DELAWARE
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46-4254555
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(State or other jurisdiction of
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(IRS employer
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incorporation or organization)
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Identification no.)
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1400 FOUNTAINGROVE PARKWAY
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SANTA ROSA, CALIFORNIA
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95403
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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(do not check if a smaller reporting company)
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Page
Number
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PART I
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— FINANCIAL INFORMATION
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Three Months Ended
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||||||
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January 31,
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||||||
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2017
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2016
|
||||
Net revenue:
|
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Products
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$
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606
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$
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601
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Services and other
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120
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120
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Total net revenue
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726
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721
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Costs and expenses:
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||||
Cost of products
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255
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260
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Cost of services and other
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67
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69
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Total costs
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322
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329
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Research and development
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108
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108
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Selling, general and administrative
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213
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200
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Other operating expense (income), net
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(79
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)
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(14
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)
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Total costs and expenses
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564
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623
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Income from operations
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162
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98
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Interest income
|
1
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1
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Interest expense
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(12
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)
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(12
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)
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Other income (expense), net
|
1
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(3
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)
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Income before taxes
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152
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|
84
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Provision for income taxes
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43
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20
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Net income
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$
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109
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$
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64
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Net income per share:
|
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Basic
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$
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0.64
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$
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0.37
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Diluted
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$
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0.63
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$
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0.37
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||||
Weighted average shares used in computing net income per share:
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Basic
|
171
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171
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Diluted
|
173
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172
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Three Months Ended
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||||||
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January 31,
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||||||
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2017
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2016
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Net income
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$
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109
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$
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64
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Other comprehensive income (loss):
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Unrealized gain (loss) on investments, net of tax benefit (expense) of ($1) and $1
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4
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(6
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)
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Unrealized gain on derivative instruments, net of tax expense of $1 and $1
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2
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1
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Amounts reclassified into earnings related to derivative instruments, net of tax expense of zero and $1
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1
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3
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|
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Foreign currency translation, net of tax benefit (expense) of zero
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(24
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)
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(25
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)
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Net defined benefit pension cost and post retirement plan costs:
|
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|
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Change in actuarial net loss, net of tax expense of $13 and $6
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28
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12
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Change in net prior service credit, net of tax benefit of $2 and $3
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(4
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)
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(3
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)
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Other comprehensive income (loss)
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7
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(18
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)
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Total comprehensive income
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$
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116
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$
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46
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|
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January 31,
2017 |
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October 31,
2016 |
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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896
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$
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783
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Accounts receivable, net
|
395
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437
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Inventory
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479
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474
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Other current assets
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162
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160
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Total current assets
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1,932
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1,854
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Property, plant and equipment, net
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494
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512
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Goodwill
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721
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736
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Other intangible assets, net
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197
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208
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Long-term investments
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60
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55
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Long-term deferred tax assets
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342
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392
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Other assets
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123
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39
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Total assets
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$
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3,869
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$
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3,796
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LIABILITIES AND EQUITY
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Current liabilities:
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Accounts payable
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$
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172
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$
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189
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Employee compensation and benefits
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146
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183
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Deferred revenue
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191
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180
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Income and other taxes payable
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19
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41
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Other accrued liabilities
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68
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51
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Total current liabilities
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596
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644
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Long-term debt
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1,093
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1,093
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Retirement and post-retirement benefits
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384
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405
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Long-term deferred revenue
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74
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72
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Other long-term liabilities
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74
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69
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Total liabilities
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2,221
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2,283
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Commitments and contingencies (Note 13)
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Total equity:
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Stockholders’ equity:
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Preferred stock; $0.01 par value; 100 million shares authorized; none issued and outstanding
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—
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—
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Common stock; $0.01 par value; 1 billion shares authorized; 174 million shares at January 31, 2017 and 172 million shares at October 31, 2016 issued
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2
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2
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Treasury stock at cost; 2.3 million shares at January 31, 2017 and at October 31, 2016
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(62
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)
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(62
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)
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Additional paid-in-capital
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1,271
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1,242
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Retained earnings
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1,048
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949
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Accumulated other comprehensive loss
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(611
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)
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(618
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)
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Total stockholders' equity
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1,648
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1,513
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Total liabilities and equity
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$
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3,869
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$
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3,796
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Three Months Ended
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||||||
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January 31,
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||||||
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2017
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2016
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Cash flows from operating activities:
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|
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Net income
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$
|
109
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$
|
64
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
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Depreciation and amortization
|
32
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|
|
33
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Share-based compensation
|
18
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|
|
16
|
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Excess tax benefit from share-based plans
|
(2
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)
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(1
|
)
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||
Deferred taxes
|
40
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|
4
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Excess and obsolete inventory related charges
|
3
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8
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Gain on sale of land
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(8
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)
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(10
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)
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Other non-cash expenses, net
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—
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2
|
|
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Changes in assets and liabilities:
|
|
|
|
|
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Accounts receivable
|
40
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|
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33
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Inventory
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(10
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)
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(4
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)
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Accounts payable
|
(12
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)
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|
(22
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)
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Employee compensation and benefits
|
(36
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)
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(29
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)
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Retirement and post-retirement benefits, net
|
(71
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)
|
|
(13
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)
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Income tax payable
|
(15
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)
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2
|
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Other assets and liabilities
|
14
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|
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9
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|
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Net cash provided by operating activities
|
102
|
|
|
92
|
|
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|
|
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|
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Cash flows from investing activities:
|
|
|
|
|
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Investments in property, plant and equipment
|
(16
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)
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|
(34
|
)
|
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Proceeds from sale of land
|
8
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|
|
10
|
|
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Net cash used in investing activities
|
(8
|
)
|
|
(24
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Issuance of common stock under employee stock plans
|
19
|
|
|
24
|
|
||
Excess tax benefit from share-based plans
|
2
|
|
|
1
|
|
||
Net cash provided by financing activities
|
21
|
|
|
25
|
|
||
|
|
|
|
||||
Effect of exchange rate movements
|
(2
|
)
|
|
(4
|
)
|
||
|
|
|
|
||||
Net increase in cash and cash equivalents
|
113
|
|
|
89
|
|
||
Cash and cash equivalents at beginning of period
|
783
|
|
|
483
|
|
||
Cash and cash equivalents at end of period
|
$
|
896
|
|
|
$
|
572
|
|
1.
|
OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Cost of products and services
|
$
|
3
|
|
|
$
|
3
|
|
Research and development
|
4
|
|
|
3
|
|
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Selling, general and administrative
|
11
|
|
|
10
|
|
||
Total share-based compensation expense
|
$
|
18
|
|
|
$
|
16
|
|
|
Three Months Ended
|
||||
|
January 31,
|
||||
|
2017
|
|
2016
|
||
LTP Program:
|
|
|
|
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Volatility of Keysight shares
|
27
|
%
|
|
25
|
%
|
Volatility of selected index (2017)/peer-company shares (2016)
|
15
|
%
|
|
14%-54%
|
|
Price-wise correlation with selected peers
|
57
|
%
|
|
38
|
%
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Numerator:
|
|
|
|
|
|
||
Net income
|
$
|
109
|
|
|
$
|
64
|
|
Denominator:
|
|
|
|
||||
Basic weighted-average shares
|
171
|
|
|
171
|
|
||
Potential common shares— stock options and other employee stock plans
|
2
|
|
|
1
|
|
||
Diluted weighted-average shares
|
173
|
|
|
172
|
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Non-cash investing activities:
|
|
|
|
||||
Capital expenditures in accounts payables
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
$
|
(5
|
)
|
|
$
|
(9
|
)
|
|
January 31,
2017 |
|
October 31,
2016 |
||||
|
(in millions)
|
||||||
Finished goods
|
$
|
218
|
|
|
$
|
218
|
|
Purchased parts and fabricated assemblies
|
261
|
|
|
256
|
|
||
Total inventory
|
$
|
479
|
|
|
$
|
474
|
|
8.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
|
Communications Solutions Group
|
|
Electronic Industrial Solutions Group
|
|
Services Solutions Group
|
|
Total
|
||||||||
|
(in millions)
|
||||||||||||||
Goodwill as of October 31, 2016
|
$
|
456
|
|
|
$
|
216
|
|
|
$
|
64
|
|
|
$
|
736
|
|
Foreign currency translation impact
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
||||
Goodwill as of January 31, 2017
|
$
|
441
|
|
|
$
|
216
|
|
|
$
|
64
|
|
|
$
|
721
|
|
|
Other Intangible Assets as of January 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
|
$
|
314
|
|
|
$
|
167
|
|
|
$
|
147
|
|
|
$
|
309
|
|
|
$
|
159
|
|
|
$
|
150
|
|
Backlog
|
4
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
||||||
Trademark/Tradename
|
20
|
|
|
4
|
|
|
16
|
|
|
20
|
|
|
4
|
|
|
16
|
|
||||||
Customer relationships
|
65
|
|
|
38
|
|
|
27
|
|
|
65
|
|
|
35
|
|
|
30
|
|
||||||
Total amortizable intangible assets
|
403
|
|
|
213
|
|
|
190
|
|
|
398
|
|
|
202
|
|
|
196
|
|
||||||
In-Process R&D
|
7
|
|
|
—
|
|
|
7
|
|
|
12
|
|
|
—
|
|
|
12
|
|
||||||
Total
|
$
|
410
|
|
|
$
|
213
|
|
|
$
|
197
|
|
|
$
|
410
|
|
|
$
|
202
|
|
|
$
|
208
|
|
|
Fair Value Measurements at January 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)
|
$
|
572
|
|
|
$
|
572
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
471
|
|
|
$
|
471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivative instruments (foreign exchange contracts)
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
||||||||
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Trading securities
|
11
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
11
|
|
|
—
|
|
|
—
|
|
||||||||
Available-for-sale investments
|
34
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
29
|
|
|
—
|
|
|
—
|
|
||||||||
Total assets measured at fair value
|
$
|
624
|
|
|
$
|
617
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
515
|
|
|
$
|
511
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Derivative instruments (foreign exchange contracts)
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Deferred compensation liability
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
||||||||
Total liabilities measured at fair value
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
—
|
|
10.
|
DERIVATIVES
|
|
|
Derivatives in Cash Flow
Hedging Relationships
|
|
Derivatives Not Designated as Hedging Instruments
|
||||
|
|
Forward
Contracts
|
|
Forward
Contracts
|
||||
Currency
|
|
Buy/(Sell)
|
|
Buy/(Sell)
|
||||
|
|
(in millions)
|
||||||
Euro
|
|
$
|
—
|
|
|
$
|
62
|
|
British Pound
|
|
—
|
|
|
10
|
|
||
Singapore Dollar
|
|
10
|
|
|
1
|
|
||
Malaysian Ringgit
|
|
70
|
|
|
1
|
|
||
Japanese Yen
|
|
(82
|
)
|
|
(41
|
)
|
||
Other currencies
|
|
(15
|
)
|
|
6
|
|
||
Total
|
|
$
|
(17
|
)
|
|
$
|
39
|
|
Fair Values of Derivative Instruments
|
||||||||||||||||||
Asset Derivatives
|
|
Liability Derivatives
|
||||||||||||||||
|
|
Fair Value
|
|
|
|
Fair Value
|
||||||||||||
Balance Sheet Location
|
|
January 31,
2017 |
|
October 31,
2016 |
|
Balance Sheet Location
|
|
January 31,
2017 |
|
October 31,
2016 |
||||||||
(in millions)
|
||||||||||||||||||
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
||||||||
Other current assets
|
|
$
|
5
|
|
|
$
|
2
|
|
|
Other accrued liabilities
|
|
$
|
4
|
|
|
$
|
4
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other current assets
|
|
2
|
|
|
2
|
|
|
Other accrued liabilities
|
|
2
|
|
|
4
|
|
||||
Total derivatives
|
|
$
|
7
|
|
|
$
|
4
|
|
|
|
|
$
|
6
|
|
|
$
|
8
|
|
|
|||||||
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Derivatives designated as hedging instruments:
|
|
|
|
|
|
||
Cash Flow Hedges
|
|
|
|
||||
Foreign exchange contracts:
|
|
|
|
||||
Gain recognized in accumulated other comprehensive income
|
$
|
3
|
|
|
$
|
2
|
|
Loss reclassified from accumulated other comprehensive income into cost of sales
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
||||
Gain (loss) recognized in other income (expense), net
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
Pensions
|
|
|
||||||||||||||||||||
|
U.S. Defined Benefit Plans
|
|
Non-U.S. Defined Benefit
Plans
|
|
U.S. Post-Retirement
Benefit Plan
|
||||||||||||||||||
|
Three Months Ended January 31,
|
||||||||||||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||||||
|
(in millions)
|
||||||||||||||||||||||
Service cost—benefits earned during the period
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost on benefit obligation
|
5
|
|
|
6
|
|
|
6
|
|
|
8
|
|
|
2
|
|
|
2
|
|
||||||
Expected return on plan assets
|
(8
|
)
|
|
(9
|
)
|
|
(19
|
)
|
|
(19
|
)
|
|
(3
|
)
|
|
(3
|
)
|
||||||
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net actuarial losses
|
4
|
|
|
2
|
|
|
9
|
|
|
7
|
|
|
5
|
|
|
5
|
|
||||||
Prior service credit
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
||||||
Settlement gain
|
—
|
|
|
—
|
|
|
(68
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total periodic benefit cost (benefit)
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Workforce reduction
|
||
|
(in millions)
|
||
Balance as of October 31, 2016
|
$
|
—
|
|
Income statement expense
|
2
|
|
|
Cash payments
|
—
|
|
|
Balance as of January 31, 2017
|
$
|
2
|
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Cost of products and services
|
$
|
1
|
|
|
$
|
—
|
|
Research and development
|
—
|
|
|
—
|
|
||
Selling, general and administrative
|
1
|
|
|
—
|
|
||
Total restructuring and other related costs
|
$
|
2
|
|
|
$
|
—
|
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Beginning balance
|
$
|
44
|
|
|
$
|
53
|
|
Accruals for warranties including change in estimate
|
7
|
|
|
8
|
|
||
Settlements made during the period
|
(8
|
)
|
|
(8
|
)
|
||
Ending balance
|
$
|
43
|
|
|
$
|
53
|
|
|
|
|
|
||||
Accruals for warranties due within one year
|
$
|
22
|
|
|
$
|
34
|
|
Accruals for warranties due after one year
|
21
|
|
|
19
|
|
||
Ending balance
|
$
|
43
|
|
|
$
|
53
|
|
|
January 31, 2017
|
|
October 31, 2016
|
||||
|
(in millions)
|
||||||
3.30% Senior Notes due 2019
|
$
|
497
|
|
|
$
|
497
|
|
4.55% Senior Notes due 2024
|
596
|
|
|
596
|
|
||
Total
|
$
|
1,093
|
|
|
$
|
1,093
|
|
|
|
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 October 31, 2016
|
|
$
|
10
|
|
|
$
|
(29
|
)
|
|
$
|
(646
|
)
|
|
$
|
50
|
|
|
$
|
(3
|
)
|
|
$
|
(618
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
5
|
|
|
(24
|
)
|
|
24
|
|
|
—
|
|
|
3
|
|
|
8
|
|
||||||
Amounts reclassified out of accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
17
|
|
|
(6
|
)
|
|
1
|
|
|
12
|
|
||||||
Tax (expense) benefit
|
|
(1
|
)
|
|
—
|
|
|
(13
|
)
|
|
2
|
|
|
(1
|
)
|
|
(13
|
)
|
||||||
Other comprehensive income (loss)
|
|
4
|
|
|
(24
|
)
|
|
28
|
|
|
(4
|
)
|
|
3
|
|
|
7
|
|
||||||
As of January 31, 2017
|
|
$
|
14
|
|
|
$
|
(53
|
)
|
|
$
|
(618
|
)
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
As of October 31, 2015
|
|
$
|
21
|
|
|
$
|
(48
|
)
|
|
$
|
(511
|
)
|
|
$
|
65
|
|
|
$
|
(6
|
)
|
|
$
|
(479
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(7
|
)
|
|
(25
|
)
|
|
4
|
|
|
—
|
|
|
2
|
|
|
(26
|
)
|
||||||
Amounts reclassified out of accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
14
|
|
|
(6
|
)
|
|
4
|
|
|
12
|
|
||||||
Tax (expense) benefit
|
|
1
|
|
|
—
|
|
|
(6
|
)
|
|
3
|
|
|
(2
|
)
|
|
(4
|
)
|
||||||
Other comprehensive income (loss)
|
|
(6
|
)
|
|
(25
|
)
|
|
12
|
|
|
(3
|
)
|
|
4
|
|
|
(18
|
)
|
||||||
As of January 31, 2016
|
|
$
|
15
|
|
|
$
|
(73
|
)
|
|
$
|
(499
|
)
|
|
$
|
62
|
|
|
$
|
(2
|
)
|
|
$
|
(497
|
)
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amounts Reclassified from Accumulated Other Comprehensive Loss
|
|
Affected Line Item in Statement of Operations
|
||||||
|
|
Three Months Ended
|
|
|
||||||
|
|
January 31,
|
|
|
||||||
|
|
2017
|
|
2016
|
|
|
||||
|
|
(in millions)
|
|
|
||||||
Unrealized gain (loss) on derivatives
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
Cost of sales
|
|
|
—
|
|
|
1
|
|
|
Provision for income taxes
|
||
|
|
(1
|
)
|
|
(3
|
)
|
|
Net of income tax
|
||
|
|
|
|
|
|
|
||||
Net defined benefit pension cost and post retirement plan costs:
|
|
|
|
|
|
|
||||
Actuarial net loss
|
|
(17
|
)
|
|
(14
|
)
|
|
|
||
Prior service credits
|
|
6
|
|
|
6
|
|
|
|
||
|
|
(11
|
)
|
|
(8
|
)
|
|
Total before income tax
|
||
|
|
3
|
|
|
3
|
|
|
Provision for income taxes
|
||
|
|
(8
|
)
|
|
(5
|
)
|
|
Net of income tax
|
||
|
|
|
|
|
|
|
||||
Total reclassifications for the period
|
|
$
|
(9
|
)
|
|
$
|
(8
|
)
|
|
|
|
Communications Solutions Group
|
|
Electronic Industrial Solutions Group
|
|
Services Solutions Group
|
|
Total Segments
|
||||||||
|
(in millions)
|
||||||||||||||
Three Months Ended January 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|||||
Total segment revenue
|
$
|
434
|
|
|
$
|
192
|
|
|
$
|
100
|
|
|
$
|
726
|
|
Acquisition-related fair value adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Total net revenue
|
$
|
434
|
|
|
$
|
192
|
|
|
$
|
100
|
|
|
$
|
726
|
|
Segment income from operations
|
$
|
72
|
|
|
$
|
42
|
|
|
$
|
14
|
|
|
$
|
128
|
|
Three Months Ended January 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|||||
Total segment revenue
|
$
|
440
|
|
|
$
|
191
|
|
|
$
|
95
|
|
|
$
|
726
|
|
Acquisition-related fair value adjustments
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
||||
Total net revenue
|
$
|
435
|
|
|
$
|
191
|
|
|
$
|
95
|
|
|
$
|
721
|
|
Segment income from operations
|
$
|
78
|
|
|
$
|
38
|
|
|
$
|
13
|
|
|
$
|
129
|
|
|
Three Months Ended
|
||||||
|
January 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in millions)
|
||||||
Total reportable segments' income from operations
|
$
|
128
|
|
|
$
|
129
|
|
Share-based compensation expense
|
(18
|
)
|
|
(16
|
)
|
||
Restructuring and related costs
|
(2
|
)
|
|
—
|
|
||
Amortization of intangibles
|
(10
|
)
|
|
(11
|
)
|
||
Acquisition and integration costs
|
(6
|
)
|
|
(2
|
)
|
||
Separation and related costs
|
(6
|
)
|
|
(5
|
)
|
||
Acquisition-related fair value adjustments
|
—
|
|
|
(5
|
)
|
||
Japan pension settlement gain
|
68
|
|
|
—
|
|
||
Other
|
8
|
|
|
8
|
|
||
Income from operations, as reported
|
162
|
|
|
98
|
|
||
Interest income
|
1
|
|
|
1
|
|
||
Interest expense
|
(12
|
)
|
|
(12
|
)
|
||
Other income (expense), net
|
1
|
|
|
(3
|
)
|
||
Income before taxes, as reported
|
$
|
152
|
|
|
$
|
84
|
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
|
(in millions)
|
|
|||||||
Orders
|
$
|
695
|
|
|
$
|
679
|
|
|
2%
|
Net revenue:
|
|
|
|
|
|
||||
Products
|
$
|
606
|
|
|
$
|
601
|
|
|
1%
|
Services and other
|
120
|
|
|
120
|
|
|
—%
|
||
Total net revenue
|
$
|
726
|
|
|
$
|
721
|
|
|
1%
|
|
Year over Year % Change
|
||||
|
Three Months Ended
|
||||
|
January 31, 2017
|
||||
Geographic Region
|
actual
|
|
currency adjusted
|
||
Americas
|
(4
|
)%
|
|
(4
|
)%
|
Europe
|
1
|
%
|
|
4
|
%
|
Japan
|
6
|
%
|
|
—
|
%
|
Asia Pacific ex-Japan
|
4
|
%
|
|
4
|
%
|
Total net revenue
|
1
|
%
|
|
1
|
%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
Total gross margin
|
55.7
|
%
|
|
54.3
|
%
|
|
1 ppt
|
||
Operating margin
|
22.4
|
%
|
|
13.6
|
%
|
|
9 ppts
|
||
|
|
|
|
|
|
||||
in millions
|
|
|
|
|
|
||||
Research and development
|
$
|
108
|
|
|
$
|
108
|
|
|
(1)%
|
Selling, general and administrative
|
$
|
213
|
|
|
$
|
200
|
|
|
7%
|
Other operating expense (income), net
|
$
|
(79
|
)
|
|
$
|
(14
|
)
|
|
447%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
|
(in millions)
|
|
|
||||||
Net revenue
|
$
|
434
|
|
|
$
|
440
|
|
|
(1)%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
Total gross margin
|
60.5
|
%
|
|
60.1
|
%
|
|
— ppt
|
||
Operating margin
|
16.7
|
%
|
|
17.7
|
%
|
|
(1) ppt
|
||
|
|
|
|
|
|
||||
in millions
|
|
|
|
|
|
||||
Research and development
|
$
|
76
|
|
|
$
|
76
|
|
|
(1)%
|
Selling, general and administrative
|
$
|
117
|
|
|
$
|
113
|
|
|
3%
|
Other operating expense (income), net
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
(35)%
|
Income from operations
|
$
|
72
|
|
|
$
|
78
|
|
|
(7)%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
Total gross margin
|
59.9
|
%
|
|
57.2
|
%
|
|
3 ppts
|
||
Operating margin
|
21.7
|
%
|
|
19.7
|
%
|
|
2 ppts
|
||
|
|
|
|
|
|
||||
in millions
|
|
|
|
|
|
||||
Research and development
|
$
|
28
|
|
|
$
|
27
|
|
|
3%
|
Selling, general and administrative
|
$
|
46
|
|
|
$
|
46
|
|
|
1%
|
Other operating expense (income), net
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
(20)%
|
Income from operations
|
$
|
42
|
|
|
$
|
38
|
|
|
10%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
|
(in millions)
|
|
|
||||||
Net revenue
|
$
|
100
|
|
|
$
|
95
|
|
|
5%
|
|
Three Months Ended
|
|
Year over Year Change
|
||||||
|
January 31,
|
|
Three
|
||||||
|
2017
|
|
2016
|
|
Months
|
||||
Total gross margin
|
39.4
|
%
|
|
39.6
|
%
|
|
— ppt
|
||
Operating margin
|
14.4
|
%
|
|
13.9
|
%
|
|
— ppt
|
||
|
|
|
|
|
|
||||
in millions
|
|
|
|
|
|
||||
Research and development
|
$
|
—
|
|
|
$
|
2
|
|
|
(80)%
|
Selling, general and administrative
|
$
|
25
|
|
|
$
|
23
|
|
|
9%
|
Other operating expense (income), net
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
(17)%
|
Income from operations
|
$
|
14
|
|
|
$
|
13
|
|
|
8%
|
•
|
Net income for the first three months of fiscal 2017 increased $45 million. Changes to non-cash income and expenses included a $36 million increase in deferred tax expense, a $1 million decrease to amortization expense, a $2 million increase in share-based compensation expense, a $2 million decline in gain from sale of land, a $5 million decline in excess and obsolete inventory-related charges, and a $2 million decrease in other miscellaneous non-cash expenses as compared to the same period last year. The change in retirement and post-retirement benefits, net for the three months ended January 31, 2017 includes an adjustment for a non-cash gain of $68 million related to a Japan pension settlement gain.
|
•
|
The aggregate of accounts receivable, inventory and accounts payable provided net operating cash of $18 million during the first three months of fiscal 2017, compared to cash provided of $7 million in the comparable period last year. The amount of cash flow generated from or used by the aggregate of accounts receivable, inventory and accounts payable depends upon how effectively we manage the cash conversion cycle, which represents the number of days that elapse from the day we pay for the purchase of raw materials and components to the collection of cash from our customers and can be significantly impacted by the timing of shipments and purchases, as well as collections and payments in a period.
|
•
|
The aggregate of employee compensation and benefits, income tax payable and other assets and liabilities used net operating cash of $37 million during the first three months of fiscal 2017, compared to cash used of $18 million in the comparable period last year. The difference is primarily due to increase in income tax and variable compensation payments as compared to the same period last year and other differences due to timing of accruals and collections versus payments between the periods.
|
•
|
We contributed $7 million to our non-U.S. defined benefit plans during the first three months of fiscal 2017, compared to $10 million in the same period last year. We expect to contribute approximately $25 million to our non-U.S. defined benefit plans during the remainder of 2017. For the three months ended January 31, 2017 and 2016, we did not contribute
|
•
|
reduced demand for our products, delays in the shipment of orders or increases in order cancellations;
|
•
|
increased risk of excess and obsolete inventories;
|
•
|
increased price pressure for our products and services; and
|
•
|
greater risk of impairment to the value, and a detriment to the liquidity, of our future investment portfolio.
|
•
|
properly identify customer needs;
|
•
|
innovate and develop new technologies, services and applications;
|
•
|
successfully commercialize new technologies in a timely manner;
|
•
|
manufacture and deliver our products in sufficient volumes and on time;
|
•
|
differentiate our offerings from our competitors' offerings;
|
•
|
price our products competitively;
|
•
|
anticipate our competitors' development of new products, services or technological innovations; and control product quality in our manufacturing process.
|
•
|
interruption to transportation flows for delivery of parts to us and finished goods to our customers;
|
•
|
changes in foreign currency exchange rates;
|
•
|
changes in a specific country's or region's political, economic or other conditions;
|
•
|
trade protection measures, sanctions, and import or export licensing requirements or restrictions;
|
•
|
negative consequences from changes in tax laws;
|
•
|
difficulty in staffing and managing widespread operations;
|
•
|
differing labor regulations;
|
•
|
differing protection of intellectual property;
|
•
|
unexpected changes in regulatory requirements; and
|
•
|
volatile political environments or geopolitical turmoil, including regional conflicts, terrorism, and war.
|
•
|
the retention of key employees and/or customers;
|
•
|
the management of facilities and employees in different geographic areas; and
|
•
|
the compatibility of our infrastructure, policies and organizations with those of the acquired company.
|
•
|
requiring a portion of our cash flow from operations to make interest payments on this debt;
|
•
|
increasing our vulnerability to general adverse economic and industry conditions;
|
•
|
reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business; and
|
•
|
limiting our flexibility in planning for, or reacting to, changes in our business and the industry.
|
•
|
actual or anticipated fluctuations in our operating results due to factors related to our business;
|
•
|
success or failure of our business strategy;
|
•
|
our quarterly or annual earnings, or those of other companies in our industry;
|
•
|
our ability to obtain third-party financing as needed;
|
•
|
announcements by us or our competitors of significant acquisitions or dispositions;
|
•
|
changes in accounting standards, policies, guidance, interpretations or principles;
|
•
|
the failure of securities analysts to cover our common stock;
|
•
|
changes in earnings estimates by securities analysts or our ability to meet those estimates;
|
•
|
the operating and share price performance of other comparable companies;
|
•
|
investor perception of our company;
|
•
|
natural or other disasters that investors believe may affect us;
|
•
|
overall market fluctuations;
|
•
|
results from any material litigation or government investigations;
|
•
|
changes in laws or regulations affecting our business; and
|
•
|
general economic conditions and other external factors.
|
•
|
the inability of our shareholders to call a special meeting;
|
•
|
the inability of our shareholders to act without a meeting of shareholders;
|
•
|
rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings;
|
•
|
the right of our board to issue preferred stock without shareholder approval;
|
•
|
the division of our board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;
|
•
|
a provision that shareholders may only remove directors with cause;
|
•
|
the ability of our directors, and not shareholders, to fill vacancies on our board of directors; and
|
•
|
the requirement that the affirmative vote of shareholders holding at least 80% of our voting stock is required to amend certain provisions in our amended and restated certificate of incorporation (relating to the number, term and removal of our directors, the filling of our board vacancies, the advance notice to be given for nominations for elections of directors, the calling of special meetings of shareholders, shareholder action by written consent, the ability of the board of directors to amend the bylaws, elimination of liability of directors to the extent permitted by Delaware law, exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders and amendments of the certificate of incorporation) and certain provisions in our amended and restated bylaws (relating to the calling of special meetings of shareholders, the business that may be conducted or considered at annual or special meetings, the advance notice of shareholder business and nominations, shareholder action by written consent, the number, tenure, qualifications and removal of our directors, the filling of our board vacancies, director and officer indemnification and amendments of the bylaws).
|
•
|
prior to the separation, our business was operated by Agilent as part of its broader corporate organization, rather than as an independent company. Agilent or one of its affiliates performed various corporate functions for us such as legal, treasury, accounting, auditing, human resources, corporate affairs and finance. Our historical financial results reflect allocations of corporate expenses from Agilent for such functions and are likely to be less than the expenses we would have incurred had we operated as a separate publicly-traded company. Following the separation, we are responsible for the cost related to such functions previously performed by Agilent;
|
•
|
generally, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of Agilent. Following the separation, we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements; and
|
•
|
our historical financial information prior to the Separation, does not reflect the debt or the associated interest expense that we have incurred as part of the separation and distribution.
|
•
|
the approval of the Merger Agreement and the principal terms of the Merger by the affirmative vote of the holders of a majority of total number of shares of Ixia common stock outstanding;
|
•
|
the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
|
•
|
receipt of antitrust approvals in certain foreign jurisdictions;
|
•
|
the accuracy of the other party’s representations and warranties contained in the Merger Agreement (subject to certain materiality standards set forth in the Merger Agreement);
|
•
|
and the other party’s compliance with its pre-closing covenants and agreements contained in the Merger Agreement in all material respects;
|
•
|
the absence of any law, judgment, order or injunction that prohibits the consummation of the Merger; and
|
•
|
in the case of our obligation to consummate the Merger, the absence of a material adverse effect on Ixia.
|
•
|
the diversion of management's attention to integration matters;
|
•
|
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Ixia’s business with our business;
|
•
|
difficulties entering new markets or manufacturing in new geographies where we have no or limited direct prior experience;
|
•
|
difficulties in the integration of operations and systems;
|
•
|
difficulties in the assimilation of employees;
|
•
|
difficulties in managing the expanded operations of a significantly larger and more complex company;
|
•
|
successfully managing relationships with our strategic partners and supplier and customer base; and
|
•
|
challenges in maintaining existing, and establishing new, business relationships.
|
Period
|
|
Total Number of Shares of Common Stock Purchased
(1)
|
|
Weighted Average Price Paid per Share of Common Stock
(2)
|
|
Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs
(1)
|
|
Maximum Approximate Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Program
(1)
|
||||
|
|
|
|
|
|
|
|
|
||||
November 1, 2016 through November 30, 2016
|
|
—
|
|
|
N/A
|
|
—
|
|
|
$
|
138,515,618
|
|
December 1, 2016 through December 31, 2016
|
|
—
|
|
|
N/A
|
|
—
|
|
|
$
|
138,515,618
|
|
January 1, 2017 through January 31, 2017
|
|
—
|
|
|
N/A
|
|
—
|
|
|
$
|
138,515,618
|
|
Total
|
|
—
|
|
|
N/A
|
|
—
|
|
|
|
(1)
|
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 transactions or other means. 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. All such shares and related costs are held as treasury stock and accounted for using the cost method.
|
(2)
|
The weighted average price paid per share of common stock does not include the cost of commissions.
|
A list of exhibits is set forth in the Exhibit Index found on page
47
of this report.
|
Dated:
|
February 28, 2017
|
By:
|
/s/ Neil Dougherty
|
|
|
|
Neil Dougherty
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
|
Dated:
|
February 28, 2017
|
By:
|
/s/ John C. Skinner
|
|
|
|
John C. Skinner
|
|
|
|
Vice President and Corporate Controller
|
|
|
|
(Principal Accounting Officer)
|
Exhibit
|
|
|
|
Number
|
|
Description
|
|
11.1
|
|
|
See Note 6, “Net Income Per Share,” to our Condensed Consolidated Financial Statements.
|
|
|
|
|
31.1
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31.2
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.1
|
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.2
|
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
101.INS
|
|
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
|
|
XBRL Schema Document
|
|
|
|
|
101.CAL
|
|
|
XBRL Calculation Linkbase Document
|
|
|
|
|
101.LAB
|
|
|
XBRL Labels Linkbase Document
|
|
|
|
|
101.PRE
|
|
|
XBRL Presentation Linkbase Document
|
|
|
|
|
101.DEF
|
|
|
XBRL Definition Linkbase Document
|
|
|
|
|
|
|
|
1.
|
I have reviewed this Form 10-Q of Keysight Technologies, Inc. ("the Registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))
for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
|
5.
|
The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
|
Date:
|
February 28, 2017
|
|
|
|
/s/ Ronald S. Nersesian
|
|
|
Ronald S. Nersesian
|
|
|
President and Chief Executive Officer
|
1.
|
I have reviewed this Form 10-Q of Keysight Technologies, Inc. ("the Registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
|
4.
|
The Registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f))
for the Registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
|
5.
|
The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
|
Date:
|
February 28, 2017
|
|
|
|
/s/ Neil Dougherty
|
|
|
Neil Dougherty
|
|
|
Senior Vice President and Chief Financial Officer
|
Date:
|
February 28, 2017
|
/s/ Ronald S. Nersesian
|
|
|
Ronald S. Nersesian
|
|
|
President and Chief Executive Officer
|
Date:
|
February 28, 2017
|
/s/ Neil Dougherty
|
|
|
Neil Dougherty
|
|
|
Senior Vice President and Chief Financial Officer
|