DERIVATIVES (Notes)

6 Months Ended

Apr. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of our risk management strategy, we use derivative instruments, primarily forward contracts and purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

Cash Flow Hedges

We enter into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance and are assessed for effectiveness against the underlying exposure every reporting period. For open contracts as of April 30, 2023, changes in the time value of the foreign exchange contract are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the foreign exchange contract. The changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss). Amounts associated with cash flow hedges are reclassified to cost of sales in the condensed consolidated statement of operations when the forecasted transaction occurs. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive income (loss) will be reclassified to other income (expense), net in the current period. Changes in the fair value of the ineffective portion of derivative instruments are recognized in other income (expense), net in the condensed consolidated statement of operations in the current period. We record the premium paid (time value) of an option on the date of purchase as an asset. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the option contract. For the three and six months ended April 30, 2023 and 2022, ineffectiveness and gains and losses recognized in other income (expense), net due to de-designation of cash flow hedge contracts were not significant.

In February 2016, Agilent executed three forward-starting pay fixed/receive variable interest rate swaps for the notional amount of $300 million in connection with future interest payments to be made on our 2026 senior notes issued on September 15, 2016. These derivative instruments were designated and qualified as cash flow hedges under the criteria prescribed in the authoritative guidance. The swap arrangements were terminated on September 15, 2016 with a payment of $10 million, and we recognized this as a deferred loss in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2026 senior notes. The remaining loss to be amortized related to the interest rate swap agreements at April 30, 2023 was $3 million.

In August 2019, Agilent executed treasury lock agreements for $250 million in connection with future interest payments to be made on our 2029 senior notes issued on September 16, 2019. We designated the treasury lock as a cash flow hedge. The treasury lock contracts were terminated on September 6, 2019, and we recognized a deferred loss of $6 million in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2029 senior notes. The remaining loss to be amortized related to the treasury lock agreements at April 30, 2023 was $4 million.

Net Investment Hedges

We enter into foreign exchange contracts to hedge net investments in foreign operations to mitigate the risk of adverse movements in exchange rates. These foreign exchange contracts are carried at fair value and are designated and qualify as net investment hedges under the criteria prescribed in the authoritative guidance. Changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss)- translation adjustment and are assessed for effectiveness against the underlying exposure every reporting period. If the company’s net investment changes during the year, the hedge relationship will be assessed and de-designated if the hedge notional amount is outside of prescribed tolerance with a gain/loss reclassified from other comprehensive income (loss) to other income (expense) in the current period. For the three and six months ended April 30, 2023, ineffectiveness and the resultant effect of any gains or losses recognized in other income (expense) due to de-designation of the hedge contracts were not significant.

Other Hedges

Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in value of the derivative instruments are recognized in other income (expense), net in the condensed consolidated statement of operations, in the current period, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.

Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions which are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties.

A number of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. The counterparties to the derivative instruments may request collateralization, in accordance with derivative agreements, on derivative instruments in net liability positions.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of April 30, 2023, was $7 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of April 30, 2023.

There were 270 foreign exchange forward contracts open as of April 30, 2023, and designated as cash flow hedges. There were 185 foreign exchange forward contracts open as of April 30, 2023, and not designated as hedging instruments. There were 3 foreign exchange forward contracts open as of April 30, 2023, and designated as a net investment hedge.

The aggregated notional amounts by currency and designation as of April 30, 2023, were as follows:


	Derivatives Designated as Cash Flow Hedges		Derivatives Designated as Net Investment Hedges	Derivatives Not Designated as Hedging Instruments
	Forward Contracts USD			Forward Contracts USD		Forward Contracts USD
Currency	Buy/(Sell)			Buy/(Sell)		Buy/(Sell)
	(in millions)
Euro	$	(101)		$	(11)	$	48
British Pound	(62)			—		1
Canadian Dollar	(49)			—		(25)


Japanese Yen	(90)			—		(44)
Danish Krone	—			—		25
Korean Won	(70)			—		(4)
Singapore Dollar	21			—		17

Chinese Yuan Renminbi	(93)			—		(93)


Taiwan Dollar	—			—		(10)
Indian Rupee	—			—		(8)


Other	4			—		(1)
Totals	$	(440)		$	(11)	$	(94)

Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance. The gross fair values and balance sheet location of derivative instruments held in the condensed consolidated balance sheet as of April 30, 2023, and October 31, 2022, were as follows:


Fair Values of Derivative Instruments
Asset Derivatives					Liability Derivatives
	Fair Value					Fair Value
Balance Sheet Location	April 30, 2023		October 31, 2022		Balance Sheet Location	April 30, 2023		October 31, 2022
(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges
Foreign exchange contracts
Other current assets	$	7	$	23	Other accrued liabilities	$	8	$	2

Net investment hedges
Foreign exchange contracts
Other current assets	$	—	$	—	Other accrued liabilities	$	—	$	—


Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other current assets	$	6	$	8	Other accrued liabilities	$	3	$	3
Total derivatives	$	13	$	31		$	11	$	5

The effects of derivative instruments for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our condensed consolidated statement of operations were as follows:


	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2023		2022		2023		2022
	(in millions)
Derivatives designated as hedging instruments:



Cash Flow Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive loss	$	11	$	21	$	(20)	$	29

Gain (loss) reclassified from accumulated other comprehensive loss into cost of sales	$	(4)	$	5	$	2	$	8




Gain (loss) on time value of forward contracts recorded in cost of sales	$	1	$	—	$	3	$	—

Net Investment Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive loss - translation adjustment	$	—	$	1	$	(1)	$	4


Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense)	$	7	$	2	$	(6)	$	(1)

At April 30, 2023, the amount of existing net gain that is expected to be reclassified from accumulated other comprehensive income (loss) is $2 million. Within the next twelve months it is estimated that $4 million of loss included within the net amount of accumulated other comprehensive income (loss) will be reclassified to cost of sales in respect of cash flow hedges.