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DERIVATIVES | 12 Months Ended
--- | ---
Oct. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | DERIVATIVES We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of risk management strategy, we use derivative instruments, primarily forward contracts and purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates. Prior to the Capitalization, there were no derivatives contracts legally held by us and the below disclosures represent the activity pertaining to the contracts entered into by us subsequently. Cash Flow Hedges We enter into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance. The changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income. Amounts associated with cash flow hedges are reclassified to cost of sales in the combined and consolidated statement of operations when the forecasted transaction occurs. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive income will be reclassified to other income (expense), net in the current period. Changes in the fair value of the ineffective portion of derivative instruments are recognized in earnings in the combined and consolidated statement of operations in the current period. We record the premium paid (time value) of an option on the date of purchase as an asset. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in other income (expense) over the life of the option contract. The income statement charge for ineffectiveness in 2015, 2014 and 2013 was not significant. Other Hedges Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in value of the derivative are recognized in other income (expense), net in the combined and consolidated statement of operations, in the current period, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities. In connection with the acquisition of Anite plc ("Anite"), which closed on August 13, 2015 (see Note 3, "Acquisitions"), Keysight entered into foreign currency forward contracts to mitigate the currency exchange risk associated with the payment of the purchase price in British Pound ("GBP") currency. The aggregate notional amount of the currencies hedged was $608 million. These foreign exchange contracts did not qualify for hedge accounting treatment and were not designated as hedging instruments. The resulting loss on settlement, on the date of acquisition, was $2 million and was recorded in other income (expense) in the consolidated statement of operations for the year ended October 31, 2015. Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions which are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties. A number of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. The counterparties to the derivative instruments may request collateralization, in accordance with derivative agreements, on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of October 31, 2015 was $10 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of October 31, 2015. There were 87 foreign exchange forward contracts open as of October 31, 2015 and designated as cash flow hedges. There were 76 foreign exchange forward contracts and 1 foreign exchange option contract open as of October 31, 2015 not designated as hedging instruments. The aggregated notional amounts by currency and designation as of October 31, 2015 were as follows:
|  | Derivatives in Cash Flow Hedging Relationships |  | Derivatives Not Designated as Hedging Instruments
|  | Forward Contracts |  | Option Contracts |  | Forward Contracts | Option Contracts
Currency |  | Buy/(Sell) |  | Buy/(Sell) |  | Buy/(Sell) | Buy/(Sell)
|  | (in millions) |
Euro |  | $ | — |  |  | $ | — |  |  | $ | 92 |  | 42 |
British Pound |  | — |  |  | — |  |  | 14 |  | — |
Singapore Dollar |  | 9 |  |  | — |  |  | — |  | — |
Malaysian Ringgit |  | 81 |  |  | — |  |  | (5 | ) | — |
Japanese Yen |  | (76 | ) |  | — |  |  | (29 | ) | — |
Other |  | — |  |  | — |  |  | 7 |  | — |
|  | $ | 14 |  |  | $ | — |  |  | $ | 79 |  | $ | 42 |
Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet. The gross fair values and balance sheet location of derivative instruments held in the combined and consolidated balance sheet as of October 31, 2015 and 2014 were as follows:
Fair Values of Derivative Instruments
Asset Derivatives |  | Liability Derivatives
|  | Fair Value |  |  |  | Fair Value
Balance Sheet Location |  | October 31, 2015 |  | October 31, 2014 |  | Balance Sheet Location |  | October 31, 2015 |  | October 31, 2014
(in millions)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |
Other current assets |  | $ | — |  |  | $ | 7 |  |  | Other accrued liabilities |  | $ | 8 |  |  | $ | 1 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |
Other current assets |  | 1 |  |  | 2 |  |  | Other accrued liabilities |  | 2 |  |  | 2 |
Total derivatives |  | $ | 1 |  |  | $ | 9 |  |  |  |  | $ | 10 |  |  | $ | 3 |
The effect of derivative instruments for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our combined and consolidated statement of operations was as follows:
| 2015 |  | 2014 |  | 2013
| (in millions)
Derivatives designated as hedging instruments: |  |  |  |  |
Cash flow hedges |  |  |  |  |
Gain (loss) recognized in accumulated other comprehensive income | $ | (15 | ) |  | $ | 5 |  |  | $ | — |
Gain (loss) reclassified from accumulated other comprehensive income into cost of products | $ | (1 | ) |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |
Gain (loss) recognized in other income (expense), net | $ | (7 | ) |  | $ | 3 |  |  | $ | — |
The estimated net amount of existing loss at October 31, 2015 that is expected to be reclassified from other comprehensive income to cost of sales within the next twelve months is $9 million.

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