**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-Q**

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

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**For the quarterly periodended April 30, 2007**

 

Commission file no: 1-6458

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

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports) and (2) has been subject to such filing requirements for the past90 days.Yes x   No o

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

 

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

At April 30, 2007, 2,500shares of common stock, without par value, of the registrant were outstanding,all of which were owned by John Deere Credit Company, a wholly-owned subsidiaryof Deere & Company.

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

 

 

Page 1 of 25 Pages Index to Exhibits: Page 21

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## PART I.FINANCIAL INFORMATION

## Item 1.    FinancialStatements.

## **John Deere CapitalCorporation and SubsidiariesStatements of Consolidated Income and Retained Earnings****(Unaudited)**(in millions)

| ** **                                            | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                            | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenues**                                          |       |                                             |       |                                           |       |   |   |   |   |
| Finance income  earned on retail notes                |       | $                                                | 206.0      |                                           | $          | 170.0 |   | $ | 406.4 |   | $ | 330.0 |   |
| Lease revenues                                        |       | 77.4                                             |       | 68.9                                           |       | 154.6 |   | 135.5 |   |
| Revolving charge  account income                      |       | 51.6                                             |       | 48.4                                           |       | 100.5 |   | 94.1 |   |
| Finance income  earned on wholesale receivables       |       | 95.6                                             |       | 88.7                                           |       | 178.2 |   | 161.4 |   |
| Operating loan  income                                |       | 7.5                                              |       | 6.5                                            |       | 16.1 |   | 13.6 |   |
| Income on  receivables sold                           |       | 8.0                                              |       | 8.2                                            |       | 14.5 |   | 16.3 |   |
| Crop insurance  commissions                           |       | 14.4                                             |       | 9.5                                            |       | 24.0 |   | 12.5 |   |
| Other income                                          |       | 22.6                                             |       | 12.4                                           |       | 39.5 |   | 23.8 |   |
| Total revenues                                        |       | 483.1                                            |       | 412.6                                          |       | 933.8 |   | 787.2 |   |
|                                                  |       |                                             |       |                                           |       |   |   |   |   |
| **Expenses**                                          |       |                                             |       |                                           |       |   |   |   |   |
| Interest expense                                      |       | 215.1                                            |       | 174.8                                          |       | 417.0 |   | 329.1 |   |
| Operating  expenses:                                  |       |                                             |       |                                           |       |   |   |   |   |
| Administrative  and operating expenses                |       | 76.7                                             |       | 72.2                                           |       | 141.9 |   | 128.8 |   |
| Provision for  credit losses                          |       | 13.8                                             |       | 6.8                                            |       | 24.9 |   | 9.0 |   |
| Fees paid to John  Deere                              |       | 8.7                                              |       | 8.0                                            |       | 16.8 |   | 17.7 |   |
| Depreciation of  equipment on operating leases        |       | 52.1                                             |       | 45.7                                           |       | 104.0 |   | 90.1 |   |
| Total operating  expenses                             |       | 151.3                                            |       | 132.7                                          |       | 287.6 |   | 245.6 |   |
| Total expenses                                        |       | 366.4                                            |       | 307.5                                          |       | 704.6 |   | 574.7 |   |
| **Income of consolidated group  before income taxes** |       | 116.7                                            |       | 105.1                                          |       | 229.2 |   | 212.5 |   |
| **Provision for income taxes**                        |       | 40.5                                             |       | 36.7                                           |       | 79.9 |   | 74.1 |   |
| **Income of consolidated group**                      |       | 76.2                                             |       | 68.4                                           |       | 149.3 |   | 138.4 |   |
| **Equity in income of  unconsolidated affiliates**    |       | .1                                               |       | .1                                             |       | .2 |   | .2 |   |
| **Net income**                                        |       | 76.3                                             |       | 68.5                                           |       | 149.5 |   | 138.6 |   |
| **Cash dividends paid**                               |       | (270.0                                           | )          |                                           |       | (310.0 | ) |   |   |
| **Retained earnings at beginning  of period**         |       | 1,334.1                                          |       | 1,164.8                                        |       | 1,300.9 |   | 1,094.7 |   |
| **Retained earnings at end of period**                |       | $                                                | 1,140.4    |                                           | $          | 1,233.3 |   | $ | 1,140.4 |   | $ | 1,233.3 |   |

 

See Notes toInterim Financial Statements.

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## **John Deere CapitalCorporation and Subsidiaries****Consolidated BalanceSheets(Unaudited)**(in millions)

| ** **                                                                                                        | ** ** | **April 30,  2007** | ** ** | **October 31,  2006** | ** ** | **April 30,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| **Assets**                                                                                                        |       |                     |       |                       |       |                     |       |
| Cash and cash  equivalents                                                                                        |       | $                        | 143.9      |                       | $          | 119.2                    |       | $ | 274.2 |   |
| Receivables:                                                                                                      |       |                     |       |                       |       |                     |       |
| Retail notes                                                                                                      |       | 8,232.0                  |       | 8,584.2                    |       | 8,134.6                  |       |
| Restricted  securitized retail notes                                                                              |       | 2,615.6                  |       | 2,173.4                    |       | 1,589.6                  |       |
| Revolving charge  accounts                                                                                        |       | 1,358.8                  |       | 1,512.4                    |       | 1,340.8                  |       |
| Operating loans                                                                                                   |       | 283.7                    |       | 378.7                      |       | 372.7                    |       |
| Wholesale  receivables                                                                                            |       | 4,545.0                  |       | 3,699.0                    |       | 4,592.3                  |       |
| Financing leases                                                                                                  |       | 406.7                    |       | 420.8                      |       | 394.1                    |       |
| Total  receivables                                                                                                |       | 17,441.8                 |       | 16,768.5                   |       | 16,424.1                 |       |
| Allowance for  credit losses                                                                                      |       | (95.5                    | )          | (92.8                      | )          | (94.5                    | )          |
| Total  receivables — net                                                                                     |       | 17,346.3                 |       | 16,675.7                   |       | 16,329.6                 |       |
| Other  receivables                                                                                                |       | 85.2                     |       | 107.9                      |       | 109.8                    |       |
| Equipment on  operating leases — net                                                                         |       | 898.8                    |       | 900.1                      |       | 812.7                    |       |
| Receivable from  John Deere                                                                                       |       | 103.2                    |       |                       |       |                     |       |
| Notes receivable  from John Deere                                                                                 |       | 453.3                    |       | 238.6                      |       |                     |       |
| Investment in  unconsolidated affiliates                                                                          |       | 5.0                      |       | 4.4                        |       | 4.4                      |       |
| Other assets                                                                                                      |       | 235.8                    |       | 331.5                      |       | 385.8                    |       |
| **Total Assets**                                                                                                  |       | $                        | 19,271.5   |                       | $          | 18,377.4                 |       | $ | 17,916.5 |   |
| ** **                                                                                                        |       |                     |       |                       |       |                     |       |
| **Liabilities and Stockholder’s  Equity**                                                                    |       |                     |       |                       |       |                     |       |
| Short-term  borrowings:                                                                                           |       |                     |       |                       |       |                     |       |
| Commercial paper                                                                                                  |       | $                        | 2,728.6    |                       | $          | 2,289.5                  |       | $ | 2,044.9 |   |
| Other notes  payable                                                                                              |       | 2,722.9                  |       | 2,207.6                    |       | 1,650.1                  |       |
| John Deere                                                                                                        |       |                     |       | 178.2                      |       | 320.9                    |       |
| Current  maturities of long-term borrowings                                                                       |       | 3,249.2                  |       | 2,467.5                    |       | 2,567.7                  |       |
| Total short-term  borrowings                                                                                      |       | 8,700.7                  |       | 7,142.8                    |       | 6,583.6                  |       |
| Accounts payable  and accrued expenses                                                                            |       | 444.6                    |       | 383.7                      |       | 450.0                    |       |
| Deposits  withheld from dealers and merchants                                                                     |       | 167.2                    |       | 177.4                      |       | 165.8                    |       |
| Deferred income  taxes                                                                                            |       | 85.3                     |       | 107.3                      |       | 108.0                    |       |
| Long-term  borrowings                                                                                             |       | 7,863.2                  |       | 8,412.5                    |       | 8,521.8                  |       |
| Total  liabilities                                                                                                |       | 17,261.0                 |       | 16,223.7                   |       | 15,829.2                 |       |
| 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                                                                                                |       | 1,140.4                  |       | 1,300.9                    |       | 1,233.3                  |       |
| Accumulated  other comprehensive income:                                                                          |       |                     |       |                       |       |                     |       |
| Cumulative  translation adjustment                                                                                |       | 45.8                     |       | 28.1                       |       | 22.8                     |       |
| Unrealized gain  on investments                                                                                   |       | 3.3                      |       | 3.5                        |       | 8.3                      |       |
| Unrealized gain  on derivatives                                                                                   |       | 8.2                      |       | 8.4                        |       | 10.1                     |       |
| Total  accumulated other comprehensive income                                                                     |       | 57.3                     |       | 40.0                       |       | 41.2                     |       |
| Total  stockholder’s equity                                                                                  |       | 2,010.5                  |       | 2,153.7                    |       | 2,087.3                  |       |
| **Total Liabilities and Stockholder’s Equity**                                                               |       | $                        | 19,271.5   |                       | $          | 18,377.4                 |       | $ | 17,916.5 |   |

 

See Notes toInterim Financial Statements.

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## **John Deere CapitalCorporation and SubsidiariesStatements of Consolidated Cash FlowsFor the Six Months Ended April 30, 2007 and 2006****(Unaudited)**(in millions)

| ** **                                                                         | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating  Activities**                                          |       |      |       |      |       |
| Net income                                                                         |       | $         | 149.5      |      | $          | 138.6 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |      |       |      |       |
| Provision for  credit losses                                                       |       | 24.9      |       | 9.0       |       |
| Provision for  depreciation and amortization                                       |       | 107.5     |       | 92.2      |       |
| Credit for  deferred income taxes                                                  |       | (21.6     | )          | (6.5      | )          |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.2       | )          | (.2       | )          |
| Change in  accounts payable and accrued expenses                                   |       | (13.4     | )          | 57.2      |       |
| Change in  accrued income taxes payable/receivable                                 |       | 19.9      |       | 12.9      |       |
| Other                                                                              |       | 3.5       |       | (59.0     | )          |
| Net cash  provided by operating activities                                         |       | 270.1     |       | 244.2     |       |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Investing  Activities**                                          |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (13,771.3 | )          | (14,262.4 | )          |
| Collections of  receivables                                                        |       | 13,174.2  |       | 13,078.4  |       |
| Cost of  equipment on operating leases acquired                                    |       | (221.9    | )          | (216.8    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 102.8     |       | 93.8      |       |
| Purchases of  property and equipment                                               |       | (1.2      | )          | (69.3     | )          |
| Cost of notes  receivable with John Deere                                          |       | (244.1    | )          |      |       |
| Collection of  notes receivable with John Deere                                    |       | 29.4      |       |      |       |
| Proceeds from  sales of receivables                                                |       | 104.4     |       | 50.7      |       |
| Change in restricted  cash                                                         |       | 86.3      |       | (62.1     | )          |
| Other                                                                              |       | 56.0      |       | 12.7      |       |
| Net cash used  for investing activities                                            |       | (685.4    | )          | (1,375.0  | )          |
|                                                                               |       |      |       |      |       |
| **Cash Flows from Financing  Activities**                                          |       |      |       |      |       |
| Increase in  commercial paper — net                                           |       | 388.4     |       | 321.0     |       |
| Increase in  other notes payable - net                                             |       | 515.5     |       | 285.9     |       |
| Change in  receivable from/payable to John Deere                                   |       | (281.4    | )          | 45.9      |       |
| Proceeds from  issuance of long-term borrowings                                    |       | 989.5     |       | 1,289.3   |       |
| Payments of  long-term borrowings                                                  |       | (860.1    | )          | (787.2    | )          |
| Dividends paid                                                                     |       | (310.0    | )          |      |       |
| Other                                                                              |       | (4.4      | )          |      |       |
| Net cash provided  by financing activities                                         |       | 437.5     |       | 1,154.9   |       |
|                                                                               |       |      |       |      |       |
| **Effect of exchange rate changes  on cash and cash equivalents**                  |       | 2.5       |       | (.1       | )          |
| **Net increase in cash and cash  equivalents**                                     |       | 24.7      |       | 24.0      |       |
| **Cash and cash equivalents at  beginning of period**                              |       | 119.2     |       | 250.2     |       |
| **Cash and cash equivalents at end of period**                                     |       | $         | 143.9      |      | $          | 274.2 |   |

 

See Notes toInterim Financial Statements.

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# **JohnDeere Capital Corporation and SubsidiariesNotes to Interim Financial Statements(Unaudited)**

(1)                                  Theconsolidated financial statements of John Deere Capital Corporation (CapitalCorporation) and its subsidiaries (collectively called the Company) have beenprepared by the Company, without audit, pursuant to the rules and regulationsof the U.S. Securities and Exchange Commission. Certain information andfootnote disclosures normally included in annual financial statements preparedin accordance with accounting principles generally accepted in the U.S. havebeen condensed or omitted as permitted by such rules and regulations. Alladjustments, consisting of normal recurring adjustments, have been included.Management believes that the disclosures are adequate to present fairly thefinancial position, results of operations and cash flows at the dates and forthe periods presented. It is suggested that these interim financial statementsbe read in conjunction with the financial statements and the notes theretoincluded in the Company’s latest annual report on Form 10-K. Results forinterim periods are not necessarily indicative of those to be expected for theyear.

The preparation offinancial statements in conformity with accounting principles generally acceptedin the U.S. requires management to make estimates and assumptions that affectthe reported amounts and related disclosures. Actual results could differ fromthose estimates.

(2)                                  TheCompany provides and administers financing for retail purchases of newequipment manufactured by Deere & Company’s agricultural equipment,commercial and consumer equipment, and construction and forestry divisions andused equipment taken in trade for this equipment. The Company purchases retailinstallment sales and loan contracts (retail notes) from Deere & Companyand its wholly-owned subsidiaries (collectively called John Deere). John Deereacquires these 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 agricultural,commercial and consumer and construction and forestry equipment owned bydealers of those products (wholesale receivables). The Company also offerscredit enhanced international export financing to select customers whichgenerally involves John Deere products and offers certain crop risk mitigationproducts in the U.S. In addition, the Company invests in wind energy generationby making loans to certain affiliated companies that have directly invested inwind energy projects. Retail notes, revolving charge accounts, operating loans,financing leases and wholesale receivables are collectively called “Receivables.”Receivables and operating leases are collectively called “Receivables andLeases.”

(3)                                  TheCompany’s ratio of earnings to fixed charges was 1.54 to 1 for the secondquarter of 2007, compared with 1.60 to 1 for the second quarter of 2006. Theratio of earnings to fixed charges was 1.55 to 1 for the first six months of2007 and 1.64 to 1 for the first six months of 2006. “Earnings” consist ofincome before income taxes, the cumulative effect of changes in accounting andfixed charges. “Fixed charges” consist of interest on indebtedness,amortization of debt discount and expense, an estimated amount of rentalexpense under capitalized leases that is deemed to be representative of theinterest factor and rental expense under operating leases.

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

|                                                 | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                         | ** ** | **2006**                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                            |       |                                             |       |                                           |       |   |   |   |   |
| Net Income                                      |       | $                                                | 76.3       |                                           | $          | 68.5 |   | $ | 149.5 |   | $ | 138.6 |   |
|                                            |       |                                             |       |                                           |       |   |   |   |   |
| Other  comprehensive income (loss), net of tax: |       |                                             |       |                                           |       |   |   |   |   |
| Change in cumulative translation adjustment     |       | 12.5                                             |       | 3.4                                            |       | 17.7 |   | 4.4 |   |
| Unrealized gain (loss) on investments           |       |                                             |       | (.1                                            | )          | (.2 | ) | 1.5 |   |
| Unrealized gain (loss) on derivatives           |       | (1.3                                             | )          | 2.7                                            |       | (.2 | ) | 2.8 |   |
| Total comprehensive  income                     |       | $                                                | 87.5       |                                           | $          | 74.5 |   | $ | 166.8 |   | $ | 147.3 |   |

 

(5)                                  Contingenciesand commitments:

At April 30, 2007, John Deere Credit Inc., the JohnDeere finance subsidiary in Canada, had $233 million of commercial paper and$1,181 million of medium-term notes outstanding that were guaranteed by the Company.In addition, the Company has provided a letter of credit for John Deere CreditInc. as part of retail note sales. At April 30, 2007, the Company’s maximumexposure under this letter of credit was approximately $2 million.

At April 30, 2007, the Company had approximately $1million of guarantees issued primarily to banks outside the U.S. 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, 2007, the Company’s accrued liability under these agreements wasnot material. The maximum remaining term of the receivables guaranteed at April30, 2007 was approximately four years.

At April 30, 2007, the Company had $217 million ofguarantees issued to turbine manufacturers for John Deere Renewables, LLC windturbine purchases. John Deere Renewables, LLC is an affiliated company that hascommitments to purchase wind turbines related to its direct investments in windenergy projects. The maximum remaining term of these purchase commitments wasapproximately two years.

The Company’s subsidiary, John Deere Risk Protection,Inc., offers crop insurance products through a managing general agencyagreement (Agreement) with an insurance company (Insurance Carrier) rated “Excellent”by A.M. Best Company. As a managing general agent, John Deere Risk Protection,Inc. will receive commissions from the Insurance Carrier for selling cropinsurance to producers. The Company has guaranteed certain obligations underthe Agreement, including the obligation to pay the Insurance Carrier for anyuncollected premiums. At April 30, 2007, the maximum exposure for uncollectedpremiums was approximately $79 million. Substantially all of the Company’s cropinsurance risk under the Agreement has been mitigated by a syndicate of privatereinsurance companies. These reinsurance companies are rated “Excellent” orhigher by A.M. Best Company. In the event of a widespread catastrophic cropfailure throughout the U.S. and the default of these highly rated privatereinsurance companies on their reinsurance obligations, the Company would berequired to reimburse the Insurance Carrier for exposures under the Agreementof approximately $567 million at April 30, 2007. The Company believes that thelikelihood of the occurrence of events that give rise to the exposures underthis Agreement is substantially remote and as a result, at April 30, 2007, theCompany’s accrued liability under the Agreement was not material.

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The Company has commitments to extend credit tocustomers and John Deere dealers through lines of credit and other pre-approvedcredit arrangements. The Company applies the same credit policies and approvalprocess for these commitments to extend credit as it does for its Receivables.Collateral is not required for these commitments, but if credit is extended,collateral may be required upon funding. The amount of unused commitments toextend credit to John Deere dealers was $2.2 billion at April 30, 2007. Theamount of unused commitments to extend credit to customers was $31.3 billion atApril 30, 2007. A significant portion of these commitments is not expected tobe 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 to customersrelate to revolving charge accounts.

The Company alsohad other miscellaneous contingent liabilities totaling approximately $7million at April 30, 2007, for which it believes the probability for payment isremote. The Company’s accrued liability at April 30, 2007 related to thesecontingencies was not material. See Note 6 for recourse on sales ofreceivables.

(6)                                  Securitizationof receivables:

The Company, as a part of its overall fundingstrategy, periodically transfers certain receivables (retail notes) intospecial purpose entities (SPEs) as part of its asset-backed securities programs(securitizations) involving its retail notes. For securitizations entered intoprior to 2005, the structure of these transactions is such that the transfer ofthe retail notes met the criteria of sales in accordance with FASB StatementNo. 140, Accounting for Transfers and Servicing of Financial Assets andExtinguishment of Liabilities. Beginning in 2005, the transfer of retail notesinto new securitization transactions did not meet the sales criteria of FASBStatement No. 140 and are, therefore, accounted for as secured borrowings. SPEsutilized in securitizations of retail notes differ from other entities includedin the Company’s consolidated statements because the assets they hold arelegally isolated. For bankruptcy analysis purposes, the Capital Corporation hassold the receivables to the SPEs in a true sale and the SPEs are separate legalentities. Use of the assets held by the SPEs is restricted by terms of thedocuments governing the securitization transactions. Further informationrelated to the secured borrowings and sales of retail notes is provided below.

*Secured Borrowings*

In securitizations of retail notes related to securedborrowings, the retail notes are transferred to certain SPEs which in turnissue debt to investors. The resulting secured borrowings are included inshort-term borrowings on the balance sheet as shown in the following table. Thesecuritized retail notes are recorded as “Restricted securitized retail notes”on the balance sheet. The total restricted assets on the balance sheet relatedto these securitizations include the restricted securitized retail notes lessan allowance for credit losses, and other assets representing restricted cashas shown in the following table. In addition to the restricted assets shown inthe table, a reserve fund included in “Other receivables” related to retainedinterests for certain securitizations that qualified as sales of receivables isalso available as a credit enhancement for securitizations related to certainsecured borrowings. The amounts of this reserve fund at April 30, 2007, October31, 2006 and April 30, 2006 were $14 million, $22 million and $29 million,respectively. The SPEs supporting the secured borrowings to which the retailnotes are transferred are consolidated unless the Company is not the primarybeneficiary or the SPE is a qualified special purpose entity as defined in FASBStatement No. 140.

The components of consolidated restricted assetsrelated to secured borrowings in securitization transactions were as follows(in millions of dollars):

|                                      | ** ** | **April 30, 2007** | ** ** | **October 31, 2006** | ** ** | **April 30, 2006** | ** ** |
|--------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| Restricted  securitized retail notes |       | $                            | 2,615.6    |                           | $          | 2,173.4                      |       | $ | 1,589.6 |   |
| Allowance for  credit losses         |       | (14.9                        | )          | (8.8                           | )          | (6.7                         | )          |
| Other assets                         |       | 40.1                         |       | 72.2                           |       | 111.2                        |       |
| Total restricted  securitized assets |       | $                            | 2,640.8    |                           | $          | 2,236.8                      |       | $ | 1,694.1 |   |

 

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

|                                                             | ** ** | **April 30, 2007** | ** ** | **October 31, 2006** | ** ** | **April 30, 2006** | ** ** |
|-------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|------------------------------|------------|
| Other notes  payable                                        |       | $                            | 2,701.8    |                           | $          | 2,194.3                      |       | $ | 1,634.5 |   |
| Accounts payable  and accrued expenses                      |       | 3.9                          |       | 4.4                            |       | 2.7                          |       |
| Total liabilities  related to restricted securitized assets |       | $                            | 2,705.7    |                           | $          | 2,198.7                      |       | $ | 1, 637.2 |   |

 

The secured borrowings related to these restrictedsecuritized retail notes are obligations that are payable as the retail notesare liquidated. Repayment of the secured borrowings depends primarily on cashflows generated by the restricted assets and the reserve fund mentioned above.Due to the recent upgrade of the credit rating of the Company’s short-termdebt, cash collections from these restricted assets do not need to be placedinto a segregated collection account until immediately prior to the timepayment is required to be made to the Company’s secured creditors. Theconsolidated assets (restricted retail notes) relating to an SPE in which theCompany is the primary beneficiary, and, therefore, the SPE is consolidatedunder FASB Interpretation No. 46 (revised December 2003), Consolidation ofVariable Interest Entities, were $1,824 million, $1,147 million and $506million at April 30, 2007, October 31, 2006 and April 30, 2006, respectively.These restricted retail notes are included in the restricted securitized retailnotes related to securitizations shown in the table above. At April 30, 2007,the maximum remaining term of all restricted receivables was approximately sixyears.

*Sales of Receivables*

The Company hascertain recourse obligations on Receivables that it has previously sold. If theReceivables sold are not collected, the Company would be required to coverthose losses up to the amount of its recourse obligation. At April 30, 2007,the maximum amount of exposure to losses under these agreements was $74million. The estimated credit risk associated with sold receivables totaled $2million at April 30, 2007. This risk of loss is recognized primarily in the intereststhat continue to be held by the Company and recorded on its balance sheet.These interests are related to assets held by unconsolidated SPEs. At April 30,2007, the assets of these SPEs related to the Company’s securitization and saleof retail notes totaled approximately $519 million. The Company may recover aportion of any required payments incurred under these agreements from therepossession of the equipment collateralizing the Receivables. At April 30, 2007, the maximum remaining termof the Receivables sold was approximately three years.

(7)                                  Newaccounting standards adopted in the first quarter of 2007 are as follows:

The Company adopted FASB Statement No. 154, AccountingChanges and Error Corrections. This statement requires voluntary changes inaccounting principles to be recorded retrospectively for prior periodspresented rather than a cumulative adjustment in the current period. Thistreatment would also be required for new accounting pronouncements if there areno specific transition provisions. The accounting for changes in estimates inthe current period and the accounting for errors as restatements of priorperiods have not changed. The Company adopted FASB Statement No. 155,Accounting for Certain Hybrid Financial Instruments. This Statement primarilyresolves certain issues addressed in the implementation of FASB Statement No.133 concerning beneficial interest in securitized financial assets. The Companyadopted FASB Statement No. 156, Accounting for Servicing of Financial Assets.This Statement clarifies the criteria for recognizing servicing assets andliabilities, requires these items to be initially measured at fair value andpermits subsequent measurements on either an amortization or fair value basis.The adoption of these Statements did not have a material effect on the Company’sconsolidated financial statements.

New accounting standards to be adopted are as follows:

In September 2006, the FASB issued Statement No. 157,Fair Value Measurements. This Statement defines fair value and expandsdisclosures about fair value measurements. These methods will apply to otheraccounting standards, which use fair value measurements and may change theapplication of certain measurements used in current practice. The effectivedate is the beginning of fiscal year 2009. The adoption is not expected to havea material effect on the Company’s consolidated financial statements.

8

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The Company is a participating employer in certainDeere & Company sponsored defined benefit pension plans for employees inthe U.S. and certain defined benefit plans outside the U.S. In September 2006,the FASB issued Statement No. 158, Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans. This Statement requires retirementbenefit accruals or prepaid benefit costs on the balance sheet to be adjustedto the difference between the benefit obligations and the plan assets at fairvalue. The offset to the adjustment is recorded directly in stockholders’equity net of tax. The amount recorded in stockholder’s equity would representthe after-tax unrecognized actuarial gains or losses and unamortized priorservice costs. This Statement also requires all benefit obligations and planassets to be measured at fiscal year end. The effective date for the fundedstatus adjustment is the end of fiscal year 2007 and the year-end measurementdate is fiscal year 2009. The adoption of this Statement is not expected tohave a material effect on the Company’s consolidated financial statements. TheCompany does not expect violations of any credit agreements as a result ofadopting this new standard. Further disclosure for these plans is included inthe Deere & Company Form 10-Q for the quarter ended April 30, 2007.

In February 2007, the FASB issued Statement No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. ThisStatement permits entities to measure most financial instruments at fair valueif desired. It may be applied on a contract by contract basis and isirrevocable once applied to those contracts. The standard may be applied at thetime of adoption of the Statement or initial recognition of the eligible items.The unrealized gains or losses on these financial instruments are reported inearnings. The items measured at fair value must be shown separately on thebalance sheet along with other disclosures in the notes to the financialstatements. The effective date is the beginning of fiscal year 2009 with earlyadoption permitted at the beginning of a previous year. The cumulative effectof adoption would be reported as an adjustment to beginning retained earnings.The Company has not determined the potential effect on the consolidatedfinancial statements.

In June 2006, theFASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes.This Interpretation clarifies that the recognition for uncertain tax positionsshould be based on a more-likely-than-not threshold that the tax position willbe sustained upon audit. The tax position is measured as the largest amount ofbenefit that is greater than 50 percent likely of being realized uponsettlement. The effective date is the beginning of fiscal year 2008 with thecumulative effect reported as an adjustment to beginning retained earnings.While the Company continues to evaluate the impact of this Interpretation onits consolidated financial statements, the Company expects the adoption willnot have a material effect.

(8)                                  TheCompany is a participating employer in certain Deere & Company sponsoreddefined benefit pension plans for employees in the U.S. and certain definedbenefit pension plans outside the U.S. These pension plans provide for benefitsthat are 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 $2.9 million in the firstsix months of 2007. The accumulated benefit obligation and plan net assets forthe employees of the Company are not determined separately from Deere &Company. The Company generally provides defined benefit health care and lifeinsurance plans for retired employees in the U.S. as a participating employerin Deere & Company’s sponsored plans. Health care and life insurancebenefits expense is actuarially determined based on the Company’s employeesincluded in the plans and amounted to $2.9 million during the first six monthsof 2007. Further disclosure for these plans is included in Deere & Company’sForm 10-Q for the quarter ended April 30, 2007.

(9)                                  OnJune 1, 2007, the Capital Corporation declared a $120 million dividend, to bepaid to John Deere Credit Company on June 8, 2007. John Deere Credit Company,in turn, declared a $120 million dividend to Deere & Company, also payableon June 8, 2007.

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

Results of Operations

Overview

Organization

The Company primarily generates revenues and cash byfinancing 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 energygeneration.

Trends and Economic Conditions

The Company’s business is currently affected by thefollowing key trends and economic conditions. The Company’s business is closelyrelated to John Deere’s business. Global demand for farm commodities remainsquite strong, driven by growing economic prosperity and robust demand forrenewable fuels. Agricultural equipment industry sales in the U.S. and Canadaare forecast to be up about 5 percent for the year. Western European marketshave some concerns from potential drought conditions and industry sales areforecast to be flat to up 2 percent for the year. Markets in Eastern Europe andthe CIS (Commonwealth of Independent States) countries, including Russia, areexpected to have higher sales. South American industry sales are expected to beup about 20 percent for the year, primarily as a result of improved conditionsin Brazil, while industry sales in Australia are expected to be down about 20percent largely as a result of drought. Deere & Company’s agriculturalequipment sales were up 14 percent for the second quarter of 2007, up 12percent for the first six months and are forecast to increase about 13 percentfor the year, including about 3 percent from currency impact. Deere &Company’s commercial and consumer equipment sales were largely unchanged in thesecond quarter and first six months of 2007. For the year, these sales areexpected to be up approximately 11 percent, including about $350 million of salesfrom LESCO, which Deere & Company acquired in May 2007. Construction andforestry markets in the U.S. are expected to remain under pressure for theyear. Deere & Company’s construction and forestry sales decreased 12percent in the second quarter of 2007, 10 percent for the first six months andare forecast to decrease about 11 percent for the year. The Company expects toreport net income of approximately $300 million in 2007, as a result of furthergrowth in the loan portfolio, partially offset by higher administrative andoperating expenses in support of the Company’s growth initiatives.

2007 Compared with 2006

Net income was $76.3 million for the second quarterand $149.5 million for the first six months of 2007, compared with $68.5million and $138.6 million, respectively last year. The increase was primarilydue to growth in the portfolio, partially offset by a higher provision forcredit losses and higher administrative and operating expenses.

Revenues totaled $483.1 million for the second quarterand $933.8 million for the first six months of 2007, compared to $412.6 millionand $787.2 million, respectively, last year. This increase was primarily due toa 10 percent increase in the average balance of Receivables and Leases financedand higher financing rates during the first six months of 2007 compared to thefirst six months of 2006. Finance income earned on retail notes totaled $406.4million for the first six months of 2007, up $76.4 million compared to $330.0million for the same period in 2006. This increase was primarily due to a 14percent increase in the average retail note portfolio balances and higherfinancing rates. Lease revenues totaled $154.6 million in the first six monthsof 2007, compared to $135.5 million in the first six months of 2006. Thisincrease was primarily due to a 12 percent increase in the average amount ofequipment on operating leases. Revenues earned on revolving charge accountsamounted to $100.5 million in the first six months of 2007, a 7 percentincrease over revenues of $94.1 million during the same period last year. Thisincrease was primarily due to higher financing rates in the first six months of2007, compared with the same period last year. Finance income earned onwholesale receivables totaled $178.2 million for the first six months of 2007,compared to $161.4 million for the same period in 2006, primarily due to higherfinancing rates and a 3 percent increase in the average balance of wholesalereceivables. Operating loan income amounted to $16.1 million in the first sixmonths of 2007, compared to $13.6 million in the first six months of 2006,primarily due to a 10 percent increase in the average operating loan portfoliobalances and higher financing rates. Revenues earned from Deere & Companytotaled $144.5 million for the second quarter and $261.9 million in the firstsix months of 2007, compared to $119.4 million and $219.0 million for the sameperiods last year.

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Income on receivables sold totaled $8.0 million forthe second quarter and $14.5 million for the first six months of 2007, comparedto $8.2 million and $16.3 million for the same periods in 2006. Income onreceivables sold relates to Receivables sold to other financial institutions orlimited-purpose business trusts and primarily includes the interest earned onretained interests, reimbursed administrative expenses received and the netgain on Receivables sold, including adjustments to prior sales related tocleanup calls and revaluations of retained interests and the related permanentimpairments.

Crop insurance commissions totaled $14.4 million forthe second quarter and $24.0 million for the first six months of 2007, comparedto $9.5 million and $12.5 million for the same periods in 2006. The increasewas primarily due to increased crop insurance sales to producers as a result ofexpanded market coverage.

Other income totaled $22.6 million for the secondquarter and $39.5 million for the first six months of 2007, compared to $12.4million and $23.8 million for the same periods in 2006. The increase wasprimarily due to increased interest income as a result of higher average loansto certain affiliated companies that have directly invested in wind energyprojects.

Interest expense totaled $215.1 million for the secondquarter and $417.0 million for the first six months of 2007, compared to $174.8million and $329.1 million for the same periods in 2006. The increase was dueto increases in borrowing rates and higher average borrowings.

Administrative and operating expenses were $76.7million in the second quarter and $141.9 million for the first six months of2007, compared with $72.2 million and $128.8 million for the same periods in2006. The increase was primarily due to higher employment costs associated withadministering a larger Receivable and Lease portfolio and higher costs insupport of the Company’s growth initiatives.

During the second quarter and first six months of2007, the provision for credit losses totaled $13.8 million and $24.9 million,respectively, compared with $6.8 million and $9.0 million in the same periodslast year. The Company has experienced higher write-offs of retail notes,revolving charge accounts, and financing leases. Total net write-offs ofReceivables financed were $12.6 million and $23.1 million for the second quarterand first six months of 2007, compared with $6.4 million and $11.0 million inthe same periods last year. The annualized provision for credit losses, as apercentage of the average balance of total Receivables financed, was .33percent for the second quarter and .30 percent for the first six months of2007, compared with .18 percent and .12 percent for the same periods last year.Although the provision for credit losses increased from the same period lastyear, it continues to compare favorably to recent years. Over the last fivefiscal years, the provision for credit losses, as a percentage of the totalaverage balance of Receivables financed, averaged .49 percent. See the Company’smost recently filed annual report on Form 10-K for further information regardingthe Company’s allowance for credit losses policies.

Fees paid to John Deere for interest and support were$8.7 million in the second quarter and $16.8 million for the first six monthsof 2007, compared with $8.0 million and $17.7 million for the same periods in2006.

Depreciation of equipment on operating leases was$52.1 million in the second quarter and $104.0 million for the first six monthsof 2007, compared to $45.7 million and $90.1 million for the same periods in2006. The increase was primarily the result of higher average amounts ofequipment on operating leases.

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Receivable and Lease acquisition volumes were asfollows (in millions of dollars):
| ** **                          | ** ** | **Three Months  Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2007**                                         | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                                             |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                                | 1,124.8    |       | $          | 1,052.1           |       | $ | 72.7 |   | 7 | % |
| Construction and forestry equipment |       | 348.7                                            |       | 377.9      |       | (29.2             | )          | (8 | ) |
| Commercial and consumer equipment   |       | 141.0                                            |       | 134.8      |       | 6.2               |       | 5 |   |
| Total retail notes                  |       | 1,614.5                                          |       | 1,564.8    |       | 49.7              |       | 3 |   |
| Revolving charge  accounts          |       | 927.2                                            |       | 876.8      |       | 50.4              |       | 6 |   |
| Operating loans                     |       | 244.9                                            |       | 291.2      |       | (46.3             | )          | (16 | ) |
| Wholesale  receivables              |       | 5,189.7                                          |       | 5,334.0    |       | (144.3            | )          | (3 | ) |
| Financing leases                    |       | 61.5                                             |       | 57.5       |       | 4.0               |       | 7 |   |
| Equipment on  operating leases      |       | 133.7                                            |       | 134.1      |       | (.4               | )          |   |   |
| Total Receivables and Leases        |       | $                                                | 8,171.5    |       | $          | 8,258.4           |       | $ | (86.9 | ) | (1 | )% |

 
| ** **                          | ** ** | **Six Months  Ended April 30,** | ** ** | ** ** | ** ** | ** **        | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                          | ** ** | **2007**                                       | ** ** | **2006**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                       |       |                                           |       |       |       |              |       |   |   |
| Agricultural equipment              |       | $                                              | 1,949.2    |       | $          | 1,937.3           |       | $ | 11.9 |   | 1 | % |
| Construction and forestry equipment |       | 703.9                                          |       | 784.8      |       | (80.9             | )          | (10 | ) |
| Commercial and consumer equipment   |       | 224.4                                          |       | 210.0      |       | 14.4              |       | 7 |   |
| Total retail notes                  |       | 2,877.5                                        |       | 2,932.1    |       | (54.6             | )          | (2 | ) |
| Revolving charge  accounts          |       | 1,587.0                                        |       | 1,522.2    |       | 64.8              |       | 4 |   |
| Operating loans                     |       | 807.4                                          |       | 747.8      |       | 59.6              |       | 8 |   |
| Wholesale  receivables              |       | 8,403.4                                        |       | 8,962.3    |       | (558.9            | )          | (6 | ) |
| Financing leases                    |       | 96.0                                           |       | 98.0       |       | (2.0              | )          | (2 | ) |
| Equipment on  operating leases      |       | 221.9                                          |       | 216.8      |       | 5.1               |       | 2 |   |
| Total  Receivables and Leases       |       | $                                              | 13,993.2   |       | $          | 14,479.2          |       | $ | (486.0 | ) | (3 | )% |

 

Retail note volumes for agricultural equipmentincreased in the second quarter and first six months of 2007, when compared tolast year, primarily due to increases in retail sales of John Deereagricultural equipment. Retail note volumes for construction and forestryequipment decreased in the second quarter and first six months of 2007, whencompared to last year, primarily due to decreases in retail sales of John Deereconstruction and forestry equipment. Although down during the second quarter of2007, operating loan volumes increased during the first six months of 2007,when compared to last year, primarily due to increased borrowings by farm inputproviders as a result of higher commodity prices. Wholesale receivable volumesdecreased during the second quarter and first six months of 2007, when comparedto last year, primarily due to decreased shipments of John Deere equipment as aresult of decreased retail sales activity in the construction and forestrymarkets.

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Total Receivables and Leases held were as follows (inmillions of dollars):
| ** **                          | ** ** | **April 30,  2007** | ** ** | **October 31,  2006** | ** ** | **April 30,  2006** | ** ** |
|-------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| Retail notes:                       |       |                     |       |                       |       |                     |       |
| Agricultural equipment              |       | $                        | 7,403.7    |                       | $          | 7,330.8                  |       | $ | 6,497.7 |   |
| Construction and forestry equipment |       | 2,449.0                  |       | 2,387.5                    |       | 2,234.8                  |       |
| Commercial and consumer equipment   |       | 980.0                    |       | 1,021.8                    |       | 971.5                    |       |
| Recreational products               |       | 14.9                     |       | 17.5                       |       | 20.2                     |       |
| Total retail notes                  |       | 10,847.6                 |       | 10,757.6                   |       | 9,724.2                  |       |
| Revolving charge  accounts          |       | 1,358.8                  |       | 1,512.4                    |       | 1,340.8                  |       |
| Operating loans                     |       | 283.7                    |       | 378.7                      |       | 372.7                    |       |
| Wholesale  receivables              |       | 4,545.0                  |       | 3,699.0                    |       | 4,592.3                  |       |
| Financing leases                    |       | 406.7                    |       | 420.8                      |       | 394.1                    |       |
| Equipment on  operating leases      |       | 898.8                    |       | 900.1                      |       | 812.7                    |       |
| Total  Receivables and Leases       |       | $                        | 18,340.6   |                       | $          | 17,668.6                 |       | $ | 17,236.8 |   |

 

Receivables and Leases administered by the Company,which include retail notes sold, were as follows (in millions of dollars):
| ** **                                                    | ** ** | **April 30,  2007** | ** ** | **October 31,  2006** | ** ** | **April 30,  2006** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| Receivables and  Leases administered:                         |       |                     |       |                       |       |                     |       |
| Owned by the Company                                          |       | $                        | 15,725.0   |                       | $          | 15,495.2                 |       | $ | 15,647.2 |   |
| Owned by the Company — restricted due to  securitization |       | 2,615.6                  |       | 2,173.4                    |       | 1,589.6                  |       |
| Total Receivables and Leases owned by the Company             |       | 18,340.6                 |       | 17,668.6                   |       | 17,236.8                 |       |
| Sold and serviced — with limited recourse*               |       | 558.8                    |       | 932.3                      |       | 1,181.2                  |       |
| Sold and serviced — without recourse**                   |       | 25.9                     |       | 21.4                       |       | 19.8                     |       |
| Total  Receivables and Leases administered                    |       | $                        | 18,925.3   |                       | $          | 18,622.3                 |       | $ | 18,437.8 |   |

 

*                    TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat April 30, 2007, October 31, 2006 and April 30, 2006 was $74 million, $105million and $140 million, respectively. In addition, the Company has providedletters of credit for John Deere Credit Inc., the John Deere finance subsidiaryin Canada, as part of retail note sales. At April 30, 2007, October 31, 2006and April 30, 2006, the Company’s maximum exposure under these agreements wasapproximately $2 million, $7 million and $7 million, respectively. The Companydoes not record 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 any subsequentnecessary adjustments are made as part of ongoing reviews.

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

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Total Receivable amounts 60 days or more past due inthe table below represent the amount of all customer payments past due 60 daysor more, by product, and as a percent of the respective receivables. They wereas follows (in millions of dollars):
| ** **                          | ** ** | **April 30,  2007** | ** ** | **October 31,  2006** | ** ** | **April 30,  2006** | ** ** |
|-------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Dollars**              | ** ** | **Percent**                | ** ** | **Dollars**              | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                       |       |                     |       |                       |       |                     |       |   |   |   |   |   |   |
| Agricultural equipment              |       | $                        | 15.9       |                       | .21        | %                        | $          | 10.2 |   | .14 | % | $ | 10.0 |   | .15 | % |
| Construction and forestry equipment |       | 6.2                      |       | . 25                       |       | 6.3                      |       | .26 |   | 5.6 |   | .25 |   |
| Commercial and consumer equipment   |       | 1.5                      |       | .15                        |       | 1.3                      |       | .13 |   | 1.2 |   | .12 |   |
| Recreational products               |       | .1                       |       | .67                        |       |                     |       |   |   |   |   |   |   |
| Total retail notes                  |       | 23.7                     |       | .22                        |       | 17.8                     |       | .17 |   | 16.8 |   | .17 |   |
| Revolving charge  accounts*         |       | 22.5                     |       | 1.66                       |       | 21.1                     |       | 1.40 |   | 16.4 |   | 1.22 |   |
| Operating loans                     |       | .6                       |       | .21                        |       |                     |       |   |   | .2 |   | .05 |   |
| Wholesale  receivables              |       | 3.1                      |       | .07                        |       | .9                       |       | .02 |   | 1.9 |   | .04 |   |
| Financing leases                    |       | 4.7                      |       | 1.16                       |       | 3.5                      |       | .83 |   | 4.8 |   | 1.22 |   |
| Total  Receivables                  |       | $                        | 54.6       |                       | .31        | %                        | $          | 43.3 |   | .26 | % | $ | 40.1 |   | .24 | % |

 

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

The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer who has any portion of his note 60days or more past due. These amounts were $168 million, $116 million and $90million at April 30, 2007, October 31, 2006 and April 30, 2006, respectively.The balances of retail notes held on which any installment was 60 days or morepast due as a percentage of the ending retail notes receivable was 1.55percent, 1.08 percent and .93 percent at April 30, 2007, October 31, 2006 andApril 30, 2006, respectively.

Total non-performing Receivables, which representloans the Company has ceased accruing interest for, by product, and as apercent of the respective receivables were as follows (in millions of dollars):
| ** **                           | ** ** | **April 30,  2007** | ** ** | **October 31,  2006** | ** ** | **April 30,  2006** | ** ** |
|--------------------------------------|------------|--------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **Dollars**              | ** ** | **Percent**                | ** ** | **Dollars**              | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                     |       |                       |       |                     |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                        | 14.8       |                       | .20        | %                        | $          | 13.2 |   | .18 | % | $ | 13.1 |   | .20 | % |
| Construction and  forestry equipment |       | 2.7                      |       | .11                        |       | 5.0                      |       | .21 |   | 10.1 |   | .45 |   |
| Commercial and  consumer equipment   |       | 1.3                      |       | .13                        |       | 2.3                      |       | .23 |   | 3.1 |   | .32 |   |
| Recreational  products               |       |                     |       |                       |       | .2                       |       | 1.14 |   | .3 |   | 1.49 |   |
| Total retail  notes                  |       | 18.8                     |       | .17                        |       | 20.7                     |       | .19 |   | 26.6 |   | .27 |   |
| Revolving charge  accounts           |       | 1.1                      |       | .08                        |       | .8                       |       | .05 |   | .5 |   | .04 |   |
| Operating loans                      |       | 5.6                      |       | 1.97                       |       | 3.9                      |       | 1.03 |   | 23.0 |   | 6.17 |   |
| Wholesale receivables                |       | 1.5                      |       | .03                        |       | .4                       |       | .01 |   | 1.7 |   | .04 |   |
| Financing leases                     |       | 10.3                     |       | 2.53                       |       | 6.5                      |       | 1.54 |   | 8.1 |   | 2.06 |   |
| Total Receivables                    |       | $                        | 37.3       |                       | .21        | %                        | $          | 32.3 |   | .19 | % | $ | 59.9 |   | .36 | % |

 

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Total Receivable write-off amounts, net of recoveries,by product, and as an annualized percentage of average balances held during theperiod, were as follows (in millions of dollars):
| ** **                           | ** ** | **Three Months Ended  April 30,  2007** | ** ** | **Three Months Ended  April 30,  2006** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                           | ** ** | **Dollars**                                            | ** ** | **Percent**                                            | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                                                   |       |                                                   |       |   |   |   |   |
| Agricultural  equipment              |       | $                                                      | (.3        | )                                                      | (.02       | )% | $ | (.2 | ) | (.01 | )% |
| Construction and  forestry equipment |       | 4.9                                                    |       | .81                                                    |       | .7 |   | .14 |   |
| Commercial and  consumer equipment   |       | .4                                                     |       | .17                                                    |       | .1 |   | .04 |   |
| Recreational  products               |       | .1                                                     |       | 2.57                                                   |       | (.1 | ) | (2.27 | ) |
| Total retail  notes                  |       | 5.1                                                    |       | .19                                                    |       | .5 |   | .02 |   |
| Revolving charge  accounts           |       | 6.6                                                    |       | 2.17                                                   |       | 5.2 |   | 1.72 |   |
| Operating loans                      |       |                                                   |       |                                                   |       |   |   |   |   |
| Wholesale receivables                |       | .2                                                     |       | .02                                                    |       | .5 |   | .05 |   |
| Financing leases                     |       | .7                                                     |       | .72                                                    |       | .2 |   | .21 |   |
| Total Receivables                    |       | $                                                      | 12.6       |                                                   | .30        | % | $ | 6.4 |   | .17 | % |

 
| ** **                           | ** ** | **Six Months Ended  April 30,  2007** | ** ** | **Six Months Ended  April 30,  2006** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **Dollars**                                          | ** ** | **Percent**                                          | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                                                 |       |                                                 |       |   |   |   |   |
| Agricultural  equipment              |       | $                                                    | (.7        | )                                                    | (.02       | )% | $ | (1.3 | ) | (.04 | )% |
| Construction and  forestry equipment |       | 9.1                                                  |       | .77                                                  |       | 1.8 |   | .17 |   |
| Commercial and  consumer equipment   |       | .5                                                   |       | .10                                                  |       | .1 |   | .02 |   |
| Recreational  products               |       | .3                                                   |       | 3.76                                                 |       | (.1 | ) | (.89 | ) |
| Total retail  notes                  |       | 9.2                                                  |       | .17                                                  |       | .5 |   | .01 |   |
| Revolving charge  accounts           |       | 12.8                                                 |       | 2.06                                                 |       | 10.7 |   | 1.70 |   |
| Operating loans                      |       | (.2                                                  | )          | (.10                                                 | )          | (.1 | ) | (.05 | ) |
| Wholesale receivables                |       |                                                 |       |                                                 |       | (.8 | ) | (.04 | ) |
| Financing leases                     |       | 1.3                                                  |       | .66                                                  |       | .7 |   | .36 |   |
| Total Receivables                    |       | $                                                    | 23.1       |                                                 | .28        | % | $ | 11.0 |   | .15 | % |

 

Deposits withheld from dealers and merchants,representing mainly the aggregate dealer retail note and lease withholdingaccounts from individual John Deere dealers to which losses from retail notesand leases originating from the respective dealers can be charged, amounted to$167 million at April 30, 2007 compared with $177 million at October 31, 2006and $166 million at April 30, 2006.

The Company’s allowance for credit losses on allReceivables financed totaled $96 million at April 30, 2007, $93 million atOctober 31, 2006 and $95 million at April 30, 2006. The allowance for creditlosses represented .55 percent of the total Receivables financed at April 30,2007, .55 percent at October 31, 2006 and .58 percent at April 30, 2006. Thelevel of the allowance is based on many quantitative and qualitative factors,including historical loss experience by product category, portfolio duration,delinquency trends, economic conditions and credit risk quality. The Companybelieves its allowance is sufficient to provide for losses in its existingreceivable portfolio.

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Safe Harbor Statement

*Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995:*Statementsherein that relate to future operating periods are subject to important risksand uncertainties that could cause actual results to differ materially. Actionsby the U.S. Federal Reserve Board and other central banks may affect the costsand expenses of financing the Company and the rates it is able to offer. TheCompany’s business is affected by general economic conditions in and thepolitical instability of the global markets in which the Company operatesbecause deteriorating economic conditions and political instability can resultin higher loan losses. The Company’s business is also affected by actions ofbanks, financing and leasing companies and other lenders that compete with theCompany for customers. In addition, the Company’s business is closely relatedto John Deere’s business. Further information, including factors thatpotentially could materially affect the Company’s and John Deere’s financialresults, is included in the most recent Deere & Company Form 10-K(including the factors discussed in Item 1A) and other Deere & Company andCapital Corporation filings with the Securities and Exchange Commission.

Critical AccountingPolicies

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

Capital Resources andLiquidity

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

During the first six months of 2007, the aggregate netcash provided by operating and financing activities was used primarily toincrease Receivables and Leases. Net cash provided by operating activities was$270 million in the first six months of 2007. Net cash provided by financingactivities totaled $438 million in the first six months of 2007, resultingprimarily from a net increase in external borrowings, partially offset bydividends paid to John Deere Credit Company, which in turn paid comparabledividends to Deere & Company. Net cash used for investing activitiestotaled $685 million in the first six months of 2007, primarily due to the costof Receivables and Leases acquired exceeding collections and the cost of notesreceivables with John Deere. Cash and cash equivalents increased $25 millionduring the first six months of 2007.

During the first six months of 2006, the aggregate netcash provided by operating and financing activities was used primarily toincrease Receivables and Leases. Net cash provided by operating activities was$244 million in the first six months of 2006. Net cash provided by financingactivities totaled $1,155 million in the first six months of 2006, resultingprimarily from a net increase in external borrowings. Net cash used forinvesting activities totaled $1,375 million in the first six months of 2006,primarily due to the cost of Receivables and Leases acquired exceedingcollections. Cash and cash equivalents increased $24 million during the firstsix months of 2006.

The financing of retail purchases and leases of JohnDeere products and of wholesale receivables owed by John Deere dealersrepresented approximately 85 percent of the Company’s acquisition volume forthe six months ended April 30, 2007 and 2006. Any extended reduction orsuspension of John Deere’s sale or production of products due to a decline indemand or production, governmental actions or other events could have anadverse effect on the Company’s acquisition volume of Receivables and Leases.

The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. Because of the multiple funding sources that areavailable to the Company, the Company expects to have sufficient sources ofliquidity to meet its ongoing funding needs. The Company’s ability to meet itsdebt obligations is supported in a number of ways. The assets of the Companyare self-liquidating in nature. A strong equity position is available to absorbunusual losses on these assets and all commercial paper is backed by unsecured,committed borrowing lines from various banks. Liquidity is also provided by theCompany’s ability to securitize these assets.

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During the first six months of 2007, the Companyissued $987 million of medium-term notes, obtained $1,076 million of securedborrowings, maintained an average commercial paper balance of $2,640 millionand received proceeds of $104 million from sales of Receivables. At April 30,2007, the Company’s funding profile included $2,729 million of commercialpaper, $2,702 million of notes payable related to on-balance sheetsecuritization funding, $11,112 million of unsecured term debt, $471 million ofoff-balance sheet securitization funding and $2,011 million of equity capital.The Company’s funding profile may be altered to reflect such factors asrelative costs of funding sources, assets available for securitizations andcapital market accessibility.

The Company’s commercial paper outstanding at April30, 2007, October 31, 2006 and April 30, 2006 was approximately $2,729 million,$2,290 million and $2,045 million, respectively, while the total cash and cashequivalents position was approximately $144 million, $119 million and $274million, respectively.

The Company issued $990 million and retired $860million of other borrowings during the first six months of 2007, which wereprimarily medium-term notes.

The Company utilizes a revolving multi-bank conduitfacility to securitize floating rate retail notes (see Note 6). This facilityhas the capacity, or “purchase limit,” of up to $1.75 billion in securedfinancings or sales outstanding at any time. This facility has no final maturitydate. Instead, upon the Company’s request, each bank conduit may elect to renewits commitment on an annual basis. If this facility is not renewed, the Companywould liquidate the securitizations as the payments on these retail notes arecollected. At April 30, 2007, $1,150 million was outstanding under the facilityof which $812 million was recorded on the balance sheet as secured borrowings.

Total interest-bearing indebtedness amounted to$16,564 million at April 30, 2007, compared with $15,555 million at October 31,2006, and $15,105 million at April 30, 2006. Included in this debt are securedborrowings of $2,702 million, $2,194 million and $1,635 million for the sameperiods (see Note 6). Total external borrowings increased during the first sixmonths of 2007 and increased in the past 12 months, generally correspondingwith the level of the Receivable and Lease portfolio, the level of cash andcash equivalents and the change in receivable from/payable to Deere &Company. Total short-term indebtedness amounted to $8,701 million at April 30,2007, which included $2,702 million of secured borrowings, compared with $7,143million at October 31, 2006, which included $2,194 million of securedborrowings and $6,584 million at April 30, 2006, which included $1,635 millionof secured borrowings, while total long-term indebtedness amounted to $7,863million, $8,413 million and $8,522 million at these dates, respectively. Theratio of total interest-bearing debt to stockholder’s equity was 8.2 to 1 atApril 30, 2007, compared with 7.2 to 1 at October 31, 2006 and 7.2 to 1 atApril 30, 2006.

Stockholder’s equity was $2,011 million at April 30,2007, compared with $2,154 million at October 31, 2006 and $2,087 million atApril 30, 2006. The decrease in the first six months of 2007 resulted primarilyfrom dividend payments of $310 million, partially offset by net income of $150million and a $17 million increase in accumulated other comprehensive income.

The Capital Corporation declared and paid cashdividends to John Deere Credit Company of $310 million in the first six monthsof fiscal 2007. John Deere Credit Company paid comparable dividends to Deere& Company. On June 1, 2007, the Capital Corporation declared an additional$120 million dividend, to be paid to John Deere Credit Company on June 8, 2007.John Deere Credit Company, in turn, declared a $120 million dividend to Deere& Company, also payable on June 8, 2007.

*Lines of Credit*

The Company also has access to bank lines of creditwith various banks throughout the world. Some of the lines are available toboth the Company and Deere & Company. In February 2007, the Companyreplaced its existing long-term credit facility agreement totaling $3 billionwith a $3.75 billion five-year credit agreement. Worldwide lines of credittotaled $3,773 million at April 30, 2007, $538 million of which was unused. For the purpose of computing unused credit lines,commercial paper and short-term bank borrowings, excluding secured borrowingsand the current portion of long-term borrowings, of the Company and John Deerewere considered to constitute utilization. Included in the total creditlines at April 30, 2007 was the long-term credit facility agreement of $3.75billion, expiring in February 2012. The new credit agreement requires theCompany to maintain its consolidated ratio of earnings to fixed charges at notless than 1.05 to 1 for each fiscal quarter and its ratio of senior debt,excluding securitization indebtedness, to capital base (total subordinated debtand stockholder’s equity excluding accumulated other comprehensive income(loss)) at not more than 9.5 to 1 at the end of any fiscal quarter. All ofthese requirements of the credit agreement have been met during the periodsincluded in the financial statements.

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*DebtRatings*

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

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

The senior long-term and short-term debt ratings andoutlook currently assigned to unsecured Company securities by the ratingagencies engaged by the Company are the same as those for Deere & Company.Those ratings are as follows:
| ** **                            | ** ** | **Senior Long-Term** | ** ** | **Short-Term** | ** ** | **Outlook** | ** ** |
|---------------------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| Moody’s  Investors Service, Inc. |       | A2                        |       | Prime-1        |       | Stable      |       |
| Standard & Poor’s            |       | A                         |       | A-1            |       | Stable      |       |

 

Item 3.    Quantitative and Qualitative DisclosuresAbout Market Risk.

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

Item 4.    Controls and Procedures.

The Company’s principal executive officer and itsprincipal financial officer have concluded that the Company’s disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended (“the Act”)) were effective as of April 30,2007, based on the evaluation of these controls and procedures required by Rule13a-15(b) or 15d-15(b) of the Act.

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PART II. OTHERINFORMATION

Item 1.    Legal Proceedings.

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

Item 1A. Risk Factors.

See the Company’s most recently filed annual report onForm 10-K (Item 1A). There has been no material change in this information.

Item 2.    Unregistered Sales of Equity Securitiesand Use of Proceeds.

Omitted pursuant to instruction H.

Item 3.    Defaults Upon Senior Securities.

Omitted pursuant to instruction H.

Item 4.    Submission of Matters to a Vote ofSecurity Holders.

Omitted pursuant to instruction H.

Item 5.    Other Information.

None.

Item 6.    Exhibits.

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

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

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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, 2007                   |   | By: | */s/ M. J. Mack, Jr.* |
|   |                           | M. J. Mack, Jr.  Senior Vice President,  Principal Financial Officer |
|        |                                |  |  |  |

 

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INDEX TO EXHIBITS
| Exhibit | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** ** |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 3.1     |       | Certificate  of Incorporation, as amended (Exhibit 3.1 to Form 10-K of the registrant for  the year ended October 31, 1999, Securities and Exchange Commission file  number 1-6458*)                                                                                                                                                                                                                                                                                                                                         |       |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 3.2     |       | Bylaws,  as amended (Exhibit 3.2 to Form 10-K of the registrant for the year ended  October 31, 1999, Securities and Exchange Commission file number 1-6458*)                                                                                                                                                                                                                                                                                                                                                                |       |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 4.1     |       | Five-Year  Credit Agreement among registrant, Deere & Company, various financial  institutions, JPMorgan Chase Bank, N.A. as administrative agent, Citibank  N.A. and Credit Suisse as documentation agents, Merrill Lynch Bank USA as  co-documentation agent, and Bank of America, N.A. and Deutsche Bank AG, as  syndication agents, et el., dated February 28, 2007 (Exhibit 4.1 to Form 10-Q  of Deere & Company for the quarter ended April 30, 2007, Securities and  Exchange Commission file number 1-4121*) |       |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |
| 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, 2007 (Securities and Exchange  Commission file number 1-4121*)                                                                                                                                                                                                                                                                                                                                                                                      |       |

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

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