**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

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**FORM 10-Q**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly periodended July 31, 2006**

** **

Commission file no: 1-6458

 

**JOHN DEERE CAPITAL CORPORATION**
| **Delaware**                                            | **36-2386361**                     |
|---------------------------------------------------------|------------------------------------|
| (State of  Incorporation)                               | (IRS Employer  Identification No.) |
|                                                    |                               |
| **1 East  First Street, Suite 600  Reno, Nevada 89501** |
| (Address of  principal executive offices)               |
|                                                    |
| Telephone  Number: **(775) 786-5527**                   |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.
| Large accelerated filer o | Accelerated  filer o | Non-accelerated filer x |
|---------------------------|----------------------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

At July 31, 2006, 2,500 shares of common stock,without par value, of the registrant were outstanding, all of which were ownedby John Deere Credit Company, a wholly-owned subsidiary of Deere & Company.

Theregistrant meets the conditions set forth in General Instruction H(1)(a) and(b) of Form 10-Q and is therefore filing this Form with certain reduceddisclosures as permitted by those instructions.

 

Page 1 of 25 Pages Index to Exhibits: Page 21

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**PART I. FINANCIAL INFORMATION**

**Item 1. Financial Statements.**

**John Deere CapitalCorporation and SubsidiariesStatements of Consolidated Income and Retained Earnings(Unaudited)**(inmillions of dollars)
| ** **                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                            | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                            | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues**                                          |       |                             |       |                            |       |   |   |   |   |
| Finance income  earned on retail notes                |       | $                                | 183.5      |                            | $          | 136.2 |   | $ | 513.5 |   | $ | 372.9 |   |
| Lease revenues                                        |       | 74.0                             |       | 63.8                            |       | 209.5 |   | 189.7 |   |
| Revolving charge  account income                      |       | 56.4                             |       | 52.3                            |       | 150.5 |   | 137.6 |   |
| Finance income  earned on wholesale receivables       |       | 98.7                             |       | 79.4                            |       | 260.1 |   | 212.9 |   |
| Operating loan  income                                |       | 6.5                              |       | 6.2                             |       | 20.1 |   | 17.3 |   |
| Securitization  and servicing fee income              |       | 7.2                              |       | 10.1                            |       | 23.5 |   | 30.8 |   |
| Crop insurance  commissions                           |       | 12.0                             |       | 3.3                             |       | 24.4 |   | 4.5 |   |
| Other income                                          |       | 15.6                             |       | 12.2                            |       | 39.5 |   | 36.9 |   |
| Total revenues                                        |       | 453.9                            |       | 363.5                           |       | 1,241.1 |   | 1,002.6 |   |
| **Expenses**                                          |       |                             |       |                            |       |   |   |   |   |
| Interest expense                                      |       | 191.3                            |       | 128.0                           |       | 520.4 |   | 328.6 |   |
| Operating  expenses:                                  |       |                             |       |                            |       |   |   |   |   |
| Administrative  and operating expenses                |       | 74.8                             |       | 66.8                            |       | 203.6 |   | 190.0 |   |
| Provision  (credit) for credit losses                 |       | 5.7                              |       | (6.1                            | )          | 14.7 |   | (1.9 | ) |
| Fees paid to  John Deere                              |       | 12.9                             |       | 15.2                            |       | 30.6 |   | 43.7 |   |
| Depreciation of  equipment on operating leases        |       | 48.7                             |       | 41.7                            |       | 138.8 |   | 125.7 |   |
| Total operating  expenses                             |       | 142.1                            |       | 117.6                           |       | 387.7 |   | 357.5 |   |
| Total expenses                                        |       | 333.4                            |       | 245.6                           |       | 908.1 |   | 686.1 |   |
| **Income of consolidated group  before income taxes** |       | 120.5                            |       | 117.9                           |       | 333.0 |   | 316.5 |   |
| **Provision for income taxes**                        |       | 41.8                             |       | 41.7                            |       | 115.9 |   | 110.9 |   |
| **Income of consolidated group**                      |       | 78.7                             |       | 76.2                            |       | 217.1 |   | 205.6 |   |
| **Equity in income of  unconsolidated affiliates**    |       | .1                               |       | .1                              |       | .3 |   | .4 |   |
| **Net income**                                        |       | 78.8                             |       | 76.3                            |       | 217.4 |   | 206.0 |   |
| **Cash dividends paid**                               |       |                             |       | (30.0                           | )          |   |   | (150.0 | ) |
| **Retained earnings at beginning  of period**         |       | 1,233.3                          |       | 979.7                           |       | 1,094.7 |   | 970.0 |   |
| **Retained earnings at end of period**                |       | $                                | 1,312.1    |                            | $          | 1,026.0 |   | $ | 1,312.1 |   | $ | 1,026.0 |   |

 

See Notes toInterim Financial Statements.

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**John Deere CapitalCorporation and SubsidiariesConsolidated Balance Sheets(Unaudited)**(inmillions of dollars)
| ** **                                                                   | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                   | ** ** | **2006**          | ** ** | **2005**             | ** ** | **2005**          | ** ** |
| **Assets**                                                                   |       |              |       |                 |       |              |       |
| Cash and cash  equivalents                                                   |       | $                 | 157.4      |                 | $          | 250.2             |       | $ | 195.7 |   |
| Receivables:                                                                 |       |              |       |                 |       |              |       |
| Retail notes                                                                 |       | 7,974.9           |       | 7,893.5              |       | 7,061.4           |       |
| Restricted  securitized retail notes                                         |       | 2,270.7           |       | 1,340.1              |       | 1,447.1           |       |
| Revolving charge  accounts                                                   |       | 1,507.0           |       | 1,527.5              |       | 1,494.8           |       |
| Operating loans                                                              |       | 291.1             |       | 384.4                |       | 374.8             |       |
| Wholesale  receivables                                                       |       | 4,522.4           |       | 3,651.2              |       | 4,335.2           |       |
| Financing leases                                                             |       | 413.0             |       | 411.7                |       | 408.5             |       |
| Total  receivables                                                           |       | 16,979.1          |       | 15,208.4             |       | 15,121.8          |       |
| Allowance for  credit losses                                                 |       | (88.6             | )          | (96.4                | )          | (95.4             | )          |
| Total  receivables — net                                                |       | 16,890.5          |       | 15,112.0             |       | 15,026.4          |       |
| Other  receivables                                                           |       | 116.9             |       | 118.4                |       | 77.3              |       |
| Equipment on operating  leases — net                                    |       | 855.8             |       | 793.9                |       | 762.8             |       |
| Property and  equipment - net                                                |       | 126.5             |       | 27.6                 |       | 16.9              |       |
| Investment in  unconsolidated affiliates                                     |       | 4.4               |       | 4.1                  |       | 3.9               |       |
| Other assets                                                                 |       | 314.0             |       | 261.2                |       | 302.3             |       |
| **Total Assets**                                                             |       | $                 | 18,465.5   |                 | $          | 16,567.4          |       | $ | 16,385.3 |   |
| **Liabilities and Stockholder’s  Equity**                               |       |              |       |                 |       |              |       |
| Short-term  borrowings:                                                      |       |              |       |                 |       |              |       |
| Commercial paper                                                             |       | $                 | 1,808.1    |                 | $          | 1,696.0           |       | $ | 1,918.2 |   |
| Other notes  payable                                                         |       | 2,283.7           |       | 1,364.8              |       | 1,471.3           |       |
| John Deere                                                                   |       | 459.0             |       | 275.0                |       | 526.3             |       |
| Current  maturities of long-term borrowings                                  |       | 2,676.4           |       | 2,431.6              |       | 1,647.7           |       |
| Total short-term  borrowings                                                 |       | 7,227.2           |       | 5,767.4              |       | 5,563.5           |       |
| Accounts payable  and accrued expenses                                       |       | 584.9             |       | 503.3                |       | 536.3             |       |
| Deposits  withheld from dealers and merchants                                |       | 170.3             |       | 166.0                |       | 160.7             |       |
| Long-term  borrowings                                                        |       | 8,311.9           |       | 8,190.7              |       | 8,257.0           |       |
| Total liabilities                                                            |       | 16,294.3          |       | 14,627.4             |       | 14,517.5          |       |
| Stockholder’s  equity:                                                  |       |              |       |                 |       |              |       |
| Common stock,  without par value (issued and outstanding — 2,500 shares |       |              |       |                 |       |              |       |
| owned by John  Deere Credit Company)                                         |       | 812.8             |       | 812.8                |       | 812.8             |       |
| Retained  earnings                                                           |       | 1,312.1           |       | 1,094.7              |       | 1,026.0           |       |
| Accumulated  other comprehensive income:                                     |       |              |       |                 |       |              |       |
| Cumulative  translation adjustment                                           |       | 26.8              |       | 18.4                 |       | 18.2              |       |
| Unrealized gain  on investments                                              |       | 8.8               |       | 6.8                  |       | 3.4               |       |
| Unrealized gain  on derivatives                                              |       | 10.7              |       | 7.3                  |       | 7.4               |       |
| Total  accumulated other comprehensive income                                |       | 46.3              |       | 32.5                 |       | 29.0              |       |
| Total  stockholder’s equity                                             |       | 2,171.2           |       | 1,940.0              |       | 1,867.8           |       |
| **Total Liabilities and Stockholder’s Equity**                          |       | $                 | 18,465.5   |                 | $          | 16,567.4          |       | $ | 16,385.3 |   |

 

See Notes toInterim Financial Statements.

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**John Deere CapitalCorporation and SubsidiariesStatements of Consolidated Cash FlowsFor the Nine Months Ended July 31, 2006 and 2005(Unaudited)**(inmillions of dollars)
| ** **                                            | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|-------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating  Activities**             |       |      |       |      |       |
| Net income                                            |       | $         | 217.4      |      | $          | 206.0 |   |
| Adjustments to  reconcile net income to net cash      |       |      |       |      |       |
| provided by  operating activities:                    |       |      |       |      |       |
| Provision  (credit) for credit losses                 |       | 14.7      |       | (1.9      | )          |
| Provision for  depreciation and amortization          |       | 142.1     |       | 129.9     |       |
| Credit for  deferred income taxes                     |       | (2.6      | )          | (8.0      | )          |
| Undistributed  earnings of unconsolidated affiliates  |       | (.3       | )          | (.4       | )          |
| Changes in  assets and liabilities:                   |       |      |       |      |       |
| Accounts payable  and accrued expenses                |       | 91.7      |       | 85.1      |       |
| Other                                                 |       | (119.7    | )          | (112.4    | )          |
| Net cash  provided by operating activities            |       | 343.3     |       | 298.3     |       |
|                                                  |       |      |       |      |       |
| **Cash Flows from Investing  Activities**             |       |      |       |      |       |
| Cost of  receivables acquired                         |       | (22,278.4 | )          | (21,436.0 | )          |
| Collections of  receivables                           |       | 20,527.7  |       | 18,739.4  |       |
| Cost of  operating leases acquired                    |       | (351.6    | )          | (307.9    | )          |
| Proceeds from  sales of equipment on operating leases |       | 127.9     |       | 181.2     |       |
| Proceeds from  sales of receivables                   |       | 86.4      |       | 127.4     |       |
| Purchases of  property and equipment                  |       | (105.1    | )          | (1.5      | )          |
| Other                                                 |       | (26.5     | )          | (1.6      | )          |
| Net cash used  for investing activities               |       | (2,019.6  | )          | (2,699.0  | )          |
|                                                  |       |      |       |      |       |
| **Cash Flows from Financing  Activities**             |       |      |       |      |       |
| Increase in  commercial paper - net                   |       | 93.5      |       | 375.0     |       |
| Increase in  other notes payable - net                |       | 919.3     |       | 1,464.1   |       |
| Increase  (decrease) in payable with John Deere       |       | 184.0     |       | (714.9    | )          |
| Proceeds from  issuance of long-term borrowings       |       | 1,764.3   |       | 2,321.2   |       |
| Payments of  long-term borrowings                     |       | (1,379.7  | )          | (907.7    | )          |
| Dividends paid                                        |       |      |       | (150.0    | )          |
| Other                                                 |       |      |       | .2        |       |
| Net cash  provided by financing activities            |       | 1,581.4   |       | 2,387.9   |       |
|                                                  |       |      |       |      |       |
| **Effect of exchange rate changes  on cash**          |       | 2.1       |       | (1.0      | )          |
| **Net decrease in cash and cash  equivalents**        |       | (92.8     | )          | (13.8     | )          |
| **Cash and cash equivalents at  beginning of period** |       | 250.2     |       | 209.5     |       |
| **Cash and cash equivalents at end of period**        |       | $         | 157.4      |      | $          | 195.7 |   |

 

See Notes toInterim Financial Statements.

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**John Deere CapitalCorporation and SubsidiariesNotes to Interim Financial Statements(Unaudited)**

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

The preparation of financial statements in conformitywith accounting principles generally accepted in the U.S. requires managementto make estimates and assumptions that affect the reported amounts and relateddisclosures. Actual results could differ from those estimates.

Certain amountsfor prior periods have been reclassified to conform with 2006 financialstatement presentations.

(2)                      The Company provides and administersfinancing for retail purchases of new equipment manufactured by Deere &Company’s agricultural equipment, commercial and consumer equipment, andconstruction and forestry divisions and used equipment taken in trade for thisequipment. The Company purchases retail installment sales and loan contracts(retail notes) from Deere & Company and its wholly-owned subsidiaries(collectively called John Deere). John Deere acquires these retail notesthrough John Deere retail dealers. The Company also purchases and finances alimited amount of non-Deere retail notes and continues to service a smallportfolio of recreational products and other retail notes. In addition, theCompany leases John Deere equipment and a limited amount of non-Deere equipmentto retail customers (financing and operating leases). The Company also financesand services revolving charge accounts, in most cases acquired from and offeredthrough merchants in the agricultural, commercial and consumer, andconstruction and forestry markets (revolving charge accounts). Further, theCompany finances and services operating loans, in most cases offered throughand acquired from farm input providers or through direct relationships withagricultural producers (operating loans). The Company also provides wholesalefinancing for inventories of John Deere engines and John Deere agricultural,commercial and consumer and construction and forestry equipment owned bydealers of those products (wholesale receivables). The Company also offersinsured international export financing to select customers which generallyinvolves John Deere products and offers certain crop risk mitigation productsin the U.S. In addition, the Company invests in wind energy development bymaking loans to certain affiliated companies that have directly invested inwind energy projects. Further, the Company has agreed to purchase certain windturbine equipment. This wind turbine equipment will be used in wind energy projectsby the Company or by certain affiliated companies. Retail notes, revolvingcharge accounts, operating loans, financing leases and wholesale receivablesare collectively called “Receivables.” Receivables and operating leases arecollectively called “Receivables and Leases.”

(3)                      The Company’s ratio of earnings tofixed charges was 1.63 to 1 for the third quarter of 2006, compared with 1.91to 1 for the third quarter of 2005. The ratio of earnings to fixed charges was1.63 to 1 for the first nine months of 2006 and 1.95 to 1 for the first ninemonths of 2005. “Earnings” consist of income before income taxes, thecumulative effect of changes in accounting and fixed charges. “Fixed charges”consist of interest on indebtedness, amortization of debt discount and expense,an estimated amount of rental expense under capitalized leases that is deemedto be representative of the interest factor and rental expense under operatingleases.

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

|                                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Net Income                                      |       | $                                | 78.8       |                            | $          | 76.3 |   | $ | 217.4 |   | $ | 206.0 |   |
|                                            |       |                             |       |                            |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax: |       |                             |       |                            |       |   |   |   |   |
| Change in cumulative translation adjustment     |       | 4.0                              |       | (10.6                           | )          | 8.4 |   | (5.5 | ) |
| Unrealized gain on investments                  |       | .5                               |       | 1.1                             |       | 2.0 |   | 8.5 |   |
| Unrealized gain on derivatives                  |       | .6                               |       | .8                              |       | 3.4 |   | 1.9 |   |
| Total comprehensive  income                     |       | $                                | 83.9       |                            | $          | 67.6 |   | $ | 231.2 |   | $ | 210.9 |   |

 

(5)                      At July 31, 2006, John Deere CreditInc., the John Deere finance subsidiary in Canada, had $219 million ofcommercial paper and $881 million of medium-term notes outstanding that wereguaranteed by the Company. In addition, the Company has provided letters ofcredit for John Deere Credit Inc. as part of retail note sales. At July 31,2006, the Company’s maximum exposure under these letters of credit wasapproximately $7 million.

At July 31, 2006, the Company had approximately $4million of guarantees issued primarily to overseas banks related to third-partyreceivables for the retail financing of John Deere equipment. The Company mayrecover a portion of any required payments incurred under these agreements fromrepossession of the equipment collateralizing the receivables. At July 31,2006, the Company had accrued losses of approximately $.3 million under theseagreements. The maximum remaining term of the receivables guaranteed at July31, 2006 was approximately five years.

The Company’s subsidiary, John Deere Risk Protection,Inc., offers crop insurance products through a managing general agencyagreement (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 cropinsurance to producers. The Company has guaranteed certain obligations underthe Agreement, including the obligation to pay the Insurance Carrier for anyuncollected premiums. At July 31, 2006 the maximum exposure for uncollectedpremiums was approximately $55 million. Substantially all of the Company’s cropinsurance risk under the Agreement has been mitigated by a syndicate of privatereinsurance companies. These reinsurance companies are rated “Excellent” orhigher by A.M. Best Company. In the event of a widespread catastrophic cropfailure throughout the U.S. and the default of these highly rated privatereinsurance companies on their reinsurance obligations, the Company would berequired to reimburse the Insurance Carrier for exposure under the Agreement ofapproximately $370 million at July 31, 2006. The Company believes that thelikelihood of the occurrence of substantially all of the events that give riseto the exposure under this Agreement is extremely remote and as a result, atJuly 31, 2006, the Company has accrued probable losses of approximately $.1million under the Agreement.

At July 31, 2006, the Company had commitments ofapproximately $251 million for the purchase of wind turbine equipment.

The Company has commitments to extend credit tocustomers and John Deere dealers through lines of credit and other pre-approvedcredit arrangements. The Company applies the same credit policies and approvalprocess 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 toextend credit to John Deere dealers was $1.7 billion at July 31, 2006. Theamount of unused commitments to extend credit to customers was $31.7 billion atJuly 31, 2006. A significant portion of these commitments is not expected to befully drawn upon; therefore, the total commitment amounts likely do notrepresent a future cash requirement. The Company generally has the right tounconditionally cancel, alter or amend the terms of these commitments at anytime. Over 95 percent of these unused commitments to extend credit to customersrelate to revolving charge accounts.

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**Secured Borrowings**

Beginning in 2005, the Company’s new securitizationsof receivables either did not meet the criteria for sales of receivables tounconsolidated special-purpose entities (SPEs) or were secured borrowings heldby an SPE that was consolidated since the Company was the primary beneficiary.The resulting secured borrowings related to both types of securitizations ofretail notes are included in short-term borrowings on the balance sheet asshown in the following table. The securitized retail notes are recorded as “Restrictedsecuritized retail notes” on the balance sheet. The total restricted assets onthe balance sheet related to these securitizations include the restrictedsecuritized retail notes less an allowance for credit losses, and other assetsrepresenting restricted cash as shown in the following table. In addition tothe restricted assets, the creditors of an unconsolidated SPE involved in bothsecured borrowings and sales of receivables related to a $2 billion revolvingbank conduit facility have recourse to a reserve fund held by the SPE totalingapproximately $25 million as of July 31, 2006. A portion of the previoustransfers of retail notes to this facility qualified as sales of receivables.As a result, this reserve fund is also included in the following maximumexposure to losses for receivables that have been sold.

The components of consolidated restricted assetsrelated to securitizations were as follows (in millions of dollars):

|                                      | ** ** | **July 31,  2006** | ** ** | **October 31,  2005** | ** ** | **July 31,  2005** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Restricted  securitized retail notes |       | $                       | 2,270.7    |                       | $          | 1,340.1                 |       | $ | 1,447.1 |   |
| Allowance for  credit losses         |       | (11.5                   | )          | (6.3                       | )          | (8.4                    | )          |
| Other assets                         |       | 111.2                   |       | 62.5                       |       | 36.8                    |       |
| Total restricted  securitized assets |       | $                       | 2,370.4    |                       | $          | 1,396.3                 |       | $ | 1,475.5 |   |

 

The components of consolidated secured liabilitiesrelated to securitizations were as follows (in millions of dollars):

|                                                             | ** ** | **July 31,  2006** | ** ** | **October 31,  2005** | ** ** | **July 31,  2005** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Other notes  payable                                        |       | $                       | 2,273.2    |                       | $          | 1,353.0                 |       | $ | 1,464.0 |   |
| Accounts payable  and accrued expenses                      |       | 4.2                     |       | 2.1                        |       | 2.1                     |       |
| Total  liabilities related to restricted securitized assets |       | $                       | 2,277.4    |                       | $          | 1,355.1                 |       | $ | 1,466.1 |   |

 

A portion of the restricted securitized retail notestotaling $1,031 million at July 31, 2006, $690 million at October 31, 2005 and$750 million at July 31, 2005 were related to secured borrowings and weretransferred to a SPE that is not consolidated since the Company is not theprimary beneficiary. The borrowings related to these restricted securitizedretail notes are obligations to this SPE that are payable as the retail notesare liquidated. The remaining restricted securitized retail notes totaling$1,240 million at July 31, 2006, $650 million at October 31, 2005 and $697million at July 31, 2005 were transferred to a SPE that utilized the retailnotes for secured borrowings. The Company has consolidated this SPE since theCompany is the primary beneficiary and the SPE is not a qualified SPE that isexempt from consolidation. These restricted securitized retail notes are theprimary assets of this consolidated SPE. The borrowings included above for theconsolidated SPE are obligations to the creditors of the SPE that are alsopayable as the restricted securitized retail notes are liquidated. SPEsutilized in securitizations of retail notes differ from other entities includedin the Company’s consolidated statements because the assets they hold arelegally isolated. For bankruptcy analysis purposes, the Capital Corporation hassold the receivables to the SPEs in a true sale and the SPEs are separate legalentities. Use of the assets held by the SPEs is restricted by terms of thegoverning documents. Repayment of the secured borrowings depends primarily oncash flows generated by the restricted assets and the reserve fund mentionedabove. At July 31, 2006, the maximum remaining term of the restrictedreceivables was approximately six years.

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**Sales of Receivables**

The Company has certain recourse obligations onReceivables that it has previously sold. If the Receivables sold are notcollected, the Company would be required to cover those losses up to the amountof its recourse obligation. At July 31, 2006, the maximum amount of exposure tolosses under these agreements was $141 million. The estimated risk associatedwith sold receivables totaled $4 million at July 31, 2006. This risk of loss isrecognized primarily in the retained interests recorded on the Company’sbalance sheet, which are related to the securitization and sale of retail notesprior to 2005. At July 31, 2006, the assets of the unconsolidated SPEs relatedto the Company’s prior securitization and sale of retail notes totaledapproximately $1,035 million. The Company may recover a portion of any requiredpayments incurred under these agreements from the repossession of the equipmentcollateralizing the Receivables. At July 31, 2006, the maximum remaining termof the Receivables sold was approximately four years.

**(6)**             New Accounting Standard Adopted

Certain employees of the Company participate in Deere& Company share-based compensation plans. Accordingly, in the first quarterof 2006, the Company adopted FASB Statement No. 123 (revised 2004), Share-BasedPayment, using the modified prospective method of adoption, which does notrequire restatement of prior periods. The revised standard eliminated theintrinsic value method of accounting for share-based employee compensationunder APB Opinion No. 25, Accounting for Stock Issued to Employees. The revisedstandard generally requires the recognition of the cost of employee servicesfor share-based compensation based on the grant date fair value of the equityor liability instruments issued. The effect of adoption of the new standard in2006 for the Company was an additional expense in the third quarter of $1.0million pretax, or $.6 million after-tax and in the first nine months was $4.6million pretax, or $2.9 million after-tax. Also under the new standard, excessincome tax benefits related to share-based compensation expense that must berecognized directly in equity are considered financing rather than operatingcash flow activities. The effect of adoption of the new standard on cash flowsin the first nine months of 2006 was not material. Further disclosure for these plans is included in Deere & Company’sForm 10-Q for the quarter ended July 31, 2006.

**New Accounting Standards to beAdopted**

In March 2005, the FASB issued Interpretation (FIN)No. 47, Accounting for Conditional Asset Retirement Obligations aninterpretation of FASB Statement No. 143. Under this standard, an accrual isrequired for legal asset retirement obligations in which the timing or methodof settlement is conditional on future events that may or may not be within thecontrol of the entity. When the accrual can be reasonably estimated, it shouldbe recorded as an increase in the cost basis of the related property andrecognized in expense over the useful life of the asset. The effective date foradoption is the end of fiscal year 2006. The adoption of this Interpretation isnot expected to have a material effect on the Company’s financial position ornet income.

In February 2006, the FASB issued Statement No. 155,Accounting for Certain Hybrid Financial Instruments an amendment of FASBStatements No. 133 and 140. This Statement primarily resolves certain issuesaddressed in the implementation of FASB Statement No. 133 concerning beneficialinterests in securitized financial assets. The effective date is the beginningof fiscal year 2007. It will be effective for all financial instrumentsacquired, issued, or subject to a remeasurement (new basis) event occurringafter the beginning of the year of adoption. The adoption of this Statement isnot expected to have a material effect on the Company’s financial position ornet income.

In March 2006, the FASB issued Statement No. 156,Accounting for Servicing of Financial Assets an amendment of FASB Statement No.140. This Statement clarifies the criteria for recognizing servicing assets andliabilities, requires these items to be initially measured at fair value andpermits subsequent measurements on either an amortization or fair value basis.The effective date is the beginning of fiscal year 2007 and must be appliedprospectively to all transactions after the effective date. The adoption ofthis Statement is not expected to have a material effect on the Company’sfinancial position or net income.

8

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In June 2006, theFASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109. The interpretation clarifies therecognition for uncertain tax positions should be based on amore-likely-than-not threshold that the tax position will be sustained uponaudit. The tax position is measured as the amount of benefit that is greaterthan 50 percent likely of being realized upon ultimate settlement. Theeffective date is the beginning of fiscal year 2008 and the cumulative effectof applying the Interpretation would be reported as an adjustment to thebeginning retained earnings. The Company has not presently determined thepotential effect of this Interpretation on its financial statements.

(7)                      The Company is a participating employerin certain Deere & Company sponsored defined benefit pension plans foremployees in the U.S. and certain defined benefit pension plans outside theU.S. These pension plans provide for benefits that are based primarily on yearsof service and employee compensation. Pension expense is actuarially determinedbased on the Company’s employees included in the plan. The Company’s pensionexpense amounted to $4.0 million in the first nine months of 2006. Theaccumulated benefit obligation and plan net assets for the employees of theCompany are not determined separately from Deere & Company. The Companygenerally provides defined benefit health care and life insurance plans forretired employees in the U.S. as a participating employer in Deere &Company’s sponsored plans. Health care and life insurance benefits expense isactuarially determined based on the Company’s employees included in the plansand amounted to $4.5 million during the first nine months of 2006. Furtherdisclosure for these plans is included in Deere & Company’s Form 10-Q forthe quarter ended July 31, 2006.

(8)                      Property and equipment primarilyincludes equipment (turbines) related to wind energy entities and officebuildings. In the second quarter of 2006, the Company purchased an officebuilding for $35 million that was previously leased.

(9)                      On August 31, 2006, the CapitalCorporation declared an $85 million dividend, to be paid to John Deere CreditCompany on September 7, 2006. John Deere Credit Company, in turn, declared an$85 million dividend to Deere & Company, also payable on September 7, 2006.

9

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**Item 2.**                            Management’s Discussion and Analysis of FinancialCondition and Results of Operations.

**Results of Operations**

**Overview**

The Company primarily generates revenues and cash byfinancing sales and leases of new and used agricultural, commercial and consumer,and construction and forestry equipment by John Deere dealers. In addition, theCompany provides wholesale financing to dealers of the foregoing equipment,provides operating loans, finances retail revolving charge accounts, offerscertain crop risk mitigation products and invests in wind energy development.

The Company’s business is currently affected by thefollowing key trends and economic conditions. The Company’s business is closelyrelated to John Deere’s business. Global farm economic conditions remain solidand continue to have a positive long-term outlook. Although farmers in the U.S.and Canada are in sound overall financial condition, cash receipts are forecastto be below last year’s record level, while higher interest rates and increasedinput costs are causing farm income to narrow. In addition, dry weather in theU.S. Plains states and Southeast is having a negative effect on farmersentiment. Industry retail sales of agricultural equipment in the U.S. andCanada in 2006 are expected to be down at least 5 percent. Industry retailsales in Western Europe for the year are forecast to be down about 5 percentdue to concerns over input costs, government farm policies and dry conditions.In South America, the outlook for industry sales for the year is now down about25 percent due to strength in the Brazilian currency and higher input costsprimarily related to the treatment of soybean rust. In Australia, dryness ishaving a negative effect on the wheat crop, with industry retail sales projectedto decline about 15 percent for the year. Deere & Company’s agriculturalequipment sales were up 1 percent for the third quarter of 2006, down 4 percentfor the first nine months and are forecast to be down about 4 percent for theyear. Deere & Company’s commercial and consumer equipment sales increased 8percent in the third quarter of 2006 and 10 percent for the first nine months.For the year, these sales are expected to be up about 8 percent due to highersales from the landscapes operations and newly introduced products. Markets forconstruction equipment are experiencing further gains as a result of increasedoverall construction spending. Forestry equipment markets have softened andindustry sales are expected to be down globally for the year. Deere &Company’s construction and forestry sales increased 13 percent in the thirdquarter and first nine months of 2006 and are forecast to increase about 12percent for the year. The Company expects to report net income of approximately$300 million in 2006, reflecting growth in the portfolio. This outlookcontinues to reflect strong credit quality and very low loss experience.

**2006 Compared with 2005**

Net income was $78.8 million for the third quarter and$217.4 million for the first nine months of 2006, compared with $76.3 millionand $206.0 million, respectively last year. The increase was primarily due togrowth in the portfolio, partially offset by a higher provision for creditlosses. Narrower financing spreads had a negative effect on net income for the firstnine months this year.

Revenues totaled $453.9 million for the third quarterand $1,241.1 million for the first nine months of 2006, compared to $363.5million and $1,002.6 million, respectively, last year. This increase wasprimarily due to a 15 percent increase in the average balance of Receivablesand Leases financed and higher financing rates during the first nine months of2006 compared to the first nine months of 2005. Finance income earned on retailnotes totaled $513.5 million for the first nine months of 2006, up $140.6million compared to $372.9 million for the same period in 2005. This increasewas primarily due to a 25 percent increase in the average retail note portfoliobalances and increasing yields. Lease revenues totaled $209.5 million in thefirst nine months of 2006, compared to $189.7 million in the first nine monthsof 2005. This increase was primarily due to a 9 percent increase in the averageamount of equipment on operating leases. Revenues earned on revolving chargeaccounts amounted to $150.5 million in the first nine months of 2006, a 9percent increase over revenues of $137.6 million during the same period lastyear. This increase was primarily due to growth of Farm Planäand PowerPlanâreceivables in the first nine months of 2006, compared with thesame period last year. Finance income earned on wholesale receivables totaled$260.1 million for the first nine months of 2006, compared to $212.9 millionfor the same period in 2005, primarily due to increasing yields and a 3 percentincrease in the average balance of wholesale receivables. Operating loan incomeamounted to $20.1 million in the first nine months of 2006, compared to $17.3million in the first nine months of 2005, primarily due to increasing yields.Revenues earned from Deere & Company totaled $130.4 million for the thirdquarter and $349.4 million in the first nine months of 2006, compared to $109.1million and $299.5 million for the same periods last year.

10

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Crop insurance commissions totaled $12.0 million forthe third quarter and $24.4 million for the first nine months of 2006, comparedto $3.3 million and $4.5 million for the same periods in 2005. The increase wasprimarily due to increased crop insurance sales to producers as a result ofexpanded market coverage. At July 31, 2006, the Company was offering cropinsurance products in 29 states compared to 17 states a year ago.

Interest expense totaled $191.3 million for the thirdquarter and $520.4 million for the first nine months of 2006, compared to$128.0 million and $328.6 million for the same periods in 2005. The increasewas due to increases in borrowing rates and higher average borrowings,partially due to securitizations of financing receivables qualifying as securedborrowings instead of sales of receivables and remaining on the balance sheetbeginning in 2005.

Administrative and operating expenses were $74.8million in the third quarter and $203.6 million for the first nine months of2006, compared with $66.8 million and $190.0 million for the same periods in 2005.Administrative and operating expenses as a percent of average Receivables andLeases administered were 1.61 percent for the third quarter and 1.53 percentfor the first nine months of 2006, compared with 1.53 percent and 1.52 percentfor the same periods last year.

During the third quarter and first nine months of2006, the provision (credit) for credit losses totaled $5.7 million and $14.7million, respectively, compared with ($6.1) million and ($1.9) million in thesame periods last year. The annualized provision (credit) for credit losses, asa percentage of the average balance of total Receivables financed, was .14percent for the third quarter and .13 percent for the first nine months of2006, compared with (.17) percent and (.02) percent for the same periods lastyear. The increase in the provision (credit) for credit losses is primarily dueto higher write-offs. The Company has experienced higher write-offs of retailnotes, operating loans and financing leases. Although the Company has experiencedan increase in the provision for credit losses, the portfolio continues toreflect strong credit quality. See the Company’s most recently filed annualreport on Form 10-K for further information regarding the Company’s allowancefor credit losses policies.

Fees paid to John Deere for interest and support were$12.9 million in the third quarter and $30.6 million for the first nine monthsof 2006, compared with $15.2 million and $43.7 million for the same periods in2005. The decrease was primarily due to lower average borrowings from Deere& Company.

Depreciation of equipment on operating leases was$48.7 million in the third quarter and $138.8 million for the first nine monthsof 2006, compared to $41.7 million and $125.7 million for the same periods in2005. The increase was primarily the result of higher average amounts ofequipment on operating leases.

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Receivable and Lease acquisition volumes were asfollows (in millions of dollars):
| ** **                          | ** ** | **Three Months**        | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                          | ** ** | **2006**                     | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                         |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                            | 935.2      |       | $          | 888.4             |       | $ | 46.8 |   | 5 | % |
| Construction and forestry equipment |       | 364.9                        |       | 396.2      |       | (31.3             | )          | (8 | ) |
| Commercial and consumer equipment   |       | 184.1                        |       | 183.1      |       | 1.0               |       | 1 |   |
| Total retail notes                  |       | 1,484.2                      |       | 1,467.7    |       | 16.5              |       | 1 |   |
| Revolving charge  accounts          |       | 1,004.1                      |       | 986.1      |       | 18.0              |       | 2 |   |
| Operating loans                     |       | 300.9                        |       | 333.0      |       | (32.1             | )          | (10 | ) |
| Wholesale  receivables              |       | 5,154.9                      |       | 4,874.6    |       | 280.3             |       | 6 |   |
| Financing leases                    |       | 71.9                         |       | 66.0       |       | 5.9               |       | 9 |   |
| Equipment on  operating leases      |       | 134.8                        |       | 129.9      |       | 4.9               |       | 4 |   |
| Total Receivables  and Leases       |       | $                            | 8,150.8    |       | $          | 7,857.3           |       | $ | 293.5 |   | 4 | % |

 
| ** **                          | ** ** | **Nine Months**         | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                          | ** ** | **2006**                     | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                         |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                            | 2,872.5    |       | $          | 2,912.0           |       | $ | (39.5 | ) | (1 | )% |
| Construction and forestry equipment |       | 1,149.7                      |       | 1,018.7    |       | 131.0             |       | 13 |   |
| Commercial and consumer equipment   |       | 394.1                        |       | 426.4      |       | (32.3             | )          | (8 | ) |
| Total retail notes                  |       | 4,416.3                      |       | 4,357.1    |       | 59.2              |       | 1 |   |
| Revolving charge  accounts          |       | 2,526.3                      |       | 2,440.8    |       | 85.5              |       | 4 |   |
| Operating loans                     |       | 1,048.7                      |       | 950.1      |       | 98.6              |       | 10 |   |
| Wholesale receivables               |       | 14,117.2                     |       | 13,527.1   |       | 590.1             |       | 4 |   |
| Financing leases                    |       | 169.9                        |       | 160.8      |       | 9.1               |       | 6 |   |
| Equipment on  operating leases      |       | 351.6                        |       | 307.9      |       | 43.7              |       | 14 |   |
| Total  Receivables and Leases       |       | $                            | 22,630.0   |       | $          | 21,743.8          |       | $ | 886.2 |   | 4 | % |

 

Retail note volumes were up slightly in the thirdquarter of 2006, when compared to last year, primarily due to increases inretail sales of new and used John Deere agricultural equipment. Retail notevolumes increased slightly during the first nine months of 2006, when comparedto last year, primarily due to increases in retail sales of John Deereconstruction and forestry equipment. Wholesale receivable volumes increasedduring the third quarter and first nine months of 2006, when compared to lastyear, primarily due to increased shipments of John Deere construction andforestry equipment.

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Total Receivables and Leases held were as follows (inmillions of dollars):
| ** **                           | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                           | ** ** | **2006**          | ** ** | **2005**             | ** ** | **2005**          | ** ** |
| Retail notes:                        |       |              |       |                 |       |              |       |
| Agricultural  equipment              |       | $                 | 6,893.1    |                 | $          | 6,208.8           |       | $ | 5,647.6 |   |
| Construction and  forestry equipment |       | 2,317.5           |       | 1,980.4              |       | 1,813.0           |       |
| Commercial and  consumer equipment   |       | 1,016.1           |       | 1,021.7              |       | 1,023.1           |       |
| Recreational  products               |       | 18.9              |       | 22.7                 |       | 24.8              |       |
| Total retail  notes                  |       | 10,245.6          |       | 9,233.6              |       | 8,508.5           |       |
| Revolving charge  accounts           |       | 1,507.0           |       | 1,527.5              |       | 1,494.8           |       |
| Operating loans                      |       | 291.1             |       | 384.4                |       | 374.8             |       |
| Wholesale receivables                |       | 4,522.4           |       | 3,651.2              |       | 4,335.2           |       |
| Financing leases                     |       | 413.0             |       | 411.7                |       | 408.5             |       |
| Equipment on operating  leases       |       | 855.8             |       | 793.9                |       | 762.8             |       |
| Total Receivables and  Leases        |       | $                 | 17,834.9   |                 | $          | 16,002.3          |       | $ | 15,884.6 |   |

 

Receivables and Leases administered by the Companywere as follows (in millions of dollars):
| ** **                                                    | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                    | ** ** | **2006**          | ** ** | **2005**             | ** ** | **2005**          | ** ** |
| Receivables and Leases  administered:                         |       |              |       |                 |       |              |       |
| Owned by the  Company                                         |       | $                 | 15,564.2   |                 | $          | 14,662.2          |       | $ | 14,437.5 |   |
| Owned by the  Company — restricted due to securitization |       | 2,270.7           |       | 1,340.1              |       | 1,447.1           |       |
| Total  Receivables and Leases owned by the Company            |       | 17,834.9          |       | 16,002.3             |       | 15,884.6          |       |
| Sold and  serviced — with limited recourse*              |       | 1,045.8           |       | 1,699.2              |       | 1,894.9           |       |
| Sold and  serviced — without recourse**                  |       | 21.2              |       | 20.1                 |       | 19.0              |       |
| Total Receivables and  Leases administered                    |       | $                 | 18,901.9   |                 | $          | 17,721.6          |       | $ | 17,798.5 |   |

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*                    TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat July 31, 2006, October 31, 2005 and July 31, 2005 was $141 million, $140million and $175 million, respectively. In addition, the Company has providedletters of credit for John Deere Credit Inc., the John Deere finance subsidiaryin Canada, as part of retail note sales. At July 31, 2006, October 31, 2005 andJuly 31, 2005, the Company’s maximum exposure under these agreements wasapproximately $7 million. The Company does not record the recourse obligationsas liabilities as they are contingent liabilities that are remote at this time.However, the probable loss on receivables that have been sold was accrued atthe time of sale, and any subsequent necessary adjustments are made as part ofongoing reviews.

**             Thesereceivables represent retail notes that the Company has sold but continues toadminister for a fee.

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Total Receivable amounts 60 days or more past due inthe table below represent the amount of all customer payments past due 60 daysor more, by product, and as a percent of the respective receivables. They wereas follows (in millions of dollars):
| ** **                          | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2006**          | ** ** | **2005**             | ** ** | **2005**          | ** ** |
| ** **                          | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                 | 10.0       |                 | .15        | %                 | $          | 8.1 |   | .13 | % | $ | 10.0 |   | .18 | % |
| Construction and forestry equipment |       | 7.2               |       | .31                  |       | 4.6               |       | .23 |   | 4.3 |   | .24 |   |
| Commercial and consumer equipment   |       | 1.2               |       | .12                  |       | 1.1               |       | .11 |   | 1.0 |   | .10 |   |
| Recreational products               |       |              |       |                 |       | .1                |       | .44 |   | .1 |   | .40 |   |
| Total retail notes                  |       | 18.4              |       | .18                  |       | 13.9              |       | .15 |   | 15.4 |   | .18 |   |
| Revolving charge  accounts*         |       | 17.9              |       | 1.19                 |       | 12.5              |       | .82 |   | 9.7 |   | .65 |   |
| Operating loans                     |       |              |       |                 |       |              |       |   |   | .5 |   | .13 |   |
| Wholesale  receivables              |       | 2.1               |       | .05                  |       | 1.7               |       | .05 |   | 2.9 |   | .07 |   |
| Financing leases                    |       | 3.9               |       | .94                  |       | 4.5               |       | 1.09 |   | 4.0 |   | .98 |   |
| Total  Receivables                  |       | $                 | 42.3       |                 | .25        | %                 | $          | 32.6 |   | .21 | % | $ | 32.5 |   | .21 | % |

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

The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer who has any portion of his note 60days or more past due. These amounts were $101 million, $78 million and $74million at July 31, 2006, October 31, 2005 and July 31, 2005, respectively. Thebalances of retail notes held on which any installment was 60 days or more pastdue as a percentage of the ending retail notes receivable was .98 percent, .84percent and .86 percent at July 31, 2006, October 31, 2005 and July 31, 2005,respectively.

Total non-performing Receivables, which representloans the Company has ceased accruing interest for, by product, and as apercent of the respective receivables were as follows (in millions of dollars):
| ** **                          | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2006**          | ** ** | **2005**             | ** ** | **2005**          | ** ** |
| ** **                          | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                 | 16.1       |                 | .23        | %                 | $          | 15.6 |   | .25 | % | $ | 13.6 |   | .24 | % |
| Construction and forestry equipment |       | 9.9               |       | .43                  |       | 10.3              |       | .52 |   | 7.9 |   | .44 |   |
| Commercial and consumer equipment   |       | 3.5               |       | .34                  |       | 5.2               |       | .51 |   | 3.0 |   | .30 |   |
| Recreational products               |       | .2                |       | 1.06                 |       | .4                |       | 1.76 |   | .5 |   | 2.02 |   |
| Total retail notes                  |       | 29.7              |       | .29                  |       | 31.5              |       | .34 |   | 25.0 |   | .29 |   |
| Revolving charge  accounts          |       | .8                |       | .05                  |       | .5                |       | .03 |   | .5 |   | .03 |   |
| Operating loans                     |       | 5.1               |       | 1.75                 |       | 23.9              |       | 6.22 |   | 24.6 |   | 6.56 |   |
| Wholesale  receivables              |       | 2.1               |       | .05                  |       | 1.6               |       | .04 |   | .2 |   | .00 |   |
| Financing leases                    |       | 8.0               |       | 1.94                 |       | 9.6               |       | 2.33 |   | 7.8 |   | 1.92 |   |
| Total  Receivables                  |       | $                 | 45.7       |                 | .27        | %                 | $          | 67.1 |   | .44 | % | $ | 58.1 |   | .38 | % |

 

The decrease in non-performing operating loans in thethird quarter of 2006 is primarily due to the sale of an operating loan whichwas non-performing.

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Total Receivable write-off amounts, net of recoveries,by product, and as an annualized percentage of average balances held during theperiod, were as follows (in millions of dollars):
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **July 31, 2006**      | ** ** | **July 31, 2005**      | ** ** |
| ** **                           | ** ** | **Dollars**                      | ** ** | **Percent**                      | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                             |       |                             |       |   |   |   |   |
| Agricultural  equipment              |       | $                                | (.7        | )                                | (.04       | )% | $ | .1 |   | .00 | % |
| Construction and  forestry equipment |       | 3.0                              |       | .54                              |       | .3 |   | .07 |   |
| Commercial and  consumer equipment   |       |                             |       |                             |       | .1 |   | .06 |   |
| Recreational  products               |       |                             |       |                             |       | .2 |   | 3.08 |   |
| Total retail  notes                  |       | 2.3                              |       | .09                              |       | .7 |   | .03 |   |
| Revolving charge  accounts           |       | 5.7                              |       | 1.59                             |       | 4.0 |   | 1.12 |   |
| Operating loans                      |       | 2.4                              |       | 2.91                             |       | (.3 | ) | (.32 | ) |
| Wholesale receivables                |       | .2                               |       | .02                              |       | (.2 | ) | (.02 | ) |
| Financing leases                     |       | 1.1                              |       | 1.09                             |       | (.6 | ) | (.60 | ) |
| Total Receivables                    |       | $                                | 11.7       |                             | .28        | % | $ | 3.6 |   | .09 | % |

 
| ** **                           | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **July 31, 2006**     | ** ** | **July 31, 2005**     | ** ** |
| ** **                           | ** ** | **Dollars**                     | ** ** | **Percent**                     | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                            |       |                            |       |   |   |   |   |
| Agricultural  equipment              |       | $                               | (2.1       | )                               | (.04       | )% | $ | (.4 | ) | (.01 | )% |
| Construction and  forestry equipment |       | 4.8                             |       | .30                             |       | 1.3 |   | .11 |   |
| Commercial and  consumer equipment   |       | .2                              |       | .02                             |       | .5 |   | .07 |   |
| Recreational  products               |       | (.1                             | )          | (.57                            | )          | .7 |   | 3.15 |   |
| Total retail  notes                  |       | 2.8                             |       | .04                             |       | 2.1 |   | .04 |   |
| Revolving charge  accounts           |       | 16.4                            |       | 1.66                            |       | 14.3 |   | 1.48 |   |
| Operating loans                      |       | 2.3                             |       | .86                             |       | (.9 | ) | (.32 | ) |
| Wholesale receivables                |       | (.6                             | )          | (.02                            | )          | (.4 | ) | (.01 | ) |
| Financing leases                     |       | 1.8                             |       | .61                             |       | .3 |   | . 10 |   |
| Total Receivables                    |       | $                               | 22.7       |                            | .19        | % | $ | 15.4 |   | .14 | % |

 

Deposits withheld from dealers and merchants,representing mainly the aggregate dealer retail note and lease withholdingaccounts from individual John Deere dealers to which losses from retail notesand leases originating from the respective dealers can be charged, amounted to$170 million at July 31, 2006 compared with $166 million at October 31, 2005and $161 million at July 31, 2005.

The Company’s allowance for credit losses on allReceivables financed totaled $89 million at July 31, 2006, $96 million atOctober 31, 2005 and $95 million at July 31, 2005. The allowance for creditlosses represented .52 percent of the total Receivables financed at July 31,2006, .63 percent at October 31, 2005 and .63 percent at July 31, 2005. 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.

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**Safe Harbor Statement**

*Safe Harbor Statement underthe Private Securities Litigation Reform Act of 1995:*Statements herein that relate to future operatingperiods are subject to important risks and uncertainties that could causeactual results to differ materially. Actions by the U.S. Federal Reserve Boardand other central banks may affect the costs and expenses of financing theCompany and the rates it is able to offer. The Company’s business is affectedby general economic conditions in and the political instability of the globalmarkets in which the Company operates because deteriorating economic conditionsand political instability can result in higher loan losses. The Company’sbusiness is also affected by actions of banks, financing and leasing companiesand other lenders that compete with the Company for customers. In addition, theCompany’s business is closely related to John Deere’s business. Furtherinformation, including factors that potentially could materially affect theCompany’s and John Deere’s financial results, is included in the most recentDeere & Company Form 10-K and other Deere & Company and CapitalCorporation filings with the Securities and Exchange Commission.

**Critical Accounting Policies**

See the Company’s critical accounting policiesdiscussed in the Management’s Discussion and Analysis of the most recent annualreport filed on Form 10-K. There have been no material changes to thesepolicies.

**Capital Resources and Liquidity**

For additional information on the Company’s dependenceon and relationships with Deere & Company, see the Company’s most recentlyfiled annual report on Form 10-K.

During the first nine months of 2006, the aggregatecash provided by operating and financing activities was used primarily toincrease Receivables and Leases. Cash provided by operating activities was $343million in the first nine months of 2006. Cash provided by financing activitiestotaled $1,581 million in the first nine months of 2006, resulting primarilyfrom a net increase in external borrowings. Cash used for investing activitiestotaled $2,020 million in the first nine months of 2006, primarily due to thecost of Receivables and Leases acquired exceeding collections. Cash and cashequivalents decreased $93 million during the first nine months of 2006.

During the first nine months of 2005, the aggregate cashprovided by operating and financing activities was used primarily to increaseReceivables and Leases. Cash provided by operating activities was $298 millionin the first nine months of 2005. Cash provided by financing activities totaled$2,388 million in the first nine months of 2005, resulting primarily from a netincrease in external borrowings, partially offset by a decrease in payables toDeere & Company and dividends paid to John Deere Credit Company, which inturn paid comparable dividends to Deere & Company. Cash used for investingactivities totaled $2,699 million in the first nine months of 2005, primarilydue to the cost of Receivables and Leases acquired exceeding the collections ofReceivables and Leases. Cash and cash equivalents decreased $14 million duringthe first nine months of 2005.

Capital expenditures for the Company in 2006 areestimated to be approximately $305 million, primarily related to the windenergy entities.

The financing of retail purchases and leases of JohnDeere products and of wholesale receivables owed by John Deere dealersrepresented approximately 85 percent of the Company’s acquisition volume forthe nine months ended July 31, 2006 and 2005. Any extended reduction orsuspension of John Deere’s sale or production of products due to a decline indemand or production, technological difficulties, governmental actions or otherevents could have an adverse effect on the Company’s acquisition volume ofReceivables and Leases.

The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. Because of the multiple funding sources that have beenand continue to be available to the Company, the Company expects to havesufficient sources of liquidity to meet its ongoing funding needs. The Company’sability to meet its debt obligations is also supported in a number ofadditional ways. The assets of the Company are self-liquidating in nature. Astrong equity position is available to absorb unusual losses on these assetsand all commercial paper is backed by unsecured, committed borrowing lines fromvarious banks.

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During the first nine months of 2006, the Companyissued $1,752 million of medium-term notes, obtained $1,566 million of securedborrowings, maintained an average commercial paper balance of $1,921 millionand received proceeds of $86 million from sales of Receivables. At July 31,2006, the Company’s funding profile included $1,808 million of commercialpaper, $2,273 million of notes payable related to on-balance sheet securitizationfunding, $459 million of intercompany loans from Deere & Company, $10,988million of unsecured term debt, $972 million of off-balance sheetsecuritization funding and $2,171 million of equity capital. The Company’sfunding profile may be altered to reflect such factors as relative costs offunding sources, assets available for securitizations and capital marketaccessibility.

The Company’s commercial paper outstanding at July 31,2006, October 31, 2005 and July 31, 2005 was approximately $1,808 million,$1,696 million and $1,918 million, respectively, while the total cash and cashequivalents position was approximately $157 million, $250 million and $196million, respectively. Additionally, the Company had access to approximately$2,766 million, $4,103 million and $3,494 million, respectively, of cash andcash equivalents and marketable securities held by its parent, Deere &Company (if Deere & Company would have chosen to make these funds availableto the Company).

The Company issued $1,764 million and retired $1,380million of other borrowings during the first nine months of 2006, which wereprimarily medium-term notes.

The Company utilizes a revolving multi-bank conduitfacility to securitize floating rate retail notes (see Note 5). This facilityhas the capacity, or “purchase limit,” of up to $2 billion in securedfinancings or sales outstanding at any time. This facility has no finalmaturity date. Instead, upon the Company’s request, each conduit may elect torenew its commitment on an annual basis. If this facility is not renewed, theCompany would liquidate the securitizations as the payments on these retailnotes are collected. At July 31, 2006, $1,644 million was outstanding under thefacility of which $1,028 million was recorded on the balance sheet.

Total interest-bearing indebtedness amounted to$15,539 million at July 31, 2006, compared with $13,958 million at October 31,2005, and $13,821 million at July 31, 2005. Included in this debt are securedborrowings of $2,273 million, $1,353 million and $1,464 million for the sameperiods. Total external borrowings increased during the first nine months of2006 and the past 12 months, generally corresponding with the level of theReceivable and Lease portfolios, the level of cash and cash equivalents and thechange in payable to Deere & Company. Total short-term indebtednessamounted to $7,227 million at July 31, 2006, which included $2,273 million ofsecured borrowings, compared with $5,767 million at October 31, 2005, whichincluded $1,353 million of secured borrowings and $5,564 million at July 31,2005, which included $1,464 million of secured borrowings, while totallong-term indebtedness amounted to $8,312 million, $8,191 million and $8,257million at these dates, respectively. The ratio of total interest-bearing debtto stockholder’s equity was 7.2 to 1 at July 31, 2006, compared with 7.2 to 1at October 31, 2005 and 7.4 to 1 at July 31, 2005.

Stockholder’s equity was $2,171 million at July 31,2006, compared with $1,940 million at October 31, 2005 and $1,868 million atJuly 31, 2005. The increase in the first nine months of 2006 resulted primarilyfrom net income of $217 million and a $14 million increase in accumulated othercomprehensive income.

On August 31, 2006, the Capital Corporation declaredan $85 million dividend, to be paid to John Deere Credit Company on September7, 2006. John Deere Credit Company, in turn, declared an $85 million dividendto Deere & Company, also payable on September 7, 2006.

*Lines of Credit*

At July 31, 2006, the Capital Corporation and Deere& Company jointly maintained $3,012 million of lines of credit with variousbanks throughout the world, $779 million of which were unused. For the purpose of computing unused credit lines,commercial paper and short-term bank borrowings, excluding secured borrowingsand the current portion of long-term borrowings, of the Company and John Deere,were considered to constitute utilization. Included in the total creditlines at July 31, 2006 was a long-term credit facility agreement of $3 billion,expiring in February 2011. The credit agreement requires the Company tomaintain its consolidated ratio of earnings to fixed charges at not less than1.05 to 1 for each fiscal quarter and its ratio of senior debt, excludingsecuritization indebtedness, to total stockholder’s equity (excludingaccumulated other comprehensive income (loss)) at not more than 8.5 to 1 at theend of any fiscal quarter. At July 31, 2006, the Company was in compliance withthese requirements.

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*Debt Ratings*

The Company’s ability to obtain funding is affected byits debt ratings, which are closely related to the outlook for and thefinancial condition of Deere & Company, and the nature and availability ofsupport facilities, such as its lines of credit and the support agreement fromDeere & Company.

To access public debt capital markets, the Companyrelies on credit rating agencies to assign short-term and long-term creditratings to the Company’s securities as an indicator of credit quality for fixedincome investors. A credit rating agency may change or withdraw Company ratingsbased on its assessment of the Company’s current and future ability to meetinterest and principal repayment obligations. Lower credit ratings generallyresult in higher borrowing costs and reduced access to debt capital markets.

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 Deere & Company.Those ratings are as follows:
| ** **                            | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** | ** ** |
|---------------------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| Moody’s  Investors Service, Inc. |       | A3                        |       | Prime-2        |       | Positive    |       |
| Standard & Poor’s            |       | A-                        |       | A-2            |       | Positive    |       |

 

**Item 3.**                            Quantitative and Qualitative Disclosures AboutMarket Risk.

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

**Item 4.**                            Controls and Procedures.

The Company’s principal executive officer and itsprincipal financial officer have concluded that the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended (“the Act”)) were effective as of July 31,2006, based on the evaluation of these controls and procedures required by Rule13a-15(b) or 15d-15(b) of the Act.

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**PART II. OTHER INFORMATION**

**Item1.**                  Legal Proceedings.

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

**Item2.**                  Unregistered Sales of Equity Securities and Use ofProceeds.

Omitted pursuant to instruction H.

**Item3.**                  Defaults Upon Senior Securities.

Omitted pursuant to instruction H.

**Item4.**                  Submission of Matters to a Vote of Security Holders.

Omitted pursuant to instruction H.

**Item5.**                  Other Information.

None.

**Item6.**                  Exhibits.

See the index to exhibits immediately preceding theexhibits filed with this report.

Certain instruments relating to long-term debt,constituting less than 10% of the registrant’s total assets, are not filed asexhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Theregistrant will file copies of such instruments upon request of the Commission.

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|        |            | JOHN DEERE CAPITAL CORPORATION |
|--------|-----------------|--------------------------------|
|   |            |                           |
| Date:  | August 31, 2006 |                           | By: | */s/ M. J. Mack, Jr.* |
|   |            |                           |   | M. J. Mack, Jr.  Senior Vice President, Principal Financial Officer |

 

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**INDEX TO EXHIBITS**
| Exhibit | ** ** | ** **                                                                                                                                                                          |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                |
| 3.1     |       | Certificate of Incorporation, as amended (Exhibit  3.1 to Form 10-K of the registrant for the year ended October 31, 1999,  Securities and Exchange Commission file number 1-6458*) |
|    |       |                                                                                                                                                                                |
| 3.2     |       | Bylaws, as amended (Exhibit 3.2 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission file number 1-6458*)                       |
|    |       |                                                                                                                                                                                |
| 12.     |       | Computation  of Ratio of Earnings to Fixed Charges                                                                                                                                  |
|    |       |                                                                                                                                                                                |
| 31.1    |       | Rule  13a-14(a)/15d-14(a) Certification                                                                                                                                             |
|    |       |                                                                                                                                                                                |
| 31.2    |       | Rule  13a-14(a)/15d-14(a) Certification                                                                                                                                             |
|    |       |                                                                                                                                                                                |
| 32.     |       | Section 1350  Certifications                                                                                                                                                        |
|    |       |                                                                                                                                                                                |
| 99.     |       | Part I of Deere & Company Form 10-Q for the  quarter ended July 31, 2006 (Securities and Exchange Commission file number  1-4121*)                                              |

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

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