UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE) 

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

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2023

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	KEYS	New York Stock Exchange

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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ☒  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	☒	Accelerated filer	☐
Non-accelerated filer	☐	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 ☒ 

The number of shares of common stock outstanding at February 28, 2023 was 178,138,727.

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
		Condensed Consolidated Statement of Equity	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	30
Part II.	Other Information		30
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	31
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 6.	Exhibits	46
Signatures			47

2

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
	January 31,
	2023		2022
Revenue:
Products	$	1,114	$	1,010
Services and other	267		240
Total revenue	1,381		1,250
Costs and expenses:
Cost of products	405		357
Cost of services and other	93		89
Total costs	498		446
Research and development	227		210
Selling, general and administrative	338		326
Other operating expense (income), net	(4)		(3)
Total costs and expenses	1,059		979
Income from operations	322		271
Interest income	19		1
Interest expense	(19)		(20)
Other income (expense), net	9		12
Income before taxes	331		264
Provision for income taxes	71		35
Net income	$	260	$	229
Net income per share:
Basic	$	1.46	$	1.25
Diluted	$	1.45	$	1.24
Weighted average shares used in computing net income per share:
Basic	178		183
Diluted	180		184

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

3

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

	Three Months Ended
	January 31,
	2023		2022
Net income	$	260	$	229
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments, net of tax benefit (expense) of $6 and $(1)	(21)		4
Amounts reclassified into earnings related to derivative instruments, net of tax benefit (expense) of zero	(2)		—
Foreign currency translation, net of tax benefit (expense) of zero	81		(21)
Net defined benefit pension cost and post retirement plan costs:
Change in net actuarial loss, net of tax expense of $1 and $2	5		8
Other comprehensive income (loss)	63		(9)
Total comprehensive income	$	323	$	220

    

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

4

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions, except par value and share data)

(Unaudited)

	January 31, 2023		October 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,228	$	2,042
Accounts receivable, net	920		905
Inventory	909		858
Other current assets	441		429
Total current assets	4,498		4,234
Property, plant and equipment, net	728		690
Operating lease right-of-use assets	222		220
Goodwill	1,611		1,582
Other intangible assets, net	166		189
Long-term investments	75		62
Long-term deferred tax assets	679		667
Other assets	469		454
Total assets	$	8,448	$	8,098
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	325	$	348
Employee compensation and benefits	257		333
Deferred revenue	554		495
Income and other taxes payable	164		96
Operating lease liabilities	42		39
Other accrued liabilities	123		96
Total current liabilities	1,465		1,407
Long-term debt	1,793		1,793
Retirement and post-retirement benefits	61		58
Long-term deferred revenue	217		197
Long-term operating lease liabilities	186		186
Other long-term liabilities	322		296
Total liabilities	4,044		3,937
Commitments and contingencies (Note 12)
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; 199 million shares at January 31, 2023 and 199 million shares at October 31, 2022 issued	2		2
Treasury stock at cost; 21.2 million shares at January 31, 2023 and 20.5 million shares at October 31, 2022	(2,399)		(2,274)
Additional paid-in-capital	2,378		2,333
Retained earnings	4,814		4,554
Accumulated other comprehensive loss	(391)		(454)
Total stockholders' equity	4,404		4,161
Total liabilities and equity	$	8,448	$	8,098

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

5

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)

	Three Months Ended
	January 31,
	2023		2022
Cash flows from operating activities:
Net income	$	260	$	229
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	29		30
Amortization	24		27
Share-based compensation	54		50
Deferred tax expense (benefit)	(1)		9
Excess and obsolete inventory-related charges	6		6
Unrealized loss (gain) on equity and other investments	(6)		3
Other non-cash expense (income), net	—		2
Changes in assets and liabilities:
Accounts receivable	6		25
Inventory	(44)		(32)
Accounts payable	(19)		(4)
Employee compensation and benefits	(84)		(117)
Deferred revenue	62		28
Income taxes payable	56		14
Retirement and post-retirement benefits	(3)		(9)
Prepaid assets	(10)		(42)
Other assets and liabilities	36		5
Net cash provided by operating activities	366		224
Cash flows from investing activities:
Investments in property, plant and equipment	(60)		(42)
Acquisition of businesses and intangible assets, net of cash acquired	—		(7)
Net cash used in investing activities	(60)		(49)
Cash flows from financing activities:
Proceeds from issuance of common stock under employee stock plans	33		31
Payment of taxes related to net share settlement of equity awards	(46)		(72)
Treasury stock repurchases	(125)		(206)
Other financing activities	(1)		—
Net cash used in financing activities	(139)		(247)
Effect of exchange rate movements	20		(4)
Net increase (decrease) in cash, cash equivalents, and restricted cash	187		(76)
Cash, cash equivalents, and restricted cash at beginning of period	2,057		2,068
Cash, cash equivalents, and restricted cash at end of period	$	2,244	$	1,992
Supplemental cash flow information:
Interest payments	$	—	$	—
Income tax paid, net	$	14	$	12
Investments in property, plant and equipment included in accounts payable	$	24	$	34

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

6

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in millions, except number of shares in thousands)

(Unaudited)

	Common Stock					Treasury Stock
	Number of Shares	Par Value		Additional Paid-in Capital		Number of Shares	Treasury Stock at Cost		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
Balance as of October 31, 2022	198,569	$	2	$	2,333	(20,536)	$	(2,274)	$	4,554	$	(454)	$	4,161
Net income	—	—		—		—	—		260		—		260
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		63		63
Issuance of common stock	813	—		33		—	—		—		—		33
Taxes related to net share settlement of equity awards	—	—		(46)		—	—		—		—		(46)
Share-based compensation	—	—		58		—	—		—		—		58
Repurchase of common stock	—	—		—		(711)	(125)		—		—		(125)
Balance as of January 31, 2023	199,382	$	2	$	2,378	(21,247)	$	(2,399)	$	4,814	$	(391)	$	4,404
Balance as of October 31, 2021	197,248	$	2	$	2,219	(15,094)	$	(1,425)	$	3,430	$	(442)	$	3,784
Net income	—	—		—		—	—		229		—		229
Other comprehensive income (loss), net of tax	—	—		—		—	—		—		(9)		(9)
Issuance of common stock	947	—		31		—	—		—		—		31
Taxes related to net share settlement of equity awards	—	—		(72)		—	—		—		—		(72)
Share-based compensation	—	—		53		—	—		—		—		53
Repurchase of common stock	—	—		—		(1,129)	(206)		—		—		(206)
Balance as of January 31, 2022	198,195	$	2	$	2,231	(16,223)	$	(1,631)	$	3,659	$	(451)	$	3,810

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

7

KEYSIGHT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    OVERVIEW 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 technology company that helps enterprises, service providers and governments accelerate innovation to connect and secure the world by providing electronic design and test solutions that are used in the simulation, design, validation, manufacture, installation, optimization and secure operation of electronics systems in the communications, networking and electronics industries. We also offer customization, consulting and optimization services throughout the customer's product development lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and repair.

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 financial position as of January 31, 2023 and October 31, 2022, results of operations for the three months ended January 31, 2023 and 2022, and cash flows for the three months ended January 31, 2023 and 2022.

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.

Update to Significant Accounting Policies. Except as set forth in the "new accounting pronouncements" section below, there have been no material changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022.

Reclassifications. Beginning in fiscal year 2023, to align the presentation of revenue with the manner in which management reviews such information, the presentation of "products" and "services and other" revenue and the presentation of "costs and expenses" in the condensed consolidated statement of operations were reclassified to move revenue and costs and expenses primarily related to bundled licenses and KeysightCare services from products to services and other. This resulted in reclassification of $20 million from "products" revenue to "services and other" revenue and $3 million from "cost of products" to "cost of services and other" for the three months ended January 31, 2022 to conform to the current presentation. This change had no impact on reported total revenue, income from operations and net income in our condensed consolidated statement of operations.

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

8

2.    REVENUE

Disaggregation of Revenue

We disaggregate our revenue from contracts with customers by geographic region, end market, and timing of revenue recognition, as we believe these categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Disaggregated revenue is presented for each of our reportable segments, Communications Solutions Group ("CSG") and Electronics Industrial Solutions Group ("EISG").

	Three Months Ended
	January 31,
	2023						2022
	CSG		EISG		Total		CSG		EISG		Total
	(in millions)
Region
Americas	$	452	$	109	$	561	$	404	$	79	$	483
Europe	147		110		257		143		83		226
Asia Pacific	340		223		563		331		210		541
Total revenue	$	939	$	442	$	1,381	$	878	$	372	$	1,250
End Market
Aerospace, Defense & Government	$	310	$	—	$	310	$	294	$	—	$	294
Commercial Communications	629		—		629		584		—		584
Electronic Industrial	—		442		442		—		372		372
Total revenue	$	939	$	442	$	1,381	$	878	$	372	$	1,250
Timing of Revenue Recognition
Revenue recognized at a point in time	$	777	$	380	$	1,157	$	730	$	322	$	1,052
Revenue recognized over time	162		62		224		148		50		198
Total revenue	$	939	$	442	$	1,381	$	878	$	372	$	1,250

Our point-in-time revenues are generated predominantly from the sale of various types of design and test software and hardware, and per-incident repair and calibration services. Perpetual software and the portion of term software subscription revenue in this category represents revenue recognized up front upon transfer of control at the time of electronic delivery. Revenue on per-incident repair and calibration services is recognized when services are performed. Over-time revenues are generated predominantly from the repair and calibration contracts, extended warranties, technical support for hardware and software, certain software subscription and Software as a Service ("SaaS") product offerings, and professional services. Technical support for software and when-and-if available software updates and upgrades are sold either together with our software licenses and software subscriptions, including SaaS, or separately as part of our customer support programs.

Additionally, we provide custom solutions that include combinations of hardware, software, software subscriptions, installation, professional services, and other support services, and revenue may be recognized either up front on delivery or over time depending upon the terms of the contract.

Contract Balances

Contract assets

Contract assets consist of unbilled receivables and are recorded when revenue is recognized in advance of scheduled billings to our customers. These amounts are primarily related to solutions and support arrangements when transfer of control has occurred but we have not yet invoiced. The contract assets balance was $72 million and $88 million as of January 31, 2023 and October 31, 2022, respectively, and is included in "accounts receivables, net" and "other assets" in our condensed consolidated balance sheet.

Contract costs

We capitalize direct and incremental costs incurred to acquire contracts for which the associated revenue is expected to be recognized in future periods. We have determined that certain employee and third-party representative commission programs meet the requirements to be capitalized. These costs are initially deferred and typically amortized over the term of the customer contract which corresponds to the period of benefit. Capitalized contract costs were $39 million and $38 million as of January

9

31, 2023 and October 31, 2022, respectively, and are included in “other current assets” and “other assets” in the condensed consolidated balance sheet. The amortization expense associated with these costs was $19 million and $22 million for the three months ended January 31, 2023 and 2022, respectively.

Contract liabilities

Our contract liabilities consist of deferred revenue that arises when we receive consideration in advance of providing the goods or services promised in the contract. Contract liabilities are primarily generated from customer deposits received in advance of shipments for products or rendering of services and are recognized as revenue when services are provided to the customer. We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue.

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

	Three Months Ended
	January 31,
	2023
	(in millions)
Balance at October 31, 2022	$	692
Deferral of revenue billed in current period, net of recognition	279
Revenue recognized that was deferred as of the beginning of the period	(217)
Foreign currency translation impact	17
Balance at January 31, 2023	$	771

Remaining Performance Obligations

Our remaining performance obligations, excluding contracts that have an original expected duration of one year or less, was approximately $479 million as of January 31, 2023, and represents the company’s obligation to deliver products and services and obtain customer acceptance on delivered products. As of January 31, 2023, we expect to fulfill 38 percent of these unsatisfied performance obligations during the remainder of 2023, 37 percent during 2024, and 25 percent thereafter.

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

	Three Months Ended
	January 31,
	2023		2022
	(in millions)
Cost of products and services	$	9	$	8
Research and development	16		11
Selling, general and administrative	30		32
Total share-based compensation expense	$	55	$	51

Share-based compensation capitalized within inventory was $4 million and $3 million at January 31, 2023 and January 31, 2022, respectively.

Performance awards based on total shareholder return ("TSR") are valued using a Monte Carlo simulation model, which requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock. The valuation is done once every year in the first quarter at the time of annual grants. The estimated fair value of RSUs and the financial metrics-based performance awards (both operating margin and earnings per share) is determined based on the market price of Keysight’s common stock on the grant date. 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.

10

The following assumptions were used to estimate the fair value of TSR-based performance awards:

	Three Months Ended
	January 31,
	2023		2022
Volatility of Keysight shares	35	%	36	%
Volatility of S&P 500 Total Return index	25	%	23	%
Price-wise correlation with selected peers	75	%	67	%

4.    INCOME TAXES

The following table provides details of income taxes:

	Three Months Ended
	January 31,
	2023			2022
in millions, except percentages
Income before taxes	$	331		$	264
Provision for income taxes	$	71		$	35
Effective tax rate	21.5		%	13.1		%

The effective tax rate increased 8.4 percentage points from the three months ended January 31, 2022 to the three months ended January 31, 2023 due to an increase in income before taxes, the impacts of U.S. tax research and experimental expenditures capitalization, and a decrease in discrete tax benefits. A provision enacted in the Tax Cuts and Jobs Act of 2017 (the "TCJA") became effective for Keysight on November 1, 2022 requiring U.S. tax research and experimental expenditures to be capitalized and amortized over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside the U.S. The capitalization of U.S. tax research and experimental expenditures increases the provision for global intangible low-taxed income (“GILTI”) and is partially offset by an increase in the Foreign-Derived Intangible Income tax deduction.

The income tax expense for the three months ended January 31, 2023 and 2022 included a net discrete benefit of $1 million and $8 million, respectively. The decrease in discrete tax benefit for the three months ended January 31, 2023 was primarily due to a decrease in tax deductions related to stock compensation.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that will expire or require renewal at various times in the future. The tax incentives provide lower rates of taxation on certain classes of income and require thresholds of investments and employment in those jurisdictions. The Singapore tax incentive is due for renewal in 2024, and the Malaysia incentive is due for renewal in 2025. We are continuing to evaluate renewal options and the impact of potential outcomes on our effective tax rate. For the three months ended January 31, 2023 and 2022 the impact of the tax incentives decreased the income tax provision by $25 million and $19 million, respectively. The increase in tax benefit for the three months ended January 31, 2023 is primarily due to a change in the jurisdictional mix of non-U.S. earnings, which increased the earnings taxed at incentive tax rates in 2023.

The open tax years for the U.S. federal income tax return and most state income tax returns are from November 1, 2018 through the current tax year. For the majority of our non-U.S. entities, the open tax years are from November 1, 2017 through the current tax year. For certain non-U.S. entities, the tax years remain open, at most, back to the year 2008.

The company is being audited in Malaysia for fiscal year 2008. This tax year pre-dates our separation from Agilent. However, pursuant to the agreement between Agilent and Keysight pertaining to tax matters, as finalized at the time of separation, for certain entities, including Malaysia, any historical tax liability is the responsibility of Keysight. In the fourth quarter of fiscal year 2017, Keysight paid income taxes and penalties of $68 million on gains related to intellectual property rights. The company believes there are numerous defenses to the current assessment; the statute of limitations for the fiscal year 2008 in Malaysia was closed, and the income in question is exempt from tax in Malaysia. The company is disputing this assessment and pursuing all avenues to resolve this issue favorably for the company. Our appeals to both the Special Commissioners of Income Tax and the High Court in Malaysia have been unsuccessful. We have filed a Notice of Appeal with the Court of Appeal, and a hearing is currently scheduled for April 2023.

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

11

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.

5.    NET INCOME PER SHARE

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

	Three Months Ended
	January 31,
	2023		2022
in millions, except per-share amounts
Net income	$	260	$	229
Basic weighted-average shares	178		183
Potential common shares— stock options and other employee stock plans	2		1
Diluted weighted-average shares	180		184
Net income per share - basic	$	1.46	$	1.25
Net income per share - diluted	$	1.45	$	1.24

Diluted shares outstanding primarily include the dilutive effect of non-vested RSUs and in-the-money options. The diluted effect of such awards is calculated based on the average share price of each period using the treasury stock method, except where the inclusion of such awards would have an anti-dilutive impact. Anti-dilutive shares excluded from the calculation of diluted earnings per share were not material for the three months ended January 31, 2023 and 2022.

6.    GOODWILL AND OTHER INTANGIBLE ASSETS

The goodwill balance as of January 31, 2023 and October 31, 2022 and the activity for the three months ended January 31, 2023 for each of our reportable operating segments were as follows:

	CSG		EISG		Total
	(in millions)
Goodwill at October 31, 2022	$	1,022	$	560	$	1,582
Foreign currency translation impact	25		4		29
Goodwill at January 31, 2023	$	1,047	$	564	$	1,611

There were no impairments for three months ended January 31, 2023 and 2022. As of January 31, 2023 and October 31, 2022, accumulated impairment losses on goodwill was $709 million.

Other intangible assets as of January 31, 2023 and October 31, 2022 consisted of the following:

	January 31, 2023						October 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
	(in millions)
Developed technology	$	992	$	924	$	68	$	992	$	914	$	78
Backlog	17		17		—		17		17		—
Trademark/Tradename	36		31		5		36		31		5
Customer relationships	393		300		93		393		287		106
Total	$	1,438	$	1,272	$	166	$	1,438	$	1,249	$	189

Goodwill is assessed for impairment on a reporting unit basis at least annually in the fourth quarter of each year, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The company has not identified any triggering events that indicate an impairment of goodwill for the three months ended January 31, 2023.

Amortization of other intangible assets was $23 million and $26 million for the three months ended January 31, 2023 and 2022, respectively.

12

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

	Amortization expense
	(in millions)
2023 (remainder)	$	59
2024	$	43
2025	$	25
2026	$	16
2027	$	9
Thereafter	$	14

7.    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.

13

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 January 31, 2023 and October 31, 2022 were as follows:

	Fair Value Measurements at
	January 31, 2023										October 31, 2022
	Total		Level 1		Level 2		Level 3		Other		Total		Level 1		Level 2		Level 3		Other
	(in millions)
Assets:
Short-term
Cash equivalents
Money market funds	$	1,471	$	1,471	$	—	$	—	$	—	$	1,338	$	1,338	$	—	$	—	$	—
Derivative instruments (foreign exchange contracts)	15		—		15		—		—		21		—		21		—		—
Long-term
Derivative instruments (interest rate swaps)	109		—		109		—		—		133		—		133		—		—
Equity investments	56		56		—		—		—		50		50		—		—		—
Other Investments	19		—		—		—		19		12		—		—		—		12
Total assets measured at fair value	$	1,670	$	1,527	$	124	$	—	$	19	$	1,554	$	1,388	$	154	$	—	$	12
Liabilities:
Short-term
Derivative instruments (foreign exchange contracts)	$	12	$	—	$	12	$	—	$	—	$	12	$	—	$	12	$	—	$	—
Long-term
Deferred compensation liability	25		—		25		—		—		22		—		22		—		—
Total liabilities measured at fair value	$	37	$	—	$	37	$	—	$	—	$	34	$	—	$	34	$	—	$	—

Net realized gain (loss) on sale of our equity investments was zero for both the three months ended January 31, 2023 and 2022. Net unrealized gain (loss) on our equity and other investments was a gain of $8 million and a loss of $4 million for the three months ended January 31, 2023 and 2022, respectively.

8.    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, 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 based on a rolling period of up to twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance.

In 2020, we entered into forward starting interest rate swaps arrangement with an aggregate notional amount of $600 million associated with future interest payments on anticipated debt issuances through fiscal year 2024. We designated these derivative instruments as a cash flow hedge. In February 2023, we terminated the interest rate swap arrangement resulting in a deferred gain of $107 million in accumulated other comprehensive income (loss) to be amortized to interest expense over the term of the anticipated debt. The termination of the arrangement had no impact on the accompanying condensed consolidated financial statements.

Non-designated 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.

14

The number of open foreign exchange forward contracts designated as "cash flow hedges" and "not designated as hedging instruments" was 210 and 69, respectively, as of January 31, 2023. The aggregated notional amounts by currency and designation as of January 31, 2023 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	$	5	$	10
British Pound	18		(39)
Singapore Dollar	35		37
Malaysian Ringgit	119		17
Japanese Yen	(162)		(72)
Other currencies	(19)		(41)
Total	$	(4)	$	(88)

Derivative instruments are subject to master netting arrangements and are disclosed gross in the condensed consolidated balance sheet. The gross fair values and balance sheet presentation of derivative instruments held as of January 31, 2023 and October 31, 2022 were as follows:

Fair Values of Derivative Instruments
Assets Derivatives					Liabilities Derivatives
	Fair Value					Fair Value
Balance Sheet Location	January 31, 2023		October 31, 2022		Balance Sheet Location	January 31, 2023		October 31, 2022
(in millions)
Derivatives designated as hedging instruments:
Cash flow hedges
Foreign exchange contracts
Other current assets	$	12	$	18	Other accrued liabilities	$	8	$	10
Interest rate swap contracts:
Other assets	109		133
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other current assets	3		3		Other accrued liabilities	4		2
Total derivatives	$	124	$	154		$	12	$	12

15

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

	Three Months Ended
	January 31,
	2023		2022
	(in millions)
Derivatives designated as hedging instruments:
Cash Flow Hedges
Interest rate swap contracts:
Gain (loss) recognized in accumulated other comprehensive income (loss)	$	(24)	$	8
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive income (loss)	$	(3)	$	(3)
Gain (loss) reclassified from accumulated other comprehensive income (loss) into earnings:
Cost of products	$	4	$	1
Selling, general and administrative	$	(