Derivative Instruments

3 Months Ended

Jan. 28, 2024

(11) Derivative Instruments

Our outstanding derivative transactions are with both unrelated external counterparties and with John Deere. For derivative 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 values of our derivative instruments and the associated notional amounts were as follows:


		January 28, 2024						October 29, 2023						January 29, 2023
				Fair Value						Fair Value						Fair Value
		Notional		Asset		Liability		Notional		Asset		Liability		Notional		Asset		Liability
Cash flow hedges:
Interest rate contracts - swaps	$	2,200.0	$	27.4	$	4.4	$	1,500.0	$	44.7			$	1,950.0	$	69.2

Fair value hedges:
Interest rate contracts - swaps		11,779.6		52.1		547.3		11,859.4			$	915.7		10,126.7		20.8	$	629.0

Not designated as hedging instruments:
Interest rate contracts - swaps		7,784.7		53.8		18.3		8,010.9		72.2		27.4		4,847.8		76.2		24.0
Foreign currency exchange contracts		1,814.8		22.2		4.3		1,546.5		11.3		.5		1,297.8		1.2		29.1
Cross-currency interest rate contracts		188.6				13.4		175.8		3.2		7.5		119.3		.3		6.5
Interest rate caps - sold		1,199.5				13.3		1,336.0				24.3		788.8				4.7
Interest rate caps - purchased		1,199.5		13.3				1,336.0		24.3				788.8		4.7

The amount of gain recorded in other comprehensive income (OCI) related to cash flow hedges at January 28, 2024 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is $26.2 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 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
			Cumulative		Carrying		Cumulative
	Carrying		Fair Value		Amount of		Fair Value
	Amount of		Hedging		Formerly		Hedging
January 28, 2024	Hedged Item		Adjustment		Hedged Item		Adjustment
Current maturities of long-term external borrowings					$	1,959.5	$	10.4
Long-term external borrowings	$	11,220.3	$	(506.6)		7,710.9		(269.7)

October 29, 2023
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)

January 29, 2023
Current maturities of long-term external borrowings					$	1,914.8	$	15.3
Long-term external borrowings	$	9,461.7	$	(618.6)		5,505.8		(82.9)

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


	Three Months Ended
	January 28		January 29
	2024		2023
Fair Value Hedges
Interest rate contracts - Interest expense	$	335.7	$	235.3

Cash Flow Hedges
Recognized in OCI:
Interest rate contracts - OCI (pretax)	$	(7.8)	$	(1.9)

Reclassified from OCI:
Interest rate contracts - Interest expense		11.9		16.3

Not Designated as Hedges
Interest rate contracts - Interest expense *	$	(5.7)	$	(1.9)
Foreign currency exchange contracts - Administrative and operating expenses *		(103.2)		(135.1)
Total not designated	$	(108.9)	$	(137.0)

* 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 affiliated party transactions for the three months ended January 28, 2024 and January 29, 2023 were gains of $331.4 and $242.5, respectively.

None of our derivative agreements contain credit-risk-related contingent features. 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 January 28, 2024, October 29, 2023, and January 29, 2023.

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 were as follows:


	January 28, 2024
	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Derivatives:
Assets
External	$	22.2	$	(3.0)		$	19.2
John Deere		146.6		(101.6)			45.0
Liabilities
External		4.3		(3.0)			1.3
John Deere		596.7		(101.6)			495.1


	October 29, 2023
	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Derivatives:
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


	January 29, 2023
	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Derivatives:
Assets
External	$	1.2				$	1.2
John Deere		171.2	$	(129.1)			42.1
Liabilities
External		29.1					29.1
John Deere		664.2		(129.1)			535.1