Fair Value Measurements

3 Months Ended

Jan. 31, 2012

Fair Value Measurements

Fair Value Measurements

(8)                         The fair values of financial instruments that do not approximate the carrying values were as follows (in millions of dollars):

	January 31, 2012				October 31, 2011				January 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Receivables financed — net	$	18,655	$	18,648	$	19,047	$	19,034	$	17,931	$	17,915
Retail notes securitized — net	2,681		2,679		2,905		2,907		1,768		1,777
Securitization borrowings	2,614		2,624		2,777		2,789		1,765		1,778
Current maturities of long-term borrowings	5,503		5,553		4,653		4,704		2,741		2,777
Long-term borrowings	11,321		11,641		11,390		11,751		11,023		11,419

Fair values of the long-term Receivables were based on the discounted values of their related cash flows at current market interest rates. The fair values of the remaining 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 as Level 2 measurements on a recurring basis were as follows (in millions of dollars):

	January 31,		October 31,		January 31,
	2012		2011		2011
Receivable from John Deere
Derivatives:
Interest rate contracts	$	264.2	$	168.4	$	2.6
Cross-currency interest rate contracts	6.3		.9
Other assets
Derivatives:
Interest rate contracts	265.4		268.6		335.3
Foreign exchange contracts	1.4				1.6
Cross-currency interest rate contracts	1.2		1.6		2.2
Total assets *	$	538.5	$	439.5	$	341.7
Other payables to John Deere
Derivatives:
Interest rate contracts	$	8.5	$	19.6	$	11.2
Cross-currency interest rate contracts	2.3		1.4
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts	45.0		37.0		20.7
Foreign exchange contracts	37.5		47.6		5.5
Cross-currency interest rate contracts	42.9		5.7		64.0
Total liabilities	$	136.2	$	111.3	$	101.4

*      Excluded from this table are the Company’s cash and cash equivalents, which are carried at cost that approximates fair value. The cash and cash equivalents consist primarily of money market funds.

Fair value, nonrecurring, Level 3 measurements were as follows (in millions of dollars):

	Fair Value *						Losses
							Three Months Ended
	January 31,		October 31,		January 31,		January 31,
	2012		2011		2011		2012		2011
Receivables:
Retail notes	$	.3	$	.3	$	.4
Revolving charge accounts									$	.8
Wholesale receivables	4.1		4.3		.4		$	.1
Financing leases					.1
Operating loans			.2		1.0
Total Receivables	$	4.4	$	4.8	$	1.9	$	.1	$	.8

*       Does not include cost to sell.

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. There were no assets or liabilities valued using Level 1 measurements at January 31, 2012.

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 assets and liabilities at fair value:

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.

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.