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FAIR VALUE MEASUREMENTS (Notes)
 9 Months Ended
Jul. 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 July 31, 2021 were as follows:
 
  Fair Value Measurement at July 31, 2021 Using
 July 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)$621 $621 $— $— 
Derivative instruments (foreign exchange contracts)5 — 5 — 
Long-term
Trading securities33 33 — — 
Other investments41 10 31 — 
Total assets measured at fair value$700 $664 $36 $— 
Liabilities:    
Short-term
Derivative instruments (foreign exchange contracts) $6 $— $6 $— 
Contingent consideration62 — — 62 
Long-term
Deferred compensation liability33 — 33 — 
Contingent consideration48 — — 48 
Total liabilities measured at fair value$149 $— $39 $110 

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 — 
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. Other investments include shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities. These shares have 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. Other investments also include shares in marketable equity securities and are classified as level 1 in the fair value hierarchy as they are measured based on quotes in active markets.

Trading securities, which is comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. 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.

For the three and nine months ended July 31, 2021, an unrealized loss of $3 million and an unrealized gain of $8 million, respectively, were included in net income as an adjustment to the carrying value of marketable equity securities. No unrealized gains or losses were recorded for the three and nine months ended July 31, 2020 with respect to these investments.

The preliminary 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 54.9 percent and revenue volatilities ranging from 10.4 to 12.8 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.

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

Three Months EndedNine Months Ended
July 31,July 31,
2021202020212020
(in millions)
Beginning balance$96 $— $— $— 
Additions to contingent consideration (including measurement period adjustment)$14 $— $110 $— 
Change in fair value (included within selling, general and administrative expenses)$— $— $— $— 
Ending balance$110 $— $110 $— 

As of July 31, 2021, the expected maximum earn-out period for the contingent payments does not exceed 3.4 years and potential future payments will not exceed $145 million. The revised preliminary fair value of the contingent consideration liability was estimated to be $110 million of which $62 million was recorded in other accrued liabilities and $48 million was recorded in other long-term liabilities on the condensed consolidated balance sheet.

Impairment of Investments. There were no impairments of investments for the three and nine months ended July 31, 2021 and 2020.
 
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

For the three months ended July 31, 2021 and 2020, there were no impairments of long-lived assets held and used. For the nine months ended July 31, 2021, long-lived assets held and used with a carrying amount of $2 million were written down to fair value of zero, resulting in an impairment of $2 million. For the nine months ended July 31, 2020, long-lived assets held and used with a carrying amount of $98 million were written down to fair value of zero, resulting in an impairment of $98 million related to the shut-down of our sequencer development program in our diagnostics and genomics segment. For the three and nine months ended July 31, 2021 and 2020, there were no impairments of long-lived assets held for sale.
For the three and nine months ended July 31, 2021 and 2020, there were no impairments of non-marketable securities. For the three months ended July 31, 2021 and 2020, an unrealized gain of $11 million and an unrealized loss of $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. For the nine months ended July 31, 2021 and 2020, an unrealized gain of $11 million and $26 million, respectively, was 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 July 31, 2021 and October 31, 2020, the carrying amount of non-marketable equity securities without readily determinable fair values was $130 million and $103 million, respectively.

Fair values for the non-marketable securities included in long-term investments on the condensed 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.