Derivative Instruments

12 Months Ended

Oct. 29, 2023

Derivative Instruments

Derivative Instruments

Note 20. Derivative Instruments

Our outstanding derivatives transactions are with both unrelated external counterparties and with John Deere. For derivatives transactions with John Deere, we utilize a centralized hedging structure in which John Deere enters into a derivative transaction with an unrelated external counterparty and simultaneously enters into a derivative transaction with us. Except for collateral provisions, the terms of the transaction between John Deere and us are identical to the terms of the transaction between John Deere and its unrelated external counterparty. Derivative asset and liability positions for transactions with John Deere are recorded in “Receivables from John Deere” and “Other payables to John Deere,” respectively. Derivative asset and liability positions for transactions with unrelated external counterparty banks are recorded in “Other assets” and “Accounts payable and accrued expenses,” respectively.

The fair value of our derivative instruments and the associated notional amounts were as follows:

	October 29, 2023						October 30, 2022
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
Cash flow hedges:
Interest rate contracts - swaps	$	1,500.0	$	44.7			$	1,950.0	$	87.5
Fair value hedges:
Interest rate contracts - swaps		11,859.4			$	915.7		9,448.9			$	947.9
Not designated as hedging instruments:
Interest rate contracts - swaps		8,010.9		72.2		27.4		3,931.3		75.5		25.2
Foreign currency exchange contracts		1,546.5		11.3		.5		1,069.0		1.3		14.1
Cross-currency interest rate contracts		175.8		3.2		7.5		134.2		2.8		2.1
Interest rate caps - sold		1,336.0				24.3		1,020.3				49.0
Interest rate caps - purchased		1,336.0		24.3				1,020.3		49.0

The amount of gain recorded in OCI related to cash flow hedges at October 29, 2023 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is $33.3 after-tax. No gains or losses were reclassified from OCI to earnings based on the probability that the original forecasted transaction would not occur.

The amounts recorded, at October 29, 2023 and October 30, 2022, in the consolidated balance sheets related to borrowings designated in fair value hedging relationships were as follows. Fair value hedging adjustments are included in the carrying amount of the hedged item.

	Active Hedging Relationships				Discontinued Hedging Relationships
	Carrying		Cumulative		Carrying Amount		Cumulative
	Amount of		Fair Value		of Formerly		Fair Value
2023	Hedged Item		Hedging Adjustment		Hedged Item		Hedging Adjustment
Current maturities of long-term external borrowings					$	1,814.0	$	14.9
Long-term external borrowings	$	10,883.7	$	(922.6)		7,144.1		(288.1)
2022
Current maturities of long-term external borrowings					$	2,514.9	$	15.5
Long-term external borrowings	$	8,453.6	$	(950.1)		5,519.6		(19.1)

The classification and gains (losses), including accrued interest expense, related to derivative instruments on the statements of consolidated income consisted of the following:

	2023		2022		2021
Fair Value Hedges
Interest rate contracts - Interest expense	$	(518.7)	$	(1,102.0)	$	(208.9)
Cash Flow Hedges
Recognized in OCI
Interest rate contracts - OCI (pretax)	$	25.4	$	88.3	$	7.7
Reclassified from OCI
Interest rate contracts - Interest expense		65.9		12.4		(9.4)
Not Designated as Hedges
Interest rate contracts - Interest expense *	$	27.3	$	62.4	$	5.2
Foreign currency exchange contracts - Administrative and operating expenses *		19.1		169.3		(26.6)
Total not designated	$	46.4	$	231.7	$	(21.4)

* Includes interest and foreign currency exchange gains (losses) from cross-currency interest rate contracts.

Included in the table above are interest expense and administrative and operating expense amounts we incurred on derivatives transacted with John Deere. The amounts we recognized on these affiliate party transactions were losses of $437.1, $1,021.7, and $224.3 during 2023, 2022, and 2021, respectively.

Counterparty Risk and Collateral

Derivative instruments are subject to significant concentrations of credit risk in the banking sector. We manage individual unrelated external counterparty exposure by setting limits that consider the credit rating of the unrelated external counterparty, the credit default swap spread of the counterparty, and other financial commitments and exposures between us and the unrelated external counterparty banks. All interest rate derivatives are transacted under International Swaps and Derivatives Association (ISDA) documentation. Each master agreement permits the net settlement of amounts owed in the event of default or termination. None of our derivative agreements contain credit-risk-related contingent features.

We have ISDA agreements with John Deere that permit the net settlement of amounts owed between counterparties in the event of early termination. In addition, we have a loss sharing agreement with John Deere in which we have agreed to

absorb any losses and expenses John Deere incurs if an unrelated external counterparty fails to meet its obligations on a derivative transaction that John Deere entered into to manage our exposures. The loss sharing agreement did not increase the maximum amount of loss that we would incur, after considering collateral received and netting arrangements, as of October 29, 2023 and October 30, 2022.

Derivatives are recorded without offsetting for netting arrangements or collateral. The impact on the derivative assets and liabilities for external derivatives and those with John Deere related to netting arrangements and any collateral received or paid at October 29, 2023 and October 30, 2022 were as follows:

2023
Derivatives:	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Assets
External	$	11.3	$	(.1)		$	11.2
John Deere		144.4		(107.0)			37.4
Liabilities
External		.5		(.1)			.4
John Deere		974.9		(107.0)			867.9

2022
Derivatives:	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Assets
External	$	1.3	$	(1.1)		$	.2
John Deere		214.8		(128.3)			86.5
Liabilities
External		14.1		(1.1)			13.0
John Deere		1,024.2		(128.3)			895.9