12. RECEIVABLES

Trade Accounts and Notes Receivable

Trade accounts and notes receivable at October 31 consisted of the following in millions of dollars:


	2016		2015
Trade accounts and notes:
Agriculture and turf	$	2,438	$	2,278
Construction and forestry		573		773
Trade accounts and notes receivable – net	$	3,011	$	3,051

At October 31, 2016 and 2015, dealer notes included in the previous table were $143 million and $90 million, and the allowance for credit losses was $50 million and $41 million, respectively.

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 equipment is shipped 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 retains a security interest in the goods associated with the trade receivables. 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 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 October 31 consisted of the following in millions of dollars:


	2016				2015
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes:
Agriculture and turf	$	14,152	$	4,615	$	15,359	$	4,236
Construction and forestry		2,201		620		2,086		686
Total		16,353		5,235		17,445		4,922
Wholesale notes		3,971				4,269
Revolving charge accounts		3,135				2,740
Financing leases (direct and sales-type)		1,326				1,333
Total financing receivables		24,785		5,235		25,787		4,922
Less:
Unearned finance income:
Retail notes		812		94		726		74
Financing leases		109				108
Total		921		94		834		74
Allowance for credit losses		162		14		144		13
Financing receivables – net	$	23,702	$	5,127	$	24,809	$	4,835

The residual values for investments in financing leases at October 31, 2016 and 2015 totaled $156 million and $115 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 October 31 related to the company’s sales of equipment that were included in the table above consisted of the following in millions of dollars:


	2016		2015
	Unrestricted		Unrestricted
Retail notes*:
Agriculture and turf	$	1,896	$	1,792
Construction and forestry		336		356
Total		2,232		2,148
Wholesale notes		3,971		4,269
Sales-type leases		648		690
Total		6,851		7,107
Less:
Unearned finance income:
Retail notes		202		178
Sales-type leases		42		45
Total		244		223
Financing receivables related to the company’s sales of equipment	$	6,607	$	6,884

* 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 October 31 are scheduled as follows in millions of dollars:


	2016				2015
	Unrestricted/Securitized				Unrestricted/Securitized
Due in months:
0 – 12	$	12,835	$	2,269	$	13,006	$	2,057
13 – 24		4,760		1,536		4,987		1,418
25 – 36		3,386		931		3,719		921
37 – 48		2,219		408		2,444		426
49 – 60		1,181		84		1,283		95
Thereafter		404		7		348		5
Total	$	24,785	$	5,235	$	25,787	$	4,922

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 five years, while the average term for wholesale notes is less than twelve months.

At October 31, 2016 and 2015, the unpaid balances of receivables administered but not owned were $15 million and $22 million, respectively. At October 31, 2016 and 2015, worldwide financing receivables administered, which include financing receivables administered but not owned, totaled $28,844 million and $29,666 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. These receivables are generally 120 days delinquent and the estimated uncollectible amount, after charging the dealer’s withholding account, has been 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 October 31 follows in millions of dollars:


	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
2016
Retail Notes:
Agriculture and turf	$	115	$	57	$	65	$	237
Construction and forestry		78		32		25		135
Other:
Agriculture and turf		26		11		6		43
Construction and forestry		10		5		4		19
Total	$	229	$	105	$	100	$	434


			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	237	$	191	$	17,526	$	17,954
Construction and forestry		135		35		2,558		2,728
Other:
Agriculture and turf		43		9		7,286		7,338
Construction and forestry		19		9		957		985
Total	$	434	$	244	$	28,327		29,005
Less allowance for credit losses								176
Total financing receivables – net							$	28,829


	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
2015
Retail Notes:
Agriculture and turf	$	112	$	54	$	47	$	213
Construction and forestry		64		29		12		105
Other:
Agriculture and turf		26		12		4		42
Construction and forestry		13		5		3		21
Total	$	215	$	100	$	66	$	381


			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	213	$	98	$	18,574	$	18,885
Construction and forestry		105		21		2,556		2,682
Other:
Agriculture and turf		42		13		7,175		7,230
Construction and forestry		21		10		973		1,004
Total	$	381	$	142	$	29,278		29,801
Less allowance for credit losses								157
Total financing receivables – net							$	29,644

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
2016
Allowance:
Beginning of year balance	$	95	$	40	$	22	$	157
Provision		43		36		5		84
Write-offs		(43)		(55)		(5)		(103)
Recoveries		11		19		1		31
Translation adjustments		7						7
End of year balance*	$	113	$	40	$	23	$	176

Financing receivables:
End of year balance	$	20,682	$	3,135	$	5,188	$	29,005

Balance individually evaluated	$	108	$	8	$	20	$	136


2015
Allowance:
Beginning of year balance	$	109	$	41	$	25	$	175
Provision		22		21		3		46
Write-offs		(26)		(37)		(4)		(67)
Recoveries		10		15		1		26
Translation adjustments		(20)				(3)		(23)
End of year balance*	$	95	$	40	$	22	$	157

Financing receivables:
End of year balance	$	21,567	$	2,740	$	5,494	$	29,801

Balance individually evaluated	$	40			$	6	$	46


2014
Allowance:
Beginning of year balance	$	101	$	41	$	31	$	173
Provision		18		11		2		31
Write-offs		(16)		(26)		(7)		(49)
Recoveries		11		15				26
Translation adjustments		(5)				(1)		(6)
End of year balance*	$	109	$	41	$	25	$	175

Financing receivables:
End of year balance	$	22,784	$	2,603	$	6,812	$	32,199

Balance individually evaluated	$	26			$	1	$	27

* Individual allowances were not significant.

Past-due amounts over 30 days represented 1.50 percent and 1.28 percent of the receivables financed at October 31, 2016 and 2015, respectively. The allowance for credit losses represented .61 percent and .53 percent of financing receivables outstanding at October 31, 2016 and 2015, respectively. In addition, at October 31, 2016 and 2015, the company’s financial services operations had $162 million and $179 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 either past due, or have provided bankruptcy notification, or require significant collection efforts. Receivables, which are impaired, are generally classified as non-performing.

An analysis of the impaired financing receivables at October 31 follows in millions of dollars:


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
2016*
Receivables with specific allowance**	$	31	$	28	$	9	$	29
Receivables without a specific allowance***		29		27				26
Total	$	60	$	55	$	9	$	55
Agriculture and turf	$	33	$	30	$	8	$	27
Construction and forestry	$	27	$	25	$	1	$	28


2015*
Receivables with specific allowance**	$	14	$	13	$	2	$	13
Receivables without a specific allowance***		14		14				20
Total	$	28	$	27	$	2	$	33
Agriculture and turf	$	19	$	18	$	2	$	20
Construction and forestry	$	9	$	9			$	13

* Finance income recognized was not material.

** Primarily retail notes.

*** Primarily retail notes and wholesale receivables.

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 2016, 2015 and 2014, the company identified 167, 107 and 66 financing receivable contracts, primarily wholesale receivables and retail notes, as troubled debt restructurings with aggregate balances of $19 million, $8 million and $3 million pre-modification and $18 million, $7 million and $2 million post-modification, respectively. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At October 31, 2016, the company had commitments to lend approximately $21 million to borrowers whose accounts were modified in troubled debt restructurings.

Other Receivables

Other receivables at October 31 consisted of the following in millions of dollars:


	2016		2015
Taxes receivable	$	702	$	720
Other		317		271
Other receivables	$	1,019	$	991