** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

WASHINGTON,D.C.  20549

 

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** **

**FORM 10-Q**

** **

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QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIESEXCHANGE ACT OF 1934

 

**For thequarterly period ended January 31, 2010**

 

Commission fileno: 1-6458

** **

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## **JOHN DEERE CAPITAL CORPORATION**

 

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

 

**1 EastFirst Street, Suite 600Reno, Nevada  89501**(Address ofprincipal executive offices)

 

TelephoneNumber:  **(775)786-5527**

 

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| Indicate by  check mark whether the registrant: (1) has filed all reports required to  be filed by Section 13 or 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 such reports), and (2) has been subject  to such filing requirements for the past 90 days. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Yes                                                                                                                                                                                                                                                                                                                                                                                | X |   No |   |   |
|                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |

 
| Indicate by  check mark whether the registrant has submitted electronically and posted on  its corporate Web site, if any, every Interactive Data File required to be  submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of  this chapter) during the preceding 12 months (or for such shorter period that  the registrant was required to submit and post such files). |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Yes                                                                                                                                                                                                                                                                                                                                                                                                   |   |   No |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |

 
| Indicate by  check mark whether the registrant is a large accelerated filer, an  accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and  “smaller reporting company” in Rule 12b-2 of the Exchange Act. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| Large accelerated filer                        |   |   | Accelerated filer          |   |   |
|------------------------------------------------|--------|--------|----------------------------|--------|--------|
|                                           |   |   |                       |   |   |
| Non-accelerated filer                          | X      |   | Smaller reporting  company |   |   |
|                                           |   |   |                       |   |   |
| (Do not check if a  smaller reporting company) |   |   |
|                                                |        |        |                            |        |        |  |

 
| Indicate by  check mark whether the registrant is a shell company (as defined in Rule 12b-2  of the Exchange Act). |
|-------------------------------------------------------------------------------------------------------------------------|
| Yes                                                                                                                     |   |   No | X |   |
|                                                                                                                    |   |   |   |   |

 

At January 31, 2010,2,500 shares of common stock, without par value, of the registrant wereoutstanding, all of which were owned by John Deere Credit Company, awholly-owned subsidiary of Deere & Company.

 

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

 

 

 

Index to Exhibits:Page 25

 

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PART I.  FINANCIALINFORMATION

 

Item1.     Financial Statements.

 

**JohnDeere Capital Corporation and Subsidiaries**

**Statementsof Consolidated Income**

**For theThree Months Ended January 31, 2010 and 2009**

**(Unaudited)**

(in millions)

 
|                                                       |   | **2010** |   |   |   | **2009** |   |
|------------------------------------------------------------|--------|----------|--------|--------|--------|----------|--------|
| **Revenues**                                               |   |     |   |   |   |     |   |
| Finance income earned  on retail notes                     | $      | 179.8    |   |   | $      | 197.8    |   |
| Lease revenues                                             |   | 71.2     |   |   |   | 82.0     |   |
| Revolving charge  account income                           |   | 61.8     |   |   |   | 50.7     |   |
| Finance income earned  on wholesale receivables            |   | 56.7     |   |   |   | 63.8     |   |
| Operating loan income                                      |   | 3.6      |   |   |   | 3.8      |   |
| Crop insurance  commissions                                |   | 16.8     |   |   |   | 6.6      |   |
| Other income - net                                         |   | 24.5     |   |   |   | 32.9     |   |
| Total revenues                                             |   | 414.4    |   |   |   | 437.6    |   |
| **Expenses**                                               |   |     |   |   |   |     |   |
| Interest expense                                           |   | 150.0    |   |   |   | 207.3    |   |
| Operating expenses:                                        |   |     |   |   |   |     |   |
| Administrative and  operating expenses                     |   | 94.4     |   |   |   | 86.1     |   |
| Provision for credit losses                                |   | 23.0     |   |   |   | 32.4     |   |
| Fees paid to John Deere                                    |   | 9.1      |   |   |   | 9.3      |   |
| Depreciation of  equipment on operating leases             |   | 45.9     |   |   |   | 54.0     |   |
| Total operating  expenses                                  |   | 172.4    |   |   |   | 181.8    |   |
| Total expenses                                             |   | 322.4    |   |   |   | 389.1    |   |
| **Income  of consolidated group before income taxes**      |   | 92.0     |   |   |   | 48.5     |   |
| Provision for income  taxes                                |   | 28.4     |   |   |   | 13.7     |   |
| **Income  of consolidated group**                          |   | 63.6     |   |   |   | 34.8     |   |
| Equity in income of  unconsolidated affiliates             |   | .3       |   |   |   | .2       |   |
| **Net  income**                                            |   | 63.9     |   |   |   | 35.0     |   |
| Less: Net income  attributable to noncontrolling interests |   |     |   |   |   |     |   |
| **Net  income attributable to the Company**                | $      | 63.9     |   |   | $      | 35.0     |   |
|                                                       |   |     |   |   |   |     |   |

 

See CondensedNotes to Interim Financial Statements.

 

 

2

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

**ConsolidatedBalance Sheets**

**(Unaudited)**

(in millions)

 
|                                                                         | **January  31,** | ** ** | **October  31,** | ** ** | **January  31,** |
|------------------------------------------------------------------------------|------------------|------------|------------------|------------|------------------|
|                                                                         |             | **2010**   | ** **       | ** ** | ** **       | **2009** | ** ** | ** ** | ** ** | **2009** | ** ** |
| **Assets**                                                                   |             |       |             |       |             |   |   |   |   |   |   |
| Cash and cash  equivalents                                                   | $                | 1,558.7    |             |       | $                | 870.6 |   |   | $ | 3,002.3 |   |
| Receivables:                                                                 |             |       |             |       |             |   |   |   |   |   |   |
| Retail notes                                                                 |             | 8,448.1    |             |       |             | 8,234.1 |   |   |   | 7,766.6 |   |
| Restricted securitized  retail notes                                         |             | 2,611.2    |             |       |             | 3,110.1 |   |   |   | 3,229.4 |   |
| Revolving charge  accounts                                                   |             | 1,791.5    |             |       |             | 2,192.5 |   |   |   | 1,588.8 |   |
| Operating loans                                                              |             | 232.1      |             |       |             | 297.0 |   |   |   | 410.6 |   |
| Wholesale receivables                                                        |             | 4,259.3    |             |       |             | 3,873.5 |   |   |   | 4,202.5 |   |
| Financing leases                                                             |             | 375.5      |             |       |             | 392.8 |   |   |   | 383.1 |   |
| Total receivables                                                            |             | 17,717.7   |             |       |             | 18,100.0 |   |   |   | 17,581.0 |   |
| Allowance for credit  losses                                                 |             | (144.9     | )                |       |             | (158.2 | ) |   |   | (110.6 | ) |
| Total receivables – net                                                 |             | 17,572.8   |             |       |             | 17,941.8 |   |   |   | 17,470.4 |   |
| Other receivables                                                            |             | 43.8       |             |       |             | 25.9 |   |   |   | 50.6 |   |
| Equipment on operating  leases – net                                    |             | 937.4      |             |       |             | 1,023.2 |   |   |   | 989.0 |   |
| Receivable from John  Deere                                                  |             | 30.9       |             |       |             |   |   |   |   | 111.2 |   |
| Notes receivable from  John Deere                                            |             | 738.1      |             |       |             | 739.2 |   |   |   | 804.6 |   |
| Investment in  unconsolidated affiliates                                     |             | 6.4        |             |       |             | 6.6 |   |   |   | 5.6 |   |
| Other assets                                                                 |             | 960.8      |             |       |             | 1,094.2 |   |   |   | 1,027.2 |   |
| **Total  Assets**                                                            | $                | 21,848.9   |             |       | $                | 21,701.5 |   |   | $ | 23,460.9 |   |
| **Liabilities  and Stockholder’s Equity**                               |             |       |             |       |             |   |   |   |   |   |   |
| Short-term borrowings:                                                       |             |       |             |       |             |   |   |   |   |   |   |
| Commercial paper                                                             | $                | 1,064.9    |             |       | $                | 32.0 |   |   | $ | 1,048.4 |   |
| Other notes payable                                                          |             | 2,656.4    |             |       |             | 3,113.0 |   |   |   | 3,239.8 |   |
| John Deere                                                                   |             |       |             |       |             | 15.3 |   |   |   |   |   |
| Current maturities of  long-term borrowings                                  |             | 2,704.1    |             |       |             | 2,550.4 |   |   |   | 2,864.5 |   |
| Total short-term  borrowings                                                 |             | 6,425.4    |             |       |             | 5,710.7 |   |   |   | 7,152.7 |   |
| Accounts payable and  accrued expenses                                       |             | 682.6      |             |       |             | 741.2 |   |   |   | 764.0 |   |
| Deposits withheld from  dealers and merchants                                |             | 158.5      |             |       |             | 164.9 |   |   |   | 166.2 |   |
| Deferred income taxes                                                        |             | 74.6       |             |       |             | 67.1 |   |   |   | 58.8 |   |
| Long-term borrowings                                                         |             | 12,207.3   |             |       |             | 12,700.6 |   |   |   | 13,260.1 |   |
| Total liabilities                                                            |             | 19,548.4   |             |       |             | 19,384.5 |   |   |   | 21,401.8 |   |
| Commitments and  contingencies (Note 5)                                      |             |       |             |       |             |   |   |   |   |   |   |
| Stockholder’s equity:                                                   |             |       |             |       |             |   |   |   |   |   |   |
| Common stock, without  par value (issued and outstanding – 2,500 shares |             |       |             |       |             |   |   |   |   |   |   |
| owned by John Deere  Credit Company)                                         |             | 1,272.8    |             |       |             | 1,272.8 |   |   |   | 1,212.8 |   |
| Retained earnings                                                            |             | 1,026.0    |             |       |             | 1,032.1 |   |   |   | 917.9 |   |
| Accumulated other comprehensive income (loss):                               |             |       |             |       |             |   |   |   |   |   |   |
| Cumulative translation adjustment                                            |             | 39.0       |             |       |             | 55.8 |   |   |   | .5 |   |
| Unrealized loss on derivatives                                               |             | (37.7      | )                |       |             | (44.1 | ) |   |   | (72.5 | ) |
| Total accumulated other  comprehensive income (loss)                         |             | 1.3        |             |       |             | 11.7 |   |   |   | (72.0 | ) |
| Total Company  stockholder’s equity                                     |             | 2,300.1    |             |       |             | 2,316.6 |   |   |   | 2,058.7 |   |
| Noncontrolling interests                                                     |             | .4         |             |       |             | .4 |   |   |   | .4 |   |
| Total stockholder’s  equity                                             |             | 2,300.5    |             |       |             | 2,317.0 |   |   |   | 2,059.1 |   |
| **Total  Liabilities and Stockholder’s Equity**                         | $                | 21,848.9   |             |       | $                | 21,701.5 |   |   | $ | 23,460.9 |   |
|                                                                         |             |       |             |       |             |   |   |   |   |   |   |

 

See CondensedNotes to Interim Financial Statements.

 

 

3

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

## **Statements of Consolidated Cash Flows**

## **For the Three Months Ended January 31, 2010 and 2009**

## **(Unaudited)**

## **(in millions)**

 
|                                                              |   | **2010** |   |   |   | **2009** |   |
|-------------------------------------------------------------------|--------|----------|--------|--------|--------|----------|--------|
| **Cash  Flows from Operating Activities:**                        |   |     |   |   |   |     |   |
| Net income                                                        | $      | 63.9     |   |   | $      | 35.0     |   |
| Adjustments to  reconcile net income to net cash                  |   |     |   |   |   |     |   |
| provided by operating  activities:                                |   |     |   |   |   |     |   |
| Provision for  credit losses                                      |   | 23.0     |   |   |   | 32.4     |   |
| Provision for  depreciation and amortization                      |   | 50.3     |   |   |   | 55.6     |   |
| Provision for  deferred income taxes                              |   | 4.2      |   |   |   | 7.9      |   |
| Undistributed  earnings of unconsolidated affiliates              |   | (.3      | )      |   |   | (.2      | )      |
| Change in  accounts payable and accrued expenses                  |   | (56.1    | )      |   |   | 17.4     |   |
| Change in  accrued income taxes payable/receivable                |   | 12.2     |   |   |   | (4.0     | )      |
| Other                                                             |   | 83.7     |   |   |   | (91.1    | )      |
| Net cash provided by  operating activities                        |   | 180.9    |   |   |   | 53.0     |   |
|                                                              |   |     |   |   |   |     |   |
| **Cash  Flows from Investing Activities:**                        |   |     |   |   |   |     |   |
| Cost of receivables  acquired                                     |   | (6,700.3 | )      |   |   | (6,984.1 | )      |
| Collections of  receivables                                       |   | 6,931.1  |   |   |   | 7,181.4  |   |
| Cost of equipment on  operating leases acquired                   |   | (67.2    | )      |   |   | (83.6    | )      |
| Proceeds from sales of  equipment on operating leases             |   | 101.7    |   |   |   | 89.1     |   |
| Cost of notes  receivable with John Deere                         |   | (35.9    | )      |   |   | (78.4    | )      |
| Collection of notes  receivable with John Deere                   |   | 37.0     |   |   |   | 73.1     |   |
| Proceeds from sales of receivables                                |   | 9.4      |   |   |   | 9.2      |   |
| Change in restricted  cash                                        |   | (28.6    | )      |   |   | (30.1    | )      |
| Other                                                             |   | (6.3     | )      |   |   | 32.0     |   |
| Net cash provided by  investing activities                        |   | 240.9    |   |   |   | 208.6    |   |
|                                                              |   |     |   |   |   |     |   |
| **Cash  Flows from Financing Activities:**                        |   |     |   |   |   |     |   |
| Increase (decrease) in  commercial paper - net                    |   | 1,061.3  |   |   |   | (1,684.9 | )      |
| Increase (decrease) in  other notes payable - net                 |   | (456.6   | )      |   |   | 1,617.9  |   |
| Change in receivable  from/payable to John Deere - net            |   | (46.5    | )      |   |   | (427.3   | )      |
| Proceeds from issuance  of long-term borrowings                   |   | 60.4     |   |   |   | 2,783.4  |   |
| Payments of long-term  borrowings                                 |   | (278.7   | )      |   |   | (537.4   | )      |
| Dividends paid                                                    |   | (70.0    | )      |   |   |     |   |
| Debt issuance costs                                               |   | (2.3     | )      |   |   | (91.0    | )      |
| Net cash provided by  financing activities                        |   | 267.6    |   |   |   | 1,660.7  |   |
|                                                              |   |     |   |   |   |     |   |
| **Effect  of exchange rate changes on cash and cash equivalents** |   | (1.3     | )      |   |   | (2.6     | )      |
| **Net  increase in cash and cash equivalents**                    |   | 688.1    |   |   |   | 1,919.7  |   |
| **Cash  and cash equivalents at beginning of period**             |   | 870.6    |   |   |   | 1,082.6  |   |
| **Cash  and cash equivalents at end of period**                   | $      | 1,558.7  |   |   | $      | 3,002.3  |   |
|                                                              |   |     |   |   |   |     |   |
|                                                              |   |     |   |   |   |     |   |
| See Condensed  Notes to Interim Financial Statements.             |

 

 

4

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**John Deere Capital Corporationand Subsidiaries**

**Statements of Changes inConsolidated Stockholder’s Equity**

**For the Three Months Ended January 31,2009 and 2010**

(in millions)

 
| ** **                         | ** ** | ** **                              | ** ** | **Total Company Stockholder’s Equity** | ** **           | ** **              |       |
|------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------|----------------------|-------------------------|------------|
| ** **                         | ** ** | **Total   Stockholder’s   Equity** | ** ** | **Common   Stock**                          | ** **           | **Retained   Earnings** | ** ** | **Total   Accumulated   Other   Comprehensive   Income (Loss)** | ** ** | **Noncontrolling   Interests** |   |
|                               |       |                                    |       |                                        |                 |                    |       |   |   |   |   |   |   |   |
| **Balance October 31, 2008**  |       | $  2,065.3                    |       |                                        | $  1,212.8 |                    |       | $   882.9 |   |   | $  (30.8 | ) |   | $  .4 |   |   |
| Net income                         |       | 35.0                                    |       |                                        |                 |                    |       | 35.0 |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss)  |       |                                    |       |                                        |                 |                    |       |   |   |   |   |   |   |   |   |   |
| Cumulative translation adjustment  |       | (8.7)                                   |       |                                        |                 |                    |       |   |   |   | (8.7 | ) |   |   |   |   |
| Unrealized loss on derivatives     |       | (32.5)                                  |       |                                        |                 |                    |       |   |   |   | (32.5 | ) |   |   |   |   |
| **Total****comprehensive loss**    |       | (6.2)                                   |       |                                        |                 |                    |       |   |   |   |   |   |   |   |   |   |
| **Balance January 31, 2009**  |       | $  2,059.1                    |       |                                        | $  1,212.8 |                    |       | $   917.9 |   |   | $  (72.0 | ) |   | $  .4 |   |   |
|                               |       |                                    |       |                                        |                 |                    |       |   |   |   |   |   |   |   |   |   |
| **Balance October 31, 2009**  |       | $  2,317.0                    |       |                                        | $  1,272.8 |                    |       | $  1,032.1 |   |   | $  11.7 |   |   | $  .4 |   |   |
| Net income                         |       | 63.9                                    |       |                                        |                 |                    |       | 63.9 |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss)  |       |                                    |       |                                        |                 |                    |       |   |   |   |   |   |   |   |   |   |
| Cumulative translation adjustment  |       | (16.8                                   | )          |                                        |                 |                    |       |   |   |   | (16.8 | ) |   |   |   |   |
| Unrealized gain on derivatives     |       | 6.4                                     |       |                                        |                 |                    |       |   |   |   | 6.4 |   |   |   |   |   |
| **Total****comprehensive  income** |       | 53.5                                    |       |                                        |                 |                    |       |   |   |   |   |   |   |   |   |   |
| Dividends paid                     |       | (70.0                                   | )          |                                        |                 |                    |       | (70.0 | ) |   |   |   |   |   |   |   |
| **Balance January 31, 2010**  |       | $  2,300.5                    |       |                                        | $  1,272.8 |                    |       | $  1,026.0 |   |   | $   1.3 |   |   | $  .4 |   |   |
|                               |

 
|                                                 |
|------------------------------------------------------|
| See Condensed Notes to Interim Financial Statements. |

 

 

5

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# **John Deere Capital Corporation and Subsidiaries**

**CondensedNotes to Interim Financial Statements**

**(Unaudited)**

 
| (1)    | The consolidated financial statements of John Deere  Capital Corporation (Capital Corporation) and its subsidiaries (collectively  called the Company) have been prepared by the Company, without audit,  pursuant to the rules and regulations of the U.S. Securities and Exchange  Commission (SEC). Certain information and footnote disclosures normally  included in annual financial statements prepared in accordance with  accounting principles generally accepted in the U.S. have been condensed or  omitted as permitted by such rules and regulations. All adjustments,  consisting of normal recurring adjustments, have been included. Management  believes that the disclosures are adequate to present fairly the financial  position, results of operations and cash flows at the dates and for the periods  presented. It is suggested that these interim financial statements be read in  conjunction with the consolidated financial statements and the notes thereto  appearing in the Company’s latest annual report on Form 10-K. Results  for interim periods are not necessarily indicative of those to be expected  for the fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The preparation of financial statements in  conformity with accounting principles generally accepted in the U.S. requires  management to make estimates and assumptions that affect the reported amounts  and related disclosures. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Certain items previously  reported in specific financial statement captions in previous periods have  been reclassified to conform to the first quarter of 2010 financial statement  presentation as a result of the adoption of the guidance in Financial  Accounting Standards Board (FASB) Accounting Standards Codification (ASC)  810, Consolidation (FASB Statement No. 160, Noncontrolling Interests in  Consolidated Financial Statements) (See Note 3).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (2)    | The Company provides and administers financing for  retail purchases of new equipment manufactured by Deere & Company’s  agriculture and turf and construction and forestry divisions and used  equipment taken in trade for this equipment. The Company generally purchases  retail installment sales and loan contracts (retail notes) from Deere &  Company and its wholly-owned subsidiaries (collectively called John Deere).  John Deere generally acquires these retail notes through John Deere retail  dealers. The Company also purchases and finances a limited amount of  non-Deere retail notes and continues to service a small portfolio of  recreational products and other retail notes. In addition, the Company leases  John Deere equipment and a limited amount of non-Deere equipment to retail  customers (financing and operating leases). The Company also finances and  services revolving charge accounts, in most cases acquired from and offered  through merchants in the agriculture and turf and construction and forestry  markets (revolving charge accounts). Further, the Company finances and  services operating loans, in most cases offered through and acquired from  farm input providers or through direct relationships with agricultural  producers or agribusinesses (operating loans). The Company also provides  wholesale financing for inventories of John Deere agriculture and turf and  construction and forestry equipment owned by dealers of those products  (wholesale receivables). The Company also offers credit enhanced  international export financing to select customers and dealers which  generally involves John Deere products and offers certain crop risk  mitigation products in the U.S. In addition, the Company makes loans to  certain affiliated companies that directly invest 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 “Receivables and Leases.” |

 

 

6

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| (3)    | New accounting standards adopted in the first three  months of  2010 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In the first quarter of  2010, the Company adopted FASB ASC 810, Consolidation (FASB Statement No. 160,  Noncontrolling Interests in Consolidated Financial Statements). ASC 810  requires that noncontrolling interests are reported as a separate line in  stockholder’s equity. The net income for both the Company and the  noncontrolling interests are included in “Net income.” The “Net income  attributable to noncontrolling interests” is deducted from “Net income” to  determine the “Net income attributable to the Company.” ASC 810 also requires  certain prospective changes in accounting for noncontrolling interests primarily  related to increases and decreases in ownership and changes in control.  As required, the presentation and  disclosure requirements were adopted through retrospective application, and  the consolidated financial statement prior period information has been  adjusted accordingly. The adoption did not have a material effect on the  Company’s consolidated financial statements. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In the first quarter of  2010, the Company adopted FASB ASC 805, Business Combinations (FASB Statement  No. 141 (revised 2007), Business Combinations). ASC 805 requires an  acquirer to measure the identifiable assets acquired, the liabilities assumed  and any noncontrolling interest in the acquiree at their fair values on the  acquisition date, with goodwill being the excess value over the net  identifiable assets acquired. This standard also requires the fair value  measurement of certain other assets and liabilities related to the  acquisition such as contingencies and research and development. The adoption  did not have a material effect on the Company’s consolidated financial  statements.                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In the first quarter of  2010, the Company adopted FASB ASC 820, Fair Value Measurements and  Disclosures (FASB Statement No. 157, Fair Value Measurements), for  nonrecurring measurements of nonfinancial assets and liabilities. The  standard requires that these measurements comply with certain guidance for  fair value measurements and the disclosure of such measurements. The adoption  did not have a material effect on the Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In the first quarter of  2010, the Company adopted FASB Accounting Standards Updated (ASU)  No. 2010-09, Amendments to Certain Recognition and Disclosure  Requirements, which amends ASC 855, Subsequent Events. This ASU removes the  requirement for a SEC filer to disclose a date through which subsequent  events have been evaluated. This change removes potential conflicts with SEC  requirements. The adoption did not have a material effect on the Company’s  consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | New accounting standards to be adopted are as  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In December 2009, the FASB issued ASU No. 2009-16,  Accounting for Transfers of Financial Assets, which amends ASC 860, Transfers  and Servicing (FASB Statement No. 166, Accounting for Transfers of  Financial Assets an amendment of FASB Statement No. 140). This ASU  eliminates the qualifying special purpose entities from the consolidation  guidance and clarifies the requirements for isolation and limitations on  portions of financial assets that are eligible for sale accounting. It  requires additional disclosures about the risks from continuing involvement  in transferred financial assets accounted for as sales. The effective date is  the beginning of fiscal year 2011.  The  adoption is not expected to have a material effect on the Company’s  consolidated financial statements.                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In December 2009, the  FASB issued ASU No. 2009-17, Improvements to Financial Reporting by  Enterprises Involved with Variable Interest Entities, which amends ASC 810,  Consolidation (FASB Statement No. 167, Amendments to FASB Interpretation  No. 46(R)). This ASU requires a qualitative analysis to determine the  primary beneficiary of a variable interest entity (VIE). The analysis  identifies the primary beneficiary as the enterprise that has both the power  to direct the activities of a VIE that most significantly impact the VIE’s  economic performance and the obligation to absorb losses or the right to  receive benefits that could be significant to the VIE. The ASU also requires  additional disclosures about an enterprise’s involvement in a VIE. The  effective date is the beginning of fiscal year 2011. The adoption is not  expected to have a material effect on the Company’s consolidated financial  statements.                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | In January 2010, the  FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value  Measurements, which amends ASC 820, Fair Value Measurements and Disclosures.  This ASU requires disclosures of transfers into and out of Levels 1 and 2,  more detailed roll forward reconciliations of Level 3 recurring fair value  measurements on a gross basis, fair value information by class of assets and  liabilities and descriptions of valuation techniques and inputs for Level 2  and 3 measurements. The effective date is the second quarter of fiscal year  2010 except for the roll forward reconciliations, which are required in the  first quarter of fiscal year 2012. The adoption will not have a material  effect on the Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                                |

 

 

7

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| (4)        | Securitization of  receivables:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       | The Company, as a part of its overall funding  strategy, periodically transfers certain receivables (retail notes) into  variable interest entities (VIEs) that are special purpose entities (SPEs) as  part of its asset-backed securities programs (securitizations). The structure  of these transactions is such that the transfer of the retail notes does not  meet the criteria of sales of receivables, and is, therefore, accounted for  as a secured borrowing. SPEs utilized in securitizations of retail notes  differ from other entities included in the Company’s consolidated statements  because the assets they hold are legally isolated. For bankruptcy analysis  purposes, the Capital Corporation has sold the receivables to the SPEs in a true  sale and the SPEs are separate legal entities. Use of the assets held by the  SPEs is restricted by terms of the documents governing the securitization  transaction.                                                                                                                                                                                                                                                                                                                                                                                                        |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       | In securitizations of retail notes related to  secured borrowings, the retail notes are transferred to certain SPEs which in  turn issue debt to investors. The resulting secured borrowings are included  in short-term borrowings on the balance sheet. The securitized retail notes  are recorded as “Restricted securitized retail notes” on the balance sheet.  The total restricted assets on the balance sheet related to these  securitizations include the restricted securitized retail notes less an  allowance for credit losses, and other assets primarily representing  restricted cash. The SPEs supporting the secured borrowings to which the  retail notes are transferred are consolidated unless the Company is not the  primary beneficiary. No additional support to these SPEs beyond what was  previously contractually required has been provided during the reporting  periods.                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       | In certain securitizations, the Company is the  primary beneficiary of the SPEs and, as such, consolidates the entities. The  restricted assets (retail notes, allowance for credit losses and other  assets) of the consolidated SPEs totaled $1,842 million, $2,157 million  and $1,517 million at January 31, 2010, October 31, 2009 and January 31,  2009, respectively. The liabilities (other notes payable and accounts payable  and accrued expenses) of these SPEs totaled $1,827 million, $2,133 million and  $1,518 million at January 31, 2010, October 31, 2009 and January 31,  2009, respectively. The credit holders of these SPEs do not have legal  recourse to the Company’s general credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       | In other securitizations, the Company transfers  retail notes into bank-sponsored, multi-seller, commercial paper conduits,  which are SPEs that are not consolidated. The Company is not considered to be  the primary beneficiary of these conduits, because the Company’s variable  interests in the conduits will not absorb a majority of the conduits’  expected losses, residual returns, or both. This is primarily due to these  interests representing significantly less than a majority of the conduits’  total assets and liabilities. These conduits provide a funding source to the  Company (as well as other transferors into the conduit) as they fund the  retail notes through the issuance of commercial paper. The Company’s carrying  values and variable interests related to these conduits were restricted  assets (retail notes, allowance for credit losses and other assets) of $849  million, $1,036 million and $1,783 million at January 31,  2010, October 31, 2009 and January 31, 2009, respectively. The  liabilities (other notes payable and accounts payable and accrued expenses)  related to these conduits were $831 million, $982 million and  $1,726 million at January 31, 2010, October 31, 2009 and January 31,  2009, respectively. |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|       | The Company’s carrying amount of the liabilities to  the unconsolidated conduits, compared to the maximum exposure to loss related  to these conduits, which would only be incurred in the event of a complete  loss on the restricted assets was as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | January 31,  2010 | ** ** | ** ** |
|       |  Carrying  value of liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $ | 830.9 |   |   |
|       |  Maximum  exposure to loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 849.0 |   |   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |
|       | The assets of unconsolidated conduits related to  securitizations in which the Company’s variable interests were considered  significant were approximately $27 billion at January 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

 

8

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|   | The  components of consolidated restricted assets related to secured borrowings in  securitization transactions were as follows (in millions of dollars): |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                      |
|   |                                 |   | January 31,  2010 |   |   | October 31,  2009 |   |   | January 31,  2009 |   |
|--------|--------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|   |                                 |   |                   |   |   |                   |   |   |                   |   |
|   | Restricted securitized  retail notes | $      | 2,611.2                |   | $      | 3,110.1                |   | $      | 3,229.4                |   |
|   | Allowance for credit  losses         |   | (25.5                  | )      |   | (24.3                  | )      |   | (12.0                  | )      |
|   | Other assets                         |   | 104.8                  |   |   | 107.7                  |   |   | 82.1                   |   |
|   | Total restricted securitized assets  | $      | 2,690.5                |   | $      | 3,193.5                |   | $      | 3,299.5                |   |
|   |                                                                                                                                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The  components of consolidated secured borrowings and other liabilities related  to securitizations were as follows (in millions of dollars): |
|   |                                                                                                                                           |
|   |                                                        |   | January 31,  2010 |   |   | October 31,  2009 |   |   | January 31,  2009 |   |
|--------|-------------------------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|   | Other notes payable                                         | $      | 2,655.3                |   | $      | 3,109.1                |   | $      | 3,239.8                |   |
|   | Accounts payable and accrued expenses                       |   | 2.4                    |   |   | 5.4                    |   |   | 4.2                    |   |
|   | Total  liabilities related to restricted securitized assets | $      | 2,657.7                |   | $      | 3,114.5                |   | $      | 3,244.0                |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The secured borrowings related to these restricted  securitized retail notes are obligations that are payable as the retail notes  are liquidated. Repayment of the secured borrowings depends primarily on cash  flows generated by the restricted assets. Due to the Company’s short-term  credit rating, cash collections from these restricted assets are not required  to be placed into a restricted collection account until immediately prior to  the time payment is required to the secured creditors. At January 31,  2010, the maximum remaining term of all restricted receivables was  approximately five years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (5)    | Commitments and contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | At January 31, 2010, John Deere Credit Inc.,  the John Deere finance subsidiary in Canada, had $172 million of  commercial paper, $1,617 million of medium-term notes outstanding and a fair  value liability of $7 million for derivatives, with a notional amount of $176  million that were guaranteed by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The Company’s subsidiary, John Deere Risk Protection, Inc.,  offers crop insurance products through managing general agency agreements  (Agreements) with insurance companies (Insurance Carriers) rated “Excellent”  by A.M. Best Company. As a managing general agent, John Deere Risk  Protection, Inc. will receive commissions from the Insurance Carriers  for selling crop insurance to producers. The Company has guaranteed certain  obligations under the Agreements, including the obligation to pay the  Insurance Carriers for any uncollected premiums. At January 31, 2010,  the maximum exposure for uncollected premiums was approximately $22 million.  Substantially all of the Company’s crop insurance risk under the Agreements  has been mitigated by a syndicate of private reinsurance companies. The  reinsurance companies are rated “Excellent” or higher by A.M. Best  Company. In the event of a widespread catastrophic crop failure throughout the  U.S. and the default of these highly rated private reinsurance companies on  their reinsurance obligations, the Company would be required to reimburse the  Insurance Carriers for exposures under the Agreements of approximately  $32 million at January 31, 2010. The Company believes that the  likelihood of the occurrence of events that would give rise to the exposures  under these Agreements is substantially remote and as a result, at January 31, 2010,  the Company’s accrued liability under the Agreements was not material. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The Company has commitments to extend credit to  customers and John Deere dealers through lines of credit and other  pre-approved credit arrangements. The Company applies the same credit  policies and approval process for these commitments to extend credit as it  does for its Receivables. Collateral is not required for these commitments,  but if credit is extended, collateral may be required upon funding. The  amount of unused commitments to extend credit to John Deere dealers was $3.4  billion at January 31, 2010. The amount of unused commitments to  extend credit to customers was $42.0 billion at January 31, 2010. A  significant portion of these commitments is not expected to be fully drawn  upon; therefore, the total commitment amounts likely do not represent a  future cash requirement. The Company generally has the right to  unconditionally cancel, alter or amend the terms of these commitments at any  time. Over 95 percent of these unused commitments to extend credit to  customers relate to revolving charge accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

 

9

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|   | At January 31, 2010, the Company had restricted  other assets of $33 million. See Note 4 for additional restricted assets  associated with borrowings related to securitizations.                                                                                                                                                                             |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                               |
|   | The Company also had other miscellaneous contingent  liabilities totaling approximately $11 million at January 31, 2010, for  which it believes the probability for payment is substantially remote. The  accrued liability for these contingencies was not material at January 31,  2010.                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| (6)    | The fair values of financial instruments that do not  approximate the carrying values were as follows (in millions of dollars):                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                               |   | January 31, 2010 |   | October 31, 2009 |   |
|   |                                                                                                                                                                                                                                                                                                                                                               |   | Carrying   Value |   | Fair   Value |   | Carrying   Value |   | Fair   Value |   |
|   | Receivables  financed - net                                                                                                                                                                                                                                                                                                                                        |   | $ 14,987 |   | $ 15,067 |   | $ 14,856 |   | $ 14,954 |   |
|   | Restricted  securitized retail notes - net                                                                                                                                                                                                                                                                                                                         |   | 2,586 |   | 2,631 |   | 3,086 |   | 3,123 |   |
|   | Short-term  secured borrowings                                                                                                                                                                                                                                                                                                                                     |   | 2,655 |   | 2,660 |   | 3,109 |   | 3,140 |   |
|   | Long-term  borrowings                                                                                                                                                                                                                                                                                                                                              |   | 12,207 |   | 12,694 |   | 12,701 |   | 13,140 |   |
|   |                                                                                                                                                                                                                                                                                                                                                               |
|   | Fair values of the long-term Receivables were based  on the discounted 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-term  secured borrowings were based on the discounted values of their related cash  flows at current market interest rates. Certain long-term borrowings have  been swapped to current variable interest rates. The carrying values of these  long-term borrowings include adjustments related to fair value hedges. |
|   |                                                                                                                                                                                                                                                                                                                                                               |
|   | Fair values of derivative financial instruments are  included in Note 7. The carrying values and the fair values are the same  since they are recorded at fair value.                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| (7)    | Assets and liabilities measured at fair value as  Level 2 measurements on a recurring basis were as follows (in millions of  dollars):                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                               | January 31, |   |   | October 31, |   |   | January 31, |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                               | 2010    |   |   | 2009 |   |   | 2009 |   |   |
|   | Other  assets                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |
|   |    Derivatives:                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                           | $ | 463.9 |   | $ | 488.8 |   | $ | 583.0 |   |   |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                        |   | 17.5 |   |   | 3.4 |   |   | 16.6 |   |   |
|   | Cross-currency  interest rate contracts                                                                                                                                                                                                                                                                                                                            |   | 7.0 |   |   | 173.5 |   |   | 14.3 |   |   |
|   | Total  assets                                                                                                                                                                                                                                                                                                                                                      | $ | 488.4 |   | $ | 665.7 |   | $ | 613.9 |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
|   | Accounts  payable and accrued expenses                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   |   |   |   |   |   |
|   |    Derivatives:                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                           | $ | 93.3 |   | $ | 115.2 |   | $ | 183.6 |   |   |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                        |   | .8 |   |   | 15.0 |   |   | 6.5 |   |   |
|   | Cross-currency  interest rate contracts                                                                                                                                                                                                                                                                                                                            |   | 23.2 |   |   | .7 |   |   | 25.4 |   |   |
|   | Total  liabilities                                                                                                                                                                                                                                                                                                                                                 | $ | 117.3 |   | $ | 130.9 |   | $ | 215.5 |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                               |
|   | Assets measured at fair value as Level 3  measurements on a nonrecurring basis and the losses during the periods were  as follows (in millions of dollars):                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                               | January 31, |   | October 31, |   | January 31, |   | Three Months  Ended   January 31 |   |
|   |                                                                                                                                                                                                                                                                                                                                                               | 2010 |   | 2009 |   | 2009 |   | 2010 |   | 2009 |   |
|   | Receivables                                                                                                                                                                                                                                                                                                                                                        |   | $10.0 |   | $23.1 |   | $15.8 |   | $   .1 |   | $5.0 |   |
|        |                                                                                                                                                                                                                                                                                                                                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

10

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|     | Level  1 measurements consist of quoted prices in active markets for identical  assets or liabilities. Level 2 measurements include significant other  observable inputs such as quoted prices for similar assets or liabilities in  active markets; identical assets or liabilities in inactive markets;  observable inputs such as interest rates and yield curves; and other  market-corroborated inputs. Level 3 measurements include significant  unobservable inputs. There were no assets or liabilities valued using Level 1  measurements at January 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | Fair  value is defined as the price that would be received to sell an asset or paid  to transfer a liability in an orderly transaction between market participants  at the measurement date. In determining fair value, the Company uses various  methods including market and income approaches. The Company utilizes  valuation models and techniques that maximize the use of observable inputs.  The models are industry-standard models that consider various assumptions  including time values and yield curves as well as other economic measures.  These valuation techniques are consistently applied.                                                                                                                                                                                                                                                                                                                                                                                |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | The  following is a description of the valuation methodologies the Company uses to  measure financial instruments at fair value:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| * * | *Derivatives  –*The Company’s  derivative financial instruments consist of interest rate swaps and caps,  foreign currency forwards and cross-currency interest rate swaps. The  portfolio is valued based on a discounted cash flow approach using market  observable inputs, including swap curves and both forward and spot exchange  rates for currencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| * * | *Receivables  –*Receivables  with specific reserves established due to payment defaults are valued based  on a discounted cash flow approach, appraisal values or realizable values for  the underlying collateral. The related credit allowances represent cumulative  adjustments to measure those specific receivables at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (8)      | It  is the Company’s policy that derivative transactions are executed only to  manage exposures arising in the normal course of business and not for the  purpose of creating speculative positions or trading. The Company manages the  relationship of the types and amounts of its funding sources to its  receivable and lease portfolio in an effort to diminish risk due to interest  rate and foreign currency fluctuations, while responding to favorable  financing opportunities. The Company also has foreign currency exposures at  some of its foreign and domestic operations related to financing in  currencies other than the local currencies.                                                                                                                                                                                                                                                                                                                           |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | All  derivatives are recorded at fair value on the balance sheet. Each derivative  is designated as a cash flow hedge, a fair value hedge, or remains  undesignated. All designated hedges are formally documented as to the  relationship with the hedged item as well as the risk-management strategy.  Both at inception and on an ongoing basis the hedging instrument is assessed  as to its effectiveness, when applicable. If and when a derivative is  determined not to be highly effective as a hedge, or the underlying hedged  transaction is no longer likely to occur, or the hedge designation is  removed, or the derivative is terminated, hedge accounting is discontinued.  Any past or future changes in the derivative’s fair value, which will not be effective  as an offset to the income effects of the item being hedged, are recognized  currently in the income statement.                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | Certain  of the Company’s derivative agreements contain credit support provisions that  require the Company to post collateral based on reductions in credit ratings.  The aggregate fair value of all derivatives with credit-risk-related  contingent features that were in a liability position at January 31,  2010, October 31, 2009 and January 31, 2009 was $17 million, $13 million  and $37 million, respectively. The Company, due to its credit rating, has not  posted any collateral. If the credit-risk-related contingent features were  triggered, the Company would be required to post full collateral for this  liability position.                                                                                                                                                                                                                                                                                                                      |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | Derivative  instruments are subject to significant concentrations of credit risk to the  banking sector. The Company manages individual counterparty exposure by  setting limits that consider the credit rating of the counterparty and the  size of other financial commitments and exposures between the Company and the  counterparty banks. All interest rate derivatives are transacted under  International Swaps and Derivatives Association (ISDA) documentation. Some of  these agreements include collateral support arrangements or mutual put  options at fair value. Each master agreement permits the net settlement of  amounts owed in the event of early termination. The maximum amount of loss  that the Company would incur if counterparties to derivative instruments fail  to meet their obligations, not considering collateral received or netting  arrangements, was $488 million, $666 million and $614 million as of  January 31, 2010, October 31, 2009 |

 

 

11

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|   | and  January 31, 2009, respectively. The amount of collateral received at  January 31, 2010, October 31, 2009 and January 31, 2009 to  offset this potential maximum loss was $50 million, $78 million and  $39 million, respectively. The netting provisions of the agreements  would reduce the maximum amount of loss the Company would incur if the  counterparties to derivative instruments fail to meet their obligations by an  additional $67 million, $82 million and $158 million as of January 31,  2010, October 31, 2009 and January 31, 2009, respectively. None of  the concentrations of risk with any individual counterparty was considered  significant in any periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Cash flow hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Certain  interest rate and cross-currency interest rate contracts (swaps) were  designated as hedges of future cash flows from borrowings. The total notional  amount of the receive-variable/pay-fixed interest rate contracts at  January 31, 2010, October 31, 2009 and January 31, 2009 was  $2,448 million, $2,492 million and $3,694 million, respectively. The  notional amount of cross-currency interest rate contracts was  $849 million at January 31, 2010. The effective portions of the  fair value gains or losses on these cash flow hedges were recorded in other  comprehensive income (OCI) and subsequently reclassified into interest expense  or administrative and operating expenses (foreign exchange) in the same  periods during which the hedged transactions affect earnings. These amounts  offset the effects of interest rate or foreign currency changes on the  related borrowings. Any ineffective portions of the gains or losses on all  cash flow interest rate contracts designated as hedges were recognized  currently in interest expense or administrative and operating expenses and  were not material during any periods presented. The cash flows from these  contracts were recorded in operating activities in the consolidated  statements of cash flows. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The  amount of loss recorded in OCI at January 31, 2010 that is expected to  be reclassified to interest expense or administrative and operating expenses  in the next twelve months if interest rates or exchange rates remain  unchanged is approximately $34 million after-tax. These contracts mature in  up to 48 months. There were no gains or losses reclassified from OCI to  earnings based on the probability that the original forecasted transaction  would not occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Fair value  hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Certain  interest rate contracts (swaps) were designated as fair value hedges of  fixed-rate, long-term borrowings. The total notional amount of these  receive-fixed/pay-variable interest rate contracts at January 31, 2010,  October 31, 2009 and January 31, 2009 was $6,379 million, $6,120  million and $4,443 million, respectively. The effective portions of the  fair value gains or losses on these contracts were offset by fair value gains  or losses on the hedged items (fixed-rate borrowings). Any ineffective  portions of the gains or losses were recognized currently in interest  expense. The ineffective portions were a $1 million loss and a $3 million  gain during the first quarter of 2010 and the first quarter of 2009,  respectively. The cash flows from these contracts were recorded in operating  activities in the consolidated statements of cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The  gains (losses) on these contracts and the underlying borrowings recorded in  interest expense were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | Three Months  Ended   January 31 |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 2010 |   | 2009 |   |   |
|   |  Interest  rate contracts *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $ | (.5 | ) | $ | 249.8 |   |   |
|   |  Borrowings  **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | (.4 | ) | (246.4 | ) |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | *       Includes changes in fair value of  interest rate contracts excluding accrued interest credits of  $55.2 million and $21.3 million during the first three months of  2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | **     Includes adjustments for fair values of  hedged borrowings excluding accrued interest expense of $77.8 million and  $66.7 million during the first three months of 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  |  |  |  |  |  |  |

 

 

12

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|   | Derivatives not  designated as hedging instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The  Company has certain interest rate contracts (swaps and caps), foreign  exchange contracts (forwards and swaps) and cross-currency interest rate  contracts (swaps), which were not formally designated as hedges. These  derivatives were held as economic hedges for underlying interest rate or  foreign currency exposures primarily for certain borrowings. The total  notional amount of these interest rate swaps at January 31, 2010,  October 31, 2009 and January 31, 2009 were $2,439 million,  $1,745 million and $1,355 million, the foreign exchange contracts were  $1,075 million, $1,043 million and $726 million and the cross-currency  interest rate contracts were $60 million, $839 million and $848 million,  respectively. At January 31, 2010, October 31, 2009 and  January 31, 2009 there were also $1,447 million, $1,560 million and  $1,862 million of interest rate caps purchased and the same amounts sold at  the same capped interest rate to facilitate borrowings through securitization  of retail notes, respectively. The fair value gains or losses from the  interest rate contracts were recognized currently in interest expense and the  gains or losses from foreign exchange contracts in administrative and  operating expenses, generally offsetting over time the expenses on the  exposures being hedged. The cash flows from these non-designated contracts were  recorded in operating activities in the consolidated statements of cash  flows. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Fair  values of derivative instruments in the consolidated balance sheets were as  follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | January 31,    2010 |   | October 31,    2009 |   | January 31,    2009 |   |
|   | Other  Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |
|   | Designated  as hedging instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $ | 418.7 |   | $ | 446.4 |   | $ | 509.0 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |
|   | Not  designated as hedging instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 45.2 |   | 42.4 |   | 74.0 |   |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 17.5 |   | 3.4 |   | 16.6 |   |
|   | Cross-currency  interest rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 7.0 |   | 173.5 |   | 14.3 |   |
|   | Total  not designated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 69.7 |   | 219.3 |   | 104.9 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |
|   | Total  derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $ | 488.4 |   | $ | 665.7 |   | $ | 613.9 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |
|   | Accounts  Payable and Accrued Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |
|   | Designated  as hedging instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $ | 61.3 |   | $ | 76.6 |   | $ | 121.5 |   |
|   | Cross-currency  interest rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 22.6 |   |   |   |   |   |
|   | Total  designated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 83.9 |   | 76.6 |   | 121.5 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |
|   | Not  designated as hedging instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 32.0 |   | 38.6 |   | 62.1 |   |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | .8 |   | 15.0 |   | 6.5 |   |
|   | Cross-currency  interest rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | .6 |   | .7 |   | 25.4 |   |
|   | Total  not designated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 33.4 |   | 54.3 |   | 94.0 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |   |   |
|   | Total  derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $ | 117.3 |   | $ | 130.9 |   | $ | 215.5 |   |

 

 

13

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|   | The  classification and gains (losses) including accrued interest expense related  to derivative instruments on the statements of consolidated income consisted  of the following (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   | Three Months  Ended January 31 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | Expense or OCI  Classification |   | 2010 |   | 2009 |
|   | Fair  Value Hedges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Interest expense |   | $ | 54.7 |   |   | $ | 271.1 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|   | Cash  Flow Hedges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
|   | Recognized  in OCI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |
|   | (Effective  Portion):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | OCI (pretax)** |   | (5.5 | ) |   | (49.7 | ) |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | OCI (pretax)** |   | (22.7 | ) |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|   | Reclassified  from OCI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |   |   |   |   |   |
|   | (Effective  Portion):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Interest expense** |   | (21.0 | ) |   | (7.9 | ) |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Administrative and  operating expenses** |   | (16.9 | ) |   |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|   | Recognized  Directly in Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |
|   | (Ineffective  Portion):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Interest expense |   | * |   |   | * |   |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Administrative and  operating expenses |   | * |   |   | * |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |   |   |   |   |
|   | Not  Designated as Hedges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |   |   |   |   |   |
|   | Interest  rate contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Interest expense** |   | $ | 10.2 |   |   | $ | (8.4 | ) |
|   | Foreign  exchange contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | Administrative and  operating expenses** |   | (19.2 | ) |   | 54.6 |   |
|   | Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   | $ | (9.0 | ) |   | $ | 46.2 |   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|   | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | The amount is  not material. |
|   | **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Includes  interest and foreign exchange gains (losses) from cross-currency interest  rate contracts. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (9)    | The  Company is a participating employer in certain Deere & Company  sponsored defined benefit pension plans for employees in the U.S. and certain  defined benefit pension plans outside the U.S. These pension plans provide  for benefits that are based primarily on years of service and employee  compensation. Pension expense is actuarially determined based on the  Company’s employees included in the plan. The Company’s pension expense  amounted to $2.0 million in the first three months of 2010. The  accumulated benefit obligation and plan net assets for the employees of the  Company are not determined separately from Deere & Company. The  Company generally provides defined benefit health care and life insurance  plans for retired employees in the U.S. as a participating employer in  Deere & Company’s sponsored plans. Health care and life insurance  benefits expense is actuarially determined based on the Company’s employees  included in the plans and amounted to $1.9 million during the first three  months of 2010. Further disclosure for these plans is included in  Deere & Company’s Form 10-Q for the quarter ended January 31,  2010. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |  |  |  |  |  |  |  |  |

 

 

14

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| Item 2. | Management’s Discussion  and Analysis of Financial Condition and Results of Operations. |
|---------|----------------------------------------------------------------------------------------------|

 

Results of Operations

 

Overview

 

Organization

 

The Company primarily generates revenues and cash byfinancing John Deere dealers’ sales and leases of new and used agriculture,turf, construction and forestry equipment. In addition, the Company provideswholesale financing to dealers of the foregoing equipment, provides operatingloans, finances retail revolving charge accounts, offers certain crop riskmitigation products and makes loans to certain affiliated companies thatdirectly invest in wind energy projects.

 

In the first quarter of 2010, the Company adopted ASC810, Consolidation (FASB Statement No. 160, Noncontrolling Interests inConsolidated Financial Statements). This guidance requires that noncontrollinginterests are reported as a separate line in stockholder’s equity. The netincome for both the Company and the noncontrolling interests are included in “Netincome” on the consolidated financial statements. The “Net income attributableto noncontrolling interests” is deducted from “Net income” to determine the“Net income attributable to the Company,” which agrees with the previouscalculation of net income. The following discussions of these net income andequity amounts have been adjusted accordingly for all periods presented.

 

Trends and Economic Conditions

 

The Company’s business is closely related to JohnDeere’s business. Farm machinery industry sales for 2010 in the U.S. and Canadaare forecast to be comparable to 2009. Cash receipts and commodity prices haveremained at healthy levels, which along with low interest rates are lendingparticular support to the sale of larger equipment. Industry sales of farmmachinery in Western Europe are forecast to decline 10 to 15 percent for theyear. Sales in Central Europe and the Commonwealth of Independent States areexpected to remain under pressure. South American industry sales are projectedto increase by 10 to 15 percent for the year. Industry sales of turf equipmentand compact utility tractors in the U.S. and Canada are expected to be roughlyflat for the year. John Deere’s agriculture and turf sales were down 6 percentfor the first quarter of 2010 and are forecast to increase by 4 to 6 percentfor the full year, which includes a favorable effect of about 4 percent forcurrency translation. U.S. markets for construction and forestry equipment areforecast to remain deeply depressed for the year as a result of a decline innon-residential construction and relatively high used equipment levels. Globalforestry markets are expected to be stronger in relation to last year’sextremely weak levels. John Deere’s construction and forestry sales declined 15percent in the first quarter of 2010, but are expected to increaseapproximately 21 percent for the year due to last year’s aggressive inventoryreductions. Net income attributable to the Company in fiscal year 2010 isforecast to increase to approximately $205 million, compared to $149 million infiscal year 2009. The forecast increase from 2009 is primarily due to morefavorable financing spreads.

 

Items of concern for the Company include the declinein global economic activity and expected slow recovery, capital marketdisruptions, the effectiveness of governmental policies to promote economicrecovery, the availability of credit for the Company’s customers and financialregulatory reform. Significant fluctuations in foreign currency exchange ratesand volatility in the price of many commodities could also impact the Company’sresults.

 

2010 Compared with 2009

 

Net income attributable to the Company was $63.9million for the first quarter of 2010, compared with $35.0 million for thesame period last year. Results were higher for the quarter primarily due toimproved financing spreads.

 

 

15

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Revenues totaled $414.4 million for the first quarterof 2010, compared with $437.6 million for the same period last year. The decreasewas primarily due to lower financing rates, partially offset by highercommissions from crop insurance. Finance income earned on retail notes totaled$179.8 million for the first quarter of 2010, compared with$197.8 million for the same period in 2009. This decrease was primarilydue to lower financing rates and a 2 percent decrease in the averageretail note portfolio balances. Lease revenues totaled $71.2 million inthe first quarter of 2010, compared with $82.0 million in the firstquarter of 2009. This decrease was primarily due to lower financing rates and a4 percent decrease in the average balance of leases. Revenues earned onrevolving charge accounts amounted to $61.8 million in the first quarterof 2010, compared with $50.7 million during the same period last year. Theincrease was primarily due to an increase in the average balance of revolvingcharge accounts and higher financing rates in the first quarter of 2010,compared with the same period last year. Finance income earned on wholesale receivablestotaled $56.7 million for the first quarter of 2010, compared to$63.8 million for the same period in 2009. The decrease was primarily dueto lower financing rates, partially offset by a 6 percent increase in theaverage balance of wholesale receivables. Revenues earned from John Deeretotaled $107.9 million for the first quarter of 2010, compared to$133.2 million for the same period last year.

 

Crop insurance commissions totaled $16.8 million forthe first quarter of 2010, compared with $6.6 million for the same period in2009. The increase was primarily due to more favorable underwriting experiencethat resulted in higher commissions in the first quarter of 2010, compared withthe same period in 2009.

 

Other income totaled $24.5 million for the firstquarter of 2010, compared with $32.9 million for the same period in 2009. Thedecrease was primarily due to lower interest income earned on cash and cashequivalents and higher losses from construction equipment operating leaseresidual values.

 

Interest expense totaled $150.0 million for the firstquarter of 2010, compared with $207.3 million for the same period in 2009. Thedecrease was due to lower average interest rates and lower average borrowings.

 

Administrative and operating expenses were $94.4million in the first quarter of 2010, compared with $86.1 million for thesame period in 2009. The increase was primarily due to foreign exchange losses.

 

During the first quarter of 2010, the provision forcredit losses totaled $23.0 million, compared with $32.4 million for the sameperiod in 2009. The decrease was primarily due to a decrease in the allowancefor credit losses and lower write-offs of wholesale receivables, constructionand forestry equipment retail notes and revolving charge accounts. Theannualized provision for credit losses, as a percentage of the average balanceof total Receivables financed, was .52 percent for the first quarter of2010, compared with .73 percent for the same period in 2009. See the Company’smost recently filed annual report on Form 10-K for further informationregarding the Company’s allowance for credit losses policies.

 

The Company’s ratio of earnings to fixed charges was1.61 to 1 for the first quarter of 2010, compared with 1.23 to 1 for thefirst quarter of 2009. “Earnings” consist of income before income taxes, thecumulative effect of changes in accounting and fixed charges excludingcapitalized interest. “Fixed charges” consist of interest on indebtedness,amortization of debt discount and expense, interest related to uncertain taxpositions, an estimated amount of rental expense under capitalized leases thatis deemed to be representative of the interest factor and rental expense underoperating leases, and capitalized interest.

 

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

 
|                                 | Three Months            |    |    |    |   |          |   |
|--------------------------------------|-------------------------|---------|---------|---------|--------|---------------|--------|
|                                 | Ended  January 31, |    |    |    |   |          |   |
|                                 |                    | 2010    |    | 2009    |   | $ Change |   | % Change |
| Retail  notes:                       |                    |    |    |    |   |          |   |   |   |   |
| Agriculture  and turf equipment      |                    | $       | 1,314.0 |    | $      | 873.0         |   | $ | 441.0 |   |   | 51 | % |
| Construction  and forestry equipment |                    | 120.5   |    | 131.2   |   | (10.7         | )      |   | (8 | ) |
| Total  retail notes                  |                    | 1,434.5 |    | 1,004.2 |   | 430.3         |   |   | 43 |   |
| Revolving  charge accounts           |                    | 1,038.8 |    | 996.1   |   | 42.7          |   |   | 4 |   |
| Operating  loans                     |                    | 85.0    |    | 550.5   |   | (465.5        | )      |   | (85 | ) |
| Wholesale  receivables               |                    | 4,105.5 |    | 4,395.6 |   | (290.1        | )      |   | (7 | ) |
| Financing  leases                    |                    | 36.5    |    | 37.7    |   | (1.2          | )      |   | (3 | ) |
| Equipment  on operating leases       |                    | 67.2    |    | 83.6    |   | (16.4         | )      |   | (20 | ) |
| Total  Receivables and Leases        |                    | $       | 6,767.5 |    | $      | 7,067.7       |   | $ | (300.2 | ) |   | (4 | )% |

 

 

16

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Retail note volumes for agriculture and turf equipmentincreased in the first quarter of 2010, when compared to last year, primarilydue to increases in retail sales of John Deere agricultural equipment.Operating loan volumes decreased during the first quarter of 2010, whencompared to last year, primarily due to decreased borrowings by farm inputproviders. Wholesale receivable volumes decreased during the first quarter of2010, when compared to last year, due to decreased shipments of John Deereconstruction and forestry equipment in the U.S. as a result of decreased retailsales activity.

 

TotalReceivables and Leases held were as follows (in millions of dollars):

 
|                                 |   | January 31, |     | October 31, |   | January 31, |   |
|--------------------------------------|--------|------------------|----------|------------------|--------|------------------|--------|
|                                 |   | 2010             |     | 2009             |   | 2009             |   |
| Retail  notes:                       |   |             |     |             |   |             |   |
| Agriculture  and turf equipment      |   | $                | 9,772.4  |             | $      | 9,952.0          |   | $ | 9,161.3 |   |
| Construction  and forestry equipment |   | 1,281.0          |     | 1,386.0          |   | 1,826.2          |   |
| Recreational  products               |   | 5.9              |     | 6.2              |   | 8.5              |   |
| Total  retail notes                  |   | 11,059.3         |     | 11,344.2         |   | 10,996.0         |   |
| Revolving  charge accounts           |   | 1,791.5          |     | 2,192.5          |   | 1,588.8          |   |
| Operating  loans                     |   | 232.1            |     | 297.0            |   | 410.6            |   |
| Wholesale  receivables               |   | 4,259.3          |     | 3,873.5          |   | 4,202.5          |   |
| Financing  leases                    |   | 375.5            |     | 392.8            |   | 383.1            |   |
| Equipment  on operating leases       |   | 937.4            |     | 1,023.2          |   | 989.0            |   |
| Total  Receivables and Leases        |   | $                | 18,655.1 |             | $      | 19,123.2         |   | $ | 18,570.0 |   |

 

Receivables andLeases administered by the Company were as follows (in millions of dollars):

 
|                                                          |   | January 31, |     | October 31, |   | January 31, |   |
|---------------------------------------------------------------|--------|------------------|----------|------------------|--------|------------------|--------|
|                                                          |   | 2010             |     | 2009             |   | 2009             |   |
| Receivables  and Leases administered:                         |   |             |     |             |   |             |   |
| Owned  by the Company                                         |   | $                | 16,043.9 |             | $      | 16,013.1         |   | $ | 15,340.6 |   |
| Owned  by the Company – restricted due to securitization |   | 2,611.2          |     | 3,110.1          |   | 3,229.4          |   |
| Total  Receivables and Leases owned by the Company            |   | 18,655.1         |     | 19,123.2         |   | 18,570.0         |   |
| Administered  – with limited recourse*                   |   | 87.2             |     | 95.8             |   | 123.4            |   |
| Administered  – without recourse**                       |   | 28.6             |     | 32.6             |   | 45.5             |   |
| Total  Receivables and Leases administered                    |   | $                | 18,770.9 |             | $      | 19,251.6         |   | $ | 18,738.9 |   |

 

 
|   | *      | The Company’s  maximum exposure under all Receivable and Lease recourse provisions at  January 31, 2010, October 31, 2009 and January 31, 2009  was $7 million, $7 million, and $9 million, respectively. The Company does  not record the recourse obligations as liabilities as they are contingent  liabilities that are remote at this time. However, the probable loss on  Receivables and Leases that have been sold was accrued at the time of sale,  and any subsequent necessary adjustments are made as part of ongoing reviews. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | **     | Represents  Receivables and Leases that the Company has sold but continues to administer  for a fee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

 

17

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Total Receivable amounts 60 days or more past due inthe table below represent the amount of all customer payments past due 60 daysor more, by product, and as a percent of the respective receivables. They wereas follows (in millions of dollars):

 
|                                 |   | January 31, |   | October 31, |   | January 31, | ** ** |
|--------------------------------------|--------|------------------|--------|------------------|--------|------------------|------------|
|                                 |   | 2010             |   | 2009             |   | 2009             | ** ** |
|                                 |   | Dollars          |   | Percent          |   | Dollars          |       | Percent |   | Dollars |   | Percent | ** ** |
| Retail  notes:                       |   |             |   |             |   |             |       |   |   |   |   |   |   |
| Agriculture  and turf equipment      |   | $                | 28.2   |             | .29    | %                |       | $ | 27.3 |   | .27 | % |   | $ | 17.7 |   | .19 | % |   |
| Construction  and forestry equipment |   | 4.8              |   | .37              |   |             | 10.7       |   | .77 |   |   | 10.3 |   | .56 |   |   |
| Recreational  products               |   |             |   |             |   |             |       |   |   |   |   |   |   |   |   |   |
| Total  retail notes                  |   | 33.0             |   | .30              |   |             | 38.0       |   | .33 |   |   | 28.0 |   | .25 |   |   |
| Revolving  charge accounts*          |   | 20.2             |   | 1.13             |   |             | 19.8       |   | .90 |   |   | 21.5 |   | 1.35 |   |   |
| Operating  loans                     |   |             |   |             |   |             |       |   |   |   |   | .9 |   | .22 |   |   |
| Wholesale  receivables               |   | 2.1              |   | .05              |   |             | 1.6        |   | .04 |   |   | 3.6 |   | .09 |   |   |
| Financing  leases                    |   | 5.0              |   | 1.33             |   |             | 6.0        |   | 1.53 |   |   | 5.2 |   | 1.36 |   |   |
| Total  Receivables                   |   | $                | 60.3   |             | .34    | %                |       | $ | 65.4 |   | .36 | % |   | $ | 59.2 |   | .34 | % |   |

 

*                               Due to the nature of revolving chargeaccounts, the customer payments past due 60 days or more also represent thetotal balance.

 

The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer who has any portion of their note 60days or more past due. These amounts were $238 million, $301 million and $214million at January 31, 2010, October 31, 2009 and January 31,2009, respectively. The balances of retail notes held on which any installmentwas 60 days or more past due as a percentage of the ending retail notesreceivable was 2.15 percent, 2.66 percent and 1.94 percent at January 31,2010, October 31, 2009 and January 31, 2009, respectively.

 

Total non-performing Receivables, which representloans the Company has ceased accruing interest for, by product, and as apercent of the respective receivables were as follows (in millions of dollars):

 
|                                 |   | January 31, |   | October 31, |   | January 31, | ** ** |
|--------------------------------------|--------|------------------|--------|------------------|--------|------------------|------------|
|                                 |   | 2010             |   | 2009             |   | 2009             | ** ** |
|                                 |   | Dollars          |   | Percent          |   | Dollars          |       | Percent |   | Dollars |   | Percent | ** ** |
| Retail notes:                        |   |             |   |             |   |             |       |   |   |   |   |   |   |
| Agriculture and turf  equipment      |   | $                | 50.2   |             | .51    | %                |       | $ | 50.1 |   | .50 | % |   | $ | 22.2 |   | .24 | % |   |
| Construction and  forestry equipment |   | 33.1             |   | 2.58             |   |             | 33.2       |   | 2.40 |   |   | 16.5 |   | .90 |   |   |
| Recreational products                |   | .1               |   | 1.69             |   |             | .1         |   | 1.61 |   |   | .2 |   | 2.35 |   |   |
| Total retail notes                   |   | 83.4             |   | .75              |   |             | 83.4       |   | .74 |   |   | 38.9 |   | .35 |   |   |
| Revolving charge  accounts           |   | 1.0              |   | .06              |   |             | 1.1        |   | .05 |   |   | .8 |   | .05 |   |   |
| Operating loans                      |   | 9.6              |   | 4.14             |   |             | 35.9       |   | 12.09 |   |   | 33.9 |   | 8.26 |   |   |
| Wholesale receivables                |   | 8.8              |   | .21              |   |             | 9.2        |   | .24 |   |   | .4 |   | .01 |   |   |
| Financing leases                     |   | 15.0             |   | 3.99             |   |             | 16.6       |   | 4.23 |   |   | 14.1 |   | 3.68 |   |   |
| Total Receivables                    |   | $                | 117.8  |             | .66    | %                |       | $ | 146.2 |   | .81 | % |   | $ | 88.1 |   | .50 | % |   |

 

 

18

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Total Receivable write-off amounts, net of recoveries,by product, and as an annualized percentage of average balances held during theperiod, were as follows (in millions of dollars):

 
|                                 |   | Three Months  Ended |   | Three Months  Ended |   |
|--------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                 |   | January 31,    |   | January 31,    |   |
|                                 |   | 2010                |   | 2009                |   |
|                                 |   | Dollars             |   | Percent             |   | Dollars |   | Percent |   |
| Retail notes:                        |   |                |   |                |   |   |   |   |   |
| Agriculture and turf  equipment      |   | $                   | 1.3    |                |   | .05 | % |   | $ | .8 |   |   | .03 | % |   |
| Construction and  forestry equipment |   | 13.2                |   |                | 3.97   |   |   | 14.6 |   |   | 3.02 |   |   |
| Recreational products                |   |                |   |                |   |   |   | .4 |   |   | 17.64 |   |   |
| Total retail notes                   |   | 14.5                |   |                | .51    |   |   | 15.8 |   |   | .54 |   |   |
| Revolving charge  accounts           |   | 9.1                 |   |                | 1.85   |   |   | 9.9 |   |   | 2.36 |   |   |
| Operating loans                      |   | 13.0                |   |                | 19.74  |   |   | (.4 | ) |   | (.43 | ) |   |
| Wholesale receivables                |   | (1.4                | )      |                | (.14   | ) |   | .3 |   |   | .03 |   |   |
| Financing leases                     |   | .6                  |   |                | .62    |   |   | 1.0 |   |   | .98 |   |   |
| Total Receivables                    |   | $                   | 35.8   |                |   | .80 | % |   | $ | 26.6 |   |   | .60 | % |   |
|                                      |        |                     |        |                     |        |  |  |  |  |  |  |  |  |  |  |  |

 

The increase in operating loans write-offs during thefirst quarter of 2010 was due to a turf equipment customer that had beencarried as a non-performing operating loan since the third quarter of 2008.Loan-loss provisions for estimated uncollectible amounts were recorded in prioryears. No additional loan-loss provisions were recorded in the current year.

 

Deposits withheld from dealers and merchants,representing mainly the aggregate dealer retail note and lease withholdingaccounts from individual John Deere dealers to which losses from retail notesand leases originating from the respective dealers can be charged, amounted to$159 million at January 31, 2010 compared with $165 million at October 31,2009 and $166 million at January 31, 2009.

 

The Company’s allowance for credit losses on allReceivables financed totaled $145 million at January 31, 2010,$158 million at October 31, 2009 and $111 million at January 31,2009. The allowance for credit losses represented .82 percent of the totalReceivables financed at January 31, 2010, .87 percent at October 31,2009 and .63 percent at January 31, 2009. The level of the allowance isbased on many quantitative and qualitative factors, including historical lossexperience by product category, portfolio duration, delinquency trends,economic conditions and credit risk quality. The Company believes its allowanceis sufficient to provide for losses in its existing receivable portfolio.

 

Safe Harbor Statement

 

*Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995:*Statements under “Overview” and otherforward-looking statements herein that relate to future events, expectationsand operating periods involve certain factors that change, and are subject toimportant risks and uncertainties that could cause actual results to differmaterially.

 

Factors that could materially affect the Company’sresults include changing worldwide economic conditions, and changes in and theimpact of government trade, banking monetary and fiscal policies, includingfinancial regulatory reform. Actions by the U.S. Federal Reserve Board, the FDICand other central banks may affect the costs and expenses of financing theCompany and the rates it is able to offer. The Company’s business is affectedby general economic conditions in and the political instability of the globalmarkets in which the Company operates because deteriorating economic conditionsand political instability can result in decreased customer confidence, lowerdemand for equipment, higher loan losses and greater currency risk. TheCompany’s business is also affected by actions of banks, financing and leasingcompanies and other lenders that compete with the Company for customers;capital market disruptions; significant changes in capital market liquidity andassociated funding costs; interest rates and foreign currency exchange rates;and the credit market crisis.

 

 

19

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With respect tothe global economic downturn and expected slow recovery, changes ingovernmental banking, monetary and fiscal policies to restore liquidity andincrease the availability of credit may not be effective and could have amaterial impact on the Company’s customers and markets.  Significant changes in market liquidityconditions could impact access to funding and associated funding costs, whichcould reduce the Company’s earnings and cash flows. Current market conditionscould also negatively impact customer access to capital for purchase of JohnDeere’s products; borrowings and repayment practices; and the number and sizeof customer loan delinquencies and defaults. A sovereign debt crisis, in Europeor elsewhere, could negatively impact currencies, global financial markets,social and political stability, funding sources and costs, customers, andCompany operations and results. The Company’s operations could be impaired bychanges in the equity and bond markets, which could negatively affect earnings.

 

The currenteconomic downturn has adversely affected the financial industry in which theCompany operates. The Company’s liquidity and ongoing profitability dependlargely on timely access to capital to meet future cash flow requirements andfund operations and the costs associated with engaging in diversified fundingactivities. If market volatility continues or worsens, funding could beunavailable or insufficient. Additionally, under current market conditionscustomer confidence levels may result in declines in credit applications andincreases in delinquencies and default rates, which could materially impact theCompany’s write-offs and provision for credit losses.

 

In addition, theCompany’s business is closely related to John Deere’s business. Furtherinformation, including factors that potentially could materially affect theCompany’s and John Deere’s financial results, is included in the most recentDeere & Company Form 10-K and Form 10-Q (including, but notlimited to, the factors discussed in Item 1A. Risk Factors of the Form 10-K)and other Deere & Company and Capital Corporation filings with theU.S. Securities and Exchange Commission.

 

Critical AccountingPolicies

 

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

 

Capital Resources andLiquidity

 

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

 

During the first threemonths of 2010, the aggregate net cash provided by operating, investing andfinancing activities was used primarily to increase cash and cash equivalents.Net cash provided by operating activities was $181 million in the firstthree months of 2010. Net cash provided by investing activities totaled$241 million in the first three months of 2010, primarily due to thecollection of Receivables and Leases and proceeds from sales of equipment onoperating leases exceeding the cost of Receivables and Leases acquired. Netcash provided by financing activities totaled $268 million in the firstthree months of 2010, resulting primarily from a net increase in total externalborrowings, partially offset by a dividend paid to John Deere Credit Company,which in turn paid a comparable dividend to Deere & Company. Cash andcash equivalents increased $688 million during the first three months of2010.

 

During the first threemonths of 2009, the aggregate net cash provided by operating, investing andfinancing activities was used primarily to increase cash and cash equivalents.Net cash provided by operating activities was $53 million in the firstthree months of 2009. Net cash provided by investing activities totaled$209 million in the first three months of 2009, primarily due to thecollection of Receivables and Leases exceeding the cost of Receivables andLeases acquired. Net cash provided by financing activities totaled$1,661 million in the first three months of 2009, resulting primarily froma net increase in total external borrowings. Cash and cash equivalentsincreased $1,920 million during the first three months of 2009.

 

The financing of retailpurchases and leases of John Deere products and of wholesale receivables owedby John Deere dealers represented approximately 85 percent and 80 percent ofthe Company’s acquisition volume for the three months ended January 31,2010 and 2009, respectively. Any extended reduction or suspension of JohnDeere’s sale or production of products due to a decline in demand orproduction, governmental actions or other events could have an adverse effecton the Company’s acquisition volume of Receivables and Leases.

 

 

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The Company relies on itsability to raise substantial amounts of funds to finance its Receivable andLease portfolios. Given the downturn in global economic activity, there hasbeen a reduction in liquidity in some global markets that continues to affectthe funding activities of the Company. However, the Company has access to mostglobal markets at a reasonable cost and expects to have sufficient sources ofglobal funding and liquidity to meet its funding needs. The Company’s abilityto meet its debt obligations is supported in a number of ways. The assets ofthe Company are self-liquidating in nature. A solid equity position isavailable to absorb unusual losses on these assets and all commercial paper isbacked by unsecured, committed borrowing lines from various banks. Liquidity isalso provided by the Company’s ability to securitize these assets and throughthe issuance of term debt. Additionally, liquidity may be provided throughloans from John Deere. The Company’s commercial paper outstanding at January 31,2010, October 31, 2009 and January 31, 2009 was approximately $1,065million, $32 million and $1,048 million, respectively, while the totalcash and cash equivalents position was approximately $1,559 million,$871 million and $3,002 million, respectively.

 

During November 2009,the Capital Corporation renewed a new revolving credit agreement to utilizebank conduit facilities to securitize retail notes (see Note 4). At January 31,2010, this facility had a total capacity, or “financing limit,” of up to$1,500 million of secured financings at any time. After a 364 dayrevolving period, unless the banks and Capital Corporation agree to renew foran additional 364 days, Capital Corporation would liquidate the securedborrowings over time as payments on the retail notes are collected. At January 31,2010, $1,081 million of secured short-term borrowings was outstanding under theagreement. 

 

During the first threemonths of 2010, the Company issued $60 million of medium-term notes andmaintained an average commercial paper balance of $205 million. At January 31,2010, the Company’s funding profile included $1,065 million of commercialpaper, $2,655 million of notes payable related to on-balance sheetsecuritization funding, $14,911 million of unsecured term debt, and $2,301million of equity capital. The Company’s funding profile may be altered toreflect such factors as relative costs of funding sources, assets available forsecuritizations and capital market accessibility. 

 

During the first threemonths of 2010, the Company issued $60 million and retired $279 million oflong-term borrowings which were primarily medium-term notes.

 

Total interest-bearingindebtedness amounted to $18,633 million at January 31, 2010, comparedwith $18,411 million at October 31, 2009, and $20,413 million atJanuary 31, 2009. Included in this debt are secured borrowings of$2,655 million, $3,109 million and $3,240 million for the same periods(see Note 4). Total external borrowings increased during the first three monthsof 2010 and decreased in the past 12 months, generally corresponding with thelevel of cash and cash equivalents, the level of the Receivable and Leaseportfolio and the change in payable to/receivable from John Deere. Totalshort-term indebtedness amounted to $6,425 million at January 31, 2010,which included $2,655 million of secured borrowings, compared with $5,711million at October 31, 2009, which included $3,109 million of securedborrowings and $7,153 million at January 31, 2009, which included$3,240 million of secured borrowings, while total long-term indebtednessamounted to $12,207 million, $12,701 million and $13,260 million at these dates,respectively. The ratio of total interest-bearing debt, includingsecuritization indebtedness, to stockholder’s equity was 8.1 to 1 at January 31,2010, compared with 7.9 to 1 at October 31, 2009 and 9.9 to 1 at January 31,2009.

 

Stockholder’s equity was$2,301 million at January 31, 2010, compared with $2,317 million at October 31,2009 and $2,059 million at January 31, 2009. The decrease in the firstthree months of 2010 resulted primarily from a dividend payment of $70 millionand a decrease in the cumulative translation adjustment of $17 million, whichwas partially offset by net income attributable to the Company of$64 million and a $6 million unrealized gain on derivatives.

 

*Lines ofCredit*

 

The Company also hasaccess to bank lines of credit with various banks throughout the world. Some ofthe lines are available to both the Company and Deere & Company.Worldwide lines of credit totaled $4,501 million at January 31, 2010,$3,169 million of which was unused. For thepurpose of computing unused credit lines, commercial paper and short-term bankborrowings, excluding secured borrowings and the current portion of long-termborrowings, of the Company and Deere & Company were primarilyconsidered to constitute utilization. Included in the total credit linesat January 31, 2010 was the long-term credit facility agreement of $3,750million, expiring in February 2012. The credit agreement requires theCompany to maintain its consolidated ratio of earnings to fixed charges at notless than 1.05 to 1 for each fiscal quarter and its ratio of senior debt,excluding securitization indebtedness, to capital base (total subordinated debtand total Company stockholder’s equity excluding accumulated othercomprehensive income (loss)) at not more than 11 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.

 

 

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*DebtRatings*

 

The Company’s ability toobtain funding is affected by its debt ratings, which are closely related tothe outlook for and the financial condition of John Deere, and the nature andavailability of support facilities, such as its lines of credit and the supportagreement from Deere & Company.

 

To access public debtcapital markets, the Company relies on credit rating agencies to assignshort-term and long-term credit ratings to the Company’s securities as anindicator of credit quality for fixed income investors. A credit rating agencymay change or withdraw Company ratings based on its assessment of the Company’scurrent and future ability to meet interest and principal repaymentobligations. Each agency’s rating should be evaluated independently of anyother rating. Lower credit ratings generally result in higher borrowing costsand reduced access to debt capital markets.

 

The senior long-term andshort-term debt ratings and outlook currently assigned to unsecured Companysecurities by the rating agencies engaged by the Company are the same as thosefor John Deere. Those ratings are as follows:

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

 

*Dividends*

 

The Capital Corporationdeclared and paid a cash dividend to John Deere Credit Company of $70 millionin the first three months of fiscal 2010. John Deere Credit Company paid acomparable dividend to Deere & Company.

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

 

See the Company’s mostrecent annual report filed on Form 10-K (Part II, Item 7A). There hasbeen no material change in this information.

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

 

The Company’s principal executive officer and itsprincipal financial officer have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended (“the Act”)) were effective asof January 31, 2010, based on the evaluation of these controls andprocedures required by Rule 13a-15(b) or 15d-15(b) of the Act.During the first quarter, there were no changes that have materially affectedor are reasonably likely to materially affect the Company’s internal controlover financial reporting.

 

 

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| PART II.  OTHER INFORMATION |
|--------------------------------------------|
|                                       |   |
| Item 1.                                    | Legal  Proceedings. |
|                                       |   |
|                                       | The Company is  subject to various unresolved legal actions which arise in the normal course  of its business, the most prevalent of which relate to state and federal laws  and regulations concerning retail credit. Although it is not possible to  predict with certainty the outcome of these unresolved legal actions or the  range of possible loss, the Company believes these unresolved legal actions  will not have a material effect on its consolidated financial statements. |
|                                       |   |
| Item 1A.                                   | Risk Factors. |
|                                       |   |
|                                       | See the  Company’s most recently filed annual report on Form 10-K (Part I,  Item 1A). There has been no material change in this information. |
|                                       |   |
| Item 2.                                    | Unregistered  Sales of Equity Securities and Use of Proceeds. |
|                                       |   |
|                                       | Omitted pursuant  to instruction H. |
|                                       |   |
| Item 3.                                    | Defaults Upon  Senior Securities. |
|                                       |   |
|                                       | Omitted pursuant  to instruction H. |
|                                       |   |
| Item 4.                                    | Submission of  Matters to a Vote of Security Holders. |
|                                       |   |
|                                       | Omitted pursuant  to instruction H. |
|                                       |   |
| Item 5.                                    | Other  Information. |
|                                       |   |
|                                       | None. |
|                                       |   |
| Item 6.                                    | Exhibits. |
|                                       |   |
|                                       | See the index to  exhibits immediately preceding the exhibits filed with this report. |
|                                       |   |
|                                       | Certain  instruments relating to long-term debt, constituting less than 10% of the  registrant’s total assets, are not filed as exhibits herewith pursuant to  Item 601(b)(4)(iii)(A) of Regulation S-K.  The registrant will file copies of such  instruments upon request of the Commission. |

 

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |               | JOHN DEERE CAPITAL  CORPORATION |
|--------|--------------------|---------------------------------|
|   |               |                            |   |
|   |               |                            |   |
| Date:  | March 1, 2010 |                            | By: | */s/ J. M. Field* |
|   |               |                            | J. M. Field   Senior Vice President,   Principal Financial Officer |
|        |                    |                                 |  |  |

 

 

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INDEX TO EXHIBITS

 
| Exhibit                                                                                                                                  |                                                                                                                                                                                                |
|------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                     |                                                                                                                                                                                                |
| 3.1                                                                                                                                      | Certificate of  Incorporation, as amended (Exhibit 3.1 to Form 10-K of the registrant  for the year ended October 31, 1999, Securities and Exchange Commission  file number 1-6458*) |
|                                                                                                                                     |                                                                                                                                                                                                |
| 3.2                                                                                                                                      | Bylaws, as amended (Exhibit 3.2 to Form 10-K  of the registrant for the year ended October 31, 1999, Securities and  Exchange Commission file number 1-6458*)                        |
|                                                                                                                                     |                                                                                                                                                                                                |
| 12                                                                                                                                       | Computation  of Ratio of Earnings to Fixed Charges                                                                                                                                                  |
|                                                                                                                                     |                                                                                                                                                                                                |
| 31.1                                                                                                                                     | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|                                                                                                                                     |                                                                                                                                                                                                |
| 31.2                                                                                                                                     | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                    |
|                                                                                                                                     |                                                                                                                                                                                                |
| 32                                                                                                                                       | Section 1350  Certifications                                                                                                                                                                   |
|                                                                                                                                     |                                                                                                                                                                                                |
| 99                                                                                                                                       | Part I of Deere & Company Form 10-Q  for the quarter ended January 31, 2010                                                                                            |
|                                                                                                                                     |  (Securities and Exchange Commission file  number 1-4121*)                                                                                                                                     |
|                                                                                                                                     |                                                                                                                                                                                                |
|                                                                                                                                     |                                                                                                                                                                                                |
| *      Incorporated by  reference.  Copies of these exhibits  are available from the Company upon request. |

 

 

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