FAIR VALUE MEASUREMENTS

3 Months Ended

Jan. 31, 2014

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:

	January 31, 2014				October 31, 2013				January 31, 2013
	Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value *
Financing receivables - net	$	25,242	$	25,129	$	25,633	$	25,572	$	22,071	$	22,144
Financing receivables securitized - net	3,491		3,463		4,153		4,124		3,033		3,032
Short-term securitization borrowings	3,491		3,492		4,109		4,113		3,044		3,050
Long-term borrowings due within one year:
Equipment operations	$	815	$	821	$	821	$	837	$	197	$	197
Financial services	4,501		4,511		4,408		4,441		4,505		4,592
Total	$	5,316	$	5,332	$	5,229	$	5,278	$	4,702	$	4,789
Long-term borrowings:
Equipment operations	$	4,828	$	5,102	$	4,871	$	5,141	$	5,465	$	6,097
Financial services	17,437		17,619		16,707		16,887		16,705		16,860
Total	$	22,265	$	22,721	$	21,578	$	22,028	$	22,170	$	22,957

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

	January 31 2014 *		October 31 2013 *		January 31 2013 *
Marketable securities
Equity fund	$	20	$	20
U.S. government debt securities	1,113		1,312		$	1,096
Municipal debt securities	36		36		38
Corporate debt securities	147		138		120
Mortgage-backed securities **	122		119		122
Total marketable securities	1,438		1,625		1,376
Other assets
Derivatives:
Interest rate contracts	329		347		557
Foreign exchange contracts	70		32		35
Cross-currency interest rate contracts	19		15		8
Total assets ***	$	1,856	$	2,019	$	1,976
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	144	$	120	$	75
Foreign exchange contracts	24		42		35
Cross-currency interest rate contracts			17		33
Total liabilities	$	168	$	179	$	143

*              All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $1,046 million, $1,247 million and $1,038 million at January 31, 2014, October 31, 2013 and January 31, 2013, respectively, and the equity fund of $20 million and $20 million at January 31, 2014 and October 31, 2013, respectively.  There were no transfers between Level 1 and Level 2 during the first three months of 2014 and 2013.

**            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 January 31, 2014 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	$	923	$	924
Due after one through five years	172		176
Due after five through 10 years	136		137
Due after 10 years	59		59
Mortgage-backed securities	125		122
Debt securities	$	1,415	$	1,418

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

	Fair Value *				Losses
					Three Months Ended
	January 31	October 31		January 31	January 31
	2014	2013		2013	2014		2013
Property and equipment - net		$	36		$	26

*      See financing receivables with specific allowances in Note 10 that were not significant.

The fair value measurement and impairment loss shown above was the result of changes in circumstances that indicate it was probable the future cash flows would not cover the carrying amounts of certain long-lived assets.  The non-cash charge of $26 million pretax and after-tax was recognized in the first quarter of 2014 in cost of sales.  The impairment was associated with the Company’s John Deere Water operations, which are included in the agriculture and turf operating segment.  The loss was due to a review of strategic options for the business.

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.

Property and Equipment – Net – The impairments are measured at the lower of the carrying amount, or fair value.  The valuations were based on an income approach using probability weighted cash flows of potential outcomes of the ongoing strategic option review.  The inputs include estimates of the cash flow related to each of the alternatives being considered and management’s estimate of the likelihood of each alternative.