Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 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, the impacts of increased trade tensions such as an imposition of or increase in tariffs and tightening of export control regulations, slowing demand for products or services, volatility in financial markets, reduced access to credit, changes in interest rates, the existence of political or economic instability, uncertainty related to the impact of national elections results in the U.S. and U.K., impacts of geopolitical tension and conflict in regions outside of the U.S., 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.
Overview and Executive Summary
Keysight Technologies, Inc. (“we,” “us,” “our,” “Keysight” or “the company”), incorporated in Delaware on December 6, 2013, is a global innovator in the computing, communications and electronics markets, committed to advancing our customers’ business success by helping them solve critical challenges in the development and commercialization of their products and services. Our mission, “accelerating innovation to connect and secure the world,” speaks to the value we provide our customers in a world of ever-increasing technological complexity. We deliver this value through a broad range of design and test solutions that address the critical challenges our customers face in bringing their innovations to market on ever-shorter schedules.
Our fiscal year end is October 31. Unless otherwise stated, all years and dates refer to our fiscal year.
Acquisitions of Spirent Communications plc, Synopsys’ Optical Solutions Group, and Ansys’ PowerArtist RTL Business
On October 15, 2025, we acquired all of the outstanding common stock of Spirent Communications plc (“Spirent”) for $1,415 million, net of $127 million cash acquired, using existing cash. On October 16, 2025, Keysight divested Spirent’s high-speed ethernet, network security, and channel emulation business lines for $399 million to Viavi Solutions Inc. (“Viavi”) in connection with satisfying the regulatory conditions set out as part of the Spirent acquisition. For the year ended October 31, 2025, our acquisition of Spirent resulted in incremental revenue of $9 million. In our discussion of changes in our results of operations, we have qualitatively disclosed the impact of the Spirent acquisition.
On October 17, 2025, we acquired the Optical Solutions Group business (“OSG”) from Synopsys, Inc. (“Synopsys”) and the PowerArtist RTL business (“PowerArtist”) from Ansys, Inc. (“Ansys”) for $578 million and $26 million, respectively. For the year ended October 31, 2025, the acquisitions had an immaterial impact on our revenue.
See Note 2, “Acquisitions,” for additional information.
Impact of U.S. government tariffs
Beginning in the second quarter of fiscal 2025, the U.S. government announced tariffs on products from most countries and additional reciprocal tariffs on certain countries. In response, China and other countries announced retaliatory tariffs against certain imports from the United States. There have been recent changes effective August 1, 2025, resulting in broad-based increases in tariff rates, and there has been continuing litigation in the federal courts regarding the validity of the imposition of certain tariffs. These tariffs have impacted our financial results for the year ended October 31, 2025. We have taken actions across multiple vectors to reduce the impact on our results of operations. This multipronged mitigation approach spans our global manufacturing footprint and sourcing strategies, as well as pricing and cost actions.
For additional discussion of risks related to tariffs and trade relations, please refer to Part I Item 1A “Risk Factors.”
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Years ended October 31, 2025, 2024, and 2023
Orders were $5,452 million, $5,033 million, and $5,190 million in 2025, 2024, and 2023, respectively. Orders of $5,452 million for 2025 increased 8 percent compared to 2024. Acquisitions had a favorable impact of 1 percentage point on the increase, while foreign currency movements had an immaterial impact. Orders grew across all regions. Orders of $5,033 million for 2024 decreased 3 percent compared to 2023. Acquisitions had a favorable impact of 4 percentage points on the change, while foreign currency movements had an immaterial impact. Orders declined in the Americas and Asia Pacific, while Europe was flat.
Revenue was $5,375 million, $4,979 million, and $5,464 million in 2025, 2024, and 2023, respectively. Revenue of $5,375 million for 2025 increased 8 percent compared to 2024. Acquisitions and foreign currency movements had an immaterial impact on the change. Revenue increased 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 2025. Revenue of $4,979 million for 2024 decreased 9 percent compared to 2023. Acquisitions had a favorable impact of 3 percentage points on the change, while foreign currency movements had an immaterial impact. Revenue declined in both CSG and EISG. Revenue from CSG and EISG represented approximately 69 percent and 31 percent, respectively, of total revenue for 2024.
Net income was $850 million, $614 million, and $1,057 million in 2025, 2024, and 2023, respectively. Net income of $850 million for 2025 increased 38 percent compared to 2024, primarily driven by higher revenue and net gains on equity investments and derivative instruments and lower income tax provisions, partially offset by higher people-related costs, higher acquisition and integration costs, impact of tariffs, and loss from discontinued operations, net of income taxes. Net income of $614 million for 2024 decreased 42 percent compared to 2023, primarily driven by lower revenue and 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.
Cash flows generated from operating activities were $1,409 million, $1,052 million, and $1,408 million in 2025, 2024, and 2023, respectively.
Outlook
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 and applications, including evolution of 5G, early 6G, high-speed data center networks and infrastructure, satellite networks, artificial intelligence (“AI”), industrial internet of things (“IoT”), defense modernization, and next generation electric vehicles and autonomous vehicles. We continue to engage actively with our customers and closely monitor the macroeconomic environment, including tariffs, trade restrictions and tightening of export control regulations, 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 due to 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 these hedging activities are included in our consolidated balance sheet and consolidated statement of operations. We may experience some fluctuations within individual lines of the consolidated balance sheet and consolidated statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities. Our cash flow hedging program is designed to hedge short-term currency movements based on a rolling period of up to twelve months. Therefore, we are exposed to currency fluctuations over the longer term. To the extent that we are required to pay for all, or portions, of an acquisition price in foreign currencies, we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the U.S. dollar cost of the transaction.
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Results from Operations - Years ended October 31, 2025, 2024 and 2023
A summary of our results is as follows:
Year Ended October 31,
2025 over 2024
% Change
2024 over 2023
% Change
(in millions, except margin data)
Revenue
Products
Percentage of revenue
1 ppt
(5) ppts
Services and other
Percentage of revenue
(1) ppt
5 ppts
Gross margin
(1) ppt
(2) ppts
Products
(3) ppts
Services and other
(2) ppts
2 ppts
Research and development
Percentage of revenue
2 ppts
Selling, general and administrative
Percentage of revenue
(1) ppt
4 ppts
Other operating expense (income), net
Income from operations
Operating margin
(8) ppts
Interest income
Interest expense
Other income (expense), net
Income from continuing operations before taxes
Provision for income taxes
Income from continuing operations, net of income taxes
Loss from discontinued operations, net of income taxes
Net income
Revenue
Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Returns are recorded in the period received from the customer and historically have not been material.
The following table provides the percent change in revenue for 2025 and 2024 by geographic region and the impact of foreign currency movements compared to the respective prior year.
Year-over-Year Revenue Change
2025 over 2024
2024 over 2023
Geographic Region
Actual
Currency Impact Favorable (Unfavorable)
Actual
Currency Impact Favorable (Unfavorable)
Americas
Europe
2 ppts
1 ppt
Asia Pacific
(1) ppt
Total revenue
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Gross Margin, Operating Margin, and Income Before Taxes
Gross margin decreased 1 percentage point in 2025 compared to 2024, primarily driven by the impact of tariffs and unfavorable mix, partially offset by favorable pricing, higher revenue volume, and lower restructuring costs. 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.
Excess and obsolete inventory charges were $43 million in 2025, $35 million in 2024, and $27 million in 2023.
R&D expense increased 10 percent in 2025 compared to 2024, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, higher variable people-related costs, and incremental costs from acquired businesses . We continued to prioritize investments prudently in strategic growth areas and advanced technologies. 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.
Selling, general and administrative expenses increased 6 percent in 2025 compared to 2024, primarily driven by higher acquisition and integration costs, people-related costs, travel costs, and incremental costs from acquired businesses, partially offset by lower infrastructure costs and amortization of acquisition-related balances. 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, and 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 $20 million, $14 million, and $15 million for 2025, 2024, and 2023, respectively, and primarily includes property rental income.
Operating margin was flat in 2025 compared to 2024, as declines in gross margin were offset by lower operating expenses as percentage of sales. 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 declines in gross margin.
Interest income for 2025, 2024, and 2023 was $102 million, $81 million, and $102 million, respectively, and primarily related to interest earned on our cash balances. The increase in interest income in 2025 compared to 2024 was primarily driven by increase in year-over-year cash balances. The decline in interest income in 2024 compared to 2023 was primarily driven by decline in year-over-year cash balances. Interest expense for 2025, 2024, and 2023 was $96 million, $84 million, and $78 million, respectively, and primarily related to interest on our debt instruments. See Note 11, “Debt,” for additional information.
Other income (expense) was income of $200 million, $35 million, and expense of $25 million, for 2025, 2024, and 2023, respectively. The increase in net other income for 2025 compared to 2024 was primarily driven by net gains on equity investments, gains on derivative instruments and lower amortization of actuarial losses. The increase in net other income for 2024 compared to 2023 was primarily driven by gains on derivative instruments and higher net gains on equity investments, partially offset by an increase in pension costs due to higher interest cost on benefit obligations.
Our headcount was approximately 16,800 as of October 31, 2025, compared to approximately 15,500 as of October 31, 2024. The increase was primarily driven by acquisitions.
Income Taxes
Year Ended October 31,
(in millions, except percentages)
Provision for income taxes
Effective tax rate
The effective tax rate was 20 percent, 29 percent, and 22 percent for 2025, 2024, and 2023, respectively.
The tax rate in 2025 was lower than the U.S. statutory rate, primarily due to a lower effective tax rate on foreign earnings and the utilization of foreign tax credits, partially offset by U.S. taxes on Global Intangible Low Taxed Income (“GILTI”) inclusion, and the impact of Pillar Two minimum taxes.
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In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law in the U.S. The OBBBA includes numerous provisions that affect corporate taxation, including changes to bonus depreciation, the expensing of domestic research costs, and modifications to certain U.S. international tax rules. The company has analyzed the impacts of the OBBBA and reflected them in the current period. These impacts do not have a material effect on the tax rate for the year ended October 31, 2025. The majority of the tax law changes will take effect in future years.
The Organization for Economic Cooperation and Development (“OECD”) reached agreement among certain member countries to implement a global minimum tax framework, commonly referred to as Pillar Two, which established a minimum 15 percent income tax rate. Various countries have passed legislation to comply with the Pillar Two model rules. A subset of these rules became effective for Keysight in the current fiscal year. While we expect to meet transitional safe harbor requirements in most jurisdictions, there are a limited number of jurisdictions where we expect Pillar Two taxes to apply. The income tax provision for the year ended October 31, 2025 includes the effects of Pillar Two taxes, resulting in a tax expense of $13 million.
The decrease in the effective tax rate of 9 percentage points from 2024 to 2025 was primarily due to the absence of the 2024 one-time income tax items in 2025, partially offset by the increase of taxes on the impact of Pillar Two minimum taxes.
The tax rate in 2024 was higher than the U.S. statutory rate primarily due to the impact of a one-time income tax charge to decrease deferred tax asset values from the Singapore statutory tax rate to an incentive tax rate, partially offset by a one-time income tax benefit related to the GILTI tax deductions for intangible asset amortization and the release of tax reserves related to Malaysia income tax assessment appeal. The tax rate in 2023 was higher than the U.S. statutory rate primarily due to the impact of U.S. tax capitalization of research and experimental expenditures, partially offset by the net impact from the proportion of worldwide earnings taxed at lower statutory tax rates in non-U.S. jurisdictions and the U.S. tax imposed on those non-U.S. jurisdictions. The increase in the effective tax rate of 7 percentage points from 2023 to 2024 was primarily due to the one-time income tax items in 2024.
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, 2029 while the Malaysia tax incentive expired on October 31, 2025. We are in the process of renewing our Malaysia tax incentive.
The open tax years for the U.S. federal income tax return and most state income tax returns are from November 1, 2019 through the current tax year. For the majority of our non-U.S. entities, the open tax years are from November 1, 2019 through the current tax year.
At this time, management does not believe that the outcome of any future or current examination will have a material impact on our consolidated financial statements. We believe that we have an adequate provision for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. Given the numerous tax years and matters that remain subject to examination in various tax jurisdictions, the ultimate resolution of current and future tax examinations could be inconsistent with management’s current expectations. If that were to occur, it could have an impact on our effective tax rate in the period in which such examinations are resolved.
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 positions within the provision for income taxes in the consolidated statements of operations. Accrued interest and penalties are included in the related tax liability line in the consolidated balance sheet.
We are subject to income taxes in the U.S. and various other countries globally. Changes in tax law, tax rates, or in the composition of earnings in countries with differing tax rates may affect deferred tax assets and liabilities recorded and our future effective tax rate.
In June 2025, the United States and the other six countries that make up the G7 nations jointly announced that U.S. companies would be exempted from certain minimum taxes related to the OECD agreement, commonly referred to as Pillar Two. However, significant details regarding the G7 announcement remain uncertain and individual countries that have enacted the OECD agreement, including countries not within the G7, must amend their local legislation for the G7 announcement to become effective. We continue to closely monitor Pillar Two developments.
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We do not recognize deferred taxes for temporary differences expected to impact the GILTI tax expense in future years. We recognize the tax expense related to GILTI in each year in which the tax is incurred.
Segment Overview
Keysight has 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.
A significant portion of the segments' expenses arise from allocated corporate charges, as well as expenses related to our centralized sales force, and service, marketing, and technology functions that are provided to the segments in order to realize economies of scale and to efficiently use resources. Corporate charges include legal, accounting, real estate, insurance services, information technology services, treasury, and other corporate infrastructure expenses. Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to, or benefits received by the segments. Newly acquired businesses are not allocated these charges until integrated into our shared services and corporate infrastructure.
Communications Solutions Group
CSG serves customers spanning the global commercial communications and aerospace, defense, and government end markets. The group’s solutions consist of electronic design and test software, instrumentation, systems, and related services. These solutions are used in the design, simulation, validation, manufacturing, installation, and optimization of communication systems in wireless, wireline (data center ecosystem), enterprise, and aerospace, defense, and government end markets. Our recent acquisition of Spirent adds wireless network test and assurance and positioning technology solutions to our portfolio, complementing our design, validation, and performance offerings to deliver end-to-end solutions to our customers.
Revenue
Year Ended October 31,
2025 over 2024
% Change
2024 over 2023
% Change
(in millions)
Total revenue
Revenue for CSG in 2025 increased 9 percent compared to 2024. Acquisitions had a favorable impact of 1 percentage point on the year-over-year revenue change, while foreign currency movements had an immaterial impact. Revenue increased across all regions and in both the commercial communications and the aerospace, defense, and government end markets. The increase was primarily driven by higher investments in high-speed networks to support increasing demand for AI capabilities and increased investment in aerospace and defense solutions. Customers continued their R&D investments in next-generation technologies and applications, including AI-driven data center expansion, ongoing 5G standards development and deployment, 400G/800G Ethernet, development of new communications technologies (such as 6G, Open Radio Access Networks, commercial non-terrestrial networks, quantum), high-speed networking and major defense and government programs worldwide. CSG revenue for 2024 decreased 7 percent compared to 2023. Acquisitions had a favorable impact of 1 percentage point on the year-over-year revenue change, while foreign currency movements had an immaterial impact. Revenue declined across all regions and in both the commercial communications and the aerospace, defense, and government end markets.
Revenue from the commercial communications market represented approximately 67 percent of total CSG revenue in 2025 and increased 10 percent compared to 2024. Revenue increased across all regions. T he year-over-year increase was primarily driven by R&D investments in terabit solutions and expanding 400G/800G transceiver manufacturing capacity to meet rising demand for AI capabilities. We continued to see investments in high-speed networks due to increasing need for AI capabilities in the data center infrastructure ecosystem, which drove demand for our 400G/800G Ethernet solutions, in both R&D and manufacturing . 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.
Revenue from the aerospace, defense, and government market represented approximately 33 percent of total CSG revenue in 2025 and increased 8 percent compared to 2024. Revenue increased across all regions. The year-over-year increase was primarily driven by strong growth in space and satellite solutions and continued investments in radar and spectrum operations. 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.
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Gross Margin and Operating Margin
Year Ended October 31,
2025 over 2024
% Change
2024 over 2023
% Change
(in millions, except margin data)
Gross margin
(1) ppt
Research and development
Selling, general and administrative
Other operating expense (income), net
Income from operations
Operating margin
(2) ppts
Gross margin for CSG in 2025 decreased 1 percentage point compared to 2024, primarily driven by the impact of tariffs and unfavorable mix, partially offset by favorable pricing and higher revenue volume. 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.
R&D expense in 2025 increased 13 percent compared to 2024, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, higher variable people related costs, and incremental costs from acquired businesses. 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 prioritize investments prudently in strategic growth areas and advanced technologies.
Selling, general and administrative expense in 2025 increased 5 perce nt compared to 2024, primarily driven by higher people-related and incremental costs from acquired businesses, partially offset by lower infrastructure 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.
Other operating expense (income), net was income of $14 million in 2025, $10 million in 2024, and $11 million in 2023, and primarily includes property rental income.
Operating margin in 2025 was flat compared to 2024, as gross margin declines were offset by a decline in operating expense as a percentage of sales. 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.
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, test and simulation software, instrumentation, systems, computer-aided engineering solutions, and related services. These solutions are used in the design, simulation, validation, manufacturing, installation, and optimization of electronic equipment.
Revenue
Year Ended October 31,
2025 over 2024
% Change
2024 over 2023
% Change
(in millions)
Total revenue
Revenue for EISG in 2025 increased 6 percent compared to 2024. Acquisitions and foreign currency movements had an immaterial impact on the year-over-year revenue change. Revenue increased across all regions.The increase in revenue reflects mixed demand across the electronic industrial markets with an increase in semiconductor measurements and general electronics measurement, partially offset by a decline in automotive and energy. Despite macroeconomic uncertainties, customer engagement remained high in key long-term strategic initiatives, including R&D for AI-driven demand for advanced semiconductor technologies, software-defined vehicles, industrial IoT, digital health, and fab capacity. 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, while foreign currency movements had an unfavorable impact of 1 percentage point.
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Gross Margin and Operating Margin
Year Ended October 31,
2025 over 2024
% Change
2024 over 2023
% Change
(in millions, except margin data)
Gross margin
(2) ppts
Research and development
Selling, general and administrative
Other operating expense (income), net
Income from operations
Operating margin
2 ppts
(10) ppts
Gross margin for EISG in 2025 was flat compared to 2024, primarily as the impact of tariffs and unfavorable mix, was offset by favorable pricing . 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.
R&D expense in 2025 increased 2 percent compared to 2024, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies and higher variable people related 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.
Selling, general and administrative expense in 2025 decreased 1 percent compared to 2024, primarily driven by lower infrastructure costs, partially offset by higher 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
Other operating expense (income), net was income of $7 million in 2025 and $4 million in 2024 and 2023, and primarily included property rental income.
Operating margin in 2025 increased 2 percentage points compared to 2024, primarily driven by lower R&D expense and selling, general and administrative expense on higher revenue. 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.
Financial Condition
Liquidity and Capital Resources
Our liquidity is affected by many factors, including normal ongoing operations of our business and fluctuations due to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Under certain circumstances, U.S. and local government regulations may limit our ability to move cash balances to meet cash needs.
Overview of Cash Flows
Our key cash flow activities were as follows:
Year Ended October 31,
(in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Operating Activities
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.
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Net cash provided by operating activities increased $357 million in 2025 compared to 2024 and decreased $356 million in 2024 compared to 2023.
• Net income in 2025 increased $236 million compared to 2024. Non-cash adjustments to net income were lower by $452 million, primarily due to a $384 million increase in deferred tax benefit resulting from a prior period one-time income tax charge (see Note 5, “Income Taxes,” for additional information), an $85 million increase in unrealized gains on investments in equity securities, and a $21 million gain on sale of investments, partially offset by a $25 million increase in share-based compensation, a $8 million increase in excess and obsolete inventory related charges, and a $6 million increase in amortization and depreciation expense.
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.
• The aggregate of accounts receivable, inventory, and accounts payable provided net cash of $25 million during 2025, compared to net cash provided of $48 million in 2024, and net cash used of $196 million in 2023. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory, and accounts payable depends upon 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.
• The aggregate of income tax receivables provided net cash of $105 million during 2025, compared to net cash used of $202 million in 2024 and $4 million in 2023. The difference between 2025 and 2024 cash flows was primarily driven by a prior year income tax benefit due to one-time discrete tax items (see Note 5, “Income Taxes,” for additional information), partially offset by current year income tax accruals.
The difference between 2024 and 2023 cash flow was due to higher tax receivables 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 $172 million during 2025, compared to net cash used of $117 million in 2024 and net cash provided of $74 million in 2023. The difference between 2025 and 2024 cash flows was primarily due to changes in derivative assets and liabilities (see Note 9, “Derivatives,” for additional information), higher variable compensation, and payroll-related accruals, net of payments, higher income and other tax accruals, net of payments, and changes in deferred revenue, partially offset by changes in retirement and post-retirements benefits and other assets and liabilities, driven by acquisition-related payments.
The difference between 2024 and 2023 cash flows was primarily due to changes in derivative assets and liabilities (see Note 9, “Derivatives,” for additional information), 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.
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 $908 million in 2025 compared to 2024 and increased by $531 million in 2024 compared to 2023. The increase in net cash used in investing activities in 2025 as compared to 2024 was primarily due to $1,341 million higher cash used for acquisition activities, partially offset by a $399 million proceeds from a divestiture and a $20 million decrease in cash used for purchases of property, plant and equipment, net of government incentives received.
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In 2025, we used $2,022 million, net of cash acquired, for acquisitions, which included $1,415 million, net of $127 million cash acquired, for the acquisition of Spirent, $578 million used for the acquisition of Synopsys’ OSG, $26 million used for acquisition of Ansys’ PowerArtist RTL Business and $3 million used for other acquisition activity. Additionally, we used $127 million for purchases of property, plant and equipment, net of $1 million of government incentives, and $7 million for purchase of investments, partially offset by $399 million provided by the divestiture of Spirent’s high-speed ethernet, network security and channel emulation business lines to Viavi Solutions Inc. and $30 million provided by sale of investments.
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 purchase of investments, partially offset by $11 million provided by sale of investments and $9 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 $1 million of government incentives, $85 million, net of cash acquired, for acquisition activities, and $7 million for purchase of investments.
Financing Activities
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 provided by financing activities increased by $1,298 million in 2025 compared to 2024. Net cash used in financing activities increased by $226 million in 2024 compared to 2023. The increase in 2025 compared to 2024 was primarily due to $624 million used for repayment of 2024 Senior Notes in 2024, $458 million used for the acquisition of the non-controlling interest in ESI Group in 2024, $149 million higher proceeds from issuance of senior notes and $66 million lower treasury stock repurchases.
In 2025, we generated $385 million from financing activities, including $748 million of proceeds from the issuance of the 2030 Senior Notes and $63 million of proceeds from issuance of common stock under employee stock plans, partially offset by $377 million for treasury stock repurchases, including payment of $3 million for excise taxes levied on share repurchases, $39 million for tax payments related to net share settlement of equity awards, $8 million used for payment of debt issuance costs and $2 million used for other financing activities.
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.
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.
Treasury stock repurchases
On March 6, 2023, our board of directors approved a stock repurchase program authorizing the purchase of up to $1,500 million of the company’s common stock. On November 24, 2025, 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 March 2023 program, under which $110 million remained as of October 31, 2025. 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.
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Debt
October 31,
(in millions)
Senior Notes (par value)
Revolving credit facility
Bridge Facility
Total Debt
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.
2030 Senior Notes
In April 2025, the company issued an aggregate principal amount of $750 million in unsecured senior notes (“2030 Senior Notes”). The 2030 Senior Notes were issued at 99.760 percent of their principal amount. The notes will mature on July 30, 2030 and bear interest at a fixed rate of 5.35 percent per annum. The interest is payable semi-annually on January 30 and July 30, commencing on January 30, 2026. We incurred issuance costs of $ 7 million in connection with the 2030 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, 2025.
Revolving Credit Facility
On July 30, 2021, we entered into an amended and restated credit agreement (the “Revolving Credit Facility”), which provided a $750 million five-year unsecured revolving credit facility that expires on July 30, 2026. Borrowings under the facility bear an annual interest rate of SOFR + 1.1 percent, including a facility fee of 0.1 percent per annum. In addition, the Revolving Credit Facility permits the company, subject to certain customary conditions, on one or more occasions to request to increase the total commitments under the Revolving Credit Facility by up to $250 million in the aggregate. We may use amounts borrowed under the Revolving Credit Facility for general corporate purposes. As of October 31, 2025 and 2024, we had no borrowings outstanding under the Revolving Credit Facility. We were in compliance with the covenants of the Revolving Credit Facility during the year ended October 31, 2025.
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 bridge credit facility of up to 1,350 million pounds sterling for the purpose of providing
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the financing to support a planned acquisition. On July 25, 2024, the Bridge Facility decreased to 1,232 million pounds sterling. On May 8, 2025, the Bridge Facility further decreased to 752 million pounds sterling and on September 25, 2025 the Bridge Facility was terminated. We incurred costs in connection with the Bridge Facility of $7 million that have been fully amortized to interest expense.
See Note 11, “Debt,” for additional information.
Cash and cash requirements
Cash
October 31,
(in millions)
Cash, cash equivalents, and restricted cash
Non-U.S.
Our cash and cash equivalents mainly consist of investments in institutional money market funds investments, short-term deposits held at major global financial institutions, and similar short duration instruments with original maturities of three months or less. We continuously monitor the creditworthiness of the financial institutions and money market fund asset managers with whom we invest our funds. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Most significant international locations have access to internal funding through an offshore cash pool for working capital needs. In addition, a few locations that are unable to access internal funding have access to temporary local overdraft and short-term working capital lines of credit.
Cash requirements
We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements. In the event that additional liquidity is required, we may also borrow under the Revolving Credit Facility and/or issue new debt.
The following table summarizes our short and long-term cash requirements as of October 31, 2025:
Total
Due within one
year
Due later than one
year
(in millions)
Senior notes obligations
Interest payments on senior notes
Operating lease commitments
Commitments to contract manufacturers and suppliers
Other purchase commitments
Other liabilities reflected on our consolidated balance sheet
Total
Senior notes obligations and interest payments on senior notes. We have contractual obligations for principal and interest payments on our senior notes. See Note 11, “Debt,” for additional information.
Operating lease commitments. Commitments under operating leases primarily relates to leasehold properties. See Note 10, “Leases,” for additional information.
Commitments to contract manufacturers and suppliers. 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,” for additional information. As of October 31, 2025, we had non-cancellable purchase commitments that aggregated approximately $450 million, of which the majority is for less than one year.
Other purchase commitments. Other purchase commitments primarily relate to software as a service and other professional services contracts. As of October 31, 2025, our non-cancellable contractual obligations related to these contracts were approximately $ 111 million.
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We also have long-term power purchase agreements to purchase power at predominantly variable prices. These agreements are expected to support our power consumption needs with more favorable pricing and reliability than our previous supply agreements. See Note 14, “Commitments and Contingencies,” for additional information.
Other 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.
Of the tax liabilities included in the above table, $20 million relates to a U.S. transition tax liability and $231 million for uncertain tax positions. The remaining U.S. transition tax liability, which Keysight originally elected to pay over 8 years, is payable over the next 3 years and relates to a one-time U.S. tax on those earnings that had not been previously repatriated to the U.S. With regard to the $231 million of long-term liabilities for uncertain tax positions, we are unable to accurately predict when these amounts will be realized or released. We believe that we have an adequate provision for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. Given the numerous tax years and matters that remain subject to examination in various tax jurisdictions, the ultimate resolution of current and future tax examinations could be inconsistent with management’s current expectations. See Note 5, “Income Taxes,” for additional information.
In addition to the obligations noted above, as of October 31, 2025, we had $60 million of outstanding letters of credit, custom bonds, and surety bonds that were issued by various lenders.
For the next twelve months, we do not expect to contribute to our U.S. defined benefit plan and U.S. post-retirement benefit plan, and we expect to contribute $14 million to our non-U.S. defined benefit plans. 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. See Note 12, “Retirement Plans and Post-Retirement Benefit Plans,” for additional information.
Additionally, we expect capital expenditures to be approximately $160 million in 2026 compared to $127 million in 2025.
As of October 31, 2025, 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.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management's best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 31, 2025. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. 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, business combinations, valuation of goodwill and other intangible assets, warranty, contingencies, , and accounting for income taxes.
Revenue recognition. Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We primarily generate revenue from the sale of products (hardware and/or software), services, or a combination thereof. We enter into contracts that may involve multiple performance obligations, and we allocate the transaction price between each performance obligation on the basis of relative standalone selling price (“SSP”). We recognize revenue following a five-step model.
1. Identify the contract with a customer: Generally, we consider customer purchase orders, which in some cases are governed by master sales or other purchase agreements, to be the customer contract. All of the following criteria must be met before we consider an agreement to qualify as a contract with a customer under the revenue standard: (i) it must be approved by all parties; (ii) each party’s rights regarding the goods and services to be transferred can be identified; (iii) the payment terms for the goods and services can be identified; (iv) the agreement has commercial substance; and, (v) the customer has the ability and intent to pay and collection of substantially all of the consideration is probable. We
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exercise reasonable judgment to determine the customer’s ability and intent to pay, which is based upon various factors including the customer’s historical payment experience or credit and financial information and credit risk management measures that we implement.
2. Identify the performance obligations in the contract: We assess whether each promised good or service is distinct for the purpose of identifying the various performance obligations in each contract. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and, (ii) our promise to transfer the good or service to the customer is separately identifiable or distinct from other promises in the contract.
3. Determine the transaction price: Transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services. Our contracts may include terms that could cause variability in the transaction price including rebates, rights of return, trade-in credits, and discounts. Variable consideration is generally accounted for at the portfolio level and estimated based on historical information.
4. Allocate the transaction price to performance obligations in the contract: If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Many of our contracts include multiple performance obligations with a combination of distinct products and services, maintenance and support, professional services and/or training. For contracts with multiple performance obligations, we allocate the total transaction value to each distinct performance obligation based on relative SSP. Judgment is required to determine the SSP for each distinct performance obligation. 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 do not have standalone transactions.
5. Recognize revenue when (or as) performance obligations are satisfied: Revenue is recognized at the point in time control is transferred to the customer. For hardware sales, transfer of control to the customer typically occurs at the point the product is shipped or delivered to the customer’s designated location. For software license sales, transfer of control to the customer typically occurs upon shipment, electronic delivery, or when the software is available for download by the customer. 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. 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 customer receives and/or consume the benefits.
Inventory valuation. 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 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 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. For additional information on valuation assumptions, see Note 4, “Share-Based Compensation.” The estimated fair value of restricted stock awards is determined based on the market price of Keysight’s common stock on the date of grant. We did not grant any option awards in 2025, 2024, and 2023.
Retirement and post-retirement benefit plan assumptions. Retirement and post-retirement benefit plan costs are a significant cost of doing business. They represent obligations that will ultimately be settled sometime in the future and therefore are subject to estimation. Defined benefit plan obligations are remeasured at least annually as of October 31, based on the present value of future benefit payments to reflect the future benefit costs over the employees’ average expected future service
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to Keysight based on the terms of the plans. To estimate the present value of these future payments, we are required to make assumptions using actuarial concepts within the framework of generally accepted accounting principles in the U.S. The discount rate is a critical assumption. Other important assumptions include expected long-term return on plan assets, expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and investment portfolio composition. We evaluate these assumptions at least annually. See Note 12, “Retirement Plans and Post-Retirement Benefit Plans.”
The discount rate is used to determine the present value of future benefit payments at the measurement date, which is October 31 for both U.S. and non-U.S. plans. The U.S. discount rates as of October 31, 2025 and 2024 were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. The non-U.S. discount rates as of October 31, 2025 and 2024 were determined using spot rates along the yield curve to calculate disaggregated discount rates. In addition, we used this method to calculate two components of the periodic benefit cost: service cost and interest cost. If we changed our discount rate by 1 percent, the impact would be $7 million on U.S. net periodic benefit cost and $8 million on non-U.S. net periodic benefit cost. Lower discount rates increase the present value of the liability and subsequent year pension expense; higher discount rates decrease the present value of the liability and subsequent year pension expense.
The company uses alternate methods of amortization, as allowed by the authoritative guidance, that amortizes the actuarial gains and losses on a consistent basis for the years presented. For U.S. plans, gains and losses are amortized over the average future working lifetime. For most non-U.S. plans and U.S. 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. Plan assets are valued at fair value. If we changed our estimated return on assets by 1 percent, the impact would be $9 million on U.S. net periodic benefit cost and $9 million on non-U.S. 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 balance and 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. We review goodwill for impairment annually during our fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. At the time of an acquisition, we assign goodwill to the reporting unit that is expected to benefit from the synergies of the combination.
Companies have the option to perform a qualitative assessment to determine whether performing a quantitative test is necessary. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.
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 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. The income approach is estimated through the discounted cash flow (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, revenue growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus
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a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method, which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, then an impairment charge is recorded for the amount by which the carrying amount exceeds the reporting unit’s fair value up to a maximum amount of the goodwill balance for the reporting unit.
During the fourth quarter of 2025, we performed our annual impairment test of goodwill for all our reporting units using a qualitative approach. Based on the results of our qualitative testing, we believe that it is more likely than not that the fair value of each reporting unit is greater than its respective carrying value. There were no impairments of goodwill during the years ended October 31, 2025, 2024, and 2023.
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 amortizable intangible assets were recorded during the years ended October 31, 2025, 2024, and 2023.
We review indefinite-lived intangible assets for impairment annually or 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. The authoritative accounting guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the impairment testing guidance for goodwill. It allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset. The qualitative factors assist in determining whether it is more likely than not that the indefinite-lived intangible asset is impaired. An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value. Our indefinite-lived intangible assets are generally in-process research and development (“IPR&D”) intangible assets. No impairments of indefinite-lived intangible assets were recorded in 2025 and 2024. We had no IPR&D intangible assets as of October 31, 2023.
Warranty. Keysight warranties on products sold through direct sales channels are primarily for one year. Warranties for products sold through distribution channels are primarily for three years. We accrue for standard warranty costs based on historical trends in warranty charges. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates. Estimated warranty charges are recorded within “cost of products” at the time related product revenue is recognized.
We also sell extended warranties that provide warranty coverage beyond the standard warranty term. Revenue associated with extended warranties is deferred and recognized over the extended coverage period.
Loss Contingencies. 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. These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims. 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 operations.
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. If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and other related charges could be materially different, either higher or lower, than those we have recorded.
Accounting for income taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax benefits, credits and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.
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Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. We consider evidence such as our past operating results, the existence of losses in recent years and our forecast of future taxable income.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S. and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due. The ultimate resolution of tax uncertainties may differ from what is currently estimated, which could result in a material impact on income tax expense. If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. We include interest and penalties related to unrecognized tax benefits within the provision for income taxes in the consolidated statements of operations.
New Accounting Standards
See Note 1, “Overview, Basis of Presentation and Summary of Significant Accounting Policies,” to the consolidated financial statements for a description of new accounting pronouncements.
