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RECEIVABLES

12 Months Ended

Nov. 01, 2020

13. RECEIVABLES

Trade Accounts and Notes Receivable

Trade accounts and notes receivable at November 1, 2020 and November 3, 2019 in millions of dollars follows:


	2020		2019
Trade accounts and notes:
Agriculture and turf	$	2,881	$	3,224
Construction and forestry		1,290		2,006
Trade accounts and notes receivable – net	$	4,171	$	5,230

The allowance for credit losses on trade accounts and notes receivable at November 1, 2020, November 3, 2019, and October 28, 2018, as well as the related activity, in millions of dollars follow:


	2020		2019		2018
Beginning of year balance	$	72	$	70	$	56
Provision				8		36
Write-offs		(23)		(14)		(16)
Recoveries		1		4
Translation adjustments		(11)		4		(6)
End of year balance	$	39	$	72	$	70

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.

During 2020, the company provided short-term payment relief on trade accounts and notes receivables to independent dealers and certain other customers (customers) that were negatively affected by the economic effects of COVID. The relief was provided both in regional programs and case-by-case situations with creditworthy customers. This relief generally included payment deferrals not exceeding three months, extending interest-free periods for up to an additional three months with the total interest-free period not to exceed one year, or reducing interest rates for a maximum of three months. The trade receivable balance granted relief that remained outstanding at November 1, 2020 was $75 million, or approximately 2 percent of the trade receivable portfolio. These actions were taken in response to the economic effects of COVID on customers. Outside of these actions, the company is not modifying its normal sales terms with customers that are outlined in Note 2.

For customers who obtained payment relief, subsequent sales transactions are evaluated to confirm the revenue recognition criteria are met, including the sales price is determinable and collectability of the payments is probable based on the terms outlined in the contract.

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 1, 2020 and November 3, 2019 in millions of dollars follow:


	2020				2019
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes:
Agriculture and turf	$	17,780	$	4,134	$	16,712	$	3,799
Construction and forestry		3,629		680		3,134		697
Total		21,409		4,814		19,846		4,496
Wholesale notes		3,547				4,645
Revolving charge accounts		3,962				4,004
Financing leases (direct and sales-type)		2,364				2,263
Total financing receivables		31,282		4,814		30,758		4,496
Less:
Unearned finance income:
Retail notes		1,066		98		1,141		101
Wholesale notes		18				11
Revolving charge accounts		60				61
Financing leases		217				212
Total		1,361		98		1,425		101
Allowance for credit losses		171		13		138		12
Financing receivables – net	$	29,750	$	4,703	$	29,195	$	4,383

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 1, 2020 and November 3, 2019 related to the company’s sales of equipment that were included in the table above consisted of the following in millions of dollars:


	2020				2019
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes*:
Agriculture and turf	$	1,971			$	2,164
Construction and forestry		335	$	27		374	$	45
Total		2,306		27		2,538		45
Wholesale notes		3,547				4,645
Sales-type leases		1,045				1,064
Total		6,898		27		8,247		45
Less:
Unearned finance income:
Retail notes		178				242
Wholesale notes		18				11
Sales-type leases		82				83
Total		278				336
Financing receivables related to the company’s sales of equipment	$	6,620	$	27	$	7,911	$	45

* 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 1, 2020 and November 3, 2019 were scheduled as follows in millions of dollars:


	2020				2019
	Unrestricted/Securitized				Unrestricted/Securitized
Due in months:
0 – 12	$	14,983	$	1,971	$	16,174	$	2,067
13 – 24		6,180		1,354		5,639		1,214
25 – 36		4,556		889		4,133		777
37 – 48		3,145		460		2,759		369
49 – 60		1,794		129		1,555		67
Thereafter		624		11		498		2
Total	$	31,282	$	4,814	$	30,758	$	4,496

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 seven years. The average term for wholesale notes is less than twelve months.

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. The company ceases accruing finance income when these receivables are generally 90 days delinquent. Generally, when receivables are 120 days delinquent the estimated uncollectible amount, after charging the dealer’s deposit 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.

Due to the significant, negative effects of COVID on dealers and retail customers, the company provided short-term payment relief to dealers and retail customers on financing receivables, which includes retail notes, wholesale notes, revolving charge accounts, and sales-type and direct financing leases. The relief was provided in regional programs and case-by-case situations with customers that were generally current in their payment obligations. This relief generally included payment deferrals or reduced financing rates of three months or less. The balance of financing receivables granted relief was approximately 4 percent of the total financing receivable balance at November 1, 2020. The delinquency status of receivables granted relief is based on the modified payment schedule.

An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables at November 1, 2020 and November 3, 2019 follows in millions of dollars:


	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
2020
Retail Notes:
Agriculture and turf	$	122	$	59			$	181
Construction and forestry		89		48	$	14		151
Other:
Agriculture and turf		26		9		2		37
Construction and forestry		24		8				32
Total	$	261	$	124	$	16	$	401


			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	181	$	242	$	20,454	$	20,877
Construction and forestry		151		86		3,945		4,182
Other:
Agriculture and turf		37		74		7,940		8,051
Construction and forestry		32		21		1,474		1,527
Total	$	401	$	423	$	33,813		34,637
Less allowance for credit losses								184
Total financing receivables - net							$	34,453


	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

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
2020
Allowance:
Beginning of year balance	$	89	$	40	$	21	$	150
Provision		69		26		15		110
Write-offs		(57)		(53)		(8)		(118)
Recoveries		15		30		2		47
Translation adjustments		(7)				2		(5)
End of year balance*	$	109	$	43	$	32	$	184

Financing receivables:
End of year balance	$	25,059	$	3,902	$	5,676	$	34,637

Balance individually evaluated	$	137	$	1	$	117	$	255


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

* Individual allowances were not significant.

The negative economic effects related to COVID and other macroeconomic issues have significantly affected certain retail borrowers, particularly of construction equipment.

Past-due amounts over 30 days represented 1.16 percent and 1.23 percent of the receivables financed at November 1, 2020 and November 3, 2019, respectively. The allowance for credit losses represented .53 percent and .44 percent of financing receivables outstanding at November 1, 2020 and November 3, 2019, respectively. In addition, at November 1, 2020 and November 3, 2019, the company’s financial services operations had $136 million and $152 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 1, 2020 and November 3, 2019 follows in millions of dollars:


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
2020*
Receivables with specific allowance**	$	136	$	136	$	22	$	151
Receivables without a specific allowance***		36		34				40
Total	$	172	$	170	$	22	$	191
Agriculture and turf	$	161	$	160	$	18	$	177
Construction and forestry	$	11	$	10	$	4	$	14


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

* Finance income recognized was not material.

** Primarily financing leases, wholesale receivables, and retail notes.

*** 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 2020, 2019, and 2018, the company identified 574, 522, and 587 receivable contracts, primarily wholesale receivables in Argentina, as troubled debt restructurings with aggregate balances of $108 million, $36 million, and $34 million pre-modification and $95 million, $35 million, and $34 million post-modification, respectively. In 2020 and 2019, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At November 1, 2020, the company had commitments to lend approximately $10 million to borrowers whose accounts were modified in troubled debt restructurings.

Other Receivables

Other receivables at November 1, 2020 and November 3, 2019 consisted of the following in millions of dollars:


	2020		2019
Taxes receivable	$	931	$	1,231
Other		289		256
Other receivables	$	1,220	$	1,487