Receivables

12 Months Ended

Oct. 30, 2022

Receivables

Receivables

Note 3. Receivables

Retail Notes Receivable

The Company provides and administers financing for retail purchases of new equipment manufactured by John Deere’s production and precision agriculture operations, small agriculture and turf operations, and construction and forestry operations and used equipment taken in trade for this equipment. References to “agriculture and turf” include both production and precision agriculture and small agriculture and turf. The Company generally purchases retail installment sales and loan contracts (retail notes) from John Deere. These retail notes are acquired by John Deere through John Deere retail dealers. The Company also purchases and finances a limited amount of retail notes unrelated to John Deere.

Retail notes receivable by market at October 30, 2022 and October 31, 2021 were as follows (in millions of dollars):

	2022				2021
	Unrestricted		Securitized		Unrestricted		Securitized
Agriculture and turf – new	$	12,997.8	$	2,100.2	$	12,125.8	$	1,713.7
Agriculture and turf – used		6,745.8		2,767.4		5,992.5		2,326.6
Construction and forestry – new		2,776.5		846.7		2,902.1		536.0
Construction and forestry – used		1,105.0		332.0		974.6		165.9
Total		23,625.1		6,046.3		21,995.0		4,742.2
Unearned finance income		(764.8)		(94.7)		(651.5)		(79.8)
Retail notes receivable	$	22,860.3	$	5,951.6	$	21,343.5	$	4,662.4

Retail notes acquired by the Company during 2022, 2021, and 2020, had an average original term (based on dollar weighted amounts) of 58 months, 57 months, and 57 months, respectively. Historically, because of prepayments, the average actual life of retail notes has been considerably shorter than the average original term. The average actual life for retail notes liquidated in 2022, 2021, and 2020 was 35 months, 36 months, and 38 months, respectively.

Gross retail note installments at October 30, 2022 and October 31, 2021 were scheduled to be received as follows (in millions of dollars):

	2022				2021
	Unrestricted		Securitized		Unrestricted		Securitized
Due in:
0-12 months	$	7,139.7	$	2,225.2	$	6,448.9	$	1,894.0
13-24 months		5,668.8		1,667.4		5,361.5		1,322.8
25-36 months		4,677.8		1,208.9		4,400.4		884.4
37-48 months		3,427.2		709.3		3,232.5		478.1
49-60 months		2,057.6		226.8		1,927.4		149.7
Over 60 months		654.0		8.7		624.3		13.2
Total	$	23,625.1	$	6,046.3	$	21,995.0	$	4,742.2

Company guidelines relating to down payment requirements and contract terms on retail notes are generally as follows:

	Down	Contract
	Payment	Terms
Agriculture (new and used):
Seasonal payments	20%	3 - 7 years
Monthly payments	10%	36 - 84 months
Turf (new and used):
Seasonal payments	10%	3 - 7 years
Monthly payments	0%	36 - 84 months
Construction and forestry:
New	10%	24 - 60 months
Used	15%	36 - 60 months

Finance income is recognized over the lives of the retail notes using the interest method. During 2022, the average effective yield on retail notes held by the Company was approximately 3.9 percent, compared with 4.0 percent in 2021 and 4.7 percent in 2020. As of October 30, 2022 and October 31, 2021, over 95 percent of the retail notes held by the Company bore a fixed finance rate. Finance income on variable-rate retail notes is adjusted periodically based on the adjustment schedule and fluctuations in the applicable base rate specified in the respective contract. Net costs incurred in the acquisition of retail notes are deferred and recognized over the expected lives of the retail notes using the interest method.

A portion of the finance income earned by the Company arises from financing of retail sales of John Deere equipment on which finance charges are waived or reduced by John Deere for a period from the date of the retail sale to a specified subsequent date. The Company receives compensation from John Deere equal to competitive market interest rates for periods during which finance charges have been waived or reduced. The Company computes the compensation from John Deere for waived or reduced finance charges based on the Company’s estimated funding costs, administrative and operating expenses, credit losses, and required return on equity. The financing rate following the waiver or interest reduction period is not significantly different from the compensation rate from John Deere. During 2022, 2021, and 2020, the finance income earned from John Deere on retail notes containing waiver of finance charges or reduced rates was $328.3 million, $325.0 million, and $339.5 million, respectively.

A deposit is withheld by the Company on certain John Deere agriculture and turf equipment retail notes originating from dealers. Any subsequent retail note losses, subject to certain limitations by customer, are charged against the withheld deposits. At the end of each calendar quarter, the balance of each dealer’s withholding account in excess of a specified percent (ranging from one-half to three percent based on dealer qualifications) of the total balance outstanding on retail notes originating with that dealer is remitted to the dealer. Credit losses recovered from dealer deposits are presented in other income at the time the dealer deposits are charged. Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, in the first quarter of 2021, the benefit of credit losses recovered from dealer deposits was recognized in the provision for credit losses based on estimated recoveries. There is generally no withholding of dealer deposits on John Deere construction and forestry equipment retail notes.

The Company generally requires theft and physical damage insurance be carried on all goods leased or securing retail notes and wholesale receivables. In certain markets, the customer may, at the customer’s own expense, have the Company or the seller of the goods purchase this insurance or obtain it from other sources.

Revolving Charge Accounts Receivable

Revolving charge account income is generated primarily by three revolving credit products: John Deere Financial Multi-Use Account, PowerPlanâ, and John Deere Financial Revolving Plan. John Deere Financial Multi-Use Account is primarily used by farmers and ranchers to finance parts and services from John Deere dealers, as well as crop inputs, such as seed, fertilizer, and crop protection from agribusiness merchants. Merchants, including agribusinesses and dealers, offer John Deere Financial Multi-Use Account as an alternative to carrying in-house accounts receivable and can initially sell existing balances to the Company under a recourse arrangement. John Deere Financial Multi-Use Account income includes a discount paid by merchants on most transactions for processing and support and finance charges paid by customers on

their outstanding account balances. PowerPlanâ is primarily used by construction companies to finance parts and services. John Deere construction and forestry dealers offer PowerPlanâ as an alternative to carrying in-house accounts receivable and can initially sell existing balances to the Company under a recourse arrangement. PowerPlanâ income includes a discount paid by dealers for transaction processing and support and finance charges paid by customers on their outstanding account balances. The John Deere Financial Revolving Plan is used primarily by retail customers of John Deere dealers to finance turf and utility equipment. Income includes a discount paid by dealers on most transactions and finance charges paid by customers on their outstanding account balances. Revolving charge account income is also generated through waiver of finance charges or reduced rates from John Deere and sponsoring merchants.

During 2022, 2021, and 2020, the finance income earned from John Deere on revolving charge accounts containing waiver of finance charges or reduced rates was $13.4 million, $14.3 million, and $15.2 million, respectively. Revolving charge accounts receivable at October 30, 2022 and October 31, 2021 totaled $4,165.8 million and $3,740.1 million, and were net of unearned interest income of $59.2 million and $53.8 million for the same periods, respectively. Generally, account holders may pay the account balance in full at any time or make payments over a number of months according to a payment schedule.

Wholesale Receivables

The Company also provides wholesale financing to dealers of John Deere agriculture and turf equipment and construction and forestry equipment, primarily to finance inventories of equipment for those dealers. Wholesale finance income related to these notes is generally recognized monthly based on the daily balance of wholesale receivables outstanding and the applicable effective interest rate. Interest rates vary with a bank base rate, the type of equipment financed, and dealer financial profile. Substantially all wholesale receivables are secured by equipment financed or other collateral. On average, the wholesale receivables portfolio turned seven times and five times during 2022 and 2021, respectively. Wholesale receivables at October 30, 2022 and October 31, 2021 totaled $8,404.5 million and $5,951.3 million, respectively.

The Company purchases certain wholesale trade receivables from John Deere, which are included within the wholesale receivable balances above. These trade receivables arise from John Deere’s sales of goods to independent dealers. Under the terms of the sales to dealers, interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment is received by the Company. Dealers cannot cancel purchases after John Deere recognizes a sale and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to twelve months for most equipment. Interest-free periods may not be extended. Interest charged may not be forgiven and the past due interest rates exceed market rates. The Company receives compensation from John Deere at approximate market interest rates for these interest-free periods. The Company computes the compensation from John Deere for interest-free periods based on the Company’s estimated funding costs, administrative and operating expenses, credit losses, and required return on equity. During 2022, 2021, and 2020, the compensation earned from John Deere on wholesale receivables for waiver of finance charges or reduced rates was $239.0 million, $197.9 million, and $228.8 million, respectively.

Financing Leases

The Company leases agriculture and turf equipment and construction and forestry equipment directly to retail customers. Leases classified as sales-type or direct financing leases are reported in financing leases on the consolidated balance sheets. See Note 6 to the Consolidated Financial Statements for detailed disclosures related to financing leases.

Concentration of Credit Risk

Receivables have significant concentrations of credit risk in the agriculture and turf and construction and forestry markets. On a geographic basis, 86 percent of the Company’s Receivables portfolio was located in the U.S., at October 30, 2022. There is not a disproportionate concentration of credit risk with any single customer or dealer. The Company secures its Receivables, other than certain revolving charge accounts, by retaining as collateral security in the equipment associated with those Receivables or with the use of other collateral, and requires theft and physical damage insurance on such equipment.