Financial Assets and Liabilities

9 Months Ended

Jul. 31, 2021

Financial Assets And Liabilities [Abstract]

Cash equivalents. The Company classifies time deposits and other investments with stated maturities less than three months as cash equivalents.

Short-term investments. Debt securities and other investments with stated maturities longer than three months are classified as short-term investments and the Company may convert these investments into cash at any time to fund general operations. These debt securities and other investments generally have an effective maturity 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 unaudited condensed consolidated balance sheets as a component of accumulated other comprehensive income (loss). Gross unrealized gains and losses on our available-for-sale debt securities at July 31, 2021 were not significant. For available-for-sale debt securities in an unrealized loss position, the Company evaluates whether a credit loss exists based on available information relevant to the credit rating of the security. The allowance for credit loss is recorded to other income (expense), net, on the condensed consolidated statement of operations, not to exceed the amount of the unrealized loss. Any excess unrealized loss other than the credit loss is recognized in accumulated other comprehensive income or loss in the stockholders' equity section of the condensed consolidated balance sheets. The Company determined there were no credit losses related to available-for-sale securities as of July 31, 2021. The cost of securities sold is based on the specific identification method and realized gains and losses are included in other income (expense), net.

As of July 31, 2021, the stated maturities of the Company's short-term available-for-sale securities were:


	Amortized Cost		Fair Value
	(in thousands)
less than 1 year	$	38,178	$	38,169
1-5 years	99,133		99,154
> 5 years	7,447		7,450

Total	$	144,758	$	144,773

As of July 31, 2021, the balances of the Company’s cash equivalents and short-term investments 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	$	249,814	$	—	$	—	$	—	$	249,814

Corporate debt securities	3,080		—		(1)		—		3,079


Total:	$	252,894	$	—	$	(1)	$	—	$	252,893
Short-term investments:
U.S. government agency & T-bills	$	7,745	$	2	$	—	$	—	$	7,747
Municipal bonds	2,465		1		—		—		2,466


Corporate debt securities	100,308		38		(28)		—		100,318
Asset-backed securities	33,502		10		(7)		—		33,505
Others	738		—		(1)		—		737

Total:	$	144,758	$	51	$	(36)	$	—	$	144,773

(1)See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents and short-term investments.

As of October 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	$	304,127	$	—	$	—	$	—	$	304,127



Total:	$	304,127	$	—	$	—	$	—	$	304,127

(1)See Note 7. Fair Value Measures for further discussion on fair values of cash equivalents.

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.

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, 2021		October 31, 2020
	(in thousands)
Cash and cash equivalents	$	1,385,395	$	1,235,653
Restricted cash included in Prepaid expenses and other current assets	1,556		1,523
Restricted cash included in Other long-term assets	786		794
Total cash, cash equivalents and restricted cash	$	1,387,737	$	1,237,970

Non-marketable equity securities. The Company’s strategic investment portfolio consists of non-marketable equity securities in privately held companies. When the Company does not have the ability to exercise significant influence over the investments, these securities are accounted for 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.

Derivatives

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 23 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.

Cash Flow Hedging Activities

Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of approximately 23 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.

The Company did not have any gains or losses related to discontinuation of cash flow hedges during the three and nine months ended July 31, 2021 and 2020.

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 non-designated derivative instruments on the Company’s unaudited condensed consolidated statements of operations is summarized as follows:


	Three Months Ended July 31,				Nine Months Ended July 31,
	2021		2020		2021		2020
	(in thousands)
Gain (loss) recorded in other income (expense), net	$	(837)	$	2,995	$	1,420	$	1,891

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


	As of
	July 31, 2021		October 31, 2020
	(in thousands)
Total gross notional amount	$	826,747	$	981,234
Net fair value	$	11,346	$	6,940

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 table represents the unaudited condensed consolidated balance sheets 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)
Balance at July 31, 2021
Other current assets	$	11,060	$	598
Accrued liabilities	$	237	$	75
Balance at October 31, 2020
Other current assets	$	9,182	$	138
Accrued liabilities	$	2,088	$	292

The following table represents the location of the amount of gains and losses on derivative instrument fair values for designated hedge instruments, net of tax in the unaudited condensed consolidated statements of operations:


	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, 2021
Foreign exchange contracts	Revenue	$	251	Revenue	$	1,563
Foreign exchange contracts	Operating expenses	3,413		Operating expenses	3,267
Total		$	3,664		$	4,830
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)
Nine months ended July 31, 2021
Foreign exchange contracts	Revenue	$	1,892	Revenue	$	2,597
Foreign exchange contracts	Operating expenses	7,079		Operating expenses	9,583
Total		$	8,971		$	12,180
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)