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FAIR VALUE MEASUREMENTS | 3 Months Ended
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Jan. 31, 2016
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, 2016 |  | October 31, 2015 |  | January 31, 2015 |
|  | Carrying Value |  | Fair Value * |  | Carrying Value |  | Fair Value * |  | Carrying Value |  | Fair Value * |
Financing receivables - net |  | $ | 23,630 |  | $ | 23,519 |  | $ | 24,809 |  | $ | 24,719 |  | $ | 25,806 |  | $ | 25,733 |
Financing receivables securitized - net |  |  | 4,003 |  |  | 3,986 |  |  | 4,835 |  |  | 4,820 |  |  | 3,893 |  |  | 3,868 |
Short-term securitization borrowings |  |  | 3,879 |  |  | 3,882 |  |  | 4,590 |  |  | 4,590 |  |  | 3,888 |  |  | 3,891 |
Long-term borrowings due within one year: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equipment operations |  | $ | 96 |  | $ | 89 |  | $ | 86 |  | $ | 78 |  | $ | 216 |  | $ | 207 |
Financial services |  |  | 4,977 |  |  | 4,981 |  |  | 5,167 |  |  | 5,167 |  |  | 4,660 |  |  | 4,669 |
Total |  | $ | 5,073 |  | $ | 5,070 |  | $ | 5,253 |  | $ | 5,245 |  | $ | 4,876 |  | $ | 4,876 |
Long-term borrowings: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equipment operations |  | $ | 4,519 |  | $ | 4,889 |  | $ | 4,461 |  | $ | 4,835 |  | $ | 4,622 |  | $ | 5,344 |
Financial services |  |  | 20,014 |  |  | 19,979 |  |  | 19,372 |  |  | 19,348 |  |  | 19,485 |  |  | 19,687 |
Total |  | $ | 24,533 |  | $ | 24,868 |  | $ | 23,833 |  | $ | 24,183 |  | $ | 24,107 |  | $ | 25,031 |
* 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:
|  | January 31 |  | October 31 |  | January 31 |
|  | 2016* |  | 2015* |  | 2015* |
Marketable securities |  |  |  |  |  |  |  |  |  |
Equity fund |  | $ | 44 |  | $ | 43 |  | $ | 45 |
U.S. government debt securities |  |  | 87 |  |  | 82 |  |  | 179 |
Municipal debt securities |  |  | 33 |  |  | 31 |  |  | 29 |
Corporate debt securities |  |  | 119 |  |  | 124 |  |  | 134 |
International debt securities |  |  | 76 |  |  | 47 |  |  |  |
Mortgage-backed securities ** |  |  | 117 |  |  | 110 |  |  | 107 |
Total marketable securities |  |  | 476 |  |  | 437 |  |  | 494 |
Other assets |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  | 437 |  |  | 353 |  |  | 478 |
Foreign exchange contracts |  |  | 92 |  |  | 50 |  |  | 125 |
Cross-currency interest rate contracts |  |  | 29 |  |  | 25 |  |  | 22 |
Total assets *** |  | $ | 1,034 |  | $ | 865 |  | $ | 1,119 |
Accounts payable and accrued expenses |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 62 |  | $ | 60 |  | $ | 80 |
Foreign exchange contracts |  |  | 24 |  |  | 18 |  |  | 49 |
Total liabilities |  | $ | 86 |  | $ | 78 |  | $ | 129 |
* M easurements above were Level 2 measurements except for Level 1 measurements of the equity fund of $44 million, $43 million and $45 million at January 31, 2016, October 31, 2015 and January 31, 2015, respectively; and the U.S. government debt securities of $43 million, $37 million and $129 million at January 31, 2016, October 31, 2015 and January 31, 2015, respectively. In addition, $44 million and $29 million of the international debt securities were Level 3 measurements at January 31, 2016 and October 31, 2015. There were no transfers between Level 1 and Level 2 during the first three 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 January 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 |  | $ | 50 |  | $ | 48 |
Due after one through five years |  |  | 127 |  |  | 121 |
Due after five through 10 years |  |  | 100 |  |  | 103 |
Due after 10 years |  |  | 40 |  |  | 43 |
Mortgage-backed securities |  |  | 114 |  |  | 117 |
Debt securities |  | $ | 431 |  | $ | 432 |
Fair value, recurring, Level 3 measurements from available for sale marketable securities in millions of dollars follow:
|  | Three Months Ended |
|  | January 31 |
|  | 2016 |
Beginning of period balance |  | $ | 29 |
Purchases |  |  | 25 |
Principal Payments |  |  | (2) |
Change in unrealized gain (loss) |  |  | (8) |
End of period balance |  | $ | 44 |
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 |
|  | 2016 |  | 2015 |  | 2015 |  | 2016 |  | 2015 |
Equipment on operating leases – net |  | $ | 469 |  | $ | 479 |  |  |  |  | $ | 4 |  |  |  |
Property and equipment – net |  |  |  |  | $ | 33 |  |  |  |  |  |  |  |  |  |
Other assets |  | $ | 126 |  | $ | 112 |  |  |  |  | $ | 9 |  |  |  |
* See financing receivables with specific allowances in Note 10. Losses were not significant. 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, 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.

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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