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Item 8. Financial Statements and Supplementary Data

2021-12-17 compared with 2020-12-17 · 561 added, 553 removed, 1087 unchanged (51% of the section changed)

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Index to Consolidated Financial Statements Page

Consolidated Financial Statements:

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Notes to Consolidated Financial Statements

Quarterly Summary (unaudited)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Keysight Technologies, Inc.

To the Board of Directors and Stockholders of Keysight Technologies, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Keysight Technologies, Inc.

and its subsidiaries (the “Company”) as of October 31, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended October 31, 2020, including the related notes and financial statement schedule of valuation and qualifying accounts for each of the three years in the period ended October 31, 2020 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of October 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of equity and of cash flows for each of the three years in the period ended October 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended October 31, 2021 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of October 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

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

dispositions of the assets of the company;

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

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

and (iii) provide

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

Critical Audit Matter

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

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plans, respectively, as of October 31, 2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Year Ended October 31,

2021 2020 2019

Products $ 4,050 $ 3,432 $ 3,554

Services and other 891 789 749

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Cost of services and other 350 315 330

Total costs 1,872 1,688 1,769

Research and development 811 715 688

Selling, general and administrative 1,195 1,097 1,155

Goodwill impairment

Other operating expense (income), net ( 17 ) ( 44 ) ( 20 )

Total costs and expenses 3,861 3,456 3,592

Income (loss) from operations

Income from operations 1,080 765 711

Interest income 3 11 23

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Other income (expense), net 6 63 61

Income (loss) before taxes

Provision (benefit) for income taxes

Income before taxes 1,010 761 715

Provision for income taxes 116 134 94

Net income $ 894 $ 627 $ 621

Net income per share:

Basic $ 4.84 $ 3.35 $ 3.31

Diluted $ 4.78 $ 3.31 $ 3.25

Weighted average shares used in computing net income per share:

Basic 185 187 188

Diluted 187 189 191

The accompanying notes are an integral part of these consolidated financial statements.

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Year Ended October 31,

2021 2020 2019

Net income $ 894 $ 627 $ 621

Other comprehensive income (loss):

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

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

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

Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of $( 6 ), $( 4 ) and $ 1

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

Foreign currency translation, net of tax benefit (expense) of zero

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Change in actuarial net gain (loss), net of tax benefit (expense) of $( 55 ), $ 23 and $ 28

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

Other comprehensive loss

144 ( 64 ) ( 91 )

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

( 1 ) ( 9 ) ( 15 )

Other comprehensive income (loss) 157 ( 21 ) ( 90 )

Total comprehensive income $ 1,051 $ 606 $ 531

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Accounts receivable, net 735 606

Inventory 777 757

Other current assets 270 255

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Operating lease right-of-use assets 227 182

Goodwill 1,628 1,537

Other intangible assets, net 272 361

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Long-term deferred tax assets 711 740

Other assets 389 368

Total assets $ 7,781 $ 7,218

LIABILITIES AND EQUITY

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15.1 million shares at October 31, 2021 and 10.7 million shares at October 31, 2020

( 1,425 ) ( 752 )

Additional paid-in-capital 2,219 2,110

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Year Ended October 31,

2021 2020 2019

Cash flows from operating activities:

Net income $ 894 $ 627 $ 621

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 117 104 96

Amortization 176 222 212

Share-based compensation 103 92 82

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Excess and obsolete inventory-related charges 27 29 27

Loss on settlement of pension plan 16 — —

Gain on insurance proceeds received for damage to property, plant and equipment — ( 32 ) —

Gain on sale of assets and divestitures

Goodwill impairment

Other non-cash expenses (income), net 6 ( 10 ) ( 3 )

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Accounts receivable ( 122 ) 75 ( 26 )

Inventory ( 43 ) ( 73 ) ( 92 )

Accounts payable 53 ( 33 ) 13

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Insurance proceeds received for damage to property, plant and equipment — 32 —

Proceeds from the sale of assets and divestitures

Proceeds from sale of investments — — 7

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Payment of taxes related to net share settlement of equity awards

( 53 ) ( 53 ) ( 26 )

Treasury stock repurchases ( 673 ) ( 411 ) ( 159 )

Proceeds from issuance of long-term debt — — 500

Debt issuance costs

Proceeds from short-term borrowings

Repayment of debt and credit facility

Repayment of debt — ( 7 ) ( 500 )

Payment of acquisition-related contingent consideration ( 2 ) — —

Other financing activities ( 2 ) — ( 4 )

Net cash provided used in financing activities

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

Effect of exchange rate movements 3 6 3

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Cash, cash equivalents, and restricted cash at end of year $ 2,068 $ 1,767 $ 1,600

Supplemental cash flow information:

Interest payments $ 75 $ 75 $ 76

Income tax paid, net $ 130 $ 84 $ 103

Investments in property, plant and equipment included in accounts payable $ 22 $ 14 $ 14

The accompanying notes are an integral part of these consolidated financial statements.

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(in millions, except number of shares in thousands)

Treasury Stock

Number of Shares

Additional Paid-in Capital

Number of Shares

Treasury Stock at Cost

Retained Earnings

Accumulated Other Comprehensive Loss

Total Stockholders' Equity

Common Stock Treasury Stock

Number of Shares Par Value Additional Paid-in Capital Number of Shares Treasury Stock at Cost Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders' Equity

Balance as of October 31, 2018 191,204 $ 2 $ 1,889 ( 4,364 ) $ ( 182 ) $ 1,212 $ ( 488 ) $ 2,433

Adjustment due to adoption of new accounting standards — — — — — 76 — 76

Net income — — — — — 621 — 621

Other comprehensive loss, net of tax — — — — — — ( 90 ) ( 90 )

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Balance as of October 31, 2019 193,769 2 2,013 ( 6,458 ) ( 342 ) 1,909 ( 578 ) 3,004

Adjustment due to adoption of new accounting standards

Net income — — — — — 627 — 627

Other comprehensive loss, net of tax — — — — — — ( 21 ) ( 21 )

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Balance as of October 31, 2020 195,661 2 2,110 ( 10,732 ) ( 752 ) 2,536 ( 599 ) 3,297

Other comprehensive loss, net of tax

Net income — — — — — 894 — 894

Other comprehensive income, net of tax — — — — — — 157 157

Issuance of common stock 1,587 — 59 — — — — 59

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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.

Basis of Presentation.

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Product revenues are generated predominantly from the sale of various types of design and test software and hardware.

Products consist of standalone software and hardware, generally with installed software applications that are licensed on a perpetual and term basis.

Products consist of standalone software and hardware generally installed with software applications that are licensed on a perpetual and term basis.

Our hardware products generally do not have any substantive acceptance terms that would otherwise preclude the transfer of control.

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Our typical performance obligations include the following:

Performance obligation

When performance obligation is typically satisfied

When payment is typically due

How standalone selling price is typically determined

Performance obligation When performance obligation is typically satisfied When payment is typically due How standalone selling price is typically determined

Product Revenues

When customer obtains control of the product, typically at delivery (point in time)

Within 30-90 days of shipment

Estimated based on established pricing practices or observable based on standalone sales for certain hardware products

Software licenses

Upon electronic delivery of the software, and the applicable license period has begun (point in time)

Within 30-90 days of the beginning of license period

Estimated based on established pricing practices or observable based on standalone sales for certain software products

Hardware When customer obtains control of the product, typically at delivery (point in time) Within 30-90 days of shipment Estimated based on established pricing practices or observable based on standalone sales for certain hardware products

Software licenses Upon electronic delivery of the software, and the applicable license period has begun (point in time) Within 30-90 days of the beginning of license period Estimated based on established pricing practices or observable based on standalone sales for certain software products

Threat intelligence solutions

Ratably over the subscription period (over time)

Within 30-90 days of the beginning of subscription period

Estimated based on established pricing practices

Ratably over the subscription period (over time) Within 30-90 days of the beginning of subscription period Estimated based on established pricing practices

Service Revenues

Calibration contracts

Ratably over the service contract period (over time)

Within 30-90 days of the beginning of service contract period

Estimated based on established pricing practices

Calibration contracts Ratably over the service contract period (over time) Within 30-90 days of the beginning of service contract period Estimated based on established pricing practices

Repair and calibration (per- incident)

As services are performed (point in time)

Within 30-90 days of invoicing for services rendered

Estimated based on established pricing practices

Extended hardware warranty

Ratably over the warranty period (over time)

Within 30-90 days of invoicing

Estimated based on established pricing practices or observable based on standalone sales of certain hardware warranty contracts

Technical support and when-and-if-available software updates

Ratably over the license service contract period (over time)

Within 30-90 days of the beginning of license or service contract period

Estimated based on established pricing practices or observable based on standalone sales for certain support contracts

Professional services

As services are performed based on measures of progress (over time) or at a point in time

Within 30-90 days of invoicing for services rendered

Estimated based on established pricing practices

Within 30-90 days of invoicing for services rendered Estimated based on established pricing practices

Extended hardware warranty Ratably over the warranty period (over time) Within 30-90 days of invoicing Estimated based on established pricing practices or observable based on standalone sales of certain hardware warranty contracts

Technical support and when-and-if-available software updates Ratably over the license service contract period (over time) Within 30-90 days of the beginning of license or service contract period Estimated based on established pricing practices or observable based on standalone sales for certain support contracts

Professional services As services are performed based on measures of progress (over time) or at a point in time Within 30-90 days of invoicing for services rendered Estimated based on established pricing practices

Custom Solutions

Custom solutions (milestone-based)

As milestones are achieved based on transfer of control to customer (over time)

Within 30-90 days of milestone achievement

Transaction price, as pricing is custom and can vary significantly from contract to contract

Custom solutions (point in time)

When customer obtains control of the solution, typically at delivery (point in time)

Within 30-90 days of delivery of solution

Transaction price, as pricing is custom and can vary significantly from contract to contract

Custom solutions (milestone-based) As milestones are achieved based on transfer of control to customer (over time) Within 30-90 days of milestone achievement Transaction price, as pricing is custom and can vary significantly from contract to contract

Custom solutions (point in time) When customer obtains control of the solution, typically at delivery or customer acceptance, as defined by the contract (point in time) Within 30-90 days of delivery of solution Transaction price, as pricing is custom and can vary significantly from contract to contract

Significant Judgments

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Estimated warranty charges are recorded within cost of products at the time related product revenue is recognized.

See Note 17, "Guarantees."

See Note 13, "Supplemental financial information".

We also sell extended warranties that provide warranty coverage beyond the standard warranty term.

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Income tax expense is based on income or loss before taxes.

Deferred income taxes reflect the effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.

These deferred taxes are measured by applying currently enacted tax laws.

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

Interest and penalties related to uncertain tax positions

are recognized in the provision for income taxes.

Interest and penalties related to uncertain tax

positions are recognized in the provision for income taxes.

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

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There were no impairments of goodwill during the years ended October 31, 2021, 2020 and 2019.

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

See Note 2, “Acquisitions,” and Note 7, “Goodwill and Other Intangible Assets,” for additional information about our goodwill and other intangible assets.

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

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

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

In 2021, 2020 and 2019 we assessed impairment by performing a qualitative test and concluded that no material impairment of indefinite-lived intangible assets was required.

Advertising costs are expensed as incurred and were $ 21 million in 2021, $ 24 million in 2020 and $ 22 million in 2019.

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Costs related to the research, design and development of our products are charged to research and development expense as they are incurred.

Sales taxes collected from customers and remitted to governmental authorities are not included in our revenue.

Investments with readily determinable fair values and trading securities are reported at fair value.

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Diluted net income per share gives effect to all potentially dilutive common stock equivalents outstanding during the period.

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

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

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Derivatives not designated as hedging instruments are recorded on the balance sheet at fair value, and changes in fair value are recorded in earnings in the current period.

Derivative instruments are subject to master netting arrangements and qualify for net presentation in the balance sheet.

Derivative instruments are subject to master netting arrangements and

qualify for net presentation in the balance sheet.

Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the hedged or economically hedged item, primarily in operating activities.

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

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

We determine whether an arrangement is a lease at inception.

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

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

See Note 10, "Leases," for additional information.

Impairment of long-lived assets.

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Restructuring costs.

The main component of our existing restructuring plans is related to workforce reductions.

The main component of our existing restructuring plans is related to workforce reductions and site restructuring.

Workforce reduction charges are accrued when payment of benefits becomes probable and the amounts can be estimated.

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

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

Net gains or losses resulting from foreign currency transactions are reported in other income (expense) and were a $ 3 million gain in 2021, a $ 3 million gain in 2020 and a $ 2 million gain in 2019.

Retirement plans and post-retirement benefit plan assumptions.

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

To estimate the present value of these future payments,

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

To estimate the present value of these future payments, we are required to make assumptions using actuarial concepts within the framework of GAAP.

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

Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates and investment portfolio composition.

Other important assumptions include expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover,

retiree mortality rates and investment portfolio composition.

We evaluate these assumptions at least annually.

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New Accounting Pronouncements.

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

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

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

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

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

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

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

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

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

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

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

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

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

Our finance lease and lessor arrangements are immaterial.

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

ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

In October 2021, the FASB issued guidance that requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

We will early adopt this guidance effective November 1, 2021.

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Other amendments to GAAP that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

2021 Acquisitions

Acquisition of Sanjole

During the first quarter of fiscal 2021, we acquired Sanjole Inc.

("Sanjole") for $ 102 million, net of $ 11 million cash acquired, and recognized additions to goodwill and other intangible assets of $ 48 million and $ 51 million, respectively, based on the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

We expect the goodwill recognized on the Sanjole acquisition or any potential impairment charges in the future to be deductible for income tax purposes.

The identified intangible assets primarily consist of developed technology of $ 24 million, customer relationships of $ 17 million and in-process R&D of $ 7 million.

The estimated useful lives of developed technology and customer relationships are 7 years and 9 years, respectively.

Sanjole is a leader in wireless test and measurement solutions for protocol decoding and interoperability.

Additionally, we acquired two other businesses for $ 76 million, net of cash acquired, and recognized goodwill and other intangible assets of $ 52 million and $ 32 million, respectively, based on the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

Goodwill for the acquisitions was assigned to the Communications Solutions Group.

2020 Acquisitions

Acquisition of Eggplant

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

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

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

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

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

2019 acquisitions

Acquisition of Prisma

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

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

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

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

Goodwill for the acquisitions was assigned to the Communications Solutions Group.

Supplemental Pro Forma Information (Unaudited)

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Disaggregation of Revenue

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

Disaggregated revenue is presented for each of our reportable segments.

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

Year Ended October 31, 2020

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

Disaggregated revenue is presented for each of our reportable segments, Communications Solutions Group ("CSG") and Electronics Industrial Solutions Group ("EISG").

Year Ended October 31,

Communications Solutions Group

Electronic Industrial Solutions Group

Communications Solutions Group

Electronic Industrial Solutions Group

(in millions)

2021 2020 2019

CSG EISG Total CSG EISG Total CSG EISG Total

(in millions)

Americas $ 1,697 $ 299 $ 1,996 $ 1,424 $ 217 $ 1,641 $ 1,474 $ 250 $ 1,724

Europe 500 295 795 421 255 676 456 257 713

Asia Pacific 1,326 824 2,150 1,287 617 1,904 1,238 628 1,866

Total revenue $ 3,523 $ 1,418 $ 4,941 $ 3,132 $ 1,089 $ 4,221 $ 3,168 $ 1,135 $ 4,303

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Total revenue $ 3,523 $ 1,418 $ 4,941 $ 3,132 $ 1,089 $ 4,221 $ 3,168 $ 1,135 $ 4,303

Our point-in-time revenues are generated predominantly from the sale of various types of design and test software and hardware, and per-incident repair and calibration services.

Perpetual software and the portion of term software subscription revenue in this category represents revenue recognized up front upon transfer of control at the time of electronic delivery.

Revenue on per-incident repair and calibration services is recognized when services are performed.

Over-time revenues are generated predominantly from the repair and calibration contracts, extended warranties, technical support for hardware and software, certain software subscription and Software as a Service ("SaaS") product offerings, and professional services.

Technical support for software and when-and-if available software updates and upgrades are sold either together with our software licenses and software subscriptions, including SaaS, or separately as part of our customer support programs.

Additionally, we provide custom solutions that include combinations of hardware, software, software subscriptions, installation, professional services, and other support services, and revenue may be recognized either up front on delivery or over time depending upon the terms of the contract.

Contract Balances

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

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

Contract assets

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

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

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

Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers.

These amounts are primarily related to solutions and support arrangements when transfer of control has occurred but we have not yet invoiced.

The contract assets balances were $ 84 million and $ 61 million as of October 31, 2021 and October 31, 2020, respectively, and are included in "accounts receivables, net" and "other assets" in our consolidated balance sheet.

Contract costs

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

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

Employee commissions are based on the achievement of order volume compared to a sales target.

Third-party representative commission costs relate directly to a customer contract as the commission is tied to orders contracted through and contracts arranged by our third-party representatives.

Without obtaining the contracts, the commissions would not be paid and, as such, are determined to be an incremental cost to obtaining a contract.

We only defer these costs when we have determined the commissions are, in fact, incremental and would not have been incurred absent the customer contract.

Capitalized incremental costs are allocated to the individual performance obligations in proportion to the transaction price allocated to each performance obligation and amortized based on the pattern of performance for the underlying performance obligation.

Contract costs related to initial contracts and renewals are amortized over the same period because the commissions paid on both the initial contract and renewals are commensurate with one another.

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

Year Ended October 31,

(in millions)

Balance at beginning of period

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

Costs capitalized during the period

Costs amortized during the period

Balance at end of period

We capitalize direct and incremental costs incurred to acquire contracts for which the associated revenue is expected to be recognized in future periods.

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

These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit.

Capitalized contract costs were $ 39 million and $ 31 million as of October 31, 2021 and October 31, 2020, respectively, and are included in “other current assets” and “other assets” in the consolidated balance sheet.

The amortization expense associated with these costs was $ 77 million, $ 83 million and $ 64 million for the years ended October 31, 2021, 2020 and 2019, respectively.

Contract liabilities

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We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue.

Contract liabilities are recognized as revenue when services are provided to the customer.

Changes in contract liabilities, current and non-current, during 2020 were as follows:

October 31, 2020

(in millions)

Year Ended October 31, 2021

Balance at October 31, 2020 $ 566

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

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

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

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

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

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

Shares authorized for issuance in connection with the ESPP are subject to an automatic annual increase of the lesser of one percent of the outstanding shares of Keysight common stock on November 1 or an amount determined by the Compensation Committee of our board of directors.

The ESPP allows eligible employees to contribute up to 10 percent of their base compensation to purchase shares of Keysight common stock at 85 percent of the closing market price at the purchase date.

Under the terms of the ESPP, in no event shall the number of shares issued under the ESPP exceed 75 million shares.

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Year Ended October 31,

2021 2020 2019

(in millions)

3 unchanged sentences

Total share-based compensation expense $ 104 $ 93 $ 82

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

Income tax benefit realized from exercised stock options and similar awards $ 10 $ 12 $ 9

The expense for 2021, 2020 and 2019 includes mark-to-market adjustments for financial metrics-based performance awards of $ 5 million, $ 2 million and $ 8 million, respectively.

At October 31, 2021 and 2020, there was no share-based compensation expense capitalized within inventory.

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

Valuation Assumptions

1 unchanged sentence

Year Ended October 31,

2021 2020 2019

Volatility of Keysight shares 36 % 28 % 25 %

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The TSR-based performance awards were valued using a Monte Carlo simulation model, which requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock.

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

The estimated fair value of restricted stock awards and the financial metrics-based performance awards is determined based on the market price of Keysight’s

common stock on the grant date.

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.

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Employee Stock Options

The following table summarizes 2020 activity related to stock option awarded to our employees and directors.

Exercise Price

(in thousands)

Outstanding at October 31, 2019

Forfeited and expired

Outstanding at October 31, 2020

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

Options Outstanding and Exercisable

Exercise Prices

(in thousands)

The aggregate intrinsic value provided above represents the total pre-tax intrinsic value, based on Keysight's closing stock price of $ 104.87 at October 31, 2020, that would have been received had all award holders exercised their awards that were in-the-money as of that date.

The total number of in-the-money awards exercisable at October 31, 2020 was approximately 0.4 million .

The following table summarizes the aggregate intrinsic value of options exercised in 2020 , 2019 and 2018 :

Intrinsic Value

(in thousands)

Options exercised in fiscal 2018

Options exercised in fiscal 2019

Options exercised in fiscal 2020

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

We have no t granted any stock options post fiscal year 2015.

As of October 31, 2021 and 2020, the options outstanding were approximately 0.3 million and 0.4 million, respectively, having a weighted average exercise price of $ 29 and $ 28 , respectively.

During the year, 0.1 million options, with an intrinsic value of $ 14 million were exercised at the weighted average exercise price of $ 26 .

The intrinsic value of the options exercised during 2020 and 2019 was $ 14 million and $ 39 million, respectively, at the weighted average exercise price of $ 27 .

The options outstanding as of October 31, 2021 have a weighted average contractual remaining life of 2.4 years and an intrinsic value of $ 39 million, based on Keysight's closing stock price of $ 180.02 at October 31, 2021.

Non-vested Awards

The following table summarizes non-vested award activity in 2021 for our LTP Program and restricted stock unit awards:

Shares Weighted

Grant Date Fair Value

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Non-vested at October 31, 2020 2,634 $ 67

Granted 743 124

Vested ( 1,377 ) 54

Forfeited ( 47 ) 87

LTP Program incremental 228 52

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As of October 31, 2021, the unrecognized share-based compensation cost for non-vested stock awards was approximately $ 62 million, which is expected to be amortized over a weighted average period of 2.4 years.

Unrecognized share-based compensation cost does not include expense for operating margin based performance awards for which the target have not yet been set.

The total fair value of stock awards vested was $ 165 million for 2021, $ 167 million for 2020 and $ 89 million for 2019.

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

See Note 5, "Income Taxes," for the tax impact on share-based award exercises and vesting.

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

The domestic and foreign components of income before taxes are:

Year Ended October 31,

2021 2020 2019

(in millions)

Total income (loss) before taxes

The provision (benefit) for income taxes is comprised of:

operations $ 89 $ 68 $ 20

operations 921 693 695

Total income before taxes $ 1,010 $ 761 $ 715

The provision for income taxes was comprised of:

Year Ended October 31,

2021 2020 2019

(in millions)

federal taxes:

Current $ 71 $ 16 $ 10

Deferred ( 10 ) 1 ( 8 )

Current 90 77 91

Deferred ( 30 ) 36 14

State taxes, net of federal benefit:

Total provision (benefit) for income taxes

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

Current 8 — ( 5 )

Deferred ( 13 ) 4 ( 8 )

Total provision for income taxes $ 116 $ 134 $ 94

The following table presents the components of the deferred tax assets and liabilities :

(in millions)

Deferred Tax Assets

Inventory $ 18 $ 10

Intangibles 559 597

Property, plant and equipment 31 21

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Net operating loss, capital loss, and credit carryforwards 315 286

Unremitted earnings of foreign subsidiaries

Share-based compensation 17 16

Deferred revenue 35 32

Lease obligations 53 38

Total deferred tax assets 1,116 1,134

Tax valuation allowance ( 231 ) ( 238 )

Total deferred tax assets or deferred tax liabilities

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

net operating losses.

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

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

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

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

Total deferred tax assets less valuation allowance 885 896

Deferred Tax Liabilities

Intangibles ( 41 ) ( 38 )

Property, plant and equipment ( 26 ) ( 31 )

Warranty reserves — ( 1 )

Pension benefits ( 84 ) ( 84 )

Employee benefits, other than retirement ( 1 ) ( 1 )

Unremitted earnings of foreign subsidiaries ( 21 ) ( 37 )

Deferred revenue ( 4 ) ( 3 )

ROU lease assets ( 51 ) ( 36 )

Others ( 14 ) ( 11 )

Total deferred tax liabilities ( 242 ) ( 242 )

Total deferred tax assets, net of deferred tax liabilities $ 643 $ 654

The decrease in deferred tax assets in 2021 as compared to 2020 primarily relates to a decrease in net pension liabilities in the U.S.

and Germany and a decrease in intangible assets in Singapore due to amortization, partially offset by an increase in the value of the net operating loss carryforwards in the U.K.

due to a tax rate change.

As of October 31, 2021, there was a deferred tax liability of $ 21 million for the tax liability expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered indefinitely reinvested.

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Such assessment is required on a jurisdiction-by-jurisdiction basis.

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

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

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

The $ 231 million and $ 238 million valuation allowances as of October 31, 2021 and 2020, respectively, are mainly related to net operating losses in Luxembourg and the U.K., capital losses in the U.K., and California research credits.

The decrease in valuation allowance from October 31, 2020 to October 31, 2021 is primarily due to a release of valuation allowance on Netherlands net operating losses, partially offset by an increase in valuation allowance on U.K.

capital and net operating losses.

The release of the Netherlands valuation allowance was due to a tax law change allowing net operating losses to be carried forward indefinitely.

The increase in the valuation allowance on U.K.

capital and net operating losses is primarily due to a tax rate change that increased the after-tax value of the losses subject to valuation allowance.

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

At October 31, 2021, we had U.S.

federal net operating loss carryforwards of approximately $ 6 million and U.S.

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

state net operating loss carryforwards, primarily from acquired entities, of approximately $ 51 million.

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

Of the total U.S.

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

state net operating loss carryforwards, $ 48 million are subject to change of ownership limitations under various state tax provisions and are subject to valuation allowance.

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

At October 31, 2020, we had California research credit carryforwards of approximately $ 19 million .

The California research credits can be carried forward indefinitely.

federal and state net operating losses and tax credit carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions.

At October 31, 2021, we had U.S.

state research credit carryforwards of approximately $ 23 million.

Of the total U.S.

state research credit carryforwards, $21 million are California research credits that can be carried forward indefinitely.

Due to change of ownership limitations, however, $ 17 million of California research credits are subject to valuation allowance.

At October 31, 2021, we also had foreign net operating loss carryforwards of approximately $ 945 million.

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

The remaining $ 216 million has an indefinite life.

Of the total foreign loss, $ 8 million will expire in years beginning 2024 through 2027.

The remaining loss is comprised of $ 670 million that will expire in years beginning 2035 through 2038 if not utilized and $ 267 million that has an indefinite life.

Of the $ 945 million of foreign net operating loss carryforward, $690 million is subject to a valuation allowance.

At October 31, 2021, we had foreign capital loss carryforwards of approximately $ 150 million with an indefinite life and $ 5 million of tax credits in foreign jurisdictions with an indefinite life.

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

These annual loss limitations in foreign jurisdictions may result in the expiration or reduced utilization of the net operating losses.

The foreign capital loss carryforwards are subject to valuation allowance as we do not expect to generate income of the type required in order to utilize these losses.

The differences between the U.S.

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Year Ended October 31,

2021 2020 2019

(in millions)

Profit(loss) before tax times statutory rate

Profit before tax times statutory rate $ 212 $ 160 $ 150

State income taxes, net of federal benefit ( 6 ) 4 ( 6 )

7 unchanged sentences

Officers’ compensation 6 5 4

Singapore tax incentive and amortization

Goodwill impairment

federal statutory tax rate change

Provision (benefit) for income taxes

Acquired entity integration ( 15 ) — —

Release of non-US valuation allowance ( 17 ) — —

Other, net 2 3 8

Provision for income taxes $ 116 $ 134 $ 94

Effective tax rate 11 % 18 % 13 %

We benefit 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.

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.

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.

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 benefit of the tax incentives on net income per share (diluted) was approximately $ 0.38 , $ 0.28 and $ 0.25 in 2021, 2020 and 2019, respectively.

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

Of the $ 2.97 benefit from the tax incentives on net income per share (diluted) in 2018, $ 2.75 relates to one-time items resulting from the Singapore restructuring.

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

jurisdictions taxed at lower statutory rates.

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

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

taxes on non-U.S.

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

statutory rate primarily due to the 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.

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

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

The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows for the years 2021 and 2020:

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Current income tax liabilities (included within income and other taxes payable) ( 44 ) ( 40 )

Long-term income tax assets (included within other assets)

Long-term income tax liabilities (included within other long-term liabilities) ( 219 ) ( 212 )

Total $ ( 233 ) $ ( 199 )

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

2 unchanged sentences

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.

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 aggregate changes in the balances of our unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:

2021 2020 2019

(in millions)

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Reductions for tax positions from prior years ( 3 ) ( 1 ) ( 32 )

Settlements with taxing authorities

Statute of limitations expirations ( 4 ) ( 3 ) ( 3 )

Gross Balance, end of year $ 249 $ 237 $ 226

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

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

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

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

As of October 31, 2021, the total amount of gross unrecognized tax benefits, excluding interest and penalties, was $ 249 million, of which, if recognized, $ 229 million would impact our effective tax rate.

However, approximately $3 million of the unrecognized tax benefits were related to acquisitions, which if recognized within certain agreed upon time periods, would result in the recognition of an offsetting indemnification asset.

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

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

Cumulatively, interest and penalties accrued as of the end of October 31, 2021, 2020 and 2019 were $ 37 million, $ 33 million and $ 28 million, respectively.

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

We recognized tax expense of $ 4 million, $ 5 million, and $ 2 million for interest and penalties related to unrecognized tax benefits in 2021, 2020 and 2019, respectively.

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

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.

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.

1 unchanged sentence

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

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

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

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

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 fiscal year 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;

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

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

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

NET INCOME PER SHARE

The following is a reconciliation of the numerator and denominator of the basic and diluted net income per share computations.

The following table presents the calculation of basic and diluted net income per share (in millions, except per-share amounts):

Year Ended October 31,

2021 2020 2019

(in millions)

Net income $ 894 $ 627 $ 621

Basic weighted-average shares 185 187 188

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Diluted weighted-average shares 187 189 191

Net income per share - basic $ 4.84 $ 3.35 $ 3.31

Net income per share - diluted $ 4.78 $ 3.31 $ 3.25

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

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For the years ended 2021, 2020 and 2019, we excluded zero shares from the calculation of diluted earnings per share.

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

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

SUPPLEMENTAL CASH FLOW INFORMATION

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

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

tax legislation.

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

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

(in millions)

Cash and cash equivalents

Restricted cash included in other current assets

Restricted cash included in other assets

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

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

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

(in millions)

Finished goods

Purchased parts and fabricated assemblies

Total inventory

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

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

PROPERTY, PLANT AND EQUIPMENT, NET

(in millions)

Buildings and leasehold improvements

Machinery and equipment

Total property, plant and equipment

Accumulated depreciation of property, plant and equipment

Property, plant and equipment, net

Asset impairments were zero in 2020, 2019 and 2018.

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

In addition, we also exclude from the calculation of diluted earnings per share, stock options, ESPP, LTP Program and restricted stock awards, whose combined exercise price and

unamortized fair value collectively were greater than the average market price of our common stock because their effect would also be anti-dilutive.

The number of shares excluded was immaterial in 2021, 2020 and 2019.

GOODWILL AND OTHER INTANGIBLE ASSETS

The goodwill balances as of October 31, 2021, 2020 and 2019 and the movements in 2021 and 2020 for each of our reportable segments were as follows:

Communications Solutions Group

Electronic Industrial Solutions Group

CSG EISG Total

(in millions)

6 unchanged sentences

Goodwill at October 31, 2021 $ 1,069 $ 559 $ 1,628

Components of goodwill:

Accumulated impairment losses

Goodwill at October 31, 2018

Accumulated impairment losses

Goodwill at October 31, 2019

Accumulated impairment losses

Goodwill at October 31, 2020

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

Other Intangible Assets as of October 31, 2020

Other Intangible Assets as of October 31, 2019

Gross Carrying Amount

Accumulated Amortization

Net Book Value

There were no impairments of goodwill during the years ended October 31, 2021, 2020 and 2019.

As of October 31, 2021, 2020 and 2019, accumulated impairment losses on goodwill were $ 709 million.

Other intangible assets as of October 31, 2021 and 2020 consisted of the following:

October 31, 2021 October 31, 2020

Gross Carrying Amount Accumulated Amortization Net Book Value Gross

Amount Accumulated

Amortization Net Book

(in millions)

Developed technology $ 969 $ 866 $ 103 $ 915 $ 749 $ 166

Backlog 17 17 — 17 14 3

Trademark/Tradename 36 28 8 35 25 10

Customer relationships 389 235 154 364 184 180

Non-compete agreements

Total amortizable intangible assets 1,411 1,146 265 1,331 972 359

In-Process R&D 7 — 7 2 — 2

Total $ 1,418 $ 1,146 $ 272 $ 1,333 $ 972 $ 361

In 2021, we recorded additions to goodwill and other intangible assets of $ 100 million and $ 83 million, respectively, due to the acquisition of Sanjole and two other acquisitions.

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

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

For additional information on the acquisitions, see Note 2, "Acquisitions."

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

The impact of foreign exchange translation on other intangible assets in 2021 and 2020 was $ 3 million and $ 2 million, respectively.

Amortization of other intangible assets was $ 174 million in 2021, $ 220 million in 2020 and $ 210 million in 2019.

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(in millions)

Thereafter $ 16

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

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

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

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

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

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

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.

As of October 31, 2021, we determined that no goodwill impairment exists and that the remaining goodwill is recoverable for all of our reporting units;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(in millions)

Equity investments

Equity investments - other

Equity investments are reported at fair value, with gains or losses resulting from changes in fair value recognized in earnings.

Equity investments without readily determinable fair values that are measured at cost adjusted for observable changes in price or impairments are presented as "Equity investments - other" in the table above.

All of our investments are subject to periodic impairment review.

The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment.

There was no impairment recognized in 2020, 2019 and 2018.

Realized gains and losses from the sale of investments are recorded in earnings.

Net recognized gains (losses) on equity investments were as follows:

Year Ended October 31,

(in millions)

Net realized gains on investments sold

Net unrealized gains on investments still held

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

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

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

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

We performed an impairment test of Eggplant and ISG'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.

FAIR VALUE MEASUREMENTS

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Fair Value Measurements as of October 31,

Fair Value Measurements as of October 31, 2019

Total Level 1 Level 2 Level 3 Other Total Level 1 Level 2 Level 3 Other

(in millions)

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Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss).

All of our investments are subject to periodic impairment review.

The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment.

There was no impairment recognized in 2021, 2020 and 2019.

Realized gains and losses from the sale of investments are recorded in earnings.

Net recognized gains on equity investments were as follows:

Year Ended October 31,

2021 2020 2019

(in millions)

Net realized gains on investments sold $ — $ — $ 1

Net unrealized gains on investments still held $ 4 $ 11 $ 6

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

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

Assets measured at fair value on a non-recurring basis consisted of goodwill and intangible assets.

See Note 7, "Goodwill and Other Intangible Assets" for more information.

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If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive income will be reclassified into earnings in the current period.

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

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

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

Gains and losses on the derivative instrument representing hedge components excluded from the assessment of effectiveness are amortized to earnings on a straight-line basis over the tenor of the hedge and are presented in the same financial statement line of the consolidated statement of operations where the earnings effect of the hedged item is presented.

For hedges executed prior to February 1, 2020, these gains and losses were recognized immediately in earnings.

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

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

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Derivatives in

Hedging Relationships

Derivatives Not Designated as Hedging Instruments

Hedging Relationships Derivatives Not Designated as Hedging Instruments

Contracts Forward

Currency Buy/(Sell) Buy/(Sell)

(in millions)

Euro $ 35 $ 13

British Pound 19 ( 87 )

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Malaysian Ringgit 98 10

Japanese Yen ( 101 ) ( 42 )

Other currencies 13 ( 44 )

Total $ 89 $ ( 122 )

Derivative instruments are subject to master netting arrangements and are disclosed gross in the consolidated balance sheet.

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Fair Values of Derivative Instruments

Assets Derivatives

Liabilities Derivatives

Balance Sheet Location

Assets Derivatives Liabilities Derivatives

Fair Value Fair Value

Balance Sheet Location October 31,

2021 October 31,

2020 Balance Sheet Location October 31,

2021 October 31,

(in millions)

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Foreign exchange contracts

Other current assets

Other accrued liabilities

Other current assets $ 5 $ 2 Other accrued liabilities $ 1 $ 3

Interest rate swap contracts:

Other long-term liabilities

Other assets 48 23

Derivatives not designated as hedging instruments:

Foreign exchange contracts

Other current assets

Other accrued liabilities

Other current assets 1 1 Other accrued liabilities 3 1

Total derivatives $ 54 $ 26 $ 4 $ 4

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

2021 2020 2019

(in millions)

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Cost of products

— ( 3 ) ( 1 )

Selling, general and administrative

2 ( 1 ) ( 2 )

Gain (loss) excluded from effectiveness testing recognized in earnings based on changes in fair value:

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Cost of products

Selling, general and administrative 1 — —

Derivatives not designated as hedging instruments:

Gain (loss) recognized in other income (expense), net $ ( 3 ) $ 4 $ ( 5 )

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

The estimated amount at October 31, 2021 expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a gain of $ 3 million.

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

Our leases have remaining terms of up to 13 years, some of which may include options to extend the leases, primarily for 3 to 5 years.

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

The weighted average lease term of our operating leases was 8.2 years and 7.3 years as of October 31, 2021 and 2020, respectively.

The weighted average discount rate of our operating leases was 3 percent as of both October 31, 2021 and 2020.

The following table summarizes the components of our lease cost:

Year ended October 31,

(in millions)

Operating lease cost $ 51 $ 49

Variable lease cost $ 14 $ 16

Short-term lease costs, sublease income and finance lease costs were immaterial for the year ended October 31, 2021 and 2020.

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

Year ended October 31,

(in millions)

Cash payments for operating leases $ 53 $ 48

ROU assets obtained in exchange for operating lease obligations $ 78 $ 67

The maturities of our operating leases as of October 31, 2021 with initial terms exceeding one year were as follows:

Operating Leases

(in millions)

Thereafter 123

Total undiscounted lease liability 260

Imputed interest 28

Total discounted lease liability $ 232

As of October 31, 2021, we did not have material leases that had not yet commenced.

Rental income from leasing out excess facilities was $ 11 million for both the year ended October 31, 2021 and 2020 and is included in other operating expense (income), net.

Other lessor arrangements were immaterial.

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

(in millions)

2024 Senior Notes at 4.55 % ($ 600 face amount less unamortized costs of $ 1 and $ 2 )

2027 Senior Notes at 4.60 % ($ 700 face amount less unamortized costs of $ 4 and $ 5 )

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

$ 1,791 $ 1,789

Short-Term Debt

Revolving Credit Facility

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.

I n 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, 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.

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

Long-Term Debt

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

We were in compliance with the covenants of our senior notes during the year ended October 31, 2021.

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.

Letter of Credit

As of both October 31, 2021 and 2020, we had $ 40 million of outstanding letters of credit and surety bonds unrelated to the credit facility that were issued by various lenders.

RETIREMENT PLANS AND POST-RETIREMENT BENEFIT PLANS

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

The obligations under the DPSP equal the fair value of the DPSP assets, which was $ 267 million as of October 31, 2021.

Employees hired on or after August 1, 2015 are not eligible to participate in the RP or the Keysight Technologies, Inc.

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The RP and the SBRP comprise the "U.S.

As of October 31, 2020 , the fair value of plan assets of the DPSP for U.S.

employees was $ 250 million .

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

Certain of our immaterial non-U.S.

defined benefit plans are not included in these disclosures.

Eligible employees outside the U.S.

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Eligibility is generally determined in accordance with local statutory requirements.

Certain of our immaterial non-U.S.

defined benefit plans are not included in these disclosures.

401(k) defined contribution plan.

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

In March 2021, we substantially transferred all the assets and obligations of our Netherlands defined benefit plan to an insurance company.

The partial settlement resulted in a loss of $16 million, which is included in "other income (expense), net" in the consolidated statement of operations during the year ended October 31, 2021.

We received a net refund of $3 million due to the partial settlement of the Netherlands defined benefit plan.

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

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

defined benefit plan were more than the sum of the service cost and interest cost components of net

periodic benefit cost (“the threshold amount”), resulting in recognition of a settlement loss of $ 5 million.

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

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

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

For the years ended October 31, 2021, 2020 and 2019, components of net periodic benefit cost (benefit) and other amounts recognized in other comprehensive income were comprised of:

Defined Benefit Plans

Defined Benefit Plans U.S.

Post-Retirement Benefit Plan

Plans Non-U.S.

2021 2020 2019 2021 2020 2019 2021 2020 2019

(in millions)

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Net actuarial loss

24 18 10 41 34 27 11 10 9

Prior service credit

— — ( 4 ) — — ( 1 ) ( 1 ) ( 11 ) ( 14 )

Net periodic benefit cost (benefit) 18 21 13 ( 6 ) ( 19 ) ( 14 ) 3 ( 7 ) ( 9 )

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As of October 31, 2021 and 2020, the funded status of the defined benefit and post-retirement benefit plans was as follows:

Benefit Plans

Benefit Plans Non-U.S.

Benefit Plans U.S.

Post-Retirement

2021 2020 2021 2020 2021 2020

(in millions)

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Employer contributions — 100 8 10 — —

Settlements — — ( 41 ) ( 14 ) — —

Benefits paid ( 49 ) ( 34 ) ( 50 ) ( 36 ) ( 13 ) ( 13 )

Other — — ( 15 ) — — —

Currency impact — — 27 26 — —

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Benefit obligation — beginning of year $ 848 $ 774 $ 1,421 $ 1,393 $ 203 $ 202

Service cost 24 23 15 15 1 1

Interest cost 22 24 15 16 4 6

Settlements — — ( 41 ) ( 14 ) —

Curtailments — — — ( 1 ) — —

Actuarial loss (gain) 37 62 90 18 ( 5 ) 7

Benefits paid ( 50 ) ( 35 ) ( 50 ) ( 36 ) ( 13 ) ( 13 )

Other — — ( 18 ) — — —

Currency impact — — 33 30 — —

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Amounts recognized in the consolidated balance sheet consist of:

$ — $ — $ 264 $ 311 $ 17 $ —

Employee compensation and benefits

( 1 ) ( 1 ) — — — —

Retirement and post-retirement benefits

Net asset (liability) (a)

( 18 ) ( 125 ) ( 121 ) ( 187 ) — ( 28 )

Net asset (liability) $ ( 19 ) $ ( 126 ) $ 143 $ 124 $ 17 $ ( 28 )

Amounts recognized in accumulated other comprehensive income (loss):

Actuarial losses

$ 101 $ 225 $ 457 $ 487 $ ( 21 ) $ 28

Prior service credits

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

Benefit Plans

Post-Retirement

(in millions)

Amortization of net prior service credit

Amortization of actuarial net loss

— — 1 1 ( 1 ) ( 2 )

Total $ 101 $ 225 $ 458 $ 488 $ ( 22 ) $ 26

The change in the benefit obligations for the U.S.

defined benefit plans was primarily driven by the changes in actuarial assumptions, including the lump sum conversion rate and demographic experience.

The changes in the non-U.S.

plans were primarily driven by an insurance buy-in contract we executed for a portion of benefit obligations under the U.K.

defined benefit plan and partial settlement of benefit obligations under the Netherlands DB plan.

The change in the benefit obligations for the U.S.

post-retirement benefit plan was primarily driven by changes in the discount rate.

Investment policies and strategies as of October 31, 2021 .

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Our DPSP target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments.

The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk.

The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumed level of risk.

Specific investment objectives for the plans' portfolios are to:

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

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

Outside of the U.S., our target asset allocation is from 5 to 60 percent to equities, from 40 to 64 percent to fixed income investments, and from zero to 50 percent to insurance contracts and cash.

All plans' assets are broadly diversified.

Due to fluctuations in capital

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

Due to fluctuations in capital markets, our actual allocations of plan assets as of October 31, 2021, differ from the target allocation.

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

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The value of the plan assets directly affects the funded status of our pension and post-retirement benefit plans recorded in the financial statements.

In March 2021, we entered into an insurance buy-in contract for a portion of benefit obligations under the U.K.

defined benefit plan and classified it as “Other Investment.” The insurance buy-in contract is similar to an annuity contract, which matches cash flows with future benefit payments for a specific group of pensioners with the obligation remaining with the plan.

This contract is issued by a third-party insurance company with no affiliation to us.

The insurance contract is valued on an insurer pricing basis, which reflects the purchase price adjusted for changes in discount rates and other actuarial assumptions, which approximates fair value.

The measurement of the fair value of pension and post-retirement plan assets uses the valuation methodologies and the inputs as described in Note 8, "Fair Value Measurements."

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

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

Other Investment - Other investment includes a U.K.

insurance buy-in contract executed during the year and classified as a Level 3 investment.

Insurance contracts are generally classified as Level 3 investments.

T he following tables present the fair value of U.S.

Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2021 and 2020:

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents $ 18 $ — $ 18 $ — $ —

Equity 605 187 1 — 417

Fixed income 239 27 103 — 109

Total assets measured at fair value $ 862 $ 214 $ 122 $ — $ 526

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents $ 110 $ — $ 110 $ — $ —

Equity 443 124 1 — 318

Fixed income 169 9 100 — 60

Total assets measured at fair value $ 722 $ 133 $ 211 $ — $ 378

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents $ 5 $ — $ 5 $ — $ —

Equity 144 45 — — 99

Fixed income 58 6 25 — 27

Total assets measured at fair value $ 207 $ 51 $ 30 $ — $ 126

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents $ 4 $ — $ 4 $ — $ —

Equity 123 34 — — 89

Fixed income 48 3 28 — 17

Total assets measured at fair value $ 175 $ 37 $ 32 $ — $ 106

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Equity $ 526 $ 189 $ 2 $ — $ 335

Fixed income 718 — 235 — 483

Other investment 364 — — 364 —

Total assets measured at fair value $ 1,608 $ 189 $ 237 $ 364 $ 818

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Identical Assets

Assets Measured at NAV (a)

(Level 1) Significant

(Level 2) Significant

(Level 3) Assets Measured at NAV (a)

(in millions)

Cash and cash equivalents

Equity $ 452 $ 150 $ — $ — $ 302

Fixed income 1,093 — 221 — 872

Total assets measured at fair value $ 1,545 $ 150 $ 221 $ — $ 1,174

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Defined Benefit Plans assets measured at fair value using significant unobservable inputs (Level 3), the following table summarizes the change in balances during 2021 and 2020:

Year Ended October 31,

(in millions)

Balance, beginning of year $ — $ —

Realized gains

Unrealized gains/(losses) 17 —

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.The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets as of October 31, 2021 and 2020:

Fair Value of Plan Assets

(in millions)

Obligation Fair Value of Plan Assets Benefit

Obligation Fair Value of Plan Assets

(in millions) (in millions)

defined benefit plans where PBO exceeds the fair value of plan assets $ 881 $ 862 $ 848 $ 722

defined benefit plans where fair value of plan assets exceeds PBO — — — —

Total $ 881 $ 862 $ 848 $ 722

defined benefit plans where PBO exceeds the fair value of plan assets $ 383 $ 262 $ 433 $ 246

defined benefit plans where fair value of plan assets exceeds PBO 1,082 1,346 988 1,299

Total $ 1,465 $ 1,608 $ 1,421 $ 1,545

defined benefit plans where ABO exceeds the fair value of plan assets $ 5 $ — $ 784 $ 722

defined benefit plans where the fair value of plan assets exceeds ABO 791 862 — —

Total $ 796 $ 862 $ 784 $ 722

defined benefit plans where ABO exceeds the fair value of plan assets $ 372 $ 262 $ 421 $ 246

defined benefit plans where fair value of plan assets exceeds ABO 1,079 1,346 984 1,299

Total $ 1,451 $ 1,608 $ 1,405 $ 1,545

Cont ributions and estimated future benefit payments .

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

Defined Benefit Plan.

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

For 2022, we do not expect to contribute to our U.S.

Defined Benefit Plan or U.S.

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

Post-Retirement Benefit Plan, and we expect to contribute $ 12 million to our Non-U.S.

Defined Benefit Plans.

The following table presents expected future benefit payments for the next 10 years.

Benefit Plans

Benefit Plans Non-U.S.

Benefit Plans U.S.

Post-Retirement

(in millions)

2022 $ 49 $ 39 $ 14

2023 $ 53 $ 42 $ 15

2024 $ 53 $ 44 $ 15

2025 $ 63 $ 44 $ 16

2026 $ 64 $ 45 $ 16

2027 - 2031 $ 310 $ 244 $ 74

Assu mptions .

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Defined Benefit Plans reflects the different economic environments within various countries.

Assu mptions used to calculate the net periodic benefit cost (benefit) were as follows:

Assumptions used to calculate the net periodic benefit cost (benefit) were as follows:

Year ended October 31,

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Discount rate 0.81 - 1.66 %

0.79 - 1.89 %

Average increase in compensation levels 2.50 - 2.75 %

2.50 - 3.00 %

Expected long-term return on assets 4.00 - 6.50 %

3.50 - 6.50 %

Post-Retirement Benefits Plan:

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Discount rate 0.70 - 1.86 %

0.81 - 1.66 %

Average increase in compensation levels 2.50 - 2.75 %

2.50 - 2.75 %

Post-Retirement Benefits Plan:

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Medical cost trend rate decreases to ultimate rate in year 2028 2028

Heal th care trend rates did not have a significant effect on the total service and interest cost components or on the post-retirement benefit obligation amounts reported for the U.S.

Health care trend rates did not have a significant effect on the total service and interest cost components or on the post-retirement benefit obligation amounts reported for the U.S.

Post-Retirement Benefit Plan for the years ended October 31, 2021 and 2020.

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

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

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

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

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

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

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

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

October 31, 2020

SUPPLEMENTAL FINANCIAL INFORMATION

The following tables provide details of selected balance sheet items:

Cash, cash equivalents, and restricted cash

(in millions)

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

ROU assets obtained in exchange for operating lease obligations

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

Maturity Analysis of Liabilities

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

Total undiscounted lease liability

Imputed interest

Total discounted lease liability

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

ASC 840 Comparative Disclosures

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

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

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

Total future minimum lease payments

Lessor Disclosure

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

Other lessor arrangements were immaterial.

Cash and cash equivalents $ 2,052 $ 1,756

Restricted cash included in other current assets — 9

Restricted cash included in other assets 16 2

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 2,068 $ 1,767

Restricted cash primarily relates to deficit reduction contributions to an escrow account for one of our non-U.S.

defined benefit pension plans and deposits held as collateral against bank guarantees.

(in millions)

Finished goods $ 329 $ 342

Purchased parts and fabricated assemblies 448 415

Total inventory $ 777 $ 757

Gross inventory-related excess and obsolescence charges recorded in total cost of products were $ 27 million in 2021, $ 29 million in 2020 and $ 27 million in 2019.

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

Property, plant and equipment

(in millions)

Land $ 61 $ 67

Buildings and leasehold improvements 785 743

Machinery and equipment 1,328 1,224

Total property, plant and equipment 2,174 2,034

Accumulated depreciation of property, plant and equipment ( 1,524 ) ( 1,439 )

Property, plant and equipment, net $ 650 $ 595

The increase in property, plant and equipment, net, for the year ended October 31, 2021, is primarily driven by capital investments to increase the resiliency of our supply chains.

Asset impairments were zero in 2021, 2020 and 2019.

Depreciation expense was $ 117 million in 2021, $ 104 million in 2020 and $ 96 million in 2019.

Standard warranty

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

Warranties for products sold through distribution channels are primarily for three years.

We accrue for standard warranty costs based on historical trends in warranty charges.

The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates.

Estimated warranty charges are recorded within cost of products at the time related product revenue is recognized.

Activity related to the standard warranty accrual, which is included in other accrued and other long-term liabilities in our consolidated balance sheet, is as follows:

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Beginning balance $ 33 $ 38

Accruals for warranties, including change in estimates

Accruals for warranties 29 24

Settlements made during the period ( 28 ) ( 29 )

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Ending balance $ 34 $ 33

Indemnification Obligations Related to Transactions

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

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

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

Indemnifications to Officers and Directors

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

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

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

We purchase standard insurance to cover claims or a portion of the claims made against our directors and officers.

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

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

Other Indemnifications

As is customary in our industry and as provided for in local law in the U.S.

and other jurisdictions, many of our standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of our products.

From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and the use of our products and services, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount.

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

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

COMMITMENTS AND CONTINGENCIES

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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.

As of October 31, 2021 and 2020, our non-cancellable purchase commitments were approximately $ 444 million and $ 291 million, respectively, of which the majority is for less than one year.

The increase in the non-cancellable purchase commitments for the year ended October 31, 2021 was driven by higher revenue and advance purchase orders to secure capacity for critical parts due to global supply disruptions.

Other purchase commitments.

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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.

As of October 31, 2021, our contractual obligations with these suppliers were approximately $ 60 million within the next fiscal year, as compared to approximately $ 52 million as of October 31, 2020.

Litigation and Contingencies.

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

On August 3, 2021, we entered into a Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State to resolve alleged violations of the Arms Export Control Act and the International Traffic in Arms Regulations ("ITAR").

Pursuant the Consent Agreement, we will pay a penalty of $ 6.6 million, $ 2.5 million of which is suspended, over three years and will employ a special compliance officer for three years.

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

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

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

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

(in millions)

2024 Senior Notes at 4.55% ($600 face amount less unamortized costs of $2 and $3)

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

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

Short-Term Debt

Revolving Credit Facility

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.

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.

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

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

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.

Letters of Credit

As of October 31, 2020 and October 31, 2019, we had $ 40 million and $ 37 million , respectively, of outstanding letters of credit and surety bonds unrelated to the credit facility that were issued by various lenders.

Indemnification Obligations Related to Transactions

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

We do not believe that our indemnification obligations related to such liabilities were material as of October 31, 2021.

Indemnifications to Officers and Directors

The indemnification obligations are more fully described in the by-laws and the indemnification agreements, which are available on our website.

We purchase standard insurance to cover claims or a portion of the claims made against our directors and officers.

Historically, we have not made payments related to these obligations, and do not believe that our indemnification obligations related to such claims were material as of October 31, 2021.

Other Indemnifications

As is customary in our industry and as provided for in local law in the U.S.

related to the sale and the use of our products and services, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount.

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

In our experience, claims made under such indemnifications are rare and do not believe that our indemnification obligations related to such claims were material as of October 31, 2021.

STOCKHOLDERS' EQUITY

Stock Repurchase Program

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

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

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.

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

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

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

In 2021 we repurchased 4,361,542 shares of common stock for $ 673 million.

In 2020 we repurchased 4,274,366 shares of common stock for $ 410 million.

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

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

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

$ ( 20 ) $ ( 10 )

Unrealized losses on defined benefit plans, net of tax benefit of $ 84 and $ 139

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

( 462 ) ( 605 )

Unrealized gains (losses) on derivative instruments, net of tax (expense) of $( 11 ) and $( 5 )

Total accumulated other comprehensive loss $ ( 442 ) $ ( 599 )

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Net defined benefit pension cost and post retirement plan costs:

Foreign currency translation

Actuarial Losses

Prior service credits

Unrealized gains (losses) on derivatives

Foreign currency translation Actuarial losses Prior service credits Unrealized gains (losses) on derivatives Total

(in millions)

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Reclassifications out of accumulated other comprehensive loss were as follows:

Details about accumulated other comprehensive loss components

Amounts reclassified from other comprehensive loss

Affected line item in statement of operations

Details about accumulated other comprehensive loss components Amounts reclassified from other comprehensive loss Affected line item in statement of operations

Year Ended October 31,

(in millions)

Unrealized gain (loss) on derivatives

Cost of products

Unrealized gain (loss) on derivatives $ — $ ( 3 ) Cost of products

2 ( 1 ) Selling, general and administrative

Benefit (provision) for income tax

Net of Income Tax

— 1 Benefit (provision) for income taxes

Net defined benefit pension cost and post retirement plan costs:

Net actuarial losses

Prior service credits

Total before income tax

Benefit (provision) for income tax

Net of income tax

Net actuarial losses ( 93 ) ( 68 ) Other income (expense), net

Prior service credits 1 12 Other income (expense), net

( 92 ) ( 56 )

24 10 Provision (benefit) for income taxes

( 68 ) ( 46 )

Total reclassifications for the period $ ( 66 ) $ ( 49 )

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SEGMENT INFORMATION

We provide electronic design and test instruments and systems and related software, software design tools, and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment.

Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair.

Additionally, we provide test, security and visibility solutions that validate, secure and optimize networks and applications from engineering concept to live deployment.

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

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

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

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

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

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

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

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

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

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

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

These expenses, collectively called corporate charges, include legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses.

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

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.

A significant portion of the segments' expenses arise from allocated corporate charges as well as expenses related to our centralized sales force, and service, marketing and technology functions that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources.

Corporate charges include legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses.

Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.

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

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

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

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

Communications Solutions Group

Electronic Industrial Solutions Group

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 as noted in the reconciliations below.

CSG EISG Total

(in millions)

4 unchanged sentences

Year ended October 31, 2020:

Total revenue

Amortization of acquisition-related balances

Total segment revenue

Total and segment revenue $ 3,132 $ 1,089 $ 4,221

Segment income from operations $ 773 $ 296 $ 1,069

8 unchanged sentences

Year Ended October 31,

2021 2020 2019

(in millions)

1 unchanged sentence

Share-based compensation ( 104 ) ( 93 ) ( 82 )

Restructuring and related costs

Amortization of acquisition-related balances ( 174 ) ( 224 ) ( 224 )

Acquisition and integration costs ( 9 ) ( 13 ) ( 9 )

Separation and related costs

Northern California wildfire-related impacts

Goodwill impairment

Legal settlement

Gain on divestitures

Income (loss) from operations, as reported

Gain on insurance settlement — 32 —

Restructuring and other ( 9 ) ( 6 ) ( 11 )

Income from operations, as reported 1,080 765 711

Interest income 3 11 23

1 unchanged sentence

Other income (expense), net 6 63 61

Income (loss) before taxes, as reported

Income before taxes, as reported $ 1,010 $ 761 $ 715

Major customers.

No customer represented 10 percent or more of our total revenue in 2021, 2020 or 2019.

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

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

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

Communications Solutions Group

Electronic Industrial Solutions Group

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

Year Ended October 31,

CSG EISG Total CSG EISG Total

(in millions)

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

Segment assets $ 4,122 $ 1,523 $ 5,645 $ 3,832 $ 1,334 $ 5,166

Capital expenditures $ 130 $ 44 $ 174 $ 90 $ 27 $ 117

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

Segment assets

Capital expenditures

The following table reconciles segment assets to our total assets:

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Long-term deferred tax assets 711 740

Accumulated amortization of intangibles

Other unallocated assets

The other unallocated assets primarily includes pension assets.

Accumulated amortization of other intangibles ( 1,146 ) ( 972 )

Pension and other assets 449 467

Total assets $ 7,781 $ 7,218

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

1 unchanged sentence

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

States China Rest of the

(in millions)

2 unchanged sentences

Year ended October 31, 2019 $ 1,584 $ 822 $ 1,897 $ 4,303

(1) China also includes Hong Kong revenue.

States Japan U.K.

(in millions)

2 unchanged sentences

October 31, 2020 $ 387 $ 272 $ 179 $ 332 $ 1,170

IMPACT OF THE 2017 NORTHERN CALIFORNIA WILDFIRES

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

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

QUARTERLY SUMMARY

Three Months Ended

(in millions, except per share data)

Income from operations

Net income per share:

Weighted average shares used in computing net income per share:

Income from operations

Net income per share:

Weighted average shares used in computing net income per share:

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data