FAIR VALUE MEASUREMENTS

6 Months Ended

Apr. 30, 2013

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, 2013				October 31, 2012				April 30, 2012
	Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value *
Financing receivables - net	$	22,745	$	22,796	$	22,159	$	22,244	$	19,453	$	19,496
Financing receivables securitized - net	3,788		3,785		3,618		3,615		3,116		3,124
Short-term securitization borrowings	3,788		3,794		3,575		3,584		3,033		3,041
Long-term borrowings due within one year:
Equipment operations	$	911	$	939	$	195	$	194	$	223	$	218
Financial services	5,008		5,065		4,790		4,871		5,321		5,388
Total	$	5,919	$	6,004	$	4,985	$	5,065	$	5,544	$	5,606
Long-term borrowings:
Equipment operations	$	4,925	$	5,626	$	5,445	$	6,237	$	3,175	$	3,962
Financial services	16,828		17,029		17,008		17,438		15,544		15,885
Total	$	21,753	$	22,655	$	22,453	$	23,675	$	18,719	$	19,847

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

Fair values of 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 fair value on a recurring basis in millions of dollars follow:

	April 30			October 31		April 30
	2013*			2012*		2012*
Marketable securities
Equity fund	$		3
U.S. government debt securities	1,102			$	1,200	$	1,086
Municipal debt securities	38			38		38
Corporate debt securities	130			110		101
Mortgage-backed securities **	126			122		114
Total marketable securities	1,399			1,470		1,339
Other assets
Derivatives:
Interest rate contracts	589			609		518
Foreign exchange contracts	25			17		7
Cross-currency interest rate contracts	5			11		9
Total assets ***	$	2,018		$	2,107	$	1,873
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$		66	$	72	$	53
Foreign exchange contracts	36			18		41
Cross-currency interest rate contracts	54			59		43
Total liabilities	$		156	$	149	$	137

* All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $1,041 million, $1,139 million and $1,041 million at April 30, 2013, October 31, 2012 and April 30, 2012, respectively, and the equity fund of $3 million at April 30, 2013.  There were no transfers between Level 1 and Level 2 during the first six months of 2013 or 2012.

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

*** Excluded from this table are the Company’s cash equivalents, which were carried at cost that approximates fair value.  The cash equivalents consist primarily of money market funds that were Level 1 measurements.

The contractual maturities of debt securities at April 30, 2013 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	$	712	$	712
Due after one through five years	372		379
Due after five through 10 years	100		106
Due after 10 years	66		73
Mortgage-backed securities	121		126
Debt securities	$	1,371	$	1,396

Fair value, nonrecurring, Level 3 measurements were not significant in any periods presented.  See financing receivables with specific allowances in Note 10.

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 debt security investments are 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.  The equity fund is valued on a market approach using the net asset value (NAV) based on the fair value of the underlying securities.

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.