(15) To determine fair value, the Company uses various methods including market and income approaches. 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. 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.

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.

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


	July 31, 2016				October 31, 2015				July 31, 2015
	Carrying Value		Fair Value *		Carrying Value		Fair Value *		Carrying Value		Fair Value *
Financing receivables - net	$	22,595	$	22,459	$	24,809	$	24,719	$	24,973	$	24,831
Financing receivables securitized - net		5,947		5,939		4,835		4,820		4,738		4,709
Short-term securitization borrowings		5,729		5,733		4,590		4,590		4,595		4,596

Long-term borrowings due within one year:
Equipment operations	$	61	$	57	$	86	$	78	$	167	$	157
Financial services		5,373		5,368		5,167		5,167		4,683		4,674
Total	$	5,434	$	5,425	$	5,253	$	5,245	$	4,850	$	4,831

Long-term borrowings:
Equipment operations	$	4,578	$	5,350	$	4,461	$	4,835	$	4,475	$	4,878
Financial services		19,550		19,724		19,372		19,348		18,726		18,772
Total	$	24,128	$	25,074	$	23,833	$	24,183	$	23,201	$	23,650

* 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:


	July 31		October 31		July 31
	2016*		2015*		2015*
Marketable securities
International equity securities					$	8
Equity fund	$	48	$	43		35
Fixed income fund		9
U.S. government debt securities		86		82		82
Municipal debt securities		40		31		30
Corporate debt securities		118		124		104
International debt securities		40		47		47
Mortgage-backed securities **		128		110		115
Total marketable securities		469		437		421
Other assets
Derivatives:
Interest rate contracts		488		353		341
Foreign exchange contracts		47		50		57
Cross-currency interest rate contracts		24		25		27
Total assets ***	$	1,028	$	865	$	846
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	$	47	$	60	$	83
Foreign exchange contracts		48		18		26
Total liabilities	$	95	$	78	$	109

* Measurements above were Level 2 measurements except for Level 1 measurements of the international equity securities of $8 million at July 31, 2015; the equity fund of $48 million, $43 million and $35 million at July 31, 2016, October 31, 2015 and July 31, 2015, respectively; the fixed income fund of $9 million at July 31, 2016; and U.S. government debt securities of $47 million, $37 million and $37 million at July 31, 2016, October 31, 2015 and July 31, 2015, respectively. In addition, $34 million, $29 million and $31 million of the international debt securities were Level 3 measurements at July 31, 2016, October 31, 2015 and July 31, 2015. There were no transfers between Level 1 and Level 2 during the first nine months of 2016 or 2015.

** 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 July 31, 2016 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		Fair
	Cost		Value
Due in one year or less	$	38	$	37
Due after one through five years		98		96
Due after five through 10 years		91		96
Due after 10 years		50		55
Mortgage-backed securities		122		128
Debt securities	$	399	$	412

Fair value, recurring, Level 3 measurements from available for sale marketable securities in millions of dollars follow:


	Three Months Ended				Nine Months Ended
	July 31				July 31
	2016		2015		2016		2015
Beginning of period balance	$	40			$	29
Purchases			$	30		25	$	30
Principal payments		(8)				(16)
Change in unrealized gain (loss)		2		1		(4)		1
End of period balance	$	34	$	31	$	34	$	31

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


	Fair Value *				Losses
					Three Months Ended		Nine Months Ended
	July 31	October 31		July 31	July 31		July 31
	2016	2015		2015	2016	2015	2016		2015
Equipment on operating leases - net		$	479				$	30
Property and equipment - net		$	33
Other assets		$	112				$	20

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

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, except for the Level 3 measurement international debt securities, 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. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities. The Level 3 measurement international debt securities are primarily valued using an income approach based on discounted cash flows using yield curves derived from limited, observable market data.

Derivatives – The Company’s derivative financial instruments consist of interest rate swaps and caps, foreign currency futures, 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.

Equipment on Operating Leases-Net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of equipment sale price at lease maturity. Inputs include realized sales values.

Property and Equipment-Net – The impairments were 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 included estimates of the cash flow related to each of the alternatives being considered and management’s estimate of the likelihood of each alternative.

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.