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RECEIVABLES

12 Months Ended

Nov. 03, 2019

13. RECEIVABLES

Trade Accounts and Notes Receivable

Trade accounts and notes receivable at November 3, 2019 and October 28, 2018 in millions of dollars follows:


	2019		2018
Trade accounts and notes:
Agriculture and turf	$	3,224	$	3,210
Construction and forestry		2,006		1,794
Trade accounts and notes receivable – net	$	5,230	$	5,004

The allowance for credit losses on trade accounts and notes receivable at November 3, 2019, October 28, 2018, and October 29, 2017, as well as the related activity, in millions of dollars follow:


	2019		2018		2017
Beginning of year balance	$	70	$	56	$	50
Provision		8		36		11
Write-offs		(14)		(16)		(3)
Recoveries		4
Translation adjustments		4		(6)		(2)
End of year balance	$	72	$	70	$	56

The equipment operations sell a significant portion of their trade receivables to financial services and provide compensation to these operations at approximate market rates of interest.

Trade accounts and notes receivable primarily arise from sales of goods to independent dealers. Under the terms of the sales to dealers, interest is primarily charged to dealers on outstanding balances, from the earlier of the date when goods are sold to retail customers by the dealer or the expiration of certain interest-free periods granted at the time of the sale to the dealer, until payment

is received by the company. Dealers cannot cancel purchases after the company recognizes a sale and are responsible for payment even if the equipment is not sold to retail customers. The interest-free periods are determined based on the type of equipment sold and the time of year of the sale. These periods range from one to twelve months for most equipment. Interest-free periods may not be extended. Interest charged may not be forgiven and the past due interest rates exceed market rates. The company evaluates and assesses dealers on an ongoing basis as to their creditworthiness and generally secures the receivables by retaining a security interest in the goods associated with the trade receivables or with other financial instruments. In certain jurisdictions, the company is obligated to repurchase goods sold to a dealer upon cancellation or termination of the dealer’s contract for such causes as change in ownership and closeout of the business.

Trade accounts and notes receivable include receivables from sales to certain retail customers with payment terms less than twelve months. The customer cannot cancel purchases or return the equipment after delivery. The company evaluates and assesses retail customers at the time of purchase as to their creditworthiness and generally retains a security interest in the goods associated with the receivables.

Trade accounts and notes receivable have significant concentrations of credit risk in the agriculture and turf sector and construction and forestry sector as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area.

Financing Receivables

Financing receivables at November 3, 2019 and October 28, 2018 in millions of dollars follow:


	2019				2018
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes:
Agriculture and turf	$	16,712	$	3,799	$	15,885	$	3,441
Construction and forestry		3,134		697		2,776		675
Total		19,846		4,496		18,661		4,116
Wholesale notes		4,645				4,009
Revolving charge accounts		4,004				3,907
Financing leases (direct and sales-type)		2,263				1,948
Total financing receivables		30,758		4,496		28,525		4,116
Less:
Unearned finance income:
Retail notes		1,141		101		1,069		84
Wholesale notes		11				10
Revolving charge accounts		61				45
Financing leases		212				179
Total		1,425		101		1,303		84
Allowance for credit losses		138		12		168		10
Financing receivables – net	$	29,195	$	4,383	$	27,054	$	4,022

The residual values for investments in financing leases at November 3, 2019 and October 28, 2018 totaled $333 million and $294 million, respectively.

Financing receivables have significant concentrations of credit risk in the agriculture and turf sector and construction and forestry sector as shown in the previous table. On a geographic basis, there is not a disproportionate concentration of credit risk in any area. The company generally retains as collateral a security interest in the equipment associated with retail notes, wholesale notes, and financing leases.

Financing receivables at November 3, 2019 and October 28, 2018 related to the company’s sales of equipment that were included in the table above consisted of the following in millions of dollars:


	2019				2018
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes*:
Agriculture and turf	$	2,164			$	2,312
Construction and forestry		374	$	45		441	$	77
Total		2,538		45		2,753		77
Wholesale notes		4,645				4,009
Sales-type leases		1,064				878
Total		8,247		45		7,640		77
Less:
Unearned finance income:
Retail notes		242				261		1
Wholesale notes		11				10
Sales-type leases		83				68
Total		336				339		1
Financing receivables related to the company’s sales of equipment	$	7,911	$	45	$	7,301	$	76

* These retail notes generally arise from sales of equipment by company-owned dealers or through direct sales.

Financing receivable installments, including unearned finance income, at November 3, 2019 and October 28, 2018 are scheduled as follows in millions of dollars:


	2019				2018
	Unrestricted/Securitized				Unrestricted/Securitized
Due in months:
0 – 12	$	16,174	$	2,067	$	14,658	$	1,922
13 – 24		5,639		1,214		5,355		1,160
25 – 36		4,133		777		3,911		652
37 – 48		2,759		369		2,663		315
49 – 60		1,555		67		1,480		65
Thereafter		498		2		458		2
Total	$	30,758	$	4,496	$	28,525	$	4,116

The maximum terms for retail notes are generally seven years for agriculture and turf equipment and five years for construction and forestry equipment. The maximum term for financing leases is generally six years, while the average term for wholesale notes is less than twelve months.

At November 3, 2019 and October 28, 2018, worldwide net financing receivables administered, which include financing receivables administered but not owned, totaled $33,583 million and $31,082 million, respectively.

Past due balances of financing receivables still accruing finance income represent the total balance held (principal plus accrued interest) with any payment amounts 30 days or more past the contractual payment due date. Non-performing financing receivables represent loans for which the company has ceased accruing finance income. Beginning in 2019, the company ceased accruing finance income when these receivables are generally 90 days delinquent. Previously, finance income ceased accruing when the receivables were generally 120 days delinquent. This change in estimate was made on a prospective basis and did not have a significant effect on the company’s consolidated financial statements. Management’s methodology to determine the collectability of delinquent accounts was not affected by the change. Generally, when receivables are 120 days delinquent the estimated uncollectible amount, after charging the dealer’s withholding account, if any, is written off to the allowance for credit losses. Finance income for non-performing receivables is recognized on a cash basis. Accrual of finance income is generally resumed when the receivable becomes contractually current and collections are reasonably assured.

An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables at November 3, 2019 and October 28, 2018 follows in millions of dollars:


	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
2019
Retail Notes:
Agriculture and turf	$	138	$	73	$	1	$	212
Construction and forestry		79		29		4		112
Other:
Agriculture and turf		39		19		1		59
Construction and forestry		26		7				33
Total	$	282	$	128	$	6	$	416


			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	212	$	268	$	18,931	$	19,411
Construction and forestry		112		127		3,450		3,689
Other:
Agriculture and turf		59		28		8,986		9,073
Construction and forestry		33		26		1,496		1,555
Total	$	416	$	449	$	32,863		33,728
Less allowance for credit losses								150
Total financing receivables - net							$	33,578

(continued)


	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
2018
Retail Notes:
Agriculture and turf	$	133	$	74	$	63	$	270
Construction and forestry		79		45		52		176
Other:
Agriculture and turf		36		16		8		60
Construction and forestry		18		5		3		26
Total	$	266	$	140	$	126	$	532


			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	270	$	201	$	17,836	$	18,307
Construction and forestry		176		40		3,101		3,317
Other:
Agriculture and turf		60		15		8,274		8,349
Construction and forestry		26		3		1,252		1,281
Total	$	532	$	259	$	30,463		31,254
Less allowance for credit losses								178
Total financing receivables - net							$	31,076

An analysis of the allowance for credit losses and investment in financing receivables follows in millions of dollars:


			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
2019
Allowance:
Beginning of year balance	$	113	$	43	$	22	$	178
Provision (credit)		(2)		29		8		35
Write-offs		(40)		(58)		(7)		(105)
Recoveries		22		26		1		49
Translation adjustments		(4)				(3)		(7)
End of year balance*	$	89	$	40	$	21	$	150

Financing receivables:
End of year balance	$	23,100	$	3,943	$	6,685	$	33,728

Balance individually evaluated	$	156			$	13	$	169


2018
Allowance:
Beginning of year balance	$	121	$	40	$	26	$	187
Provision		14		38		2		54
Write-offs		(33)		(55)		(6)		(94)
Recoveries		17		20		1		38
Translation adjustments		(6)				(1)		(7)
End of year balance*	$	113	$	43	$	22	$	178

Financing receivables:
End of year balance	$	21,624	$	3,862	$	5,768	$	31,254

Balance individually evaluated	$	122	$	2	$	12	$	136

(continued)


				Revolving
		Retail		Charge
		Notes		Accounts		Other		Total
2017
Allowance:
Beginning of year balance	$	113	$	40	$	23	$	176
Provision		46		33		9		88
Write-offs		(56)		(53)		(7)		(116)
Recoveries		20		20		1		41
Translation adjustments		(2)						(2)
End of year balance*	$	121	$	40	$	26	$	187

Financing receivables:
End of year balance	$	20,697	$	3,629	$	5,124	$	29,450

Balance individually evaluated	$	86	$	3	$	20	$	109

* Individual allowances were not significant.

Past-due amounts over 30 days represented 1.23 percent and 1.70 percent of the receivables financed at November 3, 2019 and October 28, 2018, respectively. The allowance for credit losses represented .44 percent and .57 percent of financing receivables outstanding at November 3, 2019 and October 28, 2018, respectively. In addition, at November 3, 2019 and October 28, 2018, the company’s financial services operations had $152 million and $156 million, respectively, of deposits primarily withheld from dealers and merchants available for potential credit losses.

Financing receivables are considered impaired when it is probable the company will be unable to collect all amounts due according to the contractual terms. Receivables reviewed for impairment generally include those that are past due, have provided bankruptcy notification, or require significant collection efforts. Receivables that are impaired are generally classified as non-performing.

An analysis of the impaired financing receivables at November 3, 2019 and October 28, 2018 follows in millions of dollars:


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
2019*
Receivables with specific allowance**	$	40	$	39	$	13	$	40
Receivables without a specific allowance**		32		31				37
Total	$	72	$	70	$	13	$	77
Agriculture and turf	$	49	$	48	$	8	$	52
Construction and forestry	$	23	$	22	$	5	$	25


2018*
Receivables with specific allowance**	$	28	$	27	$	10	$	30
Receivables without a specific allowance**		37		35				41
Total	$	65	$	62	$	10	$	71
Agriculture and turf	$	50	$	48	$	9	$	54
Construction and forestry	$	15	$	14	$	1	$	17

* Finance income recognized was not material.

** Primarily retail notes.

A troubled debt restructuring is generally the modification of debt in which a creditor grants a concession it would not otherwise consider to a debtor that is experiencing financial difficulties. These modifications may include a reduction of the stated interest rate, an extension of the maturity dates, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During 2019, 2018, and 2017, the company identified 522, 587, and 474 receivable contracts, primarily trade receivables and retail notes, as troubled debt restructurings with aggregate balances of $36 million, $34 million, and $16 million pre-modification and $35 million, $34 million, and $15 million post-modification, respectively. In 2017, there were $3 million of troubled debt restructurings that subsequently defaulted and were written off. In 2019 and 2018, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At November 3, 2019, the company had commitments to lend approximately $18 million to borrowers whose accounts were modified in troubled debt restructurings.

Other Receivables

Other receivables at November 3, 2019 and October 28, 2018 consisted of the following in millions of dollars:


	2019		2018
Taxes receivable	$	1,231	$	1,370
Other		256		366
Other receivables	$	1,487	$	1,736