Annual Report for Fiscal Year Ending 11-02, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The MD&A is intended to promote understanding of our financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying Notes to Consolidated Financial Statements. For comparison of 2024 to 2023 results, refer to the "Management's Discussion and Analysis" section of our 2024 Form 10-K.

Results of Operations

All amounts are presented in millions of U.S. dollars unless otherwise specified.

Overview

Organization

We provide financial solutions that enable John Deere customers and dealers to advance their lives and livelihoods. Through our offering of retail notes, leases, and revolving charge accounts, customers are able to finance new and used John Deere equipment, as well as parts, services, and other input costs needed to run their operations. We also provide wholesale financing to John Deere dealers.

Trends and Economic Conditions

Our 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 supply and demand for its products.

Industry Sales Outlook for Fiscal Year 2026

John Deere Trends

In 2022, John Deere introduced Leap Ambitions, a set of focused goals designed to guide the implementation of its Smart Industrial Operating Model. These Leap Ambitions are built upon a foundation of product quality and manufacturing excellence, supported by a best-in-class dealer channel, and enabled by employees dedicated to solving some of the world's most important problems. To build on its accomplishments and lay the foundation for sustained growth as John Deere moves toward 2030, in December 2025 John Deere refined its Leap Ambitions. The refined Leap Ambitions feature multi-year financial and operational goals, emphasizing the use of John Deere's differentiated equipment and service solutions, including automation, autonomy, digitalization, lifecycle solutions, and Solutions as a Service (SaaS).

Deeper integration of technology into equipment to enable customers to do more with less remains a persistent market trend. Customers seek to improve profitability, productivity, and sustainability by selecting John Deere's equipment and technology solutions. These technologies are incorporated into customer operations across the varied production systems in which John Deere serves.

Agriculture and Turf Outlook for 2026

Construction and Forestry Outlook for 2026

Company Trends

Our net income for fiscal year 2026 is expected to be lower than fiscal year 2025 primarily due to lower average portfolio balances, partially offset by favorable financing spreads.

Agricultural Market Business Cycle. The agricultural market is affected by various factors including commodity prices, acreage planted, crop yields, government policies, and uncertainty in macroeconomic trends. These factors affect farmers' income and sentiment which may result in varying demand for John Deere's equipment. In 2025, we increased our allowance for credit losses and expect to continue experiencing elevated write-offs due to unfavorable market conditions.

Global Trade Policies. During 2025, new tariffs were imposed in the U.S. for imports from a broad range of countries and on certain materials. Several countries also implemented or proposed retaliatory tariffs on imports from the U.S. and introduced additional trade barriers. Trade policies are evolving causing uncertainty in the agriculture and construction industries.

Interest Rates. Interest rates in the U.S. remained elevated in 2025 with modest easing late in the year. Higher rates and volatility in rates impact us in several ways, primarily affecting the demand for John Deere's products and our financing spreads.

Changes in the agricultural market business cycle, global trade policies, and interest rates are driven by factors outside of our control, and as a result we cannot reasonably foresee when these conditions will fully subside.

Other Items of Concern and Uncertainties

Other items that could impact our results are:

2025 Compared with 2024

The total revenues and net income attributable to the Company were as follows:

Net income in 2025 was higher than 2024 due to favorable financing spreads, lower administrative and operating expenses, and a lower provision for credit losses.

Revenues

Finance income, lease revenues, and other income earned by us were as follows:

Finance income and lease revenues increased in 2025 due to higher average financing rates on retail notes and a larger average lease portfolio, partially offset by a 19% decline in finance income earned on wholesale receivables. The decline in wholesale finance income was driven by lower average portfolio balances and lower average financing rates.

Other income decreased in 2025 compared to 2024 due to lower freestanding credit enhancement recoveries (see Note 4), lower gains on operating lease dispositions, and lower interest income.

Revenues earned from John Deere totaled $866.8 in 2025, compared with $1,119.6 in 2024. The decline was primarily due to decreased compensation paid by John Deere on wholesale receivables driven by lower average portfolio balances, in addition to lower average financing rates. Revenues earned from John Deere are included in each of the revenue amounts discussed above.

Expenses

Expenses incurred by us were as follows:

The decrease in interest expense in 2025 was primarily due to lower average borrowing rates.

Depreciation of equipment on operating leases increased in 2025 due to higher average balances of equipment on operating leases.

Administrative and operating expenses decreased during 2025, mainly driven by lower employee compensation and benefits and reduced dealer financing incentive program costs.

Fees and interest paid to John Deere decreased in 2025 primarily due to lower interest on intercompany borrowings from John Deere, driven by lower average borrowings.

The provision for credit losses declined in 2025 due to larger increases to the allowance for credit losses in 2024 than 2025. This was partially offset by higher net write-offs on agriculture and turf retail notes during 2025. The provision for credit losses, as a percentage of the average balance of total Receivables, was 0.49% for 2025 and .57% for 2024.

The higher provision for income taxes in 2025 was primarily due to higher pretax income.

Receivables and Leases

For the fiscal years ended November 2, 2025 and October 27, 2024, Receivable and Lease (excluding wholesale) volumes and balances held were as follows:

Total Receivables and Leases (excluding wholesale) decreased $1,008.6 during 2025 compared to 2024, due to lower agriculture and turf retail notes driven by decreased demand for John Deere equipment.

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

We monitor the credit quality of Receivables based on delinquency status. Receivables 30 days or more past due continue to accrue finance income. We stop accruing finance income once Receivables are considered non-performing, which generally occurs once Receivables are 90 days past due. An allowance for credit losses is recorded for the estimated credit losses expected over the life of the Receivable portfolio.

Deposits held from dealers and merchants amounted to $124.5 at November 2, 2025, compared with $129.6 at October 27, 2024. These balances primarily represent the aggregate dealer retail note and lease deposits from individual John Deere dealers to which losses from retail notes and leases originating from the respective dealers can be charged. Recoveries from dealer deposits are recognized in "Other income" when the dealer's withholding account is charged.

We also utilize other freestanding credit enhancements, such as credit insurance and bank guarantees, to mitigate credit risk. Recoveries from these freestanding credit enhancements are generally recognized when the associated credit loss is recorded. Recoveries from dealer deposits and other freestanding credit enhancements recorded in "Other income" were $38.4 and $54.0 in 2025 and 2024, respectively. See Note 4 for additional information.

2024 Compared with 2023

Please refer to the "Management's Discussion and Analysis" section of our 2024 Form 10-K, which is hereby incorporated by reference.

Capital Resources and Liquidity

Sources of Liquidity, Key Metrics, and Balance Sheet Data

We rely on our ability to raise substantial amounts of funds to finance our Receivable and Lease portfolios. We have access to global capital markets at a reasonable cost and our ability to meet our debt obligations is supported in several ways. Sources of liquidity include:

We closely monitor our cash requirements. Based on the available sources of liquidity, we expect to meet our funding needs in the short term (next 12 months) and long term (beyond 12 months).

Key metrics and certain balance sheet data are provided in the following table as of November 2, 2025, October 27, 2024, and October 29, 2023:

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The increase in unused credit lines at November 2, 2025 compared to October 27, 2024 was primarily attributable to an increase in bank lines of credit, while the increase compared to October 29, 2023 relates to a decrease in commercial paper outstanding, by both us and John Deere.

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Cash Flows

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Net cash provided by investing activities during 2025 resulted primarily from a decrease in Receivables. The aggregate net cash provided by investing and operating activities was used to decrease borrowings and pay dividends, resulting in cash outflows from financing activities.

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Borrowings

Total borrowings decreased $2,143.7 in 2025, generally corresponding with the level of the Receivable and Lease portfolios. During 2025, we issued $5,401.0 and retired $7,617.8 of long-term external borrowings, which primarily consisted of medium-term notes. During 2025, we also issued $2,618.4 and retired $4,457.4 of retail note securitization borrowings and maintained an average commercial paper balance of $1,816.2. Our funding profile may be altered to reflect such factors as relative costs of funding sources, assets available for securitizations, and capital market accessibility.

We have a revolving credit agreement to securitize retail notes (see Note 5). At November 2, 2025, the revolving credit agreement had a total capacity, or "financing limit," of $2,500.0 of secured financings at any time. $1,562.8 of short-term securitization borrowings were outstanding under the agreement at November 2, 2025. At the end of the contractual revolving period, unless we and the banks agree to renew, we would liquidate the secured borrowings over time as payments on the retail notes are collected. In November 2025, the agreement was renewed for one year with a capacity of $2,500.0.

Dividends

Capital Corporation declared and paid cash dividends to JDFS of $1,055.0 in 2025 and $215.0 in 2024. In turn, JDFS paid comparable dividends to Deere & Company.

Lines of Credit

We have access to bank lines of credit with various banks throughout the world. Some of the lines are available to both us and Deere & Company. Lines of credit totaled $11,747.2 at November 2, 2025, $7,268.0 of which were unused. For the purpose of computing the unused credit lines, commercial paper and short-term bank borrowings of us and John Deere were considered to constitute utilization. See Note 8 for more information.

Debt Ratings

Our ability to obtain funding is affected by our 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 our lines of credit and the support agreement from Deere & Company.

To access public debt capital markets, we rely on credit rating agencies to assign short-term and long-term credit ratings to our debt securities as an indicator of credit quality for fixed income investors. A security rating is not a recommendation by the rating agency to buy, sell, or hold our debt securities. A credit rating agency may change or withdraw ratings based on its assessment of our 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, reduced access to debt capital markets, and may adversely impact our liquidity.

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

Contractual Obligations and Cash Requirements

Our material cash requirements from contractual and other cash obligations relate to borrowings, including securitization borrowings. As of November 2, 2025, we had $17,565.7 of principal payments on borrowings and securitization borrowings payable in the next 12 months, along with interest payments of $1,803.6. The securitization borrowing payments are based on the expected liquidation of the retail notes. These payments will likely be replaced with new borrowings to finance the Receivables and Leases portfolio, which is expected to be lower in 2026. See Notes 5, 7, and 9 for further detail regarding future contractual payments on securitization borrowings, intercompany borrowings, and long-term external borrowings.

We also have commitments to extend credit to customers and John Deere dealers through lines of credit and other pre-approved credit arrangements. 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. There were $12,900.9 of commitments to John Deere dealers and $33,205.6 of commitments to retail customers primarily related to revolving charge accounts at November 2, 2025. See Note 17 for further detail regarding these commitments.

Critical Accounting Estimates

The timely preparation of financial statements requires management to make estimates and assumptions. Those estimates affect reported amounts in these financial statements. Changes in those estimates and assumptions could have a significant effect on our consolidated financial statements. The following estimates are the most critical to our consolidated financial statements:

These items require the most difficult, subjective, or complex judgments. Our accounting policies are described primarily in Note 2.

Allowance for Credit Losses

The allowance for credit losses is an estimate of the credit losses expected over the life of our Receivable portfolio. The allowance is measured on a collective basis for receivables with similar risk characteristics. Receivables that do not share risk characteristics are evaluated on an individual basis. Risk characteristics include:

We utilize the following loss forecast models to estimate expected credit losses:

Management reviews each model's output quarterly, and qualitative adjustments are incorporated as necessary to arrive at management's best estimate of expected credit losses. See Note 2 for further information.

The allowance for credit losses at November 2, 2025, October 27, 2024, and October 29, 2023 was $250.1, $227.5, and $146.4, respectively. The allowance for credit losses increased in 2025 compared to 2024 primarily due to higher expected losses on agricultural and turf customer accounts as a result of elevated delinquencies and a decline in market conditions.

While we believe our allowance is sufficient to provide for losses over the life of our existing Receivable portfolio, different assumptions would result in changes to the allowance for credit losses. Within the Customer Receivable portfolio, credit loss estimates are dependent on a number of factors, including credit quality at time of application, remaining account balances, current delinquency levels, various economic factors, and estimated recoveries on defaulted accounts. Changes in any of these factors could impact our credit losses. Conversely, within the wholesale receivable portfolio, changes in economic conditions have historically had limited impact on credit losses.

Holding all other factors constant, a 10% increase in the linear regression models' forecasted defaults as a result of elevated levels of delinquencies, deteriorating credit quality, unfavorable economic factors, or otherwise, and a simultaneous 10% decrease in recovery rates would have resulted in an increase to the allowance for credit losses of approximately $55 at November 2, 2025.

Operating Lease Residual Values

Equipment on operating leases is depreciated to the estimated residual value over the lease term. The residual values are based on several factors, including:

We review residual value estimates during the lease term. Depreciation is adjusted over the remaining lease term if residual value estimates are revised. Impairments are recorded when events or circumstances necessitate.

At the end of the majority of leases, the equipment is disposed in the following sequence:

The total operating lease residual values at November 2, 2025, October 27, 2024, and October 29, 2023 were $3,899.1, $3,786.2, and $3,538.3, respectively. The increase in 2025 was primarily due to a higher operating lease portfolio.

Hypothetically, if (a) future market values for equipment on operating leases were to decrease 10% from our present estimates and (b) all the equipment on operating leases were returned to us for remarketing at the end of the lease term, the total unfavorable impact after consideration of dealer residual value guarantees would be approximately $55. This amount would be recognized as higher depreciation expense over the remaining term of the operating leases, or potentially as an impairment.

Income Taxes

We are subject to federal, state, and foreign income taxes, which can be complex. Implementing these tax laws requires significant judgment and interpretation. Changes in tax laws could materially affect our consolidated financial statements. We record our tax positions in the following categories:

Deferred income taxes represent temporary differences between the tax and the financial reporting basis of assets and liabilities. This will result in taxable or deductible amounts in the future. Loss carryforwards and tax credits are significant components of deferred tax asset balances. These assets are reviewed regularly for the following:

Valuation allowances are established when we determine that the deferred tax benefit may not be realized. The recoverability analysis requires significant judgment and relies on estimates. Changes in foreign income tax laws, income for certain jurisdictions, or our tax structure could impact the valuation allowance balance.

Some tax positions contain significant uncertainties. These positions may be challenged or disallowed by taxing authorities. If it is likely the position will be disallowed, no tax benefit is recorded. If it is likely the position will be sustained, a tax benefit is recognized. The ultimate resolution could take many years. This may result in a payment that is significantly different from the original estimate.

See Note 14 for further information on income taxes.

Forward-Looking Statements

Certain statements contained herein, including in the sections entitled "Overview," "Trends and Economic Conditions," and "Notes to Consolidated Financial Statements" relating to future events, expectations, and trends constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995 and involve factors that are subject to change, assumptions, risks, and uncertainties that could cause actual results to differ materially.

Forward-looking statements are based on currently available information and current assumptions, expectations, and projections about future events and should not be relied upon. Except as required by law, we expressly disclaim any obligation to update or revise our forward-looking statements. Many factors, risks, and uncertainties could cause actual results to differ materially from these forward-looking statements. Among these factors are risks related to:

Further information concerning us and our business, including factors that could materially affect our financial results, is included in our filings with the SEC (including, but not limited to, the factors discussed in Item 1A. "Risk Factors" of this Annual Report on Form 10-K). There also may be other factors that we cannot anticipate or that are not described herein because we do not currently perceive them to be material.

Our business is closely related to John Deere's business. Further information, including factors that could materially affect our financial results and John Deere's financial results, is included in the most recent Deere & Company Annual Report on Form 10-K (including, but not limited to, the factors discussed in Item 1A., "Risk Factors" of the most recent Annual Report on Form 10-K) and other Deere & Company filings with the SEC.