FAIR VALUE MEASUREMENTS

9 Months Ended

Jul. 31, 2022

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

(16)  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 were as follows in millions of dollars. Long-term borrowings exclude finance lease liabilities.

	July 31, 2022				October 31, 2021				August 1, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financing receivables – net	$	35,056	$	34,158	$	33,799	$	33,718	$	31,449	$	31,515
Financing receivables securitized – net		5,141		4,990		4,659		4,704		5,401		5,467
Short-term securitization borrowings		4,920		4,862		4,605		4,610		5,277		5,302
Long-term borrowings due within one year		7,693		7,608		8,330		8,364		8,366		8,440
Long-term borrowings		32,101		31,741		32,850		34,506		32,238		34,345

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 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.

	July 31		October 31		August 1
	2022		2021		2021
Level 1:
Marketable securities
International equity securities	$	2	$	2	$	3
U.S. equity fund		75		75		74
U.S. government debt securities		63		59		60
Total Level 1 marketable securities		140		136		137
Level 2:
Marketable securities
U.S. government debt securities		134		139		124
Municipal debt securities		70		73		71
Corporate debt securities		213		224		217
International debt securities		1		2		3
Mortgage-backed securities		161		154		136
Total Level 2 marketable securities		579		592		551
Other assets
Derivatives		280		275		432
Accounts payable and accrued expenses
Derivatives		667		228		152
Level 3:
Accounts payable and accrued expenses – Deferred consideration		252

The contractual maturities of debt securities at July 31, 2022 in millions of dollars are shown below. Actual maturities may differ from contractual maturities because some securities may be called or prepaid. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity. Mortgage-backed securities were primarily issued by U.S. government-sponsored enterprises. Unrealized losses of debt securities at July 31, 2022 were not recognized in income due to the ability and intent to hold to maturity.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	23	$	23
Due after one through five years		98		95
Due after five through 10 years		189		175
Due after 10 years		211		188
Mortgage-backed securities		176		161
Debt securities	$	697	$	642

Fair value, nonrecurring Level 3 measurements from impairments, excluding financing receivables with specific allowances which were not significant, were as follows in millions of dollars. Property and equipment – net and Other assets fair values for October 31, 2021 represent the fair value assessments at January 31, 2021.

	Fair Value					Losses
						Three Months Ended			Nine Months Ended
	July 31		October 31		August 1	July 31		August 1	July 31		August 1
	2022		2021		2021	2022		2021	2022		2021
Inventories	$	13				$	4		$	12
Property and equipment – net			$	41					$	41	$	44
Other intangible assets – net									$	28
Other assets			$	1							$	6

The following is a description of the valuation methodologies the Company uses to measure certain balance sheet items 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. Funds are primarily valued using the fund’s net asset value, based on the fair value of the underlying securities.

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.

Inventories – The service parts inventory impairment was based on net realizable value, less reasonably predictable selling and disposal costs.

Property and equipment – net – The valuations were based on cost and market approaches. The inputs include replacement cost estimates adjusted for physical deterioration and economic obsolescence.

Other intangible assets – net – The Company considered external valuations based on the Company’s probability weighted cash flow analysis.

Other assets – The impairments were measured at the fair value of the right of use operating lease asset.