**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

WASHINGTON, D.C.  20549

 

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**FORM 10-Q**

 

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

**For the quarterly period ended April 30, 2010**

 

Commission file no: 1-6458

 

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## **JOHNDEERE CAPITAL CORPORATION**

 

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

 

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

 

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

 

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Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.
| Yes | X |   | No |   |   |
|-----|---|--------|----|--------|--------|

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting 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 asmaller reporting company)

 

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

 

At April 30,2010, 2,500 shares of common stock, without par value, of the registrant wereoutstanding, all of which were owned by John Deere Credit Company, awholly-owned subsidiary of Deere & Company.

 

Theregistrant meets the conditions set forth in General Instruction H(1)(a) and(b) of Form 10-Q and is therefore filing this Form with certainreduced disclosures as permitted by those instructions.

 

 

 

Index to Exhibits: Page 26

 

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## **PART I.  FINANCIAL INFORMATION**

 

## **Item 1.     FinancialStatements.**

 

## **JohnDeere Capital Corporation and Subsidiaries**

**Statements of Consolidated Income**

**(Unaudited)**

(in millions)

 
| ** **                                                 | ** ** | **Three Months Ended**              | ** ** | **Six Months Ended** | ** **                          |
|------------------------------------------------------------|------------|-------------------------------------|------------|----------------------|-------------------------------------|
| ** **                                                 | ** ** | **April 30,**                  | ** ** | **April 30,**   | ** **                          |
| ** **                                                 | ** ** | **2010**                            | ** ** | ** **           | **2009**                            | ** ** | ** ** | **2010** | ** ** | ** ** | **2009** | ** ** | ** ** |
| **Revenues**                                               |       |                                |       |                 |                                |   |   |   |   |   |   |   |   |
| Finance income earned on retail notes                      |       | $   169.9            |       |                 | $   181.9            |   |   | $    349.7 |   |   | $   379.7 |   |   |
| Lease revenues                                             |       | 69.3                                |       |                 | 76.6                                |   |   | 140.5 |   |   | 158.6 |   |   |
| Revolving charge account income                            |       | 64.1                                |       |                 | 58.6                                |   |   | 125.9 |   |   | 109.3 |   |   |
| Finance income earned on wholesale receivables             |       | 65.0                                |       |                 | 85.0                                |   |   | 121.7 |   |   | 148.8 |   |   |
| Operating loan income                                      |       | 2.3                                 |       |                 | 3.8                                 |   |   | 5.9 |   |   | 7.6 |   |   |
| Crop insurance commissions                                 |       | 19.3                                |       |                 | 5.5                                 |   |   | 36.1 |   |   | 12.1 |   |   |
| Other income - net                                         |       | 22.3                                |       |                 | 14.5                                |   |   | 46.8 |   |   | 47.4 |   |   |
| Total revenues                                             |       | 412.2                               |       |                 | 425.9                               |   |   | 826.6 |   |   | 863.5 |   |   |
| **Expenses**                                               |       |                                |       |                 |                                |   |   |   |   |   |   |   |   |
| Interest expense                                           |       | 139.9                               |       |                 | 203.9                               |   |   | 289.9 |   |   | 411.2 |   |   |
| Operating expenses:                                        |       |                                |       |                 |                                |   |   |   |   |   |   |   |   |
| Administrative and operating expenses                      |       | 91.1                                |       |                 | 66.8                                |   |   | 185.5 |   |   | 152.9 |   |   |
| Provision for credit losses                                |       | 21.3                                |       |                 | 41.8                                |   |   | 44.3 |   |   | 74.2 |   |   |
| Fees paid to John Deere                                    |       | 8.2                                 |       |                 | 8.0                                 |   |   | 17.2 |   |   | 17.3 |   |   |
| Depreciation of equipment on operating leases              |       | 44.5                                |       |                 | 50.9                                |   |   | 90.4 |   |   | 104.8 |   |   |
| Total operating expenses                                   |       | 165.1                               |       |                 | 167.5                               |   |   | 337.4 |   |   | 349.2 |   |   |
| Total expenses                                             |       | 305.0                               |       |                 | 371.4                               |   |   | 627.3 |   |   | 760.4 |   |   |
| **Income of consolidated group before income taxes**       |       | 107.2                               |       |                 | 54.5                                |   |   | 199.3 |   |   | 103.1 |   |   |
| Provision for income taxes                                 |       | 38.0                                |       |                 | 20.7                                |   |   | 66.4 |   |   | 34.4 |   |   |
| **Income of consolidated group**                           |       | 69.2                                |       |                 | 33.8                                |   |   | 132.9 |   |   | 68.7 |   |   |
| Equity in income of unconsolidated affiliates              |       | .2                                  |       |                 | .1                                  |   |   | .5 |   |   | .3 |   |   |
| **Net income**                                             |       | 69.4                                |       |                 | 33.9                                |   |   | 133.4 |   |   | 69.0 |   |   |
| Less: Net income attributable to noncontrolling  interests |       |                                |       |                 |                                |   |   |   |   |   |   |   |   |
| **Net income attributable to the Company**                 |       | $     69.4 |       |                 | $     33.9 |   |   | $    133.4 |   |   | $     69.0 |   |   |

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

2

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## **JohnDeere Capital Corporation and Subsidiaries**

**Consolidated Balance Sheets**

**(Unaudited)**

(in millions)

 
| ** **                                                                                                       | ** ** | **April 30,**                                                       | ** ** | **October 31,**                                                                | ** ** | **April 30,**                                                       | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                                                                       | ** ** | **2010**                                                                 | ** ** | **2009**                                                                            | ** ** | **2009**                                                                 | ** ** |
| **Assets**                                                                                                       |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Cash and cash equivalents                                                                                        |       | $           219.4 |       | $           870.6            |       | $        2,131.3                 |       |
| Receivables:                                                                                                     |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Retail notes                                                                                                     |       | 8,095.9                                                                  |       | 8,234.1                                                                             |       | 7,502.5                                                                  |       |
| Restricted securitized retail notes                                                                              |       | 3,092.3                                                                  |       | 3,110.1                                                                             |       | 3,135.7                                                                  |       |
| Revolving charge accounts                                                                                        |       | 2,099.8                                                                  |       | 2,192.5                                                                             |       | 1,824.7                                                                  |       |
| Operating loans                                                                                                  |       | 217.5                                                                    |       | 297.0                                                                               |       | 410.2                                                                    |       |
| Wholesale receivables                                                                                            |       | 5,105.1                                                                  |       | 3,873.5                                                                             |       | 5,184.5                                                                  |       |
| Financing leases                                                                                                 |       | 379.4                                                                    |       | 392.8                                                                               |       | 372.5                                                                    |       |
| Total receivables                                                                                                |       | 18,990.0                                                                 |       | 18,100.0                                                                            |       | 18,430.1                                                                 |       |
| Allowance for credit losses                                                                                      |       | (144.1)                                                                  |       | (158.2)                                                                             |       | (119.5)                                                                  |       |
| Total receivables — net                                                                                     |       | 18,845.9                                                                 |       | 17,941.8                                                                            |       | 18,310.6                                                                 |       |
| Other receivables                                                                                                |       | 36.7                                                                     |       | 25.9                                                                                |       | 40.4                                                                     |       |
| Equipment on operating leases — net                                                                         |       | 972.3                                                                    |       | 1,023.2                                                                             |       | 981.3                                                                    |       |
| Notes receivable from John Deere                                                                                 |       | 690.8                                                                    |       | 739.2                                                                               |       | 755.2                                                                    |       |
| Investment in unconsolidated affiliates                                                                          |       | 6.3                                                                      |       | 6.6                                                                                 |       | 5.9                                                                      |       |
| Other assets                                                                                                     |       | 791.8                                                                    |       | 1,094.2                                                                             |       | 936.3                                                                    |       |
| **Total Assets**                                                                                                 |       | $      21,563.2                            |       | $      21,701.5                                       |       | $      23,161.0                            |       |
| **Liabilities and Stockholder’s Equity**                                                                    |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Short-term borrowings:                                                                                           |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Commercial paper                                                                                                 |       | $           209.0 |       | $             32.0 |       | $           654.3 |       |
| Other notes payable                                                                                              |       | 3,052.0                                                                  |       | 3,113.0                                                                             |       | 3,118.9                                                                  |       |
| John Deere                                                                                                       |       | 729.9                                                                    |       | 15.3                                                                                |       | 207.4                                                                    |       |
| Current maturities of long-term borrowings                                                                       |       | 1,910.4                                                                  |       | 2,550.4                                                                             |       | 2,713.7                                                                  |       |
| Total short-term borrowings                                                                                      |       | 5,901.3                                                                  |       | 5,710.7                                                                             |       | 6,694.3                                                                  |       |
| Accounts payable and accrued expenses                                                                            |       | 697.9                                                                    |       | 741.2                                                                               |       | 701.5                                                                    |       |
| Deposits withheld from dealers and merchants                                                                     |       | 148.9                                                                    |       | 164.9                                                                               |       | 160.3                                                                    |       |
| Deferred income taxes                                                                                            |       | 58.0                                                                     |       | 67.1                                                                                |       | 38.1                                                                     |       |
| Long-term borrowings                                                                                             |       | 12,381.4                                                                 |       | 12,700.6                                                                            |       | 13,454.9                                                                 |       |
| Total liabilities                                                                                                |       | 19,187.5                                                                 |       | 19,384.5                                                                            |       | 21,049.1                                                                 |       |
| Commitments and contingencies (Note 6)                                                                           |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Stockholder’s equity:                                                                                       |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Common stock, without par value (issued and  outstanding – 2,500 shares owned by John Deere Credit Company) |       | 1,272.8                                                                  |       | 1,272.8                                                                             |       | 1,212.8                                                                  |       |
| Retained earnings                                                                                                |       | 1,095.5                                                                  |       | 1,032.1                                                                             |       | 951.9                                                                    |       |
| Accumulated other comprehensive income (loss):                                                                   |       |                                                                     |       |                                                                                |       |                                                                     |       |
| Cumulative translation adjustment                                                                                |       | 29.2                                                                     |       | 55.8                                                                                |       | 11.1                                                                     |       |
| Unrealized loss on derivatives                                                                                   |       | (22.2)                                                                   |       | (44.1)                                                                              |       | (64.3)                                                                   |       |
| Total accumulated other comprehensive income (loss)                                                              |       | 7.0                                                                      |       | 11.7                                                                                |       | (53.2)                                                                   |       |
| Total Company stockholder’s equity                                                                          |       | 2,375.3                                                                  |       | 2,316.6                                                                             |       | 2,111.5                                                                  |       |
| Noncontrolling interests                                                                                         |       | .4                                                                       |       | .4                                                                                  |       | .4                                                                       |       |
| Total stockholder’s equity                                                                                  |       | 2,375.7                                                                  |       | 2,317.0                                                                             |       | 2,111.9                                                                  |       |
| **Total Liabilities and Stockholder’s Equity**                                                              |       | $      21,563.2                            |       | $      21,701.5                                       |       | $      23,161.0                            |       |

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

3

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## **JohnDeere Capital Corporation and Subsidiaries**

## **Statementsof Consolidated Cash Flows**

## **Forthe Six Months Ended April 30, 2010 and 2009**

## **(Unaudited)**

## **(in millions)**

 
| ** **                                                        | ** ** | **2010**                                               | ** ** | **2009**                                                          | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **Cash Flows from Operating  Activities:**                        |       |                                                   |       |                                                              |       |
| Net income                                                        |       | $        133.4 |       | $          69.0 |       |
| Adjustments to reconcile net income to net cash                   |       |                                                   |       |                                                              |       |
| provided by operating activities:                                 |       |                                                   |       |                                                              |       |
| Provision for credit losses                                       |       | 44.3                                                   |       | 74.2                                                              |       |
| Provision for depreciation and amortization                       |       | 99.0                                                   |       | 108.0                                                             |       |
| Credit for deferred income taxes                                  |       | (20.7)                                                 |       | (17.1)                                                            |       |
| Undistributed earnings of unconsolidated affiliates               |       | (.5)                                                   |       | (.3)                                                              |       |
| Change in accounts payable and accrued expenses                   |       | (39.9)                                                 |       | 13.5                                                              |       |
| Change in accrued income taxes payable/receivable                 |       | 22.0                                                   |       | 8.4                                                               |       |
| Other                                                             |       | 233.3                                                  |       | .3                                                                |       |
| Net cash provided by operating activities                         |       | 470.9                                                  |       | 256.0                                                             |       |
|                                                              |       |                                                   |       |                                                              |       |
| **Cash Flows from Investing  Activities:**                        |       |                                                   |       |                                                              |       |
| Cost of receivables acquired                                      |       | (16,204.3)                                             |       | (15,528.2)                                                        |       |
| Collections of receivables                                        |       | 15,050.0                                               |       | 14,920.8                                                          |       |
| Cost of equipment on operating leases acquired                    |       | (246.6)                                                |       | (200.4)                                                           |       |
| Proceeds from sales of equipment on operating leases              |       | 214.5                                                  |       | 159.3                                                             |       |
| Cost of notes receivable with John Deere                          |       | (63.7)                                                 |       | (181.0)                                                           |       |
| Collection of notes receivable with John Deere                    |       | 112.1                                                  |       | 225.1                                                             |       |
| Proceeds from sales of receivables                                |       | 10.4                                                   |       | 18.0                                                              |       |
| Change in restricted cash                                         |       | (9.5)                                                  |       | (17.3)                                                            |       |
| Other                                                             |       | (39.0)                                                 |       | (22.1)                                                            |       |
| Net cash used for investing activities                            |       | (1,176.1)                                              |       | (625.8)                                                           |       |
|                                                              |       |                                                   |       |                                                              |       |
| **Cash Flows from Financing  Activities:**                        |       |                                                   |       |                                                              |       |
| Increase (decrease) in commercial paper - net                     |       | 206.5                                                  |       | (2,117.4)                                                         |       |
| Increase (decrease) in other notes payable - net                  |       | (61.1)                                                 |       | 1,497.0                                                           |       |
| Increase (decrease) in payable to John Deere - net                |       | 730.1                                                  |       | (109.1)                                                           |       |
| Proceeds from issuance of long-term borrowings                    |       | 560.2                                                  |       | 3,943.5                                                           |       |
| Payments of long-term borrowings                                  |       | (1,296.3)                                              |       | (1,695.7)                                                         |       |
| Dividends paid                                                    |       | (70.0)                                                 |       |                                                              |       |
| Debt issuance costs                                               |       | (8.4)                                                  |       | (105.6)                                                           |       |
| Net cash provided by financing activities                         |       | 61.0                                                   |       | 1,412.7                                                           |       |
|                                                              |       |                                                   |       |                                                              |       |
| **Effect of exchange rate changes on cash and cash  equivalents** |       | (7.0)                                                  |       | 5.8                                                               |       |
| **Net increase (decrease) in cash and  cash equivalents**         |       | (651.2)                                                |       | 1,048.7                                                           |       |
| **Cash and cash equivalents at  beginning of period**             |       | 870.6                                                  |       | 1,082.6                                                           |       |
| **Cash and cash equivalents at end of  period**                   |       | $        219.4 |       | $     2,131.3                            |       |

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

4

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**John Deere Capital Corporation and Subsidiaries**

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

**For the Six Months Ended April 30, 2009 and2010**

**(Unaudited)**

(in millions)

 
| ** **                              | ** ** | ** **                            | ** ** | **Total Company Stockholder’s Equity** | ** ** | ** **                           | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | ** **                            | ** ** | ** **                                  | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **Total  Stockholder’s  Equity** | ** ** | **Common  Stock**                           | ** ** | **Retained  Earnings**               | ** ** | **Total  Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Noncontrolling  Interests** | ** ** |
| **Balance October 31, 2008**       |       | $   2,065.3            |       | $  1,212.8                        |       | $     882.9 |       | $     (30.8) |   | $  .4 |   |
| Net income                              |       | 69.0                                  |       |                                        |       | 69.0                                 |       |   |   |   |   |
| Other comprehensive income (loss)       |       |                                  |       |                                        |       |                                 |       |   |   |   |   |
| Cumulative  translation adjustment      |       | 1.9                                   |       |                                        |       |                                 |       | 1.9 |   |   |   |
| Unrealized  loss on derivatives         |       | (24.3)                                |       |                                        |       |                                 |       | (24.3) |   |   |   |
| **Total** **comprehensive income** |       | 46.6                                  |       |                                        |       |                                 |       |   |   |   |   |
| **Balance April 30, 2009**         |       | $   2,111.9            |       | $  1,212.8                        |       | $     951.9 |       | $     (53.2) |   | $  .4 |   |
|                                    |       |                                  |       |                                        |       |                                 |       |   |   |   |   |
| **Balance October 31, 2009**       |       | $   2,317.0            |       | $  1,272.8                        |       | $  1,032.1                 |       | $       11.7 |   | $  .4 |   |
| Net income                              |       | 133.4                                 |       |                                        |       | 133.4                                |       |   |   |   |   |
| Other comprehensive income (loss)       |       |                                  |       |                                        |       |                                 |       |   |   |   |   |
| Cumulative  translation adjustment      |       | (26.6)                                |       |                                        |       |                                 |       | (26.6) |   |   |   |
| Unrealized  gain on derivatives         |       | 21.9                                  |       |                                        |       |                                 |       | 21.9 |   |   |   |
| **Total** **comprehensive income** |       | 128.7                                 |       |                                        |       |                                 |       |   |   |   |   |
| Dividends paid                          |       | (70.0)                                |       |                                        |       | (70.0)                               |       |   |   |   |   |
| **Balance April 30, 2010**         |       | $   2,375.7            |       | $  1,272.8                        |       | $  1,095.5                 |       | $         7.0 |   | $  .4 |   |

 

 

See Condensed Notes to Interim Consolidated Financial Statements.

 

5

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# **JohnDeere Capital Corporation and Subsidiaries**

**Condensed Notes to Interim Consolidated FinancialStatements**

**(Unaudited)**

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

 

6

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

 

7

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| (4) | 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 |   | Six Months Ended |   |
|------------------------------------------------|--------|--------------------|--------|------------------|--------|
|                                           |   | April 30,     |   | April 30,   |   |
|                                           |   | 2010               |   | 2009             |   | 2010 |   | 2009 |   |
|                                           |   |               |   |             |   |   |   |   |   |
| Net income                                     |   | $                  | 69.4   |             | $      | 33.9 |   | $ | 133.4 |   | $ | 69.0 |   |
|                                           |   |               |   |             |   |   |   |   |   |
| Other comprehensive income (loss), net of tax: |   |               |   |             |   |   |   |   |   |
| Cumulative translation adjustment              |   | (9.8               | )      | 10.6             |   | (26.6 | ) | 1.9 |   |
| Unrealized gain (loss) on derivatives          |   | 15.5               |   | 8.2              |   | 21.9 |   | (24.3 | ) |
| Total comprehensive income                     |   | $                  | 75.1   |             | $      | 52.7 |   | $ | 128.7 |   | $ | 46.6 |   |

 
| (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 does not  meet the criteria of sales of receivables, and is, therefore, accounted for  as a secured borrowing. SPEs utilized in securitizations of retail notes  differ from other entities included in the Company’s consolidated statements  because the assets they hold are legally isolated. For bankruptcy analysis  purposes, the Capital Corporation has sold the receivables to the SPEs in a  true sale and the SPEs are separate legal entities. Use of the assets held by  the SPEs is restricted by terms of the documents governing the securitization  transaction.                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In securitizations of retail notes related to  secured borrowings, the retail notes are transferred to certain SPEs which in  turn issue debt to investors. The resulting secured borrowings are included  in short-term borrowings on the balance sheet. The securitized retail notes  are recorded as “Restricted securitized retail notes” on the balance sheet.  The total restricted assets on the balance sheet related to these  securitizations include the restricted securitized retail notes less an  allowance for credit losses, and other assets primarily representing  restricted cash. The SPEs supporting the secured borrowings to which the  retail notes are transferred are consolidated unless the Company is not the  primary beneficiary. No additional support to these SPEs beyond what was  previously contractually required has been provided during the reporting  periods.                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In certain securitizations, the Company is the  primary beneficiary of the SPEs and, as such, consolidates the entities. The  restricted assets (retail notes, allowance for credit losses and other  assets) of the consolidated SPEs totaled $2,207 million, $2,157 million  and $1,246 million at April 30, 2010, October 31, 2009 and April 30,  2009, respectively. The liabilities (other notes payable and accounts payable  and accrued expenses) of these SPEs totaled $2,143 million, $2,133 million and  $1,241 million at April 30, 2010, October 31, 2009 and April 30,  2009, respectively. The credit holders of these SPEs do not have legal  recourse to the Company’s general credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | In other securitizations, the Company transfers  retail notes into bank-sponsored, multi-seller, commercial paper conduits,  which are SPEs that are not consolidated. The Company is not considered to be  the primary beneficiary of these conduits, because the Company’s variable  interests in the conduits will not absorb a majority of the conduits’  expected losses, residual returns, or both. This is primarily due to these  interests representing significantly less than a majority of the conduits’  total assets and liabilities. These conduits provide a funding source to the  Company (as well as other transferors into the conduit) as they fund the  retail notes through the issuance of commercial paper. The Company’s carrying  values and variable interests related to these conduits were restricted  assets (retail notes, allowance for credit losses and other assets) of $972  million, $1,036 million and $1,983 million at April 30, 2010, October 31,  2009 and April 30, 2009, respectively. The liabilities (other notes  payable and accounts payable and accrued expenses) related to these conduits  were $911 million, $982 million and $1,884 million at April 30,  2010, October 31, 2009 and April 30, 2009, respectively. |

 

8

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|   | 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): |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                        |   | April 30,  2010 |   |   |
|   |                                                                                                                                                                                                                                                                                        |   |   |   |   |
|   | Carrying value of liabilities                                                                                                                                                                                                                                                               |   | $            910.7 |   |   |
|   | Maximum exposure to loss                                                                                                                                                                                                                                                                    |   | 972.0 |   |   |

 
|   | The assets of unconsolidated conduits related to  securitizations in which the Company’s variable interests were considered  significant were approximately $22 billion at April 30, 2010. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                      |
|   | The components of consolidated restricted assets  related to secured borrowings in securitization transactions were as follows  (in millions of dollars):                                                 |

 
|                                |   |   | April 30,  2010 |    | October 31,  2009 |   | April 30,  2009 |   |
|-------------------------------------|--------|--------|----------------------|---------|------------------------|--------|----------------------|--------|
|                                |   |   |                 |    |                   |   |                 |   |
| Restricted securitized retail notes |   |   | $                    | 3,092.3 |                   | $      | 3,110.1              |   | $ | 3,135.7 |   |
| Allowance for credit losses         |   |   | (22.7                | )       | (24.3                  | )      | (10.8                | )      |
| Other assets                        |   |   | 109.8                |    | 107.7                  |   | 104.1                |   |
| Total restricted securitized assets |   |   | $                    | 3,179.4 |                   | $      | 3,193.5              |   | $ | 3,229.0 |   |

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

 
|                                                        |   |   | April 30,  2010 |    | October 31,  2009 |   | April 30,  2009 |   |
|-------------------------------------------------------------|--------|--------|----------------------|---------|------------------------|--------|----------------------|--------|
| Other notes payable                                         |   |   | $                    | 3,051.2 |                   | $      | 3,109.1              |   | $ | 3,118.9 |   |
| Accounts payable and accrued expenses                       |   |   | 2.5                  |    | 5.4                    |   | 6.1                  |   |
| Total liabilities related to restricted securitized  assets |   |   | $                    | 3,053.7 |                   | $      | 3,114.5              |   | $ | 3,125.0 |   |

 
|   | The secured borrowings related to these restricted  securitized retail notes are obligations that are payable as the retail notes  are liquidated. Repayment of the secured borrowings depends primarily on cash  flows generated by the restricted assets. Due to the Company’s short-term  credit rating, cash collections from these restricted assets are not required  to be placed into a restricted collection account until immediately prior to  the time payment is required to the secured creditors. At April 30,  2010, the maximum remaining term of all restricted receivables was  approximately seven years. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (6)    | Commitments and  contingencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | At April 30, 2010, John Deere Credit Inc., the  John Deere finance subsidiary in Canada, had $64 million of commercial  paper, $1,591 million of medium-term notes outstanding, and a fair value  liability of $5 million for derivatives with a notional amount of $330  million that were guaranteed by the Company.                                                                                                                                                                                                                                                                                                        |

 

9

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|   | 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 April 30, 2010, the  maximum exposure for uncollected premiums was approximately $162 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  $758 million at April 30, 2010. The Company believes that the  likelihood of the occurrence of events that would give rise to the exposures  under these Agreements is substantially remote and as a result, at April 30, 2010,  the Company’s accrued liability under the Agreements was not material. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company has commitments to extend credit to  customers and John Deere dealers through lines of credit and other  pre-approved credit arrangements. The Company applies the same credit  policies and approval process for these commitments to extend credit as it does  for its Receivables. Collateral is not required for these commitments, but if  credit is extended, collateral may be required upon funding. The amount of  unused commitments to extend credit to John Deere dealers was $2.7 billion at  April 30, 2010. The amount of unused commitments to extend credit  to customers was $42.1 billion at April 30, 2010. A significant  portion of these commitments is not expected to be fully drawn upon;  therefore, the total commitment amounts likely do not represent a future cash  requirement. The Company generally has the right to unconditionally cancel,  alter or amend the terms of these commitments at any time. Over  95 percent of these unused commitments to extend credit to customers  relate to revolving charge accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | At April 30, 2010, the Company had restricted  other assets of $5 million. See Note 5 for additional restricted assets  associated with borrowings related to securitizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company also had other miscellaneous contingent  liabilities totaling approximately $9 million at April 30, 2010, for  which it believes the probability for payment is substantially remote. The  accrued liability for these contingencies was not material at April 30,  2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (7)    | The fair values of financial instruments that do not  approximate the carrying values were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 
|                                           |   | April 30, 2010 |   | October 31, 2009 |   |
|------------------------------------------------|--------|---------------------|--------|-----------------------|--------|
|                                           |   | Carrying  Value     |   | Fair  Value           |   | Carrying  Value |   | Fair  Value |   |
| Receivables financed – net                |   | $ 15,776       |   | $ 15,783         |   | $ 14,856 |   | $ 14,954 |   |
| Restricted securitized retail notes – net |   | 3,070               |   | 3,075                 |   | 3,086 |   | 3,123 |   |
| Short-term secured borrowings                  |   | 3,051               |   | 3,071                 |   | 3,109 |   | 3,140 |   |
| Long-term borrowings due within one year       |   | 1,910               |   | 1,919                 |   | 2,550 |   | 2,572 |   |
| Long-term borrowings                           |   | 12,381              |   | 12,912                |   | 12,701 |   | 13,140 |   |

 
|   | Fair values of the long-term Receivables were based  on the discounted values of their related cash flows at current market  interest rates. The fair values of the remaining Receivables approximated the  carrying amounts.                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Fair values of long-term borrowings and short-term  secured borrowings were based on current market quotes for identical or  similar borrowings or the discounted values of their related cash flows at  current market interest rates. Certain long-term borrowings have been swapped  to current variable interest rates. The carrying values of these long-term  borrowings include adjustments related to fair value hedges. |

 

10

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| (8) | Assets and liabilities measured at fair value as  Level 2 measurements on a recurring basis were as follows (in millions of  dollars): |
|-----|----------------------------------------------------------------------------------------------------------------------------------------|

 
|                                    |   |   | April 30, |   | October 31, |   | April 30, |   |
|-----------------------------------------|--------|--------|----------------|--------|------------------|--------|----------------|--------|
|                                    |   |   | 2010           |   | 2009             |   | 2009           |   |
| Other  assets                           |   |   |           |   |             |   |           |   |
| Derivatives:                            |   |   |           |   |             |   |           |   |
| Interest  rate contracts                |   |   | $              | 418.7  |             | $      | 488.8          |   | $ | 525.5 |   |
| Foreign  exchange contracts             |   |   | 1.3            |   | 3.4              |   | 9.4            |   |
| Cross-currency  interest rate contracts |   |   | 3.7            |   | 173.5            |   | 40.1           |   |
| Total  assets                           |   |   | $              | 423.7  |             | $      | 665.7          |   | $ | 575.0 |   |
|                                    |   |   |           |   |             |   |           |   |
| Accounts  payable and accrued expenses  |   |   |           |   |             |   |           |   |
| Derivatives:                            |   |   |           |   |             |   |           |   |
| Interest  rate contracts                |   |   | $              | 67.3   |             | $      | 115.2          |   | $ | 162.4 |   |
| Foreign  exchange contracts             |   |   | 9.1            |   | 15.0             |   | 8.4            |   |
| Cross-currency  interest rate contracts |   |   | 53.4           |   | .7               |   | .5             |   |
| Total  liabilities                      |   |   | $              | 129.8  |             | $      | 130.9          |   | $ | 171.3 |   |

 
|   | Carrying values for assets as of the end of the  periods and losses during the related periods for nonrecurring Level 3 fair  value measurements were as follows (in millions of dollars): |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 
|                   |   | April 30,                     |   | October 31,                   |   | April 30,                          |   | Six Months Ended  April 30,  |   |
|------------------------|--------|------------------------------------|--------|------------------------------------|--------|-----------------------------------------|--------|-----------------------------------|--------|
|                   |   | 2010                               |   | 2009                               |   | 2009                                    |   | 2010                              |   | 2009 |   |
| Receivables:           |   |                               |   |                               |   |                                    |   |                              |   |   |   |
| Retail  notes          |   | $     1.6 |   | $     3.1 |   | $      .4 |   | $     .1 |   | $     .9 |   |
| Operating  loans       |   | .7                                 |   | 13.3                               |   | 15.9                                    |   |                              |   | 5.0 |   |
| Wholesale  receivables |   | 27.7                               |   | 6.0                                |   | 4.3                                     |   | 1.6                               |   | 2.8 |   |
| Financing  leases      |   | .5                                 |   | .7                                 |   |                                    |   |                              |   |   |   |
| Total  Receivables     |   | $   30.5            |   | $   23.1            |   | $   20.6                 |   | $   1.7            |   | $    8.7 |   |

 
|   | 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 April 30, 2010.                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Fair value is defined as the price that would be  received to sell an asset or paid to transfer a liability in an orderly  transaction between market participants at the measurement date. In determining  fair value, the Company uses various methods including market and income  approaches. The Company utilizes valuation models and techniques that  maximize the use of observable inputs. The models are industry-standard  models that consider various assumptions including time values and yield  curves as well as other economic measures. These valuation techniques are  consistently applied. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The following is a description of the valuation  methodologies the Company uses to measure financial instruments at fair  value:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | *Derivatives –*The Company’s derivative financial instruments  consist of interest rate swaps and caps, foreign currency forwards and  cross-currency interest rate swaps. The portfolio is valued based on an  income approach (discounted cash flow) using market observable inputs,  including swap curves and both forward and spot exchange rates for  currencies.                                                                                                                                                                                                                                |
|   | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | *Receivables  –*Specific  reserve impairments are based on the fair value of the collateral, which is  measured using an income approach (discounted cash flow) or a market approach  (appraisal values or realizable values).                                                                                                                                                                                                                                                                                                                                                                              |

 

11

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| (9)    | It is the Company’s policy that derivative  transactions are executed only to manage exposures arising in the normal  course of business and not for the purpose of creating speculative positions  or trading. The Company manages the relationship of the types and amounts of  its funding sources to its receivable and lease portfolio in an effort to  diminish risk due to interest rate and foreign currency fluctuations, while  responding to favorable financing opportunities. The Company also has foreign  currency exposures at some of its foreign and domestic operations related to  financing in currencies other than the local currencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | All derivatives are recorded at fair value on the  balance sheet. Each derivative is designated as a cash flow hedge, a fair  value hedge, or remains undesignated. All designated hedges are formally  documented as to the relationship with the hedged item as well as the  risk-management strategy. Both at inception and on an ongoing basis the  hedging instrument is assessed as to its effectiveness, when applicable. If  and when a derivative is determined not to be highly effective as a hedge, or  the underlying hedged transaction is no longer likely to occur, or the hedge  designation is removed, or the derivative is terminated, hedge accounting is  discontinued. Any past or future changes in the derivative’s fair value,  which will not be effective as an offset to the income effects of the item  being hedged, are recognized currently in the income statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Certain of the Company’s derivative agreements  contain credit support provisions that require the Company to post collateral  based on reductions in credit ratings. The aggregate fair value of all  derivatives with credit-risk-related contingent features that were in a  liability position at April 30, 2010, October 31, 2009 and April 30,  2009 was $23 million, $13 million and $24 million, respectively. The Company,  due to its credit rating, has not posted any collateral. If the  credit-risk-related contingent features were triggered, the Company would be  required to post full collateral for this liability position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Derivative instruments are subject to significant  concentrations of credit risk to the banking sector. The Company manages  individual counterparty exposure by setting limits that consider the credit  rating of the counterparty and the size of other financial commitments and  exposures between the Company and the counterparty banks. All interest rate  derivatives are transacted under International Swaps and Derivatives  Association (ISDA) documentation. Some of these agreements include collateral  support arrangements or mutual put options at fair value. Each master  agreement permits the net settlement of amounts owed in the event of early  termination. The maximum amount of loss that the Company would incur if  counterparties to derivative instruments fail to meet their obligations, not  considering collateral received or netting arrangements, was $424 million,  $666 million and $575 million as of April 30, 2010, October 31,  2009 and April 30, 2009, respectively. The amount of collateral received  at April 30, 2010, October 31, 2009 and April 30, 2009 to  offset this potential maximum loss was $40 million, $78 million and  $7 million, respectively. The netting provisions of the agreements would  reduce the maximum amount of loss the Company would incur if the  counterparties to derivative instruments fail to meet their obligations by an  additional $70 million, $82 million and $135 million as of April 30,  2010, October 31, 2009 and April 30, 2009, respectively. None of  the concentrations of risk with any individual counterparty was considered  significant in any periods presented. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Cash  flow hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | Certain interest rate and cross-currency interest  rate contracts (swaps) were designated as hedges of future cash flows from  borrowings. The total notional amounts of the receive-variable/pay-fixed  interest rate contracts at April 30, 2010, October 31, 2009 and April 30,  2009 were $1,831 million, $2,492 million and $3,511 million,  respectively. The notional amount of cross-currency interest rate contracts  was $849 million at April 30, 2010. The effective portions of the  fair value gains or losses on these cash flow hedges were recorded in other  comprehensive income (OCI) and subsequently reclassified into interest  expense or administrative and operating expenses (foreign exchange) in the  same periods during which the hedged transactions affect earnings. These  amounts offset the effects of interest rate or foreign currency exchange 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 or administrative and operating  expenses and were not material during any periods presented. The cash flows  from these contracts were recorded in operating activities in the  consolidated statements of cash flows.                                                                                                                                                                                                                                                                                                                                                                              |

 

12

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|   | The amount of loss recorded in OCI at April 30,  2010 that is expected to be reclassified to interest expense or  administrative and operating expenses in the next twelve months if interest  rates or exchange rates remain unchanged is approximately $21 million  after-tax. These contracts mature in up to 45 months. There were no gains or  losses reclassified from OCI to earnings based on the probability that the  original forecasted transaction would not occur.                                                                                                                                                                                                                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Fair  value hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Certain interest rate contracts (swaps) were  designated as fair value hedges of fixed-rate, long-term borrowings. The  total notional amounts of these receive-fixed/pay-variable interest rate  contracts at April 30, 2010, October 31, 2009 and April 30,  2009 were $6,664 million, $6,120 million and $5,204 million,  respectively. The effective portions of the fair value gains or losses on  these contracts were offset by fair value gains or losses on the hedged items  (fixed-rate borrowings). Any ineffective portions of the gains or losses were  recognized currently in interest expense and were not material during any  periods presented. The cash flows from these contracts were recorded in  operating activities in the consolidated statements of cash flows. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | The gains  (losses) on these contracts and the underlying borrowings recorded in  interest expense were as follows (in millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 
|                       |   | Three Months  Ended  April 30,               |   | Six Months Ended  April 30,                  |   |
|----------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------|--------|
|                       |   | 2010                                              |   | 2009                                              |   | 2010 |   | 2009 |   |
| Interest  rate contracts * |   | $       (10.3) |   | $       (29.2) |   | $       (10.8) |   | $      220.6 |   |
| Borrowings  **             |   | 11.5                                              |   | 27.3                                              |   | 11.1 |   | (219.2) |   |

 
|   | *    Includes  changes in fair value of interest rate contracts excluding accrued interest  credits of $56.1 million and $39.3 million during the second quarter of  2010 and 2009 and $111.3 million and $60.6 million for the first  six months of 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | **   Includes adjustments for fair values of  hedged borrowings excluding accrued interest expense of $82.1 million and  $71.0 million during the second quarter of 2010 and 2009 and $159.9 million  and $137.8 million for the first six months of 2010 and 2009,  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Derivatives  not designated as hedging instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The Company has certain interest rate contracts  (swaps and caps), foreign exchange contracts (forwards and swaps) and  cross-currency interest rate contracts (swaps), which were not formally  designated as hedges. These derivatives were held as economic hedges for underlying  interest rate or foreign currency exposures primarily for certain borrowings.  The total notional amounts of these interest rate swaps at April 30,  2010, October 31, 2009 and April 30, 2009 were $2,450 million,  $1,745 million and $913 million, the foreign exchange contracts were  $1,356 million, $1,043 million and $1,164 million and the cross-currency  interest rate contracts were $53 million, $839 million and $855 million,  respectively. At April 30, 2010, October 31, 2009 and April 30,  2009 there were also $1,226 million, $1,560 million and $2,264 million,  respectively, of interest rate caps purchased and the same amounts sold at  the same capped interest rate to facilitate borrowings through securitization  of retail notes. The fair value gains or losses from the interest rate  contracts were recognized currently in interest expense and the gains or  losses from foreign exchange contracts in administrative and operating  expenses, generally offsetting over time the expenses on the exposures being  hedged. The cash flows from these non-designated contracts were recorded in  operating activities in the consolidated statements of cash flows. |

 

13

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|   | Fair values of derivative instruments in the  consolidated balance sheets were as follows (in millions of dollars): |
|--------|---------------------------------------------------------------------------------------------------------------------|

 
|                                    |   | April 30,  2010 |   | October 31,  2009 |   | April 30,  2009 |   |
|-----------------------------------------|--------|----------------------|--------|------------------------|--------|----------------------|--------|
| Other  Assets                           |   |                 |   |                   |   |                 |   |
| Designated  as hedging instruments:     |   |                 |   |                   |   |                 |   |
| Interest  rate contracts                |   | $                    | 376.7  |                   | $      | 446.4                |   | $ | 466.9 |   |
|                                    |   |                 |   |                   |   |                 |   |
| Not  designated as hedging instruments: |   |                 |   |                   |   |                 |   |
| Interest  rate contracts                |   | 42.0                 |   | 42.4                   |   | 58.6                 |   |
| Foreign  exchange contracts             |   | 1.3                  |   | 3.4                    |   | 9.4                  |   |
| Cross-currency  interest rate contracts |   | 3.7                  |   | 173.5                  |   | 40.1                 |   |
| Total  not designated                   |   | 47.0                 |   | 219.3                  |   | 108.1                |   |
|                                    |   |                 |   |                   |   |                 |   |
| Total  derivatives                      |   | $                    | 423.7  |                   | $      | 665.7                |   | $ | 575.0 |   |
|                                    |   |                 |   |                   |   |                 |   |
| Accounts  Payable and Accrued Expenses  |   |                 |   |                   |   |                 |   |
| Designated  as hedging instruments:     |   |                 |   |                   |   |                 |   |
| Interest  rate contracts                |   | $                    | 41.1   |                   | $      | 76.6                 |   | $ | 111.8 |   |
| Cross-currency  interest rate contracts |   | 51.9                 |   |                   |   |                 |   |
| Total  designated                       |   | 93.0                 |   | 76.6                   |   | 111.8                |   |
|                                    |   |                 |   |                   |   |                 |   |
| Not  designated as hedging instruments: |   |                 |   |                   |   |                 |   |
| Interest  rate contracts                |   | 26.2                 |   | 38.6                   |   | 50.6                 |   |
| Foreign  exchange contracts             |   | 9.1                  |   | 15.0                   |   | 8.4                  |   |
| Cross-currency  interest rate contracts |   | 1.5                  |   | .7                     |   | .5                   |   |
| Total  not designated                   |   | 36.8                 |   | 54.3                   |   | 59.5                 |   |
|                                    |   |                 |   |                   |   |                 |   |
| Total  derivatives                      |   | $                    | 129.8  |                   | $      | 130.9                |   | $ | 171.3 |   |

 

14

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|   | The classification and gains (losses) including  accrued interest expense related to derivative instruments on the statements  of consolidated income consisted of the following (in millions of dollars): |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|                           |   | Expense or OCI                            |   | Three Months  Ended  April 30 |   | Six Months Ended  April 30 |   |
|--------------------------------|--------|-------------------------------------------|--------|------------------------------------|--------|---------------------------------|--------|
|                           |   | Classification                            |   | 2010                               |   | 2009                            |   | 2010 |   | 2009 |   |
| Fair  Value Hedges:            |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Interest  rate contracts       |   | Interest expense                          |   | $                                  | 45.8   |                            | $      | 10.1 |   | $ | 100.5 |   | $ | 281.2 |   |
|                           |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Cash  Flow Hedges:             |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Recognized  in OCI             |   |                                      |   |                               |   |                            |   |   |   |   |   |
| (Effective  Portion):          |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Interest  rate contracts       |   | OCI (pretax) **                           |   | (.7)                               |   | (19.5)                          |   | (6.2) |   | (69.2) |   |
| Foreign  exchange contracts    |   | OCI (pretax) **                           |   | (29.4)                             |   |                            |   | (52.1) |   |   |   |
|                           |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Reclassified  from OCI         |   |                                      |   |                               |   |                            |   |   |   |   |   |
| (Effective  Portion):          |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Interest  rate contracts       |   | Interest expense **                       |   | (18.3)                             |   | (24.5)                          |   | (39.3) |   | (32.4) |   |
| Foreign  exchange contracts    |   | Administrative and  operating expenses ** |   | (35.6)                             |   |                            |   | (52.5) |   |   |   |
|                           |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Recognized  Directly in Income |   |                                      |   |                               |   |                            |   |   |   |   |   |
| (Ineffective  Portion):        |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Interest  rate contracts       |   | Interest expense                          |   | *                   |   | *                |   | *    |   | *    |   |
| Foreign  exchange contracts    |   | Administrative and  operating expenses    |   | *                   |   | *                |   | *    |   | *    |   |
|                           |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Not  Designated as Hedges:     |   |                                      |   |                               |   |                            |   |   |   |   |   |
| Interest  rate contracts       |   | Interest expense **                       |   | $                                  | (10.2) |                            | $      | 8.6 |   | $ | *    |   | $ | .2 |   |
| Foreign  exchange contracts    |   | Administrative and  operating expenses ** |   | (11.1)                             |   | (2.3)                           |   | (30.3) |   | 52.3 |   |
| Total                          |   |                                      |   | $                                  | (21.3) |                            | $      | 6.3 |   | $ | (30.3) |   | $ | 52.5 |   |

 
|   | *     The amount is not material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **  Includes  interest and foreign exchange gains (losses) from cross-currency interest  rate contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (10)   | 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 $4.5 million in the first six months of 2010. The  accumulated benefit obligation and plan net assets for the employees of the  Company are not determined separately from Deere & Company. The  Company generally provides defined benefit health care and life insurance  plans for retired employees in the U.S. as a participating employer in Deere &  Company’s sponsored plans. Health care and life insurance benefits expense is  actuarially determined based on the Company’s employees included in the plans  and amounted to $3.7 million during the first six months of 2010. Further  disclosure for these plans is included in Deere & Company’s Form 10-Q  for the quarter ended April 30, 2010. |

 

15

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Item 2.          Management’s Discussion andAnalysis of Financial Condition and Results of Operations.

 

Results of Operations

 

Overview

 

Organization

 

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

 

In the first quarter of 2010, the Company adopted FASBASC 810, Consolidation (FASB Statement No. 160, Noncontrolling Interestsin Consolidated Financial Statements). This guidance requires thatnoncontrolling interests are reported as a separate line in stockholder’sequity. The net income for both the Company and the noncontrolling interestsare included in “Net income” on the consolidated financial statements. The “Netincome attributable to noncontrolling interests” is deducted from “Net income”to determine the “Net income attributable to the Company,” which agrees withthe previous calculation of net income. The following discussions of these netincome and equity amounts have been adjusted accordingly for all periodspresented.

 

Trends and Economic Conditions

 

The Company’s business is closely related to JohnDeere’s business. Industry farm machinery sales for 2010 are forecastto be up 5 to 10 percent for the year in the U.S. and Canada with support fromhealthy farm cash receipts, solid commodity prices and low interest rates.Industry sales of farm machinery in Western Europe are forecast to decline10 to 15 percent for the year. Sales in Central Europe and theCommonwealth of Independent States are expected to remain under pressure.Industry sales in South America are projected to increase about 25 percent.Industry sales of turf equipment and compact utility tractors in the U.S. and Canadaare expected to be up 5 to 10 percent for the year. Deere & Company’sagriculture and turf segment sales increased 1 percent for the second quarterand decreased 2 percent for the first six months of 2010. These sales areforecast to increase by 9 to 11 percent for the full year with a favorableforeign currency translation effect of about 3 percent. U.S. constructionequipment markets are showing signs of stabilization, though they remaindepressed as a result of declining non-residential construction and relativelyhigh used equipment levels. Global forestry markets are improving from lastyear’s extremely weak levels. Deere & Company’s construction andforestry sales were up 52 percent in the second quarter and 15 percent in thefirst six months of 2010.  These salesare forecast to increase by about 30 percent for the year due to lowinventories and more steady market conditions.

 

Net income attributable to the Company in fiscal year2010 is forecast to increase to approximately $250 million, compared to$149 million in fiscal year 2009. The forecast increase from 2009 is primarilydue to improved financing spreads and a lower provision for credit losses,partially offset by higher administrative and operating expenses.

 

Items of concern for the Company include the declinein global economic activity, the impact of sovereign and state debt, capitalmarket disruptions, the availability of credit for the Company’s customers, theeffectiveness of governmental policies to promote economic recovery and financialregulatory reform. Significant fluctuations in foreign currency exchange ratesand volatility in the price of many commodities could also impact the Company’sresults.

 

2010 Compared with2009

 

Net income attributable to the Company was $69.4million for the second quarter and $133.4 million for the first six months of2010, compared with $33.9 million and $69.0 million for the same periodslast year. Results were higher for both periods primarily due to improvedfinancing spreads, a lower provision for credit losses and higher commissionsfrom crop insurance, partially offset by higher administrative and operatingexpenses.

 

16

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Revenues totaled $412.2 million for the second quarterand $826.6 million for the first six months of 2010, compared with $425.9million and $863.5 million for the same periods last year. The decreases wereprimarily due to lower financing rates, partially offset by higher commissionsfrom crop insurance. Finance income earned on retail notes totaled$349.7 million for the first six months of 2010, compared with$379.7 million for the same period in 2009. This decrease was primarilydue to lower financing rates. Lease revenues totaled $140.5 million in thefirst six months of 2010, compared with $158.6 million in the first sixmonths of 2009. This decrease was primarily due to lower financing rates onequipment on operating leases and a 3 percent decrease in the average balanceof leases. Revenues earned on revolving charge accounts amounted to$125.9 million in the first six months of 2010, compared with$109.3 million during the same period last year. The increase wasprimarily due to an increase in the average balance of revolving chargeaccounts in the first six months of 2010, compared with the same period lastyear. Finance income earned on wholesale receivables totaled $121.7 million forthe first six months of 2010, compared to $148.8 million for the sameperiod in 2009. The decrease was primarily due to lower financing rates,partially offset by a 3 percent increase in the average balance of wholesalereceivables. Revenues earned from John Deere totaled $112.4 million forthe second quarter and $220.3 million for the first six months of 2010,compared to $137.2 million and $270.4 million for the same periods lastyear. The decreases were primarily due to lower financing rates.

 

Crop insurance commissions totaled $19.3 million forthe second quarter and $36.1 million for the first six months of 2010, comparedwith $5.5 million and $12.1 million for the same periods in 2009. The increaseswere primarily due to more favorable underwriting experience that resulted inhigher commissions in the first six months of 2010, compared with the sameperiod in 2009.

 

Interest expense totaled $139.9 million for the secondquarter and $289.9 million for the first six months of 2010, compared with$203.9 million and $411.2 million for the same periods in 2009. The decreaseswere due to lower interest rates and lower average borrowings.

 

Administrative and operating expenses were $91.1million in the second quarter and $185.5 million in the first six months of2010, compared with $66.8 million and $152.9 million for the same periodsin 2009. The increases were primarily due to foreign exchange losses, higheremployment costs and higher crop insurance commission expenses.

 

During the second quarter and first six months of2010, the provision for credit losses totaled $21.3 million and $44.3 million,respectively, compared with $41.8 million and $74.2 million for the sameperiods in 2009. The decreases were primarily due to a decrease in theallowance for credit losses and lower write-offs of construction and forestryequipment retail notes. The annualized provision for credit losses, as apercentage of the average balance of total Receivables financed, was..47 percent for the second quarter and .49 percent for the first sixmonths of 2010, compared with .94 percent and .83 percent for the same periodsin 2009. See the Company’s most recently filed annual report on Form 10-Kfor further information regarding the Company’s allowance for credit lossespolicies.

 

The Company’s ratio of earnings to fixed charges was1.76 to 1 for the second quarter of 2010, compared with 1.26 to 1 for thesecond quarter of 2009. The Company’s ratio of earnings to fixed charges was1.68 to 1 for the first six months of 2010, compared with 1.25 to 1 forthe first six months of 2009. “Earnings” consist of income before income taxes,the cumulative effect of changes in accounting and fixed charges excludingcapitalized interest. “Fixed charges” consist of interest on indebtedness,amortization of debt discount and expense, interest related to uncertain taxpositions, an estimated amount of rental expense under capitalized leases thatis deemed to be representative of the interest factor and rental expense underoperating leases, and capitalized interest.

 

17

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

 
|                                 |   | Three Months                           |   |                                   |   |                                 |   |
|--------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|--------------------------------------|--------|
|                                 |   | Ended  April 30,                  |   |                                   |   |                                 |   |
|                                 |   | 2010                                   |   | 2009                                   |   | $ Change                        |   | % Change |   |
| Retail  notes:                       |   |                                   |   |                                   |   |                                 |   |   |   |
| Agriculture  and turf equipment      |   | $     1,747.6 |   | $     1,265.2 |   | $     482.4 |   | 38% |   |
| Construction  and forestry equipment |   | 148.8                                  |   | 98.6                                   |   | 50.2                                 |   | 51 |   |
| Total  retail notes                  |   | 1,896.4                                |   | 1,363.8                                |   | 532.6                                |   | 39 |   |
| Revolving  charge accounts           |   | 1,260.7                                |   | 1,137.1                                |   | 123.6                                |   | 11 |   |
| Operating  loans                     |   | 54.7                                   |   | 249.3                                  |   | (194.6)                              |   | (78) |   |
| Wholesale  receivables               |   | 6,246.5                                |   | 5,756.2                                |   | 490.3                                |   | 9 |   |
| Financing  leases                    |   | 45.7                                   |   | 37.7                                   |   | 8.0                                  |   | 21 |   |
| Equipment  on operating leases       |   | 179.4                                  |   | 116.8                                  |   | 62.6                                 |   | 54 |   |
| Total  Receivables and Leases        |   | $     9,683.4 |   | $     8,660.9 |   | $  1,022.5                 |   | 12% |   |

 
|                                 |   |    Six  Months           |   |                                   |   |                                 |   |
|--------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|--------------------------------------|--------|
|                                 |   |    Ended  April 30, |   |                                   |   |                                 |   |
|                                 |   | 2010                                    |   | 2009                                   |   | $ Change                        |   | % Change |   |
| Retail  notes:                       |   |                                    |   |                                   |   |                                 |   |   |   |
| Agriculture  and turf equipment      |   | $     3,061.6  |   | $     2,138.2 |   | $     923.4 |   | 43% |   |
| Construction  and forestry equipment |   | 269.3                                   |   | 229.8                                  |   | 39.5                                 |   | 17 |   |
| Total  retail notes                  |   | 3,330.9                                 |   | 2,368.0                                |   | 962.9                                |   | 41 |   |
| Revolving  charge accounts           |   | 2,299.5                                 |   | 2,133.2                                |   | 166.3                                |   | 8 |   |
| Operating  loans                     |   | 139.7                                   |   | 799.8                                  |   | (660.1)                              |   | (83) |   |
| Wholesale  receivables               |   | 10,352.0                                |   | 10,151.8                               |   | 200.2                                |   | 2 |   |
| Financing  leases                    |   | 82.2                                    |   | 75.4                                   |   | 6.8                                  |   | 9 |   |
| Equipment  on operating leases       |   | 246.6                                   |   | 200.4                                  |   | 46.2                                 |   | 23 |   |
| Total  Receivables and Leases        |   | $   16,450.9             |   | $   15,728.6            |   | $     722.3 |   | 5% |   |

 

Retail note volumes increased in the second quarterand first six months of 2010, when compared to last year, primarily due toincreases in retail sales of John Deere equipment. Operating loan volumesdecreased during the second quarter and first six months of 2010, when comparedto last year, primarily due to decreased borrowings by farm input providers.Wholesale receivable volumes increased during the second quarter of 2010, whencompared to last year, due to increased shipments of John Deere agriculture andturf equipment as a result of increased retail sales activity.

 

Total Receivables and Leases held were as follows (inmillions of dollars):

 
|                                 |   | April 30,                         |   | October 31,                       |   | April 30,                         |   |
|--------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|
|                                 |   | 2010                                   |   | 2009                                   |   | 2009                                   |   |
| Retail  notes:                       |   |                                   |   |                                   |   |                                   |   |
| Agriculture  and turf equipment      |   | $     9,963.0 |   | $     9,952.0 |   | $     8,987.2 |   |
| Construction  and forestry equipment |   | 1,219.7                                |   | 1,386.0                                |   | 1,643.4                                |   |
| Recreational  products               |   | 5.5                                    |   | 6.2                                    |   | 7.6                                    |   |
| Total  retail notes                  |   | 11,188.2                               |   | 11,344.2                               |   | 10,638.2                               |   |
| Revolving  charge accounts           |   | 2,099.8                                |   | 2,192.5                                |   | 1,824.7                                |   |
| Operating  loans                     |   | 217.5                                  |   | 297.0                                  |   | 410.2                                  |   |
| Wholesale  receivables               |   | 5,105.1                                |   | 3,873.5                                |   | 5,184.5                                |   |
| Financing  leases                    |   | 379.4                                  |   | 392.8                                  |   | 372.5                                  |   |
| Equipment  on operating leases       |   | 972.3                                  |   | 1,023.2                                |   | 981.3                                  |   |
| Total  Receivables and Leases        |   | $   19,962.3            |   | $   19,123.2            |   | $   19,411.4            |   |

 

18

----

 

Receivables and Leases administered by the Companywere as follows (in millions of dollars):

 
|                                                          |   | April 30,                                      |   | October 31,                                    |   | April 30,                                      |   |
|---------------------------------------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                          |   | 2010                                                |   | 2009                                                |   | 2009                                                |   |
| Receivables  and Leases administered:                         |   |                                                |   |                                                |   |                                                |   |
| Owned  by the Company                                         |   | $       16,870.0 |   | $       16,013.1 |   | $       16,275.7 |   |
| Owned  by the Company – restricted due to securitization |   | 3,092.3                                             |   | 3,110.1                                             |   | 3,135.7                                             |   |
| Total  Receivables and Leases owned by the Company            |   | 19,962.3                                            |   | 19,123.2                                            |   | 19,411.4                                            |   |
| Administered  – with limited recourse*                   |   | 78.8                                                |   | 95.8                                                |   | 119.9                                               |   |
| Administered  – without recourse**                       |   | 24.6                                                |   | 32.6                                                |   | 42.7                                                |   |
| Total  Receivables and Leases administered                    |   | $       20,065.7 |   | $       19,251.6 |   | $       19,574.0 |   |

 

 

*                 The Company’s maximum exposure under allReceivable and Lease recourse provisions at April 30, 2010, October 31,2009 and April 30, 2009 was $6 million, $7 million, and $9 million,respectively. The Company does not record the recourse obligations asliabilities as they are contingent liabilities that are remote at this time.However, the probable loss on Receivables and Leases that have been sold wasaccrued at the time of sale, and any subsequent necessary adjustments are madeas part of ongoing reviews.

 

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

 

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

 
|                                 |   | April 30,                |   | October 31, |   | April 30,                |   |
|--------------------------------------|--------|-------------------------------|--------|------------------|--------|-------------------------------|--------|
|                                 |   | 2010                          |   | 2009             |   | 2009                          |   |
|                                 |   | Dollars                       |   | Percent          |   | Dollars                       |   | Percent |   | Dollars |   | Percent |   |
| Retail  notes:                       |   |                          |   |             |   |                          |   |   |   |   |   |   |   |
| Agriculture  and turf equipment      |   | $    29.2 |   | .29%             |   | $    27.3 |   | .27% |   | $    19.2 |   | .21% |   |
| Construction  and forestry equipment |   | 4.5                           |   | .37              |   | 10.7                          |   | .77 |   | 10.2 |   | .62 |   |
| Recreational  products               |   |                          |   |             |   |                          |   |   |   |   |   |   |   |
| Total  retail notes                  |   | 33.7                          |   | .30              |   | 38.0                          |   | .33 |   | 29.4 |   | .28 |   |
| Revolving  charge accounts*          |   | 30.2                          |   | 1.44             |   | 19.8                          |   | .90 |   | 29.3 |   | 1.61 |   |
| Operating  loans                     |   |                          |   |             |   |                          |   |   |   |   |   |   |   |
| Wholesale  receivables               |   | 2.4                           |   | .05              |   | 1.6                           |   | .04 |   | 5.1 |   | .10 |   |
| Financing  leases                    |   | 6.8                           |   | 1.79             |   | 6.0                           |   | 1.53 |   | 6.4 |   | 1.72 |   |
| Total  Receivables                   |   | $    73.1 |   | .38%             |   | $    65.4 |   | .36% |   | $    70.2 |   | .38% |   |

 

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

 

The balance of retail notes held (principal plusaccrued interest) with any installment 60 days or more past due represents thetotal retail note balance for a customer who has any portion of their note 60days or more past due. These amounts were $233 million, $301 million and $214million at April 30, 2010, October 31, 2009 and April 30, 2009,respectively. The balances of retail notes held on which any installment was 60days or more past due as a percentage of the ending retail notes receivable was2.08 percent, 2.66 percent and 2.01 percent at April 30, 2010, October 31,2009 and April 30, 2009, respectively.

 

19

----

 

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

 
|                                 |   | April 30,                |   | October 31, |   | April 30,                |   |
|--------------------------------------|--------|-------------------------------|--------|------------------|--------|-------------------------------|--------|
|                                 |   | 2010                          |   | 2009             |   | 2009                          |   |
|                                 |   | Dollars                       |   | Percent          |   | Dollars                       |   | Percent |   | Dollars |   | Percent |   |
| Retail  notes:                       |   |                          |   |             |   |                          |   |   |   |   |   |   |   |
| Agriculture  and turf equipment      |   | $    52.8 |   | .53%             |   | $    50.1 |   | .50% |   | $    25.2 |   | .28% |   |
| Construction  and forestry equipment |   | 33.6                          |   | 2.75             |   | 33.2                          |   | 2.40 |   | 20.2 |   | 1.23 |   |
| Recreational  products               |   | .2                            |   | 3.66             |   | .1                            |   | 1.61 |   | .2 |   | 2.63 |   |
| Total  retail notes                  |   | 86.6                          |   | .77              |   | 83.4                          |   | .74 |   | 45.6 |   | .43 |   |
| Revolving  charge accounts           |   | 1.0                           |   | .05              |   | 1.1                           |   | .05 |   | 1.1 |   | .06 |   |
| Operating  loans                     |   | 4.9                           |   | 2.25             |   | 35.9                          |   | 12.09 |   | 34.0 |   | 8.29 |   |
| Wholesale  receivables               |   | 29.5                          |   | .58              |   | 9.2                           |   | .24 |   | 8.6 |   | .17 |   |
| Financing  leases                    |   | 15.9                          |   | 4.18             |   | 16.6                          |   | 4.23 |   | 14.1 |   | 3.78 |   |
| Total  Receivables                   |   | $   137.9      |   | .73%             |   | $   146.2      |   | .81% |   | $   103.4 |   | .56% |   |

 

The increase in non-performing wholesale receivablesat April 30, 2010 was primarily due to payment defaults on wholesalereceivables to a construction and forestry equipment dealer. A loan-lossprovision was recorded for the estimated uncollectible amount.

 

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 |   |
|--------------------------------------|--------|---------------------|--------|---------------------|--------|
|                                 |   | April 30,      |   | April 30,      |   |
|                                 |   | 2010                |   | 2009                |   |
|                                 |   | Dollars             |   | Percent             |   | Dollars |   | Percent |   |
| Retail  notes:                       |   |                |   |                |   |   |   |   |   |
| Agriculture  and turf equipment      |   | $                   | 1.3    |                | .05%   |   | $ | 1.1 |   | .05% |   |
| Construction  and forestry equipment |   | 4.1                 |   | 1.32           |   | 15.6 |   | 3.63 |   |
| Recreational  products               |   |                |   |                |   | .2 |   | 9.90 |   |
| Total  retail notes                  |   | 5.4                 |   | .20            |   | 16.9 |   | .63 |   |
| Revolving  charge accounts           |   | 12.8                |   | 2.70           |   | 14.7 |   | 3.56 |   |
| Operating  loans                     |   | 2.6                 |   | 4.77           |   |   |   |   |   |
| Wholesale  receivables               |   | .1                  |   | .01            |   | .4 |   | .03 |   |
| Financing  leases                    |   | 1.2                 |   | 1.30           |   | 1.3 |   | 1.41 |   |
| Total  Receivables                   |   | $                   | 22.1   |                | .49%   |   | $ | 33.3 |   | .75% |   |

 
|                                 |   | Six Months Ended |   | Six Months Ended        |   |
|--------------------------------------|--------|------------------|--------|-------------------------|--------|
|                                 |   | April 30,   |   | April 30,          |   |
|                                 |   | 2010             |   | 2009                    |   |
|                                 |   | Dollars          |   | Percent                 |   | Dollars |   | Percent |   |
| Retail  notes:                       |   |             |   |                    |   |   |   |   |   |
| Agriculture  and turf equipment      |   | $                | 2.5    |                    | .05%   |   | $ | 2.0 |   | .04% |   |
| Construction  and forestry equipment |   | 17.2             |   | 2.67     |   | 30.3 |   | 3.32    |   |
| Recreational  products               |   |             |   |                    |   | .6 |   | 14.00    |   |
| Total  retail notes                  |   | 19.7             |   | .35      |   | 32.9 |   | .59    |   |
| Revolving  charge accounts           |   | 21.9             |   | 2.27     |   | 24.6 |   | 2.96    |   |
| Operating  loans                     |   | 15.7             |   | 13.04    |   | (.4 | ) | (.21)   |   |
| Wholesale  receivables               |   | (1.3             | )      | (.06)         |   | .6 |   | .03    |   |
| Financing  leases                    |   | 1.9              |   | 1.00     |   | 2.2 |   | 1.13    |   |
| Total  Receivables                   |   | $                | 57.9   |                    | .64%   |   | $ | 59.9 |   | .67% |   |

 

The increase in operating loans write-offs during thefirst six months of 2010 was primarily due to a turf equipment customer thathad been carried as a non-performing operating loan since the third quarter of2008. Loan-loss provisions for estimated uncollectible amounts were recorded inprior years. No additional loan-loss provisions were recorded in the currentyear.

 

20

----

 

          Depositswithheld from dealers and merchants, representing mainly the aggregate dealerretail note and lease withholding accounts from individual John Deere dealersto which losses from retail notes and leases originating from the respectivedealers can be charged, amounted to $149 million at April 30, 2010compared with $165 million at October 31, 2009 and $160 million at April 30,2009.

 

          TheCompany’s allowance for credit losses on all Receivables financed totaled $144million at April 30, 2010, $158 million at October 31, 2009 and$120 million at April 30, 2009. The allowance for credit lossesrepresented .76 percent of the total Receivables financed at April 30,2010, .87 percent at October 31, 2009 and .65 percent at April 30,2009. 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.

 

Safe Harbor Statement

 

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

 

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

 

Significantchanges in market liquidity conditions could impact access to funding andassociated funding costs, which could reduce the Company’s earnings and cashflows. Market conditions could also negatively impact customer access tocapital for purchase of John Deere’s products; borrowings and repaymentpractices; and the number and size of customer loan delinquencies and defaults.A sovereign debt crisis, in Europe or elsewhere, could continue to negativelyimpact currencies, global financial markets, social and political stability,funding sources and costs, customers, and Company operations and results. Statedebt crises also could negatively impact customers, suppliers, demand forequipment, and Company operations and results. The Company’s operations couldbe impaired by changes in the equity and bond markets, which would negativelyaffect earnings.

 

The liquidity andongoing profitability of the Company depends largely on timely access tocapital to meet future cash flow requirements and fund operations and the costsassociated with engaging in diversified funding activities. If marketvolatility worsens, funding could be unavailable or insufficient. Additionally,customer confidence levels may result in declines in credit applications andincreases in delinquencies and default rates, which could materially impact theCompany’s write-offs and provision for credit losses.

 

In addition, theCompany’s business is closely related to John Deere’s business. Furtherinformation, including factors that potentially could materially affect theCompany’s and John Deere’s financial results, is included in the most recentDeere & Company Form 10-K and Form 10-Q (including, but notlimited to, the factors discussed in Item 1A. Risk Factors of the Form 10-Kand quarterly report on Form 10-Q) 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 additional information on the Company’s dependenceon and relationships with Deere & Company, see the Company’s mostrecently filed annual report on Form 10-K.

 

21

----

 

         Duringthe first six months of 2010, the aggregate net cash provided by the beginningbalance of cash and cash equivalents, operating and financing activities wasused primarily to increase Receivables. Net cash provided by operatingactivities was $471 million in the first six months of 2010. Net cashprovided by financing activities totaled $61 million in the first sixmonths of 2010, resulting primarily from an increase in payables to John Deere,partially offset by a net decrease in total external borrowings and a dividendpaid to John Deere Credit Company, which in turn paid a comparable dividend toDeere & Company. Net cash used for investing activities totaled$1,176 million in the first six months of 2010, primarily due to the costof Receivables and Leases acquired exceeding collections and proceeds fromsales of equipment on operating leases. Cash and cash equivalents decreased$651 million during the first six months of 2010.

 

          Duringthe first six months of 2009, the aggregate net cash provided by operating andfinancing activities was used primarily to increase cash and cash equivalentsand to increase Receivables. Net cash provided by operating activities was$256 million in the first six months of 2009. Net cash provided byfinancing activities totaled $1,413 million in the first six months of2009, resulting primarily from a net increase in total external borrowings,partially offset by a decrease in payables to John Deere. Net cash used forinvesting activities totaled $626 million in the first six months of 2009,primarily due to the cost of Receivables and Leases acquired exceedingcollections. Cash and cash equivalents increased $1,049 million during thefirst six months of 2009.

 

         Thefinancing of retail purchases and leases of John Deere products and ofwholesale receivables owed by John Deere dealers represented approximately 85percent and 80 percent of the Company’s acquisition volume for the six monthsended April 30, 2010 and 2009, respectively. Any extended reduction orsuspension of John Deere’s sale or production of products due to a decline indemand or production, governmental actions or other events could have anadverse effect on the Company’s acquisition volume of Receivables andLeases.  

 

         TheCompany relies on its ability to raise substantial amounts of funds to financeits Receivable and Lease portfolios. Given the downturn in global economicactivity, there has been a reduction in liquidity in some global markets thatcontinues to affect the funding activities of the Company. However, the Companyhas access to most global markets at a reasonable cost and expects to have sufficientsources of global funding and liquidity to meet its funding needs. TheCompany’s ability to meet its debt obligations is supported in a number ofways. The assets of the Company are self-liquidating in nature. A solid equityposition is available to absorb unusual losses on these assets and allcommercial paper is backed by unsecured, committed borrowing lines from variousbanks. Liquidity is also provided by the Company’s ability to securitize theseassets and through the issuance of term debt. Additionally, liquidity may beprovided through loans from John Deere. The Company’s commercial paperoutstanding at April 30, 2010, October 31, 2009 and April 30,2009 was approximately $209 million, $32 million and $654 million,respectively, while the total cash and cash equivalents position wasapproximately $219 million, $871 million and $2,131 million,respectively.

 

         DuringNovember 2009, the Capital Corporation renewed a revolving creditagreement to utilize bank conduit facilities to securitize retail notes (seeNote 5). At April 30, 2010, this facility had a total capacity, or“financing limit,” of up to $1,500 million of secured financings at anytime. After a 364 day revolving period, unless the banks and CapitalCorporation agree to renew for an additional 364 days, Capital Corporationwould liquidate the secured borrowings over time as payments on the retailnotes are collected. At April 30, 2010, $1,112 million of securedshort-term borrowings was outstanding under the agreement. 

 

         Duringthe first six months of 2010, the Company issued $560 million of medium-termnotes, obtained $885 million of secured borrowings and maintained anaverage commercial paper balance of $550 million. At April 30, 2010, theCompany’s funding profile included $209 million of commercial paper,$3,051 million of notes payable related to on-balance sheet securitizationfunding, $730 million of intercompany loans from John Deere,$14,292 million of unsecured term debt, and $2,376 million of equity capital.The Company’s funding profile may be altered to reflect such factors asrelative costs of funding sources, assets available for securitizations andcapital market accessibility. 

 

         InApril 2010, the Company completed a $708 million retail note securitizationtransaction, which is included in short-term secured borrowings. During thefirst six months of 2010, the Company issued $560 million and retired$1,296 million of long-term borrowings which were primarily medium-termnotes.

 

22

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          Totalinterest-bearing indebtedness amounted to $18,283 million at April 30,2010, compared with $18,411 million at October 31, 2009, and$20,149 million at April 30, 2009. Included in this debt are securedborrowings of $3,051 million, $3,109 million and $3,119 million for thesame periods (see Note 5). Total external borrowings decreased during the firstsix months of 2010 and decreased in the past 12 months, generally correspondingwith the level of cash and cash equivalents, the level of the Receivable andLease portfolio and the change in payable to John Deere. Total short-termindebtedness amounted to $5,901 million at April 30, 2010, compared with$5,711 million at October 31, 2009, and $6,694 million at April 30,2009. Included in short-term indebtedness are secured borrowings of$3,051 million, $3,109 million and $3,119 million for the sameperiods. Total long-term indebtedness amounted to $12,381 million at April 30,2010, compared with $12,701 million at October 31, 2009, and $13,455million at April 30, 2009. The ratio of total interest-bearing debt,including securitization indebtedness, to stockholder’s equity was 7.7 to 1 at April 30,2010, compared with 7.9 to 1 at October 31, 2009 and 9.5 to 1 at April 30,2009. 

 

          Stockholder’sequity was $2,376 million at April 30, 2010, compared with $2,317 millionat October 31, 2009 and $2,112 million at April 30, 2009. Theincrease in the first six months of 2010 resulted primarily from net incomeattributable to the Company of $133 million and a $22 million unrealizedgain on derivatives, partially offset by a dividend payment of $70 million anda decrease in the cumulative translation adjustment of $27 million. 

 

*Lines ofCredit*

 

The Company also has access to bank lines of creditwith various banks throughout the world. Some of the lines are available toboth the Company and Deere & Company. In the second quarter of 2010,the Company added an additional long-term credit facility agreement of $1,500million, expiring in April 2013, which replaced a 364 day agreement of$750 million. Worldwide lines of credit totaled $5,251 million at April 30, 2010,$4,945 million of which was unused. For thepurpose of computing unused credit lines, commercial paper and short-term bankborrowings, excluding secured borrowings and the current portion of long-termborrowings, of the Company and Deere & Company were primarilyconsidered to constitute utilization. Included in the total credit linesat April 30, 2010 was the long-term credit facility agreement of $3,750million, expiring in February 2012 and the new long-term credit facilityagreement of $1,500 million, expiring in April 2013. The credit agreementsrequire the Company to maintain its consolidated ratio of earnings to fixedcharges at not less than 1.05 to 1 for each fiscal quarter and its ratio ofsenior debt, excluding securitization indebtedness, to capital base (totalsubordinated debt and total Company stockholder’s equity excluding accumulatedother comprehensive income (loss)) at not more than 11 to 1 at the end ofany fiscal quarter. All of these requirements of the credit agreements havebeen met during the periods included in the consolidated financial statements.

 

*DebtRatings*

 

          TheCompany’s ability to obtain funding is affected by its debt ratings, which areclosely related to the outlook for and the financial condition of John Deere,and the nature and availability of support facilities, such as its lines ofcredit and the support agreement from Deere & Company. 

 

          Toaccess public debt capital markets, the Company relies on credit ratingagencies to assign short-term and long-term credit ratings to the Company’ssecurities as an indicator of credit quality for fixed income investors. A creditrating agency may change or withdraw Company ratings based on its assessment ofthe Company’s current and future ability to meet interest and principalrepayment obligations. Each agency’s rating should be evaluated independentlyof any other rating. Lower credit ratings generally result in higher borrowingcosts and reduced access to debt capital markets. 

 

The senior long-term and short-term debt ratings andoutlook currently assigned to unsecured Company securities by the ratingagencies engaged by the Company are the same as those for John Deere. Thoseratings are as follows:

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

 

*Dividends*

 

          TheCapital Corporation declared and paid a cash dividend to John Deere CreditCompany of $70 million in the first six months of fiscal 2010. John DeereCredit Company paid a comparable dividend to Deere & Company.  OnMay 27, 2010, the Capital Corporation declared a $60 million dividend, tobe paid to John Deere Credit Company on July 15, 2010. John Deere CreditCompany, in turn, declared a $60 million dividend to Deere & Company,also payable on July 15, 2010.

 

23

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| Item  3.                                                                                                                                                   | Quantitative and  Qualitative Disclosures About Market Risk. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                                                                                                                                       |                                                         |
| See the Company’s most recent annual report filed on  Form 10-K (Part II, Item 7A). There has been no material change in  this information. |

 
| Item  4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Controls and Procedures. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                     |
| The Company’s principal executive officer and its  principal financial officer have concluded that the Company’s disclosure  controls and procedures (as defined in Rules 13a-15(e) and  15d-15(e) of the Securities Exchange Act of 1934, as amended (“the  Act”)) were effective as of April 30, 2010, based on the evaluation of  these controls and procedures required by Rule 13a-15(b) or  15d-15(b) of the Act. During the second quarter, there were no changes  that have materially affected or are reasonably likely to materially affect  the Company’s internal control 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 (Part I,  Item 1A). There has been no material change in this information.                                                                                                                                                                                                                                                                                                                                |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 2.  | Unregistered  Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|     | Omitted pursuant  to instruction H.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

 
| Item 3. | Defaults Upon  Senior Securities.                                                                                                                                                                                                                                                                       |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                    |
|    | Omitted pursuant  to instruction H.                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                    |
| Item 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. |

 

24

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SIGNATURES

 

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

 

 
|   |              |   | JOHN DEERE CAPITAL  CORPORATION |
|--------|-------------------|--------|---------------------------------|
|   |              |   |                            |   |
|   |              |   |                            |   |
|   |              |   |                            |   |
| Date:  | May 28, 2010 |   | By:                             | */s/ J. M. Field* |
|   |              |   |                            | J. M. Field |
|   |              |   |                            | Senior Vice President,   Principal Financial Officer |

 

25

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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*)                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 10      |   | 37-Month Credit Agreement among  registrant, Deere & Company, various financial institutions,  JPMorgan Chase Bank, N.A. as administrative agent, Citibank, N.A., Credit  Suisse AG, Cayman Islands Branch and Deutsche Bank Securities Inc. as  documentation agents, and Bank of America, N.A. as syndication agent, dated  as of March 2, 2010. |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 12      |   | Computation of Ratio of Earnings to  Fixed Charges                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 31.1    |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 31.2    |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 32      |   | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |
| 99      |   | Part I of  Deere & Company Form 10-Q for the quarter ended  April 30, 2010                                                                                                                                                                                                                                                          |
|    |   | (Securities and  Exchange Commission file number 1-4121*)                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                             |

 

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

 

26

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