x

 

**UNITEDSTATESSECURITIES AND 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 THESECURITIES EXCHANGE ACT OF 1934

 

**For thequarterly period ended January 31, 2009**

 

Commission fileno: 1-6458

** **

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## **JOHN DEERE CAPITALCORPORATION**

 
| **Delaware**              | **36-2386361**                     |
|---------------------------|------------------------------------|
| (State of  Incorporation) | (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 markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports) and (2) has been subject to such filing requirementsfor the past 90 days.
| Yes | X |   No |   |   |
|-----|---|-----------|--------|--------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-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 markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).
| Yes | ** ** |   No | X |   |
|-----|------------|-----------|---|--------|

 

At January 31, 2009,2,500 shares of common stock, without par value, of the registrant were outstanding,all of which were owned by John Deere Credit Company, a wholly-owned subsidiaryof Deere & Company.

 

The registrant meets theconditions set forth in General Instruction H(1)(a) and (b) ofForm 10-Q and is therefore filing this Form with certain reduceddisclosures as permitted by those instructions.

 

 

 

 

Index to Exhibits:Page 23

 

 

PART I.  FINANCIALINFORMATION

 

Item 1.                       FinancialStatements.

 

**JohnDeere Capital Corporation and Subsidiaries**

**Statementsof Consolidated Income and Retained Earnings**

**For theThree Months Ended January 31, 2009 and 2008**

**(Unaudited)**

(in millions)

 
| ** **                                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| **Revenues**                                          |       |     |       |     |       |
| Finance income  earned on retail notes                |       | $        | 197.8      |     | $          | 222.8 |   |
| Lease revenues                                        |       | 82.0     |       | 83.4     |       |
| Revolving charge  account income                      |       | 50.7     |       | 50.8     |       |
| Finance income  earned on wholesale receivables       |       | 63.8     |       | 77.5     |       |
| Operating loan  income                                |       | 3.8      |       | 6.8      |       |
| Income on  receivables sold                           |       | .4       |       | 2.4      |       |
| Crop insurance  commissions                           |       | 6.6      |       | 29.0     |       |
| Other income                                          |       | 32.5     |       | 23.8     |       |
| Total revenues                                        |       | 437.6    |       | 496.5    |       |
| **Expenses**                                          |       |     |       |     |       |
| Interest expense                                      |       | 207.3    |       | 223.6    |       |
| Operating  expenses:                                  |       |     |       |     |       |
| Administrative  and operating expenses                |       | 86.1     |       | 79.7     |       |
| Provision for  credit losses                          |       | 32.4     |       | 15.1     |       |
| Fees paid to  John Deere                              |       | 9.3      |       | 9.1      |       |
| Depreciation of  equipment on operating leases        |       | 54.0     |       | 54.8     |       |
| Total operating  expenses                             |       | 181.8    |       | 158.7    |       |
| Total expenses                                        |       | 389.1    |       | 382.3    |       |
| **Income  of consolidated group before income taxes** |       | 48.5     |       | 114.2    |       |
| **Provision  for income taxes**                       |       | 13.7     |       | 37.2     |       |
| **Income  of consolidated group**                     |       | 34.8     |       | 77.0     |       |
| **Equity  in income of unconsolidated affiliates**    |       | .2       |       | .2       |       |
| **Net  income**                                       |       | 35.0     |       | 77.2     |       |
| **Dividends  paid**                                   |       |     |       | (140.0   | )          |
| **Retained  earnings at beginning of period**         |       | 882.9    |       | 1,065.6  |       |
| **Retained  earnings at end of period**               |       | $        | 917.9      |     | $          | 1,002.8 |   |

 

See CondensedNotes to Interim Financial Statements.

 

2

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## **JohnDeere Capital Corporation and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                        | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                        | ** ** | **2009**             | ** ** | **2008**             | ** ** | **2008**             | ** ** |
| **Assets**                                                                                                        |       |                 |       |                 |       |                 |       |
| Cash and cash  equivalents                                                                                        |       | $                    | 3,002.3    |                 | $          | 1,082.6              |       | $ | 142.9 |   |
| Receivables:                                                                                                      |       |                 |       |                 |       |                 |       |
| Retail notes                                                                                                      |       | 7,766.6              |       | 10,136.6             |       | 9,763.7              |       |
| Restricted  securitized retail notes                                                                              |       | 3,229.4              |       | 1,592.5              |       | 1,845.9              |       |
| Revolving charge  accounts                                                                                        |       | 1,588.8              |       | 1,825.1              |       | 1,288.6              |       |
| Operating loans                                                                                                   |       | 410.6                |       | 357.9                |       | 412.0                |       |
| Wholesale  receivables                                                                                            |       | 4,202.5              |       | 3,570.6              |       | 3,670.2              |       |
| Financing leases                                                                                                  |       | 383.1                |       | 417.9                |       | 414.5                |       |
| Total  receivables                                                                                                |       | 17,581.0             |       | 17,900.6             |       | 17,394.9             |       |
| Allowance for  credit losses                                                                                      |       | (110.6               | )          | (105.2               | )          | (101.0               | )          |
| Total  receivables — net                                                                                     |       | 17,470.4             |       | 17,795.4             |       | 17,293.9             |       |
| Other  receivables                                                                                                |       | 50.6                 |       | 25.4                 |       | 46.6                 |       |
| Equipment on  operating leases — net                                                                         |       | 989.0                |       | 1,053.4              |       | 967.3                |       |
| Receivable from  John Deere                                                                                       |       | 111.2                |       |                 |       |                 |       |
| Notes receivable  from John Deere                                                                                 |       | 804.6                |       | 799.3                |       | 649.7                |       |
| Investment in  unconsolidated affiliates                                                                          |       | 5.6                  |       | 5.4                  |       | 5.6                  |       |
| Other assets                                                                                                      |       | 1,027.2              |       | 552.1                |       | 503.0                |       |
| **Total  Assets**                                                                                                 |       | $                    | 23,460.9   |                 | $          | 21,313.6             |       | $ | 19,609.0 |   |
| **Liabilities  and Stockholder’s Equity**                                                                    |       |                 |       |                 |       |                 |       |
| Short-term  borrowings:                                                                                           |       |                 |       |                 |       |                 |       |
| Commercial paper                                                                                                  |       | $                    | 1,048.4    |                 | $          | 2,814.5              |       | $ | 2,755.3 |   |
| Other notes  payable                                                                                              |       | 3,239.8              |       | 1,622.2              |       | 1,941.3              |       |
| John Deere                                                                                                        |       |                 |       | 315.6                |       | 80.4                 |       |
| Current  maturities of long-term borrowings                                                                       |       | 2,864.5              |       | 3,141.9              |       | 3,539.7              |       |
| Total short-term  borrowings                                                                                      |       | 7,152.7              |       | 7,894.2              |       | 8,316.7              |       |
| Accounts payable  and accrued expenses                                                                            |       | 764.4                |       | 583.4                |       | 505.7                |       |
| Deposits withheld  from dealers and merchants                                                                     |       | 166.2                |       | 173.5                |       | 175.0                |       |
| Deferred income  taxes                                                                                            |       | 58.8                 |       | 67.9                 |       | 34.1                 |       |
| Long-term  borrowings                                                                                             |       | 13,260.1             |       | 10,529.7             |       | 8,740.5              |       |
| Total  liabilities                                                                                                |       | 21,402.2             |       | 19,248.7             |       | 17,772.0             |       |
| Commitments and  contingencies (Note 4)                                                                           |       |                 |       |                 |       |                 |       |
| Stockholder’s  equity:                                                                                       |       |                 |       |                 |       |                 |       |
| Common stock,  without par value (issued and outstanding — 2,500 shares owned by John Deere  Credit Company) |       | 1,212.8              |       | 1,212.8              |       | 812.8                |       |
| Retained  earnings                                                                                                |       | 917.9                |       | 882.9                |       | 1,002.8              |       |
| Accumulated  other comprehensive income (loss):                                                                   |       |                 |       |                 |       |                 |       |
| Cumulative  translation adjustment                                                                                |       | .5                   |       | 9.2                  |       | 62.4                 |       |
| Unrealized gain  on investments                                                                                   |       |                 |       |                 |       | .5                   |       |
| Unrealized loss  on derivatives                                                                                   |       | (72.5                | )          | (40.0                | )          | (41.5                | )          |
| Total  accumulated other comprehensive income (loss)                                                              |       | (72.0                | )          | (30.8                | )          | 21.4                 |       |
| Total  stockholder’s equity                                                                                  |       | 2,058.7              |       | 2,064.9              |       | 1,837.0              |       |
| **Total  Liabilities and Stockholder’s Equity**                                                              |       | $                    | 23,460.9   |                 | $          | 21,313.6             |       | $ | 19,609.0 |   |

 

See CondensedNotes to Interim Financial Statements.

 

3

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## **JohnDeere Capital Corporation and Subsidiaries**

**Statementsof Consolidated Cash Flows**

**Forthe Three Months Ended January 31, 2009 and 2008**

**(Unaudited)**

(in millions)

 
| ** **                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Cash  Flows from Operating Activities:**                                         |       |     |       |     |       |
| Net income                                                                         |       | $        | 35.0       |     | $          | 77.2 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |     |       |     |       |
| Provision for  credit losses                                                       |       | 32.4     |       | 15.1     |       |
| Provision for  depreciation and amortization                                       |       | 55.6     |       | 56.1     |       |
| Provision for  deferred income taxes                                               |       | 7.9      |       | 3.6      |       |
| Undistributed  earnings of unconsolidated affiliates                               |       | (.2      | )          | (.2      | )          |
| Change in  accounts payable and accrued expenses                                   |       | 17.4     |       | (38.2    | )          |
| Change in  accrued income taxes payable/receivable                                 |       | (4.0     | )          | 7.8      |       |
| Other                                                                              |       | (91.1    | )          | (36.3    | )          |
| Net cash  provided by operating activities                                         |       | 53.0     |       | 85.1     |       |
|                                                                               |       |     |       |     |       |
| **Cash  Flows from Investing Activities:**                                         |       |     |       |     |       |
| Cost of  receivables acquired                                                      |       | (6,984.1 | )          | (6,090.8 | )          |
| Collections of  receivables                                                        |       | 7,181.4  |       | 6,416.1  |       |
| Cost of  equipment on operating leases acquired                                    |       | (83.6    | )          | (91.0    | )          |
| Proceeds from  sales of equipment on operating leases                              |       | 89.1     |       | 68.0     |       |
| Cost of notes  receivable with John Deere                                          |       | (78.4    | )          | (152.7   | )          |
| Collection of  notes receivable with John Deere                                    |       | 73.1     |       | 89.5     |       |
| Proceeds from  sales of receivables                                                |       | 9.2      |       | 15.5     |       |
| Change in  restricted cash                                                         |       | (30.1    | )          | 1.6      |       |
| Other                                                                              |       | 32.0     |       | (2.4     | )          |
| Net cash  provided by investing activities                                         |       | 208.6    |       | 253.8    |       |
|                                                                               |       |     |       |     |       |
| **Cash  Flows from Financing Activities:**                                         |       |     |       |     |       |
| Increase  (decrease) in commercial paper - net                                     |       | (1,684.9 | )          | 63.8     |       |
| Increase  (decrease) in other notes payable - net                                  |       | 1,617.9  |       | (257.7   | )          |
| Change in  receivable from/payable to John Deere - net                             |       | (427.3   | )          | (47.4    | )          |
| Proceeds from  issuance of long-term borrowings                                    |       | 2,783.4  |       | 852.3    |       |
| Payments of  long-term borrowings                                                  |       | (537.4   | )          | (856.5   | )          |
| Dividends paid                                                                     |       |     |       | (140.0   | )          |
| Debt issuance  costs                                                               |       | (91.0    | )          | (3.5     | )          |
| Net cash  provided by (used for) financing activities                              |       | 1,660.7  |       | (389.0   | )          |
|                                                                               |       |     |       |     |       |
| **Effect  of exchange rate changes on cash and cash equivalents**                  |       | (2.6     | )          | 2.2      |       |
| **Net  increase (decrease) in cash and cash equivalents**                          |       | 1,919.7  |       | (47.9    | )          |
| **Cash  and cash equivalents at beginning of period**                              |       | 1,082.6  |       | 190.8    |       |
| **Cash  and cash equivalents at end of period**                                    |       | $        | 3,002.3    |     | $          | 142.9 |   |

 

See CondensedNotes to Interim Financial Statements.

 

4

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| **John Deere Capital Corporation and  Subsidiaries** |
|------------------------------------------------------|
| **Condensed Notes 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. 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 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 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. |
|                                                 |   |
| (2)

                                           | The  Company provides and administers financing for retail purchases of new  equipment manufactured by Deere & Company’s agricultural equipment,  commercial and consumer equipment 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 agricultural, commercial and consumer 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, through direct relationships with  agricultural producers or through agribusinesses (operating loans). The  Company also provides wholesale financing for inventories of John Deere  agricultural, commercial and consumer 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.” |
|                                                 |   |
| (3)                                                  | Comprehensive  income, which includes all changes in the Company’s equity during the period  except transactions with the stockholder, was as follows (in millions of  dollars): |

 
| ** **                                      | ** ** | **Three Months Ended January 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                      | ** ** | **2009**                                               | ** ** | **2008** | ** ** |
| Net Income                                      |       | $                                                      | 35.0       |   | $ | 77.2 |   |
|                                            |       |                                                   |       |   |   |
| Other  comprehensive income (loss), net of tax: |       |                                                   |       |   |   |
| Change in  cumulative translation adjustment    |       | (8.7                                                   | )          | .7 |   |
| Unrealized loss  on investments                 |       |                                                   |       | (.7 | ) |
| Unrealized loss  on derivatives                 |       | (32.5                                                  | )          | (33.2 | ) |
| Total  comprehensive income (loss)              |       | $                                                      | (6.2       | ) | $ | 44.0 |   |

 

5

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| (4)    | Commitments and contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | At  January 31, 2009, John Deere Credit Inc., the John Deere finance  subsidiary in Canada, had $134 million of commercial paper and $1,308  million of medium-term notes outstanding that were guaranteed by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | At  January 31, 2009, the Company had $63 million of guarantees issued to  turbine manufacturers for John Deere Renewables, LLC wind turbine purchases.  John Deere Renewables, LLC is an affiliated company that has commitments to  purchase wind turbines related to its direct investments in wind energy  projects. At January 31, 2009, the maximum remaining term of these  purchase commitments was approximately one year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 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, 2009, the maximum exposure for  uncollected premiums was approximately $17 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 $20 million  at January 31, 2009. The Company believes that the likelihood of the  occurrence of events that give rise to the exposures under these Agreements  is substantially remote and as a result, at January 31, 2009, 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 $3.1 billion at January 31, 2009. The  amount of unused commitments to extend credit to customers was  $49.4 billion at January 31, 2009. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | At  January 31, 2009, the Company had restricted other assets of $39  million. See Note 5 for additional restricted assets associated with  borrowings related to securitizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | The  Company also had other miscellaneous contingent liabilities totaling  approximately $4 million at January 31, 2009, for which it believes the  probability for payment is substantially remote. The accrued liability for  these contingencies was not material at January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (5)    | 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 did not meet the criteria of sales  in accordance with Financial Accounting Standards Board (FASB) Statement No. 140,  Accounting for Transfers and Servicing of Financial Assets and Extinguishment  of Liabilities, and are, therefore, accounted for as secured borrowings. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

6

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|       | 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 as shown in the table below. 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 as shown in  the following table. The SPEs supporting the secured borrowings to which the  retail notes are transferred are consolidated unless the Company is not the  primary beneficiary in accordance with FASB Interpretation (FIN) No. 46  (revised December 2003), Consolidation of Variable Interest Entities. No  additional support to these SPEs beyond what was previously contractually  required has been provided during the first quarter of 2009.                                                                                                                                                                                                                               |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|       | 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 $1,517 million, $1,303 million and $1,325 million at January 31,  2009, October 31, 2008 and January 31, 2008, respectively. The  liabilities (other notes payable and accounts payable and accrued expenses)  of these SPEs totaled $1,518 million, $1,287 million and $1,352 million  at January 31, 2009, October 31, 2008 and January 31, 2008,  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 $1,783 million,  $334 million and $554 million at January 31, 2009, October 31,  2008 and January 31, 2008, respectively. The liabilities (other notes  payable and accounts payable and accrued expenses) related to these conduits  were $1,726 million, $334 million and $574 million at January 31,  2009, October 31, 2008 and January 31, 2008, 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, 2009** | ** ** | ** ** |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   |   |   |
|       | Carrying value  of liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $ | 1,725.8 |   |   |
|       | Maximum exposure  to loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | 1,783.1 |   |   |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|       | The  assets of unconsolidated conduits related to securitizations in which the  Company’s variable interests were considered significant were approximately  $39 billion at January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |  |  |  |  |

 

7

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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,  2009** | ** ** | **October 31,  2008** | ** ** | **January 31,  2008** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Restricted  securitized retail notes |       | $                          | 3,229.4    |                       | $          | 1,592.5                    |       | $ | 1,845.9 |   |
| Allowance for  credit losses         |       | (12.0                      | )          | (10.9                      | )          | (10.6                      | )          |
| Other assets                         |       | 82.1                       |       | 55.0                       |       | 43.6                       |       |
| Total restricted  securitized assets |       | $                          | 3,299.5    |                       | $          | 1,636.6                    |       | $ | 1,878.9 |   |

 
|   | The components of consolidated secured borrowings  and other liabilities related to securitizations were as follows (in millions  of dollars): |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                                                  | ** ** | **January 31,  2009** | ** ** | **October 31,  2008** | ** ** | **January 31,  2008** | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| Other notes  payable                                        |       | $                          | 3,239.8    |                       | $          | 1,618.3                    |       | $ | 1,923.4 |   |
| Accounts payable  and accrued expenses                      |       | 4.2                        |       | 3.0                        |       | 2.8                        |       |
| Total  liabilities related to restricted securitized assets |       | $                          | 3,244.0    |                       | $          | 1,621.3                    |       | $ | 1,926.2 |   |

 
|   | 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, 2009, the maximum  remaining term of all restricted receivables was approximately six years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (6)    | Assets and liabilities measured at fair value on a  recurring basis were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 
| ** **                              | ** ** | **January 31, 2009** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **Total**                      | ** ** | **Level 2** | ** ** |
| Other assets                            |       |                           |       |   |   |
| Derivatives:                            |       |                           |       |   |   |
| Interest rate  contracts                |       | $                              | 583.0      |   | $ | 583.0 |   |
| Foreign exchange  contracts             |       | 16.6                           |       | 16.6 |   |
| Cross-currency  interest rate contracts |       | 14.3                           |       | 14.3 |   |
| Total assets                            |       | $                              | 613.9      |   | $ | 613.9 |   |
|                                    |       |                           |       |   |   |
| Accounts payable  and accrued expenses  |       |                           |       |   |   |
| Derivatives:                            |       |                           |       |   |   |
| Interest rate  contracts                |       | $                              | 183.6      |   | $ | 183.6 |   |
| Foreign exchange  contracts             |       | 6.5                            |       | 6.5 |   |
| Cross-currency  interest rate contracts |       | 25.4                           |       | 25.4 |   |
| Total  liabilities                      |       | $                              | 215.5      |   | $ | 215.5 |   |

 
|   | Financial  assets measured at fair value on a nonrecurring basis and the losses during  the period were as follows (in millions of dollars): |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **  | ** ** | ** **                     | ** ** | ** **                     | ** ** | **Three Months Ended** | ** ** |
|-------------|------------|--------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **  | ** ** | **January 31, 2009** | ** ** | **January 31, 2009** | ** ** |
| ** **  | ** ** | **Total**                      | ** ** | **Level 3**               | ** ** | **Losses**                       | ** ** |
| Receivables |       | $                              | 15.8       |                           | $          | 15.8                             |       | $ | 5.0 |   |
|             |            |                                |            |                                |            |                                  |            |  |  |  |

 

8

----

 
|   | 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, 2009.                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | FASB  Statement No. 157, Fair Value Measurements, defines fair value 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | *Derivative Instruments —*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 for the underlying collateral. The related  credit allowances represent cumulative adjustments to measure those specific  receivables at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (7)    | 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 derivative is terminated,  hedge accounting is discontinued. Any past or future changes in the  derivative’s fair value that 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 if certain value or ratings thresholds  are exceeded. For some transactions, the counterparty may request posting of  full collateral if the Company’s debt rating were to fall below investment  grade. At January 31, 2009, there were no aggregate derivative positions  requiring the posting of collateral.                                                                                                                                                                                                                                                                                                                                                                                                      |

 

9

----

 
|   | 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 $614 million as of January 31, 2009. The amount of  collateral received at January 31, 2009 to offset this potential maximum  loss was $39 million. 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 $158  million as of January 31, 2009. None of the concentrations of risk with  any individual counterparty was considered significant at January 31,  2009. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Cash  flow hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Certain  interest rate contracts (swaps) were designated as hedges of future cash  flows from variable interest rate borrowings. The total notional amount of  these receive-variable/pay-fixed interest rate contracts at January 31,  2009 was $3,694 million. 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 as payments were  accrued and the contracts approach maturity. These amounts offset the effects  of interest rate 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 and no components were  excluded from the assessment of effectiveness. The cash flows from these  contracts were recorded in operating activities in the consolidated statement  of cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The  amount of loss recorded in other comprehensive income at January 31,  2009 that is expected to be reclassified to interest expense in the next  twelve months if interest rates remain unchanged is approximately $16 million  after-tax. These contracts mature in up to 28 months. There were no significant  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, 2009  was $4,443 million. 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 on these interest rate contracts designated as hedges were recognized  currently in interest expense and no components were excluded from the assessment  of effectiveness. The ineffective portions totaled a $3 million gain in the  first quarter of 2009. The cash flows from these contracts were recorded in  operating activities in the consolidated statement of cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 
| **Classification**           | ** ** | **Gains or (Losses)  On Swaps** | ** ** | **Gains or (Losses)  On Borrowings** | ** ** |
|------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------------|------------|
|                         |       |                                           |       |                                                |       |
| Interest expense  (millions) |       | $                                              | 271.1      |                                                | $          | (313.1 | ) |
|                              |            |                                                |            |                                                     |            |  |  |

 
|   | 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 under FASB  Statement No. 133, Accounting for Derivative Instruments and Hedging  Activities. These derivatives were held as economic hedges for underlying  interest rate or foreign currency exposures primarily for certain borrowings.  The total notional amount of the interest rate swaps was $1,355 million, the  foreign exchange contracts was $726 million and the cross-currency interest  rate contracts was $848 million at January 31, 2009. There were also  $1,862 million of interest rate caps purchased and $1,862 million sold at the  same capped interest rate to facilitate borrowings through securitization of  retail notes at January 31, 2009. 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 |

 

10

----

 
|   | 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 statement of cash flows. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                     |
|   | Fair  values of derivative instruments in the consolidated balance sheet were as  follows (in millions of dollars):                                                                                                                                                      |

 
| ** **                              | ** ** | **January 31, 2009** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **Other  Assets**              | ** ** | **Accounts Payable  and Accrued  Expenses** | ** ** |
| Designated as  hedging instruments:     |       |                           |       |   |   |
| Interest rate  contracts                |       | $                              | 509.0      |   | $ | 121.5 |   |
|                                    |       |                           |       |   |   |
| Not designated  as hedging instruments: |       |                           |       |   |   |
| Interest rate  contracts                |       | 74.0                           |       | 62.1 |   |
| Foreign exchange  contracts             |       | 16.6                           |       | 6.5 |   |
| Cross-currency  interest rate contracts |       | 14.3                           |       | 25.4 |   |
| Total not  designated                   |       | 104.9                          |       | 94.0 |   |
|                                    |       |                           |       |   |   |
| Total  derivatives                      |       | $                              | 613.9      |   | $ | 215.5 |   |

 
|   | The effects of derivative instruments on the  statement of consolidated income consisted of the following (in millions of  dollars): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                     | ** ** | **Classification of Gains (Losses)** | ** ** | **Three Months  Ended  January 31, 2009** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------------|------------|
|                           |       |                                                |       |                                                     |       |
| Fair Value  Hedges:            |       |                                                |       |                                                     |       |
| Interest rate  contracts       |       | Interest expense                                    |       | $                                                        | 271.1      |   |
|                           |       |                                                |       |                                                     |       |
| Cash Flow  Hedges:             |       |                                                |       |                                                     |       |
| Total Recognized  in OCI       |       |                                                |       |                                                     |       |
| (Effective  Portion):          |       |                                                |       |                                                     |       |
| Interest rate  contracts       |       | OCI (pretax)                                        |       | $                                                        | (49.7      | ) |
|                           |       |                                                |       |                                                     |       |
| Reclassified  from OCI         |       |                                                |       |                                                     |       |
| (Effective  Portion):          |       |                                                |       |                                                     |       |
| Interest rate  contracts       |       | Interest expense                                    |       | $                                                        | (7.9       | ) |
|                           |       |                                                |       |                                                     |       |
| Recognized  Directly in Income |       |                                                |       |                                                     |       |
| (Ineffective  Portion) *:      |       |                                                |       |                                                     |       |
| Interest rate  contracts       |       | Interest expense                                    |       | $                                                        | *          |   |
|                           |       |                                                |       |                                                     |       |
| Not Designated  as Hedges:     |       |                                                |       |                                                     |       |
| Interest rate  contracts       |       | Interest expense                                    |       | $                                                        | (8.4       | ) |
| Foreign exchange  contracts    |       | Administrative and operating expenses               |       | 54.6                                                     |       |
| Total                          |       |                                                |       | $                                                        | 46.2       |   |

 
|   | *      | No gains or losses were  excluded from effectiveness testing. |
|--------|--------|---------------------------------------------------------------|
|   |   | The amount is less than  $.1 million.                         |

 

11

----

 
| (8)    | New  accounting standards adopted in the first quarter of  2009 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In  the first quarter of 2009, the Company adopted FASB Statement No. 157,  Fair Value Measurements, for financial assets and liabilities recognized or  disclosed at fair value (see Note 6). This Statement defines fair value and  expands disclosures about fair value measurements. These definitions apply to  other accounting standards that use fair value measurements and may change  the application of certain measurements used in current practice. For  nonfinancial assets and liabilities, the effective date is the beginning of  fiscal year 2010, except items that are recognized or disclosed at fair value  on a recurring basis. The adoption did not have a material effect on the  Company’s consolidated financial statements.                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In  the first quarter of 2009, the Company adopted FASB Statement No. 159,  The Fair Value Option for Financial Assets and Financial Liabilities. This  Statement permits entities to measure most financial instruments at fair  value if desired. It may be applied on a contract by contract basis and is  irrevocable once applied to those contracts. The standard may be applied at  the time of adoption for existing eligible items, or at initial recognition  of eligible items. After election of this option, changes in fair value are  reported in earnings. The items measured at fair value must be shown  separately on the balance sheet.  The  cumulative effect of adoption would be reported as an adjustment to beginning  retained earnings. The Company did not change the valuation of any financial  instruments based on this Statement and, therefore, the adoption had no  effect on the Company’s consolidated financial statements.                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In  the first quarter of 2009, the Company adopted FASB Statement No. 161,  Disclosures about Derivative Instruments and Hedging Activities. This  Statement increases the disclosure requirements for derivative instruments  (see Note 7). Most disclosures are required on an interim and annual basis.  The adoption did not have a material effect on the Company’s consolidated  financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In  the first quarter of 2009, the Company adopted FASB Statement No. 162,  The Hierarchy of Generally Accepted Accounting Principles. This Statement  identifies the sources for generally accepted accounting principles (GAAP) in  the U.S. and lists the categories in descending order. An entity should  follow the highest category of GAAP applicable for each of its accounting  transactions. The adoption did not have a material effect on the Company’s  consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In the first quarter of 2009, the Company adopted  FASB Staff Position (FSP) Financial Accounting Statement 140-4 and FIN  46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of  Financial Assets and Interests in Variable Interest Entities (see Note  5).  The new standard requires  additional disclosure for transfers of financial assets in securitization  transactions and an entity’s involvement with variable interest entities. The  adoption did not have a material effect on the Company’s consolidated  financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | New  accounting standard to be adopted as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | In  December 2007, the FASB issued Statement No. 141 (revised 2007),  Business Combinations, and Statement No. 160, Noncontrolling Interests  in Consolidated Financial Statements. Statement No. 141 (revised 2007)  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. Statement No. 160 requires  that a noncontrolling interest in a subsidiary be reported as equity in the  consolidated financial statements. Consolidated net income should include the  net income for both the parent and the noncontrolling interest with  disclosure of both amounts on the consolidated statement of income. The  effective date for both Statements is the beginning of fiscal year 2010. The  Company has currently not determined the potential effects on the  consolidated financial statements. |

 

12

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| (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  $.8 million in the first three months of 2009. 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 $.8 million during the first three months of 2009. Further  disclosure for these plans is included in Deere & Company’s Form 10-Q  for the quarter ended January 31, 2009. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Item 2. | Management’s Discussion  and Analysis of Financial Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

Results of Operations

 

Overview

 

Organization

 

The Companyprimarily generates revenues and cash by financing John Deere dealers’ salesand leases of new and used agricultural, commercial and consumer andconstruction 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.

 

Trends andEconomic Conditions

 

The Company’sbusiness is closely related to John Deere’s business. Farm conditions in the UnitedStates and Canada remain positive, benefitting from the sound financial healthof the U.S. farm sector, although the outlook for the current year isuncertain. Industry sales for 2009 are forecast to be flat to up 5 percent forthe year in the U.S. and Canada led by an increase in large tractors andcombines. Sales in parts of Australia and South America are expected to be hurtby drought. Sales in Western Europe are forecast to be down 10 to 15 percentfor the year. Significant sales declines are expected in Central Europe and theCIS (Commonwealth of Independent States) countries, including Russia. SouthAmerican markets are also expected to have sales declines, with industry salesforecast to decrease by 15 to 25 percent. John Deere’s agricultural equipment sales were up 18 percent for thefirst quarter of 2009 and are forecast to decrease about 2 percent for the fullyear, which includes a negative effect of about 7 percent for currencytranslation.  John Deere’s commercial andconsumer equipment sales declined 25 percent for the first quarter. JohnDeere’s commercial and consumer equipment sales are projected to decline about14 percent for the year, reflecting the U.S. housing decline and recessionaryeconomic conditions. U.S. markets for construction and forestry equipment areforecast to remain under continued pressure due in large part to a decliningglobal economy and historically low levels of construction activity in the U.S.John Deere’s construction and forestry sales declined 28 percent in the firstquarter of 2009, and are expected to decrease approximately 24 percent for theyear.  The Company’s net income in 2009is forecast to decrease to approximately $210 million, compared to $282 millionin 2008. The forecast decrease from 2008 is primarily due to narrower financingspreads related to the current funding environment, a higher provision forcredit losses and lower commissions from crop insurance.

 

Items of concernfor the Company include the sharp downturn in global economic activity, theturmoil in financial markets and the effectiveness of governmental policies torestore liquidity and the availability of credit for the Company’s customers.Significant fluctuations in foreign currency exchange rates could also impactthe Company’s results.

 

The deepeningglobal recession and volatile foreign exchange rates have put downward pressureon the Company’s financial results. The Company’s access to global capitalmarkets, which is helping to ensure that financing remains available for manycustomers, should benefit the Company.

 

13

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2009 Compared with 2008

 

Net income was$35.0 million for the first quarter of 2009, compared with $77.2 million forthe same period a year ago. The decrease was primarily due to narrowerfinancing spreads, lower commissions from crop insurance and a higher provisionfor credit losses.

 

Revenues totaled$437.6 million for the first quarter of 2009, compared to $496.5 million forthe same period a year ago. The decrease was primarily due to lower financingrates and lower commissions from crop insurance. Finance income earned onretail notes totaled $197.8 million for the first quarter of 2009, down$25.0 million compared to $222.8 million for the same period in 2008. Thisdecrease was primarily due to lower financing rates and a 3 percentdecrease in the average retail note portfolio balances. Lease revenues totaled$82.0 million in the first quarter of 2009, compared to $83.4 millionin the first quarter of 2008. This decrease was primarily due to lowerfinancing rates. Revenues earned on revolving charge accounts amounted to$50.7 million in the first quarter of 2009, compared to $50.8 millionduring the same period last year. Finance income earned on wholesale receivablestotaled $63.8 million for the first quarter of 2009, compared to$77.5 million for the same period in 2008. The decrease was primarily dueto lower financing rates, partially offset by a 6 percent increase in theaverage balance of wholesale receivables. Operating loan income amounted to$3.8 million in the first quarter of 2009, compared to $6.8 millionin the first quarter of 2008. The decrease was primarily due to lower financingrates and a 6 percent decrease in the average balance of operating loans.Revenues earned from John Deere totaled $133.2 million for the firstquarter of 2009, compared to $132.7 million for the same period last year.

** **

Crop insurancecommissions totaled $6.6 million for the first quarter of 2009, compared to$29.0 million for the same period in 2008. The decrease was primarily due toless favorable underwriting experience that resulted in lower contingentcommissions in the first quarter of 2009 compared to the first quarter of 2008.

 

Interest expensetotaled $207.3 million for the first quarter of 2009, compared to $223.6million for the same period in 2008. The decrease was due to lower averageinterest rates, partially offset by an increase in average borrowings.

 

Administrative andoperating expenses were $86.1 million in the first quarter of 2009, comparedwith $79.7 million for the same period in 2008. The increase was primarilydue to foreign exchange losses.

 

During the firstquarter of 2009, the provision for credit losses totaled $32.4 million,compared with $15.1 million for the same period in 2008. For the first quarterof 2009, the Company has experienced higher write-offs of construction andforestry equipment retail notes and revolving charge accounts. Total netwrite-offs of Receivables financed were $26.6 million for the first quarter of2009, compared with $13.3 million for the same period in 2008. The annualizedprovision for credit losses, as a percentage of the average balance of totalReceivables financed, was .73 percent for the first quarter of 2009, comparedwith .36 percent for the same period in 2008. See the Company’s most recentlyfiled annual report on Form 10-K for further information regarding theCompany’s allowance for credit losses policies.

 

The Company’sratio of earnings to fixed charges was 1.23 to 1 for the first quarter of 2009,compared with 1.51 to 1 for the first quarter of 2008. “Earnings” consistof income before income taxes, the cumulative effect of changes in accountingand fixed charges excluding capitalized interest. “Fixed charges” consist ofinterest on indebtedness, amortization of debt discount and expense, interestrelated to uncertain tax positions, an estimated amount of rental expense undercapitalized leases that is deemed to be representative of the interest factorand rental expense under operating leases, and capitalized interest.

 

14

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Receivable andLease acquisition volumes were as follows (in millions of dollars):

 
| ** **                           | ** ** | **Three Months**           | ** ** | ** ** | ** ** | ** **        | ** ** |
|--------------------------------------|------------|---------------------------------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **Ended January 31,** | ** ** | ** ** | ** ** | ** **        | ** ** |
| ** **                           | ** ** | **2009**                        | ** ** | **2008**   | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Retail notes:                        |       |                            |       |       |       |              |       |   |   |
| Agricultural  equipment              |       | $                               | 824.2      |       | $          | 1,051.8           |       | $ | (227.6 | ) | (22 | )% |
| Construction and  forestry equipment |       | 131.2                           |       | 227.3      |       | (96.1             | )          | (42 | ) |
| Commercial and  consumer equipment   |       | 48.8                            |       | 60.6       |       | (11.8             | )          | (19 | ) |
| Total retail  notes                  |       | 1,004.2                         |       | 1,339.7    |       | (335.5            | )          | (25 | ) |
| Revolving charge  accounts           |       | 996.1                           |       | 831.3      |       | 164.8             |       | 20 |   |
| Operating loans                      |       | 550.5                           |       | 484.2      |       | 66.3              |       | 14 |   |
| Wholesale  receivables               |       | 4,395.6                         |       | 3,384.8    |       | 1,010.8           |       | 30 |   |
| Financing leases                     |       | 37.7                            |       | 50.8       |       | (13.1             | )          | (26 | ) |
| Equipment on  operating leases       |       | 83.6                            |       | 91.0       |       | (7.4              | )          | (8 | ) |
| Total  Receivables and Leases        |       | $                               | 7,067.7    |       | $          | 6,181.8           |       | $ | 885.9 |   | 14 | % |

 

Retail notevolumes for agricultural equipment decreased in the first quarter of 2009, whencompared to last year, primarily due to a decrease in financed market share.Retail note volumes for construction and forestry equipment and commercial andconsumer equipment decreased in the first quarter of 2009, when compared tolast year, primarily due to decreases in retail sales of John Deereconstruction and forestry equipment and John Deere commercial and consumerequipment. Revolving charge account volumes increased in the first quarter of2009, when compared to last year, primarily as a result of increased marketcoverage. Operating loan volumes increased during the first quarter of 2009,when compared to last year, primarily due to increased borrowings by farm inputproviders. Wholesale receivable volumes increased during the first quarter of2009, when compared to last year, primarily due to increased shipments of JohnDeere equipment as a result of increased retail sales activity in the agriculturalmarkets.

 

Total Receivablesand Leases held were as follows (in millions of dollars):

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2009**             | ** ** | **2008**             | ** ** | **2008**             | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |
| Agricultural  equipment              |       | $                    | 8,344.4    |                 | $          | 8,836.6              |       | $ | 8,358.7 |   |
| Construction and  forestry equipment |       | 1,826.2              |       | 1,986.5              |       | 2,301.4              |       |
| Commercial and  consumer equipment   |       | 816.9                |       | 896.8                |       | 938.3                |       |
| Recreational  products               |       | 8.5                  |       | 9.2                  |       | 11.2                 |       |
| Total retail  notes                  |       | 10,996.0             |       | 11,729.1             |       | 11,609.6             |       |
| Revolving charge  accounts           |       | 1,588.8              |       | 1,825.1              |       | 1,288.6              |       |
| Operating loans                      |       | 410.6                |       | 357.9                |       | 412.0                |       |
| Wholesale  receivables               |       | 4,202.5              |       | 3,570.6              |       | 3,670.2              |       |
| Financing leases                     |       | 383.1                |       | 417.9                |       | 414.5                |       |
| Equipment on  operating leases       |       | 989.0                |       | 1,053.4              |       | 967.3                |       |
| Total  Receivables and Leases        |       | $                    | 18,570.0   |                 | $          | 18,954.0             |       | $ | 18,362.2 |   |

 

15

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

 
| ** **                                                    | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                    | ** ** | **2009**             | ** ** | **2008**             | ** ** | **2008**             | ** ** |
| Receivables and  Leases administered:                         |       |                 |       |                 |       |                 |       |
| Owned by the  Company                                         |       | $                    | 15,340.6   |                 | $          | 17,361.5             |       | $ | 16,516.3 |   |
| Owned by the  Company — restricted due to securitization |       | 3,229.4              |       | 1,592.5              |       | 1,845.9              |       |
| Total  Receivables and Leases owned by the Company            |       | 18,570.0             |       | 18,954.0             |       | 18,362.2             |       |
| Administered —  with limited recourse*                   |       | 123.4                |       | 118.7                |       | 169.4                |       |
| Administered —  without recourse**                       |       | 45.5                 |       | 44.0                 |       | 39.7                 |       |
| Total  Receivables and Leases administered                    |       | $                    | 18,738.9   |                 | $          | 19,116.7             |       | $ | 18,571.3 |   |

 

*                                       TheCompany’s maximum exposure under all Receivable and Lease recourse provisionsat January 31, 2009, October 31, 2008 and January 31, 2008was $9 million, $8 million and $26 million, respectively. The Company does notrecord the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onreceivables that have been sold was accrued at the time of sale, and anysubsequent necessary adjustments are made as part of ongoing reviews.

 

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

 

Total Receivableamounts 60 days or more past due in the table below represent the amount of allcustomer payments past due 60 days or more, by product, and as a percent of therespective receivables. They were as follows (in millions of dollars):

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2009**             | ** ** | **2008**             | ** ** | **2008**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 15.3       |                 | .18        | %                    | $          | 11.9 |   | .13 | % | $ | 15.7 |   | .19 | % |
| Construction and  forestry equipment |       | 10.3                 |       | .56                  |       | 8.3                  |       | .42 |   | 9.2 |   | .40 |   |
| Commercial and  consumer equipment   |       | 2.4                  |       | .29                  |       | 1.8                  |       | .20 |   | 1.9 |   | .20 |   |
| Recreational  products               |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Total retail  notes                  |       | 28.0                 |       | .25                  |       | 22.0                 |       | .19 |   | 26.8 |   | .23 |   |
| Revolving charge  accounts*          |       | 21.5                 |       | 1.35                 |       | 14.6                 |       | .80 |   | 18.2 |   | 1.41 |   |
| Operating loans                      |       | .9                   |       | .22                  |       | .5                   |       | .14 |   |   |   |   |   |
| Wholesale  receivables               |       | 3.6                  |       | .09                  |       | 2.3                  |       | .06 |   | 1.5 |   | .04 |   |
| Financing leases                     |       | 5.2                  |       | 1.36                 |       | 5.4                  |       | 1.29 |   | 4.8 |   | 1.16 |   |
| Total  Receivables                   |       | $                    | 59.2       |                 | .34        | %                    | $          | 44.8 |   | .25 | % | $ | 51.3 |   | .29 | % |

 

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

 

The balance ofretail notes held (principal plus accrued interest) with any installment 60days or more past due represents the total retail note balance for a customerwho has any portion of their note 60 days or more past due. These amounts were$214 million, $163 million and $214 million at January 31, 2009, October 31,2008 and January 31, 2008, respectively. The balances of retail notes heldon which any installment was 60 days or more past due as a percentage of theending retail notes receivable was 1.94 percent, 1.39 percent and 1.84 percentat January 31, 2009, October 31, 2008 and January 31, 2008,respectively.

 

16

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

 
| ** **                           | ** ** | **January 31,** | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2009**             | ** ** | **2008**             | ** ** | **2008**             | ** ** |
| ** **                           | ** ** | **Dollars**          | ** ** | **Percent**          | ** ** | **Dollars**          | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                 |       |                 |       |                 |       |   |   |   |   |   |   |
| Agricultural  equipment              |       | $                    | 17.5       |                 | .21        | %                    | $          | 17.7 |   | .20 | % | $ | 15.2 |   | .18 | % |
| Construction and  forestry equipment |       | 16.5                 |       | .90                  |       | 15.4                 |       | .78 |   | 2.1 |   | .09 |   |
| Commercial and  consumer equipment   |       | 4.7                  |       | .58                  |       | 4.8                  |       | .54 |   | 1.8 |   | .19 |   |
| Recreational  products               |       | .2                   |       | 2.35                 |       | .2                   |       | 2.17 |   |   |   |   |   |
| Total retail  notes                  |       | 38.9                 |       | .35                  |       | 38.1                 |       | .32 |   | 19.1 |   | .16 |   |
| Revolving charge  accounts           |       | .8                   |       | .05                  |       | .7                   |       | .04 |   | 1.4 |   | .11 |   |
| Operating loans                      |       | 33.9                 |       | 8.26                 |       | 27.6                 |       | 7.71 |   | 3.2 |   | .78 |   |
| Wholesale  receivables               |       | .4                   |       | .01                  |       |                 |       |   |   |   |   |   |   |
| Financing leases                     |       | 14.1                 |       | 3.68                 |       | 13.2                 |       | 3.16 |   | 12.6 |   | 3.04 |   |
| Total  Receivables                   |       | $                    | 88.1       |                 | .50        | %                    | $          | 79.6 |   | .44 | % | $ | 36.3 |   | .21 | % |

 

The increases in the balance of non-performingconstruction and forestry equipment retail notes at January 31, 2009 and October 31,2008 were primarily due to the continued weak U.S. construction market. Theincreases in non-performing operating loans at January 31, 2009 and October 31,2008 were due to payment defaults on operating loans to a commercial andconsumer equipment customer. A loan loss provision was recorded for theestimated uncollectible amount.

 

At January 31, 2009,the Company had a $55 million secured operating loan outstanding to anagribusiness customer in the poultry industry that filed for bankruptcyprotection in December 2008. The customer continues to operate and isremitting interest payments while a plan for debt restructuring is beingfinalized by the bankruptcy court.

 

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,**             | ** ** |
| ** **                           | ** ** | **2009**                         | ** ** | **2008**                         | ** ** |
| ** **                           | ** ** | **Dollars**                      | ** ** | **Percent**                      | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail notes:                        |       |                             |       |                             |       |   |   |   |   |
| Agricultural  equipment              |       | $                                | .5         |                             | .02        | % | $ | .2 |   | .01 | % |
| Construction and  forestry equipment |       | 14.6                             |       | 3.02                             |       | 6.3 |   | 1.11 |   |
| Commercial and  consumer equipment   |       | .3                               |       | .14                              |       | .5 |   | .22 |   |
| Recreational  products               |       | .4                               |       | 17.64                            |       | .2 |   | 7.11 |   |
| Total retail  notes                  |       | 15.8                             |       | .54                              |       | 7.2 |   | .25 |   |
| Revolving charge  accounts           |       | 9.9                              |       | 2.36                             |       | 5.0 |   | 1.50 |   |
| Operating loans                      |       | (.4                              | )          | (.43                             | )          |   |   |   |   |
| Wholesale  receivables               |       | .3                               |       | .03                              |       |   |   |   |   |
| Financing leases                     |       | 1.0                              |       | .98                              |       | 1.1 |   | 1.09 |   |
| Total  Receivables                   |       | $                                | 26.6       |                             | .60        | % | $ | 13.3 |   | .32 | % |

 

Deposits withheldfrom dealers and merchants, representing mainly the aggregate dealer retailnote and lease withholding accounts from individual John Deere dealers to whichlosses from retail notes and leases originating from the respective dealers canbe charged, amounted to $166 million at January 31, 2009 compared with$174 million at October 31, 2008 and $175 million at January 31,2008.

 

The Company’sallowance for credit losses on all Receivables financed totaled $111 million atJanuary 31, 2009, $105 million at October 31, 2008 and $101million at January 31, 2008. The allowance for credit losses represented..63 percent of the total Receivables financed at January 31, 2009,..59 percent at October 31, 2008 and .58 percent at January 31, 2008.The level of the allowance is based on many quantitative and qualitativefactors, including historical loss experience by product category, portfolioduration, delinquency trends, economic conditions and credit risk quality. TheCompany believes its allowance is sufficient to provide for losses in itsexisting receivable portfolio.

 

17

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Safe Harbor Statement

 

*SafeHarbor Statement under the Private Securities Litigation Reform Act of 1995:*Statementsherein that relate to future operating periods are subject to important risksand uncertainties that could cause actual results to differ materially.Forward-looking statements involve certain factors that are subject to change,including changing worldwide economic conditions. Actions by the U.S. FederalReserve Board and other central banks may affect the costs and expenses of financingthe Company and the rates it is able to offer. The Company’s business isaffected by general economic conditions in and the political instability of theglobal markets in which the Company operates because deteriorating economicconditions and political instability can result in decreased customerconfidence, lower demand for equipment, higher loan losses and greater currencyrisk. The Company’s business is also affected by actions of banks, financingand leasing companies and other lenders that compete with the Company forcustomers; capital market disruptions; significant changes in capital marketliquidity and associated funding costs; interest rates and foreign currencyexchange rates; and the credit market crisis.

 

With respect tothe current global economic downturn, changes in governmental banking, monetaryand fiscal policies to restore liquidity and increase the availability ofcredit may not be effective and could have a material impact on the Company’scustomers and markets.  Recent significantchanges in market liquidity conditions could impact access to funding andassociated funding costs, which could reduce the Company’s earnings and cashflows. The Company’s operations could be impaired by changes in the equity andbond markets, which could negatively affect earnings.

 

The currenteconomic downturn and market volatility have adversely affected the financialindustry in which the Company operates. The Company’s liquidity and ongoingprofitability depend largely on timely access to capital to meet future cashflow requirements and fund operations and the costs associated with engaging indiversified funding activities. If current levels of market disruption andvolatility continue or worsen or access to governmental liquidity programsdecreases, funding could be unavailable or insufficient. Additionally, undercurrent market conditions customer confidence levels may result in declines incredit applications and increases in delinquencies and default rates, whichcould materially impact the Company’s write-offs and provision for creditlosses.

 

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 10-Q (including the factorsdiscussed in Item 1A. Risk Factors) and other Deere & Company andCapital Corporation filings with the U.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 firstthree months of 2009, the aggregate net cash provided by operating, investingand financing activities was used primarily to increase cash and cashequivalents. Net cash provided by operating activities was $53 million inthe first three months of 2009. Net cash provided by investing activitiestotaled $209 million in the first three months of 2009, primarily due tothe collection 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.

 

18

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During the firstthree months of 2008, the aggregate net cash provided by operating andinvesting activities was used primarily to decrease borrowings and paydividends. Net cash provided by operating activities was $85 million in thefirst three months of 2008. Net cash provided by investing activities totaled$254 million in the first three months of 2008, primarily due to thecollection of Receivables and Leases exceeding the cost of Receivables andLeases acquired, partially offset by the cost of notes receivables with JohnDeere exceeding collections. Net cash used for financing activities totaled$389 million in the first three months of 2008, resulting primarily from anet decrease in total external borrowings, a decrease in payables to Deere &Company and dividends paid to John Deere Credit Company, which in turn paidcomparable dividends to Deere & Company. Cash and cash equivalentsdecreased $48 million during the first three months of 2008.

 

The financing ofretail purchases and leases of John Deere products and of wholesale receivablesowed by John Deere dealers represented approximately 80 percent of theCompany’s acquisition volume for the three months ended January 31, 2009and 2008, respectively. Any extended reduction or suspension of John Deere’ssale or production of products due to a decline in demand or production,governmental actions or other events could have an adverse effect on theCompany’s acquisition volume of Receivables and Leases.

 

The Company relieson its ability to raise substantial amounts of funds to finance its Receivableand Lease portfolios. Given the downturn in global economic activity and therecent significant changes in credit market liquidity, sources of funds for theCompany have been impacted. However, because of the funding sources that areavailable, the Company expects to have sufficient sources of liquidity to meetits funding needs. The Company’s ability to meet its debt obligations issupported in a number of ways. The assets of the Company are self-liquidatingin nature. A solid equity position is available to absorb unusual losses onthese assets and all commercial paper is backed by unsecured, committedborrowing lines from various banks. Liquidity is also provided by the Company’sability to securitize these assets and through the issuance of term debt.Additionally, liquidity may also be provided through loans from John Deere. TheCompany’s commercial paper outstanding at January 31, 2009, October 31,2008 and January 31, 2008 was approximately $1,048 million,$2,814 million and $2,755 million, respectively, while the total cash andcash equivalents position was approximately $3,002 million, $1,083 millionand $143 million, respectively.

 

On December 4,2008, John Deere Capital Corporation (Capital Corporation) and FPC Financial,f.s.b., a wholly-owned subsidiary of Capital Corporation, elected to continueto participate in the debt guaranty program that is part of the Federal DepositInsurance Corporation’s (FDIC’s) Temporary Liquidity Guarantee Program (TLGP).During December 2008, Capital Corporation issued $2.0 billion offixed-rate medium-term notes due June 19, 2012 at a rate of 2.875%, whichare guaranteed by the FDIC under the TLGP. At January 31, 2009, $428million of commercial paper of Capital Corporation was also guaranteed by theFDIC under the TLGP. The FDIC has notified Capital Corporation that it needsadditional review and written determination from the FDIC prior to issuingadditional guaranteed debt. Accordingly, Capital Corporation has submitteddocumentation to the FDIC and will continue to seek further guidance.

 

During January 2009,the Capital Corporation entered into a new revolving credit agreement toutilize bank conduit facilities to securitize retail notes (see Note 5). At January 31,2009, this facility had a total capacity, or “financing limit,” of up to$2,250 million of secured financings at any time. After a 364 dayrevolving period, unless the banks and the Capital Corporation agree to renewfor an additional 364 days, the Capital Corporation would liquidate the securedborrowings over time as payments on the retail notes are collected. At January 31,2009, $1,862 million of secured short-term borrowings was outstanding under theagreement. On February 20, 2009, the financing limit of this facility wasincreased to $2,500 million of secured financings at any time.

 

During the firstthree months of 2009, the Company issued $2,782 million of medium-term notes,obtained $1,862 million of secured borrowings and maintained an averagecommercial paper balance of $2,523 million. At January 31, 2009, theCompany’s funding profile included $1,048 million of commercial paper,$3,240 million of notes payable related to on-balance sheet securitizationfunding, $16,125 million of unsecured term debt, and $2,059 million of equitycapital. The Company’s funding profile may be altered to reflect such factorsas relative costs of funding sources, assets available for securitizations andcapital market accessibility.

 

During the firstquarter of 2009, the Company issued $2,783 million and retired $537 million oflong-term borrowings, which were primarily medium-term notes.

 

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Totalinterest-bearing indebtedness amounted to $20,413 million at January 31,2009, compared with $18,424 million at October 31, 2008, and $17,057 millionat January 31, 2008. Included in this debt are secured borrowings of$3,240 million, $1,618 million and $1,923 million for the same periods(see Note 5). Total external borrowings increased during the first three monthsof 2009 and increased 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 receivable from/payable to John Deere. Totalshort-term indebtedness amounted to $7,153 million at January 31, 2009,which included $3,240 million of secured borrowings, compared with $7,894million at October 31, 2008, which included $1,618 million of securedborrowings and $8,317 million at January 31, 2008, which included$1,923 million of secured borrowings, while total long-term indebtednessamounted to $13,260 million, $10,530 million and $8,741 million at these dates,respectively. The ratio of total interest-bearing debt, includingsecuritization indebtedness, to stockholder’s equity was 9.9 to 1 at January 31,2009, compared with 8.9 to 1 at October 31, 2008 and 9.3 to 1 at January 31,2008.

 

Stockholder’sequity was $2,059 million at January 31, 2009, compared with $2,065million at October 31, 2008 and $1,837 million at January 31, 2008.The decrease in the first three months of 2009 resulted primarily from a$32 million unrealized loss on derivatives and a $9 million change in thetranslation adjustment, which was partially offset by net income of$35 million.

 

*Lines ofCredit*

 

The Company alsohas access to bank lines of credit with various banks throughout the world.Some of the lines are available to both the Company and Deere &Company. Worldwide lines of credit totaled $4,511 million at January 31,2009, $2,163 million of which was unused. Forthe purpose of computing unused credit lines, commercial paper and short-termbank borrowings, excluding secured borrowings and the current portion oflong-term borrowings, of the Company and Deere & Company wereconsidered to constitute utilization. Included in the total credit linesat January 31, 2009 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 stockholder’s equity excluding accumulated other comprehensive income(loss)) at not more than 11 to 1 at the end of any fiscal quarter. All ofthese requirements of the credit agreement have been met during the periodsincluded in the consolidated financial statements.

* *

*DebtRatings*

 

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

 

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

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

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

 

See the Company’smost recent annual report filed on Form 10-K (Item 7A). There has been nomaterial change in this information.

 

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

 

The Company’sprincipal executive officer and its principal financial officer have concludedthat the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (“the Act”))were effective as of January 31, 2009, based on the evaluation of thesecontrols and procedures required by Rule 13a-15(b) or 15d-15(b) ofthe Act. During the first quarter, there were no changes that have materiallyaffected or are reasonably likely to materially affect the Company’s internalcontrols over financial reporting.

 

PART II.  OTHERINFORMATION

 
| 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 (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 the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|   |                   | JOHN DEERE CAPITAL  CORPORATION |
|--------|------------------------|---------------------------------|
|   |                   |                            |
|   |                   |                            |
| Date:  | February 26, 2009 |                            | By: | */s/ M.  J. Mack, Jr.* |
|   |                   |                            | M. J. Mack, Jr. |
|   |                   |                            | Senior Vice President, |
|   |                   |                            | Principal Financial  Officer |
|        |                        |                                 |  |  |

 

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INDEX TO EXHIBITS

 
| Exhibit |                                                                                                                                                                                               |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                               |
| 3.1     | Certificate of Incorporation, as amended (Exhibit 3.1  to Form 10-K of the registrant for the year ended October 31, 1999,  Securities and Exchange Commission file number 1-6458*) |
|    |                                                                                                                                                                                               |
| 3.2     | Bylaws,  as amended (Exhibit 3.2 to Form 10-K of the registrant for the year  ended October 31, 1999, Securities and Exchange Commission file number  1-6458*)                      |
|    |                                                                                                                                                                                               |
| 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, 2009 (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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