FAIR VALUE MEASUREMENTS

12 Months Ended

Oct. 31, 2014

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:

	2014				2013
	Carrying		Fair		Carrying		Fair
	Value		Value*		Value		Value*
Financing receivables – net	$	27,422	$	27,337	$	25,633	$	25,572
Financing receivables securitized – net	$	4,602	$	4,573	$	4,153	$	4,124
Short-term securitization borrowings	$	4,559	$	4,562	$	4,109	$	4,113
Long-term borrowings due within one year:
Equipment operations	$	243	$	233	$	821	$	837
Financial services	4,730		4,743		4,408		4,441
Total	$	4,973	$	4,976	$	5,229	$	5,278
Long-term borrowings:
Equipment operations	$	4,643	$	5,095	$	4,871	$	5,141
Financial services	19,738		19,886		16,707		16,887
Total	$	24,381	$	24,981	$	21,578	$	22,028

*   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:

	2014*		2013*
Marketable securities
Equity fund	$	45	$	20
Fixed income fund	10
U.S. government debt securities	808		1,312
Municipal debt securities	34		36
Corporate debt securities	172		138
Mortgage-backed securities**	146		119
Total marketable securities	1,215		1,625
Other assets Derivatives:
Interest rate contracts	319		347
Foreign exchange contracts	18		32
Cross-currency interest rate contracts	16		15
Total assets***	$	1,568	$	2,019
Accounts payable and accrued expenses Derivatives:
Interest rate contracts	$	81	$	120
Foreign exchange contracts	29		42
Cross-currency interest rate contracts			17
Total liabilities	$	110	$	179

*	All measurements above were Level 2 measurements except for Level 1 measurements of U.S. government debt securities of $741 million and $1,247 million at October 31, 2014 and 2013, respectively, and the equity fund of $45 million and $20 million at October 31, 2014 and 2013, respectively, and the fixed income fund of $10 million at October 31, 2014. There were no transfers between Level 1 and Level 2 during 2014, 2013 and 2012.
**	Primarily issued by U.S. government sponsored enterprises.
***	Excluded from this table were 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.

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

	Fair Value*				Losses*
	2014		2013		2014		2013		2012
Property and equipment – net	$	53	$	36	$	44	$	48
Goodwill									$	33
Other intangible assets – net							$	9
Other assets	$	15			$	16
Assets held for sale – Water operations					$	36

* See financing receivables with specific allowances in Note 12 that were not significant. See Note 5 for impairments.

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 (see Note 12).

Goodwill– The impairment 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-Net– The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on a cost approach. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.

Other Intangible Assets-Net– The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on an income approach (discounted cash flows). The inputs include estimates of future cash flows.

Other Assets— The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on a market approach. The inputs include sales of comparable assets.

Assets Held For Sale-Water Operations– The impairment of the disposal group was measured at the lower of carrying amount, or fair value less cost to sell. Fair value was based on the probable sale price. The inputs included estimates of the final sale price (see Note 5).