John Deere 2013 Annual Report Download - page 53

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 October 31 at fair value
on a recurring basis in millions of dollars follow:
2013* 2012*
Marketable securities
Equity fund ............................................................ $ 20
U.S. government debt securities ............................. 1,312 $ 1,200
Municipal debt securities ........................................ 36 38
Corporate debt securities ........................................ 138 110
Mortgage-backed securities** ................................ 119 122
Total marketable securities ......................................... 1,625 1,470
Other assets
Derivatives:
Interest rate contracts ............................................ 347 609
Foreign exchange contracts .................................... 32 17
Cross-currency interest rate contracts ..................... 15 11
Total assets*** ............................................................... $ 2,019 $ 2,107
Accounts payable and accrued expenses
Derivatives:
Interest rate contracts ............................................ $ 120 $ 72
Foreign exchange contracts .................................... 42 18
Cross-currency interest rate contracts ..................... 17 59
Total liabilities ................................................................. $ 179 $ 149
* All measurements above were Level 2 measurements except for Level 1 measure-
ments of U.S. government debt securities of $1,247 million and $1,139 million at
October 31, 2013 and 2012, respectively, and the equity fund of $20 million at
October 31, 2013. There were no transfers between Level 1 and Level 2 during
2013, 2012 and 2011.
** Primarily issued by U.S. government sponsored enterprises.
*** Excluded from this table were cash equivalents, which were carried at cost that
approximates fair value. The cash equivalents consist primarily of money market
funds that were Level 1 measurements.
Fair value, nonrecurring, Level 3 measurements from
impairments at October 31 in millions of dollars follow:
Fair Value* Losses*
_____________ ____________________
2013 2012 2013 2012 2011
Property and
equipment – net .......... $ 36 $ 48
Goodwill .......................... $ 33
Other intangible
assets – net ................ $ 9
* See financing receivables with specific allowances in Note 12 that were not
significant. See Note 5 for impairments.
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.
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 certain financial
instruments on the balance sheet and nonmonetary assets 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.
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.
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 (see Note 12).
Goodwill – The impairment is based on the implied fair
value measured as the difference between the fair value of the
reporting unit and the fair value of the unit’s identifiable net
assets. An estimate of the fair value of the reporting unit is
determined by an income approach (discounted cash flows),
which includes inputs such as interest rates.
Property and Equipment-Net – The impairments are
measured at the lower of the carrying amount, or fair value.
The valuations were based on a cost approach. The inputs
include replacement cost estimates adjusted for physical
deterioration and economic obsolescence.
Other Intangible Assets-Net – The impairments are
measured at the lower of the carrying amount, or fair value.
The valuations were based on an income approach (discounted
cash flows). The inputs include estimates of future cash flows.
27. DERIVATIVE INSTRUMENTS
Certain of the company’s derivative agreements contain credit
support provisions that require the company to post collateral
based on reductions in credit ratings. The aggregate fair value
of all derivatives with credit-risk-related contingent features that
were in a liability position at October 31, 2013 and 2012 was
$91 million and $32 million, respectively. The company, due to
its credit rating and amounts of net liability position, has not
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