Financial Instruments and Commodity Contracts

9 Months Ended

Jul. 31, 2016

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. In addition, 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 nine months ended July 31, 2016 and 2015. None of our derivatives qualified for hedge accounting treatment during the three and nine months ended July 31, 2016 and 2015.

The majority of our derivative contracts are transacted under International Swaps and Derivatives Association master agreements. Each agreement permits the net settlement of amounts owed in the event of default or certain other termination events. For derivative financial instruments, we have elected not to offset derivative positions in the balance sheet with the same counterparty under the same agreement. Collateral is generally not required to be provided by our counter-parties for derivative contracts. However, certain of our derivative contracts contain provisions that require us to provide collateral if certain loss thresholds are exceeded. Collateral of $1 million was provided as of both July 31, 2016 and October 31, 2015. 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 assets that have been recorded, but have not yet been received in cash. At July 31, 2016 and October 31, 2015, our exposure to the credit risk of others was $5 million and $1 million, respectively.

The following table presents the location and amount of (income) loss recognized in our Consolidated Statements of Operations related to derivatives:

		Three Months Ended July 31,						Nine Months Ended July 31,
(in millions)	Location in Consolidated Statements of Operations	2016			2015			2016			2015
Interest rate caps	Interest expense	$	—		$	1		$	—		$	1
Cross currency swaps	Other income, net	(1		)	(1		)	(1		)	2
Foreign currency contracts	Other income, net	(4		)	(6		)	—			(5		)
Commodity forward contracts	Costs of products sold	—			(1		)	(2		)	4
Total (income) loss		$	(5	)	$	(7	)	$	(3	)	$	2

Foreign Currency Contracts

During 2016 and 2015, we entered into foreign exchange forward and option contracts as economic hedges of anticipated cash flows denominated in Brazilian reais, euros, Canadian dollars, and Mexican pesos. All contracts were entered into to protect against the risk that the eventual cash flows resulting from certain transactions would be affected by changes in exchange rates between the U.S. dollar and the respective foreign currency.

The following table presents the outstanding foreign currency contracts as of July 31, 2016 and October 31, 2015:

(in millions)	Currency	Notional Amount		Maturity
As of July 31, 2016
Forward exchange contract	EUR	€	12	July 2016 - October 2016(A)
Forward exchange contract	CAD	C$	30	July 2016 - September 2016(B)
Forward exchange contract	MXN	₱	759	July 2016 - August 2016(C)
As of October 31, 2015
Forward exchange contract	EUR	€	30	November 2015 - October 2016(D)
Forward exchange contract	CAD	C$	25	November 2015
Forward exchange contract	MXN	₱	1,270	November 2015

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(A) Forward exchange contracts of €2 million matured in July 2016 but settled in August 2016, €3 million matured in August 2016, €4 million mature in September 2016, and €3 million mature in October 2016.

(B) Forward exchange contracts of C$15 million matured in July 2016 but settled in August 2016, C$10 million matured in August 2016, and C$5 million mature in September 2016.

(C)     Forward exchange contracts of ₱380 million matured in July 2016 but settled in August 2016 and ₱379 million matured in August 2016.

(D)    Forward exchange contracts of €2 million settled in November 2015, €3 million matured in November 2015, €3 million matured in December 2015, €4 million matured in January 2016, and €2 million mature each month from February 2016 through October 2016.

Commodity Forward Contracts

During 2016 and 2015, we entered into commodity forward contracts as economic hedges of our exposure to variability in commodity prices for diesel fuel and steel. As of July 31, 2016, we had outstanding diesel fuel contracts with aggregate notional values of $11 million and outstanding steel contracts with aggregate notional values of $13 million. The commodity forward contracts have various maturity dates through March 31, 2017. As of October 31, 2015, we had outstanding diesel fuel contracts with aggregate notional values of $24 million and outstanding steel contracts with aggregate notional values of $6 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

From time to time, we enter into various interest-rate contracts, interest rate caps, and cross currency swaps. As of both July 31, 2016 and October 31, 2015, there were no outstanding cross currency swaps. 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. Our Mexican financial services operation uses interest rate caps and cross currency swaps to protect against the potential of rising interest rates as required by the terms of its variable-rate asset-backed securities, and fluctuations in the value of the peso, as required under our Mexican bank credit facilities. As of July 31, 2016 and October 31, 2015, the notional amount of our outstanding interest rate caps at our Mexican financial services operation was $128 million and $108 million, respectively.