John Deere 2015 Annual Report Download - page 54

20. LONG-TERM BORROWINGS 22. COMMITMENTS AND CONTINGENCIES
Long-term borrowings at October 31 consisted of the following The company generally determines its warranty liability by
in millions of dollars: applying historical claims rate experience to the estimated
amount of equipment that has been sold and is still under
2015 2014 warranty based on dealer inventories and retail sales. The
Equipment Operations historical claims rate is primarily determined by a review of five-
Notes and debentures: year claims costs and current quality developments.
4.375% notes due 2019.................................... $ 750 $ 750 The premiums for the company’s extended warranties are
8-1/2% debentures due 2022 ............................ 105 105 primarily recognized in income in proportion to the costs
2.60% notes due 2022 ..................................... 1,000 1,000 expected to be incurred over the contract period. The
6.55% debentures due 2028 .............................. 200 200
5.375% notes due 2029.................................... 500 500 unamortized extended warranty premiums (unearned revenue)
8.10% debentures due 2030 .............................. 250 250 included in the following table totaled $454 million and
7.125% notes due 2031.................................... 300 300 $425 million at October 31, 2015 and 2014, respectively.
3.90% notes due 2042 ..................................... 1,250 1,250 A reconciliation of the changes in the warranty liability and
Other notes ................................................... 106 288 unearned premiums in millions of dollars follows:
Total ......................................................... 4,461 4,643
Warranty Liability/
Financial Services Unearned Premiums
Notes and debentures:
Medium-term notes due 2016 – 2025: 2015 2014
(principal $17,610 – 2015, $17,939 – 2014) Beginning of year balance .............................. $1,234 $1,164
Average interest rates of 1.4% – 2015, Payments...................................................... (779) (792)
1.2% – 2014 ............................................... 17,857* 18,141* Amortization of premiums received .................... (161) (142)
2.75% senior note due 2022: ($500 principal) Accruals for warranties .................................... 810 797
Swapped $500 to variable interest rate Premiums received.......................................... 209 228
of 1.1% – 2015, .9% – 2014 ........................... 512* 498* Foreign exchange ........................................... (52) (21)
Other notes ................................................... 1,003 1,099
End of year balance ....................................... $1,261 $1,234
Total ......................................................... 19,372 19,738
Long-term borrowings** .................................... $23,833 $24,381 At October 31, 2015, the company had approximately
* Includes unamortized fair value adjustments related to interest rate swaps. $162 million of guarantees issued primarily to banks outside the
** All interest rates are as of year end. U.S. related to third-party receivables for the retail financing of
John Deere equipment. The company may recover a portion of
The approximate principal amounts of the equipment any required payments incurred under these agreements from
operations’ long-term borrowings maturing in each of the next repossession of the equipment collateralizing the receivables. At
five years in millions of dollars are as follows: 2016 – $86, October 31, 2015, the company had accrued losses of
2017 – $48, 2018 – $63, 2019 – $752 and 2020 – $2. The approximately $4 million under these agreements. The maximum
approximate principal amounts of the financial services’ long- remaining term of the receivables guaranteed at October 31,
term borrowings maturing in each of the next five years in 2015 was approximately four years.
millions of dollars are as follows: 2016 – $5,159, 2017 – $5,124,
2018 – $5,124, 2019 – $2,876 and 2020 – $2,394. At October 31, 2015, the company had commitments of
approximately $165 million for the construction and acquisition
21. LEASES of property and equipment. At October 31, 2015, the company
At October 31, 2015, future minimum lease payments under also had pledged or restricted assets of $99 million, primarily as
capital leases amounted to $60 million as follows: 2016 – $37, collateral for borrowings and restricted other assets. In addition,
2017 – $13, 2018 – $4, 2019 – $3, 2020 – $2, and later years see Note 13 for restricted assets associated with borrowings
$1. Total rental expense for operating leases was $200 million in related to securitizations.
2015, $205 million in 2014 and $237 million in 2013. At The company also had other miscellaneous contingencies
October 31, 2015, future minimum lease payments under totaling approximately $30 million at October 31, 2015, for
operating leases amounted to $354 million as follows: 2016 – which it believes the probability for payment is substantially
$98, 2017 – $72, 2018 – $53, 2019 – $40, 2020 – $31, and later remote. The accrued liability for these contingencies was not
years $60. material at October 31, 2015.
The company is subject to various unresolved legal actions
which arise in the normal course of its business, the most
prevalent of which relate to product liability (including asbestos
related liability), retail credit, employment, software licensing,
patent, trademark and environmental matters. The company
believes the reasonably possible range of losses for these
unresolved legal actions in addition to the amounts accrued
would not have a material effect on its financial statements.
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