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 an original maturity greater than 90 days. 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 10, 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 11, Commitments and Contingencies.

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



	January 31, 2015								October 31, 2014
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Marketable securities:
U.S. Treasury bills	$	110	$	—	$	—	$	110	$	256	$	—	$	—	$	256
Other	65		—		—		65		349		—		—		349
Derivative financial instruments:
Interest rate caps^(A)	—		—		—		—		—		1		—		1
Total assets	$	175	$	—	$	—	$	175	$	605	$	1	$	—	$	606
Liabilities
Derivative financial instruments:
Commodity forward contracts^(B)	$	—	$	9	$	—	$	9	$	—	$	2	$	—	$	2
Foreign currency contracts^(C)	—		1		—		1		—		—		—		—
Guarantees	—		—		8		8		—		—		8		8
Total liabilities	$	—	$	10	$	8	$	18	$	—	$	2	$	8	$	10

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(A)	The asset value of interest rate caps are included in other noncurrent assets as of October 31, 2014 in the accompanying Consolidated Balance Sheets.


(B)	The liability value of commodity forward contracts are included in other current liabilities as of January 31, 2015 and October 31, 2014 in the accompanying Consolidated Balance Sheets.


(C)	The liability value of foreign currency contracts are included in other current liabilities as of January 31, 2015 in the accompanying Consolidated Balance Sheets.

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



	Three Months Ended January 31,
(in millions)	2015			2014
Guarantees, at November 1	$	(8	)	$	(6	)
Transfers out of Level 3	—			—
Issuances	—			—
Settlements	—			—
Guarantees, at January 31	$	(8	)	$	(6	)
Change in unrealized gains on assets and liabilities still held	$	—		$	—

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



(in millions)	January 31, 2015			October 31, 2014
Level 2 financial instruments
Carrying value of impaired finance receivables ^(A)	$	17		$	20
Specific loss reserve	(8		)	(6		)
Fair value	$	9		$	14

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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 the first quarter of 2014, the Truck segment recorded asset impairment charges of $18 million which were primarily related to potential sales of assets requiring assessment of impairment for certain intangible and long-lived assets, reflecting our ongoing evaluation of our portfolio of assets to validate their strategic and financial fit. These charges were included in Asset impairment charges in the Company's Consolidated Statements of Operations. We utilized the market approach to determine the fair values of these Level 2 assets.

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. The 6.5% Tax Exempt Bonds are traded, but the trading market is illiquid, and as a result, the Loan Agreement underlying the Tax Exempt Bonds 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:



	As of January 31, 2015
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	229	$	229	$	226
Notes receivable	—		—		7		7		7
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Facility, as Amended, due 2017	—		—		711		711		694
8.25% Senior Notes, due 2021	1,195		—		—		1,195		1,181
4.50% Senior Subordinated Convertible Notes, due 2018^(A)	—		—		186		186		182
4.75% Senior Subordinated Convertible Notes, due 2019^(A)	—		—		372		372		373
Debt of majority-owned dealerships	—		—		28		28		28
Financing arrangements	—		—		21		21		47
Loan Agreement related to 6.50% Tax Exempt Bonds, due 2040	—		242		—		242		225
Promissory Note	—		—		8		8		8
Financed lease obligations	—		—		160		160		160
Other	—		—		25		25		27
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2018	—		—		886		886		887
Bank revolvers, at fixed and variable rates, due dates from 2015 through 2020	—		—		1,151		1,151		1,169
Commercial paper, at variable rates, program matures in 2017	64		—		—		64		64
Borrowings secured by operating and finance leases, at various rates, due serially through 2018	—		—		33		33		33



	As of October 31, 2014
	Estimated Fair Value								Carrying Value
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Retail notes	$	—	$	—	$	279	$	279	$	275
Notes receivable	—		—		7		7		8
Liabilities
Debt:
Manufacturing operations
Senior Secured Term Loan Credit Facility, as Amended, due 2017	—		—		704		704		694
8.25% Senior Notes, due 2021	1,285		—		—		1,285		1,180
4.50% Senior Subordinated Convertible Notes, due 2018^(A)	—		—		196		196		181
4.75% Senior Subordinated Convertible Notes, due 2019^(A)	—		—		413		413		371
Debt of majority-owned dealerships	—		—		30		30		30
Financing arrangements	—		—		22		22		48
Loan Agreement related to 6.50% Tax Exempt Bonds, due 2040	—		232		—		232		225
Promissory Note	—		—		10		10		10
Financed lease obligations	—		—		184		184		184
Other	—		—		28		28		29
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at various rates, due serially through 2019	—		—		911		911		914
Bank revolvers, at fixed and variable rates, due dates from 2014 through 2020	—		—		1,214		1,214		1,242
Commercial paper, at variable rates, program matures in 2015	74		—		—		74		74
Borrowings secured by operating and finance leases, at various rates, due serially through 2018	—		—		36		36		36

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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 internally developed valuation techniques such as discounted cash flow modeling for Level 3 convertible notes which include the equity feature.