Financial Instruments and Commodity Contracts

6 Months Ended

Apr. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial instruments and commodity contracts

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 affect 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. In connection with the sale of the 3.0% Senior Subordinated Convertible Notes due 2014 (the "Convertible Notes"), we purchased call options for $125 million. The call options are intended to minimize share dilution associated with the Convertible Notes. As the call options and warrants are indexed to our common stock, we recognized them in permanent equity in Additional paid in capital, and will not recognize subsequent changes in fair value as long as the instruments remain classified as equity.

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, 2012 and 2011. None of our derivatives qualified for hedge accounting treatment during the three and six months ended April 30, 2012 or 2011.

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, 2012 or October 31, 2011. 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, 2012 and October 31, 2011, our exposure to the credit risk of others was $1 million and $4 million, respectively.

The fair values of all derivatives are recorded as assets or liabilities on a gross basis in our Consolidated Balance Sheets. At April 30, 2012 and October 31, 2011, the fair values of our derivatives and their respective balance sheet locations are presented in the following tables:

	As of April 30, 2012
	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	$	—	Other current liabilities	$	1
Cross currency swaps	Other current assets	—		Other current liabilities	—
Commodity contracts	Other current assets	1		Other current liabilities	3
Total fair value		$	1		$	4
	As of October 31, 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	$	3	Other current liabilities	$	—
Cross currency swaps	Other current assets	—		Other current liabilities	4
Commodity contracts	Other current assets	1		Other current liabilities	6
Total fair value		$	4		$	10

The location and amount of gain (loss) recognized in income on derivatives are as follows:

	Location in Consolidated  Statements of Operations	Amount of Gain (Loss) Recognized
		Three Months Ended April 30, 2012		Three Months Ended April 30, 2011
(in millions)
Cross currency swaps	Other expense (income), net	$	—	$	—
Foreign currency contracts	Other expense (income), net	1		2
Commodity forward contracts	Costs of products sold	—		5
Total gain		$	1	$	7

	Location in Consolidated  Statements of Operations	Amount of Gain (Loss) Recognized
		Six Months Ended April 30, 2012			Six Months Ended April 30, 2011
(in millions)
Cross currency swaps	Other expense (income), net	$	1		$	—
Foreign currency contracts	Other expense (income), net	(3		)	1
Commodity forward contracts	Costs of products sold	(1		)	22
Total gain (loss)		$	(3	)	$	23

Foreign Currency Contracts

During 2012 and 2011, we entered into foreign exchange forward and option contracts as economic hedges of anticipated cash flows denominated in Canadian dollars, Indian rupees, Brazilian reais, South African rand and Euros. As of April 30, 2012, we had outstanding forward exchange contracts with notional amounts of €23 million Euros and R163 million South African rand with maturity dates ranging from April 2012 through August 2012. As of October 31, 2011, we had outstanding forward exchange contracts with notional amounts of €54 million Euros and C$6 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 affected by changes in exchange rates between the U.S. dollar and the respective foreign currency.

Commodity Forward Contracts

During 2012 and 2011, 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, 2012, we had outstanding diesel fuel contracts with aggregate notional values of $12 million, outstanding lead contracts with aggregate notional values of less than $1 million, outstanding steel contracts with aggregate notional values of $78 million, and outstanding natural rubber contracts with aggregate notional values of $3 million. The commodity forward contracts have maturity dates ranging from April 2012 to December 2013. As of October 31, 2011, we had outstanding diesel fuel contracts with aggregate notional values of $19 million, outstanding lead contracts with aggregate notional values of $1 million, outstanding steel contracts with aggregate notional values of $41 million, and outstanding natural rubber contracts with aggregate notional values of $14 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 affected by changes in prices.

Interest-Rate Contracts

We may enter into various interest-rate contracts, including interest-rate swaps and cross currency interest-rate swaps. Interest-rate swaps involve the exchange of fixed for floating rate or floating for fixed rate interest payments based on the contractual notional amounts in a single currency. Cross currency interest-rate swaps involve the exchange of notional amounts and interest payments in different currencies. We are exposed to interest rate and exchange rate risk as a result of our borrowing activities. The objective of these contracts is to mitigate fluctuations in earnings, cash flows, and fair value of borrowings. As of April 30, 2012 and October 31, 2011, the notional amount of our outstanding interest-rate contracts was $26 million and $50 million, respectively.