Leases

12 Months Ended

Oct. 29, 2023

Leases

Leases

Note 6. Leases

We lease John Deere equipment and a limited amount of non-John Deere equipment to retail customers through sales-type, direct financing, and operating leases. Sales-type and direct financing leases are reported in “Financing leases,” and operating leases are reported in “Equipment on operating leases – net.”

Leases offered by us may include early termination and renewal options. At the end of the majority of leases, the lessee generally has the option to purchase the underlying equipment for the contractual residual value or return it to the dealer. If the equipment is returned to the dealer, the dealer also has the option to purchase the equipment or return it to us for remarketing.

We have elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the customer. We have also elected to report consideration related to sales and value-added taxes net of the related tax expense. Property taxes on leased assets are recorded on a gross basis in “Lease revenues” and “Administrative and operating expenses.” Variable lease revenues primarily relate to separately invoiced property taxes on leased equipment in certain markets, late fees, and excess use and damage fees.

Lease revenues earned by us were as follows:

	2023		2022		2021
Sales-type and direct financing lease revenues	$	90.7	$	56.6	$	48.6
Operating lease revenues		894.2		886.1		959.3
Variable lease revenues		14.2		23.4		26.9
Total lease revenues	$	999.1	$	966.1	$	1,034.8

Variable lease revenues reported above include excess use and damage fees of $1.8, $2.4, and $6.5 for 2023, 2022, and 2021, respectively, which were reported in “Other income.”

Deposits withheld from John Deere dealers and related credit losses on leases are handled in a manner similar to the procedures for retail notes. As with retail notes, there are generally no deposits withheld from dealers on leases related to construction and forestry equipment. In addition, a lease payment discount program, allowing reduced payments over the term of the lease, is administered in a manner similar to finance waivers on retail notes (see Note 3). During 2023, 2022, and 2021, the finance income earned from John Deere on sales-type and direct financing leases containing waiver of finance charges or reduced rates was $6.9, $3.9, and $3.7, respectively. The operating lease revenue earned from John Deere during 2023, 2022, and 2021 was $24.5, $30.0, and $47.1, respectively.

Financing Leases

Sales-type and direct financing lease receivables by market at October 29, 2023 and October 30, 2022 were as follows:

	2023		2022
Agriculture and turf	$	664.4	$	570.2
Construction and forestry		223.4		183.7
Total		887.8		753.9
Guaranteed residual values		701.9		466.5
Unguaranteed residual values		27.2		25.9
Unearned finance income		(195.1)		(125.6)
Financing leases receivable	$	1,421.8	$	1,120.7

At the time of accepting a lease that qualifies as a sales-type or direct financing lease, we record the gross amount of lease payments receivable, estimated residual value of the leased equipment, and unearned finance income. The unearned finance income is recognized as revenue over the lease term using the interest method.

Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at October 29, 2023 were as follows:

Due in:
2024	$	955.8
2025		306.9
2026		168.1
2027		98.1
2028		49.9
Later years		10.9
Total	$	1,589.7

Operating Leases

The cost of equipment on operating leases by market at October 29, 2023 and October 30, 2022 was as follows:

	2023		2022
Agriculture and turf	$	5,265.2	$	5,017.3
Construction and forestry		1,042.4		1,138.0
Total		6,307.6		6,155.3
Accumulated depreciation		(1,256.1)		(1,301.8)
Equipment on operating leases - net	$	5,051.5	$	4,853.5

Lease payments from equipment on operating leases are recorded as income on a straight-line method over the lease term. Lease agreements include usage limits and specifications on machine condition, which allows us to assess lessees for excess use or damages to the underlying equipment.

Lease payments for equipment on operating leases at October 29, 2023 were scheduled as follows:

Due in:
2024	$	749.5
2025		561.3
2026		321.4
2027		157.9
2028		38.9
Later years		7.8
Total	$	1,836.8

Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the term of the leases. We estimate the residual values for operating leases at lease inception based on several factors, including:

● lease term,

● expected hours of usage,

● historical wholesale sale prices,

● return experience,

● intended equipment use,

● market dynamics and trends, and

● third-party residual guarantees.

We review residual value estimates during the lease term, and depreciation is adjusted prospectively on a straight-line basis over the remaining lease term if residual value estimates are revised. Impairments are recorded when events or circumstances necessitate. There were no impairment losses on operating leases recorded during any periods presented.

The total operating lease residual values at October 29, 2023 and October 30, 2022 were $3,538.3 and $3,366.7, respectively. John Deere dealers generally provide a first-loss residual value guarantee on operating lease originations. Total residual value guarantees were $566.9 and $440.7 at October 29, 2023 and October 30, 2022, respectively.

We discuss with lessees and dealers options to purchase the equipment or extend the lease prior to operating lease maturity. Equipment returned to us upon termination of leases is remarketed by us. The matured operating lease inventory balances at October 29, 2023 and October 30, 2022 were $16.2 and $10.8, respectively. Matured operating lease inventory is reported in “Other assets.”

Past due balances of operating leases represent the total balance held (net book value plus accrued lease payments) and still accruing finance income with any payment amounts 30 days or more past the contractual payment due date. These amounts were $51.8 and $58.7 at October 29, 2023 and October 30, 2022, respectively.