Fair Value Measurements

12 Months Ended

Oct. 31, 2021

Fair Value Measurements

Fair Value Measurements

Note 20. 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 at October 31, 2021 and November 1, 2020 were as follows (in millions of dollars):

	2021				2020
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Receivables financed – net	$	31,891.7	$	31,903.6	$	28,751.6	$	28,931.7
Retail notes securitized – net		4,648.9		4,694.2		4,676.6		4,772.9
Securitization borrowings		4,595.2		4,600.0		4,656.2		4,697.6
Current maturities of long-term external borrowings		5,819.1		5,842.3		5,741.6		5,801.1
Long-term external borrowings		20,607.3		20,887.5		19,311.1		19,784.4

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 external borrowings and 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 external borrowings have been swapped to current variable interest rates. The carrying values of these long-term external borrowings include adjustments related to fair value hedges.

Assets and liabilities measured at October 31, 2021 and November 1, 2020 at fair value as Level 2 measurements on a recurring basis were as follows (in millions of dollars):

	2021		2020
Marketable securities
International debt securities	$	2.1	$	2.2
Receivables from John Deere
Derivatives:
Interest rate contracts		186.2		575.5
Cross-currency interest rate contracts		5.4		7.7
Other assets
Derivatives:
Foreign currency exchange contracts		1.1		3.8
Total assets	$	194.8	$	589.2
Other payables to John Deere
Derivatives:
Interest rate contracts	$	96.1	$	29.4
Cross-currency interest rate contracts		1.5		.7
Accounts payable and accrued expenses
Derivatives:
Foreign currency exchange contracts		4.8		.9
Total liabilities	$	102.4	$	31.0

Excluded from the table above are 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 over the next nine years. At October 31, 2021, the amortized cost basis and fair value of these available-for-sale debt securities were $4.8 million and $2.1 million, respectively.

Fair value, nonrecurring Level 3 measurements from impairments, excluding Receivables with specific allowances which were not material, at October 31, 2021, November 1, 2020, and November 3, 2019 were as follows (in millions of dollars):

	Fair Value			Losses
	2021	2020		2021	2020		2019
Equipment on operating leases - net		$	340.3		$	21.0	$	59.4
Other assets			56.5			9.8		18.0
Total		$	396.8		$	30.8	$	77.4

The fair value shown for 2020 in the table above represents the fair value assessment at May 3, 2020, as the result of impairments taken on operating leases and matured operating lease inventory in the second quarter of 2020 (see Note 7).

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

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

Derivatives – The Company’s derivative financial instruments consist of interest rate contracts (swaps and caps), foreign currency exchange contracts (futures, forwards, and swaps), and cross-currency interest rate contracts (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.

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

Other assets – The impairments of the matured operating lease inventory were measured at the fair value of that inventory. The valuations were based on a market approach. The inputs included sales of comparable assets.