Summary of Significant Accounting Policies (Policies)

3 Months Ended

Jan. 31, 2016

Standard Product Warranty, Policy [Policy Text Block]

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:



	Three Months Ended January 31,
(in millions)	2016			2015
Balance at beginning of period	$	994		$	1,197
Costs accrued and revenues deferred	26			50
Currency translation adjustment	(1		)	(2		)
Adjustments to pre-existing warranties^(A)	5			(57		)
Payments and revenues recognized	(102		)	(105		)
Balance at end of period	922			1,083
Less: Current portion	421			497
Noncurrent accrued product warranty and deferred warranty revenue	$	501		$	586

_________________________

(A)

Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available.

In the first quarter of 2015, we recorded a benefit for adjustments to pre-existing warranties of $57 million or $0.70 per diluted share. The impact of income taxes on the adjustments are not material due to our deferred tax valuation allowances on our U.S. deferred tax assets.

Extended Warranty Programs

The amount of deferred revenue related to extended warranty programs was $383 million and $401 million at January 31, 2016 and October 31, 2015, respectively. Revenue recognized under our extended warranty programs was $38 million and $37 million for the three months ended January 31, 2016 and 2015, respectively.

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements include the assets, liabilities, and results of operations of our Manufacturing operations, which include majority-owned dealers ("Dealcors"), and our Financial Services operations, including VIEs of which we are the primary beneficiary. The effects of transactions among consolidated entities have been eliminated to arrive at the consolidated amounts.

Reclassifications were made to present the net change in secured revolving credit facilities as a separate line rather than within proceeds from issuance of securitized debt and principal payments on securitized debt in the Condensed Statements of Cash Flows. This reclassification did not have an impact on our Condensed Statements of Cash Flows.

We prepared the accompanying unaudited consolidated financial statements in accordance with United States ("U.S.") generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for comprehensive annual financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting policies described in our Annual Report on Form 10-K for the year ended October 31, 2015, which should be read in conjunction with the disclosures therein. In our opinion, these interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial condition, results of operations, and cash flows for the periods presented. Operating results for interim periods are not necessarily indicative of annual operating results.

Variable Interest Entities

We have an interest in several VIEs, primarily joint ventures, established to manufacture or distribute products and enhance our operational capabilities. We have determined for certain of our VIEs that we are the primary beneficiary because we have the power to direct the activities of the VIE that most significantly impact its economic performance and we have the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Accordingly, we include in our consolidated financial statements the assets and liabilities and results of operations of those entities, even though we may not own a majority voting interest. The liabilities recognized as a result of consolidating these VIEs do not represent additional claims on our general assets; rather they represent claims against the specific assets of these VIEs. Assets of these entities are not readily available to satisfy claims against our general assets.

We are the primary beneficiary of our Blue Diamond Parts ("BDP") joint venture with Ford. As a result, our Consolidated Balance Sheets include assets of $40 million and $50 million and liabilities of $5 million and $7 million as of January 31, 2016 and October 31, 2015, respectively, including $3 million and $7 million of cash and cash equivalents, at the respective dates, which are not readily available to satisfy claims against our general assets. The creditors of BDP do not have recourse to our general credit.

Our Financial Services segment consolidates several VIEs. As a result, our Consolidated Balance Sheets include secured assets of $899 million and $1.1 billion as of January 31, 2016 and October 31, 2015, respectively, and liabilities of $766 million and $844 million as of January 31, 2016 and October 31, 2015, respectively, all of which are involved in securitizations that are treated as asset-backed debt.

In addition, our Consolidated Balance Sheets include secured assets of $162 million and $235 million as of January 31, 2016 and October 31, 2015, respectively, and corresponding liabilities of $107 million as of both January 31, 2016 and October 31, 2015, which are related to other secured transactions that do not qualify for sale accounting treatment, and therefore, are treated as borrowings secured by operating and finance leases. Investors that hold securitization debt have a priority claim on the cash flows generated by their respective securitized assets to the extent that the related VIEs are required to make principal and interest payments. Investors in securitizations of these entities have no recourse to our general credit.

We also have an interest in other VIEs, which we do not consolidate because we are not the primary beneficiary. Our financial support and maximum loss exposure relating to these non-consolidated VIEs are not material to our financial condition, results of operations, or cash flows.

We use the equity method to account for our investments in entities that we do not control under the voting interest or variable interest models, but where we have the ability to exercise significant influence over operating and financial policies. Equity in income of non-consolidated affiliates includes our share of the net income of these entities.

Equity Method Investments, Policy [Policy Text Block]

Product Warranty Liability

The following table presents accrued product warranty and deferred warranty revenue activity:



	Three Months Ended January 31,
(in millions)	2016			2015
Balance at beginning of period	$	994		$	1,197
Costs accrued and revenues deferred	26			50
Currency translation adjustment	(1		)	(2		)
Adjustments to pre-existing warranties^(A)	5			(57		)
Payments and revenues recognized	(102		)	(105		)
Balance at end of period	922			1,083
Less: Current portion	421			497
Noncurrent accrued product warranty and deferred warranty revenue	$	501		$	586

_________________________

(A)

Extended Warranty Programs

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, pension and other postretirement benefits, allowance for doubtful accounts, income tax contingency accruals and valuation allowances, product warranty accruals, asbestos and other product liability accruals, asset impairment charges, and litigation-related accruals. Actual results could differ from our estimates.

Concentration Risks

Our financial condition, results of operations, and cash flows are subject to concentration risks related to our significant unionized workforce. As of January 31, 2016, approximately 5,500, or 77%, of our hourly workers and approximately 300, or 5%, of our salaried workers, are represented by labor unions and are covered by collective bargaining agreements. Our future operations may be affected by changes in governmental procurement policies, budget considerations, changing national defense requirements, and political, regulatory and economic developments in the U.S. and certain foreign countries (primarily Canada, Mexico, and Brazil).

Inventories

Inventories are valued at the lower of cost or market. Our gross used truck inventory increased to approximately $440 million at January 31, 2016 from $390 million at October 31, 2015, offset by reserves of $145 million and $110 million, respectively. During the quarter ended January 31, 2016, additional reserves of $35 million were recorded primarily in Costs of products sold.

In valuing our used truck inventory, we are required to make assumptions regarding the level of reserves required to value inventories at their net realizable value ("NRV"). Our judgments and estimates for used truck inventory are based on an analysis of current and forecasted sales prices, aging of and demand for used trucks, and the mix of sales through various market channels. The NRV is subject to change based on numerous conditions taking into account age, specifications, mileage, timing of sales, market mix and current and forecasted pricing. While calculations are made involving these factors, significant management judgment regarding expectations for future events is involved. Future events that could significantly influence our judgment and related estimates include general economic conditions in markets where our products are sold, actions of our competitors, and the ability to sell used trucks in a timely manner.

Recently Adopted Accounting Standards

In the three months ended January 31, 2016, we have not adopted any new accounting guidance that has had a material impact on our consolidated financial statements.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

Concentration Risk Disclosure [Text Block]

Concentration Risks

Inventory, Policy [Policy Text Block]

Inventories

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

In the three months ended January 31, 2016, we have not adopted any new accounting guidance that has had a material impact on our consolidated financial statements.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers" (Topic 606), which supersedes the revenue recognition requirements in ASC 605, "Revenue Recognition." This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which postponed the effective date of ASU No. 2014-09 to fiscal years beginning after December 15, 2017, with early adoption permitted on the original effective date of fiscal years beginning after December 15, 2016. Our effective date for this ASU is November 1, 2018. We are currently evaluating the impact of this ASU on our consolidated financial statements and method of adoption.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). This ASU requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. The accounting by lessors will remain largely unchanged. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Our effective date for this ASU is November 1, 2019. Adoption will require a modified retrospective transition. We are currently evaluating the method of adoption and the impact of this ASU on our consolidated financial statements.

- Definition

Disclosure of accounting policy for consolidation to describe the significant judgments and assumptions made in determining whether a variable interest held by the entity requires the variable interest entity to be consolidated and (or) disclose information about its involvement with the variable interest entity; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; and the significant factors considered and judgments made in determining that the power to direct the activities that significantly impact the economic performance of the variable interest entity are shared (as defined).

+ References + Details

- Definition

Disclosure of accounting policy for the equity method of accounting for investments in common stock or other interests including unconsolidated subsidiaries, corporate joint ventures, noncontrolling interests in real estate ventures, limited partnerships, and limited liability companies. The accounting policy may include information such as: (1) initially recording an investment in the stock of an investee at cost; (2) adjusting the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition; and (3) adjustments to reflect the investor's share of changes in the investee's capital (dividends). This disclosure may also include a detailed description of the policy for determining the amount of equity method losses recognized after an investment has been reduced to zero as a result of previous losses, reasons for not using the equity method when the investor company owns 20 percent or more of the voting stock of the investee's company (including identification of the significant investee), reasons for using the equity method when the ownership percentage is less than 20 percent, and discussion of recognition of equity method losses when an investor's total investment in an investee includes, in addition to an investment in common stock, other investments such as preferred stock and loans to the investee. An entity also may describe how such investments are assessed for impairment.

+ References + Details

- Definition

Disclosure of accounting policy for major classes of inventories, bases of stating inventories (for example, lower of cost or market), methods by which amounts are added and removed from inventory classes (for example, FIFO, LIFO, or average cost), loss recognition on impairment of inventories, and situations in which inventories are stated above cost. If inventory is carried at cost, this disclosure includes the nature of the cost elements included in inventory.

+ References + Details