NEW ACCOUNTING PRONOUNCEMENTS (Notes)

9 Months Ended

Jul. 31, 2019

Accounting Pronouncements Not Yet Adopted

There were no changes to the new accounting pronouncements not yet adopted as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 except for the following:

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance which amends the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize right-of-use assets and lease liabilities on the balance sheet. In July 2018, the FASB clarified two requirements in the new leases standard. The FASB decided to provide another transition method by allowing companies to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, the FASB decided to provide lessors with a practical expedient to not separate

nonlease components from the associated lease component, similar to the expedient provided for lessees. In December 2018, the FASB update clarified application of Accounting Standard Codification ("ASC") Topic 842, Leases. The new guidance is effective for us beginning November 1, 2019, and for interim periods within that year. Early adoption is permitted, and we will be required to adopt using a modified retrospective approach. We are evaluating the impact of this guidance on our consolidated financial statements and disclosures.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued new revenue recognition guidance, ASC Topic 606, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The objective of the new revenue standard is to significantly enhance comparability and clarify principles of revenue recognition practices across entities, industries, jurisdictions and capital markets. Under the new guidance, there are specific criteria to determine if a performance obligation should be recognized over time or at a point in time.

On November 1, 2018, we adopted ASC 606 using the modified retrospective approach only to contracts not completed as of this date. Results for reporting periods after November 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition.

We recorded a net increase to beginning retained earnings of $23 million as of November 1, 2018 due to the cumulative impact of adopting ASC 606. The impact to beginning retained earnings is primarily due to an increase in contract assets (unbilled accounts receivable), a reduction in inventory and a reduction in contract liabilities (deferred revenue). The net increase in retained earnings and resulting changes in assets and liabilities was mainly driven by the change in timing of the recognition of revenue from the fulfillment of separate performance obligations as control transfers to the customer.

Had we continued to use the revenue recognition guidance in effect prior to 2018, no material changes would have resulted to the consolidated statements of income, comprehensive income, or cash flows for the three and nine months ended July 31, 2019. Refer to Note 1, for a description of the company’s revenue recognition policies and Note 3, "Revenue" for the disclosures required by the standard.

As of November 1, 2018, we elected to early adopt new accounting guidance which amends reporting comprehensive income to allow a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the deferred taxes previously recorded in AOCI that exceed the current federal tax rate of 21 percent resulting from the enacted corporate tax rate in the U.S. Tax Cuts and Jobs Act ("the Tax Act"). The adoption of this guidance resulted in a reclassification of $7 million from AOCI to beginning retained earnings on our condensed consolidated balance sheet.

As of November 1, 2018, we adopted new accounting guidance which eliminates the exception in ASC 740, Income Taxes against immediate recognition of income tax consequences of intra-entity transfers of assets other than inventory. The amendment in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of period of adoption. We recorded a net decrease in beginning retained earnings of $2 million as of November 1, 2018 due to removing unamortized tax expense previously deferred.

As of November 1, 2018, we adopted new accounting guidance which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments and also the related guidance which addresses technical corrections and improvements to this guidance. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The total impact of adoption to our condensed consolidated balance sheet was an increase of $7 million to long-term investments and a net increase of $5 million to beginning retained earnings.

The following table summarizes the impacts of recently adopted accounting pronouncements on our condensed consolidated balance sheet as of November 1, 2018:



	October 31, 2018			Impact of Adopting New												November 1, 2018
	As Reported			Revenue Recognition Guidance			Tax Effects on Items in AOCI Guidance			Intra-Entity Tax Guidance			Investments Valuation Guidance			As Adopted
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	2,247		$	—		$	—		$	—		$	—		$	2,247
Accounts receivable, net	776			24			—			—			—			800
Inventory	638			(10		)	—			—			—			628
Other current assets	187			3			—			—			—			190
Total current assets	3,848			17			—			—			—			3,865
Property, plant and equipment, net	822			—			—			—			—			822
Goodwill	2,973			—			—			—			—			2,973
Other intangible assets, net	491			—			—			—			—			491
Long-term investments	68			—			—			—			7			75
Other assets	339			(3		)	—			(2		)	(2		)	332
Total assets	$	8,541		$	14		$	—		$	(2	)	$	5		$	8,558
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	340		$	—		$	—		$	—		$	—		$	340
Employee compensation and benefits	304			—			—			—			—			304
Deferred revenue	324			(11		)	—			—			—			313
Other accrued liabilities	203			—			—			—			—			203
Total current liabilities	1,171			(11		)	—			—			—			1,160
Long-term debt	1,799			—			—			—			—			1,799
Retirement and post-retirement benefits	239			—			—			—			—			239
Other long-term liabilities	761			2			—			—			—			763
Total liabilities	3,970			(9		)	—			—			—			3,961

Total equity:
Stockholders’ equity:
Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding	—			—			—			—			—			—
Common stock; $0.01 par value; 2 billion shares authorized; 318 million shares at October 31, 2018 issued	3			—			—			—			—			3
Additional paid-in-capital	5,308			—			—			—			—			5,308
Accumulated deficit	(336		)	23			7			(2		)	5			(303		)
Accumulated other comprehensive loss	(408		)	—			(7		)	—			—			(415		)
Total stockholders' equity	4,567			23			—			(2		)	5			4,593
Non-controlling interest	4			—			—			—			—			4
Total equity	4,571			23			—			(2		)	5			4,597
Total liabilities and equity	$	8,541		$	14		$	—		$	(2	)	$	5		$	8,558

As of November 1, 2018, we adopted new accounting guidance which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet follows:



	July 31,		October 31
	2019		2018
	(in millions)
Cash and cash equivalents	$	1,765	$	2,247
Restricted cash included in other assets	6		7
Total cash, cash equivalents and restricted cash	$	1,771	$	2,254

As of November 1, 2018, we adopted new accounting guidance which requires employers that present a measure of operating income in their statements of operations to include only the service cost component of net periodic postretirement benefit cost in operating expenses. The service cost component of net periodic pension and postretirement benefit cost should be presented in the same operating expense line items as other employee compensation costs arising from services rendered during the period. The other components of net periodic pension and postretirement benefit costs, including interest costs, expected return on assets, amortization of prior service cost/credit and actuarial gains/losses, and settlement and curtailment effects, are to be included separately and outside of any subtotal of operating income. The adoption of this guidance resulted in a reclassification of income from our income from operations to other income (expense) on our consolidated statement of operations of approximately $2 million and $7 million in the three and nine months ended July 31, 2019, respectively and approximately $4 million and $19 million in the three and nine months ended July 31, 2018, respectively. As adoption is required to be on a retrospective basis, we have recast our historical condensed consolidated statements of operations and segment information to conform to current year presentation.

Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.