Equipment on Operating Leases

12 Months Ended

Oct. 31, 2011

Equipment on Operating Leases

Equipment on Operating Leases

Note 7. Equipment on Operating Leases

Rental payments applicable to equipment on 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 generally on a straight-line method over the terms of the leases. Residual values represent estimates of the value of the leased assets at the end of the contract terms and are initially determined based upon appraisals and estimates. The Company evaluates the carrying value of its operating lease assets and tests for impairment when events or circumstances necessitate the evaluation. Generally, impairment is determined to exist if the undiscounted expected future cash flows from the operating leases are lower than the carrying value of the leased assets. During 2011, 2010 and 2009, the Company recorded impairment losses on operating leases of $.8 million, $1.3 million and $7.7 million, respectively.

The cost of equipment on operating leases by product category at October 31 is as follows (in millions of dollars):

	2011			2010
Agriculture and turf equipment	$	1,105.9		$	971.2
Construction and forestry equipment	472.1			521.4
Total	1,578.0			1,492.6
Accumulated depreciation	(345.9		)	(350.8		)
Equipment on operating leases — net	$	1,232.1		$	1,141.8

Initial lease terms for equipment on operating leases generally range from 4 months to 60 months. Rental payments for equipment on operating leases at October 31 are scheduled as follows (in millions of dollars):

	2011		2010
Due in:
0-12 months	$	215.5	$	213.2
13-24 months	128.8		123.4
25-36 months	64.9		64.1
37-48 months	27.7		30.8
Over 48 months	4.1		5.8
Total	$	441.0	$	437.3

As with construction and forestry retail notes, there are no deposits withheld from dealers on operating leases related to construction and forestry equipment. In addition, a lease payment discount program, allowing reduced payments over the term of the lease, is administered in a manner similar to finance waiver on retail notes. During 2011, 2010 and 2009, the operating lease revenue earned from John Deere was $6 million, $7 million and $9 million, respectively.

Equipment returned to the Company upon termination of leases and held for subsequent sale or lease is recorded at the lower of net book value or estimated fair value of the equipment less cost to sell and is not depreciated.

Past due balances of operating leases represent the total balance held (net book value plus accrued lease payments) with any payment amounts 30 days or more past the contractual payment due date. These amounts were $25.6 million, $25.2 million and $78.4 million at October 31, 2011, 2010 and 2009, respectively.