DERIVATIVE INSTRUMENTS

9 Months Ended

Jul. 28, 2024

(11) DERIVATIVE INSTRUMENTS

Our outstanding derivative transactions are with both unrelated external counterparties and 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:


		July 28, 2024						October 29, 2023						July 30, 2023
				Fair Value						Fair Value						Fair Value
		Notional		Asset		Liability		Notional		Asset		Liability		Notional		Asset		Liability
Cash flow hedges:
Interest rate contracts - swaps	$	3,475.0	$	14.3	$	17.6	$	1,500.0	$	44.7			$	1,500.0	$	47.8	$	2.5

Fair value hedges:
Interest rate contracts - swaps		14,333.2		111.1		454.9		11,859.4			$	915.7		11,479.3		4.0		667.5
Cross-currency interest rate contracts		974.5		15.5

Not designated as hedging instruments:
Interest rate contracts - swaps		6,975.7		39.1		7.6		8,010.9		72.2		27.4		7,392.1		92.6		23.8
Foreign currency exchange contracts		1,320.0		30.2				1,546.5		11.3		.5		1,433.0		8.4		5.2
Cross-currency interest rate contracts		190.2		9.7		3.4		175.8		3.2		7.5		155.2				24.5
Interest rate caps - sold		1,595.3				15.2		1,336.0				24.3		1,433.8				25.1
Interest rate caps - purchased		1,595.3		15.2				1,336.0		24.3				1,433.8		25.1

The amount of gain recorded in other comprehensive income (OCI) related to cash flow hedges at July 28, 2024 that is expected to be reclassified to interest expense in the next twelve months if interest rates remain unchanged is $20.6 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
July 28, 2024	Hedged Item		Adjustment		Hedged Item		Adjustment
Current maturities of long-term external borrowings					$	1,458.4	$	9.1
Long-term external borrowings	$	14,864.3	$	(375.0)		8,414.5		(263.8)

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)

July 30, 2023
Current maturities of long-term external borrowings					$	2,323.8	$	25.1
Long-term external borrowings	$	10,760.0	$	(667.4)		6,319.1		(265.0)

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				Nine Months Ended
	July 28		July 30		July 28		July 30
	2024		2023		2024		2023
Fair Value Hedges
Interest rate contracts – Interest expense *	$	363.1	$	(356.2)	$	259.3	$	(124.8)

Cash Flow Hedges
Recognized in OCI:
Interest rate contracts – OCI (pretax)	$	(14.8)	$	23.8	$	3.8	$	18.2
Reclassified from OCI:
Interest rate contracts – Interest expense		22.5		18.3		51.3		54.5

Not Designated as Hedges
Interest rate contracts – Interest expense *	$	(2.5)	$	25.0	$	(2.6)	$	27.4
Foreign currency exchange contracts – Administrative and operating expenses *		(4.8)		(40.4)		(92.3)		(100.2)
Total not designated	$	(7.3)	$	(15.4)	$	(94.9)	$	(72.8)

* 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 were gains (losses) of $397.9 and $312.5 for the three and nine months ended July 28, 2024, respectively, and $(326.3) and $(69.9) for the three and nine months ended July 30, 2023, 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 July 28, 2024, October 29, 2023, and July 30, 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 collateral were as follows:


	July 28, 2024
	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Derivatives:
Assets
External	$	30.2				$	30.2
John Deere		204.9	$	(143.6)			61.3
Liabilities
John Deere		498.7		(143.6)			355.1


	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


	July 30, 2023
	Gross Amounts Recognized		Netting Arrangements		Collateral	Net Amount
Derivatives:
Assets
External	$	8.4	$	(.1)		$	8.3
John Deere		169.5		(108.5)			61.0
Liabilities
External		5.2		(.1)			5.1
John Deere		743.4		(108.5)			634.9