**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

----

** **

**FORM 10-Q**

** **

----

** **

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

** **

**For the quarterly periodended July 31, 2007**

 

Commission file no: 1-6458

** **

----

** **

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

 

----

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.

Yes x   Noo

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-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   Nox

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

The registrant meets theconditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and istherefore filing this Form with certain reduced disclosures as permitted bythose instructions.

 

Page 1 of 25 Pages Index to Exhibits: Page 21

----

## PART I.FINANCIAL INFORMATION

## Item 1.    FinancialStatements.

## **John Deere Capital Corporation andSubsidiariesStatements of Consolidated Income and Retained Earnings****(Unaudited)**(in millions)

| ** **                                            | ** ** | **Three Months Ended** | ** ** | **Nine  Months Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **July 31,**           | ** ** | **July 31,**           | ** ** |
| ** **                                            | ** ** | **2007**               | ** ** | **2006**               | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                          |       |                   |       |                   |       |   |   |   |   |
| Finance income  earned on retail notes                |       | $                      | 213.4      |                   | $          | 183.5 |   | $ | 619.9 |   | $ | 513.5 |   |
| Lease revenues                                        |       | 81.2                   |       | 74.0                   |       | 235.8 |   | 209.5 |   |
| Revolving charge  account income                      |       | 59.5                   |       | 56.4                   |       | 160.0 |   | 150.5 |   |
| Finance income  earned on wholesale receivables       |       | 96.4                   |       | 98.7                   |       | 274.5 |   | 260.1 |   |
| Operating loan  income                                |       | 5.2                    |       | 6.5                    |       | 21.3 |   | 20.1 |   |
| Income on  receivables sold                           |       | 4.9                    |       | 7.2                    |       | 19.3 |   | 23.5 |   |
| Crop insurance  commissions                           |       | 24.2                   |       | 12.0                   |       | 48.2 |   | 24.4 |   |
| Other income                                          |       | 21.5                   |       | 15.6                   |       | 61.0 |   | 39.5 |   |
| Total revenues                                        |       | 506.3                  |       | 453.9                  |       | 1,440.0 |   | 1,241.1 |   |
|                                                  |       |                   |       |                   |       |   |   |   |   |
| **Expenses**                                          |       |                   |       |                   |       |   |   |   |   |
| Interest expense                                      |       | 226.1                  |       | 191.3                  |       | 643.1 |   | 520.4 |   |
| Operating  expenses:                                  |       |                   |       |                   |       |   |   |   |   |
| Administrative  and operating expenses                |       | 83.4                   |       | 74.8                   |       | 225.1 |   | 203.6 |   |
| Provision for  credit losses                          |       | 11.6                   |       | 5.7                    |       | 36.5 |   | 14.7 |   |
| Fees paid to  John Deere                              |       | 8.5                    |       | 12.9                   |       | 25.5 |   | 30.6 |   |
| Depreciation of  equipment on operating leases        |       | 53.4                   |       | 48.7                   |       | 157.4 |   | 138.8 |   |
| Total operating  expenses                             |       | 156.9                  |       | 142.1                  |       | 444.5 |   | 387.7 |   |
| Total expenses                                        |       | 383.0                  |       | 333.4                  |       | 1,087.6 |   | 908.1 |   |
| **Income of consolidated group  before income taxes** |       | 123.3                  |       | 120.5                  |       | 352.4 |   | 333.0 |   |
| **Provision for income taxes**                        |       | 44.4                   |       | 41.8                   |       | 124.3 |   | 115.9 |   |
| **Income of consolidated group**                      |       | 78.9                   |       | 78.7                   |       | 228.1 |   | 217.1 |   |
| **Equity in income of  unconsolidated affiliates**    |       | .1                     |       | .1                     |       | .3 |   | .3 |   |
| **Net income**                                        |       | 79.0                   |       | 78.8                   |       | 228.4 |   | 217.4 |   |
| **Cash dividends paid**                               |       | (120.0                 | )          |                   |       | (430.0 | ) |   |   |
| **Retained earnings at beginning  of period**         |       | 1,140.3                |       | 1,233.3                |       | 1,300.9 |   | 1,094.7 |   |
| **Retained earnings at end of period**                |       | $                      | 1,099.3    |                   | $          | 1,312.1 |   | $ | 1,099.3 |   | $ | 1,312.1 |   |

 

See Notes to InterimFinancial Statements.

 

2

----

## **John Deere Capital Corporation andSubsidiaries****Consolidated BalanceSheets(Unaudited)**(in millions)

| ** **                                                                                                        | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                                                                        | ** ** | **2007**          | ** ** | **2006**             | ** ** | **2006**          | ** ** |
| **Assets**                                                                                                        |       |              |       |                 |       |              |       |
| Cash and cash  equivalents                                                                                        |       | $                 | 201.8      |                 | $          | 119.2             |       | $ | 157.4 |   |
| Receivables:                                                                                                      |       |              |       |                 |       |              |       |
| Retail notes                                                                                                      |       | 8,864.5           |       | 8,584.2              |       | 7,974.9           |       |
| Restricted  securitized retail notes                                                                              |       | 2,401.3           |       | 2,173.4              |       | 2,270.7           |       |
| Revolving charge  accounts                                                                                        |       | 1,548.7           |       | 1,512.4              |       | 1,507.0           |       |
| Operating loans                                                                                                   |       | 242.9             |       | 378.7                |       | 291.1             |       |
| Wholesale  receivables                                                                                            |       | 4,164.6           |       | 3,699.0              |       | 4,522.4           |       |
| Financing leases                                                                                                  |       | 412.4             |       | 420.8                |       | 413.0             |       |
| Total  receivables                                                                                                |       | 17,634.4          |       | 16,768.5             |       | 16,979.1          |       |
| Allowance for  credit losses                                                                                      |       | (97.8             | )          | (92.8                | )          | (88.6             | )          |
| Total  receivables — net                                                                                     |       | 17,536.6          |       | 16,675.7             |       | 16,890.5          |       |
| Other  receivables                                                                                                |       | 81.5              |       | 107.9                |       | 116.9             |       |
| Equipment on  operating leases — net                                                                         |       | 936.0             |       | 900.1                |       | 855.8             |       |
| Notes receivable  from John Deere                                                                                 |       | 483.2             |       | 238.6                |       |              |       |
| Investment in  unconsolidated affiliates                                                                          |       | 5.0               |       | 4.4                  |       | 4.4               |       |
| Other assets                                                                                                      |       | 279.2             |       | 331.5                |       | 440.5             |       |
| **Total Assets**                                                                                                  |       | $                 | 19,523.3   |                 | $          | 18,377.4          |       | $ | 18,465.5 |   |
| ** **                                                                                                        |       |              |       |                 |       |              |       |
| **Liabilities and Stockholder’s  Equity**                                                                    |       |              |       |                 |       |              |       |
| Short-term  borrowings:                                                                                           |       |              |       |                 |       |              |       |
| Commercial paper                                                                                                  |       | $                 | 3,078.8    |                 | $          | 2,289.5           |       | $ | 1,808.1 |   |
| Other notes  payable                                                                                              |       | 2,432.2           |       | 2,207.6              |       | 2,283.7           |       |
| John Deere                                                                                                        |       | 101.5             |       | 178.2                |       | 459.0             |       |
| Current  maturities of long-term borrowings                                                                       |       | 3,399.7           |       | 2,467.5              |       | 2,676.4           |       |
| Total short-term  borrowings                                                                                      |       | 9,012.2           |       | 7,142.8              |       | 7,227.2           |       |
| Accounts payable  and accrued expenses                                                                            |       | 485.9             |       | 383.7                |       | 472.4             |       |
| Deposits  withheld from dealers and merchants                                                                     |       | 168.4             |       | 177.4                |       | 170.3             |       |
| Deferred income  taxes                                                                                            |       | 86.2              |       | 107.3                |       | 112.5             |       |
| Long-term  borrowings                                                                                             |       | 7,796.1           |       | 8,412.5              |       | 8,311.9           |       |
| Total  liabilities                                                                                                |       | 17,548.8          |       | 16,223.7             |       | 16,294.3          |       |
| 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                                                                                                 |       | 1,099.3           |       | 1,300.9              |       | 1,312.1           |       |
| Accumulated  other comprehensive income:                                                                          |       |              |       |                 |       |              |       |
| Cumulative  translation adjustment                                                                                |       | 52.0              |       | 28.1                 |       | 26.8              |       |
| Unrealized gain  on investments                                                                                   |       | 4.4               |       | 3.5                  |       | 8.8               |       |
| Unrealized gain  on derivatives                                                                                   |       | 6.0               |       | 8.4                  |       | 10.7              |       |
| Total  accumulated other comprehensive income                                                                     |       | 62.4              |       | 40.0                 |       | 46.3              |       |
| Total  stockholder’s equity                                                                                  |       | 1,974.5           |       | 2,153.7              |       | 2,171.2           |       |
| **Total Liabilities and Stockholder’s Equity**                                                               |       | $                 | 19,523.3   |                 | $          | 18,377.4          |       | $ | 18,465.5 |   |

 

See Notes to InterimFinancial Statements.

3

----

## **John Deere Capital Corporation andSubsidiaries**

**Statementsof Consolidated Cash Flows**

**For theNine Months Ended July 31, 2007 and 2006**

**(Unaudited)**

(in millions)
| ** **                                                                         | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating  Activities**                                          |       |      |       |      |       |
| Net income                                                                         |       | $         | 228.4      |      | $          | 217.4 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |      |       |      |       |
| Provision for  credit losses                                                       |       | 36.5      |       | 14.7      |       |
| Provision for  depreciation and amortization                                       |       | 162.5     |       | 142.1     |       |
| Credit for  deferred income taxes                                                  |       | (19.8     | )          | (2.6      | )          |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.3       | )          | (.3       | )          |
| Change in  accounts payable and accrued expenses                                   |       | 48.8      |       | 86.9      |       |
| Change in  accrued income taxes payable/receivable                                 |       | 23.4      |       | 4.8       |       |
| Other                                                                              |       | (70.4     | )          | (119.7    | )          |
| Net cash  provided by operating activities                                         |       | 409.1     |       | 343.3     |       |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Investing  Activities**                                          |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (21,504.8 | )          | (22,278.4 | )          |
| Collections of  receivables                                                        |       | 20,732.6  |       | 20,527.7  |       |
| Cost of  equipment on operating leases acquired                                    |       | (371.7    | )          | (351.6    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 152.5     |       | 127.9     |       |
| Purchases of  property and equipment                                               |       | (1.8      | )          | (105.1    | )          |
| Cost of notes  receivable with John Deere                                          |       | (311.8    | )          |      |       |
| Collection of  notes receivable with John Deere                                    |       | 67.2      |       |      |       |
| Proceeds from  sales of receivables                                                |       | 154.3     |       | 86.4      |       |
| Change in restricted  cash                                                         |       | 83.8      |       | (65.2     | )          |
| Other                                                                              |       | 34.3      |       | 38.7      |       |
| Net cash used  for investing activities                                            |       | (965.4    | )          | (2,019.6  | )          |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Financing  Activities**                                          |       |      |       |      |       |
| Increase in  commercial paper — net                                           |       | 720.2     |       | 93.5      |       |
| Increase in  other notes payable - net                                             |       | 224.9     |       | 919.3     |       |
| Increase  (decrease) in payable with John Deere - net                              |       | (76.7     | )          | 184.0     |       |
| Proceeds from  issuance of long-term borrowings                                    |       | 1,842.6   |       | 1,764.3   |       |
| Payments of  long-term borrowings                                                  |       | (1,638.6  | )          | (1,379.7  | )          |
| Dividends paid                                                                     |       | (430.0    | )          |      |       |
| Other                                                                              |       | (7.9      | )          |      |       |
| Net cash  provided by financing activities                                         |       | 634.5     |       | 1,581.4   |       |
|                                                                               |       |      |       |      |       |
| **Effect of exchange rate changes  on cash and cash equivalents**                  |       | 4.4       |       | 2.1       |       |
| **Net increase (decrease) in cash  and cash equivalents**                          |       | 82.6      |       | (92.8     | )          |
| **Cash and cash equivalents at  beginning of period**                              |       | 119.2     |       | 250.2     |       |
| **Cash and cash equivalents at end of period**                                     |       | $         | 201.8      |      | $          | 157.4 |   |

 

See Notes to InterimFinancial Statements.

 

4

----

# **JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**(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 and regulationsof the U.S. Securities and Exchange Commission. Certain information andfootnote disclosures normally included in annual financial statements preparedin accordance with accounting principles generally accepted in the U.S. havebeen condensed or omitted as permitted by such rules and regulations. Alladjustments, consisting of normal recurring adjustments, have been included.Management believes that the disclosures are adequate to present fairly thefinancial position, results of operations and cash flows at the dates and forthe periods presented. It is suggested that these interim financial statementsbe read in conjunction with the financial statements and the notes theretoincluded in the Company’s latest annual report on Form 10-K. Resultsfor interim periods are not necessarily indicative of those to be expected forthe year.

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

(2)                                  TheCompany provides and administers financing for retail purchases of newequipment manufactured by Deere & Company’s agricultural equipment,commercial and consumer equipment, and construction and forestry divisions andused equipment taken in trade for this equipment. The Company generallypurchases retail installment sales and loan contracts (retail notes) from Deere& Company and its wholly-owned subsidiaries (collectively called JohnDeere). John Deere 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 or through direct relationships with agricultural producers(operating loans). The Company also provides wholesale financing for inventoriesof John Deere agricultural, commercial and consumer, and construction andforestry equipment owned by dealers of those products (wholesale receivables).The Company also offers credit enhanced international export financing toselect customers and dealers which generally involves John Deere products andoffers certain crop risk mitigation products in the U.S. In addition, theCompany invests in wind energy generation by making loans to certain affiliatedcompanies that have directly invested in wind energy projects. Retail notes,revolving charge accounts, operating loans, financing leases and wholesalereceivables are collectively called “Receivables.” Receivables and operatingleases are collectively called “Receivables and Leases.”

5

----

(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  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                        | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                            |       |                                            |       |                                           |       |   |   |   |   |
| Net Income                                      |       | $                                               | 79.0       |                                           | $          | 78.8 |   | $ | 228.4 |   | $ | 217.4 |   |
|                                            |       |                                            |       |                                           |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax: |       |                                            |       |                                           |       |   |   |   |   |
| Change in cumulative translation adjustment     |       | 6.2                                             |       | 4.0                                            |       | 23.9 |   | 8.4 |   |
| Unrealized gain on investments                  |       | 1.1                                             |       | .5                                             |       | .9 |   | 2.0 |   |
| Unrealized gain (loss) on derivatives           |       | (2.2                                            | )          | .6                                             |       | (2.4 | ) | 3.4 |   |
| Total comprehensive  income                     |       | $                                               | 84.1       |                                           | $          | 83.9 |   | $ | 250.8 |   | $ | 231.2 |   |

 

(4)                                  Contingenciesand commitments:

At July 31, 2007, John Deere Credit Inc., the JohnDeere finance subsidiary in Canada, had $263 million of commercial paperand $1,326 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 July 31, 2007, the Company’smaximum exposure under this letter of credit was approximately $2 million. 

At July 31, 2007, the Company had $197 million ofguarantees issued to turbine manufacturers for John Deere Renewables, LLC windturbine purchases. John Deere Renewables, LLC is an affiliated company that hascommitments to purchase wind turbines related to its direct investments in windenergy projects. The maximum remaining term of these purchase commitments wasapproximately two years.

The Company’s subsidiary, John Deere Risk Protection,Inc., offers crop insurance products through a managing general agencyagreement (Agreement) with an insurance company (Insurance Carrier) rated“Excellent” by A.M. Best Company. As a managing general agent, John Deere RiskProtection, Inc. will receive commissions from the Insurance Carrier forselling crop insurance to producers. The Company has guaranteed certainobligations under the Agreement, including the obligation to pay the InsuranceCarrier for any uncollected premiums. At July 31, 2007, the maximum exposurefor uncollected premiums was approximately $72 million. Substantially all ofthe Company’s crop insurance risk under the Agreement has been mitigated by asyndicate of private reinsurance companies. These reinsurance companies arerated “Excellent” or higher by A.M. Best Company. In the event of a widespreadcatastrophic crop failure throughout the U.S. and the default of these highlyrated private reinsurance companies on their reinsurance obligations, theCompany would be required to reimburse the Insurance Carrier for exposuresunder the Agreement of approximately $561 million at July 31, 2007.The Company believes that the likelihood of the occurrence of events that giverise to the exposures under this Agreement is substantially remote and as aresult, at July 31, 2007, the Company’s accrued liability under theAgreement was not material. 

6

----

The Company has commitments to extend credit tocustomers and John Deere dealers through lines of credit and other pre-approvedcredit arrangements. The Company applies the same credit policies and approvalprocess for these commitments to extend credit as it does for its Receivables.Collateral is not required for these commitments, but if credit is extended,collateral may be required upon funding. The amount of unused commitments toextend credit to John Deere dealers was $3.6 billion at July 31, 2007. Theamount of unused commitments to extend credit to customers was$31.9 billion at July 31, 2007. A significant portion of these commitmentsis not expected to be fully drawn upon; therefore, the total commitment amountslikely do not represent a future cash requirement. The Company generally hasthe right to unconditionally cancel, alter or amend the terms of thesecommitments at any time. Over 95 percent of these unused commitments toextend credit to customers relate to revolving charge accounts. 

The Company also had other miscellaneous contingentliabilities totaling approximately $13 million at July 31, 2007, for which itbelieves the probability for payment is substantially remote. The Company’saccrued liability at July 31, 2007 related to these contingencies was notmaterial. See Note 5 for recourse on sales of receivables.

(5)                                  Securitizationof receivables:

The Company, as a part of its overall fundingstrategy, periodically transfers certain receivables (retail notes) intospecial purpose entities (SPEs) as part of its asset-backed securities programs(securitizations) involving its retail notes. For securitizations entered intoprior to 2005, the structure of these transactions is such that the transfer ofthe 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. SPEsutilized in securitizations of retail notes differ from other entities includedin the Company’s consolidated statements because the assets they hold arelegally 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 transactions. Further information related to the securedborrowings and sales of retail notes is provided below.

*Secured Borrowings*

In securitizationsof retail notes related to secured borrowings, the retail notes are transferredto certain SPEs which in turn issue debt to investors. The resulting securedborrowings are included in short-term borrowings on the balance sheet as shownin the following table. The securitized retail notes are recorded as“Restricted securitized retail notes” on the balance sheet. The totalrestricted assets on the balance sheet related to these securitizations includethe restricted securitized retail notes less an allowance for credit losses,and other assets representing restricted cash as shown in the following table.In addition to the restricted assets shown in the table, a reserve fundincluded in “Other receivables” related to retained interests for certainsecuritizations that qualified as sales of receivables is also available as acredit enhancement for securitizations related to certain secured borrowings.The amounts of this reserve fund at July 31, 2007, October 31, 2006 and July31, 2006 were $11 million, $22 million and $25 million, respectively. TheSPEs supporting the secured borrowings to which the retail notes aretransferred are consolidated unless the Company is not the primary beneficiaryor the SPE is a qualified special purpose entity as defined in FASB StatementNo. 140. 

 

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

 

|                                      | ** ** | **July 31,  2007** | ** ** | **October 31,  2006** | ** ** | **July 31,  2006** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Restricted  securitized retail notes |       | $                       | 2,401.3    |                       | $          | 2,173.4                 |       | $ | 2,270.7 |   |
| Allowance for  credit losses         |       | (13.9                   | )          | (8.8                       | )          | (11.5                   | )          |
| Other assets                         |       | 43.7                    |       | 72.2                       |       | 111.2                   |       |
| Total restricted securitized assets  |       | $                       | 2,431.1    |                       | $          | 2,236.8                 |       | $ | 2,370.4 |   |

 

7

----

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

|                                                             | ** ** | **July 31,  2007** | ** ** | **October 31,  2006** | ** ** | **July 31,  2006** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|-------------------------|------------|
| Other notes  payable                                        |       | $                       | 2,423.8    |                       | $          | 2,194.3                 |       | $ | 2,273.2 |   |
| Accounts payable  and accrued expenses                      |       | 4.6                     |       | 4.4                        |       | 4.2                     |       |
| Total  liabilities related to restricted securitized assets |       | $                       | 2,428.4    |                       | $          | 2,198.7                 |       | $ | 2,277.4 |   |

 

The secured borrowings related to these restrictedsecuritized retail notes are obligations that are payable as the retail notesare liquidated. Repayment of the secured borrowings depends primarily on cashflows generated by the restricted assets and the reserve fund mentioned above.Due to the upgrade of the Company’s short-term debt credit rating, cashcollections from these restricted assets do not need to be placed into asegregated collection account until immediately prior to the time payment isrequired to be made to the Company’s secured creditors. Under FASBInterpretation No. 46 (revised December 2003), Consolidation of VariableInterest Entities, an SPE was consolidated that included assets (restrictedretail notes) of $1,662 million, $1,147 million and $1,240 million at July 31,2007, October 31, 2006 and July 31, 2006, respectively. These restricted retailnotes are included in the restricted securitized retail notes related tosecuritizations shown in the table above. At July 31, 2007, the maximumremaining term of all restricted receivables was approximately six years. 

*Sales of Receivables*

The Company has certain recourse obligations onReceivables that it has previously sold. If the Receivables sold are notcollected, the Company would be required to cover those losses up to the amountof its recourse obligation. At July 31, 2007, the maximum amount of exposure tolosses under these agreements was $73 million. The estimated credit riskassociated with sold receivables totaled $1 million at July 31, 2007. This riskof loss is recognized primarily in the interests that continue to be held bythe Company and recorded on its balance sheet. These interests are related toassets held by unconsolidated SPEs. At July 31, 2007, the assets of these SPEsrelated to the Company’s securitization and sale of retail notes totaledapproximately $419 million. The Company may recover a portion of any requiredpayments incurred under these agreements from the repossession of the equipmentcollateralizing the Receivables. AtJuly 31, 2007, the maximum remaining term of the Receivables sold wasapproximately three years.

(6)           New accounting standards adopted,which were all adopted in the first quarter of 2007, were as follows:

The Company adopted FASB Statement No. 154, AccountingChanges and Error Corrections. This statement requires voluntary changes in accountingprinciples to be recorded retrospectively for prior periods presented ratherthan a cumulative adjustment in the current period. This treatment would alsobe required for new accounting pronouncements if there are no specifictransition provisions. The accounting for changes in estimates in the currentperiod and the accounting for errors as restatements of prior periods have notchanged. The Company adopted FASB Statement No. 155, Accounting for CertainHybrid Financial Instruments. This Statement primarily resolves certain issuesaddressed in the implementation of FASB Statement No. 133, Accounting forDerivative Instruments and Hedging Activities, concerning beneficial interestin securitized financial assets. The Company adopted FASB Statement No. 156,Accounting for Servicing of Financial Assets. This Statement clarifies thecriteria for recognizing servicing assets and liabilities, requires these itemsto be initially measured at fair value and permits subsequent measurements oneither an amortization or fair value basis. The adoption of these Statementsdid not have a material effect on the Company’s consolidated financialstatements.

Newaccounting standards to be adopted are as follows:             

In September 2006, theFASB issued Statement No. 157, Fair Value Measurements. This Statement definesfair value and expands disclosures about fair value measurements. These methodswill apply to other accounting standards, which use fair value measurements andmay change the application of certain measurements used in current practice.The effective date is the beginning of fiscal year 2009. The adoption is notexpected to have a material effect on the Company’s consolidated financialstatements.

8

----

The Company is a participating employer in certainDeere & Company sponsored defined benefit pension plans for employees inthe U.S. and certain defined benefit plans outside the U.S. In September 2006,the FASB issued Statement No. 158, Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans. This Statement requires retirementbenefit accruals or prepaid benefit costs on the balance sheet to be adjustedto the difference between the benefit obligations and the plan assets at fairvalue. The offset to the adjustment is recorded directly in stockholders’equity net of tax. The amount recorded in stockholder’s equity would representthe after-tax unrecognized actuarial gains or losses and unamortized priorservice costs. This Statement also requires all benefit obligations and planassets to be measured at fiscal year end. The effective date for the fundedstatus adjustment is the end of fiscal year 2007 and for the year-endmeasurement date is fiscal year 2009. The adoption of this Statement is notexpected to have a material effect on the Company’s consolidated financialstatements. The Company does not expect violations of any credit agreementfinancial covenants as a result of adopting this new standard. Furtherdisclosure for these plans is included in the Deere & Company Form 10-Q forthe quarter ended July 31, 2007.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. ThisStatement permits entities to measure most financial instruments at fair valueif desired. It may be applied on a contract by contract basis and isirrevocable once applied to those contracts. The standard may be applied at the time of adoption of the Statement orinitial recognition of the eligible items. The unrealized gains or losses onthese financial instruments are reported in earnings. The items measured atfair value must be shown separately on the balance sheet along with otherdisclosures in the notes to the financial statements. The effective date is thebeginning of fiscal year 2009 with early adoption permitted at the beginning ofa previous year. The cumulative effect of adoption would be reported as anadjustment to beginning retained earnings. The Company has currently notdetermined the potential effect on the consolidated financial statements.        

In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes. This Interpretation clarifies that the recognition for uncertain taxpositions should be based on a more-likely-than-not threshold that the tax positionwill be sustained upon audit. The tax position is measured as the largestamount of benefit that has a greater than 50 percent probability of beingrealized upon settlement.  The effectivedate is the beginning of fiscal year 2008 with the cumulative effect reportedas an adjustment to beginning retained earnings. While the Company continues toevaluate the impact of this Interpretation on its consolidated financialstatements, the Company expects the adoption will not have a material effect.

(7)                                 The Company is a participating employer incertain Deere & Company sponsored defined benefit pension plans foremployees in the U.S. and certain defined benefit pension plans outside theU.S. These pension plans provide for benefits that are based primarily on yearsof service and employee compensation. Pension expense is actuarially determinedbased on the Company’s employees included in the plan. The Company’s pensionexpense amounted to $4.9 million in the first nine months of 2007. Theaccumulated benefit obligation and plan net assets for the employees of theCompany are not determined separately from Deere & Company. The Companygenerally provides defined benefit health care and life insurance plans forretired employees in the U.S. as a participating employer in Deere &Company’s sponsored plans. Health care and life insurance benefits expense isactuarially determined based on the Company’s employees included in the plansand amounted to $4.4 million during the first nine months of 2007. Furtherdisclosure for these plans is included in Deere & Company’s Form 10-Qfor the quarter ended July 31, 2007.

(8)                                 OnAugust 30, 2007, the Capital Corporation declared a $95 million dividend, to bepaid to John Deere Credit Company on or before October 26, 2007. John DeereCredit Company, in turn, declared a $95 million dividend to Deere &Company, also payable on or before October 26, 2007.

9

----

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

 

Results of Operations

 

Overview

 

The Company primarilygenerates revenues and cash by financing John Deere dealers’ sales and leasesof new and used agricultural, commercial and consumer, and construction andforestry equipment. In addition, the Company provides wholesale financing todealers of the foregoing equipment, provides operating loans, finances retailrevolving charge accounts, offers certain crop risk mitigation products andinvests in wind energy generation. 

 

The Company’s business isclosely related to John Deere’s business. Global farm conditions remainpositive, driven by growing economic prosperity, relatively high commodityprices and robust demand for renewable fuels. Agricultural equipment industrysales in the U.S. and Canada are forecast to be up about 5 percent for theyear, while industry sales in Western Europe are forecast to be up about 2percent for the year. Markets in Eastern Europe and the CIS (Commonwealth ofIndependent States) countries, including Russia, are experiencing higher salesas a result of increased demand for productive farm machinery. Industry salesin South America for the year are expected to be up about 30 percent, primarilyas a result of improved conditions in Brazil. Industry sales in Australia areexpected to be down 20 to 25 percent largely as a result of extreme droughtconditions earlier in the year. Deere & Company’s agricultural equipmentsales were up 16 percent for the third quarter of 2007, up 14 percent forthe first nine months and are forecast to increase about 16 percent for theyear, including about 3 percent from currency impact. Deere& Company’s commercial and consumer equipment sales increased 15 percentfor the third quarter of 2007 and were up 6 percent for the first nine months.For the year, these sales are expected to be up about 11 percent, includingabout $350 million of sales from LESCO, Inc., which Deere & Companyacquired in May 2007. Construction and forestry markets in the U.S. areexpected to remain under pressure. Deere & Company’s construction andforestry sales decreased 20 percent in the third quarter of 2007, 13 percentfor the first nine months and are forecast to decrease about 12 percent for theyear. The Company expects to report net income of approximately$305 million in 2007, as a result of further growth in the loan portfolio,partially offset by higher administrative and operating expenses and a higherprovision for credit losses.

 

2007 Compared with 2006

 

Net income was $79.0million for the third quarter and $228.4 million for the first nine months of2007, compared with $78.8 million and $217.4 million, respectively last year.The increase was primarily due to growth in the portfolio, partially offset bya higher provision for credit losses and higher administrative and operatingexpenses.  

 

Revenues totaled $506.3million for the third quarter and $1,440.0 million for the first nine months of2007, compared to $453.9 million and $1,241.1 million, respectively, lastyear.  This increase was primarily due toan 8 percent increase in the average balance of Receivables and Leasesfinanced and higher financing rates during the first nine months of 2007compared to the first nine months of 2006. Finance income earned on retailnotes totaled $619.9 million for the first nine months of 2007, up $106.4million compared to $513.5 million for the same period in 2006. Thisincrease was primarily due to a 13 percent increase in the average retailnote portfolio balances and higher financing rates. Lease revenues totaled$235.8 million in the first nine months of 2007, compared to $209.5million in the first nine months of 2006. This increase was primarily due to a12 percent increase in the average amount of equipment on operatingleases. Revenues earned on revolving charge accounts amounted to $160.0 millionin the first nine months of 2007, a 6 percent increase over revenues of$150.5 million during the same period last year. This increase wasprimarily due to higher financing rates in the first nine months of 2007,compared with the same period last year. Finance income earned on wholesalereceivables totaled $274.5 million for the first nine months of 2007, comparedto $260.1 million for the same period in 2006, primarily due to higherfinancing rates. Operating loan income amounted to $21.3 million in thefirst nine months of 2007, compared to $20.1 million in the first ninemonths of 2006, primarily due to higher financing rates. Revenues earned fromJohn Deere totaled $148.4 million for the third quarter and $410.3 millionin the first nine months of 2007, compared to $130.4 million and $349.4million for the same periods last year.

 

10

----

Income on receivablessold totaled $4.9 million for the third quarter and $19.3 million for the firstnine months of 2007, compared to $7.2 million and $23.5 million for the sameperiods in 2006. Income on receivables sold relates to Receivables sold toother financial institutions or limited-purpose business trusts and primarilyincludes the interest earned on retained interests, reimbursed administrativeexpenses received and the net gain on Receivables sold, including adjustmentsto prior sales related to cleanup calls and revaluations of retained interestsand the related permanent impairments.

 

Crop insurancecommissions totaled $24.2 million for the third quarter and $48.2 million forthe first nine months of 2007, compared to $12.0 million and $24.4 million forthe same periods in 2006. The increase was primarily due to increased cropinsurance sales to producers as a result of expanded market coverage. 

 

Other income totaled$21.5 million for the third quarter and $61.0 million for the first nine monthsof 2007, compared to $15.6 million and $39.5 million for the same periods in2006. The increase was primarily due to increased interest income as a resultof higher average loans to certain affiliated companies that have directlyinvested in wind energy projects. 

 

Interest expense totaled$226.1 million for the third quarter and $643.1 million for the first ninemonths of 2007, compared to $191.3 million and $520.4 million for the sameperiods in 2006. The increase was due to increases in borrowing rates andhigher average borrowings.

 

Administrative andoperating expenses were $83.4 million in the third quarter and $225.1 millionfor the first nine months of 2007, compared with $74.8 million and $203.6million for the same periods in 2006. The increase was primarily due to higheremployment costs associated with administering a larger Receivable and Leaseportfolio and higher costs in support of the Company’s growth initiatives.

 

During the third quarterand first nine months of 2007, the provision for credit losses totaled $11.6million and $36.5 million, respectively, compared with $5.7 million and $14.7million in the same periods last year. For the first nine months of 2007, theCompany has experienced higher write-offs of construction and forestryequipment retail notes and revolving charge accounts. Total net write-offs ofReceivables financed were $9.4 million and $32.5 million for the third quarterand first nine months of 2007, compared with $11.7 million and$22.7 million in the same periods last year. The annualized provision forcredit losses, as a percentage of the average balance of total Receivablesfinanced, was .27 percent for the third quarter and .29 percent for thefirst nine months of 2007, compared with .14 percent and .13 percent for thesame periods last year. Although the provision for credit losses increased fromthe same period last year, it continues to compare favorably to recent years.Over the last five fiscal years, the provision for credit losses, as apercentage of the total average balance of Receivables financed, averaged .49percent. See the Company’s most recently filed annual report on Form 10-K forfurther information regarding the Company’s allowance for credit lossespolicies. 

 

Fees paid to John Deerefor interest and support were $8.5 million in the third quarter and $25.5million for the first nine months of 2007, compared with $12.9 million and$30.6 million for the same periods in 2006. The decrease was primarily due to lower average borrowings from JohnDeere.

 

Depreciation of equipmenton operating leases was $53.4 million in the third quarter and $157.4 millionfor the first nine months of 2007, compared to $48.7 million and $138.8 millionfor the same periods in 2006. The increase was primarily the result of higheraverage amounts of equipment on operating leases. 

 

The Company’s ratio ofearnings to fixed charges was 1.54 to 1 for the third quarter of 2007, comparedwith 1.63 to 1 for the third quarter of 2006. The ratio of earnings to fixedcharges was 1.55 to 1 for the first nine months of 2007 and 1.63 to 1 for thefirst nine months of 2006. “Earnings” consist of income before income taxes,the cumulative effect of changes in accounting and fixed charges. “Fixedcharges” consist of interest on indebtedness, amortization of debt discount andexpense, an estimated amount of rental expense under capitalized leases that isdeemed to be representative of the interest factor and rental expense underoperating leases.

 

11

----

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

 
| ** **                          | ** ** | **Three Months**        | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                          | ** ** | **2007**                     | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                         |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                            | 1,044.1    |       | $          | 935.2             |       | $ | 108.9 |   | 12 | % |
| Construction and forestry equipment |       | 341.3                        |       | 364.9      |       | (23.6             | )          | (6 | ) |
| Commercial and consumer equipment   |       | 176.6                        |       | 184.1      |       | (7.5              | )          | (4 | ) |
| Total retail notes                  |       | 1,562.0                      |       | 1,484.2    |       | 77.8              |       | 5 |   |
| Revolving charge  accounts          |       | 1,089.4                      |       | 1,004.1    |       | 85.3              |       | 8 |   |
| Operating loans                     |       | 256.2                        |       | 300.9      |       | (44.7             | )          | (15 | ) |
| Wholesale  receivables              |       | 4,764.8                      |       | 5,154.9    |       | (390.1            | )          | (8 | ) |
| Financing leases                    |       | 61.1                         |       | 71.9       |       | (10.8             | )          | (15 | ) |
| Equipment on  operating leases      |       | 149.8                        |       | 134.8      |       | 15.0              |       | 11 |   |
| Total Receivables and Leases        |       | $                            | 7,883.3    |       | $          | 8,150.8           |       | $ | (267.5 | ) | (3 | )% |

 
| ** **                          | ** ** | **Nine Months**    | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|--------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **Ended July 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                          | ** ** | **2007**           | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |               |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                  | 2,993.3    |       | $          | 2,872.5           |       | $ | 120.8 |   | 4 | % |
| Construction and forestry equipment |       | 1,045.2            |       | 1,149.7    |       | (104.5            | )          | (9 | ) |
| Commercial and consumer equipment   |       | 401.0              |       | 394.1      |       | 6.9               |       | 2 |   |
| Total retail notes                  |       | 4,439.5            |       | 4,416.3    |       | 23.2              |       | 1 |   |
| Revolving charge  accounts          |       | 2,676.4            |       | 2,526.3    |       | 150.1             |       | 6 |   |
| Operating loans                     |       | 1,063.6            |       | 1,048.7    |       | 14.9              |       | 1 |   |
| Wholesale  receivables              |       | 13,168.2           |       | 14,117.2   |       | (949.0            | )          | (7 | ) |
| Financing leases                    |       | 157.1              |       | 169.9      |       | (12.8             | )          | (8 | ) |
| Equipment on  operating leases      |       | 371.7              |       | 351.6      |       | 20.1              |       | 6 |   |
| Total  Receivables and Leases       |       | $                  | 21,876.5   |       | $          | 22,630.0          |       | $ | (753.5 | ) | (3 | )% |

 

Retail note volumes foragricultural equipment increased in the third quarter and first nine months of2007, when compared to last year, primarily due to increases in retail sales ofJohn Deere agricultural equipment. Retail note volumes for construction andforestry equipment decreased in the third quarter and first nine months of2007, when compared to last year, primarily due to decreases in retail sales ofJohn Deere construction and forestry equipment. Wholesale receivable volumesdecreased during the third quarter and first nine months of 2007, when comparedto last year, primarily due to decreased shipments of John Deere equipment as aresult of decreased retail sales activity in the construction and forestrymarkets.

 

12

----

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

 
| ** **                          | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2007**          | ** ** | **2006**             | ** ** | **2006**          | ** ** |
| Retail notes:                       |       |              |       |                 |       |              |       |
| Agricultural equipment              |       | $                 | 7,793.1    |                 | $          | 7,330.8           |       | $ | 6,893.1 |   |
| Construction and forestry equipment |       | 2,442.2           |       | 2,387.5              |       | 2,317.5           |       |
| Commercial and consumer equipment   |       | 1,017.1           |       | 1,021.8              |       | 1,016.1           |       |
| Recreational products               |       | 13.4              |       | 17.5                 |       | 18.9              |       |
| Total retail notes                  |       | 11,265.8          |       | 10,757.6             |       | 10,245.6          |       |
| Revolving charge  accounts          |       | 1,548.7           |       | 1,512.4              |       | 1,507.0           |       |
| Operating loans                     |       | 242.9             |       | 378.7                |       | 291.1             |       |
| Wholesale  receivables              |       | 4,164.6           |       | 3,699.0              |       | 4,522.4           |       |
| Financing leases                    |       | 412.4             |       | 420.8                |       | 413.0             |       |
| Equipment on  operating leases      |       | 936.0             |       | 900.1                |       | 855.8             |       |
| Total  Receivables and Leases       |       | $                 | 18,570.4   |                 | $          | 17,668.6          |       | $ | 17,834.9 |   |

 

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

 
| ** **                                                    | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|---------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                                                    | ** ** | **2007**          | ** ** | **2006**             | ** ** | **2006**          | ** ** |
| Receivables and  Leases administered:                         |       |              |       |                 |       |              |       |
| Owned by the Company                                          |       | $                 | 16,169.1   |                 | $          | 15,495.2          |       | $ | 15,564.2 |   |
| Owned by the Company — restricted due to  securitization |       | 2,401.3           |       | 2,173.4              |       | 2,270.7           |       |
| Total Receivables and Leases owned by the Company             |       | 18,570.4          |       | 17,668.6             |       | 17,834.9          |       |
| Sold and serviced — with limited recourse*               |       | 488.8             |       | 932.3                |       | 1,045.8           |       |
| Sold and serviced — without recourse**                   |       | 25.0              |       | 21.4                 |       | 21.2              |       |
| Total  Receivables and Leases administered                    |       | $                 | 19,084.2   |                 | $          | 18,622.3          |       | $ | 18,901.9 |   |

 

*                    The Company’smaximum exposure under all Receivable and Lease recourse provisions at July 31,2007, October 31, 2006 and July 31, 2006 was $73 million, $105 million and $141million, respectively. In addition, the Company has provided letters of creditfor John Deere Credit Inc., the John Deere finance subsidiary in Canada, aspart of retail note sales. At July 31, 2007, October 31, 2006 and July 31,2006, the Company’s maximum exposure under these agreements was approximately$2 million, $7 million and $7 million, respectively. The Company doesnot record the recourse obligations as liabilities as they are contingent liabilitiesthat are remote at this time. However, the probable loss on receivables thathave been sold was accrued at the time of sale, and any subsequent necessaryadjustments are made as part of ongoing reviews. 

 

**             RepresentsReceivables and Leases that the Company has sold but continues to administerfor a fee.

 

13

----

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 asfollows (in millions of dollars):

 
| ** **                          | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2007**          | ** ** | **2006**             | ** ** | **2006**          | ** ** |
| ** **                          | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                 | 13.8       |                 | .18        | %                 | $          | 10.2 |   | .14 | % | $ | 10.0 |   | .15 | % |
| Construction and forestry equipment |       | 6.6               |       | .27                  |       | 6.3               |       | .26 |   | 7.2 |   | .31 |   |
| Commercial and consumer equipment   |       | 1.6               |       | .16                  |       | 1.3               |       | .13 |   | 1.2 |   | .12 |   |
| Recreational products               |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Total retail notes                  |       | 22.0              |       | .20                  |       | 17.8              |       | .17 |   | 18.4 |   | .18 |   |
| Revolving charge  accounts*         |       | 18.8              |       | 1.21                 |       | 21.1              |       | 1.40 |   | 17.9 |   | 1.19 |   |
| Operating loans                     |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Wholesale  receivables              |       | 1.9               |       | .05                  |       | .9                |       | .02 |   | 2.1 |   | .05 |   |
| Financing leases                    |       | 4.1               |       | .99                  |       | 3.5               |       | .83 |   | 3.9 |   | .94 |   |
| Total  Receivables                  |       | $                 | 46.8       |                 | .27        | %                 | $          | 43.3 |   | .26 | % | $ | 42.3 |   | .25 | % |

 

*                    Due to thenature of revolving charge accounts, the customer payments past due 60 days ormore 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 his note 60 days or more past due. These amounts were $174million, $116 million and $101 million at July 31, 2007, October 31, 2006 andJuly 31, 2006, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was 1.54 percent, 1.08 percent and .98 percent at July 31,2007, October 31, 2006 and July 31, 2006, 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):

 
| ** **                          | ** ** | **July 31,** | ** ** | **October 31,** | ** ** | **July 31,** | ** ** |
|-------------------------------------|------------|-------------------|------------|----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2007**          | ** ** | **2006**             | ** ** | **2006**          | ** ** |
| ** **                          | ** ** | **Dollars**       | ** ** | **Percent**          | ** ** | **Dollars**       | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |              |       |                 |       |              |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                 | 20.3       |                 | .26        | %                 | $          | 13.2 |   | .18 | % | $ | 16.1 |   | .23 | % |
| Construction and forestry equipment |       | 2.5               |       | .10                  |       | 5.0               |       | .21 |   | 9.9 |   | .43 |   |
| Commercial and consumer equipment   |       | 1.8               |       | .18                  |       | 2.3               |       | .23 |   | 3.5 |   | .34 |   |
| Recreational products               |       | .1                |       | .75                  |       | .2                |       | 1.14 |   | .2 |   | 1.06 |   |
| Total retail notes                  |       | 24.7              |       | .22                  |       | 20.7              |       | .19 |   | 29.7 |   | .29 |   |
| Revolving charge  accounts          |       | 1.0               |       | .06                  |       | .8                |       | .05 |   | .8 |   | .05 |   |
| Operating loans                     |       | 11.3              |       | 4.65                 |       | 3.9               |       | 1.03 |   | 5.1 |   | 1.75 |   |
| Wholesale  receivables              |       | .9                |       | .02                  |       | .4                |       | .01 |   | 2.1 |   | .05 |   |
| Financing leases                    |       | 10.7              |       | 2.59                 |       | 6.5               |       | 1.54 |   | 8.0 |   | 1.94 |   |
| Total  Receivables                  |       | $                 | 48.6       |                 | .28        | %                 | $          | 32.3 |   | .19 | % | $ | 45.7 |   | .27 | % |

 

14

----

TotalReceivable write-off amounts, net of recoveries, by product, and as anannualized percentage of average balances held during the period, were asfollows (in millions of dollars):

 
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **July 31,**                | ** ** | **July 31,**                | ** ** |
| ** **                           | ** ** | **2007**                         | ** ** | **2006**                         | ** ** |
| ** **                           | ** ** | **Dollars**                      | ** ** | **Percent**                      | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                             |       |                             |       |   |   |   |   |
| Agricultural  equipment              |       | $                                | .1         |                             | .01        | % | $ | (.7 | ) | (.04 | )% |
| Construction and  forestry equipment |       | 2.5                              |       | .41                              |       | 3.0 |   | .54 |   |
| Commercial and  consumer equipment   |       |                             |       |                             |       |   |   |   |   |
| Recreational  products               |       | .1                               |       | 2.86                             |       |   |   |   |   |
| Total retail  notes                  |       | 2.7                              |       | .10                              |       | 2.3 |   | .09 |   |
| Revolving charge  accounts           |       | 5.5                              |       | 1.49                             |       | 5.7 |   | 1.59 |   |
| Operating loans                      |       | (.2                              | )          | (.30                             | )          | 2.4 |   | 2.91 |   |
| Wholesale receivables                |       | .7                               |       | .07                              |       | .2 |   | .02 |   |
| Financing leases                     |       | .7                               |       | .69                              |       | 1.1 |   | 1.09 |   |
| Total  Receivables                   |       | $                                | 9.4        |                             | .22        | % | $ | 11.7 |   | .28 | % |

 
| ** **                           | ** ** | **Nine Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **July 31,**               | ** ** | **July 31,**               | ** ** |
| ** **                           | ** ** | **2007**                        | ** ** | **2006**                        | ** ** |
| ** **                           | ** ** | **Dollars**                     | ** ** | **Percent**                     | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                            |       |                            |       |   |   |   |   |
| Agricultural  equipment              |       | $                               | (.6        | )                               | (.01       | )% | $ | (2.1 | ) | (.04 | )% |
| Construction and  forestry equipment |       | 11.7                            |       | .65                             |       | 4.8 |   | .30 |   |
| Commercial and  consumer equipment   |       | .5                              |       | .07                             |       | .2 |   | .02 |   |
| Recreational  products               |       | .4                              |       | 3.50                            |       | (.1 | ) | (.57 | ) |
| Total retail  notes                  |       | 12.0                            |       | .15                             |       | 2.8 |   | .04 |   |
| Revolving charge  accounts           |       | 18.3                            |       | 1.85                            |       | 16.4 |   | 1.66 |   |
| Operating loans                      |       | (.4                             | )          | (.15                            | )          | 2.3 |   | .86 |   |
| Wholesale receivables                |       | .7                              |       | .02                             |       | (.6 | ) | (.02 | ) |
| Financing leases                     |       | 1.9                             |       | .64                             |       | 1.8 |   | .61 |   |
| Total Receivables                    |       | $                               | 32.5       |                            | .26        | % | $ | 22.7 |   | .19 | % |

 

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 $168 million at July 31, 2007 compared with $177 millionat October 31, 2006 and $170 million at July 31, 2006.

 

The Company’s allowancefor credit losses on all Receivables financed totaled $98 million at July 31,2007, $93 million at October 31, 2006 and $89 million at July 31, 2006.The allowance for credit losses represented .55 percent of the total Receivablesfinanced at July 31, 2007, .55 percent at October 31, 2006 and .52 percent atJuly 31, 2006. The level of the allowance is based on many quantitative andqualitative factors, including historical loss experience by product category,portfolio duration, delinquency trends, economic conditions and credit riskquality. The Company believes its allowance is sufficient to provide for lossesin its existing receivable portfolio.

 

15

----

Safe Harbor Statement

 

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

 

Critical Accounting Policies

 

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

 

Capital Resources and Liquidity

 

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

 

During the first ninemonths of 2007, the aggregate net cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Net cash providedby operating activities was $409 million in the first nine months of 2007. Netcash provided by financing activities totaled $635 million in the firstnine months of 2007, resulting primarily from a net increase in externalborrowings, partially offset by dividends paid to John Deere Credit Company,which in turn paid comparable dividends to Deere & Company. Net cash usedfor investing activities totaled $965 million in the first nine months of2007, primarily due to the cost of Receivables and Leases acquired exceedingcollections and the cost of notes receivables with John Deere. Cash and cashequivalents increased $83 million during the first nine months of 2007.

 

During the first ninemonths of 2006, the aggregate cash provided by operating and financingactivities was used primarily to increase Receivables and Leases. Cash providedby operating activities was $343 million in the first nine months of 2006. Cashprovided by financing activities totaled $1,581 million in the first ninemonths of 2006, resulting primarily from a net increase in external borrowings.Cash used for investing activities totaled $2,020 million in the firstnine months of 2006, primarily due to the cost of Receivables and Leasesacquired exceeding collections. Cash and cash equivalents decreased$93 million during the first nine months of 2006.

 

The financing of retailpurchases and leases of John Deere products and of wholesale receivables owedby John Deere dealers represented approximately 85 percent of the Company’s acquisitionvolume for the nine months ended July 31, 2007 and 2006. Any extendedreduction or suspension of John Deere’s sale or production of products due to adecline in demand or production, governmental actions or other events couldhave an adverse effect on the Company’s acquisition volume of Receivables andLeases.  

 

The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. Because of the multiple funding sources that are available,the Company expects to have sufficient sources of liquidity to meet its ongoingfunding needs. The Company’s ability to meet its debt obligations is supportedin a number of ways. The assets of the Company are self-liquidating in nature.A strong equity position is available to absorb unusual losses on these assetsand all commercial paper is backed by unsecured, committed borrowing lines fromvarious banks. Liquidity is also provided by the Company’s ability tosecuritize these assets. Additionally, liquidity may also be provided throughloans from John Deere.

 

16

----

During the first ninemonths of 2007, the Company issued $1,838 million of medium-term notes,obtained $1,106 million of secured borrowings, maintained an averagecommercial paper balance of $2,753 million and received proceeds of$154 million from sales of Receivables. At July 31, 2007, the Company’sfunding profile included $3,079 million of commercial paper, $2,424million of notes payable related to on-balance sheet securitization funding, $11,196million of unsecured term debt, $371 million of off-balance sheetsecuritization funding and $1,975 million of equity capital. The Company’sfunding profile may be altered to reflect such factors as relative costs offunding sources, assets available for securitizations and capital marketaccessibility. 

 

The Company’s commercialpaper outstanding at July 31, 2007, October 31, 2006 and July 31, 2006 wasapproximately $3,079 million, $2,290 million and $1,808 million,respectively, while the total cash and cash equivalents position wasapproximately $202 million, $119 million and $157 million, respectively. 

 

The Company issued $1,843million and retired $1,639 million of other borrowings during the first ninemonths of 2007, which were primarily medium-term notes. 

 

The Company utilizes arevolving multi-bank conduit facility to securitize floating rate retail notes(see Note 5). This facility has the capacity, or “purchase limit,” of up to$1.75 billion in secured financings or sales outstanding at any time. This facilityhas no final maturity date. Instead, upon the Company’s request, each bankconduit may elect to renew its commitment on an annual basis. If this facilityis not renewed, the Company would liquidate the securitizations as the paymentson these retail notes are collected. At July 31, 2007, $1,002 million wasoutstanding under the facility of which $738 million was recorded on thebalance sheet as secured borrowings. 

 

Total interest-bearingindebtedness amounted to $16,808 million at July 31, 2007, compared with$15,555 million at October 31, 2006, and $15,539 million at July 31,2006. Included in this debt are secured borrowings of $2,424 million,$2,194 million and $2,273 million for the same periods (see Note 5). Totalexternal borrowings increased during the first nine months of 2007 andincreased in the past 12 months, generally corresponding with the level of theReceivable and Lease portfolio, the level of cash and cash equivalents and thechange in payable to John Deere. Total short-term indebtedness amounted to$9,012 million at July 31, 2007, which included $2,424 million of securedborrowings, compared with $7,143 million at October 31, 2006, which included$2,194 million of secured borrowings and $7,227 million at July 31, 2006,which included $2,273 million of secured borrowings, while total long-termindebtedness amounted to $7,796 million, $8,413 million and $8,312 million atthese dates, respectively. The ratio of total interest-bearing debt tostockholder’s equity was 8.5 to 1 at July 31, 2007, compared with 7.2 to 1 atOctober 31, 2006 and 7.2 to 1 at July 31, 2006. 

 

Stockholder’s equity was$1,975 million at July 31, 2007, compared with $2,154 million at October 31,2006 and $2,171 million at July 31, 2006. The decrease in the first nine monthsof 2007 resulted primarily from dividend payments of $430 million, partiallyoffset by net income of $228 million and a $22 million increase inaccumulated other comprehensive income.

 

The Capital Corporationdeclared and paid cash dividends to John Deere Credit Company of $430 millionin the first nine months of fiscal 2007. John Deere Credit Company paidcomparable dividends to Deere & Company. On August 30, 2007, theCapital Corporation declared an additional $95 million dividend, to be paid toJohn Deere Credit Company on or before October 26, 2007. John Deere CreditCompany, in turn, declared a $95 million dividend to Deere & Company,also payable on or before October 26, 2007.

 

*Lines of Credit*

 

The Company also hasaccess to bank lines of credit with various banks throughout the world. Some ofthe lines are available to both the Company and Deere & Company. Worldwidelines of credit totaled $3,761 million at July 31, 2007, $270 million of whichwas unused. For the purpose of computingunused credit lines, commercial paper and short-term bank borrowings, excludingsecured borrowings and the current portion of long-term borrowings, of theCompany and John Deere were considered to constitute utilization.Included in the total credit lines at July 31, 2007 was the long-term creditfacility agreement of $3.75 billion, expiring in February 2012. The creditagreement requires the Company to maintain its consolidated ratio of earningsto fixed charges at not less than 1.05 to 1 for each fiscal quarter and itsratio of senior debt, excluding securitization indebtedness, to capital base(total subordinated debt and stockholder’s equity excluding accumulated othercomprehensive income (loss)) at not more than 9.5 to 1 at the end of anyfiscal quarter. All of these requirements of the credit agreement have been metduring the periods included in the financial statements.

 

17

----

*DebtRatings*

 

TheCompany’s ability to obtain funding is affected by its debt ratings, which areclosely related to the outlook for and the financial condition of John Deere,and the nature and availability of support facilities, such as its lines ofcredit and the support agreement from Deere & Company. 

 

Toaccess public debt capital markets, the Company relies on credit ratingagencies to assign short-term and long-term credit ratings to the Company’ssecurities as an indicator of credit quality for fixed income investors. Acredit rating agency may change or withdraw Company ratings based on itsassessment of the Company’s current and future ability to meet interest andprincipal repayment obligations.  Lowercredit ratings generally result in higher borrowing costs and reduced access todebt capital markets. 

 

Thesenior long-term and short-term debt ratings and outlook currently assigned tounsecured Company securities by the rating agencies engaged by the Company arethe same as those for John Deere. Those ratings are as follows:

 
| ** **                            | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** | ** ** |
|---------------------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| Moody’s  Investors Service, Inc. |       | A2                        |       | Prime-1        |       | Stable      |       |
| Standard & Poor’s            |       | A                         |       | A-1            |       | Stable      |       |

 

Item 3.   Quantitative and QualitativeDisclosures About Market Risk.

 

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

 

Item 4.   Controls and Procedures.

 

TheCompany’s principal executive officer and its principal financial officer haveconcluded that the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, asamended (“the Act”)) were effective as of July 31, 2007, based on theevaluation of these controls and procedures required by Rule 13a-15(b) or15d-15(b) of the Act.

 

18

----

PARTII.  OTHER INFORMATION

Item 1.    Legal Proceedings.

The Company is subject to various unresolved legal actions which arisein the normal course of its business, the most prevalent of which relate tostate and federal laws and regulations concerning retail credit. Although it isnot possible to predict with certainty the outcome of these unresolved legalactions or the range of possible loss, the Company believes these unresolvedlegal actions will not have a material effect on its financial statements.

Item 1A. Risk Factors.

See the Company’s most recently filed annual report on Form 10-K (Item1A). There has been no material change in this information. 

Item 2.    Unregistered Sales of Equity Securitiesand 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 ofSecurity Holders.

Omitted pursuant to instruction H.

Item 5.    Other Information.

None.

Item 6.    Exhibits.

See the index to exhibits immediately preceding the exhibits filed withthis report.

Certain instruments relating to long-term debt, constituting less than10% of the registrant’s total assets, are not filed as exhibits herewithpursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.  The registrant will file copies of suchinstruments upon request of the Commission.

19

----

SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        |            | JOHN DEERE CAPITAL CORPORATION |
|--------|-----------------|--------------------------------|
|   |            |                           |   |
| Date:  | August 31, 2007 |                           | By: | */s/ M. J. Mack, Jr.* |
|   |            |                           | M. J. Mack, Jr.  Senior Vice President,  Principal Financial Officer |
|        |                 |                                |  |  |

 

20

----

INDEX TO EXHIBITS
| **Exhibit** | ** ** | ** **                                                                                                                                                                          | ** ** | ** ** |
|-------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
|        |       |                                                                                                                                                                                |
| 3.1         |       | Certificate of Incorporation, as amended (Exhibit  3.1 to Form 10-K of the registrant for the year ended October 31, 1999,  Securities and Exchange Commission file number 1-6458*) |
|        |       |                                                                                                                                                                                |
| 3.2         |       | Bylaws, as amended (Exhibit 3.2 to Form 10-K of the registrant  for the year ended October 31, 1999, Securities and Exchange Commission file  number 1-6458*)                       |
|        |       |                                                                                                                                                                                |
| 12          |       | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                   |
|        |       |                                                                                                                                                                                |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                              |
|        |       |                                                                                                                                                                                |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                              |
|        |       |                                                                                                                                                                                |
| 32          |       | Section 1350 Certifications                                                                                                                                                         |
|        |       |                                                                                                                                                                                |
| 99          |       | Part I of Deere & Company Form 10-Q for the  quarter ended July 31, 2007 (Securities and Exchange Commission file  number 1-4121*)                                         |
|        |       |                                                                                                                                                                                |       |
|             |            |                                                                                                                                                                                     |            |            |  |  |  |

----

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

21

----