What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-12-17 compared with 2019-12-18 · 393 added, 539 removed, 1247 unchanged (43% of the section changed)

19 unchanged sentences

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for pension costs and the manner in which it accounts for revenues from contracts with customers in 2019.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on November 1, 2019 and the manner in which it accounts for revenues from contracts with customers on November 1, 2018.

Basis for Opinions

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A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment - Ixia Solutions Group (“ISG”) Reporting Unit

As described in Notes 1 and 11 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,209 million as of October 31, 2019, and the goodwill associated with the ISG reportable segment, which only includes the ISG reporting unit, was $407 million.

Goodwill is assessed for impairment on a reporting unit basis at least annually in the fourth quarter, as of September 30, or more frequently when events or circumstances occur indicating that the recorded goodwill may be impaired.

The impairment test compares the fair value of a reporting unit with its carrying value, with an impairment charge recorded for the amount by which the carrying amount exceeds the reporting unit’s fair value up to a maximum amount of the goodwill balance for the reporting unit.

Management determined the fair value of the ISG reporting unit based on the income and market approaches, weighted at 60 and 40 percent, respectively.

With respect to the income approach, the discounted cash flow method was used, which included an eight year future cash flow projection and an estimated terminal value.

As disclosed by management, determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, revenue growth rates, and the amount and timing of expected future cash flows.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the ISG reporting unit is a critical audit matter are there was significant judgment by management when determining the fair value measurement of the ISG reporting unit.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence related to management’s cash flow projections and significant assumptions related to the revenue growth rates and the discount rate.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimate, (ii) evaluating the appropriateness of the income approach, (iii) testing the completeness, accuracy, and relevance of underlying data used in the income approach, and (iv) evaluating the significant assumptions used by management, including the revenue growth rates and the discount rate.

Evaluating management’s assumptions related to the revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s income approach and certain significant assumptions, including the discount rate.

Income Tax Reserves - Unrecognized Tax Benefits

As described in Note 6 to the consolidated financial statements, as of October 31, 2019, the total amount of gross unrecognized tax benefits was $226 million.

The calculation of the tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions.

Potential liabilities for anticipated tax audit issues are recognized based on management’s estimate of whether, and the extent to which, additional taxes and interest will be due, and

management applies significant judgment in determining whether an uncertain tax position has met the recognition and measurement thresholds.

The principal considerations for our determination that performing procedures relating to unrecognized tax benefits is a critical audit matter are there was significant judgment by management when determining the uncertain tax positions that met the recognition and measurement thresholds, including a high degree of estimation uncertainty relative to the complex tax law and regulations in a multitude of jurisdictions, and the potential for significant adjustments as a result of tax audits.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s assessment of the identified uncertain tax positions that met the recognition and measurement thresholds.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

and Certain Non-U.S.

Defined Benefit Plan Obligations

As described in Notes 1 and 15 to the consolidated financial statements, the Company has defined benefit plan obligations of $848 million and $1,421 million for its U.S.

plans and non-U.S.

plans, respectively, as of October 31, 2020.

Management remeasures the defined benefit plan obligations at least annually based on present value of future benefit payments to reflect the future benefit costs over the employees' average expected future service to Keysight based on the terms of the plans.

Management estimates the present value of the future payments using actuarial concepts and assumptions.

Two critical assumptions used by management to estimate the defined benefit plan obligation are the discount rate and the expected long-term return on plan assets.

The principal considerations for our determination that performing procedures relating to the Company’s U.S.

and certain non-U.S.

defined benefit plan obligations is a critical audit matter are (i) the significant judgment by management in determining the present value of the defined benefit plan obligations;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the significant assumption related to the discount rate used in determining the present value of the defined benefit plan obligations;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to recognition of unrecognized tax benefits.

These procedures also included, among others, (i) testing the information used in the calculation of the liability for unrecognized tax benefits, (ii) testing the calculation of the liability for unrecognized tax benefits by jurisdiction, including management’s assessment of the technical merits of uncertain tax positions, (iii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each uncertain tax position, and (iv) evaluating the status and results of tax audits with the relevant tax authorities.

Procedures were also performed to evaluate the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained and the amount of potential benefit to be realized, and the application of relevant tax laws.

These procedures included testing the effectiveness of controls relating to the determination of the present value of the defined benefit plan obligations, including controls over the Company’s methods, significant assumptions, and data.

These procedures also included, among others testing the completeness and accuracy of the underlying data used in the estimate and the involvement of professionals with specialized skill and knowledge to assist in (i) evaluating the appropriateness of the actuarial concepts used to estimate the present value of the defined benefit plan obligations, (ii) developing an independent range of discount rates and (iii) comparing management's selected discount rate to the independently developed range to evaluate the reasonableness of management’s discount rate assumption.

Developing the independent estimate involved developing a range of independent discount rates for each benefit plan based on publicly available market data for high quality corporate bonds.

/s/ PricewaterhouseCoopers LLP

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Services and other

Total net revenue

Total revenue

Costs and expenses:

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Other comprehensive income (loss):

Unrealized gain (loss) on investments, net of tax benefit (expense) of zero, $3 and $(1)

Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of $1, zero and $(2)

Unrealized gain (loss) on investments, net of tax benefit (expense) of zero, zero and $3

Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of $(4), $1 and zero

Amounts reclassified into earnings related to derivative instruments, net of tax benefit (expense) of $(1), zero and $1

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Change in net prior service credit, net of tax benefit of $3, $4 and $6

Other comprehensive income (loss)

Other comprehensive loss

Total comprehensive income

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Property, plant and equipment, net

Operating lease right-of-use assets

Other intangible assets, net

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Current liabilities:

Short-term debt

Accounts payable

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Income and other taxes payable

Operating lease liabilities

Other accrued liabilities

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Long-term deferred revenue

Long-term operating lease liabilities

Other long-term liabilities

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Share-based compensation

Debt issuance expense

Deferred tax benefit

Deferred tax expense (benefit)

Excess and obsolete inventory-related charges

Gain on insurance proceeds received for damage to property, plant and equipment

Gain on sale of assets and divestitures

Goodwill impairment

Pension curtailment and settlement loss (gain)

Other non-cash expenses, net

Other non-cash expenses (income), net

Changes in assets and liabilities:

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Cash flows from investing activities:

Purchases of property, plant and equipment

Proceeds from the sale of assets and divestitures

Investments in property, plant and equipment

Acquisitions of businesses and intangible assets, net of cash acquired

Proceeds from the sale of investments

Insurance proceeds received for damage to property, plant and equipment

Proceeds from the sale of assets and divestitures

Proceeds from sale of investments

Other investing activities

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Cash flows from financing activities:

Issuance of common stock under employee stock plans

Issuance of common stock under public offering

Proceeds from issuance of common stock under employee stock plans

Payment of taxes related to net share settlement of equity awards

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Other financing activities

Net cash provided by/(used in) financing activities

Net cash provided used in financing activities

Effect of exchange rate movements

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Retained Earnings

Accumulated Other Comprehensive Income/(Loss)

Accumulated Other Comprehensive Loss

Total Stockholders' Equity

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Adjustment due to adoption of new accounting standards

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Issuance of common stock

Public offering of common stock

Taxes related to net share settlement of equity awards

Share-based compensation

Tax benefits from share-based awards issued

Repurchase of common stock

Balance as of October 31, 2018

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Issuance of common stock

Taxes related to net share settlement of equity awards

Share-based compensation

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Balance as of October 31, 2019

Adjustment due to adoption of new accounting standards

Other comprehensive loss, net of tax

Issuance of common stock

Taxes related to net share settlement of equity awards

Share-based compensation

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Although these estimates are based on management's knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets.

We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 31, 2020.

Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management.

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Revenue recognition

We adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers on November 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results for 2019 reflect the application of ASC 606 while the reported results for 2018 and 2017 were prepared under the guidance of ASC 605, Revenue Recognition.

For additional information on the new revenue recognition guidance and the impact of adoption, see Note 2, "New Accounting Pronouncements."

Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

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Our professional services may be sold on a time and material basis (e.g., consulting) or on a fixed-fee basis (e.g., non-recurring engineering).

We also generate revenues from a combination of products and services ("custom solutions"), including combinations of hardware, software, installation or other start-up services, software subscriptions, and/or software support services.

Custom solutions provide the customer with a combination of hardware, software and professional services to meet customers' unique specifications.

We also generate revenues from a combination of products and services ("custom solutions"), including combinations of hardware, software, software subscriptions, installation, professional services, and other support services.

Custom solutions provide the customer with a combination of hardware, software and professional services to meet customers' unique specifications and are accounted for as one performance obligation.

For our contracts with customers, we account for individual performance obligations separately if they are distinct.

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The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.

Standalone selling prices for a majority of our products and services are estimated based on our established pricing practices and maximize the use of observable inputs.

Standalone selling prices ("SSPs") for a majority of our products and services are estimated based on our established pricing practices and maximize the use of observable inputs.

An observable input is the price of the good or service when it is sold as a separate item in a similar circumstance and to a similar customer as in the contract for which SSPs are being determined.

We have elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by Keysight from a customer (e.g., sales, use, value added, and some excise taxes).

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We use a range based on actual historical sales to determine whether the calculated standalone selling price for a product or service is a fair representation of the standalone selling price.

For capitalized contract costs, we use judgment in determining the capitalized amount.

Our products are generally sold with a right of return and we may provide other credits, discounts, or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize.

For capitalized contract costs, we use judgment in determining the capitalized amount and amortization period.

Our products are generally sold with a right of return and we may provide other credits, discounts, or incentives, which are accounted for as variable consideration at the portfolio level and estimated based on historical information.

Returns, credits, and discounts are estimated at contract inception and updated at the end of each reporting period as additional information becomes available to the extent that it is probable a significant reversal of the cumulative amount of revenue recognized will not occur once the variability is subsequently resolved.

Shipping and handling costs.

Our shipping and handling costs charged to customers are included in net revenue, and the associated expense is recorded in cost of products for all periods presented.

Our shipping and handling costs charged to customers are included in revenue, and the associated expense is recorded in cost of products for all periods presented.

Deferred revenue.

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We do not have any off-balance-sheet credit exposure related to our customers.

Prior to November 1, 2018, accounts receivable were also recorded net of estimated product returns.

Effective November 1, 2018, we reclassified our allowance for sales returns from accounts receivable, net to other accrued liabilities due to the adoption of ASC 606.

Share-based compensation.

We account for share-based awards made to our employees and directors, including restricted stock units, employee stock purchases made under Keysight's Employee Stock Purchase Plan ("Keysight's ESPP"), employee stock option awards, and performance share awards under Keysight Technologies, Inc.

Long-Term Performance ("Keysight's LTP") Program, using the estimated grant date fair value method of accounting.

We account for share-based awards made to our employees and directors, including restricted stock units ("RSUs"), employee stock purchases made under Keysight's employee stock purchase plan under Section 423(b) of the Internal Revenue Code ("ESPP"), employee stock option awards, and performance share awards under Keysight Technologies, Inc.

Long-Term Performance ("the LTP") Program, using the estimated grant date fair value method of accounting.

We recorded compensation expense for all share-based awards of $ 93 million in 2020 , $ 82 million in 2019 and $ 59 million in 2018 .

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We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate due to new information.

We classify the liability for unrecognized tax benefits as current to the extent

that the company anticipates payment (or receipt) of cash within one year.

Interest and penalties related to uncertain tax positions are recognized in the provision for income taxes.

We classify the liability for unrecognized tax benefits as current to the extent that the company anticipates payment (or receipt) of cash within one year.

Interest and penalties related to uncertain tax positions

are recognized in the provision for income taxes.

Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

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Based on the results of our testing, the fair value of each of our reporting units exceeded the carrying value.

We recorded an impairment loss of $ 709 million for the ISG reporting unit for the year ended October 31, 2018.

There were no impairments of goodwill during the years ended October 31, 2020 and 2019.

Refer to Note 3, “Acquisitions,” and Note 11, “Goodwill and Other Intangible Assets,” for additional information about our goodwill and other intangible assets.

We recorded an impairment loss of $ 709 million for our former Ixia Solutions Group ("ISG") reporting unit for the year ended October 31, 2018.

See Note 3, “Acquisitions,” and Note 11, “Goodwill and Other Intangible Assets,” for additional information about our goodwill and other intangible assets.

Other intangible assets consist primarily of developed technologies, proprietary know-how, trademarks, customer relationships, non-compete agreements, and acquired backlog and are amortized using the straight-line method over estimated useful lives ranging from 6 months to 10 years.

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Our indefinite-lived intangible assets are in-process research and development ("IPR&D") intangible assets.

In 2019 we assessed impairment by performing a qualitative test and concluded that no impairment of indefinite-lived intangible assets was required.

As a result of the cancellations of IPR&D projects in 2018 and 2017, we recorded impairment charges of $ 5 million and $ 7 million , respectively.

In 2020 and 2019 we assessed impairment by performing a qualitative test and concluded that no impairment of indefinite-lived intangible assets was required.

As a result of the cancellations of IPR&D projects, we recorded an impairment charge of $ 5 million in 2018.

Advertising costs are expensed as incurred and were $ 24 million in 2020 , $ 22 million in 2019 and $ 21 million in 2018 .

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The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense, and the dilutive effect of in-the-money options and non-vested

restricted stock units.

Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are assumed proceeds to be used to repurchase hypothetical shares.

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in our foreign subsidiaries.

Our cash and cash equivalents mainly consist of short-term deposits held at major global financial institutions, investments in institutional money market funds, and similar short duration instruments with original maturities of 90 days or less.

Our cash and cash equivalents mainly consist of investments in institutional money market funds, short-term deposits held at major global financial institutions, and similar short duration instruments with original maturities of 90 days or less.

We continuously monitor the creditworthiness of the financial institutions in which we invest our funds.

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For those long-term equity investments accounted for under the equity method or measurement alternative, the carrying value approximates estimated fair value.

The fair value of our long-term debt, calculated from quoted prices that are primarily Level 1 inputs under the accounting guidance fair value hierarchy, exceeded the carrying value by approximately $ 139 million and $ 3 million as of October 31, 2019 and 2018, respectively.

The fair value of our long-term debt, calculated from quoted prices that are primarily Level 1 inputs under the accounting guidance fair value hierarchy, exceeded the carrying value less debt issuance costs by approximately $ 236 million and $ 139 million as of October 31, 2020 and 2019, respectively.

The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets.

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We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the hedging instruments are highly effective in offsetting changes in cash flows of hedged items.

Our foreign exchange hedging contracts generally mature within fourteen months.

Our foreign exchange hedging contracts have maturities based on a rolling period of up to twelve months.

We do not use derivative financial instruments for speculative trading purposes.

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maintenance, repairs and minor renewals are expensed as incurred.

When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from our general ledger, and the resulting gain or loss is reflected in the consolidated statement of operations.

When assets are retired or disposed of, the assets and related accumulated depreciation are removed from our general ledger, and the resulting gain or loss is reflected in the consolidated statement of operations.

Buildings and improvements are depreciated over the lesser of their useful lives or the remaining term of the lease and machinery and equipment, which is generally over three years to ten years .

We use the straight-line method to depreciate assets.

We lease buildings, machinery and equipment under operating leases for original terms ranging generally from one year to twelve years .

Certain leases contain renewal options for periods up to ten years .

We adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), on November 1, 2019 using the modified retrospective transition approach provided by Accounting Standards Update ("ASU") 2018-11, Leases:

Targeted Improvements , with the cumulative effect of initially applying the standard recognized at the date of adoption.

For additional information on the leases guidance and the impact of adoption, see Note 2, "New Accounting Pronouncements."

We determine whether an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities (current and non-current) on our consolidated balance sheet.

Finance leases are included in property, plant and equipment, other accrued liabilities, and other long-term liabilities in our consolidated balance sheet.

Our finance lease and lessor arrangements are immaterial.

ROU assets and lease obligations are recognized based on their present value of the future minimum lease payments over the lease term at commencement date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the lease term and economic environment to discount lease obligations.

ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred.

We initially measure payments based on an index by using the applicable rate at lease commencement.

Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred.

See Note 16, "Leases," for more information.

Impairment of long-lived assets.

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Gains or losses from foreign currency re-measurement are included in net income.

Net gains or losses resulting from foreign currency transactions are reported in other income (expense) and were a $ 2 million loss in 2019, a $ 4 million gain in 2018 and a $ 1 million gain in 2017.

Net gains or losses resulting from foreign currency transactions are reported in other income (expense) and were a $ 3 million gain in 2020, a $ 2 million loss in 2019 and a $ 4 million gain in 2018.

Retirement plans and post-retirement benefit plan assumptions.

P ension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to Keysight based on the terms of the plans and investment and funding decisions.

To estimate the impact of these future payments and our decisions concerning funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of GAAP.

Defined benefit plan obligations are remeasured at least annually as of October 31, based on the present value of future benefit payments to reflect future benefit costs over the employees' average expected future service to Keysight based on the terms of the plans.

To estimate the present value of these future payments,

we are required to make assumptions using actuarial concepts within the framework of GAAP.

Two critical assumptions are the discount rate and the expected long-term return on plan assets.

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See Note 15, "Retirement Plans and Post-Retirement Benefit Plans."

N EW ACCOUNTING PRONOUNCEMENTS

Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts With Customers.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 and has since modified the standard with several ASUs (collectively, the “new revenue standard” or "ASC 606").

The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes:

identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies the performance obligations.

We adopted the new revenue standard on November 1, 2018, using the modified retrospective

method with the cumulative effect of initially applying the guidance recognized at the date of adoption.

Comparative information has not been restated and continues to be reported under the standards in effect for the prior periods presented.

We have applied the new revenue standard only to contracts not completed as of the date of adoption, referred to as open contracts.

We have elected the practical expedient that permits an entity to reflect the aggregate effect of all modifications (on a contract-by-contract basis) that occurred before the date of adoption in determining the transaction price, identifying the satisfied and unsatisfied performance obligations, and allocating the transaction price to the performance obligations.

The most significant impact of the new revenue standard was our accounting for software license revenue.

Historically, we have deferred revenue for certain types of license arrangements and recognize the revenue ratably over the license term.

Under the new revenue standard, we are no longer required to establish vendor-specific objective evidence to recognize software license revenue separately from the other elements, and we are required to recognize software license revenue once the customer obtains control of the license, which will generally occur at the start of each license term.

The new revenue standard further requires certain costs, primarily sales-related commissions on contracts, to be capitalized rather than expensed.

We reclassified our allowance for sales returns from accounts receivable, net to other accrued liabilities due to the adoption of the new revenue standard.

The cumulative effect of initially applying the new revenue standard to all open contracts as of November 1, 2018 was as follows:

Adjustments Due to ASC 606

(in millions)

Accounts receivable, net

Other current assets

Long-term deferred tax assets

Deferred revenue

Income and other taxes payable

Other accrued liabilities

Long-term deferred revenue

Other long-term liabilities

Stockholders' equity:

Retained earnings

The following tables summarize the impact of ASC 606 on our condensed consolidated financial statements:

October 31, 2019

Balances Without Adoption of ASC 606

Effect of Change

Higher/(Lower)

(in millions)

Services and other

Total net revenue

Costs and expenses:

Cost of products

Cost of services and other

Research and development

Selling, general and administrative

Other operating expense (income), net

Total costs and expenses

Income from operations

Interest income

Interest expense

Other income (expense), net

Income before taxes

Provision for income taxes

Net income per share:

October 31, 2019

Balances Without Adoption of ASC 606

Effect of Change Higher/(Lower)

(in millions)

Accounts receivable, net

Other current assets

Long-term deferred tax assets

Deferred revenue

Income and other taxes payable

Other accrued liabilities

Long-term deferred revenue

Other long-term liabilities

Stockholders' equity:

Retained earnings

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities .

In January 2016, the FASB issued guidance that amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments.

Most prominent among the changes in the standard is the requirement for changes in the fair value of our equity investments, with certain exceptions, to be recognized in net income rather than other comprehensive income.

We adopted the standard effective November 1, 2018 using a modified retrospective approach.

We elected to prospectively measure equity investments without readily determinable fair values at cost with adjustments for observable changes in price or impairments.

The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.

ASU 2016-02, Leases.

In February 2016, the FASB issued guidance that will require substantially all leases to be reported on the balance sheet as right-of-use assets and lease obligations.

We expect our leases designated as operating leases in Note 17 will be reported in the consolidated balance sheet upon adoption.

NEW ACCOUNTING PRONOUNCEMENTS

We adopted ASC 606, Revenue from Contracts with Customers , on November 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results for 2020 and 2019 reflect the application of ASC 606, while the reported results for 2018 were prepared under the guidance of ASC 605, Revenue Recognition .

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, or ASC 842, that requires substantially all leases to be reported on the balance sheet as ROU assets and lease obligations and also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases.

Consistent with current GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.

The standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

We will adopt the new standard effective November 1, 2019 using the modified retrospective approach provided by ASU 2018-11, Leases:

Targeted Improvements , that allows for a cumulative effect adjustment in the period of adoption.

We expect to recognize right-of-use assets and corresponding lease obligations of approximately $145 million to $165 million.

We elected the transition package of practical expedients, which among other things, allows us to carry forward the historical lease classification.

We will not elect the practical expedient to use hindsight in determining the lease term and in assessing impairment of right-of-use assets.

The company has implemented a leasing software solution and is finalizing changes to our business processes, systems, and controls to support adoption of the new standard.

ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments .

In August 2016, the FASB issued guidance that adds or clarifies guidance on eight cash flow classification issues that had been creating diversity in practice.

We adopted this guidance during the first quarter of 2019 retrospectively to all periods presented, which resulted in the following change to our previously reported condensed consolidated statement of cash flows for the years ended October 31, 2018 and 2017 related to the classification of acquisition-related contingent consideration.

Year Ended October 31,

As Originally

(in millions)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by/(used in) financing activities

ASU 2016-18, Restricted Cash.

In November 2016, the FASB issued guidance that requires an entity to include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents.

We adopted this guidance during the first quarter of 2019 retrospectively to all periods presented.

See Note 8, "Supplemental Cash Flow Information."

ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

In March 2017, the FASB issued guidance that requires the service cost component of net periodic pension cost and net periodic post-retirement benefit cost to be included in operating expenses (together with other employee compensation costs) and the other components of the cost to be presented in the statement of operations separately from the service cost component and outside of income from operations.

We retrospectively adopted this guidance during the first quarter of 2019.

The interest cost, expected return on assets, amortization of prior service credits and other costs have been reclassified from cost of products, research and development, selling, general and administrative, and other operating expenses (income) to other income (expense).

We elected to apply the practical expedient, which allows us to reclassify amounts disclosed previously in our retirement plans and post-retirement benefit plans note as the basis for applying retrospective presentation for comparative periods as it is impractical to determine the disaggregation of the components for amounts capitalized and reclassified in those periods.

On a prospective basis, the service cost component of net periodic pension and post-retirement benefit cost is presented with other current compensation costs in operating income.

The remaining components are included in other income (expense) and will not be included in amounts capitalized in inventory or property, plant, and equipment.

The effect of the retrospective presentation change related to the retirement plans and post-retirement benefit plans to our previously reported consolidated statement of operations for the years ended October 31, 2018 and 2017 was as follows:

Year Ended October 31,

As Originally Reported

Effect of Change

Higher/(Lower)

As Originally Reported

Effect of Change

Higher/(Lower)

(in millions)

Cost of products

Cost of services and other

Research and development

Selling, general and administrative

Other operating expense (income), net

Other income (expense), net

ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.

In August 2017, the FASB issued guidance to enable entities to better portray the economics of their risk management activities in the financial statements and enhance transparency and understandability of hedge results.

We adopted this guidance during the first quarter of 2019 and elected to continue to record changes in the fair value of components excluded from the effectiveness assessment of cash flow hedges in earnings.

The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.

ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act") enacted in December 2017.

The standard is effective for fiscal years beginning after December 15, 2018.

Early adoption is permitted.

We adopted this guidance on November 1, 2018.

We elected to retain the income tax effects of the Tax Act as a component of accumulated other comprehensive income.

Given this election, the adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

In August 2018, the FASB issued guidance that requires a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to defer and recognize as an asset and aligns the recognition of implementation costs to those incurred in an arrangement that includes an internal-use software license.

Further, new disclosures about implementation costs for both internal-use software and hosting arrangements are required.

The standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

We are evaluating the impact of adopting this guidance on our consolidated financial statements.

We adopted the standard on November 1, 2019, using the modified retrospective transition approach provided by ASU 2018-11, Leases:

Targeted Improvements , with the cumulative effect of initially applying the standard recognized at the date of adoption.

Under this method of adoption, comparative information has not been restated and continues to be reported under the standards in effect (ASC 840) for the prior periods presented.

Adoption of the standard resulted in recording ROU assets and lease obligations for our operating leases of approximately $ 155 million and $ 164 million , respectively, but did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.

We elected the package of practical expedients for leases that commenced before the effective date of ASC 842, whereby we elected to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

In addition, we have lease agreements with lease and non-lease components, and we have elected the practical expedient for all underlying asset classes and account for them as a single lease component.

Our finance lease and lessor arrangements are immaterial.

Other amendments to GAAP that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

2020 acquisitions

Acquisition of Eggplant

During the third quarter of fiscal 2020, we acquired Eggplant Topco Limited ("Eggplant") for $ 319 million , net of $ 11 million cash acquired, and recognized additions to goodwill and other intangible assets of $ 280 million and $ 88 million , respectively, based on the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

The identified intangible assets primarily consist of developed technology of $ 38 million and customer relationships of $ 46 million with estimated useful lives of 3 years and 6 years , respectively.

Eggplant is a software test automation platform provider that uses artificial intelligence and analytics to automate test creation and test execution.

All goodwill was assigned to the Electronic Industrial Solutions Group.

We do not expect the goodwill recognized or any potential impairment charges in the future to be deductible for income tax purposes.

Additionally, we acquired two other businesses for $ 38 million , net of cash acquired, and recognized goodwill of $ 34 million based on the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

2019 acquisitions

Acquisition of Prisma

During the third quarter of fiscal 2019, we acquired Prisma Telecom Testing ("Prisma") for $ 88 million , net of $ 56 million cash acquired, and recognized additions to goodwill and other intangible assets of $ 30 million and $ 56 million , respectively, based on the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

During the third quarter of fiscal 2019, we acquired Prisma Telecom Testing ("Prisma") for $ 88 million , net of $ 56 million cash acquired, and recognized additions to goodwill and other intangible assets of $ 30 million and $ 56 million , respectively, based on the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

Prisma is a global provider of radio access network test solutions that is expected to expand Keysight’s comprehensive end-to-end 5G test portfolio for the commercial communications ecosystem.

The identified intangible assets primarily consisted of developed technology of $ 42 million , with an estimated useful life of 4 years .

Acquisition of Ixia

On April 18, 2017 , pursuant to the terms of an Agreement and Plan of Merger dated January 30, 2017 between Keysight and Ixia (the "Merger Agreement"), we acquired all of the outstanding common stock of Ixia for $ 1,622 million , net of $ 72 million of cash acquired, pursuant to an exchange offer for $ 19.65 per share (the "Merger Consideration").

Pursuant to the Merger Agreement, any outstanding and unexercised Ixia stock options with an exercise price below the Merger Consideration and any outstanding Ixia restricted stock awards were cancelled and converted into the right to receive a cash payment equal to the merger consideration of $19.65 per share (minus the exercise price for the Ixia stock options).

The vested portion of the awards associated with prior service of Ixia employees represented approximately $ 47 million of the total consideration.

We funded the acquisition with a combination of cash and proceeds from debt and equity financings.

As a result of the acquisition, Ixia has become a wholly-owned subsidiary of Keysight.

Accordingly, the results of Ixia are included in Keysight's consolidated financial statements from the date of the acquisition and are reported in the Ixia Solutions Group operating segment.

The Ixia acquisition was accounted for in accordance with the authoritative accounting guidance.

The acquired assets and assumed liabilities were recorded by Keysight at their estimated fair values.

Keysight determined the estimated fair values with the assistance of appraisals or valuations performed by third party specialists, discounted cash flow analysis, and estimates made by management.

At the time of acquisition, we expected to leverage and expand the existing sales channels and product development resources and utilize the assembled workforce.

The acquisition also offered opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities.

These factors, among others, contributed to a purchase price in excess of the estimated fair value of Ixia's net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction.

All goodwill, approximately $ 48 million of which is deductible for tax purposes, was assigned to the Ixia Solutions Group.

A portion of the overall purchase price was allocated to acquired intangible assets.

Amortization expense associated with acquired intangible assets is not deductible for tax purposes.

Therefore, a deferred tax liability of approximately $ 186 million was established primarily for the future amortization of these intangibles and is included in "other long-term liabilities" in the table below.

The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of April 18, 2017 (in millions):

Cash and cash equivalents

Short-term investments

Accounts receivable

Other current assets

Property, plant and equipment

Other intangible assets

Total assets acquired

Accounts payable

Employee compensation and benefits

Deferred revenue

Income and other taxes payable

Other accrued liabilities

Other long-term liabilities

Net assets acquired

The fair values of cash and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, employee compensation and benefits, and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities.

The fair values for acquired inventory, property, plant and equipment, intangible assets, and deferred revenue were determined with the input from third-party valuation specialists.

The fair values of certain other assets and certain other liabilities were determined internally using historical carrying values and estimates made by management.

Valuation of Intangible Assets Acquired

The components of intangible assets acquired in connection with the Ixia acquisition were as follows (in millions):

Estimated Fair Value

Estimated useful life

Developed product technology

Customer relationships

Tradenames and trademarks

Total intangible assets subject to amortization

In-process research and development

Total intangible assets

As noted above, the intangible assets were valued with input from valuation specialists using the income approach, which includes the discounted cash flow, cost-savings, and relief from royalty methods.

The in-process research and development was valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expecting to result from the projects, net of returns on contributory assets.

A discount rate of 14 % was used to value the research and development projects, adjusted to reflect additional risks inherent in the acquired projects.

The primary in-process projects acquired relate to next generation products which will be released in the near future.

Total costs to complete for all Ixia in-process research and development were estimated at approximately $ 12 million as of the close date.

Acquisition of ScienLab

On August 31, 2017, we acquired all of the outstanding common stock of ScienLab for $60 million, net of $2 million of cash acquired, and recognized additions to goodwill and other intangible assets of $23 million and $40 million, respectively.

ScienLab is a Germany-based company that provides test solutions to automotive original equipment manufacturers and Tier 1 suppliers in the automotive and energy markets.

This acquisition complements our solutions portfolio, allowing end-to-end solutions for hybrid electric vehicles, electric vehicles, and battery test solutions that address e-mobility market needs.

The identified intangible assets preliminary consisted of developed technology of $33 million, with an estimated useful life of 6 years.

Supplemental Pro Forma Information (Unaudited)

The following represents pro forma operating results as if Ixia had been included in the company's consolidated statements of operations as of the beginning of fiscal 2017 (in millions, except per share amounts):

Net income per share - Basic

Net income per share - Diluted

The unaudited pro forma financial information for the year ended October 31, 2017 combine the historical results of Keysight and Ixia for the year ended October 31, 2017, assuming that the companies were combined as of November 1, 2016.

The unaudited pro forma financial information includes business combination accounting effects from the acquisition including amortization and depreciation charges from acquired intangible assets, property plant and equipment, interest expense on the financing transactions used to fund the Ixia acquisition and acquisition-related transaction costs and tax-related effects.

Pro forma results of operations for Prisma and ScienLab have not been presented because the effects of the acquisition were not material to the company’s financial results.

The pro forma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2017 for Ixia.

Pro forma results of operations for 2020 and 2019 acquisitions have not been presented because the effects of the acquisitions were not material to the company’s financial results.

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by geographic region, end market, and timing of transfer of products and services to customers, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Disaggregated revenue is presented for each of our three reportable segments.

Disaggregated revenue is presented for each of our reportable segments.

Prior period amounts have been reclassified to conform to our organizational change as described in Note 21, "Segment Information."

Year Ended October 31, 2020

Year Ended October 31, 2019

Communications Solutions Group

Electronic Industrial Solutions Group

Ixia Solutions Group

Communications Solutions Group

Electronic Industrial Solutions Group

(in millions)

Total net revenue

(in millions)

Total revenue

Aerospace, Defense & Government

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Electronic Industrial

Total net revenue

Total revenue

Timing of Revenue Recognition

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Revenue recognized over time

Total net revenue

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and deferred revenue (contract liabilities) on our condensed consolidated balance sheet.

Total revenue

Contract Balances

In addition, we defer and capitalize certain costs incurred to obtain a contract (contract costs).

Contract assets - Contract assets represent unbilled amounts from arrangements for which we have performed by transferring goods or services to the customer in advance of receiving all or partial consideration for such goods and services from the customer.

Contract assets .

Contract assets represent unbilled amounts from arrangements for which we have performed by transferring goods or services to the customer in advance of receiving all or partial consideration for such goods and services from the customer.

Contract assets arise primarily from service agreements and products delivered pending a formal customer acceptance, which generally occurs within 30 days.

The contract assets balance was $ 34 million and $ 6 million at October 31, 2019 and November 1, 2018, respectively, and is included in "accounts receivables, net" in our condensed consolidated balance sheet.

Contract costs - We recognize an asset for the incremental costs of obtaining a contract with a customer.

The contract assets balance was $ 61 million and $ 34 million at October 31, 2020 and October 31, 2019, respectively, and is included in "accounts receivables, net" in our consolidated balance sheet.

Contract costs .

We recognize an asset for the incremental costs of obtaining a contract with a customer.

We have determined that certain employee and third-party representative commissions programs meet the requirements to be capitalized.

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The following table provides a roll-forward of our capitalized contract costs, current and non-current:

October 31, 2019

Year Ended October 31,

(in millions)

Balance at October 31, 2018

Balance at beginning of period

Costs capitalized on November 1, 2018 due to ASC 606 adoption

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Costs amortized during the period

Balance at October 31, 2019

Contract liabilities - Our contract liabilities consist of deferred revenue that arises when we receive consideration in advance of providing the goods or services promised in the contract.

Balance at end of period

Contract liabilities .

Our contract liabilities consist of deferred revenue that arises when we receive consideration in advance of providing the goods or services promised in the contract.

Contract liabilities are primarily generated from customer deposits received in advance of shipments for products or rendering of services and are recognized as revenue when services are provided to the customer.

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Balance at October 31, 2019

Impact of adopting new revenue standard

Balance at November 1, 2018

Deferred revenue arising out of acquisitions

Deferral of revenue billed in current period, net of recognition

Deferred revenue arising out of acquisitions

Revenue recognized that was deferred as of the beginning of the period

Foreign currency translation impact

Balance at October 31, 2020

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Since we typically invoice customers at contract inception, this amount is included in our current and long-term deferred revenue balances.

As of October 31, 2019, we expect to recognize approximately 45 % of the revenue related to these unsatisfied performance obligations during 2020, 29 % in 2021 and 26 % thereafter.

Practical Expedients

As discussed in Note 2, "New Accounting Pronouncements," and previously in this note, we have elected the following practical expedients in accordance with ASC 606:

We do not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less.

We determine incremental costs of obtaining a contract for a portfolio of contracts with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within that portfolio.

We exclude from the transaction price certain taxes (e.g., sales, use, value added, and some excise taxes).

We do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

We treat shipping and handling costs associated with outbound freight after control of a product has transferred to a customer as a fulfillment cost, included in cost of products.

We have applied the guidance only to contracts that have not been completed as of the date of adoption (November 1, 2018).

We did not evaluate individual modifications for those periods prior to the adoption date, but rather evaluated the aggregate effect of all modifications as of the adoption date.

As of October 31, 2020, we expect to recognize approximately 50 percent of the revenue related to these unsatisfied performance obligations during 2021 , 30 percent in 2022 and 20 percent thereafter .

SHARE-BASED COMPENSATION

Keysight accounts for share-based awards in accordance with the provisions of the authoritative accounting guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including Restricted Stock Units ("RSUs"), employee stock purchases made under our Employee Stock Purchase Plan (“ESPP”), employee stock option awards, and performance share awards granted to selected members of our senior management under the Long-Term Performance (“LTP”) Program, based on estimated fair values.

Keysight accounts for share-based awards in accordance with the provisions of the authoritative accounting guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including RSUs, ESPP, employee stock option awards, and performance share awards granted to selected members of our senior management under the LTP Program, based on estimated fair values.

Description of Keysight’s Share-Based Plans

Incentive compensation plans.

The 2014 Equity and Incentive Compensation Plan (the "2014 Stock Plan") was originally adopted by the Board of Directors ("the Board") on July 16, 2014, subsequently amended and restated by the Board on September 29, 2014 and on January 22, 2015 and became effective as of November 1, 2014 (the “Effective Date”).

The Board initially reserved 25 million shares of company common stock that may be issued under the 2014 Stock Plan, plus any shares forfeited or cancelled under the 2014 Stock Plan and subsequently reduced the number to 17 million shares.

The Plan was further amended and restated by the Board on November 16, 2017 to increase the maximum aggregate number of shares that may be issued under the Plan to 21.8 million shares.

The 2014 Equity and Incentive Compensation Plan (the "2014 Stock Plan") was originally adopted by our board of directors on July 16, 2014, subsequently amended and restated by our board of directors on September 29, 2014 and on January 22, 2015 and became effective as of November 1, 2014.

Our board of directors initially reserved 25 million shares of company common stock that may be issued under the 2014 Stock Plan, plus any shares forfeited or cancelled under the 2014 Stock Plan and subsequently reduced the number to 17 million shares.

The 2014 Stock Plan was further amended and restated by our board of directors on November 16, 2017 to increase the maximum aggregate number of shares that may be issued under the 2014 Stock Plan to 21.8 million shares.

The 2014 Stock Plan provides for the grant of awards in the form of stock options, SARs, restricted stock, RSUs, performance shares and performance units with performance-based conditions on vesting or exercisability, and cash awards.

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The exercise price for stock options is generally not less than 100 percent of the fair market value of our common stock on the date the stock award is granted.

Effective November 1, 2014, the Compensation Committee of the Board of Directors approved the performance awards, part of the Long-Term Performance (“LTP”) Program administered under the 2014 Stock Plan, for the company's executive officers and other key employees.

Effective November 1, 2014, the Compensation Committee of our board of directors approved the performance awards, part of the LTP Program administered under the 2014 Stock Plan, for the company's executive officers and other key employees.

Participants in this program are entitled to receive unrestricted shares of the company's stock after the end of the contractual period if specified performance targets are met.

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For TSR-based performance awards, the peer group comparisons are set at the beginning of the performance period.

The performance targets for operating margin-based performance grants are set each year in the first quarter for that respective year.

We consider the dilutive impact of this program in our diluted net income per share calculation only to the extent that the performance conditions are met.

Restricted stock units under our share-based plans are granted to directors, executives and employees.

RSUs under our share-based plans are granted to directors, executives and employees.

The estimated fair value of the restricted stock unit awards granted under the 2014 Stock Plan is determined based on the market price of Keysight common stock on the date of grant.

Restricted stock units generally vest, with some exceptions, at a rate of 25 percent per year over a period of four years from the date of grant.

Effective November 1, 2014, the company adopted the Employee Stock Purchase Plan.

RSUs generally vest, with some exceptions, at a rate of 25 percent per year over a period of four years from the date of grant.

Effective November 1, 2014, the company adopted the ESPP.

The ESPP allows eligible employees to contribute up to ten percent of their base compensation to purchase shares of Keysight common stock at 85 percent of the closing market price at the purchase date.

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Total share-based compensation expense

The expense for the year ended October 31, 2019 includes a mark-to-market adjustment of $ 8 million for financial metrics-based performance awards.

The expense for 2020, 2019 and 2018 includes mark-to-market adjustments for financial metrics-based performance awards of $ 2 million , $ 8 million and zero , respectively.

At October 31, 2020 and 2019, there was no share-based compensation expense capitalized within inventory.

The income tax benefit (deficiency) realized from exercised stock options and similar awards recognized was $ 9 million in 2019 and $ 5 million in 2018 recorded as a component of income tax expense and $ 3 million in 2017 recorded as a component of equity.

The income tax benefit realized from exercised stock options and similar awards was $ 12 million in 2020, $ 9 million in 2019 and $ 5 million in 2018 and was recorded as a component of income tax expense.

Valuation Assumptions

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Volatility of Keysight shares

Volatility of index/peer group

Volatility of index

Price-wise correlation with selected peers

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Outstanding at October 31, 2020

There were no forfeited or expired options in 2019.

The options outstanding and exercisable at October 31, 2020 were as follows:

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As of October 31, 2020 , the unrecognized share-based compensation costs for outstanding stock option awards was zero .

See Note 6, "Income Taxes," for the tax impact on share-based award exercises.

Non-vested Awards

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The total fair value of stock awards vested was $ 167 million for 2020, $ 89 million for 2019 and $ 55 million for 2018.

The increase in the fair value of stock awards in 2020 as compared to 2019 and 2018 was primarily due to the increase in our stock price.

See Note 6, "Income Taxes," for the tax impact on share-based award exercises and vesting.

The domestic and foreign components of income (loss) before taxes are:

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Total provision (benefit) for income taxes

Due to the adoption of ASU 2016-09, excess tax benefits and deductions associated with our various share-based award plans are included as components of income tax expense for fiscal years 2019 and 2018.

The income tax provision for fiscal year 2017 does not reflect potential future tax savings resulting from excess deductions associated with our various share-based award plans.

The significant components of deferred tax assets and deferred tax liabilities included in the consolidated balance sheet are:

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Total deferred tax assets or deferred tax liabilities

The decrease in deferred tax assets in 2019 as compared to 2018 primarily relates to a decrease in intangible assets in Singapore due to amortization, partially offset by an increase in future pension liabilities in the U.S.

The increase in deferred tax liabilities in 2019 as compared to 2018 primarily relates an increase in future tax liabilities in Italy from a restructuring and a decrease in future pension liabilities in the U.K.

and Japan, partially offset by a decrease in intangible assets in the U.S.

due to amortization and a decrease in Germany due to a restructuring.

The decrease in deferred tax assets in 2020 as compared to 2019 primarily relates to a decrease in intangible assets in Singapore due to amortization, partially offset by increases in U.K.

net operating losses.

The increase in deferred tax liabilities in 2020 as compared to 2019 primarily relates to an increase in taxes on unremitted earnings of foreign subsidiaries and a decrease in future pension liabilities in Japan.

We have revised the 2019 deferred tax assets in the table above to increase by $167 million both the net operating loss deferred tax asset balance and offsetting valuation allowance for a net change of zero .

This change is the result of the correction of an error that has no impact on the balance sheet or statement of operations.

Accordingly, we have concluded that this 2019 error is not material.

As of October 31, 2020, there was a deferred tax liability of $ 37 million for the tax liability expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered indefinitely reinvested.

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Such assessment is required on a jurisdiction by jurisdiction basis.

The $73 million valuation allowance as of October 31, 2019 is mainly related to capital losses in the U.K., net operating losses in the Netherlands and U.K., and California research credits.

The $79 million valuation allowance as of October 31, 2018 was

mainly related to California research credits, capital losses in the U.K., and net operating losses in the U.K.

and Netherlands.

The decrease in valuation allowance from October 31, 2018 to October 31, 2019 is primarily due to a reversal of valuation allowance on a portion of the California research credits.

The $ 238 million and $ 240 million valuation allowances as of October 31, 2020 and 2019, respectively, are mainly related to net operating losses in Luxembourg, Netherlands and the U.K., capital losses in the U.K., and California research credits.

The decrease in valuation allowance from October 31, 2019 to October 31, 2020 is primarily due to a decrease in valuation allowance on Netherlands net operating losses.

We will maintain a valuation allowance until sufficient positive evidence exists to support reversal.

At October 31, 2020, we had U.S.

federal net operating loss carryforwards of approximately $ 8 million , acquired in the Ixia acquisition, and U.S.

federal net operating loss carryforwards of approximately $ 7 million and U.S.

state net operating loss carryforwards, primarily acquired in the Ixia acquisition, of approximately $ 58 million .

federal net operating losses will expire in years beginning 2027 through 2029 if not utilized.

Of the total U.S.

state net operating loss carryforwards, $ 51 million was acquired in the Ixia acquisition.

state net operating loss carryforwards will begin to expire in 2029 , if not utilized.

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At October 31, 2020, we also had foreign net operating loss carryforwards of approximately $ 979 million .

Of this amount, $ 116 million will expire in years beginning 2023 through 2029 if not utilized.

Of this total foreign loss, $ 93 million will expire in years beginning 2023 through 2034 if not utilized, and $ 670 million will expire in years beginning 2035 through 2037 if not utilized.

The remaining $ 216 million has an indefinite life.

At October 31, 2019, we had foreign capital loss carryforwards of approximately $ 145 million , primarily acquired in the Anite acquisition, with an indefinite life and $ 3 million of tax credits in foreign jurisdictions with an indefinite life.

Of the $ 979 million of foreign net operating loss carryforward, $758 million is subject to a valuation allowance.

At October 31, 2020, we had foreign capital loss carryforwards of approximately $ 145 million with an indefinite life and $ 4 million of tax credits in foreign jurisdictions with an indefinite life.

Some of the foreign losses are subject to annual loss limitation rules.

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State income taxes, net of federal benefit

US tax on non-US entity income

US benefit on foreign sales

tax on foreign earnings

Deferred taxes on foreign earnings not considered indefinitely reinvested

benefit on foreign sales

research credits

Non-US income taxed at different rates

income taxed at different rates

Change in unrecognized tax benefits

Share-based compensation

Officers’ compensation

Singapore tax incentive and amortization

Reversal of deferred taxes on foreign earnings not considered indefinitely reinvested

Goodwill impairment

federal statutory tax rate change

Malaysia tax assessment

Provision (benefit) for income taxes

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The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment or specific types of income in those jurisdictions.

The tax incentives are due for renewal between 2024 and 2025.

Singapore tax incentives are due for renewal in 2024.

The incentive in Malaysia was due for renewal in 2020 for the period from 2021 to 2025.

Keysight has received confirmation from the Malaysian Investment Development Authority that this incentive will be renewed for the period from 2021 to 2025.

The impact of the tax incentives decreased income taxes by $ 53 million , $ 47 million and $ 567 million in 2020, 2019 and 2018, respectively.

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For 2020, the effective tax rate was 18 percent , which is lower than the U.S.

statutory rate primarily due a higher percentage of earnings in the non-US jurisdictions taxed at lower statutory rates.

statutory rate primarily due to a higher percentage of earnings in the non-U.S.

jurisdictions taxed at lower statutory tax rates.

For 2019, the effective tax rate was 13 percent , which is lower than the U.S.

statutory rate primarily due a higher percentage of earnings in the non-U.S.

jurisdictions taxed at lower statutory rates.

The increase in the effective tax rate from 2019 to 2020 is primarily due to a one-time rate benefit from a release of tax reserves in 2019 and an increase in 2020 of taxes in non-U.S.

jurisdictions due to acquired entity integration offset by a decrease in U.S.

taxes on non-U.S.

For 2018, the effective tax rate was 140 percent , which is higher than the U.S.

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tax law changes, the Singapore restructuring and tax incentive modifications completed in 2018 in response to Singapore tax law changes, and the tax impact of goodwill impairment.

For 2017, the effective tax rate was 43 percent , which is higher than the U.S.

statutory rate primarily due to the payment of a prior year Malaysia tax assessment of $ 68 million , including tax and penalties, which we are currently in the process of appealing to the Special Commissioners of Income Tax (“SCIT”) in Malaysia.

The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows for the years 2020 and 2019:

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Gross Balance, end of year

As of October 31, 2019, the total amount of gross unrecognized tax benefits was $ 226 million , that, if recognized, $ 216 million would impact our effective tax rate.

As of October 31, 2020, the total amount of gross unrecognized tax benefits, excluding interest and penalties, was $ 237 million , that, if recognized, $ 221 million would impact our effective tax rate.

However, approximately $5 million of the unrecognized tax benefits were related to acquisitions, which if recognized within certain agreed upon time periods, would be offset due to an indemnification asset recognized.

As of October 31, 2019, the total amount of gross unrecognized tax benefits, excluding interest and penalties, was $ 226 million , that if recognized, $ 216 million would impact our effective tax rate.

As of October 31, 2018, the total amount of gross unrecognized tax benefits was $ 234 million , that if recognized, $ 227 million would impact our effective tax rate.

Cumulatively, interest and penalties accrued as of the end of October 31, 2020, 2019 and 2018 were $ 33 million , $ 28 million and $ 22 million , respectively.

We recognized tax expense of $ 5 million , $ 2 million , and $ 2 million of interest and penalties related to unrecognized tax benefits in 2020, 2019 and 2018, respectively.

We recorded an additional $ 4 million of interest and penalties related to unrecognized tax benefits in 2019 through purchase accounting related to acquisitions.

Cumulatively, interest and penalties accrued as of the end of October 31, 2019, 2018 and 2017 were $ 28 million , $ 22 million and $ 20 million , respectively.

The open tax years for the IRS and most states are from November 1, 2015 through the current tax year.

Keysight’s 2018 U.S.

federal income tax return is currently under audit by the IRS.

This is the year in which the Tax Cuts and Jobs Act was enacted and the one-time U.S.

tax on earnings not previously repatriated to the U.S., known as the Transition Tax, was reported.

For the majority of our foreign entities, the open tax years are from November 1, 2015 through the current tax year.

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The company is being audited in Malaysia for the 2008 tax year.

Although this tax year pre-dates our spin-off from Agilent, pursuant to the agreement between Agilent and Keysight pertaining to tax matters, as finalized at the time of separation, for certain entities including Malaysia, any historical tax liability is the responsibility of Keysight.

In the fourth quarter of fiscal 2017, Keysight paid income taxes and penalties of $ 68 million on gains related to intellectual property rights, although we are currently in the process of appealing to the SCIT in Malaysia.

This tax year pre-dates our separation from Agilent (the "Separation").

However, pursuant to the tax matters agreement between Agilent and Keysight that was finalized at the time of the Separation, for certain entities, including Malaysia, any historical tax liability is the responsibility of Keysight.

In the fourth quarter of fiscal 2017, Keysight paid income taxes and penalties to the Malaysian Tax Authority of $ 68 million on gains related to intellectual property rights.

Our appeal to the Special Commissioners of Income Tax in Malaysia was unsuccessful.

An appeal has now been lodged with the High Court of Malaysia.

The company believes there are numerous defenses to the current assessment;

the statute of limitations for the 2008 tax year in Malaysia is closed and the income in question is exempt from tax in Malaysia.

The company is disputing this assessment and pursuing all avenues to resolve this issue favorably for the company.

the statute of limitations for the 2008 tax year in Malaysia was closed, and the income in question is exempt from tax in Malaysia.

The company is pursuing all avenues to resolve this issue favorably for the company.

NET INCOME PER SHARE

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Diluted weighted-average shares

The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units.

The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested RSUs.

Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are collectively assumed to be used to repurchase hypothetical shares.

The increase in diluted weighted average shares for the year ended October 31, 2018 includes 5 million shares attributed to the weighted impact of 13 million shares of common stock issued in March 2017.

We exclude stock options with exercise prices greater than the average market price of our common stock from the calculation of diluted earnings per share because their effect would be anti-dilutive.

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In addition, we also exclude from the calculation of diluted earnings per share, stock options, ESPP, LTP Program and restricted stock awards, whose combined exercise price and unamortized fair value collectively were greater than the average market price of our common stock because their effect would also be anti-dilutive.

The impact was immaterial in 2019, 2018 and 2017.

The number of shares excluded was not material in 2020, 2019 and 2018.

SUPPLEMENTAL CASH FLOW INFORMATION

Net cash paid for income taxes was $ 84 million in 2020 , $ 103 million in 2019 and $ 27 million in 2018 .

Higher tax payments in 2019 were primarily due to increased net income and payments on the tax liability established in 2018 related to new U.S.

Higher tax payments in 2019 were primarily due to increased net income and payments on the tax liability established in 2018 related to U.S.

tax legislation.

The 2017 payments include $ 68 million paid to the Malaysia tax authority associated with a tax assessment on gains related to intellectual property transfers that we are currently in the process of appealing to the Special Commissioners of Income Tax in Malaysia.

Cash paid for interest was $ 75 million in 2020, $ 76 million in 2019 and $ 79 million in 2018.

In 2017 we also paid fees of $ 9 million in connection with a bridge loan facility that were amortized to interest expense and classified as a financing activity in our consolidated statement of cash flows.

The following table summarizes our non-cash investing activities that are not reflected in the consolidated statement of cash flows:

Year Ended October 31,

(in millions)

Non-cash investing activities:

Increase (decrease) in unpaid capital expenditures in accounts payable

Increase in capital lease liabilities

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the amount shown in the consolidated statement of cash flows:

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Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

Restricted cash consisted primarily of deposits held as collateral against bank guarantees.

Restricted cash included in other current assets primarily relates to short-term deficit reduction contribution to an escrow account for one of our non-U.S.

defined benefit pension plans, and restricted cash included in other assets is primarily deposits held as collateral against bank guarantees.

(in millions)

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Total inventory

Inventory-related excess and obsolescence charges recorded in total cost of products were $ 27 million in 2019 , $ 25 million in 2018 and $ 16 million in 2017 .

Gross inventory-related excess and obsolescence charges recorded in total cost of products were $ 29 million in 2020 , $ 27 million in 2019 and $ 25 million in 2018 .

We record excess and obsolete inventory charges for inventory at our sites as well as inventory at our contract manufacturers and suppliers, where we have non-cancellable purchase commitments.

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Total property, plant and equipment

Accumulated depreciation and amortization

Accumulated depreciation of property, plant and equipment

Property, plant and equipment, net

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Depreciation expense was $ 104 million in 2020 , $ 96 million in 2019 and $ 103 million in 2018 .

Buildings and leasehold improvements include assets held under capital lease of $ 4 million and $ 4 million at October 31, 2019 and 2018, respectively.

In 2014 we entered into a binding contract to sell land in the United Kingdom that resulted in the transfers of three separate land tracts from 2014 through 2017 totaling approximately $ 34 million .

In 2017 we recognized a gain of $ 8 million on the sale of the land tracts in other operating expense (income).

GOODWILL AND OTHER INTANGIBLE ASSETS

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Electronic Industrial Solutions Group

Ixia Solutions Group

(in millions)

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Goodwill arising from acquisitions

Impairment losses

Goodwill at October 31, 2019

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Goodwill at October 31, 2020

Components of goodwill:

Accumulated impairment losses

Goodwill at October 31, 2018

Accumulated impairment losses

Goodwill at October 31, 2019

Accumulated impairment losses

Goodwill at October 31, 2020

O ther intangible assets as of October 31, 2020 and 2019 consisted of the following:

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In-Process R&D

In 2020, we recorded additions to goodwill and other intangible assets of $ 314 million and $ 88 million , respectively, due to the acquisition of Eggplant and two other acquisitions.

In 2019, we recorded additions to goodwill and other intangible assets of $ 30 million and $ 56 million , respectively, due to the acquisition of Prisma.

For additional information on the acquisition of Prisma, see Note 3, "Acquisitions."

In 2018 we recorded additions to goodwill of $ 6 million due to an acquisition and a $ 3 million reduction due to divestiture-related activity.

In 2018 we transferred $ 23 million from in-process R&D to developed technology as projects were successfully completed.

In 2018 we recorded an impairment charge of $ 5 million related to the cancellation of an in-process R&D project.

There was a $ 1 million foreign exchange translation impact to other intangible assets in 2019 and 2018.

For additional information on the acquisitions, see Note 3, "Acquisitions."

There was $ 2 million and $ 1 million foreign exchange translation impact to other intangible assets in 2020 and 2019 respectively.

Amortization of other intangible assets was $ 220 million in 2020, $ 210 million in 2019 and $ 204 million in 2018.

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(in millions)

We test goodwill for impairment annually in the fourth quarter of each year, after the annual update to our long-term financial forecasts during our strategic planning cycle, using data as of September 30 of that year.

Goodwill is assessed for impairment on a reporting unit basis at least annually in the fourth quarter, as of September 30, after the annual update to our long-term financial forecasts during our strategic planning cycle, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.

The impairment test compares the fair value of a reporting unit with its carrying amount, with an impairment charge recorded for the amount by which the carrying amount exceeds the reporting unit’s fair value up to a maximum amount of the goodwill balance for the reporting unit.

As defined in the authoritative guidance, a reporting unit is an operating segment or one level below an operating segment.

We determine fair values for each of the reporting units using the market approach, when available and appropriate, or the income approach, or a combination of both.

If multiple valuation methodologies are used, the results are weighted accordingly.

If multiple valuation methodologies are used, the results are weighted appropriately.

Valuations using the market approach are derived from metrics of publicly traded comparable companies.

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We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business.

In 2018 we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our Ixia Solutions Group ("ISG") reporting unit, which is the only reporting unit in the ISG reportable segment, for which the test was performed using a quantitative approach since their revenue and earnings had not been consistent with originally projected results, thus requiring a reduction of our long-term financial forecasts included in our revised strategic plan.

During the fourth quarter of 2020, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach.

Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of each reporting unit is greater than its respective carrying value.

Additionally, we assessed goodwill for impairment upon completion of the organizational change in the first quarter of fiscal 2020 and determined that it was more-likely-than-not that the fair value of the reporting unit was greater than its carrying value.

During interim periods of fiscal 2020, we had evaluated the impact of deterioration in overall global economic conditions as a result of the COVID-19 pandemic, including the change in our market capitalization and changes in forecasts for each reporting unit, and we determined that no triggering events had occurred during the year.

As of October 31, 2020, we determined that no goodwill impairment exists and that the remaining goodwill is recoverable for all of our reporting units;

however, there can be no assurance that additional goodwill will not be impaired in future periods.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results.

It is possible that the judgments and estimates described above could change in future periods.

In 2019 we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our previous ISG reporting unit, which was the only reporting unit in our previous ISG reportable segment, for which the test was performed using a quantitative approach.

The income and market approaches were used to determine the fair value of the ISG reporting unit.

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A weighting of 60 percent and 40 percent was applied to the income and market approaches, respectively, to determine the fair value of the ISG reporting unit.

The income approach was given a larger weighting based on the underlying detailed financial projections prepared during the strategic planning cycle which reflect the financial and operational facts and circumstances specific to ISG as of the valuation date.

Based on the results of our testing, the fair value of our ISG reporting unit did not exceed the carrying value.

The primary factors contributing to a reduction in fair value of ISG were weaker-than-expected market growth rates since acquisition and significant integration efforts in 2018 resulting in lower revenue and profitability trends included in our long-term financial forecasts.

As a result, we recorded an impairment loss of $ 709 million for ISG in 2018.

During the fourth quarter of 2019, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our ISG reporting unit, which is the only reporting unit in the ISG reportable segment, for which the test was performed using a quantitative approach.

The income approach was given a larger weighting based on the underlying detailed financial projections prepared during the strategic planning cycle that reflect the financial and operational facts and circumstances specific to ISG as of the valuation date.

Based on the results of our annual impairment tests, the fair value of each of our reporting units exceeded the carrying value.

In 2018 we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our previous ISG reporting unit, which was the only reporting unit in our previous ISG reportable segment, for which the test was performed using a quantitative approach since their revenue and earnings had not been consistent with originally projected results, thus requiring a reduction of our long-term financial forecasts included in our revised strategic plan.

The income and market approaches were used to determine the fair value of the ISG reporting unit.

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Based on the results of our annual impairment tests, the fair value of each of our reporting units exceeded the carrying value.

As of October 31, 2019, we determined that no goodwill impairment exists, and that the remaining goodwill is recoverable for all of our reporting units;

however, there can be no assurance that additional goodwill will not be impaired in future periods.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results.

It is possible that the judgments and estimates described above could change in future periods.

We review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

We performed an impairment test of ISG's intangible assets in 2019 and 2018 and concluded that no impairment charge was required.

Based on the results of our testing, the fair value of our previous ISG reporting unit did not exceed the carrying value.

As a result, we recorded an impairment loss of $ 709 million for ISG in 2018.

The net book value of investments as of October 31, 2020 and 2019 was as follows:

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Net unrealized gains on investments still held

Prior to adoption of ASU 2016-01 effective November 1, 2018 using a modified retrospective approach, the unrealized gain or loss resulting from a change in the fair value of our equity investments was recognized in accumulated other comprehensive income and was a loss of $ 17 million for 2018 and a gain of $ 5 million for 2017.

During the year ended October 31, 2019, we received proceeds of $ 7 million from the sale of an investment, classified as “Equity investments – other,” which was sold at cost.

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Derivative instruments (foreign exchange contracts)

Derivative instruments (interest rate swaps)

Equity investments

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

Assets measured at fair value on a non-recurring basis consisted of goodwill and intangible assets for our Ixia Solutions Group reporting unit.

Refer to Note 11, "Goodwill and Other Intangible Assets" for more information.

Assets measured at fair value on a non-recurring basis consisted of goodwill and intangible assets for our former Ixia Solutions Group reporting unit.

See Note 11, "Goodwill and Other Intangible Assets" for more information.

Fair value assessments of the reporting unit and the reporting unit's net assets, which are performed for goodwill impairments tests, are considered Level 3 measurements due to the significance of unobservable inputs developed using company-specific information.

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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 fourteen months.

These foreign exchange contracts, carried at fair value, have maturities based on a rolling period of up to twelve months.

These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance.

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Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness are recognized immediately in earnings and are presented in the same financial statement line of the consolidated statement of operations where the earnings effect of the hedged item is presented.

For hedges executed prior to February 1, 2020, these gains and losses are recognized immediately in earnings while for any new hedges, they are amortized on a straight line basis over the tenor of the hedge.

During the second quarter of 2020, we entered into forward starting interest rate swaps with an aggregate notional amount of $ 600 million associated with future interest payments on anticipated debt issuances through fiscal year 2024.

The contract term allows us to lock-in a treasury rate on anticipated debt issuances.

These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance.

The changes in fair value of these derivative instruments have been recognized in accumulated other comprehensive income (loss).

For the year ended October 31, 2020, a gain of $ 23 million was recognized in accumulated other comprehensive income (loss).

Amounts associated with these cash flow hedges will be reclassified to interest expense in the consolidated statement of operations when future interest payments on the anticipated debt occur.

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.

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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.

There were 201 and 60 foreign exchange forward contracts, designated as "cash flow hedges" and "not designated as hedging instruments", respectively, open as of October 31, 2019.

T he aggregated notional amounts by currency and designation as of October 31, 2019 were as follows:

The number of open foreign exchange forward contracts designated as "cash flow hedges" and "not designated as hedging instruments" was 202 and 61 , respectively, as of October 31, 2020.

The aggregated notional amounts by currency and designation as of October 31, 2020 were as follows:

Derivatives in

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Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

Assets Derivatives

Liabilities Derivatives

Balance Sheet Location

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Other accrued liabilities

Interest rate swap contracts:

Other long-term liabilities

Derivatives not designated as hedging instruments:

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Cash flow hedges

Interest rate swap contracts:

Gain (loss) recognized in accumulated other comprehensive income (loss)

Foreign exchange contracts:

Gain (loss) recognized in accumulated other comprehensive income

Gain (loss) reclassified from accumulated other comprehensive income into earnings:

Gain (loss) recognized in accumulated other comprehensive income (loss)

Gain (loss) reclassified from accumulated other comprehensive income (loss) into earnings:

Cost of products

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Cost of products

Gain (loss) excluded from effectiveness testing recognized in earnings based on amortization approach:

Cost of products

Derivatives not designated as hedging instruments:

Gain (loss) recognized in other income (expense), net

The estimated amount at October 31, 2019 expected to be reclassified from accumulated other comprehensive income to earnings within the next twelve months is a loss of $ 2 million .

The estimated amount at October 31, 2020 expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a loss of $ 1 million .

RETIREMENT PLANS AND POST-RETIREMENT BENEFIT PLANS

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employees who meet eligibility criteria under the Keysight Technologies, Inc.

Retirement Plan ("RP"), defined benefits which are based on an employee's base or target pay during the years of employment and on length of service.

Retirement Plan ("RP") defined benefits that are based on an employee's base or target pay during the years of employment and on length of service.

For eligible employees' service through October 31, 1993, the benefit payable under the RP is reduced by any amounts due to the eligible employees' service under our defined contribution Deferred Profit-Sharing Plan ("DPSP"), which was closed to new participants as of November 1993.

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The obligation for the DPSP eligible employees equals the fair value of the DPSP assets due to the benefit payable under the RP being the greater of the RP and DPSP.

Certain of our immaterial non-U.S.

defined benefit plans are not included in these disclosures.

Eligible employees outside the U.S.

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Enrollment in the 401(k) Plan is automatic for employees who meet eligibility requirements unless they decline participation.

We provide matching contributions to these employees, and the 401(k) Plan employer expense included in income from operations was $ 25 million in 2019, $ 23 million in 2018 and $ 16 million in 2017.

We provide matching contributions of up to 4 percent of annual eligible compensation for employees hired prior to August 1, 2015 and up to 6 percent for employees hired thereafter.

The 401(k) Plan employer expense included in income from operations was $ 27 million in 2020, $ 25 million in 2019 and $ 23 million in 2018.

Post-retirement medical benefit plans.

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employees who meet eligibility requirements as of their termination date may participate in the U.S.

Post-Retirement Benefit Plan.

Post-Retirement Benefit Plans.

Components of net periodic benefit cost.

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Post-Retirement Benefit Plan, gains and losses are amortized using a separate layer for each year's gains and losses.

During the year ended October 31, 2020, the lump sum payments in our U.K.

defined benefit plan were more than the sum of the service cost and interest cost components of net periodic benefit cost (“the threshold amount”), resulting in recognition of a settlement loss of $ 5 million .

We also recognized a curtailment gain of $ 1 million in our Netherlands defined benefit plan for the year 2020.

These are included in other income (expense) in the consolidated statement of operations.

On January 1, 2019, we transferred a portion of the assets and liabilities of our Switzerland defined benefit plan to an insurance company, resulting in the recognition of a settlement loss of $ 2 million , which is included in other income (expense) in the consolidated statement of operations.

On December 15, 2016, we transferred a portion of the assets and obligations of our Japanese Employees’ Pension Fund ("EPF") to the Japanese government.

The remaining portion of the EPF was transferred to a new Keysight Japan corporate defined benefit pension plan.

The difference between the obligations settled with the government of $ 142 million and the assets transferred to the government of $ 51 million resulted in an increase in the funded status of the new defined benefit pension plan of $ 91 million .

The settlement resulted in a gain of $ 68 million which is included in other operating expense (income) in the consolidated statement of operations for 2017.

For the years ended October 31, 2020 , 2019 and 2018 , components of net periodic benefit cost (benefit) and other amounts recognized in other comprehensive income were comprised of:

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Curtailments and settlements

Net periodic benefit cost (benefit)

Total periodic benefit cost (benefit)

Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss

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Prior service credit

Curtailments and settlements

Foreign currency

Total recognized in other comprehensive (income) loss

Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss

Total recognized in the periodic benefit cost (benefit) and other comprehensive (income) loss

We record the service cost component of net periodic benefit cost (benefit) in the same line item as other employee compensation costs.

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Prior service credits

(a) Certain of our immaterial defined benefit plans are not included in these disclosures.

The amounts in accumulated other comprehensive income expected to be amortized into net periodic benefit cost (benefit) during 2021 are as follows:

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and earn performance rates of return in accordance with the benchmarks adopted for each asset class.

Outside of the

U.S., our target asset allocation is from 10 to 60 percent to equities, from 40 to 90 percent to fixed income investments, and from zero to 11 percent to cash and other, depending on the plan.

Outside of the U.S., our target asset allocation is from 0 to 60 percent to equities, from 40 to 100 percent to fixed income investments, and from zero to 10 percent to cash and other, depending on the plan.

All plans' assets are broadly diversified.

Due to fluctuations in capital markets, our actual allocations of plan assets as of October 31, 2019 , differ from the target allocation.

Due to fluctuations in capital

markets, our actual allocations of plan assets as of October 31, 2020 , differ from the target allocation.

Our policy is to periodically bring the actual allocation in line with the target allocation.

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Equity - Some equity securities consisting of common and preferred stock are held in commingled funds, which have daily NAVs derived from quoted prices for the underlying securities in active markets;

these are classified as assets measure at NAV.

Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Fixed Income - Some of the fixed income securities are held in commingled funds, which have daily NAVs derived from the underlying securities;

these are classified as assets measured at NAV.

Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Other Investments - Other investments include property-based pooled vehicles which invest in real estate.

Market NAVs are regularly published in the financial press or on corporate websites;

therefore, these investments are classified as Level 3 investments or assets measured at NAV.

Commingled funds that have quoted prices in active markets are classified as Level 1 investments.

Fixed Income - Some of the fixed income securities are held in commingled funds that have daily NAVs derived from the underlying securities;

these are classified as assets measured at NAV.

Commingled funds that have quoted prices in active markets are classified as Level 1 investments.

The following tables present the fair value of U.S.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Identical Assets

Assets Measured at NAV (b)

Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Other investments

Total assets measured at fair value

(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

(a) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.

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Cont ributions and estimated future benefit payments .

In 2018 we made an accelerated contribution of $ 85 million to our U.S.

Defined Benefit Plans to secure tax deductibility prior to new tax legislation taking effect.

During 2020, we do not expect to contribute to the U.S.

Defined Benefit Plans or the U.S.

Post-Retirement Benefit Plan, and we expect to contribute $ 11 million to the Non-U.S.

In 2020, we made a contribution of $ 100 million to our U.S.

Defined Benefit Plan.

For 2021, we are evaluating potential contributions to our U.S.

Defined Benefit Plan or U.S.

Post-Retirement Benefit Plan, although contributions are not required, and we expect to contribute $ 12 million to our Non-U.S.

Defined Benefit Plans.

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Assu mptions .

The assumptions used to determine the benefit obligations and expense for our defined benefit and post-retirement benefit plans are presented in the tables below.

The assumptions used to determine the benefit obligations and net periodic benefit cost for our defined benefit and post-retirement benefit plans are presented in the tables below.

The expected long-term return on assets below represents an estimate of long-term returns on investment portfolios, consisting of a mixture of equities, fixed income and other investments, in proportion to the asset allocations of each of our plans.

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discount rates as of October 31, 2020 and 2019 were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio.

discount rates as of October 31, 2019 and 2018 were determined using spot rates along the yield curve to calculate disaggregated discount rates.

discount rates as of October 31, 2020 and 2019 were determined based on a granular approach, which discounts the expected plan benefit payments with rates from a high quality corporate bond yield curve.

In addition, we used this method to calculate two components of the periodic benefit cost:

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Post-Retirement Benefit Plan for the years ended October 31, 2020 and 2019.

We have operating leases for items including office space, order fulfillment, sales and service centers, R&D and certain equipment, primarily automobiles.

Our leases have remaining terms of up to 14 years, some of which may include options to extend the leases for 3 to 5 years.

We consider options to renew in our lease terms and measurement of ROU assets and lease liabilities if we determine they are reasonably certain to be exercised.

As of October 31, 2020, the weighted average lease term of our operating leases was 7.3 years and the weighted average discount rate of our operating leases was 3 percent.

Operating lease cost for the year ended October 31, 2020 was $ 49 million and variable lease cost was $ 16 million .

Costs associated with our short-term leases were immaterial for the year ended October 31, 2020.

Sublease income was immaterial for the year ended October 31, 2020.

Supplemental cash flow information related to our leases was as follows:

October 31, 2020

(in millions)

Cash paid for amounts included in the measurement of lease liabilities — operating cash flows

ROU assets obtained in exchange for operating lease obligations

Amounts related to finance lease activities for the year ended October 31, 2020 were not material.

Maturity Analysis of Liabilities

Future minimum rents payable as of October 31, 2020 under non-cancellable operating leases with initial terms exceeding one year reconcile to lease liabilities included in the consolidated balance sheet as follows (in millions):

Total undiscounted lease liability

Imputed interest

Total discounted lease liability

As of October 31, 2020, we did not have material leases that had not yet commenced.

ASC 840 Comparative Disclosures

Total rent expense for operating leases was $ 70 million in 2019 and $ 60 million in 2018.

We had capital lease obligations of $ 4 million as of October 31, 2019 and $ 4 million as of October 31, 2018.

Prior to the adoption of the new lease accounting standard, future minimum lease payments as of October 31, 2019 as reported in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 under non-cancellable operating leases with initial terms exceeding twelve months were as follows (in millions):

Total future minimum lease payments

Lessor Disclosure

Rental income from leasing out excess facilities was $ 11 million for the year ended October 31, 2020, and is included in other operating expense (income), net.

Other lessor arrangements were immaterial.

Standard Warranty

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Indemnification Obligations Related to Transactions

In connection with acquisitions, divestitures, mergers, spin-offs and other transactions, we have agreed to indemnify certain parties for damages, losses, expenses and liabilities arising in the future but which were incurred prior to or are related to such transactions.

In connection with acquisitions, divestitures, mergers, spin-offs and other transactions, we have agreed to indemnify certain parties for damages, losses, expenses and liabilities arising in the future but that were incurred prior to or are related to such transactions.

The liabilities covered by these indemnifications include but are not limited to tax, employment, benefits, intellectual property, environmental, and other liabilities.

In our opinion, the fair value of these indemnification obligations is not material as of October 31, 2019.

We do not believe that our indemnification obligations related to such liabilities were material as of October 31, 2020 .

Indemnifications to Officers and Directors

Our corporate by-laws require that we indemnify our officers and directors, as well as those who act as directors and officers of other entities at our request, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to Keysight and such other entities, including service with respect to employee benefit plans.

In addition, we have entered into separate indemnification agreements with each director and each board-appointed officer of Keysight which provide for indemnification under similar and additional circumstances.

In addition, we have entered into separate indemnification agreements with each director and each board-appointed officer of Keysight that provide for indemnification under similar and additional circumstances.

The indemnification obligations are more fully described in the by-laws and the indemnification agreements.

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Since a maximum obligation is not explicitly stated in our by-laws or in our indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.

Historically, we have not made payments related to these obligations, and the fair value for these indemnification obligations was not material as of October 31, 2019 .

Historically, we have not made payments related to these obligations, and do not believe that our indemnification obligations related to such claims were material as of October 31, 2020 .

Other Indemnifications

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In addition, from time to time we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations.

In our experience, claims made under such indemnifications are rare and the associated estimated fair value of such liabilities was not material as of October 31, 2019 .

In our experience, claims made under such indemnifications are rare and do not believe that our indemnification obligations related to such claims were material as of October 31, 2020 .

COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments.

We lease certain real and personal property from unrelated third parties under non-cancellable operating leases.

Future minimum lease payments under operating leases as of October 31, 2019 were $ 48 million in 2020, $ 40 million in 2021, $ 31 million in 2022, $ 19 million in 2023, $ 12 million in 2024 and $ 46 million thereafter.

Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses.

Total rent expense was $ 70 million in 2019, $ 60 million in 2018 and $ 51 million in 2017.

Capital Lease Commitments.

We had capital lease obligations of $ 4 million as of October 31, 2019 and $ 4 million as of October 31, 2018.

The current portion of the total obligation is included in other accrued liabilities and the remaining long-term

portion is included in other long-term liabilities on the consolidated balance sheet.

Assets held under capital leases are included in net property, plant, and equipment on the consolidated balance sheet.

Commitments to contract manufacturers and suppliers.

We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products.

During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates.

The reported open purchase orders represent a commitment to our suppliers.

Our agreements with suppliers for common materials provide us the option to cancel, reschedule, and adjust our requirements based on business needs.

We expect to fulfill most of our purchase commitments for inventory within one year or based on mutually agreed terms.

As of October 31, 2020, the non-cancellable purchase commitments aggregate to approximately $ 291 million , of which the majority is for less than one year.

Other purchase commitments.

Other purchase commitments relate to contracts with professional services suppliers.

We can typically cancel these contracts within 90 days without penalties.

For those contracts that are not cancellable within 90 days without penalties, we disclose the amounts we are obligated to pay to a supplier under each contract in that period before such contract can be canceled.

As of October 31, 2020 , our contractual obligations with these suppliers was approximately $ 52 million within the next fiscal year, as compared to approximately $ 69 million as of October 31, 2019.

Litigation and Contingencies.

We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, patent, commercial and environmental matters, which arise in the ordinary course of business.

There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.

We are involved in lawsuits, claims, investigations and proceedings, including but not limited to patent, commercial and environmental matters that arise in the ordinary course of business.

Although there are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows, the outcome of litigation is inherently uncertain and the outcome is difficult to predict.

An adverse outcome in any outstanding lawsuit or proceeding could result in significant monetary damages or injunctive relief.

If adverse results are above management’s expectations or are unforeseen, management may not have accrued for the liability, which could impact our results in a financial period.

The following table summarizes the components of our long-term debt:

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2027 Senior Notes at 4.60% ($700 face amount less unamortized costs of $5 and $5)

2029 Senior Notes at 3.00% ($500 face amount less unamortized costs of $4)

2029 Senior Notes at 3.00% ($500 face amount less unamortized costs of $4 and $4)

Short-Term Debt

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On February 15, 2017 , we entered into an amended and restated credit agreement (the “Revolving Credit Facility”) that replaced our existing $ 450 million unsecured credit facility dated September 15, 2014.

The Revolving Credit Facility provides for a $ 450 million , five-year unsecured revolving credit facility that will expire on February 15, 2022 and bears interest at an annual rate of LIBOR + 1.10% .

In addition, the Revolving Credit Facility permits us to increase the total commitments under this credit facility by up to $ 150 million in the aggregate on one or more occasions upon request.

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We were in compliance with the covenants of the Revolving Credit Facility during the year ended October 31, 2020.

2019 Senior Notes

In October 2014, the company issued an aggregate principal amount of $ 500 million in unsecured senior notes ("2019 Senior Notes").

These notes matured on October 30, 2019 and were fully repaid.

During the year ended October 31, 2020, we repaid $ 7 million of debt assumed with the acquisition of Eggplant.

Long-Term Debt

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We incurred issuance costs of $ 4 million in connection with the 2029 Senior Notes that, along with the debt discount are being amortized to interest expense over the term of the senior notes.

Senior Unsecured Term Loan

On February 15, 2017 , we entered into a term credit agreement that provided for a three-year $ 400 million senior unsecured term loan that bore interest at an annual rate of LIBOR + 1.50% .

The term loan was drawn upon the closing of the Ixia acquisition.

On February 27, 2018, we fully repaid the borrowings outstanding under the term loan of $ 260 million and terminated the credit agreement.

We had previously repaid $ 140 million of the term loan during the year ended October 31, 2017.

Letters of Credit

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Stock Repurchase Program

On May 29, 2019, the Board of Directors approved a new stock repurchase program authorizing the purchase of up to $ 500 million of the company’s common stock, replacing a previously approved 2018 program authorizing the purchase of up to $ 350 million of the company's common stock, of which $ 160 million remained.

Under the new program, shares may be purchased from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions or other means.

On November 18, 2020, our board of directors approved a new stock repurchase program authorizing the purchase of up to $ 750 million of the company’s common stock.

On May 29, 2019, our board of directors approved a stock repurchase program authorizing the purchase of up to $ 500 million of the company’s common stock, replacing a previously approved 2018 program authorizing the purchase of up to $ 350 million of the company's common stock.

Under our stock repurchase program, shares may be purchased from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated transactions or other means.

All such shares and related costs are held as treasury stock and accounted for at trade date using the cost method.

The stock repurchase program may be commenced, suspended or discontinued at any time at the company’s discretion and does not have an expiration date.

In 2020 we repurchased 4,274,366 shares of common stock for $ 410 million , nearly exhausting our $ 500 million share repurchase authorization from May 2019.

In 2019 we repurchased 2,093,570 shares of common stock for $ 160 million .

In 2018 we repurchased 2,075,460 shares of common stock for $ 120 million .

In 2017 we did not repurchase any shares of common stock under the stock repurchase program.

All such shares and related costs are held as treasury stock and accounted for at trade date using the cost method.

Accumulated other comprehensive loss

The following table summarizes the components of our accumulated other comprehensive loss as of October 31, 2019 and 2018, net of tax effect:

The following table summarizes the components of accumulated other comprehensive loss, net of tax effect:

(in millions)

Unrealized gain on equity securities, net of tax (expense) of zero and $(2)

Foreign currency translation, net of tax (expense) of $(63) and $(63)

Unrealized losses on defined benefit plans, net of tax benefit of $139 and $113

Unrealized losses on derivative instruments, net of tax (expense) of zero and $(1)

Unrealized gains (losses) on derivative instruments, net of tax (expense) of $(5) and zero

Total accumulated other comprehensive loss

Changes in accumulated other comprehensive income (loss) by component and related tax effects for the years ended October 31, 2019 and 2018 were as follows:

Changes in accumulated other comprehensive loss by component and related tax effects were as follows:

Net defined benefit pension cost and post retirement plan costs:

Unrealized gain (loss) on equity securities

Foreign currency translation

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Other comprehensive income (loss) before reclassifications

Amounts reclassified out of accumulated other comprehensive income (loss)

Tax (expense) benefit

Other comprehensive income (loss) for the twelve months ended October 31, 2018

Amounts reclassified out of accumulated other comprehensive gain (loss)

Tax benefit (expense)

Other comprehensive income (loss)

At October 31, 2019

Other comprehensive income (loss) before reclassifications

Amounts reclassified out of accumulated other comprehensive income (loss)

Tax (expense) benefit

Other comprehensive income (loss) for the twelve months ended October 31, 2019

Amounts reclassified out of accumulated other comprehensive gain (loss)

Tax benefit (expense)

Other comprehensive income (loss)

At October 31, 2020

Reclassifications out of accumulated other comprehensive loss for the years ended October 31, 2019 and 2018 were as follows:

Reclassifications out of accumulated other comprehensive loss were as follows:

Details about accumulated other comprehensive loss components

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(in millions)

Unrealized gains (losses) on derivatives

Unrealized gain (loss) on derivatives

Cost of products

Selling, general and administrative

Provision for income tax

Benefit (provision) for income tax

Net of Income Tax

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Total before income tax

Provision for income tax

Benefit (provision) for income tax

Net of income tax

Total reclassifications for the period

An amount in parentheses indicates a reduction to income and an increase to the accumulated other comprehensive income.

Reclassifications of prior service credits and net actuarial losses in respect of retirement plans and post retirement pension plans are included in the computation of net periodic cost (see Note 15, "Retirement Plans and Post Retirement Pension Plans").

An amount in parentheses indicates a reduction to income and an increase to the accumulated other comprehensive loss.

Reclassifications of prior service credits and net actuarial losses in respect of retirement plans and post retirement pension plans are included in the computation of net periodic cost.

See Note 15, "Retirement Plans and Post Retirement Pension Plans."

SEGMENT INFORMATION

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We also offer customization, consulting and optimization services throughout the customer's product life cycle.

In 2019 we completed an organizational change to align our services business with our customer-solutions-oriented, go-to-market strategy as reflected by our Keysight Leadership Model ("KLM").

This change was made to fully reflect our services delivery within the markets served and further enable the growth of our services solutions portfolio.

Prior period segment results were revised to conform to the presentation.

As a result, Keysight has three segments:

Communications Solutions Group, Electronic Industrial Solutions Group and Ixia Solutions Group.

In the first quarter of fiscal 2020, we completed an organizational change to manage our former Ixia Solutions Group within our Communications Solutions Group to enable us to create improved go-to market and product development alignment as well as accelerate solution synergies as new technologies emerge.

As a result of this organizational change, we now have two reportable operating segments, Communications Solutions Group and Electronic Industrial Solutions Group.

Prior period segment results were revised to conform to the current presentation.

The organizational structure continues to include centralized enterprise functions that provide support across the groups.

To more effectively and efficiently address customer solution needs across the communications ecosystem as the network transforms, in the first quarter of fiscal 2020, we completed an organizational change to manage our Ixia Solutions Group within our Communications Solutions Group.

We believe this realignment will create improved go-to-market and product development alignment, as well as accelerate solution synergies in 5G as this new technology is deployed globally.

As a result, beginning with our first quarter of fiscal 2020, we will have two reportable operating segments, Communications Solutions Group (“CSG”) and Electronic Industrial Solutions Group (“EISG”).

Our operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations.

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Other factors, including market separation and customer specific applications, go-to-market channels, products and services and manufacturing are considered in determining the formation of these operating segments.

Descriptions of our three reportable segments are as follows:

Descriptions of our two reportable segments are as follows:

The Communications Solutions Group serves customers spanning the worldwide commercial communications and aerospace, defense and government end markets.

The group provides electronic design and test software, instruments, systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment.

The group's solutions consist of electronic design and test software, electronic measurement instruments, systems and related services.

These solutions are used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment and networks.

The Electronic Industrial Solutions Group provides test and measurement solutions and related services across a broad set of electronic industrial end markets, focusing on high-value applications in the automotive and energy industry and measurement solutions for consumer electronics, education, general electronics design and manufacturing, and semiconductor design and manufacturing.

The group provides electronic design and test software, instruments and systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment.

The Ixia Solutions Group helps customers design, validate and optimize the performance and security resilience of their networks and associated components and applications.

Network test, network visibility and security solutions help organizations and their customers strengthen their physical and virtual networks.

The group’s solutions consist of software applications and services, including warranty and maintenance offerings, and high-performance hardware platforms.

The group provides electronic design and test software, electronic measurement instruments and systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment.

With the recent acquisition of Eggplant, a leading software test automation company, we now have the ability to provide automated software test capabilities that include artificial intelligence (AI) and machine learning to automatically identify, build and execute tests most critical to digital business success and a strong customer experience.

A significant portion of the segments' expenses arise from shared services and infrastructure that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources.

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Charges are allocated to the segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.

Newly acquired businesses are not allocated these charges until integrated into our shared services and infrastructure.

The following tables reflect the results of our reportable segments under our management reporting system.

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These results are used, in part, by the chief operating decision maker in evaluating the performance of, and in allocating resources to, each of the segments.

The profitability of each of the segments is measured after excluding share-based compensation expense, restructuring and related costs, amortization of acquisition-related balances, acquisition and integration costs, acquisition-related compensation expense, separation and related costs, pension curtailment and settlement loss (gain), northern California wildfire-related costs, goodwill impairment, legal settlement, gain on divestitures, interest income, interest expense and other items as noted in the reconciliations below.

Prior period amounts have been revised to conform to the new organizational structure.

The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring and related costs, northern California wildfire-related impacts, goodwill impairment, legal settlement, gain on divestitures, interest income, interest expense and other items as noted in the reconciliations below.

Communications Solutions Group

Electronic Industrial Solutions Group

Ixia Solutions Group

(in millions)

Year ended October 31, 2020:

Total net revenue

Amortization of acquisition-related balances

Total segment revenue

Total and segment revenue

Segment income from operations

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Year ended October 31, 2019:

Total net revenue

Total revenue

Amortization of acquisition-related balances

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Year ended October 31, 2018:

Total net revenue

Total revenue

Amortization of acquisition-related balances

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Total reportable segments' income from operations

Share-based compensation expense

Share-based compensation

Restructuring and related costs

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Acquisition and integration costs

Acquisition-related compensation expense

Separation and related costs

Northern California wildfire-related costs

Northern California wildfire-related impacts

Goodwill impairment

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Major customers.

No customer represented 10 percent or more of our total net revenue in 2019 , 2018 or 2017 .

No customer represented 10 percent or more of our total revenue in 2020 , 2019 or 2018 .

The following table presents assets and capital expenditures directly managed by each segment.

Unallocated assets primarily consist of cash and cash equivalents, prepaid expenses, investments, long-term and other receivables and other assets.

Prior period amounts have been reclassified to conform to the current period presentation.

Communications Solutions Group

Electronic Industrial Solutions Group

Ixia Solutions Group

(in millions)

As of and for the year ended October 31, 2020:

Segment assets

Capital expenditures

As of and for the year ended October 31, 2019:

Segment assets

Capital expenditures

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Cash and cash equivalents

Prepaid expenses

Other current assets

Long-term and other receivables

The other category primarily includes pension assets and also represents the difference between how segments report deferred taxes and intangible assets at the initial purchased amount.

The following table presents summarized information for net revenue and long-lived assets by geographic region.

Revenues from external customers are generally attributed to countries based upon the location of the Keysight sales representative.

Long lived assets consist of property, plant, and equipment, long-term receivables and other long-term assets excluding intangible assets.

The rest of the world primarily consists of rest of Asia and Europe.

Long-term investments

Long-term deferred tax assets

Accumulated amortization of intangibles

Other unallocated assets

The other unallocated assets primarily includes pension assets.

The following tables present summarized information for revenue and long-lived assets by geographic region.

Revenues from external customers are generally attributed to countries based upon the customer's location.

Long-lived assets consist of property, plant, and equipment, operating lease right-of-use assets and other long-term assets excluding intangible assets.

(in millions)

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Year ended October 31, 2018

(1) China also includes Hong Kong revenue.

(in millions)

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October 31, 2019

IMPACT OF NORTHERN CALIFORNIA WILDFIRES

During the week of October 8, 2017, wildfires in northern California adversely impacted the Keysight corporate headquarters site in Santa Rosa, CA.

While direct damage to our core facilities was limited, our buildings did experience some smoke and other fire-related impacts.

Keysight is insured for the damage caused by the fire.

For the years ended October 31, 2019, 2018 and 2017, we recognized operating expenses of $ 3 million , $ 97 million and $ 18 million , respectively, offset by $ 3 million , $ 90 million and $ 2 million , respectively, of expected insurance recoveries.

Expenses were primarily for cleaning and restoration activities, write-off of damaged fixed assets and other direct costs related to recovery from this event.

In 2019 and 2018, we received insurance proceeds of $ 22 million and $ 68 million , respectively, which has substantially covered our total fire-related expenses in excess of our $ 10 million self-insured retention amount.

At October 31, 2019, we had a receivable of $ 5 million for losses and expenses for which insurance reimbursement is probable.

The receivable is included in other current assets in the consolidated balance sheet.

In addition, in 2019 and 2018, we made investments in property, plant and equipment related to fire recovery of $ 7 million and $ 27 million , respectively, that are expected to be covered by insurance.

Subsequent to October 31, 2019, we received $ 37 million of insurance proceeds for replacement of capital and recovery of fire-related expenses.

These proceeds will result in an other operating gain of approximately $32 million in the first quarter of fiscal 2020.

No additional insurance proceeds or material expenses related to the 2017 northern California wildfires are expected.

IMPACT OF THE 2017 NORTHERN CALIFORNIA WILDFIRES

In 2020 we recognized an operating gain of $ 32 million in other operating expense (income), net, as a result of a final insurance settlement of $ 37 million for replacement of capital and recovery of expenses associated with the 2017 northern California wildfires.

In 2019 and 2018, we recognized operating expenses of $ 3 million and $ 7 million , respectively, net of expected insurance recoveries, and received insurance proceeds of $ 22 million and $ 68 million , respectively.

QUARTERLY SUMMARY

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Weighted average shares used in computing net income per share:

Income (loss) from operations

Net income (loss)

Net income (loss) per share:

Weighted average shares used in computing net income (loss) per share:

Income from operations

Net income per share:

Weighted average shares used in computing net income per share:

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data