As of July 31, 2020, the balances of the Company’s cash equivalents were:



	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	$	280,417	$	—	$	—	$	—	$	280,417
Total:	$	280,417	$	—	$	—	$	—	$	280,417

As of October 31, 2019, the balances of the Company’s cash equivalents were:



	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	$	166,024	$	—	$	—	$	—	$	166,024
Total:	$	166,024	$	—	$	—	$	—	$	166,024

Restricted cash. The Company includes amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the consolidated statements of cash flows. All restricted cash is primarily associated with office leases and has no material impact on the Company’s unaudited condensed consolidated statements of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the unaudited condensed consolidated balance sheets:



	As of
	July 31, 2020		October 31, 2019
	(in thousands)
Cash and cash equivalents	$	1,049,922	$	728,597
Restricted cash included in Prepaid expenses and other current assets	1,287		1,174
Restricted cash included in Other long-term assets	779		756
Total cash, cash equivalents and restricted cash	$	1,051,988	$	730,527

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. The investments that the Company have less than 20% equity interests and/or do not have the ability to exercise significant influence are accounted using the measurement alternative when the fair value of the investment is not readily determinable. 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. See Note 7. Fair Value Measures.

In the first quarter of 2020, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedge Activities, which amends the hedge accounting recognition and presentation requirements of ASC 815. Pursuant to the provisions of ASU 2017-12, the Company is not required to separately measure and report hedge ineffectiveness, which was previously recorded in Other income (expense), net in our unaudited condensed consolidated statements of operations. Also, prior to the adoption of ASU 2017-12, the forward point components of the Cash Flow hedges were excluded from assessing effectiveness of the hedging

relationship and were recorded on the unaudited condensed consolidated statements of operations in other income (expense), net. Upon adoption of ASU 2017-12, the Company presents the related earning impact of the Cash Flow hedges in the same income statement section as the hedged items. Also, adoption of the guidance did not impact opening retained earnings or have a material impact on our financial statements.

The Company recognizes derivative instruments as either assets or liabilities in the unaudited condensed consolidated balance sheets 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 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. In addition, the Company mitigates credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and 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 unaudited condensed 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. The cash flow impact upon settlement of the derivative contracts will be included in “Net cash provided by operating activities” in the unaudited condensed consolidated statements of cash flows.

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 related 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. The Company expects a majority of the hedge balance in OCI to be reclassified to the statements of operations within the next 12 months.

Prior to adoption of ASU 2017-12, hedge effectiveness is evaluated monthly using spot rates, with any gain or loss caused by hedging ineffectiveness recorded in other income (expense), net. During the three and nine months ended July 31, 2020 and 2019, the amounts recognized in other income (expense) for ineffectiveness and excluded component were immaterial.

Upon adoption of ASU 2017-12, the Company elected to use the forward method to measure hedge effectiveness for its Japanese yen revenue and foreign currency expense cash flow hedges. The Company did not change the process for its backlog cash flow hedges and continues to measure hedging effectiveness on a monthly basis.

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 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.



	Fair values of derivative instruments designated as hedging instruments		Fair values of derivative instruments not designated as hedging instruments
	(in thousands)
Balance at July 31, 2020
Other current assets	$	7,103	$	60
Accrued liabilities	$	2,268	$	100
Balance at October 31, 2019
Other current assets	$	7,327	$	53
Accrued liabilities	$	3,715	$	171

The following table represents the unaudited condensed consolidated statements of operations location in Revenue/Deferred Revenue and Operating Expenses 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)
Three months ended July 31, 2020
Foreign exchange contracts	Revenue	$	626		Revenue	$	466
Foreign exchange contracts	Operating expenses	11,773			Operating expenses	(1,175		)
Total		$	12,399			$	(709	)
Three months ended July 31, 2019
Foreign exchange contracts	Revenue	$	(994	)	Revenue	$	685
Foreign exchange contracts	Operating expenses	(76		)	Operating expenses	(3,945		)
Total		$	(1,070	)		$	(3,260	)
Nine months ended July 31, 2020
Foreign exchange contracts	Revenue	$	2,836		Revenue	$	648
Foreign exchange contracts	Operating expenses	1,129			Operating expenses	(2,211		)
Total		$	3,965			$	(1,563	)
Nine months ended July 31, 2019
Foreign exchange contracts	Revenue	$	(253	)	Revenue	$	1,048
Foreign exchange contracts	Operating expenses	5,097			Operating expenses	(12,795		)
Total		$	4,844			$	(11,747	)