RECEIVABLES

12 Months Ended

Oct. 31, 2012

RECEIVABLES

RECEIVABLES

12. RECEIVABLES

Trade Accounts and Notes Receivable

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

	2012		2011
Trade accounts and notes:
Agriculture and turf	$	3,074	$	2,618
Construction and forestry	725		676
Trade accounts and notes receivable—net	$	3,799	$	3,294

At October 31, 2012 and 2011, dealer notes included in the previous table were $95 million and $97 million, and the allowance for doubtful trade receivables was $66 million and $72 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:

	2012				2011
	Unrestricted/Securitized				Unrestricted/Securitized
Retail notes:
Equipment:
Agriculture and turf	$	14,144	$	3,126	$	12,969	$	2,597
Construction and forestry	1,091		553		1,036		362
Recreational products					4
Total	15,235		3,679		14,009		2,959
Wholesale notes	3,888				3,006
Revolving charge accounts	2,488				2,518
Financing leases (direct and sales-type)	1,411				1,242
Operating loans	42				84
Total financing receivables	23,064		3,679		20,859		2,959
Less:
Unearned finance income:
Equipment notes	619		44		635		36
Financing leases	126				121
Total	745		44		756		36
Allowance for credit losses	160		17		179		18
Financing receivables — net	$	22,159	$	3,618	$	19,924	$	2,905

The residual values for investments in financing leases at October 31, 2012 and 2011 totaled $79 million and $75 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 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:

	2012		2011
	Unrestricted		Unrestricted
Retail notes*:
Equipment:
Agriculture and turf	$	1,810	$	1,633
Construction and forestry	313		310
Total	2,123		1,943
Wholesale notes	3,888		3,006
Sales-type leases	836		776
Total		6,847		5,725
Less:
Unearned finance income:
Equipment notes		191		197
Sales-type leases	61		64
Total	252		261
Financing receivables related to the company’s sales of equipment	$	6,595	$	5,464

* 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:

	2012				2011
	Unrestricted/Securitized				Unrestricted/Securitized
Due in months:
0 - 12	$	11,486	$	1,437	$	10,311	$	1,192
13 - 24	4,257		1,004		3,937		807
25 - 36	3,232		712		2,960		524
37 - 48	2,278		399		2,032		305
49 - 60	1,356		120		1,196		119
Thereafter	455		7		423		12
Total	$	23,064	$	3,679	$	20,859	$	2,959

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, 2012 and 2011, the unpaid balances of receivables administered but not owned were $120 million and $146 million, respectively. At October 31, 2012 and 2011, worldwide financing receivables administered, which include financing receivables administered but not owned, totaled $25,897 million and $22,974 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 resumed when the receivable becomes contractually current and collections are reasonably assured.

An age analysis of past due and non-performing financing receivables at October 31, 2012 follows in millions of dollars:

	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due*		Past Due
Retail Notes:
Agriculture and turf	$	60	$	25	$	17	$	102
Construction and forestry	39		18		9		66
Other:
Agriculture and turf	21		6		3		30
Construction and forestry	8		2		2		12
Total	$	128	$	51	$	31	$	210

			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	102	$	117	$	16,432	$	16,651
Construction and forestry	66		13		1,521		1,600
Other:
Agriculture and turf	30		11		6,464		6,505
Construction and forestry	12		3		1,183		1,198
Total	$	210	$	144	$	25,600	25,954
Less allowance for credit losses							177
Total financing receivables - net							$	25,777

* Financing receivables that are 90 days or greater past due and still accruing finance income.

An age analysis of past due and non-performing financing receivables at October 31, 2011 follows in millions of dollars:

	30-59		60-89		90 Days
	Days		Days		or Greater		Total
	Past Due		Past Due		Past Due*		Past Due
Retail Notes:
Agriculture and turf	$	81	$	30	$	25	$	136
Construction and forestry	45		20		11		76
Other:
Agriculture and turf	23		10		5		38
Construction and forestry	7		4		2		13
Total	$	156	$	64	$	43	$	263

			Total				Total
	Total		Non-				Financing
	Past Due		Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	136	$	132	$	14,667	$	14,935
Construction and forestry	76		17		1,264		1,357
Recreational products					4		4
Other:
Agriculture and turf	38		16		5,655		5,709
Construction and forestry	13		5		1,003		1,021
Total	$	263	$	170	$	22,593	23,026
Less allowance for credit losses							197
Total financing receivables - net							$	22,829

*Financing receivables that are 90 days or greater past due and still accruing finance income.

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
2012
Allowance:
Beginning of year balance	$	130		$	40		$	27		$	197
Provision (credit)	(12		)	8			3			(1		)
Write-offs	(8		)	(30		)	(4		)	(42		)
Recoveries	10			22			1			33
Translation adjustments	(10		)							(10		)
End of year balance	$	110		$	40		$	27		$	177
Balance individually evaluated*				$	1					$	1
Financing receivables:
End of year balance	$	18,251		$	2,488		$	5,215		$	25,954
Balance individually evaluated*	$	11		$	1		$	1		$	13

*Remainder is collectively evaluated.

2011
Allowance:
Beginning of year balance	$	144		$	44		$	37		$	225
Provision (credit)	3			8			(2		)	9
Write-offs	(29		)	(40		)	(10		)	(79		)
Recoveries	12			28			2			42
End of year balance	$	130		$	40		$	27		$	197
Balance individually evaluated*	$	1								$	1
Financing receivables:
End of year balance	$	16,296		$	2,518		$	4,212		$	23,026
Balance individually evaluated*	$	12					$	11		$	23

* Remainder is collectively evaluated.

A comparative analysis of the allowance for credit losses follows in millions of dollars:

	2012			2011			2010
Beginning of year balance	$	197		$	225		$	239
Provision (credit)	(1		)	9			100
Write-offs	(42		)	(79		)	(147		)
Recoveries	33			42			31
Translation adjustments	(10		)				2
End of year balance	$	177		$	197		$	225

Past-due amounts over 30 days represented .81 percent and 1.14 percent of the receivables financed at October 31, 2012 and 2011, respectively. The allowance for credit losses represented .68 percent and .86 percent of financing receivables outstanding at October 31, 2012 and 2011, respectively. In addition, at October 31, 2012 and 2011, the company’s financial services operations had $194 million and $188 million, respectively, of deposits 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 that 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
2012
Receivables with specific allowance*	$	1	$	1	$	1	$	1
Receivables without a specific allowance**	9		9				10
Total	$	10	$	10	$	1	$	11
Agriculture and turf	$	6	$	6	$	1	$	6
Construction and forestry	$	4	$	4			$	5
2011
Receivables with specific allowance*	$	7	$	7	$	1	$	8
Receivables without a specific allowance**	9		9				12
Total	$	16	$	16	$	1	$	20
Agriculture and turf	$	11	$	11	$	1	$	14
Construction and forestry	$	5	$	5			$	6

* 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 2012 and 2011, the company identified 138 and 213 financing receivable contracts, primarily retail notes, as troubled debt restructurings with aggregate balances of $5 million and $11 million pre-modification and $4 million and $10 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, 2012, the company had no commitments to lend additional funds 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:

	2012		2011
Taxes receivable	$	971	$	844
Reinsurance receivables	569		242
Insurance premium receivables	69		58
Other	182		187
Other receivables	$	1,791	$	1,331

Reinsurance and insurance premium receivables are associated with the financial services’ crop insurance subsidiary (see Note 9).