John Deere 2012 Annual Report Download - page 42

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:
2012
Carrying value of liabilities .............................................................. $ 1,004
Maximum exposure to loss ............................................................. 1,049
The total assets of unconsolidated VIEs related to securiti-
zations were approximately $31 billion at October 31, 2012.
The components of consolidated restricted assets related to
secured borrowings in securitization transactions at October 31
were as follows in millions of dollars:
2012 2011
Financing receivables securitized (retail notes) ............... $ 3,635 $ 2,923
Allowance for credit losses ............................................ (17) (18)
Other assets ................................................................. 85 96
Total restricted securitized assets .......................... $ 3,703 $ 3,001
The components of consolidated secured borrowings and
other liabilities related to securitizations at October 31 were as
follows in millions of dollars:
2012 2011
Short-term securitization borrowings ............................. $ 3,575 $ 2,777
Accrued interest on borrowings ..................................... 1 2
Total liabilities related to restricted
securitized assets ................................................ $ 3,576 $ 2,779
The secured borrowings related to these restricted
securitized retail notes are obligations that are payable as the
retail notes are liquidated. Repayment of the secured borrowings
depends primarily on cash flows generated by the restricted
assets. Due to the company’s short-term credit rating, cash
collections from these restricted assets are not required to be
placed into a segregated collection account until immediately
prior to the time payment is required to the secured creditors.
At October 31, 2012, the maximum remaining term of all
securitized retail notes was approximately six years.
14. EQUIPMENT ON OPERATING LEASES
Operating leases arise primarily from the leasing of John Deere
equipment to retail customers. Initial lease terms generally range
from four to 60 months. Net equipment on operating leases
totaled $2,528 million and $2,150 million at October 31, 2012
and 2011, respectively. The equipment is depreciated on a
straight-line basis over the terms of the lease. The accumulated
depreciation on this equipment was $499 million and
$478 million at October 31, 2012 and 2011, respectively.
The corresponding depreciation expense was $339 million in
2012, $306 million in 2011 and $288 million in 2010.
Future payments to be received on operating leases
totaled $1,067 million at October 31, 2012 and are scheduled
in millions of dollars as follows: 2013 – $445, 2014 – $308,
2015 – $188, 2016 – $103 and 2017 – $23.
The securitized retail notes are recorded as “Financing receiv-
ables securitized - net” on the balance sheet. The total restricted
assets on the balance sheet related to these securitizations include
the financing receivables securitized less an allowance for credit
losses, and other assets primarily representing restricted cash. For
those securitizations in which retail notes are transferred into
SPEs, the SPEs supporting the secured borrowings are consoli-
dated unless the company does not have both the power to
direct the activities that most significantly impact the SPEs’
economic performance and the obligation to absorb losses or
the right to receive benefits that could potentially be significant
to the SPEs. No additional support to these SPEs beyond what
was previously contractually required has been provided during
the reporting periods.
In certain securitizations, the company consolidates the
SPEs since it has both the power to direct the activities that
most significantly impact the SPEs’ economic performance
through its role as servicer of all the receivables held by the
SPEs, and the obligation through variable interests in the
SPEs to absorb losses or receive benefits that could potentially
be significant to the SPEs. The restricted assets (retail notes
securitized, allowance for credit losses and other assets) of the
consolidated SPEs totaled $2,330 million and $1,523 million
at October 31, 2012 and 2011, respectively. The liabilities
(short-term securitization borrowings and accrued interest)
of these SPEs totaled $2,262 million and $1,395 million at
October 31, 2012 and 2011, respectively. The credit holders
of these SPEs do not have legal recourse to the company’s
general credit.
In certain securitizations, the company transfers retail
notes to a non-VIE banking operation, which is not consoli-
dated since the company does not have a controlling interest in
the entity. The company’s carrying values and interests related
to the securitizations with the unconsolidated non-VIE were
restricted assets (retail notes securitized, allowance for credit
losses and other assets) of $324 million and $369 million
at October 31, 2012 and 2011, respectively. The liabilities
(short-term securitization borrowings and accrued interest)
were $310 million and $346 million at October 31, 2012 and
2011, respectively.
In certain securitizations, the company transfers retail notes
into bank-sponsored, multi-seller, commercial paper conduits,
which are SPEs that are not consolidated. The company does
not service a significant portion of the conduits’ receivables, and
therefore, does not have the power to direct the activities that
most significantly impact the conduits’ economic performance.
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 securitized,
allowance for credit losses and other assets) of $1,049 million
and $1,109 million at October 31, 2012 and 2011, respectively.
The liabilities (short-term securitization borrowings and accrued
interest) related to these conduits were $1,004 million and
$1,038 million at October 31, 2012 and 2011, respectively.
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