XML 36 R22.htm IDEA: XBRL DOCUMENT v3.21.2
FAIR VALUE MEASUREMENTS
 12 Months Ended
Oct. 31, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The guidance establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into three levels. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

Level 1 — applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 — applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.

Level 3 — applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2021 were as follows:
  Fair Value Measurement
at October 31, 2021 Using
 October 31,
2021		Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Assets:    
Short-term    
Cash equivalents (money market funds)$919 $919 $— $— 
Derivative instruments (foreign exchange contracts)9 — 9 — 
Short-term investments - Equity securities with RDFV91 83 $8 $— 
Long-term    
Trading securities34 34 — — 
Other investments31 — 31 — 
Total assets measured at fair value$1,084 $1,036 $48 $— 
Liabilities:    
Short-term    
Derivative instruments (foreign exchange contracts)$5 $— $5 $— 
Contingent consideration62 — — 62 
Long-term    
Deferred compensation liability34 — 34 — 
Contingent consideration27 — — 27 
Total liabilities measured at fair value$128 $— $39 $89 

Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2020 were as follows:
  Fair Value Measurement
at October 31, 2020 Using
 October 31,
2020		Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
 (in millions)
Assets:    
Short-term    
Cash equivalents (money market funds)$740 $740 $— $— 
Derivative instruments (foreign exchange contracts)2 — 2 — 
Short-term investments - Equity securities with RDFV— — — — 
Long-term    
Trading securities30 30 — — 
Other investments25 — 25 — 
Total assets measured at fair value$797 $770 $27 $— 
Liabilities:   
Short-term    
Derivative instruments (foreign exchange contracts)$17 $— $17 $— 
Contingent consideration— — — — 
Long-term    
Deferred compensation liability30 — 30 — 
Contingent consideration— — — — 
Total liabilities measured at fair value$47 $— $47 $— 
Our money market funds and trading securities are generally valued using quoted market prices and therefore are classified within level 1 of the fair value hierarchy. Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets. Our deferred compensation liability is classified as level 2 because, although the values are not directly based on quoted market prices, the inputs used in the calculations are observable. Short-term investments - equity securities with readily determinable fair value are shares in marketable equity securities which are classified as Level 1 in the fair value hierarchy as they are measured based on quotes in active markets. Equity securities with RDFV also includes potential shares received from an equity investment in a company that went public and can vest under certain stock performance circumstances. These have been classified as Level 2 because the fair value was calculated using the Monte Carlo simulation method in which quoted market price and other observable inputs are used. Other investments represent shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities. It has been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are or can be derived from and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself.

Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) within stockholders' equity. Realized gains and losses from the sale of these instruments are recorded in net income.

Contingent Consideration. The fair value of the contingent consideration liability relates to milestone payments in connection with the April 2021 acquisition of Resolution Bioscience. The fair value of the potential future milestone payments, which are set to certain revenue and technical targets, was based on (i) the probability of achieving the relevant revenue targets and technical milestones and (ii) the timing of achieving such milestones, which are significant unobservable inputs, and has been classified as Level 3. We used the Monte Carlo simulation approach to estimate the fair value of the revenue component with an asset volatility of 55.8 percent and revenue volatilities ranging from 12.1 to 14.3 percent. The probability-weighted expected return method was used to estimate the fair value of the technical target component. Assumptions used in the calculations include probability of success, duration of the earn-out and discount rate. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration.

As of October 31, 2021, the expected maximum earn-out period for the contingent payments does not exceed 3.2 years and potential future payments will not exceed $145 million. The fair value of the contingent consideration liability as of October 31, 2021 was estimated to be $89 million of which $62 million was recorded in other accrued liabilities and $27 million was recorded in other long-term liabilities on the consolidated balance sheet. The decrease in the fair value of the contingent consideration was primarily driven by a change in the probability of achieving the relevant revenue targets.

The contingent consideration liability is our only Level 3 asset or liability. A summary of the Level 3 activity follows:

Contingent Consideration
(in millions)
Balance at October 31, 2020$— 
Additions to contingent consideration (including measurement period adjustment)110 
Change in fair value (included within selling, general and administrative expenses)(21)
Balance at October 31, 2021$89 
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Long-Lived Assets

For assets measured at fair value on a non-recurring basis, the following table summarizes the impairments included in net income for the years ended October 31, 2021, 2020 and 2019:

 Years Ended
October 31,
 202120202019
 (in millions)
Long-lived assets held and used$2 $98 $— 
Long-lived assets held for sale$— $— $— 

For the year ended October 31, 2021, long-lived assets held and used with a carrying value of $2 million were written down to their fair value of zero, resulting in an impairment of $2 million. For the year ended October 31, 2020, long-lived assets held and used, including indefinite lived in-process research and development intangible assets, with a carrying amount of $98 million were written down to their fair value of zero, resulting in an impairment charge of $98 million related to the shutdown of our sequencer development program and other assets in our diagnostics and genomics segment. There were no impairments of long-lived assets held and used in 2019.

There were no impairments of long-lived assets held for sale in 2021, 2020 and 2019.

Fair values for the impaired long-lived assets during 2020 were measured using level 3 inputs. To determine the fair value of long-lived assets in 2020, we used the income approach based on projected discounted cash flows expected to be generated by the long-lived assets over the remaining useful life.

For the years ended October 31, 2021, 2020 and 2019 , there were no impairments in non-marketable securities without readily determinable fair value. For the years ended October 31, 2021, 2020 and 2019, net unrealized gains of $17 million, $27 million and $1 million, respectively, were included in net income as an adjustment to the carrying value of non-marketable equity securities without readily determinable fair value based on an observable market transaction. As of October 31, 2021 and 2020, the carrying amount of non-marketable equity securities without readily determinable fair values was $120 million and $103 million, respectively.

Fair values for the non-marketable securities included in long-term investments on the consolidated balance sheet were measured using Level 3 inputs because they are primarily equity stock issued by private companies without quoted market prices. To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when they occur.