Derivative Instruments And Hedging Activities

6 Months Ended

Apr. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Activities

Derivative Instruments and Hedging Activities

In the normal course of business, the Company is exposed to fluctuations in interest rates and the exchange rates associated with foreign currencies. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk. The Company currently does not manage its exposure to credit risk by entering into derivative instruments. However, the Company manages its exposure to credit risk through its investment policies. As part of these investment policies, the Company generally enters into transactions with high-credit quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty based on its analysis of that counterparty’s relative credit standing.

The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which a counterparty’s obligations exceed the Company’s obligations with that counterparty.

Foreign Currency Exchange Rate Risk

A majority of the Company’s revenue, expense, and capital purchasing activities are transacted in U.S. dollars. However, the Company is exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies. The Company is primarily exposed to foreign currency fluctuations related to operating expenses denominated in currencies other than the U.S. dollar, of which the most significant to its operations for the three and six months ended April 30, 2016, were the British pound, the euro, the Indian rupee, the Chinese yuan, the Singapore dollar, the Japanese yen, and the Swiss franc. The Company has established a foreign currency risk management program to protect against the volatility of future cash flows caused by changes in foreign currency exchange rates. This program reduces, but does not eliminate, the impact of foreign currency exchange rate movements.

The Company utilizes a rolling hedge strategy for the majority of its foreign currency derivative instruments to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. All of the Company’s foreign currency forward contracts are single delivery, which are settled at maturity involving one cash payment. The Company’s foreign currency risk management program includes foreign currency derivatives with a cash flow hedge accounting designation that utilizes foreign currency forward and option contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S.-dollar-denominated cash flows. These instruments generally have a maturity of less than 15 months. For these derivatives, the Company initially reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive loss in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings. The tax effect allocated to cash flow hedge-related components of other comprehensive loss was not material for the three and six months ended April 30, 2016, and May 2, 2015.

Ineffective cash flow hedges are included in the Company’s net income as part of “Interest and other income (loss), net.” The amount recorded on ineffective cash flow hedges was not material for the three and six months ended April 30, 2016, and May 2, 2015.

Net losses relating to the effective portion of foreign currency derivatives, which are offset by net gains on the underlying exposures, are recorded in the Company’s Condensed Consolidated Statements of Income as follows (in thousands):

	Three Months Ended						Six Months Ended
	April 30, 2016			May 2, 2015			April 30, 2016			May 2, 2015
Cost of revenues	$	(66	)	$	(328	)	$	(160	)	$	(464	)
Research and development	(427		)	(32		)	(626		)	(67		)
Sales and marketing	(270		)	(870		)	(644		)	(1,324		)
General and administrative	(17		)	(25		)	(44		)	(83		)
Total	$	(780	)	$	(1,255	)	$	(1,474	)	$	(1,938	)

Alternatively, the Company may choose not to hedge the foreign currency risk associated with its foreign currency exposures if the Company believes such exposure acts as a natural foreign currency hedge for other offsetting amounts denominated in the same currency or if the currency is difficult or too expensive to hedge.

As a result of foreign currency fluctuations, the net foreign currency exchange gains and losses recorded as part of “Interest and other income (loss), net” were losses of $0.3 million and $0.6 million for the three and six months ended April 30, 2016, respectively, and gains of $0.1 million and losses of $0.9 million for the three and six months ended May 2, 2015, respectively.

As of April 30, 2016, the Company had gross unrealized loss positions of $0.7 million and gross unrealized gain positions of $1.0 million included in “Other accrued liabilities” and “Prepaid expenses and other current assets,” respectively.

Volume of Derivative Activity

All derivatives are designated as hedging instruments as of April 30, 2016, and October 31, 2015. Total gross notional amounts, presented by currency, are as follows (in thousands):

	Derivatives Designated as Hedging Instruments
In U.S. dollars	April 30, 2016		October 31, 2015
British pound	$	21,936	$	46,330
Euro	21,311		40,961
Indian rupee	17,668		35,647
Chinese yuan	7,418		15,129
Singapore dollar	6,943		13,745
Japanese yen	4,985		8,809
Swiss franc	4,771		9,265
Total	$	85,032	$	169,886