Financial Assets and Liabilities

Cash equivalents and short-term investments. The Company classifies time deposits and other investments with maturities less than three months as cash equivalents. Debt securities and other investments with maturities longer than three months are classified as short-term investments. The Company’s investments generally have a term of less than three years and are classified as available-for-sale carried at fair value, with unrealized gains and losses included in the consolidated balance sheets as a component of accumulated other comprehensive income (loss), net of tax. Those unrealized gains or losses deemed other than temporary are reflected in other income (expense), net. The cost of securities sold is based on the specific identification method and realized gains and losses are included in other income (expense), net.

During the fourth quarter of fiscal 2017, the Company sold its investments in available-for-sale securities. As of October 31, 2017, the balances of our cash equivalents and non-marketable equity securities investments are:



	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Continuous Months		Gross Unrealized Losses 12 Continuous Months or Longer		Estimated Fair Value(1)
	(in thousands)
Cash equivalents:
Money market funds	$	560,594	$	—	$	—	$	—	$	560,594
Total:	$	560,594	$	—	$	—	$	—	$	560,594

Other long-term assets:
Non-marketable equity securities	$	7,826	$	—	$	—	$	—	$	7,826
Total:	$	7,826	$	—	$	—	$	—	$	7,826


(1)	See Note 6. Fair Value Measures for further discussion on fair values of cash equivalents and investments.

As of October 31, 2016, the balances of our cash equivalents and non-marketable equity securities investments are:



	Cost		Gross Unrealized Gains		Gross Unrealized Losses Less Than 12 Continuous Months			Gross Unrealized Losses 12 Continuous Months or Longer		Estimated Fair Value(1)
	(in thousands)
Cash equivalents:
Money market funds	$	499,274	$	—	$	—		$	—	$	499,274
Commercial paper	1,498		—		—			—		$	1,498
Certificates of deposit	4,200		—		—			—		$	4,200
Total:	504,972		—		—			—		504,972
Short-term investments:
U.S. government agency securities	13,607		4		(8		)	—		13,603
Certificates of deposit	12,849		—		—			—		12,849
Commercial paper	25,430		1		—			—		25,431
Corporate debt securities	58,753		43		(18		)	—		58,778
Asset-backed securities	22,146		12		(12		)	—		22,146
Non-U.S. government agency securities	3,403		—		(3		)	—		3,400
Other	4,488		—		—			—		4,488
Total:	140,676		60		(41		)	—		140,695

Other long-term assets:
Non-marketable equity securities	9,756		—		—			—		9,756
Total:	9,756		—		—			—		9,756


(1)	See Note 6. Fair Value Measures for further discussion on fair values of cash equivalents and investments.

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. The securities accounted for as cost method investments are reported at cost, net of impairment losses. Securities accounted for as 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 1 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 22 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 22 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 (loss) (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 2017, 2016 and 2015 are summarized as follows:



	October 31,
	2017		2016			2015
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	1,359	$	(4,533	)	$	(5,554	)

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



	As of October 31, 2017		As of October 31, 2016
	(in thousands)
Total gross notional amount	$	955,139	$	758,246
Net fair value	$	14,052	$	(15,358	)

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, 2017
Other current assets	$	16,582	$	15
Accrued liabilities	$	2,485	$	59
As of October 31, 2016
Other current assets	$	4,625	$	27
Accrued liabilities	$	19,910	$	101

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, 2017
Foreign exchange contracts	Revenue	$	7,582		Revenue	$	(2,759	)
Foreign exchange contracts	Operating expenses	13,346			Operating expenses	(805		)
Total		$	20,928			$	(3,564	)
Fiscal year ended October 31, 2016
Foreign exchange contracts	Revenue	$	(14,580	)	Revenue	$	(8,585	)
Foreign exchange contracts	Operating expenses	(11,259		)	Operating expenses	(12,125		)
Total		$	(25,839	)		$	(20,710	)
Fiscal year ended October 31, 2015
Foreign exchange contracts	Revenue	$	3,982		Revenue	$	9,270
Foreign exchange contracts	Operating expenses	(22,605		)	Operating expenses	(24,193		)
Total		$	(18,623	)		$	(14,923	)

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, 2017	$	311	$	3,018
Fiscal year ended October 31, 2016	$	1,468	$	6,058
Fiscal year ended October 31, 2015	$	878	$	3,704


(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 November 28, 2016, the Company entered into an amended and restated credit agreement with several lenders (the Credit Agreement) providing for (i) a $650.0 million senior unsecured revolving credit facility (the Revolver) and (ii) a $150.0 million senior unsecured term loan facility (the Term Loan). The Credit Agreement amended and restated the Company’s previous credit agreement dated May 19, 2015 (the 2015 Agreement), in order to increase the size of the revolving credit facility from $500.0 million to $650.0 million, provide a new $150.0 million senior unsecured term loan facility, and to extend the termination date of the revolving credit facility from May 19, 2020 to November 28, 2021. 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. The Credit Agreement contains financial covenants requiring the Company to operate within a maximum leverage ratio and maintain a minimum interest coverage ratio, as well as other non-financial covenants. As of October 31, 2017, the Company was in compliance with all financial covenants.

During the first quarter of fiscal 2017, the Company received funding of $150.0 million under the Term Loan. As of October 31, 2017, the Company had a $144.0 million outstanding balance, net of debt issuance costs, under the Term Loan, of which $134.1 million is classified as long-term liabilities, and no outstanding balance under the Revolver. Outstanding principal payments under the Term Loan are due as follows:



Fiscal year	(in thousands)
2018	10,313
2019	14,062
2020	17,813
2021	27,187
2022	75,000
Total	$	144,375

As of October 31, 2016, the Company had no outstanding balance under the previous term loan from the 2015 Agreement and a $205.0 million outstanding balance under the previous revolver from the 2015 Agreement, all of which are considered short-term liabilities. 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. As of October 31, 2017, borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on the Company’s leverage ratio on the daily amount of the revolving commitment.

Subsequent to fiscal year 2017, the Company drew down $450.0 million under the Revolver and the total outstanding balance of the Revolver as of December 13, 2017 is $450.0 million.

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