FAIR VALUE MEASUREMENTS

6 Months Ended

Apr. 30, 2012

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

(15)The fair values of financial instruments that do not approximate the carrying values in millions of dollars follow:

	April 30, 2012				October 31, 2011				April 30, 2011
	Carrying Value		Fair Value *		Carrying Value		Fair Value		Carrying Value		Fair Value
Financing receivables - net	$	19,453	$	19,496	$	19,924	$	19,919	$	18,455	$	18,432
Financing receivables securitized - net	3,116		3,124		2,905		2,907		2,871		2,872
Short-term securitization borrowings	3,033		3,041		2,777		2,789		2,822		2,833
Long-term borrowings due within one year:
Equipment operations	$	223	$	218	$	244	$	233	$	67	$	68
Financial services	5,321		5,388		5,249		5,331		4,620		4,695
Total	$	5,544	$	5,606	$	5,493	$	5,564	$	4,687	$	4,763
Long-term borrowings:
Equipment operations	$	3,175	$	3,962	$	3,167	$	3,771	$	3,361	$	3,688
Financial services	15,544		15,885		13,793		14,154		12,831		13,230
Total	$	18,719	$	19,847	$	16,960	$	17,925	$	16,192	$	16,918

*Fair value measurements above were Level 3 for all financing receivables and Level 2 for all borrowings.

Fair values of financing receivables, which were issued long-term, were based on the discounted values of their related cash flows at interest rates currently being offered by the Company for similar financing receivables.  The fair values of the remaining financing receivables approximated the carrying amounts.

Fair values of long-term borrowings and short-term securitization borrowings were based on current market quotes for identical or similar borrowings and credit risk, or on the discounted values of their related cash flows at current market interest rates.  Certain long-term borrowings have been swapped to current variable interest rates.  The carrying values of these long-term borrowings included adjustments related to fair value hedges.

Assets and liabilities measured at fair value on a recurring basis in millions of dollars follow:

	April 30		October 31		April 30
	2012*		2011*		2011*
Marketable securities
U.S. government debt securities	$	1,086	$	576	$	66
Municipal debt securities	38		36		29
Corporate debt securities	101		89		71
Residential mortgage-backed securities **	114		86		73
Other debt securities					1
Total marketable securities	1,339		787		240
Other assets
Derivatives:
Interest rate contracts	518		471		321
Foreign exchange contracts	7		12		10
Cross-currency interest rate contracts	9		2		14
Total assets ***	$	1,873	$	1,272	$	585
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	53	$	61	$	31
Foreign exchange contracts	41		100		98
Cross-currency interest rate contracts	43		7		8
Total liabilities	$	137	$	168	$	137

*All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $1,041 million, $540 million and $36 million at April 30, 2012, October 31, 2011 and April 30, 2011, respectively.  There were no transfers between Level 1 and Level 2 during the first six months of 2012 or 2011.

**Primarily issued by U.S. government sponsored enterprises.

***Excluded from this table are the Company’s cash and cash equivalents, which are carried at cost that approximates fair value.  The cash and cash equivalents consist primarily of money market funds.

The contractual maturities of debt securities at April 30, 2012 in millions of dollars are shown below.  Actual maturities may differ from those scheduled as a result of prepayments by the issuers.  Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.

	Amortized Cost			Fair Value
Due in one year or less		$	614		$	614
Due after one through five years		460			465
Due after five through 10 years		77			84
Due after 10 years		56			62
Residential mortgage-backed securities		109			114
Debt securities		$	1,316		$	1,339

Fair value, nonrecurring, Level 3 measurements in millions of dollars follow:

	Fair Value *						Losses
							Six Months Ended
	April 30		October 31		April 30		April 30
	2012		2011		2011		2012	2011
Financing receivables	$	1	$	5	$	4		$	1

*Does not include cost to sell.

Level 1 measurements consist of quoted prices in active markets for identical assets or liabilities.  Level 2 measurements include significant other observable inputs such as quoted prices for similar assets or liabilities in active markets; identical assets or liabilities in inactive markets; observable inputs such as interest rates and yield curves; and other market-corroborated inputs.  Level 3 measurements include significant unobservable inputs.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company uses various methods including market and income approaches.  The Company utilizes valuation models and techniques that maximize the use of observable inputs.  The models are industry-standard models that consider various assumptions including time values and yield curves as well as other economic measures.  These valuation techniques are consistently applied.

The following is a description of the valuation methodologies the Company uses to measure certain financial instruments on the balance sheet at fair value:

Marketable Securities – The portfolio of investments is primarily valued on a market approach (matrix pricing) model in which all significant inputs are observable or can be derived from or corroborated by observable market data such as interest rates, yield curves, volatilities, credit risk and prepayment speeds.

Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency forwards and swaps and cross-currency interest rate swaps.  The portfolio is valued based on an income approach (discounted cash flow) using market observable inputs, including swap curves and both forward and spot exchange rates for currencies.

Financing Receivables – Specific reserve impairments are based on the fair value of collateral, which is measured using a market approach (appraisal values or realizable values).  Inputs include a selection of realizable values.