Fair Value Measurements

9 Months Ended

Jul. 31, 2013

Fair Value Disclosures [Abstract]

Fair value measurements

Fair Value Measurements

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect our assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, we classify each fair value measurement as follows:

• Level 1—based upon quoted prices for identical instruments in active markets,

• Level 2—based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and

• Level 3—based upon one or more significant unobservable inputs.

The following section describes key inputs and assumptions in our valuation methodologies:

Cash Equivalents and Restricted Cash Equivalents—We classify highly liquid investments, with an original maturity of 90 days or less, including U.S. Treasury bills, federal agency securities, and commercial paper, as cash equivalents. The carrying amounts of cash and cash equivalents and restricted cash approximate fair value because of the short-term maturity and highly liquid nature of these instruments.

Marketable Securities—Our marketable securities portfolios are classified as available-for-sale and primarily include investments in U.S. government securities and commercial paper with a maturity of greater than 90 days from the date of purchase. We use quoted prices from active markets to determine fair value.

Derivative Assets and Liabilities—We measure the fair value of derivatives assuming that the unit of account is an individual derivative transaction and that each derivative could be sold or transferred on a stand-alone basis. We classify within Level 2 our derivatives that are traded over-the-counter and valued using internal models based on observable market inputs. In certain cases, market data is not available and we estimate inputs such as in situations where trading in a particular commodity is not active. Measurements based upon these unobservable inputs are classified within Level 3. For more information regarding derivatives, see Note 11, Financial Instruments and Commodity Contracts.

Guarantees—We provide certain guarantees of payments and residual values to specific counterparties. Fair value of these guarantees is based upon internally developed models that utilize current market-based assumptions and historical data. We classify these liabilities within Level 3. For more information regarding guarantees, see Note 12, Commitments and Contingencies.

The following table presents the financial instruments measured at fair value on a recurring basis:

	July 31, 2013								October 31, 2012
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. Treasury bills	$	619	$	—	$	—	$	619	$	420	$	—	$	—	$	420
Other	89		—		—		89		46		—		—		46
Derivative financial instruments:
Foreign currency contracts	—		3		—		3		—		—		—		—
Interest rate caps	—		2		—		2		—		—		—		—
Total assets	$	708	$	5	$	—	$	713	$	466	$	—	$	—	$	466
Liabilities
Derivative financial instruments:
Commodity contracts	$	—	$	2	$	—	$	2	$	—	$	4	$	—	$	4
Foreign currency contracts	—		—		—		—		—		—		—		—
Guarantees	—		—		7		7		—		—		7		7
Total liabilities	$	—	$	2	$	7	$	9	$	—	$	4	$	7	$	11

The following tables present the changes for those financial instruments classified within Level 3 of the valuation hierarchy:

	Three Months Ended July 31,
	2013					2012
(in millions)	Guarantees			Commodity contracts		Guarantees			Commodity contracts
Balance at May 1	$	(7	)	$	—	$	(7	)	$	—
Total gains (losses) (realized/unrealized) included in earnings(A)	—			—		—			—
Transfers out of Level 3	—			—		—			—
Issuances	—			—		—			—
Settlements	—			—		—			—
Balance at July 31	$	(7	)	$	—	$	(7	)	$	—
Change in unrealized gains on assets and liabilities still held	$	—		$	—	$	—		$	—

	Nine Months Ended July 31,
	2013					2012
(in millions)	Guarantees			Commodity contracts		Guarantees			Commodity contracts
Balance at November 1	$	(7	)	$	—	$	(6	)	$	(2	)
Total gains (losses) (realized/unrealized) included in earnings(A)	—			—		—			(1		)
Transfers out of Level 3	—			—		—			2
Issuances	—			—		(1		)	—
Settlements	—			—		—			1
Balance at July 31	$	(7	)	$	—	$	(7	)	$	—
Change in unrealized gains on assets and liabilities still held	$	—		$	—	$	—		$	—

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(A) For commodity contracts, losses are included in Cost of products sold.

The following table presents these financial instruments measured at fair value on a nonrecurring basis:

(in millions)	July 31, 2013		October 31, 2012
Level 2 financial instruments
Carrying value of impaired finance receivables (A)	$	12	$	14
Specific loss reserve	10		9
Fair value	$	2	$	5

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(A) Certain impaired finance receivables are measured at fair value on a nonrecurring basis. An impairment charge is recorded for the amount by which the carrying value of the receivables exceeds the fair value of the underlying collateral, net of remarketing costs. Fair values of the underlying collateral are determined by reference to dealer vehicle value publications adjusted for certain market factors.

In addition to the methods and assumptions we use for the financial instruments recorded at fair value as discussed above, we use the following methods and assumptions to estimate the fair value for our other financial instruments that are not marked to market on a recurring basis. The carrying amounts of Cash and cash equivalents, Restricted cash, and Accounts payable approximate fair values because of the short-term maturity and highly liquid nature of these instruments. Finance receivables generally consist of retail and wholesale accounts and retail and wholesale notes. The carrying amounts of Trade and other receivables and retail and wholesale accounts approximate fair values as a result of the short-term nature of the receivables. The carrying amounts of wholesale notes approximate fair values as a result of the short-term nature of the wholesale notes and their variable interest rate terms. The fair values of these financial instruments are classified as Level 1. Due to the nature of the aforementioned financial instruments, they have been excluded from the fair value amounts presented in the table below.

The fair values of our retail notes are estimated by discounting expected cash flows at estimated current market rates. The fair values of our retail notes are classified as Level 3 financial instruments.

The fair values of our debt instruments classified as Level 1 were determined using quoted market prices. Our Loan Agreement underlying the 6.5% Tax Exempt Bonds is traded, but is illiquid, and as a result, is classified as Level 2. The fair values of our Level 3 debt instruments are generally determined using internally developed valuation techniques such as discounted cash flow modeling. Inputs such as discount rates and credit spreads reflect our estimates of assumptions that market participants would use in pricing the instrument and may be unobservable.

The following tables present the carrying values and estimated fair values of financial instruments:

	July 31, 2013
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	437	$	437	$	433
Notes receivable	—		—		16		16		15
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Facility, as Amended due 2017	—		—		676		676		693
8.25% Senior Notes, due 2021	1,252		—		—		1,252		1,177
3.0% Senior Subordinated Convertible Notes, due 2014(A)	580		—		—		580		538
Debt of majority-owned dealerships	—		—		54		54		54
Financing arrangements	—		—		49		49		78
Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040	—		237		—		237		225
Promissory Note	—		—		22		22		23
Financed lease obligations	—		—		213		213		213
Other	—		—		32		32		33
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2019	—		—		792		792		791
Bank revolvers, at fixed and variable rates, due dates from 2013 through 2019	—		—		813		813		837
Borrowings secured by operating and finance leases, at various rates, due serially through 2017	—		—		57		57		58

	October 31, 2012
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	613	$	613	$	618
Notes receivable	—		—		27		27		27
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Facility, as Amended due 2017	—		—		1,047		1,047		991
8.25% Senior Notes, due 2021	899		—		—		899		872
3.0% Senior Subordinated Convertible Notes, due 2014(A)	514		—		—		514		520
Debt of majority-owned dealerships	—		—		60		60		60
Financing arrangements	—		—		102		102		136
Loan Agreement related to 6.5% Tax Exempt Bonds, due 2040	—		234		—		234		225
Promissory Note	—		—		29		29		30
Other	—		—		67		67		67
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2019	—		—		994		994		994
Bank revolvers, at fixed and variable rates, due dates from 2013 through 2019	—		—		734		734		763
Commercial paper, at variable rates, matured in 2013	31		—		—		31		31
Borrowings secured by operating and finance leases, at various rates, due serially through 2017	—		—		79		79		78

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(A) The carrying value represents the consolidated financial statement amount of the debt which excludes the allocation of the conversion feature to equity, while the fair value is based on quoted market prices for the convertible note which includes the equity feature.