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Item 7. Management’s Discussion and Analysis

2021-12-17 compared with 2020-12-17 · 280 added, 326 removed, 286 unchanged (68% of the section changed)

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The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, our transition to lower-cost regions, the existence of political or economic instability, increased trade tension and tightening of export control regulations, impact of pandemic conditions such as the novel coronavirus ("COVID-19"), the impact of volatile weather caused by environmental conditions such as climate change, and our and the combined group's estimated or anticipated future results of operations, that involve risks and uncertainties.

This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, our transition to lower-cost regions, the existence of political or economic instability, the impact of increased trade tension and tightening of export control regulations, the impact of compliance with the August 2, 2021 Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State, continued impacts to the supply chain, government mandates related to pandemic conditions such as a novel strain of coronavirus (“COVID-19”) and its variants, impacts related to net zero emissions commitments, the impact of volatile weather caused by environmental conditions such as climate change, and our estimated or anticipated future results of operations, that involve risks and uncertainties.

Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including but not limited to those risks and uncertainties discussed in Part II Item 1A and elsewhere in this Annual Report on Form 10-K.

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("we," "us," "Keysight" or the "company"), incorporated in Delaware on December 6, 2013, is a technology company that helps enterprises, service providers and governments accelerate innovation to connect and secure the world by providing electronic design and test solutions that are used in the simulation, design, validation, manufacture, installation, optimization and secure operation of electronics systems in the communications, networking and electronics industries.

We also offer customization, consulting and optimization services throughout the customer's product lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and repair.

We also offer customization, consulting and optimization services throughout the customer's product development lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and repair.

Our fiscal year end is October 31.

Unless otherwise stated, all years and dates refer to our fiscal year.

We completed an organizational change in 2020 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, the Communications Solutions Group and the Electronic Industrial Solutions Group.

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

Impact of COVID-19 pandemic and outlook

In March 2020, the World Health Organization declared COVID-19 as a global pandemic.

In response to the rapid global spread of the virus, national, state, and local governments issued orders and recommendations to attempt to reduce the further spread of the disease.

Such orders included movement control and shelter-in-place orders, travel restrictions, limitations on public gatherings, school closures, social distancing requirements and the closure of all but critical and essential services and infrastructure.

In response to these measures and to protect the health and safety of our employees, we temporarily closed our locations globally, including our production and order fulfillment facilities, asked all employees who can work from home to do so for the foreseeable future, made substantial changes to employee travel policies, and canceled training and marketing events or moved them to a virtual format.

Our customers, suppliers and vendors have been subject to these restrictions and orders and have been similarly impacted.

Fluctuation in infection rates in the regions in which we operate have resulted in periodic changes in restrictions that vary from region to region and require vigilant attention and rapid response to new or reinstated restrictions.

Working with local governments and health officials to implement health and safety measures at all of our locations, we have re-opened many sites worldwide and significantly ramped our production and services operations, despite the ongoing broader industry supply chain challenges.

We have restarted on-site operations using only employees who are not able to work effectively from home and where doing so is in compliance with local regulations and our COVID-19 safety procedures.

We continue to make significant investment in research and development ("R&D") and have taken necessary steps to sustain employee productivity and deliver on our customer commitments, particularly those who provide essential services, and support the communities in which we operate around the world.

Also, given the uncertainty of the duration or severity of the pandemic, we took proactive measures to reduce costs and preserve liquidity, while supporting our customers and advancing key projects.

These measures included a temporary hiring freeze and a reduction in other discretionary spending, along with reductions in variable compensation and outsourced manufacturing costs enabled by our flexible cost structure.

Our revenue for 2020 was lower when compared to 2019 due to site closures and supply chain disruptions resulting from the temporary shutdown of our production facilities related to the COVID-19 pandemic.

The impact of lower revenue on gross margin and operating margin was more than offset by favorable mix and lower discretionary spending as a result of our mitigation efforts.

We continue to see steady demand across several end markets, with on-going investment in next-generation technologies, such as 5G, 400G and advanced semiconductor node processes, while demand decreased in other markets, such as automotive and energy.

Our strategy of bringing first-to-market solutions that help customers develop new technologies and accelerate innovation provides a platform for long-term growth.

We expect our customers to continue to make R&D investments in certain next-generation technologies.

We are still in the early market stages for emerging technologies, such as 5G, next-generation automotive, internet of things ("IoT") and defense modernization and expect technology investments to continue.

We continue to closely monitor the current macro environment related to trade, tariffs, monetary and fiscal policies, as well as pandemics or epidemics, such as the recent COVID-19 outbreak.

We have complied and will continue to comply with recent U.S.

Department of Commerce export control regulations.

While we expect ongoing COVID-19 demand and supply chain headwinds over the next few quarters, we remain confident in our long-term secular market growth trends and the strength of our operating model.

COVID-19 pandemic and related supply chain disruptions

Our global operations have been and continue to be affected by the ongoing global pandemic of COVID-19 and the resulting volatility and uncertainty it has caused in the U.S.

and international markets.

During the year ended October 31, 2021, governments in many countries, including the United States, continued to issue orders and recommendations to attempt to reduce the further spread of the disease.

Such orders included movement control and shelter-in-place orders, travel restrictions, limitations on public gatherings, school closures, social distancing requirements, vaccine mandates and the closure of all but critical and essential services and infrastructure.

Working with local governments and health officials to implement health and safety measures at all of our locations, we have re-opened most sites worldwide and significantly ramped our production and services operations.

Plans to return all employees to Keysight facilities at pre-COVID-19 levels were temporarily delayed by the emergence of the Delta variant.

The pandemic has led to global supply chain challenges that have adversely impacted our ability to procure certain components, which in some cases is impacting our ability to manufacture products and causing delays in delivery of our solutions to our customers.

For discussion of risks related to COVID-19 on our operations, business results and financial condition, see “Item 1A.

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Years ended October 31, 2021, 2020 and 2019

We realized the most notable impacts of the COVID-19 virus control measures in the last half of the second quarter and continuing into the third quarter of fiscal 2020, with sequential improvement each quarter thereafter.

During the year ended October, 31, 2020, our orders, revenues and margins were adversely impacted by site closures and supply chain disruptions resulting from the global disruptions and shutdown of our production facilities, resulting in a soft prior-period compare.

Total orders for 2021 were $5,356 million, an increase of 18 percent when compared to 2020.

Foreign currency movements had an immaterial impact on the year-over-year comparison.

Foreign currency movements and acquisitions each contributed 1 percentage point to the order growth for 2021 when compared to 2020.

Orders grew double-digits across all regions.

Total orders for 2020 were $4,528 million, an increase of 2 percent when compared to 2019.

currency movements had an immaterial impact on the year-over-year comparison.

Orders associated with acquisitions contributed 1 percent to the order growth for 2020 when compared to 2019.

Order growth in Asia Pacific was partially offset by a decline in Europe, while the Americas remained flat.

Total orders for 2019 were $4,441 million, an increase of 9 percent when compared to 2018.

Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year comparison.

Orders associated with acquisitions and divestitures had a net neutral impact on the order growth for 2019 when compared to 2018.

Order growth in Asia Pacific and the Americas was partially offset by a decline in Europe.

Revenue of $4,941 million for 2021 increased 17 percent when compared to 2020.

Foreign currency movements and acquisitions each contributed 1 percentage point to the revenue growth for 2021 as compared to 2020.

Revenue for both the Communications Solutions Group and the Electronic Industrial Solutions Group grew as compared to 2020, driven by strong demand across all the regions and markets.

Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented approximately 71 percent and 29 percent, respectively, of total revenue for 2021.

Revenue of $4,221 million for 2020 decreased 2 percent when compared to 2019.

Foreign currency movements had an immaterial impact on the year-over-year comparison.

Revenue associated with acquisitions had a 1 percent favorable impact on revenue for 2020 when compared to 2019.

Revenue for both the Electronic Industrial Solutions Group and the Communications Solutions Group declined year over year due to the impact of site closures and supply chain disruptions related to the COVID-19 pandemic.

Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented approximately 74 percent and 26 percent, respectively, of total revenue for 2020.

Revenue of $4,303 million for 2019 increased 11 percent when compared to 2018.

Foreign currency movements had an unfavorable impact of 1 percentage point on the year-over-year comparison.

Revenue associated with acquisitions and divestitures had a net neutral impact on the revenue growth for 2019 when compared to 2018.

Revenue grew in both the Communications Solutions Group and the Electronic Industrial Solutions Group, with commercial communications leading the growth.

Revenue associated with acquisitions had a 1 percentage point favorable impact on revenue for 2020 when compared to 2019.

Revenue for both the Communications Solutions Group and Electronic Industrial Solutions Group declined as compared to 2019 due to the impact of site closures and supply chain disruptions related to the COVID-19 pandemic.

Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented approximately 74 percent and 26 percent, respectively, of total revenue for 2020.

Net income was $894 million in 2021 compared to net income of $627 million and $621 million in 2020 and 2019, respectively.

The increase in net income for 2021 when compared to 2020 was primarily driven by higher revenue volume, lower amortization of acquisition-related balances and lower income tax expense, partially offset by an increase in variable people-related costs, higher R&D investments, lower operating income due to a one-time prior-period gain related to an insurance settlement, a loss on a partial settlement of our Netherlands defined benefit plan and the incremental costs of acquired businesses.

The increase in net income for 2020 when compared to 2019 was driven by favorable mix, a decline in variable compensation and a reduction in discretionary spending, partially offset by lower revenue volume due to the impact of site closures and supply chain disruptions as well as higher income tax expense.

The increase in net income for 2019 when compared to 2018 was driven by a non-recurring goodwill impairment charge in 2018, higher revenue volume, highly differentiated solutions, favorable mix, and lower acquisition and integration costs, partially offset by a favorable income tax benefit in the prior period from U.S.

tax legislation, and higher R&D investments in leading-edge technologies and key growth opportunities in our end markets.

In 2021, 2020 and 2019, we generated operating cash flows of $1,322 million, $1,016 million and $998 million, respectively.

In 2020, we recognized an operating gain of $32 million 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.

Our strategy of bringing first-to-market solutions that help customers develop new technologies and accelerate innovation provides a platform for long-term growth.

We expect our customers to continue to make R&D investments in certain next-generation technologies.

We are still in the early market stages for technologies such as 5G/6G, next-generation automotive, internet of things ("IoT") and defense modernization and expect technology investments to continue.

We continue to closely monitor the current macro environment related to trade, tariffs, monetary and fiscal policies, pandemics or epidemics, such as the COVID-19 outbreak, and the related global supply chain challenges.

We remain confident in our long-term secular market growth trends and the strength of our operating model.

Currency Exchange Rate Exposure

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Returns are recorded in the period received from the customer and historically have not been material.

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

(in millions)

Products $ 4,050 $ 3,432 $ 3,554 18% (3)%

Services and other 891 789 749 13% 5%

Total revenue $ 4,941 $ 4,221 $ 4,303 17% (2)%

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

% of total revenue:

Products 82 % 81 % 83 % 1% (2)%

Services and other 18 % 19 % 17 % (1)% 2%

Total 100 % 100 % 100 %

The following table provides the percent change in revenue for the years ended October 31, 2021 and 2020 by geographic region, including and excluding the impact of foreign currency movements, as compared to the respective prior year.

Year over Year % Change

2020 over 2019

2019 over 2018

Geographic Region

currency adjusted

2021 over 2020 2020 over 2019

Geographic Region actual currency adjusted actual currency adjusted

Americas 22 % 22 % (5) % (5) %

Europe 18 % 14 % (5) % (6) %

Asia Pacific 13 % 12 % 2 % 2 %

Total revenue 17 % 16 % (2) % (2) %

For the year ended October 31, 2021, revenue grew across all the regions.

Foreign currency movements had a favorable impact of 1 percentage point on total revenue growth in 2021, with a favorable impact of 4 percentage points in Europe and 1 percentage point in Asia Pacific.

For the year ended October 31, 2020, revenue declined in the Americas and Europe, partially offset by growth in Asia Pacific, due to the impact of temporary site closures and supply chain disruptions related to the COVID-19 pandemic.

Foreign currency movements had an immaterial impact on the revenue decline for 2020.

Foreign currency movements had a favorable impact of 1 percentage point on revenue in Europe 2020.

For the year ended October 31, 2019, revenue increased in Asia Pacific and the Americas, partially offset by a decline in Europe.

Foreign currency movements had an unfavorable impact of 1 percentage point on the revenue increase for 2019.

Foreign currency movements had an unfavorable impact of 3 percentage points and 1 percentage point on revenue in Europe and Asia Pacific, respectively, for 2019.

Foreign currency movements had an immaterial impact on total revenue in 2020, with a favorable impact of 1 percentage point in Europe.

Backlog represents the amount of revenue expected from orders that have already been booked, including orders for goods and services that have not been delivered to customers, orders invoiced but not yet recognized as revenue, and orders for goods that were shipped but not invoiced, awaiting acceptance by customers and/or completion of a commitment to a customer.

At October 31, 2020, our unfilled backlog was approximately $1,709 million as compared to approximately $1,380 million at October 31, 2019.

Consistent with our strategy, we are seeing an increase in solution sales, which have a longer order-to-revenue conversion cycle;

however, we expect that the majority of unfilled backlog will be recognized as revenue within six months.

While backlog on any date can be an indicator of short-term revenue performance, it is not necessarily a reliable indicator of medium or long-term revenue performance.

At October 31, 2021, our unfilled backlog was approximately $2,115 million as compared to approximately $1,709 million at October 31, 2020, primarily driven by strong order growth and an increase in solutions sales with a longer order-to-revenue cycle.

We expect the majority of unfilled backlog to be recognized as revenue within six months.

While backlog on any particular date can be an indicator of short-term revenue performance, it is not necessarily a reliable indicator of medium or long-term revenue performance.

Costs and Expenses

Year Ended October 31,

2020 over 2019

2019 over 2018

Gross margin on products

Gross margin on services and other

Total gross margin

Operating margin

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

Gross margin on products 62.4 % 60.0 % 59.5 % 2 ppts 1 ppt

Gross margin on services and other 60.7 % 60.0 % 56.0 % 1 ppt 4 ppts

Total gross margin 62.1 % 60.0 % 58.9 % 2 ppts 1 ppt

Operating margin 21.9 % 18.1 % 16.5 % 4 ppts 2 ppts

(in millions)

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Selling, general and administrative $ 1,195 $ 1,097 $ 1,155 9% (5)%

Goodwill impairment

Other operating expense (income), net $ (17) $ (44) $ (20) (61)% 118%

Gross margin increased 2 percentage points in 2021 compared to 2020, primarily driven by lower amortization of acquisition-related balances and higher revenue volume, partially offset by higher variable people-related costs.

Gross margin increased 1 percentage point in 2020 compared to 2019, primarily driven by favorable mix and lower variable compensation, partially offset by lower revenue volume due to the impact of site closures and supply chain disruptions.

Gross margin increased 5 percentage points in 2019 compared to 2018, primarily driven by higher revenue volume, highly differentiated solutions, favorable mix and a decline in warranty costs.

Excess and obsolete inventory charges were $27 million in 2021, $29 million in 2020 and $27 million in 2019.

Sales of previously written-down inventory were $2 million in each of 2020, 2019 and 2018.

Research and development expense increased 4 percent in 2020 compared to 2019, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies, and incremental costs of acquired businesses, partially offset by declines in variable compensation and a reduction in discretionary spending due to COVID-19 related restrictions.

Research and development expense increased 10 percent in 2019 compared to 2018, primarily driven by greater investments in key growth opportunities in our end markets, leading-edge technologies, people and infrastructure.

Research and development expense as a percent of total revenue was 17 percent in 2020 and 16 percent in each of 2019 and 2018.

Selling, general and administrative expenses decreased 5 percent in 2020 compared to 2019, primarily driven by declines in travel and marketing-related costs due to COVID-19 related restrictions, and variable and other people-related costs, partially offset by incremental costs of acquired businesses.

Selling, general and administrative expenses decreased 4 percent in 2019 compared to 2018, primarily driven by declines in litigation, restructuring, and acquisition and integration costs, partially offset by an increase in people-related costs.

In 2018 we recorded a goodwill impairment charge of $709 million related to the Ixia acquisition based on the results of our annual impairment test of goodwill.

See Note 11, "Goodwill and Other Intangible Assets," to our consolidated financial statements for additional information.

Research and development expense increased 13 percent in 2021 compared to 2020, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies, increase in variable people-related costs and incremental costs of acquired businesses.

Selling, general and administrative expenses increased 9 percent in 2021 compared to 2020, primarily driven by increases in variable and other people-related costs, infrastructure-related costs and incremental costs of acquired businesses, partially offset by reductions in travel and marketing-related costs due to COVID-19 related disruptions.

Selling, general and administrative expenses decreased 5 percent in 2020 compared to 2019, primarily driven by declines in travel and marketing-related costs due to COVID-19 related disruptions, and variable and other people-related costs, partially offset by incremental costs of acquired businesses.

Other operating expense (income), net was income of $17 million, $44 million and $20 million for 2021, 2020 and 2019, respectively.

Other operating expense (income), net for 2020 includes a gain of $32 million due to a final insurance settlement related to damage from the 2017 northern California wildfires.

Other operating expense (income), net for 2018 also includes income from business divestitures.

Operating margin increased 2 percentage points in 2020 when compared to 2019, primarily driven by favorable revenue mix, declines in travel and marketing-related costs due to COVID-19 related restrictions, and variable compensation, partially offset

by lower revenue volume.

Operating margin increased 27 percentage points in 2019 when compared to 2018, primarily driven by a non-recurring goodwill impairment charge in 2018, higher revenue volume, highly differentiated solutions, favorable mix, lower acquisition and integration costs, and lower litigation and restructuring-related costs, partially offset by an increase in people-related costs.

Our headcount was approximately 13,900 at October 31, 2020 compared to 13,600 at October 31, 2019.

The increase in headcount was primarily driven by acquisitions.

Other operating expense (income), net for 2020 includes a one-time gain of $32 million on an insurance settlement.

Operating margin increased 4 percentage points in 2021 when compared to 2020, primarily driven by gross margin gains and lower operating expenses as a percentage of sales.

Operating margin increased 2 percentage points in 2020 when compared to 2019, primarily driven by favorable revenue mix, declines in travel and marketing-related costs due to COVID-19 related disruptions, and variable compensation, partially offset by lower revenue volume.

Our headcount was approximately 14,300 at October 31, 2021 compared to approximately 13,900 at October 31, 2020.

Interest Income and Expense

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Other income (expense), net

Other income (expense), net for 2020, 2019 and 2018 was income of $63 million, $61 million and $54 million, respectively, and primarily includes income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets and amortization of net actuarial loss and prior service credits) and the change in fair value of our equity investments.

Other income (expense), net for 2021, 2020 and 2019 was income of $6 million, $63 million and $61 million, respectively, and primarily includes income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial loss and prior service credits, and gains (losses) on settlements and curtailments) and the change in fair value of our equity investments.

The decrease in net other income for 2021 when compared to 2020 was driven by a $16 million loss on partial settlement of our Netherlands defined benefit plan and higher amortization of net actuarial

We also recognized gains from insurance proceeds of $9 million and $15 million for the years ended October 31, 2020 and 2019, respectively.

Year Ended October 31,

2021 2020 2019

(in millions)

Provision (benefit) for income taxes

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

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 to a higher percentage of earnings in the non-U.S.

jurisdictions taxed at lower statutory tax 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.

Provision for income taxes $ 116 $ 134 $ 94

Effective tax rate 11 % 18 % 13 %

The effective tax rate was 11 percent, 18 percent, and 13 percent for 2021, 2020 and 2019, respectively.

The tax rate in each of these years was lower than the U.S.

statutory rate primarily due to the proportion of worldwide earnings that are taxed at lower statutory tax rates in non-U.S.

jurisdictions.

The decrease in the effective tax rate from 2020 to 2021 is due to a change in the jurisdictional mix of non-U.S.

earnings offset by an increase in U.S.

taxes on non-U.S.

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

statutory rate primarily due to the net impact of U.S.

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.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore, that have granted us tax incentives that require renewal at various times in the future.

earnings, a decrease due to the release of valuation allowance on Netherlands net operating losses in 2021, and a decrease due to the 2021 actual tax impact of acquired entity integration as compared to the estimate at acquisition based on the finalization of the integration plan.

The increase in the effective tax rate from 2019 to 2020 is primarily due to the 2019 benefit from a release of tax reserves.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that have granted us tax incentives that require renewal at various times in the future.

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 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 Singapore tax incentive is due for renewal in 2024, and the Malaysia incentive is due for renewal in 2025.

The impact of the tax incentives decreased income taxes by $70 million, $53 million and $47 million in 2021, 2020 and 2019, respectively.

The decrease in the tax benefit from 2018 to 2019 is primarily due to the one-time impacts of the Singapore restructuring and tax incentive modifications that were completed in 2018 in response to Singapore tax law changes.

The increase in tax benefit from 2020 to 2021 is primarily due to a change in the jurisdictional mix of non-U.S.

earnings, which increased the earnings taxed at incentive tax rates in 2021.

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

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and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due.

The ultimate resolution of tax uncertainties may differ from what is currently estimated, which could result in a material impact on income tax expense.

If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required.

If the payment of these additional amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the

period when we determine the liabilities are no longer necessary.

We include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations.

Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

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.

At this time, management does not believe that the outcome of any future or currently ongoing examination will have a material impact on our consolidated financial statements.

We believe that we have an adequate provision for any adjustments that may result from tax examinations.

However, the outcome of tax examinations cannot be predicted with certainty.

If the resolution of any tax issues that arise in any future or currently ongoing examinations are inconsistent with management’s expectations, we may be required to adjust our tax provision for income taxes in the period in which such resolution occurs.

The open tax years for the U.S.

federal income tax return and most state income tax returns are from November 1, 2017 through the current tax year.

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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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.

Keysight’s fiscal year 2018 U.S.

federal income tax return is currently under examination by the Internal Revenue Service.

The Tax Cuts and Jobs Act was enacted in December 2017 and imposed a one-time U.S.

tax on foreign earnings not previously repatriated to the U.S., known as the Transition Tax, which was reported in Keysight’s 2018 U.S.

federal income tax return.

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

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

However, pursuant to the agreement between Agilent and Keysight pertaining to tax matters, as 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 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.

This tax year predates our separation from Agilent.

However, 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 2017, Keysight paid income taxes and penalties of $68 million on gains related to intellectual property rights.

Our appeals to both the Special Commissioners of Income Tax and the High Court in Malaysia have been unsuccessful.

We have filed a Notice of Appeal with the Court of Appeal.

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

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Segment Overview

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

Prior period segment results have been revised to conform to the current presentation.

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, pension curtailment and settlement loss (gain), Northern California wildfire-related impacts, goodwill impairment, legal settlement, gain on divestitures, interest income, interest expense and other items.

We have two reportable operating segments, the Communications Solutions Group and the Electronic Industrial Solutions Group.

The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, a gain on an insurance settlement related to northern California wildfires, restructuring costs, interest income, interest expense and other items.

Communications Solutions Group

2 unchanged sentences

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

Prior period amounts have been revised to conform to our new organizational structure described previously in the Segment Overview.

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

(in millions)

Total revenue $ 3,523 $ 3,132 $ 3,177 12% (1)%

Communications Solutions Group revenue for 2020 decreased 1 percent when compared to 2019 and declined 2 percent excluding the impact of acquisitions.

Communications Solutions Group revenue for 2021 increased 12 percent when compared to 2020.

Foreign currency movements and acquisitions each contributed 1 percentage point to the revenue growth for 2021 when compared to 2020.

Revenue grew in both the aerospace, defense and government and the commercial communications markets driven by strong demand for our products and differentiated solutions.

Revenue grew across all regions driven by strength in the Americas and Europe.

Communications Solutions Group revenue for 2020 decreased 1 percent when compared to 2019.

Foreign currency movements had an immaterial impact on the year-over-year comparison.

Revenue associated with acquisitions had a 1 percentage point favorable impact on revenue for 2020 when compared to 2019.

Revenue declined in the aerospace, defense and government market, while remaining flat in the commercial communications market, primarily driven by temporary site closures and supply chain disruptions due to the impact of the COVID-19 pandemic.

For 2020, foreign currency movements had an immaterial impact on revenue.

Revenue decline in the Americas and Europe was partially offset by growth in Asia Pacific.

Communications Solutions Group revenue in 2019 increased 12 percent when compared to 2018, and increased 12 percent excluding the net impact of acquisitions and divestitures.

Revenue increased due to strong growth in the commercial communications market, while the aerospace, defense and government market was flat.

For 2019, foreign currency movements had an unfavorable impact of 1 percentage point on revenue.

Revenue growth in Asia Pacific and the Americas was partially offset by a decline in Europe.

Revenue from the commercial communications market represented approximately 70 percent of total Communications Solutions Group revenue in 2020 and was flat year over year, with growth in Asia Pacific offset by declines in the Americas and

Revenue from the commercial communications market represented approximately 68 percent of total Communications Solutions Group revenue in 2021 and increased 8 percent as compared to 2020, with growth in the Americas and Europe, partially offset by a decline in Asia Pacific.

The revenue growth was driven by improved economic conditions across the communications ecosystem, partially offset by the impact of China trade restrictions.

In 2021, we continue to see investments in 5G, fueled by the ongoing redesign of every aspect of communications systems, including wireless access, infrastructure, wireline technologies, data centers and the cloud.

Revenue from the commercial communications market represented approximately 70 percent of total Communications Solutions Group revenue in 2020 and was flat as compared to 2019, with growth in Asia Pacific offset by declines in the Americas and Europe.

In 2020, revenue remained flat, primarily driven by continued investments in 5G across the design lifecycle from development to deployment, offset by COVID-19 related site closures and supply chain disruptions.

We continue to see investments in 5G, fueled by the ongoing redesign of every aspect of communications systems, including wireless access, infrastructure, wireline technologies, data centers and the cloud.

Revenue from the commercial communications market represented approximately 69 percent of total Communications Solutions Group revenue in 2019 and increased 18 percent year over year, with growth in Asia Pacific and the Americas, partially offset by a decline in Europe.

In 2019 revenue growth was primarily driven by increased 5G investment across the wireless ecosystem and growth in data-center-related next-generation 400 gigabit Ethernet and higher digital test.

Revenue from the aerospace, defense and government market represented approximately 30 percent of total Communications Solutions Group revenue in 2020 and declined 5 percent year over year, with revenue declining across all regions.

The revenue decline was primarily driven by COVID-19 related site closures and supply chain disruptions, and by lower investment in Europe and Asia.

We continue to see strength for our electromagnetic spectrum threat simulation platform, as well as solutions for radar, space, satellite and 5G.

Revenue from the aerospace, defense and government market represented approximately 31 percent of total Communications Solutions Group revenue in 2019 and was flat when compared to 2018.

In 2019 revenue grew in the Americas and Asia Pacific, partially offset by a decline in Europe.

Revenue from the aerospace, defense and government market represented approximately 32 percent of total Communications Solutions Group revenue in 2021 and increased 23 percent as compared to 2020, with revenue growing across all regions.

The strong revenue growth was driven by increased customer demand and continued investment in space, satellite, electromagnetic spectrum operations, and new commercial technologies like 5G and early 6G research applications.

Revenue from the aerospace, defense and government market represented approximately 30 percent of total Communications Solutions Group revenue in 2020 and declined 5 percent as compared to 2019, with revenue declining across all regions.

The revenue decline was primarily driven by COVID-19 related site closures and supply chain disruptions, and by lower investment in

Europe and Asia.

We continue to see strength for our electromagnetic spectrum simulation platform, as well as solutions for radar, space, satellite and 5G.

Gross Margin and Operating Margin

The following table provides Communications Solutions Group margins, expenses and income from operations for 2021 versus 2020, and 2020 versus 2019.

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

Total gross margin

Operating margin

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

Total gross margin 65.3 % 65.2 % 64.0 % — 1 ppt

Operating margin 26.5 % 24.7 % 23.4 % 2 ppts 1 ppt

(in millions)

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Income from operations $ 932 $ 773 $ 743 20% 4%

Gross margin for the Communications Solutions Group in 2021 was flat as compared to 2020, as gains driven by higher revenue volume were offset by higher variable people-related costs.

Gross margin for the Communications Solutions Group in 2020 increased 1 percentage point compared to 2019, primarily driven by favorable revenue mix and highly differentiated solutions, partially offset by lower revenue volume due to COVID-19 related site closures and supply chain disruptions.

Gross margin for the Communications Solutions Group in 2019 increased 3 percentage points compared to 2018, primarily driven by higher revenue volume, highly differentiated solutions, favorable mix and lower warranty costs, partially offset by increases in infrastructure-related costs.

Research and development expense in 2020 increased 4 percent when compared to 2019, primarily driven by greater investment in key growth opportunities in our end markets and leading-edge technologies, incremental costs of acquired businesses and increases in infrastructure-related costs, partially offset by declines in variable compensation and travel costs due to COVID-19 related restrictions.

Research and development expense in 2019 increased 10 percent when compared to 2018, driven by greater investments in key growth opportunities in our end markets, leading-edge technologies, infrastructure and people.

Selling, general and administrative expense in 2020 decreased 5 percent when compared to 2019, driven by declines in variable compensation and a reduction in discretionary spending due to COVID-19 related restrictions, lower infrastructure-related costs and lower marketing costs, partially offset by incremental costs of acquired businesses.

Selling, general and administrative expense in 2019 was flat when compared to 2018, as higher marketing-related investments were offset by declines in selling costs.

Research and development expense in 2021 increased 11 percent when compared to 2020, driven by greater investments in key growth opportunities in our end markets and leading-edge technologies, higher variable people-related costs, infrastructure-related costs and incremental costs of acquired businesses.

Selling, general and administrative expense in 2021 increased 6 percent when compared to 2020, primarily driven by higher infrastructure-related, selling and variable people-related costs.

Selling, general and administrative expense in 2020 decreased 5 percent when compared to 2019, driven by declines in variable compensation and a reduction in discretionary spending due to COVID-19 related disruptions, lower infrastructure-related costs and lower marketing costs, partially offset by incremental costs of acquired businesses.

Other operating expense (income), net, primarily includes property rental income and was income of $12 million in 2021, $9 million in 2020 and $11 million in 2019.

Income from Operations

Income from operations for 2021 increased $159 million on a corresponding revenue increase of $391 million.

Income from operations for 2020 increased $30 million on a corresponding revenue decline of $45 million.

Income from operations for 2019 increased $253 million on corresponding revenue growth of $334 million.

Operating margin in 2021 increased 2 percentage points when compared to 2020, driven by gross margin gains from higher revenue volume and lower selling, general and administrative expenses as a percentage of sales.

Operating margin in 2020 increased 1 percentage point when compared to 2019, driven by favorable mix and highly differentiated solutions, while selling, general and administrative expense declined.

Operating margin in 2019 increased 6 percentage points when compared to 2018, driven by higher revenue volume, highly differentiated solutions, cost synergies resulting from the Ixia integration and favorable mix, while selling, general and administrative expense was flat.

Electronic Industrial Solutions Group

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, 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 and machine learning to automatically identify, build and execute tests most critical to digital business success and a strong customer experience.

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

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 industries and measurement solutions for consumer electronics, education, general electronics design and manufacturing, and semiconductor design and manufacturing.

The group provides electronic measurement instruments, design and test software and systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment, and automated test software that uses artificial intelligence and machine learning to automate test creation and test execution.

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

(in millions)

Total revenue $ 1,418 $ 1,089 $ 1,135 30% (4)%

Electronic Industrial Solutions Group revenue for 2020 decreased 4 percent when compared to 2019 and declined 5 percent excluding the impact of acquisitions.

Electronic Industrial Solutions Group revenue for 2021 increased 30 percent when compared to 2020.

Foreign currency movements had a favorable impact of 1 percentage point on revenue.

Revenue associated with acquisitions contributed 2 percentage points to the revenue growth for 2021 when compared to 2020.

The revenue increase was driven by growth in semiconductor measurement solutions, general electronics measurement and automotive and energy, led by ongoing investments in advanced technology nodes, EV and AV technologies and capacity expansions to address demand.

We continue to see investments in next-generation semiconductor and new mobility technologies and growth in general electronics measurement.

Revenue grew across all regions for 2021 as compared to 2020.

Electronic Industrial Solutions Group revenue for 2020 decreased 4 percent when compared to 2019.

For 2020, foreign currency movements had an immaterial impact on revenue.

Revenue associated with acquisitions had a favorable impact of 1 percentage point on the year-over-year growth.

The revenue decline was primarily driven by temporary site closures and supply chain disruptions due to the impact of the COVID-19 pandemic.

1 unchanged sentence

Revenue declined across all regions for 2020 compared to 2019.

Electronic Industrial Solutions Group revenue for 2019 increased 6 percent when compared to 2018.

For 2019, foreign currency movements had an unfavorable impact of 1 percentage point on revenue.

The revenue increase was primarily driven by strong growth in general electronics solutions and automotive and energy, while semiconductor measurement solutions remained flat when compared to 2018.

Revenue grew across all regions.

Gross Margin and Operating Margin

The following table provides Electronic Industrial Solutions Group margins, expenses and income from operations for 2021 versus 2020, and 2020 versus 2019.

Year Ended October 31,

2020 over 2019 % Change

2019 over 2018 % Change

Total gross margin

Operating margin

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

Total gross margin 64.2 % 62.7 % 61.1 % 2 ppts 2 ppts

Operating margin 31.3 % 27.1 % 25.9 % 4 ppts 1 ppt

(in millions)

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Income from operations $ 444 $ 296 $ 294 50% 1%

Gross margin in 2021 increased 2 percentage points as compared to 2020, primarily driven by higher revenue volume and favorable mix.

Gross margin in 2020 increased 2 percentage points as compared to 2019, primarily driven by favorable mix, partially offset by lower revenue volume due to temporary COVID-19 related site closures and supply chain disruptions.

Gross margin in 2019 increased 2 percentage points as compared to 2018, primarily driven by higher revenue volume, highly differentiated solutions, favorable mix and lower warranty costs.

Research and development expense in 2020 increased 4 percent when compared to 2019, primarily driven by greater investment in key growth opportunities in our end markets and leading-edge technologies and addition of incremental costs of acquired businesses, partially offset by declines in variable compensation and travel costs due to COVID-19 related restrictions.

and development expense in 2019 increased 10 percent when compared to 2018, primarily driven by continued investments in key growth opportunities in our end markets, leading-edge technologies and infrastructure.

Selling, general and administrative expense in 2020 decreased 8 percent when compared to 2019, primarily due to lower selling, infrastructure-related and marketing-related costs and reduced travel costs due to COVID-19 related restrictions, partially offset by incremental costs of acquired businesses.

Selling, general and administrative expense in 2019 was flat when compared to 2018, as increases in marketing-related investments and selling costs were offset by decreases in infrastructure-related costs.

Other operating expense (income), net primarily includes property rental income and was income of $4 million in each of 2020, 2019 and 2018.

Research and development expense in 2021 increased 20 percent when compared to 2020, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies, incremental costs of an acquired business and higher variable people-related costs.

Research and development expense in 2020 increased 4 percent when compared to 2019, primarily driven by greater investment in key growth opportunities in our end markets and leading-edge technologies and addition of incremental costs of acquired businesses, partially offset by declines in variable compensation and travel costs due to COVID-19 related disruptions.

Selling, general and administrative expense in 2021 increased 21 percent when compared to 2020, primarily due to incremental costs of an acquired business, higher selling costs, higher infrastructure-related costs and variable people-related costs.

Selling, general and administrative expense in 2020 decreased 8 percent when compared to 2019, primarily due to lower selling, infrastructure-related and marketing-related costs and reduced travel costs due to COVID-19 related disruptions, partially offset by incremental costs of acquired businesses.

Other operating expense (income), net primarily includes property rental income and was income of $5 million in 2021 and $4 million in both 2020 and 2019.

Income from Operations

Income from operations for 2021 increased $148 million on a corresponding revenue increase of $329 million.

Income from operations for 2020 increased $2 million on a corresponding revenue decline of $46 million.

Income from operations for 2019 increased $49 million on corresponding revenue growth of $64 million.

Operating margin increased 1 percentage point in 2020 compared to 2019, primarily driven by favorable mix and lower operating expenses due to COVID-19 related restrictions, partially offset by a decline in revenue volume.

Operating margin increased 3 percentage points in 2019 compared to 2018, driven by higher revenue volume, highly differentiated solutions and favorable mix, while selling general and administrative expenses remained flat.

Operating margin increased 4 percentage points in 2021 compared to 2020, primarily driven by gross margin gains from higher revenue volume and favorable mix and lower operating expenses as a percentage of sales.

Operating margin increased 1 percentage point in 2020 compared to 2019, primarily driven by favorable mix and lower operating expenses due to COVID-19 related disruptions, partially offset by a decline in revenue volume.

Financial Condition

Liquidity and Capital Resources

Our financial position as of October 31, 2020 consisted of cash, cash equivalents and restricted cash of $1,767 million as compared to $1,600 million as of October 31, 2019.

As of October 31, 2020, approximately $1,054 million of our cash, cash equivalents and restricted cash was held outside of the U.S.

in our foreign subsidiaries.

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.

We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Most significant international locations have access to internal funding through an offshore cash pool for working capital needs.

In addition, a few locations that are unable to access internal funding have access to temporary local overdraft and short-term working capital lines of credit.

Although recent disruption and volatility in global capital markets due to the ongoing COVID-19 pandemic has not had a significant impact on our financial position, liquidity, and ability to meet our debt covenants, we continue to monitor the capital markets and general global economic conditions.

Given the uncertainty of the duration or severity of the pandemic, we have taken proactive measures to reduce costs and preserve liquidity, while supporting our customers and advancing key projects.

These measures include a temporary hiring freeze and other discretionary spending, along with lower variable compensation and a reduction in outsourced manufacturing costs, enabled by our flexible cost structure.

Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets.

Our cash balances are generated and held in many locations throughout the world.

Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances.

Under certain circumstances, local government regulations may limit our ability to move cash balances to meet cash needs.

We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout our global organization.

We believe our cash and cash equivalents, cash generated from operations, and ability to access capital markets and credit lines will satisfy, for at least the next twelve months, our liquidity requirements, both globally and domestically, including the following:

working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

Cash generated from our operations provides our primary source of cash flows.

In addition, we utilized certain provisions of The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was enacted by the U.S.

Government to provide additional short-term liquidity, including relief from employer payroll tax remittance, and expect to continue utilizing these benefits through calendar year 2020.

Given the uncertain duration and severity of the COVID-19 pandemic, we could experience significant fluctuations in our future cash from operations from the ongoing impacts of the pandemic because of the adverse global macroeconomic environment and our customers ability to pay.

For further discussion of risks related to the COVID-19 pandemic on our operations, business results and financial condition, see “Item 1A.

Risk Factors.”

Overview of Cash Flows

Our key cash flow activities were as follows:

Year Ended October 31

2021 2020 2019

(in millions)

Net cash provided by operating activities $ 1,322 $ 1,016 $ 998

Cash flows from operating activities can fluctuate significantly from period to period as working capital needs and the timing of payments for income taxes, restructuring activities, pension funding, variable pay and other items impact reported cash flows.

Net cash provided by operating activities was $1,016 million for the year ended October 31, 2020 as compared to $998 million provided in 2019 and $555 million provided in 2018.

Net cash used in investing activities $ (353) $ (442) $ (196)

Net cash used in financing activities $ (671) $ (413) $ (122)

Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period as working capital needs, the timing of payments for income taxes, variable pay, pension funding, and other items impact reported cash flows.

Net cash provided by operating activities increased by $306 million in 2021 as compared to 2020 and increased $18 million in 2020 as compared to 2019.

• Net income in 2021 increased $267 million as compared to 2020.

Non-cash adjustments to net income were lower by $54 million, primarily due to a $94 million increase in deferred tax benefits and a $46 million decrease in amortization, partially offset by a one-time prior-period gain of $32 million related to an insurance recovery of property, plant and equipment reflected as cash from investing activity, a $16 million loss on a partial settlement of our Netherlands defined benefit plan, a $13 million increase in depreciation, a $11 million increase in share-based compensation expense, and a $14 million increase from other miscellaneous non-cash activities.

Net income in 2020 increased by $6 million as compared to 2019.

Non-cash adjustments in 2020 increased $34 million compared to 2019, primarily due to a $43 million increase in deferred tax expense, a $10 million increase in share-based compensation expense, a $10 million increase in amortization expense and an $8 million increase in depreciation expense, partially offset by an adjustment for a $32 million gain from an insurance settlement related to damage from the 2017 northern California wildfires, which is reflected in investing activities, and a $7 million decrease from other miscellaneous non-cash activities.

Net income in 2019 increased by $456 million as compared to 2018.

Non-cash adjustments in 2019 increased $102 million compared to 2018, driven by a $787 million decrease in deferred tax benefits due to the 2018 impact of U.S.

and Singapore tax law changes and the tax impact of goodwill impairment, a $23 million increase in share-based compensation expense, a $19 million reduction in the gain on sales of assets and divestitures and a $5 million increase in amortization expense, partially offset by a $709 million reduction in the goodwill impairment, a $7 million decrease in depreciation expense and a $16 million decrease from other miscellaneous non-cash activities.

• The aggregate of accounts receivable, inventory and accounts payable used net cash of $112 million during 2021, compared to net cash used of $31 million in 2020 and $105 million in 2019.

The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends on the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period.

The aggregate of employee compensation and benefits, income taxes payable, deferred revenue, and other assets and liabilities provided net operating cash of $82 million during 2020 as compared to net cash provided of $107 million and $335 million in 2019 and 2018, respectively.

The difference between 2020 and 2019 activities is primarily due to lower cash inflow from deferred revenue, partially offset by an increase in deferred payroll taxes of $21 million and increase in cash from income taxes payable as compared to the same period last year.

The difference between 2019 and 2018 activities is primarily driven by an increase in income taxes payable due to the establishment of a long-term transition tax liability resulting from U.S.

tax legislation that was enacted in 2018 and higher variable compensation payments, partially offset by lower cash outflow for fire-related recovery.

In 2020, 2019 and 2018, we received insurance proceeds of $5 million, $37 million and $94 million, respectively, associated with recovery from the 2017 northern California wildfires and a 2016 Singapore warehouse fire.

Net cash used for retirement and post-retirement benefits was $108 million, $37 million and $127 million in 2020, 2019 and 2018, respectively.

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

Defined Benefit Plan compared to zero in 2019 and $85 million in 2018.

We contributed $10 million to our non-U.S.

defined benefit plans in 2020 compared to $26 million in 2019 and $33 million in 2018.

• Net cash provided for retirement and post-retirement benefits was $7 million in 2021, compared to net cash used of $108 million and $37 million in 2020 and 2019, respectively.

The company's contributions to our U.S.

Defined Benefit

Plan were zero, $100 million and zero in 2021, 2020 and 2019, respectively.

The company's contributions to our non-U.S.

defined benefit plans were $8 million, $10 million and $26 million in 2021, 2020 and 2019, respectively.

We did not contribute to the Keysight Technologies, Inc.

1 unchanged sentence

Post-Retirement Benefit Plan") in 2021, 2020 and 2019.

Net Cash Used in Investing Activities

Net cash used in investing activities was $442 million, $196 million and $108 million in 2020, 2019 and 2018, respectively.

Investments in property, plant and equipment were $117 million, $120 million and $132 million in 2020, 2019 and 2018, respectively.

Capital spending in 2019 and 2018 includes $7 million and $27 million, respectively, related to recovery from the 2017 northern California wildfires.

In 2020 we paid $319 million, net of $11 million of cash acquired, for the acquisition of Eggplant Topco Limited ("Eggplant"), a software test automation platform provider that uses artificial intelligence and analytics to automate test creation and test execution and we used $38 million to acquire two other businesses, partially offset by $32 million of insurance proceeds for property, plant and equipment damaged in the 2017 northern California wildfires.

In 2019 we paid $88 million, net of $56 million of cash acquired, for the acquisition of Prisma Telecom Testing, a global provider of radio access network test solutions.

We also received $7 million of proceeds from the sale of investments and $2 million from divestitures.

In 2018 we paid $5 million for acquisitions and received proceeds of $29 million from divestitures.

Net Cash Used in Financing Activities

Net cash used in financing activities was $413 million in 2020 compared to $122 million used in 2019 and $341 million used in 2018.

In 2020 we used net cash of $413 million primarily for $411 million of treasury stock purchases, which nearly exhausted our $500 million share repurchase authorization from May 2019, $53 million of tax payments related to net share settlement of equity awards and $7 million repayment of short-term debt, partially offset by proceeds from issuance of common stock under employee stock plans of $58 million.

In 2019 we used net cash of $122 million, primarily for a $500 million repayment of short-term debt, $159 million for treasury stock purchases and $26 million of tax payments related to net share settlement of equity awards, partially offset by proceeds from issuance of long-term debt of $496 million, net of issuance costs, and $67 million from issuance of common stock under employee stock plans.

In 2018 we used $341 million for financing activities, primarily for a $260 million repayment of term loan borrowings, $120 million for treasury stock purchases, $18 million of tax payments related to net share settlement of equity awards and $6 million for acquisition-related contingent consideration, partially offset by proceeds of $64 million from issuance of common stock under employee stock plans.

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.

• The aggregate other movements in assets and liabilities provided net cash of $141 million during 2021, compared to net cash provided of $82 million in 2020 and $107 million in 2019.

The difference between 2021 and 2020 activities is primarily due to higher variable compensation accruals, net of payments, and higher cash inflow from deferred revenue, partially offset by an increase in prepaid current assets as compared to the same period last year.

In 2020 and 2019, we received insurance proceeds of $5 million and $37 million, respectively, associated with recovery from the 2017 northern California wildfires and a 2016 Singapore warehouse fire.

Investing Activities

Net cash changes in investing activities primarily relates to investments in property, plant and equipment and acquisitions of businesses to support our growth.

Net cash used in investing activities decreased by $89 million in 2021 as compared to 2020 and increased by $246 million in 2020 as compared to 2019.

Investments in property, plant and equipment increased $57 million as compared to 2020 and decreased $3 million in 2020 as compared to 2019.

The increase in capital spending in 2021 was driven by capital investments to increase the resiliency of our supply chains.

In 2021, we used $353 million for investing activities, including $174 million for purchases of property, plant and equipment;

$102 million, net of $11 million of cash acquired, for the acquisition of Sanjole Inc., a leader in wireless test and measurement solutions for protocol decoding and interoperability;

and $76 million, net of cash acquired, for other acquisition activities.

In 2020, we used $442 million for investing activities, including $117 million for purchases of property, plant and equipment;

$319 million, net of $11 million of cash acquired, for the acquisition of Eggplant Topco Limited ("Eggplant"), a software test automation platform provider that uses artificial intelligence and machine learning to automate test creation and test execution;

and $38 million, net of cash acquired, for other acquisition activities;

partially offset by receipt of insurance proceeds of $32 million for property, plant and equipment damaged in the 2017 northern California wildfires.

In 2019, we used $196 million for investing activities, including $120 million for purchases of property, plant and equipment;

$88 million, net of $56 million of cash acquired, for the acquisition of Prisma Telecom Testing, a global provider of radio access network test solutions;

partially offset by receipt of $7 million from the sale of investments and $2 million from divestitures.

Financing Activities

Net cash changes in financing activities primarily relates to proceeds from issuance of common stock under employee stock plans, tax payments related to net share settlement of equity awards and treasury stock repurchases.

Net cash used in financing activities increased by $258 million in 2021 as compared to 2020 and increased by $291 million in 2020 as compared to 2019.

The incremental increases were primarily due to high treasury stock repurchases.

In 2021, we used $671 million for financing activities, primarily due to $673 million of treasury stock repurchases and $53 million of tax payments related to net share settlement of equity awards, partially offset by $59 million of proceeds from issuance of common stock under employee stock plans.

In 2020, we used $413 million for financing activities, primarily due to $411 million of treasury stock repurchases and $53 million of tax payments related to net share settlement of equity awards and $7 million of payments on short-term debt, partially offset by $58 million of proceeds from issuance of common stock under employee stock plans.

In 2019, we used $122 million for financing activities, primarily due to $500 million of payments on short-term debt, $159 million of treasury stock repurchases and $26 million or tax payments related to net share settlement of equity awards, partially offset by $496 million of proceeds from issuance of long-term debt, net of issuance costs, and $67 million from issuance of common stock under employee stock plans.

Treasury stock repurchases

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

On November 18, 2021, our board of directors approved a new stock repurchase program authorizing the purchase of up to $1,200 million of the company’s common stock, replacing the previously approved November 2020 program, under which $77 million remained.

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.

See "Issuer Purchases of Equity Securities" under Item 5 for additional information.

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.

Short-Term Debt

See "Issuer Purchases of Equity Securities" under Part II Item 2 for additional information.

October 31, 2021 October 31, 2020

(in millions)

Total debt (par value) $ 1,800 $ 1,800

Revolving credit facility $ 750 $ 450

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 percent.

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.

On July 30, 2021, we entered into a new credit agreement that amended and restated our existing credit agreement dated February 15, 2017 in its entirety, and provides for a $750 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”) that will expire on July 30, 2026 and bears interest at an annual rate of LIBOR + 1 percent along with a facility fee of 0.125 percent per annum.

In addition, the new credit agreement permits the company, subject to certain customary conditions, on one or more occasions to request to increase the total commitments under the Revolving Credit Facility by up to $250 million in the aggregate.

We may use amounts borrowed under the facility for general corporate purposes.

As of October 31, 2020, we had no borrowings outstanding under the Revolving Credit Facility.

As of October 31, 2021 and October 31, 2020, we had no borrowings outstanding under the Revolving Credit Facility.

We were in compliance with the covenants of the Revolving Credit Facility during the year ended October 31, 2021.

Long-Term Debt

The below senior notes are unsecured and rank equally in right of payment with all of our other senior unsecured indebtedness.

2024 Senior Notes

In October 2014, the company issued an aggregate principal amount of $600 million in unsecured senior notes ("2024 Senior Notes").

The 2024 Senior Notes were issued at 99.966 percent of their principal amount.

The notes will mature on October 30, 2024, and bear interest at a fixed rate of 4.55 percent per annum.

The interest is payable semi-annually on April 30 and October 30 of each year.

We incurred issuance costs of $5 million in connection with the 2024 Senior Notes that are being amortized to interest expense over the term of the senior notes.

2027 Senior Notes

In April 2017, the company issued an aggregate principal amount of $700 million in unsecured senior notes ("2027 Senior Notes").

The 2027 Senior Notes were issued at 99.873 percent of their principal amount.

The notes will mature on April 6, 2027 and bear interest at a fixed rate of 4.60 percent per annum.

The interest is payable semi-annually on April 6 and October 6 of each year, commencing on October 6, 2017.

We incurred issuance costs of $6 million in connection with the 2027 Senior Notes that, along with the debt discount, are being amortized to interest expense over the term of the senior notes.

2029 Senior Notes

In October 2019, the company issued an aggregate principal amount of $500 million in unsecured senior notes ("2029 Senior Notes").

The 2029 Senior Notes were issued at 99.914 percent of their principal amount.

The notes will mature on October 30, 2029 and bear interest at a fixed rate of 3.00 percent per annum.

The interest is payable semi-annually on April 30 and October 30 of each year, commencing on April 30, 2020.

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.

Contractual Commitments

Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments.

As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.

The following table summarizes our total contractual obligations at October 31, 2020.

The amounts presented in the table do not reflect $144 million of liabilities for uncertain tax positions as of October 31, 2020.

We are unable to accurately predict when these amounts will be realized or released.

However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitations or a tax audit settlement.

Less than one

One to three years

Three to five years

More than five years

See note 11, "Debt" for additional information.

Cash and cash requirements

October 31, 2021 October 31, 2020

(in millions)

Cash, cash equivalents and restricted cash $ 2,068 $ 1,767

$ 1,641 $ 1,054

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 and money market fund asset managers with whom we invest our funds.

We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

Most significant international locations have access to internal funding through an offshore cash pool for working capital needs.

In addition, a few locations that are unable to access internal funding have access to temporary local overdraft and short-term working capital lines of credit.

Cash requirements

We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

W e generally intend to use available cash and funds generated from our operations to meet these cash requirements, but in the event that additional liquidity is required, we may also borrow under our revolving credit facility.

The following table summarizes our short and long-term cash requirements as of October 31, 2021:

Total Due within one

year of October 31, 2021 Due later than one

year of October 31, 2021

(in millions)

Senior notes obligations $ 1,800 $ — $ 1,800

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Operating lease commitments 260 45 215

Finance lease commitments

Commitments to contract manufacturers and suppliers 506 489 17

Retirement plans

US transition tax liability

Employer payroll tax liability

Other purchase commitments 60 60 —

Interest on senior notes.

We have contractual obligations for interest payments on our senior notes.

Interest rates and payment dates are detailed above under "Long-term debt."

Operating leases.

Commitments under operating leases primarily relates to leasehold property.

Other liabilities reflected on our consolidated balance sheet 1,664 958 706

Total $ 4,669 $ 1,627 $ 3,042

Senior notes obligations and interest payments on senior notes.

We have contractual obligations for principal and interest payments on our senior notes.

See note 11, "Debt" for additional information.

Operating lease commitments.

Commitments under operating leases primarily relates to leasehold properties.

See Note 10, "Leases" for additional information.

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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.

In addition to the commitments to contract manufacturers and suppliers referenced above, we record a liability for firm, non-cancellable purchase commitments for quantities in excess of our future demand forecasts consistent with our policy relating to excess inventory.

The liability for our excess firm, non-cancellable purchase commitments was $21 million as of both October 31, 2020 and 2019.

These amounts are included in other accrued liabilities in our consolidated balance sheet.

Retirement plans.

Commitments under the retirement plans relate to expected contributions to be made to our non-U.S.

defined benefit plans for the next year only.

Contributions beyond the next year are impractical to estimate.

We also have benefit payments due under our defined benefit retirement plans and post-retirement benefit plan that are not required to be funded in advance, but are paid in the same period that benefits are provided.

See Item 8-Financial Statements and Supplementary Data, Note 15, "Retirement Plans and Post-Retirement Benefit Plans," for additional information.

transition tax liability.

The obligation for the U.S.

transition tax liability included in other long-term liabilities in our consolidated balance sheet relates to the one-time U.S.

tax on those earnings that have not been previously repatriated to the U.S.

(the “Transition Tax”).

Keysight has elected to pay the Transition Tax over 8 years.

Management's Discussion and Analysis, “Income Taxes,” for additional information on the Transition Tax.

Employer payroll tax liability.

We utilized certain provisions of CARES Act and deferred remittance of payroll taxes of approximately $21 million included in other long-term liabilities in our consolidated balance sheet.

We further expect to defer approximately $6 million through December 2020.

See note 14, "Commitments and contingencies." As of October 31, 2021, we had non-cancellable purchase commitments that aggregated to approximately $444 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.

Off Balance Sheet Arrangements and Other

As of October 31, 2020, we had no material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

See note 14, "Commitments and Contingencies."

Other liabilities.

Other liabilities primarily includes contract liabilities, net pensions and post-retirement benefit obligations, employee compensation and benefits, net tax liabilities, standard warranties and other accrued liabilities.

The timing of cash flows associated with these obligations is based upon management’s estimates over the terms of these arrangements and is largely based upon historical experience.

Of the tax liabilities included in the above table, $66 million relates to a U.S.

transition tax liability and $160 million for uncertain tax positions.

transition tax liability, which Keysight has elected to pay over 8 years, relates to a one-time U.S.

tax on those earnings that have not been previously repatriated to the U.S.

With regard to the $160 million of long-term liabilities for uncertain tax positions, we are unable to accurately predict when these amounts will be realized or released.

However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to a tax audit settlement or some other unforeseeable event.

See note 5 “Income taxes” for additional information.

In addition to the obligations noted above, as of October 31, 2021 we had $40 million of outstanding letters of credit and surety bonds unrelated to the credit facility that were issued by various lenders.

For the next twelve months, we do not expect to contribute to our U.S.

defined benefit plan and U.S.

post-retirement benefit plan, and we expect to contribute $12 million to our non-U.S.

defined benefit plans.

The ultimate amounts we will contribute depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.

See note 12, "Retirements plans and post-retirements benefits."

Additionally, we expect capital spending to be between approximately $240 million and $260 million in 2022, with increasing capacity and technology investments.

As of October 31, 2021, we believe our cash and cash equivalents, cash generated from operations, and our ability to access capital markets and credit lines will satisfy our cash needs for the foreseeable future both globally and domestically.

Critical Accounting Policies and Estimates

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Although these estimates are based on management's best 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.

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, 2021.

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Transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services.

Our contracts may include terms that could cause variability in the

transaction price including rebates, rights of return, trade-in credits, and discounts.

Our contracts may include terms that could cause variability in the transaction price including rebates, rights of return, trade-in credits, and discounts.

Variable consideration is generally accounted for at the portfolio level and estimated based on historical information.

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We account 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.

The fair value of share-based awards for employee stock option awards was estimated using the Black-Scholes option pricing model.

Awards granted under the Keysight Technologies, Inc.

Long-Term Performance ("LTP") Program are based on a variety of targets, such as total shareholder return ("TSR") or financial metrics such as operating margin, cost synergies and others.

Long-Term Performance ("LTP") Program are based on a variety of targets, such as total shareholder return ("TSR") or financial metrics such as operating margin.

The awards based on TSR were valued using a Monte Carlo simulation model and those based on financial metrics were valued based on the market price of Keysight’s common stock on the date of grant.

The compensation cost for financial metrics-based performance awards reflect the cost of awards that are probable to vest at the end of the performance period.

Both the Black-Scholes and Monte Carlo simulation fair value models require the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the underlying stock.

The estimated fair value of restricted stock awards is determined based on the market price of Keysight’s common stock on the date of grant.

The Monte Carlo simulation fair value model requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock.

For additional information on valuation assumptions, see Note 4, “Share-Based Compensation.” The estimated fair value of restricted stock awards is determined based on the market price of Keysight’s common stock on the date of grant.

We did not grant any option awards in 2021, 2020 and 2019.

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The discount rate is used to determine the present value of future benefit payments at the measurement date, which is October 31 for both U.S.

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, 2021 and 2020 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, 2021 and 2020 were determined using spot rates along the yield curve to calculate disaggregated discount rates.

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If the carrying amount of a reporting unit exceeds its estimated fair value, then an impairment charge is 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.

In 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.

In 2019 we performed our annual impairment test for all our reporting units.

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

In 2018 we recorded impairment losses of $709 million for our former Ixia Solutions Group.

See Note 11, "Goodwill and Other Intangible Assets," to the consolidated financial statements for additional information.

During the fourth quarter of 2021, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our Eggplant reporting unit, which is included in our EISG 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 Eggplant reporting unit.

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

The market approach used revenue, gross margin and EBITDA multiples to develop an estimate of fair value.

A weighting of 75 percent and 25 percent was applied to the income and market approaches, respectively, to determine the fair value of the Eggplant reporting unit.

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 Eggplant 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.

Other intangible assets consist primarily of developed technologies, proprietary know-how, trademarks, customer relationships, non-compete agreements, and backlog and are amortized using the straight-line method over estimated useful lives ranging from 6 months to 12 years.

We review other intangible 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 Eggplant and our previous Ixia Solutions Group's long-lived assets in 2021 and 2019, respectively, which preceded the quantitative test of goodwill in accordance with the guidance, and concluded that no impairment charge was required.

No impairments of purchased intangible assets were recorded during the years ended October 31, 2021, 2020 and 2019.

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The qualitative factors assist in determining whether it is more-likely-than-not that the indefinite-lived intangible asset is impaired.

An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period

and proceed directly to calculating its fair value.

An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value.

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

In 2021, 2020 and 2019, we assessed impairment by performing a qualitative test.

No impairment of indefinite-lived intangible assets was recorded in 2020 and 2019.

In 2018, we recorded impairment charges of $5 million related to cancellations of IPR&D projects.

No material impairments of indefinite-lived intangible assets were recorded in 2021, 2020 and 2019.

Keysight warranties on products sold through direct sales channels are primarily for one year.

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These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims.

In addition, because most contingencies are resolved over long periods of time, liabilities may change in the future due to various factors.

because most contingencies are resolved over long periods of time, liabilities may change in the future due to various factors.

Changes in these factors could materially impact our financial position or our results of operation.

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We must make certain estimates and judgments in determining income tax expense for financial statement purposes.

These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as interest and penalties related to uncertain tax positions.

These estimates and judgments occur in the calculation of tax benefits, credits and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

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We consider evidence such as our past operating results, the existence of losses in recent years and our forecast of future taxable income.

At October 31, 2020, the company maintains a valuation allowance mainly related to net operating losses in Luxembourg, Netherlands and the U.K., capital losses in the U.K., and California research credits.

At October 31, 2021, the company maintains a valuation allowance mainly related to net operating losses in Luxembourg and the U.K., capital losses in the U.K., and California research credits.

We intend to maintain a valuation allowance in these jurisdictions until sufficient positive evidence exists to support their reversal.

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New Accounting Standards

See Note 2, "New Accounting Pronouncements," to the consolidated financial statements for a description of new accounting pronouncements.

See Note 1, "Overview and summary of significant accounting policies," to the consolidated financial statements for a description of new accounting pronouncements.

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 7. Management’s Discussion and Analysis