**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C.  20549**

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**FORM 10-Q**

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** **

**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedJanuary 31, 2007**

 

**Commission file no: 1-6458**

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## **JOHNDEERE 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**     |

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| 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   o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate by check mark whether the registrant is a  large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule  12b-2 of the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |   |   |
| Large accelerated filer   o                                       Accelerated  filer   o                                           Non-accelerated  filer   x |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Indicate by check mark whether the registrant is a  shell company (as defined in Rule 12b-2 of the Exchange Act).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Yes   o          No   x                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

At January 31, 2007,2,500 shares of common stock, without par value, of the registrant wereoutstanding, all of which were owned by John Deere Credit Company, awholly-owned subsidiary of Deere & Company.

The registrant meets the conditions set forth in General InstructionH(1)(a) and (b) of Form 10-Q and is therefore filing this Form with certainreduced disclosures as permitted by those instructions.

 

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**PART I.  FINANCIAL INFORMATION**

**Item 1.**                            Financial Statements.

**John Deere Capital Corporationand Subsidiaries**

**Statements of Consolidated Incomeand Retained Earnings**

**For the Three Months EndedJanuary 31, 2007 and 2006**

**(Unaudited)**

(inmillions)
| ** **                                            | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
| **Revenues**                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                  |       |       |       |       |       |
| Finance income  earned on retail notes                |       | $200.4     |       | $160.0     |       |
| Lease revenues                                        |       | 77.2       |       | 66.6       |       |
| Revolving charge  account income                      |       | 48.9       |       | 45.7       |       |
| Finance income  earned on wholesale receivables       |       | 82.6       |       | 72.7       |       |
| Operating loan  income                                |       | 8.6        |       | 7.1        |       |
| Securitization  and servicing fee income              |       | 6.4        |       | 8.2        |       |
| Crop insurance  commissions                           |       | 9.6        |       | 3.0        |       |
| Other income                                          |       | 17.0       |       | 11.3       |       |
| Total revenues                                        |       | 450.7      |       | 374.6      |       |
| **Expenses**                                          |       |       |       |       |       |
| Interest expense                                      |       | 201.9      |       | 154.3      |       |
| Operating  expenses:                                  |       |       |       |       |       |
| Administrative  and operating expenses                |       | 65.2       |       | 56.6       |       |
| Provision for  credit losses                          |       | 11.1       |       | 2.2        |       |
| Fees paid to  John Deere                              |       | 8.1        |       | 9.7        |       |
| Depreciation of  equipment on operating leases        |       | 51.9       |       | 44.4       |       |
| Total operating  expenses                             |       | 136.3      |       | 112.9      |       |
| Total expenses                                        |       | 338.2      |       | 267.2      |       |
| **Income of consolidated group  before income taxes** |       | 112.5      |       | 107.4      |       |
| **Provision for income taxes**                        |       | 39.4       |       | 37.4       |       |
| **Income of consolidated group**                      |       | 73.1       |       | 70.0       |       |
| **Equity in income of  unconsolidated affiliates**    |       | .1         |       | .1         |       |
| **Net income**                                        |       | 73.2       |       | 70.1       |       |
| **Cash dividends paid**                               |       | (40.0      | )          |       |       |
| **Retained earnings at beginning  of period**         |       | 1,300.9    |       | 1,094.7    |       |
| **Retained earnings at end of period**                |       | $1,334.1   |       | $1,164.8   |       |

 

See Notes toInterim Financial Statements

2

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**JohnDeere Capital Corporation and SubsidiariesConsolidated Balance Sheets(Unaudited)**

(inmillions)
| ** **                                                                                                       | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                       | ** ** | **2007**             | ** ** | **2006**             | ** ** | **2006**             | ** ** |
| **Assets**                                                                                                       |       |                 |       |                 |       |                 |       |
| Cash and cash equivalents                                                                                        |       | $                    | 71.4       |                 | $          | 119.2                |       | $ | 148.1 |   |
| Receivables:                                                                                                     |       |                 |       |                 |       |                 |       |
| Retail notes                                                                                                     |       | 8,725.8              |       | 8,584.2              |       | 7,948.6              |       |
| Restricted securitized retail notes                                                                              |       | 1,900.5              |       | 2,173.4              |       | 1,458.6              |       |
| Revolving charge accounts                                                                                        |       | 1,172.4              |       | 1,512.4              |       | 1,193.4              |       |
| Operating loans                                                                                                  |       | 472.1                |       | 378.7                |       | 364.3                |       |
| Wholesale receivables                                                                                            |       | 3,803.9              |       | 3,699.0              |       | 3,730.6              |       |
| Financing leases                                                                                                 |       | 395.3                |       | 420.8                |       | 397.4                |       |
| Total receivables                                                                                                |       | 16,470.0             |       | 16,768.5             |       | 15,092.9             |       |
| Allowance for credit losses                                                                                      |       | (93.6                | )          | (92.8                | )          | (94.1                | )          |
| Total receivables — net                                                                                     |       | 16,376.4             |       | 16,675.7             |       | 14,998.8             |       |
| Other receivables                                                                                                |       | 103.4                |       | 107.9                |       | 119.6                |       |
| Equipment on operating leases — net                                                                         |       | 880.8                |       | 900.1                |       | 782.3                |       |
| Notes receivable from John Deere                                                                                 |       | 365.9                |       | 238.6                |       |                 |       |
| Investment in unconsolidated affiliates                                                                          |       | 4.7                  |       | 4.4                  |       | 6.0                  |       |
| Other assets                                                                                                     |       | 382.2                |       | 331.5                |       | 425.9                |       |
| **Total  Assets**                                                                                                |       | $                    | 18,184.8   |                 | $          | 18,377.4             |       | $ | 16,480.7 |   |
| **Liabilities  and Stockholder’s Equity**                                                                   |       |                 |       |                 |       |                 |       |
| Short-term borrowings:                                                                                           |       |                 |       |                 |       |                 |       |
| Commercial paper                                                                                                 |       | $                    | 2,463.0    |                 | $          | 2,289.5              |       | $ | 1,675.0 |   |
| Other notes payable                                                                                              |       | 1,974.4              |       | 2,207.6              |       | 1,546.6              |       |
| John Deere                                                                                                       |       | 34.2                 |       | 178.2                |       | .3                   |       |
| Current maturities of long-term borrowings                                                                       |       | 3,280.0              |       | 2,467.5              |       | 2,098.4              |       |
| Total short-term borrowings                                                                                      |       | 7,751.6              |       | 7,142.8              |       | 5,320.3              |       |
| Accounts payable and accrued expenses                                                                            |       | 396.4                |       | 383.7                |       | 385.9                |       |
| Deposits withheld from dealers and merchants                                                                     |       | 171.1                |       | 177.4                |       | 166.7                |       |
| Deferred income taxes                                                                                            |       | 104.1                |       | 107.3                |       | 111.6                |       |
| Long-term borrowings                                                                                             |       | 7,568.6              |       | 8,412.5              |       | 8,483.4              |       |
| Total liabilities                                                                                                |       | 15,991.8             |       | 16,223.7             |       | 14,467.9             |       |
| Stockholder’s equity:                                                                                       |       |                 |       |                 |       |                 |       |
| Common stock, without par value (issued and  outstanding — 2,500 shares owned by John Deere Credit Company) |       | 812.8                |       | 812.8                |       | 812.8                |       |
| Retained earnings                                                                                                |       | 1,334.1              |       | 1,300.9              |       | 1,164.8              |       |
| Accumulated other comprehensive income:                                                                          |       |                 |       |                 |       |                 |       |
| Cumulative translation adjustment                                                                                |       | 33.3                 |       | 28.1                 |       | 19.4                 |       |
| Unrealized gain on investments                                                                                   |       | 3.3                  |       | 3.5                  |       | 8.4                  |       |
| Unrealized gain on derivatives                                                                                   |       | 9.5                  |       | 8.4                  |       | 7.4                  |       |
|      Total accumulated  other comprehensive income                                      |       | 46.1                 |       | 40.0                 |       | 35.2                 |       |
|      Total stockholder’s  equity                                                   |       | 2,193.0              |       | 2,153.7              |       | 2,012.8              |       |
| **Total Liabilities and  Stockholder’s Equity**                                                             |       | $                    | 18,184.8   |                 | $          | 18,377.4             |       | $ | 16,480.7 |   |

 

See Notes toInterim Financial Statements.

 

3

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**John Deere Capital Corporation and SubsidiariesStatements of Consolidated Cash FlowsFor the Three Months Ended January 31, 2007 and 2006(Unaudited)**

(in millions)
|                                                              | **2007** |   | **2006** |   |
|-------------------------------------------------------------------|----------|--------|----------|--------|
| **Cash  Flows from Operating Activities**                         |     |   |     |   |
| Net income                                                        | $        | 73.2   |     | $      | 70.1 |   |
| Adjustments to reconcile net income to net cash                   |     |   |     |   |
| provided by operating activities:                                 |     |   |     |   |
| Provision for credit losses                                       | 11.1     |   | 2.2      |   |
| Provision for depreciation and amortization                       | 53.8     |   | 45.4     |   |
| Credit for deferred income taxes                                  | (3.6     | )      | (1.8     | )      |
| Undistributed earnings of unconsolidated affiliates               | (.1      | )      | (.1      | )      |
| Change in accounts payable and accrued expenses                   | 11.0     |   | (5.3     | )      |
| Other                                                             | (42.8    | )      | (39.6    | )      |
| Net cash provided by operating activities                         | 102.6    |   | 70.9     |   |
|                                                              |     |   |     |   |
| **Cash  Flows from Investing Activities**                         |     |   |     |   |
| Cost of receivables acquired                                      | (5,733.5 | )      | (6,138.1 | )      |
| Collections of receivables                                        | 6,018.4  |   | 6,251.3  |   |
| Cost of equipment on operating leases acquired                    | (88.2    | )      | (82.7    | )      |
| Proceeds from sales of equipment on operating leases              | 44.9     |   | 44.7     |   |
| Purchases of property and equipment                               | (.3      | )      | (32.3    | )      |
| Cost of notes receivable with John Deere                          | (132.3   | )      |     |   |
| Collection of notes receivable with John Deere                    | 5.0      |   |     |   |
| Proceeds from sales of receivables                                | 62.4     |   | 17.8     |   |
| Other                                                             | (30.7    | )      | (70.6    | )      |
| Net cash provided by (used for) investing activities              | 145.7    |   | (9.9     | )      |
|                                                              |     |   |     |   |
| **Cash  Flows from Financing Activities**                         |     |   |     |   |
| Increase (decrease) in commercial paper — net                | 163.8    |   | (28.0    | )      |
| Increase (decrease) in other notes payable — net             | (232.8   | )      | 181.8    |   |
| Decrease in payable with John Deere — net                    | (144.0   | )      | (274.7   | )      |
| Proceeds from issuance of long-term borrowings                    | 3.0      |   | 354.7    |   |
| Payments of long-term borrowings                                  | (46.0    | )      | (393.5   | )      |
| Dividends paid                                                    | (40.0    | )      |     |   |
| Other                                                             | (.6      | )      |     |   |
| Net cash used for financing activities                            | (296.6   | )      | (159.7   | )      |
|                                                              |     |   |     |   |
| **Effect  of exchange rate changes on cash and cash equivalents** | .5       |   | (3.4     | )      |
| **Net  decrease in cash and cash equivalents**                    | (47.8    | )      | (102.1   | )      |
| **Cash  and cash equivalents at beginning of period**             | 119.2    |   | 250.2    |   |
| **Cash  and cash equivalents at end of period**                   | $        | 71.4   |     | $      | 148.1 |   |
| ** **                                                        |     |   |     |   |

 

See Notes toInterim Financial Statements.

4

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**JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**(Unaudited)**

(1)                                          The consolidated financial statementsof John Deere Capital Corporation (Capital Corporation) and its subsidiaries(collectively called the Company) have been prepared by the Company, withoutaudit, pursuant to the rules and regulations of the U.S. Securities andExchange Commission. Certain information and footnote disclosures normallyincluded in annual financial statements prepared in accordance with accountingprinciples generally accepted in the U.S. have been condensed or omitted aspermitted by such rules and regulations. All adjustments, consisting of normalrecurring adjustments, have been included. Management believes that thedisclosures are adequate to present fairly the financial position, results ofoperations and cash flows at the dates and for the periods presented. It issuggested that these interim financial statements be read in conjunction withthe financial statements and the notes thereto included in the Company’s latestannual report on Form 10-K. Results for interim periods are notnecessarily indicative of those to be expected for the year.

 

                                                        The preparation of financial statementsin conformity with accounting principles generally accepted in the U.S.requires management to make estimates and assumptions that affect the reportedamounts and related disclosures. Actual results could differ from thoseestimates.

 

(2)                                          The Company provides and administersfinancing for retail purchases of new equipment manufactured by Deere &Company’s agricultural equipment, commercial and consumer equipment, andconstruction and forestry divisions and used equipment taken in trade for thisequipment. 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 notesthrough John Deere retail dealers. The Company also purchases and finances alimited amount of non-Deere retail notes and continues to service a smallportfolio of recreational products and other retail notes. In addition, theCompany leases John Deere equipment and a limited amount of non-Deere equipmentto retail customers (financing and operating leases). The Company also financesand services revolving charge accounts, in most cases acquired from and offeredthrough merchants in the agricultural, commercial and consumer, andconstruction and forestry markets (revolving charge accounts). Further, the Companyfinances and services operating loans, in most cases offered through andacquired from farm input providers or through direct relationships withagricultural producers (operating loans). The Company also provides wholesalefinancing for inventories of John Deere agricultural, commercial and consumerand construction and forestry equipment owned by dealers of those products(wholesale receivables). The Company also offers credit enhanced internationalexport financing to select customers which generally involves John Deereproducts and offers certain crop risk mitigation products in the U.S. Inaddition, the Company invests in wind energy generation by making loans tocertain affiliated companies that have directly invested in wind energyprojects. Retail notes, revolving charge accounts, operating loans, financingleases and wholesale receivables are collectively called “Receivables.”Receivables and operating leases are collectively called “Receivables andLeases.”

 

(3)                                          The Company’s ratio of earnings tofixed charges was 1.55 to 1 for the first quarter of 2007, compared with 1.69to 1 for the first quarter of 2006. “Earnings” consist of income before incometaxes, the cumulative effect of changes in accounting and fixed charges. “Fixedcharges” consist of interest on indebtedness, amortization of debt discount andexpense, an estimated amount of rental expense under capitalized leases that isdeemed to be representative of the interest factor and rental expense underoperating leases.

5

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(4)                                          Comprehensive income, which includesall changes in the Company’s equity during the period except transactions withthe stockholder, was as follows in millions of dollars:

 
| ** **                                      | ** ** | **Three Months Ended January 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| Net Income                                      |       | $                                                      | 73.2       |   | $ | 70.1 |   |
|                                            |       |                                                   |       |   |   |
| Other comprehensive  income (loss), net of tax: |       |                                                   |       |   |   |
| Change in  cumulative translation adjustment    |       | 5.2                                                    |       | 1.0 |   |
| Unrealized gain  (loss) on investments          |       | (.2                                                    | )          | 1.6 |   |
| Unrealized gain  on derivatives                 |       | 1.1                                                    |       | .1 |   |
| Total comprehensive income                      |       | $                                                      | 79.3       |   | $ | 72.8 |   |

 

(5)                                          Contingencies and commitments:

 

                                                        At January 31, 2007, John Deere CreditInc., the John Deere finance subsidiary in Canada, had $92 million ofcommercial paper and $888 million of medium-term notes outstanding that wereguaranteed by the Company. In addition, the Company has provided letters ofcredit for John Deere Credit Inc. as part of retail note sales. At January 31,2007, the Company’s maximum exposure under these letters of credit wasapproximately $7 million. 

 

                                                        At January 31, 2007, the Company hadapproximately $2 million of guarantees issued primarily to banks outside theU.S. related to third-party receivables for the retail financing of John Deereequipment. The Company may recover a portion of any required payments incurredunder these agreements from repossession of the equipment collateralizing thereceivables. At January 31, 2007, the Company’s accrued liability under theseagreements was not material. The maximum remaining term of the receivablesguaranteed at January 31, 2007 was approximately four years.

 

                                                        At January 31, 2007, the Company had$285 million of guarantees issued to turbine manufacturers for John DeereRenewables, LLC wind turbine purchases. John Deere Renewables, LLC is anaffiliated company that has commitments to purchase wind turbines related toits direct investments in wind energy projects.

 

                                                        The Company’s subsidiary, John DeereRisk Protection, Inc., offers crop insurance products through a managinggeneral agency agreement (Agreement) with an insurance company (InsuranceCarrier) rated “Excellent” by A.M. Best Company. As a managing general agent,John Deere Risk Protection, Inc. will receive commissions from the InsuranceCarrier for selling crop insurance to producers. The Company has guaranteedcertain obligations under the Agreement, including the obligation to pay theInsurance Carrier for any uncollected premiums. At January 31, 2007, themaximum exposure for uncollected premiums was approximately $5 million.Substantially all of the Company’s crop insurance risk under the Agreement hasbeen mitigated by a syndicate of private reinsurance companies. Thesereinsurance companies are rated “Excellent” or higher by A.M. Best Company. Inthe event of a widespread catastrophic crop failure throughout the U.S. and thedefault of these highly rated private reinsurance companies on theirreinsurance obligations, the Company would be required to reimburse theInsurance Carrier for exposures under the Agreement of approximately$5 million at January 31, 2007. The Company believes that thelikelihood of the occurrence of events that give rise to the exposures underthis Agreement is substantially remote and as a result, atJanuary 31, 2007, the Company’s accrued liability under the Agreementwas not material. 

6

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                                                        The Company has commitments to extendcredit to customers and John Deere dealers through lines of credit and otherpre-approved credit arrangements. The Company applies the same credit policiesand approval process for these commitments to extend credit as it does for itsReceivables. Collateral is not required for these commitments, but if credit isextended, collateral may be required upon funding. The amount of unusedcommitments to extend credit to John Deere dealers was $3.7 billion atJanuary 31, 2007. The amount of unused commitments to extend creditto customers was $30.7 billion at January 31, 2007. A significant portionof these commitments is not expected to be fully drawn upon; therefore, thetotal commitment amounts likely do not represent a future cash requirement. TheCompany generally has the right to unconditionally cancel, alter or amend theterms of these commitments at any time. Over 95 percent of these unusedcommitments to extend credit to customers relate to revolving charge accounts. 

 

                                                        The Company also had othermiscellaneous contingent liabilities totaling approximately $3 million atJanuary 31, 2007, for which it believes the probability for payment is remote.The Company’s accrued liability at January 31, 2007 related to thesecontingencies was not material. See Note 6 for recourse on sales ofreceivables.

 

(6)                                 Securitizationof receivables:

 

                                                        The Company, as a part of its overallfunding strategy, periodically transfers certain receivables (retail notes)into special purpose entities (SPEs) as part of its asset-backed securitiesprograms (securitizations) involving its retail notes. For securitizationsentered into prior to 2005, the structure of these transactions is such thatthe transfer of the retail notes met the criteria of sales in accordance with FASBStatement No. 140, Accounting for Transfers and Servicing of Financial Assetsand Extinguishment of Liabilities. Beginning in 2005, the transfer of retailnotes into new securitization transactions did not meet the sales criteria ofFASB Statement No. 140 and are, therefore, accounted for as secured borrowings.SPEs utilized in securitizations of retail notes differ from other entitiesincluded in the Company’s consolidated statements because the assets they holdare legally isolated.  For bankruptcy analysispurposes, the Capital Corporation has sold the receivables to the SPEs in atrue sale and the SPEs are separate legal entities. Use of the assets held bythe SPEs is restricted by terms of the documents governing the securitizationtransactions. Further information related to the secured borrowings and salesof retail notes is provided below.

 

*Secured Borrowings*

* *

                                                        Beginning in 2005, the Company’s newsecuritizations of retail notes were accounted for as secured borrowings.Retail notes related to these programs were transferred to certain SPEs whichin turn issued debt to investors. The resulting secured borrowings are includedin short-term borrowings on the balance sheet as shown in the following table.The securitized retail notes are recorded as “Restricted securitized retailnotes” on the balance sheet. The total restricted assets on the balance sheetrelated to these securitizations include the restricted securitized retailnotes less an allowance for credit losses, and other assets representingrestricted cash as shown in the following table. In addition to the restrictedassets shown in the table, a reserve fund included in “Other receivables”related to retained interests for certain securitizations that qualified assales of receivables is also available as a credit enhancement forsecuritizations related to certain secured borrowings. The amounts of thisreserve fund at January 31, 2007, October 31, 2006 and January 31, 2006 were$18 million, $22 million and $37 million, respectively. The SPEs supporting thesecured borrowings to which the retail notes are transferred are consolidatedunless the Company is not the primary beneficiary or the SPE is a qualifiedspecial purpose entity as defined in FASB Statement No. 140. 

 

                                                        The components of consolidatedrestricted assets related to secured borrowings in securitization transactionswere as follows (in millions of dollars): 
| ** **                           | ** ** | **January 31,  2007** | ** ** | **October 31,  2006** | ** ** | **January 31,  2006** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Restricted  securitized retail notes |       | $                          | 1,900.5    |                       | $          | 2,173.4                    |       | $ | 1,458.6 |   |
| Allowance for  credit losses         |       | (8.8                       | )          | (8.8                       | )          | (7.2                       | )          |
| Other assets                         |       | 92.2                       |       | 72.2                       |       | 135.1                      |       |
| Total restricted  securitized assets |       | $                          | 1,983.9    |                       | $          | 2,236.8                    |       | $ | 1,586.5 |   |

 

7

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                                                        The components of consolidated securedborrowings and other liabilities relates to securitizations were as follows (inmillions of dollars): 
| ** **                                                  | ** ** | **January 31,  2007** | ** ** | **October 31,  2006** | ** ** | **January 31,  2006** | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Other notes  payable                                        |       | $                          | 1,963.5    |                       | $          | 2,194.3                    |       | $ | 1,535.8 |   |
| Accounts payable  and accrued expenses                      |       | 3.0                        |       | 4.4                        |       | 2.2                        |       |
| Total  liabilities related to restricted securitized assets |       | $                          | 1,966.5    |                       | $          | 2,198.7                    |       | $ | 1,538.0 |   |

 

                                                        The secured borrowings related to theserestricted securitized retail notes are obligations that are payable as theretail notes are liquidated. Repayment of the secured borrowings dependsprimarily on cash flows generated by the restricted assets and the reserve fundmentioned above. The consolidated assets (restricted retail notes) relating toan SPE in which the Company is the primary beneficiary, and, therefore, the SPEis consolidated under FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interest Entities, were $1,020 million, $1,147million and $579 million at January 31, 2007, October 31, 2006 and January 31,2006, respectively. These restricted retail notes are included in therestricted securitized retail notes related to securitizations shown in thetable above. At January 31, 2007, the maximum remaining term of all restrictedreceivables was approximately six years. 

 

*Sales of Receivables*

 

                                                        The Company has certain recourseobligations on Receivables that it has previously sold. If the Receivables soldare not collected, the Company would be required to cover those losses up tothe amount of its recourse obligation. At January 31, 2007, the maximum amountof exposure to losses under these agreements was $98 million. The estimatedcredit risk associated with sold receivables totaled $3 million at January 31,2007. This risk of loss is recognized primarily in the interests that continueto be held by the Company and recorded on its balance sheet. These interestsare related to assets held by unconsolidated SPEs. At January 31, 2007, theassets of these SPEs related to the Company’s securitization and sale of retailnotes totaled approximately $748 million. The Company may recover a portion ofany required payments incurred under these agreements from the repossession ofthe equipment collateralizing the Receivables. At January 31, 2007, the maximumremaining term of the Receivables sold was approximately four years.

 

(7)                                  Newaccounting standards adopted in the first quarter of  2007 are as follows:

                                                        The Company adopted FASB Statement No.154, Accounting Changes and Error Corrections. This statement requiresvoluntary changes in accounting principles to be recorded retrospectively forprior periods presented rather than a cumulative adjustment in the currentperiod. This treatment would also be required for new accounting pronouncementsif there are no specific transition provisions. The accounting for changes inestimates in the current period and the accounting for errors as restatementsof prior periods have not changed. The Company adopted FASB Statement No. 155,Accounting for Certain Hybrid Financial Instruments. This Statement primarilyresolves certain issues addressed in the implementation of FASB Statement No.133 concerning beneficial interest in securitized financial assets. The Companyadopted FASB Statement No. 156, Accounting for Servicing of Financial Assets.This Statement clarifies the criteria for recognizing servicing assets andliabilities, requires these items to be initially measured at fair value andpermits subsequent measurements on either an amortization or fair value basis.The adoption of these Statements did not have a material effect on the Company’sfinancial position or net income.

 

New accounting standardsto be adopted are as follows:             

 

                                                        In September 2006, the FASB issuedStatement No. 157, Fair Value Measurements. This Statement defines fair valueand expands disclosures about fair value measurements. These methods will applyto other accounting standards, which use fair value measurements and may changethe application of certain measurements used in current practice. The effectivedate is the beginning of fiscal year 2009. The adoption is not expected to havea material effect on the Company’s financial position or net income.

8

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                                                        The Company is a participating employerin certain Deere & Company sponsored defined benefit pension plans foremployees in the U.S. and certain defined benefit plans outside the U.S. InSeptember 2006, the FASB issued Statement No. 158, Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans. This Statement requiresretirement benefit accruals or prepaid benefit costs on the balance sheet to beadjusted to the difference between the benefit obligations and the plan assetsat fair value. The offset to the adjustment is recorded directly instockholders’ equity net of tax. The amount recorded in stockholder’s equitywould represent the after-tax unrecognized actuarial gains or losses andunamortized prior service costs. This Statement also requires all benefitobligations and plan assets to be measured at fiscal year end. The effectivedate for the funded status adjustment is the end of fiscal year 2007 and theyear-end measurement date is fiscal year 2009. The adoption of this Statementis not expected to have a material effect on the Company’s financial positionor net income. The Company does not expect violations of any credit agreementsas a result of adopting this new standard. Further disclosure for these plansis included in the Deere & Company Form 10-Q for the quarter ended January31, 2007.

 

                                                        In February 2007, the FASB issuedStatement No. 159, The Fair Value Option for Financial Assets and FinancialLiabilities. This Statement permits entities to measure most financialinstruments at fair value. It may be applied on a contract by contract basisand is irrevocable once applied to those contracts.  The standard may be applied at the time ofadoption of the Statement or initial recognition of the eligible items. Theunrealized gains or losses on these financial instruments are reported inearnings. The items measured at fair value must be shown separately on thebalance sheet along with other disclosures in the notes to the financialstatements. The effective date is the beginning of fiscal year 2009 with earlyadoption permitted at the beginning of a previous year. The cumulative effectof adoption would be reported as an adjustment to beginning retained earnings.The Company has not determined the potential effect on the financialstatements.        

 

                                                        In June 2006, the FASB issuedInterpretation No. 48, Accounting for Uncertainty in Income Taxes.  This Interpretation clarifies the recognitionfor uncertain tax positions should be based on a more-likely-than-not thresholdthat the tax position will be sustained upon audit. The tax position ismeasured as the largest amount of benefit that is greater than 50 percentlikely of being realized upon ultimate settlement.  The effective date is the beginning of fiscalyear 2008 with the cumulative effect reported as an adjustment to beginningretained earnings. The Company is currently reviewing the impact of this newstandard and has not determined the potential effect on the financialstatements.

 

(8)                                          The Company is a participating employerin certain Deere & Company sponsored defined benefit pension plans foremployees in the U.S. and certain defined benefit pension plans outside theU.S. These pension plans provide for benefits that are based primarily on yearsof service and employee compensation. Pension expense is actuarially determinedbased on the Company’s employees included in the plan. The Company’s pensionexpense amounted to $1.4 million in the first three months of 2007. Theaccumulated benefit obligation and plan net assets for the employees of theCompany are not determined separately from Deere & Company. The Companygenerally provides defined benefit health care and life insurance plans forretired employees in the U.S. as a participating employer in Deere &Company’s sponsored plans. Health care and life insurance benefits expense isactuarially determined based on the Company’s employees included in the plansand amounted to $1.6 million during the first three months of 2007.Further disclosure for these plans is included in Deere & Company’sForm 10-Q for the quarter ended January 31, 2007.

            

(9)                                          On February 26, 2007, the CapitalCorporation declared a $270 million dividend, to be paid to John Deere CreditCompany on or before April 27, 2007. John Deere Credit Company, in turn,declared a $270 million dividend to Deere & Company, also payable onor before April 27, 2007.

9

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

 

Results of Operations

 

Overview

 

Organization

 

The Company primarily generates revenues and cash byfinancing sales and leases of new and used agricultural, commercial andconsumer, and construction and forestry equipment by John Deere dealers.  In addition, the Company provides wholesalefinancing to dealers of the foregoing equipment, provides operating loans,finances retail revolving charge accounts, offers certain crop risk mitigationproducts and invests in wind energy generation. 

 

Trends and Economic Conditions

 

The Company’s business is currently affected by thefollowing key trends and economic conditions. The Company’s business is closelyrelated to John Deere’s business. Farm economic conditions remain favorable,supported by positive economic trends and the rising global consumption ofrenewable fuels. Industry sales projections for 2007 are flat to up 5 percentin the U.S. and Canada, flat in Western Europe and flat to up 5 percent inSouth America. Sales in the CIS (Commonwealth of Independent States), includingRussia, are expected to be higher due to market growth, while in Australiasales are expected to be down roughly 25 percent due to drought. Deere &Company’s agricultural equipment sales were up 10 percent for the firstquarter of 2007 and are forecast to increase approximately 8 percent for theyear, which includes about 2 percentage points related to currency translation.Deere & Company’s commercial and consumer equipment sales increased 2percent in the first quarter of 2007 and are expected to increase about 3percent for the year with support from growth in the landscapes operations andthe success of new products. Markets for construction and forestry equipmentare expected to slow down in 2007. Residential housing construction isprojected to be weaker. Deere & Company’s construction and forestry salesdecreased 7 percent in the first quarter of 2007 and are forecast to decreaseby about 9 percent for the year. The Company expects to report net income ofapproximately $295 million in 2007, as a result of further growth in theloan portfolio, largely offset by higher administrative and operating expensesin support of the Company’s growth initiatives.

 

2007 Compared with 2006

 

Net income was $73.2 million for the first quarter of2007, compared with $70.1 million for the same period a year ago. The increasewas primarily due to growth in the portfolio, partially offset by a higherprovision for credit losses and higher administrative and operatingexpenses.  

 

Revenues totaled $450.7 million for the first quarterof 2007, compared to $374.6 million for the same period in 2006. This increasewas primarily due to an 11 percent increase in the average balance ofReceivables and Leases financed and higher financing rates during the firstthree months of 2007 compared to the first three months of 2006. Finance incomeearned on retail notes totaled $200.4 million for the first three months of2007, up $40.4 million compared to $160.0 million for the same period in2006. This increase was primarily due to a 15 percent increase in theaverage retail note portfolio balances and higher financing rates. Leaserevenues totaled $77.2 million in the first three months of 2007, comparedto $66.6 million in the first three months of 2006. This increase wasprimarily due to a 12 percent increase in the average amount of equipmenton operating leases. Revenues earned on revolving charge accounts amounted to$48.9 million in the first three months of 2007, a 7 percent increase overrevenues of $45.7 million during the same period last year. This increasewas primarily due to higher financing rates in the first three months of 2007,compared with the same period last year. Finance income earned on wholesalereceivables totaled $82.6 million for the first three months of 2007, comparedto $72.7 million for the same period in 2006, primarily due to higherfinancing rates and a 5 percent increase in the average balance of wholesalereceivables. Operating loan income amounted to $8.6 million in the firstthree months of 2007, compared to $7.1 million in the first three monthsof 2006, primarily due to a 13 percent increase in the average operating loanportfolio balances and higher financing rates. Revenues earned from Deere &Company totaled $117.4 million for the first quarter of 2007, compared to$99.6 million for the same period last year.

10

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Securitization and servicing fee income totaled $6.4million for the first quarter of 2007, compared to $8.2 million for the sameperiod in 2006. Securitization and servicing fee income relates to Receivablessold to other financial institutions or limited-purpose business trusts andprimarily includes the interest earned on retained interests and reimbursedadministrative expenses received.

 

Crop insurance commissions totaled $9.6 million forthe first quarter of 2007, compared to $3.0 million for the same period in2006. The increase was primarily due to increased crop insurance sales toproducers as a result of expanded market coverage. At January 31, 2007, theCompany was offering crop insurance products in 30 states compared to 17 statesa year ago.

 

Interest expense totaled $201.9 million for the firstquarter of 2007, compared to $154.3 million for the same period in 2006. Theincrease was due to increases in borrowing rates and higher average borrowings.

 

Administrative and operating expenses were $65.2million in the first quarter of 2007, compared with $56.6 million for thesame period in 2006. The increase was primarily due to higher employment costsassociated with administering a larger Receivable and Lease portfolio andhigher costs in support of the Company’s growth initiatives.

 

During the first quarter of 2007, the provision forcredit losses totaled $11.1 million, compared with $2.2 million in the sameperiod last year. The Company has experienced higher write-offs of retailnotes, revolving charge accounts, and financing leases. Total net write-offs ofReceivables financed were $10.5 million for the first quarter of 2007, comparedwith $4.5 million in the same period last year. The annualized provisionfor credit losses, as a percentage of the average balance of total Receivablesfinanced, was .28 percent for the first quarter of 2007, compared with .06percent for the same period last year. Although the provision for credit lossesincreased from the same period last year, it continues to compare favorably torecent years. Over the last five fiscal years, the provision for credit losses,as a percentage of the total average balance of Receivables financed, averaged..49 percent. See the Company’s most recently filed annual report on Form 10-Kfor further information regarding the Company’s allowance for credit lossespolicies. 

 

Fees paid to John Deere for interest and support were$8.1 million in the first quarter of 2007, compared with $9.7 million forthe same period in 2006. The decrease was primarily due to lower averageborrowings from Deere & Company. 

 

Depreciation of equipmenton operating leases was $51.9 million in the first quarter of 2007, compared to$44.4 million for the same period in 2006. The increase was primarily theresult of higher average amounts of equipment on operating leases. 

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Receivable andLease acquisition volumes were as follows (in millions of dollars):
| ** **                           | ** ** | ** **         | ** ** | ** ** | ** ** | ** **    | ** ** |
|--------------------------------------|------------|--------------------|------------|------------|------------|---------------|------------|
|                                 |       | Three  Months      |       |       |       |          |       |
|                                 |       | Ended  January 31, |       |       |       |          |       |
|                                 |       | 2007               |       | 2006       |       | $ Change |       | %  Change |   |
| Retail notes:                        |       |               |       |       |       |          |       |   |   |
| Agricultural  equipment              |       | $                  | 824.4      |       | $          | 885.2         |       | $ | (60.8 | ) | (7 | )% |
| Construction and  forestry equipment |       | 355.2              |       | 406.9      |       | (51.7         | )          | (13 | ) |
| Commercial and  consumer equipment   |       | 83.4               |       | 75.2       |       | 8.2           |       | 11 |   |
| Total retail  notes                  |       | 1,263.0            |       | 1,367.3    |       | (104.3        | )          | (8 | ) |
| Revolving charge  accounts           |       | 659.8              |       | 645.4      |       | 14.4          |       | 2 |   |
| Operating loans                      |       | 562.5              |       | 456.6      |       | 105.9         |       | 23 |   |
| Wholesale  receivables               |       | 3,213.7            |       | 3,628.3    |       | (414.6        | )          | (11 | ) |
| Financing leases                     |       | 34.5               |       | 40.5       |       | (6.0          | )          | (15 | ) |
| Equipment on  operating leases       |       | 88.2               |       | 82.7       |       | 5.5           |       | 7 |   |
| Total Receivables and  Leases        |       | $                  | 5,821.7    |       | $          | 6,220.8       |       | $ | (399.1 | ) | (6 | )% |

 

Retailnote volumes were down in the first quarter of 2007, when compared to lastyear, primarily due to decreases in retail sales of John Deere agriculturalequipment and construction and forestry equipment in the U.S. Operating loanvolumes increased during the first quarter of 2007, when compared to last year,primarily due to increased borrowings by farm input providers as a result ofhigher commodity prices. Wholesale receivable volumes decreased during thefirst quarter of 2007, when compared to last year, primarily due to decreasedshipments of John Deere equipment as a result of decreased retail salesactivity in the construction and forestry markets.  

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Total Receivablesand Leases held were as follows (in million of dollars):
| ** **                          | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|-------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                          | ** ** | **2007**             | ** ** | **2006**             | ** ** | **2006**             | ** ** |
| Retail notes:                       |       |                 |       |                 |       |                 |       |
| Agricultural equipment              |       | $                    | 7,212.2    |                 | $          | 7,330.8              |       | $ | 6,282.8 |   |
| Construction and forestry equipment |       | 2,422.2              |       | 2,387.5              |       | 2,132.8              |       |
| Commercial and consumer equipment   |       | 975.6                |       | 1,021.8              |       | 970.1                |       |
| Recreational products               |       | 16.3                 |       | 17.5                 |       | 21.5                 |       |
| Total retail notes                  |       | 10,626.3             |       | 10,757.6             |       | 9,407.2              |       |
| Revolving charge accounts           |       | 1,172.4              |       | 1,512.4              |       | 1,193.4              |       |
| Operating loans                     |       | 472.1                |       | 378.7                |       | 364.3                |       |
| Wholesale receivables               |       | 3,803.9              |       | 3,699.0              |       | 3,730.6              |       |
| Financing leases                    |       | 395.3                |       | 420.8                |       | 397.4                |       |
| Equipment on operating leases       |       | 880.8                |       | 900.1                |       | 782.3                |       |
| Total Receivables and Leases        |       | $                    | 17,350.8   |                 | $          | 17,668.6             |       | $ | 15,875.2 |   |

 

Receivables andLeases administered by the Company, which include retail notes sold, were asfollows (in millions of dollars):
| ** **                                                    | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **2007**             | ** ** | **2006**             | ** ** | **2006**             | ** ** |
| Receivables and  Leases administered:                         |       |                 |       |                 |       |                 |       |
| Owned by the Company                                          |       | $                    | 15,450.3   |                 | $          | 15,495.2             |       | $ | 14,416.6 |   |
| Owned by the Company — restricted due to  securitization |       | 1,900.5              |       | 2,173.4              |       | 1,458.6              |       |
| Total Receivables and Leases owned by the Company             |       | 17,350.8             |       | 17,668.6             |       | 15,875.2             |       |
| Sold and serviced — with limited recourse*               |       | 768.5                |       | 932.3                |       | 1,432.9              |       |
| Sold an d serviced — without recourse**                  |       | 24.5                 |       | 21.4                 |       | 19.3                 |       |
| Total Receivables and Leases administered                     |       | $                    | 18,143.8   |                 | $          | 18,622.3             |       | $ | 17,327.4 |   |

 

*   TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat January 31, 2007, October 31, 2006 and January 31, 2006 was $98 million,$105 million and $138 million, respectively. In addition, the Company has provided letters of credit for John DeereCredit Inc., the John Deere finance subsidiary in Canada, as part of retailnote sales.  At January 31, 2007, October31, 2006 and January 31, 2006, the Company’s maximum exposure under theseagreements was approximately $7 million. The Company does not record the recourse obligations as liabilities asthey are contingent liabilities that are remote at this time.  However, the probable loss on receivablesthat have been sold was accrued at the time of sale, and any subsequentnecessary adjustments are made as part of ongoing reviews.

**  These receivables represent retail notes thatthe Company has sold but continues to administer for a fee.

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Total Receivableamounts 60 days or more past due in the table below represent the amount of allcustomer payments past due 60 days or more, by product, and as a percent of therespective receivables.  They were asfollows (in millions of dollars):
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2007**             | ** ** | **2006**             | ** ** | **2006**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 11.2       |                 | .16        | %                    | $          | 10.2 |   | .14 | % | $ | 9.8 |   | .16 | % |
| Construction and  forestry equipment |       | 8.1                  |       | .33                  |       | 6.3                  |       | .26 |   | 5.7 |   | .27 |   |
| Construction and  consumer equipment |       | 1.5                  |       | .15                  |       | 1.3                  |       | .13 |   | 1.3 |   | .13 |   |
| Recreational  products               |       | .1                   |       | .61                  |       |                 |       |   |   | .1 |   | .47 |   |
| Total retail  notes                  |       | 20.9                 |       | .20                  |       | 17.8                 |       | .17 |   | 16.9 |   | .18 |   |
| Revolving charge accounts*           |       | 22.9                 |       | 1.95                 |       | 21.1                 |       | 1.40 |   | 16.6 |   | 1.39 |   |
| Operating Loans                      |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Wholesale receivables                |       | 2.8                  |       | .07                  |       | .9                   |       | .02 |   | 2.6 |   | .07 |   |
| Financing leases                     |       | 3.3                  |       | .83                  |       | 3.5                  |       | .83 |   | 4.3 |   | 1.08 |   |
| Total  Receivables                   |       | $                    | 49.9       |                 | .30        | %                    | $          | 43.3 |   | .26 | % | $ | 40.4 |   | .27 | % |

 

*  Due to thenature of revolving charge accounts, the customer payments past due 60 days ormore also represent the total balance

The balance ofretail notes held (principal plus accrued interest) with any installments 60days or more past due represents the total retail note balance for a customerwho has any portion of his note 60 days or more past due.  These amounts were $152 million, $116 millionand $95 million at January 31, 2007, October 31, 2006 and January 31, 2006,respectively.  The balances of retailnotes held on which any installment was 60 days or more past due as apercentage of the ending retail notes receivable was 1.43 percent, 1.08 percentand 1.01 percent at January 31, 2007, October 31, 2006 and January 31, 2006,respectively.

Totalnon-performing Receivables, which represent loans the Company has ceasedaccruing interest for, by product, and as a percent of the respectivereceivables were as follows (in millions of dollars)
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2007**             | ** ** | **2006**             | ** ** | **2006**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 13.3       |                 | .18        | %                    | $          | 13.2 |   | .18 | % | $ | 13.0 |   | .21 | % |
| Construction and  forestry equipment |       | 4.6                  |       | .19                  |       | 5.0                  |       | .21 |   | 10.6 |   | .50 |   |
| Construction and  consumer equipment |       | 1.4                  |       | .14                  |       | 2.3                  |       | .23 |   | 3.9 |   | .40 |   |
| Recreational  products               |       | .1                   |       | .61                  |       | .2                   |       | 1.14 |   | .3 |   | 1.40 |   |
| Total retail  notes                  |       | 19.4                 |       | .18                  |       | 20.7                 |       | .19 |   | 27.8 |   | .30 |   |
| Revolving charge accounts            |       | 1.0                  |       | .09                  |       | .8                   |       | .05 |   | .6 |   | .05 |   |
| Operating Loans                      |       | 4.3                  |       | .91                  |       | 3.9                  |       | 1.03 |   | 22.8 |   | 6.26 |   |
| Wholesale receivables                |       | 1.8                  |       | .05                  |       | .4                   |       | .01 |   | 1.4 |   | .04 |   |
| Financing leases                     |       | 8.2                  |       | 2.07                 |       | 6.5                  |       | 1.54 |   | 10.8 |   | 2.72 |   |
| Total  Receivables                   |       | $                    | 34.7       |                 | .21        | %                    | $          | 32.3 |   | .19 | % | $ | 63.4 |   | .42 | % |

 

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Total Receivablewrite-off amounts, net of recoveries, by product, and as an annualizedpercentage of average balances held during the period, were as follows (inmillions of dollars):

 
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **January 31,**        | ** ** | **January 31,**        | ** ** |
| ** **                           | ** ** | **2007**               | ** ** | **2006**               | ** ** |
| ** **                           | ** ** | **Dollars**            | ** ** | **Percent**            | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                   |       |                   |       |   |   |   |   |
| Agricultural equipment               |       | $(.4                   | )          | (.02                   | )%         | $(1.1 | ) | (.07 | )% |
| Construction and  forestry equipment |       | 4.1                    |       | .71                    |       | 1.0 |   | .20 |   |
| Commercial and consumer  equipment   |       | .1                     |       | .04                    |       | (.1 | ) | (.03 | ) |
| Recreational products                |       | .1                     |       | 2.44                   |       |   |   |   |   |
| Total retail notes                   |       | 3.9                    |       | .15                    |       | (.2 | ) | (.01 | ) |
| Revolving charge  accounts           |       | 6.2                    |       | 1.95                   |       | 5.5 |   | 1.69 |   |
| Operating loans                      |       | (.1                    | )          | (.09                   | )          |   |   |   |   |
| Wholesale receivables                |       | (.1                    | )          | (.01                   | )          | (1.3 | ) | (.15 | ) |
| Financing leases                     |       | .6                     |       | .60                    |       | .5 |   | .50 |   |
| Total Receivables                    |       | $10.5                  |       | .26                    | %          | $4.5 |   | .12 | % |

 

Deposits withheld fromdealers and merchants, representing mainly the aggregate dealer retail note andlease withholding accounts from individual John Deere dealers to which lossesfrom retail notes and leases originating from the respective dealers can becharged, amounted to $171 million at January 31, 2007 compared with $177million at October 31, 2006 and $167 million at January 31, 2006.

 

The Company’s allowancefor credit losses on all Receivables financed totaled $94 million at January31, 2007, $93 million at October 31, 2006 and $94 million at January 31,2006. The allowance for credit losses represented .57 percent of the totalReceivables financed at January 31, 2007, .55 percent at October 31, 2006 and..62 percent at January 31, 2006. The level of the allowance is based on manyquantitative and qualitative factors, including historical loss experience byproduct category, portfolio duration, delinquency trends, economic conditionsand credit risk quality. The Company believes its allowance is sufficient toprovide for losses in its existing receivable portfolio.

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Safe Harbor Statement

 

*SafeHarbor Statement under the Private Securities Litigation Reform Act of 1995:*Statements herein that relate to future operating periods are subject toimportant risks and uncertainties that could cause actual results to differmaterially. Actions by the U.S. Federal Reserve Board and other central banksmay affect the costs and expenses of financing the Company and the rates it isable to offer. The Company’s business is affected by general economicconditions in and the political instability of the global markets in which theCompany operates because deteriorating economic conditions and politicalinstability can result in higher loan losses. The Company’s business is alsoaffected by actions of banks, financing and leasing companies and other lendersthat compete with the Company for customers. In addition, the Company’sbusiness is closely related to John Deere’s business. Further information,including factors that potentially could materially affect the Company’s andJohn Deere’s financial results, is included in the most recent Deere &Company Form 10-K (including the factors discussed in Item 1A) and other Deere &Company and Capital Corporation filings with the Securities and ExchangeCommission.

 

Critical Accounting Policies

 

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

 

Capital Resources and Liquidity

 

For additionalinformation on the Company’s dependence on and relationships with Deere &Company, see the Company’s most recently filed annual report on Form 10-K.

 

During the first threemonths of 2007, the aggregate net cash provided by operating and investingactivities was used primarily to decrease borrowings. Net cash provided byoperating activities was $103 million in the first three months of 2007. Netcash provided by investing activities totaled $146 million in the firstthree months of 2007, primarily due to the collection of Receivables and Leasesexceeding the cost of these Receivables and Leases, partially offset by thecost of notes receivables with John Deere. Net cash used for financingactivities totaled $297 million in the first three months of 2007,resulting primarily from a decrease in payables to Deere & Company, a netdecrease in total external borrowings and dividends paid to John Deere CreditCompany, which in turn paid comparable dividends to Deere & Company. Cashand cash equivalents decreased $48 million during the first three monthsof 2007.

 

During the first threemonths of 2006, the aggregate net cash provided by operating activities wasused primarily to decrease borrowings. Net cash provided by operatingactivities was $71 million in the first three months of 2006. Net cash used forfinancing activities totaled $160 million in the first three months of 2006,resulting primarily from a decrease in payables to Deere & Company,partially offset by a net increase in total external borrowings. Net cash usedfor investing activities totaled $10 million in the first three months of 2006.Cash and cash equivalents decreased $102 million during the first threemonths of 2006.

 

The financing of retailpurchases and leases of John Deere products and of wholesale receivables owedby John Deere dealers represented approximately 80 percent of the Company’sacquisition volume for the three months ended January 31, 2007 and January 31,2006, respectively. Any extended reduction or suspension of John Deere’s saleor production of products due to a decline in demand or production,governmental actions or other events could have an adverse effect on theCompany’s acquisition volume of Receivables and Leases.  

 

The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. Because of the multiple funding sources that have been andcontinue to be available to the Company, the Company expects to have sufficientsources of liquidity to meet its ongoing funding needs. The Company’s abilityto meet its debt obligations is supported in a number of ways. The assets ofthe Company are self-liquidating in nature. A strong equity position isavailable to absorb unusual losses on these assets and all commercial paper isbacked by unsecured, committed borrowing lines from various banks. Liquidity isalso provided by the Company’s ability to securitize these assets. 

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During the first threemonths of 2007, the Company maintained an average commercial paper balance of$2,434 million and received proceeds of $62 million from sales ofReceivables. At January 31, 2007, the Company’s funding profile included $2,463 millionof commercial paper, $1,964 million of notes payable related to on-balancesheet securitization funding, $34 million of intercompany loans fromDeere & Company, $10,849 million of unsecured term debt, $690million of off-balance sheet securitization funding and $2,193 million ofequity capital. The Company’s funding profile may be altered to reflect suchfactors as relative costs of funding sources, assets available forsecuritizations and capital market accessibility. 

 

The Company’s commercialpaper outstanding at January 31, 2007, October 31, 2006 and January 31, 2006was approximately $2,463 million, $2,290 million and $1,675 million,respectively, while the total cash and cash equivalents position wasapproximately $71 million, $119 million and $148 million, respectively. 

 

The Company issued $3million and retired $46 million of other borrowings during the first threemonths of 2007. The retirements were primarily medium-term notes. 

 

The Company utilizes arevolving multi-bank conduit facility to securitize floating rate retail notes(see Note 6). This facility has the capacity, or “purchase limit,” of up to$1.75 billion in secured financings or sales outstanding at any time. Thisfacility has no final maturity date. Instead, upon the Company’s request, eachbank conduit may elect to renew its commitment on an annual basis. If thisfacility is not renewed, the Company would liquidate the securitizations as thepayments on these retail notes are collected. At January 31, 2007, $1,357million was outstanding under the facility of which $908 million was recordedon the balance sheet as secured borrowings. 

 

Total interest-bearingindebtedness amounted to $15,320 million at January 31, 2007, compared with$15,555 million at October 31, 2006, and $13,804 million at January31, 2006. Included in this debt are secured borrowings of $1,964 million,$2,194 million and $1,536 million for the same periods (see Note 6). Totalexternal borrowings decreased during the first three months of 2007 and increasedin the past 12 months, generally corresponding with the level of the Receivableand Lease portfolio, the level of cash and cash equivalents and the change inpayable to Deere & Company. Total short-term indebtedness amounted to$7,752 million at January 31, 2007, which included $1,964 million of securedborrowings, compared with $7,143 million at October 31, 2006, which included$2,194 million of secured borrowings and $5,320 million at January31, 2006, which included $1,536 million of secured borrowings, while totallong-term indebtedness amounted to $7,569 million, $8,413 million and $8,483million at these dates, respectively. The ratio of total interest-bearing debtto stockholder’s equity was 7.0 to 1 at January 31, 2007, compared with 7.2 to1 at October 31, 2006 and 6.9 to 1 at January 31, 2006. 

 

Stockholder’s equity was$2,193 million at January 31, 2007, compared with $2,154 million at October 31,2006 and $2,013 million at January 31, 2006. The increase in the first threemonths of 2007 resulted primarily from net income of $73 million and a $6million increase in accumulated other comprehensive income, partially offset bydividend payments of $40 million.

 

The Capital Corporationdeclared and paid cash dividends to John Deere Credit Company of $40 million inthe first three months of fiscal 2007. John Deere Credit Company paidcomparable dividends to Deere & Company. On February 26, 2007, theCapital Corporation declared an additional $270 million dividend, to be paid toJohn Deere Credit Company on or before April 27, 2007. John Deere CreditCompany, in turn, declared a $270 million dividend to Deere & Company,also payable on or before April 27, 2007.

 

*Lines of Credit*

* *

The Company also hasaccess to bank lines of credit with various banks throughout the world. Some ofthe lines are available to both the Company and Deere & Company. Worldwidelines of credit totaled $3,013 million at January 31, 2007, $145 million ofwhich was unused. For the purpose of computing unused credit lines, commercialpaper and short-term bank borrowings, excluding secured borrowings and thecurrent portion of long-term borrowings, of the Company and John Deere wereconsidered to constitute utilization. Included in the total credit lines atJanuary 31, 2007 was a long-term credit facility agreement of $3 billion,expiring in February 2011. The credit agreement requires the Company tomaintain its consolidated ratio of earnings to fixed charges at not less than1.05 to 1 for each fiscal quarter and its ratio of senior debt, excludingsecuritization indebtedness, to capital base (total subordinated debt andstockholder’s equity excluding accumulated other comprehensive income (loss))at not more than 8.5 to 1 at the end of any fiscal quarter. All of theserequirements of the credit agreement have been met during the periods includedin the financial statements.

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*Debt Ratings*

* *

The Company’s ability toobtain funding is affected by its debt ratings, which are closely related tothe outlook for and the financial condition of Deere & Company, and thenature and availability of support facilities, such as its lines of credit andthe support agreement from Deere & Company. 

 

To access public debtcapital markets, the Company relies on credit rating agencies to assignshort-term and long-term credit ratings to the Company’s securities as anindicator of credit quality for fixed income investors. A credit rating agencymay change or withdraw Company ratings based on its assessment of the Company’scurrent and future ability to meet interest and principal repaymentobligations.  Lower credit ratingsgenerally result in higher borrowing costs and reduced access to debt capitalmarkets. 

 

The senior long-term andshort-term debt ratings and outlook currently assigned to unsecured Companysecurities by the rating agencies engaged by the Company are the same as thosefor Deere & Company. Those ratings are as follows:
|                                       | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** |
|---------------------------------------|------------|----------------------|------------|----------------|------------|-------------|
| Moody’s  Investors Service, Inc. |       | A2                   |       | Prime-1        |       | Stable      |
| Standard &  Poor’s           |       | A                    |       | A-1            |       | Stable      |

 

Item 3.                Quantitativeand Qualitative Disclosures About Market Risk.

 

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

 

Item 4.                Controlsand Procedures.

 

The Company’s principalexecutive officer and its principal financial officer have concluded that theCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (“the Act”)) wereeffective as of January 31, 2007, based on the evaluation of these controls andprocedures 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 1A.                              | Risk Factors. |
|                                  |   |
|                                  | See the Company’s most  recently filed annual report on Form 10-K (Item 1A). There has been no  material change in this information. |
|                                  |   |
| 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 1, 2007 |                            | By: | */s/ M.  J. Mack, Jr.* |
|   |          |                            |   | M. J. Mack, Jr.  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,  Securities and Exchange Commission file number 1-6458*) |       |       |
|    |       |                                                                                                                                                                                |       |       |
| 3.2     |       | Bylaws, as amended (Exhibit 3.2 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission file number 1-6458*)                       |       |       |
|    |       |                                                                                                                                                                                |       |       |
| 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, 2007                                                                                                |       |       |
|    |       | (Securities and Exchange Commission file number  1-4121*)                                                                                                                           |       |       |
|    |       |                                                                                                                                                                                |       |       |

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*          Incorporatedby reference.  Copies of these exhibitsare available from the Company upon request.

 

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