** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

WASHINGTON, D.C. 20549

----

**FORM 10-Q**

----

QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

**For the quarterly periodended April 30, 2006**

** **

Commission file no: 1-6458

----

**JOHN DEERE CAPITAL CORPORATION**

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

 

**1 East First Street,Suite 600Reno, Nevada  89501(Address of principal executive offices)**

** **

Telephone Number:  **(775) 786-5527**

----

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was requiredto file such reports) and (2) has been subject to such filing requirementsfor the past 90 days.

Yes x   No o

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.

Largeaccelerated filer o               Acceleratedfiler o               Non-acceleratedfiler x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes o   No x

At April 30,2006, 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 registrantmeets the conditions set forth in General Instruction H(1)(a) and(b) of Form 10-Q and is therefore filing this Form withcertain reduced disclosures as permitted by those instructions.

Page 1 of 23 PagesIndex to Exhibits: Page 19

 

----

## PART I. FINANCIAL INFORMATION

## Item 1.    FinancialStatements.

**John Deere Capital Corporation and SubsidiariesStatements of Consolidated Income and Retained Earnings(Unaudited)**

(in millions ofdollars)
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **April 30,**               | ** ** | **April 30,**             | ** ** |
| ** **                                           | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues**                                         |       |                             |       |                           |       |   |   |   |   |
| Finance income earned on retail notes                |       | $                                | 170.0      |                           | $          | 124.0 |   | $ | 330.0 |   | $ | 236.7 |   |
| Lease revenues                                       |       | 68.9                             |       | 62.3                           |       | 135.5 |   | 125.9 |   |
| Revolving charge account income                      |       | 48.4                             |       | 44.2                           |       | 94.1 |   | 85.3 |   |
| Finance income earned on wholesale receivables       |       | 88.7                             |       | 73.1                           |       | 161.4 |   | 133.5 |   |
| Operating loan income                                |       | 6.5                              |       | 5.8                            |       | 13.6 |   | 11.1 |   |
| Securitization and servicing fee income              |       | 8.1                              |       | 9.5                            |       | 16.3 |   | 20.7 |   |
| Net gain on receivables sold                         |       | .1                               |       | .9                             |       |   |   | 4.8 |   |
| Other income                                         |       | 21.9                             |       | 13.6                           |       | 36.3 |   | 21.1 |   |
| Total revenues                                       |       | 412.6                            |       | 333.4                          |       | 787.2 |   | 639.1 |   |
| **Expenses**                                         |       |                             |       |                           |       |   |   |   |   |
| Interest expense                                     |       | 174.8                            |       | 108.0                          |       | 329.1 |   | 200.6 |   |
| Operating  expenses:                                 |       |                             |       |                           |       |   |   |   |   |
| Administrative and operating expenses                |       | 72.2                             |       | 69.1                           |       | 128.8 |   | 123.2 |   |
| Provision for credit losses                          |       | 6.8                              |       | 6.0                            |       | 9.0 |   | 4.2 |   |
| Fees paid to John Deere                              |       | 8.0                              |       | 14.6                           |       | 17.7 |   | 28.5 |   |
| Depreciation of equipment on operating leases        |       | 45.7                             |       | 41.8                           |       | 90.1 |   | 84.0 |   |
| Total operating expenses                             |       | 132.7                            |       | 131.5                          |       | 245.6 |   | 239.9 |   |
| Total expenses                                       |       | 307.5                            |       | 239.5                          |       | 574.7 |   | 440.5 |   |
| **Income of consolidated group before income taxes** |       | 105.1                            |       | 93.9                           |       | 212.5 |   | 198.6 |   |
| **Provision for income taxes**                       |       | 36.7                             |       | 32.5                           |       | 74.1 |   | 69.2 |   |
| **Income of consolidated group**                     |       | 68.4                             |       | 61.4                           |       | 138.4 |   | 129.4 |   |
| **Equity in income of unconsolidated affiliates**    |       | .1                               |       | .1                             |       | .2 |   | .3 |   |
| **Net income**                                       |       | 68.5                             |       | 61.5                           |       | 138.6 |   | 129.7 |   |
| **Cash dividends paid**                              |       |                             |       | (35.0                          | )          |   |   | (120.0 | ) |
| **Retained earnings at beginning of period**         |       | 1,164.8                          |       | 953.2                          |       | 1,094.7 |   | 970.0 |   |
| **Retained earnings at end of period**               |       | $                                | 1,233.3    |                           | $          | 979.7 |   | $ | 1,233.3 |   | $ | 979.7 |   |

 

----

See Notes toInterim Financial Statements.

2

----

**John Deere CapitalCorporation and SubsidiariesConsolidated Balance Sheets(Unaudited)**(inmillions of dollars)
| ** **                                                                                                       | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                                                                                                       | ** ** | **2006**           | ** ** | **2005**             | ** ** | **2005**           | ** ** |
| **Assets**                                                                                                       | ** ** | ** **         | ** ** | ** **           | ** ** | ** **         | ** ** |
| Cash and cash equivalents                                                                                        |       | $                  | 274.2      |                 | $          | 250.2              |       | $ | 261.3 |   |
| Receivables:                                                                                                     |       |               |       |                 |       |               |       |
| Retail notes                                                                                                     |       | 8,134.6            |       | 7,893.5              |       | 7,356.4            |       |
| Restricted securitized retail notes                                                                              |       | 1,589.6            |       | 1,340.1              |       | 602.3              |       |
| Revolving charge accounts                                                                                        |       | 1,340.8            |       | 1,527.5              |       | 1,321.8            |       |
| Operating loans                                                                                                  |       | 372.7              |       | 384.4                |       | 406.0              |       |
| Wholesale receivables                                                                                            |       | 4,592.3            |       | 3,651.2              |       | 4,554.5            |       |
| Financing leases                                                                                                 |       | 394.1              |       | 411.7                |       | 395.7              |       |
| Total receivables                                                                                                |       | 16,424.1           |       | 15,208.4             |       | 14,636.7           |       |
| Allowance for credit losses                                                                                      |       | (94.5              | )          | (96.4                | )          | (105.5             | )          |
| Total receivables — net                                                                                     |       | 16,329.6           |       | 15,112.0             |       | 14,531.2           |       |
| Other receivables                                                                                                |       | 109.8              |       | 118.4                |       | 81.3               |       |
| Equipment on operating leases — net                                                                         |       | 812.7              |       | 793.9                |       | 728.5              |       |
| Property and equipment — net                                                                                |       | 90.2               |       | 27.6                 |       | 17.3               |       |
| Investment in unconsolidated affiliates                                                                          |       | 4.4                |       | 4.1                  |       | 4.3                |       |
| Other assets                                                                                                     |       | 295.6              |       | 261.2                |       | 267.6              |       |
| **Total  Assets**                                                                                                |       | $                  | 17,916.5   |                 | $          | 16,567.4           |       | $ | 15,891.5 |   |
| **Liabilities and Stockholder’s  Equity**                                                                   |       |               |       |                 |       |               |       |
| Short-term  borrowings:                                                                                          |       |               |       |                 |       |               |       |
| Commercial paper                                                                                                 |       | $                  | 2,044.9    |                 | $          | 1,696.0            |       | $ | 1,895.2 |   |
| Other notes payable                                                                                              |       | 1,650.1            |       | 1,364.8              |       | 630.4              |       |
| John Deere                                                                                                       |       | 320.9              |       | 275.0                |       | 1,286.5            |       |
| Current maturities of long-term borrowings                                                                       |       | 2,567.7            |       | 2,431.6              |       | 1,825.7            |       |
| Total short-term borrowings                                                                                      |       | 6,583.6            |       | 5,767.4              |       | 5,637.8            |       |
| Accounts payable and accrued expenses                                                                            |       | 558.0              |       | 503.3                |       | 457.0              |       |
| Deposits withheld from dealers and merchants                                                                     |       | 165.8              |       | 166.0                |       | 155.3              |       |
| Long-term borrowings                                                                                             |       | 8,521.8            |       | 8,190.7              |       | 7,811.2            |       |
| Total liabilities                                                                                                |       | 15,829.2           |       | 14,627.4             |       | 14,061.3           |       |
| 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                                                                                                |       | 1,233.3            |       | 1,094.7              |       | 979.7              |       |
| Accumulated  other comprehensive income:                                                                         |       |               |       |                 |       |               |       |
| Cumulative translation adjustment                                                                                |       | 22.8               |       | 18.4                 |       | 28.8               |       |
| Unrealized gain on investments                                                                                   |       | 8.3                |       | 6.8                  |       | 6.6                |       |
| Unrealized gain on derivatives                                                                                   |       | 10.1               |       | 7.3                  |       | 2.3                |       |
| Total accumulated other comprehensive income                                                                     |       | 41.2               |       | 32.5                 |       | 37.7               |       |
| Total stockholder’s equity                                                                                  |       | 2,087.3            |       | 1,940.0              |       | 1,830.2            |       |
| **Total Liabilities and  Stockholder’s Equity**                                                             |       | $                  | 17,916.5   |                 | $          | 16,567.4           |       | $ | 15,891.5 |   |

 

----

See Notes toInterim Financial Statements.

 

 

3

----

**John Deere CapitalCorporation and SubsidiariesStatements of Consolidated Cash FlowsFor the Six Months Ended April 30, 2006 and 2005(Unaudited)**(inmillions of dollars)
| ** **                                                                         | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Cash Flows from Operating  Activities**                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $          | 138.6      |       | $          | 129.7 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |       |       |       |       |
| Provision for credit losses                                                        |       | 9.0        |       | 4.2        |       |
| Provision for depreciation and amortization                                        |       | 92.2       |       | 86.8       |       |
| Credit for deferred income taxes                                                   |       | (6.5       | )          | (15.1      | )          |
| Undistributed earnings of unconsolidated affiliates                                |       | (.2        | )          | (.3        | )          |
| Other                                                                              |       | 11.1       |       | (49.7      | )          |
| Net cash provided by operating activities                                          |       | 244.2      |       | 155.6      |       |
|                                                                               |       |       |       |       |       |
| **Cash Flows from Investing  Activities**                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of receivables acquired                                                       |       | (14,262.4  | )          | (13,708.5  | )          |
| Collections of receivables                                                         |       | 13,078.4   |       | 11,642.1   |       |
| Cost of operating leases acquired                                                  |       | (216.8     | )          | (178.0     | )          |
| Proceeds from sales of equipment on operating leases                               |       | 93.8       |       | 128.9      |       |
| Proceeds from sales of receivables                                                 |       | 50.7       |       | 82.0       |       |
| Purchase of property and equipment                                                 |       | (69.3      | )          | (.8        | )          |
| Other                                                                              |       | (49.4      | )          | 16.3       |       |
| Net cash used for investing activities                                             |       | (1,375.0   | )          | (2,018.0   | )          |
|                                                                               |       |       |       |       |       |
| **Cash Flows from Financing  Activities**                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Increase in commercial paper                                                       |       | 321.0      |       | 333.2      |       |
| Increase in other notes payable                                                    |       | 285.9      |       | 623.5      |       |
| Increase in payable with John Deere                                                |       | 45.9       |       | 45.3       |       |
| Proceeds from issuance of long-term borrowings                                     |       | 1,289.3    |       | 1,214.0    |       |
| Payments on long-term borrowings                                                   |       | (787.2     | )          | (182.9     | )          |
| Dividends paid                                                                     |       |       |       | (120.0     | )          |
| Net cash provided by financing activities                                          |       | 1,154.9    |       | 1,913.1    |       |
|                                                                               |       |       |       |       |       |
| **Effect  of exchange rate changes on cash**                                       |       | (.1        | )          | 1.1        |       |
| **Net  increase in cash and cash equivalents**                                     |       | 24.0       |       | 51.8       |       |
| **Cash  and cash equivalents at beginning of period**                              |       | 250.2      |       | 209.5      |       |
| **Cash and cash equivalents at  end of period**                                    |       | $          | 274.2      |       | $          | 261.3 |   |

 

----

See Notes toInterim Financial Statements.

 

 

4

----

# **JohnDeere Capital Corporation and Subsidiaries**

**Notes to Interim Financial Statements**

**(Unaudited)**

(1)    The consolidated financialstatements of John Deere Capital Corporation (Capital Corporation) and itssubsidiaries (collectively called the Company) have been prepared by theCompany, without audit, pursuant to the rules and regulations of the U.S.Securities and Exchange Commission. Certain information and footnotedisclosures normally included in annual financial statements prepared inaccordance with accounting principles generally accepted in the U.S. have beencondensed 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.

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

(2)    The Company provides andadministers financing for retail purchases of new equipment manufactured byDeere & Company’s agricultural equipment, commercial and consumerequipment, and construction and forestry divisions and used equipment taken intrade for this equipment. The Company purchases retail installment sales andloan contracts (retail notes) from Deere & Company and itswholly-owned subsidiaries (collectively called John Deere). John Deere acquiresthese retail notes through John Deere retail dealers. The Company alsopurchases and finances a limited amount of non-Deere retail notes and continuesto service a small portfolio of recreational products and other retail notes.In addition, the Company leases John Deere equipment and a limited amount ofnon-Deere equipment to retail customers (financing and operating leases). TheCompany also finances and services revolving charge accounts, in most casesacquired from and offered through merchants in the agricultural, commercial andconsumer, and construction and forestry markets (revolving charge accounts).Further, the Company finances and services operating loans, in most casesoffered through and acquired from farm input providers or through directrelationships with agricultural producers (operating loans). The Company alsoprovides wholesale financing for inventories of John Deere engines and JohnDeere agricultural, commercial and consumer and construction and forestryequipment owned by dealers of those products (wholesale receivables). TheCompany also offers insured international export financing to select customerswhich generally involves John Deere products and offers certain crop riskmitigation products in the U.S. In addition, the Company invests in wind energydevelopment by making loans to certain affiliated companies that have directlyinvested in wind energy projects. Further, the Company has agreed to purchasecertain wind turbine equipment. This wind turbine equipment will be used inwind energy projects by the Company or by certain affiliated companies. Retailnotes, revolving charge accounts, operating loans, financing leases andwholesale receivables are collectively called “Receivables.” Receivables andoperating leases are collectively called “Receivables and Leases.”

(3)    The Company’s ratio ofearnings to fixed charges was 1.60 to 1 for the second quarter of 2006,compared with 1.86 to 1 for the second quarter of 2005. The ratio of earningsto fixed charges was 1.64 to 1 for the first six months of 2006 and 1.97to 1 for the first six months of 2005. “Earnings” consist of income beforeincome taxes, the cumulative effect of changes in accounting and fixed charges.“Fixed charges” consist of interest on indebtedness, amortization of debtdiscount and expense, an estimated amount of rental expense under capitalizedleases that is deemed to be representative of the interest factor and rentalexpense under operating leases.

5

----

(4)    Comprehensive income, whichincludes all changes in the Company’s equity during the period excepttransactions with the stockholder, was as follows in millions of dollars:

|                                                 | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                         | ** ** | **2005**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Income                                      |       | $                                                | 68.5       |                                           | $          | 61.5 |   | $ | 138.6 |   | $ | 129.7 |   |
|                                            |       |                                             |       |                                           |       |   |   |   |   |
| Other comprehensive  income (loss), net of tax: |       |                                             |       |                                           |       |   |   |   |   |
| Change in cumulative translation adjustment     |       | 3.4                                              |       |                                           |       | 4.4 |   | 5.1 |   |
| Unrealized gain (loss) on investments           |       | (.1                                              | )          | 1.3                                            |       | 1.5 |   | 1.1 |   |
| Unrealized gain on derivatives                  |       | 2.7                                              |       | .8                                             |       | 2.8 |   | 7.4 |   |
| Total comprehensive  income                     |       | $                                                | 74.5       |                                           | $          | 63.6 |   | $ | 147.3 |   | $ | 143.3 |   |

 

(5)    Beginning in 2005, theCompany’s new securitizations of receivables held by special purpose entities(SPEs) met the criteria for secured borrowings rather than sales of receivablesunder Financial Accounting Standards Board (FASB) Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishmentsof Liabilities. The borrowings related to these securitizations of retail notesare included in short-term borrowings on the balance sheet as shown in thefollowing table. The securitized retail notes are recorded as “Restrictedsecuritized retail notes” on the balance sheet. In addition to the restrictedassets, the creditors of an unconsolidated SPE involved in secured borrowingsand sales of receivables related to a $2 billion revolving bank conduitfacility have recourse to a reserve fund held by the SPE totaling approximately$29 million as of April 30, 2006. A portion of the previous transfers ofretail notes to this facility qualified as sales of receivables. As a result,this reserve fund is also included in the maximum exposure to losses forreceivables that have been sold. 

The components ofconsolidated restricted assets related to securitizations were as follows (inmillions of dollars): 

|                                      | ** ** | **April 30,  2006** | ** ** | **October 31,  2005** | ** ** | **April 30,  2005** | ** ** |
|--------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| Restricted  securitized retail notes |       | $                        | 1,589.6    |                       | $          | 1,340.1                  |       | $ | 602.3 |   |
| Allowance for  credit losses         |       | (6.7                     | )          | (6.3                       | )          | (2.0                     | )          |
| Other assets                         |       | 111.2                    |       | 62.5                       |       | 22.6                     |       |
| Total restricted securitized assets  |       | $                        | 1,694.1    |                       | $          | 1,396.3                  |       | $ | 622.9 |   |

 

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

|                                                             | ** ** | **April 30,  2006** | ** ** | **October 31,  2005** | ** ** | **April 30,  2005** | ** ** |
|-------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| Other notes  payable                                        |       | $                        | 1,634.5    |                       | $          | 1,353.0                  |       | $ | 620.9 |   |
| Accounts payable  and accrued expenses                      |       | 2.7                      |       | 2.1                        |       | .7                       |       |
| Total  liabilities related to restricted securitized assets |       | $                        | 1,637.2    |                       | $          | 1,355.1                  |       | $ | 621.6 |   |

 

A portion of the restricted retail notes totaling$1,084 million at April 30, 2006, $690 million at October 31, 2005and $602 million at April 30, 2005 related to secured financings weretransferred to a SPE that is not consolidated since the Company is not theprimary beneficiary. The borrowings related to these restricted retail notesincluded above are the obligations to this SPE that are payable as the retailnotes are liquidated. The remaining restricted retail notes totaling$506 million at April 30, 2006 and $650 million at October 31,2005 were transferred to a SPE that has been consolidated since the Company isthe primary beneficiary. This SPE is not a qualified SPE under FASB StatementNo. 140 and, therefore, not exempt from consolidation. These restrictedretail notes are the primary assets of this consolidated SPE. The borrowingsincluded above for the consolidated SPE are obligations to the creditors of theSPE that are also payable as the retail notes are liquidated. SPEs utilized insecuritizations of retail notes differ from other entities included in theCompany’s consolidated statements because the assets they hold are legallyisolated. For bankruptcy analysis purposes, the Capital Corporation has soldthe receivables to the 

6

----

SPEs in a true sale and the SPEs are separate legalentities. Use of the assets held by the SPEs is restricted by terms of thegoverning documents. Repayment of the secured borrowings depends primarily oncash flows generated by the restricted assets and the reserve fund mentionedabove. At April 30, 2006, the maximum remaining term of the restrictedreceivables was approximately six years. 

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 April 30, 2006, the maximum amount ofexposure to losses under these agreements was $140 million. The estimated riskassociated with the sold receivables totaled $5 million at April 30,2006. This risk of loss is recognized primarily in the retained interests onthe Company’s balance sheet. The retained interests are related to assets heldby unconsolidated SPEs. At April 30, 2006, the assets of these SPEsrelated to the Company’s securitization and sale of retail notes totaledapproximately $1,220 million. The Company may recover a portion of any requiredpayments incurred under these agreements from the repossession of the equipmentcollateralizing the Receivables. At April 30, 2006, the maximum remainingterm of the Receivables sold was approximately four years.

At April 30, 2006, John Deere Credit Inc., theJohn Deere finance subsidiary in Canada, had $260 million of commercialpaper and $668 million of medium-term notes outstanding that were guaranteed bythe Company. In addition, the Company has provided letters of credit for JohnDeere Credit Inc. as part of retail note sales. At April 30, 2006, theCompany’s maximum exposure under these agreements was approximately $7 million.

At April 30, 2006, the Company had approximately$5 million of guarantees issued primarily to overseas banks related tothird-party receivables for the retail financing of John Deere equipment. TheCompany may recover a portion of any required payments incurred under theseagreements from repossession of the equipment collateralizing the receivables.At April 30, 2006, the Company had accrued losses of approximately $.2million under these agreements. The maximum remaining term of the receivablesguaranteed at April 30, 2006 was approximately two years.

The Company’s subsidiary, John Deere RiskProtection, Inc., offers crop insurance products through a managinggeneral agency agreement (Agreement) with an insurance company (InsuranceCarrier) rated “Excellent” by A.M. Best Company. As a managing generalagent, John Deere Risk Protection, Inc. will receive commissions from theInsurance Carrier for selling crop insurance to producers. The Company hasguaranteed certain obligations under the Agreement, including the obligation topay the Insurance Carrier for any uncollected premiums. At April 30, 2006the maximum exposure for uncollected premiums was approximately $49 million.Substantially all of the Company’s crop insurance risk under the Agreement hasbeen mitigated by a syndicate of private reinsurance companies. Thesereinsurance companies are rated “Excellent” or higher by A.M. BestCompany. In the event of a widespread catastrophic crop failure throughout theU.S. and the default of these highly rated private reinsurance companies ontheir reinsurance obligations, the Company would be required to reimburse theInsurance Carrier for exposure under the Agreement of approximately$319 million at April 30, 2006. The Company believes that thelikelihood of the occurrence of substantially all of the events that give riseto the exposure under this Agreement is extremely remote and as a result, atApril 30, 2006, the Company has accrued probable losses of approximately$.1 million under the Agreement. 

At April 30, 2006, the Company had commitments ofapproximately $175 million for the purchase of wind turbine equipment.

The Company has commitments to extend credit tocustomers and John Deere dealers through lines of credit and other pre-approved credit arrangements. TheCompany applies the same credit policies and approval process for thesecommitments to extend credit as it does for its Receivables. Collateral is notrequired for these commitments, but if credit is extended, collateral may berequired upon funding. The amount of unused commitments to extend credit toJohn Deere dealers was $1.5 billion at April 30, 2006. The amount ofunused commitments to extend credit to customers was $31.2 billion atApril 30, 2006. A significant portion of these commitments is not expectedto be fully drawn upon; therefore, the total commitment amounts likely do notrepresent a future cash requirement. The Company generally has the right tounconditionally cancel, alter or amend the terms of these commitments at anytime. Over 95 percent of these unused commitments to extend credit tocustomers relate to revolving charge accounts.

7

----

(6)    NewAccounting Standard Adopted

Certain employees of the Company participate inDeere & Company share-based compensation plans. Accordingly, in the firstquarter of 2006, the Company adopted FASB Statement No. 123 (revised2004), Share-Based Payment, using the modified prospective method of adoption,which does not require restatement of prior periods. The revised standardeliminated the intrinsic value method of accounting for share-based employeecompensation under APB Opinion No. 25, Accounting for Stock Issued toEmployees. The revised standard generally requires the recognition of the costof employee services for share-based compensation based on the grant date fairvalue of the equity or liability instruments issued. The effect of adoption ofthe new standard in 2006 was an additional expense in the second quarter of$.9 million pretax, or $.6 million after-tax and in the first six monthswas $3.6 million pretax, or $2.3 million after-tax. Also under the newstandard, excess income tax benefits related to share-based compensationexpense that must be recognized directly in equity are considered financingrather than operating cash flow activities. The effect of adoption of the newstandard on cash flows in the first six months of 2006 was not material. Further disclosure for these plans is included inDeere & Company’s Form 10-Q for the quarter endedApril 30, 2006.

New Accounting Standards to be Adopted

In February 2006, the FASB issued StatementNo. 155, Accounting for Certain Hybrid Financial Instruments an amendmentof FASB Statements No. 133 and 140. This Statement primarily resolvescertain issues addressed in the implementation of FASB Statement No. 133concerning beneficial interests in securitized financial assets. The effectivedate is the beginning of fiscal year 2007. It will be effective for allfinancial instruments acquired, issued, or subject to a remeasurement (newbasis) event occurring after the beginning of the year of adoption. Theadoption of the Statement is not expected to have a material effect on theCompany’s financial position or net income. 

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

(7)    The Company is aparticipating employer in certain Deere & Company sponsored definedbenefit pension plans for employees in the U.S. and certain defined benefitpension plans outside the U.S. These pension plans provide for benefits thatare based primarily on years of service and employee compensation. Pensionexpense is actuarially determined based on the Company’s employees included inthe plan. The Company’s pension expense amounted to $2.6 million in thefirst six months of 2006. The accumulated benefit obligation and plan netassets for the employees of the Company are not determined separately fromDeere & Company. The Company generally provides defined benefit healthcare and life insurance plans for retired employees in the U.S. as aparticipating employer in Deere & Company’s sponsored plans. Healthcare and life insurance benefits expense is actuarially determined based on theCompany’s employees included in the plans and amounted to $2.2 million duringthe first six months of 2006. Further disclosure for these plans is included inDeere & Company’s Form 10-Q for the quarter endedApril 30, 2006.

(8)    Property and equipmentprimarily includes equipment (turbines) related to wind energy entities andoffice buildings. In the second quarter of 2006, the Company purchased anoffice building for $35 million which was previously leased.

8

----

 

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

Results of Operations

Overview

The Company primarily generates revenues and cash byfinancing sales and leases of new and used agricultural, commercial andconsumer, and construction and forestry equipment by John Deere dealers. Inaddition, the Company provides wholesale financing to dealers of the foregoingequipment, provides operating loans, finances retail revolving charge accounts,offers certain crop risk mitigation products and invests in wind energydevelopment. 

The Company’s business is currently affected by thefollowing key trends and economic conditions. The Company’s business is closelyrelated to John Deere’s business. Strong worldwide demand for crops is beingdriven by an increase in global population and by a dramatic rise in theprojected use of renewable fuels such as ethanol. Although the agriculturalsector in the U.S. and Canada remains in sound overall condition, industrysales of farm machinery in 2006 are expected to be down about 5 percent.Industry sales are also forecast to be down about 5 percent in Western Europeand about 20 percent in South America. Deere & Company’s agriculturalequipment sales were down 7 percent for the second quarter of 2006, down 6percent for the first six months and are forecast to be flat to down 2 percentfor the year. Deere & Company’s commercial and consumer equipmentsales increased 7 percent in the second quarter of 2006 and 11 percent forthe first six months. For the year, these sales are expected to be up 7 to 9percent with support from newly introduced products, an assumed return to morenormal weather patterns and higher sales from the landscapes business.Construction and forestry markets are receiving continued support from theoverall level of construction spending. Deere & Company’s constructionand forestry sales increased 10 percent in the second quarter of 2006, 13percent for the first six months and are forecast to increase 10 to 12percent for the year. The Company expects to report net income of approximately$285 million in 2006, reflecting growth in the portfolio. This outlookcontinues to reflect strong credit quality and very low loss experience.

2006 Compared with 2005

Net income was $68.5 million for the second quarterand $138.6 million for the first six months of 2006, compared with $61.5 millionand $129.7 million, respectively last year. The increase was primarily due togrowth in the portfolio, partially offset by narrower financing spreads. 

Revenues totaled $412.6 million for the second quarterand $787.2 million for the first six months of 2006, compared to $333.4 millionand $639.1 million, respectively, last year. This increase was primarilydue to a 16 percent increase in the average balance of Receivables and Leasesfinanced during the first six months of 2006 compared to the first six monthsof 2005 and higher financing rates. Finance income earned on retail notestotaled $330.0 million for the first six months of 2006, up $93.3 millioncompared to $236.7 million for the same period in 2005. This increase wasprimarily due to a 27 percent increase in the average retail noteportfolio balances and increasing yields. Lease revenues totaled$135.5 million in the first six months of 2006, compared to$125.9 million in the first six months of 2005. This increase wasprimarily due to a 7 percent increase in the average amount of equipmenton operating leases. Revenues earned on revolving charge accounts amounted to$94.1 million in the first six months of 2006, a 10 percent increase overrevenues of $85.3 million during the same period last year. This increasewas primarily due to growth of Farm Planäand PowerPlanâreceivables in the first six months of 2006, compared with thesame period last year. Finance income earned on wholesale receivables totaled$161.4 million for the first six months of 2006, compared to $133.5 millionfor the same period in 2005. This increase was primarily due to increasingyields and a 3 percent increase in the average balance of wholesalereceivables. Operating loan income amounted to $13.6 million in the firstsix months of 2006, compared to $11.1 million in the first six months of2005. This increase was primarily due to increasing yields. Revenues earnedfrom Deere & Company totaled $119.4 million for the secondquarter and $219.0 million in the first six months of 2006, compared to$103.9 million and $190.4 million for the same periods last year.

Interest expense totaled $174.8 million for the secondquarter and $329.1 million for the first six months of 2006, compared to$108.0 million and $200.6 million for the same periods in 2005. Theincrease was due to increases in borrowing rates and higher average borrowings,partially due to securitizations of financing receivables qualifying as securedborrowings instead of sales of receivables and remaining on the balance sheetbeginning in the second quarter of 2005.

9

----

Administrative and operating expenses were $72.2 millionin the second quarter and $128.8 million for the first six months of 2006,compared with $69.1 million and $123.2 million for the same periodsin 2005. Administrative and operating expenses as a percent of averageReceivables and Leases administered were 1.64 percent for the second quarterand 1.49 percent for the first six months of 2006, compared with 1.67percent and 1.51 percent for the same periods last year.

During the second quarter and first six months of2006, the provision for credit losses totaled $6.8 million and $9.0 million,respectively, compared with $6.0 million and $4.2 million in the sameperiods last year. The annualized provision for credit losses, as a percentageof the average balance of total Receivables financed, was .18 percent forthe second quarter and .12 percent for the first six months of 2006, comparedwith .18 percent and .06 percent for the same periods last year. See theCompany’s most recently filed annual report on Form 10-K for furtherinformation regarding the Company’s allowance for credit losses policies. 

Fees paid to John Deere for interest and support were$8.0 million in the second quarter and $17.7 million for the firstsix months of 2006, compared with $14.6 million and $28.5 million forthe same periods in 2005. The decrease was primarily due to lower averageborrowings from Deere & Company. 

Depreciation of equipment on operating leases was$45.7 million in the second quarter and $90.1 million for the first sixmonths of 2006, compared to $41.8 million and $84.0 million for thesame periods in 2005. The increase for the first six months was primarily theresult of higher average amounts of equipment on operating leases. 

Receivable and Lease acquisition volumes were asfollows (in millions of dollars):
| ** **                          | ** ** | **Three Months**         | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|-------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                          | ** ** | **2006**                      | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                          |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                             | 1,052.1    |       | $          | 1,101.3           |       | $ | (49.2 | ) | (4 | )% |
| Construction and forestry equipment |       | 377.9                         |       | 320.1      |       | 57.8              |       | 18 |   |
| Commercial and consumer equipment   |       | 134.8                         |       | 157.6      |       | (22.8             | )          | (14 | ) |
| Total retail notes                  |       | 1,564.8                       |       | 1,579.0    |       | (14.2             | )          | (1 | ) |
| Revolving charge  accounts          |       | 876.8                         |       | 848.3      |       | 28.5              |       | 3 |   |
| Operating loans                     |       | 291.2                         |       | 304.6      |       | (13.4             | )          | (4 | ) |
| Wholesale  receivables              |       | 5,334.0                       |       | 5,430.5    |       | (96.5             | )          | (2 | ) |
| Financing leases                    |       | 57.5                          |       | 55.9       |       | 1.6               |       | 3 |   |
| Equipment on  operating leases      |       | 134.1                         |       | 99.8       |       | 34.3              |       | 34 |   |
| Total Receivables and Leases        |       | $                             | 8,258.4    |       | $          | 8,318.1           |       | $ | (59.7 | ) | (1 | )% |

 
| ** **                          | ** ** | **Six Months  Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2006**                                       | ** ** | **2005**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                                           |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                              | 1,937.3    |       | $          | 2,023.6           |       | $ | (86.3 | ) | (4 | )% |
| Construction and forestry equipment |       | 784.8                                          |       | 622.5      |       | 162.3             |       | 26 |   |
| Commercial and consumer equipment   |       | 210.0                                          |       | 243.3      |       | (33.3             | )          | (14 | ) |
| Total retail notes                  |       | 2,932.1                                        |       | 2,889.4    |       | 42.7              |       | 1 |   |
| Revolving charge  accounts          |       | 1,522.2                                        |       | 1,454.7    |       | 67.5              |       | 5 |   |
| Operating loans                     |       | 747.8                                          |       | 617.1      |       | 130.7             |       | 21 |   |
| Wholesale  receivables              |       | 8,962.3                                        |       | 8,652.5    |       | 309.8             |       | 4 |   |
| Financing leases                    |       | 98.0                                           |       | 94.8       |       | 3.2               |       | 3 |   |
| Equipment on  operating leases      |       | 216.8                                          |       | 178.0      |       | 38.8              |       | 22 |   |
| Total Receivables and Leases        |       | $                                              | 14,479.2   |       | $          | 13,886.5          |       | $ | 592.7 |   | 4 | % |

 

Retail note volumes for agricultural equipmentdecreased during the second quarter and first six months of 2006, when comparedto last year, primarily due to decreases in retail sales of John Deereagricultural equipment. Retail note volumes for construction and forestryequipment increased during the second quarter and first six months of 2006,when compared to last year, primarily due to increases in retail sales of JohnDeere construction and forestry equipment. Retail 

10

----

note volumes for commercial and consumer equipmentdecreased during the second quarter and first six months of 2006, when comparedto last year, primarily due to less aggressive financing programs offered forcommercial and consumer equipment. Although down during the second quarter,wholesale receivable volumes increased during the first six months of 2006,when compared to last year, primarily due to increased shipments of John Deereequipment as a result of strong retail demand in the construction and forestrymarkets. 

Total Receivables and Leases held were as follows (inmillions of dollars):
| ** **                          | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|-------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                          | ** ** | **2006**           | ** ** | **2005**             | ** ** | **2005**           | ** ** |
| Retail notes:                       |       |               |       |                 |       |               |       |
| Agricultural equipment              |       | $                  | 6,497.7    |                 | $          | 6,208.8            |       | $ | 5,310.9 |   |
| Construction and forestry equipment |       | 2,234.8            |       | 1,980.4              |       | 1,647.9            |       |
| Commercial and consumer equipment   |       | 971.5              |       | 1,021.7              |       | 972.7              |       |
| Recreational products               |       | 20.2               |       | 22.7                 |       | 27.2               |       |
| Total retail notes                  |       | 9,724.2            |       | 9,233.6              |       | 7,958.7            |       |
| Revolving charge  accounts          |       | 1,340.8            |       | 1,527.5              |       | 1,321.8            |       |
| Operating loans                     |       | 372.7              |       | 384.4                |       | 406.0              |       |
| Wholesale  receivables              |       | 4,592.3            |       | 3,651.2              |       | 4,554.5            |       |
| Financing leases                    |       | 394.1              |       | 411.7                |       | 395.7              |       |
| Equipment on  operating leases      |       | 812.7              |       | 793.9                |       | 728.5              |       |
| Total  Receivables and Leases       |       | $                  | 17,236.8   |                 | $          | 16,002.3           |       | $ | 15,365.2 |   |

 

Receivables andLeases administered by the Company were as follows (in millions of dollars):
| ** **                                                    | ** ** | **April 30,  2006** | ** ** | **October 31,  2005** | ** ** | **April 30,  2005** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
|                                                          |       |                     |       |                       |       |                     |       |
| Receivables and Leases  administered:                         |       |                     |       |                       |       |                     |       |
| Owned by the Company                                          |       | $15,647.2                |       | $14,662.2                  |       | $14,762.9                |       |
| Owned by the Company — restricted due to  securitization |       | 1,589.6                  |       | 1,340.1                    |       | 602.3                    |       |
| Total Receivables and Leases owned by the Company             |       | 17,236.8                 |       | 16,002.3                   |       | 15,365.2                 |       |
| Sold and serviced — with limited recourse*               |       | 1,181.2                  |       | 1,699.2                    |       | 2,119.1                  |       |
| Sold and serviced — without recourse**                   |       | 19.8                     |       | 20.1                       |       | 20.9                     |       |
| Total  Receivables and Leases administered                    |       | $18,437.8                |       | $17,721.6                  |       | $17,505.2                |       |

----

*                    TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat April 30, 2006, October 31, 2005 and April 30, 2005 was $140 million,$140 million and $166 million, respectively. In addition, the Companyhas provided letters of credit for John Deere Credit Inc., the John Deere financesubsidiary in Canada, as part of retail note sales. At April 30, 2006,October 31, 2005 and April 30, 2005, the Company’s maximum exposureunder these agreements was approximately $7 million. The Company does notrecord the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onreceivables that have been sold was accrued at the time of sale, and anysubsequent necessary adjustments are made as part of ongoing reviews. 

**             Thesereceivables represent recreational product retail notes that the Company hassold but continues to administer for a fee.

11

----

Total Receivable amounts 60days or more past due in the table below represent the amount of all customerpayments past due 60 days or more, by product, and as a percent of therespective receivables. They were as follows (in millions of dollars):
| ** **                           | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|--------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                           | ** ** | **2006**           | ** ** | **2005**             | ** ** | **2005**           | ** ** |
| ** **                           | ** ** | **Dollars**        | ** ** | **Percent**          | ** ** | **Dollars**        | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |               |       |                 |       |               |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                  | 10.0       |                 | .15        | %                  | $          | 8.1 |   | .13 | % | $ | 10.0 |   | .19 | % |
| Construction and  forestry equipment |       | 5.6                |       | .25                  |       | 4.6                |       | .23 |   | 4.1 |   | .25 |   |
| Commercial and  consumer equipment   |       | 1.2                |       | .12                  |       | 1.1                |       | .11 |   | 1.0 |   | .10 |   |
| Recreational  products               |       |               |       |                 |       | .1                 |       | .44 |   | .1 |   | .37 |   |
| Total retail  notes                  |       | 16.8               |       | .17                  |       | 13.9               |       | .15 |   | 15.2 |   | .19 |   |
| Revolving charge  accounts*          |       | 16.4               |       | 1.22                 |       | 12.5               |       | .82 |   | 12.1 |   | .92 |   |
| Operating loans                      |       | .2                 |       | .05                  |       |               |       |   |   | .8 |   | .20 |   |
| Wholesale receivables                |       | 1.9                |       | .04                  |       | 1.7                |       | .05 |   | 2.6 |   | .06 |   |
| Financing leases                     |       | 4.8                |       | 1.22                 |       | 4.5                |       | 1.09 |   | 4.1 |   | 1.04 |   |
| Total Receivables                    |       | $                  | 40.1       |                 | .24        | %                  | $          | 32.6 |   | .21 | % | $ | 34.8 |   | .24 | % |

 

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

The balance ofretail notes held (principal plus accrued interest) with any installment 60days or more past due represents the total retail note balance for a customerwho has any portion of his note 60 days or more past due. These amounts were$90 million, $78 million and $77 million at April 30, 2006,October 31, 2005 and April 30, 2005, respectively. The balances of retailnotes held on which any installment was 60 days or more past due as apercentage of the ending retail notes receivable was .93 percent, .84 percentand .97 percent at April 30, 2006, October 31, 2005 andApril 30, 2005, 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):
| ** **                          | ** ** | **April 30,** | ** ** | **October 31,** | ** ** | **April 30,** | ** ** |
|-------------------------------------|------------|--------------------|------------|----------------------|------------|--------------------|------------|
| ** **                          | ** ** | **2006**           | ** ** | **2005**             | ** ** | **2005**           | ** ** |
| ** **                          | ** ** | **Dollars**        | ** ** | **Percent**          | ** ** | **Dollars**        | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |               |       |                 |       |               |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                  | 13.1       |                 | .20        | %                  | $          | 15.6 |   | .25 | % | $ | 13.2 |   | .25 | % |
| Construction and forestry equipment |       | 10.1               |       | .45                  |       | 10.3               |       | .52 |   | 7.5 |   | .46 |   |
| Commercial and consumer equipment   |       | 3.1                |       | .32                  |       | 5.2                |       | .51 |   | 3.9 |   | .40 |   |
| Recreational products               |       | .3                 |       | 1.49                 |       | .4                 |       | 1.76 |   | .5 |   | 1.84 |   |
| Total retail notes                  |       | 26.6               |       | .27                  |       | 31.5               |       | .34 |   | 25.1 |   | .32 |   |
| Revolving charge  accounts          |       | .5                 |       | .04                  |       | .5                 |       | .03 |   | .3 |   | .02 |   |
| Operating loans                     |       | 23.0               |       | 6.17                 |       | 23.9               |       | 6.22 |   | 23.8 |   | 5.88 |   |
| Wholesale  receivables              |       | 1.7                |       | .04                  |       | 1.6                |       | .04 |   |   |   |   |   |
| Financing leases                    |       | 8.1                |       | 2.06                 |       | 9.6                |       | 2.33 |   | 8.5 |   | 2.15 |   |
| Total  Receivables                  |       | $                  | 59.9       |                 | .36        | %                  | $          | 67.1 |   | .44 | % | $ | 57.7 |   | .39 | % |

12

----

Total Receivable write-offamounts, net of recoveries, by product, and as an annualized percentage of averagebalances held during the period, were as follows (in millions of dollars):

|                                     | ** ** | **Three Months Ended  April 30,  2006** | ** ** | **Three Months Ended  April 30,  2005** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                                            | ** ** | **Percent**                                            | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                                   |       |                                                   |       |   |   |   |   |
| Agricultural equipment              |       | $                                                      | (.2        | )                                                      | (.01       | )% | $ | .0 |   | .00 | % |
| Construction and forestry equipment |       | .7                                                     |       | .14                                                    |       | .7 |   | .18 |   |
| Commercial and consumer equipment   |       | .1                                                     |       | .04                                                    |       | .2 |   | .08 |   |
| Recreational products               |       | (.1                                                    | )          | (2.27                                                  | )          | .2 |   | 3.22 |   |
| Total retail notes                  |       | .5                                                     |       | .02                                                    |       | 1.1 |   | .06 |   |
| Revolving charge  accounts          |       | 5.2                                                    |       | 1.72                                                   |       | 5.8 |   | 1.96 |   |
| Operating loans                     |       |                                                   |       |                                                   |       | (.4 | ) | (.43 | ) |
| Wholesale  receivables              |       | .5                                                     |       | .05                                                    |       | .4 |   | .04 |   |
| Financing leases                    |       | .2                                                     |       | .21                                                    |       | .3 |   | .30 |   |
| Total  Receivables                  |       | $                                                      | 6.4        |                                                   | .17        | % | $ | 7.2 |   | .22 | % |

 

|                                     | ** ** | **Six Months Ended  April 30,  2006** | ** ** | **Six Months Ended  April 30,  2005** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **Dollars**                                          | ** ** | **Percent**                                          | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                                                 |       |                                                 |       |   |   |   |   |
| Agricultural equipment              |       | $                                                    | (1.3       | )                                                    | (.04       | )% | $ | (.5 | ) | (.02 | )% |
| Construction and forestry equipment |       | 1.8                                                  |       | .17                                                  |       | 1.1 |   | .15 |   |
| Commercial and consumer equipment   |       | .1                                                   |       | .02                                                  |       | .3 |   | .06 |   |
| Recreational products               |       | (.1                                                  | )          | (.89                                                 | )          | .5 |   | 3.04 |   |
| Total retail notes                  |       | .5                                                   |       | .01                                                  |       | 1.4 |   | .04 |   |
| Revolving charge  accounts          |       | 10.7                                                 |       | 1.70                                                 |       | 10.3 |   | 1.70 |   |
| Operating loans                     |       | (.1                                                  | )          | (.05                                                 | )          | (.6 | ) | (.32 | ) |
| Wholesale  receivables              |       | (.8                                                  | )          | (.04                                                 | )          | (.1 | ) | (.01 | ) |
| Financing leases                    |       | .7                                                   |       | .36                                                  |       | .9 |   | .46 |   |
| Total  Receivables                  |       | $                                                    | 11.0       |                                                 | .15        | % | $ | 11.9 |   | .18 | % |

 

Deposits withheld from dealersand merchants, representing mainly the aggregate dealer retail note and leasewithholding accounts from individual John Deere dealers to which losses fromretail notes and leases originating from the respective dealers can be charged,amounted to $166 million at April 30, 2006 compared with $166 millionat October 31, 2005 and $155 million at April 30, 2005.

The Company’s allowancefor credit losses on all Receivables financed totaled $95 million atApril 30, 2006, $96 million at October 31, 2005 and $106 millionat April 30, 2005. The allowance for credit losses represented..58 percent of the total Receivables financed at April 30, 2006, .63 percentat October 31, 2005 and .72 percent at April 30, 2005. The levelof the allowance is based on many quantitative and qualitative factors,including historical loss experience by product category, portfolio duration,delinquency trends, economic conditions and credit risk quality. The Companybelieves its allowance is sufficient to provide for losses in its existingreceivable portfolio.

13

----

 
| Safe Harbor Statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Safe Harbor Statement under the Private Securities  Litigation Reform Act of 1995:  *Statements herein that  relate to future operating periods are subject to important risks and  uncertainties that could cause actual results to differ materially. Actions  by the U.S. Federal Reserve Board and other central banks may affect the  costs and expenses of financing the Company and the rates it is able to  offer. The Company’s business is affected by general economic conditions in  and the political instability of the global markets in which the Company  operates because deteriorating economic conditions and political instability  can result in higher loan losses. The Company’s business is also affected by  actions of banks, financing and leasing companies and other lenders that  compete with the Company for customers. In addition, the Company’s business is  closely related to John Deere’s business. Further information, including  factors that potentially could materially affect the Company’s and John Deere’s  financial results, is included in the most recent Deere & Company Form 10-K  and other Deere & Company and Capital Corporation filings with the  Securities and Exchange Commission. |
| Critical  Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| See the Company’s  critical accounting policies discussed in the Management’s Discussion and  Analysis of the most recent annual report filed on Form 10-K. There  have been no material changes to these policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Capital  Resources and Liquidity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| The  Company relies on its ability to raise substantial amounts of funds to  finance its Receivable and Lease portfolios. During the first six months of  2006, the Company issued $1,284 million of medium-term notes, obtained $733 million  of secured borrowings, maintained an average commercial paper balance of  $1,835 million and received proceeds of $51 million from sales of  Receivables. At April 30, 2006, the Company’s funding profile included  $2,045 million of commercial paper, $1,635 million of notes payable  related to on-balance sheet securitization funding, $321 million of  intercompany loans from Deere & Company, $11,090 million  of unsecured term debt, $1,094 million of off-balance sheet  securitization funding and $2,087 million of equity capital. The Company’s  funding profile may be altered to reflect such factors as relative costs of  funding sources, assets available for securitizations and capital market  accessibility.                                                                                                                                                                                                                                                 |
| During  the first six months of 2006, the aggregate net cash provided by operating  and financing activities was used primarily to increase Receivables and  Leases. Net cash provided by operating activities was $244 million in the  first six months of 2006. Cash provided by financing activities totaled  $1,155 million in the first six months of 2006, resulting primarily from a  net increase in external borrowings. Net cash used for investing activities  totaled $1,375 million in the first six months of 2006, primarily due to  the cost of Receivables and Leases acquired exceeding collections. Cash and  cash equivalents increased $24 million during the first six months of  2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| During  the first six months of 2005, the aggregate net cash provided by operating  and financing activities was used primarily to increase Receivables and  Leases. Net cash provided by operating activities was $156 million in  the first six months of 2005. Cash provided by financing activities totaled  $1,913 million in the first six months of 2005, resulting primarily from a  net increase in external borrowings, partially offset by dividends paid to  John Deere Credit Company, which in turn paid comparable dividends to Deere &  Company. Net cash used for investing activities totaled $2,018 million  in the first six months of 2005, primarily due to the cost of Receivables and  Leases acquired exceeding collections. Cash and cash equivalents increased  $52 million during the first six months of 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Because  of the multiple funding sources that have been and continue to be available  to the Company, the Company expects to have sufficient sources of liquidity  to meet its ongoing funding needs. The Company’s commercial paper outstanding  at April 30, 2006, October 31, 2005 and April 30, 2005 was  approximately $2,045 million, $1,696 million and $1,895 million,  respectively, while the total cash and cash equivalents position was  approximately $274 million, $250 million and $261million,  respectively. Additionally, the Company had access to approximately $2,535 million,  $4,103 million and $2,728 million, respectively, of cash and cash  equivalents and marketable securities held by its parent, Deere & Company  (if Deere & Company would have chosen to make these funds available  to the Company). In addition, the Company has for many years accessed diverse  funding sources, including short-term and long-term unsecured debt capital  markets in the U.S., Europe and Australia, as well as public and private  securitization markets in the U.S. The Company also has access to unsecured  bank lines of credit.                                                              |

 

14

----

 
| The Company’s ability to  obtain funding is affected by its debt ratings, which are closely related to  the outlook for and the financial condition of Deere & Company, and  the nature and availability of support facilities, such as its lines of  credit and the support agreement from Deere & Company.  For information regarding Deere & Company and its business, see  the Company’s most recently filed annual report on Form 10-K and  quarterly report on Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                               |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| To  access public debt capital markets, the Company relies on credit rating  agencies to assign short-term and long-term credit ratings to the Company’s  securities as an indicator of credit quality for fixed income investors. A  security rating is not a recommendation by the rating agency to buy, sell or  hold Company securities. A credit rating agency may change or withdraw  Company ratings based on its assessment of the Company’s current and future  ability to meet interest and principal repayment obligations. Lower credit  ratings generally result in higher borrowing costs and reduced access to debt  capital markets. The senior long-term and short-term debt ratings and outlook  currently assigned to unsecured Company securities by the rating agencies engaged  by the Company are the same as those for Deere & Company. Those  ratings are as follows: |

 

|                                            | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** | ** ** |
|--------------------------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| Moody’s  Investors Service, Inc. |       | A3                        |       | Prime-2        |       | Positive    |       |
| Standard &  Poor’s           |       | A-                        |       | A-2            |       | Positive    |       |

 
| Total interest-bearing  indebtedness amounted to $15,105 million at April 30, 2006, compared  with $13,958 million at October 31, 2005, and $13,449 million  at April 30, 2005. Included in this debt are secured borrowings of $1,635 million  at April 30, 2006, $1,353 million at October 31, 2005 and  $621 million at April 30, 2005. Total external borrowings increased  during the first six months of 2006 and the past 12 months, generally  corresponding with the level of the Receivable and Lease portfolios, the  level of cash and cash equivalents and the change in payable to Deere &  Company. Total short-term indebtedness amounted to $6,584 million at April 30,  2006, which included $1,635 million of secured borrowings, compared with  $5,767 million at October 31, 2005, which included  $1,353 million of secured borrowings and $5,638 million at April 30,  2005, which included $621 million of secured borrowings, while total  long-term indebtedness amounted to $8,522 million, $8,191 million  and $7,811 million at these dates, respectively. The ratio of total  interest-bearing debt to stockholder’s equity was 7.2 to 1 at April 30,  2006, compared with 7.2 to 1 at October 31, 2005 and 7.3 to 1 at April 30,  2005. The ratio of total interest-bearing debt, excluding secured borrowings,  to stockholder’s equity was 6.5 to 1, 6.5 to 1 and 7.0 to 1 for the same  periods. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Company issued  $1,289 million and retired $787 million of other borrowings during the first  six months of 2006, which were primarily medium-term notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Capital expenditures for the Company in 2006 are estimated to be  approximately $315 million, primarily related to the wind energy entities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| The Company’s ability to meet its debt obligations is supported in a  number of ways. All commercial paper issued is backed by unsecured, committed  credit lines from various banks. The assets of the Company are  self-liquidating in nature. A strong equity position is available to absorb  unusual losses on these assets. Liquidity is also provided by the Company’s  ability to securitize these assets. The Company also maintains uncommitted,  unsecured lines of credit with various banks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| At April 30, 2006, the Capital Corporation and Deere &  Company jointly maintained $3,022 million of lines of credit with various banks  throughout the world, $533 million of which were unused. For the purpose of computing unused credit  lines, commercial paper and short-term bank borrowings, excluding secured  borrowings and the current portion of long-term borrowings, of the Company and  John Deere, were considered to constitute utilization.  Included in the total credit lines at April 30, 2006 was the long-term credit facility agreement of  $3 billion, expiring in February 2011. The facility fees  payable under these lines of credit are divided between Deere &  Company and the Capital Corporation based on the proportion of their  respective commercial paper outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

15

----

 
| In February 2006, the  Company replaced its existing long-term credit facility agreements totaling  $1,875 million and its $625 million short-term agreement with a $3  billion five-year credit agreement. As with the replaced agreements, the new  credit agreement has various requirements of the Company, including the  maintenance of its consolidated ratio of earnings to fixed charges at not  less than 1.05 to 1 for each fiscal quarter. The new agreement requires  maintenance of the Company’s ratio of senior debt, excluding securitization  indebtedness, to total stockholder’s equity (excluding accumulated other  comprehensive income (loss)) at not more than 8.5 to 1 (replacing  8.0 to 1 in the previous agreements) at the end of any fiscal  quarter. For the second quarter of 2006,  the Company’s ratio of earnings to fixed charges was 1.60 to 1. The  Company’s ratio of senior debt, excluding securitization indebtedness, to  total stockholder’s equity (excluding accumulated other comprehensive income  (loss)) at the end of the second quarter of 2006 was 6.6 to 1. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Company utilizes a revolving multi-bank conduit facility to  securitize floating rate retail notes (see Note 5). This facility has the  capacity, or “purchase limit,” of up to $2 billion in secured financing  or sales outstanding at any time. This facility has no final maturity date.  Instead, upon the Company’s request, each bank conduit may elect to renew its  commitment on an annual basis. If this facility is not renewed, the Company  would liquidate the securitizations as the payments on these retail notes are  collected. At April 30, 2006, $1,842 million was outstanding under  the facility of which $1,114 million was recorded on the balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Stockholder’s equity  was $2,087 million at April 30, 2006, compared with $1,940 million  at October 31, 2005 and $1,830 million at April 30, 2005. The  increase in the first six months of 2006 resulted primarily from net income  of $139 million and a $9 million increase in accumulated other  comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| The financing of retail  purchases and leases of John Deere products and of wholesale receivables owed  by John Deere dealers represented approximately 85 percent of the  Company’s acquisition volume for the six months ended April 30, 2006 and  2005. Any extended reduction or suspension of John Deere’s sale or production  of products due to a decline in demand or production, technological  difficulties, governmental actions or other events could have an adverse  effect on the Company’s acquisition volume of Receivables and Leases. For  additional information on the Company’s dependence on and relationships with  Deere & Company, see the Company’s most recently filed annual report  on Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                          |

 
| Item 3. | Quantitative and  Qualitative Disclosures About Market Risk. |
|---------|--------------------------------------------------------------|

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

 
| Item 4. | Controls and  Procedures. |
|---------|---------------------------|

 
| The Company’s principal  executive officer and its principal financial officer have concluded that the  Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and  15d-15(e) of the Securities Exchange Act of 1934, as amended (“the  Act”)) were effective as of April 30, 2006, based on the evaluation of  these controls and procedures required by Rule 13a-15(b) or  15d-15(b) of the Act. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

16

----

| **PART II.   OTHER INFORMATION** |
|-------------------------------------------------|
|                                            |
| Item 1.                                         | Legal Proceedings. |
|                                            | The Company is subject to various unresolved legal  actions which arise in the normal course of its business, the most prevalent  of which relate to state and federal laws and regulations concerning retail  credit. Although it is not possible to predict with certainty the outcome of  these unresolved legal actions or the range of possible loss, the Company  believes these unresolved legal actions will not have a material effect on  its financial statements. |
| Item 2.                                         | Unregistered Sales of  Equity Securities and Use of Proceeds. |
|                                            | Omitted pursuant to instruction H. |
| Item 3.                                         | Defaults Upon Senior Securities. |
|                                            | Omitted pursuant to instruction H. |
| Item 4.                                         | Submission of Matters to a Vote of Security Holders. |
|                                            | Omitted pursuant to instruction H. |
| Item 5.                                         | Other Information. |
|                                            | None. |
| Item 6.                                         | Exhibits. |
|                                            | Certain instruments relating to long-term debt,  constituting less than 10% of the registrant’s total assets, are not filed as  exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The  registrant will file copies of such instruments upon request of the  Commission. |

 

17

----

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|   |               | JOHN DEERE  CAPITAL CORPORATION |
|--------|--------------------|---------------------------------|
| Date:  | June 1,  2006 | By:                             | /s/ *M. J. Mack, Jr.* |
|   |               |                            | M. J. Mack, Jr.  Senior Vice President,  Principal Financial Officer |

 

18

----

| **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  April 30, 2006  (Securities and Exchange Commission file number 1-4121*) |

----

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

 

 

19

----