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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Oct. 31, 2016
COMMITMENTS AND CONTINGENCIES |
COMMITMENTS AND CONTINGENCIES | 22. COMMITMENTS AND CONTINGENCIES The company generally determines its warranty liability by applying historical claims rate experience to the estimated amount of equipment that has been sold and is still under warranty based on dealer inventories and retail sales. The historical claims rate is primarily determined by a review of five-year claims costs and current quality developments. The premiums for the company’s extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. The unamortized extended warranty premiums (unearned revenue) included in the following table totaled $447 million and $454 million at October 31, 2016 and 2015, respectively. A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:
|  | Warranty Liability/ |
|  | Unearned Premiums |
|  | 2016 |  | 2015 |
Beginning of year balance |  | $ | 1,261 |  | $ | 1,234 |
Payments |  |  | (783) |  |  | (779) |
Amortization of premiums received |  |  | (202) |  |  | (161) |
Accruals for warranties |  |  | 758 |  |  | 810 |
Premiums received |  |  | 181 |  |  | 209 |
Foreign exchange |  |  | 11 |  |  | (52) |
End of year balance |  | $ | 1,226 |  | $ | 1,261 |
At October 31, 2016, the company had approximately $152 million of guarantees issued primarily to banks outside the U.S. related to third-party receivables for the retail financing of John Deere equipment. The company may recover a portion of any required payments incurred under these agreements from repossession of the equipment collateralizing the receivables. At October 31, 2016, the company had accrued losses of approximately $4 million under these agreements. The maximum remaining term of the receivables guaranteed at October 31, 2016 was approximately four years. At October 31, 2016, the company had commitments of approximately $138 million for the construction and acquisition of property and equipment. At October 31, 2016, the company also had pledged or restricted assets of $117 million, primarily as collateral for borrowings and restricted other assets. In addition, see Note 13 for restricted assets associated with borrowings related to securitizations. The company also had other miscellaneous contingencies totaling approximately $65 million at October 31, 2016, for which it believes the probability for payment is substantially remote. The accrued liability for these contingencies was not material at October 31, 2016. The company is subject to various unresolved legal actions which arise in the normal course of its business, the most prevalent of which relate to product liability (including asbestos related liability), retail credit, employment, software licensing, patent, trademark and environmental matters. The company believes the reasonably possible range of losses for these unresolved legal actions in addition to the amounts accrued would not have a material effect on its financial statements.

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