Fair Value Measurements

9 Months Ended

Jul. 29, 2018

(9) 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):


	July 29, 2018				October 29, 2017				July 30, 2017
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value *		Value		Value *		Value		Value *
Receivables financed – net	$	26,200.2	$	26,016.4	$	24,123.1	$	24,016.0	$	23,543.2	$	23,458.2
Retail notes securitized – net		4,571.4		4,517.4		4,158.8		4,129.6		4,922.9		4,891.7
Securitization borrowings		4,437.5		4,425.9		4,118.7		4,118.4		4,780.9		4,786.4
Current maturities of long-term borrowings		5,111.3		5,111.4		5,056.9		5,080.6		4,272.7		4,296.2
Long-term borrowings		18,591.5		18,704.3		17,534.4		17,763.6		16,679.7		16,910.6

* 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.

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


	July 29		October 29		July 30
	2018		2017		2017
Receivables from John Deere
Derivatives:
Interest rate contracts	$	53.3	$	85.4	$	108.8
Cross-currency interest rate contracts		2.4		5.6		3.9
Other assets
Derivatives:
Interest rate contracts		.7		8.1		14.0
Foreign exchange contracts		11.2		24.6		2.0
Total derivative assets *	$	67.6	$	123.7	$	128.7

Other payables to John Deere
Derivatives:
Interest rate contracts	$	329.5	$	125.6	$	76.0
Cross-currency interest rate contracts		1.6		.9		3.8
Accounts payable and accrued expenses
Derivatives:
Foreign exchange contracts		5.6		6.0		35.1
Total derivative liabilities	$	336.7	$	132.5	$	114.9

* 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.

Fair value, nonrecurring Level 3 measurements related to Receivables with specific allowances were not significant during any periods presented. See Note 4 for additional information.

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

Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency 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.

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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