What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-12-15 compared with 2022-12-15 · 259 added, 265 removed, 1386 unchanged (27% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on November 1, 2019.

Basis for Opinions

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Other comprehensive income (loss):

Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of $( 19 ), $( 6 ) and $( 4 )

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

Gains (losses) on derivative instruments, net of tax benefit (expense) of $ 4 , $( 19 ) and $( 6 )

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

( 6 ) ( 3 ) ( 2 )

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Net defined benefit pension cost and post retirement plan costs:

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

83 144 ( 64 )

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

— ( 1 ) ( 9 )

Change in net actuarial gain (loss), net of tax benefit (expense) of $ 10 , zero and $( 55 )

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

Other comprehensive income (loss) ( 12 ) ( 12 ) 157

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Current liabilities:

Current portion of long-term debt $ 599 $ —

Accounts payable 286 348

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1 billion shares authorized;

199 million shares at October 31, 2022, and 197 million shares at October 31, 2021 issued

issued and outstanding shares:

200 million and 199 million, respectively

Treasury stock, at cost;

20.5 million shares at October 31, 2022 and 15.1 million shares at October 31, 2021

25.4 million shares and 20.5 million shares, respectively

( 2,980 ) ( 2,274 )

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Loss on settlement of pension plan — — 16

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

Unrealized loss (gain) on investments in equity securities ( 5 ) 31 —

Other non-cash expenses (income), net 4 11 6

Changes in assets and liabilities:

Changes in assets and liabilities, net of effects of businesses acquired:

Accounts receivable 14 ( 204 ) ( 122 )

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Retirement and post-retirement benefits ( 8 ) ( 19 ) 7

Prepaid expenses ( 124 ) ( 43 ) 2

Interest rate swap agreement termination proceeds 107 — —

Prepaid assets 7 ( 124 ) ( 43 )

Other assets and liabilities 93 ( 36 ) 4

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Acquisitions of businesses and intangible assets, net of cash acquired ( 85 ) ( 33 ) ( 178 )

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

Purchase of investments ( 7 ) ( 33 ) ( 1 )

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Net income — — — — — 894 — 894

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

Other comprehensive income (loss), net of tax — — — — — — 157 157

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

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Net income — — — — — 1,124 — 1,124

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

Other comprehensive income (loss), net of tax — — — — — — ( 12 ) ( 12 )

Issuance of common stock 1,321 — 63 — — — — 63

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Net income — — — — — 1,057 — 1,057

Other comprehensive loss, net of tax — — — — — — ( 12 ) ( 12 )

Other comprehensive income (loss), net of tax — — — — — — ( 12 ) ( 12 )

Issuance of common stock 1,202 — 67 — — — — 67

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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.

Basis of Presentation.

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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.

Reclassifications.

Beginning in fiscal year 2023, to align the presentation of revenue with the manner in which management reviews such information, the presentation of "products" and "services and other" revenue and "costs and expenses" in the consolidated statement of operations were reclassified to move revenue and costs and expenses primarily related to bundled licenses and technical support services from "products" to "services and other." This resulted in reclassification of $ 88 million and $ 57 million, respectively, from "products" revenue to "services and other" revenue for the fiscal year ended October 31, 2022 and 2021, and $ 10 million and $ 11 million, respectively, from "cost of products" to "cost of services and other" for the fiscal year ended October 31, 2022 and 2021 to conform to the current presentation.

This change had no impact on reported total revenue, income from operations and net income in our consolidated statement of operations.

Revenue recognition.

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We determine the allowance based on customer specific experience and the aging of such receivables, among other factors.

The allowance for credit losses was approximately $ 4 million as of both October 31, 2022 and 2021.

The allowance for credit losses was approximately $ 5 million and $ 4 million, respectively, as of October 31, 2023 and 2022.

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

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

Forfeitures are recognized as they occur and are reductions from share-based compensation expense.

We recorded compensation expense for all share-based awards of $ 136 million in 2023, $ 126 million in 2022 and $ 104 million in 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 and concluded that no material impairment of indefinite-lived intangible assets was required.

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.

Advertising costs are expensed as incurred and were $ 24 million in 2023, $ 27 million in 2022 and $ 21 million in 2021.

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

Government assistance.

Keysight receives various forms of government assistance, primarily through grants related to the development of new products.

We record proceeds from government grants when there is reasonable assurance that we will comply with the relevant conditions of the grant agreement and we are confident the grant funds will be received.

Grants in recognition of specific expenses are recognized in the same period as an offset to those related expenses.

Grants received from new or existing arrangements during fiscal year 2023 were $ 4 million and recorded as an offset to expenses in “research and development” in the consolidated statement of operations.

Grant proceeds receivable as of October

31, 2023 were $ 5 million and recorded in “accounts receivable, net” in the consolidated balance sheet.

Grant proceeds received prior to Keysight meeting the conditions of the grant are recorded in "other accrued liabilities" in the consolidated balance sheet, and grant income is recorded in “other income (expense), net” in the consolidated statement of operations.

These amounts were not material for fiscal year 2023.

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

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Net income per share.

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period excluding the dilutive effect of stock options and other employee stock plans.

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period excluding the dilutive effect of share-based awards.

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

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The fair value of long-term equity investments is determined using quoted market prices for those securities when available.

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

The fair value of our long-term debt, calculated from quoted prices that are primarily Level 1 inputs under the accounting guidance fair value hierarchy, is approximately $ 1,679 million and $ 1,977 million as of October 31, 2022 and 2021, respectively.

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

The fair value of our debt, calculated from quoted prices that are Level 1 inputs under the accounting guidance fair value hierarchy, is approximately $ 1,679 million as of October 31, 2023 and 2022.

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

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

Our foreign exchange cash flow hedging contracts have

maturities based on a rolling period of up to twelve months.

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

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

All derivatives are recognized on the balance sheet at their fair values.

For derivative instruments that are designated and qualify as a cash flow hedge, changes in the value of the effective portion of the derivative instrument is recognized in accumulated comprehensive income, a component of stockholders' equity.

For derivative instruments that are designated and qualify as cash flow hedges, changes in the value of the effective portion of the derivative instruments are recognized in accumulated comprehensive income, a component of stockholders' equity.

Amounts associated with cash flow hedges are reclassified and recognized in income when either the forecast transaction occurs or it becomes probable the forecast transaction will not occur.

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and machinery and equipment is generally depreciated over three years to ten years .

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

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

We determine whether an arrangement is a lease at inception.

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We translate and remeasure balance sheet and statement of operations items into U.S.

For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S.

For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into

dollars using current exchange rates at the balance sheet date;

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dollars at current exchange rates except for non-monetary assets and capital accounts, which are remeasured at historical exchange rates.

Revenue and expenses are generally remeasured at monthly exchange rates that approximate

average exchange rates in effect during each period.

Revenue and expenses are generally remeasured at monthly exchange rates that approximate average exchange rates in effect during each period.

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

Net gains or losses resulting from foreign currency asset and liability remeasurement transactions are reported in other income (expense) and were a $ 1 million loss in 2022, a $ 3 million gain in 2021 and a $ 3 million gain in 2020.

Net gains or losses resulting from foreign currency asset and liability remeasurement transactions are reported in other income (expense) and were a $ 49 million loss in 2023, a $ 1 million loss in 2022 and a $ 3 million gain in 2021.

Net foreign currency losses of $49 million in 2023 include unrealized losses of $45 million on outstanding forward exchange contracts associated with the acquisition of ESI Group S.A.

See Note 9, "Derivatives."

Retirement plans and post-retirement benefit plan assumptions.

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New Accounting Pronouncements

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

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

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

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

Early adoption is permitted.

ASU 2021-10, Government Assistance (Topic 832):

Disclosure by Business Entities about Government Assistance .

In November 2021, the Financial Accounting Standards Board issued guidance that requires annual disclosures of transactions with a government that are accounted for by applying a grant or contributions accounting model by analogy.

The standard is effective for fiscal years beginning after December 15, 2021.

We adopted this guidance effective November 1, 2022.

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

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

2023 Acquisitions

During the year ended October 31, 2022, we used $ 33 million, net of cash acquired, for acquisition activity and recognized goodwill and other intangible assets of $ 20 million and $ 23 million, respectively, based on the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed.

Of the $20 million goodwill, $ 9 million was assigned to the Communications Solutions Group and $ 11 million was assigned to the Electronic Industrial Solutions Group.

During the year ended October 31, 2023, we acquired Cliosoft, Inc.

("Cliosoft") for $ 85 million, net of $ 15 million cash acquired.

Cliosoft's data and intellectual property management tools enhance our portfolio of electronic design automation solutions.

Based on the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed, we recognized additions to goodwill and other intangible assets of $ 56 million and $ 56 million, respectively.

The identified intangible assets primarily consist of developed technology of $ 41 million, customer relationships of $ 13 million and backlog of $ 2 million.

The estimated useful lives of developed technology range between 6 to 7 years, customer relationships is 6 years, and backlog is 3 years.

Goodwill for the acquisition was assigned to the Communications Solutions Group ("CSG") and Electronic Industrial Solutions Group ("EISG") operating segments using the relative fair value allocation approach.

2022 Acquisitions

Acquisition of Sanjole

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

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

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

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

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

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

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

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

Of the $20 million goodwill, $ 9 million was assigned to CSG and $ 11 million was assigned to EISG.

Supplemental Pro Forma Information (Unaudited)

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Capitalized contract costs were $ 43 million and $ 38 million as of October 31, 2023 and October 31, 2022, respectively, and are included in “other current assets” and “other assets” in the consolidated balance sheet.

The amortization expense associated with these costs was $ 84 million, $ 77 million and $ 83 million for the years ended October 31, 2022, 2021 and 2020, respectively.

The amortization expense associated with these capitalized costs was $ 62 million, $ 84 million and $ 77 million for the years ended October 31, 2023, 2022 and 2021, respectively.

Contract liabilities

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

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

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

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

Balance at October 31, 2021 $ 665

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

Year Ended October 31,

(in millions)

Beginning balance $ 692

Deferral of revenue billed in current period, net of recognition 551

Deferred revenue arising out of acquisitions 4

Revenue recognized that was deferred as of the beginning of the period ( 490 )

Foreign currency translation impact —

Balance at October 31, 2022 $ 692

Ending balance $ 757

Remaining Performance Obligations

Our expected remaining performance obligations, excluding contracts that have an original expected duration of one year or less, was approximately $ 581 million as of October 31, 2023, and represents the company’s obligation to deliver products and services and obtain customer acceptance on delivered products.

As of October 31, 2022, we expect to recognize approximately 47 percent of the revenue related to these unsatisfied performance obligations during 2023 , 33 percent in 2024 and 20 percent thereafter.

As of October 31, 2023, we expect to fulfill 51 percent of these remaining performance obligations in 2024 , 33 percent in 2025 and 16 percent thereafter.

SHARE-BASED COMPENSATION

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

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

Description of Keysight’s Share-Based Plans

Incentive compensation plans.

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

The 2014 Equity and Incentive Compensation Plan (the "2014 Stock Plan") was originally adopted by our board of directors on July 16, 2014, with an effective date of November 1, 2014.

It was subsequently amended and restated by our board of directors on September 29, 2014 and again on January 22, 2015.

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

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Stock options granted under the 2014 Stock Plan may be either "incentive stock options," as defined in Section 422 of the Internal Revenue Code, or non-statutory.

Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant with a maximum contractual term of ten years .

Options generally vest at a rate of 25 percent per year over a period of four years from

the date of grant with a maximum contractual term of ten years .

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

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Participants in this program are entitled to receive unrestricted shares of the company's stock after the end of a three-year performance period, contingent upon the achievement of metrics and targets established by the Compensation and Human Capital Committee at the beginning of the performance period.

The metrics for

achievement of these awards can vary and may include total shareholder return ("TSR") or financial metrics, such as operating margin (“OM”), cost synergies and others.

The metrics for achievement of these awards can vary and may include total shareholder return ("TSR") or financial metrics, such as operating margin (“OM”), cost synergies and others.

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

For OM-based awards, the performance targets are set each year in the first quarter of the respective year.

The final pay-out under the LTP Program may range from zero to 200 percent of the target award based on actual performance

The final payout under the LTP Program may range from zero to 200 percent of the target award based on actual performance.

During fiscal year 2022, the Compensation and Human Capital Committee approved performance retention awards with a target earnings per share (“EPS”) goal over a three-year performance period to select members of our leadership team.

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Impact of Share-based Compensation Awards

Share-based compensation expense has been recognized using a straight-line amortization method.

Share-based compensation expense has been recognized using a straight-line amortization method over the requisite service period.

The impact of share-based compensation expense on our consolidated statement of operations was as follows:

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Income tax benefit realized from exercised stock options and similar awards $ 6 $ 15 $ 10

The expense for 2022, 2021 and 2020 includes mark-to-market adjustments for financial metrics-based performance awards of $ 7 million, $ 5 million and $ 2 million, respectively.

At October 31, 2022 and 2021, there was no share-based compensation expense capitalized within inventory.

Valuation Assumptions

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We have no t granted any stock options since fiscal 2015.

As of October 31, 2022 and 2021, the options outstanding were approximately 0.2 million and 0.3 million, respectively, having a weighted average exercise price of $ 30 and $ 29 , respectively.

During the year, 0.1 million options, with an intrinsic value of $ 11 million were exercised at the weighted average exercise price of $ 25 .

The intrinsic value of the options exercised during 2021 and 2020 was $ 14 million, respectively, at the weighted average exercise price of $ 26 and $ 27 , respectively.

The options outstanding as of October 31, 2022 have a weighted average contractual remaining life of 1.6 years and an intrinsic value of $ 27 million, based on Keysight's closing stock price of $ 174.15 at October 31, 2022.

As of October 31, 2023 and 2022, the options outstanding were approximately 0.1 million and 0.2 million, respectively, with a weighted average exercise price of $ 31 and $ 30 , respectively.

During 2023, 0.1 million options with an intrinsic value of $ 15 million were exercised at the weighted average exercise price of $ 30 .

The intrinsic value of the options exercised during 2022 and 2021 was $ 11 million and $ 14 million, respectively, at a weighted average exercise price of $ 25 and $ 26 , respectively.

The options outstanding as of October 31, 2023 have a weighted average contractual remaining life of 1 year and an intrinsic value of $ 7 million, based on Keysight's closing stock price of $ 122.05 at October 31, 2023.

Non-vested Awards

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Unrecognized share-based compensation cost does not include expense for financial metrics-based performance awards for which the targets have not yet been set.

The total fair value of stock awards vested was $ 223 million for 2022, $ 165 million for 2021 and $ 167 million for 2020.

The total fair value of stock awards that vested in 2023, 2022 and 2021 was $ 154 million, $ 223 million and $ 165 million, respectively.

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

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

2022 2021 (1)

(in millions)

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Hedging and currency costs 12 1

R&D capitalization 45 —

Total deferred tax assets 1,059 1,054

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Total deferred tax assets, net of deferred tax liabilities $ 619 $ 608

(1) The prior year amounts presented in the table above have been reclassified to conform with the current year presentation.

The decrease in deferred tax assets in 2022 as compared to 2021 primarily relates to a decrease in intangible assets in Singapore due to amortization, a decrease in U.K.

net operating loss assets due to currency fluctuations, and a decrease in net pension liabilities in Germany due to remeasurement.

The decrease in deferred tax liabilities in 2022 as compared to 2021 primarily relates to a decrease in Japan pension deferred tax liabilities related to currency fluctuations, a decrease in intangibles basis difference in the U.S.

due to amortization, and a decrease in taxes on unremitted earnings of foreign subsidiaries due to currency fluctuations, partially offset by an increase in deferred tax liabilities related to derivative instruments.

The increase in deferred tax assets in 2023 compared to 2022 primarily relates to the capitalization of research and experimental expenditures for the U.S.

tax filing group due to a U.S.

tax law change that became effective for Keysight on November 1, 2022.

This is partially offset by a decrease in intangible assets in Singapore due to amortization and a decrease from U.K.

net operating losses utilized and surrendered.

The total deferred tax liabilities in 2023 and 2022 remained the same, with other increases and decreases that are not individually significant.

As of October 31, 2023, there was a deferred tax liability of $ 11 million for the tax liability expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered indefinitely reinvested.

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

The $ 224 million and $ 231 million valuation allowances as of October 31, 2022 and 2021, respectively, are mainly related to net operating losses in Luxembourg and the U.K., capital losses in the U.K., and California research credits from acquired entities that are subject to change in ownership limitations.

The decrease in valuation allowance is primarily due to currency fluctuations on U.K.

net operating loss assets that are subject to valuation allowance.

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

At October 31, 2022, we had U.S.

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

state net operating loss carryforwards, primarily from acquired entities, of approximately $ 50 million.

The $ 218 million and $ 224 million valuation allowances as of October 31, 2023 and 2022, respectively, were mainly related to net operating losses in Luxembourg, capital losses and net operating losses in the U.K., and California research credits from acquired entities that are subject to change in ownership limitations.

At October 31, 2023, there were U.S.

federal net operating loss carryforwards of $ 5 million and U.S.

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

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

Of the total U.S.

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

state net operating loss carryforwards will begin to expire in 2023, which would result in an immaterial tax impact if not utilized.

At October 31, 2022, we had U.S.

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

state net operating loss carryforwards will begin to expire in 2024, which will result in an immaterial tax impact if not utilized.

At October 31, 2023, there were U.S.

state research credit carryforwards of approximately $ 25 million.

Of the total U.S.

state research credit carryforwards, $ 25 million is California research credits that can be carried forward indefinitely.

Due to change of ownership limitations, however, $ 21 million of California research credits is subject to valuation allowance.

At October 31, 2022, we also had foreign net operating loss carryforwards of approximately $ 957 million.

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

Due to change of ownership limitations, however, $ 21 million of California research credits were subject to valuation allowance.

At October 31, 2023, there were foreign net operating loss carryforwards of $ 941 million.

Of the total foreign loss, $ 5 million will expire in years beginning 2024 through 2027.

The remaining loss is comprised of $ 673 million that will expire in years beginning 2032 through 2039 if not utilized and $ 279 million that has an indefinite life.

Of the $ 957 million of foreign net operating loss carryforward, $687 million is subject to a valuation allowance.

At October 31, 2022, we had foreign capital loss carryforwards of approximately $ 126 million with an indefinite life and $ 4 million of tax credits in foreign jurisdictions with an indefinite life.

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

The remaining loss was comprised of $ 673 million that will expire in years beginning 2032 through 2040 if not utilized and $ 263 million that can be carried forward indefinitely.

Of the $ 941 million of foreign net operating loss carryforward, $693 million were subject to a valuation allowance.

At October 31, 2023, there were foreign capital loss carryforwards of $ 84 million that can be carried forward indefinitely and $ 2 million of tax credits in foreign jurisdictions that can be carried forward indefinitely.

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

The differences between the U.S.

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Effective tax rate 22 % 13 % 11 %

(1) The prior year amounts presented in the table above have been reclassified to conform with the current year presentation.

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 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.

These 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 benefit of the tax incentives on net income per share (diluted) was approximately $ 0.53 , $ 0.45 and $ 0.38 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.

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

Year Ended October 31,

2023 2022 2021

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Gross Balance, end of year $ 266 $ 234 $ 249

(1) The prior year amounts presented in the table above have been reclassified to conform with the current year presentation.

As of October 31, 2023, the total amount of gross unrecognized tax benefits, excluding interest and penalties, was $ 266 million, of which, if recognized, $ 176 million would impact our effective tax rate.

However, approximately $2 million of the unrecognized tax benefits were related to acquisitions, which if recognized within certain agreed upon time periods, would result in the recognition of an offsetting indemnification asset.

Cumulatively, interest and penalties accrued as of the end of October 31, 2022, 2021 and 2020 were $ 36 million, $ 37 million and $ 33 million, respectively.

However, approximately $ 1 million of the unrecognized tax benefits was related to acquisitions, which, if recognized within certain agreed upon time periods, would result in the recognition of an offsetting indemnification asset.

Cumulatively, interest and penalties accrued as of October 31, 2023, 2022 and 2021 were $ 41 million, $ 36 million and $ 37 million, respectively.

We recognized tax expense of $ 5 million, $ 3 million and $ 4 million for interest and penalties related to unrecognized tax benefits in 2023, 2022 and 2021, respectively.

There was $ 4 million of decrease in interest and penalties related to unrecognized tax benefits in 2022 related to currency fluctuations.

The open tax years for the U.S.

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 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.

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

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.

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.

company believes there are numerous defenses to the current assessment;

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 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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NET INCOME PER SHARE

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

The following table presents the calculation of basic and diluted net income per share:

Year Ended October 31,

2023 2022 2021

(in millions)

(in millions, except per-share amounts)

Net income $ 1,057 $ 1,124 $ 894

Basic weighted-average shares 178 180 185

Potential common shares — RSUs and other employee stock plans 2 2 2

Potential common shares 1 2 2

Diluted weighted-average shares 179 182 187

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

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

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

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

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October 31, 2023 October 31, 2022

Gross Carrying Amount Accumulated Amortization Net Book Value Gross

Amount Accumulated

Amortization Net Book

Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value

(in millions)

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Customer relationships 406 340 66 393 287 106

Total amortizable intangible assets 1,438 1,249 189 1,411 1,146 265

In-Process R&D — — — 7 — 7

Total $ 1,494 $ 1,339 $ 155 $ 1,438 $ 1,249 $ 189

In 2022, we recorded additions to goodwill and other intangible assets of $ 20 million and $ 23 million, respectively, due to acquisition activity.

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

For additional information on the acquisitions, see Note 2, "Acquisitions." During the year ended October 31, 2022, we transferred $ 7 million from in-process R&D to developed technology as projects were successfully completed.

For the year ended October 31, 2022, other intangible assets decreased $ 3 million due to impact of foreign currency translation.

In 2023, we recorded additions to goodwill and other intangible assets of $ 56 million and $ 56 million, respectively, related to our acquisition of Cliosoft.

For additional information, see Note 2, "Acquisitions."

Amortization of other intangible assets was $ 90 million in 2023, $ 103 million in 2022 and $ 174 million in 2021.

Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:

Estimated future amortization expense for our intangible assets as of October 31, 2023 is as follows:

Amortization expense

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Thereafter $ 11

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

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

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

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

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of

factors including actual operating results.

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

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

In 2021, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach, except for our previous 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.

In 2020, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach.

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

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

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

FAIR VALUE MEASUREMENTS

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Level 1 — applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in less active markets;

or other inputs that can be derived principally from, or corroborated by, observable market data.

Level 2 — applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, for the asset or liability, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in less active markets, or other inputs that can be derived principally from, or corroborated by, observable market data.

Level 3 — applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

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Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2023 and 2022 were as follows:

Fair Value Measurements as of October 31,

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

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Total liabilities measured at fair value $ 81 $ — $ 81 $ — $ — $ 34 $ — $ 34 $ — $ —

During the year ended October 31, 2022, we made investments of $ 33 million, including an equity investment of $ 30 million.

The changes in fair value of the equity investment are recorded within "other income (expense), net" in the consolidated statement of operations.

In 2023, we terminated forward-starting interest rate swap agreements, resulting in a deferred gain of $ 107 million recognized in accumulated other comprehensive income (loss) that will be amortized to interest expense over the term of the anticipated debt.

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

In 2023, we made a cost method investment of $ 7 million classified as "investments - other" in the table above.

The changes in fair value of equity investments are recorded within "other income (expense), net" in the consolidated statement of operations.

Our money market funds and equity investments with readily determinable fair values are measured at fair value using quoted market prices and, therefore, are classified within Level 1 of the fair value hierarchy.

Equity or fixed income investments without readily determinable fair values that are measured at cost adjusted for observable changes in price or impairments and convertible notes are not categorized in the fair value hierarchy and are presented as "Investments - other" in the tables above.

Equity and fixed income investments or convertible notes without readily determinable fair values that are either measured at cost, adjusted for observable changes in price or impairments, or accounted for under a measurement alternative are not categorized in the fair value hierarchy and are presented as "Investments - other" in the table above.

Our deferred compensation liability is classified as Level 2 because the inputs used in the calculations are observable, although the values are not directly based on quoted market prices.

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

There was no impairment recognized in 2022, 2021 and 2020.

There were no impairments recognized in 2023, 2022 and 2021.

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

Net unrealized gain (loss) on investments still held was a loss of $ 36 million in 2022 as compared to gains of $ 4 million and $ 11 million in 2021 and 2020, respectively.

Net unrealized gain (loss) on our equity and other investments was a gain of $ 7 million in 2023, a loss of $ 36 million in 2022, and a gain of $ 4 million in 2021.

There were no realized gains or losses from the sale of investments in 2023, 2022 and 2021.

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

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

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

In the event of performing a quantitative impairment test, we consider a market approach as well as an income approach using the discounted cash flow model to determine the fair value of the reporting unit.

Intangible Assets

We utilized an income approach for estimating the fair value of intangible assets.

Fair value of intangible assets are considered Level 3 measurements due to the significance of unobservable inputs developed using company-specific information.

In the event of performing a quantitative impairment test, we utilize an income approach for estimating the fair value of intangible assets.

The future cash flows used in the analysis are based on internal cash flow projections based on our long-range plans and include significant assumptions by management.

Accordingly, the fair value assessment of the long-lived assets is considered a Level 3 fair value measurement.

Long Lived Assets

For the year ended 2022, our held and used long-lived assets in Russia with a carrying amount of $ 3 million were written down to a fair value of zero, resulting from an impairment of assets that were expected to generate zero cash flows in the future, and was recorded within “other operating expense (income), net” in the consolidated statement of operations.

In 2022, our held and used long-lived assets in Russia with a carrying amount of $ 3 million were written down to a fair value of zero, resulting from an impairment of assets that were expected to generate zero cash flows in the future, and was recorded within “other operating expense (income), net” in the consolidated statement of operations.

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business.

As part of our risk management strategy, we use derivative instruments, which are primarily forward contracts, to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

As part of our risk management strategy, we use derivative instruments, primarily forward contracts, to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

Cash Flow Hedges

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The changes in the value of the derivative instrument included in the assessment of effectiveness are recognized in accumulated other comprehensive income and reclassified into earnings, when the forecasted transaction occurs, in the same financial statement line item in the consolidated statement of operations where the earnings effect of the hedged item is presented.

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

the current period.

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

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

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

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

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

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

For the year ended October 31, 2022, a gain of $ 85 million was recognized in accumulated other comprehensive income (loss).

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

In 2023, we terminated the interest rate swap agreements, resulting in a deferred gain of $ 107 million recognized in accumulated other comprehensive income (loss) to be amortized to interest expense over the term of the anticipated debt.

Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries.

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Changes in value of the derivative are recognized in other income (expense), net, in the consolidated statement of operations in the current period along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.

In connection with the acquisition of ESI Group SA (see Note 17, "Subsequent Event"), we entered into foreign exchange forward contracts to mitigate the currency exchange risk associated with the payment of the purchase price in Euro.

The aggregate notional amount of the currencies hedged was 930 million euros as of October 31, 2023.

These foreign exchange contracts did not qualify for hedge accounting treatment and were not designated as hedging instruments.

The resulting unrealized loss on outstanding contracts was $ 45 million and was recorded in "other income (expense), net" and "other accrued liabilities" in the consolidated statement of operations and the consolidated balance sheet, respectively, for the year ended October 31, 2023.

Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement.

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

Year Ended October 31,

2023 2022 2021

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Interest rate swap contracts:

Gain recognized in accumulated other comprehensive income (loss) $ 85 $ 26 $ 23

Foreign exchange contracts:

Gain (loss) recognized in accumulated other comprehensive income (loss) $ ( 26 ) $ 85 $ 26

Foreign exchange contracts:

Gain recognized in accumulated other comprehensive income (loss) 7 7 6

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

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( 1 ) ( 10 ) 2

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

Cost of products

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

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

Cost of products

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$ ( 44 ) $ 22 $ ( 3 )

The estimated amount at October 31, 2022 expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a loss of $ 7 million.

The estimated amount at October 31, 2023 expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a gain of $ 8 million.

We have operating leases for items including office space, manufacturing and production locations, sales and service centers, research and development facilities and certain equipment, primarily automobiles.

Our leases have remaining terms of up to 15 years, which represent the non-cancellable periods of the leases and include extension options that we determined are reasonably certain to be exercised.

Our leases have remaining terms of up to 15 years, which represent the non-cancellable periods of the leases and include extension options that are reasonably certain to be exercised .

The weighted average lease term of our operating leases was 7.8 years, 7.7 years and 8.2 years as of October 31, 2023, 2022 and 2021, respectively.

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Right-of-use (“ROU”) asset impairments were $ 2 million in 2022 related to the discontinuance of our Russia operations.

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

Supplemental information related to our operating leases was as follows:

Year Ended October 31,

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ROU assets obtained in exchange for operating lease obligations $ 51 $ 51 $ 78

The decrease in ROU assets obtained in exchange for operating lease obligations was primarily driven by reassessment of a lease term in the prior year triggered by significant leasehold improvements.

The maturities of our operating leases as of October 31, 2023 with initial terms exceeding one year were as follows:

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Total discounted lease liability $ 232

As of October 31, 2022, we have additional operating leases, primarily for real estate, that have not yet commenced of $ 20 million.

These operating leases will commence in 2023 with lease terms of up to 15 years.

Rental income from the lease of excess facilities was $ 11 million for the year ended October 31, 2022, 2021 and 2020 and is included in other operating expense (income), net.

As of October 31, 2023, we did not have material leases that have not yet commenced.

Rental income from the lease of excess facilities was $ 10 million, $ 11 million and $ 11 million for the year ended October 31, 2023, 2022 and 2021, respectively, and is included in other operating expense (income), net.

Other lessor arrangements were immaterial.

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

The following table summarizes the components of our debt:

(in millions)

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2029 Senior Notes at 3.00 % ($ 500 face amount less unamortized costs of $ 3 and $ 3 )

$ 1,793 $ 1,791

Total Debt 1,794 1,793

Current portion of long-term debt 599 —

Long-Term Debt $ 1,195 $ 1,793

Short-Term Debt

Revolving Credit Facility

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

I n addition, the new credit agreement permits the company, subject to certain customary conditions, on one or more occasions to request to increase the total commitments under the Revolving Credit Facility by up to $ 250 million (to a total of $1 billion) 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 provides for 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.

In addition, 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.

Long-Term Debt

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

We were in compliance with the covenants of our senior notes during the year ended October 31, 2022.

2024 Senior Notes

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

Long-Term Debt

2027 Senior Notes

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

Letter of Credit

As of October 31, 2022 and October 31, 2021, we had $ 38 million and $ 40 million, respectively, of outstanding letters of credit and surety bonds unrelated to the credit facility that were issued by various lenders.

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

We were in compliance with the covenants of our senior notes during the year ended October 31, 2023.

Letters of Credit

As of October 31, 2023 and 2022, we had $ 41 million and $ 38 million, respectively, of outstanding letters of credit and surety bonds that were issued by various lenders.

RETIREMENT PLANS AND POST-RETIREMENT BENEFIT PLANS

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

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

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

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

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

We record the non-service components of net periodic benefit cost (benefit), such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, within "other income (expense), net" in the consolidated statement of operations.

We record the non-service cost components of net periodic benefit cost (benefit), such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, within "other income (expense), net" in the consolidated statement of operations.

The company uses alternate methods of amortization, as allowed by the authoritative guidance, which amortizes the actuarial gains and losses on a consistent basis for the years presented.

Plans, gains and losses are amortized over the average future working lifetime.

Plans, gains and losses are amortized over the average future working lifetime of active plan participants.

For most Non-U.S.

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

During the years ended October 31, 2022 and 2020, the lump-sum payments in our U.K.

defined benefit plan were more than the sum of the service cost and interest cost components of net periodic benefit cost (“the threshold amount”), resulting in the recognition of settlement losses of $9 million and $ 5 million, respectively.

During the year ended October 31, 2023 and October 31, 2022, we recognized a settlement gain of $ 1 million in our Japan defined benefit plan and a settlement loss of $ 9 million in our U.K.

defined benefit plan, respectively, as the lump-sum payments in the respective plans were more than the sum of the service cost and interest cost components of net periodic benefit cost (“the threshold amount”).

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

This partial settlement resulted in a a net refund of $3 million and a loss of $16 million for the year 2021, which is included in "other income (expense), net" in the consolidated statement of operations.

We recognized a curtailment gain of $ 1 million in our Netherlands defined benefit plan for the year 2020, also included in "other income (expense), net" in the consolidated statement of operations.

This partial settlement resulted in a net refund of $ 3 million and a loss of $ 16 million in 2021, which is included in "other income (expense), net" in the consolidated statement of operations.

For the years ended October 31, 2023, 2022 and 2021, components of net periodic benefit cost (benefit) and other amounts recognized in other comprehensive income were comprised of:

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Plans Non-U.S.

Year Ended October 31,

2023 2022 2021 2023 2022 2021 2023 2022 2021

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Benefits paid ( 43 ) ( 53 ) ( 41 ) ( 37 ) ( 14 ) ( 14 )

Other — — — ( 15 ) — —

Currency impact — — 37 ( 284 ) — —

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Benefits paid ( 43 ) ( 54 ) ( 41 ) ( 37 ) ( 14 ) ( 14 )

Other — — — ( 18 ) — —

Currency impact — — 38 ( 245 ) — —

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Total $ 86 $ 81 $ 403 $ 381 $ ( 11 ) $ ( 5 )

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

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

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

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

The change in benefit obligations for the U.S.

defined benefit plans for 2023 was driven by changes in discount rates, partially offset by changes in demographic assumptions.

The change in benefit obligations for the U.S.

defined benefit plans for 2022 was driven by the changes in actuarial assumptions, primarily discount rates and lump sum conversion rates.

The change in benefit obligations for the U.S.

post-retirement benefit plan for 2023 and 2022 was primarily driven by changes in discount rates.

Investment policies and strategies as of October 31, 2023 .

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

defined benefit plan.

In December 2021, we completed the second phase of the same contract and classified it as “Other Investment.” The insurance buy-in contract is similar to an annuity contract, which matches cash flows with future benefit payments for a specific group of pensioners with the obligation remaining with the plan.

defined benefit plan and classified it as “Other Investment.” In December 2021, we completed the second phase of the same contract.

The insurance buy-in contract is similar to an annuity contract, which matches cash flows with future benefit payments for a specific group of pensioners with the obligation remaining with the plan.

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

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Equity also includes some growth-seeking real estate commingled funds that are measured at NAV.

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

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

these are classified as assets measured at NAV.

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

Some fixed income securities that are not actively traded and are valued basis inputs, such as quoted price of similar securities, or other inputs that can be derived principally from or corroborated by observable market data are classified as Level 2 investments.

Other Investment - Other investment represents the U.K.

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as of October 31, 2023 Using

2022 Quoted Prices

Total Quoted Prices

Identical Assets

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as of October 31, 2022 Using

2021 Quoted Prices

Total Quoted Prices

Identical Assets

14 unchanged sentences

October 31, 2023 Using

2022 Quoted Prices

Total Quoted Prices

Identical Assets

11 unchanged sentences

October 31, 2022 Using

2021 Quoted Prices

Total Quoted Prices

Identical Assets

14 unchanged sentences

October 31, 2023 Using

2022 Quoted Prices

Total Quoted Prices

Identical Assets

11 unchanged sentences

October 31, 2022 Using

2021 Quoted Prices

Total Quoted Prices

Identical Assets

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Total inventory $ 985 $ 858

Gross inventory-related excess and obsolescence charges recorded in total cost of products were $ 27 million in 2022, $ 27 million in 2021 and $ 29 million in 2020.

The increase in inventory in 2023 was primarily driven by incremental stock build-up to secure supply to support order fulfillment along with an increase in demo inventory.

Gross inventory-related excess and obsolescence charges recorded in cost of products were $ 27 million in 2023, 2022 and 2021.

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

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Property, plant and equipment, net $ 761 $ 690

The increase in property, plant and equipment, net, for the year ended October 31, 2022, is primarily driven by increased capital spending for capacity expansion and technology investments.

Asset impairments were $ 1 million, zero and zero in 2022, 2021 and 2020, respectively.

The increase in property, plant and equipment, net, in 2023 is primarily driven by increased capital spending for capacity expansion and technology investments.

Asset impairments were zero in 2023, $ 1 million in 2022 and zero in 2021.

Depreciation expense was $ 120 million in 2023, $ 117 million in 2022 and $ 117 million in 2021.

Standard warranty

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

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

Year Ended October 31,

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Beginning balance $ 32 $ 34

Accruals for warranties 23 29

Accruals for warranties, including change in estimates 33 23

Settlements made during the period ( 29 ) ( 25 )

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Prepaid expenses $ 284 $ 280

Other current asset 149 102

Total other current asset $ 429 $ 270

Other current assets 168 149

Total other current assets $ 452 $ 429

Prepaid expenses include deposits paid in advance to contract manufacturers of $ 210 million and $ 199 million as of October 31, 2023 and 2022, respectively.

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

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

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

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

During the normal course of business, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based on mutually agreed criteria.

As of October 31, 2023, our non-cancellable purchase commitments were approximately $ 467 million.

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

As of October 31, 2022 and 2021, our non-cancellable purchase commitments were approximately $ 553 million and $ 444 million, respectively, of which the majority is for less than one year.

The increase in non-cancellable purchase commitments for the year ended October 31, 2022, was driven by higher revenue and advance purchase orders to secure capacity for critical parts due to global supply chain constraints.

Other purchase commitments.

Other purchase commitments relate to contracts with professional services suppliers.

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

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

As of October 31, 2022, our contractual obligations with these suppliers were approximately $ 55 million within the next fiscal year, as compared to approximately $ 60 million as of October 31, 2021.

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

As of October 31, 2023, our non-cancellable contractual obligations related to these contracts were approximately $ 75 million.

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.

Litigation and contingencies.

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and which are alleged to infringe Centripetal patents.

We deny the allegations and intend to aggressively defend each case.

We deny the allegations and are aggressively defending each case.

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

1 unchanged sentence

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

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

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

Indemnification Obligations Related to Transactions

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

Since a maximum obligation is not explicitly stated in our by-laws or in our

indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated.

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

We have not historically made payments related to these obligations, and do not believe that our indemnification obligations related to such claims were material as of October 31, 2023.

7 unchanged sentences

Stock Repurchase Program

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.

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

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In 2023, we repurchased 4,913,548 shares of common stock for $ 702 million.

Additionally, we accrued $ 4 million related to excise tax levied on share repurchases, net of issuances.

In 2022 we repurchased 5,442,280 shares of common stock for $ 849 million.

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( 388 ) ( 379 )

Unrealized gains (losses) on derivative instruments, net of tax (expense) of $( 30 ) and $( 11 )

Gains (losses) on derivative instruments, net of tax (expense) of $( 25 ) and $( 30 )

Total accumulated other comprehensive loss $ ( 466 ) $ ( 454 )

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Net defined benefit pension cost and post retirement plan costs:

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

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

(in millions)

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At October 31, 2023 $ ( 167 ) $ ( 382 ) $ ( 6 ) $ 89 $ ( 466 )

Reclassifications out of accumulated other comprehensive loss were as follows:

Reclassifications out of accumulated other comprehensive loss into earnings were as follows:

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

1 unchanged sentence

(in millions)

Unrealized gain (loss) on derivatives $ 13 $ — Cost of products

Gain (loss) on derivatives $ 8 $ 13 Cost of products

( 1 ) ( 10 ) Selling, general and administrative

( 1 ) — Benefit (provision) for income taxes

6 3 Net of income tax

Net defined benefit pension cost and post retirement plan costs:

Net actuarial losses ( 20 ) ( 47 ) Other income (expense), net

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

( 47 ) ( 92 )

5 24 Provision (benefit) for income taxes

( 42 ) ( 68 )

Total reclassifications for the period $ ( 39 ) $ ( 66 )

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

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

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

4 5 Benefit (provision) for income taxes

( 16 ) ( 42 ) Net of income tax

Total reclassifications for the period $ ( 10 ) $ ( 39 ) Net of income tax

SEGMENT INFORMATION

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Descriptions of our two reportable segments are as follows:

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

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

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

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

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.

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

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

These results are not necessarily in conformity with U.S.

These results are not necessarily in conformity with GAAP.

The performance of each segment is measured based on several metrics, including income from operations.

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

The profitability of each of the segments is measured after excluding share-based compensation expense, 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 as noted in the reconciliations below.

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 as noted in the reconciliations below.

CSG EISG Total

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

Gain on insurance settlement — — 32

Restructuring and other ( 52 ) ( 14 ) ( 9 )

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Year ended October 31, 2021 $ 1,803 $ 927 $ 2,211 $ 4,941

States Japan United Kingdom Rest of the

States Japan Rest of the

(in millions)

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October 31, 2022 $ 637 $ 222 $ 365 $ 1,224

SUBSEQUENT EVENT

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data