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FAIR VALUE MEASUREMENTS

12 Months Ended

Oct. 31, 2021

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

26. FAIR VALUE MEASUREMENTS

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. To determine 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.

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 at October 31, 2021 and November 1, 2020 in millions of dollars follow:


		2021						2020
		Carrying			Fair			Carrying			Fair
		Value			Value*			Value			Value*
Financing receivables – net:
Equipment operations		$	73		$	68		$	105		$	103
Financial services			33,726			33,650			29,645			29,838
Total		$	33,799		$	33,718		$	29,750		$	29,941
Financing receivables securitized – net:
Equipment operations		$	10		$	10		$	26		$	26
Financial services			4,649			4,694			4,677			4,773
Total		$	4,659		$	4,704		$	4,703		$	4,799
Short-term securitization borrowings:
Equipment operations		$	10		$	10		$	26		$	26
Financial services			4,595			4,600			4,656			4,698
Total		$	4,605		$	4,610		$	4,682		$	4,724
Long-term borrowings due within one year:**
Equipment operations		$	1,213		$	1,222		$	79		$	78
Financial services			7,117			7,142			6,870			6,936
Total		$	8,330		$	8,364		$	6,949		$	7,014
Long-term borrowings:**
Equipment operations		$	8,877		$	10,244		$	10,085		$	11,837
Financial services			23,973			24,262			22,610			23,170
Total		$	32,850		$	34,506		$	32,695		$	35,007

* Fair value measurements above were Level 3 for all financing receivables, Level 3 for equipment operations short-term securitization borrowings, and Level 2 for all other borrowings.

**	Values exclude finance lease liabilities that are presented as borrowings (see Note 25).

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, 2021 and November 1, 2020 at fair value on a recurring basis in millions of dollars follow, excluding the company’s cash equivalents, which were carried at cost that approximates fair value and consisted primarily of money market funds and time deposits. Level 3 marketable securities were transferred to Level 2 in 2021.


		2021			2020
Level 1:
Marketable securities
U.S. equity fund		$	75		$	62
International equity securities			2			2
U.S. government debt securities			59			55
Total Level 1 marketable securities			136			119

Level 2:
Marketable securities
U.S. government debt securities			139			113
Municipal debt securities			73			68
Corporate debt securities			224			188
International debt securities			2			2
Mortgage-backed securities*			154			147
Total Level 2 marketable securities			592			518
Other assets
Derivatives:
Interest rate contracts			239			669
Foreign exchange contracts			31			48
Cross-currency interest rate contracts			5			8
Total Level 2 other assets			275			725
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts			132			88
Foreign exchange contracts			94			26
Cross-currency interest rate contracts			2			1
Total Level 2 accounts payable and accrued expenses			228			115

Level 3:
Marketable securities
International debt securities						4

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

Fair value, nonrecurring measurements from impairments at October 31, 2021 and November 1, 2020 in millions of dollars follow:


		Fair Value						Losses
		2021			2020			2021			2020			2019
Other receivables ¹					$	1					$	2
Equipment on operating leases – net ²					$	371					$	22		$	59
Property and equipment – net ³		$	41		$	135		$	44		$	102
Investments in unconsolidated affiliates ⁴					$	19					$	50
Other intangible assets – net											$	2
Other assets ⁵		$	1		$	59		$	6		$	16		$	18

¹ Fair value as of August 2, 2020.

² Fair value as of May 3, 2020.

³ 2021 fair value of $41 million at January 31, 2021. 2020 fair value of $70 million at May 3, 2020, $8 million at August 2, 2020, and $57 million at November 1, 2020.

⁴ Fair value as of November 1, 2020.

⁵ 2021 fair value as of January 31, 2021. 2020 fair value as of May 3, 2020.

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 were 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 contracts (swaps), foreign currency exchange contracts (futures, forwards and swaps), and cross-currency interest rate contracts (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 13).

Other receivables – The impairment was based on the expected realization of value-added tax receivables related to a closed factory operation (see Note 5).

Equipment on operating leases – net – The impairments are based on an income approach (discounted cash flow), using the contractual payments, plus an estimate of return rates and equipment sale price at lease maturity. Inputs include historical return rates and realized sales values (see Note 5).

Property and equipment – net – The impairments are measured at the lower of the carrying amount, or fair value. The valuations were based on cost and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence, or quoted prices when available (see Note 5).

Investment in unconsolidated affiliates – Other than temporary impairments for investments are measured as the difference between the implied fair value or the estimated realization amount, and the carrying value. The fair value for publicly traded entities is the share price multiplied by the shares owned, or the estimated realization amount (see Note 5).

Other intangible assets – net – The impairment was measured at the remaining net book value of customer relationships related to a closed factory operation (see Note 5).

Other assets – The impairments of the matured operating lease inventory were measured at the fair value of that equipment. The valuations were based on a market approach. The inputs include sales of comparable assets. The impairment of the German lawn

mower business was measured at the estimated realizable value. Fair value was based on estimates of the final sale price (see Note 5).

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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