Financial instruments and commodity contracts

Derivative Financial Instruments

We use derivative financial instruments as part of our overall interest rate, foreign currency, and commodity risk management strategies to reduce our interest rate exposure, reduce exchange rate risk for transactional exposures denominated in currencies other than the functional currency, and minimize the effect of commodity price volatility. From time to time, we use foreign currency forward and option contracts to manage the risk of exchange rate movements that would reduce the value of our foreign currency cash flows. Foreign currency exchange rate movements create a degree of risk by affecting the value of sales made and costs incurred in currencies other than the functional currency. From time to time, we also use commodity forward contracts to manage our exposure to variability in certain commodity prices. We generally do not enter into derivative financial instruments for speculative or trading purposes and did not during the three and six months ended April 30, 2011 and 2010. None of our derivatives qualified for hedge accounting treatment during the three and six months ended April 30, 2011 or 2010.

Certain of our derivative contracts contain provisions that require us to provide collateral if certain thresholds are exceeded. No collateral was provided at April 30, 2011 or October 31, 2010. Collateral is not required to be provided by our counter-parties for derivative contracts. We manage exposure to counter-party credit risk by entering into derivative financial instruments with various major financial institutions that can be expected to fully perform under the terms of such instruments. We do not anticipate nonperformance by any of the counter-parties. Our exposure to credit risk in the event of nonperformance by the counter-parties is limited to those gains that have been recorded, but have not yet been received in cash. At April 30, 2011 and October 31, 2010, our exposure to the credit risk of others was $22 million and $10 million, respectively.

Our financial services operations manage exposure to fluctuations in interest rates by limiting the amount of fixed rate assets funded with variable rate debt. This is accomplished by funding fixed rate receivables utilizing a combination of fixed rate and variable rate debt and derivative financial instruments to convert variable rate debt to fixed. These derivative financial instruments may include interest rate swaps, interest rate caps, and forward contracts. The fair value of these instruments is estimated by discounting expected future monthly settlements and is subject to market risk, as the instruments may become less valuable due to changes in market conditions, interest rates, or credit spreads of counter-parties. Notional amounts of derivative financial instruments do not represent exposure to credit risk.

The fair values of all derivatives are recorded as assets or liabilities on a gross basis in our Consolidated Balance Sheets and are presented in the following table, along with their respective balance sheet locations:






	As of April 30, 2011
	Asset Derivatives			Liability Derivatives
(in millions)	Location in Consolidated Balance Sheets	Fair Value		Location in Consolidated Balance Sheets	Fair Value
Foreign currency contracts	Other current assets	$	7	Other current liabilities	$	—
Commodity contracts	Other current assets	15		Other current liabilities	1
Total fair value		$	22		$	1

	As of October 31, 2010
	Asset Derivatives			Liability Derivatives
(in millions)	Location in Consolidated Balance Sheets	Fair Value		Location in Consolidated Balance Sheets	Fair Value
Foreign currency contracts	Other current assets	$	8	Other current liabilities	$	—
Commodity contracts	Other current assets	2		Other current liabilities	4
Total fair value		$	10		$	4

The location and amount of gain (loss) recognized in income on derivatives are as follows for the periods ended April 30:



	Location in Consolidated Statements of Operations	Amount of Gain (Loss) Recognized
	Location in Consolidated Statements of Operations	2011		2010
(in millions)
Three Months Ended April 30
Interest rate swaps	Interest expense	$	—	$	(1	)
Interest rate caps purchased	Interest expense	—		(1		)
Interest rate caps sold	Interest expense	—		2
Foreign currency contracts	Other income, net	2		—
Commodity forward contracts	Costs of products sold	5		5
Total gain		$	7	$	5



	Location in Consolidated Statements of Operations	Amount of Gain (Loss) Recognized
	Location in Consolidated Statements of Operations	2011		2010
(in millions)
Six Months Ended April 30
Interest rate swaps	Interest expense	$	—	$	(4	)
Interest rate caps purchased	Interest expense	—		(3		)
Interest rate caps sold	Interest expense	—		3
Foreign currency contracts	Other income, net	1		—
Commodity forward contracts	Costs of products sold	22		6
Total gain		$	23	$	2

Foreign Currency Contracts

During 2011 and 2010, we entered into forward exchange contracts as economic hedges of anticipated cash flows denominated in Canadian dollars, Indian rupees, and Euros. As of April 30, 2011, we had outstanding forward exchange contracts with notional amounts of €14 million Euros with maturity dates ranging from May 2011 to June 2011 and C$13 million Canadian dollars with maturity dates of June 2011. As of October 31, 2010, we had outstanding forward exchange contracts with notional amounts of €49 million Euros and C$24 million Canadian dollars. All of these contracts were entered into to protect against the risk that the eventual cash flows resulting from certain transactions will be adversely affected by changes in exchange rates between the U.S. dollar and the respective foreign currency.

Commodity Forward Contracts

During 2011 and 2010, we entered into commodity forward contracts as economic hedges of our exposure to variability in commodity prices for diesel fuel, lead, steel, and natural rubber. As of April 30, 2011, we had outstanding diesel fuel contracts with aggregate notional values of $10 million, outstanding lead contracts with aggregate notional values of $1 million, outstanding steel contracts with aggregate notional values of $21 million, and outstanding natural rubber contracts with aggregate notional values of $17 million. The commodity forward contracts have maturity dates ranging from June 2011 to May 2012. As of October 31, 2010, we had outstanding diesel fuel contracts with aggregate notional values of $21 million, outstanding lead contracts with aggregate notional values of $1 million, and outstanding steel contracts with aggregate notional values of $80 million. All of these contracts were entered into to protect against the risk that the eventual cash flows related to purchases of the commodities will be adversely affected by future changes in prices.