UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2017

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM              TO        

COMMISSION FILE NUMBER: 001-36334

KEYSIGHT TECHNOLOGIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE	46-4254555
(State or other jurisdiction of	(IRS employer
incorporation or organization)	Identification no.)
1400 FOUNTAINGROVE PARKWAY
SANTA ROSA, CALIFORNIA	95403
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 829-4444

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the exchange act.

Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ¨
(do not check if a smaller reporting company)	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a)of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No x

The number of shares of common stock outstanding at September 5, 2017 was 186,007,291. 

KEYSIGHT TECHNOLOGIES, INC.

TABLE OF CONTENTS

			Page Number
Part I.	Financial Information		3
	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
		Condensed Consolidated Statement of Operations	3
		Condensed Consolidated Statement of Comprehensive Income	4
		Condensed Consolidated Balance Sheet	5
		Condensed Consolidated Statement of Cash Flows	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
	Item 4.	Controls and Procedures	40
Part II.	Other Information		40
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 6.	Exhibits	53
Signature			54

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PART I — FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2017			2016			2017			2016
Net revenue:
Products	$	695		$	591		$	1,935		$	1,810
Services and other	137			124			376			357
Total net revenue	832			715			2,311			2,167
Costs and expenses:
Cost of products	349			246			876			776
Cost of services and other	72			63			207			187
Total costs	421			309			1,083			963
Research and development	132			104			359			320
Selling, general and administrative	286			200			755			607
Other operating expense (income), net	(3		)	(4		)	(86		)	(22		)
Total costs and expenses	836			609			2,111			1,868
Income (loss) from operations	(4		)	106			200			299
Interest income	2			1			5			2
Interest expense	(22		)	(11		)	(58		)	(35		)
Other income (expense), net	(1		)	1			2			2
Income (loss) before taxes	(25		)	97			149			268
Provision (benefit) for income taxes	(7		)	6			9			25
Net income (loss)	$	(18	)	$	91		$	140		$	243
Net income (loss) per share:
Basic	$	(0.10	)	$	0.54		$	0.78		$	1.43
Diluted	$	(0.10	)	$	0.53		$	0.78		$	1.41
Weighted average shares used in computing net income (loss) per share:
Basic	186			170			178			170
Diluted	186			172			180			172

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

	Three Months Ended						Nine Months Ended
	July 31,						July 31,
	2017			2016			2017			2016
Net income (loss)	$	(18	)	$	91		$	140		$	243
Other comprehensive income (loss):
Unrealized gain (loss) on investments, net of tax benefit (expense) of $1, $1, $1 and $2	—			2			4			(5		)
Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of zero, $2, $(1) and $2	1			(3		)	2			(4		)
Amounts reclassified into earnings related to derivative instruments, net of tax benefit (expense) of zero, $(1), $(1) and $(3)	(1		)	1			—			6
Foreign currency translation, net of tax benefit (expense) of zero	15			(1		)	—			30
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss, net of tax expense of $6, $5, $24 and $15	12			9			52			31
Change in net prior service credit, net of tax benefit of $2, $2, $6 and $7	(4		)	(4		)	(12		)	(12		)
Other comprehensive income	23			4			46			46
Total comprehensive income	$	5		$	95		$	186		$	289

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions, except par value and share data)

	July 31, 2017			October 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	873		$	783
Short-term investments	3			—
Accounts receivable, net	521			437
Inventory	561			474
Other current assets	200			160
Total current assets	2,158			1,854
Property, plant and equipment, net	546			512
Goodwill	1,861			736
Other intangible assets, net	865			208
Long-term investments	60			55
Long-term deferred tax assets	216			392
Other assets	134			39
Total assets	$	5,840		$	3,796
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	40		$	—
Accounts payable	181			189
Employee compensation and benefits	182			183
Deferred revenue	265			180
Income and other taxes payable	39			41
Other accrued liabilities	77			51
Total current liabilities	784			644
Long-term debt	2,047			1,093
Retirement and post-retirement benefits	371			405
Long-term deferred revenue	92			72
Other long-term liabilities	327			69
Total liabilities	3,621			2,283
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock; $0.01 par value; 100 million shares authorized; none issued and outstanding	—			—
Common stock; $0.01 par value; 1 billion shares authorized; 188 million shares at July 31, 2017 and 172 million shares at October 31, 2016 issued	2			2
Treasury stock at cost; 2.3 million shares at July 31, 2017 and at October 31, 2016	(62		)	(62		)
Additional paid-in-capital	1,772			1,242
Retained earnings	1,079			949
Accumulated other comprehensive loss	(572		)	(618		)
Total stockholders' equity	2,219			1,513
Total liabilities and equity	$	5,840		$	3,796

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)

	Nine Months Ended
	July 31,
	2017			2016
Cash flows from operating activities:
Net income	$	140		$	243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	153			101
Share-based compensation	44			39
Excess tax (benefit) deficiency from share-based plans	(4		)	4
Debt issuance expense	9			—
Deferred taxes	(43		)	5
Excess and obsolete inventory related charges	12			14
Gain on sale of land	(8		)	(10		)
Asset impairment	7			—
Other non-cash expenses, net	1			4
Changes in assets and liabilities:
Accounts receivable	14			(16		)
Inventory	10			(23		)
Accounts payable	(17		)	(38		)
Employee compensation and benefits	(33		)	1
Retirement and post-retirement benefits	(78		)	(38		)
Income taxes payable	8			3
Other assets and liabilities	34			(12		)
Net cash provided by operating activities	249			277
Cash flows from investing activities:
Investments in property, plant and equipment	(54		)	(76		)
Proceeds from sale of land	8			10
Proceeds from sale of investments	42			1
Acquisition of businesses and intangible assets, net of cash acquired	(1,642		)	(10		)
Other investing activities	—			(1		)
Net cash used in investing activities	(1,646		)	(76		)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	51			42
Proceeds from issuance of common stock under public offering	444			—
Excess tax benefit (deficiency) from share-based plans	4			(4		)
Proceeds from short-term borrowings	170			—
Proceeds from issuance of long-term debt	1,069			—
Payment of debt issuance costs	(16		)	—
Repayment of debt	(240		)	(1		)
Treasury stock repurchases	—			(62		)
Net cash provided by (used in) financing activities	1,482			(25		)
Effect of exchange rate movements	5			5
Net increase in cash and cash equivalents	90			181
Cash and cash equivalents at beginning of period	783			483
Cash and cash equivalents at end of period	$	873		$	664

The accompanying notes are an integral part of these condensed consolidated financial statements.

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KEYSIGHT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview. Keysight Technologies, Inc. ("we," "us," "Keysight" or the "company"), incorporated in Delaware on December 6, 2013, is a measurement company providing electronic design and test solutions to communications and electronics industries.

On April 18, 2017, the company completed the acquisition of Ixia. Ixia provides testing, visibility, and security solutions, strengthening applications across physical and virtual networks for enterprises, service providers, and network equipment manufacturers. This acquisition extends our position in communications and enables us to create unique combinations of end-to-end solutions that address fast-growing segments of the communications design and test ecosystem.

Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal quarters.

Basis of Presentation. We have prepared the accompanying financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The accompanying financial statements and information should be read in conjunction with our Annual Report on Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to state fairly our condensed consolidated balance sheet as of July 31, 2017 and October 31, 2016, condensed consolidated statement of comprehensive income for the three and nine months ended July 31, 2017 and 2016, condensed consolidated statement of operations for the three and nine months ended July 31, 2017 and 2016, and condensed consolidated statement of cash flows for the nine months ended July 31, 2017 and 2016.

Use of Estimates. The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed 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 knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, share-based compensation, retirement and post-retirement plan assumptions, valuation of goodwill and other intangible assets, warranty, restructuring, and accounting for income taxes.

Acquisition of Ixia. On April 18, 2017 we acquired all of the outstanding common stock of Ixia for $1,622 million, net of $72 million of cash acquired. See Note 3 for further discussion of the company's acquisition of Ixia.

Land Sale. On April 30, 2014 we entered into a binding contract to sell land in the United Kingdom ("U.K.") that resulted in the transfer of three separate land tracts in May 2014, November 2015 and November 2016 for £21 million. In the nine months ended July 31, 2017 and 2016, we recognized gains of $8 million and $10 million, respectively, on the sale of the land tracts in other operating expense (income).

Restricted Cash. As of July 31, 2017, restricted cash of approximately $2 million consisted of deposits held as collateral against bank guarantees and is classified within other assets in the condensed consolidated balance sheet. As of October 31, 2016, restricted cash of $2 million consisted of approximately $1 million of deposits held as collateral against bank guarantees and approximately $1 million of deposits primarily held as collateral against foreign currency hedging contracts and is classified within other assets and other current assets, respectively, in the condensed consolidated balance sheet.

Update to Significant Accounting Policies. There have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016.

2. NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance which will replace numerous requirements in GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize

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revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. During 2016, the FASB issued several amendments to the standard, including clarification to the guidance on reporting revenues as a principal versus an agent, identifying performance obligations, accounting for intellectual property licenses, assessing collectability, presentation of sales taxes, impairment testing for contract costs and disclosure of performance obligations.

The two permitted transition methods under the new standard are (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, and the cumulative effect of applying the standard would be recognized at the earliest period shown, or (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We currently anticipate adopting the standard on November 1, 2018 and are evaluating the transition methods available. Based on the progress to date, we have not identified any material impacts of the new standard on the amount and timing of revenue recognition to our consolidated statement of operations; however, we have not completed our assessment, including the impact of our recent acquisitions of Ixia and Scienlab. We expect recognition of revenue for a majority of customer contracts to remain substantially unchanged. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license revenue, as under the new standard we expect to recognize software license revenue at the time of billing rather than over the contractual term. The new standard will also require the deferral of commissions that were previously expensed as incurred and may qualify for capitalization under the new standard and changes to the timing of recognition of revenue and costs related to certain warranty arrangements.

In April 2015, the FASB issued Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs, to simplify the presentation of deferred issuance costs by requiring that they be presented as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The standard is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. We adopted this guidance retrospectively during the first quarter of 2017. As a result, $7 million of unamortized debt issuance costs have been reclassified from other assets to long-term debt in the consolidated balance sheet as of October 31, 2016 (see Note 16).

In February 2016, the FASB issued guidance that will require organizations that lease assets to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, the new guidance will require both types of leases to be recognized on the balance sheet. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

In March 2016, the FASB issued guidance that simplifies the accounting for taxes related to share-based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, that removes the requirement under which the income tax consequences of intra-entity transfers are deferred until the assets are ultimately sold to an outside party, except for transfers of inventory. The tax consequences of such transfers would be recognized in tax expense when the transfers occur. The standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We elected to early adopt this guidance on a modified retrospective basis during the first quarter of 2017. As a result, a $10 million cumulative-effect adjustment was recorded directly to retained earnings as of November 1, 2016, the beginning of the annual period of adoption, with corresponding reductions of $2 million, $6 million and $2 million to other current assets, other assets, and long-term deferred tax assets, respectively.

In January 2017, the FASB issued guidance to narrow the definition of a business and provide a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We do not expect a material impact to our consolidated financial statements due to the adoption of this guidance.

In January 2017, the FASB issued guidance that eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We do not expect a material impact to our consolidated financial statements due to the adoption of this guidance.

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In March 2017, the FASB issued guidance that requires the service cost component of net periodic pension cost and net periodic post-retirement benefit cost to be included in operating expenses (together with other employee compensation costs) and the other components of the cost to be included in non-operating expenses. The standard is effective for annual and interim periods beginning after December 31, 2017. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

In May 2017, the FASB issued guidance that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The standard is effective for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

In August 2017, the FASB issued guidance to enable entities to better portray the economics of their risk management activities in the financial statements and enhance transparency and understandability of hedge results. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the impact of adopting this guidance on our consolidated financial statements.

Other amendments to GAAP that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

3. ACQUISITION OF IXIA

On April 18, 2017, pursuant to the terms of an Agreement and Plan of Merger dated January 30, 2017, between Keysight and Ixia (the "Merger Agreement"), we acquired all of the outstanding common stock of Ixia for $1,622 million, net of $72 million of cash acquired, pursuant to an exchange offer for $19.65 per share (the "Merger Consideration"). Pursuant to the Merger Agreement, any outstanding and unexercised Ixia stock options with an exercise price below the Merger Consideration and any outstanding Ixia restricted stock awards were cancelled and converted into the right to receive a cash payment equal to the merger consideration of $19.65 per share (minus the exercise price for the Ixia stock options). The vested portion of the awards associated with prior service of Ixia employees represented approximately $47 million of the total consideration. We funded the acquisition with a combination of cash and proceeds from debt and equity financings. As a result of the acquisition, Ixia has become a wholly-owned subsidiary of Keysight. Accordingly, the results of Ixia are included in Keysight's consolidated financial statements from the date of the acquisition and are reported in the Ixia Solutions Group operating segment.

The Ixia acquisition was accounted for in accordance with the authoritative accounting guidance. The acquired assets and assumed liabilities were recorded by Keysight at their estimated fair values. Keysight determined the estimated fair values with the assistance of appraisals or valuations performed by third party specialists, discounted cash flow analysis, and estimates made by management. We expect to leverage and expand the existing sales channels and product development resources, and utilize the assembled workforce. The company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of Ixia's net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction.

All goodwill was assigned to the Ixia Solutions Group. We do not expect the goodwill recognized or impairment charges in the future to be deductible for income tax purposes.

A portion of the overall purchase price was allocated to acquired intangible assets. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Therefore, a deferred tax liability of approximately $186 million was established primarily for the future amortization of these intangibles and is included in "other long-term liabilities" in the table below.

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The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of April 18, 2017 (in millions):

Cash and cash equivalents	$	72
Short-term investments	44
Accounts receivable	91
Inventory	107
Other current assets	33
Property, plant and equipment	56
Goodwill	1,114
Other intangible assets	744
Long-term deferred tax assets	1
Other assets	4
Total assets acquired	2,266
Accounts payable	(10		)
Employee compensation and benefits	(32		)
Deferred revenue	(35		)
Income and other taxes payable	(1		)
Other accrued liabilities	(32		)
Other long-term liabilities	(462		)
Net assets acquired	$	1,694

The fair values of cash and cash equivalents, accounts receivable, short-term investments, other current assets, accounts payable, employee compensation and benefits, and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities. The fair values for acquired inventory, property, plant and equipment, intangible assets, and deferred revenue were determined with the input from third-party valuation specialists. The fair values of certain other assets and certain other liabilities were determined internally using historical carrying values and estimates made by management. In connection with the acquisition and determination of the fair values of acquired assets and assumed liabilities, the company is in the process of obtaining additional information to refine its initial fair value estimates related to income taxes and property, plant and equipment. During the third quarter of 2017, the fair value measurements of assets acquired and liabilities assumed as of the acquisition date were refined. The total purchase price allocation adjustment to goodwill was approximately $137 million and related primarily to an increase in the allocation to deferred tax liabilities. During the second quarter of 2017 upon closing of the acquisition, the company recorded a deferred tax liability of $113 million for non-permanently invested earnings based on a preliminary calculation. During the third quarter of 2017, the company obtained additional information to allow the refinement of this calculation and made adjustments to increase the deferred tax liability for non-permanently invested earnings by $149 million. The company made additional adjustments to decrease the deferred tax liability by $9 million for conformance of transfer pricing policies. As additional information becomes available, we may revise the preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material.

Valuation of Intangible Assets Acquired

The components of intangible assets acquired in connection with the Ixia acquisition were as follows (in millions):

	Estimated Fair Value		Estimated useful life
Developed product technology	$	423	4 years
Customer relationships	234		7 years
Tradenames and trademarks	12		3 years
Backlog	8		90 days
Total intangible assets subject to amortization	677
In-process research and development	67
Total intangible assets	$	744

As noted above, the intangible assets were valued with input from valuation specialists using the income approach, which includes the discounted cash flow, cost-savings, and relief from royalty methods. The in-process research and development was valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expecting to result from the projects, net of returns on contributory assets. A discount rate of 14% was used

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to value the research and development projects, adjusted to reflect additional risks inherent in the acquired projects. The primary in-process projects acquired relate to next generation products which will be released in the near future. Total costs to complete for all Ixia in-process research and development were estimated at approximately $12 million as of the close date.

Acquisition and integration costs directly related to the Ixia acquisition were recorded in the condensed consolidated statement of operations as follows:

	Three Months Ended		Nine Months Ended
	July 31, 2017		July 31, 2017
	(in millions)
Cost of products and services	$	1	$	1
Research and development	—		—
Selling, general and administrative	10		27
Other income (expense), net	1		10
Total acquisition and integration costs	$	12	$	38

Such costs are expensed in accordance with the authoritative accounting guidance. For the nine months ended July 31, 2017, we incurred $28 million of acquisition-related compensation expense to redeem certain of Ixia's outstanding unvested stock awards as of the date of the Merger Agreement that were determined to relate to post-merger service periods.

The following represents pro forma operating results as if Ixia had been included in the company's condensed consolidated statements of operations as of the beginning of fiscal 2016 (in millions, except per share amounts):

	Nine Months Ended
	July 31,
	2017		2016
Net revenue	$	2,560	$	2,534
Net income	$	143	$	160
Net income per share - Basic	$	0.77	$	0.87
Net income per share - Diluted	$	0.76	$	0.87

The unaudited pro forma financial information for the nine months ended July 31, 2016 combines the historical results of Keysight and Ixia for the nine months ended July 31, 2016, assuming that the companies were combined as of November 1, 2015 and include business combination accounting effects from the acquisition including amortization and depreciation charges from acquired intangible assets, property plant and equipment, interest expense on the financing transactions used to fund the acquisition and acquisition-related transaction costs and tax-related effects. The pro forma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2016.

4.     SHARE-BASED COMPENSATION

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

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The impact of share-based compensation on our results was as follows:

	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2017		2016		2017		2016
	(in millions)
Cost of products and services	$	3	$	2	$	9	$	9
Research and development	1		2		7		7
Selling, general and administrative	9		6		28		23
Total share-based compensation expense	$	13	$	10	$	44	$	39

 At July 31, 2017 and 2016, there was no share-based compensation capitalized within inventory. For the three and nine months ended July 31, 2017, the income tax benefit realized from the exercised stock options and similar awards recognized was $2 million and $4 million, respectively. For the three and nine months ended July 31, 2016, the income tax deficiency from the exercised stock options and similar awards was $4 million.

The following assumptions were used to estimate the fair value of LTP Program grants.

	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2017		2016		2017		2016
LTP Program:
Volatility of Keysight shares	26	%	25	%	27	%	25	%
Volatility of selected index (2017)/peer-company shares (2016)	15	%	14%-54%		15	%	14%-54%
Price-wise correlation with selected peers	57	%	38	%	57	%	38	%

Awards granted under the LTP Program are based on a variety of targets, such as total shareholder return (TSR) or financial metrics such as operating margin, cost synergies and others. 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 fair value of employee stock option awards granted before October 31, 2015 was estimated using the Black-Scholes option pricing model. We did not grant any option awards for the three and nine months ended July 31, 2017 and 2016. Both the Black-Scholes and Monte Carlo simulation fair value models require the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the underlying stock. 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.

5.     INCOME TAXES

The company’s effective tax rate was a benefit of 24.4 percent for the three months ended July 31, 2017 and an expense of 6.5 percent for the nine months ended July 31, 2017. Income tax benefit was $7 million for the three months ended July 31, 2017 and income tax expense was $9 million for the nine months ended July 31, 2017. The decrease in the total income tax expense for the three months ended July 31, 2017 is primarily due to the post-acquisition tax restructuring for integration of Ixia into our business model. The income tax provision for the three and nine months ended July 31, 2017 included a net discrete benefit of $33 million and $2 million, respectively. The increase in discrete benefit for the three months ended July 31, 2017 is primarily related to the post-acquisition tax restructuring for integration of Ixia into our business model. The net discrete benefit for the nine months ended July 31, 2017 is primarily related to the discrete benefit resulting from the post-acquisition tax restructuring for integration of Ixia into our business model offset by the discrete expense related to an increase in the valuation allowance on certain state deferred tax assets and the increase in discrete expense related to the transfer of a portion of the Japanese Employees’ Pension Fund (see Note 12).

The company’s effective tax rate was 5.9 percent and 9.2 percent for the three and nine months ended July 31, 2016, respectively. Income tax expense was $6 million and $25 million for the three and nine months ended July 31, 2016, respectively. The income tax provision for the three and nine months ended July 31, 2016 included a net discrete benefit of $1 million and $2 million, respectively.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore, and several jurisdictions have granted us tax incentives that require renewal at various times in the future. The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment or specific types of income in those jurisdictions. 

The impact of tax incentives decreased the income tax provision for the three and nine months ended July 31, 2016 by $10 million and $27 million, respectively, resulting in a benefit to net income per share (diluted) of approximately $0.06 and $0.16 for the three and nine months ended July 31, 2016, respectively. The Singapore tax incentive is due for renewal in fiscal 2024.

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For the majority of our entities, the open tax years for the IRS, state and most foreign audit authorities are from August 1, 2014 through the current tax year. For certain foreign entities, the tax years generally remain open back to the year 2006. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we are unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

The company is being audited in Malaysia for the 2008 tax year. Although this tax year pre-dates our spin-off from Agilent, pursuant to the Tax Matters Agreement, for certain entities including Malaysia, any historical tax liability is the responsibility of Keysight. The Malaysian tax authority is pursuing a tax assessment, including penalties, of $70 million. However, the company believes there are numerous defenses to the current assessment; the statute of limitations for the 2008 tax year in Malaysia is closed and the income in question is exempt from tax in Malaysia. Therefore, the company has not reserved for this potential exposure as of July 31, 2017. The company is disputing this assessment and pursuing all avenues to resolve this issue favorably for the company.

6. NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the numerator and denominator of the basic and diluted net income (loss) per share computations for the periods presented below:

	Three Months Ended					Nine Months Ended
	July 31,					July 31,
	2017			2016		2017		2016
	(in millions)
Numerator:
Net income (loss)	$	(18	)	$	91	$	140	$	243
Denominator:
Basic weighted-average shares	186			170		178		170
Potential common shares— stock options and other employee stock plans	—			2		2		2
Diluted weighted-average shares	186			172		180		172

The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method. In the period when we have a net loss, stock awards are excluded from our calculation of net income per share as their inclusion would have an anti-dilutive effect. For the three months ended July 31, 2017 we excluded approximately 6 million shares. We exclude stock options with exercise prices greater than the average market price of our common stock from the calculation of diluted earnings per share because the effect would be anti-dilutive. For the nine months ended July 31, 2017, we excluded no options from the calculation of diluted earnings per share. For the three and nine months ended July 31, 2016, 1.7 million options to purchase shares were excluded from the calculation of diluted earnings per share. In addition, we excluded stock options, ESPP shares, LTP Program and restricted stock awards, of which the combined exercise price, unamortized fair value and excess tax benefits collectively was greater than the average market price of our common stock because the effect would be anti-dilutive. For the nine months ended July 31, 2017, we excluded approximately 188,600 shares. For the three and nine months ended July 31, 2016, we excluded 17,700 and 21,300 shares, respectively.

The weighted-average share count for the three and nine months ended July 31, 2017 includes the impact of the public offering of our common stock in March 2017 (See Note 17).

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7. SUPPLEMENTAL CASH FLOW INFORMATION

Net cash paid for income taxes was $43 million and $17 million for the nine months ended July 31, 2017 and 2016, respectively. Cash paid for interest was $24 million and $22 million for the nine months ended July 31, 2017 and 2016, respectively. The following table summarizes our non-cash investing activities that are not reflected in the condensed consolidated statement of cash flows:

	Nine Months Ended
	July 31,
	2017			2016
	(in millions)
Non-cash investing activities:
Capital expenditures in accounts payable	$	(5	)	$	(14	)
Capital expenditures in other long-term liabilities	2			—
	$	(3	)	$	(14	)

8. INVENTORY

	July 31, 2017		October 31, 2016
	(in millions)
Finished goods	$	276	$	218
Purchased parts and fabricated assemblies	285		256
Total inventory	$	561	$	474

The increase was primarily driven by the acquisition of Ixia.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents goodwill balances and the movements for each of our reportable segments as of and for the nine months ended July 31, 2017:

	Communications Solutions Group			Electronic Industrial Solutions Group		Ixia Solutions Group		Services Solutions Group		Total
	(in millions)
Goodwill as of October 31, 2016	$	456		$	216	$	—	$	64	$	736
Foreign currency translation impact	(9		)	1		—		—		(8		)
Goodwill arising from acquisitions	—			—		1,114		19		1,133
Goodwill as of July 31, 2017	$	447		$	217	$	1,114	$	83	$	1,861

The components of other intangible assets as of July 31, 2017 and October 31, 2016 are shown in the table below:

	Other Intangible Assets as of July 31, 2017						Other Intangible Assets as of October 31, 2016
	Gross Carrying Amount		Accumulated Amortization and Impairments		Net Book Value		Gross Carrying Amount		Accumulated Amortization and Impairments		Net Book Value
	(in millions)
Developed technology	$	737	$	214	$	523	$	309	$	159	$	150
Backlog	12		12		—		4		4		—
Trademark/Tradename	32		7		25		20		4		16
Customer relationships	300		50		250		65		35		30
Total amortizable intangible assets	1,081		283		798		398		202		196
In-Process R&D	67		—		67		12		—		12
Total	$	1,148	$	283	$	865	$	410	$	202	$	208

During the nine months ended July 31, 2017, we recognized additions to goodwill and other intangible assets of $1,133 million and $745 million, respectively, based on the preliminary allocation of the purchase price to the estimated fair values of the

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assets acquired and liabilities assumed in the acquisition of Ixia and another acquisition during the third quarter of 2017. During the nine months ended July 31, 2017, there was no foreign exchange translation impact to other intangible assets.

During the first quarter of 2017, we transferred $5 million from in-process R&D to developed technology as a project was successfully completed. During the second quarter of 2017, we recorded an impairment charge of $7 million related to the cancellation of an in-process R&D project.

Amortization of other intangible assets was $52 million and $81 million for the three and nine months ended July 31, 2017, respectively. Amortization of other intangible assets was $12 million and $34 million for the three and nine months ended July 31, 2016, respectively. Future amortization expense related to existing finite-lived purchased intangible assets is estimated to be $46 million for the remainder of 2017, $182 million for 2018, $182 million for 2019, $179 million for 2020, $113 million for 2021 and $96 million thereafter.

10. FAIR VALUE MEASUREMENTS

The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The guidance establishes a fair value hierarchy that prioritizes inputs used in valuation techniques into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

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

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

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

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Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2017 and October 31, 2016 were as follows:

	Fair Value Measurements at July 31, 2017								Fair Value Measurements at October 31, 2016
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in millions)
Assets:
Short-term
Cash equivalents
Money market funds	$	467	$	467	$	—	$	—	$	471	$	471	$	—	$	—
Available-for-sale investments
U.S. Treasury, government and agency debt securities	3		—		3		—		—		—		—		—
Derivative instruments (foreign exchange contracts)	4		—		4		—		4		—		4		—
Long-term
Trading securities	12		12		—		—		11		11		—		—
Available-for-sale investments	31		31		—		—		29		29		—		—
Total assets measured at fair value	$	517	$	510	$	7	$	—	$	515	$	511	$	4	$	—
Liabilities:
Short-term
Derivative instruments (foreign exchange contracts)	$	2	$	—	$	2	$	—	$	8	$	—	$	8	$	—
Long-term
Deferred compensation liability	12		—		12		—		11		—		11		—
Total liabilities measured at fair value	$	14	$	—	$	14	$	—	$	19	$	—	$	19	$	—

Our money market funds, trading securities, and available-for-sale investments are generally valued using quoted market prices and therefore are classified within Level 1 of the fair value hierarchy. Our U.S. Treasury, government and agency debt securities and deferred compensation liability are classified as Level 2 because the inputs used in the calculations are observable, although the values are not directly based on quoted market prices. Our derivative financial instruments are classified within Level 2 as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets.

Trading securities (which are earmarked to pay the deferred compensation liability) and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. U.S. Treasury, government and agency debt securities designated as available-for-sale investments and certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss). Realized gains and losses from the sale of these instruments are recorded in earnings.

11. DERIVATIVES

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of our risk management strategy, we use derivative instruments, primarily forward contracts and purchased options, to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

Cash Flow Hedges

We enter into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance. Ineffectiveness in the three and nine months ended July 31, 2017 and 2016 was not significant.

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Other Hedges

Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments.

Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions that are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties.

A number of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. The counterparties to the derivative instruments may request collateralization, in accordance with derivative agreements, on derivative instruments in net liability positions.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of July 31, 2017 was $2 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of July 31, 2017.

There were 130 foreign exchange forward contracts open as of July 31, 2017 that were designated as cash flow hedges. There were 59 foreign exchange forward contracts as of July 31, 2017 that were not designated as hedging instruments. The aggregated notional amounts by currency and designation as of July 31, 2017 were as follows:

	Derivatives in Cash Flow Hedging Relationships			Derivatives Not Designated as Hedging Instruments
	Forward Contracts			Forward Contracts
Currency	Buy/(Sell)			Buy/(Sell)
	(in millions)
Euro	$	—		$	47
British Pound	—			(4		)
Singapore Dollar	10			1
Malaysian Ringgit	63			(6		)
Japanese Yen	(82		)	(51		)
Other currencies	(12		)	14
Total	$	(21	)	$	1

Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance. The gross fair values and balance sheet location of derivative instruments held in the condensed consolidated balance sheet as of July 31, 2017 and October 31, 2016 were as follows:

Fair Values of Derivative Instruments
Asset Derivatives					Liability Derivatives
	Fair Value					Fair Value
Balance Sheet Location	July 31, 2017		October 31, 2016		Balance Sheet Location	July 31, 2017		October 31, 2016
(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges
Foreign exchange contracts
Other current assets	$	2	$	2	Other accrued liabilities	$	1	$	4
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other current assets	2		2		Other accrued liabilities	1		4
Total derivatives	$	4	$	4		$	2	$	8

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

	Three Months Ended					Nine Months Ended
	July 31,					July 31,
	2017		2016			2017			2016
	(in millions)
Derivatives designated as hedging instruments:
Cash Flow Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive income	$	1	$	(5	)	$	3		$	(6	)
Gain (loss) reclassified from accumulated other comprehensive income into cost of sales	$	1	$	(2	)	$	(1	)	$	(9	)
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense), net	$	3	$	(6	)	$	5		$	(8	)

The estimated amount of existing net gain at July 31, 2017 expected to be reclassified from accumulated other comprehensive income to cost of sales within the next twelve months is $1 million.

12. RETIREMENT PLANS AND POST-RETIREMENT BENEFIT PLANS

For the three and nine months ended July 31, 2017 and 2016, our net pension and post-retirement benefit cost (benefit) were comprised of the following:

	Pensions
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plan
	Three Months Ended July 31,
	2017			2016			2017			2016			2017			2016
	(in millions)
Service cost—benefits earned during the period	$	6		$	5		$	5		$	5		$	—		$	—
Interest cost on benefit obligation	5			6			6			8			2			2
Expected return on plan assets	(8		)	(9		)	(18		)	(19		)	(3		)	(3		)
Amortization:
Net actuarial losses	4			2			8			7			6			5
Prior service credit	(2		)	(2		)	—			—			(4		)	(4		)
Total periodic benefit cost (benefit)	$	5		$	2		$	1		$	1		$	1		$	—

	Pensions
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plan
	Nine Months Ended July 31,
	2017			2016			2017			2016			2017			2016
	(in millions)
Service cost—benefits earned during the period	$	17		$	15		$	13		$	13		$	—		$	—
Interest cost on benefit obligation	15			18			17			24			6			6
Expected return on plan assets	(25		)	(27		)	(55		)	(56		)	(9		)	(10		)
Amortization:
Net actuarial losses	11			6			25			21			17			15
Prior service credit	(5		)	(6		)	(1		)	—			(12		)	(12		)
Settlement gain	—			—			(68		)	—			—			—
Total periodic benefit cost (benefit)	$	13		$	6		$	(69	)	$	2		$	2		$	(1	)

We did not contribute to our U.S. Defined Benefit Plans and U.S. Post-Retirement Benefit Plan during the three and nine months ended July 31, 2017 and 2016. We contributed $9 million and $24 million to our Non-U.S. Defined Benefit Plans during the three and nine months ended July 31, 2017, respectively, and contributed $10 million and $29 million to our Non-U.S. Defined Benefit Plans during the three and nine months ended July 31, 2016, respectively.

During the remainder of 2017, we do not expect to contribute to our U.S. Defined Benefit Plans, and we expect to contribute $10 million to our Non-U.S. Defined Benefit Plans.

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On December 15, 2016, we transferred a portion of the assets and obligations of our Japanese Employees’ Pension Fund ("EPF") to the Japanese government. The remaining portion of the EPF was transferred to a new Keysight Japan corporate defined benefit pension plan. The difference between the obligations settled with the government of $142 million and the assets transferred to the government of $51 million resulted in an increase in the funded status of the new defined benefit pension plan of $91 million. The settlement resulted in a gain of $68 million which is included in other operating expense (income) in the consolidated statement of operations. Previously accrued salary progression of $4 million was derecognized at the time of settlement.

13.   INVESTMENTS

Net book value of investments is as follows:

	July 31, 2017		October 31, 2016
	(in millions)
Short-Term
Available-for-sale investments	$	3	$	—
Total	$	3	$	—
Long-Term
Cost method investments	$	17	$	15
Trading securities	12		11
Available-for-sale investments	31		29
Total	$	60	$	55

Cost method investments consist of non-marketable equity securities and are accounted for at historical cost. Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. Investments designated as available-for-sale consists of U.S. Treasury, government, agency debt and equity securities and are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss).

Investments in available-for-sale securities at fair value were as follows:

	July 31, 2017								October 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Short-Term
U.S. Treasury, government and agency debt securities	$	3	$	—	$	—	$	3	$	—	$	—	$	—	$	—
Total short-term	$	3	$	—	$	—	$	3	$	—	$	—	$	—	$	—
Long-Term
Equity securities	$	15	$	16	$	—	$	31	$	15	$	14	$	—	$	29
Total long-term	$	15	$	16	$	—	$	31	$	15	$	14	$	—	$	29

The company intends to sell the short-term available-for-sale investments within the next 12 months.

The amortized cost and fair value of our short-term available-for-sale investments at July 31, 2017, by contractual years-to-maturity, are as follows:

	Amortized Cost		Fair Value
	(in millions)
Due within 1 year	$	3	$	3
Due after 1 year through 5 years	—		—
Due after 5 years	—		—
	$	3	$	3

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All of our investments, excluding trading securities, are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. There was no impairment recognized in the three and nine months ended July 31, 2017. There was no impairment recognized in the three months ended July 31, 2016. For the nine months ended July 31, 2016, cost method investments with a carrying amount of $2 million were written down to their fair value of zero, resulting in an impairment charge of $2 million, which is included in other income (expense).

As of July 31, 2017, unrealized losses on our short-term investments in available-for-sale securities were insignificant. Unrealized losses related to these investments are due to interest rate fluctuations as opposed to changes in credit quality. There is no other-than-temporary impairment for these investments at July 31, 2017.

Realized gains or losses on the sale of available-for-sale or cost method securities were zero for the three and nine months ended July 31, 2017 and 2016. Net unrealized gains on our trading securities portfolio were zero and $1 million for the three and nine months ended July 31, 2017, respectively. Net unrealized gains on our trading securities portfolio was zero for the three and nine months ended July 31, 2016, respectively.

14. RESTRUCTURING

We initiated a targeted workforce reduction program in November 2016 that is expected to reduce Keysight's total headcount by between 60 to 200 employees. The timing and scope of workforce reductions will vary based on local legal requirements. This targeted workforce management program was designed to support our site consolidation strategy, align with our new industry segment structure and improve efficiency. As of July 31, 2017, approximately 60 employees exited under this workforce reduction program, which we expect to be substantially complete by the end of fiscal 2017.

We do not have any material accruals recorded in the condensed consolidated balance sheet as of July 31, 2017 related to restructuring activities.

A summary of the charges in the consolidated statement of operations resulting from all restructuring activities is shown below:

	Three Months Ended				Nine Months Ended
	July 31,				July 31,
	2017		2016		2017		2016
	(in millions)
Cost of products and services	$	—	$	—	$	1	$	—
Research and development	1		—		2		—
Selling, general and administrative	2		—		3		—
Total restructuring and other related costs	$	3	$	—	$	6	$	—

15. WARRANTY, COMMITMENTS AND CONTINGENCIES

Standard Warranty

Our standard warranty term for most of our products from the date of delivery is typically 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.

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

	Nine Months Ended
	July 31,
	2017			2016
	(in millions)
Beginning balance	$	44		$	53
Accruals for warranties including change in estimate	24			16
Settlements made during the period	(23		)	(24		)
Ending balance	$	45		$	45
Accruals for warranties due within one year	$	24		$	23
Accruals for warranties due after one year	21			22
Ending balance	$	45		$	45

During the nine months ended July 31 2016, we reduced the standard warranty accrual by $5 million as a result of lower than expected historical warranty charges. This benefit was recognized in the three and nine months ended July 31, 2016 in the condensed consolidated statement of operations.

Commitments

Operating Lease Commitments.  We lease certain real and personal property from unrelated third parties under non-cancellable operating leases. Future minimum lease payments under operating leases as of July 31, 2017 were $11 million for the remainder of 2017, $46 million in 2018, $41 million in 2019, $28 million in 2020, $20 million in 2021 and $67 million thereafter. Future minimum sublease income under leases as of July 31, 2017 was zero for the remainder of 2017, $1 million in 2018, $1 million in 2019, $1 million in 2020, $1 million in 2021 and $1 million thereafter. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Total rent expense was $13 million and $36 million for the three and nine months ended July 31, 2017, respectively, and was $11 million and $34 million for the three and nine months ended July 31, 2016, respectively.

Capital Lease Commitments. We had capital lease obligations of $4 million and $1 million as of July 31, 2017 and October 31, 2016, respectively. Future minimum lease payments under capital leases as of July 31, 2017 were zero for the remainder of 2017, zero in 2018, $1 million in 2019, zero in 2020, $1 million in 2021 and $2 million thereafter. Assets held under capital leases are included in net property, plant, and equipment on the consolidated balance sheet.

Contingencies

We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, patent, commercial and environmental matters, which arise in the ordinary course of business. There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.

16. DEBT

Short-Term Debt

Revolving Credit Facility

On February 15, 2017, we entered into an amended and restated credit agreement (the “Revolving Credit Facility”) that replaced our existing $450 million unsecured credit facility dated September 15, 2014. The Revolving Credit Facility provides for a $450 million, five-year unsecured revolving credit facility that will expire on February 15, 2022 and bears interest at an annual rate of LIBOR + 1.30%. In addition, the Revolving Credit Facility permits us to increase the total commitments under this credit facility by up to $150 million in the aggregate on one or more occasions upon request. We may use amounts borrowed under the facility for general corporate purposes. During the three months ended July 31, 2017, we repaid $140 million of borrowings outstanding under the Revolving Credit Facility. As of July 31, 2017, we had no borrowings outstanding under the Revolving Credit Facility. We were in compliance with the covenants of the Revolving Credit Facility during the nine months ended July 31, 2017.

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Bridge Facility

On January 30, 2017, we entered into a commitment letter, pursuant to which certain lenders agreed to provide a senior unsecured 364-day bridge loan facility of up to $1.684 billion (“the Bridge Facility”) for the purpose of providing the financing to support Keysight's acquisition of Ixia. Under the terms of commitment letter, the Bridge Facility was automatically terminated upon the Ixia acquisition on April 18, 2017. For the nine months ended July 31, 2017, we incurred costs in connection with the Bridge Facility of $9 million that were amortized to interest expense.

Long-Term Debt

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

	July 31, 2017		October 31, 2016
	(in millions)
3.30% Senior Notes due 2019 ($500 face amount less unamortized costs of $2 and $3)	$	498	$	497
4.55% Senior Notes due 2024 ($600 face amount less unamortized costs of $4 and $4)	596		596
4.60% Senior Notes due 2027 ($700 face amount less unamortized costs of $7 and zero)	693		—
Term loan ($300 face amount less unamortized costs of zero)	300		—
	2,087		1,093
Less: Current portion of long-term debt	40		—
Total	$	2,047	$	1,093

2027 Senior Notes

In April 2017, the company issued an aggregate principal amount of $700 million in 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 of each year, 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 of $1 million, are being amortized to interest expense over the term of the senior notes. The 2027 Senior Notes are unsecured and rank equally in right of payment with all of our other senior unsecured indebtedness.

There were no changes to the principal, maturity, interest rates and interest payment terms of the senior notes due in 2019 and 2024 during the nine months ended July 31, 2017 as compared to the senior notes described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016.

Senior Unsecured Term Loan

On February 15, 2017, we entered into a term credit agreement that provides for a three-year $400 million senior unsecured term loan that bears interest at an annual rate of LIBOR + 1.50%. The term loan was drawn upon the closing of the Ixia acquisition. During the three months ended July 31, 2017, we repaid $100 million of the term loan. As of July 31, 2017, we had borrowings outstanding under the term loan of $300 million, of which $40 million is due in the next twelve months. In connection with the term loan, we incurred issuance costs of $1 million that are being amortized to interest expense over the term of loan.

As of July 31, 2017 and October 31, 2016, we had $20 million and $18 million, respectively, of outstanding letters of credit unrelated to the credit facility that were issued by various lenders.

The fair value of our long-term debt, calculated from quoted prices that are primarily Level 1 inputs under the accounting guidance fair value hierarchy, was above the carrying value by approximately $89 million and $30 million as of July 31, 2017 and October 31, 2016, respectively.

17. STOCKHOLDERS' EQUITY

Issuance of Common Stock

In March 2017, we completed a public offering of our common stock and issued 13,142,856 shares for total cash proceeds of $444 million, net of underwriting discounts and offering costs.

Stock Repurchase Program

On February 18, 2016, the Board of Directors approved a stock repurchase program authorizing the purchase of up to $200 million of the company’s common stock. Under the program, shares may be purchased from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases, privately negotiated

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transactions or other means. All such shares and related costs are held as treasury stock and accounted for at trade date using the cost method. 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.

For the three and nine months ended July 31, 2017, we did not repurchase any shares of common stock under the stock repurchase program.

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss by component and related tax effects for the three and nine months ended July 31, 2017 and 2016 were as follows:

	Unrealized gain on equity securities			Foreign currency translation			Net defined benefit pension cost and post retirement plan costs						Unrealized gains (losses) on derivatives			Total
							Actuarial losses			Prior service credits
	(in millions)
As of April 30, 2017	$	14		$	(44	)	$	(606	)	$	42		$	(1	)	$	(595	)
Other comprehensive income (loss) before reclassifications	(1		)	15			—			—			1			15
Amounts reclassified out of accumulated other comprehensive loss	—			—			18			(6		)	(1		)	11
Tax (expense) benefit	1			—			(6		)	2			—			(3		)
Other comprehensive income (loss)	—			15			12			(4		)	—			23
As of July 31, 2017	$	14		$	(29	)	$	(594	)	$	38		$	(1	)	$	(572	)
As of October 31, 2016	$	10		$	(29	)	$	(646	)	$	50		$	(3	)	$	(618	)
Other comprehensive income (loss) before reclassifications	3			—			24			—			3			30
Amounts reclassified out of accumulated other comprehensive loss	—			—			52			(18		)	1			35
Tax (expense) benefit	1			—			(24		)	6			(2		)	(19		)
Other comprehensive income (loss)	4			—			52			(12		)	2			46
As of July 31, 2017	$	14		$	(29	)	$	(594	)	$	38		$	(1	)	$	(572	)
As of April 30, 2016	$	14		$	(17	)	$	(489	)	$	57		$	(2	)	$	(437	)
Other comprehensive income (loss) before reclassifications	1			(1		)	—			—			(5		)	(5		)
Amounts reclassified out of accumulated other comprehensive loss	—			—			14			(6		)	2			10
Tax (expense) benefit	1			—			(5		)	2			1			(1		)
Other comprehensive income (loss)	$	2		$	(1	)	$	9		$	(4	)	$	(2	)	$	4
As of July 31, 2016	$	16		$	(18	)	$	(480	)	$	53		$	(4	)	$	(433	)
As of October 31, 2015	$	<