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LEASES | 12 Months Ended
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Oct. 31, 2021
LEASES |
LEASES | 25. LEASES The company is both a lessee and a lessor. The company leases for its own use primarily warehouse facilities, office space, production equipment, information technology equipment, and vehicles. The expected use periods generally range from less than one year to 20 years. The company’s financial services segment leases to users equipment produced or sold by the company, and a limited amount of other equipment. These leases are usually written for periods of less than one year to seven years. The company determines if an arrangement is or contains a lease at the contract inception. Lessee The company recognizes on the balance sheet a lease liability and a right of use asset for leases with a term greater than one year for both operating and finance leases. 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 the company’s incremental borrowing rate since the rate implicit in the lease is generally not readily determinable. The company determines the incremental borrowing rate for each lease based primarily 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. Certain real estate leases contain one or more options to terminate or renew, with terms that can generally extend the lease term from one to ten years. Options that the company is reasonably certain to exercise are included in the lease term. The company has 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 primarily 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 in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Operating lease expense | ​ | $ | 116 | ​ | $ | 126 | ​
Short-term lease expense | ​ | ​ | 29 | ​ | ​ | 23 | ​
Variable lease expense | ​ | ​ | 53 | ​ | ​ | 41 | ​
Finance lease: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Depreciation expense | ​ | ​ | 26 | ​ | ​ | 20 | ​
Interest on lease liabilities | ​ | ​ | 1 | ​ | ​ | 2 | ​
Total lease expense | ​ | $ | 225 | ​ | $ | 212 | ​
​ Operating and finance lease right of use assets and lease liabilities follow in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Operating leases: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Other assets | ​ | $ | 291 | ​ | $ | 324 | ​
Accounts payable and accrued expenses | ​ | ​ | 279 | ​ | ​ | 305 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Finance leases: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Property and equipment — net | ​ | $ | 71 | ​ | $ | 63 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Short-term borrowings | ​ | ​ | 23 | ​ | ​ | 21 | ​
Long-term borrowings | ​ | ​ | 38 | ​ | ​ | 39 | ​
Total finance lease liabilities | ​ | $ | 61 | ​ | $ | 60 | ​
​ The weighted-average remaining lease terms in years and discount rates follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Weighted-average remaining lease terms: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating leases | ​ | ​ | 5 | ​ | ​ | 5 | ​
Finance leases | ​ | ​ | 2 | ​ | ​ | 3 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Weighted-average discount rates: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating leases | ​ | ​ | 2.3% | ​ | ​ | 2.1% | ​
Finance leases | ​ | ​ | 2.3% | ​ | ​ | 2.2% | ​
​ Lease payment amounts in each of the next five years at October 31, 2021 follow in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Operating | ​ | Finance | ​
Due in: | ​ | Leases | ​ | Leases | ​
2022 | ​ | $ | 83 | ​ | $ | 25 | ​
2023 | ​ | ​ | 69 | ​ | ​ | 19 | ​
2024 | ​ | ​ | 54 | ​ | ​ | 11 | ​
2025 | ​ | ​ | 32 | ​ | ​ | 5 | ​
2026 | ​ | ​ | 15 | ​ | ​ | 1 | ​
Later years | ​ | ​ | 41 | ​ | ​ | 3 | ​
Total lease payments | ​ | ​ | 294 | ​ | ​ | 64 | ​
Less imputed interest | ​ | ​ | 15 | ​ | ​ | 3 | ​
Total lease liabilities | ​ | $ | 279 | ​ | $ | 61 | ​
​ Cash paid for amounts included in the measurement of lease liabilities follows in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Operating cash flows from operating leases | ​ | $ | 104 | ​ | $ | 124 | ​
Operating cash flows from finance leases | ​ | ​ | 1 | ​ | ​ | 2 | ​
Financing cash flows from finance leases | ​ | ​ | 25 | ​ | ​ | 17 | ​
​ Right of use assets obtained in exchange for lease liabilities follow in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Operating leases | ​ | $ | 101 | ​ | $ | 40 | ​
Finance leases | ​ | ​ | 27 | ​ | ​ | 46 | ​
​ Lessor The company leases equipment manufactured or sold by the company 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 receivables - net” on the consolidated balance sheet. Operating leases are reported in “Equipment on operating leases - net” on the consolidated balance sheet. Leases offered by the company may include early termination and renewal options. At the end of a lease, the lessee generally has the option to purchase the underlying equipment for a fixed price 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 the company for remarketing. The company estimates 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. The company reviews residual value estimates during the lease term and tests the carrying value of its 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 the company to assess lessees for excess use or damages to the underlying equipment. In 2020 and 2019, the company recorded impairment losses on operating leases of $22 million and $59 million, respectively, due to higher expected equipment return rates and lower estimated values of used construction equipment. Operating lease impairments were recorded in “Other operating expenses.” The company has elected to combine lease and nonlease components. The nonlease components primarily relate to preventative maintenance and extended warranty agreements financed by the retail customer. The company has 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” on the statement of consolidated income. Variable lease revenues primarily relate to property taxes on leased assets in certain markets and late fees. Variable lease revenues also include excess use and damage fees of $7 million and $8 million for 2021 and 2020, respectively, which were reported in “Other income” on the statement of consolidated income. Due to the significant, negative effects of COVID, the company provided short-term relief to lessees during 2020, and to a much lesser extent in 2021. The relief, which included payment deferrals of three months or less, was provided in regional programs and on a case-by-case basis with customers that were generally current in their payment obligations. The operating leases granted relief represented approximately 2 percent and 4 percent of the company’s operating lease portfolio at October 31, 2021 and November 1, 2020, respectively. The majority of operating leases granted short-term relief are beyond the deferral period and have resumed making payments. See Note 13 for sales-type and direct financing leases provided payment relief. Lease revenues earned by the company follow in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Sales-type and direct finance lease revenues | ​ | $ | 145 | ​ | $ | 135 | ​
Operating lease revenues | ​ | ​ | 1,423 | ​ | ​ | 1,469 | ​
Variable lease revenues | ​ | ​ | 30 | ​ | ​ | 31 | ​
Total lease revenues | ​ | $ | 1,598 | ​ | $ | 1,635 | ​
​ At the time of accepting a lease that qualifies as a sales-type or direct financing lease, the company records 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 in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Agriculture and turf | ​ | $ | 1,131 | ​ | $ | 985 | ​
Construction and forestry | ​ | ​ | 1,284 | ​ | ​ | 1,030 | ​
Total | ​ | ​ | 2,415 | ​ | ​ | 2,015 | ​
Guaranteed residual values | ​ | ​ | 394 | ​ | ​ | 278 | ​
Unguaranteed residual values | ​ | ​ | 70 | ​ | ​ | 71 | ​
Less unearned finance income | ​ | ​ | (258) | ​ | ​ | (217) | ​
Financing lease receivables | ​ | $ | 2,621 | ​ | $ | 2,147 | ​
​ Scheduled payments, including guaranteed residual values, on sales-type and direct financing lease receivables at October 31, 2021 follow in millions of dollars: ​
​ | ​ | ​ | ​ | ​
Due in: | ​ | 2021 | ​
2022 | ​ | $ | 1,223 | ​
2023 | ​ | ​ | 712 | ​
2024 | ​ | ​ | 461 | ​
2025 | ​ | ​ | 229 | ​
2026 | ​ | ​ | 161 | ​
Later years | ​ | ​ | 23 | ​
Total | ​ | $ | 2,809 | ​
​ 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 in millions of dollars: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | 2021 | ​ | ​ | 2020 | ​
Agriculture and turf | ​ | $ | 7,317 | ​ | $ | 7,366 | ​
Construction and forestry | ​ | ​ | 1,616 | ​ | ​ | 1,921 | ​
Total | ​ | ​ | 8,933 | ​ | ​ | 9,287 | ​
Less accumulated depreciation | ​ | ​ | (1,945) | ​ | ​ | (1,989) | ​
Equipment on operating leases - net | ​ | $ | 6,988 | ​ | $ | 7,298 | ​
​ The total operating lease residual values at October 31, 2021 and November 1, 2020 were $5,025 million and $5,254 million, respectively. Certain operating leases are subject to residual value guarantees. The total residual value guarantees were $950 million and $757 million at October 31, 2021 and November 1, 2020, respectively. The residual value guarantees at October 31, 2021 and November 1, 2020 include $3 million and $5 million, respectively, of dealer deposits available for potential losses on residual values. The equipment is depreciated on a straight-line basis over the term of the lease. The corresponding depreciation expense was $983 million in 2021, $1,083 million in 2020, and $981 million in 2019. Lease payments for equipment on operating leases at October 31, 2021 were scheduled as follows in millions of dollars: ​
​ | ​ | ​ | ​ | ​
Due in: | ​ | 2021 | ​
2022 | ​ | $ | 1,027 | ​
2023 | ​ | ​ | 693 | ​
2024 | ​ | ​ | 409 | ​
2025 | ​ | ​ | 207 | ​
2026 | ​ | ​ | 50 | ​
Later years | ​ | ​ | 6 | ​
Total | ​ | $ | 2,392 | ​
​ Past due balances of operating leases represent the total balance held (net book value plus accrued lease payments) and still accruing financing income with any payment amounts 30 days or more past the contractual payment due date. These amounts were $70 million and $87 million at October 31, 2021 and November 1, 2020, respectively. The delinquency status of operating leases granted relief due to COVID is based on the modified payment schedule. The company discusses with lessees and dealers options to purchase the equipment or extend the lease prior to lease maturity. Equipment returned to the company upon termination of leases is remarketed by the company and recorded in “Other assets” at the lower of net book value or estimated fair value of the equipment less costs to sell and is not depreciated. The matured operating lease inventory balances at October 31, 2021 and November 1, 2020 were $30 million and $70 million, respectively. In 2020, the company recorded impairment losses on matured operating lease inventory of $10 million due to lower estimated values of used construction equipment. Impairment losses on matured operating lease inventory were included in “Other operating expenses.”

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