UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~February~~August 2, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file no: 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.)

10587 Double R Boulevard, Suite 100 Reno, Nevada 89521 (Address of principal executive offices)
Telephone Number: (775) 786-5527

Securities Registered Pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol	Name of each exchange on which registered
2.75% Senior Notes Due 2022	DE22B	New York Stock Exchange

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 ☒No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐No ☒

At ~~February~~August 2, 2020, 2,500 shares of common stock, without par value, of the registrant were outstanding, all of which were owned by John Deere Financial Services, Inc., a wholly-owned subsidiary of Deere & Company.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statement of Consolidated Income

~~For the Three Months Ended February 2, 2020 and January 27, 2019~~

(Unaudited)

(in millions)

2020

2019

Revenues

Finance income earned on retail notes

$
234.8

$
208.9

Revolving charge account income

80.7

72.1

Finance income earned on wholesale receivables

110.3

116.3

Lease revenues

274.9

239.5

Other income

17.9

24.0

Total revenues

718.6

660.8

Expenses

Interest expense

219.8

226.5

Operating expenses:

Administrative and operating expenses

123.5

98.2

Fees paid to John Deere

24.9

14.8

Provision for credit losses

12.1

.8

Depreciation of equipment on operating leases

213.5

175.4

Total operating expenses

374.0

289.2

Total expenses

593.8

515.7

Income of consolidated group before income taxes

124.8

145.1

Provision for income taxes

26.1

23.9

Income of consolidated group

98.7

121.2

Equity in income of unconsolidated affiliate

.7

.6

Net income

99.4

121.8

Less: Net income attributable to noncontrolling interests

.2

.1

Net income attributable to the Company

$
99.2

$
121.7


	Three Months Ended				Nine Months Ended
	August 2		July 28		August 2		July 28
	2020		2019		2020		2019
Revenues
Finance income earned on retail notes	$	234.9	$	241.5	$	701.4	$	665.0
Revolving charge account income		87.8		94.3		242.7		243.0
Finance income earned on wholesale receivables		84.6		141.9		305.3		400.9
Lease revenues		270.3		256.7		817.8		741.6
Other income		18.4		7.4		47.5		55.1
Total revenues		696.0		741.8		2,114.7		2,105.6
Expenses
Interest expense		161.3		256.2		597.7		734.7
Operating expenses:
Administrative and operating expenses		92.0		102.6		357.9		313.3
Fees paid to John Deere		24.8		15.2		73.0		42.0
Provision for credit losses		16.0		23.4		100.8		50.3
Depreciation of equipment on operating leases		211.8		188.0		639.6		544.3
Total operating expenses		344.6		329.2		1,171.3		949.9
Total expenses		505.9		585.4		1,769.0		1,684.6
Income of consolidated group before income taxes		190.1		156.4		345.7		421.0
Provision for income taxes		44.4		11.8		75.9		71.4
Income of consolidated group		145.7		144.6		269.8		349.6
Equity in income of unconsolidated affiliate		.5		.4		1.6		1.4
Net income		146.2		145.0		271.4		351.0
Less: Net income attributable to noncontrolling interests				.2		.1		.2
Net income attributable to the Company	$	146.2	$	144.8	$	271.3	$	350.8

See Condensed Notes to Interim Consolidated Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statement of Consolidated Comprehensive Income

~~For the Three Months Ended February 2, 2020 and January 27, 2019~~

(Unaudited)

(in millions)

2020

2019

Net income

$
99.4

$
121.8

Other comprehensive income (loss), net of income taxes

Cumulative translation adjustment

(4.8)

.8

Unrealized loss on derivatives

(.3)

(8.4)

Unrealized loss on debt securities

(.4)

Other comprehensive income (loss), net of income taxes

(5.5)

(7.6)

Comprehensive income of consolidated group

93.9

114.2

Less: Comprehensive income attributable to noncontrolling interests

.2

.1

Comprehensive income attributable to the Company

$
93.7

$
114.1


	Three Months Ended				Nine Months Ended
	August 2		July 28		August 2		July 28
	2020		2019		2020		2019

Net income	$	146.2	$	145.0	$	271.4	$	351.0

Other comprehensive income (loss), net of income taxes
Cumulative translation adjustment		50.0		(3.4)		28.2		(9.8)
Unrealized gain (loss) on derivatives		4.2		(6.2)		(4.8)		(21.3)
Unrealized gain on debt securities		.6
Other comprehensive income (loss), net of income taxes		54.8		(9.6)		23.4		(31.1)

Comprehensive income of consolidated group		201.0		135.4		294.8		319.9
Less: Comprehensive income attributable to noncontrolling interests				.2		.1		.2
Comprehensive income attributable to the Company	$	201.0	$	135.2	$	294.7	$	319.7

See Condensed Notes to Interim Consolidated Financial Statements.

John Deere Capital Corporation and Subsidiaries

Consolidated Balance Sheet

(Unaudited)

(in millions)

February 2

November 3

January 27

2020

2019

2019

Assets






Cash and cash equivalents

$
642.6

$
632.6

$
859.2

Marketable securities

2.3

3.2

4.0

Receivables:

Retail notes

14,791.5

15,150.5

13,254.5

Retail notes securitized

4,443.7

4,349.6

4,505.9

Revolving charge accounts

2,673.2

3,863.0

2,685.9

Wholesale receivables

9,146.3

8,706.8

8,990.4

Financing leases

668.2

751.6

702.5

Total receivables

31,722.9

32,821.5

30,139.2

Allowance for credit losses

(103.1)

(100.6)

(106.7)

Total receivables – net

31,619.8

32,720.9

30,032.5

Other receivables

94.6

75.1

120.6

Receivables from John Deere

408.7

331.9

66.9

Equipment on operating leases – net

5,525.7

5,530.5

4,942.0

Notes receivable from John Deere

282.5

291.7

221.1

Investment in unconsolidated affiliate

17.0

16.4

15.7

Deferred income taxes

34.0

33.2

36.8

Other assets

447.1

454.4

586.7

Total Assets

$
39,074.3

$
40,089.9

$
36,885.5

Liabilities and Stockholder’s Equity

Short-term borrowings:

Commercial paper and other notes payable

$
1,241.7

$
1,460.9

$
2,469.0

Securitization borrowings

4,373.9

4,277.0

4,397.1

John Deere

1,395.5

1,855.3

182.2

Current maturities of long-term borrowings

5,577.6

5,716.6

4,330.7

Total short-term borrowings

12,588.7

13,309.8

11,379.0

Other payables to John Deere

36.6

47.4

227.0

Accounts payable and accrued expenses

857.5

886.7

771.9

Deposits withheld from dealers and merchants

128.5

137.5

146.9

Deferred income taxes

503.8

527.7

801.5

Long-term borrowings

20,861.9

21,052.4

19,575.0

Total liabilities

34,977.0

35,961.5

32,901.3

Commitments and contingencies (Note 8)

Stockholder’s equity:

Common stock, without par value (issued and outstanding – 2,500 shares owned by John Deere Financial Services, Inc.)

1,482.8

1,482.8

1,482.8

Retained earnings

2,715.8

2,741.6

2,574.1

Accumulated other comprehensive loss

(102.9)

(97.4)

(73.5)

Total Company stockholder’s equity

4,095.7

4,127.0

3,983.4

Noncontrolling interests

1.6

1.4

.8

Total stockholder’s equity

4,097.3

4,128.4

3,984.2

Total Liabilities and Stockholder’s Equity

$
39,074.3

$
40,089.9

$
36,885.5


	August 2		November 3		July 28
	2020		2019		2019
Assets
Cash and cash equivalents	$	624.9	$	632.6	$	649.1
Marketable securities		2.4		3.2		6.9
Receivables:
Retail notes		15,112.4		15,150.5		13,437.5
Retail notes securitized		5,446.2		4,349.6		5,159.1
Revolving charge accounts		3,918.3		3,863.0		3,798.7
Wholesale receivables		8,428.8		8,706.8		10,299.5
Financing leases		743.6		751.6		716.9
Total receivables		33,649.3		32,821.5		33,411.7
Allowance for credit losses		(140.6)		(100.6)		(110.4)
Total receivables – net		33,508.7		32,720.9		33,301.3
Other receivables		106.9		75.1		83.2
Receivables from John Deere		804.5		331.9		235.3
Equipment on operating leases – net		5,257.2		5,530.5		5,323.3
Notes receivable from John Deere		366.8		291.7		277.3
Investment in unconsolidated affiliate		18.9		16.4		16.0
Deferred income taxes		37.3		33.2		36.3
Other assets		427.8		454.4		514.6
Total Assets	$	41,155.4	$	40,089.9	$	40,443.3

Liabilities and Stockholder’s Equity
Short-term borrowings:
Commercial paper and other notes payable	$	1,012.0	$	1,460.9	$	1,162.5
Securitization borrowings		5,324.1		4,277.0		4,994.8
John Deere		3,796.3		1,855.3		2,294.8
Current maturities of long-term borrowings		4,910.2		5,716.6		6,269.5
Total short-term borrowings		15,042.6		13,309.8		14,721.6
Other payables to John Deere		42.6		47.4		55.3
Accounts payable and accrued expenses		876.0		886.7		767.0
Deposits withheld from dealers and merchants		105.6		137.5		138.8
Deferred income taxes		423.3		527.7		615.1
Long-term borrowings		20,492.1		21,052.4		20,035.4
Total liabilities		36,982.2		35,961.5		36,333.2
Commitments and contingencies (Note 8)
Stockholder’s equity:
Common stock, without par value (issued and outstanding – 2,500 shares owned by John Deere Financial Services, Inc.)		1,482.8		1,482.8		1,482.8
Retained earnings		2,762.9		2,741.6		2,723.2
Accumulated other comprehensive loss		(74.0)		(97.4)		(97.0)
Total Company stockholder’s equity		4,171.7		4,127.0		4,109.0
Noncontrolling interests		1.5		1.4		1.1
Total stockholder’s equity		4,173.2		4,128.4		4,110.1
Total Liabilities and Stockholder’s Equity	$	41,155.4	$	40,089.9	$	40,443.3

See Condensed Notes to Interim Consolidated Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statement of Consolidated Cash Flows

For the ~~Three~~Nine Months Ended ~~February~~August 2, 2020 and ~~January 27,~~July 28, 2019

(Unaudited)

(in millions)

2020

2019

Cash Flows from Operating Activities:

Net income

$
99.4

$
121.8

Adjustments to reconcile net income to net cash

provided by operating activities:

Provision for credit losses

12.1

.8

Provision for depreciation and amortization

217.2

181.0

Credit for deferred income taxes

(24.1)

(20.4)

Undistributed earnings of unconsolidated affiliate

(.7)

(.6)

Change in accounts payable and accrued expenses

(17.7)

(29.7)

Change in accrued income taxes payable/receivable

5.5

443.5

Other

50.3

45.3

Net cash provided by operating activities

342.0

741.7

Cash Flows from Investing Activities:

Cost of receivables acquired (excluding wholesale)

(4,151.3)

(3,973.9)

Collections of receivables (excluding wholesale)

5,593.2

5,457.1

Increase in wholesale receivables – net

(452.0)

(1,013.1)

Cost of equipment on operating leases acquired

(543.4)

(418.5)

Proceeds from sales of equipment on operating leases

332.6

273.5

Cost of notes receivable acquired from John Deere

(22.3)

(24.3)

Collections of notes receivable from John Deere

31.2

1.4

Purchases of marketable securities

(4.0)

Other

(12.7)

(25.0)

Net cash provided by investing activities

775.3

273.2

Cash Flows from Financing Activities:

Increase (decrease) in commercial paper and other notes payable – net

(219.6)

354.4

Increase in securitization borrowings – net

95.9

514.3

Decrease in payable to John Deere – net

(445.4)

(1,193.6)

Proceeds from issuance of long-term borrowings

1,105.0

1,509.6

Payments of long-term borrowings

(1,501.3)

(1,759.3)

Dividends paid

(125.0)

(200.0)

Debt issuance costs

(7.5)

(5.8)

Net cash used for financing activities

(1,097.9)

(780.4)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

(1.2)

(.1)

Net increase in cash, cash equivalents, and restricted cash

18.2

234.4

Cash, cash equivalents, and restricted cash at beginning of period

710.9

711.8

Cash, cash equivalents, and restricted cash at end of period

$
729.1

$
946.2


	2020		2019
Cash Flows from Operating Activities:
Net income	$	271.4	$	351.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses		100.8		50.3
Provision for depreciation and amortization		652.2		561.7
Credit for deferred income taxes		(106.3)		(202.9)
Impairment charges		30.8
Undistributed earnings of unconsolidated affiliate		(1.4)		(1.2)
Change in accounts payable and accrued expenses		(16.1)		18.4
Change in accrued income taxes payable/receivable		32.0		448.0
Other		129.3		139.6
Net cash provided by operating activities		1,092.7		1,364.9

Cash Flows from Investing Activities:
Cost of receivables acquired (excluding wholesale)		(13,844.2)		(12,884.6)
Collections of receivables (excluding wholesale)		12,760.9		12,215.9
(Increase) decrease in wholesale receivables – net		353.8		(2,362.5)
Cost of equipment on operating leases acquired		(1,359.4)		(1,672.5)
Proceeds from sales of equipment on operating leases		978.3		870.4
Cost of notes receivable acquired from John Deere		(163.9)		(105.2)
Collections of notes receivable from John Deere		78.2		31.4
Purchases of marketable securities				(11.0)
Proceeds from maturities and sales of marketable securities				4.0
Other		(44.0)		(44.6)
Net cash used for investing activities		(1,240.3)		(3,958.7)

Cash Flows from Financing Activities:
Decrease in commercial paper and other notes payable – net		(444.5)		(948.8)
Increase in securitization borrowings – net		1,048.5		1,115.4
Increase in payable to John Deere – net		1,775.8		948.1
Proceeds from issuance of long-term borrowings		3,062.5		5,150.2
Payments of long-term borrowings		(5,008.7)		(3,332.4)
Dividends paid		(250.0)		(280.0)
Capital investment from John Deere				.2
Debt issuance costs		(21.9)		(25.2)
Net cash provided by financing activities		161.7		2,627.5

Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(.9)		(6.3)
Net increase in cash, cash equivalents, and restricted cash		13.2		27.4
Cash, cash equivalents, and restricted cash at beginning of period *		710.9		711.8
Cash, cash equivalents, and restricted cash at end of period *	$	724.1	$	739.2

* At August 2, 2020, November 3, 2019, July 28, 2019, and October 28, 2018, restricted cash, which is reported in other assets on the consolidated balance sheet, was $99.2 million, $78.3 million, $90.1 million and $103.4 million, respectively. The restricted cash primarily relates to the securitization of receivables (See Note 5).

See Condensed Notes to Interim Consolidated Financial Statements.

John Deere Capital Corporation and Subsidiaries

Statement of Changes in Consolidated Stockholder’s Equity

For the Three and Nine Months Ended ~~February~~August 2, 2020 and ~~January 27,~~July 28, 2019

(Unaudited)

(in millions)

Company Stockholder

Accumulated

Total

Other

Non-

Stockholder’s

Common

Retained

Comprehensive

Controlling

Equity

Stock

Earnings

Income (Loss)

Interests

Balance October 28, 2018

$
4,070.0

$
1,482.8

$
2,652.4

$
(65.9)

$
.7

Net income

121.8

121.7

.1

Other comprehensive loss

(7.6)

(7.6)

Dividends declared

(200.0)

(200.0)

Balance January 27, 2019

$
3,984.2

$
1,482.8

$
2,574.1

$
(73.5)

$
.8

Balance November 3, 2019

$
4,128.4

$
1,482.8

$
2,741.6

$
(97.4)

$
1.4

Net income

99.4

99.2

.2

Other comprehensive loss

(5.5)

(5.5)

Dividends declared

(125.0)

(125.0)

Balance February 2, 2020

$
4,097.3

$
1,482.8

$
2,715.8

$
(102.9)

$
1.6


			Company Stockholder
							Accumulated
	Total						Other		Non-
	Stockholder’s		Common		Retained		Comprehensive		Controlling
	Equity		Stock		Earnings		Income (Loss)		Interests

Three Months Ended July 28, 2019
Balance April 28, 2019	$	4,024.6	$	1,482.8	$	2,628.4	$	(87.4)	$	.8
Net income		145.0				144.8				.2
Other comprehensive loss		(9.6)						(9.6)
Dividends declared		(50.0)				(50.0)
Capital investment		.1								.1
Balance July 28, 2019	$	4,110.1	$	1,482.8	$	2,723.2	$	(97.0)	$	1.1

Nine Months Ended July 28, 2019
Balance October 28, 2018	$	4,070.0	$	1,482.8	$	2,652.4	$	(65.9)	$	.7
Net income		351.0				350.8				.2
Other comprehensive loss		(31.1)						(31.1)
Dividends declared		(280.0)				(280.0)
Capital investment		.2								.2
Balance July 28, 2019	$	4,110.1	$	1,482.8	$	2,723.2	$	(97.0)	$	1.1

Three Months Ended August 2, 2020
Balance May 3, 2020	$	3,997.2	$	1,482.8	$	2,641.7	$	(128.8)	$	1.5
Net income		146.2				146.2
Other comprehensive income		54.8						54.8
Dividends declared		(25.0)				(25.0)
Balance August 2, 2020	$	4,173.2	$	1,482.8	$	2,762.9	$	(74.0)	$	1.5

Nine Months Ended August 2, 2020
Balance November 3, 2019	$	4,128.4	$	1,482.8	$	2,741.6	$	(97.4)	$	1.4
Net income		271.4				271.3				.1
Other comprehensive income		23.4						23.4
Dividends declared		(250.0)				(250.0)
Balance August 2, 2020	$	4,173.2	$	1,482.8	$	2,762.9	$	(74.0)	$	1.5

See Condensed Notes to Interim Consolidated Financial Statements.

John Deere Capital Corporation and Subsidiaries

Condensed Notes to Interim Consolidated Financial Statements

(Unaudited)

(1) Organization and Consolidation

John Deere Capital Corporation (Capital Corporation) and its subsidiaries are collectively called the Company. John Deere Financial Services, Inc. (JDFS), a wholly-owned finance holding subsidiary of Deere & Company, owns all of the outstanding common stock of Capital Corporation. The Company provides and administers financing for retail purchases of new equipment manufactured by Deere & Company’s agriculture and turf and construction and forestry operations 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. 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). The Company also provides wholesale financing for inventories of John Deere agriculture and turf and construction and forestry equipment for dealers of those products (wholesale receivables). 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 offers credit enhanced international export financing to select customers and dealers, which generally involves John Deere products. Retail notes, revolving charge accounts, wholesale receivables, and financing leases are collectively called “Receivables.” Receivables and equipment on operating leases are collectively called “Receivables and Leases.”

The Company has prepared its interim consolidated financial statements, 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 consolidated 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~~The COVID-19 (COVID) pandemic has resulted in uncertainties in the Company’s business, which may result in actual outcomes differing significantly from those estimates.

The Company uses a 52/53 week fiscal year with quarters ending on the last Sunday in the reporting period. The ~~first~~third quarter ends for fiscal year 2020 and 2019 were ~~February~~August 2, 2020 and ~~January 27,~~July 28, 2019, respectively. Both periods contained 13 weeks.

(2) New Accounting Standards

New Accounting Standards Adopted

In the first quarter of 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes Accounting Standards Codification (ASC) 840, Leases. This ASU was adopted using a modified-retrospective approach. The ASU’s primary change is the requirement for lessee entities to recognize a lease liability for payments and a right of use asset during the term of operating lease arrangements. The ASU did not significantly change the lessee’s recognition, measurement, and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. The ASU adds new disclosures about the Company’s leasing activities. The Company elected the optional practical expedients to not reassess whether existing contracts contain leases, not reassess lease classification, and not reassess initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. In addition, the Company elected to combine lease and ~~non-lease~~nonlease components for all asset classes and to not recognize a right of use asset or lease liability for arrangements that qualify as short-term leases. Upon adoption of the ASU, the Company recorded right of use assets and lease liabilities for operating leases of $5.1 million and $5.1 million, respectively. The right of use assets are recorded in other assets and the lease liabilities are recorded in accounts payable and accrued expenses on the consolidated balance sheet. Since the right of use assets and lease liabilities are not significant, no further lessee disclosures have been included in the condensed notes to the interim consolidated financial statements. See Note 6 for additional disclosures related to lessor arrangements. The adoption did not have a material effect on the Company’s operating results or cash flows.

~~In the first quarter of 2020, the~~The Company also adopted the ~~clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, included~~following standards in ~~ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption did not have~~2020, none of which had a material effect on the Company’s consolidated financial ~~statements.~~statements:

Accounting Standards Updates


2019-04	Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The adoption was for clarifications to ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities
2020-04	Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which establishes ASC 848, Reference Rate Reform

New Accounting Standards to be Adopted

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss to an expected loss methodology. The ASU affects receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. The effective date will be the first quarter of fiscal year 2021. The ASU will be adopted using a modified-retrospective approach. The Company is ~~developing~~testing and validating models developed to estimate expected credit losses, assessing appropriate assumptions, designing new procedures and controls, and evaluating the potential effects on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This ASU requires customers in a hosting arrangement that is a service contract to evaluate the implementation costs of the hosting arrangement using the guidance to develop internal-use software. The project development stage determines the implementation costs that are capitalized or expensed. Capitalized implementation costs are amortized over the term of the service arrangement and are presented in the same income statement line item as the service contract costs. The effective date will be the first quarter of fiscal year 2021, with early adoption permitted. The Company will also adopt the ~~ASU on a prospective basis. The Company is evaluating the potential effects on the Company’s consolidated financial statements.~~

In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The effective dates for the separate portionsfollowing standards in future periods, none of ~~the ASU and the expected effect on the consolidated financial statements~~which are as follows for the portions that have not yet been adopted: (1) clarifications to ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, is the first quarter of fiscal year 2021, which is under evaluation, and (2) clarifications to ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities is the first quarter of fiscal year 2021, which will not have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes. This ASU simplifies the accounting for income taxes by modifying the treatment of intraperiod tax allocation in certain circumstances, eliminating an exception to recognizing deferred tax liabilities for outside basis differences for foreign equity method investments and foreign subsidiaries when ownership or control changes, and modifying interim period tax calculations when a loss is forecast. In addition, the ASU also provides guidance for the accounting of a franchise tax that is partially based on income, requires that enacted changes in tax laws or rates be included in the annual effective rate determination in the period that includes the enactment date, and clarifies the tax accounting of a step up in tax basis of goodwill. The effective date will be the first quarter of fiscal year 2022, with early adoption permitted. The guidance related to the foreign equity method investments, foreign subsidiaries, and franchise taxes will be adopted using a modified-retrospective approach. The remaining provisions will be adopted prospectively. The adoption is not expected to have a material effect on the Company’s consolidated financial ~~statements.~~statements:

Accounting Standards Updates


2018-15	Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software
2019-04	Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
2019-12	Simplifying the Accounting for Income Taxes, which amends ASC 740, Income Taxes

(3) Other Comprehensive Income Items

The after-tax changes in accumulated other comprehensive income (loss) were as follows (in millions of dollars):


			Unrealized		Unrealized		Accumulated				Unrealized		Unrealized		Accumulated
	Cumulative		Gain (Loss)		Gain (Loss)		Other		Cumulative		Gain (Loss)		Gain (Loss)		Other
	Translation		on		on		Comprehensive		Translation		on		on		Comprehensive
	Adjustment		Derivatives		Debt Securities		Income (Loss)		Adjustment		Derivatives		Debt Securities		Income (Loss)
Balance October 28, 2018	$	(80.7)	$	14.8			$	(65.9)	$	(80.7)	$	14.8			$	(65.9)
Other comprehensive income (loss) items before reclassification		.8		(6.8)				(6.0)		(9.8)		(16.8)				(26.6)
Amounts reclassified from accumulated other comprehensive income				(1.6)				(1.6)				(4.5)				(4.5)
Net current period other comprehensive income (loss)		.8		(8.4)				(7.6)		(9.8)		(21.3)				(31.1)
Balance January 27, 2019	$	(79.9)	$	6.4			$	(73.5)
Balance July 28, 2019									$	(90.5)	$	(6.5)			$	(97.0)

Balance November 3, 2019	$	(88.4)	$	(7.0)	$	(2.0)	$	(97.4)	$	(88.4)	$	(7.0)	$	(2.0)	$	(97.4)
Other comprehensive income (loss) items before reclassification		(4.8)		(1.2)		(.4)		(6.4)		28.2		(13.9)				14.3
Amounts reclassified from accumulated other comprehensive income				.9				.9				9.1				9.1
Net current period other comprehensive income (loss)		(4.8)		(.3)		(.4)		(5.5)		28.2		(4.8)				23.4
Balance February 2, 2020	$	(93.2)	$	(7.3)	$	(2.4)	$	(102.9)
Balance August 2, 2020									$	(60.2)	$	(11.8)	$	(2.0)	$	(74.0)

Following are amounts recorded in and reclassifications out of other comprehensive income (loss), and the income tax effects (in millions of dollars):


	Before		Tax		After		Before		Tax		After
	Tax		(Expense)		Tax		Tax		(Expense)		Tax
Three Months Ended February 2, 2020	Amount		Credit		Amount
Three Months Ended August 2, 2020							Amount		Credit		Amount
Cumulative translation adjustment	$	(4.8)			$	(4.8)	$	50.0			$	50.0
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(1.6)	$	.4		(1.2)		(1.1)	$	.2		(.9)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		1.2		(.3)		.9		6.4		(1.3)		5.1
Net unrealized gain (loss) on derivatives		(.4)		.1		(.3)		5.3		(1.1)		4.2
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)		(.9)		.5		(.4)		.6				.6
Total other comprehensive income (loss)	$	(6.1)	$	.6	$	(5.5)	$	55.9	$	(1.1)	$	54.8

Three Months Ended January 27, 2019
Nine Months Ended August 2, 2020
Cumulative translation adjustment							$	28.2			$	28.2
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)								(17.6)	$	3.7		(13.9)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense								11.5		(2.4)		9.1
Net unrealized gain (loss) on derivatives								(6.1)		1.3		(4.8)
Unrealized gain (loss) on debt securities:
Unrealized holding gain (loss)								(.8)		.8
Total other comprehensive income (loss)							$	21.3	$	2.1	$	23.4

Three Months Ended July 28, 2019
Cumulative translation adjustment	$	.8			$	.8	$	(3.4)			$	(3.4)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)		(8.6)	$	1.8		(6.8)		(6.7)	$	1.4		(5.3)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense		(2.1)		.5		(1.6)		(1.1)		.2		(.9)
Net unrealized gain (loss) on derivatives		(10.7)		2.3		(8.4)		(7.8)		1.6		(6.2)
Total other comprehensive income (loss)	$	(9.9)	$	2.3	$	(7.6)	$	(11.2)	$	1.6	$	(9.6)

Nine Months Ended July 28, 2019
Cumulative translation adjustment							$	(9.8)			$	(9.8)
Unrealized gain (loss) on derivatives:
Unrealized hedging gain (loss)								(21.3)	$	4.5		(16.8)
Reclassification of realized (gain) loss to:
Interest rate contracts – Interest expense								(5.7)		1.2		(4.5)
Net unrealized gain (loss) on derivatives								(27.0)		5.7		(21.3)
Total other comprehensive income (loss)							$	(36.8)	$	5.7	$	(31.1)

(4) Receivables

Past due balances of Receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date.

The Company monitors the credit quality of Receivables based on delinquency status. Non-performing Receivables represent loans for which the Company has ceased accruing finance income. Generally, when retail notes, revolving charge accounts, and ~~finance~~financing lease accounts are 90 days delinquent, accrual of finance income and lease revenue is suspended. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended. Finance income for non-performing Receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

Receivable balances are written off to the allowance for credit losses when, in the ~~judgement~~judgment of management, they are considered uncollectible. Generally, when retail notes and ~~finance~~financing lease accounts are 120 days delinquent, the collateral is repossessed or the account is designated for litigation, and the estimated uncollectible amount, after charging the dealer’s withholding account, if any, is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale account becomes 60 days delinquent, the Company determines whether the collateral should be repossessed or the account designated for litigation, and the estimated uncollectible amount is written off to the allowance for credit losses.

Due to the significant, negative effects of COVID, the Company provided short-term relief to dealers and retail customers during the second and third quarters of 2020. The relief was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. For retail receivable customers, which include retail notes, financing leases, and revolving charge accounts, the relief generally included payment deferrals of three months or less. The retail receivables granted relief, which were primarily construction accounts, represented approximately 5 percent of the retail receivables balance at August 2, 2020. The relief provided to dealers generally included payment deferrals of three months or less and short-term interest rate reductions in certain markets. The wholesale receivables granted relief, which primarily related to agriculture and turf dealers, represented approximately 3 percent of the wholesale receivables balance at August 2, 2020. The delinquency status of receivables granted relief is based on the modified payment schedule.

1011

An age analysis of past due Receivables that are still accruing interest and non-performing Receivables was as follows (in millions of dollars):


	February 2, 2020								August 2, 2020
					90 Days								90 Days
	30-59 Days		60-89 Days		or Greater		Total		30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due
Retail notes:
Agriculture and turf	$	123.7	$	53.4	$	3.0	$	180.1	$	100.9	$	49.2	$	1.5	$	151.6
Construction and forestry		89.5		34.3				123.8		58.5		11.9				70.4
Revolving charge accounts:
Agriculture and turf		51.4		14.1				65.5		18.3		3.5				21.8
Construction and forestry		4.1		1.4				5.5		2.6		1.0				3.6
Wholesale receivables:
Agriculture and turf		7.6		2.3		1.5		11.4		10.9		1.1		1.4		13.4
Construction and forestry		3.8		.1		.3		4.2		3.4		.3		1.1		4.8
Financing leases:
Agriculture and turf		8.2		3.8		.4		12.4		13.4		10.2		2.1		25.7
Construction and forestry		1.5		2.2				3.7		1.9		2.7				4.6
Total Receivables	$	289.8	$	111.6	$	5.2	$	406.6	$	209.9	$	79.9	$	6.1	$	295.9


	Total		Total Non-				Total		Total		Total Non-				Total
	Past Due		Performing		Current		Receivables		Past Due		Performing		Current		Receivables
Retail notes:
Agriculture and turf	$	180.1	$	187.2	$	15,464.8	$	15,832.1	$	151.6	$	190.8	$	16,628.5	$	16,970.9
Construction and forestry		123.8		109.4		3,169.9		3,403.1		70.4		76.9		3,440.4		3,587.7
Revolving charge accounts:
Agriculture and turf		65.5		5.6		2,516.8		2,587.9		21.8		7.4		3,794.6		3,823.8
Construction and forestry		5.5		1.0		78.8		85.3		3.6		.7		90.2		94.5
Wholesale receivables:
Agriculture and turf		11.4		9.9		7,219.4		7,240.7		13.4		3.8		6,905.0		6,922.2
Construction and forestry		4.2		1.8		1,899.6		1,905.6		4.8		2.2		1,499.6		1,506.6
Financing leases:
Agriculture and turf		12.4		12.4		495.1		519.9		25.7		14.1		560.4		600.2
Construction and forestry		3.7		4.4		140.2		148.3		4.6		6.4		132.4		143.4
Total Receivables	$	406.6	$	331.7	$	30,984.6	$	31,722.9	$	295.9	$	302.3	$	33,051.1	$	33,649.3

1112


	November 3, 2019
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail notes:
Agriculture and turf	$	120.0	$	64.2	$	1.5	$	185.7
Construction and forestry		73.9		26.6				100.5
Revolving charge accounts:
Agriculture and turf		19.1		9.2				28.3
Construction and forestry		3.2		1.2				4.4
Wholesale receivables:
Agriculture and turf		4.1		1.9		.8		6.8
Construction and forestry		.1		.3		.3		.7
Financing leases:
Agriculture and turf		14.6		7.8		.5		22.9
Construction and forestry		2.8		.7				3.5
Total Receivables	$	237.8	$	111.9	$	3.1	$	352.8


	Total		Total Non-				Total
	Past Due		Performing		Current		Receivables
Retail notes:
Agriculture and turf	$	185.7	$	168.7	$	15,831.5	$	16,185.9
Construction and forestry		100.5		112.9		3,100.8		3,314.2
Revolving charge accounts:
Agriculture and turf		28.3		6.1		3,727.9		3,762.3
Construction and forestry		4.4		.9		95.4		100.7
Wholesale receivables:
Agriculture and turf		6.8		6.3		6,544.6		6,557.7
Construction and forestry		.7		2.9		2,145.5		2,149.1
Financing leases:
Agriculture and turf		22.9		11.6		569.8		604.3
Construction and forestry		3.5		2.5		141.3		147.3
Total Receivables	$	352.8	$	311.9	$	32,156.8	$	32,821.5

1213


	January 27, 2019								July 28, 2019
					90 Days								90 Days
	30-59 Days		60-89 Days		or Greater		Total		30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due		Past Due
Retail notes:
Agriculture and turf	$	142.7	$	56.3	$	.6	$	199.6	$	107.7	$	53.0	$	2.8	$	163.5
Construction and forestry		95.8		45.3				141.1		82.3		33.6				115.9
Revolving charge accounts:
Agriculture and turf		53.9		17.6				71.5		22.4		5.1				27.5
Construction and forestry		5.6		2.1				7.7		3.9		1.4				5.3
Wholesale receivables:
Agriculture and turf		6.4		.4		.8		7.6		4.4		.2		.7		5.3
Construction and forestry		.7		.7		2.5		3.9		1.1		1.5		.2		2.8
Financing leases:
Agriculture and turf		7.2		4.5		.7		12.4		11.9		13.3		.2		25.4
Construction and forestry		2.7		3.0				5.7		2.8		.5				3.3
Total Receivables	$	315.0	$	129.9	$	4.6	$	449.5	$	236.5	$	108.6	$	3.9	$	349.0


	Total		Total Non-				Total		Total		Total Non-				Total
	Past Due		Performing		Current		Receivables		Past Due		Performing		Current		Receivables
Retail notes:
Agriculture and turf	$	199.6	$	185.9	$	14,398.8	$	14,784.3	$	163.5	$	173.2	$	15,139.6	$	15,476.3
Construction and forestry		141.1		98.6		2,736.4		2,976.1		115.9		115.6		2,888.8		3,120.3
Revolving charge accounts:
Agriculture and turf		71.5		7.4		2,514.1		2,593.0		27.5		10.0		3,662.4		3,699.9
Construction and forestry		7.7		1.4		83.8		92.9		5.3		1.4		92.1		98.8
Wholesale receivables:
Agriculture and turf		7.6		5.1		7,090.8		7,103.5		5.3		6.1		8,065.2		8,076.6
Construction and forestry		3.9				1,883.0		1,886.9		2.8		3.6		2,216.5		2,222.9
Financing leases:
Agriculture and turf		12.4		14.3		528.0		554.7		25.4		22.1		524.5		572.0
Construction and forestry		5.7		2.9		139.2		147.8		3.3		2.4		139.2		144.9
Total Receivables	$	449.5	$	315.6	$	29,374.1	$	30,139.2	$	349.0	$	334.4	$	32,728.3	$	33,411.7

1314

Allowances for credit losses on Receivables are maintained in amounts considered to be appropriate in relation to the Receivables outstanding based on historical loss experience by product category, portfolio duration, delinquency trends, economic conditions in the Company’s major markets and geographies, and credit risk quality.

An analysis of the allowance for credit losses and investment in Receivables was as follows (in millions of dollars):


	Three Months Ended										Three Months Ended
	February 2, 2020										August 2, 2020
			Revolving										Revolving
	Retail		Charge		Wholesale		Financing		Total		Retail		Charge		Wholesale		Financing		Total
	Notes		Accounts		Receivables		Leases		Receivables		Notes		Accounts		Receivables		Leases		Receivables
Allowance:
Beginning of period balance	$	48.3	$	39.3	$	7.6	$	5.4	$	100.6	$	83.3	$	42.3	$	9.1	$	5.1	$	139.8
Provision (credit) for credit losses		13.1		(1.1)		(.2)		.3		12.1		2.9		13.2		(.5)		.4		16.0
Write-offs		(13.5)		(6.4)		(.8)		(.4)		(21.1)		(5.0)		(21.3)		(.1)		(.5)		(26.9)
Recoveries		.6		7.5		.8		.1		9.0		2.1		8.1		.4		.3		10.9
Translation adjustments						2.5				2.5		.4				.4				.8
End of period balance	$	48.5	$	39.3	$	9.9	$	5.4	$	103.1	$	83.7	$	42.3	$	9.3	$	5.3	$	140.6
Balance individually evaluated *	$	2.2			$	5.3			$	7.5

Receivables:
End of period balance	$	19,235.2	$	2,673.2	$	9,146.3	$	668.2	$	31,722.9
Balance individually evaluated *	$	77.6	$	.1	$	18.0	$	.7	$	96.4


	Three Months Ended										Nine Months Ended
	January 27, 2019										August 2, 2020
			Revolving										Revolving
	Retail		Charge		Wholesale		Financing		Total		Retail		Charge		Wholesale		Financing		Total
	Notes		Accounts		Receivables		Leases		Receivables		Notes		Accounts		Receivables		Leases		Receivables
Allowance:
Beginning of period balance	$	51.6	$	42.3	$	8.0	$	4.8	$	106.7	$	48.3	$	39.3	$	7.6	$	5.4	$	100.6
Provision (credit) for credit losses		4.5		(.9)		(3.9)		1.1		.8		69.5		31.3		(1.0)		1.0		100.8
Write-offs		(6.8)		(3.9)				(.6)		(11.3)		(38.3)		(50.1)		(.9)		(1.3)		(90.6)
Recoveries		1.9		4.8		3.6				10.3		4.0		21.8		1.3		.5		27.6
Translation adjustments						.2				.2		.2				2.3		(.3)		2.2
End of period balance	$	51.2	$	42.3	$	7.9	$	5.3	$	106.7	$	83.7	$	42.3	$	9.3	$	5.3	$	140.6
Balance individually evaluated *	$	.1			$	2.8			$	2.9	$	1.7			$	4.9			$	6.6

Receivables:
End of period balance	$	17,760.4	$	2,685.9	$	8,990.4	$	702.5	$	30,139.2	$	20,558.6	$	3,918.3	$	8,428.8	$	743.6	$	33,649.3
Balance individually evaluated *	$	56.4	$	1.9	$	7.0			$	65.3	$	101.1	$	.9	$	17.0	$	1.0	$	120.0

* Remainder is collectively evaluated.

The increase in the allowance for credit losses during the first nine months of 2020 was primarily due to the negative economic effects related to COVID and other macroeconomic issues, which have significantly affected certain retail borrowers, particularly of construction equipment.


	Three Months Ended
	July 28, 2019
			Revolving
	Retail		Charge		Wholesale		Financing		Total
	Notes		Accounts		Receivables		Leases		Receivables
Allowance:
Beginning of period balance	$	54.1	$	42.3	$	8.0	$	6.0	$	110.4
Provision (credit) for credit losses		5.5		17.9		(.3)		.3		23.4
Write-offs		(7.2)		(25.4)		(.1)		(.5)		(33.2)
Recoveries		1.8		7.5		.4		.1		9.8
End of period balance	$	54.2	$	42.3	$	8.0	$	5.9	$	110.4


	Nine Months Ended
	July 28, 2019
			Revolving
	Retail		Charge		Wholesale		Financing		Total
	Notes		Accounts		Receivables		Leases		Receivables
Allowance:
Beginning of period balance	$	51.6	$	42.3	$	8.0	$	4.8	$	106.7
Provision (credit) for credit losses		18.1		33.3		(4.0)		2.9		50.3
Write-offs		(20.4)		(50.8)		(.1)		(2.1)		(73.4)
Recoveries		5.0		17.5		4.0		.3		26.8
Translation adjustments		(.1)				.1
End of period balance	$	54.2	$	42.3	$	8.0	$	5.9	$	110.4
Balance individually evaluated *	$	2.0			$	2.9	$	.6	$	5.5

Receivables:
End of period balance	$	18,596.6	$	3,798.7	$	10,299.5	$	716.9	$	33,411.7
Balance individually evaluated *	$	60.8	$	.2	$	10.1	$	1.7	$	72.8

* Remainder is collectively evaluated.

Receivables are considered impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as ~~non performing.~~non-performing.

1416

An analysis of impaired Receivables was as follows (in millions of dollars):


			Unpaid				Average				Unpaid				Average
	Recorded		Principal		Specific		Recorded		Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment		Investment		Balance		Allowance		Investment
February 2, 2020 *
August 2, 2020 *
Receivables with specific allowance:
Retail notes	$	5.9	$	5.5	$	2.2	$	5.9	$	2.7	$	2.6	$	1.7	$	3.1
Wholesale receivables		14.8		14.8		5.3		15.2		14.8		14.8		4.9		15.2
Total with specific allowance		20.7		20.3		7.5		21.1		17.5		17.4		6.6		18.3

Receivables without specific allowance:
Retail notes		21.5		21.1				22.7		27.2		26.5				28.1
Wholesale receivables		2.8		2.8				2.8		2.2		2.2				2.2
Total without specific allowance		24.3		23.9				25.5		29.4		28.7				30.3
Total	$	45.0	$	44.2	$	7.5	$	46.6	$	46.9	$	46.1	$	6.6	$	48.6

Agriculture and turf	$	38.4	$	37.8	$	7.3	$	39.8	$	41.5	$	40.8	$	6.6	$	42.9
Construction and forestry		6.6		6.4		.2		6.8		5.4		5.3				5.7
Total	$	45.0	$	44.2	$	7.5	$	46.6	$	46.9	$	46.1	$	6.6	$	48.6

November 3, 2019 *
Receivables with specific allowance:
Retail notes	$	4.9	$	4.6	$	1.9	$	5.0	$	4.9	$	4.6	$	1.9	$	5.0
Wholesale receivables		5.3		5.3		2.9		5.7		5.3		5.3		2.9		5.7
Total with specific allowance		10.2		9.9		4.8		10.7		10.2		9.9		4.8		10.7
	��
Receivables without specific allowance:
Retail notes		22.9		22.4				25.0		22.9		22.4				25.0
Wholesale receivables		3.9		3.9				4.1		3.9		3.9				4.1
Total without specific allowance		26.8		26.3				29.1		26.8		26.3				29.1
Total	$	37.0	$	36.2	$	4.8	$	39.8	$	37.0	$	36.2	$	4.8	$	39.8

Agriculture and turf	$	30.3	$	29.7	$	4.6	$	32.0	$	30.3	$	29.7	$	4.6	$	32.0
Construction and forestry		6.7		6.5		.2		7.8		6.7		6.5		.2		7.8
Total	$	37.0	$	36.2	$	4.8	$	39.8	$	37.0	$	36.2	$	4.8	$	39.8

January 27, 2019 *
July 28, 2019 *
Receivables with specific allowance:
Retail notes	$	.8	$	.7	$	.1	$	.8	$	4.8	$	4.6	$	2.0	$	4.8
Wholesale receivables		5.9		5.9		2.8		5.7		5.3		5.3		2.9		5.8
Financing leases										.6		.5		.6		.6
Total with specific allowance		6.7		6.6		2.9		6.5		10.7		10.4		5.5		11.2

Receivables without specific allowance:
Retail notes		24.1		23.6				24.1		23.3		22.8				25.4
Wholesale receivables		.1		.1				.4		4.8		4.8				4.3
Total without specific allowance		24.2		23.7				24.5		28.1		27.6				29.7
Total	$	30.9	$	30.3	$	2.9	$	31.0	$	38.8	$	38.0	$	5.5	$	40.9

Agriculture and turf	$	26.4	$	25.9	$	2.9	$	26.6	$	30.7	$	30.1	$	5.2	$	32.2
Construction and forestry		4.5		4.4				4.4		8.1		7.9		.3		8.7
Total	$	30.9	$	30.3	$	2.9	$	31.0	$	38.8	$	38.0	$	5.5	$	40.9

* Finance income recognized was not material.

1517

A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first ~~three~~nine months of 2020, the Company identified 73328 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of ~~$2.2~~$12.6 million pre-modification and ~~$2.0~~$11.6 million post-modification. The short-term relief related to COVID mentioned earlier did not meet the definition of a troubled debt restructuring. During the first ~~three~~nine months of 2019, there were 64233 Receivable contracts, primarily retail notes, with aggregate balances of ~~$1.5~~$11.7 million pre-modification and ~~$1.4~~$11.3 million post-modification. During these same periods, there were 0 significant troubled debt restructurings that subsequently defaulted and were written off. At ~~February~~August 2, 2020, the Company had 0 commitments to lend additional funds to borrowers whose accounts were modified in troubled debt restructurings.

(5) Securitization of Receivables

The Company, as a part of its overall funding strategy, periodically transfers certain Receivables (retail notes) into variable interest entities (VIEs) that are special purpose entities (SPEs), or non-VIE banking operations, as part of its asset-backed securities programs (securitizations). The structure of these transactions is such that the transfer of the retail notes did not meet the accounting criteria for 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. Use of the assets held by the SPEs or the non-VIEs is restricted by terms of the documents governing the securitization transactions.

In these securitizations, the retail notes are transferred to certain SPEs or to non-VIE banking operations, which in turn issue debt to investors. The debt securities issued to the third party investors result in secured borrowings, which are recorded as “Securitization borrowings” on the balance sheet. The securitized retail notes are recorded as “Retail notes securitized” on the balance sheet. The total restricted assets on the consolidated balance sheet related to these securitizations include the retail notes securitized less an allowance for credit losses, and other assets primarily representing restricted cash. Restricted cash results from contractual requirements in securitized borrowing arrangements and serves as a credit enhancement. The restricted cash is used to satisfy payment deficiencies, if any, in the required payments on secured borrowings. The balance of restricted cash is contractually stipulated and is either a fixed amount as determined by the initial balance of the retail notes securitized or a fixed percentage of the outstanding balance of the retail notes securitized. The restriction is removed either after all secured borrowing payments are made or proportionally as these receivables are collected and borrowing obligations reduced. For those securitizations in which retail notes are transferred into SPEs, the SPEs supporting the secured borrowings are consolidated unless the Company does not have both the power to direct the activities that most significantly impact the SPEs’ economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the SPEs. No additional support to these SPEs beyond what was previously contractually required has been provided during the reporting periods.

In certain securitizations, the Company consolidates the SPEs since it has both the power to direct the activities that most significantly impact the SPEs’ economic performance through its role as servicer of all the Receivables held by the SPEs and the obligation through variable interests in the SPEs to absorb losses or receive benefits that could potentially be significant to the SPEs. The restricted assets (retail notes securitized, allowance for credit losses, and other assets) of the consolidated SPEs totaled ~~$2,490.1~~$3,342.5 million, $2,894.4 million, and ~~$2,136.8~~$3,425.2 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively. The liabilities (securitization borrowings and accrued interest) of these SPEs totaled ~~$2,442.1~~$3,258.8 million, $2,847.2 million, and ~~$2,091.8~~$3,316.4 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively. The credit holders of these SPEs do not have legal recourse to the Company’s general credit.

In certain securitizations, the Company transfers retail notes to non-VIE banking operations, which are not consolidated since the Company does not have a controlling interest in the entities. The Company’s carrying values and interests related to the securitizations with the unconsolidated non-VIEs were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of ~~$596.6~~$642.4 million, $447.0 million, and ~~$722.8 million at February 2, 2020, November 3, 2019, and January 27, 2019, respectively. The liabilities~~

1618

~~(securitization borrowings and accrued interest) were $567.3 million, $420.5 million, and $676.0~~$532.6 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively. The liabilities (securitization borrowings and accrued interest) were $606.0 million, $420.5 million, and $492.7 million at August 2, 2020, November 3, 2019, and July 28, 2019, respectively.

In certain securitizations, the Company transfers retail notes into bank-sponsored, multi-seller, commercial paper conduits, which are SPEs that are not consolidated. The Company does not service a significant portion of the conduits’ receivables, and therefore, does not have the power to direct the activities that most significantly impact the conduits’ economic performance. 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 interest related to these conduits were restricted assets (retail notes securitized, allowance for credit losses, and other assets) of ~~$1,440.5~~$1,551.3 million, $1,079.2 million, and ~~$1,745.2~~$1,286.1 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively. The liabilities (securitization borrowings and accrued interest) related to these conduits were ~~$1,369.7~~$1,463.4 million, $1,015.2 million, and ~~$1,632.4~~$1,189.6 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, 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):


	February 2		August 2
	2020		2020
Carrying value of liabilities	$	1,369.7	$	1,463.4
Maximum exposure to loss		1,440.5		1,551.3

The total assets of unconsolidated VIEs related to securitizations were approximately ~~$41.1~~$41.3 billion at ~~February~~August 2, 2020.

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


	February 2		November 3		January 27		August 2		November 3		July 28
	2020		2019		2019		2020		2019		2019
Retail notes securitized	$	4,443.7	$	4,349.6	$	4,505.9	$	5,446.2	$	4,349.6	$	5,159.1
Allowance for credit losses		(7.9)		(11.2)		(10.1)		(14.0)		(11.2)		(12.9)
Other assets		91.4		82.2		109.0		104.0		82.2		97.7
Total restricted securitized assets	$	4,527.2	$	4,420.6	$	4,604.8	$	5,536.2	$	4,420.6	$	5,243.9

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


	February 2		November 3		January 27		August 2		November 3		July 28
	2020		2019		2019		2020		2019		2019
Securitization borrowings	$	4,373.9	$	4,277.0	$	4,397.1	$	5,324.1	$	4,277.0	$	4,994.8
Accrued interest on borrowings		5.2		5.9		3.1		4.1		5.9		3.9
Total liabilities related to restricted securitized assets	$	4,379.1	$	4,282.9	$	4,400.2	$	5,328.2	$	4,282.9	$	4,998.7

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~~Company’s short-term credit rating, cash collections from these restricted assets are not required to be placed into a segregated collection account until immediately prior to the time payment is required to the secured creditors. At ~~February~~August 2, 2020, the maximum remaining term of all restricted securitized retail notes was approximately seven years.

The Company’s restricted cash held at February 2, 2020, November 3, 2019, January 27, 2019, and October 28, 2018 was $86.5 million, $78.3 million, $87.0 million and $103.4 million, respectively. The

1719

restricted cash primarily relates to the securitization of receivables and is reported in other assets on the consolidated balance sheet and in cash, cash equivalents, and restricted cash on the statement of consolidated cash flows.

(6) Leases

The Company leases John Deere equipment and a limited amount of non-Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in financing leases on the consolidated balance sheet. Operating leases are reported in equipment on operating leases – net on the consolidated balance sheet.

Initial lease terms generally range from less than one year to seven years. Leases offered by the Company may include early termination and renewal options. At the end of a lease, the lessee generally has the option to purchase the underlying equipment for a fixed price or return it to the dealer. If the equipment is returned to the dealer, the dealer also has the option to purchase the equipment or return it to the Company for remarketing.

The Company estimates the residual values for operating leases at lease inception based on several factors, including lease term, expected hours of usage, historical wholesale sale prices, return experience, intended use of the equipment, market dynamics and trends, and dealer residual guarantees. The Company reviews residual value estimates during the lease term and tests the carrying value of its operating lease assets for impairment when events or circumstances necessitate. The depreciation is adjusted on a straight-line basis over the remaining lease term if residual value estimates decline. Lease agreements include usage limits and specifications on machine condition, which allow the Company to assess lessees for excess use or damages to the underlying equipment.

During the second quarter of 2020, the Company recorded impairment losses on operating leases of $21.0 million due to higher expected return rates and lower estimated values of used construction equipment. Operating lease impairments are recorded in administrative and operating expenses on the statement of consolidated income.

The Company has elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the customer. The Company has also elected to report consideration related to sales and ~~value added~~value-added taxes net of the related tax expense. Property taxes on leased assets are recorded on a gross basis in lease revenues and administrative and operating expenses on the statement of consolidated income. Variable lease revenues primarily relate to separately invoiced property taxes on leased equipment in certain markets, and late fees.

Due to the significant, negative effects of COVID, the Company provided short-term relief to lessees during the second and third quarters of 2020. The relief, which generally included payment deferrals of three months or less, was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. The operating leases granted relief, which primarily related to construction accounts, represented approximately 3 percent of the Company’s operating lease portfolio at August 2, 2020. See Note 4 for information related to short-term relief on financing leases.

Lease revenues earned by the Company were as follows (in millions of dollars):


	Three Months Ended		Three Months Ended		Nine Months Ended
	February 2, 2020		August 2, 2020		August 2, 2020
Sales-type and direct financing lease revenues	$	11.6	$	12.0	$	34.3
Operating lease revenues		258.5		253.5		768.8
Variable lease revenues		4.8		4.8		14.7
Total lease revenues	$	274.9	$	270.3	$	817.8

At the time of accepting a lease that qualifies as a sales-type or direct financing lease, the Company records the gross amount of lease payments receivable, estimated residual value of the leased equipment, and unearned finance income. The unearned finance income is recognized as revenue over the lease term using the interest method.

1820

Sales-type and direct financing lease receivables by product category were as follows (in millions of dollars):


	February 2		November 3		August 2		November 3
	2020		2019		2020		2019
Agriculture and turf	$	425.5	$	422.7	$	434.3	$	422.7
Construction and forestry		154.5		153.2		148.3		153.2
Total		580.0		575.9		582.6		575.9
Guaranteed residual values		113.1		195.1		203.1		195.1
Unguaranteed residual values		57.1		61.1		42.6		61.1
Unearned finance income		(82.0)		(80.5)		(84.7)		(80.5)
Financing leases receivable	$	668.2	$	751.6	$	743.6	$	751.6

Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at ~~February~~August 2, 2020 were as follows (in millions of dollars):


	February 2		August 2
	2020		2020
Due in:
Remainder of 2020	$	260.1	$	110.7
2021		182.1		320.5
2022		129.4		157.0
2023		72.2		104.3
2024		36.7		62.1
2025				23.8
Later years		12.6		7.3
Total	$	693.1	$	785.7

Scheduled payments on financing lease receivables under the previous lease standard at November 3, 2019 were as follows (in millions of dollars):


	November 3
	2019
Due in:
2020	$	225.6
2021		155.2
2022		103.8
2023		58.3
2024		24.2
Later years		8.8
Total	$	575.9

Lease payments from equipment on operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases.

The cost of equipment on operating leases by product category was as follows (in millions of dollars):


	February 2		November 3		August 2		November 3
	2020		2019		2020		2019
Agriculture and turf	$	5,145.3	$	5,109.4	$	5,082.8	$	5,109.4
Construction and forestry		1,784.4		1,778.6		1,648.3		1,778.6
Total		6,929.7		6,888.0		6,731.1		6,888.0
Accumulated depreciation		(1,404.0)		(1,357.5)		(1,473.9)		(1,357.5)
Equipment on operating leases - net	$	5,525.7	$	5,530.5	$	5,257.2	$	5,530.5

1921

The total operating lease residual values at ~~February~~August 2, 2020 and November 3, 2019 were ~~$3,892.4~~$3,791.7 million and $3,876.5 million, respectively. Certain operating leases are subject to residual value guarantees. The total residual value guarantees were ~~$60.7~~$110.1 million and $65.7 million at ~~February~~August 2, 2020 and November 3, 2019, respectively.

Lease payments for equipment on operating leases at ~~February~~August 2, 2020 were scheduled as follows (in millions of dollars):


	February 2		August 2
	2020		2020
Due in:
Remainder of 2020	$	615.0	$	216.5
2021		575.9		684.7
2022		303.0		405.1
2023		126.2		182.1
2024		33.9		69.8
2025				6.8
Later years		.9		.8
Total	$	1,654.9	$	1,565.8

Rental payments for equipment on operating leases under the previous lease standard at November 3, 2019 were scheduled as follows (in millions of dollars):


	November 3
	2019
Due in:
2020	$	738.3
2021		484.4
2022		231.6
2023		92.8
2024		14.1
Later years		.3
Total	$	1,561.5

The Company discusses with lessees and dealers options to purchase the equipment or extend the lease prior to lease maturity. Equipment returned to the Company upon termination of leases is remarketed by the Company. The matured operating lease inventory balances at ~~February~~August 2, 2020 and November 3, 2019 were ~~$127.4~~$100.7 million and $160.8 million, respectively. Matured operating lease inventory is reported in other assets on the consolidated balance sheet. During the second quarter of 2020, the Company recorded impairment losses on matured operating lease inventory of $9.8 million due to lower estimated values of used construction equipment. Impairment losses on matured operating lease inventory are included in administrative and operating expenses on the statement of consolidated income.

(7) Notes Receivable from John Deere

The Company makes loans to affiliated companies. The Company receives interest from John Deere at competitive market interest rates. The lending agreements mature over the next seven years. Interest earned from John Deere was $4.4 million for the third quarter and $12.4 million in the first ~~three~~nine months of 2020, compared with ~~$3.6~~$4.5 million and $12.1 million for the same ~~period~~periods last year.

The Company had notes receivable from John Deere with the following affiliated companies as follows (in millions of dollars):

February 2

November 3

January 27

2020

2019

2019

Limited Liability Company John Deere Financial

$
115.3

$
148.3

$
127.7

Banco John Deere S.A.

167.2

143.4

71.1

Industrias John Deere Argentina S.A.

22.3

Total Notes Receivable from John Deere

$
282.5

$
291.7

$
221.1


	August 2		November 3		July 28
	2020		2019		2019
Limited Liability Company John Deere Financial	$	125.6	$	148.3	$	148.9
Banco John Deere S.A.		241.2		143.4		128.4
Total Notes Receivable from John Deere	$	366.8	$	291.7	$	277.3

(8) Commitments and Contingencies

At ~~February~~August 2, 2020, John Deere Financial Inc., the John Deere finance subsidiary in Canada, had ~~$1,665.7~~$1,639.1 million of medium-term notes outstanding, and a fair value liability of ~~$23.9~~$66.9 million for derivatives outstanding, prior to considering applicable netting provisions, with a notional amount of ~~$3,369.9~~$2,790.2 million that were guaranteed by Capital Corporation. The weighted average interest rate on the medium-term notes at ~~February~~August 2, 2020 was ~~2.7~~2.6 percent with a maximum remaining maturity of approximately ~~seven~~six years.

Capital Corporation has a variable interest in John Deere Canada Funding Inc. (JDCFI), a wholly-owned subsidiary of John Deere Financial Inc., which was created as a VIE to issue debt in public markets to fund the operations of affiliated companies in Canada. Capital Corporation has a variable interest in JDCFI because it provides guarantees for all debt issued by JDCFI, however it does not consolidate JDCFI because it does not have the power to direct the activities that most significantly impact JDCFI’s economic performance. Capital Corporation has 0 carrying value of assets or liabilities related to JDCFI. Its maximum exposure to loss is the amount of the debt issued by JDCFI and guaranteed by Capital Corporation, which was ~~$1,665.7~~$1,452.8 million at ~~February~~August 2, 2020. The weighted average interest rate on the debt at ~~February~~August 2, 2020 was 2.3 percent with a maximum remaining maturity of approximately ~~four~~three years. No additional support beyond what was previously contractually required has been provided to JDCFI during the reporting periods.

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 ~~$7.3~~$8.5 billion at ~~February~~August 2, 2020. The amount of unused commitments to extend credit to customers was ~~$29.4~~$28.1 billion at ~~February~~August 2, 2020. 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 the unused commitments to extend credit to customers relate to revolving charge accounts. At ~~February~~August 2, 2020, Capital Corporation had ~~$76.0~~$204.2 million in unused loan commitments, which are unconditionally cancellable, denominated in rubles to Limited Liability Company John Deere Financial, the John Deere finance subsidiary in Russia.

At ~~February~~August 2, 2020, the Company had restricted other assets associated with borrowings related to securitizations ~~(see~~(See Note 5). Excluding the securitization programs, the remaining balance of restricted other assets was not material as of ~~February~~August 2, 2020.

The Company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to retail credit matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.

(9) Income Taxes

The Company’s unrecognized tax benefits at ~~February~~August 2, 2020 were ~~$27.7~~$31.0 million, compared to $32.5 million at November 3, 2019. The liability at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019 consisted of approximately ~~$14.6~~$16.1 million, $17.6 million, and ~~$14.5~~$16.4 million, respectively, which would affect the effective tax rate if the tax benefits were recognized. The remaining liability was related to tax positions for which there are offsetting tax receivables, or the uncertainty was only related to timing. The Company expects that any reasonably possible change in the amounts of unrecognized tax benefits in the next 12 months would not be significant.

(10) Fair Value Measurements

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. To determine 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.

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.

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


	February 2, 2020				November 3, 2019				January 27, 2019				August 2, 2020				November 3, 2019				July 28, 2019
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value *		Value		Value *		Value		Value *		Value		Value *		Value		Value *		Value		Value *
Receivables financed – net	$	27,184.0	$	27,221.8	$	28,382.5	$	28,396.6	$	25,536.7	$	25,408.9	$	28,076.5	$	28,275.8	$	28,382.5	$	28,396.6	$	28,155.1	$	28,165.9
Retail notes securitized – net		4,435.8		4,463.9		4,338.4		4,361.9		4,495.8		4,454.4		5,432.2		5,543.9		4,338.4		4,361.9		5,146.2		5,154.2
Securitization borrowings		4,373.9		4,403.3		4,277.0		4,301.7		4,397.1		4,391.1		5,324.1		5,380.7		4,277.0		4,301.7		4,994.8		5,017.6
Current maturities of long-term borrowings		5,577.6		5,597.5		5,716.6		5,727.9		4,330.7		4,322.4		4,910.2		4,958.2		5,716.6		5,727.9		6,269.5		6,276.3
Long-term borrowings		20,861.9		21,236.0		21,052.4		21,369.9		19,575.0		19,663.9		20,492.1		21,038.2		21,052.4		21,369.9		20,035.4		20,298.1

* Fair value measurements above were Level 3 for all Receivables and Level 2 for all borrowings.

Fair values of Receivables that were issued long-term were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar Receivables. The fair values of the remaining Receivables approximated the carrying amounts.

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or 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.

2224

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


	February 2		November 3		January 27		August 2		November 3		July 28
	2020		2019		2019		2020		2019		2019
Marketable securities
International debt securities	$	2.3	$	3.2	$	4.0	$	2.4	$	3.2	$	6.9
Receivables from John Deere
Derivatives:
Interest rate contracts		408.3		331.4		65.3		795.4		331.4		234.4
Cross-currency interest rate contracts		.4		.5		1.6		9.1		.5		.9
Other assets
Derivatives:
Interest rate contracts						.2						.1
Foreign exchange contracts		13.4		1.9		11.1		3.7		1.9		4.7
Total assets *	$	424.4	$	337.0	$	82.2	$	810.6	$	337.0	$	247.0

Other payables to John Deere
Derivatives:
Interest rate contracts	$	33.1	$	44.4	$	225.0	$	42.5	$	44.4	$	53.3
Cross-currency interest rate contracts		3.5		3.0		2.0		.1		3.0		2.0
Accounts payable and accrued expenses
Derivatives:
Foreign exchange contracts		2.1		9.9		12.3		6.2		9.9		5.6
Total liabilities	$	38.7	$	57.3	$	239.3	$	48.8	$	57.3	$	60.9

* Excluded from this table were the Company’s cash equivalents, which were carried at cost that approximates fair value. The cash equivalents consist primarily of time deposits and money market funds.

The international debt securities mature within one year or less. At ~~February~~August 2, 2020, the amortized cost basis and fair value of these available-for-sale debt securities were $5.9 million and ~~$2.3~~$2.4 million, respectively.

Fair value, nonrecurring Level 3 measurements from impairments were as follows (in millions of dollars):


	Fair Value *				Losses		Fair Value *				Losses
					Three Months Ended						Three Months Ended		Nine Months Ended
	February 2	November 3		January 27	February 2	January 27	August 2	November 3		July 28	August 2	July 28	August 2		July 28
	2020	2019		2019	2020	2019	2020	2019		2019	2020	2019	2020		2019
Equipment on operating leases – net		$	855.4					$	855.4				$	21.0
Other assets			141.9						141.9					9.8
Total		$	997.3					$	997.3				$	30.8

* See Receivables with specific allowances in Note 4 that were not significant. See Note 6 for impairments on lease residual values.

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

Marketable securities – The international debt securities were valued using quoted prices for identical assets in inactive markets.

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

2325

Receivables – Specific reserve impairments are based on the fair value of the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.

Equipment on operating leases - net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus ~~an estimate~~estimates of return rates and equipment sale price at lease maturity. Inputs include historic return rates and realized sales values.

Other assets – ~~Impairments~~The impairments are ~~based on~~measured at the fair value of the matured operating lease ~~inventory, which is measured using~~inventory. The valuations were based on a market approach. ~~Inputs~~The inputs include ~~realized~~ sales ~~values.~~of comparable assets.

(11) Derivative Instruments

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 portfolios 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 functional currencies.

All derivatives are recorded at fair value on the balance sheet. Cash collateral received or paid is not offset against the derivative fair values 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. If and when a derivative is determined not to be highly effective as a hedge, the underlying hedged transaction is no longer likely to occur, the hedge designation is removed, or the derivative is terminated, hedge accounting is discontinued.

Cash flow hedges

Certain interest rate contracts (swaps) were designated as hedges of future cash flows from borrowings. The total notional amounts of the receive-variable/pay-fixed interest rate contracts at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019 were ~~$2,900.0~~$1,900.0 million, $3,150.0 million, and ~~$2,800.0~~$2,500.0 million, respectively. Fair value gains or losses on these cash flow hedges were recorded in other comprehensive income (OCI) and subsequently reclassified into interest expense in the same periods during which the hedged transactions affected earnings. These amounts offset the effects of interest rate changes on the related borrowings. The cash flows from these contracts were recorded in operating activities in the statement of consolidated cash flows.

The amount of loss recorded in OCI at ~~February~~August 2, 2020 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is approximately ~~$6.7~~$11.4 million after-tax. ~~There were 0~~NaN gains or losses were 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 borrowings. The total notional amounts of these receive-fixed/pay-variable interest rate contracts at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019 were ~~$8,743.0~~$8,179.8 million, $8,336.9 million, and ~~$8,247.4~~$8,864.9 million, respectively. The fair value gains or losses on these contracts were generally offset by fair value gains or losses on the hedged items (fixed-rate borrowings) with both items recorded in interest expense.

2426

The amounts recorded in the consolidated balance sheet related to borrowings designated in fair value hedging relationships were as follows (in millions of dollars):


			Cumulative Increase (Decrease) of Fair Value								Cumulative Increase (Decrease) of Fair Value
			Hedging Adjustments Included in the								Hedging Adjustments Included in the
			Carrying Amount								Carrying Amount
	Carrying		Active						Carrying		Active
	Amount of		Hedging		Discontinued				Amount of		Hedging		Discontinued
February 2, 2020	Hedged Item		Relationships		Relationships		Total
August 2, 2020									Hedged Item		Relationships		Relationships		Total
Current maturities of long-term borrowings	$	(5.2)			$	(5.2)	$	(5.2)	$	104.6	$	2.6	$	2.0	$	4.6
Long-term borrowings		9,061.3	$	372.6		(21.0)		351.6		8,826.4		737.6		39.5		777.1

November 3, 2019
Current maturities of long-term borrowings	$	185.4	$	.3	$	(4.4)	$	(4.1)	$	185.4	$	.3	$	(4.4)	$	(4.1)
Long-term borrowings		8,378.1		292.8		(31.6)		261.2		8,378.1		292.8		(31.6)		261.2

January 27, 2019
July 28, 2019
Current maturities of long-term borrowings	$	191.5	$	1.1	$	(4.4)	$	(3.3)	$	187.3	$	1.1	$	(4.8)	$	(3.7)
Long-term borrowings		7,805.2		(176.3)		(41.2)		(217.5)		8,774.0		182.7		(49.7)		133.0

Derivatives not designated as hedging instruments

The Company has certain interest rate contracts (swaps and caps), foreign exchange contracts ~~(forwards~~(futures, forwards, and swaps), and cross-currency interest rate contracts (swaps), which were not formally designated as hedges. These derivatives were held as economic hedges for underlying interest rate or foreign currency exposures primarily for certain borrowings. The total notional amounts of these interest rate swaps at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019 were ~~$2,342.2~~$2,423.2 million, $2,312.4 million, and ~~$1,888.0~~$1,963.0 million, the foreign exchange contracts were ~~$1,365.1~~$211.1 million, $691.6 million, and ~~$1,683.5~~$1,034.2 million, and the cross-currency interest rate contracts were ~~$100.0~~$123.5 million, $91.1 million, and ~~$78.8~~$81.9 million, respectively. To facilitate borrowings through securitization of retail notes, interest rate caps were sold with notional amounts of ~~$1,963.2~~$2,171.0 million, $1,611.3 million, and ~~$2,292.8~~$1,813.8 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively. Interest rate caps were also purchased with notional amounts of ~~$1,963.2~~$2,171.0 million, $1,611.3 million, and ~~$2,292.8~~$1,813.8 million at the same dates. 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 statement of consolidated cash flows.

2527

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


	February 2		November 3		January 27		August 2		November 3		July 28
	2020		2019		2019		2020		2019		2019
Receivables from John Deere
Designated as hedging instruments:
Interest rate contracts	$	402.0	$	328.8	$	44.2	$	785.3	$	328.8	$	229.0

Not designated as hedging instruments:
Interest rate contracts		6.3		2.6		21.1		10.1		2.6		5.4
Cross-currency interest rate contracts		.4		.5		1.6		9.1		.5		.9
Total not designated		6.7		3.1		22.7		19.2		3.1		6.3

Other Assets
Not designated as hedging instruments:
Interest rate contracts						.2						.1
Foreign exchange contracts		13.4		1.9		11.1		3.7		1.9		4.7
Total not designated		13.4		1.9		11.3		3.7		1.9		4.8

Total derivative assets	$	422.1	$	333.8	$	78.2	$	808.2	$	333.8	$	240.1

Other Payables to John Deere
Designated as hedging instruments:
Interest rate contracts	$	16.5	$	26.5	$	201.3	$	24.1	$	26.5	$	32.4

Not designated as hedging instruments:
Interest rate contracts		16.6		17.9		23.7		18.4		17.9		20.9
Cross-currency interest rate contracts		3.5		3.0		2.0		.1		3.0		2.0
Total not designated		20.1		20.9		25.7		18.5		20.9		22.9

Accounts Payable and Accrued Expenses
Not designated as hedging instruments:
Foreign exchange contracts		2.1		9.9		12.3		6.2		9.9		5.6

Total derivative liabilities	$	38.7	$	57.3	$	239.3	$	48.8	$	57.3	$	60.9

2628

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


	Three Months Ended				Three Months Ended				Nine Months Ended
	February 2		January 27		August 2		July 28		August 2		July 28
	2020		2019		2020		2019		2020		2019
Fair Value Hedges
Interest rate contracts - Interest expense	$	91.1	$	130.4	$	76.7	$	192.4	$	568.0	$	462.0

Cash Flow Hedges
Recognized in OCI
Interest rate contracts - OCI (pretax)		(1.6)		(8.6)		(1.1)		(6.7)		(17.6)		(21.3)

Reclassified from OCI
Interest rate contracts - Interest expense		(1.2)		2.1		(6.4)		1.1		(11.5)		5.7

Not Designated as Hedges
Interest rate contracts - Interest expense *	$	2.0	$	(3.7)	$	(2.2)	$	(9.4)	$	(3.0)	$	(21.1)
Foreign exchange contracts - Administrative and operating expenses *		3.7		(23.0)		(47.2)		8.1		47.3		24.6
Total not designated	$	5.7	$	(26.7)	$	(49.4)	$	(1.3)	$	44.3	$	3.5

* Includes interest and foreign exchange gains (losses) from cross-currency interest rate contracts.

Included in the table above are interest expense and administrative and operating expense amounts the Company incurred on derivatives transacted with John Deere. The amounts the Company recognized on these affiliate party transactions for the three months ended ~~February~~August 2, 2020 and ~~January 27,~~July 28, 2019 were gains of ~~$89.8~~$62.8 million and ~~$126.3~~$184.2 million, respectively. The amounts the Company recognized on these affiliate party transactions for the nine months ended August 2, 2020 and July 28, 2019 were gains of $568.1 million and $444.4 million, respectively.

Counterparty Risk and Collateral

Derivative instruments are subject to significant concentrations of credit risk to the banking sector. The Company manages individual unrelated external counterparty exposure by setting limits that consider the credit rating of the unrelated external counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between the Company and the unrelated external counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Each master agreement executed with an unrelated external counterparty permits the net settlement of amounts owed in the event of default or termination.

The Company’s outstanding derivatives have been transacted with both unrelated external counterparties and with John Deere. For derivatives transacted with John Deere, the Company utilizes a centralized hedging structure in which John Deere enters into a derivative transaction with an unrelated external counterparty and simultaneously enters into a derivative transaction with the Company. Except for collateral provisions, the terms of the transaction between the Company and John Deere are identical to the terms of the transaction between John Deere and its unrelated external counterparty.

Certain of the Company’s derivative agreements executed directly with the unrelated external counterparties contain credit support provisions that may require the Company to post or receive collateral based on the size of the net liability or net asset positions, credit ratings, and ~~credit ratings.~~market conventions. At ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, there were 0 aggregate liability positions for derivatives with credit-risk-related contingent features. IfIn accordance with these agreements, 0 collateral was posted or received at August 2, 2020, November 3, 2019, or July 28, 2019. During the ~~credit-risk-related contingent features were triggered,~~third quarter of 2020, the Company ~~would be required~~paid $2.3 million of collateral that was outstanding at August 2, 2020 to ~~post collateral up~~participate in an international futures market to ~~an amount equal to any liability position, prior to considering applicable netting provisions.~~hedge currency exposure, which is not included in the table on the subsequent page.

The Company also has ISDA agreements with John Deere that permit the net settlement of amounts owed between counterparties in the event of early termination. In addition, the Company has a loss sharing agreement with John Deere in which it has agreed to absorb any losses and expenses John Deere incurs if an unrelated

external counterparty fails to meet its obligations on a derivative transaction that John Deere entered into to manage exposures of the Company. The loss sharing agreement did not increase the maximum amount of loss that the Company would incur, after considering collateral received and netting arrangements, as of ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019.

Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and any collateral received or paid were as follows (in millions of dollars):


February 2, 2020
August 2, 2020
Derivatives:	Gross Amounts Recognized		Netting Arrangements		Cash Collateral Received/Paid	Net Amount		Gross Amounts Recognized		Netting Arrangements		Cash Collateral Received/Paid	Net Amount
Assets
External	$	13.4	$	(.9)		$	12.5	$	3.7	$	(.2)		$	3.5
John Deere		408.7		(31.6)			377.1		804.5		(35.4)			769.1
Liabilities
External		2.1		(.9)			1.2		6.2		(.2)			6.0
John Deere		36.6		(31.6)			5.0		42.6		(35.4)			7.2


November 3, 2019
Derivatives:	Gross Amounts Recognized		Netting Arrangements		Cash Collateral Received/Paid	Net Amount
Assets
External	$	1.9	$	(.2)		$	1.7
John Deere		331.9		(42.6)			289.3
Liabilities
External		9.9		(.2)			9.7
John Deere		47.4		(42.6)			4.8


January 27, 2019
July 28, 2019
Derivatives:	Gross Amounts Recognized		Netting Arrangements		Cash Collateral Received/Paid	Net Amount		Gross Amounts Recognized		Netting Arrangements		Cash Collateral Received/Paid	Net Amount
Assets
External	$	11.3	$	(3.0)		$	8.3	$	4.8	$	(.5)		$	4.3
John Deere		66.9		(43.8)			23.1		235.3		(48.7)			186.6
Liabilities
External		12.3		(3.0)			9.3		5.6		(.5)			5.1
John Deere		227.0		(43.8)			183.2		55.3		(48.7)			6.6

2830

(12) Pension and Other Postretirement Benefits

The Company is a participating employer in certain Deere & Company sponsored defined benefit pension plans for employees in the U.S. and certain defined benefit pension plans outside the U.S. These pension plans provide for benefits that are based primarily on years of service and employee compensation. Pension expense is actuarially determined based on the Company’s employees included in the plan. The Company’s pension expense was ~~not significant~~$1.1 million for the third quarter and $1.7 million for the first nine months of 2020, compared to $.3 million and $.5 million for the same periods ~~ending February 2, 2020 and January 27, 2019.~~last year. The accumulated benefit obligation and plan net assets for the employees of the Company are not determined separately from Deere & Company. The Company provides defined benefit health care and life insurance plans for certain retired employees in the U.S. as a participating employer in Deere & Company’s sponsored plans. Health care and life insurance benefits expense is actuarially determined based on the Company’s employees included in the plans and amounted to ~~$5.1~~$1.7 million for the third quarter and $8.3 million for the first ~~three~~nine months of 2020, compared with ~~$1.3~~$.7 million and $3.3 million for the same ~~period~~periods last year. The increase from the prior year ~~period~~ is primarily due to a $3.3 million curtailment loss in the first quarter of 2020 related to voluntary employee-separation programs ~~(see~~(See Note 13). Further disclosure for these plans is included in Deere & Company’s Form 10-Q for the quarter ended ~~February~~August 2, 2020.

(13) Employee-Separation Programs

During the first ~~quarter~~nine months of 2020, the Company incurred voluntary employee-separation program expenses of ~~$7.7~~$8.7 million as part of its efforts to create a more efficient organization structure and reduce operating costs. The programs provided for cash payments based on years of service. The expenses were recorded primarily in the period in which the employees irrevocably accepted the separation offer. Included in the total pretax expense noted above for the first nine months of 2020 was a non-cash charge of $3.3 million resulting from a curtailment in certain OPEB plans ~~(see~~during the first quarter of 2020 (See Note 12). The expenses were recorded in administrative and operating expenses.

During the third quarter and early fourth quarter of 2020, the Company announced additional employee-separation programs as part of an initiative to improve organizational efficiency. The programs will provide for cash payments based on years of service. The expenses will generally be recorded in the period the employees irrevocably accept the separation offer, which is expected to be primarily in the fourth quarter of 2020. The programs’ total pretax expenses are estimated to be about $10.0 million.

2931

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

Results of Operations

Overview

Organization

The Company primarily generates revenues and cash by financing John Deere dealers’ sales and leases of new and used agriculture and turf equipment and construction and forestry equipment. In addition, the Company also provides wholesale financing to dealers of the foregoing equipment and finances retail revolving charge accounts.

Trends and Economic Conditions

The Company’s acquisition volume of Receivables and Leases is largely dependent upon the level of retail sales and leases of John Deere products. The level of John Deere retail sales and leases is responsive to a variety of economic, financial, climatic, legislative, and other factors that influence demand for its products.

Industry sales of agricultural machinery in the U.S. and Canada are ~~forecast~~expected to be down ~~about~~ 5 to 10 percent for fiscal year ~~2020.~~2020 compared to the prior year. Industry sales in Europe are also forecast to be ~~about the same~~5 to 10 percent lower in 2020. In South ~~America,~~American industry sales of tractors and combines are projected to be ~~approximately the same as 2019 levels.~~down 10 to 15 percent. Asian industry sales are forecast to be ~~about the same~~down slightly in 2020. Industry sales of turf and utility equipment in the U.S. and Canada are expected to be about ~~the same~~5 percent lower in 2020. John Deere’s agriculture and turf segment sales decreased 45 percent in the ~~first~~third quarter and ~~are forecast to decrease about 5 to~~ 10 percent for ~~fiscal year 2020.~~the first nine months. Construction equipment industry sales in North America for 2020 are expected to decline ~~5 to 10~~about 20 percent. In forestry, global industry sales are expected to be ~~about 5~~20 to 1025 percent lower. John Deere’s construction and forestry segment sales decreased 1028 percent in the third quarter and 22 percent in the first ~~quarter, and are forecast to decrease about 10 to 15 percent in 2020 reflecting slowing construction activity as well as efforts to bring down field inventory levels.~~nine months.

John Deere’s results reflect early signs of stabilization in the U.S. farm sector. John Deere is encouraged by the broad use of precision technologies and believes it is well positioned to strengthen its leadership position in this area. For the quarter, construction sector activity slowed leading to lower sales and profit for the construction and forestry division. Actions to reduce factory production and lower inventories in response to construction equipment market conditions also negatively affected results. Additionally, the quarter included costs of a voluntary employee-separation program, which is intended to improve John Deere’s flexibility. John Deere is also proceeding with a series of measures to create a more focused organizational structure. These steps are leading to improved efficiencies and helping John Deere focus its resources and investments on areas that have the most impact on performance.

~~Net income attributable to the Company in fiscal~~The Company’s full year 2020 ~~is projected to be approximately $450 million, compared to $419 million in fiscal year 2019. Results~~results are expected to ~~benefit from lower losses on lease residual values and income earned from a higher average portfolio, partially offset by~~decline due to a higher provision for credit losses, ~~unfavorable financing spreads, and prior year~~a higher provision for income taxes from favorable discrete adjustments in the prior year, and less favorable financing spreads, partially offset by lower losses and impairments on operating lease residual values.

COVID Effects and Actions

During the first nine months of 2020, the effects of COVID and the related actions of governments and other authorities to contain COVID, have affected the Company’s operations, results, cash flows, and forecasts.

The Company’s first priority in addressing the effects of COVID continues to be the health, safety, and overall welfare of its employees. The Company effectively activated previously established business continuity plans and proactively implemented health and safety measures at its operations around the world.

The economic effects of COVID have reduced customer demand for some of John Deere’s products and services, particularly construction, forestry, and roadbuilding equipment, which resulted in lower shipment volumes. During most of the third quarter of 2020, all of John Deere’s factories have operated, some at reduced capacity due to component shortages or lower demand. As the Company’s acquisition volume of Receivables and Leases is largely dependent upon the level of sales and leases of John Deere products, the effects noted above may impact the Company’s acquisition volumes.

The Company continued to work closely with its customers, including John Deere dealers and retail customers, during the third quarter and, if necessary, provided short-term relief on obligations owed to the ~~provision for income taxes.~~

~~Items~~Company. The relief was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. For retail customers, the relief generally included payment deferrals of ~~concern~~three months or less and primarily related to construction accounts. The relief provided to dealers generally included payment deferrals of three months or less and short-term interest rate reductions in certain markets and primarily related to agriculture and turf dealers. The Receivables and Leases granted relief represented approximately 4 percent of the Receivable and Lease portfolio at August 2, 2020 (See Notes 4 and 6).

The future financial effects of COVID are unknown due to many factors. These factors and other market variabilities include ~~trade agreements, the~~ uncertainty of the effectiveness of governmental actions ~~in respect~~ to address COVID, including health, monetary, and fiscal policies, the ~~impact~~effect of elevated levels of sovereign ~~debt, Eurozone~~ and ~~Argentine issues,~~state debt, capital market disruptions, changes in demand and pricing for new and used equipment, ~~potential effects of epidemics, and~~trade agreements, other geopolitical ~~events. Significant~~events, significant fluctuations in foreign currency exchange rates, and volatility in the price of many ~~commodities could also impact~~commodities. As a result, predicting the Company’s ~~results.~~forecasted financial performance is difficult and subject to many assumptions.

2020 Compared with 2019

The total revenues and net income attributable to the Company were as follows (in millions of dollars):


	Three Months Ended				Three Months Ended				Nine Months Ended
	February 2		January 27		August 2		July 28		August 2		July 28
	2020		2019		2020		2019		2020		2019
Total revenues	$	718.6	$	660.8	$	696.0	$	741.8	$	2,114.7	$	2,105.6
Net income attributable to the Company		99.2		121.7		146.2		144.8		271.3		350.8

Total revenues ~~generally~~for the third quarter of 2020 decreased primarily due to lower average financing rates. Total revenues for the first nine months of 2020 increased primarily due to a higher average portfolio, ~~and higher~~partially offset by lower average financing rates. Net income for the ~~first~~current quarter was ~~lower than~~about the same ~~period in~~as the third quarter of 2019 ~~related to an increased~~with lower losses on operating lease residual values, a reduced provision for credit losses, and decreased administrative and operating expenses, offset by a higher provision for income taxes from favorable discrete adjustments in the prior year. Results for the first nine months declined due to a higher provision for credit losses, unfavorable financing spreads, increased losses and impairments on lease residual values, ~~prior year favorable discrete adjustments to the~~and a higher provision for income taxes, ~~and greater administrative and operating expenses, partially~~ offset in part by income ~~earned on~~from a higher average portfolio.

Revenues

The finance income and lease revenues earned by the Company were as follows (in millions of dollars):


	Three Months Ended					Three Months Ended					Nine Months Ended
	February 2		January 27		%	August 2		July 28		%	August 2		July 28		%
	2020		2019		Change	2020		2019		Change	2020		2019		Change
Finance income earned from:
Retail notes	$	234.8	$	208.9	12	$	234.9	$	241.5	(3)	$	701.4	$	665.0	5
Revolving charge accounts		80.7		72.1	12		87.8		94.3	(7)		242.7		243.0
Wholesale receivables		110.3		116.3	(5)		84.6		141.9	(40)		305.3		400.9	(24)
Lease revenues		274.9		239.5	15		270.3		256.7	5		817.8		741.6	10

Finance income earned on retail notes and lease revenues increased primarily due to higher average portfolio balances and higher average financing rates. The increase in finance income earned on revolving charge accounts was primarily due to higher average financing rates. Finance income earned on wholesale receivables was lower primarily due to lower average financing ~~rates.~~rates and lower average portfolio balances. The increases in lease revenues were primarily due to higher average portfolio balances and higher lease payments and compensation from John Deere on operating leases.

Revenues earned from John Deere totaled ~~$168.9~~$165.8 million for the third quarter and $510.0 million in the first ~~three~~nine months of 2020, compared with ~~$164.7~~$196.6 million and $550.1 million for the same ~~period~~periods last year. The ~~increase~~decrease was primarily due to ~~increased~~decreased compensation paid by John Deere for waived or reduced finance charges on ~~Receivables and Leases.~~wholesale receivables. Revenues earned from John Deere are included in the revenue amounts discussed above and in “Other income” on the statement of consolidated income.

3133

Expenses

Significant expenses incurred by the Company were as follows (in millions of dollars):


	Three Months Ended					Three Months Ended					Nine Months Ended
	February 2		January 27		%	August 2		July 28		%	August 2		July 28		%
	2020		2019		Change	2020		2019		Change	2020		2019		Change
Interest expense	$	219.8	$	226.5	(3)	$	161.3	$	256.2	(37)	$	597.7	$	734.7	(19)
Administrative and operating expenses		123.5		98.2	26		92.0		102.6	(10)		357.9		313.3	14
Provision for credit losses							16.0		23.4	(32)		100.8		50.3	100
Depreciation of equipment on operating leases		213.5		175.4	22		211.8		188.0	13		639.6		544.3	18
Provision for credit losses		12.1		.8
Provision for income taxes		26.1		23.9	9		44.4		11.8	276		75.9		71.4	6

The decrease in interest expense for the third quarter and first ~~three~~nine months of 2020 was primarily due to lower average interest rates, partially offset by higher average borrowings.

Administrative and operating expenses decreased for the third quarter of 2020 primarily due to lower losses on lease residual values, partially offset by foreign exchange losses. Administrative and operating expenses increased in the first nine months of 2020 primarily due to higher losses and impairments on lease residual values and ~~voluntary employee-separation costs incurred in~~foreign exchange losses. See Note 6 for additional information related to the ~~first quarter of 2020.~~impairments on lease residual values.

The depreciation of equipment on operating leases for the third quarter and first ~~three~~nine months of 2020 increased primarily due to updated depreciation estimates and higher average balances of equipment on operating leases.

The provision for credit losses decreased for the third quarter of 2020 primarily due to lower net write-offs. The provision for credit losses increased in the first ~~three~~nine months of 2020 ~~increased~~ primarily due to an increase in the allowance for credit losses and higher net write-offs of construction and forestry retail notes. The allowance increase was primarily due to the negative economic effects related to COVID and other macroeconomic issues, which have significantly affected certain retail borrowers, particularly of construction equipment (See Note 4). The annualized provision for credit losses, as a percentage of the average balance of total Receivables financed, was ~~.15~~.20 percent in the third quarter and .42 percent in the first ~~three~~nine months of 2020, compared with ~~.01~~.29 percent and .21 percent for the same ~~period~~periods last year. See the ~~Company's~~Company’s most recently filed annual report on Form 10-K for further information regarding the ~~Company's~~Company’s allowance for credit losses policies.

The provision for income taxes increased in the third quarter primarily due to favorable discrete tax adjustments in the prior year period and higher pretax income in the current quarter. The higher provision for income taxes in the first ~~three~~nine months of 2020 was primarily related to favorable discrete tax adjustments ~~to the provision for income taxes~~ in the prior year, ~~period.~~

~~Ratio of Earnings to Fixed Charges~~

~~The Company’s ratio of earnings to fixed charges was 1.56 to 1 for~~partially offset by lower pretax income in the first three months of 2020, compared with 1.63 to 1 for the first three months of 2019. “Earnings” consist of income before income taxes, the cumulative effect of changes in accounting, and fixed charges excluding unamortized capitalized interest. “Fixed charges” consist of interest on indebtedness, amortization of debt discount and expense, interest related to uncertain tax positions, an estimated amount of rental expense that is deemed to be representative of the interest factor, and capitalized interest.current year.

3234

Receivables and Leases

Receivable and Lease (excluding wholesale) acquisition volumes were as follows (in millions of dollars):


	Three Months Ended
	August 2		July 28			$		%
	2020		2019			Change		Change
Retail notes:
Agriculture and turf	$	2,399.9	$	2,056.0		$	343.9	17
Construction and forestry		568.3		511.6			56.7	11
Total retail notes		2,968.2		2,567.6			400.6	16
Revolving charge accounts		1,723.0		1,705.9	��		17.1	1
Financing leases		144.7		182.3			(37.6)	(21)
Equipment on operating leases		351.2		588.0			(236.8)	(40)
Total Receivables and Leases (excluding wholesale)	$	5,187.1	$	5,043.8		$	143.3	3

Three Months Ended

February 2

January 27

$

%

2020

2019

Change

Change
Retail notes:









Agriculture and turf

$
1,656.3

$
1,497.5

$
158.8

11
Construction and forestry

511.3

425.0

86.3

20
Total retail notes

2,167.6

1,922.5

245.1

13
Revolving charge accounts

1,915.5

1,975.0

(59.5)

(3)
Financing leases

69.8

65.5

4.3

7
Equipment on operating leases

529.5

343.2

186.3

54
Total Receivables and Leases (excluding wholesale)

$
4,682.4

$
4,306.2

$
376.2

9

The increase in retail note volumes during the first quarter of 2020 was primarily due to higher retail sales of John Deere equipment. Equipment on operating lease volumes were higher primarily due to increased leases of John Deere used agriculture equipment.


	Nine Months Ended
	August 2		July 28		$		%
	2020		2019		Change		Change
Retail notes:
Agriculture and turf	$	6,525.4	$	5,770.6	$	754.8	13
Construction and forestry		1,490.0		1,367.3		122.7	9
Total retail notes		8,015.4		7,137.9		877.5	12
Revolving charge accounts		5,487.2		5,365.4		121.8	2
Financing leases		335.7		325.7		10.0	3
Equipment on operating leases		1,343.3		1,589.4		(246.1)	(15)
Total Receivables and Leases (excluding wholesale)	$	15,181.6	$	14,418.4	$	763.2	5

Total Receivables and Leases owned were as follows (in millions of dollars):


	February 2		November 3		January 27		August 2		November 3		July 28
	2020		2019		2019		2020		2019		2019
Retail notes:
Agriculture and turf	$	15,832.1	$	16,185.9	$	14,784.3	$	16,970.9	$	16,185.9	$	15,476.3
Construction and forestry		3,403.1		3,314.2		2,976.1		3,587.7		3,314.2		3,120.3
Total retail notes		19,235.2		19,500.1		17,760.4		20,558.6		19,500.1		18,596.6
Revolving charge accounts		2,673.2		3,863.0		2,685.9		3,918.3		3,863.0		3,798.7
Wholesale receivables		9,146.3		8,706.8		8,990.4		8,428.8		8,706.8		10,299.5
Financing leases		668.2		751.6		702.5		743.6		751.6		716.9
Equipment on operating leases		5,525.7		5,530.5		4,942.0		5,257.2		5,530.5		5,323.3
Total Receivables and Leases	$	37,248.6	$	38,352.0	$	35,081.2	$	38,906.5	$	38,352.0	$	38,735.0

Total Receivables 30 days or more past due, non-performing Receivables, and the allowance for credit losses were as follows (in millions of dollars and as a percentage of the Receivables balance):


	February 2			November 3			January 27			August 2			November 3			July 28
	2020			2019			2019			2020			2019			2019
	Dollars		Percent	Dollars		Percent	Dollars		Percent	Dollars		Percent	Dollars		Percent	Dollars		Percent
Receivables 30 days or more past due	$	406.6	1.28	$	352.8	1.07	$	449.5	1.49
Receivables 30 days or more past due *										$	295.9	.88	$	352.8	1.07	$	349.0	1.04
Non-performing Receivables		331.7	1.05		311.9	.95		315.6	1.05		302.3	.90		311.9	.95		334.4	1.00
Allowance for credit losses		103.1	.33		100.6	.31		106.7	.35		140.6	.42		100.6	.31		110.4	.33

* The delinquency status of receivables granted relief due to COVID is based on the modified payment schedule (See Note 4).

Receivables 30 days or more past due continue to accrue finance income. The Company ceases to accrue finance income once Receivables are considered non-performing. An allowance for credit losses is recorded for the estimated uncollectible amount. The allowance for credit losses is subject to an ongoing evaluation based on many quantitative and qualitative factors, including historical net loss experience by product category, portfolio duration, delinquency trends, economic conditions in the Company’s major markets and geographies, and credit risk quality. The Company believes its allowance is sufficient to provide for losses inherent in its existing Receivable portfolio. See Note 4 for additional information related to the allowance for credit losses.

Deposits withheld from dealers and merchants amounted to ~~$128.5~~$105.6 million at ~~February~~August 2, 2020, compared with $137.5 million at November 3, 2019 and ~~$146.9~~$138.8 million at ~~January 27,~~July 28, 2019. These balances primarily represent the aggregate dealer retail note and lease withholding accounts from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged.

Write-offs and recoveries of Receivables, by product, and as an annualized percentage of average balances held during the period, were as follows (in millions of dollars):


	Three Months Ended
	August 2, 2020			July 28, 2019
	Dollars		Percent	Dollars		Percent
Write-offs:
Retail notes:
Agriculture and turf	$	(2.1)	(.05)	$	(1.6)	(.04)
Construction and forestry		(2.9)	(.33)		(5.6)	(.73)
Total retail notes		(5.0)	(.10)		(7.2)	(.16)
Revolving charge accounts		(21.3)	(2.30)		(25.4)	(2.82)
Wholesale receivables		(.1)			(.1)
Financing leases		(.5)	(.28)		(.5)	(.30)
Total write-offs		(26.9)	(.33)		(33.2)	(.41)
Recoveries:
Retail notes:
Agriculture and turf		1.6	.04		1.4	.04
Construction and forestry		.5	.06		.4	.05
Total retail notes		2.1	.04		1.8	.04
Revolving charge accounts		8.1	.87		7.5	.84
Wholesale receivables		.4	.02		.4	.02
Financing leases		.3	.17		.1	.06
Total recoveries		10.9	.13		9.8	.13
Total net write-offs	$	(16.0)	(.20)	$	(23.4)	(.28)

Three Months Ended

February 2, 2020

January 27, 2019

Dollars

Percent

Dollars

Percent
Write-offs:









Retail notes:

Agriculture and turf

$
(1.3)

(.03)

$
(2.0)

(.05)
Construction and forestry

(12.2)

(1.47)

(4.8)

(.65)
Total retail notes

(13.5)

(.28)

(6.8)

(.15)
Revolving charge accounts

(6.4)

(.83)

(3.9)

(.50)
Wholesale receivables

(.8)

(.04)

Financing leases

(.4)

(.23)

(.6)

(.33)
Total write-offs

(21.1)

(.26)

(11.3)

(.15)
Recoveries:

Retail notes:

Agriculture and turf

.3

.01

1.6

.04
Construction and forestry

.3

.04

.3

.04
Total retail notes

.6

.01

1.9

.04
Revolving charge accounts

7.5

.97

4.8

.61
Wholesale receivables

.8

.04

3.6

.18
Financing leases

.1

.06

Total recoveries

9.0

.11

10.3

.14
Total net write-offs

$
(12.1)

(.15)

$
(1.0)

(.01)

	Nine Months Ended
	August 2, 2020			July 28, 2019
	Dollars		Percent	Dollars		Percent
Write-offs:
Retail notes:
Agriculture and turf	$	(8.2)	(.07)	$	(5.7)	(.05)
Construction and forestry		(30.1)	(1.18)		(14.7)	(.65)
Total retail notes		(38.3)	(.26)		(20.4)	(.15)
Revolving charge accounts		(50.1)	(2.06)		(50.8)	(2.11)
Wholesale receivables		(.9)	(.01)		(.1)
Financing leases		(1.3)	(.25)		(2.1)	(.41)
Total write-offs		(90.6)	(.37)		(73.4)	(.31)
Recoveries:
Retail notes:
Agriculture and turf		2.9	.02		4.1	.04
Construction and forestry		1.1	.04		.9	.04
Total retail notes		4.0	.03		5.0	.04
Revolving charge accounts		21.8	.90		17.5	.73
Wholesale receivables		1.3	.02		4.0	.06
Financing leases		.5	.10		.3	.06
Total recoveries		27.6	.11		26.8	.11
Total net write-offs	$	(63.0)	(.26)	$	(46.6)	(.20)

Safe Harbor Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements under “Overview” and other forward-looking statements herein that relate to future events, expectations and trends involve factors that are subject to change, and risks and uncertainties that could cause actual results to differ materially.

Factors that could materially affect the Company’s operations, access to capital, expenses, and results include changes in, uncertainty surrounding and the impact of governmental trade, banking, monetary, and fiscal policies, including financial regulatory reform and its effects on the consumer finance industry, derivatives, funding costs, and other areas. Actions by central banks, financial, and securities regulators may affect the costs and expenses of financing the Company and the financing rates it is able to offer. The Company’s business is affected by general economic conditions in the global markets in which the Company operates because deteriorating economic conditions and political instability can result in decreased customer confidence, lower demand for equipment, higher credit losses, and greater currency risk. The Company’s business is also affected by actions of banks, financing and leasing companies, and other lenders that compete with the Company for customers; capital market disruptions; significant changes in capital market liquidity and associated funding costs; interest rates (including the availability of IBOR reference rates) and foreign currency exchange rates and their volatility; changes to and compliance with privacy regulations; changes in weather patterns; the political and social stability of the global markets in which the Company operates; the effects of, or response to, terrorism and security threats; wars and other conflicts; natural disasters; and the spread of major epidemics (including ~~Coronavirus)~~COVID) and government and industry responses to epidemics such as ~~government-imposed~~ travel restrictions and extended shut down of businesses.

Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect John Deere’s and the Company’s business and outlook. These uncertainties include: prolonged reduction or closure of John Deere’s and the Company’s operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary by governmental authorities; absence of employees due to illness; the impact of the pandemic on the financial condition and credit risk of the Company's customers and dealers, which could affect the demand for financing and lead to higher credit losses and losses on lease residual values; requests by the Company’s customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or continued declines in John Deere’s and the Company’s financial performance,

3437

outlook or credit ratings, which could impact John Deere’s and the Company’s ability to obtain funding in the future; a resurgence in COVID cases following a reopening in any country, state, or region; and the impact of the pandemic on demand for John Deere’s products and services. It is unclear when a sustained economic recovery could occur and what a recovery may look like. All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position.

Significant changes in market liquidity conditions, changes in the Company’s credit ratings, and any failure to comply with financial covenants in credit agreements could impact access to funding and funding costs, which could reduce the Company’s earnings and cash flows. Financial market conditions could also negatively impact customer access to capital for purchases of John Deere’s products and customer confidence and purchase decisions, borrowing and repayment practices, and the number and size of customer loan delinquencies and defaults. A debt crisis, in Europe or elsewhere, could negatively impact currencies, global financial markets, social and political stability, funding sources and costs, asset and obligation values, customers, and Company operations and results. Security breaches, cybersecurity attacks, technology failures, and other disruptions to the Company’s information technology infrastructure also could materially affect results. The Company’s operations could be impaired by changes in the equity, bond, and other financial markets, which would negatively affect earnings.

The withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries, (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.

The liquidity and ongoing profitability of the Company depend largely on timely access to capital in order to meet future cash flow requirements, and to fund operations, costs, and purchases of John Deere’s products. If general economic conditions deteriorate or capital markets become more volatile, including as a result of the COVID pandemic, funding could be unavailable or insufficient. Additionally, customer confidence levels may result in declines in credit applications and increases in delinquencies and default rates, which could materially impact the Company’s write-offs and provision for credit losses.

In addition, the Company’s business is closely related to John Deere’s business. Further information, including factors that could materially affect the Company’s and John Deere’s financial results, is included in the most recent Deere & Company Form 10-K and Form 10-Q (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Form 10-K and quarterly reports on Form 10-Q) and other Deere & Company and Capital Corporation quarterly and other filings with the SEC.

Critical Accounting Policies

See the Company’s critical accounting policies discussed in the Management’s Discussion and Analysis of the most recent annual report filed on Form 10-K. There have been no material changes to these policies.

Capital Resources and Liquidity

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

During the first ~~three~~nine months of 2020, the aggregate net cash provided by operating and ~~investing~~financing activities was used primarily to ~~decrease borrowings.~~fund Receivables and Leases. Net cash provided by operating activities was ~~$342.0~~$1,092.7 million in the first ~~three~~nine months of 2020. Net cash provided by ~~investing~~financing activities totaled ~~$775.3~~$161.7 million in the first ~~three~~nine months of 2020, resulting primarily from a net increase in payables to John Deere of $1,775.8 million, partially offset by a net decrease in total external borrowings of $1,342.2 million and dividends paid of $250.0 million. Net cash used for investing activities totaled $1,240.3 million in the first nine months of 2020, primarily due to the ~~collections of Receivables (excluding wholesale) exceeding the~~ cost of Receivables acquired (excluding wholesale) exceeding the collections of Receivables (excluding wholesale) by ~~$1,441.9 million, partially offset by an increase in net wholesale receivables of $452.0~~$1,083.3 million and the cost of equipment on operating leases acquired exceeding proceeds from sales of equipment on operating leases by ~~$210.8 million. Net cash used for financing activities totaled $1,097.9~~$381.1 million, ~~in the first three months of 2020, resulting primarily from~~partially offset by a ~~net~~ decrease in ~~total external borrowings~~net wholesale receivables of ~~$520.0 million, a net decrease in payables to John Deere of $445.4 million, and dividends paid of~~

~~$125.0~~$353.8 million. Cash, cash equivalents, and restricted cash increased ~~$18.2~~$13.2 million during the first ~~three~~nine months of 2020.

During the first ~~three~~nine months of 2019, the aggregate net cash provided by operating and ~~investing~~financing activities was used primarily to ~~decrease borrowings.~~fund Receivables and Leases. Net cash provided by operating activities was ~~$741.7~~$1,364.9 million in the first ~~three~~nine months of 2019. Net cash provided by ~~investing~~financing activities totaled ~~$273.2~~$2,627.5 million in the first ~~three~~nine months of 2019, resulting primarily from an increase in total external borrowings of $1,984.4 million and a net increase in payables to John Deere of $948.1 million, partially offset by dividends paid of $280.0 million. Net cash used for investing activities totaled $3,958.7 million in the first nine months of 2019, primarily due to ~~the collections of Receivables (excluding wholesale) exceeding the cost of Receivables acquired (excluding wholesale) by $1,483.2 million, partially offset by~~ an increase in net wholesale receivables of ~~$1,013.1~~$2,362.5 million and the cost of equipment on operating leases acquired exceeding proceeds from sales of equipment on operating leases by ~~$145.0 million. Net cash used for financing activities totaled $780.4 million in the first three months of 2019, resulting primarily from a net decrease in payables to John Deere of $1,193.6~~$802.1 million and ~~dividends paid~~the cost of ~~$200.0 million, partially offset~~Receivables acquired (excluding wholesale) exceeding the collections of Receivables (excluding wholesale) by ~~an increase in total external borrowings of $619.0~~$668.7 million. Cash, cash equivalents, and restricted cash increased ~~$234.4~~$27.4 million during the first ~~three~~nine months of 2019.

The Company relies on its ability to raise substantial amounts of funds to finance its Receivable and Lease portfolios. The Company has access to most global markets at a reasonable cost and expects to have sufficient sources of global funding and liquidity to meet its funding needs. The Company’s ability to meet its debt obligations is supported in a number of ways. The assets of the Company are self-liquidating in nature. A solid equity position is available to absorb unusual losses on these assets and all commercial paper is backed by unsecured, committed borrowing lines from various banks. Liquidity is also provided by the Company’s ability to securitize these assets and through the issuance of term debt. Additionally, liquidity may be provided through loans from John Deere. The Company’s commercial paper outstanding at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019 was ~~$1,131.4~~$940.9 million, $1,345.5 million, and ~~$2,364.3~~$1,026.1 million, respectively, while the total cash, cash equivalents, and marketable securities position was ~~$644.9~~$627.3 million, $635.8 million, and ~~$863.2~~$656.0 million, respectively. The amount of cash, cash equivalents, and marketable securities held by foreign subsidiaries was ~~approximately $152.6~~$124.6 million, $134.7 million, and ~~$116.6~~$157.1 million at ~~February~~August 2, 2020, November 3, 2019, and ~~January 27,~~July 28, 2019, respectively.

Capital Corporation has a revolving credit agreement to utilize bank conduit facilities to securitize retail notes ~~(see~~(See Note 5). ~~During November 2019, the agreement was renewed with~~At August 2, 2020, this facility had a total capacity, or “financing limit,” of $3,500.0 million of secured financings at any time. After a two-year revolving period, unless the banks and Capital Corporation agree to renew, Capital Corporation would liquidate the secured borrowings over time as payments on the retail notes are collected. At ~~February~~August 2, 2020, ~~$1,935.0~~$2,068.0 million of short-term securitization borrowings ~~was~~were outstanding under the agreement.

During the first ~~three~~nine months of 2020, the Company issued ~~$1,105.0~~$3,062.5 million and retired ~~$1,501.3~~$5,008.7 million of long-term borrowings, which were primarily medium-term notes. During the first ~~three~~nine months of 2020, the Company also issued ~~$759.6~~$3,274.3 million and retired ~~$663.7~~$2,225.8 million of retail note securitization borrowings and maintained an average commercial paper balance of ~~$1,552.2~~$1,632.1 million. At ~~February~~August 2, 2020, the Company’s funding profile included ~~$1,241.7~~$1,012.0 million of commercial paper and other notes payable, ~~$4,373.9~~$5,324.1 million of securitization borrowings, ~~$1,395.5~~$3,796.3 million of loans from John Deere, ~~$26,439.5~~$25,402.3 million of unsecured term debt,

and ~~$4,097.3~~$4,173.2 million of equity capital. The Company’s funding profile may be altered to reflect such factors as relative costs of funding sources, assets available for securitizations, and capital market accessibility.

Total interest-bearing indebtedness amounted to ~~$33,450.6~~$35,534.7 million at ~~February~~August 2, 2020, compared with $34,362.2 million at November 3, 2019 and ~~$30,954.0~~$34,757.0 million at ~~January 27,~~July 28, 2019. Total short-term indebtedness amounted to ~~$12,588.7~~$15,042.6 million at ~~February~~August 2, 2020, compared with $13,309.8 million at November 3, 2019 and ~~$11,379.0~~$14,721.6 million at ~~January 27,~~July 28, 2019. Total long-term indebtedness amounted to ~~$20,861.9~~$20,492.1 million at ~~February~~August 2, 2020, compared with $21,052.4 million at November 3, 2019 and ~~$19,575.0~~$20,035.4 million at ~~January 27,~~July 28, 2019. The ratio of total interest-bearing debt, including securitization indebtedness, to stockholder’s equity was ~~8.2~~8.5 to 1 at ~~February~~August 2, 2020, compared with 8.3 to 1 at November 3, 2019 and ~~7.8~~8.5 to 1 at ~~January 27,~~July 28, 2019.

Stockholder’s equity was ~~$4,097.3~~$4,173.2 million at ~~February~~August 2, 2020, compared with $4,128.4 million at November 3, 2019 and ~~$3,984.2~~$4,110.1 million at ~~January 27,~~July 28, 2019. The ~~decrease~~increase in the first ~~three~~nine months of 2020 was

primarily due to ~~dividends paid of $125.0 million, partially offset by~~ net income attributable to the Company of ~~$99.2~~$271.3 million and a change in the cumulative translation adjustment of $28.2 million, partially offset by dividends paid of $250.0 million.

Lines of Credit

The Company has access to bank lines of credit with various banks throughout the world. Some of the lines are available to both the Company and Deere & Company. Worldwide lines of credit totaled ~~$7,910.3~~$8,071.1 million at ~~February~~August 2, 2020, ~~$5,692.3~~$6,051.7 million of which were unused. For the purpose of computing 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 Deere & Company were primarily considered to constitute utilization. Included in the total credit lines at ~~February~~August 2, 2020 was a 364-day credit facility agreement of ~~$2,800.0~~$3,000.0 million, expiring in fiscal April ~~2020.~~2021. In addition, total credit lines included long-term credit facility agreements of $2,500.0 million, expiring in fiscal April ~~2023,~~2024, and $2,500.0 million, expiring in fiscal April ~~2024.~~2025. These credit agreements require the Company to maintain its consolidated ratio of earnings to fixed charges at not less than 1.05 to 1 for each fiscal quarter and its ratio of senior debt, excluding securitization indebtedness, to capital base (total subordinated debt and stockholder’s equity excluding accumulated other comprehensive income (loss)) at not more than 11 to 1 at the end of any fiscal quarter. All of ~~these~~the requirements of the credit agreements have been met during the periods included in the consolidated financial statements.

Debt Ratings

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

To access public debt capital markets, the Company relies on credit rating agencies to assign short-term and long-term credit ratings to the Company’s securities as an indicator of credit quality for fixed income investors. A credit rating agency may change or withdraw Company ratings based on its assessment of the Company’s current and future ability to meet interest and principal repayment obligations. Each agency’s rating should be evaluated independently of any other rating. Lower credit ratings generally result in higher borrowing costs, including costs of derivative transactions, and reduced access to debt capital markets.

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


	Senior Long-Term	Short-Term	Outlook
Fitch Ratings	A	F1	Stable
Moody’s Investors Service, Inc.	A2	Prime-1	Stable
Standard & Poor’s	A	A-1	Stable

Dividends

Capital Corporation declared and paid cash dividends to John Deere Financial Services, Inc. (JDFS) of ~~$125.0~~$250.0 million and ~~$200.0~~$280.0 million in the first ~~three~~nine months of 2020 and 2019, respectively. In each case, JDFS paid comparable dividends to Deere & Company.

On ~~February~~August 27, 2020, Capital Corporation declared a ~~$100.0~~$25.0 million dividend to be paid to JDFS on ~~March 16,~~September 15, 2020. JDFS, in turn, declared a ~~$100.0~~$25.0 million dividend to Deere & Company, also payable on ~~March 16,~~September 15, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

The Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Act)) were effective as of ~~February~~August 2, 2020, based on the evaluation of these controls and procedures required by Rule 13a-15(b) or 15d-15(b) of the Act. During the ~~first~~third quarter, there were no changes that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

3841

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

See the ~~Company's~~Company’s most recent annual report on Form 10-K (Part I, Item 1A).

The COVID pandemic resulted in additional risks that could materially adversely affect the Company’s business, financial condition, results of operations and/or cash flows.

COVID was identified in late 2019 and has spread globally. The rapid spread has resulted in governments and other authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns. These measures have impacted and may further impact all or portions of the Company’s workforce and operations and the operations of customers. Countries around the world have been affected by the pandemic and have taken containment measures. Considerable uncertainty exists regarding such measures and potential future measures. Restrictions on the Company’s workforce’s access to its facilities could limit its ability to meet customer servicing expectations and have a material adverse effect on the Company’s financial condition, cash flows and results of operations. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and the Company’s ability to perform critical functions could be harmed.

The COVID pandemic caused a global recession and there is no certainty about when a sustained economic recovery may occur. The COVID pandemic has also significantly increased economic and demand uncertainty and has led to disruption and volatility in the global capital markets, which increases the cost of capital and adversely impacts access to capital. Economic uncertainties could affect the value of the equipment financed or leased, the demand for financings and the financial condition and credit risk of our dealers and customers. Risks related to negative economic conditions are described in our risk factor titled “Negative economic conditions and outlook can materially weaken demand for John Deere’s equipment and services, limit access to funding and result in higher funding costs for the Company and John Deere” under “Risk Factors” in our annual report on Form 10-K for the year ended November 3, 2019.

Uncertainties related to the magnitude and duration of the COVID pandemic may significantly adversely affect John Deere’s and the Company’s business and outlook. These uncertainties include: prolonged reduction or closure of John Deere’s and the Company’s operations, or a delayed recovery in such operations; additional closures as mandated or otherwise made necessary by governmental authorities; absence of employees due to illness; requests by the Company’s customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or declines in John Deere’s and the Company’s financial performance, outlook or credit ratings, which could impact John Deere’s and the Company’s ability to obtain funding in the future; a resurgence in COVID cases following a reopening in any country, state, or region; and the impact of the pandemic on demand for John Deere’s products and services. It is unclear when a sustained economic recovery could occur and what a recovery may look like. All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position.

The ultimate magnitude of COVID effects, including the extent of its impact on the Company’s financial and operational results, which could be material, will be determined by the length of time that the pandemic continues, its effect on the demand for our services, as well as the effect of governmental regulations imposed in response to the pandemic. We cannot at this time predict the impact of the COVID pandemic, but it could have a material adverse effect on our business, financial condition, results of operations and/or cash flows.

There has been no additional material change to the other risks included in ~~this information.~~the most recent annual report filed on Form 10-K. The risks described in the annual report on Form 10-K, and the “Safe Harbor Statement” in this report, are not the only risks faced by the Company. Additional risks and uncertainties may also materially affect

the Company’s business, financial condition or operating results. One should not consider the risk factors to be a complete discussion of risks, uncertainties, and assumptions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Omitted pursuant to instruction H.

Item 3. Defaults Upon Senior Securities.

Omitted pursuant to instruction H.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Certain instruments relating to long-term borrowings, constituting less than ~~10%~~10 percent of the registrant’s total assets, are not filed as exhibits herewith pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. The registrant will file copies of such instruments upon request of the SEC.

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

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

~~10.1~~	Second Amendment, dated as of February 21, 2020, to the Asset Purchase Agreement dated October 29, 2001, between Deere & Company and Deere Capital, Inc. (including conformed copy of the Asset Purchase Agreement as Exhibit A thereto) (Exhibit 10.1 to Form 10-Q of Deere & Company for the quarter ended February 2, 2020, Securities & Exchange Commission File No. 1-4121*)

~~10.2~~	Second Amendment, dated as of February 21, 2020, to the Asset Purchase Agreement dated October 29, 2001, between John Deere Construction & Forestry Company and Deere Capital, Inc. (including conformed copy of the Asset Purchase Agreement as Exhibit A thereto) (Exhibit 10.2 to Form 10-Q of Deere & Company for the quarter ended February 2, 2020, Securities & Exchange Commission File No. 1-4121*)

31.1	Rule 13a-14(a)/15d-14(a) Certification

31.2	Rule 13a-14(a)/15d-14(a) Certification

32	Section 1350 Certifications

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

4043

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		JOHN DEERE CAPITAL CORPORATION




Date:	~~February~~August 27, 2020	By:	/s/ Ryan D. Campbell

			Ryan D. Campbell
			Senior Vice President and
			Principal Financial Officer and Principal Accounting Officer

4144


	February 2		November 3		January 27
	2020		2019		2019
Assets
Cash and cash equivalents	$	642.6	$	632.6	$	859.2
Marketable securities		2.3		3.2		4.0
Receivables:
Retail notes		14,791.5		15,150.5		13,254.5
Retail notes securitized		4,443.7		4,349.6		4,505.9
Revolving charge accounts		2,673.2		3,863.0		2,685.9
Wholesale receivables		9,146.3		8,706.8		8,990.4
Financing leases		668.2		751.6		702.5
Total receivables		31,722.9		32,821.5		30,139.2
Allowance for credit losses		(103.1)		(100.6)		(106.7)
Total receivables – net		31,619.8		32,720.9		30,032.5
Other receivables		94.6		75.1		120.6
Receivables from John Deere		408.7		331.9		66.9
Equipment on operating leases – net		5,525.7		5,530.5		4,942.0
Notes receivable from John Deere		282.5		291.7		221.1
Investment in unconsolidated affiliate		17.0		16.4		15.7
Deferred income taxes		34.0		33.2		36.8
Other assets		447.1		454.4		586.7
Total Assets	$	39,074.3	$	40,089.9	$	36,885.5

Liabilities and Stockholder’s Equity
Short-term borrowings:
Commercial paper and other notes payable	$	1,241.7	$	1,460.9	$	2,469.0
Securitization borrowings		4,373.9		4,277.0		4,397.1
John Deere		1,395.5		1,855.3		182.2
Current maturities of long-term borrowings		5,577.6		5,716.6		4,330.7
Total short-term borrowings		12,588.7		13,309.8		11,379.0
Other payables to John Deere		36.6		47.4		227.0
Accounts payable and accrued expenses		857.5		886.7		771.9
Deposits withheld from dealers and merchants		128.5		137.5		146.9
Deferred income taxes		503.8		527.7		801.5
Long-term borrowings		20,861.9		21,052.4		19,575.0
Total liabilities		34,977.0		35,961.5		32,901.3
Commitments and contingencies (Note 8)
Stockholder’s equity:
Common stock, without par value (issued and outstanding – 2,500 shares owned by John Deere Financial Services, Inc.)		1,482.8		1,482.8		1,482.8
Retained earnings		2,715.8		2,741.6		2,574.1
Accumulated other comprehensive loss		(102.9)		(97.4)		(73.5)
Total Company stockholder’s equity		4,095.7		4,127.0		3,983.4
Noncontrolling interests		1.6		1.4		.8
Total stockholder’s equity		4,097.3		4,128.4		3,984.2
Total Liabilities and Stockholder’s Equity	$	39,074.3	$	40,089.9	$	36,885.5