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LEASES

9 Months Ended

Aug. 01, 2021

(17) Leases

Lessee

Operating and finance lease right of use assets and liabilities were as follows in millions of dollars:


	August 1		November 1		August 2
	2021		2020		2020
Operating leases:
Other assets	$	310	$	324	$	341
Accounts payable and accrued expenses		304		305		318

Finance leases:
Property and equipment - net	$	68	$	63	$	56

Short-term borrowings	$	23	$	21	$	18
Long-term borrowings		42		39		33
Total finance lease liabilities	$	65	$	60	$	51

Right of use assets obtained in exchange for lease liabilities were as follows in millions of dollars:


	Nine Months Ended
	August 1, 2021		August 2, 2020
Operating leases	$	80	$	27
Finance leases		25		37

Lessor

The Company leases equipment manufactured or sold by the Company and a limited amount of non-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.

Lease revenues earned by the Company were as follows in millions of dollars:


	Three Months Ended				Nine Months Ended
	August 1, 2021		August 2, 2020		August 1, 2021		August 2, 2020
Sales-type and direct financing lease revenues	$	37	$	33	$	107	$	101
Operating lease revenues		359		361		1,079		1,104
Variable lease revenues		6		6		18		17
Total lease revenues	$	402	$	400	$	1,204	$	1,222

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. In the second quarter of 2020, the Company recorded impairment losses on operating leases of $22 million 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 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. In the second quarter of 2020, the Company recorded impairment losses on matured operating lease inventory of $10 million due to lower estimated values of used construction equipment. These impairment losses were included in “Other operating expenses.”

Due to the significant, negative effects of COVID, the Company provided short-term payment 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 since the beginning of the pandemic that remained outstanding at August 1, 2021 represented approximately 3 percent of the Company’s operating lease portfolio. The majority of operating leases granted short-term relief are beyond the deferral period and have resumed making payments.