LEASES

12 Months Ended

Oct. 29, 2023

LEASES

LEASES

24. LEASES

We are both a lessee and a lessor. We lease for our own use warehouse facilities, office space, production equipment, information technology equipment, and vehicles. The financial services operations lease equipment produced or sold by us and a limited amount of other equipment to retail customers. We determine if an arrangement is or contains a lease at the contract inception.

Lessee

The amounts of the lease liability and right of use asset are determined at lease commencement and are based on the present value of the lease payments over the lease term. The lease payments are discounted using our incremental borrowing rate since the rate implicit in the lease is not readily determinable. We determine the incremental borrowing rate for each lease based on the lease term and the economic environment of the country where the asset will be used, adjusted as if the borrowings were collateralized. Leases with contractual periods greater than one year and that do not meet the finance lease criteria are classified as operating leases.

We have elected to combine lease and nonlease components, such as maintenance and utilities costs included in a lease contract, for all asset classes. Leases with an initial term of one year or less are expensed on a straight-line basis over the lease term and recorded in short-term lease expense. Variable lease expense includes warehouse facilities leases with payments based on utilization exceeding contractual minimum amounts and leases with payments indexed to inflation when the index changes after lease commencement.

The lease expense by type consisted of the following:

	2023		2022		2021
Operating lease expense	$	129	$	114	$	116
Short-term lease expense		49		55		29
Variable lease expense		80		74		53
Finance lease:
Depreciation expense		28		26		26
Interest on lease liabilities		2		1		1
Total lease expense	$	288	$	270	$	225

Operating and finance lease right of use assets and lease liabilities follow:

		2023		2022
Operating leases:
Other assets	$	283	$	299
Accounts payable and accrued expenses		281		302
Finance leases:
Property and equipment — net	$	66	$	49
Short-term borrowings		25		21
Long-term borrowings		49		30
Total finance lease liabilities	$	74	$	51

The weighted-average remaining lease terms in years and discount rates follows:

	2023	2022
Weighted-average remaining lease terms:
Operating leases	7	7
Finance leases	4	3
Weighted-average discount rates:
Operating leases	3.1%	2.4%
Finance leases	3.6%	1.9%

Lease payment amounts in each of the next five years at October 29, 2023 follow:

	Operating		Finance
Due in:	Leases		Leases
2024	$	103	$	27
2025		71		22
2026		36		14
2027		24		8
2028		22		3
Later years		45		6
Total lease payments		301		80
Less: imputed interest		20		6
Total lease liabilities	$	281	$	74

Cash paid for amounts included in the measurement of lease liabilities follows:

		2023		2022		2021
Operating cash flows for operating leases	$	132	$	127	$	104
Operating cash flows for finance leases		2		1		1
Financing cash flows for finance leases		31		28		25

Right of use assets obtained in exchange for lease liabilities follow:

		2023		2022
Operating leases	$	97	$	135
Finance leases		54		17

Lessor

We lease equipment manufactured by us through John Deere Financial. Sales-type and direct financing leases are reported in “Financing receivables ‒ net.” Operating leases are reported in “Equipment on operating leases ‒ net.”

At the end of the majority of leases, the lessee 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 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 use of the equipment, market dynamics and trends, and dealer residual guarantees. We review residual value estimates during the lease term and test the carrying value of our operating lease assets for impairment when events or circumstances necessitate. The depreciation is adjusted on a straight-line basis over the remaining lease term if residual value estimates change. Lease agreements include usage limits and specifications on

machine condition, which allow us to assess lessees for excess use or damages to the underlying equipment.

We have elected to combine lease and nonlease components. The nonlease components relate to preventative maintenance and extended warranty agreements financed by the retail 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 “Finance and interest income” and “Other operating expenses.” Variable lease revenues relate to property taxes on leased assets in certain markets and late fees.

Lease revenues earned by us follow:

		2023		2022		2021
Sales-type and direct finance lease revenues	$	165	$	154	$	145
Operating lease revenues		1,312		1,318		1,423
Variable lease revenues		16		26		30
Total lease revenues	$	1,493	$	1,498	$	1,598

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.

Sales-type and direct financing lease receivables by market follow:

		2023		2022
Agriculture and turf	$	1,078	$	1,118
Construction and forestry		1,048		1,167
Total		2,126		2,285
Guaranteed residual values		723		491
Unguaranteed residual values		57		56
Less: unearned finance income		(350)		(285)
Financing lease receivables	$	2,556	$	2,547

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

Due in:	2023
2024	$	1,453
2025		642
2026		378
2027		214
2028		142
Later years		20
Total	$	2,849

Lease payments from operating leases are recorded as income on a straight-line method over the lease terms. Operating lease assets are recorded at cost and depreciated to their estimated residual value on a straight-line method over the terms of the leases.

The cost of equipment on operating leases by market follow:

		2023		2022
Agriculture and turf	$	7,168	$	6,912
Construction and forestry		1,212		1,342
Total		8,380		8,254
Less: accumulated depreciation		(1,463)		(1,631)
Equipment on operating leases - net	$	6,917	$	6,623
Operating lease residual values	$	4,864	$	4,640
First-loss residual value guarantees		1,188		1,025

The equipment is depreciated on a straight-line basis over the term of the lease. The corresponding depreciation expense was $853 in 2023, $827 in 2022, and $983 in 2021.

Lease payments for operating leases are scheduled as follows:

Due in:	2023
2024	$	1,044
2025		797
2026		490
2027		258
2028		65
Later years		10
Total	$	2,664