What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-12-17 compared with 2023-12-15 · 282 added, 224 removed, 346 unchanged (59% of the section changed)

1 unchanged sentence

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

This report contains forward-looking statements which include but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of government regulations on our ability to conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, and our transition to lower-cost regions.

This report contains forward-looking statements which include but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of government regulations on our ability to conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, and our transition to lower-cost regions.

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

Such risks and uncertainties include, but are not limited to, the impact of global economic conditions such as inflation or potential recession, slowing demand for products or services, volatility in financial markets, reduced access to credit, increased interest rates, the existence of political or economic instability, impacts of geopolitical tension and conflict, the impacts of increased trade tension and tightening of export control regulations, the impact of compliance with the August 3, 2021 Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State, the impact of new and ongoing litigation, impacts related to endemic and pandemic conditions, impacts related to net zero emissions commitments, the impact of volatile weather caused by environmental conditions such as climate change, and our ability to successfully integrate key acquisitions.

and UK, impacts of geopolitical tension and conflict in regions outside of the U.S., the impacts of increased trade tension and tightening of export control regulations, the impact of new and ongoing litigation, impacts related to net zero emissions commitments, and the impact of volatile weather caused by environmental conditions such as climate change.

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

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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.

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 on ever-shorter schedules.

Our fiscal year end is October 31.

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

Macroeconomic headwinds and challenging geopolitical environment

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

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

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

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

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

For discussion of risks related to potential impacts of macroeconomic headwinds and geopolitical challenges on our operations, business results and financial condition, see “Item 1A.

Risk Factors.”

Acquisition of ESI Group SA

In the first quarter of fiscal 2024, we acquired all of the outstanding common stock of ESI Group SA (“ESI Group”) for $935 million, net of cash acquired, using existing cash.

For the year ended October 31, 2024, our acquisition of ESI Group resulted in incremental revenue of $141 million.

In our discussion of changes in our results of operations, we have qualitatively disclosed the impact of the ESI Group acquisition.

See Note 2, “Acquisitions,” for additional information.

Macroeconomic environment

Our global operations continued to be affected by a challenging macro environment, including higher interest rates, currency movements, inflationary pressures, geopolitical tensions and trade restrictions.

These factors resulted in lower demand, as our customers also exercised caution in light of the same environment.

Against this backdrop, we remained operationally disciplined by exercising our financial playbook and the structural flexibility in our operating model, while investing to expand our differentiated solutions portfolio and deepening our customer relationships.

Consistent with the Keysight Leadership Model, our differentiated first-to-market solutions portfolio, technology leadership, customer relationships, and durable and resilient business model give us confidence in the long-term trajectory of the business and our ability to outperform in a variety of market conditions and deliver consistent long-term value to our customers.

For discussion of risks related to potential impacts of macroeconomic headwinds and geopolitical challenges on our operations, business results and financial condition, see Part I Item 1A “Risk Factors.”

Years ended October 31, 2024, 2023 and 2022

Orders were $5,033 million, $5,190 million, and $5,984 million in 2024, 2023 and 2022, respectively.

Orders of $5,033 million for 2024 decreased 3 percent compared to 2023.

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

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

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

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

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

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

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

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

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

Acquisitions had a favorable impact of 4 percentage points on the order change for 2024 compared to 2023.

Foreign currency movements had an immaterial impact on the order change for 2024 compared to 2023.

Orders declined in the Americas and Asia Pacific, while Europe was flat.

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

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

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

Revenue was $4,979 million, $5,464 million, and $5,420 million in 2024, 2023 and 2022, respectively.

Revenue of $4,979 million for 2024 decreased 9 percent compared to 2023.

Acquisitions had a favorable impact of 3 percentage points on the revenue change for 2024 compared to 2023.

Foreign currency movements had an immaterial impact on the revenue change for 2024 compared to 2023.

Revenue declined in both the Communications Solutions Group (“CSG”) and the Electronic Industrial Solutions Group (“EISG”).

Revenue from CSG and EISG represented approximately 69 percent and 31 percent, respectively, of total revenue for 2024.

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

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

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

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

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

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

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

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

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

A revenue increase in EISG was partially offset by a decline in CSG.

Revenue from CSG and EISG represented approximately 67 percent and 33 percent, respectively, of total revenue for 2023.

Net income was $614 million, $1,057 million, and $1,124 million in 2024, 2023 and 2022, respectively.

Net income of $614 million for 2024 decreased 42 percent compared to 2023, primarily driven by lower revenue, higher acquisition and integration costs, restructuring costs and amortization of acquisition-related balances, partially offset by lower provision for income taxes, favorable gross margin impact from the ESI Group acquisition and lower people-related costs.

Net income of $1,057 million for 2023 decreased 6 percent compared to 2022, primarily driven by higher income tax expense, R&D expense, and selling, general and administrative expense, partially offset by higher interest income, higher revenue, and favorable mix.

Cash flows generated from operating activities were $1,052 million, $1,408 million, and $1,144 million in 2024, 2023 and 2022, respectively.

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

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

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

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

Our customers are expected to continue to make R&D investments in certain next-generation technologies and applications, including evolution of 5G, early 6G, high-speed data center networks and infrastructure, satellite networks, Artificial Intelligence (“AI”), next generation electric vehicles and autonomous vehicles, industrial internet of things (“IoT”), and defense modernization.

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

We remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Currency Exchange Rate Exposure

Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities.

Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating, investing and financing activities.

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

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

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

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

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Percentage of revenue

79 % 81 % 81 % (2) ppts —

75 % 79 % 81 % (5) ppts (2) ppts

Services and other $ 1,262 $ 1,128 $ 1,034 12% 9%

Percentage of revenue

21 % 19 % 19 % 2 ppts —

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

Products 64.2 % 63.3 % 62.2 % 1 ppt 1 ppt

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

25 % 21 % 19 % 5 ppts 2 ppts

Gross margin 62.9 % 64.6 % 63.7 % (2) ppts 1 ppt

Products 60.9 % 64.2 % 63.3 % (3) ppts 1 ppt

Services and other 68.8 % 66.3 % 64.9 % 2 ppts 1 ppt

Research and development $ 919 $ 882 $ 841 4% 5%

Percentage of revenue

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

18 % 16 % 16 % 2 ppts 1 ppt

Selling, general and administrative $ 1,395 $ 1,307 $ 1,283 7% 2%

Percentage of revenue

24 % 24 % 24 % — —

28 % 24 % 24 % 4 ppts —

Other operating expense (income), net $ (14) $ (15) $ (8) (6)% 80%

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Americas (7)% — — —

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

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

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

Europe (2)% 1 ppt 8% (2) ppts

Asia Pacific (14)% (1) ppt (1)% (3) ppts

Total revenue (9)% — 1% (2) ppts

Gross Margin, Operating Margin and Income Before Taxes

Gross margin decreased 2 percentage points in 2024 compared to 2023, primarily driven by lower revenue volume, higher amortization of acquisition-related balances and higher restructuring costs , partially offset by lower material costs, favorable gross margin impact from the ESI Group acquisition a nd lower variable people-related costs.

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

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

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

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

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

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

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

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

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

Excess and obsolete inventory charges were $35 million in 2024, $27 million in 2023, and $27 million in 2022.

R&D expense increased 4 percent in 2024 compared to 2023, primarily driven by incremental costs from acquired businesses, parti ally offset by lower variable people-related costs.

We continued to prudently prioritize investments in key growth opportunities in our end markets and leading-edge technologies.

R&D expense increased 5 percent in 2023 compared to 2022, primarily driven by investments in key growth opportunities, partially offset by lower variable people-related costs.

Selling, general and administrative expenses increased 7 percent in 2024 compared to 2023, primarily driven by higher acquisition and integration costs, incremental costs from acquired businesses, higher amortization of acquisition-related balances, partially offset by lower people-related, marketing, and infrastructure costs resulting from the flexibility of our operating model and cost efficiency measures.

Other operating expense (income) was income of $14 million, $15 million, and $8 million for 2024, 2023 and 2022, respectively, and primarily include property rental income.

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

Operating margin decreased 8 percentage points in 2024 compared to 2023, primarily driven by higher selling, general and administrative and R&D expenses on lower revenue coupled with gross margin declines.

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

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

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

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

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

Other income (expense) for 2023, 2022, and 2021 was expense of $25 million, income of $14 million, and income of $6 million, respectively, and primarily includes net income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial loss and prior service credits, and gains (losses) on settlements and curtailments), currency gains (losses), gains (losses) on derivative instruments, and the change in fair value of our equity investments.

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

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

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

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

Interest income for 2024, 2023 and 2022 was $81 million, $102 million, and $16 million, respectively, and primarily related to interest earned on our cash balances.

The decline in interest income in fiscal 2024 compared to 2023 was primarily driven by decline in year-over-year cash balances.

The increase in interest income in fiscal 2023 compared to 2022 was primarily driven by an increase in interest rates and higher year-over-year cash balances.

Interest expense for 2024, 2023 and 2022 was $84 million, $78 million, and $79 million, respectively, and primarily related to interest on our senior notes.

Interest expense for 2024, included amortization of debt issuance costs of $4 million related to the bridge credit agreement.

See Note 9, “Derivatives,” and Note 11,”Debt,” for additional information.

Other income (expense) for 2024, 2023 and 2022 was income of $35 million, expense of $25 million, and income of $14 million, respectively, and primarily include net income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial loss and prior service credits, and gains (losses) on settlements and curtailments), gains (losses) due to currency and derivative instruments, and the change in fair value of our equity investments.

The increase in net other income for 2024 compared to 2023 was primarily driven by gains on derivative instruments and higher net gains on our equity investments, partially offset by an increase in pension costs due to higher interest cost on benefit obligations.

Our headcount was approximately 15,500 as of October 31, 2024, compared to approximately 14,900 as of October 31, 2023.

The increase was primarily driven by acquisitions, partially offset by reductions from our cost efficiency measures.

Year Ended October 31,

2024 2023 2022

(in millions)

(in millions, except percentages)

Provision for income taxes $ 251 $ 300 $ 161

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The effective tax rate was 29 percent, 22 percent, and 13 percent for 2024, 2023 and 2022, respectively.

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

The tax rate in 2024 was higher than the U.S.

statutory rate primarily due to a one-time income tax charge of $315 million required to adjust Singapore deferred tax asset values to an incentive tax rate.

Keysight entered into a new Singapore tax incentive agreement effective August 1, 2024.

The Singapore tax incentive provides lower rates of taxation on certain classes of income and requires thresholds of investments and employment.

The 2024 income tax charge was partially offset by a one-time income tax benefit of $165 million related to Global Intangible Low Taxed Income (“GILTI”) tax deductions for intangible asset amortization.

Keysight concluded that the U.S.

Department of the Treasury exceeded its regulatory authority in issuing tax regulations disallowing these deductions under IRC § 951A.

The company amended its U.S.

federal income tax returns for the open tax years to claim GILTI tax deductions.

tax receivable resulting from the amended returns is reflected in “other assets” and “other current assets” in the consolidated balance sheet.

The annual tax impact of the amortization of the intangible assets will continue to be recognized until 2033.

The company believes the position meets the more likely than not recognition threshold and intends to vigorously defend its position.

The outcome cannot be predicted with certainty.

If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

The 2024 income tax charge was also partially offset by a one-time income tax benefit of $61 million for the release of tax reserves related to the successful appeal of a Malaysia income tax assessment.

In the fourth quarter of 2017, Keysight was assessed and paid income tax and penalties in Malaysia on gains related to the transfer of intellectual property rights and recorded a tax reserve on the assessed amount.

The Court of Appeal in Malaysia ruled in Keysight’s favor on May 24, 2024, and the company received a refund of the income tax and penalties.

The 7 percentage point increase in the effective tax rate from 2023 to 2024 was primarily due to these one-time income tax items in 2024.

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

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

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tax imposed on those non-U.S.

The tax rate in 2022 and 2021 was lower than the U.S.

The tax rate in 2022 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.

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

tax capitalization of research and experimental expenditures.

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

tax purposes.

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

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

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

tax on non-U.S.

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

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

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

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

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

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

The 2021 significant nonrecurring tax benefits include the release of valuation allowance on Netherlands net operating losses in 2021 and a decrease due to the 2021 actual tax impact of acquired entity integration compared to the estimate at acquisition based on the finalization of the integration plan.

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

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that will expire at various times in the future.

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

tax capitalization of research and experimental expenditures in 2023.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia.

The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment in those jurisdictions.

The Singapore tax incentive expires July 31, 2024, and the Malaysia tax incentive expires October 31, 2025.

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

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

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

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

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

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

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

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

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

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

The Malaysia tax incentive expires October 31, 2025.

The Singapore tax incentive expires July 31, 2029.

The open tax years for the U.S.

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entities, the open tax years are from November 1, 2019 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 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 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.

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

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

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

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

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

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

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

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

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

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

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

1 unchanged sentence

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

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022, which included changes to the U.S.

corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective for Keysight beginning November 1, 2023.

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

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

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

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

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

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

The Organization for Economic Cooperation and Development (“OECD”) reached agreement among various countries to implement a minimum 15 percent tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

Numerous countries have enacted legislation to adopt the Pillar Two model rules.

A subset of the rules will be effective for Keysight as of November 1, 2024, with the remaining rules effective as of November 1, 2025.

Keysight continues to analyze the Pillar Two model rules and monitor developments.

Pillar Two could have a material impact on our effective tax rate in fiscal year 2025, primarily offsetting the reduction to our effective income tax rate from our tax incentives.

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

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Segment Overview

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

We have two reportable operating segments, CSG and EISG.

The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense and other items.

Communications Solutions Group

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

Communications Solutions Group (“CSG”)

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.

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

Year Ended October 31, 2024 over 2023

1 unchanged sentence

2024 2023 2022

(in millions)

Total revenue $ 3,420 $ 3,685 $ 3,803 (7)% (3)%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Revenue for CSG in 2024 decreased 7 percent compared to 2023.

Acquisitions had a favorable impact of 1 percentage point on the year-over-year revenue change.

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

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

The decline was driven primarily by lower customer demand as compared to last year, which benefited from robust backlog conversion.

Our customers continued to make R&D investments in next-generation technologies and applications, including AI-driven data center expansion, ongoing 5G standards development and deployment, 400G/800G/terabit Ethernet, development of new communications technologies (e.g., 6G, Open Radio Access Networks, commercial non-terrestrial networks, and quantum), high-speed networking and major defense and government programs worldwide .

CSG revenue for 2023 decreased 3 percent compared to 2022.

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

Revenue declined in Asia Pacific and the Americas were partially offset by an increase in Europe.

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

Revenue from the commercial communications market represented approximately 66 percent of total CSG revenue in 2024 and decreased 7 percent compared to 2023.

Revenue declined across all regions.

T he year-over-year decline in revenue was primarily driven by continued weakness in the wireless communications ecosystem, particularly smartphones, partially offset by higher investments in AI Workload Emulation tools and infrastructure solutions.

We continued to see investments in high-speed networks due to increasing need for AI capabilities in the data center infrastructure ecosystem, which was driving demand for our 400G/800G/terabit Ethernet solutions, both in R&D and manufacturing.

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

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

Revenue from the aerospace, defense, and government market represented approximately 34 percent of total CSG revenue in 2024 and decreased 8 percent compared to 2023.

Revenue declines in Asia Pacific and the Americas were partially offset by an increase in Europe.

We continue to see investments in electromagnetic spectrum operations, radar, space and satellite solutions, and signal monitoring.

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

Revenue grew across all regions.

We saw demand from U.S.

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

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

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

Gross Margin and Operating Margin

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(in millions, except margin data)

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

Gross margin 67.6 % 67.7 % 66.5 % — 1 ppt

Research and development $ 618 $ 618 $ 606 — 2%

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Income from operations $ 921 $ 1,068 $ 1,085 (14)% (2)%

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

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

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

Research and development expense in 2023 increased 2 percent compared to 2022, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, partially offset by lower variable people-related costs.

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

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

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

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

Operating margin 26.9 % 29.0 % 28.5 % (2) ppts 1 ppt

Gross margin for CSG in 2024 was flat compared to 2023, as lower revenue volume was offset by lower material and variable people-related costs .

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

R&D expense in 2024 was flat compared to 2023, as incremental costs of acquired businesses were offset by lower variable people-related costs.

We continued to prudently prioritize investments in key growth opportunities in our end markets and leading-edge technologies.

R&D expense in 2023 increased 2 percent compared to 2022, primarily driven by continued investments in key growth opportunities, partially offset by lower variable people-related costs.

Selling, general and administrative expense in 2024 decrea sed 4 perce nt compared to 2023, primarily driven by lower people-related, marketing and infrastructure costs resulting from the flexibility of our operating model and cost efficiency measures, partially offset by incremental costs of acquired businesses.

Selling, general and administrative expense in 2023 decreased 3 percent compared to 2022, primarily driven by lower sales commission and variable people-related costs, partially offset by higher travel-related costs.

Other operating expense (income), net, was income of $10 million in 2024, $11 million in 2023, and $11 million in 2022, and primarily include property rental income.

Operating margin in 2024 decreased 2 percentage points compared to 2023, primarily driven by higher R&D and selling, general and administrative expenses on lower revenue.

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

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

Electronic Industrial Solutions Group

The Electronic Industrial Solutions Group ("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.

Electronic Industrial Solutions Group (“EISG”)

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, test and simulation software, instrumentation, systems, and related services.

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

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

Our recent acquisition of ESI Group expands our application layer portfolio with simulation capabilities in automotive and general electronics sectors.

Year Ended October 31, 2024 over 2023

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2024 2023 2022

(in millions)

Total revenue $ 1,559 $ 1,779 $ 1,617 (12)% 10%

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

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

Revenue for EISG in 2024 decreased 12 percent compared to 2023.

Acquisitions had a favorable impact of 7 percentage points on the year-over-year revenue change.

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

Revenue declined across all regions and markets.

The decline in revenue reflects the normalization in demand as macroeconomic challenges, such as inflation and high interest rates, continued to slow some investments, primarily in the manufacturing sector.

Despite delays in near-term spending, customer engagement remained high as they continued to invest in key long-term strategic initiatives, such as AI-driven advanced semiconductor technologies, next-generation vehicles, industrial IoT and digital health.

Revenue for EISG in 2023 increased 10 percent compared to 2022.

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

Revenue grew across all regions and markets.

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

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

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

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

Revenue grew across all regions for 2022 compared to 2021.

Gross Margin and Operating Margin

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Income from operations $ 357 $ 581 $ 501 (39)% 16%

Operating margin 32.7 % 31.0 % 31.3 % 2 ppts —

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

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

Research and development expense in 2023 increased 8 percent compared to 2022, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, partially offset by lower variable people-related costs.

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

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

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

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

Operating margin 22.9 % 32.7 % 31.0 % (10) ppts 2 ppts

Gross margin for EISG in 2024 decreased 2 percentage points compared to 2023, primarily driven by lower revenue volume, partially offset by favorable gross margin impact from the ESI Group acquisition and lower variable people-related costs .

Gross margi n in 2023 was flat compared to 2022, primarily driven by higher revenue volume and favorable mix, partially offset by higher warranty costs.

R&D expense in 2024 increased 13 percent compared to 2023, primarily driven by incremental costs from acquired businesses, partially offset by lower variable people-related costs.

We continued to prudently prioritize investments in key growth opportunities in our end markets and leading-edge technologies.

R&D expense in 2023 increased 8 percent compared to 2022, primarily driven by continued investments in key growth opportunities, partially offset by lower variable people-related costs.

Selling, general and administrative expense in 2024 increased 9 percent compared to 2023, primarily driven by incremental costs from acquired businesses, partially offset by lower people-related and infrastructure costs resulting from the flexibility of our operating model and cost efficiency measures.

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

Other operating expense (income), net, was income of $4 million in 2024, 2023 and 2022, and primarily include property rental income.

Operating margin in 2024 decreased 10 percentage points compared to 2023, primarily driven by higher selling, general and administrative expense and R&D expense on lower revenue, coupled with gross margin declines.

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

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

Financial Condition

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2024 2023 2022

(in millions)

Net cash provided by operating activities $ 1,052 $ 1,408 $ 1,144

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

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

Net cash provided by operating activities decreased $356 million in 2024 compared to 2023 and increased $264 million in 2023 compared to 2022.

• Net income in 2024 decreased $443 million compared to 2023.

Non-cash adjustments to net income were higher by $339 million, primarily due to a $271 million increase in deferred tax expense resulting from a one-time income tax charge of $315 million to decrease deferred tax asset values from the Singapore statutory tax rate to an incentive tax rate (see Note 5, “Income Taxes,” for additional information), a $58 million increase in amortization and depreciation expense, a $8 million increase in excess and obsolete inventory related charges, and a $2 million increase in share-based compensation.

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

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

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

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

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

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

• The aggregate of accounts receivable, inventory, and accounts payable provided net cash of $48 million during 2024, compared to net cash used of $196 million in 2023 and $273 million in 2022.

The increase in aggregate net cash provided in 2024 compared to 2023 is primarily driven by a lower increase in inventory, lower payments, and timing of collections relative to revenue.

The decrease in aggregate net cash used in 2023 compared to 2022 is primarily driven by higher collections, net of payments, partially offset by an increase in inventory driven by an incremental stock build-up to secure supply to support order fulfillment along with an increase in demo inventory.

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

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

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

• The aggregate of tax receivables used net cash of $202 million during 2024, compared to net cash used of $4 million in 2023 and $30 million in 2022.

In fiscal 2024 tax receivables are higher primarily due to the recognition of a discrete tax benefit of $165 million recorded as a current and long-term tax receivable in the consolidated balance sheet related to the U.S.

intangible asset amortization deduction for purposes of determining income or loss under IRC § 951A(c) and the amendment of our U.S.

federal income tax returns for the open tax years to claim the deduction.

See Note 5, “Income Taxes,” for additional information.

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

See Note 9, “Derivatives,” for additional information.

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

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

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

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

• The aggregate other movements in assets and liabilities used net cash of $117 million during 2024, compared to net cash provided of $74 million in 2023 and net cash used of $101 million in 2022.

The difference between 2024 and 2023 cash flows was primarily due to payments on settlement of foreign exchange forward contracts associated with the ESI Group acquisition, net unrealized gains on foreign exchange contracts not designated as hedging instruments, (see Note 9, “Derivatives”), changes in deferred revenue, and changes in other assets and liabilities, partially offset by higher income and other tax accruals, net of payments, lower variable compensation, and payroll-related payments, net of accruals.

The difference between 2023 and 2022 cash flows is primarily due to lower prepaid inventory deposits driven by easing of supply chain constraints and other lower prepaid expenses, unrealized loss on foreign exchange contracts not designated as hedging instruments, and changes in other assets and liabilities, partially offset by higher income tax payments, net of accruals, higher variable compensation and other payroll-related payments, net of accruals, and changes in deferred revenue.

Investing Activities

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

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

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

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

In 2023, we used $288 million for investing activities, including $196 million for purchases of property, plant and equipment;

Net cash used in investing activities increased by $531 million in 2024 compared to 2023 and increased by $37 million in 2023 compared to 2022.

The increase in net cash used in investing activities in 2024 as compared to 2023 was primarily due to $596 million higher cash used for acquisition activities, partially offset by a $49 million decrease in cash used for purchases of property, plant and equipment, net of government incentives received.

In 2024, we used $681 million, net of cash acquired, for acquisitions, which included $477 million, net of $35 million cash acquired, for the acquisition of the controlling block of ESI Group shares.

Additionally, we used $147 million for purchases of property, plant and equipment, net of $7 million of government incentives and $11 million for equity and other investments, partially offset by $20 million provided by other investing activities.

In 2023, we used $288 million for investing activities, including $196 million for purchases of property, plant and equipment, net of government incentives;

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

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

and $7 million for purchase of investments.

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

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

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

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

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

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

and $33 million for purchase of investments.

Financing Activities

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

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

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

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

Our financing activities primarily include proceeds from issuance of common stock under employee stock plans, tax payments related to net share settlement of equity awards, issuances and repayment of debt and related costs, treasury stock repurchases, and transactions with non-controlling interests in partially-owned consolidated subsidiaries.

Net cash used in financing activities increased by $226 million in 2024 compared to 2023, and decreased by $174 million in 2023 compared to 2022.

The increase in net cash used in 2024 compared to 2023 was primarily due to $458 million used for the acquisition of the non-controlling interest in ESI Group, partially offset by $259 million lower treasury stock repurchases.

In 2024, we used $913 million for financing activities, including $600 million used for repayment of the 2024 Senior Notes, $458 million used for the acquisition of the non-controlling interest in ESI Group, $443 million used for treasury stock repurchases, including payment of $4 million for excise taxes levied on share repurchases, $31 million for tax payments related to net share settlement of equity awards, $24 million used for repayment of debt assumed as part of the ESI Group acquisition, $12 million used for payment of debt issuance costs, and $10 million used for other financing activities, partially offset by $599 million of proceeds from the issuance of the 2034 Senior Notes, and $66 million of proceeds from issuance of common stock under employee stock plans.

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Treasury stock repurchases

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.

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, of which $485 million remained as of October 31, 2024.

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

See “Issuer Purchases of Equity Securities” under Part II Item 5 for additional information.

(in millions)

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

Revolving credit facility $ 750 $ 750

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

Bridge Facility £ 1,232 £ —

2024 Senior Notes

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

These notes matured on October 30, 2024 and were fully repaid.

2027 Senior Notes

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

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

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

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

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

2029 Senior Notes

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

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

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

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

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

2034 Senior Notes

In October 2024, the company issued an aggregate principal amount of $ 600 million in unsecured senior notes (“2034 Senior Notes”).

The 2034 Senior Notes were issued at 99.897 percent of their principal amount.

The notes will mature on October 15, 2034 and bear interest at a fixed rate of 4.95 percent per annum.

The interest is payable semi-annually on April 15 and October 15, commencing on April 15, 2025.

We incurred issuance costs of $ 6 million in connection with the 2034 Senior Notes that, along with the debt discount, are being amortized to interest expense over the term of the senior notes.

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, 2024.

Revolving Credit Facility

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

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

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

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.

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See Note 11, “Debt,” for additional information.

Bridge Facility

On March 28, 2024, we entered into a bridge credit agreement (the “Bridge Facility”) pursuant to which certain lenders agreed to provide a senior unsecured 364-day bridge credit facility of up to 1,350 million pounds sterling for the purpose of providing the financing to support a planned acquisition.

On July 25, 2024, the Bridge Facility was decreased to 1,232 million

pounds sterling.

We incurred costs in connection with the Bridge Facility of $7 million that are included in “other current assets” in the consolidated balance sheet and are being amortized to interest expense over the term of the Bridge Facility.

ESI Group debt and credit facility assumed

As part of the ESI Group acquisition, we assumed debt of $24 million, of which $10 million was payable within one year.

The debt included a syndicated loan of $11 million payable through yearly installments until April 2025 with an annual interest rate of EURIBOR + 2 to 2.5 percent.

We also assumed various fixed interest rate state-guaranteed loans and other bank borrowings of $13 million.

During the year ended October 31, 2024, we repaid the debt assumed as part of the acquisition.

As part of the ESI Group acquisition, we assumed a revolving credit facility of 10 million euros that was subsequently terminated in April 2024.

See Note 11, “Debt,” for additional information.

Cash and cash requirements

(in millions)

Cash, cash equivalents and restricted cash $ 1,814 $ 2,488

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

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

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

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

On March 28, 2024, we announced our intention to acquire the entire share capital of Spirent Communications PLC (“Spirent”) for cash consideration of 199 pence per Spirent share, which reflects a valuation of $1,463 million on a fully diluted basis.

Spirent shareholders will also be entitled to receive a special dividend of 2.5 pence per Spirent share, in lieu of any final dividend for the year ended December 31, 2023 (together with the cash consideration of 199 pence per share).

The acquisition is expected to be completed during the first half of fiscal year 2025, pending regulatory clearances.

On September 19, 2024, Keysight announced that it had entered into a definitive agreement with Synopsys, Inc.

(“Synopsys”) to acquire Synopsys’ Optical Solutions Group, a leading developer of optical design and analysis software tools.

The transaction is subject to customary closing conditions, including review by regulatory authorities and the successful closing of Synopsys’ proposed acquisition of Ansys, which is pending regulatory approvals and is expected to close in the first half of 2025.

The following table summarizes our short and long-term cash requirements as of October 31, 2024:

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year Due later than one

(in millions)

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

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

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

See Note 14, “Commitments and Contingencies,” for additional information.

As of October 31, 2024, we had non-cancellable purchase commitments that aggregated $423 million, of which the majority is for less than one year.

Other purchase commitments.

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

See Note 14, "Commitments and Contingencies."

See Note 14, “Commitments and Contingencies,” for additional information.

Other liabilities.

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

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

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

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

"Retirement Plans and Post-Retirement Benefit Plans."

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

Additionally, we expect capital spending to be approximately $150 million in 2025, compared to $147 million in 2024.

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

As of October 31, 2024, we believe our cash and cash equivalents, cash generated from operations, and our ability to access capital markets and credit lines will satisfy our cash needs for the foreseeable future both globally and domestically.

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

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

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

Revenue recognition.

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The best evidence of SSP is the observable price of a good or service when we sell that good or service separately under similar circumstances to similar customers.

Since most contracts contain multiple performance obligations, we use information that may include market conditions and other observable inputs to estimate SSP when we don’t have standalone transactions.

Since most contracts contain multiple performance obligations, we use information that may include market conditions and other observable inputs to estimate SSP when we do not have standalone transactions.

Recognize revenue when (or as) performance obligations are satisfied:

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For sales of implementation service and custom solutions or in instances where products are sold along with essential installation services, transfer of control occurs and revenue is typically recognized upon customer acceptance.

For fixed-price support and extended warranty contracts, or certain software arrangements that provide customers with a right to access over a discrete period, control is deemed to transfer over time and revenue is recognized on a straight-line basis over the contract term due to the stand-ready nature of the performance obligation.

For fixed-price support and extended warranty contracts, or certain software arrangements that

provide customers with a right to access over a discrete period, control is deemed to transfer over time and revenue is recognized on a straight-line basis over the contract term due to the stand-ready nature of the performance obligation.

Revenue from hardware repairs and calibration services outside of an extended warranty or support contract is recognized at the time of completion of the related service.

For other professional services or time-based labor contracts, revenue is recognized as we perform the services and the customers receive and/or consume the benefits.

For other professional services or time-based labor contracts, revenue is recognized as we perform the services and the customer receives and/or consume the benefits.

Inventory valuation.

We assess the valuation of our inventory on a periodic basis and make adjustments to the value for estimated excess and obsolete inventory based upon estimates about future demand and actual usage.

Such estimates are difficult to make under most economic conditions.

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

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

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

If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of sales and higher income from operations than expected in that period.

We assess the valuation of our inventory periodically and adjust the value for estimated excess and obsolete inventory based on future demand and actual usage.

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

Our excess inventory review process includes analyzing sales unit forecasts, managing product rollovers, and collaborating with manufacturing to maximize the recovery of excess inventory, taking actual market and economic conditions into consideration.

Share-based compensation.

We account for share-based awards in accordance with the provisions of the authoritative accounting guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors.

Awards granted under the Keysight Technologies, Inc.

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

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

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

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

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

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

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

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

expected asset allocations as well as historical and expected returns.

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

Plan assets are valued at fair value.

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net periodic benefit cost.

Business combinations.

Our methodology for allocating the purchase price relating to acquisitions is determined through established valuation techniques.

We allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on their estimated fair values at the time of acquisition, which involves a number of assumptions, estimates, and judgments, which are inherently uncertain and subject to refinement.

We determine the estimated fair values with the assistance of valuations performed by third party specialists, discounted cash flow analysis, and estimates made by management.

Our ability to realize the future cash flows used in our fair value estimates may be affected by changes in our financial condition, financial performance, or business strategies.

Our assumptions and estimates are based upon comparable

market data and information obtained from our management and the management of the acquired companies.

These assumptions and estimates are used to value assets acquired and liabilities assumed, and to allocate goodwill to the reporting units of the business that are expected to benefit from the business combination.

During the measurement period, which may be up to one year from the business acquisition date, we may recognize adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date.

We continue to collect information and reevaluate these estimates and assumptions quarterly and record any adjustment to our preliminary estimates to goodwill provided that we are within the measurement period.

Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.

Goodwill and other intangible assets.

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The quantitative impairment test involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill.

We determine the fair value of a reporting unit using the results derived using the market approach, when available and appropriate, or the income approach, or a combination of both.

We determine the fair value of a reporting unit from the results derived using the market approach, when available and appropriate, or the income approach, or a combination of both.

If multiple valuation methodologies are used, the results are weighted accordingly.

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

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

There were no impairments of goodwill during the years ended October 31, 2024, 2023 and 2022.

Other intangible assets consist primarily of developed technologies, trademarks, customer relationships, non-compete agreements, and backlog and are amortized using the straight-line method over estimated useful lives ranging from 1 to 12 years.

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

No impairments of purchased intangible assets were recorded during the years ended October 31, 2023, 2022, and 2021.

No impairments of amortizable intangible assets were recorded during the years ended October 31, 2024, 2023 and 2022.

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

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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.

No impairments of indefinite-lived intangible assets were recorded in 2024.

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

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

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

We accrue for standard warranty costs based on

historical trends in warranty charges.

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

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Loss Contingencies.

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

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

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

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

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

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

Restructuring.

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

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

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

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

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

As of October 31, 2024, the company maintains a valuation allowance 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.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis