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 January 31, 2005

 

Commission file no: 1-6458

 

 

JOHN DEERE CAPITAL CORPORATION

 

 

 

 

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	ý	No	o

 

 

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

 

 

At January 31, 2005, 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.

 

PART I.  FINANCIAL INFORMATION

 

Item 1.     Financial Statements.

 

John Deere Capital Corporation and Subsidiaries

Statements of Consolidated Income and Retained Earnings

For the Three Months Ended January 31, 2005 and 2004

(Unaudited)

(in millions)

 

		2005			2004
Revenues
Finance income earned on retail notes		$	112.7		$	97.1
Lease revenues		63.6			69.7
Revolving charge account income		41.1			36.0
Finance income earned on wholesale receivables		60.4			55.0
Operating loan income		5.3			6.0
Securitization and servicing fee income		11.2			12.7
Net gain on receivables sold		3.9			14.1
Other income		7.5			8.6
Total revenues		305.7			299.2
Expenses
Interest expense		92.6			81.7
Operating expenses:
Administrative and operating expenses		54.1			51.8
Provision (credit) for credit losses		(1.8		)	7.6
Fees paid to John Deere		13.9			7.3
Depreciation of equipment on operating leases		42.2			44.8
Total operating expenses		108.4			111.5
Total expenses		201.0			193.2
Income of consolidated group before income taxes		104.7			106.0
Provision for income taxes		36.7			36.9
Income of consolidated group		68.0			69.1
Equity in income of unconsolidated affiliates		.2			.2
Net income		68.2			69.3
Cash dividends paid		(85.0		)	(65.0		)
Retained earnings at beginning of period		970.0			1,119.4
Retained earnings at end of period		$	953.2		$	1,123.7

 

See Notes to Interim Financial Statements.

 

2

 

John Deere Capital Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

(in millions)

 

		January 31,			October 31,			January 31,
		2005			2004			2004
Assets
Cash and cash equivalents		$	270.7		$	209.5		$	583.2
Receivables:
Retail notes		7,361.8			6,873.7			5,839.8
Revolving charge accounts		1,154.9			1,443.8			944.2
Operating loans		356.9			380.5			510.1
Wholesale receivables		3,486.0			3,480.5			3,042.8
Financing leases		397.1			406.0			408.0
Total receivables		12,756.7			12,584.5			10,744.9
Allowance for credit losses		(107.4		)	(112.6		)	(121.4		)
Total receivables — net		12,649.3			12,471.9			10,623.5
Other receivables		89.4			121.1			154.2
Equipment on operating leases — net		740.4			757.6			802.3
Investment in unconsolidated affiliates		4.2			3.9			3.4
Other assets		273.5			324.7			341.5
Total Assets		$	14,027.5		$	13,888.7		$	12,508.1
Liabilities and Stockholder’s Equity
Short-term borrowings:
Commercial paper		$	1,586.7		$	1,553.8		$	1,237.7
Other notes payable		13.1			6.7			51.8
John Deere		1,156.2			1,241.2			369.5
Current maturities of long-term borrowings		1,586.2			1,187.8			1,111.7
Total short-term borrowings		4,342.2			3,989.5			2,770.7
Accounts payable and accrued liabilities:
Accrued interest on debt		90.4			67.3			92.0
Other payables		333.5			380.7			335.4
Total accounts payable and accrued liabilities		423.9			448.0			427.4
Deposits withheld from dealers and merchants		165.9			167.6			161.4
Long-term borrowings:
Senior debt		7,293.9			7,476.7			7,045.6
Subordinated debt								150.0
Total long-term borrowings		7,293.9			7,476.7			7,195.6
Total liabilities		12,225.9			12,081.8			10,555.1
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		953.2			970.0			1,123.7
Cumulative translation adjustment		28.8			23.7			22.8
Unrealized gain (loss) on derivatives		1.5			(5.1		)	(17.7		)
Unrealized gain on investments		5.3			5.5			11.4
Total accumulated other comprehensive income		35.6			24.1			16.5
Total stockholder’s equity		1,801.6			1,806.9			1,953.0
Total Liabilities and Stockholder’s Equity		$	14,027.5		$	13,888.7		$	12,508.1

 

See Notes to Interim Financial Statements.

 

3

 

John Deere Capital Corporation and Subsidiaries

Statements of Consolidated Cash Flows

For the Three Months Ended January 31, 2005 and 2004

(Unaudited)

(in millions)

 

		2005			2004
Cash Flows from Operating Activities:
Net income		$	68.2		$	69.3
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for credit losses		(1.8		)	7.6
Provision for depreciation and amortization		43.6			46.3
Credit for deferred income taxes		(6.3		)	(8.3		)
Undistributed earnings of unconsolidated affiliates		(.2		)	(.2		)
Other		(27.5		)	7.9
Net cash provided by operating activities		76.0			122.6
Cash Flows from Investing Activities:
Cost of receivables acquired		(5,490.2		)	(4,843.3		)
Collections of receivables		5,351.4			4,606.9
Cost of operating leases acquired		(78.2		)	(50.2		)
Proceeds from sales of equipment on operating leases		56.0			93.7
Change in notes receivable — unconsolidated affiliates					274.3
Proceeds from sales of receivables		57.9			696.0
Other		9.4			(3.9		)
Net cash provided by (used for) investing activities		(93.7		)	773.5
Cash Flows from Financing Activities:
Increase (decrease) in commercial paper		15.5			(488.6		)
Increase (decrease) in other notes payable		4.0			(17.0		)
Increase (decrease) in payable with John Deere		(85.0		)	203.4
Proceeds from issuance of long-term borrowings		253.5			231.5
Principal payments on long-term borrowings		(23.8		)	(527.5		)
Dividends paid		(85.0		)	(65.0		)
Net cash provided by (used for) financing activities		79.2			(663.2		)
Effect of exchange rate changes on cash		(.3		)	7.8
Net increase in cash and cash equivalents		61.2			240.7
Cash and cash equivalents at beginning of period		209.5			342.5
Cash and cash equivalents at end of period		$	270.7		$	583.2

 

See Notes to Interim Financial Statements.

 

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 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 United States of America 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 2005 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 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. The Company also offers insured international export financing to select customers which generally involves John Deere products. 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 2.11 to 1 for the first quarter of 2005, compared with 2.27 to 1 for the first quarter of 2004. “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.

 

5

 

(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 January 31,
		2005			2004
Net Income		$	68.2		$	69.3
Other comprehensive income (loss), net of tax:
Change in cumulative translation adjustment		5.1			9.3
Unrealized gain (loss) on investments		(.2		)	4.8
Unrealized gain on derivatives		6.6			1.6
Total comprehensive income		$	79.7		$	85.0

 

(5)                           The Company has guarantees for 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 January 31, 2005, the maximum amount of exposure to losses under these agreements was $160 million. The estimated credit risk associated with sold receivables totaled $19 million at January 31, 2005. This risk of loss is recognized primarily in the retained interests on the Company’s balance sheet related to these sold Receivables and Leases. The retained interests are related to assets held by special purpose entities (SPEs). At January 31, 2005, the assets of these SPEs related to the Company’s securitization and sale of retail notes totaled approximately $2,715 million. The Company believes it has adequately provided for all probable losses related to these transactions. 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 January 31, 2005, the maximum remaining term of the Receivables and Leases guaranteed was approximately six years.

 

                                At January 31, 2005, John Deere Credit Inc., the John Deere finance subsidiary in Canada, had $95 million of commercial paper and $283 million of medium-term notes outstanding that were guaranteed by the Company. In addition, the Company has provided letters of credit for John Deere Credit Inc. as part of retail note sales. At January 31, 2005, the Company’s maximum exposure under these agreements was approximately $8 million.

 

                                The Company has also guaranteed $30 million of residual value related to property being used by the Company under an operating lease at January 31, 2005. 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 $6 million related to this agreement at January 31, 2005. The lease term expires in 2007.

 

(6)           New accounting standard to be adopted is as follows:

 

                                In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004), Share-Based Payment. This Statement eliminated the alternative of accounting for share-based compensation under Accounting Principles Board (APB) Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services for share-based compensation based on the grant date fair value of the equity or liability instruments issued. The effective date is the beginning of the fourth fiscal quarter of 2005. The expected impact of the adoption on the Company’s net income in the fourth quarter of 2005 will be an expense of less than $1 million after-tax.

 

6

 

(7)                           The Company is a participating employer 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 $1.0 million in the first three months of 2005. The accumulated benefit obligation and plan net assets for the employees of the Company are not determined separately from Deere & Company. The Company generally provides defined benefit health care and life insurance plans for retired employees in the U.S. as a participating employer in Deere & Company’s sponsored plans. Health care and life insurance benefits expense is actuarially determined based on the Company’s employees included in the plans and amounted to $1.8 million during the first three months of 2005. Further disclosure for these plans is included in Deere & Company’s Form 10-Q for the quarter ended January 31, 2005.

 

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Results of Operations

 

Overview

 

                The Company primarily generates revenues 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.  In the U.S., the livestock and dairy sectors are expected to remain in solid condition in 2005, while U.S. government payments largely offset the effect of lower commodity prices. As a result, U.S. farm cash receipts for 2005 are forecast to remain near the record level of 2004. Deere & Company’s agricultural equipment sales were up 26 percent for the first quarter of 2005 and are forecast to be up approximately 7 to 9 percent in 2005, excluding the impact of exchange rates. Deere & Company’s commercial and consumer equipment sales decreased 8 percent in the first quarter of 2005 and are expected to increase approximately 4 to 6 percent for the year due to new models of compact tractors and utility vehicles, as well as an expanded market position in commercial mowing equipment. Construction and forestry markets are receiving continued support from favorable U.S. economic conditions and fleet replenishment. In addition, global forestry markets are expected to experience modest growth. Deere & Company’s construction and forestry sales increased 33 percent in the first quarter of 2005 and are forecast to increase 10 to 12 percent in 2005. The Company expects to report net income of approximately $250 million in 2005.

 

2005 Compared with 2004

 

                Net income was $68.2 million for the first quarter of 2005, compared with $69.3 million for the same period a year ago. First quarter 2004 results benefited from gains on retail notes sold during the quarter, while results for the first quarter 2005 included a lower provision for credit losses.

 

7

 

                Revenues totaled $305.7 million for the first quarter of 2005, compared to $299.2 million for the same period in 2004. The increase was primarily due to a 12 percent increase in the average balance of Receivables and Leases financed during the first three months of 2005 compared to the first three months of 2004, partially offset by lower gains on receivable sales. Finance income earned on retail notes totaled $112.7 million for the first three months of 2005, compared to $97.1 million for the same period in 2004. This increase was primarily due to a 17 percent increase in the average retail note portfolio balances and increasing yields. Lease revenues decreased $6.1 million, to $63.6 million in the first three months of 2005, from $69.7 million in the first three months of 2004 primarily due to a 10 percent decrease in the average amount of equipment on operating leases. The operating lease levels continue to decrease as a result of more attractive financing options offered on retail note products in recent years. Revenues earned on revolving charge accounts amounted to $41.1 million in the first three months of 2005, a 14 percent increase over revenues of $36.0 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 three months of 2005, compared with the same period last year. Finance income earned on wholesale receivables totaled $60.4 million for the first three months of 2005, compared to $55.0 million for the same period in 2004. This increase was primarily due to an 11 percent increase in the average balance of wholesale receivables. Operating loan income amounted to $5.3 million in the first three months of 2005, compared to $6.0 million in the first three months of 2004. The decrease was due to a lower average balance of operating loan accounts. Revenues earned from Deere & Company totaled $86.5 million for the first quarter of 2005, compared to $78.6 million, respectively, for the same period last year.

 

                The net gain on receivables sold, including adjustments to prior sales related to cleanup calls and revaluations of retained interests and the related permanent impairments, totaled $3.9 million for the first quarter of 2005, compared to $14.1 million for the same period a year ago. During the first quarter of 2004, the Company benefited from the sale of agricultural retail notes of approximately $687 million total principal value.

 

                Interest expense totaled $92.6 million for the first quarter of 2005, compared to $81.7 million for the same period in 2004. The increase was due to higher average borrowings and an increase in borrowing rates.

 

                Administrative and operating expenses were $54.1 million in the first quarter of 2005, compared with $51.8 million for the same period in 2004. The increase was primarily due to higher employment costs.

 

                During the first quarter of 2005, the credit for credit losses totaled $1.8 million, compared with the provision for credit losses of $7.6 million in the same period last year. The decrease reflects continued strong portfolio performance as well as a significant decrease in write-offs as compared to the same period a year ago. For the first three months of 2005, the Company has experienced lower write-offs of retail notes, operating loans, wholesale receivables and financing leases. The annualized provision (credit) for credit losses, as a percentage of the average balance of total Receivables financed, was (.06) percent for the first quarter of 2005, compared with .27 percent for the same period a year ago.

 

                Fees paid to John Deere for interest and support were $13.9 million in the first quarter of 2005, compared with $7.3 million for the same period in 2004. The increase was primarily due to higher average borrowings from Deere & Company.

 

                Depreciation of equipment on operating leases was $42.2 million in the first quarter of 2005, compared to $44.8 million for the same period in 2004. The decrease was primarily the result of the lower average amount of equipment on operating leases.

 

8

 

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

 

		Three Months
		Ended January 31,
		2005			2004			$ Change			% Change
Retail notes:
Agricultural equipment		$	922		$	806		$	116		14	%
Construction and forestry equipment		302			243			59			24
Commercial and consumer equipment		86			132			(46		)	(35	)
Total retail notes		1,310			1,181			129			11
Revolving charge accounts		606			555			51			9
Operating loans		313			540			(227		)	(42	)
Wholesale receivables		3,222			2,535			687			27
Financing leases		39			33			6			18
Equipment on operating leases		78			50			28			56
Total Receivables and Leases		$	5,568		$	4,894		$	674		14	%

 

                Retail note volumes increased during the first quarter of 2005, when compared to last year, primarily due to increases in retail sales of John Deere agricultural and construction and forestry equipment. Revolving charge accounts volumes increased in the first quarter of 2005, when compared to last year, primarily as a result of increased market coverage. Wholesale receivable volumes increased during the first quarter of 2005, when compared to last year, primarily due to increased shipments of John Deere equipment as a result of strong retail demand in the agricultural and construction and forestry markets.

 

9

 

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

 

		January 31,			October 31,			January 31,
		2005			2004			2004
Retail notes:
Agricultural equipment		$	4,838		$	4,451		$	3,676
Construction and forestry equipment		1,537			1,406			1,266
Commercial and consumer equipment		957			984			851
Recreational products		30			33			47
Total retail notes		7,362			6,874			5,840
Revolving charge accounts		1,155			1,444			944
Operating loans		357			380			510
Wholesale receivables		3,486			3,480			3,043
Financing leases		397			406			408
Equipment on operating leases		740			758			802
Total Receivables and Leases		$	13,497		$	13,342		$	11,547

 

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

 

		January 31,			October 31,			January 31,
		2005			2004			2004
Receivables and Leases administered:
Owned by the Company		$	13,497		$	13,342		$	11,547
Sold and serviced — with limited recourse*		2,529			3,028			2,810
Sold and serviced — without recourse**		23			24			32
Total Receivables and Leases administered		$	16,049		$	16,394		$	14,389

 

*                                         The Company’s maximum exposure under all Receivable and Lease recourse provisions at January 31, 2005, October 31, 2004 and January 31, 2004 was $160 million, $203 million and $251 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 retail note sales. At January 31, 2005, October 31, 2004 and January 31, 2004, the Company’s maximum exposure under these agreements was approximately $8 million, $8 million and $11 million, respectively. The Company does not record the recourse obligations as liabilities as they are contingent liabilities that are remote 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.

 

**                                  These receivables represent recreational product retail notes that the Company has sold but continues to administer for a fee.

 

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 the respective receivables.  They are as follows (in millions of dollars):

 

		January 31,					October 31,					January 31,
		2005					2004					2004
		Dollars			Percent		Dollars			Percent		Dollars			Percent
Retail notes:
Agricultural equipment		$	10.5		.22	%	$	9.9		.22	%	$	12.4		.34	%
Construction and forestry equipment		4.2			.27		4.7			.33		9.5			.75
Commercial and consumer equipment		1.2			.13		1.1			.11		1.4			.16
Recreational products		.1			.33		.1			.30		.1			.21
Total retail notes		16.0			.22		15.8			.23		23.4			.40
Revolving charge accounts*		13.9			1.20		12.6			.87		14.6			1.55
Operating loans		1.4			.39		.9			.24
Wholesale receivables		8.3			.24		7.9			.23		13.3			.44
Financing leases		3.6			.91		3.2			.79		4.8			1.18
Total Receivables		$	43.2		.34	%	$	40.4		.32	%	$	56.1		.52	%

 

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

 

                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 who has any portion of his note 60 days or more past due. These amounts were $80 million, $71 million and $98 million at January 31, 2005, October 31, 2004 and January 31, 2004, respectively. The balances of retail notes held on which any installment was 60 days or more past due as a percentage of the ending retail notes receivable was 1.08, 1.03 and 1.68 percent at January 31, 2005, October 31, 2004 and January 31, 2004, respectively.

 

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

 

		January 31,					October 31,					January 31,
		2005					2004					2004
		Dollars			Percent		Dollars			Percent		Dollars			Percent
Retail notes:
Agricultural equipment		$	16.7		.35	%	$	15.1		.34	%	$	14.1		.38	%
Construction and forestry equipment		8.2			.53		7.1			.51		12.2			.96
Commercial and consumer equipment		2.2			.23		2.5			.25		2.8			.33
Recreational products		.4			1.34		.4			1.20		.4			.64
Total retail notes		27.5			.37		25.1			.37		29.5			.51
Revolving charge accounts		.2			.02
Operating loans		24.0			6.74		24.1			6.33		21.7			4.25
Wholesale receivables		.7			.02		1.1			.03		10.0			.33
Financing leases		6.6			1.66		6.6			1.63		11.8			2.89
Total Receivables		$	59.0		.47	%	$	56.9		.45	%	$	73.0		.68	%

 

11

 

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

 

		Three Months Ended					Three Months Ended
		January 31,					January 31,
		2005					2004
		Dollars			Percent		Dollars			Percent
Retail notes:
Agricultural equipment		$	(.5	)	(.04	)%	$	.4		.04	%
Construction and forestry equipment		.4			.10		2.1			.68
Commercial and consumer equipment		.1			.04		.4			.18
Recreational products		.2			2.73		.3			2.40
Total retail notes		.2			.01		3.2			.20
Revolving charge accounts		4.6			1.49		3.6			1.37
Operating loans		(.2		)	(.21	)	.7			.58
Wholesale receivables		(.5		)	(.06	)	.2			.03
Financing leases		.6			.60		.9			.85
Total Receivables		$	4.7		.15	%	$	8.6		.31	%

 

                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 $166 million at January 31, 2005 compared with $168 million at October 31, 2004 and $161 million at January 31, 2004.

 

                The Company’s allowance for credit losses on all Receivables financed totaled $107 million at January 31, 2005, $113 million at October 31, 2004 and $121 million at January 31, 2004. The allowance for credit losses represented .84 percent of the total Receivables financed at January 31, 2005, .89 percent at October 31, 2004 and 1.13 percent at January 31, 2004. The level of the allowance is based on many quantitative and qualitative factors, including historical loss experience by product category, portfolio duration, delinquency trends, economic conditions and credit risk quality. The Company believes its allowance is sufficient to provide for losses in its existing receivable portfolio.

 

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Safe Harbor Statement

 

                Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: 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 U.S. 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 because deteriorating economic conditions and political instability can result in higher loan losses. The Company’s business is also affected by actions of banks, financing and leasing companies and other lenders that compete with the Company for customers. 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-K and other Deere & Company and Capital Corporation filings with the Securities and Exchange Commission.

 

Critical Accounting Policies

 

                See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K.  There have been no material changes to these policies.

 

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 three months of 2005, the Company issued $254 million of term debt, maintained an average commercial paper balance of $1,660 million and received proceeds of $58 million from sales of Receivables. At January 31, 2005, the Company’s funding profile included $1,587 million of commercial paper, $1,156 million of intercompany loans from Deere & Company, $8,880 million of unsecured term debt, $2,464 million of securitization funding and $1,802 million of equity capital. The Company’s funding profile may be altered to reflect such factors as relative costs of funding sources, assets available for securitizations and capital market accessibility.

 

                During the first quarter of 2005, 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 $76 million in the first three months of 2005. Cash provided by financing activities totaled $79 million in the first three months of 2005, resulting primarily 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. Net cash used for investing activities totaled $94 million in the first three months of 2005, primarily due to the cost of Receivables and Leases acquired exceeding the collections of Receivables and Leases, partially offset by proceeds from sales of Receivables. Cash and cash equivalents increased $61 million during the first three months of 2005.

 

                During the first quarter of 2004, the aggregate net cash provided by operating and investing activities was used primarily to decrease borrowings. Net cash provided by operating activities was $123 million in the first three months of 2004. Net cash provided by investing activities totaled $774 million in the first three months of 2004, primarily due to collections of Receivables and Leases and the sales of Receivables exceeding the cost of Receivables and Leases acquired. Cash used for financing activities totaled $663 million in the first three months of 2004, resulting primarily from a net decrease in total external borrowings and dividends paid to John Deere Credit Company, which in turn paid comparable dividends to Deere & Company, partially offset by an increase in payables to Deere & Company. Cash and cash equivalents increased $241 million during the first three months of 2004.

 

                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 January 31, 2005, October 31, 2004 and January 31, 2004 was approximately $1,587 million, $1,554 million and $1,238 million, respectively, while the total cash and cash equivalents position was approximately $271 million, $210 million and $583 million, respectively.  Additionally, the Company had access to approximately $2,541 million, $2,915 million and $3,450 million, respectively, of cash and cash equivalents held by its parent, Deere & Company (if Deere & Company had 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 U.S., Europe and Australia, as well as public and private securitization markets in the U.S. The Company also has access to unsecured bank lines of credit.

 

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                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 and the support agreement from Deere & Company. 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 selected 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 and outlook currently assigned to unsecured Company securities by the rating agencies engaged by the Company are the same as those for Deere & Company.  Those ratings are as follows:

 

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

 

                Total interest-bearing indebtedness amounted to $11,636 million at January 31, 2005, compared with $11,467 million at October 31, 2004 and $9,966 million at January 31, 2004, generally corresponding with the level of Receivables and Leases financed and the level of cash and cash equivalents. Total short-term indebtedness amounted to $4,342 million at January 31, 2005, compared with $3,990 million at October 31, 2004 and $2,771 million at January 31, 2004, while total long-term indebtedness amounted to $7,294 million, $7,477 million and $7,196 million at these dates, respectively. The ratio of total interest-bearing debt to stockholder’s equity was 6.5 to 1, 6.3 to 1 and 5.1 to 1 at January 31, 2005, October 31, 2004 and January 31, 2004, respectively.

 

                The Company issued $254 million and retired $24 million of borrowings during the first three months of 2005, which were primarily medium-term notes.

 

                The Company’s ability to meet its debt obligations is supported in a number of ways. All commercial paper issued is backed by unsecured, committed bank credit lines from various banks. 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. The Company also maintains uncommitted, unsecured lines of credit with various banks.

 

                At January 31, 2005, the Capital Corporation and Deere & Company jointly maintained $2,633 million of unsecured lines of credit with various banks, $700 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. Included in the total credit lines at January 31, 2005 was a long-term facility agreement totaling $1,250 million, expiring in February 2009. 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.

 

                In February 2005, the Capital Corporation and Deere & Company replaced their existing short-term $1,250 million revolving credit facility agreement, which was included in the worldwide lines of credit discussed above and expired in February 2005, with a $625 million short-term credit facility agreement, expiring in February 2006, and a $625 million long-term credit facility agreement, expiring in February 2010. This long-term agreement is in addition to the $1,250 million long-term agreement discussed above, expiring in February 2009.

 

                Stockholder’s equity was $1,802 million at January 31, 2005, compared with $1,807 million at October 31, 2004 and $1,953 million at January 31, 2004. The decrease in the first three months of 2005 resulted primarily from dividend payments of $85 million, partially offset by net income of $68 million and a $12 million increase in other comprehensive income.

 

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                The Capital Corporation declared and paid cash dividends of $85 million to John Deere Credit Company during the first three months of fiscal 2005. John Deere Credit Company paid comparable dividends to Deere & Company. On February 22, 2005, the Capital Corporation declared an additional $35 million dividend, which was paid to John Deere Credit Company on March 4, 2005. John Deere Credit Company, in turn, declared a $35 million dividend to Deere & Company, also paid on March 4, 2005.

 

                The financing of retail purchases and leases of John Deere products and of wholesale receivables owed by John Deere dealers represented approximately 83 percent of the Company’s acquisition volume for the three months ended January 31, 2005, compared with approximately 76 percent for the same period in 2004. 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 Disclosures About Market Risk.

 

                See the Company’s most recent annual report filed on Form 10-K (Item 7A). There has been no material change in this information.

 

Item 4.                    Controls and Procedures.

 

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

 

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PART II.  OTHER INFORMATION

 

Item 1.             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 2.             Unregistered Sales of Equity 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.

 

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.

 

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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:	March 14, 2005	By:	/s/ Nathan J. Jones
			Nathan J. Jones Senior Vice President, Principal Financial Officer

 

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INDEX TO EXHIBITS

 

Exhibit

 

3.1                                 Certificate of Incorporation, as amended (Exhibit 3.1 to Form 10-K of the registrant for the year ended October 31, 1999*)

 

3.2                                 Bylaws, as amended (Exhibit 3.2 to Form 10-K of the registrant for the year ended October 31, 1999*)

 

4.1                                 Five-Year Credit Agreement among registrant, Deere & Company, various financial institutions, JPMorgan Chase Bank N.A. as administrative agent, Citibank N.A. and Credit Suisse First Boston as documentation agents, Merrill Lynch Bank USA as co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, New York Branch as syndication agents, et al, dated as of February 15, 2005.  (Exhibit 4.1 to Form 10-Q of Deere & Company for the quarter ended January 31, 2005, Securities and Exchange Commission File Number 1-4121*)

 

4.2                                 364-Day Credit Agreement among registrant, Deere & Company, various financial institutions, JPMorgan Chase Bank N.A. as administrative agent, Citibank N.A. and Credit Suisse First Boston as documentation agents, Merrill Lynch Bank USA as co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, New York Branch as syndication agents, et al, dated as of February 15, 2005.  (Exhibit 4.2 to Form 10-Q of Deere & Company for the quarter ended January 31, 2005, Securities and Exchange Commission File Number 1-4121*)

 

12.                                 Computation of Ratio of Earnings to Fixed Charges

 

31.1                           Rule 13a-14(a)/15d-14(a) Certification

 

31.2                           Rule 13a-14(a)/15d-14(a) Certification

 

32.                                 Section 1350 Certifications

 

99.                                 Part I of Deere & Company Form 10-Q for the quarter ended January 31, 2005 (Securities and Exchange Commission file number 1-4121*)

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

 

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