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

Yes

X

  No

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

Yes

  No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

X

Smaller reporting company

(Do not check if a smaller reporting company)

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

Yes

  No

X

2010

2009

Revenues

Finance income earned on retail notes

$

179.8

$

197.8

Lease revenues

71.2

82.0

Revolving charge account income

61.8

50.7

Finance income earned on wholesale receivables

56.7

63.8

Operating loan income

3.6

3.8

Crop insurance commissions

16.8

6.6

Other income - net

24.5

32.9

Total revenues

414.4

437.6

Expenses

Interest expense

150.0

207.3

Operating expenses:

Administrative and operating expenses

94.4

86.1

Provision for credit losses

23.0

32.4

Fees paid to John Deere

9.1

9.3

Depreciation of equipment on operating leases

45.9

54.0

Total operating expenses

172.4

181.8

Total expenses

322.4

389.1

Income of consolidated group before income taxes

92.0

48.5

Provision for income taxes

28.4

13.7

Income of consolidated group

63.6

34.8

Equity in income of unconsolidated affiliates

.3

.2

Net income

63.9

35.0

Less: Net income attributable to noncontrolling interests

Net income attributable to the Company

$

63.9

$

35.0

January 31,

October 31,

January 31,

2010

2009

2009

Assets

Cash and cash equivalents

$

1,558.7

$

870.6

$

3,002.3

Receivables:

Retail notes

8,448.1

8,234.1

7,766.6

Restricted securitized retail notes

2,611.2

3,110.1

3,229.4

Revolving charge accounts

1,791.5

2,192.5

1,588.8

Operating loans

232.1

297.0

410.6

Wholesale receivables

4,259.3

3,873.5

4,202.5

Financing leases

375.5

392.8

383.1

Total receivables

17,717.7

18,100.0

17,581.0

Allowance for credit losses

(144.9

)

(158.2

)

(110.6

)

Total receivables – net

17,572.8

17,941.8

17,470.4

Other receivables

43.8

25.9

50.6

Equipment on operating leases – net

937.4

1,023.2

989.0

Receivable from John Deere

30.9

111.2

Notes receivable from John Deere

738.1

739.2

804.6

Investment in unconsolidated affiliates

6.4

6.6

5.6

Other assets

960.8

1,094.2

1,027.2

Total Assets

$

21,848.9

$

21,701.5

$

23,460.9

Liabilities and Stockholder’s Equity

Short-term borrowings:

Commercial paper

$

1,064.9

$

32.0

$

1,048.4

Other notes payable

2,656.4

3,113.0

3,239.8

John Deere

15.3

Current maturities of long-term borrowings

2,704.1

2,550.4

2,864.5

Total short-term borrowings

6,425.4

5,710.7

7,152.7

Accounts payable and accrued expenses

682.6

741.2

764.0

Deposits withheld from dealers and merchants

158.5

164.9

166.2

Deferred income taxes

74.6

67.1

58.8

Long-term borrowings

12,207.3

12,700.6

13,260.1

Total liabilities

19,548.4

19,384.5

21,401.8

Commitments and contingencies (Note 5)

Stockholder’s equity:

Common stock, without par value (issued and outstanding – 2,500 shares

owned by John Deere Credit Company)

1,272.8

1,272.8

1,212.8

Retained earnings

1,026.0

1,032.1

917.9

Accumulated other comprehensive income (loss):

Cumulative translation adjustment

39.0

55.8

.5

Unrealized loss on derivatives

(37.7

)

(44.1

)

(72.5

)

Total accumulated other comprehensive income (loss)

1.3

11.7

(72.0

)

Total Company stockholder’s equity

2,300.1

2,316.6

2,058.7

Noncontrolling interests

.4

.4

.4

Total stockholder’s equity

2,300.5

2,317.0

2,059.1

Total Liabilities and Stockholder’s Equity

$

21,848.9

$

21,701.5

$

23,460.9

2010

2009

Cash Flows from Operating Activities:

Net income

$

63.9

$

35.0

Adjustments to reconcile net income to net cash

provided by operating activities:

Provision for credit losses

23.0

32.4

Provision for depreciation and amortization

50.3

55.6

Provision for deferred income taxes

4.2

7.9

Undistributed earnings of unconsolidated affiliates

(.3

)

(.2

)

Change in accounts payable and accrued expenses

(56.1

)

17.4

Change in accrued income taxes payable/receivable

12.2

(4.0

)

Other

83.7

(91.1

)

Net cash provided by operating activities

180.9

53.0

Cash Flows from Investing Activities:

Cost of receivables acquired

(6,700.3

)

(6,984.1

)

Collections of receivables

6,931.1

7,181.4

Cost of equipment on operating leases acquired

(67.2

)

(83.6

)

Proceeds from sales of equipment on operating leases

101.7

89.1

Cost of notes receivable with John Deere

(35.9

)

(78.4

)

Collection of notes receivable with John Deere

37.0

73.1

Proceeds from sales of receivables

9.4

9.2

Change in restricted cash

(28.6

)

(30.1

)

Other

(6.3

)

32.0

Net cash provided by investing activities

240.9

208.6

Cash Flows from Financing Activities:

Increase (decrease) in commercial paper - net

1,061.3

(1,684.9

)

Increase (decrease) in other notes payable - net

(456.6

)

1,617.9

Change in receivable from/payable to John Deere - net

(46.5

)

(427.3

)

Proceeds from issuance of long-term borrowings

60.4

2,783.4

Payments of long-term borrowings

(278.7

)

(537.4

)

Dividends paid

(70.0

)

Debt issuance costs

(2.3

)

(91.0

)

Net cash provided by financing activities

267.6

1,660.7

Effect of exchange rate changes on cash and cash equivalents

(1.3

)

(2.6

)

Net increase in cash and cash equivalents

688.1

1,919.7

Cash and cash equivalents at beginning of period

870.6

1,082.6

Cash and cash equivalents at end of period

$

1,558.7

$

3,002.3

See Condensed Notes to Interim Financial Statements.

Total Company Stockholder’s Equity

Total
Stockholder’s
Equity

Common
Stock

Retained
Earnings

Total
Accumulated
Other
Comprehensive
Income (Loss)

Noncontrolling
Interests

Balance October 31, 2008

$  2,065.3

$  1,212.8

$   882.9

$  (30.8

)

$  .4

Net income

35.0

35.0

Other comprehensive income (loss)

Cumulative translation adjustment

(8.7)

(8.7

)

Unrealized loss on derivatives

(32.5)

(32.5

)

Total comprehensive loss

(6.2)

Balance January 31, 2009

$  2,059.1

$  1,212.8

$   917.9

$  (72.0

)

$  .4

Balance October 31, 2009

$  2,317.0

$  1,272.8

$  1,032.1

$  11.7

$  .4

Net income

63.9

63.9

Other comprehensive income (loss)

Cumulative translation adjustment

(16.8

)

(16.8

)

Unrealized gain on derivatives

6.4

6.4

Total comprehensive income

53.5

Dividends paid

(70.0

)

(70.0

)

Balance January 31, 2010

$  2,300.5

$  1,272.8

$  1,026.0

$   1.3

$  .4

See Condensed Notes to Interim Financial Statements.

(1)

The consolidated financial statements of John Deere Capital Corporation (Capital Corporation) and its subsidiaries (collectively called the Company) have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted as permitted by such rules and regulations. All adjustments, consisting of normal recurring adjustments, have been included. Management believes that the disclosures are adequate to present fairly the financial position, results of operations and cash flows at the dates and for the periods presented. It is suggested that these interim financial statements be read in conjunction with the consolidated financial statements and the notes thereto appearing in the Company’s latest annual report on Form 10-K. Results for interim periods are not necessarily indicative of those to be expected for the fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

Certain items previously reported in specific financial statement captions in previous periods have been reclassified to conform to the first quarter of 2010 financial statement presentation as a result of the adoption of the guidance in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810, Consolidation (FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements) (See Note 3).

(2)

The Company provides and administers financing for retail purchases of new equipment manufactured by Deere & Company’s agriculture and turf and construction and forestry divisions and used equipment taken in trade for this equipment. The Company generally purchases retail installment sales and loan contracts (retail notes) from Deere & Company and its wholly-owned subsidiaries (collectively called John Deere). John Deere generally acquires these retail notes through John Deere retail dealers. The Company also purchases and finances a limited amount of non-Deere retail notes and continues to service a small portfolio of recreational products and other retail notes. In addition, the Company leases John Deere equipment and a limited amount of non-Deere equipment to retail customers (financing and operating leases). The Company also finances and services revolving charge accounts, in most cases acquired from and offered through merchants in the agriculture and turf and construction and forestry markets (revolving charge accounts). Further, the Company finances and services operating loans, in most cases offered through and acquired from farm input providers or through direct relationships with agricultural producers or agribusinesses (operating loans). The Company also provides wholesale financing for inventories of John Deere agriculture and turf and construction and forestry equipment owned by dealers of those products (wholesale receivables). The Company also offers credit enhanced international export financing to select customers and dealers which generally involves John Deere products and offers certain crop risk mitigation products in the U.S. In addition, the Company makes loans to certain affiliated companies that directly invest in wind energy projects. Retail notes, revolving charge accounts, operating loans, financing leases and wholesale receivables are collectively called “Receivables.” Receivables and operating leases are collectively called “Receivables and Leases.”

(3)

New accounting standards adopted in the first three months of  2010 were as follows:

In the first quarter of 2010, the Company adopted FASB ASC 810, Consolidation (FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements). ASC 810 requires that noncontrolling interests are reported as a separate line in stockholder’s equity. The net income for both the Company and the noncontrolling interests are included in “Net income.” The “Net income attributable to noncontrolling interests” is deducted from “Net income” to determine the “Net income attributable to the Company.” ASC 810 also requires certain prospective changes in accounting for noncontrolling interests primarily related to increases and decreases in ownership and changes in control.  As required, the presentation and disclosure requirements were adopted through retrospective application, and the consolidated financial statement prior period information has been adjusted accordingly. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB ASC 805, Business Combinations (FASB Statement No. 141 (revised 2007), Business Combinations). ASC 805 requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (FASB Statement No. 157, Fair Value Measurements), for nonrecurring measurements of nonfinancial assets and liabilities. The standard requires that these measurements comply with certain guidance for fair value measurements and the disclosure of such measurements. The adoption did not have a material effect on the Company’s consolidated financial statements.

In the first quarter of 2010, the Company adopted FASB Accounting Standards Updated (ASU) No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements, which amends ASC 855, Subsequent Events. This ASU removes the requirement for a SEC filer to disclose a date through which subsequent events have been evaluated. This change removes potential conflicts with SEC requirements. The adoption did not have a material effect on the Company’s consolidated financial statements.

New accounting standards to be adopted are as follows:

In December 2009, the FASB issued ASU No. 2009-16, Accounting for Transfers of Financial Assets, which amends ASC 860, Transfers and Servicing (FASB Statement No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140). This ASU eliminates the qualifying special purpose entities from the consolidation guidance and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. It requires additional disclosures about the risks from continuing involvement in transferred financial assets accounted for as sales. The effective date is the beginning of fiscal year 2011.  The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2009, the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, which amends ASC 810, Consolidation (FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)). This ASU requires a qualitative analysis to determine the primary beneficiary of a variable interest entity (VIE). The analysis identifies the primary beneficiary as the enterprise that has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. The ASU also requires additional disclosures about an enterprise’s involvement in a VIE. The effective date is the beginning of fiscal year 2011. The adoption is not expected to have a material effect on the Company’s consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which amends ASC 820, Fair Value Measurements and Disclosures. This ASU requires disclosures of transfers into and out of Levels 1 and 2, more detailed roll forward reconciliations of Level 3 recurring fair value measurements on a gross basis, fair value information by class of assets and liabilities and descriptions of valuation techniques and inputs for Level 2 and 3 measurements. The effective date is the second quarter of fiscal year 2010 except for the roll forward reconciliations, which are required in the first quarter of fiscal year 2012. The adoption will not have a material effect on the Company’s consolidated financial statements.

(4)

Securitization of receivables:

The Company, as a part of its overall funding strategy, periodically transfers certain receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs) as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes does not meet the criteria of sales of receivables, and is, therefore, accounted for as a secured borrowing. SPEs utilized in securitizations of retail notes differ from other entities included in the Company’s consolidated statements because the assets they hold are legally isolated. For bankruptcy analysis purposes, the Capital Corporation has sold the receivables to the SPEs in a true sale and the SPEs are separate legal entities. Use of the assets held by the SPEs is restricted by terms of the documents governing the securitization transaction.

In securitizations of retail notes related to secured borrowings, the retail notes are transferred to certain SPEs which in turn issue debt to investors. The resulting secured borrowings are included in short-term borrowings on the balance sheet. The securitized retail notes are recorded as “Restricted securitized retail notes” on the balance sheet. The total restricted assets on the balance sheet related to these securitizations include the restricted securitized retail notes less an allowance for credit losses, and other assets primarily representing restricted cash. The SPEs supporting the secured borrowings to which the retail notes are transferred are consolidated unless the Company is not the primary beneficiary. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.

In certain securitizations, the Company is the primary beneficiary of the SPEs and, as such, consolidates the entities. The restricted assets (retail notes, allowance for credit losses and other assets) of the consolidated SPEs totaled $1,842 million, $2,157 million and $1,517 million at January 31, 2010, October 31, 2009 and January 31, 2009, respectively. The liabilities (other notes payable and accounts payable and accrued expenses) of these SPEs totaled $1,827 million, $2,133 million and $1,518 million at January 31, 2010, October 31, 2009 and January 31, 2009, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

In other securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company is not considered to be the primary beneficiary of these conduits, because the Company’s variable interests in the conduits will not absorb a majority of the conduits’ expected losses, residual returns, or both. This is primarily due to these interests representing significantly less than a majority of the conduits’ total assets and liabilities. These conduits provide a funding source to the Company (as well as other transferors into the conduit) as they fund the retail notes through the issuance of commercial paper. The Company’s carrying values and variable interests related to these conduits were restricted assets (retail notes, allowance for credit losses and other assets) of $849 million, $1,036 million and $1,783 million at January 31, 2010, October 31, 2009 and January 31, 2009, respectively. The liabilities (other notes payable and accounts payable and accrued expenses) related to these conduits were $831 million, $982 million and $1,726 million at January 31, 2010, October 31, 2009 and January 31, 2009, respectively.

The Company’s carrying amount of the liabilities to the unconsolidated conduits, compared to the maximum exposure to loss related to these conduits, which would only be incurred in the event of a complete loss on the restricted assets was as follows (in millions of dollars):

January 31,
2010

 Carrying value of liabilities

$

830.9

 Maximum exposure to loss

849.0

The assets of unconsolidated conduits related to securitizations in which the Company’s variable interests were considered significant were approximately $27 billion at January 31, 2010.

The components of consolidated restricted assets related to secured borrowings in securitization transactions were as follows (in millions of dollars):

January 31,
2010

October 31,
2009

January 31,
2009

Restricted securitized retail notes

$

2,611.2

$

3,110.1

$

3,229.4

Allowance for credit losses

(25.5

)

(24.3

)

(12.0

)

Other assets

104.8

107.7

82.1

Total restricted securitized assets

$

2,690.5

$

3,193.5

$

3,299.5

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

January 31,
2010

October 31,
2009

January 31,
2009

Other notes payable

$

2,655.3

$

3,109.1

$

3,239.8

Accounts payable and accrued expenses

2.4

5.4

4.2

Total liabilities related to restricted securitized assets

$

2,657.7

$

3,114.5

$

3,244.0

The secured borrowings related to these restricted securitized retail notes are obligations that are payable as the retail notes are liquidated. Repayment of the secured borrowings depends primarily on cash flows generated by the restricted assets. Due to the Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a restricted collection account until immediately prior to the time payment is required to the secured creditors. At January 31, 2010, the maximum remaining term of all restricted receivables was approximately five years.

(5)

Commitments and contingencies:

At January 31, 2010, John Deere Credit Inc., the John Deere finance subsidiary in Canada, had $172 million of commercial paper, $1,617 million of medium-term notes outstanding and a fair value liability of $7 million for derivatives, with a notional amount of $176 million that were guaranteed by the Company.

The Company’s subsidiary, John Deere Risk Protection, Inc., offers crop insurance products through managing general agency agreements (Agreements) with insurance companies (Insurance Carriers) rated “Excellent” by A.M. Best Company. As a managing general agent, John Deere Risk Protection, Inc. will receive commissions from the Insurance Carriers for selling crop insurance to producers. The Company has guaranteed certain obligations under the Agreements, including the obligation to pay the Insurance Carriers for any uncollected premiums. At January 31, 2010, the maximum exposure for uncollected premiums was approximately $22 million. Substantially all of the Company’s crop insurance risk under the Agreements has been mitigated by a syndicate of private reinsurance companies. The reinsurance companies are rated “Excellent” or higher by A.M. Best Company. In the event of a widespread catastrophic crop failure throughout the U.S. and the default of these highly rated private reinsurance companies on their reinsurance obligations, the Company would be required to reimburse the Insurance Carriers for exposures under the Agreements of approximately $32 million at January 31, 2010. The Company believes that the likelihood of the occurrence of events that would give rise to the exposures under these Agreements is substantially remote and as a result, at January 31, 2010, the Company’s accrued liability under the Agreements was not material.

The Company has commitments to extend credit to customers and John Deere dealers through lines of credit and other pre-approved credit arrangements. The Company applies the same credit policies and approval process for these commitments to extend credit as it does for its Receivables. Collateral is not required for these commitments, but if credit is extended, collateral may be required upon funding. The amount of unused commitments to extend credit to John Deere dealers was $3.4 billion at January 31, 2010. The amount of unused commitments to extend credit to customers was $42.0 billion at January 31, 2010. A significant portion of these commitments is not expected to be fully drawn upon; therefore, the total commitment amounts likely do not represent a future cash requirement. The Company generally has the right to unconditionally cancel, alter or amend the terms of these commitments at any time. Over 95 percent of these unused commitments to extend credit to customers relate to revolving charge accounts.

At January 31, 2010, the Company had restricted other assets of $33 million. See Note 4 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $11 million at January 31, 2010, for which it believes the probability for payment is substantially remote. The accrued liability for these contingencies was not material at January 31, 2010.

(6)

The fair values of financial instruments that do not approximate the carrying values were as follows (in millions of dollars):

January 31, 2010

October 31, 2009

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value

Receivables financed - net

$ 14,987

$ 15,067

$ 14,856

$ 14,954

Restricted securitized retail notes - net

2,586

2,631

3,086

3,123

Short-term secured borrowings

2,655

2,660

3,109

3,140

Long-term borrowings

12,207

12,694

12,701

13,140

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

Fair values of long-term borrowings and short-term secured borrowings were based on the discounted values of their related cash flows at current market interest rates. Certain long-term borrowings have been swapped to current variable interest rates. The carrying values of these long-term borrowings include adjustments related to fair value hedges.

Fair values of derivative financial instruments are included in Note 7. The carrying values and the fair values are the same since they are recorded at fair value.

(7)

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

January 31,

October 31,

January 31,

2010   

2009

2009

Other assets

  Derivatives:

Interest rate contracts

$

463.9

$

488.8

$

583.0

Foreign exchange contracts

17.5

3.4

16.6

Cross-currency interest rate contracts

7.0

173.5

14.3

Total assets

$

488.4

$

665.7

$

613.9

Accounts payable and accrued expenses

  Derivatives:

Interest rate contracts

$

93.3

$

115.2

$

183.6

Foreign exchange contracts

.8

15.0

6.5

Cross-currency interest rate contracts

23.2

.7

25.4

Total liabilities

$

117.3

$

130.9

$

215.5

Assets measured at fair value as Level 3 measurements on a nonrecurring basis and the losses during the periods were as follows (in millions of dollars):

January 31,

October 31,

January 31,

Three Months Ended
January 31

2010

2009

2009

2010

2009

Receivables

$10.0

$23.1

$15.8

$   .1

$5.0

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities. Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs. Level 3 measurements include significant unobservable inputs. There were no assets or liabilities valued using Level 1 measurements at January 31, 2010.

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

The following is a description of the valuation methodologies the Company uses to measure financial instruments at fair value:

Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and cross-currency interest rate swaps. The portfolio is valued based on a discounted cash flow approach using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Receivables – Receivables with specific reserves established due to payment defaults are valued based on a discounted cash flow approach, appraisal values or realizable values for the underlying collateral. The related credit allowances represent cumulative adjustments to measure those specific receivables at fair value.

(8)

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

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

Certain of the Company’s derivative agreements contain credit support provisions that require the Company to post collateral based on reductions in credit ratings. The aggregate fair value of all derivatives with credit-risk-related contingent features that were in a liability position at January 31, 2010, October 31, 2009 and January 31, 2009 was $17 million, $13 million and $37 million, respectively. The Company, due to its credit rating, has not posted any collateral. If the credit-risk-related contingent features were triggered, the Company would be required to post full collateral for this liability position.

Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual counterparty exposure by setting limits that consider the credit rating of the counterparty and the size of other financial commitments and exposures between the Company and the counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Some of these agreements include collateral support arrangements or mutual put options at fair value. Each master agreement permits the net settlement of amounts owed in the event of early termination. The maximum amount of loss that the Company would incur if counterparties to derivative instruments fail to meet their obligations, not considering collateral received or netting arrangements, was $488 million, $666 million and $614 million as of January 31, 2010, October 31, 2009

and January 31, 2009, respectively. The amount of collateral received at January 31, 2010, October 31, 2009 and January 31, 2009 to offset this potential maximum loss was $50 million, $78 million and $39 million, respectively. The netting provisions of the agreements would reduce the maximum amount of loss the Company would incur if the counterparties to derivative instruments fail to meet their obligations by an additional $67 million, $82 million and $158 million as of January 31, 2010, October 31, 2009 and January 31, 2009, respectively. None of the concentrations of risk with any individual counterparty was considered significant in any periods presented.

Cash flow hedges

Certain interest rate and cross-currency interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amount of the receive-variable/pay-fixed interest rate contracts at January 31, 2010, October 31, 2009 and January 31, 2009 was $2,448 million, $2,492 million and $3,694 million, respectively. The notional amount of cross-currency interest rate contracts was $849 million at January 31, 2010. The effective portions of the fair value gains or losses on these cash flow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense or administrative and operating expenses (foreign exchange) in the same periods during which the hedged transactions affect earnings. These amounts offset the effects of interest rate or foreign currency changes on the related borrowings. Any ineffective portions of the gains or losses on all cash flow interest rate contracts designated as hedges were recognized currently in interest expense or administrative and operating expenses and were not material during any periods presented. The cash flows from these contracts were recorded in operating activities in the consolidated statements of cash flows.

The amount of loss recorded in OCI at January 31, 2010 that is expected to be reclassified to interest expense or administrative and operating expenses in the next twelve months if interest rates or exchange rates remain unchanged is approximately $34 million after-tax. These contracts mature in up to 48 months. There were no gains or losses reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

Fair value hedges

Certain interest rate contracts (swaps) were designated as fair value hedges of fixed-rate, long-term borrowings. The total notional amount of these receive-fixed/pay-variable interest rate contracts at January 31, 2010, October 31, 2009 and January 31, 2009 was $6,379 million, $6,120 million and $4,443 million, respectively. The effective portions of the fair value gains or losses on these contracts were offset by fair value gains or losses on the hedged items (fixed-rate borrowings). Any ineffective portions of the gains or losses were recognized currently in interest expense. The ineffective portions were a $1 million loss and a $3 million gain during the first quarter of 2010 and the first quarter of 2009, respectively. The cash flows from these contracts were recorded in operating activities in the consolidated statements of cash flows.

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

Three Months Ended
January 31

2010

2009

 Interest rate contracts *

$

(.5

)

$

249.8

 Borrowings **

(.4

)

(246.4

)

*       Includes changes in fair value of interest rate contracts excluding accrued interest credits of $55.2 million and $21.3 million during the first three months of 2010 and 2009, respectively.

**     Includes adjustments for fair values of hedged borrowings excluding accrued interest expense of $77.8 million and $66.7 million during the first three months of 2010 and 2009, respectively.

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts (forwards and swaps) and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings. The total notional amount of these interest rate swaps at January 31, 2010, October 31, 2009 and January 31, 2009 were $2,439 million, $1,745 million and $1,355 million, the foreign exchange contracts were $1,075 million, $1,043 million and $726 million and the cross-currency interest rate contracts were $60 million, $839 million and $848 million, respectively. At January 31, 2010, October 31, 2009 and January 31, 2009 there were also $1,447 million, $1,560 million and $1,862 million of interest rate caps purchased and the same amounts sold at the same capped interest rate to facilitate borrowings through securitization of retail notes, respectively. The fair value gains or losses from the interest rate contracts were recognized currently in interest expense and the gains or losses from foreign exchange contracts in administrative and operating expenses, generally offsetting over time the expenses on the exposures being hedged. The cash flows from these non-designated contracts were recorded in operating activities in the consolidated statements of cash flows.

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

January 31,
2010

October 31,
2009

January 31,
2009

Other Assets

Designated as hedging instruments:

Interest rate contracts

$

418.7

$

446.4

$

509.0

Not designated as hedging instruments:

Interest rate contracts

45.2

42.4

74.0

Foreign exchange contracts

17.5

3.4

16.6

Cross-currency interest rate contracts

7.0

173.5

14.3

Total not designated

69.7

219.3

104.9

Total derivatives

$

488.4

$

665.7

$

613.9

Accounts Payable and Accrued Expenses

Designated as hedging instruments:

Interest rate contracts

$

61.3

$

76.6

$

121.5

Cross-currency interest rate contracts

22.6

Total designated

83.9

76.6

121.5

Not designated as hedging instruments: