Keysight Technologies 10-Q 2022-01-31

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, 2022

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)

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

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

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.

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 24, 2022 was 181,975,058.

TABLE OF CONTENTS

PART I**. FINANCIAL INFORMATION**

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in millions, except per share data)

(Unaudited)

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

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

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

KEYSIGHT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions, except par value and share data)

(Unaudited)

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The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, and other regulatory approvals, the integration of our completed acquisitions and other transactions, our transition to lower-cost regions, the existence of political or economic instability, including increasing geopolitical tension in regions outside of the U.S., the impact of increased trade tension and tightening of export control regulations, the impact of compliance with the August 3, 2021 Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State, continued impacts to the supply chain, government mandates related to pandemic conditions, such as the a novel strain of coronavirus (“COVID-19"), and its variants, impacts related to the supply chain, net zero emissions commitments, the impact of volatile weather caused by environmental conditions such as climate change, increases in attrition and our ability to retain key personnel; and our estimated or anticipated future results of operations that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including but not limited to those risks and uncertainties discussed in Part II Item 1A and elsewhere in this Form 10-Q.

Basis of Presentation

The financial information presented in this Form 10-Q is not audited and is not necessarily indicative of our future consolidated financial position, results of operations or cash flows. 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 quarter periods.

Overview and Executive Summary

Keysight Technologies, Inc. ("we," "us," "Keysight" or the "company"), incorporated in Delaware on December 6, 2013, is a technology company that helps enterprises, service providers and governments accelerate innovation to connect and secure the world by providing electronic design and test solutions that are used in the simulation, design, validation, manufacture, installation, optimization and secure operation of electronics systems in the communications, networking and electronics industries. We also offer customization, consulting and optimization services throughout the customer's product development lifecycle, including start-up assistance, asset management, up-time services, application services and instrument calibration and

repair.

We invest in research and development ("R&D") to align our business with available markets and position the company for growth. Our R&D efforts focus on improvements to existing software and hardware products and development to support new software and hardware product introductions and complete customer solutions aligned to the industries we serve. We anticipate that we will continue to have significant R&D expenditures in order to maintain our competitive position with a continuous flow of innovative, high-quality software, customer solutions, products and services. We remain committed to investment in R&D and have focused our development efforts on strategic opportunities to capture future growth.

COVID-19 pandemic and related supply chain disruptions

Our global operations have been and continue to be affected by the ongoing global pandemic of COVID-19 and the resulting volatility and uncertainty it has caused in the U.S. and international markets. During the three months ended January 31, 2022, governments in many countries, including the United States, continued to issue orders and recommendations to attempt to reduce spread of the disease. We continued to comply with such orders and safety measures to keep our employees and their families safe. The pandemic has led to global supply chain challenges, which have adversely impacted our ability to procure certain components, which in some cases is impacting our ability to manufacture products and causing delays in delivery of our solutions to our customers.

For discussion of risks related to COVID-19 on our operations, business results and financial condition, see “Item 1A. Risk Factors.”

Three months ended January 31, 2022 and 2021

Total orders for the three months ended January 31, 2022 were $1,495 million, an increase of 22 percent when compared to the same period last year, and grew across all regions. Orders associated with acquisitions had an immaterial impact on the year-over-year order growth. Foreign currency movements had an unfavorable impact of 1 percent on year-over-year order growth for the three months ended January 31, 2022.

Revenue for the three months ended January 31, 2022 was $1,250 million, an increase of 6 percent compared to the same period last year. Revenue associated with acquisitions had an immaterial impact on the year-over-year revenue growth. Foreign currency movements had an unfavorable impact of 1 percent on the year-over-year revenue growth for the three months ended January 31, 2022. Electronic Industrial Solutions Group led overall revenue growth with strong growth in semiconductor measurement solutions and automotive and energy, complemented by growth in the Communications Solutions Group. Revenue from the Communications Solutions Group and Electronic Industrial Solutions Group represented 70 percent and 30 percent, respectively, of total revenue for the three months ended January 31, 2022.

Net income for the three months ended January 31, 2022 was $229 million compared to $172 million for the same period last year. The increase in net income for the three months ended January 31, 2022 was primarily driven by higher revenue volume, lower amortization of acquisition-related balances and favorable mix, partially offset by increases in selling, general and administrative, R&D and income tax expenses.

Outlook

Our first-to-market solutions strategy enables customers to develop new technologies and accelerate innovation and provides a platform for long-term growth. We expect our customers to continue to make R&D investments in certain next-generation technologies. We are still in the early market stages for technologies, such as 5G/6G, next-generation automotive, internet of things ("IoT") and defense modernization and expect technology investments to continue. We continue to closely monitor the current macro environment related to trade, tariffs, monetary and fiscal policies, pandemics or epidemics, such as the COVID-19 outbreak, and the related global supply chain challenges. We remain confident in our long-term secular market growth trends and the strength of our operating model.

Critical Accounting Policies and Estimates

Effective November 1, 2021, we adopted ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers that requires entities to apply Accounting Standards Codification Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The adoption of this guidance did not have a material impact to our condensed consolidated financial statements. See Note 1, "Overview and Summary of Significant Accounting Policies," to the condensed consolidated financial statements for further details. There were no other material changes during the three months ended January 31, 2022 to the critical accounting estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Adoption of New Accounting Pronouncements

See Note 1, "Overview and Summary of Significant Accounting Policies," to the condensed consolidated financial statements for a description of new accounting pronouncements.

Currency Exchange Rate Exposure

Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. We hedge revenues, expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short-term and anticipated basis. The result of the hedging has been included in our condensed consolidated balance sheet and statement of operations. We experience some fluctuations within individual lines of the condensed consolidated balance sheet and condensed consolidated statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities. Our hedging program is designed to hedge short-term currency movements based on a rolling period of up to twelve months. Therefore, we are exposed to currency fluctuations over the longer term. To the extent that we are required to pay for all, or portions, of an acquisition price in foreign currencies, we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the U.S. dollar cost of the transaction.

Results from Operations - Three months ended January 31, 2022 and 2021

Revenue

Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Returns are recorded in the period received from the customer and historically have not been material.

The following table provides the percent change in revenue for the three months ended January 31, 2022 by geographic region including and excluding the impact of foreign currency movements as compared to the same period last year.

For the three months ended January 31, 2022, revenue grew across all regions. Foreign currency movements had an unfavorable impact of 1 percentage point on total revenue growth for the three months ended January 31, 2022, with unfavorable impacts of 2 percentage points in Asia Pacific and 1 percentage point in Europe.

Gross Margin, Operating Margin and Income before taxes

Gross margin for the three months ended January 31, 2022 increased 4 percentage points compared to the same period last year, primarily driven by lower amortization of acquisition-related balances, favorable mix and higher revenue volume, partially offset by higher material costs.

R&D expense for the three months ended January 31, 2022 increased 5 percent compared to the same period last year, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies as well as incremental costs of acquired businesses. As a percentage of revenue, R&D expense was 17 percent for both the three months ended January 31, 2022 and 2021.

Selling, general and administrative expense for the three months ended January 31, 2022 increased 9 percent compared to the same period last year, primarily driven by higher infrastructure-related costs, selling and marketing-related costs and incremental costs of acquired businesses.

Other operating expense (income), net for the three months ended January 31, 2022 was income of $3 million compared to income of $5 million for the same period last year.

Operating margin for the three months ended January 31, 2022 increased 4 percentage points compared to the same period last year, primarily driven by gross margin gains.

Interest income for both the three months ended January 31, 2022 and 2021 was $1 million, and primarily relates to interest earned on our cash balances. Interest expense for both the three months ended January 31, 2022 and 2021 was $20 million, and primarily relates to interest on our senior notes.

Other income (expense), net for the three months ended January 31, 2022 and 2021 was income of $12 million and income of $2 million, respectively, and primarily includes income related to our defined benefit and post-retirement benefit plans (interest cost, expected return on assets, amortization of net actuarial loss and prior service credits, and gains (losses) on settlements and curtailments) and the change in fair value of our equity investments. The increase in net other income for the three months ended January 31, 2022 compared to the same period last year was driven by lower amortization of net actuarial losses.

As of January 31, 2022, our headcount was approximately 14,300 compared to approximately 14,000 at January 31, 2021.

Income Taxes

The following table provides details of income taxes (in millions, except percentages):

The tax expense for the three months ended January 31, 2022 was higher compared to the same period last year, primarily due to an increase in income before taxes and a decrease in discrete tax benefits, partially offset by a change in the jurisdictional mix of non-U.S. earnings which increased the earnings taxed at the incentive tax rates in 2022.

The income tax expense included a net discrete benefit of $8 million and $11 million for the three months ended January 31, 2022 and 2021, respectively. The decrease in discrete tax benefit for the three months ended January 31, 2022 was primarily due to a one-time benefit from U.S. state R&D credits recorded in 2021 and an increase in prior year non-U.S. tax liabilities, partially offset by an increase in discrete benefit from stock compensation.

Keysight benefits from tax incentives in several jurisdictions, most significantly in Singapore and Malaysia, that 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 Singapore tax incentive is due for renewal in 2024, and the Malaysia incentive is due for renewal in 2025. The impact of the tax incentives decreased the income tax provision by $19 million and $10 million for the three months ended January 31, 2022 and 2021, respectively. The increase in tax benefit for the three months ended January 31, 2022 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 2022.

The open tax years for the U.S. federal income tax return and most state income tax returns are from November 1, 2017 through the current tax year. For the majority of our foreign entities, the open tax years are from November 1, 2016 through the current tax year. For certain foreign entities, the tax years remain open, at most, back to the year 2008. 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.

Keysight’s fiscal year 2018 U.S. federal income tax return is currently under examination by the Internal Revenue Service. The Tax Cuts and Jobs Act was enacted in December 2017 and imposed a one-time U.S. tax on foreign earnings not previously repatriated to the U.S., known as the Transition Tax, which was reported in Keysight’s 2018 U.S. federal income tax return.

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

At this time, management does not believe that the outcome of any ongoing examination will have a material impact on our consolidated financial statements. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. If the resolution of any tax issues addressed in our current open examinations are inconsistent with management’s expectations, we may be required to adjust our tax provision for income taxes in the period in which such resolution occurs.

We do not recognize deferred taxes for temporary differences expected to impact the GILTI tax expense in future years. We recognize the tax expense related to GILTI in each year in which the tax is incurred.

Segment Overview

We have two reportable operating segments, the Communications Solutions Group and the Electronic Industrial Solutions Group. The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense and other items.

Communications Solutions Group

The Communications Solutions Group serves customers spanning the worldwide commercial communications and aerospace, defense, and government end markets. The group’s solutions consist of electronic design and test software, electronic measurement instruments, systems and related services. These solutions are used in the simulation, design, validation, manufacturing, installation, and optimization of electronic equipment and networks.

Revenue

The Communications Solutions Group revenue for the three months ended January 31, 2022 increased 3 percent compared to the same period last year. There is strong demand across commercial communications and aerospace, defense and government end markets and in all geographies, although revenue in both end markets was impacted by supply chain constraints impacting year-over-year comparisons. Revenue growth was primarily driven by growth in commercial communications, while aerospace, defense and governments was flat.

The commercial communications end market revenue for the three months ended January 31, 2022 increased 5 percent year-over-year, and represented 67 percent of the total Communications Solutions Group revenue. The revenue growth was driven by strong market demand across the communications ecosystem, moderated by the impact of supply chain constraints. Revenue growth in the Americas and Europe was partially offset by a decline in Asia Pacific. We see ongoing investments in 5G and other wireless and wired communications technologies, fueled by new standards and the redesign of every aspect of communications systems, including wireless access, infrastructure, wireline technologies, data centers and the cloud.

The aerospace, defense and government end market revenue for the three months ended January 31, 2022 was flat year-over-year, and represented 33 percent of the total Communications Solutions Group revenue. Revenue growth in Asia Pacific was offset by a decline in the Americas, while Europe was flat. The revenue growth was driven by strong customer demand and continued investment in signal monitoring, cyber, space, satellite and new commercial technologies like 5G and early 6G research applications, offset by decreased U.S. year-end spending on major defense and government programs and the impact of supply chain constraints.

Gross Margin and Operating Margin

Gross margin for the three months ended January 31, 2022 increased 3 percentage points compared to the same period last year, primarily driven by favorable mix and higher revenue volume, partially offset by higher material costs.

R&D expense for the three months ended January 31, 2022 increased 5 percent compared to the same period last year, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies as well as incremental costs of acquired businesses.

Selling, general and administrative expense for the three months ended January 31, 2022 increased 10 percent compared to the same period last year, primarily driven by higher infrastructure-related costs, selling and marketing-related costs and incremental costs of acquired businesses.

Other operating expense (income), net for the three months ended January 31, 2022 was income of $2 million compared to income of $4 million for the same period last year.

Operating margin for the three months ended January 31, 2022 increased 1 percentage point, primarily driven by gross margin gains partially offset by higher operating expenses as a percentage of sales.

Electronic Industrial Solutions Group

The Electronic Industrial Solutions Group provides test and measurement solutions and related services across a broad set of electronic industrial end markets, focusing on high-value applications in the automotive and energy industries and measurement solutions for consumer electronics, education, general electronics design and manufacturing, and semiconductor design and manufacturing. The group provides electronic measurement instruments, design and test software and systems and related services used in the simulation, design, validation, manufacturing, installation and optimization of electronic equipment, and automated software test that include artificial intelligence and machine learning to automatically identify, build and execute tests critical to digital business success and a strong customer experience.

Revenue

The Electronic Industrial Solutions Group revenue for the three months ended January 31, 2022 increased 13 percent compared to the same period last year. Foreign currency movements had an unfavorable impact of 2 percent on the year-over-year revenue growth for the three months ended January 31, 2022. There is strong demand for automotive, semiconductor and general electronics measurement solutions, although revenue was moderated by the impact of supply chain constraints. The revenue growth was driven by continued investments in next-generation semiconductor and new mobility technologies coupled with improved macro conditions in the automotive market, partially offset by decline in general electronics measurement. Revenue grew across all regions for the three months ended January 31, 2022.

Gross Margin and Operating Margin

Gross margin for the three months ended January 31, 2022 decreased 1 percentage point compared to the same period last year, primarily driven by higher material costs, partially offset by higher revenue volume.

R&D expense for the three months ended January 31, 2022 increased 3 percent compared to the same period last year, primarily driven by greater investments in key growth opportunities in our end markets and leading-edge technologies.

Selling, general and administrative expense for the three months ended January 31, 2022 increased 8 percent compared to the same period last year, primarily due to higher infrastructure-related costs and selling costs.

Other operating expense (income), net for the three months ended January 31, 2022 was income of $1 million compared to income of $1 million for the same period last year.

Operating margin for the three months ended January 31, 2022 increased 1 percentage point compared to the same period last year, primarily driven by lower operating expenses as a percentage of sales, partially offset by gross margin decline.

Financial Condition

Liquidity and Capital Resources

Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Under certain circumstances, local government regulations may limit our ability to move cash balances to meet cash needs. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout our global organization.

Overview of Cash Flows

Our key cash flow activities were as follows:

Operating Activities

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

Net cash provided by operating activities decreased $71 million during the three months ended January 31, 2022 compared to the same period last year.

• Net income for the three months ended January 31, 2022 increased $57 million compared to the same period last year. Non-cash adjustments to net income were lower by $18 million primarily due to a $32 million decrease in amortization, partially offset by a $7 million increase in share-based compensation expense, an $8 million increase in deferred tax expense and other non-cash adjustments.

• The aggregate of accounts receivable, inventory and accounts payable used net cash of $11 million during the first three months of fiscal 2022 compared to net cash used of $34 million in the comparable period last year, primarily due to higher collections, net of payments driven by higher revenue volume, as well as higher inventory due to the impact of supply chain constraints. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends upon the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period.

• The aggregate other movements in assets and liabilities used net cash of $121 million during the first three months of fiscal 2022 compared to net cash provided of $12 million in the comparable period last year, primarily due to higher variable compensation and other payroll-related payments, net of accruals, higher prepaid current assets driven by supply chain constraints, and lower cash inflow from deferred revenues compared to the same period last year.

Investing Activities

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

Net cash used in investing activities decreased $75 million during the three months ended January 31, 2022 compared to the same period last year. For the three months ended January 31, 2022, we used $7 million, net of cash acquired, for acquisition activity. For the three months ended January 31, 2021, we used $96 million, net of $11 million cash acquired, for the acquisition of Sanjole Inc. For the three months ended January 31, 2022 and 2021, investments in property, plant and equipment were $42 million and $28 million, respectively.

Financing Activities

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

Net cash used in financing activities increased $204 million during the three months ended January 31, 2022 compared to the same period last year, primarily due to higher treasury stock repurchases and payment of taxes related to net share settlement of equity awards.

Treasury Stock Repurchases

On November 18, 2021, our board of directors approved a new stock repurchase program authorizing the purchase of up to $1,200 million of the company’s common stock. The stock repurchase program may be commenced, suspended or discontinued at any time at the company’s discretion and does not have an expiration date. See "Issuer Purchases of Equity Securities" under Part II Item 2 for additional information.

Debt

On July 30, 2021, we entered into a new credit agreement that amended and restated our existing credit agreement dated February 15, 2017 in its entirety, and provides for a $750 million five-year unsecured revolving credit facility (the “Revolving Credit Facility”) that will expire on July 30, 2026 and bears interest at an annual rate of LIBOR + 1 percent along with a facility fee of 0.125 percent per annum. In addition, the new credit agreement permits the company, subject to certain customary conditions, on one or more occasions to request to increase the total commitments under the Revolving Credit Facility by up to $250 million in the aggregate. We may use amounts borrowed under the facility for general corporate purposes. As of January 31, 2022 and October 31, 2021, we had no borrowings outstanding under the Revolving Credit Facility. We were in compliance with the covenants of the Revolving Credit Facility and senior notes during the three months ended January 31, 2022. See note 9, "Debt" for additional information.

Cash and cash requirements

Cash

Our cash and cash equivalents mainly consist of investments in institutional money market funds, short-term deposits held at major global financial institutions and similar short duration instruments with original maturities of 90 days or less. We continuously monitor the creditworthiness of the financial institutions and money market fund asset managers with whom we invest our funds. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Most significant international locations have access to internal funding through an offshore cash pool for working capital needs. In addition, a few locations that are unable to access internal funding have access to temporary local overdraft and short-term working capital lines of credit.

Cash requirements

We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements, but in the event that additional liquidity is required, we may also borrow under our revolving credit facility.

There were no material changes to the cash requirements from our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

There were no material changes in our liabilities toward uncertain tax positions from our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. We are unable to accurately predict when these will be realized or released.

However, it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next 12 months due to either the expiration of a statute of limitations or a tax audit settlement.

For the remainder of fiscal 2022, we do not expect to contribute to our U.S. defined benefit plan and U.S. post-retirement benefit plan, and we expect to contribute $7 million to our non-U.S. defined benefit plans. The ultimate amounts we will contribute depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors. See note 10, "Retirement plans and post-retirement benefit plans."

Additionally, we expect capital spending to be between approximately $240 million and $260 million in fiscal 2022, with increasing capacity and technology investments.

As of January 31, 2022, we believe our cash and cash equivalents, cash generated from operations, and our ability to access capital markets and credit lines will satisfy our cash needs for the foreseeable future both globally and domestically.

Quantitative and qualitative disclosures about market risk appear in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in Part II of our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. There were no material changes during the three months ended January 31, 2022 to this information reported in the company’s 2021 Annual Report on Form 10-K.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 3, 2021, we entered into a Consent Agreement with the Directorate of Defense Trade Controls, Bureau of Political-Military Affairs, Department of State to resolve alleged violations of the Arms Export Control Act and the International Traffic in Arms Regulations ("ITAR"). Pursuant to the Consent Agreement, we were assessed a penalty of $6.6 million to be paid over three years, $2.5 million of which is suspended and designated for remediation activities, including employment of a special compliance officer for three years. We have paid $1.1 million of the assessed amount as of January 31, 2022. We are also 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. Although there are no matters pending that we currently believe are probable and reasonably possible of having a material impact to our business, consolidated financial position, results of operations or cash flows, the outcome of litigation is inherently uncertain and the outcome is difficult to predict. An adverse outcome in any outstanding lawsuit or proceeding could result in significant monetary damages or injunctive relief. If adverse results are above management’s expectations or are unforeseen, management may not have accrued for the liability, which could impact our results in a financial period.

Risks, Uncertainties and Other Factors That May Affect Future Results

Risks Related to Our Business

Global health crises, such as the COVID-19 pandemic, have had an impact on our supply chain and could have a material impact on our global operations, our customers and vendors, which could adversely impact our business results and financial condition.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. In response to the rapid global spread of the virus, national, state, and local governments issued orders and recommendations to attempt to reduce spread of the disease. Fluctuation in infection rates have continued, and the appearance of new and more easily transmitted variants of

COVID-19 have resulted in periodic changes in restrictions that vary from region to region and require vigilant attention and rapid response.

The uncertain duration and severity of the pandemic caused by COVID-19 and its variants, as well as continued periodic spikes in infection rates, local outbreaks of the virus and its variants or potential outbreaks on our sites or supplier, customer or vendor sites, in spite of safety measures or vaccinations, where available, could cause disruptions to our operations or those of our suppliers, customers or vendors. Outbreaks causing renewed implementation or extension of existing government orders or new orders or mandates, such as government-imposed vaccine mandates, could also impact the availability of our employees or other workers or could lead to attrition of key employees, which could further impact our ability to manufacture, ship or deliver products and solutions to customers. As new variants of the virus appear, especially variants that are more easily spread, cause more serious outcomes, or are resistant to existing vaccines, new health orders and safety protocols could further impact our on-site operations and our ability to collaborate globally with customers, suppliers, and internal colleagues.

The pandemic has led to global supply chain challenges, which have adversely impacted our ability to procure certain components and could impact our ability to manufacture products and cause delays in delivery of our solutions to our customers. Global shifts in customer demand and raw material supply due to COVID-19 could result in delayed or canceled orders and our customers’ reduced spending, reduced demand for products and solutions, and their inability to pay for products and solutions.

These factors could materially and negatively impact our business results, operations, revenue, growth and overall financial condition.

Uncertainty in general economic conditions may adversely affect our operating results and financial condition.

Our business is sensitive to negative changes in general economic conditions, both inside and outside the United States. Global and regional economic uncertainty, recession, depression or inflation may impact our business, resulting in:

• increased cost to manufacture products or deliver solutions;

• reduced customer purchasing power;

• reduced demand for our solutions, delays in the shipment of orders or increases in order cancellations;

• increased risk of excess and obsolete inventory;

• increased price pressure for our solutions and services; and

• greater risk of impairment to the value, and a detriment to the liquidity, of our future investment portfolio.

In addition, global and regional macroeconomic developments, such as increased unemployment, decreased income, uncertainty related to future economic activity, reduced access to credit, volatility in capital markets, decreased liquidity, uncertain or destabilizing national election results in the U.S., Europe, and Asia, and negative changes or volatility in general economic conditions in the U.S., Europe, and Asia could negatively affect our ability to conduct business in those territories. Financial difficulties experienced by our suppliers and customers, including distributors, due to economic volatility or negative changes could result in product delays, reduced purchasing power, delays in payment or inability to pay us, and inventory issues. Economic risks related to accounts receivable could result in delays in collection and greater bad debt expense.

Our operating results and financial condition could be harmed if the markets into which we sell our solutions decline or do not grow as anticipated.

Visibility into our markets is limited. Our quarterly sales and operating results are highly dependent on the volume and timing of technology-related spending and orders received during the fiscal quarter, which are difficult to forecast and may be cancelled by our customers. In addition, our revenues and earnings forecasts for future fiscal quarters are often based on the expected seasonality or cyclicality of our markets. However, due to the uncertainties and volatile economic environment created by the continuing global pandemic, the markets we serve may experience increased volatility and may not experience the seasonality or cyclicality that we expect. Any decline in our customers' markets would likely result in a reduction in demand for our solutions and services. The current impact of COVID-19 on the supply chain globally could impact our markets and harm our business. Also, if our customers' markets decline, we may not be able to collect on outstanding amounts due to us. Such declines could harm our financial position, results of operations, cash flows and stock price, and could limit our profitability. Also, in such an environment, pricing pressures could intensify. Since a significant portion of our operating expenses is relatively fixed in nature due to sales, R&D and manufacturing costs, if we were unable to respond quickly enough, these pricing pressures could further reduce our operating margins.

Economic and political policies favoring national interests could adversely affect our results of operations.

Nationalistic economic policies and political trends in the United States, the United Kingdom, the European Union, Singapore, Malaysia and China among other countries, such as opposition to globalization and free trade, sanctions or trade restrictions, withdrawal from or re-negotiation of global trade agreements, tax policies that favor domestic industries and interests, the distancing or potential exit of other countries from the European Union, and other similar actions may result in increased transaction costs, reduced ability to hire employees, reduced access to supplies and materials, reduced demand or access to customers in international markets, and inability to conduct our operations as they have been conducted historically. Each of these factors may adversely affect our business.

International trade disputes and increased tariffs between the United States and such jurisdictions could substantially change our expectations and ability to operate in such jurisdictions as we have done historically. Many of our suppliers, vendors, customers, partners, and other entities with whom we do business have strong ties to doing business in China. Their ability to supply materials to us, buy products or services from us, or otherwise work with us is affected by their ability to do business in China. If the U.S.’s relationship with China results in additional trade disputes, trade protection measures, retaliatory actions, tariffs and increased barriers, policies that favor domestic industries, or increased import or export licensing requirements or restrictions, then our deployment of resources in jurisdictions affected by such measures could be misaligned and our operations may be adversely affected due to such changes in the economic and political ecosystem in which our suppliers, vendors, customers, partners, and other entities with whom we do business operate.

**A decreased demand for our customers’ products or trade restrictions could adversely affect our res

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KEYSIGHT TECHNOLOGIES, INC.