leases.

(4)

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

Three Months Ended
April 30,

Six Months Ended
April 30,

2004

2003

2004

2003

Net Income

$

67.4

$

67.5

$

136.7

$

129.8

Other comprehensive income (loss), net of tax

  Change in cumulative translation adjustment

(5.4)

1.4

3.9

5.1

  Unrealized gain (loss) on investments

(6.6)

3.3

(1.8)

6.0

  Unrealized gain on derivatives

7.6

3.8

9.2

.8

Total comprehensive income

$

63.0

$

76.0

$

148.0

$

141.7

(5)

The Company has guaranteed certain recourse obligations on Receivables and Leases that it has sold. If the Receivables and Leases sold are not collected, the Company would be required to cover those losses up to the amount of its recourse obligation. At April 30, 2004, the maximum amount of exposure to losses under these agreements was $201 million, which is net of accrued losses of $23 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 and Leases. At April 30, 2004, the maximum remaining term of the Receivables and Leases guaranteed was approximately six years.

In January 2004, the Company began guaranteeing all new commercial paper and medium-term note issuances for John Deere Credit Inc., the John Deere finance subsidiary in Canada. At April 30, 2004, John Deere Credit Inc. had $113 million of commercial paper and $73 million of medium-term notes outstanding that were guaranteed by the Company.

The Company has also guaranteed $30 million of residual value related to property being used by the Company under an operating lease at April 30, 2004. 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 $5 million related to this agreement at April 30, 2004. The lease term expires in 2007.

(6)

In December 2003, the Financial Accounting Standards Board (FASB) revised Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities (as revised, the "Interpretation"), 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 investors with equity at risk lack certain essential characteristics of a controlling interest. Under the Interpretation, the Company must consolidate any variable interest entities (VIEs) in which the Company holds variable interests and is deemed the primary beneficiary. The effective date for adoption for newly created VIEs was immediate upon issuance and had no effect. The effective date for previously existing VIEs that are also special purpose entities (SPEs) was the end of the first fiscal quarter of 2004 and had no effect on the Company's financial position or net income (see below). The effective date for previously existing VIEs that are not SPEs was the end of the second fiscal quarter of 2004 and had no effect on the Company's financial position or net income.

As disclosed in Note 4 to the Company's 2003 Annual Report filed on Form 10-K, the Company holds retained interests in certain SPEs related to the securitization and sale of retail notes. Under the Interpretation, most of the Company's retained interests are not deemed variable interests because they are interests in a VIE's specified assets with a fair value that is less than half the fair value of the VIE's total assets. The Company's remaining retained interests are with qualified special purpose entities (QSPEs) as defined by FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which are exempt from consolidation. At April 30, 2004, the assets of these entities related to the Company's securitization and sale of retail notes totaled approximately $3,279 million and the maximum exposure to losses from recourse obligations related to these entities was $199

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

(7)

The Company recognized pretax gains of $29.2 million on the retail notes securitized during the first six months of 2004. Key assumptions used to initially determine the fair value of the retained interests included a weighted-average remaining maturity of 20 months, average annual prepayment rate of 20 percent, expected annual credit losses of 0.41 percent, and a discount rate on retained interests and subordinate tranches of 13 percent.

(8)

The Company participates in certain Deere & Company defined benefit pension plans for employees in the U.S. and certain defined benefit pension plans outside the U.S. These pension plans provide for benefits that are based primarily on years of service and employee compensation. Pension expense is actuarially determined based on the Company's employees included in the plan. The Company's pension expense amounted to $2.1 million in the first six months of 2004. The Company generally provides defined benefit health care and life insurance plans for retired employees in the U.S. through participation in Deere & Company's plans. Health care and life insurance benefits expense is actuarially determined based on the Company's employees included in the plans and amounted to $3.2 million during the first six months of 2004. Further disclosure for these plans is included in Deere & Company's Form 10-Q for the quarter ended April 30, 2004.

(9)

In December 2003, John Deere acquired a majority interest in Nortrax, Inc., and it was consolidated with John Deere's financial statements. The Company's wholesale receivables from Nortrax, Inc., disclosed as "Notes Receivable - unconsolidated affiliates" on the financial statements, were settled in December 2003.

Item 2.

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

Results of Operations

Overview

The Company primarily generates revenues, income and cash by financing sales and leases of new and used agricultural, commercial and consumer, and construction and forestry equipment by John Deere dealers. In addition, the Company also provides wholesale financing to dealers of the foregoing equipment, provides operating loans and finances retail revolving charge accounts.

The Company's business is currently affected by the following key trends and economic conditions. The Company's business is closely related to John Deere's business. Deere & Company expects significant increases in agricultural equipment industry retail sales in 2004 due to the strengthening of U.S. farm cash receipts and increases in global demand. Retail activity for construction and forestry equipment continues to be robust as a result of fleet replenishment by contractors and rental operations. Deere & Company's commercial and consumer equipment sales are also expected to continue to benefit from the success of new products. As a result of the strengthening of Deere & Company's retail sales, the Company expects to benefit from further growth in the loan portfolio in 2004. However, net income is forecast to be down slightly due to lower gains on receivable sales.

2004 Compared with 2003

          Net income was $67.4 million for the second quarter and $136.7 million for the first six months of 2004, compared with $67.5 million and $129.8 million, respectively, last year. Affecting the results for the current quarter were higher gains from an increased volume of retail note sales, offset by an increase in administrative costs related in part to higher employee performance bonus expense. The improvement for the first six months was mainly due to higher gains from an increased volume of retail note sales and growth in the portfolio, partially offset by higher administrative costs.

          Revenues totaled $314.7 million for the second quarter and $613.9 million for the first six months of 2004, compared to $326.5 and $636.1 million, respectively, last year. The decreases for both periods were primarily due to lower levels of operating leases and lower yields, partially offset by higher net gains on receivables sold. Finance income earned on retail notes totaled $192.8 million for the first six months of 2004, compared to $200.2 million for the same period in 2003. This decrease was primarily due to declining yields earned on the average retail note portfolio balance, partially offset by higher average retail note portfolio balances. Lease revenues decreased $41.4 million, to $135.5 million in the first six months of 2004, from $176.9 million in the first six months of 2003 primarily due to a 25 percent decrease in the average amount of equipment on operating leases. The operating le ase levels continue to decrease as a result of more attractive financing options offered on retail note products in recent years. Finance income earned on wholesale receivables totaled $114.3 million for the first six months of 2004, compared to $116.1 million in the first six months of 2003. Revenues earned on revolving charge accounts amounted to $75.2 million in the first six months of 2004, a 14 percent increase over revenues of $66.2 million during the same period last year. The increase was primarily due to growth of Farm Planä and John Deere Credit Revolving Plan receivables in the first six months of 2004, compared with the same period last year. Operating loan income decreased $3.3 million to $12.4 million in the first six months of 2004, from $15.7 million in the first six months of 2003. The decrease was due to declining yields earned on a lower average balance of operating loan accounts. Revenues earned from Deere & Com pany totaled $99.8 million for the second quarter and $180.2 million for the first six months of 2004, compared to $95.6 and $179.9 million, respectively, for the same periods last year.

          The net gain on receivables sold, including adjustments to prior sales, totaled $17.6 million and $31.7 million for the second quarter and first six months of 2004, respectively, compared to $7.9 million and $14.3 million for the same periods a year ago. The increase was primarily due to higher sales of agricultural and construction and forestry retail notes of approximately $1,562 million total principal value during the first six months of 2004, compared to the sale of approximately $572 million total principal value during the first six months of 2003. Additional sales of receivables are expected to be made in the future.

          Interest expense totaled $80.8 million for the second quarter and $162.5 million for the first six months of 2004, compared to $94.6 million and $181.3 million for the same periods in 2003. The decreases were due to lower average borrowing rates in both periods and slightly lower average borrowings in the second quarter.

          Administrative and operating expenses were $64.0 million in the second quarter and $115.8 million for the first six months of 2004, compared with $48.2 million and $95.7 million for the same periods in 2003. The increase was primarily due to higher employment costs related in part to higher employee performance bonus expense.

          During the second quarter and first six months of 2004, the provision for credit losses totaled $16.9 million and $24.5 million, respectively, compared with $19.9 million and $32.8 million, in the same periods last year. The decrease was primarily due to lower write-offs of John Deere construction and forestry equipment retail notes and revolving charge accounts. The annualized provision for credit losses, as a percentage of the average balance of total Receivables financed, was .60 percent for the second quarter of 2004 and .43 percent for the first six months of 2004, compared with .73 percent and .62 percent for the same periods last year.

          Fees paid to John Deere for interest and support were $8.5 million in the second quarter and $15.8 million for the first six months of 2004, compared with $6.3 million and $14.4 million for the same periods in 2003. Depreciation of equipment on operating leases was $42.6 million in the second quarter and $87.4 million for the first six months of 2004, compared to $54.3 million and $112.8 million for the same periods in 2003. The decrease was primarily the result of the lower average amount of equipment on operating leases.

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

Three Months

Ended April 30,

2004

2003

$ Change

% Change

Retail notes:

  Agricultural equipment

$

1,030

$

877

$

153

17

%

  Construction and forestry equipment

284

193

91

47

  Commercial and consumer equipment

158

117

41

35

     Total

1,472

1,187

285

24

Revolving charge accounts

882

688

194

28

Operating loans

471

323

148

46

Wholesale receivables

4,567

3,295

1,272

39

Financing leases

47

35

12

34

Equipment on operating leases

90

77

13

17

     Total

$

7,529

$

5,605

$

1,924

34

%

Six Months

Ended April 30,

2004

2003

$ Change

% Change

Retail notes:

  Agricultural equipment

$

1,836

$

1,607

$

229

14

%

  Construction and forestry equipment

527

353

174

49

  Commercial and consumer equipment

290

181

109

60

     Total

2,653

2,141

512

24

Revolving charge accounts

1,437

1,156

281

24

Operating loans

1,011

745

266

36

Wholesale receivables

7,102

5,336

1,766

33

Financing leases

80

61

19

31

Equipment on operating leases

140

119

21

18

     Total

$

12,423

$

9,558

$

2,865

30

%

Retail note volumes increased during the second quarter and first six months of 2004, when compared to last year, primarily due to increases in retail sales of John Deere agricultural, construction and forestry and commercial and consumer equipment. Revolving charge accounts and operating loan volumes increased in the second quarter and first six months of 2004, when compared to last year, primarily as a result of increased market coverage. Wholesale receivable volumes increased during the second quarter and first six months of 2004, when compared to last year, primarily due to increased shipments of John Deere equipment as a result of increased retail sales activity.

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

April 30,

October 31,

April 30,

2004

2003

2003

Retail notes:

  Agricultural equipment

$

3,693

$

3,954

$

3,666

  Construction and forestry equipment

1,120

1,196

1,245

  Commercial and consumer equipment

902

909

754

  Recreational products

42

51

65

     Total

5,757