What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-12-15 compared with 2022-12-15 · 230 added, 241 removed, 340 unchanged (58% 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, 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.

This report contains forward-looking statements which include but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, 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 government regulations on our ability to 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, and our transition to lower-cost regions.

The forward-looking statements involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations.

Such risks and uncertainties include, but are not limited to, the impact of global economic conditions such as inflation or potential recession, slowing demand for products or services, volatility in financial markets, reduced access to credit, increased interest rates, the existence of political or economic instability, impacts of geopolitical tension and conflict, 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, 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, and our ability to successfully integrate key acquisitions.

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 I Item 1A and elsewhere in this Annual Report on Form 10-K.

Overview and Executive Summary

Keysight Technologies, Inc.

("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 development lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and repair.

("we," "us," "Keysight" or the "company"), incorporated in Delaware on December 6, 2013, is a global innovator in the computing, communications and electronics market, committed to advancing our customers’ business success by helping them solve critical challenges in the development and commercialization of their products and services.

Our mission, " accelerating innovation to connect and secure the world," speaks to the value we provide our customers in a world of ever-increasing technological complexity.

We deliver this value through a broad range of design and test solutions that address the critical challenges our customers face in bringing their innovations to market faster.

Our fiscal year end is October 31.

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

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.

Macroeconomic headwinds and challenging geopolitical environment

Our global operations continue to be affected by many external headwinds, including inflationary pressures, rising interest rates, currency movements, increased geopolitical tensions, and trade restrictions.

These headwinds are also negatively impacting our customers' operations and financial performance.

As a result, demand has declined year-over-year as our customers are exercising caution in spending to manage financial results and adapt to post-pandemic industry dynamics.

As we work through these near-term headwinds, we are exercising our financial playbook and the structural flexibility in our operating model to continue delivering strong financial results.

We believe that Keysight’s technology leadership, differentiated first-to-market solutions portfolio, durable and resilient business model driven by the strength of the Keysight Leadership Model, continued customer engagement in new technology innovation spanning diverse applications across global markets, and our culture position us well to weather these macro and industry dynamics and deliver consistent long-term value to our customers.

For discussion of risks related to potential impacts of macroeconomic headwinds and geopolitical 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, 2023, 2022 and 2021

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 of $5,190 million for 2023 decreased 13 percent compared to 2022.

Foreign currency movements had an unfavorable impact of 1 percentage point on order change for 2023 compared to 2022.

Orders declined across all regions, including double-digit decline in Asia Pacific.

Total orders for 2022 were $5,984 million, an increase of 12 percent compared to 2021.

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

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

Orders grew double-digits across all regions.

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 of $5,464 million for 2023 increased 1 percent compared to 2022.

Foreign currency movements had an unfavorable impact of 2 percentage points on revenue growth for 2023 compared to 2022.

A revenue increase in the Electronic Industrial Solutions Group was partially offset by a decline in the Communications Solutions Group.

Revenue from the Communications Solutions Group and the Electronic Industrial Solutions Group represented approximately 67 percent and 33 percent, respectively, of total revenue for 2023.

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

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

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

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

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

Revenue for both the Communications Solutions Group and the Electronic Industrial Solutions Group grew compared to 2021.

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.

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.

Net income was $1,057 million in 2023 compared to net income of $1,124 million and $894 million in 2022 and 2021, respective ly.

The decrease in net income for 2023 compared to 2 022 was primarily driven by higher income tax expense, R&D expense, and selling, general and administrative expense, partially offset by higher interest income, higher revenue, and favorable mix.

The increase in net income for 2022 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.

In 2023, 2022 and 2021, we generated operating cash flows of $1,408 million, $1,144 million and $1,322 million, respectively.

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.

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

Our customers are expected to continue to make R&D investments in certain next-generation technologies, including 5G, early 6G, high-speed data center, satellite networks and Artificial Intelligence-Machine Learning ("AI-ML") network modeling, new automotive mobility technologies, industrial internet of things ("IoT"), and defense modernization.

We continue to engage actively with our customers, and closely monitor the current macro economic environment, including trade, tariffs, monetary and fiscal policies, geopolitical tensions, and supply chain challenges.

Despite the near-term challenges, we remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Currency Exchange Rate Exposure

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We hedge revenues, expenses, and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short-term and anticipated basis.

The result of the hedging has been included in our consolidated statement of operations.

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.

The result of hedging has been included in our consolidated statement of operations.

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

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Percentage of revenue

83 % 82 % 81 % 1 ppt 1 ppt

79 % 81 % 81 % (2) ppts —

Services and other $ 1,128 $ 1,034 $ 948 9% 9%

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

21 % 19 % 19 % 2 ppts —

Gross margin 64.6 % 63.7 % 62.1 % 1 ppt 2 ppts

Products 64.2 % 63.3 % 62.2 % 1 ppt 1 ppt

Services and other 66.3 % 64.9 % 61.9 % 1 ppt 3 ppts

Research and development $ 882 $ 841 $ 811 5% 4%

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Percentage of revenue

24 % 24 % 26 % — (2) ppts

24 % 24 % 24 % — —

Other operating expense (income), net $ (15) $ (8) $ (17) 80% (53)%

Income from operations $ 1,358 $ 1,334 $ 1,080 2% 24%

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

Operating margin 24.8 % 24.6 % 21.9 % — 3 ppts

Interest income $ 102 $ 16 $ 3 518% 676%

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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

The following table provides the percent change in revenue for 2023 and 2022 by geographic region and the impact of foreign currency movements compared to the respective prior year.

Year-over-Year Revenue Change

2023 over 2022 2022 over 2021

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Europe 8% (2) ppts 11% (5) ppts

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

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

Asia Pacific (1)% (3) ppts 9% (4) ppts

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

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.

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

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.

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 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.

Interest Income and Expense

Gross margin increased 1 percentage point in 2023 compared to 2022, primarily driven by price increases and favorable mix, partially offset by higher warranty costs.

Gross margin increas ed 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.

Excess and obsolete inventory charges were $27 million in 2023, 2022, and 2021.

Research and development expense increased 5 percent in 2023 compared to 2022, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, partially offset by lower variable people-related costs.

Selling, general and administrative expenses increased 2 percent in 2023 compared to 2022, primarily driven by higher infrastructure-related, restructuring, and travel-related costs, partially offset by lower selling and variable people-related costs.

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-related, and marketing costs, as well as incremental costs of acquired businesses, partially offset by lower variable people-related costs.

Other operating expense (income) was income of $15 million, $8 million, and $17 million for 2023, 2022, and 2021, respectively.

During fiscal year 2022, other operating expense (income) includes asset impairment charges of $7 million related to the discontinuance of our Russia operations.

Operating margin was flat in 2023 compared to 2022, primarily driven by gross margin gains offset by higher R&D expenses as a percentage of sales.

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

Interest income for 2023, 2022, and 2021 was $102 million, $16 million, and $3 million, respectively, and primarily relates to interest earned on our cash balances.

The increase in interest income in fiscal 2023 is primarily driven by an increase in interest rates and higher year-over-year cash balances.

Interest expense for 2023, 2022, and 2021 was $78 million, $79 million, and $79 million, respectively, and primarily relates to interest on our senior notes.

Other income (expense), net

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.

Other income (expense) for 2023, 2022, and 2021 was expense of $25 million, income of $14 million, and income of $6 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), currency gains (losses), gains (losses) on derivative instruments, and the change in fair value of our equity investments.

The increase in net other expense for 2023 compared to 2022 was primarily driven by losses on derivative instruments and higher amortization of net actuarial losses, partially offset by a net gain on our equity investments.

The increase in net other income for 2022 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 loss on our equity investments.

Our headcount was approximately 14,900 at October 31, 2023, compared to approximately 15,000 at October 31, 2022.

Year Ended October 31,

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The effective tax rate was 22 percent, 13 percent, and 11 percent for 2023, 2022, and 2021, respectively.

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

The tax rate in 2023 is higher than the U.S.

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

tax capitalization of research and experimental expenditures, partially offset by the net impact from the proportion of worldwide earnings taxed at lower statutory tax rates in non-U.S.

jurisdictions and the U.S.

tax imposed on those non-U.S.

The tax rate in 2022 and 2021 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.

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jurisdictions.

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 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.

There was an increase in the effective tax rate from 2022 to 2023 of 9 percent, primarily due to a 5 percent increase from the impact of the U.S.

tax capitalization of research and experimental expenditures.

A provision enacted in the Tax Cuts and Jobs Act of 2017 (the "TCJA") became effective for Keysight on November 1, 2022, requiring that research and experimental expenditures be capitalized for U.S.

tax purposes.

The capitalized expenses are amortized over five years for research activities conducted in the U.S.

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

The capitalization of research and experimental expenditures increases the U.S.

tax on non-U.S.

earnings as part of the global intangible low-taxed income (“GILTI”) tax.

There was an additional 2 percent increase in the effective tax rate from 2022 to 2023 due to a decrease in 2022 taxes resulting from changes in tax reserves.

The other changes in the effective tax rate from 2022 to 2023 were not individually significant.

There was an increase in the effective tax rate from 2021 to 2022 of 2 percent, primarily due to a 3 percent decrease in the 2021 effective tax rate from nonrecurring tax benefits, partially offset by a 3 percent decrease in 2022 effective tax rate from changes in tax reserves.

The remaining 2 percent increase was comprised of various components that were not individually significant.

The 2022 benefit from the change in tax reserves is primarily due to an audit settlement and an out-of-period adjustment.

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 compared to the estimate at acquisition based on the finalization of the integration plan.

The other changes in the effective tax rate from 2021 to 2022 were not individually significant.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that will expire 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 Singapore tax incentive expires July 31, 2024, and the Malaysia tax incentive expires October 31, 2025.

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

The impact of the tax incentives decreased income taxes by $95 million, $81 million, and $70 million in 2023, 2022, and 2021, respectively.

The increase in tax benefit from 2021 to 2022 is primarily due to a change in the jurisdictional mix of non-U.S.

The increase in tax benefit from 2022 to 2023 was primarily due to a change in the jurisdictional mix of non-U.S.

earnings, which increased the earnings taxed at incentive tax rates in 2023.

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

Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management.

In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S.

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federal income tax return and most state income tax returns are from November 1, 2019 through the current tax year.

For the majority of our foreign entities, the open tax years are from November 1, 2017 through the current tax year.

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

Keysight’s fiscal year 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.

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.

For the majority of our non-U.S.

entities, the open tax years are from November 1, 2017 through the current tax year.

For certain non-U.S.

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

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

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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 company believes there are strong technical defenses to the current assessment;

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.

The company is disputing this assessment and pursuing all available recourses 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.

The final hearing with the Court of Appeal took place on October 23, 2023.

The decision is expected to be rendered on February 29, 2024.

There are limited further legal options available after the conclusion is returned from the Court of Appeal.

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.

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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.

We are subject to income taxes in the U.S.

and various other countries globally.

Changes in tax law, tax rates, or in the composition of earnings in countries with differing tax rates may affect deferred tax assets and liabilities recorded and our future effective tax rate.

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.

government enacted the Inflation Reduction Act of 2022, which included 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.

In addition, the Organization for Economic Cooperation and Development (“OECD”) reached agreement among various countries to implement a minimum fifteen percent tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

Many countries continue to announce changes in their tax laws and regulations based on the Pillar Two proposals.

We are continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available.

Some of these legislative changes could result in double taxation of our non-U.S.

earnings, a reduction in the tax benefit received from our tax incentives, or other impacts to our effective tax rate and tax liabilities.

Given the numerous proposed tax law changes and the uncertainty regarding such proposed legislative changes, the impact of Pillar Two cannot be determined at this time.

We do not recognize deferred taxes for temporary differences expected to impact the GILTI tax expense in future years.

We recognize the tax expense related to GILTI in each year in which the tax is incurred.

Segment Overview

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

The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, a 2020 gain on an insurance settlement related to northern California wildfires, restructuring costs, interest income, interest expense and other items.

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 costs, interest income, interest expense and other items.

Communications Solutions Group

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

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

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

The Communications Solutions Group ("CSG") serves customers spanning the global commercial communications and aerospace, defense, and government end markets.

The group’s solutions consist of electronic design and test software, instrumentation, systems, and related services.

These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of communication systems in wireless, wireline, enterprise, and aerospace, defense and government end markets.

In addition, the group provides automated software test solutions that include AI-ML to automatically identify, build, and execute tests critical to digital business success and a strong customer experience.

Year Ended October 31, 2023 over 2022

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2023 2022 2021

(in millions)

Total revenue $ 3,685 $ 3,803 $ 3,523 (3)% 8%

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

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

Revenue for the Communications Solutions Group in 2023 decreased 3 percent compared to 2022.

Foreign currency movements had an unfavorable impact of 2 percentage points on the year-over-year revenue change.

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

Revenue decline in the commercial communications end market was partially offset by growth in the aerospace, defense and government end market.

The Communications Solutions Group revenue declined due to cautious customer spending across the communications ecosystem as those customers work through post-pandemic inventory dynamics and macroeconomic uncertainty.

At the same time, our R&D engagements with customers remained strong and we continue to see investments in defense modernization and space and satellite communications, AI-ML and data center expansions, research in 5G and 6G, advanced quantum research, and new capabilities and devices as well as open radio access networks and release 17 features.

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

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

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 from the commercial communications market represented approximately 66 percent of total Communications Solutions Group revenue in 2023 and decreased 7 percent compared to 2022.

Revenue declines in Asia Pacific and the Americas was partially offset by a slight increase in Europe.

We saw demand for our wireline solutions, driven by AI-ML and data center expansion, and continue to see steady R&D investments in new capabilities and devices for 5G as well as Open RAN and release 17 features.

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

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, spectrum operations, and new commercial technologies like 5G and early 6G research applications.

Revenue from the aerospace, defense and government market represented approximately 34 percent of total Communications Solutions Group revenue in 2023 and increased 7 percent compared to 2022.

Revenue grew across all regions.

We saw demand from U.S.

and European primes, as well as direct government customers, driven by investment in defense modernization and space and satellite applications.

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

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

Gross Margin and Operating Margin

The following table provides Communications Solutions Group margins, expenses and income from operations for 2022 versus 2021, and 2021 versus 2020.

Year Ended October 31, 2023 over 2022

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2023 2022 2021

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

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

(in millions)

in millions, except margin data

Gross margin 67.7 % 66.5 % 65.3 % 1 ppt 1 ppt

Research and development $ 618 $ 606 $ 589 2% 3%

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Income from operations $ 1,068 $ 1,085 $ 932 (2)% 16%

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.

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.

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.

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.

Income from Operations

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

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.

Operating margin 29.0 % 28.5 % 26.5 % 1 ppt 2 ppts

Gross margin for the Communications Solutions Group in 2023 increased 1 percentage point compared to 2022, primarily driven by price increases and favorable mix, partially offset by higher warranty costs.

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

Research and development expense in 2023 increased 2 percent compared to 2022, primarily driven by continued 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 2022 increased 3 percent 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.

Selling, general and administrative expense in 2023 decrea sed 3 perce nt compared to 2022, primarily driven by lower selling and variable people-related costs, partially offset by higher travel-related costs.

Selling, general and administrative expense in 2022 increased 7 percent 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.

Other operating expense (income), net, was income of $11 million in 2023, $11 million in 2022, and $12 million in 2021, and primarily includes property rental income.

Operating margin in 2023 increased 1 percentage point compared to 2022, primarily driven by gross margin gains offset by higher R&D expenses as a percentage of sales.

Operating margin in 2022 increased 2 percentage points compared to 2021, driven by gross margin gains 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, as well as automated test software that uses artificial intelligence and machine learning to automate test creation and test execution.

The Electronic Industrial Solutions Group ("EISG") serves customers across a diverse set of end markets focused on automotive and energy, semiconductor solutions, and general electronics.

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

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

Year Ended October 31, 2023 over 2022

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2023 2022 2021

(in millions)

Total revenue $ 1,779 $ 1,617 $ 1,418 10% 14%

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.

Revenue for the Electronic Industrial Solutions Group in 2023 increased 10 percent compared to 2022.

Foreign currency movements had an unfavorable impact of 2 percentage points on year-over-year revenue growth for 2023 compared to 2022.

Revenue grew across all regions and markets.

While we saw moderation of demand particularly in semiconductor and manufacturing applications in the second half of the year, the revenue increase was driven by continued investments in key long-term strategic initiatives, such as next-generation electric vehicle ("EV") and autonomous vehicle ("AV") mobility, digital health, industrial IoT, and advanced semiconductor technologies.

Revenue for the Electronic Industrial Solutions Group in 2022 increased 14 percent compared to 2021.

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

Revenue grew across all regions for 2022 compared to 2021.

Gross Margin and Operating Margin

The following table provides Electronic Industrial Solutions Group margins, expenses and income from operations for 2022 versus 2021, and 2021 versus 2020.

Year Ended October 31, 2023 over 2022

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2023 2022 2021

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

Operating margin 31.0 % 31.3 % 27.1 % — 4 ppts

(in millions)

in millions, except margin data

Gross margin 61.9 % 61.5 % 64.2 % — (3) ppts

Research and development $ 224 $ 207 $ 199 8% 4%

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Income from operations $ 581 $ 501 $ 444 16% 13%

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.

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.

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.

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 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 32.7 % 31.0 % 31.3 % 2 ppts —

Gross margin in 2023 was flat compared to 2022, primarily driven by higher revenue volum e and favorable mix, partially offset by higher warranty costs.

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

Research and development expense in 2023 increased 8 percent compared to 2022, primarily driven by continued 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 2022 increased 4 percent 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.

Selling, general and administrative expense in 2023 increased 4 percent compared to 2022, primarily driven by higher selling and travel-related costs, partially offset by variable people-related costs.

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

Other operating expense (income), net, was income of $4 million, $4 million, and $5 million in 2023, 2022, and 2021, respectively, and primarily includes property rental income.

Operating margin in 2023 increased 2 percentage points compared to 2022, primarily driven by lower operating expenses as a percentage of sales.

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

Financial Condition

Liquidity and Capital Resources

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

Our liquidity is affected by many factors, including normal ongoing operations of our business and fluctuations due to global economics and markets.

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

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

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

Under certain circumstances, U.S.

and local government regulations may limit our ability to move cash balances to meet cash needs.

Overview of Cash Flows

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2023 2022 2021

(in millions)

Net cash provided by operating activities $ 1,408 $ 1,144 $ 1,322

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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 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 cash provided by operating activities increased $264 million in 2023 compared to 2022 and decreased $178 million in 2022 compared to 2021.

• Net income in 2023 decreased $67 million compared to 2022.

Non-cash adjustments to net income were lower by $54 million, primarily due to a $36 million increase in unrealized gains on equity and other investments, a $14 million decrease in amortization, a $10 million increase in deferred tax benefit, and a $7 million decrease in other non-cash adjustments, which was primarily driven by prior year one-time asset impairment charges related to the discontinuance of our Russia operations, partially offset by a $10 million increase in share-based compensation, and a $3 million increase in depreciation expense.

Net income in 2022 increased $230 million 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 asset impairment charge, 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.

• The aggregate of accounts receivable, inventory, and accounts payable used net cash of $196 million during 2023, compared to net cash used of $273 million in 2022 and $112 million in 2021.

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 decrease in aggregate net cash used in 2023 is primarily driven by higher collections, net of payments, partially offset by an increase in inventory driven by an incremental stock build-up to secure supply to support order fulfillment along with an increase in demo inventory.

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 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, zero and $100 million in 2022, 2021 and 2020, respectively.

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

defined benefit plans were $7 million, $8 million and $10 million in 2022, 2021 and 2020, respectively.

We did not contribute to the Keysight Technologies, Inc.

Health Plan for Retirees ("U.S.

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

• 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.

• Net cash used for retirement and post-retirement benefits was $8 million in 2023 compared to net cash used of $19 million in 2022 and net cash provided of $7 million in 2021.

See Note 12, "Retirement Plans and Post-Retirement Benefit Plans," for additional information.

• During the year ended October 31, 2023, we terminated forward-starting interest rate swap agreements resulting in proceeds of $107 million.

See Note 9, "Derivatives," for additional information.

• The aggregate other movements in assets and liabilities provided net cash of $78 million during 2023, compared to net cash used of $112 million in 2022 and net cash provided of $141 million in 2021.

The difference between 2023 and 2022 cash flows is primarily due to lower prepaid inventory deposits driven by easing of supply chain constraints and other lower prepaid expenses, unrealized loss on foreign exchange contracts not designated as hedging instruments (see Note 9, "Derivatives"), and changes in other assets and liabilities, offset by higher income tax payments, net of

accruals, higher variable compensation and other payroll-related payments, net of accruals, and changes in deferred revenue.

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 $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.

Net cash used in investing activities increased by $37 million in 2023 compared to 2022 and decreased by $102 million in 2022 compared to 2021.

Investments in property, plant and equipment increased $11 million compared to 2022 and increased $11 million in 2022 compared to 2021.

The increase in capital spending in 2023 was driven by capital investments to increase the resiliency of our supply chains.

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$85 million, net of cash acquired, for acquisition activities;

and $7 million for purchase of a cost-method investment.

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

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

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

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

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

$319 million, net of $11 million of cash acquired, for the acquisition of Eggplant Topco Limited ("Eggplant") 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 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 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.

Net cash used in financing activities decreased by $174 million in 2023 compared to 2022 and increased by $190 million in 2022 compared to 2021.

The decline in net cash used in 2023 was primarily due to lower treasury stock repurchases.

In 2023, we used $687 million for financing activities, including $702 million for treasury stock repurchases and $49 million for tax payments related to net share settlement of equity awards, partially offset by $67 million of proceeds from issuance of common stock under employee stock plans.

In 2022, we used $861 million for financing activities, including $849 million for treasury stock repurchases and $74 million for 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 for treasury stock repurchases and $53 million for 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.

Treasury stock repurchases

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.

On March 6, 2023, our board of directors approved a new stock repurchase program authorizing the purchase of up to $1,500 million of the company’s common stock, replacing the previously approved November 2021 program authorizing the purchase of up to $1,200 million of the company’s common stock, of which $225 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.

(in millions)

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

Revolving credit facility $ 750 $ 750

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

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

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

As of October 31, 2022 and October 31, 2021, we had no borrowings outstanding under the Revolving Credit Facility.

On July 30, 2021, we entered into an amended and restated credit agreement (the “Revolving Credit Facility”), which provided a $750 million five-year unsecured revolving credit facility that expires on July 30, 2026 with an annual interest rate of LIBOR + 1 percent along with a facility fee of 0.125 percent per annum.

On February 17, 2023, we entered into the first amendment to the Revolving Credit Facility to change the annual interest rate from LIBOR + 1 percent to SOFR + 1.1 percent.

The Revolving Credit Facility 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 Revolving Credit Facility for general corporate purposes.

As of October 31, 2023 and 2022, 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, 2023.

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Cash and cash requirements

(in millions)

Cash, cash equivalents and restricted cash $ 2,488 $ 2,057

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

On November 3, 2023, we acquired 50.6% of the share capital of ESI Group SA ("ESI Group") for approximately $512 million, using existing cash.

On November 7, 2023, we filed a tender offer to acquire the remaining outstanding shares of ESI Group at a price per share of 155 euros, to be primarily funded by approximately $457 million placed in an escrow account.

Should the tender offer result in ESI Group's remaining minority shareholders holding no more than 10 percent of ESI Group's share capital and voting rights, then Keysight intends to proceed with a mandatory squeeze-out of all remaining ESI Group shares at the end of the tender offer period and to delist ESI Group from Euronext Paris.

The following table summarizes our short and long-term cash requirements as of October 31, 2023:

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year Due later than one

(in millions)

Senior notes obligations $ 1,800 $ 600 $ 1,200

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

See note 14, "Commitments and contingencies." As of October 31, 2022, we had non-cancellable purchase commitments that aggregated to approximately $553 million, of which the majority is for less than one year.

See Note 14, "Commitments and Contingencies." As of October 31, 2023, we had non-cancellable purchase commitments that aggregated $467 million, of which the majority is for less than one year.

Other purchase commitments.

Other purchase commitments relate to contracts with professional services suppliers.

Other purchase commitments primarily relate to software as a service and other professional services contracts.

We also have long-term power purchase agreements to purchase power at predominantly variable prices.

These agreements are expected to support our power consumption needs with more favorable pricing and reliability than our previous supply agreements.

See Note 14, "Commitments and Contingencies."

Other liabilities.

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

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

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

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

Of the tax liabilities included in the above table, $54 million relates to a U.S.

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See Note 5 “Income Taxes” for additional information.

In addition to the obligations noted above, as of October 31, 2022 we had $38 million of outstanding letters of credit and surety bonds unrelated to the credit facility that were issued by various lenders.

In addition to the obligations noted above, as of October 31, 2023, we had $41 million of outstanding letters of credit and surety bonds that were issued by various lenders.

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

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defined benefit plans.

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

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

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

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

"Retirement Plans and Post-Retirement Benefit Plans."

Additionally, we expect capital spending to be approximately $150 million in 2024, compared to $196 million in 2023.

The decrease is primarily due to lower investments in capacity expansion.

As of October 31, 2023, 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.

6 unchanged sentences

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

Those policies are revenue recognition, inventory valuation, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and other intangible assets, warranty, loss contingencies, restructuring and accounting for income taxes.

Those policies are revenue recognition, inventory valuation, share-based compensation, retirement and post-retirement plan assumptions, valuations of goodwill and other intangible assets, warranty, loss contingencies, restructuring, and accounting for income taxes.

Revenue recognition.

1 unchanged sentence

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 recognize revenue following the five-step model.

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 a five-step model.

Identify the contract with a customer:

41 unchanged sentences

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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Defined benefit plan obligations are remeasured at least annually as of October 31, 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.

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 generally accepted accounting principles in the U.S.

The discount rate is a critical assumption.

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post-retirement benefit plans, gains and losses are amortized using a separate layer for each year's gains and losses.

The expected long-term return on plan assets is estimated using current and expected asset allocations as well as historical and expected returns.

The expected long-term return on plan assets is estimated using current and

expected asset allocations as well as historical and expected returns.

Plan assets are valued at fair value.

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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.

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 2023, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach.

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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'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, 2023, 2022, and 2021.

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

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

In 2022, 2021 and 2020, we assessed impairment by performing a qualitative test.

No material impairments of indefinite-lived intangible assets were recorded in 2022, 2021 and 2020.

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

No material impairments of indefinite-lived intangible assets were recorded in 2021.

We had no IPR&D intangible assets as of October 31, 2023 and 2022.

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

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Loss Contingencies.

As discussed in Note 13 and 14 to the consolidated financial statements, we are, from time to time, subject to a variety of litigation and similar contingent liabilities incidental to our business (or the business operations of previously owned entities).

As discussed in Note 13, "Supplemental Financial Information" and Note 14, "Commitments and Contingencies" to the consolidated financial statements, we are, from time to time, subject to a variety of litigation and similar contingent liabilities incidental to our business (or the business operations of previously owned entities).

We recognize a liability for any contingency that is known or probable of occurrence and reasonably estimable.

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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.

At October 31, 2022, the company maintains a valuation allowance mainly related to net operating losses in Luxembourg and the U.K., capital losses in the U.K., and California research credits.

At October 31, 2023, the company maintains a valuation allowance mainly related to net operating losses in Luxembourg and the U.K., capital losses and net operating losses in the U.K., and California research credits.

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

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New Accounting Standards

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

See Note 1, "Overview, Basis of Presentation and Summary of Significant Accounting Policies," to the consolidated financial statements for a description of new accounting pronouncements.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis