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Item 7. Management’s Discussion and Analysis

2022-12-15 compared with 2021-12-17 · 196 added, 181 removed, 385 unchanged (49% of the section changed)

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

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

This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, our transition to lower-cost regions, the existence of political or economic instability, impacts of geopolitical tension and conflict in regions outside of the U.S., including the war between Russia and Ukraine and the risk of increased tensions between China and Taiwan, the impacts of increased trade tension and tightening of export control regulations, the impact of compliance with the August 3, 2021 Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State, the impact of new and ongoing litigation, inflationary pressures, continued impacts to the supply chain, impacts related to endemic and pandemic conditions, impacts related to net zero emissions commitments, the impact of volatile weather caused by environmental conditions such as climate change, increases in attrition and our ability to retain key personnel, and our estimated or anticipated future results of operations, which involve risks and uncertainties.

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

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

COVID-19 pandemic and related supply chain disruptions

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

and international markets.

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

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

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

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

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

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

Inflation, supply chain disruptions and the challenging geopolitical and macro-economic environment

Our global operations have been affected by many headwinds, including inflationary pressures, ongoing global supply chain disruptions, increased geopolitical tensions, including the war between Russia and Ukraine, increased trade restrictions, financial market volatility, currency movements, and the pandemic.

These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain components, which in some cases has impacted our ability to manufacture products, causing delays in delivery of our solutions to our customers and higher material procurement costs.

We used a number of strategies to effectively navigate supply chain challenges, including product redesign, alternate sourcing, and increased supplier and customer engagement.

These, along with the strength of our broad portfolio and global application of the Keysight Leadership Model, enables us to deliver consistent value to our customers.

For discussion of risks related to potential impacts of supply chain, geopolitical and macro-economic challenges on our operations, business results and financial condition, see “Item 1A.

Risk Factors.”

Russia-Ukraine war

In February 2022, the U.S.

imposed economic sanctions and other restrictions on Russia following its invasion of Ukraine.

As a result, after an initial suspension of operations in Russia, we permanently discontinued our Russian operations and are exiting Russia.

Our business in Russia accounted for approximately 1 percent of total revenue for 2021.

In 2022, we recorded pre-tax expenses of $13 million, including asset impairment charges of $7 million and other liquidation-related expenses, including employee severance related to our exit of Russia.

Years ended October 31, 2022, 2021 and 2020

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

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

Orders of $5,984 million for 2022 increased 12 percent when compared to 2021.

Foreign currency movements had an unfavorable impact of 3 percentage points on order growth for 2022 as compared to 2021.

Orders grew across all regions, including double-digit growth in Asia Pacific.

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

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Orders grew double-digits across all regions.

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

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

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

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

Revenue of $5,420 million for 2022 increased 10 percent when compared to 2021.

Foreign currency movements had an unfavorable impact of 2 percentage points on revenue growth for 2022 as compared to 2021.

Revenue for both the Communications Solutions Group and the Electronic Industrial Solutions Group grew as compared to 2021, driven by growth across all regions and markets.

Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented approximately 70 percent and 30 percent, respectively, of total revenue for 2022.

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

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

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

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

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

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

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

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

Net income was $1,124 million in 2022 compared to net income of $894 million and $627 million in 2021 and 2020, respectively.

The increase in net income for 2022 when compared to 2021 was primarily driven by higher revenue volume, lower amortization of acquisition-related balances and lower variable people-related costs, partially offset by higher material costs and higher selling, general and administrative, R&D and income tax expenses.

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

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

In 2022, 2021 and 2020, we generated operating cash flows of $1,144 million, $1,322 million and $1,016 million, respectively.

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

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

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

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

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

Our customers are expected to continue to make R&D investments in certain next-generation technologies, such as 5G/6G, new mobility technologies, industrial internet of things ("IoT") and defense modernization.

In the midst of an uncertain economic environment, we continue to closely monitor the macro indicators related to inflation, trade, tariffs, monetary and fiscal policies, endemic and pandemic conditions, and the related global supply chain challenges, increased trade restrictions and increasing geopolitical tension in regions outside of the U.S., including the risk of increased tensions between China and Taiwan.

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

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We experience some fluctuations within individual lines of the consolidated balance sheet and consolidated statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities.

Our hedging program is designed to hedge short-term currency movements based on a rolling period of up to twelve months.

Our cash flow hedging program is designed to hedge short-term currency movements based on a rolling period of up to twelve months.

Therefore, we are exposed to currency fluctuations over the longer term.

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Results from Operations - Years ended October 31, 2022, 2021 and 2020

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

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

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

(in millions)

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

Services and other 891 789 749 13% 5%

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

A summary of our results is as follows:

Year Ended October 31, 2022 over 2021

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2022 2021 2020

% of total revenue:

in millions, except margin data

Revenue $ 5,420 $ 4,941 $ 4,221 10% 17%

Products $ 4,474 $ 4,050 $ 3,432 10% 18%

Percentage of revenue

83 % 82 % 81 % 1 ppt 1 ppt

Services and other $ 946 $ 891 $ 789 6% 13%

Total 100 % 100 % 100 %

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

Year over Year % Change

2021 over 2020 2020 over 2019

Geographic Region actual currency adjusted actual currency adjusted

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

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

Asia Pacific 13 % 12 % 2 % 2 %

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

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

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

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

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

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

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

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

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

Costs and Expenses

Year Ended October 31, 2021 over 2020

% Change 2020 over 2019

2021 2020 2019

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

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

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

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

(in millions)

Percentage of revenue

17 % 18 % 19 % (1) ppt (1) ppt

Gross margin 63.7 % 62.1 % 60.0 % 2 ppts 2 ppts

Products 63.9 % 62.4 % 60.0 % 2 ppts 2 ppts

Services and other 62.7 % 60.7 % 60.0 % 2 ppts 1 ppt

Research and development $ 841 $ 811 $ 715 4% 13%

Percentage of revenue

16 % 16 % 17 % (1) ppt (1) ppt

Selling, general and administrative $ 1,283 $ 1,195 $ 1,097 7% 9%

Percentage of revenue

24 % 24 % 26 % — (2) ppts

Other operating expense (income), net $ (8) $ (17) $ (44) (53)% (61)%

Income from operations $ 1,334 $ 1,080 $ 765 24% 41%

Operating margin 24.6 % 21.9 % 18.1 % 3 ppts 4 ppts

Interest income $ 16 $ 3 $ 11 676% (81)%

Interest expense $ (79) $ (79) $ (78) —% 1%

Other income (expense), net $ 14 $ 6 $ 63 105% (90)%

Income before taxes $ 1,285 $ 1,010 $ 761 27% 33%

Provision for income taxes $ 161 $ 116 $ 134 39% (14)%

Net income $ 1,124 $ 894 $ 627 26% 43%

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

The following table provides the percent change in revenue for 2022 and 2021 by geographic region and the impact of foreign currency movements as compared to the respective prior year.

Year over Year % Change

2022 over 2021 2021 over 2020

Geographic Region actual Currency Impact Favorable (Unfavorable) actual Currency Impact Favorable (Unfavorable)

Americas 10% — 22% —

Europe 11% (5) ppts 18% 4 ppts

Asia Pacific 9% (4) ppts 13% 1 ppt

Total revenue 10% (2) ppts 17% 1 ppt

Gross Margin, Operating Margin and Income Before Taxes

Gross margin increased 2 percentage points in 2022 compared to 2021, primarily driven by lower amortization of acquisition-related balances, price increases, higher revenue volume and lower variable people-related costs, partially offset by higher material costs.

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

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

Excess and obsolete inventory charges were $27 million in 2022, $27 million in 2021 and $29 million in 2020.

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

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

Research and development expense increased 4 percent in 2022 compared to 2021, primarily driven by investments in key growth opportunities in our end markets and leading-edge technologies, as well as incremental costs of acquired businesses,

partially offset by lower variable people-related costs.

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

Selling, general and administrative expenses increased 7 percent in 2022 compared to 2021, primarily driven by increased investment in sales resources, higher infrastructure-related, travel and marketing-related costs, as well as incremental costs of acquired businesses, partially offset by lower variable people-related costs.

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

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

Other operating expense (income), net was income of $8 million, $17 million and $44 million for 2022, 2021 and 2020, respectively.

The decrease in net other operating income in 2022 was primarily driven by asset impairment charges related to the discontinuance of our Russia operations.

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

Operating margin increased 3 percentage points in 2022 when compared to 2021, primarily driven by gross margin gains and lower operating expenses as a percentage of sales.

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

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

Our headcount was approximately 15,000 at October 31, 2022, compared to approximately 14,300 at October 31, 2021.

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Other income (expense), net

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

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

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

Other income (expense), net for 2022, 2021 and 2020 was income of $14 million, $6 million and $63 million, respectively, and primarily includes net income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial loss and prior service credits, and gains (losses) on settlements and curtailments) and the change in fair value of our equity investments.

The increase in net other income for 2022 when compared to 2021 was primarily driven by $38 million lower amortization of net actuarial losses and a 2021 loss on a partial settlement of a non-U.S.

pension plan, partially offset by a $31 million loss on our equity investments.

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

We also recognized gains from insurance proceeds of $9 million for the year ended October 31, 2020.

Year Ended October 31,

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

jurisdictions, partially offset by U.S.

tax imposed on earnings 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.

The increase in the effective tax rate from 2021 to 2022 was due to nonrecurring tax benefits recorded in 2021, partially offset by a decrease in 2022 taxes from changes in tax reserves primarily due to audit settlement and from a relative decrease in U.S.

tax due on non-U.S.

The 2022 tax expense also includes a decrease in tax expense resulting from an out-of-period adjustment to tax reserves for fiscal years 2019 through 2021 related to the potential U.S.

benefit associated with the future resolution of non-U.S.

tax reserves.

The 2022 decrease in tax expense was partially offset by an increase to tax expense resulting from an out-of-period adjustment related to corrections to the tax rate applied to non-US pension deferred tax balances.

Neither of these out-of-period adjustments were material individually or in the aggregate.

The 2021 significant nonrecurring tax benefits include 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 decrease in the effective tax rate from 2020 to 2021 was due to a change in the jurisdictional mix of non-U.S.

earnings, partially 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.

earnings and the 2021 nonrecurring tax benefits described above.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that will expire or 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 in those jurisdictions.

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

We are continuing to evaluate renewal options and the impact of potential outcomes on our effective tax rate.

The impact of the tax incentives decreased income taxes by $81 million, $70 million and $53 million in 2022, 2021 and 2020, respectively.

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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 open tax years for the U.S.

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For certain foreign entities, the tax years remain open, at most, back to the year 2008.

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

Keysight’s fiscal year 2018 U.S.

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

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

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

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

The Tax Cuts and Jobs Act ("TCJA") 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 fiscal year 2018 U.S.

federal income tax return.

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

As of June 2022, the fiscal year 2018 U.S.

federal income tax audit was effectively settled with no material assessments and no additional cash taxes paid.

The company is being audited in Malaysia for fiscal year 2008.

This tax year predates our separation from Agilent.

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

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

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

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

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

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

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

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, and a hearing is currently scheduled for 2023.

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.

Given the numerous tax years and matters that remain subject to examination in various tax jurisdictions, the ultimate resolution of current and future tax examinations could be inconsistent with management’s current expectations.

If that were to occur, it could have an impact on our effective tax rate in the period in which such examinations are resolved.

A provision enacted in the TCJA requiring U.S.

tax research and experimental expenditures to be capitalized and amortized over five years for research activities conducted in the U.S.

and fifteen years for research activities conducted outside of the U.S.

will be effective for Keysight beginning November 1, 2022.

If this provision is not deferred, the capitalization is expected to increase U.S.

taxable income and increase the U.S.

federal Foreign-Derived Intangible Income tax deduction.

As Keysight has elected to treat global intangible low-taxed income (“GILTI”) as a period cost, the capitalization will also increase the provision for income taxes.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 that includes changes to the U.S.

corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective for Keysight beginning November 1, 2023 and a one percent excise tax on repurchases of stock after December 31, 2022.

We are continuing to evaluate the impact of these changes in U.S.

tax law, as well as its application to our business.

Segment Overview

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Communications Solutions Group revenue for 2022 increased 8 percent when compared to 2021.

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

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

Foreign currency movements had an unfavorable impact of 2 percentage points on year-over-year revenue growth for 2022 as compared to 2021.

Revenue grew across all regions and in both the commercial communications and the aerospace, defense and government markets.

Investment continues to be strong to support new communications technologies like 5G, Open Radio Access Networks ("O-RAN"), 400G, 800G, 1.6 Terabit networks, high-speed digital applications, spectrum operations, cybersecurity, space and satellite solutions;

however, on-going supply chain constraints limited shipments and moderated revenue growth in 2022.

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

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

Revenue grew in both the aerospace, defense and government and the commercial communications markets.

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

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

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

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

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

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

Revenue from the commercial communications market represented approximately 69 percent of total Communications Solutions Group revenue in 2022 and increased 11 percent as compared to 2021.

Revenue grew across all regions, driven by strong market demand across the communications ecosystem.

Wireless 5G development and manufacturing of chipsets, components and devices, O-RAN, and high-speed data solutions to support data centers and the cloud drove growth.

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

The 2021 revenue growth was driven by improved economic conditions across the communications ecosystem, partially offset by the impact of China trade restrictions.

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

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

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

Revenue from the aerospace, defense and government market represented approximately 31 percent of total Communications Solutions Group revenue in 2022 and increased 3 percent as compared to 2021.

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

We continue to see investments in spectrum operations, cybersecurity, and satellites and space, as well as new commercial technologies like 5G and early 6G research applications.

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

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

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

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

Europe and Asia.

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

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

Gross Margin and Operating Margin

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Total gross margin 66.5 % 65.3 % 65.2 % 1 ppt —

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

Operating margin 28.5 % 26.5 % 24.7 % 2 ppts 2 ppts

(in millions)

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Income from operations $ 1,085 $ 932 $ 773 16% 20%

Gross margin for the Communications Solutions Group in 2022 increased 1 percentage point as compared to 2021, primarily driven by price increases, higher revenue volume and lower variable people-related costs, partially offset by higher material costs.

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

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

Research and development expense in 2022 increased 3 percent when compared to 2021, primarily driven by investments in key growth opportunities in our end markets and leading-edge technologies, as well as incremental costs of acquired businesses, partially offset by lower variable people-related costs.

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

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

Selling, general and administrative expense in 2022 increased 7 percent when compared to 2021, primarily driven by increased investment in sales resources, higher infrastructure-related, marketing and travel-related costs, as well as incremental costs of acquired businesses, partially offset by lower variable people-related costs.

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

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

Other operating expense (income), net, primarily includes property rental income and was income of $11 million in 2022, $12 million in 2021 and $9 million in 2020.

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Income from operations for 2022 increased $153 million on a corresponding revenue increase of $280 million.

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

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

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

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

Operating margin in 2022 increased 2 percentage points when compared to 2021, driven by gross margin gains and lower operating expenses as a percentage of sales.

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

Electronic Industrial Solutions Group

The Electronic Industrial Solutions Group provides test and measurement solutions and related services across a broad set of electronic industrial end markets, focusing on high-value applications in the automotive and energy 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.

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, as well as automated test software that uses artificial intelligence and machine learning to automate test creation and test execution.

Year Ended October 31, 2022 over 2021

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Electronic Industrial Solutions Group revenue for 2022 increased 14 percent when compared to 2021.

Foreign currency movements had an unfavorable impact of 3 percentage points on year-over-year revenue growth for 2022 as compared to 2021.

The revenue increase was driven by continued investments in next-generation automotive and energy technologies, semiconductor measurement solutions, and industrial IoT.

Revenue grew across all regions for 2022 as compared to 2021.

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

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

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

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

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

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

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

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

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

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

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

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

Declines in automotive and energy and general electronics measurement were partially offset by growth in semiconductor measurement solutions, driven by continued investments in next-generation technologies.

Revenue declined across all regions for 2020 compared to 2019.

Gross Margin and Operating Margin

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Total gross margin 61.5 % 64.2 % 62.7 % (3) ppts 2 ppts

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

Operating margin 31.0 % 31.3 % 27.1 % — 4 ppts

(in millions)

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Income from operations $ 501 $ 444 $ 296 13% 50%

Gross margin in 2022 decreased 3 percentage points as compared to 2021, primarily driven by higher material costs, partially offset by higher revenue volume and price increases.

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

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

Research and development expense in 2022 increased 4 percent when compared to 2021, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies, partially offset by lower variable people-related costs.

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

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

Selling, general and administrative expense in 2022 increased 6 percent when compared to 2021, primarily driven by higher infrastructure-related, marketing and travel-related costs, partially offset by lower variable people-related costs.

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

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

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

Other operating expense (income), net primarily includes property rental income and was income of $4 million, $5 million and $4 million in 2022, 2021 and 2020, respectively.

Income from Operations

Income from operations for 2022 increased $57 million on a corresponding revenue increase of $199 million.

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

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

Operating margin in 2022 was flat when compared to 2021, primarily driven by lower operating expenses as a percentage of sales, partially offset by gross margin declines.

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

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

Financial Condition

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

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

Net cash provided by operating activities decreased by $178 million in 2022 as compared to 2021 and increased $306 million in 2021 as compared to 2020.

• Net income in 2022 increased $230 million as compared to 2021.

Non-cash adjustments to net income were higher by $32 million, primarily due to a $60 million decrease in deferred tax benefits, a $31 million unrealized loss on investment in equity securities, a $22 million increase in share-based compensation expense and a $7 million impairment of assets, partially offset by a $70 million decrease in amortization, a $16 million lower pension settlement loss and a $2 million decrease from other miscellaneous non-cash activities.

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

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

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

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

• The aggregate of accounts receivable, inventory and accounts payable used net cash of $273 million during 2022, compared to net cash used of $112 million in 2021 and $31 million in 2020.

The increase in aggregate net cash used in 2022 is primarily driven by higher revenue volume, net of collections, and an increase in inventory due to higher material procurement costs and incremental stock build-up to secure supply.

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

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

• Net cash used for retirement and post-retirement benefits was $19 million in 2022, compared to net cash provided of $7 million in 2021 and net cash used of $108 million in 2020.

The company's contributions to our U.S.

Defined Benefit

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

Defined Benefit Plan were zero, zero and $100 million in 2022, 2021 and 2020, respectively.

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

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Post-Retirement Benefit Plan") in 2022, 2021 and 2020.

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

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

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

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

• The aggregate other movements in assets and liabilities used net cash of $112 million during 2022, compared to net cash provided of $141 million in 2021 and $82 million in 2020.

The difference between 2022 and 2021 cash flows is primarily due to higher prepaid inventory deposits driven by supply chain constraints, higher income tax payments, net of accruals, higher variable compensation and other payroll-related payments, net of accruals, higher prepaid expenses, and changes in deferred revenue.

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

Investing Activities

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

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

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

Net cash used in investing activities decreased by $102 million in 2022 as compared to 2021 and decreased by $89 million in 2021 as compared to 2020.

Investments in property, plant and equipment increased $11 million as compared to 2021 and increased $57 million in 2021 as compared to 2020.

The increase in capital spending in 2022 was driven by capital investments to increase the resiliency of our supply chains.

In 2022, we used $251 million for investing activities, including $185 million for purchases of property, plant and equipment;

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

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

$33 million, net of cash acquired, for acquisition activities;

and $33 million for investments, including $30 million for purchase of an equity investment.

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

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

$102 million, net of $11 million of cash acquired, for the acquisition of Sanjole Inc.;

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

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

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

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

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

$319 million, net of $11 million of cash acquired, for the acquisition of Eggplant Topco Limited ("Eggplant") and $38 million, net of cash acquired, for other acquisition activities;

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

Financing Activities

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

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

Net cash used in financing activities increased by $190 million in 2022 as compared to 2021 and increased by $258 million in 2021 as compared to 2020.

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

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

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

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

The incremental increases were primarily due to treasury stock repurchases.

In 2022, we used $861 million for financing activities, including $849 million of treasury stock repurchases and $74 million of tax payments related to net share settlement of equity awards, partially offset by $63 million of proceeds from issuance of common stock under employee stock plans.

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

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

Treasury stock repurchases

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

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

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

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

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

October 31, 2021 October 31, 2020

(in millions)

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Cash and cash requirements

October 31, 2021 October 31, 2020

(in millions)

1 unchanged sentence

$ 1,686 $ 1,641

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

We continuously monitor the creditworthiness of the financial institutions and money market fund asset managers with whom we invest our funds.

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Total Due within one

year of October 31, 2021 Due later than one

year of October 31, 2021

year Due later than one

(in millions)

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transition tax liability and $136 million for uncertain tax positions.

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

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

The remaining U.S.

transition tax liability, which Keysight originally elected to pay over 8 years, is payable over the next 4 years and relates to a one-time U.S.

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

With regard to the $136 million of long-term liabilities for uncertain tax positions, we are unable to accurately predict when these amounts will be realized or released.

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

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.

See note 5 “Income taxes” for additional information.

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

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

Additionally, we expect capital spending to be approximately $250 million in 2023, with greater investments in capacity expansion and technology investments.

As of October 31, 2022, we believe our cash and cash equivalents, cash generated from operations, and our ability to access capital markets and credit lines will satisfy our cash needs for the foreseeable future both globally and domestically.

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

Due to the COVID-19 pandemic,

there has been uncertainty and disruption in the global economy and our markets.

We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 31, 2022.

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We primarily generate revenue from the sale of products (hardware and/or software), services, or a combination thereof.

We enter into contracts that may involve multiple performance obligations, and we allocate the transaction price between each performance obligation on the basis of relative standalone selling price (“SSP”).

We enter into contracts that

may involve multiple performance obligations, and we allocate the transaction price between each performance obligation on the basis of relative standalone selling price (“SSP”).

We recognize revenue following the five-step model.

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The excess balance determined by this analysis becomes the basis for our excess inventory charge.

Our excess inventory review process includes analysis of sales forecasts, managing product rollovers and working with manufacturing to maximize recovery of excess inventory.

Our excess inventory review process includes analysis of sales forecasts, managing product rollovers and working with manufacturing and sales to maximize recovery of excess inventory.

If actual market conditions are less favorable than those projected by management, additional write-downs may be required.

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Awards granted under the Keysight Technologies, Inc.

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

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

operating margin.

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

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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.

The discount rate is a critical assumption.

Other important assumptions include expected long-term return on plan assets, 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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If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired.

If the carrying amount of a reporting unit exceeds its estimated fair value, then an impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit's fair value up to a maximum amount of the goodwill balance for the reporting unit.

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.

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

recorded for the amount by which the carrying amount exceeds the reporting unit's fair value up to a maximum amount of the goodwill balance for the reporting unit.

During the fourth quarter of 2022, 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.

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

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

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

We performed an impairment test of Eggplant's long-lived assets in 2021, which preceded the quantitative test of goodwill in accordance with the guidance, and concluded that no impairment charge was required.

No impairments of purchased intangible assets were recorded during the years ended October 31, 2022, 2021 and 2020.

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

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

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

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

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When it is more-likely-than-not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized.

We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable.

We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction

basis when assessing whether it is more likely than not that deferred tax assets are recoverable.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis