COMMITMENTS AND CONTINGENCIES

6 Months Ended

May 03, 2020

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

(16)  Commitments and Contingencies

The Company generally determines its total 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 five-year claims costs and current quality developments.

The premiums for extended warranties are primarily recognized in income in proportion to the costs expected to be incurred over the contract period. These unamortized extended warranty premiums (deferred revenue) included in the following table totaled $602 million and $525 million at May 3, 2020 and April 28, 2019, respectively.

A reconciliation of the changes in the warranty liability and unearned premiums in millions of dollars follows:

	Three Months Ended				Six Months Ended
	May 3		April 28		May 3		April 28
	2020		2019		2020		2019
Beginning of period balance	$	1,792	$	1,687	$	1,800	$	1,652
Payments		(223)		(234)		(453)		(462)
Amortization of premiums received		(51)		(56)		(110)		(111)
Accruals for warranties		210		256		432		510
Premiums received		69		69		134		134
Foreign exchange		(30)		(8)		(36)		(9)
End of period balance	$	1,767	$	1,714	$	1,767	$	1,714

At May 3, 2020, the Company had approximately $321 million of guarantees issued primarily to banks outside the U.S. and Canada related to third-party receivables for the retail financing 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 May 3, 2020, the Company had accrued losses of approximately $12 million under these agreements. The maximum remaining term of the receivables guaranteed at May 3, 2020 was approximately six years.

At May 3, 2020, the Company had commitments of approximately $254 million for the construction and acquisition of property and equipment. Also, at May 3, 2020, the Company had restricted assets of $75 million, primarily as collateral for borrowings and restricted other assets. See Note 12 for additional restricted assets associated with borrowings related to securitizations.

The Company also had other miscellaneous contingent liabilities totaling approximately $45 million at May 3, 2020. The accrued liability for these contingencies was not material at May 3, 2020.

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, patent, and trademark matters. The Company believes the reasonably possible range of losses for these unresolved legal actions would not have a material effect on its consolidated financial statements.