John Deere 2010 Annual Report Download - page 44

44
2010 2009
Financial Services
Notes and debentures:
Medium-term notes due 2011 – 2018:
(principal $10,120 - 2010, $11,186 - 2009)
Average interest rates of 3.2% – 2010,
3.5% – 2009 .................................................... $ 10,478* $ 11,430*
7% notes due 2012: ($1,500 principal)
Swapped $500 in 2010 and $1,225 in 2009
to variable interest rates of 1.3% – 2010
and 2009 ......................................................... 1,594* 1,640*
5.10% debentures due 2013: ($650 principal)
Swapped to variable interest rates of
1.0% – 2010 and 2009 .................................... 703* 699*
Other notes ........................................................... 711 550
Total ................................................................. 13,486 14,319
Long-term borrowings** ........................................ $ 16,815 $ 17,3 92
* Includes unamortized fair value adjustments related to interest rate swaps.
** All interest rates are as of year end.
The Financial Services’ long-term borrowings represent
obligations of the credit subsidiaries.
The approximate principal amounts of the Equipment
Operations’ long-term borrowings maturing in each of the
next fi ve years in millions of dollars are as follows: 2011 – $40,
2012 – $216, 2013 – $187, 2014 – $742 and 2015 – $21.
The approximate principal amounts of the credit subsidiaries’
long-term borrowings maturing in each of the next fi ve years in
millions of dollars are as follows: 2011 – $3,192, 2012 – $5,101,
2013 – $3,445, 2014 – $1,228 and 2015 – $1,039.
21. LEASES
At October 31, 2010, future minimum lease payments under
capital leases amounted to $36 million as follows: 2011 – $16,
2012 – $3, 2013 – $2, 2014 – $2, 2015 – $1 and later years $12.
Total rental expense for operating leases was $189 million in
2010, $187 million in 2009 and $165 million in 2008.
At October 31, 2010, future minimum lease payments under
operating leases amounted to $542 million as follows:
2011 – $141, 2012 – $110, 2013 – $79, 2014 – $60, 2015 – $42
and later years $110.
22. COMMITMENTS AND CONTINGENCIES
The company generally determines its warranty liability by
applying historical claims rate experience to the estimated amount
of equipment that has been sold and is still under warranty based
on dealer inventories and retail sales. The historical claims rate
is primarily determined by a review of fi ve-year claims costs and
current quality developments.
The premiums for the company’s extended warranties
are primarily recognized in income in proportion to the costs
expected to be incurred over the contract period. The unamor-
tized extended warranty premiums (deferred revenue) included
in the following table totaled $203 million and $214 million at
October 31, 2010 and 2009, respectively.
A reconciliation of the changes in the warranty liability
and unearned premiums in millions of dollars follows:
Warranty Liability/
Unearned Premiums
_______________
2010 2009
Beginning of year balance ........................................ $ 727 $ 814
Payments ..................................................................... ( 517) ( 549 )
Amortization of premiums received ................................ (100) (103)
Accruals for warranties ................................................. 568 458
Premiums received ....................................................... 90 87
Foreign exchange ......................................................... (6) 20
End of year balance .................................................. $ 762 $ 727
At October 31, 2010, the company had approximately
$190 million of guarantees issued primarily to banks outside the
U.S. related to third-party receivables for the retail fi nancing of
John Deere equipment. The company may recover a portion of
any required payments incurred under these agreements from
repossession of the equipment collateralizing the receivables.
At October 31, 2010, the company had accrued losses of
approximately $6 million under these agreements. The maximum
remaining term of the receivables guaranteed at October 31, 2010
was approximately fi ve years.
The credit operations’ subsidiary, John Deere Risk
Protection, Inc., offers crop insurance products through
managing general agency agreements (Agreements) with
insurance companies (Insurance Carriers) rated “Excellent” by
A.M. Best Company. As a managing general agent, John Deere
Risk Protection, Inc. will receive commissions from the
Insurance Carriers for selling crop insurance to producers.
The credit operations have guaranteed certain obligations under
the Agreements, including the obligation to pay the Insurance
Carriers for any uncollected premiums. At October 31, 2010,
the maximum exposure for uncollected premiums was approxi-
mately $56 million. Substantially all of the credit operations’
crop insurance risk under the Agreements has been mitigated by
a syndicate of private reinsurance companies. The reinsurance
companies are rated “Excellent” or higher by A.M. Best
Company. In the event of a widespread catastrophic crop
failure throughout the U.S. and the default of these highly rated
private reinsurance companies on their reinsurance obligations,
the credit operations would be required to reimburse the
Insurance Carriers for exposure under the Agreements of
approximately $1,029 million at October 31, 2010. The credit
operations believe that the likelihood of the occurrence of
events that give rise to the exposures under these Agreements
is substantially remote and as a result, at October 31, 2010,
the credit operation’s accrued liability under the Agreements
was not material.
At October 31, 2010, the company had commitments of
approximately $261 million for the construction and acquisition
of property and equipment. At October 31, 2010, the company
also had pledged or restricted assets of $98 million, primarily as
collateral for borrowings. In addition, see Note 13 for restricted
assets associated with borrowings related to securitizations.