**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

WASHINGTON,D.C.  20549

 

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**FORM 10-Q**

 

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QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIESEXCHANGE ACT OF 1934

 

**For thequarterly period ended July 31, 2008**

 

Commission fileno: 1-6458

** **

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## **JOHN DEERE CAPITALCORPORATION**

 
| **Delaware**              | **36-2386361**                     |
|---------------------------|------------------------------------|
| (State of  Incorporation) | (IRS Employer  Identification No.) |

 

**1 EastFirst Street, Suite 600**

**Reno,Nevada  89501**

(Address ofprincipal executive offices)

 

TelephoneNumber:  **(775)786-5527**

 

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Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.
| Yes | X |   No |   |   |
|-----|---|-----------|--------|--------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company”in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer                        |   |   |   | Accelerated filer          |   |   |
|------------------------------------------------|--------|--------|--------|----------------------------|--------|--------|
| Non-accelerated filer                          | X      |   |   | Smaller reporting  company |   |   |
| (Do not check if a smaller  reporting company) |   |   |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
| Yes | ** ** |   No | X |   |
|-----|------------|-----------|---|--------|

 

At July 31, 2008,2,500 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 theconditions set forth in General Instruction H(1)(a) and (b) ofForm 10-Q and is therefore filing this Form with certain reduceddisclosures as permitted by those instructions.

 

 

 

Index to Exhibits:Page 21

 

 

## **PART I.  FINANCIAL INFORMATION**

## ** **

## **Item 1.     Financial Statements.**

## ** **

## **John Deere Capital Corporation and Subsidiaries**

**Statements of Consolidated Income andRetained Earnings**

**(Unaudited)**

(in millions)

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                           | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Revenues**                                         |       |                             |       |                            |       |   |   |   |   |
| Finance  income earned on retail notes               |       | $                                | 209.1      |                            | $          | 213.4 |   | $ | 646.9 |   | $ | 619.9 |   |
| Lease  revenues                                      |       | 82.3                             |       | 81.2                            |       | 246.7 |   | 235.8 |   |
| Revolving  charge account income                     |       | 59.3                             |       | 59.5                            |       | 162.4 |   | 160.0 |   |
| Finance  income earned on wholesale receivables      |       | 73.7                             |       | 96.4                            |       | 232.0 |   | 274.5 |   |
| Operating  loan income                               |       | 4.8                              |       | 5.2                             |       | 18.5 |   | 21.3 |   |
| Income  on receivables sold                          |       | 1.3                              |       | 4.9                             |       | 5.6 |   | 19.3 |   |
| Crop  insurance commissions                          |       | 39.3                             |       | 24.2                            |       | 95.3 |   | 48.2 |   |
| Other  income                                        |       | 13.8                             |       | 21.5                            |       | 59.9 |   | 61.0 |   |
| Total  revenues                                      |       | 483.6                            |       | 506.3                           |       | 1,467.3 |   | 1,440.0 |   |
|                                                 |       |                             |       |                            |       |   |   |   |   |
| **Expenses**                                         |       |                             |       |                            |       |   |   |   |   |
| Interest  expense                                    |       | 193.9                            |       | 226.1                           |       | 622.5 |   | 643.1 |   |
| Operating  expenses:                                 |       |                             |       |                            |       |   |   |   |   |
| Administrative  and operating expenses               |       | 103.0                            |       | 83.4                            |       | 266.0 |   | 225.1 |   |
| Provision  for credit losses                         |       | 16.1                             |       | 11.6                            |       | 46.8 |   | 36.5 |   |
| Fees  paid to John Deere                             |       | 9.1                              |       | 8.5                             |       | 27.4 |   | 25.5 |   |
| Depreciation  of equipment on operating leases       |       | 53.1                             |       | 53.4                            |       | 160.9 |   | 157.4 |   |
| Total  operating expenses                            |       | 181.3                            |       | 156.9                           |       | 501.1 |   | 444.5 |   |
| Total  expenses                                      |       | 375.2                            |       | 383.0                           |       | 1,123.6 |   | 1,087.6 |   |
| **Income of consolidated group before income taxes** |       | 108.4                            |       | 123.3                           |       | 343.7 |   | 352.4 |   |
| **Provision for income taxes**                       |       | 38.5                             |       | 44.4                            |       | 119.8 |   | 124.3 |   |
| **Income of consolidated group**                     |       | 69.9                             |       | 78.9                            |       | 223.9 |   | 228.1 |   |
| **Equity in income of unconsolidated affiliates**    |       | .2                               |       | .1                              |       | .7 |   | .3 |   |
| **Net income**                                       |       | 70.1                             |       | 79.0                            |       | 224.6 |   | 228.4 |   |
| **Dividends paid**                                   |       | (40.0                            | )          | (120.0                          | )          | (465.1 | ) | (430.0 | ) |
| **Retained earnings at beginning of period**         |       | 795.0                            |       | 1,140.3                         |       | 1,065.6 |   | 1,300.9 |   |
| **Retained earnings at end of period**               |       | $                                | 825.1      |                            | $          | 1,099.3 |   | $ | 825.1 |   | $ | 1,099.3 |   |

 

See CondensedNotes to Interim Financial Statements.

 

2

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## **John Deere Capital Corporation and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                        | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                        | ** ** | **2008**          | ** ** | **2007**             | ** ** | **2007**          | ** ** |
| **Assets**                                                                                                        |       |              |       |                 |       |              |       |
| Cash  and cash equivalents                                                                                        |       | $                 | 495.6      |                 | $          | 190.8             |       | $ | 201.8 |   |
| Receivables:                                                                                                      |       |              |       |                 |       |              |       |
| Retail  notes                                                                                                     |       | 9,886.6           |       | 9,810.3              |       | 8,864.5           |       |
| Restricted  securitized retail notes                                                                              |       | 1,857.0           |       | 2,150.4              |       | 2,401.3           |       |
| Revolving  charge accounts                                                                                        |       | 1,776.0           |       | 1,553.3              |       | 1,548.7           |       |
| Operating  loans                                                                                                  |       | 385.9             |       | 286.5                |       | 242.9             |       |
| Wholesale  receivables                                                                                            |       | 4,051.6           |       | 3,521.3              |       | 4,164.6           |       |
| Financing  leases                                                                                                 |       | 452.4             |       | 430.3                |       | 412.4             |       |
| Total  receivables                                                                                                |       | 18,409.5          |       | 17,752.1             |       | 17,634.4          |       |
| Allowance  for credit losses                                                                                      |       | (106.0            | )          | (99.2                | )          | (97.8             | )          |
| Total  receivables – net                                                                                     |       | 18,303.5          |       | 17,652.9             |       | 17,536.6          |       |
| Other  receivables                                                                                                |       | 31.8              |       | 35.8                 |       | 81.5              |       |
| Equipment  on operating leases – net                                                                         |       | 985.9             |       | 995.2                |       | 936.0             |       |
| Notes  receivable from John Deere                                                                                 |       | 667.0             |       | 586.5                |       | 483.2             |       |
| Investment  in unconsolidated affiliates                                                                          |       | 6.3               |       | 5.2                  |       | 5.0               |       |
| Other  assets                                                                                                     |       | 447.8             |       | 295.1                |       | 279.2             |       |
| **Total Assets**                                                                                                  |       | $                 | 20,937.9   |                 | $          | 19,761.5          |       | $ | 19,523.3 |   |
|                                                                                                              |       |              |       |                 |       |              |       |
| **Liabilities and Stockholder’s Equity**                                                                     |       |              |       |                 |       |              |       |
| Short-term  borrowings:                                                                                           |       |              |       |                 |       |              |       |
| Commercial  paper                                                                                                 |       | $                 | 2,674.9    |                 | $          | 2,679.2           |       | $ | 3,078.8 |   |
| Other  notes payable                                                                                              |       | 1,893.0           |       | 2,199.0              |       | 2,432.2           |       |
| John  Deere                                                                                                       |       | 162.0             |       | 127.8                |       | 101.5             |       |
| Current  maturities of long-term borrowings                                                                       |       | 3,586.3           |       | 3,835.9              |       | 3,399.7           |       |
| Total  short-term borrowings                                                                                      |       | 8,316.2           |       | 8,841.9              |       | 9,012.2           |       |
| Accounts  payable and accrued expenses                                                                            |       | 533.5             |       | 455.6                |       | 485.9             |       |
| Deposits  withheld from dealers and merchants                                                                     |       | 171.3             |       | 174.4                |       | 168.4             |       |
| Deferred  income taxes                                                                                            |       | 60.9              |       | 59.0                 |       | 86.2              |       |
| Long-term  borrowings                                                                                             |       | 10,150.7          |       | 8,276.1              |       | 7,796.1           |       |
| Total  liabilities                                                                                                |       | 19,232.6          |       | 17,807.0             |       | 17,548.8          |       |
| Commitments  and contingencies (Note 4)                                                                           |       |              |       |                 |       |              |       |
| 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                                                                                                |       | 825.1             |       | 1,087.1              |       | 1,099.3           |       |
| Accumulated  other comprehensive income:                                                                          |       |              |       |                 |       |              |       |
| Cumulative  translation adjustment                                                                                |       | 79.8              |       | 61.7                 |       | 52.0              |       |
| Unrealized  gain on investments                                                                                   |       |              |       | 1.2                  |       | 4.4               |       |
| Unrealized  gain (loss) on derivatives                                                                            |       | (12.4             | )          | (8.3                 | )          | 6.0               |       |
| Total  accumulated other comprehensive income                                                                     |       | 67.4              |       | 54.6                 |       | 62.4              |       |
| Total  stockholder’s equity                                                                                  |       | 1,705.3           |       | 1,954.5              |       | 1,974.5           |       |
| **Total Liabilities and Stockholder’s Equity**                                                               |       | $                 | 20,937.9   |                 | $          | 19,761.5          |       | $ | 19,523.3 |   |

 

See CondensedNotes to Interim Financial Statements.

 

3

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## **JohnDeere Capital Corporation and Subsidiaries**

**Statements of Consolidated Cash Flows**

**For the Nine Months Ended July 31,2008 and 2007**

**(Unaudited)**

(in millions)

 
| ** **                                                                         | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating Activities:**                                          |       |      |       |      |       |
| Net  income                                                                        |       | $         | 224.6      |      | $          | 228.4 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |      |       |      |       |
| Provision  for credit losses                                                       |       | 46.8      |       | 36.5      |       |
| Provision  for depreciation and amortization                                       |       | 167.2     |       | 162.5     |       |
| Provision  (credit) for deferred income taxes                                      |       | 15.3      |       | (19.8     | )          |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.7       | )          | (.3       | )          |
| Change  in accounts payable and accrued expenses                                   |       | 13.6      |       | 48.8      |       |
| Change  in accrued income taxes payable/receivable                                 |       | 17.6      |       | 23.4      |       |
| Other                                                                              |       | (39.4     | )          | (70.4     | )          |
| Net  cash provided by operating activities                                         |       | 445.0     |       | 409.1     |       |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Investing Activities:**                                          |       |      |       |      |       |
| Cost  of receivables acquired                                                      |       | (23,814.9 | )          | (21,504.8 | )          |
| Collections  of receivables                                                        |       | 23,178.3  |       | 20,732.6  |       |
| Cost  of equipment on operating leases acquired                                    |       | (358.0    | )          | (371.7    | )          |
| Proceeds  from sales of equipment on operating leases                              |       | 215.3     |       | 152.5     |       |
| Cost  of notes receivable with John Deere                                          |       | (244.8    | )          | (311.8    | )          |
| Collection  of notes receivable with John Deere                                    |       | 164.3     |       | 67.2      |       |
| Proceeds  from sales of receivables                                                |       | 101.6     |       | 154.3     |       |
| Change  in restricted cash                                                         |       | (6.7      | )          | 83.8      |       |
| Other                                                                              |       | (22.1     | )          | 32.5      |       |
| Net  cash used for investing activities                                            |       | (787.0    | )          | (965.4    | )          |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Financing Activities:**                                          |       |      |       |      |       |
| Increase  (decrease) in commercial paper - net                                     |       | (74.3     | )          | 720.2     |       |
| Increase  (decrease) in other notes payable - net                                  |       | (307.2    | )          | 224.9     |       |
| Increase  (decrease) in payable with John Deere - net                              |       | 34.2      |       | (76.7     | )          |
| Proceeds  from issuance of long-term borrowings                                    |       | 4,053.8   |       | 1,842.6   |       |
| Payments  of long-term borrowings                                                  |       | (2,587.5  | )          | (1,638.6  | )          |
| Dividends  paid                                                                    |       | (465.1    | )          | (430.0    | )          |
| Other                                                                              |       | (16.2     | )          | (7.9      | )          |
| Net  cash provided by financing activities                                         |       | 637.7     |       | 634.5     |       |
|                                                                               |       |      |       |      |       |
| **Effect of exchange rate changes on cash and cash  equivalents**                  |       | 9.1       |       | 4.4       |       |
| **Net increase in cash and cash equivalents**                                      |       | 304.8     |       | 82.6      |       |
| **Cash and cash equivalents at beginning of period**                               |       | 190.8     |       | 119.2     |       |
| **Cash and cash equivalents at end of period**                                     |       | $         | 495.6      |      | $          | 201.8 |   |

 

See CondensedNotes to Interim Financial Statements.

 

4

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# **JohnDeere Capital Corporation and Subsidiaries**

**Condensed Notes to Interim Financial Statements**

**(Unaudited)**

 
| (1)    |   | The consolidated  financial statements of John Deere Capital Corporation (Capital Corporation)  and its subsidiaries (collectively called the Company) have been prepared by  the Company, without audit, pursuant to the rules and regulations of the  U.S. Securities and Exchange Commission. Certain information and footnote  disclosures normally included in annual financial statements prepared in  accordance with accounting principles generally accepted in the U.S. have  been condensed or omitted as permitted by such rules and regulations.  All adjustments, consisting of normal recurring adjustments, have been  included. Management believes that the disclosures are adequate to present  fairly the financial position, results of operations and cash flows at the  dates and for the periods presented. It is suggested that these interim  financial statements be read in conjunction with the financial statements and  the notes thereto appearing in the Company’s latest annual report on Form 10-K.  Results for interim periods are not necessarily indicative of those to be  expected for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | The  preparation of financial statements in conformity with accounting principles  generally accepted in the U.S. requires management to make estimates and  assumptions that affect the reported amounts and related disclosures. Actual  results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (2)    |   | The  Company provides and administers financing for retail purchases of new  equipment manufactured by Deere & Company’s agricultural equipment,  commercial and consumer equipment and construction and forestry divisions and  used equipment taken in trade for this equipment. The Company generally  purchases retail installment sales and loan contracts (retail notes) from  Deere & Company and its wholly-owned subsidiaries (collectively  called John Deere). John Deere generally acquires these retail notes through  John Deere retail dealers. The Company also purchases and finances a limited  amount of non-Deere retail notes and continues to service a small portfolio  of recreational products and other retail notes. In addition, the Company  leases John Deere equipment and a limited amount of non-Deere equipment to  retail customers (financing and operating leases). The Company also finances  and services revolving charge accounts, in most cases acquired from and  offered through merchants in the agricultural, commercial and consumer and  construction and forestry markets (revolving charge accounts). Further, the  Company finances and services operating loans, in most cases offered through  and acquired from farm input providers, through direct relationships with  agricultural producers or through agribusinesses (operating loans). The  Company also provides wholesale financing for inventories of John Deere  agricultural, commercial and consumer and construction and forestry equipment  owned by dealers of those products (wholesale receivables). The Company also  offers credit enhanced international export financing to select customers and  dealers which generally involves John Deere products and offers certain crop  risk mitigation products in the U.S. In addition, the Company invests in wind  energy generation by making loans to certain affiliated companies that have  directly invested in wind energy projects. Retail notes, revolving charge  accounts, operating loans, financing leases and wholesale receivables are  collectively called “Receivables.” Receivables and operating leases are  collectively called “Receivables and Leases.” |

 

5

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| (3) |   | Comprehensive  income, which includes all changes in the Company’s equity during the period  except transactions with the stockholder, was as follows (in millions of  dollars): |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                      | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Net  income                                     |       | $                                | 70.1       |                            | $          | 79.0 |   | $ | 224.6 |   | $ | 228.4 |   |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax: |       |                             |       |                            |       |   |   |   |   |
| Change  in cumulative translation adjustment    |       | 2.2                              |       | 6.2                             |       | 18.1 |   | 23.9 |   |
| Unrealized  gain (loss) on investments          |       |                             |       | 1.1                             |       | (1.2 | ) | .9 |   |
| Unrealized  gain (loss) on derivatives          |       | 12.2                             |       | (2.2                            | )          | (4.1 | ) | (2.4 | ) |
| Total  comprehensive income                     |       | $                                | 84.5       |                            | $          | 84.1 |   | $ | 237.4 |   | $ | 250.8 |   |

 
| (4)    |   | Commitments and  contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | At July 31,  2008, John Deere Credit Inc., the John Deere finance subsidiary in Canada,  had $400 million of commercial paper and $1,452 million of medium-term  notes outstanding that were guaranteed by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | At July 31,  2008, the Company had $198 million of guarantees issued to turbine  manufacturers for John Deere Renewables, LLC wind turbine purchases. John  Deere Renewables, LLC is an affiliated company that has commitments to  purchase wind turbines related to its direct investments in wind energy  projects. At July 31, 2008, the maximum remaining term of these purchase  commitments was approximately two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | The  Company’s subsidiary, John Deere Risk Protection, Inc., offers crop  insurance products through a managing general agency agreement (Agreement)  with an insurance company (Insurance Carrier) rated “Excellent” by A.M.  Best Company. As a managing general agent, John Deere Risk Protection, Inc.  will receive commissions from the Insurance Carrier for selling crop  insurance to producers. The Company has guaranteed certain obligations under  the Agreement, including the obligation to pay the Insurance Carrier for any  uncollected premiums. At July 31, 2008, the maximum exposure for  uncollected premiums was approximately $156 million. Substantially all of the  Company’s crop insurance risk under the Agreement has been mitigated by a  syndicate of private reinsurance companies. These reinsurance companies are  rated “Excellent” or higher by A.M. Best Company. In the event of a  widespread catastrophic crop failure throughout the U.S. and the default of  these highly rated private reinsurance companies on their reinsurance  obligations, the Company would be required to reimburse the Insurance Carrier  for exposures under the Agreement of approximately $715 million at July 31,  2008. The Company believes that the likelihood of the occurrence of events  that give rise to the exposures under this Agreement is substantially remote  and as a result, at July 31, 2008, the Company’s accrued liability  under the Agreement was not material. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | The  Company has commitments to extend credit to customers and John Deere dealers  through lines of credit and other pre-approved credit arrangements. The  Company applies the same credit policies and approval process for these  commitments to extend credit as it does for its Receivables. Collateral is  not required for these commitments, but if credit is extended, collateral may  be required upon funding. The amount of unused commitments to extend credit  to John Deere dealers was $3.1 billion at July 31, 2008. The amount  of unused commitments to extend credit to customers was $35.0 billion at  July 31, 2008. A significant portion of these commitments is not  expected to be fully drawn upon; therefore, the total commitment amounts  likely do not represent a future cash requirement. The Company generally has  the right to unconditionally cancel, alter or amend the terms of these  commitments at any time. Over 95 percent of these unused commitments to  extend credit to customers relate to revolving charge accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

6

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|   |   | At July 31,  2008, the Company had restricted other assets of $9 million. See Note 5 for  additional restricted assets associated with borrowings related to  securitizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | The  Company also had other miscellaneous contingent liabilities totaling  approximately $19 million at July 31, 2008, for which it believes the  probability for payment is substantially remote. The accrued liability for  these contingencies was not material at July 31, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (5)    |   | Securitization of  receivables:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | The  Company, as a part of its overall funding strategy, periodically transfers  certain receivables (retail notes) into special purpose entities (SPEs) as  part of its asset-backed securities programs (securitizations). The structure  of these transactions is such that the transfer of the retail notes did not  meet the criteria of sales in accordance with FASB Statement No. 140,  Accounting for Transfers and Servicing of Financial Assets and Extinguishment  of Liabilities, and are, therefore, accounted for as secured borrowings. SPEs  utilized in securitizations of retail notes differ from other entities  included in the Company’s consolidated statements because the assets they  hold are legally isolated. For bankruptcy analysis purposes, the Capital  Corporation has sold the receivables to the SPEs in a true sale and the SPEs  are separate legal entities. Use of the assets held by the SPEs is restricted  by terms of the documents governing the securitization transaction. Further  information related to the secured borrowings is provided below. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | In  securitizations of retail notes related to secured borrowings, the retail  notes are transferred to certain SPEs which in turn issue debt to investors.  The resulting secured borrowings are included in short-term borrowings on the  balance sheet as shown in the following table. The securitized retail notes  are recorded as “Restricted securitized retail notes” on the balance sheet.  The total restricted assets on the balance sheet related to these  securitizations include the restricted securitized retail notes less an  allowance for credit losses, and other assets primarily representing  restricted cash as shown in the following table. The SPEs supporting the  secured borrowings to which the retail notes are transferred are consolidated  unless the Company is not the primary beneficiary or the SPE is a qualified  special purpose entity as defined in FASB Statement No. 140.                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | The  components of consolidated restricted assets related to secured borrowings in  securitization transactions were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 
| ** **                           | ** ** | **July 31,  2008** | ** ** | **October 31,  2007** | ** ** | **July 31,  2007** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Restricted  securitized retail notes |       | $                       | 1,857.0    |                       | $          | 2,150.4                 |       | $ | 2,401.3 |   |
| Allowance  for credit losses         |       | (12.5                   | )          | (11.3                      | )          | (13.9                   | )          |
| Other  assets                        |       | 53.6                    |       | 44.0                       |       | 43.7                    |       |
| Total  restricted securitized assets |       | $                       | 1,898.1    |                       | $          | 2,183.1                 |       | $ | 2,431.1 |   |

 
|   |   | The  components of consolidated secured borrowings and other liabilities related  to securitizations were as follows (in millions of dollars): |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                                  | ** ** | **July 31,  2008** | ** ** | **October 31,  2007** | ** ** | **July 31,  2007** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Other  notes payable                                        |       | $                       | 1,875.2    |                       | $          | 2,191.6                 |       | $ | 2,423.8 |   |
| Accounts  payable and accrued expenses                      |       | 2.7                     |       | 4.4                        |       | 4.6                     |       |
| Total  liabilities related to restricted securitized assets |       | $                       | 1,877.9    |                       | $          | 2,196.0                 |       | $ | 2,428.4 |   |

 

7

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|   |   | The  secured borrowings related to these restricted securitized retail notes are  obligations that are payable as the retail notes are liquidated. Repayment of  the secured borrowings depends primarily on cash flows generated by the  restricted assets. Due to the Company’s short-term credit rating, cash  collections from these restricted assets do not need to be placed into a  segregated collection account until immediately prior to the time payment is  required to the secured creditors. Under FASB Interpretation No. 46  (revised December 2003), Consolidation of Variable Interest Entities, an  SPE was consolidated that included assets (restricted retail notes) of $1,462  million, $1,494 million and $1,662 million at July 31, 2008, October 31,  2007 and July 31, 2007, respectively. These restricted retail notes are  included in the restricted securitized retail notes related to  securitizations shown in the table above. At July 31, 2008, the maximum  remaining term of all restricted receivables was approximately six years. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (6)    |   | New accounting standard  adopted in the first quarter of  2008  was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | The  Company adopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty  in Income Taxes, at the beginning of the first fiscal quarter of 2008. This  Interpretation clarifies that the recognition for uncertain tax positions  should be based on a more-likely-than-not threshold that the tax position  will be sustained upon audit. The tax position is measured as the largest  amount of benefit that has a greater than 50 percent probability of being  realized upon settlement. As a result of adoption, the Company recorded an  increase in its liability for unrecognized tax benefits of $23.7 million, an  increase in accrued interest and penalties payable of $10.1 million, an  increase in deferred tax liabilities of $.9 million, a reduction in the  beginning retained earnings balance of $21.5 million, an increase in tax  receivables of $1.9 million and an increase in deferred tax assets of $11.3  million.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | After  adoption at the beginning of the first quarter, the Company had a total  liability for unrecognized tax benefits of $23.7 million.  Approximately $11.4 million of this balance  would affect the effective tax rate if the tax benefits were recognized. The  remaining liability was related to tax positions for which there are  offsetting tax receivables, or the uncertainty was only related to timing.  These items would not affect the effective tax rate due to offsetting changes  to the receivables or deferred taxes. The liability for unrecognized tax  benefits at July 31, 2008 was $28.0 million, of which approximately  $10.1 million would affect the effective tax rate if the tax benefits  were recognized. The Company does not have any tax positions for which it  expects that the liability for unrecognized tax benefits would change  significantly within the next 12 months.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | The  Company’s continuing policy is to recognize interest related to uncertain tax  positions in interest expense and interest income, and recognize penalties in  administrative and operating expenses.   After adoption at the beginning of the first quarter of 2008, the  liability for accrued interest and penalties totaled $10.1 million,  which has not changed materially during the first nine months of 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | The  Company files its tax returns according to the tax laws of the jurisdictions  in which it operates, which includes the U.S. federal jurisdiction, and  various state and foreign jurisdictions. The Company is included in the  consolidated U.S. income tax return and various state returns of Deere &  Company. The U.S. Internal Revenue Service has completed its examination of  Deere & Company’s federal income tax returns for periods prior to  2001, and for the years 2002, 2003 and 2004. The year 2001, and 2005 through  2007 federal income tax returns are either currently under examination or  remain subject to examination. Various state and foreign income tax returns  also remain subject to examination by taxing authorities.                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | New accounting standards  to be adopted are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | In December 2007,  the FASB issued Statement No. 141 (revised 2007), Business Combinations,  and Statement No. 160, Noncontrolling Interests in Consolidated  Financial Statements. Statement No. 141 (revised 2007) requires an  acquirer to measure the identifiable assets acquired, the liabilities assumed  and any noncontrolling interest in the acquiree at their fair values on the  acquisition date, with goodwill being the excess value over the net  identifiable assets acquired. Statement No. 160 requires that a  noncontrolling interest in a subsidiary be reported as equity in the  consolidated financial statements. Consolidated net income should include the  net income for both the parent and the noncontrolling interest with  disclosure of both amounts on the consolidated statement of income. The  effective date for both Statements is the beginning of fiscal year 2010. The  Company has currently not determined the potential effects of adoption on the  consolidated financial statements.                                                       |

 

8

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|   |   | In September 2006,  the FASB issued Statement No. 157, Fair Value Measurements. This  Statement defines fair value and expands disclosures about fair value  measurements. These methods will apply to other accounting standards, which  use fair value measurements and may change the application of certain  measurements used in current practice. The effective date is the beginning of  fiscal year 2009 for financial assets and liabilities. For nonfinancial  assets and liabilities, the effective date is the beginning of fiscal year  2010, except items that are recognized or disclosed on a recurring basis (at  least annually). The adoptions are not expected to have a material effect on  the Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | In February 2007,  the FASB issued Statement No. 159, The Fair Value Option for Financial  Assets and Financial Liabilities. This Statement permits entities to measure  most financial instruments at fair value. It may be applied on a contract by  contract basis and is irrevocable once applied to those contracts.  The standard may be applied at the time of  adoption for existing eligible items, or at initial recognition of eligible  items. After election of this option, changes in fair value are reported in  earnings. The items measured at fair value must be shown separately on the  balance sheet. The effective date is the beginning of fiscal year 2009. The  cumulative effect of adoption would be reported as an adjustment to beginning  retained earnings. The adoption is not expected to have a material effect on  the Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | In March 2008,  the FASB issued Statement No. 161, Disclosures about Derivative  Instruments and Hedging Activities. This Statement significantly increases  the disclosure requirements for derivative instruments. The new requirements  include the location and fair value amounts of all derivatives by category reported  in the consolidated balance sheet; the location and amount of gains or losses  of all derivatives and designated hedged items by category reported in the  consolidated income statement or in other comprehensive income in the  consolidated balance sheet; and measures of volume such as notional amounts.  For derivatives designated as hedges, the gains or losses must be divided  into the effective portions and the ineffective portions. The Statement also  requires the disclosure of group concentrations of credit risk by  counterparties, including the maximum amount of loss due to credit risk and  policies concerning collateral and master netting arrangements. Most  disclosures are required on an interim and annual basis. The effective date  is the second quarter of fiscal year 2009. The adoption will not have a  material effect on the Company’s consolidated financial statements. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |   | In May 2008,  the FASB issued Statement No. 162, The Hierarchy of Generally Accepted  Accounting Principles. This Statement identifies the sources for generally  accepted accounting principles (GAAP) in the U.S. and lists the categories in  descending order. An entity should follow the highest category of GAAP  applicable for each of its accounting transactions. The adoption will not  have a material effect on the Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (7)    |   | The  Company is a participating employer in certain Deere & Company  sponsored defined benefit pension plans for employees in the U.S. and certain  defined benefit pension plans outside the U.S. These pension plans provide  for benefits that are based primarily on years of service and employee  compensation. Pension expense is actuarially determined based on the  Company’s employees included in the plan. The Company’s pension expense amounted  to $3.7 million in the first nine months of 2008. The accumulated  benefit obligation and plan net assets for the employees of the Company are  not determined separately from Deere & Company. The Company  generally provides defined benefit health care and life insurance plans for  retired employees in the U.S. as a participating employer in Deere &  Company’s sponsored plans. Health care and life insurance benefits expense is  actuarially determined based on the Company’s employees included in the plans  and amounted to $3.1 million during the first nine months of 2008. Further  disclosure for these plans is included in Deere & Company’s Form 10-Q  for the quarter ended July 31, 2008.       |

 

9

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

 

Results of Operations

 

Overview

 

Organization

 

The Companyprimarily generates revenues and cash by financing John Deere dealers’ salesand leases of new and used agricultural, commercial and consumer andconstruction and forestry equipment. In addition, the Company provideswholesale financing to dealers of the foregoing equipment, provides operatingloans, finances retail revolving charge accounts, offers certain crop riskmitigation products and invests in wind energy generation. 

 

Trends andEconomic Conditions

 

The Company’sbusiness is closely related to John Deere’s business. Industry sales of farmmachinery for 2008 in the U.S. and Canada are forecast to be up 20 to 25percent for the year, led by a substantial increase in large tractors andcombines. Industry sales in Western Europe are forecast to be up about 5percent for the year. Greater increases are expected in Central Europe and theCIS (Commonwealth of Independent States) countries, including Russia, wheredemand for productive farm machinery is growing rapidly. South American marketsare showing further improvement  withindustry sales forecast to increase by about 40 percent for the year. John Deere’sagricultural equipment sales were up 35 percent for the third quarter and 34percent for the first nine months of 2008. With help from continuing strengthin the global farm sector, John Deere’s agricultural equipment sales areforecast to increase about 38 percent for the year, including about 8 percentrelated to currency translation. John Deere’s commercial and consumer equipmentsales declined 1 percent for the third quarter and increased 6 percentyear-to-date, including an increase of 5 percent for the quarter and 9 percentyear-to-date from a landscape operation acquired in the third quarter of 2007.John Deere’s commercial and consumer equipment sales are projected to increaseabout 4 percent for the year, including an improvement of about 6 percent fromthe landscape acquisition. U.S. markets for construction and forestry equipmentare forecast to remain under continued pressure due to a sharp decline inhousing starts. John Deere’s construction and forestry sales declined 7 percentin the third quarter and first nine months of 2008. For the year, these salesare expected to decline by approximately 5 percent. The Company’s net income in2008 is forecast to be approximately $290 million, compared to $311 million in2007. The forecast decrease from 2007 is primarily due to increased leverage,higher administrative and operating expenses, and increases in the provisionfor credit losses, partially offset by growth in the portfolio.

 

Items of concernfor the Company include the slowdown in the U.S. economy and credit issues,which have affected the housing market. 

 

2008 Compared with 2007

 

Net income was$70.1 million for the third quarter and $224.6 million for the first ninemonths of 2008, compared with $79.0 million and $228.4 million, respectively,last year. Quarterly and year-to-date results were lower primarily due to anincrease in leverage, higher administrative and operating expenses, an increasein the provision for credit losses and lower income from receivable sales,partially offset by growth in the portfolio and increased commissions from cropinsurance. 

 

10

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Revenues totaled$483.6 million for the third quarter and $1,467.3 million for the first ninemonths of 2008, compared to $506.3 million and $1,440.0 million, respectively,last year. The year-to-date increase was primarily due to increased cropinsurance income and a 5 percent increase in the average balance ofReceivables and Leases financed, partially offset by lower income onreceivables sold. Finance income earned on retail notes totaled$646.9 million for the first nine months of 2008, up $27.0 millioncompared to $619.9 million for the same period in 2007. This increase wasprimarily due to an 8 percent increase in the average retail noteportfolio balances. Lease revenues totaled $246.7 million in the firstnine months of 2008, compared to $235.8 million in the first nine months of2007. This increase was primarily due to a 5 percent increase in theaverage amount of leases. Revenues earned on revolving charge accounts amountedto $162.4 million in the first nine months of 2008, compared to$160.0 million during the same period last year. This increase wasprimarily due to an increase in the average balance of revolving chargeaccounts, partially offset by lower financing rates in the first nine months of2008, compared with the same period last year. Finance income earned onwholesale receivables totaled $232.0 million for the first nine months of 2008,compared to $274.5 million for the same period in 2007. The decrease wasprimarily due to lower financing rates and a 4 percent decrease in the averagebalance of wholesale receivables. Operating loan income amounted to$18.5 million in the first nine months of 2008, compared to$21.3 million in the first nine months of 2007. The decrease was primarilydue to lower financing rates. Revenues earned from John Deere totaled$133.7 million for the third quarter and $409.4 million in the first ninemonths of 2008, compared to $148.4 million and $410.3 million for the sameperiods last year.

 

Income onreceivables sold totaled $1.3 million for the third quarter and $5.6 millionfor the first nine months of 2008, compared to $4.9 million and $19.3 millionfor the same periods in 2007. In the second quarter of 2008, the Companyexercised a cleanup call to repurchase the remaining securitization transactionthat met the criteria of sales in accordance with FASB Statement No. 140.Income on receivables sold relates to Receivables sold to other financialinstitutions or limited-purpose business trusts and primarily includes theinterest earned on interests that continue to be held by the Company,reimbursed administrative expenses received and the net gain on Receivablessold, including adjustments to prior sales related to cleanup calls andrevaluations of interests that continue to be held and the related permanentimpairments.

 

Crop insurancecommissions totaled $39.3 million for the third quarter and $95.3 million forthe first nine months of 2008, compared to $24.2 million and $48.2 million forthe same periods in 2007. The increase was due to increased crop insurancesales to producers as a result of expanded market coverage and increasedcommodity prices causing higher insurance premiums. 

 

Interest expensetotaled $193.9 million for the third quarter and $622.5 million for the firstnine months of 2008, compared to $226.1 million and $643.1 million for the sameperiods in 2007. The decreases were due to lower borrowing rates, partially offsetby higher average borrowings. 

 

Administrative andoperating expenses were $103.0 million in the third quarter and $266.0 millionfor the first nine months of 2008, compared with $83.4 million and $225.1million for the same periods in 2007. The increases were primarily due tohigher costs in support of the Company’s growth initiatives and higheremployment costs associated with administering a larger Receivable and Leaseportfolio.

 

During the thirdquarter and first nine months of 2008, the provision for credit losses totaled$16.1 million and $46.8 million, respectively, compared with $11.6 million and$36.5 million in the same periods in 2007. For the first nine months of 2008,the Company has experienced higher write-offs of construction and forestryequipment retail notes and revolving charge accounts. Total net write-offs ofReceivables financed were $12.2 million and $40.7 million for the third quarterand first nine months of 2008, compared with $9.4 million and $32.5 million inthe same periods in 2007. The annualized provision for credit losses, as apercentage of the average balance of total Receivables financed, was..36 percent for the third quarter and .36 percent for the first ninemonths of 2008, compared with .27 percent and .29 percent for the sameperiods in 2007. See the Company’s most recently filed annual report on Form 10-Kfor further information regarding the Company’s allowance for credit lossespolicies. 

 

Depreciation ofequipment on operating leases was $53.1 million in the third quarter and $160.9million for the first nine months of 2008, compared to $53.4 million and$157.4 million for the same periods in 2007. The year-to-date increase wasprimarily the result of higher average amounts of equipment on operating leases.

 

The Company’sratio of earnings to fixed charges was 1.56 to 1 for the third quarter of 2008,compared with 1.54 to 1 for the third quarter of 2007. The ratio ofearnings to fixed charges was 1.55 to 1 for the first nine months of 2008 and2007. “Earnings” consist of income before income taxes, the cumulative effectof changes in accounting and fixed charges. “Fixed charges” consist of intereston indebtedness, amortization of debt discount and expense, interest related touncertain tax positions, an estimated amount of rental expense undercapitalized leases that is deemed to be representative of the interest factorand rental expense under operating leases.

 

11

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

 
| ** **                           | ** ** | **Three Months**        | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|-------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                           | ** ** | **2008**                | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                    |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                       | 1,286.9    |       | $          | 1,044.1           |       | $ | 242.8 |   | 23 | % |
| Construction and  forestry equipment |       | 256.0                   |       | 341.3      |       | (85.3             | )          | (25 | ) |
| Commercial and  consumer equipment   |       | 153.6                   |       | 176.6      |       | (23.0             | )          | (13 | ) |
| Total retail  notes                  |       | 1,696.5                 |       | 1,562.0    |       | 134.5             |       | 9 |   |
| Revolving charge  accounts           |       | 1,304.7                 |       | 1,089.4    |       | 215.3             |       | 20 |   |
| Operating loans                      |       | 426.4                   |       | 256.2      |       | 170.2             |       | 66 |   |
| Wholesale  receivables               |       | 4,794.8                 |       | 4,764.8    |       | 30.0              |       | 1 |   |
| Financing leases                     |       | 80.4                    |       | 61.1       |       | 19.3              |       | 32 |   |
| Equipment on  operating leases       |       | 137.2                   |       | 149.8      |       | (12.6             | )          | (8 | ) |
| Total  Receivables and Leases        |       | $                       | 8,440.0    |       | $          | 7,883.3           |       | $ | 556.7 |   | 7 | % |

 
| ** **                           | ** ** | **Nine Months**         | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|-------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                           | ** ** | **2008**                | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                    |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                       | 3,609.9    |       | $          | 2,993.3           |       | $ | 616.6 |   | 21 | % |
| Construction and  forestry equipment |       | 688.5                   |       | 1,045.2    |       | (356.7            | )          | (34 | ) |
| Commercial and  consumer equipment   |       | 319.5                   |       | 401.0      |       | (81.5             | )          | (20 | ) |
| Total retail  notes                  |       | 4,617.9                 |       | 4,439.5    |       | 178.4             |       | 4 |   |
| Revolving charge  accounts           |       | 3,192.3                 |       | 2,676.4    |       | 515.9             |       | 19 |   |
| Operating loans                      |       | 1,655.3                 |       | 1,063.6    |       | 591.7             |       | 56 |   |
| Wholesale  receivables               |       | 14,155.4                |       | 13,168.2   |       | 987.2             |       | 7 |   |
| Financing leases                     |       | 194.0                   |       | 157.1      |       | 36.9              |       | 23 |   |
| Equipment on  operating leases       |       | 358.0                   |       | 371.7      |       | (13.7             | )          | (4 | ) |
| Total  Receivables and Leases        |       | $                       | 24,172.9   |       | $          | 21,876.5          |       | $ | 2,296.4 |   | 10 | % |

 

Retail note volumes foragricultural equipment increased in the third quarter and first nine months of2008, when compared to last year, primarily due to increases in retail sales ofJohn Deere agricultural equipment. Retail note volumes for construction andforestry equipment and commercial and consumer equipment decreased in the thirdquarter and first nine months of 2008, when compared to last year, primarilydue to decreases in retail sales of John Deere construction and forestryequipment and John Deere commercial and consumer equipment. Revolving chargeaccount volumes increased in the third quarter and first nine months of 2008,when compared to last year, primarily as a result of increased market coverage.Operating loan volumes increased during the third quarter and first nine monthsof 2008, when compared to last year, primarily due to increased borrowings byfarm input providers as a result of higher commodity prices. Wholesalereceivable volumes increased during the third quarter and first nine months of2008, when compared to last year, primarily due to increased shipments of JohnDeere equipment as a result of increased retail sales activity in theagricultural markets.  

 

12

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

 
| ** **                           | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                           | ** ** | **2008**          | ** ** | **2007**             | ** ** | **2007**          | ** ** |
| Retail notes:                        |       |              |       |                 |       |              |       |
| Agricultural  equipment              |       | $                 | 8,734.1    |                 | $          | 8,535.8           |       | $ | 7,793.1 |   |
| Construction and  forestry equipment |       | 2,076.7           |       | 2,409.1              |       | 2,442.2           |       |
| Commercial and  consumer equipment   |       | 923.0             |       | 1,003.5              |       | 1,017.1           |       |
| Recreational  products               |       | 9.8               |       | 12.3                 |       | 13.4              |       |
| Total retail  notes                  |       | 11,743.6          |       | 11,960.7             |       | 11,265.8          |       |
| Revolving charge  accounts           |       | 1,776.0           |       | 1,553.3              |       | 1,548.7           |       |
| Operating loans                      |       | 385.9             |       | 286.5                |       | 242.9             |       |
| Wholesale  receivables               |       | 4,051.6           |       | 3,521.3              |       | 4,164.6           |       |
| Financing leases                     |       | 452.4             |       | 430.3                |       | 412.4             |       |
| Equipment on  operating leases       |       | 985.9             |       | 995.2                |       | 936.0             |       |
| Total  Receivables and Leases        |       | $                 | 19,395.4   |                 | $          | 18,747.3          |       | $ | 18,570.4 |   |

 

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

 
| ** **                                                                   | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                   | ** ** | **2008**          | ** ** | **2007**             | ** ** | **2007**          | ** ** |
| Receivables and  Leases administered:                                        |       |              |       |                 |       |              |       |
| Owned by the  Company                                                        |       | $                 | 17,538.4   |                 | $          | 16,596.9          |       | $ | 16,169.1 |   |
| Owned by the  Company – restricted due to securitization securitization |       | 1,857.0           |       | 2,150.4              |       | 2,401.3           |       |
| Total  Receivables and Leases owned by the Company                           |       | 19,395.4          |       | 18,747.3             |       | 18,570.4          |       |
| Administered –  with limited recourse*                                  |       | 120.7             |       | 177.9                |       | 488.8             |       |
| Administered –  without recourse**                                      |       | 43.8              |       | 44.6                 |       | 25.0              |       |
| Total  Receivables and Leases administered                                   |       | $                 | 19,559.9   |                 | $          | 18,969.8          |       | $ | 19,084.2 |   |

 

----

|   | *      | The Company’s maximum  exposure under all Receivable and Lease recourse provisions at July 31,  2008, October 31, 2007 and July 31, 2007 was $8 million, $25  million and $73 million, respectively. The Company does not record the  recourse obligations as liabilities as they are contingent liabilities that  are remote at this time. However, the probable loss on receivables that have  been sold was accrued at the time of sale, and any subsequent necessary adjustments  are made as part of ongoing reviews. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | **     | Represents Receivables  and Leases that the Company has sold but continues to administer for a fee.                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

13

----

 

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 as follows (in millions of dollars):

 
| ** **                           | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                           | ** ** | **2008**          | ** ** | **2007**             | ** ** | **2007**          | ** ** |
| ** **                           | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                 | 14.2       |                 | .16        | %                 | $          | 14.4 |   | .17 | % | $ | 13.8 |   | .18 | % |
| Construction and  forestry equipment |       | 9.0               |       | .43                  |       | 6.9               |       | .29 |   | 6.6 |   | .27 |   |
| Commercial and  consumer equipment   |       | 2.1               |       | .23                  |       | 1.5               |       | .15 |   | 1.6 |   | .16 |   |
| Recreational  products               |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Total retail  notes                  |       | 25.3              |       | .22                  |       | 22.8              |       | .19 |   | 22.0 |   | .20 |   |
| Revolving charge  accounts*          |       | 18.4              |       | 1.04                 |       | 15.3              |       | .98 |   | 18.8 |   | 1.21 |   |
| Operating loans                      |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Wholesale  receivables               |       | .5                |       | .01                  |       | .9                |       | .03 |   | 1.9 |   | .05 |   |
| Financing leases                     |       | 5.7               |       | 1.26                 |       | 4.7               |       | 1.09 |   | 4.1 |   | .99 |   |
| Total  Receivables                   |       | $                 | 49.9       |                 | .27        | %                 | $          | 43.7 |   | .25 | % | $ | 46.8 |   | .27 | % |

 

----

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

 

The balance ofretail notes held (principal plus accrued interest) with any installment 60days or more past due represents the total retail note balance for a customerwho has any portion of their note 60 days or more past due. These amounts were$192 million, $170 million and $174 million at July 31, 2008, October 31,2007 and July 31, 2007, respectively. The balances of retail notes held onwhich any installment was 60 days or more past due as a percentage of theending retail notes receivable was 1.64 percent, 1.42 percent and 1.54 percentat July 31, 2008, October 31, 2007 and July 31, 2007,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):

 
| ** **                           | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                           | ** ** | **2008**          | ** ** | **2007**             | ** ** | **2007**          | ** ** |
| ** **                           | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural equipment               |       | $                 | 19.4       |                 | .22        | %                 | $          | 21.6 |   | .25 | % | $ | 20.3 |   | .26 | % |
| Construction and  forestry equipment |       | 15.9              |       | .77                  |       | 2.2               |       | .09 |   | 2.5 |   | .10 |   |
| Commercial and consumer  equipment   |       | 4.3               |       | .47                  |       | 1.8               |       | .18 |   | 1.8 |   | .18 |   |
| Recreational products                |       | .1                |       | 1.02                 |       | .1                |       | .81 |   | .1 |   | .75 |   |
| Total retail notes                   |       | 39.7              |       | .34                  |       | 25.7              |       | .21 |   | 24.7 |   | .22 |   |
| Revolving charge  accounts           |       | 3.3               |       | .19                  |       | 1.2               |       | .08 |   | 1.0 |   | .06 |   |
| Operating loans                      |       | 27.1              |       | 7.02                 |       | 3.5               |       | 1.22 |   | 11.3 |   | 4.65 |   |
| Wholesale receivables                |       | .2                |       |                 |       | 4.5               |       | .13 |   | .9 |   | .02 |   |
| Financing leases                     |       | 13.6              |       | 3.01                 |       | 13.3              |       | 3.09 |   | 10.7 |   | 2.59 |   |
| Total Receivables                    |       | $                 | 83.9       |                 | .46        | %                 | $          | 48.2 |   | .27 | % | $ | 48.6 |   | .28 | % |

 

The increase inthe balance of non-performing construction and forestry equipment retail notesat July 31, 2008 was primarily due to the continued weak U.S. constructionmarket. The increase in non-performing operating loans at July 31, 2008was due to a payment default on an operating loan to a commercial and consumerequipment customer. A loan-loss provision was recorded for the estimateduncollectible amount.

 

14

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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** | ** ** |
|--------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **July 31,**      | ** ** | **July 31,**      | ** ** |
| ** **                           | ** ** | **2008**               | ** ** | **2007**               | ** ** |
| ** **                           | ** ** | **Dollars**            | ** ** | **Percent**            | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                   |       |                   |       |   |   |   |   |
| Agricultural  equipment              |       | $                      | .5         |                   | .02        | % | $ | .1 |   | .01 | % |
| Construction and  forestry equipment |       | 3.8                    |       | .72                    |       | 2.5 |   | .41 |   |
| Commercial and  consumer equipment   |       | .2                     |       | .09                    |       |   |   |   |   |
| Recreational  products               |       | .1                     |       | 3.94                   |       | .1 |   | 2.86 |   |
| Total retail  notes                  |       | 4.6                    |       | .16                    |       | 2.7 |   | .10 |   |
| Revolving charge  accounts           |       | 7.5                    |       | 1.80                   |       | 5.5 |   | 1.49 |   |
| Operating loans                      |       | (.4                    | )          | (.38                   | )          | (.2 | ) | (.30 | ) |
| Wholesale receivables                |       | .3                     |       | .03                    |       | .7 |   | .07 |   |
| Financing leases                     |       | .2                     |       | .18                    |       | .7 |   | .69 |   |
| Total  Receivables                   |       | $                      | 12.2       |                   | .27        | % | $ | 9.4 |   | .22 | % |

 
| ** **                           | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **July 31,**     | ** ** | **July 31,**     | ** ** |
| ** **                           | ** ** | **2008**              | ** ** | **2007**              | ** ** |
| ** **                           | ** ** | **Dollars**           | ** ** | **Percent**           | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                  |       |                  |       |   |   |   |   |
| Agricultural equipment               |       | $                     | 1.3        |                  | .02        | % | $ | (.6 | ) | (.01 | )% |
| Construction and  forestry equipment |       | 17.0                  |       | 1.03                  |       | 11.7 |   | .65 |   |
| Commercial and consumer  equipment   |       | 1.1                   |       | .16                   |       | .5 |   | .07 |   |
| Recreational products                |       | .3                    |       | 3.73                  |       | .4 |   | 3.50 |   |
| Total retail notes                   |       | 19.7                  |       | .23                   |       | 12.0 |   | .15 |   |
| Revolving charge  accounts           |       | 20.1                  |       | 1.85                  |       | 18.3 |   | 1.85 |   |
| Operating loans                      |       | (.7                   | )          | (.22                  | )          | (.4 | ) | (.15 | ) |
| Wholesale receivables                |       | .3                    |       | .01                   |       | .7 |   | .02 |   |
| Financing leases                     |       | 1.3                   |       | .41                   |       | 1.9 |   | .64 |   |
| Total Receivables                    |       | $                     | 40.7       |                  | .31        | % | $ | 32.5 |   | .26 | % |

 

Deposits withheldfrom dealers and merchants, representing mainly the aggregate dealer retailnote and lease withholding accounts from individual John Deere dealers to whichlosses from retail notes and leases originating from the respective dealers canbe charged, amounted to $171 million at July 31, 2008 compared with $174million at October 31, 2007 and $168 million at July 31, 2007.

 

The Company’sallowance for credit losses on all Receivables financed totaled $106 million atJuly 31, 2008, $99 million at October 31, 2007 and $98 millionat July 31, 2007. The allowance for credit losses represented..58 percent of the total Receivables financed at July 31, 2008, .56percent at October 31, 2007 and .55 percent at July 31, 2007. Thelevel of the allowance is based on many quantitative and qualitative factors,including historical loss experience by product category, portfolio duration,delinquency trends, economic conditions and credit risk quality. The Companybelieves its allowance is sufficient to provide for losses in its existingreceivable portfolio.

 

15

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Safe Harbor Statement

 

*SafeHarbor Statement under the Private Securities Litigation Reform Act of 1995:*Statementsherein that relate to future operating periods are subject to important risksand uncertainties that could cause actual results to differ materially. Actionsby the U.S. Federal Reserve Board and other central banks may affect the costsand expenses of financing the Company and the rates it is able to offer. TheCompany’s business is affected by general economic conditions in and thepolitical instability of the global markets in which the Company operatesbecause deteriorating economic conditions and political instability can resultin higher loan losses and greater currency risk. The Company’s business is alsoaffected by actions of banks, financing and leasing companies and other lendersthat compete with the Company for customers; capital market disruptions;significant changes in capital market liquidity and associated funding costs;and the sub-prime credit market crisis. In addition, the Company’s business isclosely related to John Deere’s business. Further information, includingfactors that potentially could materially affect the Company’s and John Deere’sfinancial results, is included in the most recent Deere & Company Form 10-K(including the factors discussed in Item 1A) and other Deere & Companyand Capital Corporation filings with the Securities and Exchange Commission.

 

Critical AccountingPolicies

 

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 havebeen no material changes to these policies.

 

Capital Resources andLiquidity

 

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 firstnine months of 2008, the aggregate net cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Net cashprovided by operating activities was $445 million in the first nine months of2008. Net cash provided by financing activities totaled $638 million inthe first nine months of 2008, resulting primarily from a net increase in totalexternal borrowings, partially offset by dividends paid to John Deere CreditCompany, which in turn paid comparable dividends to Deere & Company.Net cash used for investing activities totaled $787 million in the firstnine months of 2008, primarily due to the cost of Receivables and Leasesacquired exceeding collections and the cost of notes receivables with JohnDeere exceeding collections. Cash and cash equivalents increased$305 million during the first nine months of 2008.

 

During the firstnine months of 2007, the aggregate net cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Net cashprovided by operating activities was $409 million in the first nine months of2007. Net cash provided by financing activities totaled $635 million inthe first nine months of 2007, resulting primarily from a net increase inexternal borrowings, partially offset by dividends paid to John Deere CreditCompany, which in turn paid comparable dividends to Deere & Company.Net cash used for investing activities totaled $965 million in the firstnine months of 2007, primarily due to the cost of Receivables and Leasesacquired exceeding collections and the cost of notes receivables with JohnDeere exceeding collections. Cash and cash equivalents increased$83 million during the first nine months of 2007. 

 

The financing ofretail purchases and leases of John Deere products and of wholesale receivablesowed by John Deere dealers represented approximately 80 percent and 85 percentof the Company’s acquisition volume for the nine months ended July 31,2008 and 2007, respectively. Any extended reduction or suspension of John Deere’ssale or 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 relieson its ability to raise substantial amounts of funds to finance its Receivableand Lease portfolios. Because of the multiple funding sources that have beenand continue to be available, the Company expects to have sufficient sources ofliquidity to meet its ongoing funding needs. The Company’s ability to meet itsdebt obligations is supported in a number of ways. The assets of the Companyare self-liquidating in nature. A solid equity position is available to absorbunusual losses on these assets and all commercial paper is backed by unsecured,committed borrowing lines from various banks. Liquidity is also provided by theCompany’s ability to securitize these assets and through the issuance of termdebt. Additionally, liquidity may also be provided through loans from JohnDeere.

 

16

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During the firstnine months of 2008, the Company issued $4,050 million of medium-term notes,obtained $644 million of secured borrowings, maintained an average commercialpaper balance of $2,756 million and received proceeds of $102 million fromsales of Receivables. At July 31, 2008, the Company’s funding profileincluded $2,675 million of commercial paper, $1,875 million of notespayable related to on-balance sheet securitization funding, $162 million ofintercompany loans from Deere & Company, $13,737 million of unsecuredterm debt, and $1,705 million of equity capital. The Company’s funding profilemay be altered to reflect such factors as relative costs of funding sources,assets available for securitizations and capital market accessibility. 

 

The Company’s commercialpaper outstanding at July 31, 2008, October 31, 2007 and July 31,2007 was approximately $2,675 million, $2,679 million and $3,079 million,respectively, while the total cash and cash equivalents position wasapproximately $496 million, $191 million and $202 million, respectively. 

 

The Company issued$4,054 million and retired $2,588 million of long-term borrowings during thefirst nine months of 2008. The issuances were primarily medium-term notes. Theretirements included $850 million of 3.90% notes due 2008 and the remainderconsisted primarily of medium-term notes.

 

Totalinterest-bearing indebtedness amounted to $18,467 million at July 31,2008, compared with $17,118 million at October 31, 2007, and$16,808 million at July 31, 2007. Included in this debt are securedborrowings of $1,875 million, $2,192 million and $2,424 million for thesame periods (see Note 5). Total external borrowings increased during the firstnine months of 2008 and increased in the past 12 months, generally correspondingwith the level of the Receivable and Lease portfolio, the level of cash andcash equivalents and the change in payable to John Deere. Total short-termindebtedness amounted to $8,316 million at July 31, 2008, which included$1,875 million of secured borrowings, compared with $8,842 million at October 31,2007, which included $2,192 million of secured borrowings and$9,012 million at July 31, 2007, which included $2,424 million ofsecured borrowings, while total long-term indebtedness amounted to $10,151 million,$8,276 million and $7,796 million at these dates, respectively. The ratio oftotal interest-bearing debt, including securitization indebtedness, tostockholder’s equity was 10.8 to 1 at July 31, 2008, compared with 8.8 to1 at October 31, 2007 and 8.5 to 1 at July 31, 2007. 

 

Stockholder’sequity was $1,705 million at July 31, 2008, compared with $1,955 millionat October 31, 2007 and $1,975 million at July 31, 2007. The decreasein the first nine months of 2008 resulted primarily from dividend payments of$465 million and a reduction of retained earnings of $22 million resultingfrom the adoption of  FIN No. 48,Accounting for Uncertainty in Income Taxes, which were partially offset by netincome of $225 million.

 

*Lines ofCredit*

 

The Company alsohas access to bank lines of credit with various banks throughout the world.Some of the lines are available to both the Company and Deere &Company. Worldwide lines of credit totaled $4,518 million at July 31,2008, $1,150 million of which was unused. Forthe purpose of computing unused credit lines, commercial paper and short-termbank borrowings, excluding secured borrowings and the current portion oflong-term borrowings, of the Company and Deere & Company wereconsidered to constitute utilization. Included in the total credit linesat July 31, 2008 was the long-term credit facility agreement of $3,750million, expiring in February 2012. The credit agreement requires theCompany to maintain its consolidated ratio of earnings to fixed charges at notless than 1.05 to 1 for each fiscal quarter and its ratio of senior debt,excluding securitization indebtedness, to capital base (total subordinated debtand stockholder’s equity excluding accumulated other comprehensive income(loss)) at not more than 11 to 1 at the end of any fiscal quarter. All ofthese requirements of the credit agreement have been met during the periodsincluded in the consolidated financial statements.

 

*DebtRatings*

 

The Company’sability to obtain funding is affected by its debt ratings, which are closelyrelated to the outlook for and the financial condition of John Deere, and thenature and availability of support facilities, such as its lines of credit andthe support agreement from Deere & Company. 

 

To access publicdebt capital 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. Each agency’s rating should be evaluated independently of anyother rating. Lower credit ratings generally result in higher borrowing costsand reduced access to debt capital markets. 

 

17

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The senior long-term and short-term debt ratings andoutlook currently assigned to unsecured Company securities by the ratingagencies engaged by the Company are the same as those for John Deere. Thoseratings 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      |       |

 

The Company paid in 2007 and in 2008 relatively largedividends, thus increasing its use of borrowed capital. Based on discussionwith the rating agencies, the Company expects that this increased use of debtcapital will not have an adverse impact on its credit ratings.

 

*ContractualObligations*

 

The following is an update to the ContractualObligations table in Management’s Discussion and Analysis for the Company’smost recent annual report on Form 10-K. The Company adopted FIN No. 48,Accounting for Uncertainty in Income Taxes, at the beginning of fiscal year2008 (see Note 6). The resulting liability for unrecognized tax benefitstotaled $28.0 million at July 31, 2008. The timing of future paymentsrelated to this liability is not reasonably estimable at this time. 

 

*Dividendand Other Events*

 

The Capital Corporation declared and paid cashdividends to John Deere Credit Company of $465 million in the first nine monthsof fiscal 2008. John Deere Credit Company paid comparable dividends to Deere &Company. 

 

In August 2008, the Company issued $350 millionof floating rate medium-term notes due in 2010 and entered into interest rateswaps related to these notes, which swapped the floating rate to a fixed rateof 3.80%.

 

Item 3.                                Quantitativeand Qualitative Disclosures About Market Risk.

 

See the Company’smost recent annual report filed on Form 10-K (Item 7A). There has been nomaterial change in this information.

 

Item 4.                                Controlsand Procedures.

 

The Company’sprincipal executive officer and its principal financial officer have concludedthat the Company’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”))were effective as of July 31, 2008, based on the evaluation of thesecontrols and procedures required by Rule 13a-15(b) or 15d-15(b) ofthe Act. During the third quarter, there were no changes that have materiallyaffected or are reasonably likely to materially affect the Company’s internalcontrols over financial reporting.

 

18

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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 consolidated 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. |

 

19

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SIGNATURES

 

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

 

 
|   | JOHN DEERE CAPITAL  CORPORATION |
|--------|---------------------------------|
|   |                            |
|   |                            |
| Date:  | September 2, 2008          |   | By: | */s/ M.  J. Mack, Jr.* |
|   |                            | M. J. Mack, Jr.  Senior Vice President,  Principal Financial Officer |
|        |                                 |  |  |  |

 

20

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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  July 31, 2008 (Securities and Exchange Commission file number  1-4121*)                                    |

 

----

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

 

21

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