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FINANCING RECEIVABLES

6 Months Ended

May 03, 2020

(11) Financing Receivables

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 withholding 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 3 percent of the total financing receivable balance at May 3, 2020.

An age analysis of past due financing receivables that are still accruing interest and non-performing financing receivables in millions of dollars follows:


	May 3, 2020
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Agriculture and turf	$	188	$	94	$	2	$	284
Construction and forestry		116		49		18		183
Other:
Agriculture and turf		59		22		1		82
Construction and forestry		62		11				73
Total	$	425	$	176	$	21	$	622

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	284	$	291	$	18,308	$	18,883
Construction and forestry		183		144		3,409		3,736
Other:
Agriculture and turf		82		123		7,856		8,061
Construction and forestry		73		35		1,348		1,456
Total	$	622	$	593	$	30,921		32,136
Less allowance for credit losses								195
Total financing receivables – net							$	31,941


	November 3, 2019
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
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				Financing
	Past Due		Non-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


	April 28, 2019
					90 Days
	30-59 Days		60-89 Days		or Greater		Total
	Past Due		Past Due		Past Due		Past Due
Retail Notes:
Agriculture and turf	$	139	$	73	$	1	$	213
Construction and forestry		90		40		1		131
Other:
Agriculture and turf		33		16				49
Construction and forestry		19		4				23
Total	$	281	$	133	$	2	$	416

							Total
	Total		Total				Financing
	Past Due		Non-Performing		Current		Receivables
Retail Notes:
Agriculture and turf	$	213	$	293	$	17,644	$	18,150
Construction and forestry		131		124		3,120		3,375
Other:
Agriculture and turf		49		67		7,861		7,977
Construction and forestry		23		10		1,331		1,364
Total	$	416	$	494	$	29,956		30,866
Less allowance for credit losses								182
Total financing receivables – net							$	30,684

An analysis of the allowance for credit losses and investment in financing receivables in millions of dollars during the periods follows:


			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
Three Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	88	$	40	$	29	$	157
Provision		58		20		7		85
Write-offs		(24)		(23)		(2)		(49)
Recoveries		3		6				9
Translation adjustments		(6)				(1)		(7)
End of period balance *	$	119	$	43	$	33	$	195

Six Months Ended May 3, 2020
Allowance:
Beginning of period balance	$	89	$	40	$	21	$	150
Provision		74		18		14		106
Write-offs		(41)		(29)		(4)		(74)
Recoveries		5		14		1		20
Translation adjustments		(8)				1		(7)
End of period balance *	$	119	$	43	$	33	$	195
Financing receivables:
End of period balance	$	22,619	$	3,454	$	6,063	$	32,136
Balance individually evaluated **	$	157			$	83	$	240

* Individual allowances were not significant.

** Remainder is collectively evaluated.

The negative economic effects related to COVID and other macroeconomic issues have significantly affected certain retail borrowers, particularly of construction equipment. As a result, the allowance for credit losses increased $38 million in the second quarter of 2020 reflecting estimated credit losses inherent in the financing receivables.


			Revolving
	Retail		Charge
	Notes		Accounts		Other		Total
Three Months Ended April 28, 2019
Allowance:
Beginning of period balance	$	111	$	43	$	23	$	177
Provision		9		17		3		29
Write-offs		(9)		(22)		(2)		(33)
Recoveries		6		5				11
Translation adjustments		(2)						(2)
End of period balance *	$	115	$	43	$	24	$	182

Six Months Ended April 28, 2019
Allowance:
Beginning of period balance	$	113	$	43	$	22	$	178
Provision		15		16		5		36
Write-offs		(20)		(26)		(3)		(49)
Recoveries		10		10				20
Translation adjustments		(3)						(3)
End of period balance *	$	115	$	43	$	24	$	182
Financing receivables:
End of period balance	$	21,525	$	3,299	$	6,042	$	30,866
Balance individually evaluated **	$	151	$	2	$	15	$	168

* Individual allowances were not significant.

** Remainder is collectively evaluated.

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 in millions of dollars follows:


			Unpaid				Average
	Recorded		Principal		Specific		Recorded
	Investment		Balance		Allowance		Investment
May 3, 2020*
Receivables with specific allowance ***	$	106	$	104	$	23	$	113
Receivables without a specific allowance **		35		34				38
Total	$	141	$	138	$	23	$	151
Agriculture and turf	$	113	$	111	$	18	$	121
Construction and forestry	$	28	$	27	$	5	$	30

November 3, 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

April 28, 2019*
Receivables with specific allowance **	$	35	$	34	$	14	$	36
Receivables without a specific allowance **		37		35				39
Total	$	72	$	69	$	14	$	75
Agriculture and turf	$	54	$	53	$	11	$	57
Construction and forestry	$	18	$	16	$	3	$	18

* 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 the first six months of 2020, the Company identified 259 receivable contracts, primarily wholesale receivables in Argentina, as troubled debt restructurings with aggregate balances of $94 million pre-modification and $83 million post-modification. The short-term payment relief related to COVID, mentioned earlier, did not meet the definition of a troubled debt restructuring. During the first six months of 2019, there were 219 financing receivable contracts, primarily retail notes, identified as troubled debt restructurings with aggregate balances of $7 million pre-modification and $7 million post-modification. During these same periods, there were no significant troubled debt restructurings that subsequently defaulted and were written off. At May 3, 2020, the Company had commitments to lend approximately $13 million to borrowers whose accounts were modified in troubled debt restructurings.