Financial Assets and Liabilities

Cash, Cash Equivalents and Investments. Cash, cash equivalents and investments are detailed as follows:



	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Months		Gross Unrealized Losses 12 Months or Longer		Estimated Fair Value(1)
	(in thousands)
Balance at October 31, 2014
Classified as current assets:
Non-interest bearing cash	$	192,792	$	—	$	—	$	—	$	192,792
Cash deposits and money market funds	792,970		—		—		—		792,970
	985,762		—		—		—		985,762
Classified as other long-term assets:
Non-marketable equity securities	10,869		—		—		—		10,869
Total	$	996,631	$	—	$	—	$	—	$	996,631



	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Months		Gross Unrealized Losses 12 Months or Longer		Estimated Fair Value(1)
	(in thousands)
Balance at October 31, 2013
Classified as current assets:
Non-interest bearing cash	$	183,292	$	—	$	—	$	—	$	183,292
Cash deposits and money market funds	839,149		—		—		—		839,149
	1,022,441		—		—		—		1,022,441
Classified as other long-term assets:
Non-marketable equity securities	11,536		—		—		—		11,536
Total	$	1,033,977	$	—	$	—	$	—	$	1,033,977


(1)	See Note 6. Fair Value Measures for further discussion on fair values of money market funds and non-marketable equity securities.

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. The securities accounted for under cost method investments are reported at cost net of impairment losses. Securities accounted for under equity method investments are recorded at cost plus the proportional share of the issuers’ income or loss, which is recorded in the Company’s other income (expense), net. The cost basis of securities sold is based on the specific identification method. Refer to Note 6. Fair Value Measures.

Derivatives. The Company recognizes derivative instruments as either assets or liabilities in the consolidated financial statements at fair value and provides qualitative and quantitative disclosures about such derivatives. The Company operates internationally and is exposed to potentially adverse movements in foreign currency exchange rates. The Company enters into hedges in the form of foreign currency forward contracts to reduce its exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.

The duration of forward contracts ranges from approximately one month to 20 months, the majority of which are short-term. The Company does not use foreign currency forward contracts for speculative or trading purposes. The Company enters into foreign exchange forward contracts with high credit quality financial institutions that are rated ‘A’ or above and to date has not experienced nonperformance by counterparties. Further, the Company anticipates continued performance by all counterparties to such agreements.

The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting.

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 20 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to the Company’s foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The effective portion of gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (OCI), in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. We expect a majority of the hedge balance in OCI to be reclassified to the statements of operations within the next twelve months.

Hedging effectiveness is evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. The premium/discount component of the forward contracts is recorded to other income (expense), net, and is not included in evaluating hedging effectiveness.

Non-designated Hedging Activities

The Company’s foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in other income (expense), net. The duration of the forward contracts for hedging the Company’s balance sheet exposure is approximately one month.

The Company also has certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of the Company’s hedging program is to minimize the impact of currency fluctuations on its net income over its fiscal year.

The effects of the changes in the fair values of non-designated forward contracts for fiscal years 2014, 2013 and 2012 are summarized as follows:



	October 31,
	2014			2013		2012
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	(3,301	)	$	3,009	$	1,033

The notional amounts in the table below for derivative instruments provide one measure of the transaction volume outstanding:



	As of October 31, 2014			As of October 31, 2013
	(in thousands)
Total gross notional amount	$	793,937		$	746,801
Net fair value	$	(2,455	)	$	7,199

The notional amounts for derivative instruments do not represent the amount of the Company’s exposure to market gain or loss. The Company’s exposure to market gain or loss will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The following represents the balance sheet location and amount of derivative instrument fair values segregated between designated and non-designated hedge instruments:



	Fair Values of derivative instruments designated as hedging instruments		Fair Values of derivative instruments not designated as hedging instruments
	(in thousands)
As of October 31, 2014
Other current assets	$	9,299	$	1
Accrued liabilities	$	11,656	$	99
As of October 31, 2013
Other current assets	$	12,417	$	20
Accrued liabilities	$	5,103	$	135

The following table represents the income statement location and amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax:



	Location of gain (loss) recognized in OCI on derivatives	Amount of gain (loss) recognized in OCI on derivatives (effective portion)			Location of gain (loss) reclassified from OCI	Amount of gain (loss) reclassified from OCI (effective portion)
	(in thousands)
Fiscal year ended October 31, 2014
Foreign exchange contracts	Revenue	$	5,395		Revenue	$	2,339
Foreign exchange contracts	Operating expenses	(10,896		)	Operating expenses	1,543
Total		$	(5,501	)		$	3,882
Fiscal year ended October 31, 2013
Foreign exchange contracts	Revenue	$	2,427		Revenue	$	7,457
Foreign exchange contracts	Operating expenses	3,680			Operating expenses	(892		)
Total		$	6,107			$	6,565
Fiscal year ended October 31, 2012
Foreign exchange contracts	Revenue	$	5,212		Revenue	$	(1,868	)
Foreign exchange contracts	Operating expenses	(7,640		)	Operating expenses	(12,367		)
Total		$	(2,428	)		$	(14,235	)

The following table represents the ineffective portions and portions excluded from effectiveness testing of the hedge gains (losses) for derivative instruments designated as hedging instruments, which are recorded in other income (expense) income, net:



Foreign exchange contracts	Amount of gain (loss) recognized in income statement on derivatives (ineffective portion)(1)			Amount of gain (loss) recognized in income statement on derivatives (excluded from effectiveness testing)(2)
	(in thousands)
Fiscal year ended October 31, 2014	$	(302	)	$	3,259
Fiscal year ended October 31, 2013	$	293		$	2,518
Fiscal year ended October 31, 2012	$	38		$	1,321


(1)	The ineffective portion includes forecast inaccuracies.


(2)	The portion excluded from effectiveness testing includes the discount earned or premium paid for the contracts.

Other Commitments - Credit and Term Loan Facilities

On February 17, 2012, the Company entered into an agreement with several lenders (the Credit Agreement) providing for (i) a $350.0 million senior unsecured revolving credit facility (the Revolver) and (ii) a $150.0 million senior unsecured term loan facility (the Term Loan). Principal payments on a portion of the Term Loan are due in equal quarterly installments of $7.5 million, with the remainder due when the Credit Agreement expires in October 2016. The Company can elect to make prepayments on the Term Loan, in whole or in part, without premium or penalty. Subject to obtaining additional commitments from lenders, the principal amount of the loans provided under the Credit Agreement may be increased by the Company by up to an additional $150.0 million through October 13, 2015. The Credit Agreement contains financial covenants requiring the Company to operate within a maximum leverage ratio and maintain specified levels of cash, as well as other non-financial covenants.

During the second quarter of fiscal 2014, the Company drew down $200.0 million under the Revolver to finance a portion of the purchase price for the acquisition of Coverity on March 24, 2014 and during the third quarter of fiscal 2014, the Company repaid the $200.0 million balance under the Revolver. As of October 31, 2014, the Company had a $75.0 million outstanding balance under the Term Loan, of which $45.0 million is classified as long-term and no outstanding balance under the Revolver. As of October 31, 2013, the Company had a $105.0 million outstanding balance under the Term Loan, of which $75.0 million is classified as long-term and no outstanding balance under the Revolver. Borrowings bear interest at a floating rate based on a margin over the Company’s choice of market observable base rates as defined in the Credit Agreement. At October 31, 2014, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +0.975%. In addition, commitment fees are payable on the Revolver at rates between 0.150% and 0.300% per year based on the Company’s leverage ratio on the daily amount of the revolving commitment, also refer to Note 15. Subsequent Events.

These borrowings under the Credit Agreement have a variable interest rate structure and are classified within Level 2 of the fair value hierarchy. The carrying amount of the short-term and long-term debt approximates the estimated fair value.

As a result of the Coverity acquisition, the Company assumed Coverity’s credit facility with a U.S. bank that had an original expiration date of December 31, 2014. The facility provided a maximum borrowing limit of $7.0 million. During the third quarter of fiscal 2014, the Company chose to terminate the Coverity credit facility prior to the original expiration date.