XML 29 R18.htm IDEA: XBRL DOCUMENT

FAIR VALUE MEASUREMENTS (Notes)

6 Months Ended

Apr. 30, 2021

The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The guidance establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

Level 1- applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2- applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.

Level 3- applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2021 were as follows:


			Fair Value Measurement at April 30, 2021 Using
	April 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Assets:
Short-term
Cash equivalents (money market funds)	$	526	$	526	$	—	$	—
Derivative instruments (foreign exchange contracts)	10		—		10		—
Long-term
Trading securities	33		33		—		—
Other investments	43		13		30		—

Total assets measured at fair value	$	612	$	572	$	40	$	—
Liabilities:
Short-term
Derivative instruments (foreign exchange contracts)	$	19	$	—	$	19	$	—
Contingent consideration	47		—		—		47
Long-term
Deferred compensation liability	33		—		33		—
Contingent consideration	49		—		—		49
Total liabilities measured at fair value	$	148	$	—	$	52	$	96

Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2020 were as follows:


			Fair Value Measurement at October 31, 2020 Using
	October 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Assets:
Short-term
Cash equivalents (money market funds)	$	740	$	740	$	—	$	—
Derivative instruments (foreign exchange contracts)	2		—		2		—
Long-term
Trading securities	30		30		—		—
Other investments	25		—		25		—
Total assets measured at fair value	$	797	$	770	$	27	$	—
Liabilities:
Short-term
Derivative instruments (foreign exchange contracts)	$	17	$	—	$	17	$	—
Contingent consideration	—		—		—		—
Long-term
Deferred compensation liability	30		—		30		—
Contingent consideration	—		—		—		—
Total liabilities measured at fair value	$	47	$	—	$	47	$	—

Our money market funds and trading securities are generally valued using quoted market prices and therefore are classified within level 1 of the fair value hierarchy. Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active

markets. Our deferred compensation liability is classified as level 2 because, although the values are not directly based on quoted market prices, the inputs used in the calculations are observable. Other investments includes shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities. These shares have been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are or can be derived from and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself. Other investments also include shares in marketable equity securities and are classified as level 1 in the fair value hierarchy as they are measured based on quotes in active markets.

Trading securities, which is comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) within stockholders' equity. Realized gains and losses from the sale of these instruments are recorded in net income.

For the three and six months ended April 30, 2021 and 2020, an unrealized gain of $11 million and zero, respectively, was included in net income as an adjustment to the carrying value of marketable equity securities.

The preliminary fair value of the contingent consideration liability relates to milestone payments in connection with the April 2021 acquisition of Resolution Bioscience. The fair value of the potential future milestone payments, which are set to certain revenue and technical targets, was based on (i) the probability of achieving the relevant revenue targets and technical milestones and (ii) the timing of achieving such milestones, which are significant unobservable inputs, and has been classified as Level 3. We used the Monte Carlo simulation approach to estimate the fair value of the revenue component with an asset volatility of 54.9 percent and revenue volatilities ranging from 13.8 to 14 percent. The probability-weighted expected return method was used to estimate the fair value of the technical target component. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration.

As of the date of the close, the fair value of the contingent consideration liability was estimated to be a total of $96 million of which $47 million is short-term and was recorded in other accrued liabilities and $49 million is long-term and was recorded in other long-term liabilities on the condensed consolidated balance sheet. There were no significant changes to this estimate at April 30, 2021.

Impairment of Investments. There were no impairments of investments for the three and six months ended April 30, 2021 and 2020.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

For the three and six months ended April 30, 2021, long-lived assets held and used with a carrying amount of $2 million were written down to fair value of zero, resulting in an impairment of $2 million. For the three and six months ended April 30, 2020, long-lived assets held and used with a carrying amount of $98 million were written down to fair value of zero, resulting in an impairment of $98 million related to the shut-down of our sequencer development program in our diagnostics and genomics segment. For the three and six months ended April 30, 2021 and 2020, there were no impairments of long-lived assets held for sale.

For the three and six months ended April 30, 2021 and 2020, there was no impairment of non-marketable securities. For the three months ended April 30, 2021 and 2020, an unrealized gain of zero and $11 million, respectively, was included in net income as an adjustment to the carrying value of non-marketable equity securities without readily determinable fair value based on an observable market transaction. For the six months ended April 30, 2021 and 2020, an unrealized gain of zero and $27 million, respectively, was included in net income as an adjustment to the carrying value of non-marketable equity securities without readily determinable fair value based on an observable market transaction. As of April 30, 2021 and October 31, 2020, the carrying amount of non-marketable equity securities without readily determinable fair values was $111 million and $103 million, respectively.

Fair values for the non-marketable securities included in long-term investments on the condensed consolidated balance sheet were measured using Level 3 inputs because they are primarily equity stock issued by private companies without quoted market prices. To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when they occur.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details