FAIR VALUE MEASUREMENTS

12 Months Ended

Oct. 31, 2012

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

26. FAIR VALUE MEASUREMENTS

The fair values of financial instruments that do not approximate the carrying values at October 31 in millions of dollars follow:

	2012				2011
	Carrying		Fair		Carrying		Fair
	Value		Value*		Value		Value
Financing receivables — net	$	22,159	$	22,244	$	19,924	$	19,919
Financing receivables securitized — net	$	3,618	$	3,615	$	2,905	$	2,907
Short-term securitization borrowings	$	3,575	$	3,584	$	2,777	$	2,789
Long-term borrowings due within one year:
Equipment operations	$	195	$	194	$	244	$	233
Financial services	4,790		4,871		5,249		5,331
Total	$	4,985	$	5,065	$	5,493	$	5,564
Long-term borrowings:
Equipment operations	$	5,445	$	6,237	$	3,167	$	3,771
Financial services	17,008		17,438		13,793		14,154
Total	$	22,453	$	23,675	$	16,960	$	17,925

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

Fair values of the financing receivables that 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 October 31 at fair value on a recurring basis in millions of dollars follow:

	2012*		2011*
Marketable securities
U.S. government debt securities	$	1,200	$	576
Municipal debt securities	38		36
Corporate debt securities	110		89
Mortgage-backed securities**	122		86
Total marketable securities	1,470		787
Other assets
Derivatives:
Interest rate contracts	609		471
Foreign exchange contracts	17		12
Cross-currency interest rate contracts	11		2
Total assets***	$	2,107	$	1,272
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	72	$	61
Foreign exchange contracts	18		100
Cross-currency interest rate contracts	59		7
Total liabilities	$	149	$	168

*All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $1,139 million and $540 million at October 31, 2012 and 2011, respectively.

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

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

Fair value, nonrecurring, Level 3 measurements at October 31 in millions of dollars follow:

	Fair Value*			Losses
	2012	2011		2012		2011	2010
Financing receivables**		$	5	$	1		$	5
Goodwill				$	33		$	27
Property and equipment held for sale***							$	35

*Does not include cost to sell.

**Primarily wholesale notes and operating loans.

***See Note 4.

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 and nonmonetary assets 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 the collateral, which is measured using a market approach (appraisal values or realizable values). Inputs include a selection of realizable values.

Goodwill — The impairment of goodwill is based on the implied fair value measured as the difference between the fair value of the reporting unit and the fair value of the unit’s identifiable net assets. An estimate of the fair value of the reporting unit is determined by an income approach (discounted cash flows), which includes inputs such as interest rates.

Property and Equipment Held for Sale — The impairment of long-lived assets held for sale is measured at the lower of the carrying amount, or fair value less cost to sell. Fair value is based on the probable sale price. The inputs include estimates of final sale price adjustments.