**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-Q**

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

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**For the quarterly periodended January 31, 2008**

 

Commission file no: 1-6458

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**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**                   |

 

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.

Yes x   No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer   o | Accelerated  filer   o | Non-accelerated filer   x |
|---------------------------------------|----------------------------------|-------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes o   No x

At January 31, 2008, 2,500 shares of common stock, without par value,of the registrant were outstanding, all of which were owned by John DeereCredit Company, a wholly-owned subsidiary of Deere & Company.

 

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

 

Page 1 of 25 PagesIndex to Exhibits: Page 21

 

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PART I.  FINANCIAL INFORMATION

 

Item1.     Financial Statements.

 

**John Deere Capital Corporation and Subsidiaries**

**Statements of Consolidated Income and Retained Earnings**

**For the Three Months Ended January 31, 2008 and 2007**

**(Unaudited)**

(in millions)

 
| ** **                                           | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| **Revenues**                                         |       |     |       |     |       |
| Finance income earned on retail notes                |       | $        | 222.8      |     | $          | 200.4 |   |
| Lease revenues                                       |       | 83.4     |       | 77.2     |       |
| Revolving charge account income                      |       | 50.8     |       | 48.9     |       |
| Finance income earned on wholesale receivables       |       | 77.5     |       | 82.6     |       |
| Operating loan income                                |       | 6.8      |       | 8.6      |       |
| Income on receivables sold                           |       | 2.4      |       | 6.4      |       |
| Crop insurance commissions                           |       | 29.0     |       | 9.6      |       |
| Other income                                         |       | 23.8     |       | 17.0     |       |
| Total revenues                                       |       | 496.5    |       | 450.7    |       |
| ** **                                           |       |     |       |     |       |
| **Expenses**                                         |       |     |       |     |       |
| Interest expense                                     |       | 223.6    |       | 201.9    |       |
| Operating expenses:                                  |       |     |       |     |       |
| Administrative and operating expenses                |       | 79.7     |       | 65.2     |       |
| Provision for credit losses                          |       | 15.1     |       | 11.1     |       |
| Fees paid to John Deere                              |       | 9.1      |       | 8.1      |       |
| Depreciation of equipment on operating leases        |       | 54.8     |       | 51.9     |       |
| Total operating expenses                             |       | 158.7    |       | 136.3    |       |
| Total expenses                                       |       | 382.3    |       | 338.2    |       |
| **Income of consolidated group before income taxes** |       | 114.2    |       | 112.5    |       |
| **Provision for income taxes**                       |       | 37.2     |       | 39.4     |       |
| **Income of consolidated group**                     |       | 77.0     |       | 73.1     |       |
| **Equity in income of unconsolidated affiliates**    |       | .2       |       | .1       |       |
| **Net income**                                       |       | 77.2     |       | 73.2     |       |
| **Dividends paid**                                   |       | (140.0   | )          | (40.0    | )          |
| **Retained earnings at beginning of period**         |       | 1,065.6  |       | 1,300.9  |       |
| **Retained earnings at end of period**               |       | $        | 1,002.8    |     | $          | 1,334.1 |   |

 

See Notes to Interim Financial Statements.

 

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**John Deere Capital Corporationand Subsidiaries**

**ConsolidatedBalance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                       | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                       | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| **Assets**                                                                                                       |       |                 |       |                 |       |                 |       |
| Cash and cash equivalents                                                                                        |       | $                    | 142.9      |                 | $          | 190.8                |       | $ | 71.4 |   |
| Receivables:                                                                                                     |       |                 |       |                 |       |                 |       |
| Retail notes                                                                                                     |       | 9,763.7              |       | 9,810.3              |       | 8,725.8              |       |
| Restricted securitized retail notes                                                                              |       | 1,845.9              |       | 2,150.4              |       | 1,900.5              |       |
| Revolving charge accounts                                                                                        |       | 1,288.6              |       | 1,553.3              |       | 1,172.4              |       |
| Operating loans                                                                                                  |       | 412.0                |       | 286.5                |       | 472.1                |       |
| Wholesale receivables                                                                                            |       | 3,670.2              |       | 3,521.3              |       | 3,803.9              |       |
| Financing leases                                                                                                 |       | 414.5                |       | 430.3                |       | 395.3                |       |
| Total receivables                                                                                                |       | 17,394.9             |       | 17,752.1             |       | 16,470.0             |       |
| Allowance for credit losses                                                                                      |       | (101.0               | )          | (99.2                | )          | (93.6                | )          |
| Total receivables – net                                                                                     |       | 17,293.9             |       | 17,652.9             |       | 16,376.4             |       |
| Other receivables                                                                                                |       | 46.6                 |       | 35.8                 |       | 103.4                |       |
| Equipment on operating leases – net                                                                         |       | 967.3                |       | 995.2                |       | 880.8                |       |
| Notes receivable from John Deere                                                                                 |       | 649.7                |       | 586.5                |       | 365.9                |       |
| Investment in unconsolidated affiliates                                                                          |       | 5.6                  |       | 5.2                  |       | 4.7                  |       |
| Other assets                                                                                                     |       | 503.0                |       | 295.1                |       | 382.2                |       |
| **Total Assets**                                                                                                 |       | $                    | 19,609.0   |                 | $          | 19,761.5             |       | $ | 18,184.8 |   |
| ** **                                                                                                       |       |                 |       |                 |       |                 |       |
| **Liabilities and Stockholder’s Equity**                                                                    |       |                 |       |                 |       |                 |       |
| Short-term borrowings:                                                                                           |       |                 |       |                 |       |                 |       |
| Commercial paper                                                                                                 |       | $                    | 2,755.3    |                 | $          | 2,679.2              |       | $ | 2,463.0 |   |
| Other notes payable                                                                                              |       | 1,941.3              |       | 2,199.0              |       | 1,974.4              |       |
| John Deere                                                                                                       |       | 80.4                 |       | 127.8                |       | 34.2                 |       |
| Current maturities of long-term borrowings                                                                       |       | 3,539.7              |       | 3,835.9              |       | 3,280.0              |       |
| Total  short-term borrowings                                                                                     |       | 8,316.7              |       | 8,841.9              |       | 7,751.6              |       |
| Accounts payable and accrued expenses                                                                            |       | 505.7                |       | 455.6                |       | 396.4                |       |
| Deposits withheld from dealers and merchants                                                                     |       | 175.0                |       | 174.4                |       | 171.1                |       |
| Deferred income taxes                                                                                            |       | 34.1                 |       | 59.0                 |       | 104.1                |       |
| Long-term borrowings                                                                                             |       | 8,740.5              |       | 8,276.1              |       | 7,568.6              |       |
| Total  liabilities                                                                                               |       | 17,772.0             |       | 17,807.0             |       | 15,991.8             |       |
| 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                                                                                                |       | 1,002.8              |       | 1,087.1              |       | 1,334.1              |       |
| Accumulated other comprehensive income:                                                                          |       |                 |       |                 |       |                 |       |
| Cumulative translation adjustment                                                                                |       | 62.4                 |       | 61.7                 |       | 33.3                 |       |
| Unrealized gain on investments                                                                                   |       | .5                   |       | 1.2                  |       | 3.3                  |       |
| Unrealized gain (loss) on derivatives                                                                            |       | (41.5                | )          | (8.3                 | )          | 9.5                  |       |
| Total  accumulated other comprehensive income                                                                    |       | 21.4                 |       | 54.6                 |       | 46.1                 |       |
| Total  stockholder’s equity                                                                                 |       | 1,837.0              |       | 1,954.5              |       | 2,193.0              |       |
| **Total Liabilities and Stockholder’s Equity**                                                              |       | $                    | 19,609.0   |                 | $          | 19,761.5             |       | $ | 18,184.8 |   |

 

See Notes to Interim Financial Statements.

 

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## **John Deere Capital Corporation andSubsidiaries**

**Statements of Consolidated Cash Flows**

**For the Three Months Ended January 31, 2008 and2007**

**(Unaudited)**

(in millions)

 
| ** **                                                                         | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Cash Flows from Operating Activities:**                                          |       |     |       |     |       |
| Net income                                                                         |       | $        | 77.2       |     | $          | 73.2 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |     |       |     |       |
| Provision for credit losses                                                        |       | 15.1     |       | 11.1     |       |
| Provision for depreciation and amortization                                        |       | 56.1     |       | 53.8     |       |
| Provision (credit) for deferred income taxes                                       |       | 3.6      |       | (3.6     | )          |
| Undistributed earnings of unconsolidated affiliates                                |       | (.2      | )          | (.1      | )          |
| Change in accounts payable and accrued expenses                                    |       | (38.2    | )          | (9.7     | )          |
| Change in accrued income taxes payable/receivable                                  |       | 7.8      |       | 20.7     |       |
| Other                                                                              |       | (36.3    | )          | (42.8    | )          |
| Net cash provided by operating activities                                          |       | 85.1     |       | 102.6    |       |
|                                                                               |       |     |       |     |       |
| **Cash Flows from Investing Activities:**                                          |       |     |       |     |       |
| Cost of receivables acquired                                                       |       | (6,090.8 | )          | (5,733.5 | )          |
| Collections of receivables                                                         |       | 6,416.1  |       | 6,018.4  |       |
| Cost of equipment on operating leases acquired                                     |       | (91.0    | )          | (88.2    | )          |
| Proceeds from sales of equipment on operating leases                               |       | 68.0     |       | 44.9     |       |
| Cost of notes receivable with John Deere                                           |       | (152.7   | )          | (132.3   | )          |
| Collection of notes receivable with John Deere                                     |       | 89.5     |       | 5.0      |       |
| Proceeds from sales of receivables                                                 |       | 15.5     |       | 62.4     |       |
| Change in restricted cash                                                          |       | 1.6      |       | (6.1     | )          |
| Other                                                                              |       | (2.4     | )          | (24.9    | )          |
| Net cash provided by investing activities                                          |       | 253.8    |       | 145.7    |       |
|                                                                               |       |     |       |     |       |
| **Cash Flows from Financing Activities:**                                          |       |     |       |     |       |
| Increase in commercial paper - net                                                 |       | 63.8     |       | 163.8    |       |
| Decrease in other notes payable - net                                              |       | (257.7   | )          | (232.8   | )          |
| Decrease in payable with John Deere - net                                          |       | (47.4    | )          | (144.0   | )          |
| Proceeds from issuance of long-term borrowings                                     |       | 852.3    |       | 3.0      |       |
| Payments of long-term borrowings                                                   |       | (856.5   | )          | (46.0    | )          |
| Dividends paid                                                                     |       | (140.0   | )          | (40.0    | )          |
| Other                                                                              |       | (3.5     | )          | (.6      | )          |
| Net cash used for financing activities                                             |       | (389.0   | )          | (296.6   | )          |
|                                                                               |       |     |       |     |       |
| **Effect of exchange rate changes on cash and cash  equivalents**                  |       | 2.2      |       | .5       |       |
| **Net decrease in cash and cash equivalents**                                      |       | (47.9    | )          | (47.8    | )          |
| **Cash and cash equivalents at beginning of period**                               |       | 190.8    |       | 119.2    |       |
| **Cash and cash equivalents at end of period**                                     |       | $        | 142.9      |     | $          | 71.4 |   |

 

See Notes to Interim Financial Statements.

 

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# **JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim FinancialStatements**

**(Unaudited)**

 

(1)                                  Theconsolidated financial statements of John Deere Capital Corporation (CapitalCorporation) and its subsidiaries (collectively called the Company) have beenprepared by the Company, without audit, pursuant to the rules andregulations of the U.S. Securities and Exchange Commission. Certain informationand footnote disclosures normally included in annual financial statementsprepared in accordance with accounting principles generally accepted in theU.S. have been condensed or omitted as permitted by such rules andregulations. All adjustments, consisting of normal recurring adjustments, havebeen included. Management believes that the disclosures are adequate to presentfairly the financial position, results of operations and cash flows at thedates and for the periods presented. It is suggested that these interimfinancial statements be read in conjunction with the financial statements andthe notes thereto included in the Company’s latest annual report on Form 10-K.Results for interim periods are not necessarily indicative of those to beexpected for the year.

 

                                                The preparationof financial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect the reported amounts and related disclosures. Actual results coulddiffer from those estimates.

 

(2)                                  The Companyprovides and administers financing for retail purchases of new equipmentmanufactured by Deere & Company’s agricultural equipment, commercialand consumer equipment and construction and forestry divisions and usedequipment taken in trade for this equipment. The Company generally purchasesretail 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 retaildealers. The Company also purchases and finances a limited amount of non-Deereretail notes and continues to service a small portfolio of recreationalproducts and other retail notes. In addition, the Company leases John Deereequipment and a limited amount of non-Deere equipment to retail customers(financing and operating leases). The Company also finances and servicesrevolving charge accounts, in most cases acquired from and offered throughmerchants in the agricultural, commercial and consumer, and construction andforestry markets (revolving charge accounts). Further, the Company finances andservices operating loans, in most cases offered through and acquired from farminput providers, through direct relationships with agricultural producers orthrough agribusinesses (operating loans). The Company also provides wholesalefinancing for inventories of John Deere agricultural, commercial and consumerand construction and forestry equipment owned by dealers of those products(wholesale receivables). The Company also offers credit enhanced internationalexport financing to select customers and dealers which generally involves JohnDeere products and offers certain crop risk mitigation products in the U.S. Inaddition, the Company invests in wind energy generation by making loans tocertain affiliated companies that have directly invested in wind energyprojects. Retail notes, revolving charge accounts, operating loans, financingleases and wholesale receivables are collectively called “Receivables.”Receivables and operating leases are collectively called “Receivables andLeases.”

 

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(3)                                  Comprehensiveincome, which includes all changes in the Company’s equity during the periodexcept transactions with the stockholder, was as follows in millions ofdollars:

 
| ** **                                     | ** ** | **Three Months Ended January 31,** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
|                                           |       |                                                   |       |   |   |
| Net Income                                     |       | $                                                      | 77.2       |   | $ | 73.2 |   |
|                                           |       |                                                   |       |   |   |
| Other comprehensive income (loss), net of tax: |       |                                                   |       |   |   |
| Change in cumulative translation adjustment    |       | .7                                                     |       | 5.2 |   |
| Unrealized loss on investments                 |       | (.7                                                    | )          | (.2 | ) |
| Unrealized gain (loss) on derivatives          |       | (33.2                                                  | )          | 1.1 |   |
| Total comprehensive income                     |       | $                                                      | 44.0       |   | $ | 79.3 |   |

 

(4)                                  Contingenciesand commitments:

 

At January 31, 2008, John Deere Credit Inc., the John Deerefinance subsidiary in Canada, had $85 million of commercial paper and$1,595 million of medium-term notes outstanding that were guaranteed by theCompany. In addition, the Company has provided a letter of credit for JohnDeere Credit Inc. as part of retail note sales. At January 31, 2008, theCompany’s maximum exposure under this agreement was approximately $3 million.

 

At January 31, 2008,the Company had $237 million of guarantees issued to turbine manufacturers forJohn Deere Renewables, LLC wind turbine purchases. John Deere Renewables, LLCis an affiliated company that has commitments to purchase wind turbines relatedto its direct investments in wind energy projects. At January 31, 2008,the maximum remaining term of these purchase commitments was approximately twoyears.

 

The Company’s subsidiary,John Deere Risk Protection, Inc., offers crop insurance products through amanaging general agency agreement (Agreement) with an insurance company(Insurance Carrier) rated “Excellent” by A.M. Best Company. As a managinggeneral agent, John Deere Risk Protection, Inc. will receive commissionsfrom the Insurance Carrier for selling crop insurance to producers. The Companyhas guaranteed certain obligations under the Agreement, including theobligation to pay the Insurance Carrier for any uncollected premiums. At January 31,2008, the maximum exposure for uncollected premiums was approximately $10million. Substantially all of the Company’s crop insurance risk under theAgreement has been mitigated by a syndicate of private reinsurance companies.These reinsurance companies are rated “Excellent” or higher by A.M. BestCompany. In the event of a widespread catastrophic crop failure throughout theU.S. and the default of these highly rated private reinsurance companies ontheir reinsurance obligations, the Company would be required to reimburse theInsurance Carrier for exposures under the Agreement of approximately$14 million at January 31, 2008. The Company believes that thelikelihood of the occurrence of events that give rise to the exposures underthis Agreement is substantially remote and as a result, at January 31, 2008,the Company’s accrued liability under the Agreement was not material.

 

The Company has commitmentsto extend credit to customers and John Deere dealers through lines of creditand other pre-approved credit arrangements. The Company applies the same creditpolicies and approval process for these commitments to extend credit as it doesfor its Receivables. Collateral is not required for these commitments, but ifcredit is extended, collateral may be required upon funding. The amount ofunused commitments to extend credit to John Deere dealers was $3.4 billion at January 31, 2008.The amount of unused commitments to extend credit to customers was$32.3 billion at January 31, 2008. A significant portion of thesecommitments is not expected to be fully drawn upon; therefore, the totalcommitment amounts likely do not represent a future cash requirement. TheCompany generally has the right to unconditionally cancel, alter or amend theterms of these commitments at any time. Over 95 percent of these unusedcommitments to extend credit to customers relate to revolving charge accounts. 

 

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The Company alsohad other miscellaneous contingent liabilities totaling approximately $10million at January 31, 2008, for which it believes the probability forpayment is substantially remote. At January 31, 2008, the Company also hadrestricted other assets of $10 million. See Note 5 for recourse on sales ofreceivables and restricted assets associated with borrowings related tosecuritizations.

 

(5)                                  Securitization of receivables:

 

The Company, as apart of its overall funding strategy, periodically transfers certainreceivables (retail notes) into special purpose entities (SPEs) as part of itsasset-backed securities programs (securitizations). For securitizations enteredinto prior to 2005, the structure of these transactions is such that the transferof the retail notes met the criteria of sales in accordance with FASB StatementNo. 140, Accounting for Transfers and Servicing of Financial Assets andExtinguishment of Liabilities. Beginning in 2005, the transfer of retail notesinto new securitization transactions did not meet the sales criteria of FASBStatement No. 140 and are, therefore, accounted for as secured borrowings.SPEs utilized in securitizations of retail notes differ from other entitiesincluded in the Company’s consolidated statements because the assets they holdare legally isolated.  For bankruptcyanalysis purposes, the Capital Corporation has sold the receivables to the SPEsin a true sale and the SPEs are separate legal entities. Use of the assets heldby the SPEs is restricted by terms of the documents governing thesecuritization transaction. Further information related to the securedborrowings and sales of retail notes is provided below.

 

*Secured Borrowings*

 

In securitizations of retail notes related to securedborrowings, the retail notes are transferred to certain SPEs which in turnissue debt to investors. The resulting secured borrowings are included inshort-term borrowings on the balance sheet as shown in the following table. Thesecuritized retail notes are recorded as “Restricted securitized retail notes”on the balance sheet. The total restricted assets on the balance sheet relatedto these securitizations include the restricted securitized retail notes lessan allowance for credit losses, and other assets representing restricted cashas shown in the following table. The SPEs supporting the secured borrowings towhich the retail notes are transferred are consolidated unless the Company isnot the primary beneficiary or the SPE is a qualified special purpose entity asdefined in FASB Statement No. 140. 

 

The components ofconsolidated restricted assets related to secured borrowings in securitizationtransactions were as follows (in millions of dollars): 

 
| ** **                           | ** ** | **January 31,  2008** | ** ** | **October 31,  2007** | ** ** | **January 31,  2007** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Restricted securitized  retail notes |       | $                          | 1,845.9    |                       | $          | 2,150.4                    |       | $ | 1,900.5 |   |
| Allowance for  credit losses         |       | (10.6                      | )          | (11.3                      | )          | (8.8                       | )          |
| Other assets                         |       | 43.6                       |       | 44.0                       |       | 92.2                       |       |
| Total restricted  securitized assets |       | $                          | 1,878.9    |                       | $          | 2,183.1                    |       | $ | 1,983.9 |   |

 

The components of consolidated secured borrowings andother liabilities related to securitizations were as follows (in millions ofdollars):

 
| ** **                                                  | ** ** | **January 31,  2008** | ** ** | **October 31,  2007** | ** ** | **January 31,  2007** | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Other notes  payable                                        |       | $                          | 1,923.4    |                       | $          | 2,191.6                    |       | $ | 1,963.5 |   |
| Accounts payable  and accrued expenses                      |       | 2.8                        |       | 4.4                        |       | 3.0                        |       |
| Total  liabilities related to restricted securitized assets |       | $                          | 1,926.2    |                       | $          | 2,196.0                    |       | $ | 1,966.5 |   |

 

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The securedborrowings related to these restricted securitized retail notes are obligationsthat are payable as the retail notes are liquidated. Repayment of the securedborrowings depends primarily on cash flows generated by the restricted assets.Due to the Company’s short-term credit rating, cash collections from theserestricted assets are not required to be placed into a restricted collectionaccount until immediately prior to the time payment is required to the securedcreditors. Under FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interest Entities, an SPE was consolidated thatincluded assets (restricted retail notes) of $1,291 million, $1,494 million and$1,020 million at January 31, 2008, October 31, 2007 and January 31,2007, respectively. These restricted retail notes are included in the restrictedsecuritized retail notes related to securitizations shown in the table above.At January 31, 2008, the maximum remaining term of all restrictedreceivables was approximately five years. 

 

*Sales ofReceivables*

 

The Company hascertain recourse obligations on Receivables that it has previously sold. If theReceivables sold are not collected, the Company would be required to coverthose losses up to the amount of its recourse obligation. At January 31,2008, the maximum amount of exposure to losses under these agreements was $26million. The estimated credit risk associated with sold receivables totaled $.3million at January 31, 2008. This risk of loss is recognized primarily inthe interests that continue to be held by the Company and recorded on itsbalance sheet. These interests are related to assets held by unconsolidatedSPEs. At January 31, 2008, the assets of these SPEs related to theCompany’s securitization and sale of retail notes totaled approximately $69million. The Company may recover a portion of any required payments incurredunder these agreements from the repossession of the equipment collateralizingthe Receivables. At January 31,2008, the maximum remaining term of the Receivables sold was approximately twoyears.

 

(6)                                  New accounting standard adopted in thefirst quarter of  2008 was as follows:

 

The Companyadopted FASB Interpretation (FIN) No. 48, Accounting for Uncertainty inIncome Taxes, at the beginning of the first fiscal quarter of 2008. ThisInterpretation clarifies that the recognition for uncertain tax positionsshould be based on a more-likely-than-not threshold that the tax position willbe sustained upon audit. The tax position is measured as the largest amount ofbenefit that has a greater than 50 percent probability of being realized uponsettlement. As a result of adoption, the Company recorded an increase in itsliability for unrecognized tax benefits of $23.7 million, an increase inaccrued interest and penalties payable of $10.1 million, an increase indeferred tax liabilities of $.9 million, a reduction in the beginning retainedearnings balance of $21.5 million, an increase in tax receivables of $1.9million and an increase in deferred tax assets of $11.3 million.

 

After adoption atthe beginning of the first quarter, the Company had a total liability forunrecognized tax benefits of $23.7 million. Approximately $11.4 million of this balance would affect the effectivetax rate if the tax benefits were recognized. The remaining liability wasrelated to tax positions for which there are offsetting tax receivables, or theuncertainty was only related to timing. These items would not affect theeffective tax rate due to offsetting changes to the receivables or deferredtaxes. The liability for unrecognized tax benefits at January 31, 2008 wasnot materially different from the liability at the date of adoption. At thedate of adoption, the Company did not have any tax positions for which itexpected that the liability for unrecognized tax benefits would changesignificantly within the next 12 months.

 

The Company’scontinuing policy is to recognize interest related to uncertain tax positionsin interest expense and interest income, and recognize penalties inadministrative and operating expenses. After adoption at the beginning of the first quarter of 2008, theliability for accrued interest and penalties totaled $10.1 million, whichhas not changed materially during the first quarter.

 

The Company filesits tax returns according to the tax laws of the jurisdictions in which itoperates, which includes the U.S. federal jurisdiction, and various state andforeign jurisdictions. The Company is included in the consolidated U.S. incometax 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 theyears 2002, 2003 and 2004. The year 2001, and 2005 through 2007 federal incometax returns are either currently under examination or remain subject toexamination. Various state and foreign income tax returns also remain subjectto examination by taxing authorities.

 

8

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New accountingstandards 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 FinancialStatements. Statement No. 141 (revised 2007) requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and anynoncontrolling interest in the acquiree at their fair values on the acquisitiondate, with goodwill being the excess value over the net identifiable assetsacquired. Statement No. 160 requires that a noncontrolling interest in asubsidiary be reported as equity in the consolidated financial statements.Consolidated net income should include the net income for both the parent andthe noncontrolling interest with disclosure of both amounts on the consolidatedstatement of income. The effective date for both Statements is the beginning offiscal year 2010. The Company has currently not determined the potentialeffects on the consolidated financial statements.

 

In September 2006,the FASB issued Statement No. 157, Fair Value Measurements. This Statementdefines fair value and expands disclosures about fair value measurements. Thesedefinitions will apply to other accounting standards that use fair valuemeasurements and may change the application of certain measurements used incurrent practice. The effective date is the beginning of fiscal year 2009 forfinancial assets and liabilities. For nonfinancial assets and liabilities, theeffective date is the beginning of fiscal year 2010, except items that arerecognized or disclosed on a recurring basis (at least annually). The adoptionis not expected to have a material effect on the Company’s consolidatedfinancial statements.

 

In February 2007,the FASB issued Statement No. 159, The Fair Value Option for FinancialAssets and Financial Liabilities. This Statement permits entities to measuremost financial instruments at fair value. It may be applied on a contract bycontract basis and is irrevocable once applied to those contracts.  The standard may be applied at the time ofadoption for existing eligible items, or at initial recognition of eligibleitems. After election of this option, changes in fair value are reported inearnings. The items measured at fair value must be shown separately on thebalance sheet. The effective date is the beginning of fiscal year 2009. Thecumulative effect of adoption would be reported as an adjustment to beginningretained earnings. The Company has currently not determined the potentialeffect on the consolidated financial statements.        

 

(7)                                  The Company is aparticipating employer in certain Deere & Company sponsored definedbenefit pension plans for employees in the U.S. and certain defined benefitpension plans outside the U.S. These pension plans provide for benefits thatare based primarily on years of service and employee compensation. Pensionexpense is actuarially determined based on the Company’s employees included inthe plan. The Company’s pension expense amounted to $1.1 million in thefirst three months of 2008. The accumulated benefit obligation and plan netassets for the employees of the Company are not determined separately fromDeere & Company. The Company generally provides defined benefit healthcare and life insurance plans for retired employees in the U.S. as aparticipating employer in Deere & Company’s sponsored plans. Healthcare and life insurance benefits expense is actuarially determined based on theCompany’s employees included in the plans and amounted to $1.0 million duringthe first three months of 2008. Further disclosure for these plans is includedin Deere & Company’s Form 10-Q for the quarter ended January 31,2008.

 

(8)                                  On February 15, 2008, the Companyexercised a cleanup call to repurchase the remaining securitization transactionthat met the criteria of sales in accordance with FASB Statement No. 140.

 

(9)                                  On February 28, 2008, the CapitalCorporation declared a $285 million dividend, to be paid to John Deere CreditCompany on or before March 14, 2008. John Deere Credit Company, in turn,declared a $285 million dividend to Deere & Company, also payableon or before March 14, 2008.

 

9

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

 

Results of Operations

 

Overview

 

Organization

 

The Company primarily generates revenues and cash byfinancing John Deere dealers’ sales and leases of new and used agricultural,commercial and consumer and construction and forestry equipment. In addition,the Company 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 generation. 

 

Trends and Economic Conditions

 

The Company’s business is closely related to JohnDeere’s business. Farm conditions throughout the world remain quite positive,benefiting from healthy commodity prices and demand for renewable fuels.Industry sales for 2008 are forecast to be up 15 to 20 percent for the year inthe U.S. & Canada. Industry sales in Western Europe are forecast to beup 3 to 5 percent for the year. Greater increases are expected in EasternEurope and the CIS (Commonwealth of Independent States) countries, includingRussia, where demand for productive farm machinery is experiencing rapidgrowth. South America markets are expected to show further improvement in 2008,with industry sales forecast to increase by 15 percent or more. John Deere’sagricultural equipment sales were up 33 percent for the first quarter of 2008and are forecast to increase about 28 percent for the year, including about 4percent related to currency translation. John Deere’s commercial and consumerequipment sales increased 16 percent for the first quarter, including 14percent from LESCO, Inc. (LESCO), which was acquired in the third quarterof 2007. John Deere’s commercial and consumer equipment sales are projected toincrease about 8 percent for the year, including about 7 percent from afull year of LESCO sales. U.S. markets for construction and forestry equipmentare forecast to remain under continued pressure due in large part to acontinuing slump in housing starts. John Deere’s construction and forestrysales declined 6 percent in the first quarter of 2008, and for the year are expectedto be approximately equal to the prior year. The Company’s net income in 2008is forecast to be approximately $305 million. Results are expected to beimpacted by increased interest expense due to higher leverage, partially offsetby growth in the portfolio and higher crop insurance income.

 

Items of concern for the Company include the slowdownin the U.S. economy and credit issues. Potential changes in governmentsponsored farmer financing programs are also a concern, as is the uncertaintyover the direction of the U.S. farm legislation.

 

2008 Compared with 2007

 

Net income was $77.2 million for the first quarter of2008, compared with $73.2 for the same period a year ago. The improvement wasprimarily due to increased crop insurance income, growth in the portfolio and alower effective tax rate. Increased administrative and operating expenses,higher interest expense resulting from increased leverage, and a higherprovision for credit losses partially offset the improvements. 

 

Revenues totaled $496.5 million for the first quarterof 2008, compared to $450.7 million for the same period a year ago. Thisincrease was primarily due to a 6 percent increase in the average balanceof Receivables and Leases financed, higher financing rates and increased crop insuranceincome during the first three months of 2008 compared to the first three monthsof 2007. Finance income earned on retail notes totaled $222.8 million forthe first three months of 2008, up $22.4 million compared to$200.4 million for the same period in 2007. This increase was primarilydue to a 10 percent increase in the average retail note portfolio balancesand higher financing rates. Lease revenues totaled $83.4 million in thefirst three months of 2008, compared to $77.2 million in the first three monthsof 2007. This increase was primarily due to an 8 percent increase in theaverage amount of equipment on operating leases. Revenues earned on revolvingcharge accounts amounted to $50.8 million in the first three months of 2008, a4 percent increase over revenues of $48.9 million during the same periodlast year. This increase was primarily due to an increase in the averagebalance of revolving charge accounts, partially offset by lower financing ratesin the first three months of 2008, compared with the same period last year.Finance income earned on wholesale receivables totaled $77.5 million for thefirst three months of 2008, compared to $82.6 million for the same periodin 2007, primarily due to a 5 percent decrease in the average balance of wholesalereceivables. Operating loan income amounted to $6.8 million in the firstthree months of 2008, compared to $8.6 million in the first three monthsof 2007. Revenues earned from John Deere totaled $132.7 million for thefirst quarter of 2008, compared to $117.4 million for the same period lastyear.

 

10

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Income on receivables sold totaled $2.4 million forthe first quarter of 2008, compared to $6.4 million for the same period in2007. 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 insurance commissions totaled $29.0 million forthe first quarter of 2008, compared to $9.6 million for the same period  in 2007. The increase was due to increasedcrop insurance sales to producers as a result of expanded market coverage,increased commodity prices causing higher insurance premiums and favorableunderwriting experience resulting in increased contingent commissions. 

 

Other income totaled $23.8 million for the firstquarter of 2008, compared to $17.0 million for the same period in 2007. Theincrease was primarily due to increased interest income as a result of higheraverage loans to certain affiliated companies that have directly invested inwind energy projects. 

 

Interest expense totaled $223.6 million for the firstquarter of 2008, compared to $201.9 million for the same period in 2007. Theincrease was due to higher average borrowings.

 

Administrative and operating expenses were $79.7million in the first quarter of 2008, compared with $65.2 million for thesame period in 2007. The increase was primarily due to higher employment costsassociated with administering a larger Receivable and Lease portfolio andhigher costs in support of the Company’s growth initiatives.

 

During the first quarter of 2008, the provision forcredit losses totaled $15.1 million, compared with $11.1 million in the sameperiod last year. For the first three months of 2008, the Company hasexperienced higher write-offs of construction and forestry equipment retailnotes. Total net write-offs of Receivables financed were $13.3 million for thefirst quarter of 2008, compared with $10.5 million in the same period lastyear. The annualized provision for credit losses, as a percentage of theaverage balance of total Receivables financed, was .36 percent for thefirst quarter of 2008, compared with .28 percent for the same period last year.See the Company’s most recently filed annual report on Form 10-K forfurther information regarding the Company’s allowance for credit lossespolicies. 

 

Depreciation of equipment on operating leases was$54.8 million in the first quarter of 2008, compared to $51.9 million forthe same period in 2007. The increase was primarily the result of higheraverage amounts of equipment on operating leases. 

 

The effective tax rate decreased, compared to lastyear, primarily due to various discrete items affecting the first quarter thisyear.

 

The Company’s ratio of earnings to fixed charges was1.51 to 1 for the first quarter of 2008, compared with 1.55 to 1 for thefirst quarter of 2007. “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.

 

11

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

 
| ** **                           | ** ** | **Three Months**           | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|---------------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **Ended January 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                           | ** ** | **2008**                        | ** ** | **2007**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                            |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                               | 1,051.8    |       | $          | 824.4             |       | $ | 227.4 |   | 28 | % |
| Construction and  forestry equipment |       | 227.3                           |       | 355.2      |       | (127.9            | )          | (36 | ) |
| Commercial and  consumer equipment   |       | 60.6                            |       | 83.4       |       | (22.8             | )          | (27 | ) |
| Total retail  notes                  |       | 1,339.7                         |       | 1,263.0    |       | 76.7              |       | 6 |   |
| Revolving charge  accounts           |       | 831.3                           |       | 659.8      |       | 171.5             |       | 26 |   |
| Operating loans                      |       | 484.2                           |       | 562.5      |       | (78.3             | )          | (14 | ) |
| Wholesale  receivables               |       | 3,384.8                         |       | 3,213.7    |       | 171.1             |       | 5 |   |
| Financing leases                     |       | 50.8                            |       | 34.5       |       | 16.3              |       | 47 |   |
| Equipment on  operating leases       |       | 91.0                            |       | 88.2       |       | 2.8               |       | 3 |   |
| Total  Receivables and Leases        |       | $                               | 6,181.8    |       | $          | 5,821.7           |       | $ | 360.1 |   | 6 | % |

 

Retail note volumes for agricultural equipmentincreased in the first quarter of 2008, when compared to last year, primarilydue to increases in retail sales of John Deere agricultural equipment. Retailnote volumes for construction and forestry equipment decreased in the firstquarter of 2008, when compared to last year, primarily due to decreases inretail sales of John Deere construction and forestry equipment. Revolvingcharge account volumes increased primarily as a result of increased marketcoverage. Wholesale receivable volumes increased during the first quarter 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):

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |
| Agricultural  equipment              |       | $                    | 8,358.7    |                 | $          | 8,535.8              |       | $ | 7,212.2 |   |
| Construction and  forestry equipment |       | 2,301.4              |       | 2,409.1              |       | 2,422.2              |       |
| Commercial and  consumer equipment   |       | 938.3                |       | 1,003.5              |       | 975.6                |       |
| Recreational  products               |       | 11.2                 |       | 12.3                 |       | 16.3                 |       |
| Total retail  notes                  |       | 11,609.6             |       | 11,960.7             |       | 10,626.3             |       |
| Revolving charge  accounts           |       | 1,288.6              |       | 1,553.3              |       | 1,172.4              |       |
| Operating loans                      |       | 412.0                |       | 286.5                |       | 472.1                |       |
| Wholesale  receivables               |       | 3,670.2              |       | 3,521.3              |       | 3,803.9              |       |
| Financing leases                     |       | 414.5                |       | 430.3                |       | 395.3                |       |
| Equipment on  operating leases       |       | 967.3                |       | 995.2                |       | 880.8                |       |
| Total  Receivables and Leases        |       | $                    | 18,362.2   |                 | $          | 18,747.3             |       | $ | 17,350.8 |   |

 

Receivables and Leasesadministered by the Company, which include retail notes sold, were as follows(in millions of dollars):

 
| ** **                                                    | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| Receivables and  Leases administered:                         |       |                 |       |                 |       |                 |       |
| Owned by the  Company                                         |       | $                    | 16,516.3   |                 | $          | 16,596.9             |       | $ | 15,450.3 |   |
| Owned by the  Company – restricted due to securitization |       | 1,845.9              |       | 2,150.4              |       | 1,900.5              |       |
| Total  Receivables and Leases owned by the Company            |       | 18,362.2             |       | 18,747.3             |       | 17,350.8             |       |
| Sold and  serviced – with limited recourse*              |       | 169.4                |       | 177.9                |       | 768.5                |       |
| Sold and  serviced – without recourse**                  |       | 39.7                 |       | 44.6                 |       | 24.5                 |       |
| Total  Receivables and Leases administered                    |       | $                    | 18,571.3   |                 | $          | 18,969.8             |       | $ | 18,143.8 |   |

 
| *      |   | The Company’s maximum  exposure under all Receivable and Lease recourse provisions at  January 31, 2008, October 31, 2007 and January 31, 2007 was  $26 million, $25 million and $98 million, respectively. In addition, the  Company has provided letters of credit for John Deere Credit Inc., the John  Deere finance subsidiary in Canada, as part of retail note sales. At  January 31, 2008, October 31, 2007 and January 31, 2007 the  Company’s maximum exposure under these agreements was approximately $3  million, $3 million and $7 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

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Total Receivable amounts60 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):

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 15.7       |                 | .19        | %                    | $          | 14.4 |   | .17 | % | $ | 11.2 |   | .16 | % |
| Construction and  forestry equipment |       | 9.2                  |       | .40                  |       | 6.9                  |       | .29 |   | 8.1 |   | .33 |   |
| Commercial and  consumer equipment   |       | 1.9                  |       | .20                  |       | 1.5                  |       | .15 |   | 1.5 |   | .15 |   |
| Recreational  products               |       |                 |       |                 |       |                 |       |   |   | .1 |   | .61 |   |
| Total retail  notes                  |       | 26.8                 |       | .23                  |       | 22.8                 |       | .19 |   | 20.9 |   | .20 |   |
| Revolving charge  accounts*          |       | 18.2                 |       | 1.41                 |       | 15.3                 |       | .98 |   | 22.9 |   | 1.95 |   |
| Operating loans                      |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Wholesale  receivables               |       | 1.5                  |       | .04                  |       | .9                   |       | .03 |   | 2.8 |   | .07 |   |
| Financing leases                     |       | 4.8                  |       | 1.16                 |       | 4.7                  |       | 1.09 |   | 3.3 |   | .83 |   |
| Total  Receivables                   |       | $                    | 51.3       |                 | .29        | %                    | $          | 43.7 |   | .25 | % | $ | 49.9 |   | .30 | % |

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

 

The balance of retailnotes held (principal plus accrued interest) with any installment 60 days ormore past due represents the total retail note balance for a customer who hasany portion of their note 60 days or more past due. These amounts were $214million, $170 million and $152 million at January 31, 2008, October 31,2007 and January 31, 2007, respectively. The balances of retail notes heldon which any installment was 60 days or more past due as a percentage of theending retail notes receivable was 1.84 percent, 1.42 percent and 1.43 percentat January 31, 2008, October 31, 2007 and January 31, 2007,respectively.

 

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

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2008**             | ** ** | **2007**             | ** ** | **2007**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 15.2       |                 | .18        | %                    | $          | 21.6 |   | .25 | % | $ | 13.3 |   | .18 | % |
| Construction and  forestry equipment |       | 2.1                  |       | .09                  |       | 2.2                  |       | .09 |   | 4.6 |   | .19 |   |
| Commercial and  consumer equipment   |       | 1.8                  |       | .19                  |       | 1.8                  |       | .18 |   | 1.4 |   | .14 |   |
| Recreational products                |       |                 |       |                 |       | .1                   |       | .81 |   | .1 |   | .61 |   |
| Total retail  notes                  |       | 19.1                 |       | .16                  |       | 25.7                 |       | .21 |   | 19.4 |   | .18 |   |
| Revolving charge  accounts           |       | 1.4                  |       | .11                  |       | 1.2                  |       | .08 |   | 1.0 |   | .09 |   |
| Operating loans                      |       | 3.2                  |       | .78                  |       | 3.5                  |       | 1.22 |   | 4.3 |   | .91 |   |
| Wholesale  receivables               |       |                 |       |                 |       | 4.5                  |       | .13 |   | 1.8 |   | .05 |   |
| Financing leases                     |       | 12.6                 |       | 3.04                 |       | 13.3                 |       | 3.09 |   | 8.2 |   | 2.07 |   |
| Total  Receivables                   |       | $                    | 36.3       |                 | .21        | %                    | $          | 48.2 |   | .27 | % | $ | 34.7 |   | .21 | % |

 

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** | ** **

** ** |
|--------------------------------------|------------|----------------------------------|------------|----------------------------------|------------------------|
| ** **                           | ** ** | **January 31,**             | ** ** | **January 31,**             | ** **             |
| ** **                           | ** ** | **2008**                         | ** ** | **2007**                         | ** **             |
| ** **                           | ** ** | **Dollars**                      | ** ** | **Percent**                      | ** **             | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                             |       |                             |                   |   |   |   |   |
| Agricultural  equipment              |       | $                                | .2         |                             | .01                    | % | $ | (.4 | ) | (.02 | )% |
| Construction and  forestry equipment |       | 6.3                              |       | 1.11                             |                   | 4.1 |   | .71 |   |
| Commercial and  consumer equipment   |       | .5                               |       | .22                              |                   | .1 |   | .04 |   |
| Recreational  products               |       | .2                               |       | 7.11                             |                   | .1 |   | 2.44 |   |
| Total retail  notes                  |       | 7.2                              |       | .25                              |                   | 3.9 |   | .15 |   |
| Revolving charge  accounts           |       | 5.0                              |       | 1.50                             |                   | 6.2 |   | 1.95 |   |
| Operating loans                      |       |                             |       |                             |                   | (.1 | ) | (.09 | ) |
| Wholesale  receivables               |       |                             |       |                             |                   | (.1 | ) | (.01 | ) |
| Financing leases                     |       | 1.1                              |       | 1.09                             |                   | .6 |   | .60 |   |
| Total  Receivables                   |       | $                                | 13.3       |                             | .32                    | % | $ | 10.5 |   | .26 | % |

 

Deposits withheld fromdealers and merchants, representing mainly the aggregate dealer retail note andlease withholding accounts from individual John Deere dealers to which lossesfrom retail notes and leases originating from the respective dealers can becharged, amounted to $175 million at January 31, 2008 compared with $174million at October 31, 2007 and $171 million at January 31, 2007.

 

The Company’s allowancefor credit losses on all Receivables financed totaled $101 million at January 31,2008, $99 million at October 31, 2007 and $94 million at January 31,2007. The allowance for credit losses represented .58 percent of the totalReceivables financed at January 31, 2008, .56 percent at October 31,2007 and .57 percent at January 31, 2007. The level of the allowance isbased on many quantitative and qualitative factors, including historical lossexperience by product category, portfolio duration, delinquency trends,economic conditions and credit risk quality. The Company believes its allowanceis sufficient to provide for losses in its existing receivable 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. In addition, the Company’sbusiness is closely related to John Deere’s business. Further information,including factors that potentially could materially affect the Company’s andJohn Deere’s financial results, is included in the most recent Deere &Company Form 10-K (including the factors discussed in Item 1A) and otherDeere & Company and Capital Corporation filings with the Securitiesand 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 first threemonths of 2008, the aggregate net cash provided by operating and investingactivities was used primarily to decrease borrowings and pay dividends. Netcash provided by operating activities was $85 million in the first three monthsof 2008. Net cash provided by investing activities totaled $254 million inthe first three months of 2008, primarily due to the collection of Receivablesand Leases exceeding the cost of Receivables and Leases acquired, partiallyoffset by the cost of notes receivables with John Deere exceeding collections.Net cash used for financing activities totaled $389 million in the firstthree months of 2008, resulting primarily from a net decrease in total externalborrowings, a decrease in payables to Deere & Company and dividendspaid to John Deere Credit Company, which in turn paid comparable dividends toDeere & Company. Cash and cash equivalents decreased $48 millionduring the first three months of 2008.

 

During the firstthree months of 2007, the aggregate net cash provided by operating andinvesting activities was used primarily to decrease borrowings. Net cashprovided by operating activities was $103 million in the first three months of2007. Net cash provided by investing activities totaled $146 million inthe first three months of 2007, primarily due to the collection of Receivablesand Leases exceeding the cost of Receivables and Leases acquired, partiallyoffset by the cost of notes receivables with John Deere exceeding collections.Net cash used for financing activities totaled $297 million in the firstthree months of 2007, resulting primarily from a decrease in payables to Deere &Company, a net decrease in total external borrowings and dividends paid to JohnDeere Credit Company, which in turn paid comparable dividends to Deere &Company. Cash and cash equivalents decreased $48 million during the firstthree 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 of theCompany’s acquisition volume for the three months ended January 31, 2008and 2007. Any extended reduction or suspension of John Deere’s sale orproduction of products due to a decline in demand or production, governmentalactions or other events could have an adverse effect on the Company’sacquisition volume of Receivables and Leases.

 

The Company relies on its ability to raise substantial amounts of fundsto finance its Receivable and Lease portfolios. Because of the multiplefunding sources that have been and continue to be available, the Companyexpects to have sufficient sources of liquidity to meet its ongoing fundingneeds. The Company’s ability to meet its debt obligations is supported in anumber of ways. The assets of the Company are self-liquidating in nature. Asolid equity position is available to absorb unusual losses on these assets andall commercial paper is backed by unsecured, committed borrowing lines from variousbanks. Liquidity is also provided by the Company’s ability to securitize theseassets and through the issuance of term debt. Additionally, liquidity may alsobe provided through loans from John Deere.

 

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During the first three months of 2008, the Company issued $850 millionof medium-term notes, maintained an average commercial paper balance of $2,759million and received proceeds of $16 million from sales of Receivables. AtJanuary 31, 2008, the Company’s funding profile included$2,755 million of commercial paper, $1,923 million of notes payablerelated to on-balance sheet securitization funding, $80 million of intercompanyloans from Deere & Company, $12,280 million of unsecured term debt,$65 million of off-balance sheet securitization funding and $1,837 million ofequity capital. The Company’s funding profile may be altered to reflect suchfactors as relative costs of funding sources, assets available forsecuritizations and capital market accessibility.

 

The Company’scommercial paper outstanding at January 31, 2008, October 31, 2007and January 31, 2007 was approximately $2,755 million, $2,679 millionand $2,463 million, respectively, while the total cash and cash equivalentsposition was approximately $143 million, $191 million and $71 million,respectively.

 

The Company issued$852 million and retired $857 million of other borrowings during the firstthree months of 2008, which were primarily medium-term notes.

 

Total interest-bearingindebtedness amounted to $17,057 million at January 31, 2008, compared with $17,118million at October 31, 2007, and $15,320 million at January 31, 2007. Included inthis debt are secured borrowings of $1,923 million, $2,192 million and $1,964 millionfor the same periods (see Note 5). Total external borrowings decreased during thefirst three months of 2008 and increased in the past 12 months, generally correspondingwith the level of the Receivable and Lease portfolio, the level of cash and cashequivalents and the change in payable to John Deere. Total short-term indebtednessamounted to $8,317 million at January 31, 2008, which included $1,923 million ofsecured borrowings, compared with $8,842 million at October 31, 2007, which included$2,192 million of secured borrowings and $7,752 million at January 31, 2007, whichincluded $1,964 million of secured borrowings, while total long-term indebtednessamounted to $8,741 million, $8,276 million and $7,569 million at these dates, respectively.The ratio of total interest-bearing debt to stockholder’s equity was 9.3 to 1 atJanuary 31, 2008, compared with 8.8 to 1 at October 31, 2007 and 7.0 to 1 at January31, 2007.

 

Stockholder’sequity was $1,837 million at January 31, 2008, compared with $1,955million at October 31, 2007 and $2,193 million at January 31, 2007.The decrease in the first three months of 2008 resulted primarily from dividendpayments of $140 million, a $33 million decrease in accumulated othercomprehensive income, and a reduction of retained earnings of $22 millionresulting from the adoption of FIN No. 48, Accounting for Uncertainty inIncome Taxes, which were partially offset by net income of $77 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 $3,770 million at January 31,2008, $731 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 January 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 9.5 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.

 

*Debt Ratings*

 

The Company’s ability to obtain funding is affected by its debtratings, which are closely related to the outlook for and the financialcondition of John Deere, and the nature and availability of support facilities,such as its lines of credit and the support agreement from Deere &Company.

 

To access publicdebt capital markets, the Company relies on credit rating agencies to assign short-termand long-term credit ratings to the Company’s securities as an indicator ofcredit quality for fixed income investors. A credit rating agency may change orwithdraw Company ratings based on its assessment of the Company’s current andfuture ability to meet interest and principal repayment obligations. Eachagency’s rating should be evaluated independently. Lower credit ratingsgenerally result in higher borrowing costs and reduced access to debt capitalmarkets.

 

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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 paidin 2007 and expects to pay in 2008 relatively large dividends, thus increasingits use of borrowed capital. Based on discussion with the rating agencies, theCompany expects that this increased use of debt capital will not have anadverse impact on its credit ratings.

 

*ContractualObligations*

 

The following isan update to the Contractual Obligations table in Management’s Discussion andAnalysis for the Company’s most recent annual report on Form 10-K. Theliability for unrecognized tax benefits after the adoption of FIN No. 48,Accounting for Uncertainty in Income Taxes, at the beginning of the firstquarter of fiscal year 2008 totaled $23.7 million (see Note 6). The timingof future payments related to this liability is not reasonably estimable atthis time. The liability at January 31, 2008 was not materially differentfrom the liability at date of adoption.

 

*Dividend and Other Events*

 

The Capital Corporation declared and paid cash dividends to John DeereCredit Company of $140 million in the first three months of fiscal 2008. JohnDeere Credit Company paid comparable dividends to Deere & Company. On February 28,2008, the Capital Corporation declared an additional $285 million dividend, tobe paid to John Deere Credit Company on or before March 14, 2008. John DeereCredit Company, in turn, declared a $285 million dividend to Deere& Company, also payable on or before March 14, 2008.

 

During February 2008, the Company issued $675 million of floating ratemedium-term notes due in 2010 to 2011 and entered into interest rate swapsrelated to $500 million of these notes, which swapped the floating rate to afixed rate of 3.30%. 

 

Item 3.             Quantitative and Qualitative Disclosures About Market Risk.

 

See the Company’s most recent annual report filed on Form 10-K (Item7A). There has been no material change in this information.

 

Item 4.             Controls andProcedures.

 

The Company’s principal executive officer and its principal financialofficer have concluded that the Company’s disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934, as amended (“the Act”)) were effective as of January 31, 2008, based onthe evaluation of these controls and procedures required by Rule 13a-15(b) or15d-15(b) of the Act.

 

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PART II.  OTHERINFORMATION

 
| 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.                                                                                                                                                                                    |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|   |                   | JOHN DEERE CAPITAL CORPORATION    |
|--------|------------------------|-----------------------------------|
|   |                   |                              |
|   |                   |                              |
|   |                   | By:      | */s/ M.  J. Mack, Jr.* |
| Date:  | February 28, 2008 |                              |   | M. J. Mack, Jr. |
|   |                   |                              | Senior Vice President,  Principal Financial Officer |
|        |                        |                                   |  |  |

 

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INDEX TO EXHIBITS

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                          |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                                                |
| 3.1         |       | Certificate of  Incorporation, as amended (Exhibit 3.1 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission file number 1-6458*) |
|        |       |                                                                                                                                                                                                |
| 3.2         |       | Bylaws, as amended  (Exhibit 3.2 to Form 10-K of the registrant for the year ended  October 31, 1999, Securities and Exchange Commission file number  1-6458*)                       |
|        |       |                                                                                                                                                                                                |
| 12          |       | Computation of Ratio of  Earnings to Fixed Charges                                                                                                                                                  |
|        |       |                                                                                                                                                                                                |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|        |       |                                                                                                                                                                                                |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|        |       |                                                                                                                                                                                                |
| 32          |       | Section 1350  Certifications                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                |
| 99          |       | Part I of  Deere & Company Form 10-Q for the quarter ended  January 31, 2008 (Securities and Exchange Commission file number  1-4121*)                                 |

 

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*      Incorporated byreference.  Copies of these exhibits areavailable from the Company upon request.

 

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