DERIVATIVES

9 Months Ended

Jul. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

11.

DERIVATIVES

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 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 fourteen months. The changes in the fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss) and reclassified into earnings when the forecasted transaction occurs in the same financial statement line item in the condensed 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 (loss) 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 are presented in the same financial statement line of the condensed consolidated statement of operations where the earnings effect of the hedged item is presented. For hedges executed prior to February 1, 2020, these gains and losses are recognized immediately in earnings while for any new hedges, they are amortized on a straight line basis over the tenor of the hedge.

During the second quarter of 2020, we entered into forward starting interest rate swaps with an aggregate notional amount of $600 million associated with future interest payments on anticipated debt issuances through fiscal year 2024. The contract term allows us to lock-in a treasury rate on anticipated debt issuances. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance. The changes in fair value of these derivative instruments have been recognized in accumulated other comprehensive income (loss). For the three and nine months ended July 31, 2020, a loss of $3 million and $7 million, respectively, was recognized in accumulated other comprehensive income (loss). Amounts associated with these cash flow hedges will be reclassified to interest expense in the condensed consolidated statement of operations when future interest payments on the anticipated debt occur.

Non-designated 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 condensed consolidated statement of operations in the current period, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.

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.

The number of open foreign exchange forward contracts designated as "cash flow hedges" and "not designated as hedging instruments" was 193 and 62, respectively, as of July 31, 2020. The aggregated notional amounts by currency and designation as of July 31, 2020 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	$	17		$	59
British Pound	—			(75		)
Singapore Dollar	18			11
Malaysian Ringgit	82			9
Japanese Yen	(78		)	(68		)
Other currencies	(17		)	9
Total	$	22		$	(55	)

Derivative instruments are subject to master netting arrangements and are disclosed gross in the condensed consolidated balance sheet. 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						Nine Months Ended
	July 31,						July 31,
	2020			2019			2020			2019
	(in millions)
Derivatives designated as hedging instruments:
Cash Flow Hedges
Interest rate swap contracts:
Loss recognized in accumulated other comprehensive income (loss)	$	(3	)	$	—		$	(7	)	$	—
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive income	$	3		$	(1	)	$	(2	)	$	(3	)
Loss reclassified from accumulated other comprehensive income (loss) into earnings:
Cost of products	$	(1	)	$	—		$	(2	)	$	—
Selling, general and administrative	$	—		$	—		$	(1	)	$	(1	)
Gain excluded from effectiveness testing recognized in earnings based on changes in fair value:				—
Cost of products	$	—		$	1		$	2		$	2
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense), net	$	1		$	4		$	4		$	(1	)

The estimated amount at July 31, 2020 expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a loss of $1 million.