**UNITED STATES**

##### **SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-K**

 

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**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FOR THE FISCAL YEAR ENDED OCTOBER 31, 2007**

 

**Commission file number 1-6458**

 

**JOHN DEERE CAPITAL CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                             | ** ** |       |       | **36-2386361**                    |
|------------------------------------------|------------|------------|------------|-----------------------------------|
| (State of incorporation)                 |       | ** ** | ** ** | (IRS Employer Identification No.) |
|                                     |       |       |       |                              |
| **1 East First Street, Suite 600**  | ** ** |       | ** ** |                              |
| **Reno, Nevada**                         |       | **89501**  | ** ** | **(775) 786-5527**                |
| (Address of principal executive offices) |       | (Zip Code) |       | (Telephone number)                |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OFTHE ACT:**

 
| **Title of each class** | ** ** | **Name of each exchange on which registered** | ** ** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| 6 % Notes Due  2009                    |       | New York Stock Exchange                                                     |       |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OFTHE ACT: NONE**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

Yes   o   No   x

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

Yes   o   No   x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes   x   No   o

 

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

 

| Large  accelerated filer  o |   | Accelerated  filer  o |   | Non-accelerated  filer  x |
|---------------------------------------|--------|---------------------------------|--------|-------------------------------------|

 

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

Yes   o   No   x

 

At November 30,2007, 2,500 shares of common stock, without par value, of the registrant wereoutstanding, all of which were owned by John Deere Credit Company.

 

The registrant meets theconditions set forth in General Instruction I(1)(a) and (b) of Form 10-Kand is therefore filing this Form with certain reduced disclosures aspermitted by Instruction I(2).

 

 

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**PART I**

 

**Item 1.Business.**

 

The Company

 

John Deere Capital Corporation (Capital Corporation)and its subsidiaries are collectively called the Company. John Deere CreditCompany, a wholly-owned finance holding subsidiary of Deere & Company,owns all of the outstanding common stock of the Capital Corporation. See “Relationshipsof the Company with John Deere” for additional information regarding agreementsbetween the Company and Deere & Company. The Company conducts businessin Australia, New Zealand, the U.S., and in several countries in Europe andLatin America.

 

TheCompany provides and administers financing for retail purchases of newequipment manufactured by Deere & Company’s agriculturalequipment, commercial and consumer equipment, and construction and forestrydivisions and used equipment taken in trade for this equipment. The Companygenerally purchases retail installment sales and loan contracts (retail notes)from Deere & Company and its wholly-owned subsidiaries (collectivelycalled John Deere). John Deere generally acquires these retail notes throughJohn Deere retail dealers. The Company also purchases and finances a limitedamount of non-Deere retail notes and continues to service a small portfolio ofrecreational products and other retail notes. In addition, the Company leasesJohn Deere equipment and a limited amount of non-Deere equipment to retailcustomers (financing and operating leases). The Company also finances andservices revolving charge accounts, in most cases acquired from and offeredthrough merchants in the agricultural, commercial and consumer, andconstruction and forestry markets (revolving charge accounts). Further, theCompany finances and services operating loans, in most cases offered throughand acquired from farm input providers, through direct relationships with agriculturalproducers or through agribusinesses (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 and dealerswhich generally involves John Deere products and offers certain crop riskmitigation products in the U.S. In addition, the Company invests in wind energygeneration by making loans to certain affiliated companies that have directlyinvested in wind 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 “Receivablesand Leases.”

 

TheCapital Corporation was incorporated under the laws of Delaware and commencedoperations in 1958. At November 30, 2007, the Company had 1,549 full-timeand part-time employees.

 

Business of JohnDeere

 

John Deere’s operations are categorized into fourmajor business segments:

 

The *agricultural equipment* segment manufactures and distributesa full line of farm equipment and related service parts – including tractors;combine, cotton and sugarcane harvesters; tillage, seeding and soil preparationmachinery; sprayers; hay and forage equipment; integrated agriculturalmanagement systems technology; and precision agricultural irrigation equipment.

 

The *commercial and consumer equipment*segment manufactures anddistributes equipment, products and service parts for commercial andresidential uses – including tractors for lawn, garden, commercial and utilitypurposes; mowing equipment, including walk-behind mowers; golf courseequipment; utility vehicles; landscape and nursery products; irrigationequipment; and other outdoor power products.

 

The *construction and forestry*segment manufactures, distributesto dealers and sells at retail a broad range of machines and service parts usedin construction, earthmoving, material handling and timber harvesting –including backhoe loaders; crawler dozers and loaders; four-wheel-driveloaders; excavators; motor graders; articulated dump trucks; landscape loaders;skid-steer loaders; and log skidders, feller bunchers, log loaders, logforwarders, log harvesters and related attachments.

 

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JohnDeere’s worldwide agricultural equipment, commercial and consumer equipment,and construction and forestry operations are commonly referred to as theEquipment Operations. The products and services produced by the segments aboveare marketed primarily through independent retail dealer networks and majorretail outlets.

 

The *credit*segment includesthe operations of the Company (described herein), John Deere Credit Company,John Deere Credit Inc. (Canada), Banco John Deere, S.A. (Brazil), John DeereCredit Oy (Finland) and John Deere Renewables, LLC, and primarily financessales and leases by John Deere dealers of new and used agricultural, commercialand consumer, and construction and forestry equipment. In addition, it provideswholesale financing to dealers of the foregoing equipment, provides operatingloans, finances retail revolving charge accounts, offers certain crop riskmitigation products and invests in wind energy generation.

 

JohnDeere had net income of $1,822 million, or $4.00 per share diluted ($4.05basic), in 2007, compared with $1,694 million, or $3.59 per share diluted ($3.63basic), in 2006. Income from continuing operations, which excludes John Deere’sdiscontinued health care business, was also $1,822 million, or $4.00 per sharediluted ($4.05 basic), in 2007, compared with $1,453 million, or $3.08 pershare diluted ($3.11 basic) in 2006.

 

JohnDeere’s net sales and revenues from continuing operations increased 9 percentto $24,082 million in 2007, compared with $22,148 million in 2006.Net sales of the Equipment Operations increased 8 percent in 2007 to$21,489 million from $19,884 million last year. This included a positiveeffect for currency translation and price changes of 5 percent. Equipment netsales in the U.S. and Canada were flat in 2007. Net sales outside the U.S. andCanada increased by 27 percent, which included a positive effect of 7percent for currency translation.

 

Theagricultural equipment segment had net sales of $12,121 million in 2007,compared to $10,232 million in 2006. The commercial and consumer equipmentsegment had net sales of $4,333 million in 2007, compared to$3,877 million in 2006. The construction and forestry segment had netsales of $5,035 million in 2007, compared to $5,775 million in 2006. Thecredit segment had revenues of $2,094 million in 2007, compared to$1,819 million in 2006.

 

Outlook for JohnDeere

 

Deere &Company’s equipment sales are projected to increase by about 12 percentfor the fiscal year and to be up approximately 25 percent for the first quarterof 2008, compared to the same periods in 2007. LESCO, Inc. (LESCO)operations are expected to account for about 2 percentage points of the salesincrease for the year and 3 points in the first quarter. Deere &Company’s net income is forecast to be about $2.1 billion for 2008 and about$325 million for the first quarter.

 

*Agricultural Equipment.*Driven by continuingstrength in the farm sector, worldwide sales of Deere & Company’sagricultural equipment are expected to increase by about 17 percent for fiscalyear 2008. Included in the segment’s sales forecast is one percentage point forcurrency translation and one point related to the acquisition of Ningbo BenyeTractor and Automobile Manufacturing Co., Ltd., a Chinese-based tractormanufacturer purchased by Deere & Company in the fourth quarter of2007.

 

Worldwide farm conditions remain quite positive,benefiting from growing economic prosperity, healthy commodity prices anddemand for renewable fuels. Relative to consumption, global grain stocks suchas wheat and corn are continuing to run at or near thirty-year lows. Deere &Company’s sales are expected to receive further support from the plannedintroduction of a number of advanced new products.

 

On an industry basis, sales of farm machinery in theU.S. and Canada are forecast to be up 10 to 15 percent for the year, due inpart to a substantial jump in farm cash receipts. Large tractors and combinesare expected to pace the sales improvements, while demand for cotton pickers isexpected to be lower. Industry sales in Western Europe are forecast to be flatto up slightly for the year with greater increases expected in Eastern Europeand the CIS (Commonwealth of Independent States) countries, including Russia.These latter areas are expected to continue

 

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experiencing strong growth due to rising demand for productive farmmachinery. South American markets are expected to show further improvement in2008, with industry sales forecast to increase by 10 to 15 percent. Farmmachinery demand in Brazil, while receiving support from strong commodityprices, may be tempered by uncertainties over the status of government-backedfinancing programs. Deere & Company anticipates its sales will behelped by an expanded product line and additional production capacityassociated with the opening of a new tractor manufacturing facility inMontenegro, Brazil.

 

*Commercialand Consumer Equipment*. Deere & Company’s commercialand consumer equipment sales are projected to be up about 10 percent for theyear, including about 8 percentage points from a full year of LESCO sales.Segment sales, in addition, are expected to benefit from new products, such asan expanded line of innovative commercial mowing equipment. Given the nature ofDeere & Company’s commercial and consumer businesses, sales tend tohave a high degree of sensitivity to weather patterns and U.S. housing markets.

 

*Constructionand Forestry.*U.S. markets for construction and forestryequipment are forecast to remain under pressure in 2008 due in large part to acontinuing slump in housing starts. Non-residential construction is expected toremain flat at last year’s relatively strong levels. Pressure on the U.S.housing market is expected to contribute to lower worldwide sales of Deere &Company’s forestry equipment in 2008, though sales in Europe are forecast toremain at strong levels. Despite this generally weak environment, Deere &Company’s sales are expected to benefit from new products and a return tofactory production levels in closer alignment with retail demand. Last year,Deere & Company made a significant reduction in construction andforestry inventories, which restrained production. In addition, Deere &Company’s sales to the independent rental channel, which saw a large decline in2007, are expected to be flat in the coming year. For 2008, Deere &Company’s worldwide sales of construction and forestry equipment are forecastto be approximately equal to the prior year.

 

*Credit*.Fiscal year 2008 net income for thecredit operations, which includes the Company, is forecast to be approximately$375 million. The expected improvement is being driven by growth inthe credit portfolio. The Company’s net income for 2008, which does not includethe credit operations in Canada, Brazil and Finland or the wind energyoperations in the U.S., is projected to be approximately $315 million for2008.

 

Relationships ofthe Company with John Deere

 

Theresults of operations of the Company are affected by its relationships withJohn Deere, including among other items, the terms on which the Companyacquires Receivables and Leases and borrows funds from John Deere, thereimbursement for interest waiver and low-rate finance programs from JohnDeere, the compensation paid by John Deere in connection with the Company’spurchase of trade receivables from John Deere and the payment to John Deere forvarious expenses applicable to the Company’s operations. The Company also hasloans to John Deere for direct investments in wind energy projects. Inaddition, the Company and John Deere have joint access to certain lines ofcredit of the Company.

 

TheCompany’s acquisition volume of Receivables and Leases is largely dependentupon the level of retail sales and leases of John Deere products. The level ofJohn Deere retail sales and leases is responsive to a variety of economic,financial, climatic, legislative and other factors that influence demand forits products. All of the Company’s businesses are affected by changes ininterest rates, demand for credit and competition.

 

TheCompany bears substantially all of the credit risk (net of recovery fromwithholdings from certain John Deere dealers, and Farm Planäand PowerPlanâ merchants) associated with its holding ofReceivables and Leases. A small portion of the Receivables and Leases held(less than 5 percent) is guaranteed by certain subsidiaries of Deere &Company. The Company also performs substantially all servicing and collectionfunctions. Servicing and collection functions for a small portion of theReceivables and Leases held (less than 5 percent) are provided by John Deere.John Deere is reimbursed for staff and other administrative services atestimated cost, and for credit lines provided to the Company based onutilization of those lines.

 

Theterms and the basis on which the Company acquires retail notes and certainwholesale receivables from John Deere are governed by agreements with JohnDeere, generally terminable by either John Deere or the Company on

 

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30 days notice. Asprovided in these agreements, the Company agrees to the terms and conditionsfor purchasing the retail notes and wholesale receivables from John Deere.Under these agreements, John Deere is not obligated to sell notes to theCompany, and the Company is obligated to purchase notes from John Deere only ifthe notes comply with the terms and conditions set by the Company.

 

Thebasis on which John Deere acquires retail notes and wholesale receivables fromthe dealers is governed by agreements with the John Deere dealers, terminableat will by either the dealers or John Deere. In acquiring these notes fromdealers, the terms and conditions, as set forth in agreements with the dealers,conform with the terms and conditions adopted by the Company in determining theacceptability of retail and certain wholesale notes to be purchased from JohnDeere. The dealers are not obligated to sell these notes to John Deere and JohnDeere is not obligated to accept these notes from the dealers. In practice,retail and wholesale notes are acquired from dealers only if the terms of thesenotes and the creditworthiness of the customers are acceptable to the Company.The Company acts on behalf of both itself and John Deere in determining theacceptability of the notes and in acquiring acceptable notes from dealers.

 

The basison which the Company enters into leases with retail customers through JohnDeere dealers is governed by agreements between dealers and the Company. Leasesare accepted based on the terms and conditions, the lessees’ creditworthiness,the anticipated residual values of the equipment and the intended uses of theequipment.

 

Deere &Company has an agreement with the Company pursuant to which it has agreed tocontinue to own at least 51 percent of the voting shares of capital stock ofthe Company and to maintain the Company’s consolidated tangible net worth atnot less than $50 million. This agreement also obligates Deere &Company to make income maintenance payments to the Company such that itsconsolidated ratio of earnings to fixed charges is not less than 1.05 to 1 foreach fiscal quarter. For 2007 and 2006, the Company’s ratios were 1.54 to 1 and1.60 to 1, respectively, and never less than 1.54 to 1 and 1.53 to 1 for anyfiscal quarter of 2007 and 2006, respectively. Deere & Company’sobligations to make payments to the Company under the agreement are independentof whether the Company is in default on its indebtedness, obligations or otherliabilities. Further, Deere & Company’s obligations under theagreement are not measured by the amount of the Company’s indebtedness,obligations or other liabilities. Deere & Company’s obligations tomake payments under this agreement are expressly stated not to be a guaranty ofany specific indebtedness, obligation or liability of the Company and areenforceable only by or in the name of the Company. No payments were requiredunder this agreement during the periods included in the financial statements.

 

TheCompany purchases certain wholesale receivables (trade receivables) from JohnDeere. These trade receivables arise from John Deere’s sales of goods todealers. Under the terms of the sales to dealers, interest is charged todealers on outstanding balances, from the earlier of the date when goods aresold to retail customers by the dealer or the expiration of certaininterest-free periods granted to the dealer at the time of the sale, untilpayment is received by the Company. Dealers cannot cancel purchases after goodsare shipped and are responsible for payment even if the equipment is not soldto retail customers. The interest-free periods are determined based on the typeof equipment sold and the time of year of the sale. These periods range fromone to twelve months for most equipment. Interest-free periods may not beextended. Interest charged may not be forgiven and interest rates, which exceedthe prime rate, are set based on market factors. The Company receivescompensation from John Deere equal to competitive market interest rates forthese interest-free periods. The Company computes the compensation from John Deerefor interest-free periods based on the Company’s estimated funding costs,administrative and operating expenses, credit losses, and required return onequity. The finance income earned following the interest-free period is notsignificantly different from the compensation earned from John Deere.

 

# Description of Receivables and Leases

 

Receivablesand Leases arise mainly from retail and wholesale sales and leases of JohnDeere products and used equipment accepted in trade for them, and from retailsales of equipment of unrelated manufacturers. Receivables and Leases alsoinclude revolving charge accounts receivable and operating loans. At October 31,2007 and 2006, approximately 90 percent of the Receivables and Leasesadministered by the Company were for financing John Deere products.

 

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FPC Financial, f.s.b. (Thrift), a wholly-ownedsubsidiary of the Company, holds a federal charter issued by the Office ofThrift Supervision. The Thrift is headquartered in Madison, Wisconsin andoffers revolving charge products such as John Deere Credit Revolving Plan, FarmPlanä and PowerPlanâ on a nationwide basis. John DeereCredit Revolving Plan is used primarily by retail customers of John Deeredealers to finance purchases of commercial and consumer equipment. Through itsFarm Planä product, the Thriftfinances revolving charge accounts offered by approximately 5,000 participatingagribusinesses to their retail customers for the purchase of goods andservices. Farm Planä account holders purchase equipment parts and service atimplement dealerships and farm inputs such as feed, seed, fertilizer, bulk fueland building supplies from other agribusinesses. The PowerPlanâ revolving charge account is usedby construction and forestry customers to finance the purchase of parts andservice work performed at John Deere construction and forestry dealers. SeeNote 2 to the consolidated financial statements under “Revolving ChargeAccounts Receivable.”

 

TheCompany also works with several leading farm input providers to offer cropinput production loans for materials such as seeds and fertilizer.Additionally, the Company provides production loans directly to farmers fortheir total operating needs. Generally, these loans are secured by crops andequipment.

 

TheCompany finances wholesale inventories of John Deere agricultural equipment,commercial and consumer equipment and construction and forestry equipment. Alarge portion of the wholesale financing provided by the Company is withdealers from whom it also purchases agricultural, commercial and consumer andconstruction and forestry retail notes. See Note 2 to the consolidatedfinancial statements under “Wholesale Receivables.”

 

TheCompany requires that theft and physical damage insurance be carried on allgoods leased or securing retail notes. The customers may, at their expense,have the Company or the seller of the goods purchase this insurance or obtainit from other sources. Theft and physical damage insurance is also required ongoods securing wholesale notes and can be purchased through the Company or fromother sources. Insurance is not required for goods purchased under revolvingcharge accounts.

 

Receivablesand Leases are eligible for acceptance if they conform to prescribed financeand lease plan terms. Guidelines relating to down payments and contract termson retail notes and leases are described in Note 2 and Note 5 to theconsolidated financial statements.

 

Inlimited circumstances, Receivables and Leases may be accepted and acquired eventhough they do not conform in all respects to the established guidelines. TheCompany determines whether Receivables and Leases should be accepted and howthey should be serviced. Acceptance of these Receivables and Leases is dependenton having one or more of the following risk mitigation enhancements: the pledgeof additional collateral as security, the assignment of specific earnings tothe Company or the acceptance of accelerated payment schedules. Officers of theCompany are responsible for establishing policies and reviewing the performanceof the Company in accepting and collecting Receivables and Leases. The Companynormally makes all of its own routine collections, settlements andrepossessions on Receivables and Leases.

 

John Deere retail notes and wholesale receivablesare supported by perfected security interests in goods financed under laws suchas the Uniform Commercial Code (UCC), certain federal statutes and state motorvehicle laws. UCC financing statements are also prepared and filed on leases;however, filings for operating leases are made for informational purposes only.

 

Finance Rates onRetail Notes

 

As of October 31,2007 and 2006, approximately 90 percent and 85 percent, respectively, of theretail notes held by the Company bore a fixed finance rate. A portion of thefinance income earned by the Company arises from reimbursements from John Deerein connection with financing the retail sales of John Deere equipment on whichfinance charges are waived or reduced by John Deere for a period from the dateof sale to a specified subsequent date. See Note 2 to the consolidatedfinancial statements for additional information.

 

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Average OriginalTerm and Average Actual Life of Retail Notes and Leases

 

Due toprepayments (often from trade-ins and refinancing), the average actual life ofretail notes and financing leases is considerably shorter than the averageoriginal term. The following table shows the average original term for retailnotes and leases acquired and the average actual life for retail notes andleases liquidated (in months):

 
| ** **                           | ** ** | **Average Original Term** | ** ** | **Average Actual Life** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                           | ** ** | **2007**                            | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Retail notes                         |       | 52                                  |       | 53                                |       | 35 |   | 34 |   |
| New equipment:                       |       |                                |       |                              |       |   |   |   |   |
| Agricultural  equipment              |       | 55                                  |       | 56                                |       | 34 |   | 31 |   |
| Construction and  forestry equipment |       | 45                                  |       | 45                                |       | 33 |   | 33 |   |
| Commercial and  consumer equipment   |       | 48                                  |       | 48                                |       | 37 |   | 37 |   |
| Used equipment:                      |       |                                |       |                              |       |   |   |   |   |
| Agricultural  equipment              |       | 57                                  |       | 58                                |       | 38 |   | 37 |   |
| Construction and  forestry equipment |       | 43                                  |       | 42                                |       | 32 |   | 31 |   |
| Commercial and  consumer equipment   |       | 54                                  |       | 55                                |       | 36 |   | 33 |   |
| Financing leases                     |       | 42                                  |       | 41                                |       | 34 |   | 34 |   |
| Equipment on  operating leases       |       | 36                                  |       | 38                                |       | 32 |   | 36 |   |

 

Maturities

 

The following table presents the maturities of netReceivables and Leases owned by the Company at October 31, 2007 (inmillions of dollars), and a summary of net Receivables and Leases owned by theCompany at the end of the last five years (in millions of dollars):

 
| ** **                           | ** ** | ** **                      | ** ** | **One to five years** | ** ** | **Over five years** | ** ** | ** **      | ** ** | ** **         | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|--------------------------------------|------------|-------------------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **One year  or less** | ** ** | **Fixed  rate**                      | ** ** | **Variable  rate**            | ** ** | **Fixed  rate** | ** ** | **Variable  rate** | ** ** | **2007  Total** | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                 |       |                            |       |                                 |       |                          |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Retail notes:                        |       |                            |       |                                 |       |                          |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Agricultural  equipment              |       | $                               | 2,628      |                                 | $          | 4,791                         |       | $               | 944        |               | $          | 156             |       | $          | 17         |       | $          | 8,536 |   | $ | 7,331 |   | $ | 6,209 |   | $ | 4,451 |   | $ | 3,954 |   |
| Construction and  forestry equipment |       | 990                             |       | 1,419                                |       |                          |       |            |       |               |       | 2,409           |       | 2,388      |       | 1,980      |       | 1,406 |   | 1,196 |   |
| Commercial and  consumer equipment   |       | 381                             |       | 599                                  |       | 4                             |       | 20              |       |               |       | 1,004           |       | 1,022      |       | 1,022      |       | 984 |   | 909 |   |
| Recreational  products               |       | 2                               |       | 5                                    |       |                          |       | 5               |       |               |       | 12              |       | 17         |       | 23         |       | 33 |   | 51 |   |
| Total retail  notes                  |       | 4,001                           |       | 6,814                                |       | 948                           |       | 181             |       | 17                 |       | 11,961          |       | 10,758     |       | 9,234      |       | 6,874 |   | 6,110 |   |
| Revolving charge  accounts           |       |                            |       |                                 |       |                          |       |            |       |               |       | 1,553           |       | 1,512      |       | 1,527      |       | 1,444 |   | 1,118 |   |
| Operating loans                      |       |                            |       |                                 |       |                          |       |            |       |               |       | 287             |       | 379        |       | 384        |       | 380 |   | 541 |   |
| Wholesale  receivables               |       |                            |       |                                 |       |                          |       |            |       |               |       | 3,521           |       | 3,699      |       | 3,651      |       | 3,480 |   | 2,905 |   |
| Financing leases                     |       |                            |       |                                 |       |                          |       |            |       |               |       | 430             |       | 421        |       | 412        |       | 406 |   | 427 |   |
| Equipment on  operating leases       |       |                            |       |                                 |       |                          |       |            |       |               |       | 995             |       | 900        |       | 794        |       | 758 |   | 879 |   |
| Total Receivables  and Leases        |       |                            |       |                                 |       |                          |       |            |       |               |       | $               | 18,747     |       | $          | 17,669     |       | $ | 16,002 |   | $ | 13,342 |   | $ | 11,980 |   |
|                                      |            |                                 |            |                                      |            |                               |            |                 |            |                    |            |                 |            |            |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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TotalReceivables and Leases by geographic area are as follows (in millions ofdollars):

 
| ** **                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.                          |       | $        | 16,199     |     | $          | 15,378   |       | $        | 13,753     |     | $          | 11,145 |   | $ | 10,244 |   |
| Outside the U.S.              |       | 2,548    |       | 2,291    |       | 2,249    |       | 2,197    |       | 1,736    |       |
| Total  Receivables and Leases |       | $        | 18,747     |     | $          | 17,669   |       | $        | 16,002     |     | $          | 13,342 |   | $ | 11,980 |   |

 

Delinquencies

 

TotalReceivable amounts 60 days or more past due representing the amount of allcustomer payments past due 60 days or more are as follows (in millions ofdollars):

 
| ** **       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.             |       | $        | 39.7       |     | $          | 39.5     |       | $        | 27.1       |     | $          | 36.2 |   | $ | 43.4 |   |
| Outside the U.S. |       | 4.0      |       | 3.8      |       | 5.5      |       | 4.2      |       | 4.2      |       |
| Total            |       | $        | 43.7       |     | $          | 43.3     |       | $        | 32.6       |     | $          | 40.4 |   | $ | 47.6 |   |

 

Totalnon-performing Receivables, which represent loans the Company has ceasedaccruing interest for are as follows (in millions of dollars):

 
| ** **       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.             |       | $        | 31.1       |     | $          | 22.7     |       | $        | 55.4       |     | $          | 48.0 |   | $ | 65.9 |   |
| Outside the U.S. |       | 17.1     |       | 9.6      |       | 11.7     |       | 8.9      |       | 20.1     |       |
| Total            |       | $        | 48.2       |     | $          | 32.3     |       | $        | 67.1       |     | $          | 56.9 |   | $ | 86.0 |   |

 

7

----

 

Write-offs andRecoveries

 

TotalReceivable write-offs and recoveries, by product, were as follows (in millionsof dollars):

 

| ** **                                                   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**          |       | $        | 92.8       |     | $          | 96.4     |       | $        | 112.6      |     | $          | 123.8 |   | $ | 118.3 |   |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Provision for  credit losses                                 |       | 53.7     |       | 30.5     |       | 5.9      |       | 32.3     |       | 72.2     |       |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs:                                                  |       |     |       |     |       |     |       |     |       |     |       |
| Retail notes:                                                |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                      |       | (1.5     | )          | (1.1     | )          | (1.4     | )          | (5.3     | )          | (5.5     | )          |
| Construction and  forestry equipment                         |       | (18.9    | )          | (11.2    | )          | (4.2     | )          | (7.0     | )          | (18.6    | )          |
| Commercial and  consumer equipment                           |       | (1.3     | )          | (.8      | )          | (.9      | )          | (.9      | )          | (1.1     | )          |
| Recreational  products                                       |       | (.9      | )          | (.6      | )          | (1.3     | )          | (1.7     | )          | (1.3     | )          |
| Total retail  notes                                          |       | (22.6    | )          | (13.7    | )          | (7.8     | )          | (14.9    | )          | (26.5    | )          |
| Revolving charge  accounts                                   |       | (36.0    | )          | (33.3    | )          | (29.7    | )          | (21.5    | )          | (27.0    | )          |
| Operating loans                                              |       | (3.7     | )          | (2.9     | )          | (3.0     | )          | (6.5     | )          | (4.2     | )          |
| Wholesale  receivables                                       |       | (2.8     | )          | (1.9     | )          | (2.4     | )          | (8.1     | )          | (6.8     | )          |
| Financing leases                                             |       | (3.2     | )          | (2.5     | )          | (1.3     | )          | (5.0     | )          | (8.7     | )          |
| Total write-offs                                             |       | (68.3    | )          | (54.3    | )          | (44.2    | )          | (56.0    | )          | (73.2    | )          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Recoveries:                                                  |       |     |       |     |       |     |       |     |       |     |       |
| Retail notes:                                                |       |     |       |     |       |     |       |     |       |     |       |
| Agricultural  equipment                                      |       | 2.8      |       | 3.2      |       | 3.3      |       | 3.6      |       | 2.7      |       |
| Construction and  forestry equipment                         |       | 1.5      |       | 2.1      |       | 2.1      |       | 2.2      |       | 2.4      |       |
| Commercial and  consumer equipment                           |       | .5       |       | .5       |       | .4       |       | .5       |       | .2       |       |
| Recreational  products                                       |       | .3       |       | .6       |       | .6       |       | .7       |       | .7       |       |
| Total retail  notes                                          |       | 5.1      |       | 6.4      |       | 6.4      |       | 7.0      |       | 6.0      |       |
| Revolving charge  accounts                                   |       | 11.8     |       | 10.4     |       | 9.3      |       | 7.7      |       | 5.7      |       |
| Operating loans                                              |       | 1.1      |       | .5       |       | 3.3      |       | 3.8      |       | 1.5      |       |
| Wholesale  receivables                                       |       | 1.4      |       | 2.5      |       | 2.0      |       | 1.3      |       | 2.9      |       |
| Financing leases                                             |       | .2       |       | .2       |       | .9       |       | 1.9      |       | 1.0      |       |
| Total recoveries                                             |       | 19.6     |       | 20.0     |       | 21.9     |       | 21.7     |       | 17.1     |       |
| Total net  write-offs                                        |       | (48.7    | )          | (34.3    | )          | (22.3    | )          | (34.3    | )          | (56.1    | )          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Other changes  (primarily translation adjustments)           |       | 1.4      |       | .2       |       | .2       |       | (9.2     | )          | (10.6    | )          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                |       | $        | 99.2       |     | $          | 92.8     |       | $        | 96.4       |     | $          | 112.6 |   | $ | 123.8 |   |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables |       | .29      | %          | .22      | %          | .16      | %          | .30      | %          | .50      | %          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as a  percentage of total Receivables, end of year |       | .56      | %          | .55      | %          | .63      | %          | .89      | %          | 1.12     | %          |

 

8

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Total Receivable write-offs and recoveries fromoutside the U.S. were as follows (in millions of dollars):

 
| ** **                                                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, beginning of year**                                |       | $        | 9.2        |     | $          | 9.6      |       | $        | 17.0       |     | $          | 16.0 |   | $ | 10.1 |   |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Provision for  credit losses                                                       |       | .5       |       | (.2      | )          | (5.7     | )          | (.7      | )          | 4.9      |       |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs                                                                         |       | (1.5     | )          | (1.1     | )          | (1.8     | )          | (1.5     | )          | (1.5     | )          |
| Recoveries                                                                         |       | .4       |       | .7       |       | .5       |       | 1.1      |       | .4       |       |
| Total net  write-offs                                                              |       | (1.1     | )          | (.4      | )          | (1.3     | )          | (.4      | )          | (1.1     | )          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Other changes  (primarily translation adjustments)                                 |       | 1.0      |       | .2       |       | (.4      | )          | 2.1      |       | 2.1      |       |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance  for credit losses, end of year**                                      |       | $        | 9.6        |     | $          | 9.2      |       | $        | 9.6        |     | $          | 17.0 |   | $ | 16.0 |   |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Total net  write-offs as a percentage of average Receivables from outside the U.S. |       | .05      | %          | .02      | %          | .06      | %          | .02      | %          | .07      | %          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Allowance as a  percentage of total Receivables from outside the U.S., end of year |       | .38      | %          | .41      | %          | .43      | %          | .78      | %          | .94      | %          |

 

Allowance forCredit Losses

 

**The totalReceivable allowance for credit losses, by product, at October 31, and theReceivable portfolio, by product, as a percent of total portfolio is presentedbelow (in millions of dollars):**

 
| ** **                           | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 17.8       |        | 48         | %           | $          | 17.7        |       | 44          | %          | $ | 17.2 |   | 41 | % | $ | 19.3 |   | 36 | % | $ | 23.4 |   | 36 | % |
| Construction and  forestry equipment |       | 40.9        |       | 13          |       | 34.9        |       | 14          |       | 32.1        |       | 13 |   | 30.9 |   | 11 |   | 30.8 |   | 11 |   |
| Commercial and  consumer equipment   |       | 2.6         |       | 6           |       | 2.6         |       | 6           |       | 3.1         |       | 7 |   | 3.7 |   | 8 |   | 7.6 |   | 8 |   |
| Recreational  products               |       | 2.2         |       |        |       | 1.1         |       |        |       | 1.3         |       |   |   | 2.1 |   |   |   | 2.1 |   |   |   |
| Total retail  notes                  |       | 63.5        |       | 67          |       | 56.3        |       | 64          |       | 53.7        |       | 61 |   | 56.0 |   | 55 |   | 63.9 |   | 55 |   |
| Revolving charge  accounts           |       | 19.1        |       | 9           |       | 17.3        |       | 9           |       | 16.9        |       | 10 |   | 22.3 |   | 11 |   | 19.7 |   | 10 |   |
| Operating loans                      |       | 3.7         |       | 2           |       | 3.8         |       | 2           |       | 9.1         |       | 2 |   | 9.1 |   | 3 |   | 9.7 |   | 5 |   |
| Wholesale  receivables               |       | 7.7         |       | 20          |       | 7.5         |       | 22          |       | 7.6         |       | 24 |   | 15.1 |   | 28 |   | 19.6 |   | 26 |   |
| Financing leases                     |       | 5.2         |       | 2           |       | 7.9         |       | 3           |       | 9.1         |       | 3 |   | 10.1 |   | 3 |   | 10.9 |   | 4 |   |
| Total                                |       | $           | 99.2       |        | 100        | %           | $          | 92.8        |       | 100         | %          | $ | 96.4 |   | 100 | % | $ | 112.6 |   | 100 | % | $ | 123.8 |   | 100 | % |

 

9

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** **

**The totalReceivable allowance for credit losses, by geographic area, at October 31,and the Receivable portfolio, by geographic area, as a percent of totalportfolio is presented below (in millions of dollars):**

 
| ** **       | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **       | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| U.S.             |       | $           | 89.6       |        | 86         | %           | $          | 83.6        |       | 87          | %          | $ | 86.8 |   | 86 | % | $ | 95.6 |   | 84 | % | $ | 107.8 |   | 86 | % |
| Outside the U.S. |       | 9.6         |       | 14          |       | 9.2         |       | 13          |       | 9.6         |       | 14 |   | 17.0 |   | 16 |   | 16.0 |   | 14 |   |
| Total            |       | $           | 99.2       |        | 100        | %           | $          | 92.8        |       | 100         | %          | $ | 96.4 |   | 100 | % | $ | 112.6 |   | 100 | % | $ | 123.8 |   | 100 | % |
|                  |            |             |            |             |            |             |            |             |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The allowance for credit losses is an estimate of the losses expectedfrom the Company’s Receivable portfolio. The level of the allowance is based onmany quantitative and qualitative factors, including historical loss experienceby product category, portfolio duration, delinquency trends, economicconditions and credit risk quality. The Company has an established process tocalculate a range of possible outcomes and determine the adequacy of theallowance. No single statistic or measurement determines the adequacy of theallowance. Historical receivable recoveries and charge-offs are considered aspart of the loss experience by product category. The adequacy of the allowanceis assessed quarterly in accordance with Financial Accounting Standards Board(FASB) Statement No. 5, Accounting for Contingencies, and FASB Statement No. 114,Accounting by Creditors for Impairment of a Loan. Different assumptions orchanges in economic conditions would result in changes to the allowance forcredit losses and provision for credit losses.

 

The allowance is determined at an aggregate level by product categoryfor all Receivables that are performing in accordance with payment terms andare not materially past due. The Company assigns loss factors to eachaggregation and loss factors are applied to the applicable Receivable balanceto determine the allowance level for each product category. The loss factorsare determined based on quantitative and qualitative factors, includinghistorical loss experience by product category, portfolio duration, delinquencytrends, economic conditions and credit risk quality.

 

TheCompany also separately reviews non-performing Receivables for impairment basedon delinquencies and changes in cash flows or collateral. These non-performingReceivables consist of materially past due Receivables, customers that haveprovided bankruptcy notification and other Receivables requiring significantcollection efforts including litigation. The Company identifies theseReceivables during reviews of portfolio credit quality. The Company includesthe impairment on non-performing Receivables as a separate component includedin the allowance unless it has already been recognized as a loss.

 

In additionto the calculations discussed above, other qualitative factors are taken intoaccount to arrive at the allowance balance. The total allowance reflectsmanagement’s estimate of credit losses inherent in the Receivables portfolio atthe balance sheet date. See further discussion of the allowance for creditlosses in the Critical Accounting Policies.

 

Competition

 

Thebusinesses in which the Company is engaged are highly competitive. The Companycompetes for customers with commercial banks and finance and leasing companiesbased upon its service, finance rates charged and other finance terms. Theproportion of John Deere equipment retail sales and leases financed by theCompany is influenced by conditions prevailing in the agricultural equipment,commercial and consumer equipment, and construction and forestry equipmentindustries, in the financial markets, and in business generally. The Companyfinanced a significant portion of John Deere equipment retail sales and leasesin the U.S. during 2007 and 2006.

 

TheCompany emphasizes convenient service to customers and endeavors to offer termsdesired in its specialized markets such as seasonal schedules of repayment andrentals. The Company’s retail note finance rates and lease rental rates aregenerally believed to be in the range offered by other sales finance andleasing companies, although not as low as those of some banks and other lendersand lessors.

 

10

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Regulation

 

In anumber of states, state law limits the maximum finance rate on receivables. Thepresent state limitations have not, thus far, significantly limitedvariable-rate finance charges or the fixed-rate finance charges established bythe Company. However, if interest rate levels should increase significantly,maximum state rates could affect the Company by preventing the variable rateson outstanding variable-rate retail notes from increasing above the maximumstate rate, and by limiting the fixed rates on new notes. In some states, theCompany may be able to qualify new retail notes for a higher maximum rate limitby using retail installment sales contracts (rather than loan contracts) or byusing fixed-rate rather than variable-rate contracts.

 

Inaddition to rate regulation, various state and federal laws and regulationsapply to some Receivables and Leases, principally retail notes for goods soldfor personal, family or household use and Farm Planä,PowerPlanâ and John Deere Credit Revolving Plan accountsreceivable for such goods. To date, these laws and regulations have not had asignificant adverse effect on the Company.

 

FPCFinancial, f.s.b. (Thrift), a wholly-owned subsidiary of the Company, holds afederal charter issued by the Office of Thrift Supervision (OTS) and is subjectto federal regulation and examination by the OTS. The Thrift is headquarteredin Madison, Wisconsin and offers revolving charge products such as John DeereCredit Revolving Plan, Farm Planäand PowerPlanâ on a nationwide basis.

 

Financingoutside the U.S. is affected by a variety of laws, customs and regulations.

 

**Item 1A.Risk Factors.**

 

TheCompany is a subsidiary of John Deere Credit Company, a wholly-owned financeholding subsidiary of Deere & Company. The results of operations ofthe Company are affected by its relationships with Deere & Company.See “Relationships of the Company with John Deere” on page 3 foradditional information regarding the relationship between the Company and Deere &Company.

 

*EconomicCondition and Outlook.*Generaleconomic conditions can affect the demand for John Deere’s equipment. Negativeeconomic conditions or a negative outlook, for example, can decrease housingstarts and other construction and dampen demand for equipment. Weakness in theoverall farm economy can have a similar effect on Deere & Company’sagricultural equipment sales.

 

*ConsumerAttitudes.*Theconfidence John Deere’s customers have in the general economic outlook can havea significant effect on their propensity to purchase equipment and,consequently, on Deere & Company’s sales. John Deere’s ability tomatch its new product offerings to its customers’ anticipated preferences fordifferent types and sizes of equipment is important as well.

 

*InterestRates and Credit Ratings.*If interest rates rise, they could have a dampening effect on overalleconomic activity and could affect the demand for John Deere’s equipment. Inaddition, credit market dislocations could have an impact on funding costs whichare very important to the Company. Decisions and actions by credit ratingagencies can affect the availability and cost of funding for the Company. Creditrating downgrades or negative changes to ratings outlooks can increase theCompany’s cost of capital and hurt its competitive position. Guidance fromrating agencies as to acceptable leverage can affect the Company’s returns aswell.

 

Therisks identified above should be considered in conjunction with “Management’sDiscussion and Analysis” beginning on page 12, and, specifically, theother risks described in the “Safe Harbor Statement” on page 20. TheCompany’s results of operations may be affected by these identified risksand/or by risks not currently contemplated.

 

**Item 1B.Unresolved Staff Comments.**

 

None.

 

11

----

 

**Item 2.Properties.**

 

TheCompany’s properties principally consist of office equipment, Company-ownedoffice buildings in Johnston, Iowa and Madison, Wisconsin; and leased officespace in Reno, Nevada; Pittsburgh, Pennsylvania; Rosario, Argentina; Brisbane,Australia; Gloucester, England; Langar, England; Bruchsal, Germany; Vignate,Italy; Luxembourg City, Luxembourg; Monterrey, Mexico; and Getafe, Spain.

 

**Item 3.Legal Proceedings.**

 

TheCompany is subject to various unresolved legal actions which arise in thenormal course of its business, the most prevalent of which relate to state andfederal laws and regulations concerning retail credit. Although it is notpossible to predict with certainty the outcome of these unresolved legalactions or the range of possible loss, the Company believes these unresolvedlegal actions will not have a material effect on its financial statements.

 

**Item 4.Submission of Matters to a Vote of Security Holders.**

 

Omittedpursuant to instruction I(2).

 

**PART II**

 

**Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities.**

 

(a)          Allof the Company’s common stock is owned by John Deere Credit Company, a financeholding company that is wholly-owned by Deere & Company. The Companydeclared and paid cash dividends to John Deere Credit Company of$525 million in 2007 and $85 million in 2006. In each case, John DeereCredit Company paid comparable dividends to Deere & Company.

 

(b)         Notapplicable.

 

(c)          Notapplicable.

 

**Item 6.Selected Financial Data.**

 

Omittedpursuant to instruction I(2).

 

**Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

Results ofOperations

 

Overview

 

Organization

 

TheCompany primarily generates revenues and cash by financing John Deere dealers’sales and leases of new and used agricultural, commercial and consumer, andconstruction and forestry equipment. In addition, the Company also provideswholesale financing to dealers of the foregoing equipment, provides operatingloans, finances retail revolving charge accounts, offers certain crop riskmitigation products and invests in wind energy generation.

 

12

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Trendsand Economic Conditions

 

TheCompany’s business is currently affected by the following key trends andeconomic conditions. The Company’s business is closely related to John Deere’sbusiness. Worldwide farm conditions remain positive, benefiting from growingeconomic prosperity, healthy commodity prices and demand for renewable fuels.Industry sales of farm machinery in the U.S. and Canada in 2008 are expected tobe up 10 to 15 percent for the year, while sales in Western Europe are forecastto be flat to up slightly. South American industry sales for 2008 are expectedto increase by 10 to 15 percent. Deere & Company’s agriculturalequipment net sales were up 18 percent for 2007 and are forecast to be upapproximately 17 percent in 2008. Deere & Company’s commercial andconsumer equipment net sales were up 12 percent in 2007, including about 9percent from LESCO, which was acquired in May 2007. Deere &Company’s commercial and consumer equipment sales are forecast to be up about10 percent in 2008, including about 8 percent from a full year’s sales fromLESCO. U.S. markets for construction and forestry equipment are forecast toremain under pressure in 2008 due in large part to a continuing slump inhousing starts. Deere & Company’s construction and forestry net salesdecreased 13 percent in 2007 and are forecast to be approximately flat in 2008.The Company expects to report net income of approximately $315 million in2008 due to growth in the creditportfolio.

 

Itemsof concern for the Company include the impacts of inflation and sub-primecredit issues, which could affect interest rates. Uncertainty over thedirection of U.S. farm legislation is also a concern.

 

In2007, Deere & Company benefited from an improving global farm economy,while also experiencing weakening construction, forestry, commercial andconsumer sectors primarily as a result of the U.S. housing downturn. As itmaintains its focus on cost and asset management, Deere & Companybelieves it has successfully entered new markets, made important acquisitionsand expanded its global customer base with advanced lines of products andservices.

 

2007 Compared with2006

 

Consolidatednet income was $311.2 million for the year, compared with $291.2 million lastyear. The higher results for the year were primarily due to growth in theportfolio, partially offset by higher administrative and operating expenses andhigher provision for credit losses. The ratio of earnings to fixed charges was1.54 to 1 for 2007, compared with 1.60 to 1 for 2006.

 

Revenuestotaled $1,967 million in 2007, compared to $1,705 million a year ago. Revenuesincreased primarily due to a 7 percent increase in the average balance ofReceivables and Leases financed and higher financing rates. Finance incomeearned on retail notes totaled $852 million in 2007, up $139 million comparedto $713 millionin 2006. The increase was primarily due to a 12 percent increase in the averageretail note portfolio balances and higher financing rates. Lease revenuesincreased $33 million to $319 million in 2007, primarily due to a12 percent increase in the average balance of equipment on operatingleases. Revenues earned on revolving charge accounts amounted to$222 million in 2007, a 6 percent increase over revenues of $210million earned during 2006. The increase was primarily due to an increase inFarm Planä and PowerPlanâaverage receivables in 2007, compared with 2006. Finance income earned onwholesale receivables increased $10 million, to $365 million in 2007,from $355 million in 2006. The increase was primarily due to higherfinancing rates. Revenues earned on operating loans amounted to $27 million in2007 and 2006. Revenues earned from Deere & Company totaled$555 million in 2007 compared to $468 million a year ago.

 

Incomeon receivables sold totaled $22 million in 2007, compared with $29 million in2006. Income on receivables sold relates to Receivables sold to other financialinstitutions or limited-purpose business trusts and primarily includes theinterest earned on interests that continue to be held by the Company,reimbursed administrative expenses received and the net gain on Receivablessold, including adjustments to prior sales related to cleanup calls andrevaluations of interests that continue to be held and the related permanentimpairments.

 

Cropinsurance commissions totaled $76 million in 2007, compared with $35 million in2006. The increase was primarily due to increased crop insurance sales toproducers as a result of expanded market coverage.

 

13

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Other income totaled $85 million in 2007, comparedwith $51 million in 2006. The increase was primarily due to increased interestincome as a result of higher average loans to certain affiliated companies thathave directly invested in wind energy projects.

 

Interestexpense totaled $878 million in 2007, compared with $727 million in 2006. Theincrease was primarily due to an increase in the weighted-average annualinterest rate incurred on all borrowings from 5.0 percent in 2006 to5.4 percent in 2007 and higher average borrowings.

 

Administrativeand operating expenses totaled $308 million in 2007, compared with $274 millionin 2006. The increase was primarily due to higher employment costs associatedwith administering a larger Receivable and Lease portfolio and higher costs insupport of the Company’s growth initiatives.

 

The provision for credit losses was $54 million in2007, compared with $31 million in 2006. The Company has experienced higherwrite-offs of construction and forestry retail notes, wholesale receivables,revolving charge accounts and financing leases. Total net write-offs ofReceivables financed were $49 million during 2007, compared with$34 million in 2006. The provision for credit losses, as a percentage ofthe total average balance of Receivables financed, was .31 percent for2007 and .19 percent for 2006. Although the provision for credit lossesincreased from the same period last year, it continues to be comparable torecent years. Over the last five fiscal years, the provision for credit losses,as a percentage of the total average balance of Receivables financed, averaged..29 percent

 

Interestand support fees paid to John Deere were $36 million in 2007, compared with$42 million in 2006. The decrease was primarily due to lower averageborrowings from John Deere.

 

Depreciationof equipment on operating leases totaled $212 million in 2007, compared with$190 million in 2006.The increase was primarily the result of higher average amounts of equipment onoperating leases.

 

Receivablesand Leases Acquired and Held

 

Receivablesand Leases acquired by the Company during 2007 totaled $29,548 million,compared with volumes of $29,557 million during 2006. Excluding the tradereceivables acquired from John Deere, acquisitions of Receivables and Leaseswere 2 percent higher in 2007 compared to last year. Receivables andLeases held by the Company at October 31, 2007 totaled $18,747 million,compared with $17,669 million at October 31, 2006. For the 2007 and2006 fiscal years, Receivable and Lease acquisition volumes and balances heldwere as follows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | **2007**                          | ** ** | **2006**                                  | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                                 | 4,476.2    |                                      | $          | 3,910.2 |   | 14 | % | $ | 8,535.8 |   | $ | 7,330.8 |   | 16 | % |
| Construction and  forestry equipment |       | 1,372.1                           |       | 1,545.5                                   |       | (11 | ) | 2,409.1 |   | 2,387.5 |   | 1 |   |
| Commercial and  consumer equipment   |       | 524.4                             |       | 545.0                                     |       | (4 | ) | 1,003.5 |   | 1,021.8 |   | (2 | ) |
| Recreational  products               |       |                              |       |                                      |       |   |   | 12.3 |   | 17.5 |   | (30 | ) |
| Total retail  notes                  |       | 6,372.7                           |       | 6,000.7                                   |       | 6 |   | 11,960.7 |   | 10,757.6 |   | 11 |   |
| Revolving charge  accounts           |       | 3,603.1                           |       | 3,345.0                                   |       | 8 |   | 1,553.3 |   | 1,512.4 |   | 3 |   |
| Operating loans                      |       | 1,382.8                           |       | 1,437.7                                   |       | (4 | ) | 286.5 |   | 378.7 |   | (24 | ) |
| Wholesale  receivables               |       | 17,431.0                          |       | 18,038.6                                  |       | (3 | ) | 3,521.3 |   | 3,699.0 |   | (5 | ) |
| Financing leases                     |       | 221.1                             |       | 227.8                                     |       | (3 | ) | 430.3 |   | 420.8 |   | 2 |   |
| Equipment on  operating leases       |       | 537.7                             |       | 507.2                                     |       | 6 |   | 995.2 |   | 900.1 |   | 11 |   |
| Total Receivables  and Leases        |       | $                                 | 29,548.4   |                                      | $          | 29,557.0 |   | 0 | % | $ | 18,747.3 |   | $ | 17,668.6 |   | 6 | % |

 

14

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Retailnote volumes for agricultural equipment increased primarily due to increases inretail sales of John Deere agricultural equipment. Retail note volumes forconstruction and forestry equipment decreased primarily due to decreases inretail sales of John Deere construction and forestry equipment. Wholesalereceivable volumes decreased primarily due to decreased shipments of John Deereequipment as a result of decreased retail sales activity in the constructionand forestry markets.

 

Receivables and Leases administered by the Company,which include retail notes sold, were as follows (in millions):

 
| ** **                                                    | ** ** | **October 31,  2007** | ** ** | **October 31,  2006** | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **Receivables  and Leases administered:**                     |       |                       |       |                       |       |
| Owned by the  Company                                         |       | $                          | 16,596.9   |                       | $          | 15,495.2 |   |
| Owned by the  Company – restricted due to securitization |       | 2,150.4                    |       | 2,173.4                    |       |
| Total  Receivables and Leases owned by the Company            |       | 18,747.3                   |       | 17,668.6                   |       |
| Sold and  serviced - with limited recourse*                   |       | 177.9                      |       | 932.3                      |       |
| Sold and  serviced - without recourse**                       |       | 44.6                       |       | 21.4                       |       |
| Total  Receivables and Leases administered                    |       | $                          | 18,969.8   |                       | $          | 18,622.3 |   |

 

----

*                                         The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2007 and 2006 was $25 million and $105 million, respectively. In addition, theCompany has provided letters of credit for John Deere Credit Inc., the JohnDeere finance subsidiary in Canada, as part of retail note sales. At October 31, 2007and 2006, the Company’s maximum exposure under these agreements wasapproximately $3 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 anysubsequent necessary adjustments are made as part of ongoing reviews.

 

**                                  Represents Receivables and Leases thatthe Company has sold but continues to administer for a fee.

 

Retailnotes bearing fixed finance rates totaled 90 percent of the total retail noteportfolio at October 31, 2007, compared with 85 percent at October 31,2006.

 

Total Receivable amounts 60 days or more past duerepresent the amount of all customer payments past due 60 days or more.These amounts were $44 million at October 31, 2007, compared with $43million at October 31, 2006. In addition, these past due amountsrepresented .25 percent and .26 percent of the total Receivables held at thoserespective dates. The balance of retail notes held (principal plus accruedinterest) with any installment 60 days or more past due represents the totalretail note balance for a customer that has any portion of his note 60 days ormore past due. These amounts were $170 million and $116 million at October 31, 2007and 2006, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was 1.42 percent at October 31, 2007 and1.08 percent at October 31, 2006. See Note 3 to the consolidatedfinancial statements for additional past due information.

 

Depositswithheld from dealers and merchants, representing mainly the aggregate dealerretail note and lease withholding accounts from individual John Deere dealersto which losses from retail notes and leases originating from the respectivedealers can be charged, amounted to $174 million at October 31, 2007,compared to $177 million at October 31, 2006. The Company’s allowance forcredit losses on all Receivables financed at October 31, 2007 totaled $99million and represented .56 percent of the total Receivables financed, comparedwith $93 million and .55 percent, respectively, one year earlier. Theallowance is subject to an ongoing evaluation based on many quantitative andqualitative factors, including historical loss experience by product category,portfolio duration, delinquency trends, economic conditions and credit riskquality. The Company believes its allowance is sufficient to provide for lossesin its existing receivable portfolio.

 

15

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2006 Compared with2005

 

Consolidatednet income was $291.2 million for the fiscal year ended October 31, 2006,compared with $274.7 million in 2005. The higher results for 2006 wereprimarily due to growth in the portfolio, partially offset by narrowerfinancing spreads and a higher provision for credit losses. The ratio ofearnings to fixed charges was 1.60 to 1 for 2006, compared with 1.88 to 1 for2005.

 

Revenuestotaled $1,705 million in 2006, compared to $1,377 million in 2005. Revenuesincreased primarily due to a 14 percent increase in the average balance ofReceivables and Leases financed and higher financing rates. Finance incomeearned on retail notes totaled $713 million in 2006, up $191 million comparedto $522 millionin 2005. The increase was primarily due to a 23 percent increase in the averageretail note portfolio balances and increasing yields. Lease revenues increased$30 million to $286 million in 2006, primarily due to a 10 percentincrease in the average balance of equipment on operating leases. Revenuesearned on revolving charge accounts amounted to $210 million in 2006, a9 percent increase over revenues of $193 million earned during 2005. Theincrease was primarily due to an increase in Farm Planäand PowerPlanâ average receivables in 2006 and higher financingrates, compared with 2005. Finance income earned on wholesale receivablesincreased $64 million, to $355 million in 2006, from$291 million in 2005. The increase was primarily due to increasing yieldsand a 3 percent increase in the average balance of wholesale receivables.Revenues earned on operating loans amounted to $27 million in 2006, comparedwith $24 million in 2005. Revenues earned from Deere & Companytotaled $468 million in 2006 compared to $401 million in 2005.

 

Incomeon receivables sold totaled $29 million in 2006, compared with $45 million in2005. Income on receivables sold relates to Receivables sold to other financialinstitutions or limited-purpose business trusts and primarily includes theinterest earned on interests that continue to be held by the Company,reimbursed administrative expenses received and the net gain on Receivablessold, including adjustments to prior sales related to cleanup calls andrevaluations of interests that continue to be held and the related permanentimpairments.

 

Cropinsurance commissions totaled $35 million in 2006, compared with $8 million in2005. The increase was primarily due to increased crop insurance sales toproducers as a result of expanded market coverage. At October 31, 2006,the Company was offering crop insurance products in 30 states compared to 17states in 2005.

 

Interestexpense totaled $727 million in 2006, compared with $473 million in 2005. Theincrease was primarily due to an increase in the weighted-average annualinterest rate incurred on all borrowings from 3.9 percent in 2005 to5.0 percent in 2006 and higher average borrowings.

 

Administrativeand operating expenses totaled $274 million in 2006, compared with $251 millionin 2005. The increase was primarily due to higher costs associated withadministering a larger Receivable and Lease portfolio and higher costs insupport of the Company’s growth initiatives.

 

The provision for credit losses was $31 million in2006, compared with $6 million in 2005. The Company has experienced higherwrite-offs of retail notes, revolving charge accounts, operating loans andfinancing leases. The provision for credit losses, as a percentage of the totalaverage balance of Receivables financed, was .19 percent for 2006 and..04 percent for 2005. Total net write-offs of Receivables financed were$34 million during 2006, compared with $22 million in 2005.

 

Interestand support fees paid to John Deere were $42 million in 2006, compared with$53 million in 2005. The decrease was primarily due to lower averageborrowings from John Deere.

 

Depreciationof equipment on operating leases totaled $190 million in 2006, compared with$169 million in 2005.The increase was primarily the result of higher average amounts of equipment onoperating leases.

 

16

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Receivablesand Leases Acquired and Held

 

Receivablesand Leases acquired by the Company during 2006 totaled $29,557 million, anincrease of 2 percent, compared with volumes of $29,088 million during2005. These higher volumes in 2006 resulted mainly from increased volumes ofwholesale receivables, operating loans, revolving charge accounts and equipmenton operating leases. Excluding the trade receivables acquired from John Deere,acquisitions of Receivables and Leases were 6 percent higher in 2006compared to 2005. Receivables and Leases held by the Company at October 31,2006 totaled $17,669 million, compared with $16,002 million at October 31,2005. For the 2006 and 2005 fiscal years, Receivable and Lease acquisitionvolumes and balances held were as follows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | **2006**                          | ** ** | **2005**                                  | ** ** | **% Change** | ** ** | **2006** | ** ** | **2005** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                              |       |                                      |       |   |   |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                                 | 3,910.2    |                                      | $          | 3,993.1 |   | (2 | )% | $ | 7,330.8 |   | $ | 6,208.8 |   | 18 | % |
| Construction and  forestry equipment |       | 1,545.5                           |       | 1,422.3                                   |       | 9 |   | 2,387.5 |   | 1,980.4 |   | 21 |   |
| Commercial and  consumer equipment   |       | 545.0                             |       | 551.7                                     |       | (1 | ) | 1,021.8 |   | 1,021.7 |   | 0 |   |
| Recreational  products               |       |                              |       |                                      |       |   |   | 17.5 |   | 22.7 |   | (23 | ) |
| Total retail  notes                  |       | 6,000.7                           |       | 5,967.1                                   |       | 1 |   | 10,757.6 |   | 9,233.6 |   | 17 |   |
| Revolving charge  accounts           |       | 3,345.0                           |       | 3,271.5                                   |       | 2 |   | 1,512.4 |   | 1,527.5 |   | (1 | ) |
| Operating loans                      |       | 1,437.7                           |       | 1,331.7                                   |       | 8 |   | 378.7 |   | 384.4 |   | (1 | ) |
| Wholesale receivables                |       | 18,038.6                          |       | 17,864.4                                  |       | 1 |   | 3,699.0 |   | 3,651.2 |   | 1 |   |
| Financing leases                     |       | 227.8                             |       | 220.3                                     |       | 3 |   | 420.8 |   | 411.7 |   | 2 |   |
| Equipment on  operating leases       |       | 507.2                             |       | 433.4                                     |       | 17 |   | 900.1 |   | 793.9 |   | 13 |   |
| Total Receivables  and Leases        |       | $                                 | 29,557.0   |                                      | $          | 29,088.4 |   | 2 | % | $ | 17,668.6 |   | $ | 16,002.3 |   | 10 | % |

 

Retailnote volumes increased by approximately $34 million in 2006, compared with2005. Lease volumes increased $81 million in 2006, compared with 2005. Theincreases in retail note and lease volumes were primarily due to increases inretail sales of John Deere construction and forestry equipment. Revolvingcharge account volumes increased primarily as a result of increased marketcoverage. Wholesale receivable volumes increased primarily due to increasedshipments of John Deere equipment as a result of increased retail salesactivity in the construction and forestry markets.

 

17

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Receivables and Leases administered by the Company,which include retail notes sold, were as follows (in millions):

 
| ** **                                                    | ** ** | **October 31,   2006** | ** ** | **October 31,   2005** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Receivables  and Leases administered:**                     |       |                             |       |                             |       |
| Owned by the  Company                                         |       | $                                | 15,495.2   |                             | $          | 14,662.2 |   |
| Owned by the  Company — restricted due to securitization |       | 2,173.4                          |       | 1,340.1                          |       |
| Total  Receivables and Leases owned by the Company            |       | 17,668.6                         |       | 16,002.3                         |       |
| Sold and  serviced - with limited recourse*                   |       | 932.3                            |       | 1,699.2                          |       |
| Sold and  serviced - without recourse**                       |       | 21.4                             |       | 20.1                             |       |
| Total  Receivables and Leases administered                    |       | $                                | 18,622.3   |                             | $          | 17,721.6 |   |

 

----

*                                         The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2006 and 2005 was $105 million and $140 million, respectively. In addition, theCompany has provided letters of credit for John Deere Credit Inc., the JohnDeere finance subsidiary in Canada, as part of retail note sales. At October 31, 2006and 2005, the Company’s maximum exposure under these agreements wasapproximately $7 million. The Company does not record the recourseobligations as liabilities as they are contingent liabilities that are remoteat this time. However, the probable loss on receivables that have been sold wasaccrued at the time of sale, and any subsequent necessary adjustments are madeas part of ongoing reviews.

 

**                                  Represents Receivables and Leases thatthe Company has sold but continues to administer for a fee.

 

Retailnotes bearing fixed finance rates totaled 85 percent of the total retail noteportfolio at October 31, 2006, compared with 75 percent at October 31,2005.

 

Total Receivable amounts 60 days or more past duerepresent the amount of all customer payments past due 60 days or more.These amounts were $43 million at October 31, 2006, compared with $33million at October 31, 2005. In addition, these past due amountsrepresented .26 percent and .21 percent of the total Receivables held at thoserespective dates. The balance of retail notes held (principal plus accruedinterest) with any installment 60 days or more past due represents the totalretail note balance for a customer that has any portion of his note 60 days ormore past due. These amounts were $116 million and $78 million at October 31, 2006and 2005, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was 1.08 percent at October 31, 2006 and..84 percent at October 31, 2005. See Note 3 to the consolidatedfinancial statements for additional past due information.

 

Depositswithheld from dealers and merchants, representing mainly the aggregate dealerretail note and lease withholding accounts from individual John Deere dealersto which losses from retail notes and leases originating from the respectivedealers can be charged, amounted to $177 million at October 31, 2006,compared to $166 million at October 31, 2005. The Company’s allowance forcredit losses on all Receivables financed at October 31, 2006 totaled $93million and represented .55 percent of the total Receivables financed, comparedwith $96 million and .63 percent, respectively, at October 31, 2005.The allowance is subject to an ongoing evaluation based on many quantitativeand qualitative factors, including historical loss experience by productcategory, portfolio duration, delinquency trends, economic conditions andcredit risk quality. The Company believes its allowance is sufficient toprovide for losses in its existing receivable portfolio.

 

Capital Resourcesand Liquidity

 

The aggregate cash provided by operating andfinancing activities was used primarily to increase Receivables and Leases. Netcash provided by operating activities was $595 million in 2007. Net cashprovided by financing activities totaled $690 million resulting from a netincrease in external borrowings, partially offset by dividends paid to JohnDeere Credit Company, which in turn paid comparable dividends to Deere &Company. Net cash used for investing activities totaled $1,223 million in 2007,primarily due to the cost of Receivables and Leases acquired exceedingcollections and the cost of notes receivable with John Deere exceedingcollections. Cash and cash equivalents increased $72 million during 2007.

 

18

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Overthe last three years, operating activities have provided $1,459 million incash. In addition, the sale of Receivables and Leases provided $505 million andan increase in total net borrowings provided $5,503 million. These amounts havebeen used mainly to fund Receivable and Lease acquisitions, which exceededcollections by $6,686 million, and to pay $760 million in dividends.

 

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 for2007 and 2006. Any extended reduction or suspension of John Deere’s sale orproduction of products due to a decline in demand or production, governmentalactions or other events could have an adverse effect on the Company’sacquisition volume of Receivables and Leases.

 

TheCompany relies on its ability to raise substantial amounts of funds to financeits Receivable and Lease portfolios. Because of the multiple funding sourcesthat are available, the Company expects to have sufficient sources of liquidityto meet its ongoing funding needs. The Company’s ability to meet its debtobligations is supported in a number of ways. The assets of the Company areself-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. Additionally, liquidity may alsobe provided through loans from John Deere.

 

During2007, the Company issued $3,494 million of medium-term notes, obtained $1,106million of secured borrowings, maintained an average commercial paper balanceof $2,835 million and received proceeds of $229 million from sales ofReceivables. At October 31, 2007, the Company’s funding profileincluded $2,679 million of commercial paper, $2,192 million of notespayable related to on-balance sheet securitization funding, $128 millionof intercompany loans from Deere & Company, $12,112 million ofunsecured term debt, $88 million of off-balance sheet securitization fundingand $1,955 million of equity capital. The Company’s funding profile may bealtered to reflect such factors as relative costs of funding sources, assetsavailable for securitizations and capital market accessibility.

 

The Company’scommercial paper outstanding at October 31, 2007 and 2006 wasapproximately $2,679 million and $2,290 million, respectively, whilethe total cash and cash equivalents position was $191 million and$119 million, respectively.

 

TheCompany issued $3,514 million and retired $2,513 million of otherborrowings during the year, which were primarily medium-term notes.

 

The Company has utilized a revolving multi-bankconduit facility to securitize floating rate retail notes that were structuredas either sales or secured borrowings (see Note 4). In September 2007,the Company amended the facility and simultaneously repurchased $264 million ofretail notes previously sold into the facility and elected not to renew thefacility for any future securitizations. At October 31, 2007,$657 million of securitized retail notes remained in the facility relatingonly to secured borrowings, which are recorded on the balance sheet. Thesesecured borrowings will be liquidated as payments on the retail notes arecollected.

 

Totalinterest-bearing indebtedness amounted to $17,118 million at October 31,2007, compared with $15,555 million at October 31, 2006. Included inthis debt are secured borrowings of $2,192 million and $2,194 million for thesame periods. Total external borrowings have increased generally correspondingwith the level of the Receivable and Lease portfolio, the level of cash andcash equivalents and the change in payable to Deere & Company. Totalshort-term indebtedness amounted to $8,842 million at October 31, 2007,which included $2,192 million of secured borrowings, compared with $7,143million at October 31, 2006, which included $2,194 million of securedborrowings, while total long-term indebtedness amounted to $8,276 million at October 31,2007 and $8,413 million at October 31, 2006. The ratio of totalinterest-bearing debt to stockholder’s equity was 8.8 to 1 and 7.2 to 1 at October 31,2007 and 2006, respectively.

 

19

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Stockholder’s equity was $1,955 million at October 31,2007, compared with $2,154 million and $1,940 million at October 31,2006 and 2005, respectively. The decrease in 2007 was primarily due to dividendpayments of $525 million and an unrealized loss on derivatives of $17 million,partially offset by net income of $311 million and an increase in thecumulative translation adjustment of $34 million.

 

TheCapital Corporation declared and paid cash dividends to John Deere CreditCompany of $525 million in 2007 and $85 million in 2006. In each case, JohnDeere Credit Company paid comparable dividends to Deere & Company.

 

*Lines of Credit*

 

TheCompany also has access to bank lines of credit with various banks throughoutthe world. Some of the lines are available to both the Company and Deere &Company. Worldwide lines of credit totaled $3,760 million at October 31,2007, $904 million of which was unused. Forthe purpose of computing unused credit lines, commercial paper and short-termbank borrowings, excluding secured borrowings and the current portion oflong-term borrowings, of the Company and John Deere were considered toconstitute utilization. Included in the total credit lines at October 31,2007 was a long-term credit facility agreement of $3.75 billion, expiring in February 2012.The creditagreement requires the Company to maintain its consolidated ratio of earningsto fixed charges at not less than 1.05 to 1 for each fiscal quarter and itsratio of senior debt, excluding securitization indebtedness, to capital base(total subordinated debt and stockholder’s equity excluding accumulated othercomprehensive income (loss)) at not more than 9.5 to 1 at the end of anyfiscal quarter. All of these requirements of the credit agreement have been metduring the periods included in the consolidated financial statements. Forinformation regarding Deere & Company and its business, see Businessof John Deere, Outlook for John Deere, Relationships of the Company with JohnDeere above and Exhibit 99.

 

*Debt Ratings*

 

The Company’sability to obtain funding is affected by its debt ratings, which are closelyrelated to the outlook for and the financial condition of John Deere, and thenature and availability of support facilities, such as its lines of credit andthe support agreement from Deere & Company.

 

Toaccess public debt capital markets, the Company relies on credit ratingagencies to assign short-term and long-term credit ratings to the Company’ssecurities as an indicator of credit quality for fixed income investors. Acredit rating agency may change or withdraw Company ratings based on itsassessment of the Company’s current and future ability to meet interest andprincipal repayment obligations. Each agency’s rating should be evaluatedindependently. Lower credit ratings generally result in higher borrowing costsand 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 John Deere. Thoseratings are as follows:

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

 

# Safe Harbor Statement

 

*Safe Harbor Statement under the Private SecuritiesLitigation Reform Act of 1995:*Statements herein that relateto future operating periods are subject to important risks and uncertaintiesthat could cause actual results to differ materially. Actions by the U.S.Federal Reserve Board and other central banks may affect the costs and expensesof financing the Company and the rates it is able to offer. The Company’sbusiness is affected by general economic conditions in and the politicalinstability of the global markets in which the Company operates becausedeteriorating economic conditions and political instability can result inhigher loan losses. The Company’s business

 

20

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is also affected byactions of banks, financing and leasing companies and other lenders thatcompete with the Company for customers. In addition, the Company’s business isclosely related to John Deere’s business. Further information, includingfactors that potentially could materially affect the Company’s and John Deere’sfinancial results, is included in the most recent Deere & Company Form 10-K(including the factors discussed in Item 1A) and other Deere & Companyand Capital Corporation filings with the Securities and Exchange Commission.

 

# Off-Balance Sheet Arrangements

 

Priorto 2005, the Company has periodically sold retail notes to special purposeentities (SPEs) in securitization transactions. The Company has used these SPEsin a manner consistent with conventional practices in the securitizationindustry to isolate the retail notes for the benefit of securitizationinvestors. The use of the SPEs has enabled the Company to access thehistorically liquid and efficient securitization markets for the sales of thesetypes of financial assets. The amounts of funding the Company chooses to obtainfrom securitizations reflect such factors as capital market accessibility,relative costs of funding sources and assets available for securitization. TheCompany’s total exposure to recourse provisions related to securitized retailnotes, which were sold in prior periods, was $17 million and the total assetsheld by the SPEs related to these securitizations were $92 million at October 31,2007.

 

AtOctober 31, 2007, the Company had $282 million of guarantees issued toturbine manufacturers for John Deere Renewables, LLC wind turbine purchases.John Deere Renewables, LLC is an affiliated company that has commitments topurchase wind turbines related to its direct investments in wind energyprojects. 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 agency agreement(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 crop insuranceto producers. The Company has guaranteed certain obligations under theAgreement, including the obligation to pay the Insurance Carrier for anyuncollected premiums. At October 31, 2007 the maximum exposure foruncollected premiums was approximately $57 million. Substantially all of theCompany’s crop insurance risk under the Agreement has been mitigated by asyndicate of private reinsurance companies. These reinsurance companies arerated “Excellent” or higher by A.M. Best Company. In the event of awidespread catastrophic crop failure throughout the U.S. and the default ofthese highly rated private reinsurance companies on their reinsuranceobligations, the Company would be required to reimburse the Insurance Carrierfor the maximum exposure under the Agreement of approximately $489 millionat October 31, 2007. The Company believes that the likelihood of theoccurrence of substantially all of the events that give rise to the exposuresunder this Agreement is substantially remote and as a result, at October 31,2007, the Company’s accrued liability under the Agreement was not material.

 

TheCompany also had other miscellaneous contingent liabilities totalingapproximately $13 million at October 31, 2007, for which it believes theprobability for payment is substantially remote. The Company’s accruedliability at October 31, 2007 related to these contingencies was notmaterial.

 

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# Aggregate Contractual Obligations

 

The payment schedule for the Company’s contractual obligationsat October 31, 2007 in millions of dollars is as follows:

 
| ** **           | ** ** | **Total** | ** ** | **Less than 1   year** | ** ** | **2 & 3   years** | ** ** | **4 & 5   years** | ** ** | **More than 5   years** | ** ** |
|----------------------|------------|-----------|------------|------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|
| Total debt*          |       | $         | 17,050     | **                     | $          | 7,597                      |       | $                          | 5,673      |                    | $          | 2,730 |   | $ | 1,050 |   |
| Interest on debt     |       | 1,812     |       | 680                    |       | 708                        |       | 320                        |       | 104                     |       |
| Purchase obligations |       | 15        |       | 3                      |       | 4                          |       | 4                          |       | 4                       |       |
| Operating leases     |       | 5         |       | 2                      |       | 2                          |       | 1                          |       |                    |       |
| Total obligations    |       | $         | 18,882     |                   | $          | 8,282                      |       | $                          | 6,387      |                    | $          | 3,055 |   | $ | 1,158 |   |

 

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*                                         Principalpayments.

**                                  Notespayable of $2,192 million classified as short-term on the balance sheet relatedto securitization of retail notes are included in this table based on the expectedpayment schedule (see Note 7).

 

These obligations do not include unused commitmentsto extend credit to customers and John Deere dealers as discussed in Note 17 tothe consolidated financial statements. For additional information regardingshort-term borrowings, long-term borrowings and lease obligations, see Notes 7,8 and 9, respectively, to the consolidated financial statements.

 

Critical Accounting Policies

 

The preparation of the Company’s consolidatedfinancial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect reported amounts of assets, liabilities, revenues and expenses. Changesin these estimates and assumptions could have a significant effect on thefinancial statements. The accounting policies below are those managementbelieves are the most critical to the preparation of the Company’s financialstatements and require the most difficult, subjective or complex judgments. TheCompany’s other accounting policies are described in the Notes to theconsolidated financial statements.

 

Allowance for Credit Losses

 

The allowance for credit losses represents anestimate of the losses expected from the Company’s Receivable portfolio. 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 adequacyof the allowance is assessed quarterly. Different assumptions or changes ineconomic conditions would result in changes to the allowance for credit lossesand the provision for credit losses.

 

Thetotal allowance for credit losses at October 31, 2007, 2006, and 2005 were$99 million, $93 million, and $96 million, respectively. The increase in 2007was primarily due to the growth in the Receivable portfolio.

 

Theassumptions used in evaluating the Company’s exposure to credit losses involveestimates and significant judgment. The historical loss experience on theReceivable portfolios represents one of the key assumptions involved indetermining the allowance for credit losses. Over the last five fiscal years,the average loss experience has fluctuated between 1 basis point and 16 basispoints in any given fiscal year over the applicable prior period. Holding otherestimates constant, a 5 basis point increase or decrease in estimated lossexperience on the Receivable portfolios would result in an increase or decreaseof approximately $9 million to the allowance for credit losses at October 31,2007.

 

22

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Operating Lease Residual Values

 

The carrying value of the equipment on operatingleases is affected by the estimated fair values of the equipment at the end ofthe lease (residual values). Upon termination of the lease, the equipment iseither purchased by the lessee or sold to a third party, in which case theCompany may record a gain or a loss for the difference between the estimatedresidual value and the sales price. The residual values are dependent oncurrent economic conditions and are reviewed quarterly. Changes in residualvalue assumptions would affect the amount of depreciation expense and theamount of investment in equipment on operating leases.

 

Thetotal operating lease residual values at October 31, 2007, 2006 and 2005were $587 million, $511 million and $450 million, respectively. Theincreases in 2007 and 2006 were primarily due to the higher levels of operatingleases.

 

Estimatesused in determining end of lease market values for equipment on operatingleases significantly impact the amount and timing of depreciation expense. Iffuture market values for this equipment were to decrease 5 percent fromthe Company’s present estimates, the total impact would be to increase theCompany’s annual depreciation for equipment on operating leases byapproximately $11 million.

 

**Item 7A.Quantitative and Qualitative Disclosures About Market Risk.**

 

# Financial Instrument RiskInformation

 

TheCompany is naturally exposed to various interest rate and foreign currencyrisks. As a result, the Company enters into derivative transactions to managecertain of these exposures that arise in the normal course of business and notfor the purpose of creating speculative positions or trading. The Companymanages the relationship of the types and amounts of its funding sources to itsReceivable and Lease portfolios in an effort to diminish risk due to interestrate and foreign currency fluctuations, while responding to favorable financingopportunities. Accordingly, from time to time, the Company enters into interestrate swap agreements to manage its interest rate exposure. The Company also hasforeign currency exposures at some of its foreign and domestic operations relatedto buying, selling and financing in currencies other than the local currencies.The Company has entered into agreements related to the management of thesecurrency transaction risks. The credit risk under these interest rate andforeign currency agreements is not considered to be significant. See Note 19 tothe consolidated financial statements for additional detailed financialinstrument information.

 

# Interest Rate Risk

 

Quarterly,the Company uses a combination of cash flow models to assess the sensitivity ofits financial instruments with interest rate exposure to changes in marketinterest rates. The models calculate the effect of adjusting interest rates asfollows. Cash flows for Receivables are discounted at the current prevailingrate for each Receivable portfolio. Cash flows for borrowings are discounted atthe treasury yield curve plus a market credit spread for similarly ratedborrowers. Cash flows for securitized borrowings are discounted at theindustrial composite bond curve for similarly rated borrowers. Cash flows forinterest rate swaps are projected and discounted using forecasted rates fromthe swap yield curve at the repricing dates. The net loss in these financialinstruments’ fair values which would be caused by increasing the interest ratesby 10 percent from the market rates at October 31, 2007 and October 31,2006 would have been approximately $66 million and $63 million, respectively.

 

# Foreign Currency Risk

 

TheCompany’s policy is to hedge the foreign currency risk if the currency of theborrowings does not match the currency of the Receivable portfolio. As aresult, a hypothetical 10 percent adverse change in the value of the U.S.dollar relative to all other foreign currencies would not have a materialeffect on the Company’s cash flows.

 

23

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**Item 8.Financial Statements and Supplementary Data.**

 

Seeaccompanying table of contents of financial statements.

 

**Item 9.Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure.**

 

Notapplicable.

 

**Item 9A.Controls and Procedures.**

 

TheCompany’s principal executive officer and its principal financial officer haveconcluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (“the Act”))were effective as of October 31, 2007, based on the evaluation of thesecontrols and procedures required by Rule 13a-15(b) or 15d-15(b) ofthe Act.

 

**Item 9B.Other Information.**

 

Notapplicable.

 

**PART III**

 

**Item 10.Directors, Executive Officers and Corporate Governance.**

 

Omittedpursuant to instruction I(2).

 

**Item 11.Executive Compensation.**

 

Omittedpursuant to instruction I(2).

 

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.**

 

Omittedpursuant to instruction I(2).

 

**Item 13.Certain Relationships and Related Transactions, and Director Independence.**

 

Omittedpursuant to instruction I(2).

 

**Item14. Principal Accountant Fees and Services.**

 

For the years ended October 31, 2007 and 2006,professional services were performed by Deloitte & Touche LLP, themember firms of Deloitte Touche Tohmatsu, and their respective affiliates(collectively, “Deloitte & Touche”).

 

Audit Fees

 

The aggregate fees billed include amounts for theaudit of the Company’s annual financial statements, the reviews of thefinancial statements included in the Company’s Quarterly Reports on Form 10-Q,including services related thereto such as comfort letters, statutory audits,attest services, consents, and assistance with and review of documents filedwith the SEC and other regulatory bodies. Audit fees for the fiscal years endedOctober 31, 2007 and 2006, were $2,196 thousand and $1,725 thousand,respectively.

 

24

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Audit-Related Fees

 

During the last two fiscal years, Deloitte &Touche has provided the Company with assurance and related services that arereasonably related to the performance of the audit of our financial statements.The aggregate fees billed for such audit-related services for the fiscal yearsended October 31, 2007 and 2006, were $228 thousand and$163 thousand, respectively. These services included various attestservices.

 

Tax Fees

 

The aggregate fees billed for professional servicesprovided by Deloitte & Touche in connection with tax advice and taxplanning services for the fiscal years ended October 31, 2007 and 2006were $0 and $4 thousand, respectively.

 

All Other Fees

 

There were no aggregatefees billed for services not included above for the fiscal years ended October 31,2007 and 2006.

 

Pre-approval of Services by the External Auditor

 

As a wholly-owned subsidiary of Deere &Company, audit and non-audit services provided by the Company’s external auditorare subject to Deere & Company’s Audit Review Committee pre-approvalpolicies and procedures as described in the Deere & Company 2007 proxystatement. During the fiscal year ended October 31, 2007, all servicesprovided by the external auditor were pre-approved by Deere & Company’sAudit Review Committee in accordance with such policy.

 

## **PART IV**

 

**Item 15.Exhibits and Financial Statement Schedules.**

 

(1)                                 FinancialStatements

 

(2)                                 FinancialStatement Schedules

 

Seethe table of contents to financial statements and schedules immediatelypreceding the financial statements and schedules to consolidated financialstatements.

 

(3)                                 Exhibits

 

Seethe index to exhibits immediately preceding the exhibits filed with thisreport.

 

25

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|                                                 | JOHN DEERE CAPITAL  CORPORATION |
|------------------------------------------------------|---------------------------------|
|                                                 |                            |   |
|                                                 | By:                             | */s/  R. W. Lane* | * * |
|                                                 |                            | R.  W. Lane |
|                                                 |                            | Chairman  and Principal Executive Officer |
|                                                 |                            |   |
|                                                 |                            |   |
| Date:    December 20,  2007 |                            |   |

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the date indicated.

 

Eachperson signing below also hereby appoints Robert W. Lane, James A. Israel andMarc A. Howze, and each of them singly, his or her lawful attorney-in-fact withfull power to execute and file any and all amendments to this report togetherwith exhibits thereto and generally to do all such things as suchattorney-in-fact may deem appropriate to enable John Deere Capital Corporationto comply with the provisions of the Securities Exchange Act of 1934 and allrequirements of the Securities and Exchange Commission.

 

 
| **Signature**           | ** ** | **Title**                    | ** ** | **Date**                |
|-------------------------|------------|------------------------------|------------|-------------------------|
|                    |       |                         |       |                    |
| * *                | * *   |                         |       |                    |
| */s/  R. W. Lane*       | * *   | Director,  Chairman and      | )          |                    |
| R.  W. Lane             |       | Principal  Executive Officer | )          |                    |
|                    |       |                         | )          |                    |
|                    |       |                         | )          |                    |
| */s/  Samuel R. Allen*  | * *   | Director                     | )          |                    |
| Samuel  R. Allen        |       |                         | )          |                    |
|                    |       |                         | )          |                    |
|                    |       |                         | )          |                    |
| */s/  David C. Everitt* | * *   | Director                     | )          | December 20,  2007 |
| David  C. Everitt       |       |                         | )          |                    |
|                    |       |                         | )          |                    |
|                    |       |                         | )          |                    |
| */s/  James M. Field*   | * *   | Director                     | )          |                    |
| James  M. Field         |       |                         | )          |                    |
|                    |       |                         | )          |                    |
|                    |       |                         | )          |                    |
| */s/  James A. Israel*  | * *   | Director and  President      | )          |                    |
| James A. Israel         |       |                         | )          |                    |

 

26

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| **Signature**               | ** ** | **Title**                           | ** ** | **Date**                |
|-----------------------------|------------|-------------------------------------|------------|-------------------------|
|                        |       |                                |       |                    |
|                        |       |                                |       |                    |
| */s/  M. J. Mack, Jr.* |       | Director, Senior  Vice President    | )          |                    |
| M.  J. Mack, Jr.       |       | and Principal  Financial Officer    | )          |                    |
|                        |       | (and Principal  Accounting Officer) | )          |                    |
| * *                    |       |                                | )          |                    |
| */s/  Daniel C. McCabe*     |       | Director                            | )          |                    |
| Daniel  C. McCabe           |       |                                | )          |                    |
|                        |       |                                | )          |                    |
|                        |       |                                | )          |                    |
| */s/  Stephen Pullin*       |       | Director                            | )          | December 20,  2007 |
| Stephen  Pullin             |       |                                | )          |                    |
|                        |       |                                | )          |                    |
|                        |       |                                | )          |                    |
| */s/  Lawrence W. Sidwell*  |       | Director                            | )          |                    |
| Lawrence  W. Sidwell        |       |                                | )          |                    |
|                        |       |                                | )          |                    |
|                        |       |                                | )          |                    |
| */s/  Markwart von Pentz*   |       | Director                            | )          |                    |
| Markwart  von Pentz         |       |                                | )          |                    |

 

27

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## **Tableof Contents**

 
| **Financial Statements:**                                                                                                 |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                      |   |
| John Deere Capital Corporation and Subsidiaries:                                                                          |   |
|                                                                                                                      |   |
| Report  of Independent Registered Public Accounting Firm                                                                  |   |
|                                                                                                                      |   |
| Statements of Consolidated Income and Retained  Earnings  For the Years Ended October 31, 2007, 2006 and 2005        |   |
|                                                                                                                      |   |
| Consolidated Balance Sheets, as of October 31,  2007 and 2006                                                        |   |
|                                                                                                                      |   |
| Statements of Consolidated Cash Flows  For the Years Ended October 31, 2007, 2006 and 2005                           |   |
|                                                                                                                      |   |
| Statement of Changes in Consolidated Stockholder’s  Equity  For the Years Ended October 31, 2005, 2006 and 2007 |   |
|                                                                                                                      |   |
| Notes to Consolidated Financial Statements                                                                                |   |

 

**SCHEDULES OMITTED**

 

Thefollowing schedules are omitted because of the absence of conditions underwhich they are required or because the required information is included in theNotes to the Consolidated Financial Statements:

 

I, II, III,IV, and V.

 

28

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Deloitte & Touche LLP

111 S. Wacker Drive

Chicago, Illinois 60606

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

JohnDeere Capital Corporation:

 

Wehave audited the accompanying consolidated balance sheets of John Deere CapitalCorporation and subsidiaries (the “Company”) as of October 31, 2007 and2006 and the related statements of consolidated income and retained earnings,of changes in consolidated stockholder’s equity and of consolidated cash flowsfor each of the three years in the period ended October 31, 2007. Thesefinancial statements are the responsibility of the Company’s management. Our responsibilityis to express an opinion on these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In ouropinion, such consolidated financial statements present fairly, in all materialrespects, the financial position of the Company at October 31, 2007 and2006 and the results of its operations and its cash flows for each of the threeyears in the period ended October 31, 2007 in conformity with accountingprinciples generally accepted in the United States of America.

 

DELOITTE &TOUCHE LLP

Chicago,Illinois

 

December 18,2007

 

29

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### **John Deere Capital Corporation and Subsidiaries**

**Statements of Consolidated Income and RetainedEarnings**

**For the Years Ended October 31, 2007, 2006and 2005**

(in millions)

 
| ** **                                            | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues**                                          |       |     |       |     |       |     |       |
| Finance income  earned on retail notes                |       | $        | 851.9      |     | $          | 713.4    |       | $ | 521.9 |   |
| Lease revenues                                        |       | 318.7    |       | 285.7    |       | 255.7    |       |
| Revolving charge  account income                      |       | 222.1    |       | 210.2    |       | 192.6    |       |
| Finance income  earned on wholesale receivables       |       | 364.8    |       | 354.5    |       | 291.4    |       |
| Operating loan  income                                |       | 26.8     |       | 26.6     |       | 23.8     |       |
| Income on receivables  sold                           |       | 22.3     |       | 28.7     |       | 44.7     |       |
| Crop insurance  commissions                           |       | 75.5     |       | 35.3     |       | 7.9      |       |
| Other income                                          |       | 84.8     |       | 51.0     |       | 38.9     |       |
| Total revenues                                        |       | 1,966.9  |       | 1,705.4  |       | 1,376.9  |       |
| **Expenses**                                          |       |     |       |     |       |     |       |
| Interest expense                                      |       | 877.9    |       | 726.9    |       | 473.2    |       |
| Operating  expenses:                                  |       |     |       |     |       |     |       |
| Administrative  and operating expenses                |       | 307.6    |       | 273.9    |       | 250.7    |       |
| Provision for  credit losses                          |       | 53.7     |       | 30.5     |       | 5.9      |       |
| Fees paid to  John Deere                              |       | 36.0     |       | 41.6     |       | 53.2     |       |
| Depreciation of  equipment on operating leases        |       | 212.1    |       | 189.8    |       | 169.1    |       |
| Total operating  expenses                             |       | 609.4    |       | 535.8    |       | 478.9    |       |
| Total expenses                                        |       | 1,487.3  |       | 1,262.7  |       | 952.1    |       |
| **Income  of consolidated group before income taxes** |       | 479.6    |       | 442.7    |       | 424.8    |       |
| **Provision  for income taxes**                       |       | 168.7    |       | 151.8    |       | 150.7    |       |
| **Income  of consolidated group**                     |       | 310.9    |       | 290.9    |       | 274.1    |       |
| **Equity  in income of unconsolidated affiliates**    |       | .3       |       | .3       |       | .6       |       |
| **Net  income**                                       |       | 311.2    |       | 291.2    |       | 274.7    |       |
| **Cash  dividends paid**                              |       | (525.0   | )          | (85.0    | )          | (150.0   | )          |
| **Retained  earnings at beginning of the year**       |       | 1,300.9  |       | 1,094.7  |       | 970.0    |       |
| **Retained  earnings at end of the year**             |       | $        | 1,087.1    |     | $          | 1,300.9  |       | $ | 1,094.7 |   |

 

The accompanying Notes to Consolidated FinancialStatements are an integral part of these statements.

 

30

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**John DeereCapital Corporation and Subsidiaries**

**Consolidated BalanceSheets**

**As of October 31, 2007 and2006**

(in millions)

 
| ** **                                                                                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Assets**                                                                                                   |       |     |       |     |       |
| Cash and cash  equivalents                                                                                   |       | $        | 190.8      |     | $          | 119.2 |   |
| Receivables:                                                                                                 |       |     |       |     |       |
| Retail notes                                                                                                 |       | 9,810.3  |       | 8,584.2  |       |
| Restricted  securitized retail notes                                                                         |       | 2,150.4  |       | 2,173.4  |       |
| Revolving charge  accounts                                                                                   |       | 1,553.3  |       | 1,512.4  |       |
| Operating loans                                                                                              |       | 286.5    |       | 378.7    |       |
| Wholesale  receivables                                                                                       |       | 3,521.3  |       | 3,699.0  |       |
| Financing leases                                                                                             |       | 430.3    |       | 420.8    |       |
| Total  receivables                                                                                           |       | 17,752.1 |       | 16,768.5 |       |
| Allowance for  credit losses                                                                                 |       | (99.2    | )          | (92.8    | )          |
| Total  receivables – net                                                                                |       | 17,652.9 |       | 16,675.7 |       |
| Other  receivables                                                                                           |       | 35.8     |       | 107.9    |       |
| Equipment on  operating leases – net                                                                    |       | 995.2    |       | 900.1    |       |
| Notes receivable  from John Deere                                                                            |       | 586.5    |       | 238.6    |       |
| Investments in  unconsolidated affiliates                                                                    |       | 5.2      |       | 4.4      |       |
| Other assets                                                                                                 |       | 295.1    |       | 331.5    |       |
| **Total  Assets**                                                                                            |       | $        | 19,761.5   |     | $          | 18,377.4 |   |
|                                                                                                         |       |     |       |     |       |
| **Liabilities  and Stockholder’s Equity**                                                               |       |     |       |     |       |
| Short-term  borrowings:                                                                                      |       |     |       |     |       |
| Commercial paper                                                                                             |       | $        | 2,679.2    |     | $          | 2,289.5 |   |
| Other notes  payable                                                                                         |       | 2,199.0  |       | 2,207.6  |       |
| John Deere                                                                                                   |       | 127.8    |       | 178.2    |       |
| Current  maturities of long-term borrowings                                                                  |       | 3,835.9  |       | 2,467.5  |       |
| Total short-term  borrowings                                                                                 |       | 8,841.9  |       | 7,142.8  |       |
| Accounts payable  and accrued expenses                                                                       |       | 455.6    |       | 383.7    |       |
| Deposits  withheld from dealers and merchants                                                                |       | 174.4    |       | 177.4    |       |
| Deferred income  taxes                                                                                       |       | 59.0     |       | 107.3    |       |
| Long-term  borrowings                                                                                        |       | 8,276.1  |       | 8,412.5  |       |
| Total  liabilities                                                                                           |       | 17,807.0 |       | 16,223.7 |       |
| Stockholder’s  equity:                                                                                  |       |     |       |     |       |
| Common stock,  without par value (issued and outstanding - 2,500 shares owned by John Deere  Credit Company) |       | 812.8    |       | 812.8    |       |
| Retained  earnings                                                                                           |       | 1,087.1  |       | 1,300.9  |       |
| Accumulated  other comprehensive income:                                                                     |       |     |       |     |       |
| Cumulative  translation adjustment                                                                           |       | 61.7     |       | 28.1     |       |
| Unrealized gain  on investments                                                                              |       | 1.2      |       | 3.5      |       |
| Unrealized gain  (loss) on derivatives                                                                       |       | (8.3     | )          | 8.4      |       |
| Total accumulated  other comprehensive income                                                                |       | 54.6     |       | 40.0     |       |
| Total  stockholder’s equity                                                                             |       | 1,954.5  |       | 2,153.7  |       |
| **Total  Liabilities and Stockholder’s Equity**                                                         |       | $        | 19,761.5   |     | $          | 18,377.4 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of these statements.

 

31

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**John Deere Capital Corporation and Subsidiaries**

**Statements of Consolidated Cash Flows**

**For the Years Ended October 31, 2007, 2006and 2005**

(in millions)

 
| ** **                                                                         | ** ** | **2007**  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| **Cash  Flows from Operating Activities:**                                         |       |      |       |      |       |      |       |
| Net income                                                                         |       | $         | 311.2      |      | $          | 291.2     |       | $ | 274.7 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |      |       |      |       |      |       |
| Provision for  credit losses                                                       |       | 53.7      |       | 30.5      |       | 5.9       |       |
| Provision for  depreciation and amortization                                       |       | 218.5     |       | 194.5     |       | 173.9     |       |
| Credit for  deferred income taxes                                                  |       | (37.9     | )          | (3.7      | )          | (17.2     | )          |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.3       | )          | (.3       | )          | (.6       | )          |
| Change in  accounts payable and accrued expenses                                   |       | 44.6      |       | 23.1      |       | 62.4      |       |
| Change in  accrued income taxes payable/receivable                                 |       | 15.2      |       | (15.5     | )          | 2.6       |       |
| Other                                                                              |       | (9.9      | )          | (38.9     | )          | (119.0    | )          |
| Net cash  provided by operating activities                                         |       | 595.1     |       | 480.9     |       | 382.7     |       |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Investing Activities:**                                         |       |      |       |      |       |      |       |
| Cost of  receivables acquired                                                      |       | (29,010.7 | )          | (29,049.8 | )          | (28,655.0 | )          |
| Collections of  receivables                                                        |       | 28,160.1  |       | 27,478.6  |       | 25,869.1  |       |
| Cost of  equipment on operating leases acquired                                    |       | (537.7    | )          | (507.2    | )          | (433.4    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 201.3     |       | 163.3     |       | 236.1     |       |
| Purchases of  property and equipment                                               |       | (2.1      | )          | (153.8    | )          | (12.7     | )          |
| Cost of notes  receivable with John Deere                                          |       | (521.4    | )          | (110.8    | )          |      |       |
| Collection of  notes receivable with John Deere                                    |       | 173.5     |       |      |       |      |       |
| Proceeds from  sales of receivables                                                |       | 228.8     |       | 143.2     |       | 132.7     |       |
| Change in  restricted cash                                                         |       | 74.3      |       | (49.1     | )          | (75.5     | )          |
| Other                                                                              |       | 11.3      |       | 7.8       |       | 21.8      |       |
| Net cash used  for investing activities                                            |       | (1,222.6  | )          | (2,077.8  | )          | (2,916.9  | )          |
|                                                                               |       |      |       |      |       |      |       |
| **Cash  Flows from Financing Activities:**                                         |       |      |       |      |       |      |       |
| Increase in  commercial paper – net                                           |       | 284.4     |       | 575.4     |       | 147.9     |       |
| Increase  (decrease) in other notes payable – net                             |       | (7.9      | )          | 843.0     |       | 1,357.6   |       |
| Decrease in  payable with John Deere – net                                    |       | (50.4     | )          | (96.8     | )          | (966.2    | )          |
| Proceeds from  issuance of long-term borrowings                                    |       | 3,513.8   |       | 2,669.7   |       | 3,378.7   |       |
| Payments of  long-term borrowings                                                  |       | (2,513.2  | )          | (2,442.6  | )          | (1,190.4  | )          |
| Dividends paid                                                                     |       | (525.0    | )          | (85.0     | )          | (150.0    | )          |
| Other                                                                              |       | (11.6     | )          |      |       | .2        |       |
| Net cash  provided by financing activities                                         |       | 690.1     |       | 1,463.7   |       | 2,577.8   |       |
|                                                                               |       |      |       |      |       |      |       |
| **Effect  of exchange rate changes on cash and cash equivalents**                  |       | 9.0       |       | 2.2       |       | (2.9      | )          |
| **Net  increase (decrease) in cash and cash equivalents**                          |       | 71.6      |       | (131.0    | )          | 40.7      |       |
| **Cash  and cash equivalents at the beginning of year**                            |       | 119.2     |       | 250.2     |       | 209.5     |       |
| **Cash  and cash equivalents at the end of year**                                  |       | $         | 190.8      |      | $          | 119.2     |       | $ | 250.2 |   |

 

The accompanyingNotes to Consolidated Financial Statements are an integral part of thesestatements.

 

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**John Deere Capital Corporation and Subsidiaries**

**Statements of Changes in Consolidated Stockholder’sEquity**

**For the Years Ended October 31, 2005, 2006and 2007**

(in millions)

 
| ** **                         | ** ** | **Total  Equity** | ** ** | **Common  Stock** | ** ** | **Retained  Earnings** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|----------------------------------------------|------------|
| ** **                         |       |              |       |              |       |                   |       |                                         |       |
| **Balance  October 31, 2004** |       | $                 | 1,806.9    |              | $          | 812.8                  |       | $                                            | 970.0      |   | $ | 24.1 |   |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                         |       |
| Net income                         |       | 274.7             |       |              |       | 274.7                  |       |                                         |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                         |       |
| Cumulative  translation adjustment |       | (5.3              | )          |              |       |                   |       | (5.3                                         | )          |
| Unrealized gain  on investments    |       | 1.3               |       |              |       |                   |       | 1.3                                          |       |
| Unrealized gain  on derivatives    |       | 12.4              |       |              |       |                   |       | 12.4                                         |       |
| **Total  comprehensive income**    |       | 283.1             |       |              |       |                   |       |                                         |       |
| Dividends paid                     |       | (150.0            | )          |              |       | (150.0                 | )          |                                         |       |
| **Balance  October 31, 2005** |       | 1,940.0           |       | 812.8             |       | 1,094.7                |       | 32.5                                         |       |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                         |       |
| Net income                         |       | 291.2             |       |              |       | 291.2                  |       |                                         |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                         |       |
| Cumulative  translation adjustment |       | 9.7               |       |              |       |                   |       | 9.7                                          |       |
| Unrealized loss  on investments    |       | (3.3              | )          |              |       |                   |       | (3.3                                         | )          |
| Unrealized gain  on derivatives    |       | 1.1               |       |              |       |                   |       | 1.1                                          |       |
| **Total  comprehensive income**    |       | 298.7             |       |              |       |                   |       |                                         |       |
| Dividends paid                     |       | (85.0             | )          |              |       | (85.0                  | )          |                                         |       |
| **Balance  October 31, 2006** |       | 2,153.7           |       | 812.8             |       | 1,300.9                |       | 40.0                                         |       |
| Comprehensive  income              |       |              |       |              |       |                   |       |                                         |       |
| Net income                         |       | 311.2             |       |              |       | 311.2                  |       |                                         |       |
| Other  comprehensive income (loss) |       |              |       |              |       |                   |       |                                         |       |
| Cumulative  translation adjustment |       | 33.6              |       |              |       |                   |       | 33.6                                         |       |
| Unrealized loss  on investments    |       | (2.3              | )          |              |       |                   |       | (2.3                                         | )          |
| Unrealized loss  on derivatives    |       | (16.7             | )          |              |       |                   |       | (16.7                                        | )          |
| **Total  comprehensive income**    |       | 325.8             |       |              |       |                   |       |                                         |       |
| Dividends paid                     |       | (525.0            | )          |              |       | (525.0                 | )          |                                         |       |
| **Balance  October 31, 2007** |       | $                 | 1,954.5    |              | $          | 812.8                  |       | $                                            | 1,087.1    |   | $ | 54.6 |   |

 

The accompanying Notes to Consolidated Financial Statements are anintegral part of these statements.

 

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**John Deere Capital Corporation and Subsidiaries**

**Notes to Consolidated Financial Statements**

 

**Note 1.Summary of Significant Accounting Policies**

 

Thefollowing are significant accounting policies in addition to those included inother notes to the consolidated financial statements.

 

CorporateOrganization

 

JohnDeere Capital Corporation (Capital Corporation) and its subsidiaries arecollectively called the Company. John Deere Credit Company, a wholly-ownedfinance holding subsidiary of Deere & Company, is the parent of theCompany. The Company conducts business in Australia, New Zealand, the U.S., andin several countries in Europe and Latin America. Deere & Company andits wholly-owned subsidiaries are collectively called John Deere.

 

Retailnotes, revolving charge accounts, operating loans, financing leases andwholesale receivables are collectively called “Receivables.” Receivables andoperating leases are collectively called “Receivables and Leases.”

 

TheCompany bears substantially all of the credit risk (net of recovery fromwithholdings from certain John Deere dealers, and customer guarantees fromcertain John Deere dealers and Farm Planäand PowerPlanâ merchants) associated with its holding ofReceivables and Leases. A small portion of the Receivables and Leases held(less than 5 percent) is guaranteed by certain subsidiaries of Deere &Company. The Company also performs substantially all servicing and collectionfunctions. Servicing and collection functions for a small portion of theReceivables and Leases held (less than 5 percent) are provided by John Deere.John Deere is reimbursed for staff and other administrative services atestimated cost, and for credit lines provided to the Company based onutilization of those lines.

 

# Principles of Consolidation

 

Theconsolidated financial statements include the financial statements of theCapital Corporation and its subsidiaries. The consolidated financial statementsrepresent the consolidation of all companies in which the Capital Corporationhas a controlling interest. The Capital Corporation records its investment ineach unconsolidated affiliated company at its related equity in the net assetsof such affiliate. Certain variable interest entities (VIEs) related to thesecuritization of financing receivables for secured borrowings are consolidatedsince the Company is the primary beneficiary.

 

# Use of Estimates in Financial Statements

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the U.S. requires management to make estimates andassumptions that affect the reported amounts and related disclosures. Actualresults could differ from those estimates.

 

RevenueRecognition

 

Financing revenue is recorded over the lives of therelated receivables using the interest method. Deferred costs on theorigination of receivables are recognized as a reduction in finance revenueover the expected lives of the receivables using the interest method. Incomefrom operating leases is recognized on a straight-line basis over the scheduledlease terms.

 

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Securitization of Receivables

 

Certainfinancing receivables are periodically transferred to SPEs in securitizationtransactions (see Note 4). For securitizations that qualify as collateral forsecured borrowings, no gains or losses are recognized at the time ofsecuritization. These receivables remain on the balance sheet and areclassified as “Restricted securitized retail notes.”  The Company recognizes finance income overthe lives of these retail notes using the interest method. For anysecuritizations that qualify as sales of receivables, the gains or losses fromthe sales are recognized in the period of sale based on the relative fair valueof the portion sold and the portion allocated to interests that continue to beheld by the Company. These interests are recorded at fair value estimated by discountingfuture cash flows. Changes in these fair values are recorded after-tax in othercomprehensive income in unrealized gain or loss on investments.Other-than-temporary impairments are recorded in net income.

 

# Depreciation

 

Equipment on operating leases is depreciated over theterms of the leases using the straight-line method (see Note 5).

 

DerivativeFinancial Instruments

 

It isthe Company’s policy that derivative transactions are executed only to manageexposures arising in the normal course of business and not for the purpose ofcreating speculative positions or trading. The Company manages the relationshipof the types and amounts of funding sources to its receivable and leaseportfolio in an effort to diminish risk due to interest rate and foreigncurrency fluctuations, while responding to favorable financing opportunities.The Company also has foreign currency exposures at some of its foreign anddomestic operations related to financing in currencies other than the localcurrencies.

 

Allderivatives are recorded at fair value on the balance sheet. Each derivative isdesignated as either a cash flow hedge or a fair value hedge, or remainsundesignated. Changes in the fair value of derivatives that are designated andeffective as cash flow hedges are recorded in other comprehensive income andreclassified to the income statement when the effects of the item being hedgedare recognized in the income statement. Changes in the fair value ofderivatives that are designated and effective as fair value hedges arerecognized currently in net income. This is offset to the extent the hedge waseffective by the fair value changes related to the risk being hedged on thehedged item. Changes in the fair value of undesignated hedges are recognizedcurrently in the income statement. All ineffective changes in derivative fairvalues are recognized currently in net income.

 

Alldesignated hedges are formally documented as to the relationship with thehedged item as well as the risk-management strategy. Both at inception and onan ongoing basis the hedging instrument is assessed as to its effectiveness,when applicable. If and when a derivative is determined not to be highlyeffective as a hedge, or the underlying hedged transaction is no longer likelyto occur, or the derivative is terminated, the hedge accounting discussed aboveis discontinued. Any past or future changes in the derivative’s fair value thatwill not be effective as an offset to the income effects of the item beinghedged are recognized currently in the income statement (see Note 18).

 

# Foreign Currency Translation

 

Thefunctional currencies for most of the Company’s foreign operations are theirrespective local currencies. The assets and liabilities of these operations aretranslated into U.S. dollars at the end of the period exchange rates, and therevenues and expenses are translated at weighted-average rates for the period.The gains or losses from these translations are included in other comprehensiveincome, which is part of stockholder’s equity. Gains or losses fromtransactions denominated in a currency other than the functional currency ofthe subsidiary involved and foreign exchange forward contracts and options areincluded in net income or other comprehensive income as appropriate. The total foreignexchange pretax net gain (loss) for 2007, 2006 and 2005 was $1.3 million, $(.5)million and $(.5) million, respectively.

 

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New Accounting Standards Adopted

 

In the first quarter of 2007, the Company adoptedFASB Statement No. 154, Accounting Changes and Error Corrections. This Statementrequires voluntary changes in accounting principles to be recordedretrospectively for prior periods presented rather than a cumulative adjustmentin the current period. This treatment would also be required for new accountingpronouncements if there are no specific transition provisions. The accountingfor changes in estimates in the current period and the accounting for errors asrestatements of prior periods have not changed. In the first quarter of 2007,the Company adopted FASB Statement No. 155, Accounting for Certain HybridFinancial Instruments. This Statement primarily resolves certain issuesaddressed in the implementation of FASB Statement No. 133, Accounting forDerivative Instruments and Hedging Activities, concerning beneficial interestin securitized financial assets. In the first quarter of 2007, the Companyadopted FASB Statement No. 156, Accounting for Servicing of FinancialAssets. This Statement clarifies the criteria for recognizing servicing assetsand liabilities, requires these items to be initially measured at fair valueand permits subsequent measurements on either an amortization or fair valuebasis. At October 31, 2007, the Company adopted Statement No. 158,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans. This Statement requires retirement benefit accruals or prepaid benefitcosts on the balance sheet to be adjusted to the difference between the benefitobligations and the plan assets at fair value. The offset to the adjustment isrecorded directly in stockholder’s equity net of tax. The adoption of theseStatements did not have a material effect on the Company’s consolidatedfinancial statements.

 

New Accounting Standardsto be Adopted

 

In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes. This Interpretation clarifies thatthe recognition for uncertain tax positions should be based on amore-likely-than-not threshold that the tax position will be sustained uponaudit. The tax position is measured as the largest amount of benefit that has agreater than 50 percent probability of being realized upon settlement. Thestandard will be adopted at the beginning of fiscal year 2008 with thecumulative effect reported as an adjustment to beginning retained earnings asrequired. The cumulative effect of adoption will increase assets byapproximately $13 million, increase liabilities by approximately $35 millionand decrease retained earnings by approximately $22 million.

 

In September 2006, theFASB issued Statement No. 157, Fair Value Measurements. This Statementdefines fair value and expands disclosures about fair value measurements. Thesemethods will apply to other accounting standards that use fair valuemeasurements and may change the application of certain measurements used incurrent practice. The effective date is the beginning of fiscal year 2009. Theadoption is not expected to have a material effect on the Company’s consolidatedfinancial statements.

 

In February 2007, theFASB issued Statement No. 159, The Fair Value Option for Financial Assetsand Financial Liabilities. This Statement permits entities to measure mostfinancial instruments at fair value if desired. It may be applied on a contractby contract basis and is irrevocable once applied to those contracts. Thestandard may be applied at the time of adoption for existing eligible items, orat initial recognition of eligible items. After election of this option, changesin fair value are reported in earnings. The items measured at fair value mustbe shown separately on the balance sheet. The effective date is the beginningof fiscal year 2009. The cumulative effect of adoption would be reported as anadjustment to beginning retained earnings. The Company has currently notdetermined the potential effect on the consolidated financial statements.

 

In December 2007, theFASB issued Statement No. 141 (revised 2007), Business Combinations, andStatement No. 160, Noncontrolling Interests in Consolidated FinancialStatements. Statement No. 141 (revised 2007) requires an acquirer tomeasure the identifiable assets acquired, the liabilities assumed and anynoncontrolling interests in the acquiree at their fair values on the acquisitiondate, with goodwill being the excess value over the net identifiable assetsacquired. This standard also requires the fair value measurement of certainother assets and liabilities related to the acquisition such as contingenciesand research and development. Statement No. 160 clarifies that anoncontrolling interest in a subsidiary should be reported as equity in theconsolidated financial statements. Consolidated net income should include thenet income for both the parent and the noncontrolling interest with disclosureof both amounts on the consolidated statement of income. The effective date forboth Statements is the

 

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beginning of fiscal year 2010. The Company hascurrently not determined the potential effects on the consolidated financialstatements.

 

**Note 2.Receivables**

 

Retail NotesReceivable

 

TheCompany provides and administers financing for retail purchases of newequipment manufactured by John Deere’s agricultural, construction and forestry,and commercial and consumer equipment divisions and used equipment taken intrade for this equipment. The Company purchases retail installment sales andloan contracts (retail notes) from John Deere. These retail notes are acquiredby John Deere through John Deere equipment retail dealers. The Company alsopurchases and finances a limited amount of retail notes unrelated to JohnDeere.

 

Retailnotes receivable by product category at October 31 are as follows (inmillions of dollars):

 
| ** **                                       | ** ** | **2007**         | ** ** | **2006**       | ** ** |
|--------------------------------------------------|------------|------------------|------------|----------------|------------|
| ** **                                       | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** |
| Agricultural  equipment – new               |       | $                | 4,904.8    |           | $          | 843.5 |   | $ | 4,217.6 |   | $ | 963.5 |   |
| Agricultural  equipment – used              |       | 2,844.5          |       | 1,045.4        |       | 2,018.5 |   | 1,124.0 |   |
| Construction and  forestry equipment – new  |       | 1,993.8          |       | 456.2          |       | 2,112.4 |   | 313.2 |   |
| Construction and  forestry equipment – used |       | 126.7            |       | 85.3           |       | 121.5 |   | 103.3 |   |
| Commercial and  consumer equipment – new    |       | 1,052.4          |       |           |       | 1,066.5 |   |   |   |
| Commercial and  consumer equipment – used   |       | 72.8             |       |           |       | 78.2 |   |   |   |
| Recreational  products                           |       | 16.6             |       |           |       | 25.3 |   |   |   |
| Total                                            |       | 11,011.6         |       | 2,430.4        |       | 9,640.0 |   | 2,504.0 |   |
| Unearned finance  income:                        |       |             |       |           |       |   |   |   |   |
| Equipment                                        |       | (1,195.9         | )          | (280.0         | )          | (1,048.0 | ) | (330.6 | ) |
| Recreational  products                           |       | (5.4             | )          |           |       | (7.8 | ) |   |   |
| Total                                            |       | (1,201.3         | )          | (280.0         | )          | (1,055.8 | ) | (330.6 | ) |
| Retail notes  receivable                         |       | $                | 9,810.3    |           | $          | 2,150.4 |   | $ | 8,584.2 |   | $ | 2,173.4 |   |

 

Retailnotes acquired by the Company during the years ended October 31, 2007,2006 and 2005 had an estimated average original term (based on dollar amounts)of 52, 53 and 53 months, respectively. Historically, because of prepayments,the average actual life of retail notes has been considerably shorter than theaverage original term. The average actual life for retail notes liquidated in2007, 2006 and 2005 was 35, 34 and 35 months, respectively.

 

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Grossretail note installments at October 31 are scheduled to be received asfollows (in millions of dollars):

 
| ** **     | ** ** | **2007**         | ** ** | **2006**       | ** ** |
|----------------|------------|------------------|------------|----------------|------------|
| ** **     | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** |
| Due in:        |       |             |       |           |       |   |   |   |   |
| 0-12 months    |       | $                | 3,826.2    |           | $          | 782.4 |   | $ | 3,059.9 |   | $ | 681.8 |   |
| 13-24 months   |       | 2,994.8          |       | 713.7          |       | 2,518.7 |   | 642.4 |   |
| 25-36 months   |       | 2,047.6          |       | 558.2          |       | 1,898.6 |   | 569.9 |   |
| 37-48 months   |       | 1,247.9          |       | 287.3          |       | 1,216.5 |   | 426.8 |   |
| 49-60 months   |       | 691.0            |       | 82.9           |       | 730.7 |   | 165.3 |   |
| Over 60 months |       | 204.1            |       | 5.9            |       | 215.6 |   | 17.8 |   |
| Total          |       | $                | 11,011.6   |           | $          | 2,430.4 |   | $ | 9,640.0 |   | $ | 2,504.0 |   |

 

Companyguidelines relating to down payment requirements and contract terms on retailnotes are generally as follows:

 
| ** **                                         | ** ** | **Down   Payment** | ** ** | **Contract   Terms** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| Agricultural  equipment (new and used):            |       |                    |       |                      |       |
| Seasonal  payments                                 |       | 30                      | %          | 3-7 crop years            |       |
| Monthly payments                                   |       | 20                      | %          | 36-84 months              |       |
| Construction and  forestry equipment:              |       |                    |       |                      |       |
| New                                                |       | 10                      | %          | 48-60 months              |       |
| Used                                               |       | 15                      | %          | 36-48 months              |       |
| Commercial and consumer  equipment (new and used): |       |                    |       |                      |       |
| Seasonal  payments                                 |       | 10                      | %          | 3-7 years                 |       |
| Monthly payments                                   |       | 10                      | %          | 36-84 months              |       |

 

During2007, 2006 and 2005, the Company received proceeds from the sale of Receivablesof $229 million, $143 million and $133 million, respectively. The Companyacts as agent for the buyers in collection and administration for virtually allof the Receivables it has sold. All Receivables sold are collateralized bysecurity agreements on the related equipment. The Company’s maximum exposureunder all Receivable and Lease recourse provisions at October 31, 2007,2006 and 2005 was $25 million, $105 million and $140 million, respectively. Inaddition, the Company has provided letters of credit for John Deere CreditInc., the John Deere finance subsidiary in Canada, as part of retail notesales. At October 31, 2007, 2006 and 2005, the maximum exposure underthese agreements was approximately $3 million, $ 7 million and $7 million,respectively. The Company does not record the recourse obligations asliabilities as they are contingent liabilities that are remote at this time.However, the probable loss on receivables that have been sold was accrued atthe time of sale, and any subsequent necessary adjustments are made as part ofongoing reviews. At October 31, 2007, 2006 and 2005, the balance of allReceivables and Leases previously sold, but still administered by the Company,was $223 million, $954 million and $1,719 million, respectively.

 

Financeincome is recognized over the lives of the retail notes using the interestmethod. During 2007, the average effective yield on retail notes held by theCompany was approximately 7.7 percent, compared with 7.3 percent in 2006and 6.6 percent in 2005. Unearned finance income on variable-rate retail notesis adjusted monthly based on fluctuations in the base rate of a specified bank.Costs incurred in the acquisition of retail notes are deferred and recognizedover the expected lives of the retail notes using the interest method.

 

Aportion of the finance income earned by the Company arises from financing ofretail sales of John Deere equipment on which finance charges are waived orreduced by John Deere for a period from the date of sale to a specifiedsubsequent date. The Company receives compensation from John Deere equal tocompetitive market interest rates for periods during which finance charges havebeen waived or reduced on retail notes and leases. The Company computes thecompensation from John Deere for waived or reduced finance charges based on the

 

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Company’s estimatedfunding costs, administrative and operating expenses, credit losses, andrequired return on equity. The finance income earned following the waiver orinterest reduction period is not significantly different from the compensationearned from John Deere. The portions of the Company’s finance income earnedthat were received from John Deere on retail notes containing waiver of financecharges or reduced rates were 25 percent in 2007, 22 percent in 2006 and22 percent in 2005. During 2007, 2006 and 2005, the finance income earnedfrom Deere & Company on retail notes containing waiver of financecharges or reduced rates was $215 million, $158 million and $116 million,respectively.

 

Adeposit equal to one percent of the face amount of certain John Deereagricultural and commercial and consumer equipment retail notes originatingfrom each dealer is withheld by the Company from that dealer. Any subsequentretail note losses are charged against the withheld deposits. At the end ofeach calendar quarter, the balance of each dealer’s withholding account inexcess of a specified percent (ranging from one to three percent based ondealer qualifications) of the total balance outstanding on retail notesoriginating with that dealer is remitted to the dealer. To the extent thatthese deposits withheld from the dealer from whom the retail note was acquiredcannot absorb a loss on a retail note, it is charged against the Company’sallowance for credit losses. There is no withholding of dealer deposits on JohnDeere construction and forestry equipment retail notes or recreational productretail notes.

 

TheCompany requires that theft and physical damage insurance be carried on allgoods leased or securing retail notes and wholesale receivables. The customermay, at his own expense, have the Company or the seller of the goods purchasethis insurance or obtain it from other sources.

 

Revolving ChargeAccounts Receivable

 

Revolvingcharge account income is generated primarily by three revolving creditproducts: Farm Planä, PowerPlanâand the John Deere Credit Revolving Plan. Farm Planäis primarily used by farmers and ranchers to finance day-to-day operatingexpenses, such as parts and services. Merchants offer Farm Planäas an alternative to carrying in-house accounts receivable, and can initiallysell existing balances to the Company under a recourse arrangement. Farm Planäincome includes a discount paid by merchants for transaction processing andsupport, and finance charges paid by customers on their outstanding accountbalances. PowerPlanâ is primarily usedby construction companies to finance day-to-day operating expenses, such asparts and service, and is otherwise similar to Farm Planä.Merchants offer PowerPlanâ as an alternativeto carrying in-house accounts receivable, and can initially sell existingbalances to the Company under a recourse arrangement. PowerPlanâincome includes a discount paid by merchants for transaction processing andsupport and finance charges paid by customers on their outstanding accountbalances. The John Deere Credit Revolving Plan is used primarily by retailcustomers of John Deere dealers to finance commercial and consumer equipment.Income includes a discount paid by dealers on most transactions and financecharges paid by customers on their outstanding account balances. Revolvingcharge accounts receivable at October 31, 2007 and 2006 totaled $1,553million and $1,512 million, respectively. Generally, account holders may pay theaccount balance in full at any time, or make payments over a number of monthsaccording to a payment schedule.

 

# Operating Loans

 

Operatingloan income is generated primarily by operating loans that are offered throughseveral leading farm input providers or through direct relationships withagricultural producers to finance the acquisition of materials such as seedsand fertilizers. Income on this product is generated from finance charges paidby customers on their outstanding account balances. Operating loan receivablestotaled $287 million and $379 million at October 31, 2007 and 2006,respectively.

 

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Financing Leases

 

TheCompany leases agricultural, construction and forestry and commercial andconsumer equipment directly to retail customers. At the time of accepting alease that qualifies as a financing lease under FASB Statement No. 13,Accounting for Leases, the Company records the gross amount of lease paymentsreceivable, estimated residual value of the leased equipment and unearnedfinance income. The unearned finance income is equal to the excess of the grosslease receivable plus the estimated residual value over the cost of theequipment. The unearned finance income is recognized as revenue over the leaseterm using the interest method. Lease acquisition costs are accounted for in amanner similar to the procedures for retail notes.

 

Financingleases receivable by product category at October 31 are as follows (inmillions of dollars):

 
| ** **                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Agricultural  equipment              |       | $        | 220.9      |     | $          | 227.7 |   |
| Construction and  forestry equipment |       | 122.1    |       | 126.4    |       |
| Commercial and  consumer equipment   |       | 108.4    |       | 102.5    |       |
| Total                                |       | 451.4    |       | 456.6    |       |
| Estimated  residual values           |       | 48.5     |       | 33.5     |       |
| Unearned finance  income             |       | (69.6    | )          | (69.3    | )          |
| Financing leases  receivable         |       | $        | 430.3      |     | $          | 420.8 |   |

 

Initiallease terms for financing leases generally range from 12 months to 60 months.Payments on financing leases receivable at October 31 are scheduled asfollows (in millions of dollars):

 
| ** **     | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Due in:        |       |     |       |     |       |
| 0-12 months    |       | $        | 189.9      |     | $          | 190.3 |   |
| 13-24 months   |       | 123.7    |       | 120.6    |       |
| 25-36 months   |       | 79.5     |       | 81.7     |       |
| 37-48 months   |       | 42.5     |       | 43.9     |       |
| Over 48 months |       | 15.8     |       | 20.1     |       |
| Total          |       | $        | 451.4      |     | $          | 456.6 |   |

 

Depositswithheld from John Deere dealers and related losses on financing leases arehandled in a manner similar to the procedures for retail notes. As with retailnotes, there are no deposits withheld from dealers on financing leases relatedto construction and forestry equipment. In addition, a lease payment discountprogram, allowing reduced payments over the term of the lease, is administeredin a manner similar to finance waiver on retail notes.

 

Equipmentreturned to the Company upon termination of leases and held for subsequent saleor lease is recorded at the lower of net book value or estimated market valueof the equipment.

 

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Wholesale Receivables

 

The Company also finances wholesale inventories ofJohn Deere agricultural equipment, commercial and consumer equipment andconstruction and forestry equipment owned by dealers of those products in theform of wholesale receivables. Wholesale finance income related to these notesis generally recognized monthly based on the daily balance of wholesalereceivables outstanding and the applicable effective interest rate. Interestrates vary with a bank base rate, the type of equipment financed and thebalance outstanding. Substantially all of wholesale receivables are secured byequipment financed. The average actual life for wholesale receivables is lessthan 12 months.

 

TheCompany purchases certain wholesale receivables (trade receivables) from JohnDeere. These trade receivables arise from John Deere’s sales of goods todealers. Under the terms of the sales to dealers, interest is charged todealers on outstanding balances, from the earlier of the date when goods aresold to retail customers by the dealer or the expiration of certaininterest-free periods granted to the dealer at the time of the sale, untilpayment is received by the Company. Dealers cannot cancel purchases after goodsare shipped and are responsible for payment even if the equipment is not soldto retail customers. The interest-free periods are determined based on the typeof equipment sold and the time of year of the sale. These periods range fromone to twelve months for most equipment. Interest-free periods may not beextended. Interest charged may not be forgiven and interest rates, which exceedthe prime rate, are set based on market factors. The Company receivescompensation from John Deere equal to competitive market interest rates forthese interest-free periods. The Company computes the compensation from JohnDeere for interest-free periods based on the Company’s estimated funding costs,administrative and operating expenses, credit losses, and required return onequity. The finance income earned following the interest-free period is notsignificantly different from the compensation earned from John Deere. During2007, 2006 and 2005, the compensation earned from John Deere was $242 million,$240 million and $219 million, respectively.

 

Other Receivables

 

TheCompany has sold retail notes to a limited-purpose business trust, whichutilizes the notes as collateral for asset-backed securities issued. Otherreceivables related to the securitization are recorded at net present value andrelate to payments to be received for the interests that continue to be held bythe Company. These interests are subsequently carried at estimated fair valuewith other-than-temporary impairments to fair value included in income. Incomeon receivables sold includes the interest earned on these interests andreimbursed administrative expenses.

 

Concentration ofCredit Risk

 

Receivableshave significant concentrations of credit risk in the agricultural,construction and forestry, and commercial and consumer business sectors asshown in the previous tables. On a geographic basis, there is not adisproportionate concentration of credit risk in any area in which the Companyoperates. The Company retains as collateral a security interest in the goodsassociated with Receivables other than certain revolving charge accounts.

 

41

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**Note 3.Allowance for Credit Losses, Delinquencies and Write-offs**

 

Allowance forCredit Losses

 

Allowancesfor credit losses on Receivables are maintained in amounts considered to beappropriate in relation to the Receivables outstanding based on collectionexperience, economic conditions and credit risk quality.

 

Ananalysis of the allowance for credit losses on total Receivables follows (inmillions of dollars):

 
| ** **                                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of the year                    |       | $        | 92.8       |     | $          | 96.4     |       | $ | 112.6 |   |
| Provision for  credit losses                       |       | 53.7     |       | 30.5     |       | 5.9      |       |
| Total net  write-offs                              |       | (48.7    | )          | (34.3    | )          | (22.3    | )          |
| Other changes  (primarily translation adjustments) |       | 1.4      |       | .2       |       | .2       |       |
| Balance, end of  the year                          |       | $        | 99.2       |     | $          | 92.8     |       | $ | 96.4 |   |

 

Theallowance for credit losses represented .56 percent, .55 percent and .63percent of Receivables financed at October 31, 2007, 2006 and 2005,respectively. In addition, the Company had $174 million, $177 million and$166 million at October 31, 2007, 2006 and 2005, respectively, ofdeposits primarily withheld from John Deere dealers available for certainpotential credit losses originating from those dealers.

 

Delinquencies

 

Generally,when retail notes become 120 days delinquent, accrual of finance income issuspended, the collateral is repossessed or the account is designated forlitigation and the estimated uncollectible amount, after charging the dealer’swithholding account, if any, is written off to the allowance for credit losses.Accrual of revolving charge account income is suspended generally when theaccount becomes 120 days delinquent. Accounts are deemed to be uncollectibleand written off to the allowance for credit losses when delinquency reaches 120days for a Farm Planä, PowerPlanâor John Deere Credit Revolving Plan account. When a financing lease accountbecomes 120 days delinquent, the accrual of lease revenue is suspended,the equipment is repossessed or the account is designated for litigation, andthe estimated uncollectible amount, after charging the dealer’s withholdingaccount, if any, is written off to the allowance for credit losses. Generally,when a wholesale receivable becomes 60 days delinquent, the Company determineswhether the accrual of finance income on interest-bearing wholesale receivablesshould be suspended, the collateral should be repossessed or the account shouldbe designated for litigation and the estimated uncollectible amount written offto the allowance for credit losses.

 

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TotalReceivable amounts 60 days or more past due in the table below represent theamount of all customer payments past due 60 days or more, by product, and as apercent of the respective receivables. They are as follows (in millions ofdollars):

 
| ** **                           | ** ** | **October 31,  2007** | ** ** | **October 31,  2006** | ** ** | **October 31,  2005** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **Dollars**                | ** ** | **Percent**                | ** ** | **Dollars**                | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                          | 14.4       |                       | .17        | %                          | $          | 10.2 |   | .14 | % | $ | 8.1 |   | .13 | % |
| Construction and  forestry equipment |       | 6.9                        |       | .29                        |       | 6.3                        |       | .26 |   | 4.6 |   | .23 |   |
| Commercial and  consumer equipment   |       | 1.5                        |       | .15                        |       | 1.3                        |       | .13 |   | 1.1 |   | .11 |   |
| Recreational  products               |       |                       |       |                       |       |                       |       |   |   | .1 |   | .44 |   |
| Total retail  notes                  |       | 22.8                       |       | .19                        |       | 17.8                       |       | .17 |   | 13.9 |   | .15 |   |
| Revolving charge  accounts*          |       | 15.3                       |       | .98                        |       | 21.1                       |       | 1.40 |   | 12.5 |   | .82 |   |
| Operating loans                      |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Wholesale  receivables               |       | .9                         |       | .03                        |       | .9                         |       | .02 |   | 1.7 |   | .05 |   |
| Financing leases                     |       | 4.7                        |       | 1.09                       |       | 3.5                        |       | .83 |   | 4.5 |   | 1.09 |   |
| Total  Receivables                   |       | $                          | 43.7       |                       | .25        |                       | $          | 43.3 |   | .26 |   | $ | 32.6 |   | .21 |   |

 

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*                                         Due to the nature ofrevolving charge accounts, the customer payments past due 60 days or more alsorepresent the total balance.

 

Totalnon-performing Receivables, which represent loans the Company has ceasedaccruing interest for, by product, and as a percent of the respectivereceivables were as follows (in millions of dollars):

 
| ** **                           | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | 21.6       |        | .25        | %           | $          | 13.2 |   | .18 | % | $ | 15.6 |   | .25 | % |
| Construction and  forestry equipment |       | 2.2         |       | .09         |       | 5.0         |       | .21 |   | 10.3 |   | .52 |   |
| Commercial and  consumer equipment   |       | 1.8         |       | .18         |       | 2.3         |       | .23 |   | 5.2 |   | .51 |   |
| Recreational  products               |       | .1          |       | .81         |       | .2          |       | 1.14 |   | .4 |   | 1.76 |   |
| Total retail  notes                  |       | 25.7        |       | .21         |       | 20.7        |       | .19 |   | 31.5 |   | .34 |   |
| Revolving charge  accounts           |       | 1.2         |       | .08         |       | .8          |       | .05 |   | .5 |   | .03 |   |
| Operating loans                      |       | 3.5         |       | 1.22        |       | 3.9         |       | 1.03 |   | 23.9 |   | 6.22 |   |
| Wholesale  receivables               |       | 4.5         |       | .13         |       | .4          |       | .01 |   | 1.6 |   | .04 |   |
| Financing leases                     |       | 13.3        |       | 3.09        |       | 6.5         |       | 1.54 |   | 9.6 |   | 2.33 |   |
| Total  Receivables                   |       | $           | 48.2       |        | .27        |        | $          | 32.3 |   | .19 |   | $ | 67.1 |   | .44 |   |

 

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Write-offs

 

TotalReceivable write-off amounts, net of recoveries, by product, and as apercentage of average balances held during the year, were as follows (inmillions of dollars):

 
| ** **                           | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $           | (1.3       | )           | (.02       | )%          | $          | (2.1 | ) | (.03 | )% | $ | (1.9 | ) | (.04 | )% |
| Construction and  forestry equipment |       | 17.4        |       | .72         |       | 9.1         |       | .41 |   | 2.1 |   | .13 |   |
| Commercial and  consumer equipment   |       | .8          |       | .08         |       | .3          |       | .03 |   | .5 |   | .05 |   |
| Recreational  products               |       | .6          |       | 4.05        |       |        |       |   |   | .7 |   | 2.49 |   |
| Total retail  notes                  |       | 17.5        |       | .16         |       | 7.3         |       | .07 |   | 1.4 |   | .02 |   |
| Revolving charge  accounts           |       | 24.2        |       | 1.73        |       | 22.9        |       | 1.66 |   | 20.4 |   | 1.51 |   |
| Operating loans                      |       | 2.6         |       | .77         |       | 2.4         |       | .69 |   | (.3 | ) | (.08 | ) |
| Wholesale  receivables               |       | 1.4         |       | .04         |       | (.6         | )          | (.01 | ) | .4 |   | .01 |   |
| Financing leases                     |       | 3.0         |       | .74         |       | 2.3         |       | .57 |   | .4 |   | .10 |   |
| Total  Receivables                   |       | $           | 48.7       |        | .29        |        | $          | 34.3 |   | .22 |   | $ | 22.3 |   | .16 |   |

 

**Note 4.Retail Note Securitizations**

 

TheCompany, as a part of its overall funding strategy, periodically transferscertain receivables (retail notes) into special purpose entities (SPEs) as partof its asset-backed securities programs (securitizations) involving its retailnotes. For securitizations entered into prior to 2005, the structure of thesetransactions is such that the transfer of the retail notes met the criteria ofsales in accordance with FASB Statement No. 140, Accounting for Transfersand Servicing of Financial Assets and Extinguishment of Liabilities. Beginningin 2005, the transfer of retail notes into new securitization transactions didnot meet the sales criteria of FASB Statement No. 140 and are, therefore,accounted for as secured borrowings. SPEs utilized in securitizations of retail notes differ from otherentities included in the Company’s consolidated statements because the assetsthey hold are legally isolated. For bankruptcy analysis purposes, the CapitalCorporation has sold the receivables to the SPEs in a true sale and the SPEsare separate legal entities. Use of the assets held by the SPEs is restrictedby terms of the documents governing the securitization transaction. Furtherinformation related to the secured borrowings and sales of retail notes isprovided below.

 

Secured Borrowings

 

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

 

44

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The components of consolidated restricted assetsrelated to secured borrowings in securitization transactions at October 31were as follows (in millions of dollars):

 
| ** **                           | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Restricted  securitized retail notes |       | $        | 2,150.4    |     | $          | 2,173.4 |   |
| Allowance for  credit losses         |       | (11.3    | )          | (8.8     | )          |
| Other assets                         |       | 44.0     |       | 72.2     |       |
| Total restricted  securitized assets |       | $        | 2,183.1    |     | $          | 2,236.8 |   |

 

The components of consolidated secured borrowingsand other liabilities related to securitizations at October 31 were asfollows (in millions of dollars):

 
| ** **                                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Other notes  payable                                        |       | $        | 2,191.6    |     | $          | 2,194.3 |   |
| Accounts payable  and accrued expenses                      |       | 4.4      |       | 4.4      |       |
| Total  liabilities related to restricted securitized assets |       | $        | 2,196.0    |     | $          | 2,198.7 |   |

 

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. Due to the Company’s short-termcredit rating, cash collections from these restricted assets are not requiredto be placed into a restricted collection account until immediately prior tothe time payment is required to the secured creditors. Under FASBInterpretation No. 46 (revised December 2003), Consolidation ofVariable Interest Entities, an SPE was consolidated that included assets(restricted retail notes) of $1,494 million and $1,147 million at October 31,2007 and 2006, respectively. These restricted retail notes are included in therestricted securitized retail notes related to securitizations shown in thetable above. At October 31, 2007, the maximum remaining term of allrestricted receivables was approximately six years.

 

Sales of Receivables

 

Prior to 2005, the Company periodically transferredcertain retail notes into SPEs as part of its securitization program intransactions that were structured such that the transfer of the retail notesmet the criteria of sales in accordance with FASB Statement No. 140. TheSPEs issue asset-backed securities to investors and use the proceeds of thedebt issuance to pay for the retail notes. However, the Company retains certaininterests in the SPE’s assets including an interest-only strip, a reserveaccount and subordinated certificates. These interests that continue to be heldby the Company (transferor) are carried at estimated fair value in “Otherreceivables” or “Other assets” on the balance sheet. Gains or losses on salesof the receivables depended in part on the previous carrying amount of thefinancial assets involved in the transfer, allocated between the assets soldand the interests that continue to be held based on their relative fair valuesat the date of transfer. The Company generally estimates fair values based onthe present value of future expected cash flows using management’s keyassumptions as discussed below. The Company retains the rights to certainfuture cash flows and receives annual servicing fees approximating one percentof the outstanding balance. No significant balances for servicing assets orliabilities exist because the benefits received for servicing are just adequateto compensate the servicer for the costs of providing the servicing. TheCompany’s maximum exposure under recourse provisions related to securitizedsold retail notes at October 31, 2007 and 2006 was $17 million and$97 million, respectively. The recourse provisions contractually specifiedby the documents governing the securitization transaction are contingentliabilities that are remote at this time. Except for this exposure, theinvestors and securitization trusts have no recourse to the Company for failureof debtors to pay when due. The interests that continue to be held by theCompany are subordinate to investors’ interests and their values are subject tocertain key assumptions as shown below. The total assets of the unconsolidatedSPEs related to these securitizations at October 31, 2007 and 2006 were$92 million and $903 million, respectively. At October 31, 2007,the maximum remaining term of these receivables sold was approximately twoyears.

 

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Cash flows received from securitization trusts forretail notes sold in millions of dollars were as follows:

 
| ** **                 | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Servicing fees  received   |       | $        | 6          |     | $          | 13       |       | $ | 22 |   |
| Other cash flows  received |       | 16       |       | 23       |       | 38       |       |
|                            |            |          |            |          |            |          |            |  |  |  |

 

The Company has utilized a revolving multi-bankconduit facility to securitize floating rate retail notes that were structuredas either sales or secured borrowings. In September 2007, the Companyamended the facility and simultaneously repurchased $264 million of retailnotes previously sold into the facility.

 

Components of interests that continue to be held bythe Company in securitized retail notes sold at October 31 were as follows(in millions of dollars):

 
| ** **                                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|
| Interest only  strips                                         |       |     |       | $        | 40         |   |
| Reserve accounts  held for benefit of securitization entities |       | $        | 13         |     | 48         |   |
| Subordinated  certificates                                    |       | 4        |       | 9        |       |
| Total                                                         |       | $        | 17         |     | $          | 97 |   |

 

The total interests that continue to be held by theCompany, weighted-average life, weighted-average current key economicassumptions and the sensitivity analysis showing the hypothetical effects onthese interests from immediate 10 percent and 20 percent adverse changesin those assumptions with dollars in millions were as follows:

 
| ** **                                                                       | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Securitized  retail notes sold**                                               |       |     |       |     |       |
| Carrying  amount/fair value of interests that continue to be held by the Company |       | $        | 17         |     | $          | 97 |   |
| Weighted-average  life (in months)                                               |       | 8        |       | 11       |       |
| Prepayment speed  assumption (annual rate)                                       |       | 12       | %          | 17       | %          |
| Impact on fair  value of 10% adverse change                                      |       | $        | *          |     | $          | .1 |   |
| Impact on fair  value of 20% adverse change                                      |       | $        | *          |     | $          | .3 |   |
| Expected credit  losses (annual rate)                                            |       | .76      | %          | .44      | %          |
| Impact on fair  value of 10% adverse change                                      |       | $        | *          |     | $          | .3 |   |
| Impact on fair  value of 20% adverse change                                      |       | $        | *          |     | $          | .6 |   |
| Residual cash  flows discount rate (annual)                                      |       | 13       | %          | 11       | %          |
| Impact on fair  value of 10% adverse change                                      |       | $        | .1         |     | $          | 1.9 |   |
| Impact on fair  value of 20% adverse change                                      |       | $        | .1         |     | $          | 3.8 |   |

 

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*  Impacts areless than $.1 million.

 

These sensitivities arehypothetical changes in fair value and cannot be extrapolated because therelationship of the changes in assumption to the changes in fair value may notbe linear. Also, the effect of a variation in a particular assumption is calculatedwithout changing any other assumption, whereas changes in one factor may resultin changes in another. Accordingly, no assurance can be given that actualresults would be consistent with the results of these estimates.

 

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Principalbalances of owned, securitized retail notes sold and total managed retailnotes; past due amounts; and credit losses (net of recoveries), as of and forthe years ended October 31, 2007 and October 31, 2006 in millions ofdollars follow:

 
| ** **                     | ** ** | **Principal   Outstanding** | ** ** | **Principal 60 Days  or More Past Due** | ** ** | **Net Credit   Losses** | ** ** |
|--------------------------------|------------|----------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------|------------|
| **2007**                       |       |                             |       |                                                             |       |                              |       |
| Owned                          |       | $                                | 11,760     |                                                             | $          | 22                                |       | $ | 18 |   |
| Securitized  retail notes sold |       | 82                               |       | 1                                                                |       | 1                                 |       |
| Managed                        |       | $                                | 11,842     |                                                             | $          | 23                                |       | $ | 19 |   |
|                           |       |                             |       |                                                             |       |                              |       |
| **2006**                       |       |                             |       |                                                             |       |                              |       |
| Owned                          |       | $                                | 10,408     |                                                             | $          | 17                                |       | $ | 7 |   |
| Securitized  retail notes sold |       | 814                              |       | 6                                                                |       | 2                                 |       |
| Managed                        |       | $                                | 11,222     |                                                             | $          | 23                                |       | $ | 9 |   |

 

**Note 5.Equipment on Operating Leases**

 

Rentalpayments applicable to equipment on operating leases are recorded as income ona straight-line method over the lease terms. Operating lease assets arerecorded at cost and depreciated to their estimated residual value generally ona straight-line method over the terms of the leases. Residual values representestimates of the value of the leased assets at the end of the contract termsand are initially determined based upon appraisals and estimates. Residualvalues are continually reviewed to determine that estimated amounts areappropriate.

 

Thecost of equipment on operating leases by product category at October 31 isas follows (in millions of dollars):

 
| ** **                                | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Agricultural  equipment                   |       | $        | 408.1      |     | $          | 358.0 |   |
| Construction and  forestry equipment      |       | 774.0    |       | 691.0    |       |
| Commercial and  consumer equipment        |       | 161.5    |       | 164.8    |       |
| Total                                     |       | 1,343.6  |       | 1,213.8  |       |
| Accumulated  depreciation                 |       | (348.4   | )          | (313.7   | )          |
| Equipment on  operating leases – net |       | $        | 995.2      |     | $          | 900.1 |   |

 

Initiallease terms for equipment on operating leases generally range from 12 months to60 months. Rental payments for equipment on operating leases at October 31are scheduled as follows (in millions of dollars):

 
| ** **     | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| Due in:        |       |     |       |     |       |
| 0-12 months    |       | $        | 229.2      |     | $          | 207.5 |   |
| 13-24 months   |       | 144.1    |       | 133.6    |       |
| 25-36 months   |       | 74.6     |       | 71.9     |       |
| 37-48 months   |       | 30.6     |       | 30.6     |       |
| Over 48 months |       | 8.6      |       | 9.5      |       |
| Total          |       | $        | 487.1      |     | $          | 453.1 |   |

 

47

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Aswith construction and forestry retail notes, there are no deposits withheldfrom dealers on operating leases related to construction and forestryequipment. In addition, a lease payment discount program, allowing reducedpayments over the term of the lease, is administered in a manner similar tofinance waiver on retail notes.

 

Equipmentreturned to the Company upon termination of leases and held for subsequent saleor lease is recorded at the lower of net book value or estimated market valueof the equipment.

 

Total operating leaseamounts 60 days or more past due represent the amount of all customer paymentspast due 60 days or more. These amounts were $2 million, $1 million and $1million at October 31, 2007, 2006 and 2005, respectively.

 

**Note 6.Notes Receivable from John Deere**

 

TheCompany invests in wind energy generation by making loans to certain affiliatedcompanies that have directly invested in wind energy projects. Notes receivablefrom John Deere related to wind energy loans at October 31, 2007 and 2006were $587 million and $239 million, respectively. The Company receives interestfrom John Deere equal to competitive market interest rates. These notesgenerally have original contractual maturities of up to ten years. At October 31,2007, the maximum remaining term of the notes was approximately ten years. TheCompany has received security interests in the assets of John Deere Renewables,LLC as collateral on these loans.

 

**Note 7.Short-Term Borrowings**

 

On October 31,2007, short-term borrowings were $8,842 million, $2,679 million of which wascommercial paper. Short-term borrowings were $7,143 million on October 31,2006, $2,290 million of which was commercial paper. The Company’s short-termborrowings include $2,192 million and $2,194 million of secured borrowings at October 31,2007 and 2006, respectively (see Note 4). Although these notes payable areclassified as short-term since payment is required if the retail notes areliquidated early, the payment schedule for these borrowings based on theexpected liquidations of the retail notes in millions of dollars is as follows:2008 - $943, 2009 - $665, 2010 - $413, 2011 - $149 and 2012 - $22. The Company’sshort-term debt also includes amounts borrowed from John Deere, which totaled$128 million and $178 million at October 31, 2007 and 2006,respectively. The Company pays interest on a monthly basis to John Deere forthese borrowings based on a current market rate. The weighted-average interestrate on total short-term borrowings at October 31, 2007 and 2006,excluding current maturities of long-term borrowings, was 5.0 percent and 5.2percent, respectively.

 

Linesof credit available from U.S. and foreign banks were $3,760 million at October 31,2007. Some of these credit lines are available to both the Company and Deere &Company. At October 31, 2007, $904 million of these worldwide lines ofcredit were unused. For the purpose ofcomputing unused credit lines, commercial paper and short-term bank borrowings,excluding secured borrowings and the current portion of long-term borrowings,of the Company and John Deere were considered to constitute utilization.

 

Included in the above lines of credit was a long-termcredit facility agreement for $3.75 billion, expiring in February 2012.The agreement is mutually extendable and the annual facility fee is notsignificant. The credit agreement requires the Company to maintain itsconsolidated ratio of earnings to fixed charges at not less than 1.05 to 1 foreach fiscal quarter and the ratio of senior debt, excluding securitizationindebtedness, to capital base (total subordinated debt and stockholder’s equityexcluding accumulated other comprehensive income (loss)) at not more than9.5 to 1 at the end of any fiscal quarter. “Senior debt” consists of theCompany’s total interest-bearing obligations, excluding subordinated debt andcertain securitization indebtedness, but including borrowings from John Deere.All of these requirements of the credit agreement have been met during theperiods included in the financial statements. The facility fee on these linesof credit is divided between Deere & Company and the Company based onthe proportion of their respective commercial paper outstanding.

 

48

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Deere &Company has an agreement with the Company pursuant to which it has agreed tocontinue to own at least 51 percent of the voting shares of capital stock ofthe Company and to maintain the Company’s consolidated tangible net worth atnot less than $50 million. This agreement also obligates Deere &Company to make income maintenance payments to the Company such that itsconsolidated ratio of earnings to fixed charges is not less than 1.05 to 1 foreach fiscal quarter. For 2007 and 2006, the Company’s ratios were 1.54 to 1 and1.60 to 1, respectively, and never less than 1.54 to 1 and 1.53 to 1 for anyfiscal quarter of 2007 and 2006, respectively. Deere & Company’sobligations to make payments to the Company under the agreement are independentof whether the Company is in default on its indebtedness, obligations or otherliabilities. Further, Deere & Company’s obligations under theagreement are not measured by the amount of the Company’s indebtedness,obligations or other liabilities. Deere & Company’s obligationsto make payments under this agreement are expressly stated not to be a guarantyof any specific indebtedness, obligation or liability of the Company and areenforceable only by or in the name of the Company. No payments were requiredunder this agreement during the periods included in the financial statements.

 

**Note 8.Long-Term Borrowings**

 

Long-termborrowings of the Company at October 31 consisted of the following (inmillions of dollars):

 
| ** **                                                                                                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior Debt:**                                                                                                                |       |     |       |     |       |
| Medium-term  notes due 2008-2017 (principal $5,730 - 2007, $5,064 - 2006): Average  interest rate of 5.2% - 2007, 4.9% - 2006 |       | $        | 5,738      | *        | $          | 5,047 | * |
| 3.9% Notes due  2008 ($850 principal):  Swapped $350 million to variable interest rate of 5.9% - 2006                         |       |     |       | 839      | *          |
| 6% Notes due  2009 ($300 principal):  Swapped to variable interest rate of 5.6% - 2006                                        |       | 303      | *          | 304      | *          |
| 7% Notes due  2012 ($1,500 principal):  Swapped $1,225 million to variable interest rate of 6.7% - 2007, 6.4% - 2006          |       | 1,580    | *          | 1,570    | *          |
| 5.1% Debentures  due 2013 ($650 principal):  Swapped to variable interest rate of 5.9% - 2007, 6.1% - 2006                    |       | 640      | *          | 625      | *          |
| Other Notes                                                                                                                   |       | 24       |       | 35       |       |
| Total senior  debt                                                                                                            |       | 8,285    |       | 8,420    |       |
| Unamortized debt  discount                                                                                                    |       | (9       | )          | (7       | )          |
| Total                                                                                                                         |       | $        | 8,276      |     | $          | 8,413 |   |

 

----

*                                         Includesfair value adjustments related to interest rate swaps.

 

**                                  Allinterest rates are as of year-end.

 

Theapproximate principal amounts of long-term borrowings maturing in each of thenext five years, in millions of dollars, are as follows: 2008 - $3,840, 2009 - $3,227,2010 - $1,368, 2011 - $758 and 2012 - $1,800.

 

**Note 9.Leases**

 

Total rental expense for operating leases was $3million, $4 million and $5 million for 2007, 2006 and 2005, respectively. At October 31, 2007,future minimum lease payments under operating leases amounted to $5 million asfollows (in millions of dollars): 2008 - $2, 2009 - $1, 2010 - $1, 2011 - $0and 2012 and beyond - $1.

 

**Note 10.Common Stock**

 

All ofthe Company’s common stock is owned by John Deere Credit Company, awholly-owned finance holding subsidiary of Deere & Company. No sharesof common stock of the Company were reserved for officers or employees or foroptions, warrants, conversions or other rights at October 31, 2007 or2006. At October 31, 2007, the Company had authorized, but not issued,10,000 shares of $1 par value preferred stock.

 

49

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**Note 11.Dividends**

 

TheCapital Corporation declared and paid $525 million in dividends to John DeereCredit Company in 2007 and $85 million in 2006. In each case, John Deere Credit Company paid comparable dividends toDeere & Company.

 

**Note 12.Pension and Other Retirement Benefits**

 

The Company is a participating employer in certainDeere & Company sponsored defined benefit pension plans for employeesin the U.S. and certain defined benefit pension plans outside the U.S. Thesepension plans provide for benefits that are based primarily on years of serviceand employee compensation. Pension expense is actuarially determined based onthe Company’s employees included in the plan. The Company’s pension expenseamounted to $6.1 million in 2007, $5.3 million in 2006 and $4.1 million in2005. The accumulated benefit obligation and plan net assets for the employeesof the Company are not determined separately from Deere &Company.  The Company generally providesdefined benefit health care and life insurance plans for retired employees inthe U.S. as a participating employer in Deere & Company’s sponsoredplans. Health care and life insurance benefits expense is actuariallydetermined based on the Company’s employees included in the plans and amountedto $5.9 million in 2007, $6.0 million in 2006 and $5.5 million in 2005.Further disclosure for these plans is included in the notes to the Deere & Company2007 Annual Report on Form 10-K.

 

**Note 13.Stock Option Awards**

 

Certain employees of the Company participate in Deere &Company shared-based compensation plans. In the first quarter of 2006, theCompany adopted FASB Statement No. 123 (revised 2004), Share-BasedPayment. During 2007 and 2006, the total share-based compensation expense was$5.3 million and $5.7 million with an income tax benefit recognized in netincome of $2.0 million and $2.1 million. Further disclosure for these plans isincluded in Deere & Company’s Form 10-K for the year ended October 31,2007.

 

**Note 14.Income Taxes**

 

Taxes on Incomeand Income Tax Credits

 

Thetaxable income of the Company is included in the consolidated U.S. income taxreturn of Deere & Company. Provisions for income taxes are madegenerally as if the Capital Corporation and each of its subsidiaries filedseparate income tax returns.

 

50

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Deferred IncomeTaxes

 

Deferredincome taxes arise because there are certain items that are treated differentlyfor financial accounting than for income tax reporting purposes. An analysis ofdeferred income tax assets and liabilities at October 31 is as follows (inmillions of dollars):

 
| ** **                                 | ** ** | **2007**                              | ** ** | **2006**                                   | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **Deferred   Tax   Assets** | ** ** | **Deferred   Tax   Liabilities** | ** ** | **Deferred   Tax   Assets** | ** ** | **Deferred   Tax   Liabilities** | ** ** |
| Lease  transactions                        |       |                                  |       | $                                          | 127.2      |   |   |   | $ | 144.3 |   |
| Deferred retail  note finance income       |       |                                  |       | 4.5                                        |       |   |   | 4.7 |   |
| Tax over book  depreciation                |       |                                  |       | 2.4                                        |       |   |   | 4.8 |   |
| Allowance for  credit losses               |       | $                                     | 43.8       |                                       |       |   | $ | 39.3 |   |   |   |
| Accrual for  retirement and other benefits |       | 19.1                                  |       |                                       |       | 21.3 |   |   |   |
| Unrealized  gain/loss on derivatives       |       | 5.1                                   |       |                                       |       |   |   | 3.9 |   |
| Net operating  loss carryforward           |       | 2.7                                   |       |                                       |       | 3.4 |   |   |   |
| Income and gains  from securitizations     |       | .4                                    |       |                                       |       |   |   | 13.4 |   |
| Miscellaneous  accruals and other          |       | 4.0                                   |       |                                       |       |   |   | .2 |   |
| Total                                      |       | $                                     | 75.1       |                                       | $          | 134.1 |   | $ | 64.0 |   | $ | 171.3 |   |

 

The provision for income taxes bytaxing jurisdiction and by significant component consisted of the following (inmillions of dollars):

 
| ** **                        | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:                          |       |     |       |     |       |     |       |
| U.S.:                             |       |     |       |     |       |     |       |
| Federal                           |       | $        | 185.6      |     | $          | 144.3    |       | $ | 158.3 |   |
| State                             |       | 3.6      |       | 1.2      |       | .9       |       |
| Foreign                           |       | 17.4     |       | 10.0     |       | 8.7      |       |
| Total current                     |       | 206.6    |       | 155.5    |       | 167.9    |       |
|                              |       |     |       |     |       |     |       |
| Deferred:                         |       |     |       |     |       |     |       |
| U.S.:                             |       |     |       |     |       |     |       |
| Federal                           |       | (33.7    | )          | (6.0     | )          | (24.0    | )          |
| State                             |       | .3       |       | .3       |       | 2.7      |       |
| Foreign                           |       | (4.5     | )          | 2.0      |       | 4.1      |       |
| Total deferred                    |       | (37.9    | )          | (3.7     | )          | (17.2    | )          |
|                              |       |     |       |     |       |     |       |
| Total provision  for income taxes |       | $        | 168.7      |     | $          | 151.8    |       | $ | 150.7 |   |

 

At October 31,2007, certain tax loss and tax credit carryforwards for $2.7 million wereavailable, expiring from 2009 through 2026.

 

51

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Effective Income Tax Provision

 

Acomparison of the statutory and effective income tax provisions and reasons forrelated differences follows (in millions of dollars):

 
| ** **                                                           | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| U.S. federal  income tax provision at a statutory rate of 35 percent |       | $        | 167.9      |     | $          | 154.9    |       | $ | 148.7 |   |
| Municipal lease  income not taxable                                  |       | (1.3     | )          | (1.2     | )          | (1.3     | )          |
| Taxes on foreign  activities                                         |       | (2.9     | )          | (2.1     | )          | .3       |       |
| Nondeductible  costs and other – net                            |       | 5.0      |       | .2       |       | 3.0      |       |
| Total provision  for income taxes                                    |       | $        | 168.7      |     | $          | 151.8    |       | $ | 150.7 |   |

 

**Note 15****.Administrative and Operating Expenses**

 

Themajor components of administrative and operating expenses are as follows (inmillions of dollars):

 
| ** **                          | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Compensation and  benefits          |       | $        | 185.4      |     | $          | 177.6    |       | $ | 169.3 |   |
| Crop insurance  commission expenses |       | 43.8     |       | 23.0     |       | 6.8      |       |
| Other                               |       | 78.4     |       | 73.3     |       | 74.6     |       |
| Total                               |       | $        | 307.6      |     | $          | 273.9    |       | $ | 250.7 |   |

 

**Note 16.Cash Flow Information**

 

For purposes of the statements of consolidated cashflows, the Company considers investments with purchased maturities of threemonths or less to be cash equivalents. Substantially all of the Company’sshort-term borrowings, excluding the current maturities of long-termborrowings, mature or may require payment within three months or less.

 

Cashpayments by the Company for interest in 2007, 2006 and 2005 were$881 million, $742 million and $484 million, respectively. Cash paymentsfor income taxes during these same periods were $194 million, $161 millionand $164 million, respectively.

 

TheCompany had non-cash investing activities not included in the statements ofconsolidated cash flows of $128 million for receipt of notes receivable withJohn Deere in exchange for property and equipment in 2006.

 

**Note 17.Commitments and Contingent Liabilities**

 

The Company has certain recourse obligations on Receivablesthat it has previously sold. If the Receivables sold are not collected, theCompany would be required to cover those losses up to the amount of itsrecourse obligation. At October 31, 2007, the maximum amount of exposureto losses under these agreements was $25 million. The estimated creditrisk associated with sold receivables totaled $.4 million at October 31,2007. This risk of loss is recognized primarily in the interests that continueto be held by the Company and recorded on the balance sheet (See Note 4). TheCompany may recover a portion of any required payments incurred under theseagreements from the repossession of the equipment collateralizing theReceivables. At October 31, 2007, the maximum remaining term of theReceivables guaranteed was approximately two years.

 

52

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At October 31, 2007, John Deere Credit Inc.,the John Deere finance subsidiary in Canada, had $124 million of commercialpaper and $1,681 million of medium-term notes outstanding that were guaranteedby the Company. In addition, the Company has provided letters of credit forJohn Deere Credit Inc. as part of retail note sales. At October 31, 2007,the Company’s maximum exposure under these agreements was approximately$3 million.

 

AtOctober 31, 2007, the Company had $282 million of guarantees issued toturbine manufacturers for John Deere Renewables, LLC wind turbine purchases.John Deere Renewables, LLC is an affiliated company that has commitments topurchase wind turbines related to its direct investments in wind energyprojects. 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 agency agreement(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 crop insuranceto producers.  The Company has guaranteedcertain obligations under the Agreement, including the obligation to pay theInsurance Carrier for any uncollected premiums. At October 31, 2007 themaximum exposure for uncollected premiums was approximately $57 million.Substantially all of the Company’s crop insurance risk under the Agreement hasbeen mitigated by a syndicate of private reinsurance companies. Thesereinsurance companies are rated “Excellent” or higher by A.M. BestCompany. In the event of a widespread catastrophic crop failure throughout theU.S. and the default of these highly rated private reinsurance companies ontheir reinsurance obligations, the Company would be required to reimburse theInsurance Carrier for the maximum exposure under the Agreement of approximately$489 million at October 31, 2007. The Company believes that thelikelihood of the occurrence of substantially all of the events that give riseto the exposures under this Agreement is substantially remote and as a result,at October 31, 2007, the Company’s accrued liability under the Agreementwas not material.

 

TheCompany has commitments to extend credit to customers and John Deere dealersthrough lines of credit and other pre-approved credit arrangements. The Companyapplies the same credit policies and approval process for these commitments toextend credit as it does for its Receivables. Collateral is not required for these commitments, but if credit isextended, collateral may be required upon funding. The amount of unusedcommitments to extend credit to John Deere dealers was $4.0 billion at October 31,2007. The amount of unused commitments to extend credit to customers was $31.8billion at October 31, 2007. A significant portion of these commitments isnot expected to be fully drawn upon; therefore, the total commitment amounts donot represent 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.

 

TheCompany also had other miscellaneous contingent liabilities totalingapproximately $13 million at October 31, 2007, for which it believes theprobability for payment is substantially remote. The Company’s accruedliability at October 31, 2007 related to these contingencies was notmaterial. At October 31, 2007, the Company also had restricted otherassets of $10 million.

 

TheCompany is subject to various unresolved legal actions which arise in thenormal course of its business, the most prevalent of which relate to state andfederal laws and regulations concerning retail credit. Although it is notpossible to predict with certainty the outcome of these unresolved legal actionsor the range of possible loss, the Company believes these unresolved legalactions will not have a material effect on its financial statements.

 

53

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**Note 18.Other Comprehensive Income Items**

 

Othercomprehensive income items under FASB Statement No. 130, ReportingComprehensive Income, are transactions recorded in stockholder’s equity duringthe year, excluding net income and transactions with the stockholder. Followingare the items included in other comprehensive income (loss) and the related taxeffects in millions of dollars:

 
| ** **                                            | ** ** | **Before Tax  Amount** | ** ** | **Tax  (Expense)  Credit** | ** ** | **After Tax  Amount** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|----------------------------|------------|
| **2005**                                              |       |                        |       |                       |       |                       |       |
| Change in  cumulative translation adjustment          |       | $                           | (5.3       | )                          |       |                       | $          | (5.3 | ) |
| Unrealized  holding gain and net gain on investments* |       | 2.0                         |       | $                          | (.7        | )                          | 1.3        |   |
| Unrealized gain  on derivatives:                      |       |                        |       |                       |       |                       |       |
| Hedging gain                                          |       | 8.1                         |       | (3.2                       | )          | 4.9                        |       |
| Reclassification  of realized loss to net income      |       | 11.0                        |       | (3.5                       | )          | 7.5                        |       |
| Net unrealized  gain on derivatives                   |       | 19.1                        |       | (6.7                       | )          | 12.4                       |       |
| Total other  comprehensive income                     |       | $                           | 15.8       |                       | $          | (7.4                       | )          | $ | 8.4 |   |
| ** **                                            | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **                 | ** ** |
| **2006**                                              |       |                        |       |                       |       |                       |       |
| Change in  cumulative translation adjustment          |       | $                           | 9.7        |                       |       |                       | $          | 9.7 |   |
| Unrealized  holding loss and net loss on investments* |       | (4.9                        | )          | $                          | 1.6        |                       | (3.3       | ) |
| Unrealized gain  on derivatives:                      |       |                        |       |                       |       |                       |       |
| Hedging gain                                          |       | 5.5                         |       | (1.8                       | )          | 3.7                        |       |
| Reclassification  of realized gain to net income      |       | (4.4                        | )          | 1.8                        |       | (2.6                       | )          |
| Net unrealized  gain on derivatives                   |       | 1.1                         |       |                       |       | 1.1                        |       |
| Total other  comprehensive income                     |       | $                           | 5.9        |                       | $          | 1.6                        |       | $ | 7.5 |   |
| ** **                                            |       |                        |       |                       |       |                       |       |
| **2007**                                              |       |                        |       |                       |       |                       |       |
| Change in  cumulative translation adjustment          |       | $                           | 33.6       |                       |       |                       | $          | 33.6 |   |
| Unrealized  holding loss and net loss on investments* |       | (3.7                        | )          | $                          | 1.4        |                       | (2.3       | ) |
| Unrealized loss  on derivatives:                      |       |                        |       |                       |       |                       |       |
| Hedging loss                                          |       | (15.2                       | )          | 5.5                        |       | (9.7                       | )          |
| Reclassification  of realized gain to net income      |       | (10.5                       | )          | 3.5                        |       | (7.0                       | )          |
| Net unrealized  loss on derivatives                   |       | (25.7                       | )          | 9.0                        |       | (16.7                      | )          |
| Total other  comprehensive income                     |       | $                           | 4.2        |                       | $          | 10.4                       |       | $ | 14.6 |   |

 

----

*                                         Reclassificationof realized gains or losses to net income were not material.

 

**Note 19.Financial Instruments**

** **

Thefair values of financial instruments that do not approximate the carryingvalues in the financial statements at October 31 are as follows (inmillions of dollars):

 
| ** **                                         | ** ** | **2007**                  | ** ** | **2006**              | ** ** |
|----------------------------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **Carrying   Value** | ** ** | **Fair   Value** | ** ** | **Carrying   Value** | ** ** | **Fair   Value** | ** ** |
|                                               |       |                      |       |                  |       |   |   |   |   |   |   |   |   |
| Receivables  financed (excluding restricted) - net |       | $                         | 15,514     |                  | $          | 15,367 |   | $ | 14,511 |   | $ | 14,310 |   |
|                                               |       |                      |       |                  |       |   |   |   |   |
| Restricted  securitized retail notes - net         |       | $                         | 2,139      |                  | $          | 2,136 |   | $ | 2,165 |   | $ | 2,143 |   |
|                                               |       |                      |       |                  |       |   |   |   |   |
| Short-term  secured borrowings*                    |       | $                         | 2,192      |                  | $          | 2,204 |   | $ | 2,194 |   | $ | 2,193 |   |
|                                               |       |                      |       |                  |       |   |   |   |   |
| Long-term  borrowings                              |       | $                         | 8,276      |                  | $          | 8,346 |   | $ | 8,413 |   | $ | 8,471 |   |

 

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*                                         SeeNotes 4 and 7.

 

54

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Fair ValueEstimates

 

Fairvalues of the long-term Receivables with fixed rates were based on thediscounted values of their related cash flows at current market interest rates.The fair values of the remaining Receivables approximated the carrying amounts.

 

Fair values of long-term borrowings and short-termsecured borrowings with fixed rates were based on the discounted values oftheir related cash flows at current market interest rates. Certain long-termborrowings have been swapped to current variable interest rates. The carryingvalues of these long-term borrowings include adjustments related to fair valuehedges.

 

Derivatives

 

Allderivative instruments are recorded at fair values and classified as eitherother assets or accounts payable and accrued expenses on the balance sheet (seeNote 1).

 

Interest RateSwaps

 

TheCompany enters into interest rate swap agreements primarily to more closelymatch the fixed or floating interest rates of the borrowings to those of theassets being funded. For transactions not designated as hedges under FASBStatement No. 133, the fair value gains or losses from these interest rateswaps are recognized currently in interest expense, generally offsetting theinterest expense on the exposures being hedged.

 

Certain interest rate swaps were designated ashedges of future cash flows from variable interest rate borrowings.  The effective portion of the fair value gainsor losses on these cash flow hedges are recorded in other comprehensive incomeand subsequently reclassified into interest expense as payments are accrued andthe swaps approach maturity. These amounts offset the effects of interest ratechanges on the related borrowings. Gains or losses in other comprehensiveincome related to cash flow hedges that have been discontinued are amortized tointerest expense over the remaining duration of the original forecastedtransaction that will still occur. The total amount of gain recorded in othercomprehensive income at October 31, 2007 that is expected to bereclassified to interest expense in the next twelve months if interest ratesremain unchanged is approximately $1 million after-tax. These swaps mature inup to forty-one months.

 

Certaininterest rate swaps were designated as fair value hedges of fixed-rate,long-term borrowings. The effective portion of the fair value gains or losseson these swaps was offset by fair value adjustments in the underlyingborrowings.

 

Anyineffective portions of the gains or losses on all cash flow and fair valueinterest rate swaps designated as hedges were recognized currently in interest expenseand were not material. There were no gains or losses reclassified fromunrealized in other comprehensive income to realized in earnings as a result ofthe discontinuance of cash flow hedges because it is probable that the originalforecasted transaction will not occur. There were no components of cash flow orfair value hedges that were excluded from the assessment of effectiveness.

 

TheCompany has certain interest rate swap agreements that are not designated ashedges under FASB Statement No. 133, Accounting for Derivative Instrumentsand Hedging Activities, and the fair value gains or losses are recognizedcurrently in interest expense. These swaps are used to facilitate certainborrowings.

 

Thecash flows from all interest rate swaps are related to managing interest rateexposures and are recorded in operating activities in the consolidatedstatements of cash flows.

 

55

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# Foreign Exchange Forward Contracts and Swaps

 

TheCompany has entered into foreign exchange forward contracts and swaps in orderto manage the currency exposure of certain receivables and liabilities. Fortransactions not designated as hedges under FASB Statement No. 133, thefair value gains or losses from these foreign currency derivatives arerecognized currently in earnings, generally offsetting the foreign exchangegains or losses on the exposures being managed.

 

Any ineffective portions of the gains or losses onall cash flow and fair value foreign exchange contracts and swaps designated ashedges were recognized currently in earnings and were not material. There wereno gains or losses reclassified from unrealized in other comprehensive incometo realized in earnings as a result of the discontinuance of cash flow hedgesbecause it is probable that the original forecasted transaction will not occur.There were no components of cash flow or fair value hedges that were excludedfrom the assessment of effectiveness.

 

**Note 20.Geographic Area Information**

 

Basedon the way the operations are managed and evaluated by management andmateriality considerations, the Company is viewed as one operating segment.However, geographic area information for revenues and operating profit, whichis net income before income taxes, attributed to the U.S. and countries outsidethe U.S. is disclosed below. Geographic area information for the years ended October 31,2007, 2006 and 2005 is presented below (in millions of dollars):

 
| ** **             | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues:**          |       |     |       |     |       |     |       |
| U.S.                   |       | $        | 1,769      |     | $          | 1,529    |       | $ | 1,200 |   |
| Outside the U.S.       |       | 198      |       | 176      |       | 177      |       |
| Total                  |       | $        | 1,967      |     | $          | 1,705    |       | $ | 1,377 |   |
|                   |       |     |       |     |       |     |       |
| **Operating  profit:** |       |     |       |     |       |     |       |
| U.S.                   |       | $        | 437        |     | $          | 405      |       | $ | 383 |   |
| Outside the U.S.       |       | 43       |       | 38       |       | 42       |       |
| Total                  |       | $        | 480        |     | $          | 443      |       | $ | 425 |   |
| ** **             |       |     |       |     |       |     |       |
| **Receivables:**       |       |     |       |     |       |     |       |
| U.S.                   |       | $        | 15,224     |     | $          | 14,497   |       | $ | 12,979 |   |
| Outside the U.S.       |       | 2,528    |       | 2,272    |       | 2,229    |       |
| Total                  |       | $        | 17,752     |     | $          | 16,769   |       | $ | 15,208 |   |

 

**Note 21.Unconsolidated Affiliated Companies**

** **

The Capital Corporation’s affiliated companies arethose in which it generally maintains 20 to 50 percent ownership. Thesecompanies are not controlled by the Capital Corporation and are accounted forby the equity method. The Company’s equity in the income of these affiliates isreported in the consolidated income statement under “Equity in income ofunconsolidated affiliates.” The investment in these companies is recorded inthe consolidated balance sheet under “Investments in unconsolidated affiliates.”

 

56

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Summarized financial information of the affiliatedcompanies is as follows (in millions of dollars):

 
| ** **                               | ** ** | **Year Ended October 31,** | ** ** |
|------------------------------------------|------------|-------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Operations:**                          |       |                                      |       |   |   |   |   |
| Finance income                           |       | $                                         | 6.1        |   | $ | 4.9 |   | $ | 5.2 |   |
| Net income                               |       | .7                                        |       | .7 |   | 1.2 |   |
| The Company’s  equity in net income |       | .3                                        |       | .3 |   | .6 |   |
|                                     | ** ** | ** **                                |       |   |   |   |   |
| ** **                               | ** ** | **October 31,**                      | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **2007**                                  | ** ** | **2006** | ** ** | ** ** | ** ** |
| **Financial  Position:**                 |       |                                      |       |   |   |   |   |
| Total assets                             |       | $                                         | 65.5       |   | $ | 47.4 |   |   |   |
| Total external  debt                     |       | 43.4                                      |       | 29.3 |   |   |   |
| Total net assets                         |       | 10.5                                      |       | 8.9 |   |   |   |
| The Company’s  share of net assets  |       | 5.2                                       |       | 4.4 |   |   |   |
|                                          |            |                                           |            |  |  |  |  |  |  |  |

 

**SupplementalInformation (Unaudited)**

 

QuarterlyInformation

 

Supplementalquarterly information for the Company follows (in millions of dollars):

 
| ** **                                     | ** ** | **First   Quarter** | ** ** | **Second   Quarter** | ** ** | **Third   Quarter** | ** ** | **Fourth   Quarter** | ** ** | **Fiscal   Year** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|---------------------------|------------|--------------------------|------------|---------------------------|------------|------------------------|------------|
| 2007:                                          |       |                     |       |                      |       |                     |       |                      |       |                   |       |
| Revenues                                       |       | $                        | 450.7      |                      | $          | 483.1                    |       | $                         | 506.3      |                   | $          | 526.8 |   | $ | 1,966.9 |   |
| Interest expense                               |       | 201.9                    |       | 215.1                     |       | 226.1                    |       | 234.8                     |       | 877.9                  |       |
| Operating  expenses                            |       | 136.3                    |       | 151.3                     |       | 156.9                    |       | 164.9                     |       | 609.4                  |       |
| Provision for  income taxes                    |       | 39.4                     |       | 40.5                      |       | 44.4                     |       | 44.4                      |       | 168.7                  |       |
| Equity in income  of unconsolidated affiliates |       | .1                       |       | .1                        |       | .1                       |       |                      |       | .3                     |       |
| Net income                                     |       | $                        | 73.2       |                      | $          | 76.3                     |       | $                         | 79.0       |                   | $          | 82.7 |   | $ | 311.2 |   |
|                                           |       |                     |       |                      |       |                     |       |                      |       |                   |       |
| 2006:                                          |       |                     |       |                      |       |                     |       |                      |       |                   |       |
| Revenues                                       |       | $                        | 374.6      |                      | $          | 412.6                    |       | $                         | 453.9      |                   | $          | 464.3 |   | $ | 1,705.4 |   |
| Interest expense                               |       | 154.3                    |       | 174.8                     |       | 191.4                    |       | 206.4                     |       | 726.9                  |       |
| Operating  expenses                            |       | 112.9                    |       | 132.7                     |       | 142.0                    |       | 148.2                     |       | 535.8                  |       |
| Provision for  income taxes                    |       | 37.4                     |       | 36.7                      |       | 41.8                     |       | 35.9                      |       | 151.8                  |       |
| Equity in income  of unconsolidated affiliates |       | .1                       |       | .1                        |       | .1                       |       |                      |       | .3                     |       |
| Net income                                     |       | $                        | 70.1       |                      | $          | 68.5                     |       | $                         | 78.8       |                   | $          | 73.8 |   | $ | 291.2 |   |

 

Subsequent Events

 

On November 20,2007, the Capital Corporation declared a $140 million dividend, which was paidto John Deere Credit Company on November 30, 2007. John Deere CreditCompany, in turn, declared a $140 million dividend to Deere & Company,also paid on November 30, 2007.

 

InDecember 2007, the Company issued $500 million of 4.95% medium-term notes duein 2012 and entered into interest rate swaps related to these notes, whichswapped the fixed rate to a variable rate of 5.58% as of December 13, 2007.

 

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|                                                                                                                                                                                                                                                                                                     |   | **Index  to Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.                                                                                                                                                                                                                                                                                                       |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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 No. 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  No. 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 al, 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*) |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.2                                                                                                                                                                                                                                                                                                      |   | Senior Indenture  dated as of March 15, 1997 between the registrant and JP Morgan Chase  Bank (formerly The Chase Manhattan Bank National Association), as Trustee  (Exhibit 4.1 to registration statement on Form S-3 no. 333-68355,  filed December 4, 1998, Securities and Exchange Commission file number 1-6458*)                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.3                                                                                                                                                                                                                                                                                                      |   | Subordinated  Indenture dated as of September 1, 2003 between the registrant and U.S.  Bank National Association, as Trustee (Exhibit 4.3 to registration  statement on Form S-3 no. 333-108705, filed September 11, 2003*)                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.4                                                                                                                                                                                                                                                                                                      |   | Terms and Conditions  of the Notes, published on May 31, 2002, applicable to the U.S.  $3,000,000,000 Euro Medium Term Note Programme of registrant, John Deere  Capital Corporation, John Deere Bank S.A., John Deere Credit Limited, John  Deere B.V., John Deere Credit Inc. and John Deere Limited. (Exhibit 4.5  to Form 10-K of Deere & Company for the year ended  October 31, 2002, Securities and Exchange Commission file number  1-4121*)                                                                        |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Certain  instruments relating to long-term debt constituting less than 10% of the  registrant’s total assets may not be filed as exhibits herewith pursuant to  Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file  copies of such instruments upon request of the Commission. |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 9.                                                                                                                                                                                                                                                                                                       |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.1                                                                                                                                                                                                                                                                                                     |   | Agreement as  amended November 1, 1994 between the registrant and Deere &  Company concerning agricultural retail notes (Exhibit 10.1 to  Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2                                                                                                                                                                                                                                                                                                     |   | Agreement as amended  November 1, 1994 between the registrant and Deere & Company  concerning lawn and grounds care retail notes (Exhibit 10.2 to the  Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3                                                                                                                                                                                                                                                                                                     |   | Agreement as  amended November 1, 1994 between the registrant and John Deere  Industrial Equipment Company concerning industrial retail notes  (Exhibit 10.3 to the Form 10-K of Deere & Company for the  year ended October 31, 1998, Securities and Exchange Commission file  number 1-4121*)                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.4                                                                                                                                                                                                                                                                                                     |   | Agreement dated  November 1, 2003 between the registrant and Deere & Company  relating to fixed charges ratio, ownership and minimum net worth  (Exhibit 10.5 to Form 10-K of Deere & Company for the year  ended October 31, 2003, Securities and Exchange Commission File  No. 1-4121*)                                                                                                                                                                                                                     |

 

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| 10.5   |   | Agreement dated  July 14, 1997 between the registrant and John Deere Construction  Equipment Company concerning construction retail notes (Exhibit 10.4 to  Form 10-K of Deere & Company for the year ended  October 31, 2003, Securities and Exchange Commission File  No. 1-4121*)                                                                                      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.6   |   | Asset Purchase  Agreement dated October 29, 2001 between Deere & Company and  Deere Capital, Inc. concerning the sale of trade receivables  (Exhibit 10.6 to Form 10-K of the registrant for the year ended  October 31, 2001*)                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.7   |   | Asset Purchase  Agreement dated October 29, 2001 between John Deere  Construction & Forestry Company and Deere Capital, Inc. concerning  the sale of trade receivables (Exhibit 10.7 to Form 10-K of the  registrant for the year ended October 31, 2001*)                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.8   |   | Factoring  Agreement between John Deere Bank S.A. (as successor by merger in interest to  John Deere Finance S.A.) and John Deere Vertrieb, a branch of  Deere & Company, concerning the sale of trade receivables  (Exhibit 10.21 to the Form 10-K of Deere & Company for the  year ended October 31, 2002, Securities and Exchange Commission file  number 1-4121*) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.9   |   | Receivables Purchase  Agreement between John Deere Bank S.A. (as successor by merger in interest to  John Deere Finance S.A.) and John Deere Limited (Scotland) concerning the  sale of trade receivables (Exhibit 10.22 to the Form 10-K of  Deere & Company for the year ended October 31, 2002, Securities  and Exchange Commission file number 1-4121*)                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 11.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 12.    |   | Computation of Ratio of Earnings to  Fixed Charges                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 13.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 14.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 16.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 18.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 21.    |   | Omitted pursuant  to instruction I(2)                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 22.    |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 23.    |   | Consent of Deloitte & Touche  LLP                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 24.    |   | Power of  Attorney (included on signature page)                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 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     |   | Parts I and II  of the Deere & Company Form 10-K for the fiscal year ended  October 31, 2007 (Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                                                                                   |

 

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* Incorporated byreference. Copies of these exhibits are available from the Company uponrequest.

 

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