John Deere 2010 Annual Report Download - page 40

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An analysis of the allowance for doubtful fi nancing
receivables follows in millions of dollars:
2010 2009 2008
Beginning of year balance ....................... $ 239 $ 170 $ 172
Provision charged to operations .................... 100 195 83
Amounts written off ..................................... (116) (140) (71)
Other changes (primarily translation
adjustments) ........................................... 2 14 (14)
End of year balance ................................. $ 225 $ 239 $ 170
Financing receivables are considered impaired when it is
probable the company will be unable to collect all amounts due
according to the contractual terms of the receivables.
An analysis of impaired fi nancing receivables at October 31
follows in millions of dollars:
2010 2009
Impaired receivables with a specifi c
related allowance* .................................................... $ 31 $ 50
Impaired receivables without a specifi c
related allowance ..................................................... 8 15
Total impaired receivables ......................................... $ 39 $ 65
Average balance of impaired receivables
during the year ......................................................... $ 46 $ 52
* Related allowance of $10 million and $27 million as of October 31, 2010 and 2009,
respectively.
Other Receivables
Other receivables at October 31 consisted of the following in
millions of dollars:
2010 2009
Taxes receivable ........................................................... $ 746 $ 637
Other ........................................................................... 180 227
Other receivables ...................................................... $ 926 $ 864
13. SECURITIZATION OF FINANCING RECEIVABLES
The company, as a part of its overall funding strategy,
periodically transfers certain fi nancing receivables (retail notes)
into variable interest entities (VIEs) that are special purpose
entities (SPEs) as part of its asset-backed securities programs
(securitizations). The structure of these transactions is such that
the transfer of the retail notes did not meet the criteria of sales
of receivables, and is, therefore, accounted for as a secured
borrowing. SPEs utilized in securitizations of retail notes differ
from other entities included in the company’s consolidated
statements because the assets they hold are legally isolated.
For bankruptcy analysis purposes, the company has sold the
receivables to the SPEs in a true sale and the SPEs are separate
legal entities. Use of the assets held by the SPEs is restricted by
terms of the documents governing the securitization transactions.
In securitizations of retail notes related to secured
borrowings, the retail notes are transferred to certain SPEs
which in turn issue debt to investors. The resulting secured
borrowings are included in short-term borrowings on the
balance sheet. The securitized retail notes are recorded as
“Restricted fi nancing receivables - net” on the balance sheet.
The total restricted assets on the balance sheet related to these
securitizations include the restricted fi nancing receivables less an
allowance for credit losses, and other assets primarily representing
restricted cash. The SPEs supporting the secured borrowings to
which the retail notes are transferred are consolidated unless the
company is not the primary benefi ciary. No additional support
to these SPEs beyond what was previously contractually required
has been provided during the reporting periods.
In certain securitizations, the company is the primary
benefi ciary of the SPEs and, as such, consolidates the entities.
The restricted assets (retail notes, allowance for credit losses and
other assets) of the consolidated SPEs totaled $1,739 million and
$2,157 million at October 31, 2010 and 2009, respectively.
The liabilities (short-term borrowings and accrued interest)
of these SPEs totaled $1,654 million and $2,133 million at
October 31, 2010 and 2009, respectively. The credit holders
of these SPEs do not have legal recourse to the company’s
general credit.
In other securitizations, the company transfers retail notes
into bank-sponsored, multi-seller, commercial paper conduits,
which are SPEs that are not consolidated. The company is not
considered to be the primary benefi ciary of these conduits,
because the company’s variable interests in the conduits will
not absorb a majority of the conduits’ expected losses, residual
returns, or both. This is primarily due to these interests
representing signifi cantly less than a majority of the conduits’
total assets and liabilities. These conduits provide a funding
source to the company (as well as other transferors into the
conduit) as they fund the retail notes through the issuance
of commercial paper. The company’s carrying values and
variable interest related to these conduits were restricted assets
(retail notes, allowance for credit losses and other assets) of
$589 million and $1,059 million at October 31, 2010 and 2009,
respectively. The liabilities (short-term borrowings and accrued
interest) related to these conduits were $557 million and $1,004
million at October 31, 2010 and 2009, respectively.
The company’s carrying amount of the liabilities to the
unconsolidated conduits, compared to the maximum exposure
to loss related to these conduits, which would only be incurred
in the event of a complete loss on the restricted assets, was as
follows at October 31 in millions of dollars:
2010
Carrying value of liabilities .............................................................. $ 557
Maximum exposure to loss ............................................................. 589
The assets of unconsolidated conduits related to securitiza-
tions in which the company’s variable interests were considered
signifi cant were approximately $17 billion at October 31, 2010.