Fair Value Measurements

9 Months Ended

Jul. 31, 2022

Fair Value Measurements

Fair Value Measurements

(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):

	July 31, 2022				October 31, 2021				August 1, 2021
	Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value
Receivables financed – net	$	35,268.2	$	34,617.9	$	31,891.7	$	31,903.6	$	31,155.9	$	31,264.6
Retail notes securitized – net		5,139.4		4,988.8		4,648.9		4,694.2		5,388.3		5,454.3
Securitization borrowings		4,918.5		4,861.4		4,595.2		4,600.0		5,264.6		5,289.3
Current maturities of long-term external borrowings		6,476.7		6,426.0		5,819.1		5,842.3		5,746.0		5,800.4
Long-term external borrowings		20,393.6		20,087.6		20,607.3		20,887.5		20,136.7		20,557.9

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 fair value on a recurring basis were as follows (in millions of dollars):

	July 31		October 31		August 1
	2022		2021		2021
Marketable securities
International debt securities	$	1.3	$	2.1	$	2.1
Receivables from John Deere
Derivatives		168.3		191.6		333.7
Other assets
Derivatives		1.8		1.1		.5
Total assets	$	171.4	$	194.8	$	336.3
Other payables to John Deere
Derivatives	$	446.6	$	97.6	$	45.7
Accounts payable and accrued expenses
Derivatives		22.1		4.8		1.7
Total liabilities	$	468.7	$	102.4	$	47.4

All fair value measurements in the table above were Level 2. Excluded from the table above 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 over the next eight years. At July 31, 2022, the amortized cost basis and fair value of these available-for-sale debt securities were $4.9 million and $1.3 million, respectively. Unrealized losses at July 31, 2022 were not recognized in income due to the ability and intent to hold to maturity.

There were no assets or liabilities measured at fair value on a nonrecurring basis, other than Receivables with specific allowances which were not material, during each of the periods ended July 31, 2022, October 31, 2021, and August 1, 2021.

The following is a description of the valuation methodologies the Company uses to measure certain balance sheet items 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.