**UNITED STATES**

##### ***SECURITIES AND EXCHANGECOMMISSION***

**WASHINGTON, D.C. 20549**

 

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**FORM 10-K**

 

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

**OF THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE FISCAL YEAR ENDED OCTOBER 31, 2009**

 

**Commission file number 1-6458**

 

**JOHN DEERE CAPITAL CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Delaware**

(State of incorporation)                                                              | ** ** |                  | ** ** | **36-2386361**

(IRS Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------------|
| ** **                                                                                          | ** ** | ** **            | ** ** | ** **                                        |
| **1 East First Street, Suite 600**

**Reno, Nevada**

(Address of principal executive offices) | ** ** | **89501**

(Zip Code) | ** ** | **(775) 786-5527**

(Telephone number)            |

 

**SECURITIES REGISTERED PURSUANT TOSECTION 12(b) OF THE ACT:**

** **

| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|
| 5.10% Global Debentures Due 2013       |       | New York Stock Exchange                                                     |

 

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

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.  

Yes o  No x

 

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or Section 15(d) of the Act.  

Yes o  No x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  

Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  

Yes o  No o

 

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

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

 

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

Yes o  No x

 

At November 30, 2009, 2,500 shares of common stock, without parvalue, of the registrant were outstanding, all of which were owned by JohnDeere Credit Company.

 

The registrant meets the conditions set forth in General InstructionI(1)(a) and (b) of Form 10-K and is therefore filing this Form withcertain reduced disclosures as permitted by Instruction I(2).

 

 

 

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**PART I**

 

**Item 1****.  Business.**

 

The Company

 

John Deere Capital Corporation (Capital Corporation)and its subsidiaries are collectively called the Company.  John Deere Credit Company, a wholly-ownedfinance holding subsidiary of Deere & Company, owns all of theoutstanding common stock of the Capital Corporation. See “Relationships of theCompany with John Deere” for additional information regarding agreementsbetween the Company and Deere & Company. The Company conducts businessin Australia, New Zealand, the U.S., and in several countries in Asia, Europeand Latin America.

 

The Company provides and administers financing for retail purchases ofnew equipment manufactured by Deere & Company’s agriculture and turf  and construction and forestry divisions andused equipment taken in trade for this equipment. John Deere’s agriculturalequipment operations and the commercial and consumer equipment operations werecombined into the agriculture and turf segment at the beginning of the thirdquarter of 2009.Information about Deere & Company’sbusiness segments has been revised to conform to the current organization. The Companygenerally purchases retail installment sales and loan contracts (retail notes)from Deere & Company and its wholly-owned subsidiaries (collectivelycalled John Deere). John Deere generally acquires these retail notes throughJohn Deere retail dealers. The Company also purchases and finances a limitedamount of non-Deere retail notes and continues to service a small portfolio ofrecreational products and other retail notes. In addition, the Company leasesJohn Deere equipment and a limited amount of non-Deere equipment to retailcustomers (financing and operating leases). The Company also finances andservices revolving charge accounts, in most cases acquired from and offeredthrough merchants in the agriculture and turf and construction and forestrymarkets (revolving charge accounts). Further, the Company finances and servicesoperating loans, in most cases offered through and acquired from farm inputproviders or through direct relationships with agricultural producers oragribusinesses (operating loans). The Company also provides wholesale financingfor inventories of John Deere agriculture and turf, and construction andforestry equipment owned by dealers of those products (wholesale receivables).The Company also offers credit enhanced international export financing toselect customers and dealers which generally involves John Deere products andoffers certain crop risk mitigation products in the U.S. In addition, theCompany makes loans to certain affiliated companies that directly invest inwind energy projects. Retail notes, revolving charge accounts, operating loans,financing leases and wholesale receivables are collectively called “Receivables.”Receivables and operating leases are collectively called “Receivables andLeases.”

 

The Capital Corporation was incorporated under the laws of Delaware andcommenced operations in 1958. At November 30, 2009, the Company had 1,616full-time and part-time employees.

 

Business of John Deere

 

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

 

The *agriculture and turf*segment, created bycombining the former agricultural equipment and commercial and consumerequipment segments, manufactures and distributes a full line of farm  and turf care equipment and related serviceparts — including large, medium and utility tractors; loaders; combines, cottonand sugarcane harvesters and related front-end equipment and sugarcane loaders;tillage, seeding and application equipment, including sprayers, nutrientmanagement and soil preparation machinery; hay and forage equipment, includingself-propelled forage harvesters and attachments, balers and mowers; turf andutility equipment, including riding lawn equipment and walk-behind mowers, golfcourse equipment, utility vehicles, and commercial mowing equipment, along witha broad line of associated implements; integrated agricultural managementsystems technology; precision agricultural irrigation equipment and supplies;landscape and nursery products; and other outdoor power products.

 

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The *construction and forestry*segmentmanufactures, distributes to dealers and sells at retail a broad range ofmachines and service parts used in construction, earthmoving, material handlingand timber harvesting — including backhoe loaders; crawler dozers and loaders;four-wheel-drive loaders; excavators; motor graders; articulated dump trucks;landscape loaders; skid-steer loaders; and log skidders, feller bunchers, logloaders, log forwarders, log harvesters and related attachments.

 

John Deere’s worldwide agriculture and turf and construction andforestry operations are sometimes referred to as the Equipment Operations. Theproducts and services produced by the segments above are marketed primarilythrough independent retail dealer networks and major retail outlets.

 

The *credit*segment includes the operations of the Company (describedherein), John Deere Credit Company, John Deere Credit Inc. (Canada), Banco JohnDeere, S.A. (Brazil), John Deere Credit Oy (Finland) and John Deere Renewables,LLC, and primarily finances sales and leases by John Deere dealers of new andused agriculture and turf, and construction and forestry equipment. Inaddition, it provides wholesale financing to dealers of the foregoingequipment, provides operating loans, finances retail revolving charge accounts,offers certain crop risk mitigation products and invests in wind energygeneration.

 

John Deere had net income of $873 million, or $2.06 per share diluted($2.07 basic), in 2009, compared with $2,053 million, or $4.70 per sharediluted ($4.76 basic), in 2008.  Includedin net income for 2009 were charges of $381 million pretax ($332 millionafter-tax), or $.78 per share diluted and basic, related to impairment ofgoodwill and voluntary employee separation expenses.

 

John Deere’s net sales and revenues from continuing operationsdecreased 19 percent to $23,112 million in 2009, compared with$28,438 million in 2008. Net sales of the Equipment Operations decreased20 percent in 2009 to $20,756 million from $25,803 million last year.The sales decrease was primarily due to lower shipment volumes. The decreasealso included an unfavorable effect for currency translation of 4 percent, morethan offset by price realization of 5 percent.  Net sales in the U.S. and Canada decreased 14percent in 2009. Net sales outside the U.S. and Canada decreased by28 percent, which included an unfavorable effect of 8 percent for currencytranslation.

 

The agriculture and turf segment had net sales of $18,122 million in2009, compared with $20,985 million in 2008. The construction and forestrysegment had net sales of $2,634 million in 2009, compared with$4,818 million in 2008. The credit segment had revenues of $1,930 millionin 2009, compared with $2,190 million in 2008.

 

Outlook for John Deere

 

Deere &Company’s equipment sales are projected to be down about 1 percent for fiscalyear 2010 and decline about 10 percent for the first quarter, compared with thesame periods in 2009. This includes a favorable currency translation impact ofabout 1 percent for the year and about 3 percent for the quarter. Deere &Company’s net income is anticipated to be approximately $900 million for 2010.Mainly due to lower discount rates, Deere & Company expectspostretirement benefit costs to be about $400 million higher on a pretax basisin 2010 than in 2009.

 

*Agriculture and Turf.*  Worldwide sales of Deere & Company’sagriculture and turf segment are forecast to decrease by about 4 percent forfiscal year 2010, including a favorable currency translation impact of about 2percent.

 

On an industry basis, farm-machinery sales in theU.S. and Canada are forecast to be down about 10 percent for the year. Cashreceipts and commodity prices, while below their prior peaks, are anticipatedto remain at healthy levels. However, farmers are expected to be cautious intheir purchasing decisions as a result of negative overall economic conditionsand near term profitability issues in the livestock and dairy sectors.

 

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In other parts of the world, industry farm machinerysales in Western Europe are forecast to decline 10 to 15 percent for theyear mainly due to weakness in the livestock, dairy and grain sectors. Sales inCentral Europe and the Commonwealth of Independent States are expected toremain under pressure partly as a result of weak general economic conditions,including low levels of available credit. In South America, industry sales areprojected to increase by 10 to 15 percent in 2010. Among other positivefactors, parts of South America are benefiting from a return to more normalweather patterns after last year’s severe drought. The Brazilian market is expectedto receive support from good incomes for soybean and sugarcane producers andthe continued availability of attractive government supported financing. Theforecast assumes that the Brazilian currency does not strengthen furtheragainst the U.S. dollar. Industry sales of turf equipment and compact utilitytractors in the U.S. and Canada are expected to be flat for the year as aresult of negative U.S. economic conditions.

 

*Construction and Forestry.*  Deere & Company’s worldwide sales ofconstruction and forestry equipment are forecast to increase by about 18percent in 2010. Sales are expected to be helped by aggressive inventoryreductions in the previous year that position Deere & Company to alignproduction with retail demand. Despite an increase in housing starts fromhistorically low levels, U.S. construction equipment markets are forecast to bedown for the year resulting from a decline in non-residential constructionactivity and lower used equipment values. Global forestry markets are expected toexperience some recovery based on higher demand for pulp and paper, driven byhigher worldwide economic output, as well as the increase in U.S. housingstarts.

 

*Credit*.  Net incomefor 2010 for the credit operations,which includes the Company, is forecast to be approximately $240 million.The forecast increase from 2009 is primarily due to higher commissions fromcrop insurance and increased revenue from wind energy projects. The Company’snet income for 2010, which does not include the credit operations in Canada,Brazil and Finland or the wind energy operations in the U.S., is projected tobe approximately $175 million for 2010. The forecast increase from 2009 isprimarily due to higher commissions from crop insurance.

 

Relationships of the Company with John Deere

 

The results of operations of the Company are affected by itsrelationships with John Deere, including among other items, the terms on whichthe Company acquires Receivables and Leases and borrows funds from John Deere,the reimbursement for interest waiver and low-rate finance programs from JohnDeere, the compensation paid by John Deere in connection with the Company’spurchase of trade receivables from John Deere and the payment to John Deere forvarious expenses applicable to the Company’s operations. The Company also makesloans to certain affiliated companies that directly invest in wind energyprojects. In addition, the Company and John Deere have joint access to certainlines of credit of the Company.

 

The Company’s acquisition volume of Receivables and Leases is largelydependent upon the level of retail sales and leases of John Deere products. Thelevel of John Deere retail sales and leases is responsive to a variety ofeconomic, financial, climatic, legislative and other factors that influencedemand for its products. The majority of the Company’s businesses are affectedby changes in interest rates, demand for credit and competition.

 

The Company bears substantially all of the credit risk (net of recoveryfrom withholdings from certain John Deere dealers, and Farm Planä and PowerPlanâ merchants)associated with its holding of Receivables and Leases. A small portion of theReceivables and Leases held (less than 5 percent) is guaranteed by certainsubsidiaries of Deere & Company. The Company also performssubstantially all servicing and collection functions. Servicing and collectionfunctions for a small portion of the Receivables and Leases held (less than 5percent) are provided by John Deere. John Deere is reimbursed for staff andother administrative services at estimated cost and for credit lines providedto the Company based on utilization of those lines.

 

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The terms and the basis on which the Company acquires retail notes andcertain wholesale receivables from John Deere are governed by agreements withJohn Deere, generally terminable by either John Deere or the Company on 30 daysnotice. As provided in these agreements, the Company agrees to the terms andconditions for purchasing the retail notes and wholesale receivables from JohnDeere. Under these agreements, John Deere is not obligated to sell notes to theCompany, and the Company is obligated to purchase notes from John Deere only ifthe notes comply with the terms and conditions set by the Company.

 

The basis on which John Deere acquires retail notes and wholesalereceivables from the dealers is governed by agreements with the John Deeredealers, terminable at will by either the dealers or John Deere. In acquiringthese notes from dealers, the terms and conditions, as set forth in agreementswith the dealers, conform with the terms and conditions adopted by the Companyin determining the acceptability of retail and certain wholesale notes to bepurchased from John Deere. The dealers are not obligated to sell these notes toJohn Deere and John Deere is not obligated to accept these notes from thedealers. In practice, retail and wholesale notes are acquired from dealers onlyif the terms of these notes and the creditworthiness of the customers areacceptable to the Company. The Company acts on behalf of both itself and JohnDeere in determining the acceptability of the notes and in acquiring acceptablenotes from dealers.

 

The basis on which the Company enters into leases with retail customersthrough John Deere dealers is governed by agreements between dealers and theCompany. Leases are accepted based on the terms and conditions, the lessees’creditworthiness, the anticipated residual values of the equipment and theintended uses of the equipment.

 

Deere & Company has an agreement with the Company pursuant towhich it has agreed to continue to own at least 51 percent of the voting sharesof capital stock of the Company and to maintain the Company’s consolidatedtangible net worth at not less than $50 million. This agreement also obligatesDeere & Company to make income maintenance payments to the Companysuch that its consolidated ratio of earnings to fixed charges is not less than1.05 to 1 for each fiscal quarter. For 2009 and 2008, the Company’s ratioswere 1.28 to 1 and 1.52 to 1, respectively, and never less than 1.12 to 1 and1.43 to 1 for any fiscal quarter of 2009 and 2008, respectively. Deere & Company’sobligations to make payments to the Company under the agreement are independentof whether the Company is in default on its indebtedness, obligations or otherliabilities. Further, Deere & Company’s obligations under theagreement are not measured by the amount of the Company’s indebtedness,obligations or other liabilities. Deere & Company’s obligationsto make payments under this agreement are expressly stated not to be a guarantyof any specific indebtedness, obligation or liability of the Company and areenforceable only by or in the name of the Company. No payments were requiredunder this agreement during the periods included in the consolidated financialstatements.

 

The Company purchases certain wholesale receivables (trade receivables)from John Deere. These trade receivables arise from John Deere’s sales of goodsto dealers. Under the terms of the sales to dealers, interest is charged todealers on outstanding balances, from the earlier of the date when goods aresold to retail customers by the dealer or the expiration of certaininterest-free periods granted to the dealer at the time of the sale, untilpayment is received by the Company. Dealers cannot cancel purchases after goods are shipped and areresponsible for payment even if the equipment is not sold to retail customers.The interest-free periods are determined based on the type of equipment soldand the time of year of the sale. These periods range from one to twelve monthsfor most equipment. Interest-free periods may not be extended. Interest chargedmay not be forgiven and the past due interest rates exceed market rates. TheCompany receives compensation from John Deere at competitive market interestrates for these interest-free periods. The Company computes the compensationfrom John Deere for interest-free periods based on the Company’s estimatedfunding costs, administrative and operating expenses, credit losses, andrequired return on equity. The finance income earned following theinterest-free period is not significantly different from the compensationearned from John Deere.

 

4

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# Description of Receivables and Leases

 

Receivables andLeases arise mainly from retail and wholesale sales and leases of John Deereproducts and used equipment accepted in trade for them, and from retail salesof equipment of unrelated manufacturers. Receivables and Leases also includerevolving charge accounts receivable and operating loans. At October 31,2009 and 2008, approximately 90 percent of the Receivables and Leasesadministered by the Company were for financing John Deere products.

 

FPC Financial, f.s.b. (Thrift), a wholly-ownedsubsidiary of the Company, holds a federal charter issued by the Office ofThrift Supervision. The Thrift is headquartered in Madison, Wisconsin andoffers revolving charge products such as John Deere Credit Revolving Plan, FarmPlanä and PowerPlanâ on a nationwide basis. John DeereCredit Revolving Plan is used primarily by retail customers of John Deeredealers to finance purchases of turf and utility equipment. Through its FarmPlanä product, the Thriftfinances revolving charge accounts offered by approximately 5,000 participatingagribusinesses to their retail customers for the purchase of goods andservices. Farm Planä account holders purchase equipment parts and service atimplement dealerships and farm inputs such as feed, seed, fertilizer, bulk fueland building supplies from other agribusinesses. The PowerPlanâ revolving charge account is usedby construction and forestry customers to finance the purchase of parts andservice work performed at John Deere construction and forestry dealers. SeeNote 4 to the consolidated financial statements under “Revolving ChargeAccounts Receivable.”

 

The Company alsoworks with several leading farm input providers to offer crop input productionloans for materials such as seeds and fertilizer. Additionally, the Companyprovides production loans directly to farmers for their total operating needs.Generally, these loans are secured by crops and equipment.

 

The Companyfinances wholesale inventories of John Deere agriculture and turf  and construction and forestry equipment. Alarge portion of the wholesale financing provided by the Company is withdealers from whom it also purchases agriculture and turf and construction andforestry retail notes. See Note 4 to the consolidated financial statementsunder “Wholesale Receivables.”

 

The Companyrequires that theft and physical damage insurance be carried on all goodsleased or securing retail notes and wholesale receivables. The customer may, athis own expense, have the Company or the seller of the goods purchase thisinsurance or obtain it from other sources. Insurance is not required for goodspurchased under revolving charge accounts.

 

Receivables andLeases are eligible for acceptance if they conform to prescribed finance andlease plan terms. Guidelines relating to down payments and contract terms onretail notes and leases are described in Note 4 and Note 7 to theconsolidated financial statements.

 

In limitedcircumstances, Receivables and Leases may be accepted and acquired even thoughthey do not conform in all respects to the established guidelines. The Companydetermines whether Receivables and Leases should be accepted and how theyshould be serviced. Acceptance of these Receivables and Leases is dependent onhaving one or more risk mitigation enhancements that may include the pledge ofadditional collateral as security, the assignment of specific earnings to theCompany or the acceptance of accelerated payment schedules. Officers of theCompany are responsible for establishing policies and reviewing the performanceof the Company in accepting and collecting Receivables and Leases. The Companynormally makes all of its own routine collections, settlements andrepossessions on Receivables and Leases.

 

John Deere retail notes and wholesale receivables are supported byperfected security interests in goods financed under laws such as the UniformCommercial Code (UCC), certain federal statutes and state motor vehicle laws.UCC financing statements are also prepared and filed on leases; however,filings for operating leases are made for informational purposes only.

 

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Finance Rates onRetail Notes

 

As of October 31,2009 and 2008, approximately 95 percent and 90 percent, respectively of theretail notes held by the Company bore a fixed finance rate. A portion of thefinance income earned by the Company arises from reimbursements from John Deerein connection with financing the retail sales of John Deere equipment on whichfinance charges are waived or reduced by John Deere for a period from the dateof sale to a specified subsequent date. See Note 4 to the consolidatedfinancial statements for additional information.

 

Average OriginalTerm and Average Actual Life of Retail Notes and Leases

 

Due to prepayments(often from trade-ins and refinancing), the average actual life of retail notesand financing leases is considerably shorter than the average original term.The following table shows the average original term for retail notes and leasesacquired and the average actual life for retail notes and leases liquidated (inmonths):

 
| ** **                           | ** ** | **Average Original Term** | ** ** | **Average Actual Life** | ** ** |
|--------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                           | ** ** | **2009**                  | ** ** | **2008**                | ** ** | **2009** | ** ** | **2008** | ** ** |
| Retail  notes                        |       | 54                        |       | 54                      |       | 36 |   | 34 |   |
| New  equipment:                      |       |                      |       |                    |       |   |   |   |   |
| Agriculture  and turf equipment      |       | 55                        |       | 54                      |       | 34 |   | 34 |   |
| Construction  and forestry equipment |       | 44                        |       | 45                      |       | 38 |   | 35 |   |
| Used  equipment:                     |       |                      |       |                    |       |   |   |   |   |
| Agriculture  and turf equipment      |       | 56                        |       | 57                      |       | 37 |   | 34 |   |
| Construction  and forestry equipment |       | 44                        |       | 44                      |       | 35 |   | 35 |   |
| Financing  leases                    |       | 40                        |       | 41                      |       | 34 |   | 32 |   |
| Equipment  on operating leases       |       | 36                        |       | 35                      |       | 32 |   | 31 |   |

 

# Maturities

#  

# The following table presents the contractual maturities ofnet Receivables and Leases owned by the Company at October 31, 2009 (inmillions of dollars), and a summary of net Receivables and Leases owned by theCompany at the end of the last five years (in millions of dollars):

 
| ** **                           | ** ** | ** **            | ** ** | **One  to five years** | ** ** | **Over  five years** | ** ** | ** **      | ** ** | ** **         | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------------|------------|------------------------|------------|----------------------|------------|-----------------|------------|--------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **One  year or less** | ** ** | **Fixed  rate**        | ** ** | **Variable  rate**   | ** ** | **Fixed  rate** | ** ** | **Variable  rate** | ** ** | **2009  Total** | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                 |       |                  |       |                   |       |                 |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Retail  notes:                       |       |                  |       |                   |       |                 |       |            |       |               |       |            |       |       |       |       |       |   |   |   |   |
| Agriculture  and turf equipment      |       | $                     | 3,315      |                   | $          | 6,022                |       | $               | 434        |               | $          | 165             |       | $          | 16         |       | $          | 9,952 |   | $ | 9,734 |   | $ | 9,540 |   | $ | 8,353 |   | $ | 7,231 |   |
| Construction  and forestry equipment |       | 662                   |       | 724                    |       |                 |       |            |       |               |       | 1,386           |       | 1,986      |       | 2,409      |       | 2,388 |   | 1,980 |   |
| Recreational  products               |       | 1                     |       | 3                      |       |                 |       | 2               |       |               |       | 6               |       | 9          |       | 12         |       | 17 |   | 23 |   |
| Total  retail notes                  |       | $                     | 3,978      |                   | $          | 6,749                |       | $               | 434        |               | $          | 167             |       | $          | 16         |       | 11,344     |   | 11,729 |   | 11,961 |   | 10,758 |   | 9,234 |   |
| Revolving  charge accounts           |       |                  |       |                   |       |                 |       |            |       |               |       | 2,192           |       | 1,825      |       | 1,553      |       | 1,512 |   | 1,527 |   |
| Operating  loans                     |       |                  |       |                   |       |                 |       |            |       |               |       | 297             |       | 358        |       | 287        |       | 379 |   | 384 |   |
| Wholesale  receivables               |       |                  |       |                   |       |                 |       |            |       |               |       | 3,874           |       | 3,571      |       | 3,521      |       | 3,699 |   | 3,651 |   |
| Financing  leases                    |       |                  |       |                   |       |                 |       |            |       |               |       | 393             |       | 418        |       | 430        |       | 421 |   | 412 |   |
| Equipment  on operating leases       |       |                  |       |                   |       |                 |       |            |       |               |       | 1,023           |       | 1,053      |       | 995        |       | 900 |   | 794 |   |
| Total  Receivables and Leases        |       |                  |       |                   |       |                 |       |            |       |               |       | $               | 19,123     |       | $          | 18,954     |       | $ | 18,747 |   | $ | 17,669 |   | $ | 16,002 |   |

 

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Total Receivablesand Leases by geographic area are as follows (in millions of dollars):

 
| ** **                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.                          |       | $        | 16,228     |     | $          | 16,562   |       | $        | 16,199     |     | $          | 15,378 |   | $ | 13,753 |   |
| Outside  the U.S.             |       | 2,895    |       | 2,392    |       | 2,548    |       | 2,291    |       | 2,249    |       |
| Total  Receivables and Leases |       | $        | 19,123     |     | $          | 18,954   |       | $        | 18,747     |     | $          | 17,669 |   | $ | 16,002 |   |

 

Delinquencies

 

Total Receivableamounts 60 days or more past due representing the amount of all customerpayments past due 60 days or more are as follows (in millions of dollars):

 
| ** **        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.              |       | $        | 46.7       |     | $          | 38.9     |       | $        | 39.7       |     | $          | 39.5 |   | $ | 27.1 |   |
| Outside  the U.S. |       | 18.7     |       | 5.9      |       | 4.0      |       | 3.8      |       | 5.5      |       |
| Total             |       | $        | 65.4       |     | $          | 44.8     |       | $        | 43.7       |     | $          | 43.3 |   | $ | 32.6 |   |

 

Total non-performingReceivables, which represent loans the Company has ceased accruing interest forare as follows (in millions of dollars):

 
| ** **        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| U.S.              |       | $        | 126.1      |     | $          | 63.2     |       | $        | 31.1       |     | $          | 22.7 |   | $ | 55.4 |   |
| Outside  the U.S. |       | 20.1     |       | 16.4     |       | 17.1     |       | 9.6      |       | 11.7     |       |
| Total             |       | $        | 146.2      |     | $          | 79.6     |       | $        | 48.2       |     | $          | 32.3 |   | $ | 67.1 |   |

 

The increase inthe balance of non-performing Receivables at October 31, 2009 wasprimarily due to the negative overall economic conditions and the continuedweak U.S. construction market.

 

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Write-offs andRecoveries

 

Total Receivablewrite-offs and recoveries, by product, were as follows (in millions ofdollars):

 
| ** **                                                   | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance for credit losses, beginning of year**           |       | $        | 105.2      |     | $          | 99.2     |       | $        | 92.8       |     | $          | 96.4 |   | $ | 112.6 |   |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Provision  for credit losses                                 |       | 177.5    |       | 66.8     |       | 53.7     |       | 30.5     |       | 5.9      |       |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs:                                                  |       |     |       |     |       |     |       |     |       |     |       |
| Retail  notes:                                               |       |     |       |     |       |     |       |     |       |     |       |
| Agriculture  and turf equipment                              |       | (8.0     | )          | (5.6     | )          | (2.8     | )          | (1.9     | )          | (2.3     | )          |
| Construction  and forestry equipment                         |       | (62.4    | )          | (30.9    | )          | (18.9    | )          | (11.2    | )          | (4.2     | )          |
| Recreational  products                                       |       | (1.2     | )          | (.8      | )          | (.9      | )          | (.6      | )          | (1.3     | )          |
| Total  retail notes                                          |       | (71.6    | )          | (37.3    | )          | (22.6    | )          | (13.7    | )          | (7.8     | )          |
| Revolving  charge accounts                                   |       | (68.6    | )          | (39.8    | )          | (36.0    | )          | (33.3    | )          | (29.7    | )          |
| Operating  loans                                             |       |     |       | (.3      | )          | (3.7     | )          | (2.9     | )          | (3.0     | )          |
| Wholesale  receivables                                       |       | (3.0     | )          | (1.0     | )          | (2.8     | )          | (1.9     | )          | (2.4     | )          |
| Financing  leases                                            |       | (4.4     | )          | (2.3     | )          | (3.2     | )          | (2.5     | )          | (1.3     | )          |
| Total  write-offs                                            |       | (147.6   | )          | (80.7    | )          | (68.3    | )          | (54.3    | )          | (44.2    | )          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Recoveries:                                                  |       |     |       |     |       |     |       |     |       |     |       |
| Retail  notes:                                               |       |     |       |     |       |     |       |     |       |     |       |
| Agriculture  and turf equipment                              |       | 3.9      |       | 3.4      |       | 3.3      |       | 3.7      |       | 3.7      |       |
| Construction  and forestry equipment                         |       | 2.6      |       | 3.3      |       | 1.5      |       | 2.1      |       | 2.1      |       |
| Recreational  products                                       |       | .2       |       | .3       |       | .3       |       | .6       |       | .6       |       |
| Total  retail notes                                          |       | 6.7      |       | 7.0      |       | 5.1      |       | 6.4      |       | 6.4      |       |
| Revolving  charge accounts                                   |       | 13.8     |       | 12.4     |       | 11.8     |       | 10.4     |       | 9.3      |       |
| Operating  loans                                             |       | .5       |       | 1.0      |       | 1.1      |       | .5       |       | 3.3      |       |
| Wholesale  receivables                                       |       | .3       |       | .6       |       | 1.4      |       | 2.5      |       | 2.0      |       |
| Financing  leases                                            |       | .4       |       | .1       |       | .2       |       | .2       |       | .9       |       |
| Total  recoveries                                            |       | 21.7     |       | 21.1     |       | 19.6     |       | 20.0     |       | 21.9     |       |
| Total  net write-offs                                        |       | (125.9   | )          | (59.6    | )          | (48.7    | )          | (34.3    | )          | (22.3    | )          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Other  changes (primarily translation adjustments)           |       | 1.4      |       | (1.2     | )          | 1.4      |       | .2       |       | .2       |       |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance for credit losses, end of year**                 |       | $        | 158.2      |     | $          | 105.2    |       | $        | 99.2       |     | $          | 92.8 |   | $ | 96.4 |   |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Total  net write-offs as a percentage of average Receivables |       | .70      | %          | .33      | %          | .29      | %          | .22      | %          | .16      | %          |
|                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Allowance  as a percentage of total Receivables, end of year |       | .87      | %          | .59      | %          | .56      | %          | .55      | %          | .63      | %          |

 

8

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

 
| ** **                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance for credit losses, beginning of year**                                 |       | $        | 8.2        |     | $          | 9.6      |       | $        | 9.2        |     | $          | 9.6 |   | $ | 17.0 |   |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Provision  for credit losses                                                       |       | 2.7      |       | 1.3      |       | .5       |       | (.2      | )          | (5.7     | )          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Write-offs                                                                         |       | (3.1     | )          | (1.6     | )          | (1.5     | )          | (1.1     | )          | (1.8     | )          |
| Recoveries                                                                         |       | .7       |       | .4       |       | .4       |       | .7       |       | .5       |       |
| Total  net write-offs                                                              |       | (2.4     | )          | (1.2     | )          | (1.1     | )          | (.4      | )          | (1.3     | )          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Other  changes (primarily translation adjustments)                                 |       | 1.4      |       | (1.5     | )          | 1.0      |       | .2       |       | (.4      | )          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| **Allowance for credit losses, end of year**                                       |       | $        | 9.9        |     | $          | 8.2      |       | $        | 9.6        |     | $          | 9.2 |   | $ | 9.6 |   |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Total  net write-offs as a percentage of average Receivables from outside the U.S. |       | .09      | %          | .05      | %          | .05      | %          | .02      | %          | .06      | %          |
|                                                                               |       |     |       |     |       |     |       |     |       |     |       |
| Allowance  as a percentage of total Receivables from outside the U.S., end of year |       | .34      | %          | .35      | %          | .38      | %          | .41      | %          | .43      | %          |

 

Allowance forCredit Losses

 

**Thetotal Receivable allowance for credit losses, by product, at October 31,and the Receivable portfolio, by product, as a percent of total portfolio ispresented below (in millions of dollars):**

 
| ** **                           | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |        |       |        |       |        |       |        |       |        |       |   |   |   |   |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $           | 18.5       |        | 55         | %           | $          | 18.3        |       | 55          | %          | $ | 20.4 |   | 54 | % | $ | 20.3 |   | 50 | % | $ | 20.3 |   | 48 | % |
| Construction  and forestry equipment |       | 57.9        |       | 8           |       | 43.3        |       | 11          |       | 40.9        |       | 13 |   | 34.9 |   | 14 |   | 32.1 |   | 13 |   |
| Recreational  products               |       | .7          |       |        |       | 1.8         |       |        |       | 2.2         |       |   |   | 1.1 |   |   |   | 1.3 |   |   |   |
| Total  retail notes                  |       | 77.1        |       | 63          |       | 63.4        |       | 66          |       | 63.5        |       | 67 |   | 56.3 |   | 64 |   | 53.7 |   | 61 |   |
| Revolving  charge accounts           |       | 41.8        |       | 12          |       | 21.2        |       | 10          |       | 19.1        |       | 9 |   | 17.3 |   | 9 |   | 16.9 |   | 10 |   |
| Operating  loans                     |       | 22.8        |       | 2           |       | 8.1         |       | 2           |       | 3.7         |       | 2 |   | 3.8 |   | 2 |   | 9.1 |   | 2 |   |
| Wholesale  receivables               |       | 7.1         |       | 21          |       | 7.0         |       | 20          |       | 7.7         |       | 20 |   | 7.5 |   | 22 |   | 7.6 |   | 24 |   |
| Financing  leases                    |       | 9.4         |       | 2           |       | 5.5         |       | 2           |       | 5.2         |       | 2 |   | 7.9 |   | 3 |   | 9.1 |   | 3 |   |
| Total                                |       | $           | 158.2      |        | 100        | %           | $          | 105.2       |       | 100         | %          | $ | 99.2 |   | 100 | % | $ | 92.8 |   | 100 | % | $ | 96.4 |   | 100 | % |

 

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

 
| ** **        | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **        | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| U.S.              |       | $           | 148.3      |        | 84         | %           | $          | 97.0        |       | 87          | %          | $ | 89.6 |   | 86 | % | $ | 83.6 |   | 87 | % | $ | 86.8 |   | 86 | % |
| Outside  the U.S. |       | 9.9         |       | 16          |       | 8.2         |       | 13          |       | 9.6         |       | 14 |   | 9.2 |   | 13 |   | 9.6 |   | 14 |   |
| Total             |       | $           | 158.2      |        | 100        | %           | $          | 105.2       |       | 100         | %          | $ | 99.2 |   | 100 | % | $ | 92.8 |   | 100 | % | $ | 96.4 |   | 100 | % |

 

9

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Theallowance for credit losses is an estimate of the losses inherent in theCompany’s Receivable portfolio.  Thelevel of the allowance is based on many quantitative and qualitative factors,including historical loss experience by product category, portfolio duration,delinquency trends, economic conditions and credit risk quality. The Companyhas an established process to calculate a range of possible outcomes anddetermine the adequacy of the allowance. No single statistic or measurementdetermines the adequacy of the allowance. Historical receivable recoveries andcharge-offs are considered as part of the loss experience by productcategory.  The adequacy of the allowanceis assessed quarterly. Different assumptions or changes in economic conditionswould result in changes to the allowance for credit losses and provision forcredit losses.

 

Theallowance is determined at an aggregate level by product category for allReceivables that are performing in accordance with payment terms and are notmaterially past due. The Company assigns loss factors to each aggregation andloss factors are applied to the applicable Receivable balance to determine theallowance level for each product category. The loss factors are determinedbased on quantitative and qualitative factors, including historical lossexperience by product category, portfolio duration, delinquency trends,economic conditions and credit risk quality.

 

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

 

In addition to the calculations discussed above, otherqualitative factors are taken into account to arrive at the allowance balance.The total allowance reflects management’s estimate of credit losses inherent inthe Receivables portfolio at the balance sheet date. See further discussion ofthe allowance for credit losses in the Critical Accounting Policies.

 

Competition

 

The businesses inwhich the Company is engaged are highly competitive. The Company competes forcustomers with commercial banks and finance and leasing companies based uponits service, finance rates charged and other finance terms. The proportion ofJohn Deere equipment retail sales and leases financed by the Company isinfluenced by conditions prevailing in the agriculture and turf equipment andconstruction and forestry equipment industries, in the financial markets, andin business generally. The Company financed a significant portion of John Deereequipment retail sales and leases in the U.S. during 2009 and 2008.

 

The Companyemphasizes convenient service to customers and endeavors to offer terms desiredin its specialized markets such as seasonal schedules of repayment and rentals.The Company’s retail note finance rates and lease rental rates are generallybelieved to be in the range offered by other sales finance and leasing companies,although not as low as those of some banks and other lenders and lessors.

 

Regulation

 

In a number ofstates, state law limits the maximum finance rate on receivables. The presentstate limitations have not, thus far, significantly limited variable-ratefinance charges or the fixed-rate finance charges established by the Company.However, if interest rate levels should increase significantly, maximum staterates could affect the Company by preventing the variable rates on outstandingvariable-rate retail notes from increasing above the maximum state rate, and bylimiting the fixed rates on new notes. In some states, the Company may be ableto qualify new retail notes for a higher maximum rate limit by using retailinstallment sales contracts (rather than loan contracts) or by using fixed-raterather than variable-rate contracts.

 

10

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In addition torate regulation, various state and federal laws and regulations apply to someReceivables and Leases, principally retail notes for goods sold for personal,family or household use and Farm Planä, PowerPlanâ andJohn Deere Credit Revolving Plan accounts receivable for such goods. To date,these laws and regulations have not had a significant adverse effect on the Company.

 

The Thrift holds afederal charter issued by the Office of Thrift Supervision (OTS) and is subjectto federal regulation and examination by the OTS. The Thrift is headquarteredin Madison, Wisconsin and offers revolving charge products such as John DeereCredit Revolving Plan, Farm Planä and PowerPlanâ on anationwide basis.

 

Financing outsidethe U.S. is affected by a variety of laws, customs and regulations.

 

**Item 1A****. Risk Factors.**

 

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

 

*Governmental Actions. *With respect to the ongoing global economic downturn,changes in governmental banking, monetary and fiscal policies to restoreliquidity and increase the availability of credit may not be effective andcould have a material impact on the Company’s customers and markets. To the extentthat the Company participates in governmental programs designed to addresscurrent conditions, both in the U.S. and in other countries, there is no assurancesuch programs will remain available for sufficient periods of time or onacceptable terms to benefit the Company, and the expiration of such programscould have unintended adverse effects. In addition, certain competitors may beeligible for certain programs that the Company is ineligible for, which maycreate a competitive disadvantage. The Company’s operations and results couldalso be materially impacted by financial regulatory reform. Governmentalpolicies on taxes and spending can also affect the Company, especially JohnDeere’s construction and forestry business due to the impact of governmentspending on infrastructure development.

* *

*ChangingDemand for Farm Outputs.* Changing worldwide demand for food and the demand for different forms ofbio-energy could have an affect on prices for farm commodities which couldaffect the Company and the demand for John Deere’s agricultural equipment. Inaddition, global economic conditions may have an impact on agriculturalcommodity prices.

 

*EconomicCondition and Outlook.* Conditions in the global financial markets and general economymaterially affect the Company’s results of operations. The demand for theCompany’s products and services could be adversely affected in an economicenvironment characterized by higher unemployment, lower consumer spending,lower corporate earnings, and lower business development. Significant changesin market liquidity conditions could impact access to funding and associatedfunding costs, which could reduce the Company’s earnings and cash flows. TheCompany’s activities could be adversely impacted by changes in the equity andbond markets, which would negatively affect earnings. General economicconditions can affect the demand for John Deere’s equipment. Current negativeeconomic conditions and outlook have decreased housing starts and other constructionand dampened demand for certain construction equipment. John Deere’sconstruction and forestry business and its turf operations are dependent onconstruction activity and general economic conditions. Significant or prolongeddeclines in construction activity and housing starts could have a materialadverse effect on John Deere’s results of operations. If continuing negativeeconomic conditions extend to the overall farm economy, there could be asimilar effect on John Deere’s agricultural equipment sales.

 

11

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Current negative economic conditions have adversely affected thefinancial industry in which the Company operates. The Company’s liquidity andongoing profitability depend largely on timely access to capital to meet futurecash flow requirements and fund operations and the costs associated withengaging in diversified funding activities. Additionally, continued negativemarket conditions could further reduce customer confidence levels, resulting indeclines in credit applications and increases in delinquencies and defaultrates, which could materially impact the Company’s write-offs, provisions forcredit losses and recoverability of residual values.

 

*Currency Fluctuations.* The reporting currency for the Company’sconsolidated financial statements is the U.S. dollar.  Certain of the Company’s assets, liabilities,expenses and revenues are denominated in other countries’ currencies. Thoseassets, liabilities, expenses and revenues are translated into U.S. dollars atthe applicable exchange rates to prepare our consolidated financial statements.Therefore, increases or decreases in exchange rates between the U.S. dollar andthose other currencies affect the value of those items as reflected in theCompany’s consolidated financial statements, even if their value remainsunchanged in their original currency. Substantial fluctuations in the value ofthe U.S. dollar could have a continuing and significant impact on the Company’sresults.

 

*ConsumerAttitudes.*  Theconfidence John Deere’s customers have in the general economic outlook can havea significant effect on their propensity to purchase equipment and,consequently, on Deere & Company’s sales. Continuing negative economicconditions could significantly impair customer confidence. John Deere’s abilityto match its new product offerings to its customers’ anticipated preferencesfor enhanced technologies and different types and sizes of equipment isimportant as well.

 

*InterestRates and Credit Ratings.* Rising interest rates could have a dampening effect on overall economicactivity and could affect the demand for John Deere’s equipment. In addition,credit market dislocations could have an impact on funding costs which are veryimportant to the Company. Decisions and actions by credit rating agencies canaffect the availability and cost of funding for the Company.  Credit rating downgrades or negative changesto ratings outlooks can increase the Company’s cost of capital and hurt itscompetitive position. Guidance from rating agencies as to acceptable leveragecan affect the Company’s returns as well.

 

Therisks identified above should be considered in conjunction with “Management’sDiscussion and Analysis” beginning on page 13, and, specifically, theother risks described in the “Safe Harbor Statement” on page 21. TheCompany’s results of operations may be affected by these identified risksand/or by risks not currently contemplated.

 

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

 

None.

 

**Item 2****. Properties.**

 

The Company’sproperties principally consist of office equipment, Company-owned officebuildings in Johnston, Iowa and Madison, Wisconsin; and leased office space inReno, Nevada; Rosario, Argentina; Brisbane, Australia; Gloucester, England;Langar, England; Bruchsal, Germany; Vignate, Italy; Luxembourg City,Luxembourg; Monterrey, Mexico; and Parla, Spain.

 

**Item 3****. Legal Proceedings.**

 

The Company issubject to various unresolved legal actions which arise in the normal course ofits business, the most prevalent of which relate to state and federal laws andregulations concerning retail credit. Although it is not possible to predictwith certainty the outcome of these unresolved legal actions or the range ofpossible loss, the Company believes these unresolved legal actions will nothave a material effect on its consolidated financial statements.

 

12

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

 

Omitted pursuantto instruction I(2).

 

**PART II**

 

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

 

(a)          All of the Company’s common stock isowned by John Deere Credit Company, a finance holding company that iswholly-owned by Deere & Company. In 2009 and 2008, Deere &Company increased its investment in John Deere Credit Company by $60 millionand $400 million, respectively. In each case, John Deere Credit Company increasedits investment in the Company by the same amount. The Company did not declareor pay cash dividends to John Deere Credit Company in 2009. This compares to$465 million in dividends declared and paid to John Deere Credit Companyin 2008. In 2008, John Deere Credit Company paid comparable dividends to Deere &Company.

 

(b)          Not applicable.

 

(c)           Not applicable.

 

**Item 6****. Selected Financial Data.**

 

Omitted pursuantto instruction I(2).

 

**Item 7****. Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

Results ofOperations

 

Overview

 

Organization

 

The Companyprimarily generates revenues and cash by financing John Deere dealers’ salesand leases of new and used agriculture, turf, construction and forestryequipment. In addition, the Company also provides wholesale financing todealers of the foregoing equipment, provides operating loans, finances retailrevolving charge accounts, offers certain crop risk mitigation products andmakes loans to certain affiliated companies that directly invest in wind energyprojects.

 

Trends andEconomic Conditions

 

The Company’sbusiness is currently affected by the following key trends and economicconditions. The Company’s business is closely related to John Deere’s business.Industry farm machinery sales in the U.S. and Canada in 2010 are forecast to bedown about 10 percent. Industry sales in Western Europe are forecast to decline10 to 15 percent and South America industry sales are projected to increase by10 to 15 percent for the year. John Deere’s agriculture and turf equipmentsales declined 14 percent in 2009 and are forecast to decrease by about4 percent in 2010, including a favorable currency translation impact ofabout 2 percent. U.S. construction equipment markets are forecast to be down in2010 resulting from a decline in non-residential construction activity andlower used equipment values. Global forestry markets are expected to experiencesome recovery in 2010 based on higher demand for pulp and paper. John Deere’sconstruction and forestry sales declined 45 percent in 2009 and are forecast toincrease by approximately 18 percent in 2010. Net income for the Company in2010 is expected to increase to approximately $175 million. The forecastincrease from 2009 is primarily due to higher commissions from crop insurance.

 

13

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Items of concern for theCompany include the decline in global economic activity and expected slowrecovery, capital market disruptions, the effectiveness of governmentalpolicies to promote economic recovery, the availability of credit for theCompany’s customers and financial regulatory reform. Significant fluctuationsin foreign currency exchange rates and volatility in the price of manycommodities could also impact the Company’s results.

 

In an environment of intenseglobal economic pressure, Deere & Company has completed a solidlyprofitable year and maintained its strong financial condition. Deere &Company’s plans for meeting the world’s growing need for food andinfrastructure are continuing to move forward.

 

2009 Compared with2008

 

Consolidated net income was $149.2 million for theyear, compared with $282.4 million last year. The lower results for the yearwere primarily due to a higher provision for credit losses, narrower financingspreads, lower commissions from crop insurance and higher losses fromconstruction equipment operating lease residual values, partially offset bylower administrative and operating expenses. The ratio of earnings to fixedcharges was 1.28 to 1 for 2009, compared with 1.52 to 1 for 2008.

 

Revenues totaled$1,756 million in 2009, compared with $1,967 million in 2008. The decrease wasprimarily due to lower financing rates and lower commissions from cropinsurance. Finance income earned on retail notes totaled $744 million in2009, compared with $861 million in 2008. The decrease was primarily due to lowerfinancing rates and a 5 percent decrease in the average retail noteportfolio balances. Lease revenues decreased $19 million to $313 millionin 2009, primarily due to lower financing rates and a 2 percent decreasein the average balance of leases. Revenues earned on revolving charge accountsamounted to $242 million in 2009, a 7 percent increase over revenuesof $227 million earned during 2008. The increase was primarily due to anincrease in the average balance of revolving charge accounts, partially offsetby lower financing rates. Finance income earned on wholesale receivablesdecreased $5 million, to $298 million in 2009, from $303 millionin 2008. The decrease was primarily due to lower financing rates, partiallyoffset by a 13 percent increase in the average balance of wholesalereceivables. Revenues earned on operating loans amounted to $14 million in2009, compared with $23 million in 2008. The decrease was primarily due tolower financing rates and an 11 percent decrease in the average balance ofoperating loans. Revenues earned from Deere & Company totaled$507 million in 2009, compared with $542 million a year ago.

 

Crop insurance commissions totaled $83 million in2009, compared with $139 million in 2008. The decrease was primarily due toless favorable underwriting experience that resulted in lower commissions inthe first and second quarters of 2009, compared to the same periods in 2008.

 

Other income totaled $60 million in 2009, comparedwith $77 million in 2008. The decrease was primarily due to higher losses fromconstruction equipment operating lease residual values.

 

Interest expense totaled $789 million in 2009,compared with $839 million in 2008. The decrease was primarily due to adecrease in the weighted-average annual interest rate incurred on allborrowings from 4.7 percent in 2008 to 4.0 percent in 2009, partiallyoffset by higher average borrowings.

 

Administrative and operating expenses totaled $333million in 2009, compared with $373 million in 2008. The decrease was primarilydue to lower compensation costs and foreign exchange gains.

 

The provision for credit losses was$178 million in 2009, compared with $67 million in 2008. The increase wasprimarily due to higher write-offs of construction and forestry retail notesand revolving charge accounts and an increase in the allowance for creditlosses. Total net write-offs of Receivables financed were $126 million during2009, compared with $60 million in 2008. The provision for credit losses,as a percentage of the total average balance of Receivables financed, was..99 percent for 2009 and .37 percent for 2008.

 

14

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Receivables andLeases Acquired and Held

 

Receivables andLeases acquired by the Company during 2009 totaled $31,254 million, comparedwith volumes of $33,404 million during 2008. Receivables and Leases held by theCompany at October 31, 2009 totaled $19,123 million, compared with$18,954 million at October 31, 2008. For the 2009 and 2008 fiscalyears, Receivable and Lease acquisition volumes and balances held were asfollows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **2009**                | ** ** | **2008**                        | ** ** | **% Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **% Change** | ** ** |
| Retail  notes:                       |       |                    |       |                            |       |   |   |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $                       | 5,013.4    |                            | $          | 5,489.1 |   | (9 | )% | $ | 9,952.0 |   | $ | 9,733.4 |   | 2 | % |
| Construction  and forestry equipment |       | 472.9                   |       | 953.6                           |       | (50 | ) | 1,386.0 |   | 1,986.5 |   | (30 | ) |
| Recreational  products               |       |                    |       |                            |       |   |   | 6.2 |   | 9.2 |   | (33 | ) |
| Total  retail notes                  |       | 5,486.3                 |       | 6,442.7                         |       | (15 | ) | 11,344.2 |   | 11,729.1 |   | (3 | ) |
| Revolving  charge accounts           |       | 4,458.2                 |       | 4,352.8                         |       | 2 |   | 2,192.5 |   | 1,825.1 |   | 20 |   |
| Operating  loans                     |       | 1,014.3                 |       | 2,187.2                         |       | (54 | ) | 297.0 |   | 357.9 |   | (17 | ) |
| Wholesale  receivables               |       | 19,610.9                |       | 19,610.9                        |       |   |   | 3,873.5 |   | 3,570.6 |   | 8 |   |
| Financing  leases                    |       | 189.5                   |       | 254.0                           |       | (25 | ) | 392.8 |   | 417.9 |   | (6 | ) |
| Equipment  on operating leases       |       | 494.9                   |       | 556.3                           |       | (11 | ) | 1,023.2 |   | 1,053.4 |   | (3 | ) |
| Total  Receivables and Leases        |       | $                       | 31,254.1   |                            | $          | 33,403.9 |   | (6 | )% | $ | 19,123.2 |   | $ | 18,954.0 |   | 1 | % |

 

Retail notevolumes decreased primarily due to decreases in retail sales of John Deere agriculture and turf equipment andconstruction and forestry equipment. Revolving charge account volumes increasedprimarily as a result of increased market coverage. Operating loan volumesdecreased primarily due to decreased borrowings by farm input providers.

 

Receivables and Leases administeredby the Company were as follows (in millions):

 
| ** **                                                    | ** ** | **October 31,********2009** | ** ** | **October 31,********2008** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Receivables and Leases administered:**                      |       |                             |       |                             |       |
| Owned  by the Company                                         |       | $                                | 16,013.1   |                             | $          | 17,361.5 |   |
| Owned  by the Company — restricted due to securitization |       | 3,110.1                          |       | 1,592.5                          |       |
| Total  Receivables and Leases owned by the Company            |       | 19,123.2                         |       | 18,954.0                         |       |
| Administered  - with limited recourse*                        |       | 95.8                             |       | 118.7                            |       |
| Administered  - without recourse**                            |       | 32.6                             |       | 44.0                             |       |
| Total  Receivables and Leases administered                    |       | $                                | 19,251.6   |                             | $          | 19,116.7 |   |

 

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*                                       The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2009 and 2008 was $7 million and $8 million, respectively. The Company does notrecord the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onReceivables and Leases that have been sold was accrued at the time of sale, andany subsequent necessary adjustments are made as part of ongoing reviews.

 

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

 

Retail notesbearing fixed finance rates totaled 95 percent of the total retail noteportfolio at October 31, 2009, compared with 90 percent at October 31,2008.

 

15

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Total Receivable amounts 60 days ormore past due represent the amount of all customer payments past due60 days or more. These amounts were $65 million at October 31, 2009,compared with $45 million at October 31, 2008. In addition, thesepast due amounts represented .36 percent and .25 percent of the totalReceivables held at those respective dates. The balance of retail notes held(principal plus accrued interest) with any installment 60 days or more past duerepresents the total retail note balance for a customer that has any portion ofhis note 60 days or more past due. These amounts were $301 million and$163 million at October 31, 2009 and 2008, respectively. Thebalances of retail notes held on which any installment was 60 days or more pastdue as a percentage of the ending retail notes receivable was 2.66 percentat October 31, 2009 and 1.39 percent at October 31, 2008.See Note 5 to the consolidated financial statements for additional past dueinformation.

 

Deposits withheldfrom dealers and merchants, representing mainly the aggregate dealer retailnote and lease withholding accounts from individual John Deere dealers to whichlosses from retail notes and leases originating from the respective dealers canbe charged, amounted to $165 million at October 31, 2009 compared with$174 million at October 31, 2008. The Company’s allowance for credit losseson all Receivables financed at October 31, 2009 totaled $158 million andrepresented .87 percent of the total Receivables financed, compared with$105 million and .59 percent, respectively, one year earlier. Theallowance is subject to an ongoing evaluation based on many quantitative andqualitative factors, including historical loss experience by product category,portfolio duration, delinquency trends, economic conditions and credit riskquality. The Company believes its allowance is sufficient to provide for lossesin its existing receivable portfolio.

 

2008 Compared with 2007

 

Consolidated net income was $282.4 million for thefiscal year ended October 31, 2008, compared with $311.2 million in 2007.The lower results for 2008 were primarily due to an increase in averageleverage, higher administrative and operating expenses, foreign exchange lossesand an increase in the provision for credit losses, partially offset by growthin the portfolio and increased commissions from crop insurance. The ratio ofearnings to fixed charges was 1.52 to 1 for 2008, compared with 1.54 to 1 for2007.

 

Revenues totaled$1,967 million in 2008 and 2007. Finance income earned on retail notes totaled$861 million in 2008, compared with $852 million in 2007. The increase was primarily dueto a 6 percent increase in the average retail note portfolio balances,partially offset by lower financing rates. Lease revenues increased$13 million to $332 million in 2008, primarily due to a4 percent increase in the average balance of leases. Revenues earned onrevolving charge accounts amounted to $227 million in 2008, a2 percent increase over revenues of $222 million earned during 2007.The increase was primarily due to an increase in the average balance ofrevolving charge accounts, partially offset by lower financing rates. Financeincome earned on wholesale receivables decreased $62 million, to$303 million in 2008, from $365 million in 2007. The decrease wasprimarily due to lower financing rates and a 3 percent decrease in the averagebalance of wholesale receivables. Revenues earned on operating loans amountedto $23 million in 2008, compared with $27 million in 2007. The decrease wasprimarily due to lower financing rates. Revenues earned from Deere &Company totaled $542 million in 2008, compared with $555 million in2007.

 

Income onreceivables sold totaled $6 million in 2008, compared with $22 million in 2007.Income on receivables sold relates to Receivables sold to other financialinstitutions or limited-purpose business trusts and primarily includes theinterest earned on interests that continue to be held by the Company,reimbursed administrative expenses received and the net gain on Receivablessold, including adjustments to prior sales related to cleanup calls and revaluationsof interests that continue to be held and the related permanent impairments.

 

Crop insurance commissions totaled $139 million in2008, compared with $76 million in 2007. The increase was primarily due toincreased crop insurance sales to producers as a result of expanded marketcoverage and increased commodity prices causing higher insurance premiums.

 

Interest expense totaled $839 million in 2008,compared with $878 million in 2007. The decrease was primarily due to adecrease in the weighted-average annual interest rate incurred on allborrowings from 5.4 percent in 2007 to 4.7 percent in 2008, partiallyoffset by higher average borrowings.

 

16

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Administrative and operating expenses totaled $373million in 2008, compared with $308 million in 2007. The increase was primarilydue to higher crop insurance commission expenses and higher employment costsassociated with administering a larger Receivable and Lease portfolio.

 

The provision for credit losses was$67 million in 2008, compared with $54 million in 2007. The Company hasexperienced higher write-offs of construction and forestry retail notes andrevolving charge accounts. Total net write-offs of Receivables financed were$60 million during 2008, compared with $49 million in 2007. The provisionfor credit losses, as a percentage of the total average balance of Receivablesfinanced, was .37 percent for 2008 and .31 percent for 2007.

 

Depreciation ofequipment on operating leases totaled $216 million in 2008, compared with $212million in 2007. The increase was primarily the result of higher average amounts ofequipment on operating leases.

 

Receivablesand Leases Acquired and Held

 

Receivables andLeases acquired by the Company during 2008 totaled $33,404 million, comparedwith volumes of $29,548 million during 2007. Excluding the trade receivablesacquired from John Deere, acquisitions of Receivables and Leases were13 percent higher in 2008 compared to 2007. Receivables and Leases held bythe Company at October 31, 2008 totaled $18,954 million, compared with$18,747 million at October 31, 2007. For the 2008 and 2007 fiscalyears, Receivable and Lease acquisition volumes and balances held were asfollows (in millions of dollars):

 
| ** **                           | ** ** | **Fiscal Year Volumes** | ** ** | **Balance at October 31,** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | **2008**                | ** ** | **2007**                        | ** ** | **% Change** | ** ** | **2008** | ** ** | **2007** | ** ** | **% Change** | ** ** |
| Retail  notes:                       |       |                    |       |                            |       |   |   |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $                       | 5,489.1    |                            | $          | 5,000.6 |   | 10 | % | $ | 9,733.4 |   | $ | 9,539.3 |   | 2 | % |
| Construction  and forestry equipment |       | 953.6                   |       | 1,372.1                         |       | (31 | ) | 1,986.5 |   | 2,409.1 |   | (18 | ) |
| Recreational  products               |       |                    |       |                            |       |   |   | 9.2 |   | 12.3 |   | (25 | ) |
| Total  retail notes                  |       | 6,442.7                 |       | 6,372.7                         |       | 1 |   | 11,729.1 |   | 11,960.7 |   | (2 | ) |
| Revolving  charge accounts           |       | 4,352.8                 |       | 3,603.1                         |       | 21 |   | 1,825.1 |   | 1,553.3 |   | 17 |   |
| Operating  loans                     |       | 2,187.2                 |       | 1,382.8                         |       | 58 |   | 357.9 |   | 286.5 |   | 25 |   |
| Wholesale  receivables               |       | 19,610.9                |       | 17,431.0                        |       | 13 |   | 3,570.6 |   | 3,521.3 |   | 1 |   |
| Financing  leases                    |       | 254.0                   |       | 221.1                           |       | 15 |   | 417.9 |   | 430.3 |   | (3 | ) |
| Equipment  on operating leases       |       | 556.3                   |       | 537.7                           |       | 3 |   | 1,053.4 |   | 995.2 |   | 6 |   |
| Total  Receivables and Leases        |       | $                       | 33,403.9   |                            | $          | 29,548.4 |   | 13 | % | $ | 18,954.0 |   | $ | 18,747.3 |   | 1 | % |

 

Retail notevolumes for agriculture and turf equipment increased primarily due to increasesin retail sales of John Deere agricultural equipment. Retail note volumes forconstruction and forestry equipment decreased primarily due to decreases inretail sales of John Deere construction and forestry equipment. Revolvingcharge account volumes increased primarily as a result of increased marketcoverage and increased farm input costs. Operating loan volumes increasedprimarily due to increased borrowings by farm input providers as a result ofhigher commodity prices. Wholesale receivable volumes increased primarily dueto increased shipments of John Deere equipment as a result of increased retailsales activity in the agricultural markets.

 

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Receivables and Leases administeredby the Company were as follows (in millions):

 
| ** **                                                    | ** ** | **October 31,********2008** | ** ** | **October 31,********2007** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Receivables and Leases administered:**                      |       |                             |       |                             |       |
| Owned  by the Company                                         |       | $                                | 17,361.5   |                             | $          | 16,596.9 |   |
| Owned  by the Company — restricted due to securitization |       | 1,592.5                          |       | 2,150.4                          |       |
| Total  Receivables and Leases owned by the Company            |       | 18,954.0                         |       | 18,747.3                         |       |
| Administered  - with limited recourse*                        |       | 118.7                            |       | 177.9                            |       |
| Administered  - without recourse**                            |       | 44.0                             |       | 44.6                             |       |
| Total  Receivables and Leases administered                    |       | $                                | 19,116.7   |                             | $          | 18,969.8 |   |

 

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*                                       The Company’s maximumexposure under all Receivable and Lease recourse provisions at October 31,2008 and 2007 was $8 million and $25 million, respectively. The Company does notrecord the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onreceivables that have been sold was accrued at the time of sale, and anysubsequent necessary adjustments are made as part of ongoing reviews.

 

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

 

Retail notesbearing fixed finance rates totaled 90 percent of the total retail noteportfolio at October 31, 2008 and 2007.

 

Total Receivable amounts 60 days ormore past due represent the amount of all customer payments past due60 days or more. These amounts were $45 million at October 31, 2008,compared with $44 million at October 31, 2007. In addition, thesepast due amounts represented .25 percent of the total Receivables held at thoserespective dates. The balance of retail notes held (principal plus accruedinterest) with any installment 60 days or more past due represents the totalretail note balance for a customer that has any portion of his note 60 days ormore past due. These amounts were $163 million and $170 million at October 31, 2008and 2007, respectively. The balances of retail notes held on which anyinstallment was 60 days or more past due as a percentage of the ending retailnotes receivable was 1.39 percent at October 31, 2008 and1.42 percent at October 31, 2007. See Note 5 to the consolidatedfinancial statements for additional past due information.

 

Deposits withheldfrom dealers and merchants, representing mainly the aggregate dealer retailnote and lease withholding accounts from individual John Deere dealers to whichlosses from retail notes and leases originating from the respective dealers canbe charged, amounted to $174 million at October 31, 2008 and 2007. TheCompany’s allowance for credit losses on all Receivables financed at October 31,2008 totaled $105 million and represented .59 percent of the totalReceivables financed, compared with $99 million and .56 percent,respectively, at October 31, 2007. The allowance is subject to an ongoingevaluation based on many quantitative and qualitative factors, includinghistorical loss experience by product category, portfolio duration, delinquencytrends, economic conditions and credit risk quality. The Company believes itsallowance is sufficient to provide for losses in its existing receivableportfolio.

 

Capital Resourcesand Liquidity

 

The aggregate cash provided byoperating activities was used primarily to decrease external borrowings. Netcash provided by operating activities was $542 million in 2009. Net cash usedfor financing activities totaled $670 million resulting from a netdecrease in external borrowings. Net cash used for investing activities totaled$116 million in 2009, primarily due to the cost of Receivables and Leasesacquired exceeding collections of Receivables and the proceeds from sales ofequipment on operating leases. Cash and cash equivalents decreased$212 million during 2009.

 

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Over the last three years, operating activities haveprovided $1,735 million in cash. In addition, the sale of Receivables andLeases provided $352 million, an increase in total net borrowings provided$2,124 million and capital investments from Deere & Company provided$460 million. These amounts have been used mainly to fund Receivable and Leaseacquisitions, which exceeded collections of Receivables and proceeds from salesof equipment on operating leases by $2,387 million, and to pay $990 millionin dividends. Cash and cash equivalents also increased $751 million over thethree-year period.

 

The financing of retail purchasesand leases of John Deere products and of wholesale receivables owed by JohnDeere dealers represented approximately 80 percent of the Company’s acquisitionvolume for 2009 and 2008, respectively. Any extended reduction or suspension ofJohn Deere’s sale or production of products due to a decline in demand orproduction, governmental actions or other events could have an adverse effecton the Company’s acquisition volume of Receivables and Leases.

 

The Company relies on its ability to raise substantialamounts of funds to finance its Receivable and Lease portfolios. Given thedownturn in global economic activity and capital market disruptions, thesources of funds for the Company have been impacted. However, the Companyexpects to have sufficient sources of 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 to issue term debt. Additionally, liquidity may be provided throughloans from John Deere. The Company’s commercial paper outstanding at October 31,2009 and 2008 was approximately $32 million and $2,814 million,respectively, while the total cash and cash equivalents position was$871 million and $1,083 million, respectively.

 

On December 4, 2008,Capital Corporation and FPC Financial, f.s.b., a wholly-owned subsidiary ofCapital Corporation, elected to continue to participate in the debt guarantyprogram that is part of the Federal Deposit Insurance Corporation’s (FDIC’s)Temporary Liquidity Guarantee Program (TLGP). During December 2008,Capital Corporation issued $2.0 billion of fixed-rate medium-term notesdue June 19, 2012 at a rate of 2.875%, which are guaranteed by the FDICunder the TLGP. Following that issuance, the FDIC notified Capital Corporationthat it needed additional review and written determination from the FDIC priorto issuing additional guaranteed debt. Accordingly, Capital Corporationsubmitted documentation to the FDIC seeking further guidance. CapitalCorporation has received written notification from the FDIC that the FDICdenied the request and that the FDIC had determined that such a denial wasappropriate because the request was inconsistent with the primary purpose ofthe TLGP. The notes issued under the TLGP during December 2008 continue tocarry the FDIC guarantee.

 

During January 2009,Capital Corporation entered into a revolving credit agreement to utilize bankconduit facilities to securitize retail notes (see Note 6). At October 31,2009, this facility had a total capacity, or “financing limit,” of up to$2,500 million of secured financings at any time. After a 364 dayrevolving period, unless the banks and Capital Corporation agree to renew foran additional 364 days, Capital Corporation would liquidate the securedborrowings over time as payments on the retail notes are collected. At October 31,2009, $1,224 million of secured short-term borrowings was outstanding under theagreement. During November 2009, Capital Corporation reduced the capacityunder this revolving credit agreement to $1,500 million and renewed it for anadditional 364 days.

 

In June and October 2009,Capital Corporation issued $674 million and $727 million, respectively, inretail note securitization transactions. The retail notes related to thesesecured borrowings were eligible collateral under the Federal Reserve Bank ofNew York’s Term Asset-Backed Securities Loan Facility (TALF).

 

During 2009, the Company issued $4,227 million ofmedium-term notes, obtained $4,332 million of secured borrowings and maintainedan average commercial paper balance of $1,025 million. At October 31, 2009,the Company’s funding profile included $32 million of commercial paper,$3,109 million of notes payable related to on-balance sheet securitizationfunding, $15 million of intercompany loans from Deere & Company,$15,251 million of unsecured term debt, and $2,317 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.

 

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The Company issued $4,247 million and retired$3,170 million of long-term borrowings during the year. The issuances wereprimarily medium-term notes. The retirements included $300 million of 6% Notesdue 2009 and the remainder consisted primarily of medium-term notes.

 

Total interest-bearing indebtedness amounted to$18,411 million at October 31, 2009, compared with $18,424 million atOctober 31, 2008. Included in this debt are secured borrowings of $3,109million and $1,618 million for the same periods. Total short-term indebtednessamounted to $5,711 million at October 31, 2009, which included $3,109million of secured borrowings, compared with $7,894 million at October 31,2008, which included $1,618 million of secured borrowings, while totallong-term indebtedness amounted to $12,701 million at October 31, 2009 and$10,530 million at October 31, 2008. The ratio of totalinterest-bearing debt, including securitization indebtedness, to stockholder’sequity was 7.9 to 1 and 8.9 to 1 at October 31, 2009 and 2008, respectively.

 

Stockholder’s equity was $2,317million at October 31, 2009, compared with $2,065 million and$1,955 million at October 31, 2008 and 2007, respectively.  The increase in 2009 was primarily due to netincome of $149 million, Deere & Company’s additional $60million investment in John Deere Credit Company, which in turn increased itsinvestment in the Capital Corporation, and an increase in the cumulativetranslation adjustment of $47 million, partially offset by an unrealizedloss on derivatives of $4 million.

 

The Company did not declare or pay cash dividends toJohn Deere Credit Company in 2009. This compares to $465 million declared andpaid to John Deere Credit Company in 2008. In 2008, John Deere Credit Companypaid comparable dividends to Deere & Company.

 

*Lines of Credit*

 

The Company also has access to bank lines of creditwith various banks throughout the world. Some of the lines are available toboth the Company and Deere & Company. Worldwide lines of credittotaled $4,504 million at October 31, 2009, $4,214 million of which wasunused. For the purpose of computing unusedcredit lines, commercial paper and short-term bank borrowings, excludingsecured borrowings and the current portion of long-term borrowings, of theCompany and Deere & Company were primarily considered to constituteutilization. Included in the total credit lines at October 31, 2009 was along-term credit facility agreement of $3,750 million, expiring in February 2012.The credit agreement requires the Company to maintain its consolidatedratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscalquarter and its ratio of senior debt, excluding securitization indebtedness, tocapital base (total subordinated debt and stockholder’s equity excludingaccumulated other comprehensive income (loss)) at not more than 11 to 1 atthe end of any fiscal quarter. All of these requirements of the creditagreement have been met during the periods included in the consolidatedfinancial statements. Forinformation regarding Deere & Company and its business, see “Businessof John Deere”, “Outlook for John Deere” and “Relationships of the Company withJohn Deere” above and Exhibit 99.

 

*Debt Ratings*

 

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

 

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

 

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The senior long-term and short-termdebt ratings and outlook currently assigned to unsecured Company securities bythe rating agencies engaged by the Company are the same as those for JohnDeere. Those ratings are as follows:

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

 

# Safe Harbor Statement

#  

*Safe Harbor Statement under thePrivate Securities Litigation Reform Act of 1995:*Statements under “Overview,” “Outlook forJohn Deere” and other statements herein that relate to future operating periodsare subject to important risks and uncertainties that could cause actualresults to differ materially. Forward-looking statements involve certainfactors that are subject to change, including changing worldwide economicconditions. Actions by the U.S. Federal Reserve Board, the FDIC and othercentral banks may affect the costs and expenses of financing the Company andthe rates it is able to offer. The Company’s business is affected by generaleconomic conditions in and the political instability of the global markets inwhich the Company operates because deteriorating economic conditions and politicalinstability can result in decreased customer confidence, lower demand forequipment, higher loan losses and greater currency risk. The Company’s businessis also affected by actions of banks, financing and leasing companies and otherlenders that compete with the Company for customers; capital marketdisruptions; significant changes in capital market liquidity and associatedfunding costs; interest rates and foreign currency exchange rates; and thecredit market crisis.

 

With respect to the global economic downturn andexpected slow recovery, changes in governmental banking, monetary and fiscalpolicies to restore liquidity and increase the availability of credit may notbe effective and could have a material impact on the Company’s business.Significant changes in market liquidity conditions could impact access tofunding and associated funding costs, which could reduce the Company’s earningsand cash flows. Current market conditions could also negatively impact customeraccess to capital for purchases of John Deere’s products; borrowing andrepayment practices; and the number and size of customer loan delinquencies anddefaults. The Company’s operations could be impaired by changes in the equityand bond markets, which could negatively affect earnings.

 

The economic downturn and market volatility haveadversely affected the financial industry in which the Company operates. TheCompany’s liquidity and ongoing profitability depend largely on timely accessto capital to meet future cash flow requirements and fund operations and thecosts associated with engaging in diversified funding activities. If marketdisruption and volatility continue or worsen or access to governmentalliquidity programs decreases, funding could be unavailable or insufficient. Additionally,under current market conditions customer confidence levels may result indeclines in credit applications and increases in delinquencies and defaultrates, which could materially impact the Company’s write-offs and provision forcredit losses.

 

In addition, the Company’s business is closely relatedto John Deere’s business. Further information, including factors thatpotentially could materially affect the Company’s and John Deere’s financialresults, is included in the most recent Deere & Company Form 10-K(including the factors discussed in Item 1A. Risk Factors) and other Deere &Company and Capital Corporation filings with the Securities and ExchangeCommission (SEC).

 

# Off-Balance SheetArrangements

#  

TheCompany’s subsidiary, John Deere Risk Protection, Inc., offers cropinsurance products through managing general agency agreements (Agreements) withinsurance companies (Insurance Carriers) rated “Excellent” by A.M. BestCompany. As a managing general agent, John Deere Risk Protection, Inc.will receive commissions from the Insurance Carriers for selling crop insuranceto producers.  The Company has guaranteedcertain obligations under the Agreements, including the obligation to pay theInsurance Carriers for any uncollected premiums. At October 31, 2009 themaximum exposure for uncollected premiums was approximately $60 million.Substantially all of the 

 

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Company’s crop insurancerisk under the Agreements has been mitigated by a syndicate of privatereinsurance companies. These reinsurance companies are rated “Excellent” orhigher by A.M. BestCompany. In the event of a widespread catastrophic crop failurethroughout the U.S. and the default of these highly rated private reinsurancecompanies on their reinsurance obligations, the Company would be required toreimburse the Insurance Carriers for exposure under the Agreements ofapproximately $981 million at October 31, 2009. The Company believesthat the likelihood of the occurrence of the events that give rise to theexposures under these Agreements is substantially remote and as a result, at October 31,2009, the Company’s accrued liability under the Agreements was not material.

 

TheCompany also had other miscellaneous contingent liabilities totalingapproximately $10 million at October 31, 2009, for which it believes theprobability for payment is substantially remote. The Company’s accruedliability at October 31, 2009 related to these contingencies was notmaterial.

 

Aggregate Contractual Obligations

 

The payment schedule for theCompany’s contractual obligations at October 31, 2009 in millions ofdollars is as follows:

 
| ** **                                    | ** ** | **Total** | ** ** | **Less  than  1 year** | ** ** | **2 &  3  years** | ** ** | **4 &  5  years** | ** ** | **More  than  5 years** | ** ** |
|-----------------------------------------------|------------|-----------|------------|------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|
| Total debt*                                   |       | $         | 18,014     | **                     | $          | 4,137                      |       | $                          | 8,910      |                    | $          | 3,377 |   | $ | 1,590 |   |
| Interest on debt                              |       | 1,827     |       | 521                    |       | 829                        |       | 176                        |       | 301                     |       |
| Accounts payable                              |       | 236       |       | 236                    |       |                       |       |                       |       |                    |       |
| Deposits  withheld from dealers and merchants |       | 165       |       | 59                     |       | 75                         |       | 29                         |       | 2                       |       |
| Purchase  obligations                         |       | 13        |       | 4                      |       | 5                          |       | 4                          |       |                    |       |
| Operating leases                              |       | 7         |       | 2                      |       | 3                          |       | 2                          |       |                    |       |
| Total  obligations                            |       | $         | 20,262     |                   | $          | 4,959                      |       | $                          | 9,822      |                    | $          | 3,588 |   | $ | 1,893 |   |

 

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*                                         Principal payments.

 

**                                  Notes payable of $3,109 millionclassified as short-term on the balance sheet related to securitization ofretail notes are included in this table based on the expected payment schedule(see Note 9).

 

The previous table does notinclude unrecognized tax benefit liabilities of approximately $38 million at October 31,2009 since the timing of future payments is not reasonably estimable at thistime (see Note 16). It also does not include unused commitments to extendcredit to customers and John Deere dealers as discussed in Note 19 to theconsolidated financial statements. For additional information regardingshort-term borrowings, long-term borrowings and lease obligations, see Notes 9,10 and 11, respectively, to the consolidated financial statements.

 

Critical Accounting Policies

 

The preparation of the Company’sconsolidated financial statements in conformity with accounting principlesgenerally accepted in the U.S. requires management to make estimates andassumptions that affect reported amounts of assets, liabilities, revenues andexpenses. Changes in these estimates and assumptions could have a significanteffect on the financial statements. The accounting policies below are thosemanagement believes are the most critical to the preparation of the Company’sfinancial statements and require the most difficult, subjective or complexjudgments. The Company’s other accounting policies are described in the Notesto the consolidated financial statements.

 

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Allowance for Credit Losses

 

The allowance for credit losses represents an estimate of the lossesexpected from the Company’s Receivable portfolio. The level of the allowance isbased on many quantitative and qualitative factors, including historical lossexperience by product category, portfolio duration, delinquency trends,economic conditions and credit risk quality. The adequacy of the allowance isassessed quarterly.  Differentassumptions or changes in economic conditions would result in changes to theallowance for credit losses and the provision for credit losses.

 

The total allowance for credit losses at October 31,2009, 2008, and 2007 were $158 million, $105 million, and $99 million, respectively.The increase in 2009 was primarily due to an increase in loss experience anddelinquencies in construction and forestry equipment retail notes, revolvingcharge accounts and operating loans while the increase in 2008 was primarilydue to the growth in the Receivable portfolio.

 

The assumptions used in evaluating the Company’sexposure to credit losses involve estimates and significant judgment. Thehistorical loss experience on the Receivable portfolios represents one of thekey assumptions involved in determining the allowance for credit losses. Overthe last five fiscal years, this percent has varied by an average ofapproximately plus or minus .15 percent, compared to the average lossexperience percent during that period. Holding other assumptions constant, ifthis estimated loss experience on the Receivable portfolio were to increase ordecrease .15 percent, the allowance for credit losses at October 31, 2009would increase or decrease by approximately $27 million.

 

Operating Lease Residual Values

 

The carrying value of the equipment on operating leases is affected by theestimated fair values of the equipment at the end of the lease (residualvalues).  Upon termination of the lease,the equipment is either purchased by the lessee or sold to a third party, inwhich case the Company may record a gain or a loss for the difference betweenthe estimated residual value and the sales price.  The residual values are dependent on currenteconomic conditions and are reviewed quarterly. Changes in residual valueassumptions would affect the amount of depreciation expense and the amount ofinvestment in equipment on operating leases.

 

The total operating lease residual values at October 31,2009, 2008 and 2007 were $691 million, $663 million and $587 million,respectively.  The increases in 2009 and2008 were primarily due to the higher levels of agriculture and turf equipmentoperating leases.

 

Estimates used in determining end of lease marketvalues for equipment on operating leases significantly impact the amount andtiming of depreciation expense.  Iffuture market values for this equipment were to decrease 10 percent fromthe Company’s present estimates, the total impact would be to increase theCompany’s annual depreciation for equipment on operating leases byapproximately $26 million.

 

**Item 7A****.  Quantitative andQualitative Disclosures About Market Risk.**

 

# FinancialInstrument Risk Information

#  

The Company is naturally exposed to various interestrate and foreign currency risks. As a result, the Company enters intoderivative transactions to manage certain of these exposures that arise in thenormal course of business and not for the purpose of creating speculativepositions or trading. The Company manages the relationship of the types andamounts of its funding sources to its Receivable and Lease portfolios in aneffort to diminish risk due to interest rate and foreign currency fluctuations,while responding to favorable financing opportunities. Accordingly, from timeto time, the Company enters into interest rate swap agreements to manage itsinterest rate exposure. The Company also has foreign currency exposures at someof its foreign and domestic operations related to financing in currencies otherthan the local currencies. The Company has entered into agreements related tothe management of these currency transaction risks. The credit risk under theseinterest rate and foreign currency agreements is not considered to besignificant.

 

23

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# Interest Rate Risk

#  

Quarterly, the Company uses a combination of cash flowmodels to assess the sensitivity of its financial instruments with interestrate exposure to changes in market interest rates. The models calculate theeffect of adjusting interest rates as follows. Cash flows for Receivables arediscounted at the current prevailing rate for each Receivable portfolio. Cashflows for unsecured borrowings are discounted at the applicable benchmark yieldcurve plus market credit spreads for similarly rated borrowers. Cash flows forsecuritized borrowings are discounted at the swap yield curve plus a marketcredit spread for similarly rated borrowers. Cash flows for interest rate swapsare projected and discounted using forward rates from the swap yield curve atthe repricing dates. The net loss in these financial instruments’ fair valuewhich would be caused by increasing the interest rates by 10 percent from themarket rates at October 31, 2009 would have been approximately $41million. The net loss from decreasing the interest rates by10 percent  at October 31, 2008would have been approximately $25 million.

 

# Foreign Currency Risk

#  

The Company’s policy is to hedge the foreign currencyrisk if the currency of the borrowings does not match the currency of theReceivable portfolio.  As a result, ahypothetical 10 percent adverse change in the value of the U.S. dollar relativeto all other foreign currencies would not have a material effect on the Company’scash flows.

 

**Item 8****.  Financial Statements andSupplementary Data.**

 

See accompanying table of contents of financialstatements.

 

**Item 9****.  Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.**

 

Not applicable.

 

**Item 9A(T)****. Controls and Procedures.**

 

**Disclosure Controls and Procedures**

 

The Company’s principal executive officer and itsprincipal financial officer have concluded that the Company’s disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofthe Securities Exchange Act of 1934, as amended (“the Act”)) were effective asof October 31, 2009, based on the evaluation of these controls andprocedures required by Rule 13a-15(b) or 15d-15(b) of the Act.****During the fourth quarter, there were no changes that havematerially affected or are reasonably likely to materially affect the Company’sinternal controls over financial reporting.

 

**Management’s Report on Internal Control OverFinancial Reporting**

 

The Company’s management isresponsible for establishing and maintaining adequate internal control overfinancial reporting. John Deere Capital Corporation’s internal control systemwas designed to provide reasonable assurance regarding the preparation and fairpresentation of published financial statements in accordance with generallyaccepted accounting principles.

 

All internal controlsystems, no matter how well designed, have inherent limitations. Therefore,even those systems determined to be effective can provide only reasonableassurance with respect to financial statement preparation and presentation inaccordance with generally accepted accounting principles.

 

Management assessed theeffectiveness of the Company’s internal control over financial reporting as of October 31,2009, using the criteria set forth in Internal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on that assessment, management believes that, as of October 31,2009, the Company’s internal control over financial reporting was effective.

 

24

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This annual report does not include an attestation report of theCompany’s independent registered public accounting firm regarding internalcontrol over financial reporting. Management’s report was not subject toattestation by the Company’s independent registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the Company to provide only management’s report in this annual report.

 

**Item 9B****. Other Information.**

 

Not applicable.

 

**PART III**

 

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

 

Omitted pursuantto instruction I(2).

 

**Item 11****. Executive Compensation.**

 

Omitted pursuantto instruction I(2).

 

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

 

Omitted pursuantto instruction I(2).

 

**Item 13****. Certain Relationships and Related Transactions, and DirectorIndependence.**

 

Omitted pursuantto instruction I(2).

 

**Item14****.  PrincipalAccountant Fees and Services.**

 

For the years ended October 31,2009 and 2008, professional services were performed by Deloitte &Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respectiveaffiliates (collectively, “Deloitte & Touche”).

 

Audit Fees

 

The aggregate fees billed includeamounts for the audit of the Company’s annual financial statements, the reviewsof the financial statements included in the Company’s Quarterly Reports on Form 10-Q,including services related thereto such as comfort letters, statutory audits,attest services, consents, and assistance with and review of documents filedwith the SEC and other regulatory bodies. Audit fees for the fiscal years endedOctober 31, 2009 and 2008, were $2,477 thousand and $2,575 thousand,respectively.

 

Audit-Related Fees

 

During the last two fiscal years,Deloitte & Touche has provided the Company with assurance and relatedservices that are reasonably related to the performance of the audit of ourfinancial statements. The aggregate fees billed for such audit-related servicesfor the fiscal years ended October 31, 2009 and 2008, were $410 thousandand $236 thousand, respectively. These services included various attestservices.

 

Tax Fees

 

There were no aggregate fees billedfor professional services provided by Deloitte & Touche in connectionwith tax advice and tax planning services for the fiscal years ended October 31,2009 and 2008.

 

25

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All Other Fees

 

There were no aggregate fees billed for services notincluded above for the fiscal years ended October 31, 2009 and 2008.

 

Pre-approval of Services by theExternal Auditor

 

As a wholly-owned subsidiary ofDeere & Company, audit and non-audit services provided by the Company’sexternal auditor are subject to Deere & Company’s Audit ReviewCommittee pre-approval policies and procedures as described in the Deere &Company 2009 proxy statement.  During thefiscal year ended October 31, 2009, all services provided by the externalauditor were pre-approved by Deere & Company’s Audit Review Committeein accordance with such policy.

 

## **PART IV**

 

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

 

(1)                                  Financial Statements

 

(2)                                  Financial Statement Schedules

 

See the table ofcontents to financial statements and schedules immediately preceding thefinancial statements and schedules to consolidated financial statements.

 

(3)                                  Exhibits

 

See the index toexhibits immediately preceding the exhibits filed with this report.

 

26

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**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                                                       | JOHN DEERE CAPITAL  CORPORATION |
|------------------------------------------------------------|---------------------------------|
|                                                       |                            |
|                                                       | By:                             | */s/  S. R. Allen* |
|                                                       |                            | S.  R. Allen |
|                                                       |                            | Chairman  and Principal Executive Officer |
|                                                       |                            |   |
|                                                       |                            |   |
| Date:     December 17,  2009 |                            |   |

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the date indicated.

 

Each personsigning below also hereby appoints Samuel R. Allen, James A. Israel and GregoryR. Noe, and each of them singly, his or her lawful attorney-in-fact with fullpower to execute and file any and all amendments to this report together withexhibits thereto and generally to do all such things as such attorney-in-factmay deem appropriate to enable John Deere Capital Corporation to comply withthe provisions of the Securities Exchange Act of 1934 and all requirements ofthe Securities and Exchange Commission.

 

 
| **Signature**           | ** ** | **Title**                           | ** ** | **Date**               |
|-------------------------|------------|-------------------------------------|------------|------------------------|
|                    |       |                                |       |                   |
| * *                |       |                                |       |                   |
| */s/  S. R. Allen*      |       | Director, Chairman and              | )          |                   |
| S.  R. Allen            |       | Principal Executive  Officer        | )          |                   |
|                    |       |                                | )          |                   |
|                    |       |                                | )          |                   |
| */s/  David C. Everitt* |       | Director                            | )          |                   |
| David  C. Everitt       |       |                                | )          |                   |
|                    |       |                                | )          | December 17, 2009 |
|                    |       |                                | )          |                   |
| */s/  James M. Field*   |       | Director, Senior Vice  President    | )          |                   |
| James  M. Field         |       | and Principal Financial  Officer    | )          |                   |
|                    |       | (and Principal  Accounting Officer) | )          |                   |
|                    |       |                                | )          |                   |
| */s/  James A. Israel*  |       | Director and President              | )          |                   |
| James A. Israel         |       |                                | )          |                   |

 

27

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| **Signature**               | ** ** | **Title** | ** ** | **Date**               |
|-----------------------------|------------|-----------|------------|------------------------|
| * *                    |       |      |       |                   |
| * *                    |       |      |       |                   |
| */s/  M. J. Mack, Jr.* |       | Director  | )          |                   |
| M.  J. Mack, Jr.       |       |      | )          |                   |
|                        |       |      | )          |                   |
|                        |       |      | )          |                   |
| */s/  Daniel C. McCabe*     |       | Director  | )          |                   |
| Daniel  C. McCabe           |       |      | )          |                   |
|                        |       |      | )          |                   |
|                        |       |      | )          |                   |
| */s/  Stephen Pullin*       |       | Director  | )          | December 17, 2009 |
| Stephen  Pullin             |       |      | )          |                   |
|                        |       |      | )          |                   |
|                        |       |      | )          |                   |
| */s/  Lawrence W. Sidwell*  |       | Director  | )          |                   |
| Lawrence  W. Sidwell        |       |      | )          |                   |
|                        |       |      | )          |                   |
|                        |       |      | )          |                   |
| */s/  Markwart von Pentz*   |       | Director  | )          |                   |
| Markwart  von Pentz         |       |      | )          |                   |

 

28

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## **Tableof Contents**

 
| ** **                                                                                                                | ** ** | **Page** |
|---------------------------------------------------------------------------------------------------------------------------|------------|----------|
|                                                                                                                      |       |     |
| **Financial Statements:**                                                                                                 |       |     |
|                                                                                                                      |       |     |
| John  Deere Capital Corporation and Subsidiaries:                                                                         |       |     |
|                                                                                                                      |       |     |
| Report  of Independent Registered Public Accounting Firm                                                                  |       | 30       |
|                                                                                                                      |       |     |
| Statements  of Consolidated Income and Retained Earnings  For the Years Ended October 31, 2009, 2008 and 2007        |       | 31       |
|                                                                                                                      |       |     |
| Consolidated  Balance Sheets, as of October 31, 2009 and 2008                                                        |       | 32       |
|                                                                                                                      |       |     |
| Statements of Consolidated Cash Flows  For the Years Ended October 31, 2009, 2008 and 2007                           |       | 33       |
|                                                                                                                      |       |     |
| Statement of Changes in Consolidated Stockholder’s  Equity  For the Years Ended October 31, 2007, 2008 and 2009 |       | 34       |
|                                                                                                                      |       |     |
| Notes to Consolidated Financial Statements                                                                                |       | 35       |

 

**SCHEDULES OMITTED**

 

The followingschedules are omitted because of the absence of conditions under which they arerequired or because the required information is included in the Notes to theConsolidated Financial Statements:

 

I, II, III,IV, and V.

 

29

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REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

John Deere Capital Corporation:

 

We have audited the accompanying consolidated balance sheets of JohnDeere Capital Corporation and subsidiaries (the “Company”) as of October 31,2009 and 2008, and the related statements of consolidated income and retainedearnings, of changes in consolidated stockholder’s equity, and of consolidatedcash flows for each of the three years in the period ended October 31,2009.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting.  Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements; assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, inall material respects, the financial position of the Company at October 31,2009 and 2008 and the results of its operations and its cash flows for each ofthe three years in the period ended October 31, 2009 in conformity withaccounting principles generally accepted in the United States of America.

 

*/s/*DELOITTE & TOUCHE LLP

Chicago, Illinois

 

December 17, 2009

 

30

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

**Statementsof Consolidated Income and Retained Earnings**

**For theYears Ended October 31, 2009, 2008 and 2007**

(in millions)

 
| ** **                                           | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues**                                         |       |     |       |     |       |     |       |
| Finance  income earned on retail notes               |       | $        | 743.6      |     | $          | 860.5    |       | $ | 851.9 |   |
| Lease  revenues                                      |       | 312.9    |       | 331.7    |       | 318.7    |       |
| Revolving  charge account income                     |       | 242.1    |       | 227.2    |       | 222.1    |       |
| Finance  income earned on wholesale receivables      |       | 297.7    |       | 302.5    |       | 364.8    |       |
| Operating  loan income                               |       | 14.0     |       | 22.9     |       | 26.8     |       |
| Income  on receivables sold                          |       | 2.6      |       | 6.3      |       | 22.3     |       |
| Crop  insurance commissions                          |       | 83.3     |       | 139.1    |       | 75.5     |       |
| Other  income - net                                  |       | 60.0     |       | 77.2     |       | 84.8     |       |
| Total  revenues                                      |       | 1,756.2  |       | 1,967.4  |       | 1,966.9  |       |
| **Expenses**                                         |       |     |       |     |       |     |       |
| Interest  expense                                    |       | 788.5    |       | 838.7    |       | 877.9    |       |
| Operating  expenses:                                 |       |     |       |     |       |     |       |
| Administrative  and operating expenses               |       | 333.2    |       | 373.0    |       | 307.6    |       |
| Provision  for credit losses                         |       | 177.5    |       | 66.8     |       | 53.7     |       |
| Fees  paid to John Deere                             |       | 30.6     |       | 35.8     |       | 36.0     |       |
| Depreciation  of equipment on operating leases       |       | 204.5    |       | 216.0    |       | 212.1    |       |
| Total  operating expenses                            |       | 745.8    |       | 691.6    |       | 609.4    |       |
| Total  expenses                                      |       | 1,534.3  |       | 1,530.3  |       | 1,487.3  |       |
| **Income of consolidated group before income taxes** |       | 221.9    |       | 437.1    |       | 479.6    |       |
| **Provision for income taxes**                       |       | 73.2     |       | 155.7    |       | 168.7    |       |
| **Income of consolidated group**                     |       | 148.7    |       | 281.4    |       | 310.9    |       |
| **Equity in income of unconsolidated affiliates**    |       | .5       |       | 1.0      |       | .3       |       |
| **Net income**                                       |       | 149.2    |       | 282.4    |       | 311.2    |       |
| **Dividends paid**                                   |       |     |       | (465.1   | )          | (525.0   | )          |
| **Retained earnings at beginning of the year**       |       | 882.9    |       | 1,065.6  |       | 1,300.9  |       |
| **Retained earnings at end of the year**             |       | $        | 1,032.1    |     | $          | 882.9    |       | $ | 1,087.1 |   |

 

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

 

31

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**John Deere Capital Corporation and Subsidiaries**

**Consolidated Balance Sheets**

**As of October 31, 2009 and 2008**

(in millions)

 
| ** **                                                                                                   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Assets**                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash  and cash equivalents                                                                                   |       | $          | 870.6      |       | $          | 1,082.6 |   |
| Receivables:                                                                                                 |       |       |       |       |       |
| Retail  notes                                                                                                |       | 8,234.1    |       | 10,136.6   |       |
| Restricted  securitized retail notes                                                                         |       | 3,110.1    |       | 1,592.5    |       |
| Revolving  charge accounts                                                                                   |       | 2,192.5    |       | 1,825.1    |       |
| Operating  loans                                                                                             |       | 297.0      |       | 357.9      |       |
| Wholesale  receivables                                                                                       |       | 3,873.5    |       | 3,570.6    |       |
| Financing  leases                                                                                            |       | 392.8      |       | 417.9      |       |
| Total  receivables                                                                                           |       | 18,100.0   |       | 17,900.6   |       |
| Allowance  for credit losses                                                                                 |       | (158.2     | )          | (105.2     | )          |
| Total  receivables — net                                                                                |       | 17,941.8   |       | 17,795.4   |       |
| Other  receivables                                                                                           |       | 25.9       |       | 25.4       |       |
| Equipment  on operating leases — net                                                                    |       | 1,023.2    |       | 1,053.4    |       |
| Notes  receivable from John Deere                                                                            |       | 739.2      |       | 799.3      |       |
| Investments  in unconsolidated affiliates                                                                    |       | 6.6        |       | 5.4        |       |
| Other  assets                                                                                                |       | 1,094.2    |       | 552.1      |       |
| **Total Assets**                                                                                             |       | $          | 21,701.5   |       | $          | 21,313.6 |   |
|                                                                                                         |       |       |       |       |       |
| **Liabilities and Stockholder’s Equity**                                                                |       |       |       |       |       |
| Short-term  borrowings:                                                                                      |       |       |       |       |       |
| Commercial  paper                                                                                            |       | $          | 32.0       |       | $          | 2,814.5 |   |
| Other  notes payable                                                                                         |       | 3,113.0    |       | 1,622.2    |       |
| John  Deere                                                                                                  |       | 15.3       |       | 315.6      |       |
| Current  maturities of long-term borrowings                                                                  |       | 2,550.4    |       | 3,141.9    |       |
| Total  short-term borrowings                                                                                 |       | 5,710.7    |       | 7,894.2    |       |
| Accounts  payable and accrued expenses                                                                       |       | 741.6      |       | 583.4      |       |
| Deposits  withheld from dealers and merchants                                                                |       | 164.9      |       | 173.5      |       |
| Deferred  income taxes                                                                                       |       | 67.1       |       | 67.9       |       |
| Long-term  borrowings                                                                                        |       | 12,700.6   |       | 10,529.7   |       |
| Total  liabilities                                                                                           |       | 19,384.9   |       | 19,248.7   |       |
| Commitments  and contingencies (Note 19)                                                                     |       |       |       |       |       |
| Stockholder’s  equity:                                                                                  |       |       |       |       |       |
| Common  stock, without par value (issued and outstanding - 2,500 shares owned by John  Deere Credit Company) |       | 1,272.8    |       | 1,212.8    |       |
| Retained  earnings                                                                                           |       | 1,032.1    |       | 882.9      |       |
| Accumulated  other comprehensive income (loss):                                                              |       |       |       |       |       |
| Cumulative  translation adjustment                                                                           |       | 55.8       |       | 9.2        |       |
| Unrealized  loss on derivatives                                                                              |       | (44.1      | )          | (40.0      | )          |
| Total  accumulated other comprehensive income (loss)                                                         |       | 11.7       |       | (30.8      | )          |
| Total  stockholder’s equity                                                                             |       | 2,316.6    |       | 2,064.9    |       |
| **Total Liabilities and Stockholder’s Equity**                                                          |       | $          | 21,701.5   |       | $          | 21,313.6 |   |

 

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

 

32

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**JohnDeere Capital Corporation and Subsidiaries**

**Statements of Consolidated Cash Flows**

**For theYears Ended October 31, 2009, 2008 and 2007**

(in millions)

 
|                                                                               |   | **2009**  | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|------------------------------------------------------------------------------------|--------|-----------|------------|-----------|------------|-----------|------------|
| **Cash Flows from Operating Activities:**                                          |   |      |       |      |       |      |       |
| Net income                                                                         |   | $         | 149.2      |      | $          | 282.4     |       | $ | 311.2 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |      |       |      |       |      |       |
| Provision for  credit losses                                                       |   | 177.5     |       | 66.8      |       | 53.7      |       |
| Provision for  depreciation and amortization                                       |   | 215.2     |       | 224.0     |       | 218.5     |       |
| Provision  (credit) for deferred income taxes                                      |   | 1.3       |       | 36.3      |       | (37.9     | )          |
| Undistributed  earnings of unconsolidated affiliates                               |   | (.5       | )          | (1.0      | )          | (.3       | )          |
| Change in  accounts payable and accrued expenses                                   |   | 26.5      |       | 54.4      |       | 44.6      |       |
| Change in  accrued income taxes payable/receivable                                 |   | 7.7       |       | 9.9       |       | 15.2      |       |
| Other                                                                              |   | (35.2     | )          | (74.9     | )          | (9.9      | )          |
| Net cash  provided by operating activities                                         |   | 541.7     |       | 597.9     |       | 595.1     |       |
|                                                                               |   |      |       |      |       |      |       |
| **Cash Flows from Investing Activities:**                                          |   |      |       |      |       |      |       |
| Cost of  receivables acquired                                                      |   | (30,759.2 | )          | (32,847.6 | )          | (29,010.7 | )          |
| Collections of  receivables                                                        |   | 30,749.3  |       | 32,119.3  |       | 28,160.1  |       |
| Cost of  equipment on operating leases acquired                                    |   | (494.9    | )          | (556.3    | )          | (537.7    | )          |
| Proceeds from  sales of equipment on operating leases                              |   | 303.3     |       | 286.2     |       | 201.3     |       |
| Purchases of  property and equipment                                               |   | (30.1     | )          | (9.2      | )          | (2.1      | )          |
| Cost of notes  receivable with John Deere                                          |   | (288.7    | )          | (398.1    | )          | (521.4    | )          |
| Collection of  notes receivable with John Deere                                    |   | 348.8     |       | 185.3     |       | 173.5     |       |
| Proceeds from  sales of receivables                                                |   | 34.0      |       | 88.9      |       | 228.8     |       |
| Change in  restricted cash                                                         |   | (34.5     | )          | (7.2      | )          | 74.3      |       |
| Collateral on  derivatives received - net                                          |   | 78.4      |       |      |       |      |       |
| Other                                                                              |   | (22.0     | )          | (24.7     | )          | 11.3      |       |
| Net cash used  for investing activities                                            |   | (115.6    | )          | (1,163.4  | )          | (1,222.6  | )          |
|                                                                               |   |      |       |      |       |      |       |
| **Cash Flows from Financing Activities:**                                          |   |      |       |      |       |      |       |
| Increase  (decrease) in commercial paper — net                                |   | (2,878.3  | )          | 219.0     |       | 284.4     |       |
| Increase  (decrease) in other notes payable — net                             |   | 1,490.9   |       | (576.3    | )          | (7.9      | )          |
| Increase  (decrease) in payable with John Deere — net                         |   | (306.3    | )          | 188.9     |       | (50.4     | )          |
| Proceeds from  issuance of long-term borrowings                                    |   | 4,246.6   |       | 5,558.6   |       | 3,513.8   |       |
| Payments of  long-term borrowings                                                  |   | (3,169.6  | )          | (3,876.2  | )          | (2,513.2  | )          |
| Dividends paid                                                                     |   |      |       | (465.1    | )          | (525.0    | )          |
| Capital  investment                                                                |   | 60.0      |       | 400.0     |       |      |       |
| Debt issuance  costs                                                               |   | (113.4    | )          | (22.3     | )          | (11.6     | )          |
| Net cash  provided by (used for) financing activities                              |   | (670.1    | )          | 1,426.6   |       | 690.1     |       |
|                                                                               |   |      |       |      |       |      |       |
| **Effect of exchange rate changes on cash and cash  equivalents**                  |   | 32.0      |       | 30.7      |       | 9.0       |       |
| **Net increase (decrease) in cash and cash  equivalents**                          |   | (212.0    | )          | 891.8     |       | 71.6      |       |
| **Cash and cash equivalents at the beginning of  year**                            |   | 1,082.6   |       | 190.8     |       | 119.2     |       |
| **Cash and cash equivalents at the end of year**                                   |   | $         | 870.6      |      | $          | 1,082.6   |       | $ | 190.8 |   |

 

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

 

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** **

**JohnDeere Capital Corporation and Subsidiaries**

**Statements of Changes in Consolidated Stockholder’s Equity**

**For theYears Ended October 31, 2007, 2008 and 2009**

(in millions)

 
|                                 |   | **Total  Equity** | ** ** | **Common  Stock** | ** ** | **Retained  Earnings** | ** ** | **Other  Comprehensive  Income (Loss)** | ** ** |
|--------------------------------------|--------|-------------------|------------|-------------------|------------|------------------------|------------|-----------------------------------------|------------|
|                                 |   |              |       |              |       |                   |       |                                    |       |
| **Balance October 31, 2006**    |   | $                 | 2,153.7    |              | $          | 812.8                  |       | $                                       | 1,300.9    |   | $ | 40.0 |   |
| Comprehensive  income                |   |              |       |              |       |                   |       |                                    |       |
| Net income                           |   | 311.2             |       |              |       | 311.2                  |       |                                    |       |
| Other  comprehensive income (loss)   |   |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment   |   | 33.6              |       |              |       |                   |       | 33.6                                    |       |
| Unrealized loss  on investments      |   | (2.3              | )          |              |       |                   |       | (2.3                                    | )          |
| Unrealized loss  on derivatives      |   | (16.7             | )          |              |       |                   |       | (16.7                                   | )          |
| **Total  comprehensive income**      |   | 325.8             |       |              |       |                   |       |                                    |       |
| Dividends paid                       |   | (525.0            | )          |              |       | (525.0                 | )          |                                    |       |
| **Balance October 31, 2007**    |   | 1,954.5           |       | 812.8             |       | 1,087.1                |       | 54.6                                    |       |
| Comprehensive  income                |   |              |       |              |       |                   |       |                                    |       |
| Net income                           |   | 282.4             |       |              |       | 282.4                  |       |                                    |       |
| Other  comprehensive income (loss)   |   |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment   |   | (52.5             | )          |              |       |                   |       | (52.5                                   | )          |
| Unrealized loss  on investments      |   | (1.2              | )          |              |       |                   |       | (1.2                                    | )          |
| Unrealized loss  on derivatives      |   | (31.7             | )          |              |       |                   |       | (31.7                                   | )          |
| **Total  comprehensive income**      |   | 197.0             |       |              |       |                   |       |                                    |       |
| Adjustment to  adopt FIN No. 48 |   | (21.5             | )          |              |       | (21.5                  | )          |                                    |       |
| Dividends paid                       |   | (465.1            | )          |              |       | (465.1                 | )          |                                    |       |
| Capital  investment                  |   | 400.0             |       | 400.0             |       |                   |       |                                    |       |
| **Balance October 31, 2008**    |   | 2,064.9           |       | 1,212.8           |       | 882.9                  |       | (30.8                                   | )          |
| Comprehensive  income                |   |              |       |              |       |                   |       |                                    |       |
| Net income                           |   | 149.2             |       |              |       | 149.2                  |       |                                    |       |
| Other  comprehensive income (loss)   |   |              |       |              |       |                   |       |                                    |       |
| Cumulative  translation adjustment   |   | 46.6              |       |              |       |                   |       | 46.6                                    |       |
| Unrealized loss  on derivatives      |   | (4.1              | )          |              |       |                   |       | (4.1                                    | )          |
| **Total  comprehensive income**      |   | 191.7             |       |              |       |                   |       |                                    |       |
| Capital  investment                  |   | 60.0              |       | 60.0              |       |                   |       |                                    |       |
| **Balance October 31, 2009**    |   | $                 | 2,316.6    |              | $          | 1,272.8                |       | $                                       | 1,032.1    |   | $ | 11.7 |   |

 

Theaccompanying Notes to Consolidated Financial Statements are an integral part ofthese statements.

 

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**John Deere Capital Corporation and Subsidiaries**

**Notes to Consolidated FinancialStatements**

 

**Note 1****. Organization andConsolidation**

 

CorporateOrganization

 

John Deere CapitalCorporation (Capital Corporation) and its subsidiaries are collectively calledthe Company. John Deere Credit Company, a wholly-owned finance holdingsubsidiary of Deere & Company, is the parent of the Company. TheCompany conducts business in Australia, New Zealand, the U.S., and in severalcountries in Asia, Europe and Latin America. Deere & Company and itswholly-owned subsidiaries are collectively called John Deere.

 

Retail notes,revolving charge accounts, operating loans, financing leases and wholesalereceivables are collectively called “Receivables.” Receivables and operating leasesare collectively called “Receivables and Leases.”

 

The Company bearssubstantially all of the credit risk (net of recovery from withholdings fromcertain John Deere dealers, and customer guarantees from certain John Deeredealers and Farm Planä and PowerPlanâmerchants) associated with its holding of Receivables and Leases. A smallportion of the Receivables and Leases held (less than 5 percent) isguaranteed by certain subsidiaries of Deere & Company. The Companyalso performs substantially all servicing and collection functions. Servicingand collection functions for a small portion of the Receivables and Leases held(less than 5 percent) are provided by John Deere. John Deere is reimbursed forstaff and other administrative services at estimated cost, and for credit linesprovided to the Company based on utilization of those lines.

 

John Deere’s agricultural equipment operations and the commercial andconsumer equipment operations were combined into the agriculture and turfsegment at the beginning of the third quarter of 2009.Information about Deere &Company’s business segments has been revised to conform to the currentorganization.

#  

# Principles of Consolidation

 

The consolidatedfinancial statements include the financial statements of the Capital Corporationand its subsidiaries. The consolidated financial statements represent theconsolidation of all companies in which the Capital Corporation has acontrolling interest. Certain variable interest entities (VIEs) primarilyrelated to the securitization of financing receivables for secured borrowingsare consolidated since the Company is the primary beneficiary. The CapitalCorporation records its investment in each unconsolidated affiliated company atits related equity in the net assets of such affiliate.

 

Variable Interest Entities

 

The Company is the primarybeneficiary of and consolidates certain VIEs that are special purpose entities(SPEs) related to the securitization of receivables. These restricted retailnotes are included in the restricted securitized retail notes related tosecuritizations shown in the table in Note 6.

 

**Note 2****. Summary of SignificantAccounting Policies**

 

The following aresignificant accounting policies in addition to those included in other notes tothe consolidated financial statements.

 

# Use of Estimates in Financial Statements

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the U.S. requires management to make estimates and assumptions thataffect the reported amounts and related disclosures. Actual results coulddiffer from those estimates.

 

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RevenueRecognition

 

Financing revenue is recorded over the lives of therelated receivables using the interest method. Deferred costs on theorigination of receivables are recognized as a reduction in finance revenueover the expected lives of the receivables using the interest method. Incomeand deferred costs on the origination of operating leases are recognized on astraight-line basis over the scheduled lease terms in finance revenue. Cropinsurance commissions are recorded on a straight-line basis over the coverageperiod of the crop insurance policy.

 

Securitization of Receivables

 

Certain financing receivables are periodicallytransferred to SPEs in securitization transactions (see Note 6). Thesesecuritizations qualify as collateral for secured borrowings and no gains orlosses are recognized at the time of securitization. The receivables remain onthe balance sheet and are classified as “Restricted securitized retail notes.”  The Company recognizes finance income overthe lives of these retail notes using the interest method.

 

# Depreciation

 

Equipment onoperating leases is depreciated over the terms of the leases using thestraight-line method (see Note 7).

 

Derivative Financial Instruments

 

It is the Company’spolicy that derivative transactions are executed only to manage exposuresarising in the normal course of business and not for the purpose of creatingspeculative positions or trading. The Company manages the relationship of thetypes and amounts of funding sources to its receivable and lease portfolio inan effort to diminish risk due to interest rate and foreign currencyfluctuations, while responding to favorable financing opportunities. TheCompany also has foreign currency exposures at some of its foreign and domesticoperations related to financing in currencies other than the local currencies.

 

All derivatives are recorded at fair value on thebalance sheet. Cash collateral received or paid is not offset against thederivative fair values on the balance sheet. Each derivative is designated aseither a cash flow hedge, a fair value hedge, or remains undesignated. Changesin the fair value of derivatives that are designated and effective as cash flowhedges are recorded in other comprehensive income and reclassified to theincome statement when the effects of the item being hedged are recognized innet income. Changes in the fair value of derivatives that are designated andeffective as fair value hedges are recognized currently in net income. Thesechanges are offset in net income to the extent the hedge was effective by fairvalue changes related to the risk being hedged on the hedged item. Changes inthe fair value of undesignated hedges are recognized currently in the incomestatement. All ineffective changes in derivative fair values are recognizedcurrently in net income.

 

All designated hedges are formally documented as tothe 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 asto its effectiveness, when applicable. If and when a derivative is determinednot to be highly effective as a hedge, or the underlying hedged transaction isno longer likely to occur, or the hedge designation is removed, or thederivative is terminated, the hedge accounting discussed above is discontinued(see Note 22).

 

# Foreign Currency Translation

 

The functionalcurrencies for most of the Company’s foreign operations are their respectivelocal currencies. The assets and liabilities of these operations are translatedinto U.S. dollars at the end of the period exchange rates. The revenues andexpenses are translated at weighted-average rates for the period. The gains orlosses from these translations are recorded in other comprehensive income.Gains or losses from transactions denominated in a currency other than thefunctional currency of the subsidiary involved and foreign exchange forwardcontracts and options are included in net income. The total foreign exchangepretax net gain (loss) for 2009, 2008 and 2007 was $7.0 million, $(13.3)million and $1.3 million, respectively.

 

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Subsequent Events

 

Subsequent eventshave been evaluated through December 17, 2009, which is the date thesefinancial statements were issued on Form 10-K with the Securities andExchange Commission (SEC) (see Note 26).

 

**Note 3****. New Accounting Standards**

 

New Accounting Standards Adopted

 

In 2009, the Company adopted Accounting Standards Update (ASU) No. 2009-01,Statement of Financial Accounting Standards No. 168 — The FinancialAccounting Standards Board (FASB) Accounting Standards Codification (ASC) andthe Hierarchy of Generally Accepted Accounting Principles (GAAP). This ASUincludes FASB Statement No. 168 in its entirety. The ASU establishes theFASB ASC as the source of authoritative accounting principles recognized by theFASB. Rules and interpretative releases of the SEC under federalsecurities laws are also sources of authoritative GAAP for SEC registrants. Allguidance contained in the ASC carries an equal level of authority. Followingthis ASU, the FASB will issue only ASUs to update the ASC. The adoption did nothave a material effect on the Company’s consolidated financial statements.

 

The following standards were also adopted in 2009 and they also did nothave a material effect on the Company’s consolidated financial statements.

 

In the first quarter of 2009, the Company adopted FASB ASC 820, FairValue Measurements and Disclosures (FASB Statement No. 157, Fair ValueMeasurements) for financial assets and liabilities recognized or disclosed atfair value (see Note 21). ASC 820 defines fair value and expands disclosuresabout fair value measurements. These definitions apply to other accountingstandards that use fair value measurements and may change the application ofcertain measurements used in current practice. For nonfinancial assets andliabilities, the effective date is the beginning of fiscal year 2010, exceptitems that are recognized or disclosed at fair value on a recurring basis. Theadoption for these assets and liabilities will not have a material effect onthe Company’s consolidated financial statements.

 

In the first quarter of 2009, the Company adopted FASB ASC 825,Financial Instruments (FASB Statement No. 159, The Fair Value Option forFinancial Assets and Financial Liabilities). ASC 825 permits entities tomeasure most financial instruments at fair value if desired. It may be appliedon a contract by contract basis and is irrevocable once applied to thosecontracts. The new standard may be applied at the time of adoption for existingeligible items, or at initial recognition of eligible items. After election ofthis option, changes in fair value are reported in earnings. The items measuredat fair value must be shown separately on the balance sheet. The Company didnot change the valuation of any financial instruments at adoption based on thisStatement. The cumulative effect of adoption would have been reported as anadjustment to beginning retained earnings.

 

In the first quarter of 2009, the Company adopted FASB ASC 815,Derivatives and Hedging (FASB Statement No. 161, Disclosures about DerivativeInstruments and Hedging Activities). ASC 815 increases the disclosurerequirements for derivative instruments (see Note 22). Most disclosures arerequired on an interim and annual basis.

 

In the first quarter of 2009, the Company adopted FASB ASC 860,Transfers and Servicing (FASB Staff Position (FSP) Financial AccountingStatement (FAS) 140-4 and FIN 46(R)-8, Disclosures by Public Entities(Enterprises) about Transfers of Financial Assets and Interests in VariableInterest Entities) (see Note 6). ASC 860 requires additional disclosure fortransfers of financial assets in securitization transactions and an entity’sinvolvement with variable interest entities.

 

In the third quarter of 2009, the Company adopted FASB ASC 855,Subsequent Events (FASB Statement No. 165, Subsequent Events). ASC 855establishes general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before the financial statements areissued, or available to be issued if not widely distributed. The financialstatements should reflect all subsequent events that provide additionalevidence about 

 

37

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conditions that existed at the date of the balance sheet. The financialstatements should not reflect subsequent events that provide evidence aboutconditions that did not exist at the date of the balance sheet. An entity mustdisclose the date through which subsequent events have been evaluated, as wellas whether that date is the date the financial statements were issued, or thedate they were available to be issued.

 

In the third quarter of 2009, the Company adopted FASB ASC 825,Financial Instruments (FSP FAS 107-1 and Accounting Principles Bulletin (APB)28-1, Interim Disclosures about Fair Value of Financial Instruments). ASC 825requires fair value disclosures on an interim basis. Previously, this has beendisclosed on an annual basis only.

 

New Accounting Standards to be Adopted

 

In December 2007, theFASB issued ASC 805, Business Combinations (FASB Statement No. 141(revised 2007), Business Combinations), and ASC 810, Consolidation (FASBStatement No. 160, Noncontrolling Interests in Consolidated FinancialStatements). ASC 805 requires an acquirer to measure the identifiable assetsacquired, the liabilities assumed and any noncontrolling interest in theacquiree at their fair values on the acquisition date, with goodwill being theexcess value over the net identifiable assets acquired. This standard alsorequires the fair value measurement of certain other assets and liabilitiesrelated to the acquisition such as contingencies and research and development.ASC 810 clarifies that a noncontrolling interest in a subsidiary should bereported as equity in the consolidated financial statements. Consolidated netincome should include the net income for both the parent and the noncontrollinginterest with disclosure of both amounts on the consolidated statement ofincome. The effective date for both standards is the beginning of fiscal year2010. The adoptions will not have material effects on the Company’sconsolidated financial statements.

 

In June 2009, theFASB issued ASC 860, Transfers and Servicing (FASB Statement No. 166,Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140).ASC 860 eliminates qualifying special purpose entities from the consolidationguidance and clarifies the requirements for isolation and limitations onportions of financial assets that are eligible for sale accounting. It requiresadditional disclosures about the risks from continuing involvement intransferred financial assets accounted for as sales. The effective date is thebeginning of fiscal year 2011. The adoption is not expected to have a materialeffect on the Company’s consolidated financial statements.

 

In June 2009, theFASB issued ASC 810, Consolidations (FASB Statement No. 167, Amendments toFASB Interpretation No. 46(R)). ASC 810 requires a qualitative analysis todetermine the primary beneficiary of a VIE. The analysis identifies the primarybeneficiary as the enterprise that has both the power to direct the activitiesof a VIE that most significantly impact the VIE’s economic performance and theobligation to absorb losses or the right to receive benefits that could besignificant to the VIE. The standard also requires additional disclosures aboutan enterprise’s involvement in a VIE. The effective date is the beginning offiscal year 2011. The Company has currently not determined the potentialeffects on the consolidated financial statements.

 

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**Note 4****. Receivables**

 

Retail NotesReceivable

 

The Companyprovides and administers financing for retail purchases of new equipmentmanufactured by John Deere’s agriculture and turf and construction and forestrydivisions and used equipment taken in trade for this equipment. The Companypurchases retail installment sales and loan contracts (retail notes) from JohnDeere. These retail notes are acquired by John Deere through John Deereequipment retail dealers. The Company also purchases and finances a limitedamount of retail notes unrelated to John Deere.

 

Retail notesreceivable by product category at October 31 are as follows (in millionsof dollars):

 
| ** **                                       | ** ** | **2009**         | ** ** | **2008**       | ** ** |
|--------------------------------------------------|------------|------------------|------------|----------------|------------|
| ** **                                       | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** |
| Agriculture  and turf equipment — new       |       | $                | 5,332.2    |           | $          | 1,318.7 |   | $ | 6,187.6 |   | $ | 536.6 |   |
| Agriculture  and turf equipment — used      |       | 2,483.7          |       | 1,593.6        |       | 3,326.2 |   | 783.4 |   |
| Construction  and forestry equipment — new  |       | 680.9            |       | 564.4          |       | 1,589.9 |   | 374.7 |   |
| Construction  and forestry equipment — used |       | 178.0            |       | 56.8           |       | 152.9 |   | 50.4 |   |
| Recreational  products                           |       | 6.2              |       |           |       | 13.0 |   |   |   |
| Total                                            |       | 8,681.0          |       | 3,533.5        |       | 11,269.6 |   | 1,745.1 |   |
| Unearned  finance income                         |       | (446.9           | )          | (423.4         | )          | (1,133.0 | ) | (152.6 | ) |
| Retail  notes receivable                         |       | $                | 8,234.1    |           | $          | 3,110.1 |   | $ | 10,136.6 |   | $ | 1,592.5 |   |

 

Retail notesacquired by the Company during the years ended October 31, 2009, 2008 and2007 had an average original term (based on dollar amounts) of 54, 54 and 52months, respectively. Historically, because of prepayments, the average actuallife of retail notes has been considerably shorter than the average originalterm. The average actual life for retail notes liquidated in 2009, 2008 and2007 was 36, 34 and 35 months, respectively.

 

Gross retail noteinstallments at October 31 are scheduled to be received as follows (inmillions of dollars):

 
| ** **      | ** ** | **2009**         | ** ** | **2008**       | ** ** |
|-----------------|------------|------------------|------------|----------------|------------|
| ** **      | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** | **Unrestricted** | ** ** | **Restricted** | ** ** |
| Due  in:        |       |             |       |           |       |   |   |   |   |
| 0-12  months    |       | $                | 3,048.6    |           | $          | 1,271.4 |   | $ | 3,800.7 |   | $ | 708.6 |   |
| 13-24  months   |       | 2,184.4          |       | 1,036.5        |       | 2,973.8 |   | 557.8 |   |
| 25-36  months   |       | 1,600.9          |       | 698.0          |       | 2,128.6 |   | 316.0 |   |
| 37-48  months   |       | 1,013.6          |       | 394.5          |       | 1,368.6 |   | 131.4 |   |
| 49-60  months   |       | 653.3            |       | 124.8          |       | 767.0 |   | 29.5 |   |
| Over  60 months |       | 180.2            |       | 8.3            |       | 230.9 |   | 1.8 |   |
| Total           |       | $                | 8,681.0    |           | $          | 3,533.5 |   | $ | 11,269.6 |   | $ | 1,745.1 |   |

 

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Company guidelinesrelating to down payment requirements and contract terms on retail notes aregenerally as follows:

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

 

During 2009, 2008and 2007, the Company received proceeds from the sale of Receivables of $34million, $89 million and $229 million, respectively. The Company acts asagent for the buyers in collection and administration for virtually all of theReceivables it has sold. All Receivables sold are collateralized by securityagreements on the related equipment. The Company’s maximum exposure under allReceivable and Lease recourse provisions at October 31, 2009, 2008 and2007 was $7 million, $8 million and $25 million, respectively. The Company doesnot record the recourse obligations as liabilities as they are contingentliabilities that are remote at this time. However, the probable loss onReceivables and Leases that have been sold was accrued at the time of sale, andany subsequent necessary adjustments are made as part of ongoing reviews. At October 31,2009, 2008 and 2007, the balance of all Receivables and Leases administered,but not owned by the Company, was $128 million, $163 million and$223 million, respectively.

 

Finance income isrecognized over the lives of the retail notes using the interest method. During2009, the average effective yield on retail notes held by the Company wasapproximately 6.8 percent, compared with 7.4 percent in 2008 and 7.7percent in 2007. Unearned finance income on variable-rate retail notes isadjusted monthly based on fluctuations in the base rate of a specified bank.Costs incurred in the acquisition of retail notes are deferred and recognizedover the expected lives of the retail notes using the interest method.

 

A portion of thefinance income earned by the Company arises from financing of retail sales ofJohn Deere equipment on which finance charges are waived or reduced by JohnDeere for a period from the date of sale to a specified subsequent date. TheCompany receives compensation from John Deere equal to competitive marketinterest rates for periods during which finance charges have been waived orreduced on retail notes and leases. The Company computes the compensation fromJohn Deere for waived or reduced finance charges based on the Company’sestimated funding costs, administrative and operating expenses, credit losses,and required return on equity. The finance income earned following the waiveror interest reduction period is not significantly different from thecompensation earned from John Deere. The portions of the Company’s financeincome earned that were received from John Deere on retail notes containingwaiver of finance charges or reduced rates were 25 percent in 2009, 2008 and2007. During 2009, 2008 and 2007, the finance income earned from Deere &Company on retail notes containing waiver of finance charges or reduced rateswas $187 million, $215 million and $215 million, respectively.

 

A deposit equal toone percent of the face amount of certain John Deere agriculture and turfequipment retail notes originating from each dealer is withheld by the Companyfrom that dealer. Any subsequent retail note losses are charged against thewithheld deposits. At the end of each calendar quarter, the balance of eachdealer’s withholding account in excess of a specified percent (ranging from oneto three percent based on dealer qualifications) of the total balanceoutstanding on retail notes originating with that dealer is remitted to thedealer. To the extent that these deposits withheld from the dealer from whomthe retail note was acquired cannot absorb a loss on a retail note, it ischarged against the Company’s allowance for credit losses. There is nowithholding of dealer deposits on John Deere construction and forestryequipment retail notes or recreational product retail notes.

 

The Companyrequires that theft and physical damage insurance be carried on all goodsleased or securing retail notes and wholesale receivables. The customer may, atthe customer’s own expense, have the Company or the seller of the goodspurchase this insurance or obtain it from other sources.

 

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Revolving ChargeAccounts Receivable

 

Revolving chargeaccount income is generated primarily by three revolving credit products: FarmPlanä, PowerPlanâ andthe John Deere Credit Revolving Plan. Farm Planä isprimarily used by farmers and ranchers to finance day-to-day operatingexpenses, such as parts and services. Merchants offer Farm Planä asan alternative to carrying in-house accounts receivable, and can initially sellexisting balances to the Company under a recourse arrangement. Farm Planäincome includes a discount paid by merchants for transaction processing andsupport, and finance charges paid by customers on their outstanding accountbalances. PowerPlanâ is primarily used by constructioncompanies to finance day-to-day operating expenses, such as parts and service,and is otherwise similar to Farm Planä. Merchants offer PowerPlanâ as an alternative to carrying in-houseaccounts receivable, and can initially sell existing balances to the Companyunder a recourse arrangement. PowerPlanâ income includes a discount paid bymerchants for transaction processing and support and finance charges paid bycustomers on their outstanding account balances.  The John Deere Credit Revolving Plan is usedprimarily by retail customers of John Deere dealers to finance turf and utilityequipment. Income includes a discount paid by dealers on most transactions andfinance charges paid by customers on their outstanding account balances.Revolving charge accounts receivable at October 31, 2009 and 2008 totaled$2,193 million and $1,825 million, respectively. Generally, account holders maypay the account balance in full at any time, or make payments over a number ofmonths according to a payment schedule.

 

# Operating Loans

 

Operating loanincome is generated primarily by operating loans that are offered throughseveral leading farm input providers, through direct relationships withagricultural producers to finance the acquisition of materials such as seedsand fertilizers or through agribusinesses. Income on this product is generatedfrom finance charges paid by customers on their outstanding account balances.Operating loan receivables totaled $297 million and $358 million at October 31,2009 and 2008, respectively.

 

Financing Leases

 

The Company leasesagriculture and turf equipment and construction and forestry equipment directlyto retail customers. At the time of accepting a lease that qualifies as afinancing lease, the Company records the gross amount of lease paymentsreceivable, estimated residual value of the leased equipment and unearnedfinance income. The unearned finance income is equal to the excess of the grosslease receivable plus the estimated residual value over the cost of theequipment. The unearned finance income is recognized as revenue over the leaseterm using the interest method. Lease acquisition costs are accounted for in amanner similar to the procedures for retail notes.

 

Financing leasesreceivable by product category at October 31 are as follows (in millionsof dollars):

 
| ** **                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Agriculture  and turf equipment      |       | $        | 283.1      |     | $          | 289.1 |   |
| Construction  and forestry equipment |       | 132.7    |       | 149.9    |       |
| Total                                |       | 415.8    |       | 439.0    |       |
| Estimated  residual values           |       | 38.8     |       | 43.3     |       |
| Unearned  finance income             |       | (61.8    | )          | (64.4    | )          |
| Financing  leases receivable         |       | $        | 392.8      |     | $          | 417.9 |   |

 

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Initial leaseterms for financing leases generally range from 4 months to 60 months. Paymentson financing leases receivable at October 31 are scheduled as follows (inmillions of dollars):

 
| ** **      | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Due  in:        |       |     |       |     |       |
| 0-12  months    |       | $        | 165.4      |     | $          | 173.2 |   |
| 13-24  months   |       | 116.9    |       | 120.2    |       |
| 25-36  months   |       | 77.4     |       | 81.0     |       |
| 37-48  months   |       | 40.9     |       | 45.1     |       |
| Over  48 months |       | 15.2     |       | 19.5     |       |
| Total           |       | $        | 415.8      |     | $          | 439.0 |   |

 

Deposits withheldfrom John Deere dealers and related losses on financing leases are handled in amanner similar to the procedures for retail notes. As with retail notes, thereare no deposits withheld from dealers on financing leases related toconstruction and forestry equipment. In addition, a lease payment discountprogram, allowing reduced payments over the term of the lease, is administeredin a manner similar to finance waiver on retail notes.

 

Equipment returnedto the Company upon termination of leases and held for subsequent sale or leaseis recorded at the lower of net book value or estimated market value of theequipment.

 

WholesaleReceivables

 

The Company also finances wholesale inventories ofJohn Deere agriculture and turf equipment and construction and forestryequipment owned by dealers of those products in the form of wholesalereceivables. Wholesale finance income related to these notes is generallyrecognized monthly based on the daily balance of wholesale receivables outstandingand the applicable effective interest rate. Interest rates vary with a bankbase rate, the type of equipment financed and the balance outstanding.Substantially all of wholesale receivables are secured by equipment financed.The average actual life for wholesale receivables is less than 12 months.

 

The Companypurchases certain wholesale receivables (trade receivables) from John Deere.These trade receivables arise from John Deere’s sales of goods to independentdealers. Under the terms of the sales to dealers, interest is charged todealers on outstanding balances, from the earlier of the date when goods aresold to retail customers by the dealer or the expiration of certaininterest-free periods granted at the time of the sale to the dealer, until paymentis received by the Company. Dealers cannot cancel purchases after the equipmentis shipped and are responsible for payment even if the equipment is not sold toretail customers. The interest-free periods are determined based on the type ofequipment sold and the time of year of the sale. These periods range from oneto twelve months for most equipment. Interest-free periods may not be extended.Interest charged may not be forgiven and the past due interest rates exceedmarket rates. The Company receives compensation from John Deere at competitivemarket interest rates for these interest-free periods. The Company computes thecompensation from John Deere for interest-free periods based on the Company’sestimated funding costs, administrative and operating expenses, credit losses,and required return on equity. The finance income earned following theinterest-free period is not significantly different from the compensationearned from John Deere. During 2009, 2008 and 2007, the compensation earnedfrom John Deere was $214 million, $222 million and $242 million,respectively.

 

Concentration ofCredit Risk

 

Receivables havesignificant concentrations of credit risk in the agriculture and turf andconstruction and forestry business sectors as shown in the previous tables. Ona geographic basis, there is not a disproportionate concentration of creditrisk in any area in which the Company operates. The Company retains ascollateral a security interest in the goods associated with Receivables otherthan certain revolving charge accounts.

 

42

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**Note 5****. Allowance for Credit Losses,Delinquencies and Write-offs**

 

Allowance forCredit Losses

 

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

 

An analysis of theallowance for credit losses on total Receivables follows (in millions ofdollars):

 
| ** **                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance,  beginning of the year                    |       | $        | 105.2      |     | $          | 99.2     |       | $ | 92.8 |   |
| Provision  for credit losses                       |       | 177.5    |       | 66.8     |       | 53.7     |       |
| Total  net write-offs                              |       | (125.9   | )          | (59.6    | )          | (48.7    | )          |
| Other  changes (primarily translation adjustments) |       | 1.4      |       | (1.2     | )          | 1.4      |       |
| Balance,  end of the year                          |       | $        | 158.2      |     | $          | 105.2    |       | $ | 99.2 |   |

 

The allowance forcredit losses represented .87 percent, .59 percent and .56 percent ofReceivables financed at October 31, 2009, 2008 and 2007, respectively. Inaddition, the Company had $165 million, $174 million and $174 millionat October 31, 2009, 2008 and 2007, respectively, of deposits primarilywithheld from John Deere dealers available for certain potential credit lossesoriginating from those dealers.

 

ImpairedReceivables

 

Receivables are considered impaired when it is probable the Companywill be unable to collect all amounts due according to the contractual terms ofthe receivables.

 

An analysis ofimpaired Receivables at October 31 was as follows (in millions ofdollars):

 
| ** **                                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|
| Impaired  Receivables with a specific related allowance*   |       | $        | 49.6       |     | $          | 25.7 |   |
| Impaired  Receivables without a specific related allowance |       | 7.0      |       | 7.6      |       |
| Total impaired  Receivables                                |       | $        | 56.6       |     | $          | 33.3 |   |
|                                                       |       |     |       |     |       |
| Average balance  of impaired Receivables during the year   |       | $        | 44.8       |     | $          | 24.0 |   |

 

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*              Related allowance of $26.5 millionand $5.5 million as of October 31, 2009 and 2008, respectively.

 

43

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Delinquencies

 

Generally, whenretail notes are approximately 120 days delinquent, accrual of finance incomeis suspended, the collateral is repossessed or the account is designated forlitigation and the estimated uncollectible amount, after charging the dealer’swithholding account, if any, is written off to the allowance for credit losses.Accrual of revolving charge account income is suspended generally when theaccount becomes 120 days delinquent. Accounts are deemed to be uncollectibleand written off to the allowance for credit losses when delinquency reaches 120days for a Farm Planä, PowerPlanâ orJohn Deere Credit Revolving Plan account. When a financing lease accountbecomes 120 days delinquent, the accrual of lease revenue is suspended,the equipment is repossessed or the account is designated for litigation, andthe estimated uncollectible amount, after charging the dealer’s withholdingaccount, if any, is written off to the allowance for credit losses. Generally,when a wholesale receivable becomes 60 days delinquent, the Company determineswhether the accrual of finance income on interest-bearing wholesale receivablesshould be suspended, the collateral should be repossessed or the account shouldbe designated for litigation and the estimated uncollectible amount written offto the allowance for credit losses. For Receivables that the accrual of financeincome is suspended, finance income is recognized only to the extent it isreceived in cash. Accrual of finance income is resumed when the receivablebecomes contractually current and collection doubts are removed.

 

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

 
| ** **                           | ** ** | **October 31,  2009** | ** ** | **October 31,  2008** | ** ** | **October 31,  2007** | ** ** |
|--------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **Dollars**                | ** ** | **Percent**                | ** ** | **Dollars**                | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $                          | 27.3       |                       | .27        | %                          | $          | 13.7 |   | .14 | % | $ | 15.9 |   | .17 | % |
| Construction  and forestry equipment |       | 10.7                       |       | .77                        |       | 8.3                        |       | .42 |   | 6.9 |   | .29 |   |
| Recreational  products               |       |                       |       |                       |       |                       |       |   |   |   |   |   |   |
| Total  retail notes                  |       | 38.0                       |       | .33                        |       | 22.0                       |       | .19 |   | 22.8 |   | .19 |   |
| Revolving  charge accounts*          |       | 19.8                       |       | .90                        |       | 14.6                       |       | .80 |   | 15.3 |   | .98 |   |
| Operating  loans                     |       |                       |       |                       |       | .5                         |       | .14 |   |   |   |   |   |
| Wholesale  receivables               |       | 1.6                        |       | .04                        |       | 2.3                        |       | .06 |   | .9 |   | .03 |   |
| Financing  leases                    |       | 6.0                        |       | 1.53                       |       | 5.4                        |       | 1.29 |   | 4.7 |   | 1.09 |   |
| Total  Receivables                   |       | $                          | 65.4       |                       | .36        |                       | $          | 44.8 |   | .25 |   | $ | 43.7 |   | .25 |   |

 

----

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

 

44

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

 
| ** **                           | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $           | 50.1       |        | .50        | %           | $          | 22.5 |   | .23 | % | $ | 23.4 |   | .25 | % |
| Construction  and forestry equipment |       | 33.2        |       | 2.40        |       | 15.4        |       | .78 |   | 2.2 |   | .09 |   |
| Recreational  products               |       | .1          |       | 1.61        |       | .2          |       | 2.17 |   | .1 |   | .81 |   |
| Total  retail notes                  |       | 83.4        |       | .74         |       | 38.1        |       | .32 |   | 25.7 |   | .21 |   |
| Revolving  charge accounts           |       | 1.1         |       | .05         |       | .7          |       | .04 |   | 1.2 |   | .08 |   |
| Operating  loans                     |       | 35.9        |       | 12.09       |       | 27.6        |       | 7.71 |   | 3.5 |   | 1.22 |   |
| Wholesale  receivables               |       | 9.2         |       | .24         |       |        |       |   |   | 4.5 |   | .13 |   |
| Financing  leases                    |       | 16.6        |       | 4.23        |       | 13.2        |       | 3.16 |   | 13.3 |   | 3.09 |   |
| Total  Receivables                   |       | $           | 146.2      |        | .81        |        | $          | 79.6 |   | .44 |   | $ | 48.2 |   | .27 |   |

 

At October 31, 2009, the Company had a$55 million secured operating loan outstanding to an agribusiness customer inthe poultry industry that filed for bankruptcy protection in December 2008.The customer has continued to operate and remit all interest payments while theplan of reorganization, which has been approved by the bankruptcy court, isawaiting confirmation. At October 31, 2009, no loan-loss provision wasrecorded.

 

Write-offs

 

Total Receivablewrite-off amounts, net of recoveries, by product, and as a percentage ofaverage balances held during the year, were as follows (in millions ofdollars):

 
| ** **                           | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                           | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** | **Dollars** | ** ** | **Percent** | ** ** |
| Retail  notes:                       |       |        |       |        |       |        |       |   |   |   |   |   |   |
| Agriculture  and turf equipment      |       | $           | 4.1        |        | .04        | %           | $          | 2.2 |   | .02 | % | $ | (.5 | ) | (.01 | )% |
| Construction  and forestry equipment |       | 59.8        |       | 3.61        |       | 27.6        |       | 1.27 |   | 17.4 |   | .72 |   |
| Recreational  products               |       | 1.0         |       | 12.99       |       | .5          |       | 4.72 |   | .6 |   | 4.05 |   |
| Total  retail notes                  |       | 64.9        |       | .59         |       | 30.3        |       | .26 |   | 17.5 |   | .16 |   |
| Revolving  charge accounts           |       | 54.8        |       | 2.97        |       | 27.4        |       | 1.75 |   | 24.2 |   | 1.73 |   |
| Operating  loans                     |       | (.5         | )          | (.14        | )          | (.7         | )          | (.17 | ) | 2.6 |   | .77 |   |
| Wholesale  receivables               |       | 2.7         |       | .06         |       | .4          |       | .01 |   | 1.4 |   | .04 |   |
| Financing  leases                    |       | 4.0         |       | 1.03        |       | 2.2         |       | .51 |   | 3.0 |   | .74 |   |
| Total  Receivables                   |       | $           | 125.9      |        | .70        |        | $          | 59.6 |   | .33 |   | $ | 48.7 |   | .29 |   |

 

**Note 6****. Retail Note Securitizations**

 

The Company, as apart of its overall funding strategy, periodically transfers certainreceivables (retail notes) into VIEs that are SPEs as part of its asset-backedsecurities programs (securitizations). The structure of these transactions is such that the transfer of theretail notes did not meet the criteria of sales of receivables, and is,therefore, accounted for as a secured borrowing. SPEs utilized insecuritizations of retail notes differ from other entities included in theCompany’s consolidated statements because the assets they hold are legallyisolated. For bankruptcy analysis purposes, the Capital Corporation has soldthe receivables to the SPEs in a true sale and the SPEs are separate legalentities. Use of the assets held by the SPEs is restricted by terms of thedocuments governing the securitization transaction.

 

45

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In securitizations of retailnotes related to secured borrowings, the retail notes are transferred tocertain SPEs which in turn issue debt to investors. The resulting securedborrowings are included in short-term borrowings on the balance sheet. Thesecuritized retail notes are recorded as “Restricted securitized retail notes”on the balance sheet. The total restricted assets on the balance sheet relatedto these securitizations include the restricted securitized retail notes lessan allowance for credit losses, and other assets primarily representingrestricted cash. The SPEs supporting the secured borrowings to which the retailnotes are transferred are consolidated unless the Company is not the primarybeneficiary. No additional support to these SPEs beyond what was previouslycontractually required has been provided during fiscal year 2009.

 

In certain securitizations,the Company is the primary beneficiary of the SPEs and, as such, consolidatesthe entities. The restricted assets (retail notes, allowance for credit lossesand other assets) of the consolidated SPEs totaled $2,157 million and$1,303 million at October 31, 2009 and October 31, 2008,respectively. The liabilities (other notes payable and accounts payable andaccrued expenses) of these SPEs totaled $2,133 million and $1,287 millionat October 31, 2009 and October 31, 2008, respectively. The creditholders of these SPEs do not have legal recourse to the Company’s generalcredit.

 

In other securitizations,the Company transfers retail notes into bank-sponsored, multi-seller,commercial paper conduits, which are SPEs that are not consolidated. TheCompany is not considered to be the primary beneficiary of these conduits,because the Company’s variable interests in the conduits will not absorb amajority of the conduits’ expected losses, residual returns, or both. This isprimarily due to these interests representing significantly less than amajority of the conduits’ total assets and liabilities. These conduits providea 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. TheCompany’s carrying values and variable interests related to these conduits wererestricted assets (retail notes, allowance for credit losses and other assets)of $1,036 million and $334 million at October 31, 2009 and October 31,2008, respectively. The liabilities (other notes payable and accounts payableand accrued expenses) related to these conduits were $982 million and $334million at October 31, 2009 and October 31, 2008, respectively.

 

The Company’s carryingamount of the liabilities to the unconsolidated conduits, compared to themaximum exposure to loss related to these conduits, which would only beincurred in the event of a complete loss on the restricted assets was asfollows (in millions of dollars):

 
| ** **                     | ** ** | **2009** | ** ** | ** ** | ** ** |
|--------------------------------|------------|----------|------------|------------|------------|
| Carrying value  of liabilities |       | $        | 981.5      |       |       |   |
| Maximum exposure  to loss      |       | 1,036.1  |       |       |       |
|                                |            |          |            |            |            |  |

 

The assets of unconsolidatedconduits related to securitizations in which the Company’s variable interestswere considered significant were approximately $30 billion at October 31,2009.

 

The components ofconsolidated restricted assets related to secured borrowings in securitizationtransactions at October 31 were as follows (in millions of dollars):

 
| ** **                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------|------------|----------|------------|----------|------------|
| Restricted  securitized retail notes |       | $        | 3,110.1    |     | $          | 1,592.5 |   |
| Allowance for  credit losses         |       | (24.3    | )          | (10.9    | )          |
| Other assets                         |       | 107.7    |       | 55.0     |       |
| Total restricted  securitized assets |       | $        | 3,193.5    |     | $          | 1,636.6 |   |

 

46

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The components ofconsolidated secured borrowings and other liabilities related tosecuritizations at October 31 were as follows (in millions of dollars):

 
| ** **                                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Other notes  payable                                        |       | $        | 3,109.1    |     | $          | 1,618.3 |   |
| Accounts payable  and accrued expenses                      |       | 5.4      |       | 3.0      |       |
| Total  liabilities related to restricted securitized assets |       | $        | 3,114.5    |     | $          | 1,621.3 |   |

 

The secured borrowingsrelated to these restricted securitized retail notes are obligations that arepayable as the retail notes are liquidated. Repayment of the secured borrowingsdepends primarily on cash flows generated by the restricted assets. Due to theCompany’s short-term credit rating, cash collections from these restrictedassets are not required to be placed into a segregated collection account untilimmediately prior to the time payment is required to the secured creditors. At October 31,2009, the maximum remaining term of all restricted receivables wasapproximately five years.

 

**Note 7****. Equipment on OperatingLeases**

 

Rental paymentsapplicable to equipment on operating leases are recorded as income on astraight-line method over the lease terms. Operating lease assets are recordedat cost and depreciated to their estimated residual value generally on astraight-line method over the terms of the leases. Residual values representestimates of the value of the leased assets at the end of the contract termsand are initially determined based upon appraisals and estimates. The Companyevaluates the carrying value of our operating lease assets and tests forimpairment when events or circumstances necessitate the evaluation. Generally,impairment is determined to exist if the undiscounted expected future cashflows from the operating leases are lower than the carrying value of the leasedasset. During 2009, the Company recorded impairment losses on operating leasesof $8 million. There were no impairments losses recorded during 2008 or 2007.

 

The cost of equipmenton operating leases by product category at October 31 is as follows (inmillions of dollars):

 
| ** **                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Agriculture  and turf equipment           |       | $        | 780.7      |     | $          | 676.2 |   |
| Construction  and forestry equipment      |       | 617.5    |       | 748.9    |       |
| Total                                     |       | 1,398.2  |       | 1,425.1  |       |
| Accumulated  depreciation                 |       | (375.0   | )          | (371.7   | )          |
| Equipment  on operating leases — net |       | $        | 1,023.2    |     | $          | 1,053.4 |   |

 

Initial leaseterms for equipment on operating leases generally range from 4 months to 60months. Rental payments for equipment on operating leases at October 31are scheduled as follows (in millions of dollars):

 
| ** **      | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Due  in:        |       |     |       |     |       |
| 0-12  months    |       | $        | 211.6      |     | $          | 234.9 |   |
| 13-24  months   |       | 118.8    |       | 140.1    |       |
| 25-36  months   |       | 57.3     |       | 69.5     |       |
| 37-48  months   |       | 27.1     |       | 28.2     |       |
| Over  48 months |       | 7.0      |       | 7.0      |       |
| Total           |       | $        | 421.8      |     | $          | 479.7 |   |

 

As withconstruction and forestry retail notes, there are no deposits withheld fromdealers on operating leases related to construction and forestry equipment. Inaddition, a lease payment discount program, allowing reduced payments over theterm of the lease, is administered in a manner similar to finance waiver onretail notes.

 

47

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Equipment returnedto the Company upon termination of leases and held for subsequent sale or leaseis recorded at the lower of net book value or estimated market value of theequipment.

 

Total operating leaseamounts 60 days or more past due represent the amount of all customer paymentspast due 60 days or more. These amounts were $4 million, $2 million and $2million at October 31, 2009, 2008 and 2007, respectively.

 

**Note 8****. Notes Receivable from JohnDeere**

 

The Company makesloans to John Deere Renewables, LLC, an affiliated company that directlyinvests in wind energy projects. Notes receivable from John Deere related towind energy loans at October 31, 2009 and 2008 were $739 million and $799million, respectively. The Company receives interest from John Deere atcompetitive market interest rates. The Company has received security interestsin the assets of John Deere Renewables, LLC as collateral on these loans.During 2009, 2008 and 2007, the interest earned from John Deere was $41million, $37 million and $26 million, respectively.

 

**Note 9****.****        ****Short-Term Borrowings**

 

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

 
| ** **                                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial  paper                                           |       | $        | 32         |     | $          | 2,814 |   |
| Other  notes payable to banks                               |       | 4        |       | 4        |       |
| Other  notes payable related to securitizations (see below) |       | 3,109    |       | 1,618    |       |
| John  Deere                                                 |       | 15       |       | 316      |       |
| Current  maturities of long-term borrowings                 |       | 2,551    |       | 3,142    |       |
| Total                                                       |       | $        | 5,711      |     | $          | 7,894 |   |

 

The other notespayable related to securitizations are secured by restricted securitized retailnotes on the balance sheet (see Note 6). Although these notes payable areclassified as short-term since payment is required if the retail notes areliquidated early, the payment schedule for these borrowings of $3,109 millionat October 31, 2009 based on the expected liquidations of the retail notesin millions of dollars is as follows: 2010 - $1,535, 2011 - $947, 2012 - $506,2013 - $120 and 2014 - $1. The Company’s short-term debt also includes amountsborrowed from John Deere. The Company pays interest on a monthly basis to JohnDeere for these borrowings based on a current market rate. The weighted-averageinterest rate on total short-term borrowings, excluding current maturities oflong-term borrowings, at October 31, 2009 and 2008, was 1.7 percent and3.0 percent, respectively.

 

Lines of creditavailable from U.S. and foreign banks were $4,504 million at October 31,2009. Some of these credit lines are available to both the Company and Deere &Company. At October 31, 2009, $4,214 million of these worldwide lines ofcredit were unused. For the purpose ofcomputing unused credit lines, commercial paper and short-term bank borrowings,excluding secured borrowings and the current portion of long-term borrowings,of the Company and John Deere were primarily considered toconstitute utilization.

 

Included in the above lines of credit was a long-term credit facilityagreement for $3,750 million, expiring in February 2012. The agreement is mutually extendable andthe annual facility fee is not significant. The credit agreement requires theCompany to maintain its consolidated ratio of earnings to fixed charges at not lessthan 1.05 to 1 for each fiscal quarter and the ratio of senior debt,excluding securitization indebtedness, to capital base (total subordinated debtand stockholder’s equity excluding accumulated other comprehensive income(loss)) at not more than 11 to 1 at the end of any fiscal quarter. “Seniordebt” consists of the Company’s total interest-bearing obligations, excludingsubordinated debt and certain securitization indebtedness, but includingborrowings from John Deere. All of these requirements of the credit agreementhave been met during the periods included in the financial statements. The facilityfee on these lines of credit is divided between Deere & Company andthe Company based on the proportion of their respective commercial paperoutstanding.

 

48

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Deere & Company has an agreement with theCompany pursuant to which it has agreed to continue to own at least 51 percentof the voting shares of capital stock of the Company and to maintain theCompany’s consolidated tangible net worth at not less than $50 million. Thisagreement also obligates Deere & Company to make income maintenancepayments to the Company such that its consolidated ratio of earnings to fixedcharges is not less than 1.05 to 1 for each fiscal quarter. Deere & Company’sobligations to make payments to the Company under the agreement are independentof whether the Company is in default on its indebtedness, obligations or otherliabilities. Further, Deere & Company’s obligations under theagreement are not measured by the amount of the Company’s indebtedness,obligations or other liabilities. Deere & Company’s obligationsto make payments under this agreement are expressly stated not to be a guarantyof any specific indebtedness, obligation or liability of the Company and areenforceable only by or in the name of the Company. No payments were requiredunder this agreement during the periods included in the financial statements.

 

**Note 10****. Long-Term Borrowings**

 

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

 
| ** **                                                                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Senior  Debt:**                                                               |       |     |       |     |       |
| Medium-term  notes due 2010-2018 (principal $10,132- 2009, $8,169 - 2008):    |       |     |       |     |       |
| Average  interest rate of 3.5% - 2009, 4.6% - 2008                            |       | $        | 10,362     | *        | $          | 8,241 | * |
| 7%  Notes due 2012 ($1,500 principal):                                        |       |     |       |     |       |
| Swapped  $1,225 million to variable interest rate of 1.3% - 2009, 2.8% - 2008 |       | 1,640    | *          | 1,618    | *          |
| 5.10%  Debentures due 2013 ($650 principal):                                  |       |     |       |     |       |
| Swapped  to variable interest rate of 1.0% - 2009, 4.8% - 2008                |       | 699      | *          | 668      | *          |
| Other  Notes                                                                  |       | 21       |       | 19       |       |
| Total  senior debt                                                            |       | 12,722   |       | 10,546   |       |
| Unamortized  debt discount                                                    |       | (21      | )          | (16      | )          |
| Total                                                                         |       | $        | 12,701     |     | $          | 10,530 |   |

 

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*                                         Includes fair value adjustments relatedto interest rate swaps.

 

**                                  All interest rates are as of year-end.

 

The approximateprincipal amounts of long-term borrowings maturing in each of the next fiveyears, in millions of dollars, are as follows: 2010 - $2,551, 2011 - $2,893,2012 - $4,563, 2013 - $2,350 and 2014 - $907.

 

**Note 11****. Leases**

 

Total rental expense for operatingleases was $3 million for 2009, 2008 and 2007, respectively. At October 31, 2009,future minimum lease payments under operating leases amounted to $7 million asfollows (in millions of dollars): 2010 - $2, 2011 - $2, 2012 - $1, 2013 - $1and later years - $1.

 

**Note 12****. Common Stock**

 

All of the Company’scommon stock is owned by John Deere Credit Company, a wholly-owned financeholding subsidiary of Deere & Company. No shares of common stock ofthe Company were reserved for officers or employees or for options, warrants,conversions or other rights at October 31, 2009 or 2008. At October 31,2009, the Company had authorized, but not issued, 10,000 shares of $1 par valuepreferred stock.  In addition, in 2009and 2008, Deere & Company increased its investment in John DeereCredit Company by $60 million and $400 million, respectively. In each case,John Deere Credit Company increased its investment in the Company by the sameamount.

 

49

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**Note 13****. Dividends**

 

The CapitalCorporation did not declare or pay cash dividends to John Deere Credit Companyin 2009. This compares to $465 million in dividends declared and paid to JohnDeere Credit Company in 2008.  In 2008,John Deere Credit Company paid comparable dividends to Deere &Company.

 

**Note 14****. Pension and Other RetirementBenefits**

 

The Company is a participatingemployer in certain Deere & Company sponsored defined benefit pensionplans for employees in the U.S. and certain defined benefit pension plansoutside the U.S. These pension plans provide for benefits that are basedprimarily on years of service and employee compensation. Pension expense isactuarially determined based on the Company’s employees included in the plan.The Company’s pension expense amounted to $3.9 million in 2009, $4.7million in 2008 and $6.1 million in 2007. The accumulated benefit obligationand plan net assets for the employees of the Company are not determinedseparately from Deere & Company. The Company generally provides defined benefit health care and lifeinsurance plans for retired employees in the U.S. as a participating employerin Deere & Company’s sponsored plans. Health care and life insurancebenefits expense is actuarially determined based on the Company’s employeesincluded in the plans and amounted to $3.5 million in 2009, $4.1 millionin 2008 and $5.9 million in 2007. Further disclosure for these plans isincluded in the notes to the Deere & Company 2009 Annual Reporton Form 10-K.

 

**Note 15****. Stock Option Awards**

 

Certain employees of the Company participate in Deere &Company share-based compensation plans. During 2009 and 2008, the totalshare-based compensation expense was $5.1 million and $4.9 million,respectively, with an income tax benefit recognized in net income of $1.9million and $1.8 million, respectively. Further disclosure for these plans isincluded in Deere & Company’s Form 10-K for the year ended October 31,2009.

 

**Note 16****. Income Taxes**

 

The taxable incomeof the Company is included in the consolidated U.S. income tax return of Deere & Company.Provisions for income taxes are made generally as if the Capital Corporationand each of its subsidiaries filed separate income tax returns.

 

The provision for income taxes by taxing jurisdiction and bysignificant component consisted of the following (in millions of dollars):

 
| ** **                  | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current:                    |       |     |       |     |       |     |       |
| U.S.:                       |       |     |       |     |       |     |       |
| Federal                     |       | $        | 52.6       |     | $          | 105.5    |       | $ | 185.6 |   |
| State                       |       | 3.3      |       | 7.4      |       | 3.6      |       |
| Foreign                     |       | 16.0     |       | 6.5      |       | 17.4     |       |
| Total  current              |       | 71.9     |       | 119.4    |       | 206.6    |       |
|                        |       |     |       |     |       |     |       |
| Deferred:                   |       |     |       |     |       |     |       |
| U.S.:                       |       |     |       |     |       |     |       |
| Federal                     |       | 4.6      |       | 31.2     |       | (33.7    | )          |
| State                       |       | (2.7     | )          | .6       |       | .3       |       |
| Foreign                     |       | (.6      | )          | 4.5      |       | (4.5     | )          |
| Total  deferred             |       | 1.3      |       | 36.3     |       | (37.9    | )          |
| Provision  for income taxes |       | $        | 73.2       |     | $          | 155.7    |       | $ | 168.7 |   |

 

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A comparison ofthe statutory and effective income tax provisions and reasons for relateddifferences follows (in millions of dollars):

 
| ** **                                                           | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| U.S.  federal income tax provision at a statutory rate of 35 percent |       | $        | 77.7       |     | $          | 153.0    |       | $ | 167.9 |   |
| Increase  (decrease) resulting from:                                 |       |     |       |     |       |     |       |
| Municipal  lease income not taxable                                  |       | (1.7     | )          | (1.4     | )          | (1.3     | )          |
| Taxes  on foreign activities                                         |       | (6.2     | )          | (5.7     | )          | (2.9     | )          |
| Nondeductible  costs and other — net                            |       | 3.4      |       | 9.8      |       | 5.0      |       |
| Provision  for income taxes                                          |       | $        | 73.2       |     | $          | 155.7    |       | $ | 168.7 |   |

 

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

 
| ** **                                      | ** ** | **2009**                  | ** ** | **2008**                       | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** | **Deferred  Tax  Assets** | ** ** | **Deferred  Tax  Liabilities** | ** ** |
| Lease  transactions                             |       |                      |       | $                              | 207.1      |   |   |   | $ | 179.0 |   |
| Tax  over book depreciation                     |       |                      |       | 8.1                            |       |   |   | 6.3 |   |
| Deferred  retail note finance income            |       |                      |       | 4.7                            |       |   |   | 5.4 |   |
| Allowance  for credit losses                    |       | $                         | 80.3       |                           |       |   | $ | 56.6 |   |   |   |
| Unrealized  gain/loss on derivatives            |       | 23.4                      |       |                           |       | 21.3 |   |   |   |
| Accrual  for retirement and other benefits      |       | 20.9                      |       |                           |       | 23.5 |   |   |   |
| Federal  taxes on deferred state tax deductions |       | 7.8                       |       |                           |       | 8.8 |   |   |   |
| Tax  loss and tax credit carryforwards          |       | 3.4                       |       |                           |       | 2.6 |   |   |   |
| Miscellaneous  accruals and other               |       | 17.0                      |       |                           |       | 10.0 |   |   |   |
| Deferred  income tax assets and liabilities     |       | $                         | 152.8      |                           | $          | 219.9 |   | $ | 122.8 |   | $ | 190.7 |   |

 

At October 31,2009, certain tax loss and tax credit carryforwards for $3.4 million wereavailable, expiring from 2011 through 2029.

 

The Companyadopted FASB ASC 740, Income Taxes (FASB Interpretation No. 48, Accountingfor Uncertainty in Income Taxes), at the beginning of 2008. As a result of theadoption, the Company recorded an increase in its liability for unrecognizedtax benefits of $23.7 million, an increase in accrued interest and penaltiespayable of $10.1 million, an increase in deferred tax liabilities of $.9million, a reduction in the beginning retained earnings balance of $21.5million, an increase in tax receivables of $1.9 million and an increase indeferred tax assets of $11.3 million.

 

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A reconciliationof the total amounts of unrecognized tax benefits at October 31 is asfollows (in millions of dollars):

 
| ** **                                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Beginning of  year balance                                |       | $        | 35.0       |     | $          | 23.7 |   |
| Increases to tax  positions taken during the current year |       | 13.2     |       | 11.1     |       |
| Increases to tax  positions taken during prior years      |       | 1.7      |       | 8.9      |       |
| Decreases to tax  positions taken during prior years      |       | (10.9    | )          | (7.4     | )          |
| Decreases due to  lapse of statute of limitations         |       | (1.0     | )          | (.9      | )          |
| Foreign exchange                                          |       | .5       |       | (.4      | )          |
| End of year balance                                       |       | $        | 38.5       |     | $          | 35.0 |   |

 

The amount ofunrecognized tax benefits at October 31, 2009 that would affect theeffective tax rate if the tax benefits were recognized was $12.5 million. Theremaining liability was related to tax positions for which there are offsettingtax receivables, or the uncertainty was only related to timing. The Companydoes not believe it is reasonably possible that the amounts of unrecognized taxbenefits will significantly increase or decrease over the next twelve months.

 

The Company filesits tax returns according to the tax laws of the jurisdictions in which itoperates, which includes the U.S. federal jurisdictions, and various state andforeign jurisdictions. The Company is included in the consolidated U.S. incometax return and various state returns of Deere & Company. The U.S.Internal Revenue Service has completed the examination of the Company’s federalincome tax returns for periods prior to 2001, and for the years 2002 through2006. The year 2001, 2007 and 2008 federal income tax returns are eithercurrently under examination or remain subject to examination. Various state andforeign income tax returns also remain subject to examination by taxingauthorities.

 

The Company’scontinuing policy is to recognize interest related to income taxes in interestexpense and other income, and recognize penalties in administrative andoperating expenses. During 2009 and 2008, the total amount of expense frominterest and penalties was ($1.0) million and $2.3 million and the interestincome was $.3 million and $.1 million, respectively. During 2009, theexpense from interest and penalties includes a reversal of interest expense of$1.6 million due to an audit settlement. At October 31, 2009 and 2008, theliability for accrued interest and penalties totaled $11.6 million and $12.5million, respectively.

 

 

**Note 17****. Administrative and Operating Expenses**

 

The major components of administrative and operatingexpenses are as follows (in millions of dollars):

 
| ** **                          | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Compensation and  benefits          |       | $        | 171.6      |     | $          | 207.2    |       | $ | 185.4 |   |
| Crop insurance  commission expenses |       | 72.5     |       | 71.6     |       | 43.8     |       |
| Other                               |       | 89.1     |       | 94.2     |       | 78.4     |       |
| Total                               |       | $        | 333.2      |     | $          | 373.0    |       | $ | 307.6 |   |

 

**Note 18****. Cash Flow Information**

 

For purposes of the statements of consolidated cash flows, the Companyconsiders investments with purchased maturities of three months or less to becash equivalents. Substantially all of the Company’s short-term borrowings,excluding the current maturities of long-term borrowings, mature or may requirepayment within three months or less.

 

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Cash payments bythe Company for interest in 2009, 2008 and 2007 were $743 million, $829million and $881 million, respectively. Cash payments for income taxes duringthese same periods were $59 million, $111 million and $194 million,respectively.

 

**Note 19****. Commitments and Contingent Liabilities**

 

At October 31, 2009, JohnDeere Credit Inc., the John Deere finance subsidiary in Canada, had $153million of commercial paper, $1,617 million of medium-term notes outstandingand a fair value liability of $6 million for derivatives, with a notionalamount of $249 million, that were guaranteed by the Company

 

The Company’s subsidiary,John Deere Risk Protection, Inc., offers crop insurance products throughmanaging general agency agreements (Agreements) with insurance companies(Insurance Carriers) rated “Excellent” by A.M. Best Company. As a managinggeneral agent, John Deere Risk Protection, Inc. will receive commissionsfrom the Insurance Carriers for selling crop insurance to producers.  The Company has guaranteed certainobligations under the Agreements, including the obligation to pay the InsuranceCarriers for any uncollected premiums. At October 31, 2009 the maximumexposure for uncollected premiums was approximately $60 million. Substantiallyall of the Company’s crop insurance risk under the Agreements has beenmitigated by a syndicate of private reinsurance companies. The reinsurancecompanies are rated “Excellent” or higher by A.M. Best Company. In theevent of a widespread catastrophic crop failure throughout the U.S. and thedefault of these highly rated private reinsurance companies on theirreinsurance obligations, the Company would be required to reimburse theInsurance Carriers for exposure under the Agreements of approximately$981 million at October 31, 2009. The Company believes that thelikelihood of the occurrence of the events that give rise to the exposuresunder these Agreements is substantially remote and as a result, at October 31,2009, the Company’s accrued liability under the Agreements was not material.

 

The Company has commitmentsto extend credit to customers and John Deere dealers through lines of creditand other pre-approved credit arrangements. The Company applies the same creditpolicies and approval process for these commitments to extend credit as it doesfor its Receivables.  Collateral is notrequired for these commitments, but if credit is extended, collateral may berequired upon funding. The amount of unused commitments to extend credit toJohn Deere dealers was $3.7 billion at October 31, 2009. The amount ofunused commitments to extend credit to customers was $42.1 billion at October 31,2009. A significant portion of these commitments is not expected to be fullydrawn upon; therefore, the total commitment amounts do not represent a futurecash requirement. The Company generally has the right to unconditionallycancel, alter, or amend the terms of these commitments at any time. Over 95percent of these unused commitments to extend credit to customers relate torevolving charge accounts.

 

At October 31, 2009, the Company had restricted other assets of $9million. In addition, see Note 6 for restricted assets associated withborrowings related to securitizations.

 

The Company also had othermiscellaneous contingent liabilities totaling approximately $10 million at October 31,2009, for which it believes the probability for payment is substantiallyremote. The Company’s accrued liability at October 31, 2009 related tothese contingencies was not material.

 

The Company issubject to various unresolved legal actions which arise in the normal course ofits business, the most prevalent of which relate to state and federal laws andregulations concerning retail credit. Although it is not possible to predictwith certainty the outcome of these unresolved legal actions or the range ofpossible loss, the Company believes these unresolved legal actions will nothave a material effect on its consolidated financial statements.

 

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**Note 20****. Other Comprehensive Income Items**

 

Other comprehensive income items are transactionsrecorded in stockholder’s equity during the year, excluding net income andtransactions with the stockholder. Following are the items included in othercomprehensive income (loss) and the related tax effects in millions of dollars:

 
| ** **                                           | ** ** | **Before Tax  Amount** | ** ** | **Tax  (Expense)  Credit** | ** ** | **After Tax  Amount** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|-----------------------|------------|
| **2007**                                             |       |                   |       |                       |       |                  |       |
| Change in cumulative translation adjustment          |       | $                      | 33.6       |                       |       |                  | $          | 33.6 |   |
| Unrealized holding loss and net loss on investments* |       | (3.7                   | )          | $                          | 1.4        |                  | (2.3       | ) |
| Unrealized loss on derivatives:                      |       |                   |       |                       |       |                  |       |
| Hedging loss                                         |       | (15.2                  | )          | 5.5                        |       | (9.7                  | )          |
| Reclassification of realized gain to net income      |       | (10.5                  | )          | 3.5                        |       | (7.0                  | )          |
| Net unrealized loss on derivatives                   |       | (25.7                  | )          | 9.0                        |       | (16.7                 | )          |
| Total other comprehensive income                     |       | $                      | 4.2        |                       | $          | 10.4                  |       | $ | 14.6 |   |
| ** **                                           | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **            | ** ** |
| **2008**                                             |       |                   |       |                       |       |                  |       |
| Change in cumulative translation adjustment          |       | $                      | (52.5      | )                          |       |                  | $          | (52.5 | ) |
| Unrealized holding loss and net loss on investments* |       | (1.8                   | )          | $                          | .6         |                  | (1.2       | ) |
| Unrealized loss on derivatives:                      |       |                   |       |                       |       |                  |       |
| Hedging loss                                         |       | (73.5                  | )          | 25.6                       |       | (47.9                 | )          |
| Reclassification of realized loss to net income      |       | 25.6                   |       | (9.4                       | )          | 16.2                  |       |
| Net unrealized loss on derivatives                   |       | (47.9                  | )          | 16.2                       |       | (31.7                 | )          |
| Total other comprehensive income (loss)              |       | $                      | (102.2     | )                          | $          | 16.8                  |       | $ | (85.4 | ) |
| ** **                                           |       |                   |       |                       |       |                  |       |
| **2009**                                             |       |                   |       |                       |       |                  |       |
| Change in cumulative translation adjustment          |       | $                      | 46.6       |                       |       |                  | $          | 46.6 |   |
| Unrealized loss on derivatives:                      |       |                   |       |                       |       |                  |       |
| Hedging loss                                         |       | (90.2                  | )          | $                          | 31.3       |                  | (58.9      | ) |
| Reclassification of realized loss to net income      |       | 84.0                   |       | (29.2                      | )          | 54.8                  |       |
| Net unrealized loss on derivatives                   |       | (6.2                   | )          | 2.1                        |       | (4.1                  | )          |
| Total other comprehensive income                     |       | $                      | 40.4       |                       | $          | 2.1                   |       | $ | 42.5 |   |

 

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*              Reclassification of realized gainsor losses to net income were not material.

 

**Note 21****. Financial Instruments**

 

The fair values of financial instruments that do notapproximate the carrying values in the financial statements at October 31are as follows (in millions of dollars):

 
| ** **                                | ** ** | **2009**            | ** ** | **2008**        | ** ** |
|-------------------------------------------|------------|---------------------|------------|-----------------|------------|
| ** **                                | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** | **Carrying  Value** | ** ** | **Fair  Value** | ** ** |
| Receivables financed - net                |       | $                   | 14,856     |            | $          | 14,954 |   | $ | 16,213 |   | $ | 15,815 |   |
|                                      |       |                |       |            |       |   |   |   |   |
| Restricted securitized retail notes - net |       | $                   | 3,086      |            | $          | 3,123 |   | $ | 1,582 |   | $ | 1,578 |   |
|                                      |       |                |       |            |       |   |   |   |   |
| Short-term secured borrowings*            |       | $                   | 3,109      |            | $          | 3,140 |   | $ | 1,618 |   | $ | 1,583 |   |
|                                      |       |                |       |            |       |   |   |   |   |
| Long-term borrowings                      |       | $                   | 12,701     |            | $          | 13,140 |   | $ | 10,530 |   | $ | 9,749 |   |

 

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*               See Notes 6 and 9.

 

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Fair values of the long-term Receivables were based onthe discounted values of their related cash flows at current market interestrates. The fair values of the remaining Receivables approximated the carryingamounts.

 

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

 

All derivative instruments are recorded at fair valuesand classified as either other assets or accounts payable and accrued expenseson the balance sheet. The total amounts of the Company’s derivatives at October 31,2009 and 2008 that were recorded in other assets were $666 million and $280million, respectively. The total amounts recorded in accounts payable andaccrued expenses for the same periods were $131 million and $87 million,respectively (see Note 22).

 

Assets and liabilitiesmeasured at October 31 at fair value in the financial statements on arecurring basis were as follows (in millions of dollars):

 
| ** **                              | ** ** | **2009**  | ** ** |
|-----------------------------------------|------------|-----------|------------|
| ** **                              | ** ** | **Total** | ** ** | **Level 2** | ** ** |
| Other  assets                           |       |      |       |   |   |
| Derivatives:                            |       |      |       |   |   |
| Interest  rate contracts                |       | $         | 488.8      |   | $ | 488.8 |   |
| Foreign  exchange contracts             |       | 3.4       |       | 3.4 |   |
| Cross-currency  interest rate contracts |       | 173.5     |       | 173.5 |   |
| Total  assets                           |       | $         | 665.7      |   | $ | 665.7 |   |
|                                    |       |      |       |   |   |
| Accounts  payable and accrued expenses  |       |      |       |   |   |
| Derivatives:                            |       |      |       |   |   |
| Interest  rate contracts                |       | $         | 115.2      |   | $ | 115.2 |   |
| Foreign  exchange contracts             |       | 15.0      |       | 15.0 |   |
| Cross-currency  interest rate contracts |       | .7        |       | .7 |   |
| Total  liabilities                      |       | $         | 130.9      |   | $ | 130.9 |   |

 

Financial assets measured atfair value at October 31 on a nonrecurring basis and the losses during theyear were as follows (in millions of dollars):

 
| ** **  | ** ** | **2009**    | ** ** |
|-------------|------------|-------------|------------|
| ** **  | ** ** | **Level 3** | ** ** | **Losses** | ** ** |
| Receivables |       | $           | 23.1       |   | $ | 21.0 |   |
|             |            |             |            |  |  |  |  |

 

Level 1 measurements consistof quoted prices in active markets for identical assets or liabilities. Level 2measurements include significant other observable inputs such as quoted pricesfor similar assets or liabilities in active markets; identical assets orliabilities in inactive markets; observable inputs such as interest rates andyield curves; and other market-corroborated inputs. Level 3 measurementsinclude significant unobservable inputs. There were no assets or liabilitiesvalued using level 1 measurements at October 31, 2009.

 

Fair value is defined as theprice that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date.In determining fair value, the Company uses various methods including marketand income approaches. The Company utilizes valuation models and techniques thatmaximize the use of observable inputs. The models are industry-standard modelsthat consider various assumptions including time values and yield curves aswell as other economic measures. These valuation techniques are consistentlyapplied.

 

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The following is adescription of the valuation methodologies the Company uses to measurefinancial instruments at fair value:

 

*Derivatives —*The Company’sderivative financial instruments consist of interest rate swaps and caps,foreign currency forwards and cross-currency interest rate swaps. The portfoliois valued based on a discounted cash flow approach using market observableinputs, including swap curves and both forward and spot exchange rates forcurrencies.

 

*Receivables —*Receivables with specific reserves established due to payment defaults arevalued based on a discounted cash flow approach, appraisal values or realizablevalues for the underlying collateral. The related credit allowances representcumulative adjustments to measure those specific receivables at fair value.

 

**Note 22. Derivative Instruments**

 

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

 

Allderivatives are recorded at fair value on the balance sheet. Each derivative isdesignated as a cash flow hedge, a fair value hedge, or remains undesignated.All designated hedges are formally documented as to the relationship with thehedged item as well as the risk-management strategy. Both at inception and onan ongoing basis the hedging instrument is assessed as to its effectiveness,when applicable. If and when a derivative is determined not to be highlyeffective as a hedge, or the underlying hedged transaction is no longer likelyto occur, or the hedge designation is removed, or the derivative is terminated,hedge accounting is discontinued. Any past or future changes in the derivative’sfair value, which will not be effective as an offset to the income effects ofthe item being hedged, are recognized currently in the income statement.

 

Certain of the Company’s derivativeagreements contain credit support provisions that require the Company to postcollateral based on reductions in credit ratings. The aggregate fair value ofall derivatives with credit-risk-related contingent features that are in aliability position at October 31, 2009 was $13 million. The Company, dueto its credit rating, has not posted any collateral. If the credit-risk-relatedcontingent features were triggered, the Company would be required to post fullcollateral for this liability position.

 

Derivative instruments are subjectto significant concentrations of credit risk to the banking sector. The Companymanages individual counterparty exposure by setting limits that consider thecredit rating of the counterparty and the size of other financial commitmentsand exposures between the Company and the counterparty banks. All interest ratederivatives are transacted under International Swaps and Derivatives Association(ISDA) documentation. Some of these agreements include collateral supportarrangements or mutual put options at fair value. Each master agreement permitsthe net settlement of amounts owed in the event of early termination. Themaximum amount of loss that the Company would incur if counterparties toderivative instruments fail to meet their obligations, not consideringcollateral received or netting arrangements, was $666 million as of October 31,2009. The amount of collateral received at October 31, 2009 to offset thispotential maximum loss was $78 million. The netting provisions of theagreements would reduce the maximum amount of loss the Company would incur ifthe counterparties to derivative instruments fail to meet their obligations byan additional $82 million as of October 31, 2009. None of theconcentrations of risk with any individual counterparty was consideredsignificant at October 31, 2009.

 

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Cash flow hedges

 

Certain interest rate contracts(swaps) were designated as hedges of future cash flows from variable interestrate borrowings. The total notional amount of these receive-variable/pay-fixedinterest rate contracts at October 31, 2009 was $2,492 million. Theeffective portions of the fair value gains or losses on these cash flow hedgeswere recorded in other comprehensive income (OCI) and subsequently reclassifiedinto interest expense as payments were accrued and the contracts approachedmaturity. These amounts offset the effects of interest rate changes on therelated borrowings. Any ineffective portions of the gains or losses on all cashflow interest rate contracts designated as hedges were recognized currently ininterest expense and were not material during any years presented. The cashflows from these contracts were recorded in operating activities in theconsolidated statement of cash flows.

 

The amount of loss recorded in OCIat October 31, 2009 that is expected to be reclassified to interestexpense in the next twelve months if interest rates remain unchanged isapproximately $38 million after-tax. These contracts mature in up to 19 months.There were no significant gains or losses reclassified from OCI to earningsbased on the probability that the original forecasted transaction would notoccur.

 

Fair value hedges

 

Certain interest rate contracts(swaps) were designated as fair value hedges of fixed-rate, long-termborrowings. The total notional amount of these receive-fixed/pay-variableinterest rate contracts at October 31, 2009 was $6,120 million. Theeffective portions of the fair value gains or losses on these contracts wereoffset by fair value gains or losses on the hedged items (fixed-rateborrowings). Any ineffective portions of the gains or losses were recognizedcurrently in interest expense and were not material during any years presented.The cash flows from these contracts were recorded in operating activities inthe consolidated statement of cash flows.

 

The gains (losses) includinginterest on these contracts and the underlying borrowings recorded in interestexpense were as follows (in millions of dollars):

 
| ** **              | ** ** | **2009** | ** ** |
|-------------------------|------------|----------|------------|
| Interest rate contracts |       | $        | 378.5      |   |
| Borrowings              |       | (512.4   | )          |
|                         |            |          |            |  |

 

Derivatives not designated as hedginginstruments

 

The Company has certaininterest rate contracts (swaps and caps), foreign exchange contracts (forwardsand swaps) and cross-currency interest rate contracts (swaps), which were notformally designated as hedges. These derivatives were held as economic hedgesfor underlying interest rate or foreign currency exposures primarily forcertain borrowings. The total notional amount of the interest rate swaps was$1,745 million, the foreign exchange contracts was $1,043 million and thecross-currency interest rate contracts was $839 million at October 31,2009. There were also $1,560 million of interest rate caps purchased and $1,560million sold at the same capped interest rate to facilitate borrowings throughsecuritization of retail notes at October 31, 2009. The fair value gainsor losses from the interest rate contracts were recognized currently ininterest expense and the gains or losses from foreign exchange contracts inadministrative and operating expenses, generally offsetting over time theexpenses on the exposures being hedged. The cash flows from thesenon-designated contracts were recorded in operating activities in theconsolidated statement of cash flows.

 

57

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Fair values of derivativeinstruments in the consolidated balance sheet at October 31 were asfollows (in millions of dollars):

 
| ** **                             | ** ** | **2009**                | ** ** |
|----------------------------------------|------------|-------------------------|------------|
| ** **                             | ** ** | **Other********Assets** | ** ** | **Accounts Payable  and Accrued  Expenses** | ** ** |
|                                   |       |                    |       |   |   |
| Designated as hedging instruments:     |       |                    |       |   |   |
| Interest rate contracts                |       | $                       | 446.4      |   | $ | 76.6 |   |
|                                   |       |                    |       |   |   |
| Not designated as hedging instruments: |       |                    |       |   |   |
| Interest rate contracts                |       | 42.4                    |       | 38.6 |   |
| Foreign exchange contracts             |       | 3.4                     |       | 15.0 |   |
| Cross-currency interest rate contracts |       | 173.5                   |       | .7 |   |
| Total not designated                   |       | 219.3                   |       | 54.3 |   |
|                                   |       |                    |       |   |   |
| Total derivatives                      |       | $                       | 665.7      |   | $ | 130.9 |   |

 

The classification and gains(losses) related to derivative instruments on the statement of consolidatedincome consisted of the following (in millions of dollars):

 
| ** **                                                                 | ** ** | **2009** | ** ** |
|----------------------------------------------------------------------------|------------|----------|------------|
| **Fair Value Hedges**                                                      |       |     |       |
| Interest rate contracts — Interest expense                            |       | $        | 378.5      |   |
|                                                                       |       |     |       |
| **Cash Flow Hedges**                                                       |       |     |       |
| Recognized in OCI                                                          |       |     |       |
| (Effective Portion):                                                       |       |     |       |
| Interest rate contracts — OCI (pretax)                                |       | (90.2    | )          |
|                                                                       |       |     |       |
| Reclassified from OCI                                                      |       |     |       |
| (Effective Portion):                                                       |       |     |       |
| Interest rate contracts — Interest expense                            |       | (84.0    | )          |
|                                                                       |       |     |       |
| Recognized Directly in Income                                              |       |     |       |
| (Ineffective Portion) *:                                                   |       |     |       |
| Interest rate contracts — Interest expense                            |       | *        |       |
|                                                                       |       |     |       |
| **Not Designated as Hedges**                                               |       |     |       |
| Interest rate contracts — Interest expense**                          |       | $        | 1.3        |   |
| Foreign exchange contracts — Administrative and  operating expenses** |       | (47.6    | )          |
| Total                                                                      |       | $        | (46.3      | ) |

 

----

*                      The amount is not material.

**               Includes interest andforeign exchange expenses from cross-currency interest rate contracts.

 

58

----

 

**Note 23****.  Geographic Area Information**

 

Based on the way the operations are managed andevaluated by management and materiality considerations, the Company is viewedas one operating segment. However, geographic area information for revenues,operating profit, which is net income before income taxes, and Receivablesattributed to the U.S. and countries outside the U.S. is disclosed below. Noindividual foreign country’s revenues, operating profit or Receivables werematerial for disclosure purposes.

 

Geographic area information for the years ended October 31,2009, 2008 and 2007 is presented below (in millions of dollars):

 
| ** **            | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues:**         |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 1,567      |     | $          | 1,742    |       | $ | 1,769 |   |
| Outside the U.S.      |       | 189      |       | 226      |       | 198      |       |
| Total                 |       | $        | 1,756      |     | $          | 1,968    |       | $ | 1,967 |   |
|                  |       |     |       |     |       |     |       |
| **Operating profit:** |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 165        |     | $          | 391      |       | $ | 437 |   |
| Outside the U.S.      |       | 57       |       | 47       |       | 43       |       |
| Total                 |       | $        | 222        |     | $          | 438      |       | $ | 480 |   |
| ** **            |       |     |       |     |       |     |       |
| **Receivables:**      |       |     |       |     |       |     |       |
| U.S.                  |       | $        | 15,223     |     | $          | 15,527   |       | $ | 15,224 |   |
| Outside the U.S.      |       | 2,877    |       | 2,374    |       | 2,528    |       |
| Total                 |       | $        | 18,100     |     | $          | 17,901   |       | $ | 17,752 |   |

 

**Note 24.****  Unconsolidated AffiliatedCompanies**

 

The Capital Corporation’sunconsolidated affiliated companies are those in which it generally maintains20 to 50 percent ownership. The Capital Corporation does not controlthese companies and accounts for its investments in them on the equity basis.The Company’s equity in the income of these affiliates is reported in theconsolidated income statement under “Equity in income of unconsolidatedaffiliates.” The investment in these companies is recorded in the consolidatedbalance sheet under “Investments in unconsolidated affiliates.”

 

59

----

 

Summarized financial information ofthe unconsolidated affiliated companies is as follows (in millions of dollars):

 
| ** **                              | ** ** | **Year Ended October 31,** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **2009**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Operations:**                         |       |                            |       |   |   |   |   |
| Finance income                          |       | $                               | 8.7        |   | $ | 9.1 |   | $ | 6.1 |   |
| Net income                              |       | 1.0                             |       | 2.0 |   | .7 |   |
| The Company’s equity in net income |       | .5                              |       | 1.0 |   | .3 |   |
|                                         |            |                                 |            |  |  |  |  |  |  |  |

 
| ** **                             | ** ** | **October 31,** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|----------------------|------------|------------|------------|
| ** **                             | ** ** | **2009**             | ** ** | **2008**   | ** ** | ** ** | ** ** |
| **Financial Position:**                |       |                 |       |       |       |   |   |
| Total assets                           |       | $                    | 97.1       |       | $          | 72.1 |   |   |   |
| Total external borrowings              |       | 81.6                 |       | 59.1       |       |   |   |
| Total net assets                       |       | 13.1                 |       | 10.9       |       |   |   |
| The Company’s share of net assets |       | 6.6                  |       | 5.4        |       |   |   |
|                                        |            |                      |            |            |            |  |  |  |  |

 

**Note 25.****  Supplemental Information(Unaudited)**

 

Quarterly Information

 

The Company’s fiscal yearends in October and its interim periods (quarters) end in January, April andJuly.  Supplemental quarterly informationfor the Company follows (in millions of dollars):

 
| ** **                                    | ** ** | **First  Quarter** | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Fiscal  Year** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|------------------|------------|
| 2009:                                         |       |               |       |                |       |               |       |                |       |             |       |
| Revenues                                      |       | $                  | 437.6      |                | $          | 425.9              |       | $                   | 465.3      |             | $          | 427.4 |   | $ | 1,756.2 |   |
| Interest expense                              |       | 207.3              |       | 203.9               |       | 195.3              |       | 182.0               |       | 788.5            |       |
| Operating expenses                            |       | 181.8              |       | 167.5               |       | 173.3              |       | 223.2               |       | 745.8            |       |
| Provision for income taxes                    |       | 13.7               |       | 20.7                |       | 37.6               |       | 1.2                 |       | 73.2             |       |
| Equity in income of unconsolidated affiliates |       | .2                 |       | .1                  |       |               |       | .2                  |       | .5               |       |
| Net income                                    |       | $                  | 35.0       |                | $          | 33.9               |       | $                   | 59.1       |             | $          | 21.2 |   | $ | 149.2 |   |
|                                          |       |               |       |                |       |               |       |                |       |             |       |
| 2008:                                         |       |               |       |                |       |               |       |                |       |             |       |
| Revenues                                      |       | $                  | 496.5      |                | $          | 487.2              |       | $                   | 483.6      |             | $          | 500.1 |   | $ | 1,967.4 |   |
| Interest expense                              |       | 223.6              |       | 205.0               |       | 193.9              |       | 216.2               |       | 838.7            |       |
| Operating expenses                            |       | 158.7              |       | 161.1               |       | 181.3              |       | 190.5               |       | 691.6            |       |
| Provision for income taxes                    |       | 37.2               |       | 44.1                |       | 38.5               |       | 35.9                |       | 155.7            |       |
| Equity in income of unconsolidated affiliates |       | .2                 |       | .3                  |       | .2                 |       | .3                  |       | 1.0              |       |
| Net income                                    |       | $                  | 77.2       |                | $          | 77.3               |       | $                   | 70.1       |             | $          | 57.8 |   | $ | 282.4 |   |

 

**Note 26.****  Subsequent Events**

 

On November 30, 2009, the Capital Corporationdeclared a $70 million dividend to be paid to John Deere Credit Company on January 13,2010. John Deere Credit Company, in turn, declared a $70 million dividend toDeere & Company, also payable on January 13, 2010.

 

60

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|                                                                                                                                                                                                                                                                                                     |   |   | **Index  to Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 2.                                                                                                                                                                                                                                                                                                       |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.                                                                                                                                                                                                                                                                                                       | 1      |   | Certificate of  Incorporation, as amended (Exhibit 3.1 to Form 10-K of the  registrant for the year ended October 31, 1999, Securities and Exchange  Commission File No. 1-6458*)                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 3.                                                                                                                                                                                                                                                                                                       | 2      |   | Bylaws, as  amended (Exhibit 3.2 to Form 10-K of the registrant for the year  ended October 31, 1999, Securities and Exchange Commission File  No. 1-6458*)                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.                                                                                                                                                                                                                                                                                                       | 1      |   | Senior Indenture  dated as of March 15, 1997 between the registrant and The Bank of New  York Mellon (successor Trustee to The Chase Manhattan Bank National  Association), as Trustee (Exhibit 4.1 to registration statement on  Form S-3 no. 333-68355, filed December 4, 1998, Securities and  Exchange Commission file number 1-6458*)                                                                                                                    |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.                                                                                                                                                                                                                                                                                                       | 2      |   | Subordinated  Indenture dated as of September 1, 2003 between the registrant and U.S.  Bank National Association, as Trustee (Exhibit 4.3 to registration  statement on Form S-3 no. 333-108705, filed September 11, 2003*)                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 4.                                                                                                                                                                                                                                                                                                       | 3      |   | Terms and  Conditions of the Notes, published on May 31, 2002, applicable to the  U.S. $3,000,000,000 Euro Medium Term Note Programme of registrant, John Deere  Capital Corporation, John Deere Bank S.A., John Deere Credit Limited, John  Deere B.V., John Deere Credit Inc. and John Deere Limited. (Exhibit 4.5  to Form 10-K of Deere & Company for the year ended  October 31, 2002, Securities and Exchange Commission file number  1-4121*) |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Certain  instruments relating to long-term debt constituting less than 10% of the registrant’s  total assets may not be filed as exhibits herewith pursuant to Item  601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of  such instruments upon request of the Commission. |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 9.                                                                                                                                                                                                                                                                                                       |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.                                                                                                                                                                                                                                                                                                      | 1      |   | Agreement as  amended November 1, 1994 between the registrant and Deere &  Company concerning agricultural retail notes (Exhibit 10.1 to  Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.                                                                                                                                                                                                                                                                                                      | 2      |   | Agreement as  amended November 1, 1994 between the registrant and Deere &  Company concerning lawn and grounds care retail notes (Exhibit 10.2 to  the Form 10-K of Deere & Company for the year ended  October 31, 1998, Securities and Exchange Commission file number 1-4121*)                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.                                                                                                                                                                                                                                                                                                      | 3      |   | Agreement as  amended November 1, 1994 between the registrant and John Deere  Industrial Equipment Company concerning industrial retail notes  (Exhibit 10.3 to the Form 10-K of Deere & Company for the  year ended October 31, 1998, Securities and Exchange Commission file  number 1-4121*)                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.                                                                                                                                                                                                                                                                                                      | 4      |   | Agreement dated  November 1, 2003 between the registrant and Deere & Company  relating to fixed charges ratio, ownership and minimum net worth  (Exhibit 10.5 to Form 10-K of Deere & Company for the year  ended October 31, 2003, Securities and Exchange Commission File  No. 1-4121*)                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.                                                                                                                                                                                                                                                                                                      | 5      |   | Agreement dated  July 14, 1997 between the registrant and John Deere Construction  Equipment Company concerning construction retail notes (Exhibit 10.4 to  Form 10-K of Deere & Company for the year ended  October 31, 2003, Securities and Exchange Commission File  No. 1-4121*)                                                                                                                                                            |

 

61

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| 10.      | 6      |   | Asset Purchase  Agreement dated October 29, 2001 between Deere & Company and  Deere Capital, Inc. concerning the sale of trade receivables  (Exhibit 10.6 to Form 10-K of the registrant for the year ended  October 31, 2001*)                                                                                                                                                                                                                                                                                         |
|----------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.      | 7      |   | Asset Purchase  Agreement dated October 29, 2001 between John Deere  Construction & Forestry Company and Deere Capital, Inc.  concerning the sale of trade receivables (Exhibit 10.7 to Form 10-K  of the registrant for the year ended October 31, 2001*)                                                                                                                                                                                                                                                              |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.      | 8      |   | Factoring  Agreement between John Deere Bank S.A. (as successor by merger in interest to  John Deere Finance S.A.) and John Deere Vertrieb, a branch of  Deere & Company, concerning the sale of trade receivables  (Exhibit 10.21 to the Form 10-K of Deere & Company for the  year ended October 31, 2002, Securities and Exchange Commission file  number 1-4121*)                                                                                                                                               |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.      | 9      |   | Receivables  Purchase Agreement between John Deere Bank S.A. (as successor by merger in  interest to John Deere Finance S.A.) and John Deere Limited (Scotland)  concerning the sale of trade receivables (Exhibit 10.22 to the  Form 10-K of Deere & Company for the year ended  October 31, 2002, Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                      |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.      | 10     |   | Five-Year  Credit Agreement among registrant, Deere & Company, various  financial institutions, JPMorgan Chase Bank N.A. as administrative agent,  Citibank N.A. and Credit Suisse as documentation agents, Merrill Lynch Bank  USA as co-documentation agent, and Bank of America, N.A. and Deutsche Bank  AG, as syndication agents, et al, dated February 28, 2007  (Exhibit 4.1 to Form 10-Q of Deere & Company for the  quarter ended April 30, 2007, Securities and Exchange Commission file  number 1-4121*) |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 11.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 12.      |   |   | Computation of  Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 13.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 14.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 16.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 18.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 21.      |   |   | Omitted pursuant  to instruction I(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 22.      |   |   | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 23.      |   |   | Consent of Deloitte & Touche  LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 24.      |   |   | Power of  Attorney (included on signature page)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.      | 1      |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.      | 2      |   | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.      |   |   | Section 1350 Certifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|     |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 99  |   |   | Parts I and II  of the Deere & Company Form 10-K for the fiscal year ended  October 31, 2009 (Securities and Exchange Commission file number  1-4121*)                                                                                                                                                                                                                                                                                                                                                                                 |

 

----

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

 

62

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