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Receivables

6 Months Ended

May 01, 2022

(4) Receivables

Credit Quality

The Company monitors the credit quality of Receivables based on delinquency status. Past due balances of 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 Receivables represent receivables for which the Company has ceased accruing finance income. Generally, when retail notes, revolving charge accounts, and financing lease accounts are 90 days delinquent, accrual of finance income and lease revenue is suspended, and accrued finance income and lease revenue previously recognized is reversed. Generally, when a wholesale receivable becomes 60 days delinquent, the Company determines whether the accrual of finance income on interest-bearing wholesale receivables should be suspended and whether accrued finance income previously recognized should be reversed. During the second quarter and first six months of 2022, $3.0 million and $6.8 million, respectively, of accrued finance income and lease revenue was reversed on non-performing Receivables. Finance income and lease revenue for non-performing Receivables is recognized on a cash basis. Accrual of finance income and lease revenue is generally resumed when the receivable becomes contractually current and collections are reasonably assured. During the second quarter and first six months of 2022, finance income and lease revenue of $3.9 million and $7.0 million, respectively, was recognized from cash payments on non-performing Receivables.

Receivable balances are written off to the allowance for credit losses when, in the judgment of management, they are considered uncollectible. Generally, when retail notes and financing lease accounts are 120 days delinquent, the collateral is repossessed or the account is designated for litigation, and the estimated uncollectible amount from the customer is written off to the allowance for credit losses. Revolving charge accounts are generally deemed to be uncollectible and written off to the allowance for credit losses when delinquency reaches 120 days. Generally, when a wholesale account becomes 60 days delinquent, the Company determines whether the collateral should be repossessed or the account designated for litigation, and the estimated uncollectible amount is written off to the allowance for credit losses.

The credit quality analysis of retail notes, financing leases, and revolving charge accounts (collectively, Customer Receivables) by year of origination was as follows (in millions of dollars):


	May 1, 2022
	2022		2021		2020		2019		2018		Prior Years		Revolving Charge Accounts		Total
Customer Receivables:
Agriculture and turf
Current	$	5,095.0	$	8,934.0	$	4,492.9	$	2,108.4	$	925.3	$	370.4	$	3,299.5	$	25,225.5
30-59 days past due		18.0		66.3		31.6		16.9		7.6		4.0		11.0		155.4
60-89 days past due		3.7		20.7		9.7		5.4		3.7		1.8		4.1		49.1
90+ days past due				.3		.6				.2		.1				1.2
Non-performing		3.5		32.2		30.9		19.1		15.4		14.9		14.9		130.9
Construction and forestry
Current		1,326.9		1,929.9		902.5		380.7		116.3		26.8		91.1		4,774.2
30-59 days past due		15.6		43.0		28.7		11.0		3.5		1.4		3.1		106.3
60-89 days past due		6.2		19.3		12.1		4.9		1.4		.3		.7		44.9
90+ days past due		.2				.6		.4								1.2
Non-performing		2.7		37.6		43.8		24.5		9.6		4.6		.6		123.4
Total Customer Receivables	$	6,471.8	$	11,083.3	$	5,553.4	$	2,571.3	$	1,083.0	$	424.3	$	3,425.0	$	30,612.1


	October 31, 2021
	2021		2020		2019		2018		2017		Prior Years		Revolving Charge Accounts		Total
Customer Receivables:
Agriculture and turf
Current	$	11,318.1	$	5,719.1	$	2,842.5	$	1,431.0	$	582.8	$	119.9	$	3,620.9	$	25,634.3
30-59 days past due		34.7		47.5		24.2		13.7		5.9		2.9		13.1		142.0
60-89 days past due		12.8		17.4		8.4		5.1		2.4		.7		3.2		50.0
90+ days past due		.5		.5		.1		.2		.1						1.4
Non-performing		20.1		44.5		26.4		22.3		10.6		12.5		6.4		142.8
Construction and forestry
Current		2,356.4		1,198.5		573.5		215.6		42.5		5.4		92.3		4,484.2
30-59 days past due		36.6		33.0		21.1		5.8		2.0		.1		2.7		101.3
60-89 days past due		12.5		8.4		5.0		2.6		.5		.2		1.0		30.2
90+ days past due		.1		.4		.9				.1						1.5
Non-performing		21.9		50.0		33.9		15.1		6.3		2.9		.5		130.6
Total Customer Receivables	$	13,813.7	$	7,119.3	$	3,536.0	$	1,711.4	$	653.2	$	144.6	$	3,740.1	$	30,718.3


	May 2, 2021
	2021		2020		2019		2018		2017		Prior Years		Revolving Charge Accounts		Total
Customer Receivables:
Agriculture and turf
Current	$	5,347.9	$	7,187.4	$	3,645.2	$	1,976.0	$	899.2	$	305.4	$	3,137.1	$	22,498.2
30-59 days past due		17.8		56.7		33.0		16.5		9.2		4.5		19.1		156.8
60-89 days past due		3.6		28.8		12.9		7.2		3.5		1.8		4.8		62.6
90+ days past due						.8		.7		.3						1.8
Non-performing		1.9		42.6		41.7		38.6		18.2		18.3		16.5		177.8
Construction and forestry
Current		1,190.7		1,587.1		844.0		357.4		88.9		18.3		85.2		4,171.6
30-59 days past due		15.5		37.8		25.3		8.9		4.1		1.0		3.1		95.7
60-89 days past due		6.4		11.3		10.4		6.0		1.4		.4		1.3		37.2
90+ days past due				.6		3.9										4.5
Non-performing		.7		36.2		32.4		19.6		8.9		4.6		.8		103.2
Total Customer Receivables	$	6,584.5	$	8,988.5	$	4,649.6	$	2,430.9	$	1,033.7	$	354.3	$	3,267.9	$	27,309.4

The credit quality analysis of wholesale receivables by year of origination was as follows (in millions of dollars):


	May 1, 2022
	2022		2021		2020		2019		2018		Prior Years		Revolving		Total
Wholesale receivables:
Agriculture and turf
Current	$	223.2	$	149.8	$	41.4	$	7.8	$	1.2	$	1.8	$	5,548.6	$	5,973.8
30+ days past due														18.5		18.5
Non-performing														5.9		5.9
Construction and forestry
Current		3.7		33.0		1.9		1.7		.2				1,304.4		1,344.9
30+ days past due														3.3		3.3
Non-performing
Total wholesale receivables	$	226.9	$	182.8	$	43.3	$	9.5	$	1.4	$	1.8	$	6,880.7	$	7,346.4


	October 31, 2021
	2021		2020		2019		2018		2017		Prior Years		Revolving		Total
Wholesale receivables:
Agriculture and turf
Current	$	339.6	$	77.1	$	21.1	$	9.2	$	2.7	$	.4	$	4,233.4	$	4,683.5
30+ days past due														12.0		12.0
Non-performing														6.7		6.7
Construction and forestry
Current		39.4		4.0		3.4		.3						1,199.6		1,246.7
30+ days past due														2.4		2.4
Non-performing
Total wholesale receivables	$	379.0	$	81.1	$	24.5	$	9.5	$	2.7	$	.4	$	5,454.1	$	5,951.3


	May 2, 2021
	2021		2020		2019		2018		2017		Prior Years		Revolving		Total
Wholesale receivables:
Agriculture and turf
Current	$	189.8	$	138.4	$	45.0	$	12.4	$	3.6	$	.8	$	6,591.4	$	6,981.4
30+ days past due														9.7		9.7
Non-performing						.4								4.3		4.7
Construction and forestry
Current		4.9		6.6		4.7		.5						1,407.7		1,424.4
30+ days past due														3.9		3.9
Non-performing
Total wholesale receivables	$	194.7	$	145.0	$	50.1	$	12.9	$	3.6	$	.8	$	8,017.0	$	8,424.1

Allowance for Credit Losses

The allowance for credit losses is an estimate of the credit losses expected over the life of the Company’s Receivable portfolio. The Company measures expected credit losses on a collective basis when similar risk characteristics exist. Risk characteristics considered by the Company include product category, market, geography, credit risk, and remaining duration. Receivables that do not share risk characteristics with other receivables in the portfolio are evaluated on an individual basis. Non-performing Receivables are included in the estimate of expected credit losses.

Recoveries from freestanding credit enhancements, such as dealer deposits, and certain credit insurance contracts are not included in the estimate of expected credit losses. Recoveries from dealer deposits are recognized in other income on the statements of consolidated income when the dealer’s withholding account is charged. Recoveries from freestanding credit enhancements recorded in other income were $1.9 million for the second quarter and $3.1 million for the first six months of 2022, respectively, compared with $5.7 million and $6.6 million for the same periods last year, respectively.

An analysis of the allowance for credit losses and investment in Receivables during 2022 was as follows (in millions of dollars):


	Three Months Ended
	May 1, 2022
	Retail Notes		Revolving
	& Financing		Charge		Wholesale		Total
	Leases		Accounts		Receivables		Receivables
Allowance:
Beginning of period balance	$	94.7	$	15.2	$	11.5	$	121.4
Provision (credit) for credit losses*		10.9		2.5		.2		13.6
Write-offs		(13.3)		(7.5)		(.2)		(21.0)
Recoveries		3.7		7.1				10.8
Translation adjustments		(.1)		.1		(.3)		(.3)
End of period balance	$	95.9	$	17.4	$	11.2	$	124.5


	Six Months Ended
	May 1, 2022
	Retail Notes		Revolving
	& Financing		Charge		Wholesale		Total
	Leases		Accounts		Receivables		Receivables
Allowance:
Beginning of period balance	$	96.5	$	20.8	$	11.7	$	129.0
Provision (credit) for credit losses*		18.8		(6.9)		.3		12.2
Write-offs		(25.8)		(11.5)		(.2)		(37.5)
Recoveries		6.6		14.9				21.5
Translation adjustments		(.2)		.1		(.6)		(.7)
End of period balance	$	95.9	$	17.4	$	11.2	$	124.5

Receivables:
End of period balance	$	27,187.1	$	3,425.0	$	7,346.4	$	37,958.5

*Excludes provision (credit) for credit losses on unfunded commitments of $(.4) million and $(.2) million for the three and six months ended May 1, 2022, respectively. The estimated credit losses related to unfunded commitments are recorded in accounts payable and accrued expenses on the consolidated balance sheets.

The allowance for credit losses increased slightly in the second quarter, in part due to higher portfolio balances, and was lower for the first six months of 2022, reflecting continued strong agricultural market conditions.

An analysis of the allowance for credit losses and investment in Receivables during 2021 was as follows (in millions of dollars):


	Three Months Ended
	May 2, 2021
	Retail Notes		Revolving
	& Financing		Charge		Wholesale		Total
	Leases		Accounts		Receivables		Receivables
Allowance:
Beginning of period balance	$	115.7	$	24.3	$	9.5	$	149.5
Provision (credit) for credit losses*		(9.1)		(6.1)		(.1)		(15.3)
Write-offs		(7.1)		(9.0)		(.1)		(16.2)
Recoveries		2.1		9.8				11.9
Translation adjustments		(.3)		(.1)		.3		(.1)
End of period balance	$	101.3	$	18.9	$	9.6	$	129.8


	Six Months Ended
	May 2, 2021
	Retail Notes		Revolving
	& Financing		Charge		Wholesale		Total
	Leases		Accounts		Receivables		Receivables
Allowance:
Beginning of period balance	$	76.9	$	42.3	$	9.9	$	129.1
ASU No. 2016-13 adoption		32.5		(12.2)		(.6)		19.7
Provision (credit) for credit losses*		(2.4)		(15.8)		(.1)		(18.3)
Write-offs		(11.2)		(14.3)		(.1)		(25.6)
Recoveries		4.9		19.0				23.9
Translation adjustments		.6		(.1)		.5		1.0
End of period balance	$	101.3	$	18.9	$	9.6	$	129.8

Receivables:
End of period balance	$	24,041.5	$	3,267.9	$	8,424.1	$	35,733.5

*Excludes provision (credit) for credit losses on unfunded commitments of $(.3) million and $2.1 million for the three and six months ended May 2, 2021, respectively. The estimated credit losses related to unfunded commitments are recorded in accounts payable and accrued expenses on the consolidated balance sheets.

The allowance for credit losses on Receivables decreased $19.7 million in the second quarter of 2021, primarily due to lower expected losses on retail notes and financing leases caused by improving conditions in the construction and forestry market and better than expected performance of accounts granted payment relief due to the economic effects of COVID-19. The allowance for credit losses on revolving charge accounts also decreased in the second quarter of 2021, driven by strong payment performance due to continued improvements in the agriculture market. For the first six months of 2021, the allowance for credit losses increased slightly, as the reductions noted above were largely offset by the impact of adopting ASU No. 2016-13.

Troubled Debt Restructuring

A troubled debt restructuring is 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 date, a reduction of the face amount or maturity amount of the debt, or a reduction of accrued interest. During the first six months of 2022, the Company identified 139 Receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5.8 million pre-modification and $4.7 million post-modification. During the first six months of 2021, there were 185 Receivable contracts, primarily retail notes, with aggregate balances of $7.8 million pre-modification and $7.2 million post-modification. During these same periods, there were no significant

troubled debt restructurings that subsequently defaulted and were written off. At May 1, 2022, the Company had no commitments to provide additional financing to customers whose accounts were modified in troubled debt restructurings.