DERIVATIVES

6 Months Ended

Apr. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of our 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.

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 derivative instrument included in the assessment of effectiveness are recognized in accumulated other comprehensive income and reclassified into earnings when the forecasted transaction occurs in the same financial statement line item in the consolidated statement of operations where the earnings effect of the hedged item is presented. 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 into earnings in the current period. Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness (forward points) are recognized immediately in earnings and are presented in the same financial statement line of the consolidated statement of operations where the earnings effect of the hedged item is presented. 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 earnings over the life of the option contract.

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.

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 that 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 April 30, 2019 was $3 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of April 30, 2019.

There were 198 foreign exchange forward contracts open as of April 30, 2019 that were designated as cash flow hedges. There were 63 foreign exchange forward contracts as of April 30, 2019 that were not designated as hedging instruments. The aggregated notional amounts by currency and designation as of April 30, 2019 were as follows:



	Derivatives in Cash Flow Hedging Relationships			Derivatives Not Designated as Hedging Instruments
	Forward Contracts			Forward Contracts
Currency	Buy/(Sell)			Buy/(Sell)
	(in millions)
Euro	$	14		$	153
British Pound	—			(55		)
Singapore Dollar	15			—
Malaysian Ringgit	84			1
Japanese Yen	(74		)	(38		)
Other currencies	(18		)	1
Total	$	21		$	62

Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance. The gross fair values and balance sheet location of derivative instruments held in the condensed consolidated balance sheet as of April 30, 2019 and October 31, 2018 were as follows:



Fair Values of Derivative Instruments
Derivative Assets					Derivative Liabilities
	Fair Value					Fair Value
Balance Sheet Location	April 30, 2019		October 31, 2018		Balance Sheet Location	April 30, 2019		October 31, 2018
	(in millions)					(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges
Foreign exchange contracts
Other current assets	$	2	$	5	Other accrued liabilities	$	2	$	4
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other current assets	—		1		Other accrued liabilities	2		2
Total derivatives	$	2	$	6		$	4	$	6

The effect of derivative instruments for foreign exchange contracts designated as hedging instruments and for those not designated as hedging instruments in our condensed consolidated statement of operations was as follows:



	Three Months Ended					Six Months Ended
	April 30,					April 30,
	2019			2018		2019			2018
	(in millions)
Derivatives designated as hedging instruments:
Cash Flow Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive income	$	—		$	—	$	(2	)	$	2
Gain (loss) reclassified from accumulated other comprehensive income into earnings:
Cost of products	$	—		$	1	$	—		$	3
Selling, general and administrative	$	—		$	—	$	(1	)	$	—
Amount excluded from effectiveness testing recognized in earnings based on changes in fair value:
Cost of products	$	—		$	—	$	1		$	—
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense), net	$	(2	)	$	—	$	(5	)	$	1

The estimated amount of existing net loss at April 30, 2019 expected to be reclassified from accumulated other comprehensive income to earnings within the next twelve months is $1 million.