Non-GAAP Measures

Keysight uses a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, for making operating decisions and for forecasting and planning for future periods. The definition of these non-GAAP financial measures may differ from similarly titled measures used by others, and such non-GAAP measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. Keysight generally uses non-GAAP financial measures to facilitate management’s comparisons to historic operating results, to competitors’ operating results and to guidance provided to investors. In addition, Keysight believes that the use of these non-GAAP financial measures provides greater transparency to investors of information used by management in its financial and operational decision-making.

⁽¹⁾ Non-GAAP net income, and non-GAAP net income per share exclude primarily the impacts of share-based compensation, restructuring costs, separation costs, transformational costs, acquisition and integration costs, asset impairments and non-cash intangible amortization. We also exclude any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. Earnings per share is based on diluted shares. Reconciliation between non-GAAP net income and GAAP net income, is set forth on page 5 the attached tables, along with additional information regarding the use of this non-GAAP measure.

⁽²⁾ A reconciliation between revenue and revenue excluding currency and acquisitions is provided on page 7 of the attached tables, along with additional information regarding the use of this non-GAAP measure.

⁽³⁾ Non-GAAP earnings per share as projected for Q4FY15 and full fiscal 2015 excludes primarily the impacts of share-based compensation, restructuring costs, separation costs, transformational costs, acquisition and integration costs, asset impairments and non-cash intangible amortization. We also exclude any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. Most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to GAAP amounts has been provided.

Additional information about Keysight Technologies is available in the newsroom at www.keysight.com/go/news.

Source: IR-KEYS

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
		Three Months Ended
		July 31,									Percent
		2015				2014					Inc/(Dec)
Orders		$	685			$	722				(5	%)
Net revenue		$	665			$	757				(12	%)
Costs and expenses:
Cost of products and services			295				343				(14	%)
Research and development			90				91				(1	%)
Selling, general and administrative			183				202				(9	%)
Other operating expense (income), net			(3	)			—				—
Total costs and expenses			565				636				(11	%)
Income from operations			100				121				(17	%)
Interest expense			(12	)			—				—
Other income (expense), net			(1	)			1				(200	%)
Income before taxes			87				122				(29	%)
Provision for income taxes			17				15				13	%
Net income		$	70			$	107				(35	%)
Net income per share:
Basic		$	0.41			$	0.64
Diluted		$	0.41			$	0.64
Weighted average shares used in computing net income per share: (a)
Basic			169				167
Diluted			172				167
(a) On November 1, 2014, Agilent Technologies, Inc. distributed 167 million shares of Keysight common stock to existing holders of Agilent common stock. Basic and diluted net income per share for all periods through July 31, 2014 is calculated using the shares distributed on November 1, 2014.
The preliminary income statement is estimated based on our current information.
Page 1

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
		Nine Months Ended
		July 31,									Percent
		2015				2014					Inc/(Dec)
Orders		$	2,073			$	2,203				(6	%)
Net revenue		$	2,106			$	2,171				(3	%)
Costs and expenses:
Cost of products and services			937				970				(3	%)
Research and development			282				270				4	%
Selling, general and administrative			581				592				(2	%)
Other operating expense (income), net			(14	)			—				—
Total costs and expenses			1,786				1,832				(3	%)
Income from operations			320				339				(6	%)
Interest income			1				—				—
Interest expense			(35	)			—				—
Other income (expense), net			1				3				(67	%)
Income before taxes			287				342				(16	%)
Provision for income taxes			51				51				—
Net income		$	236			$	291				(19	%)
Net income per share:
Basic		$	1.40			$	1.74
Diluted		$	1.38			$	1.74
Weighted average shares used in computing net income per share: (a)
Basic			169				167
Diluted			171				167
(a) On November 1, 2014, Agilent Technologies, Inc. distributed 167 million shares of Keysight common stock to existing holders of Agilent common stock. Basic and diluted net income per share for all periods through July 31, 2014 is calculated using the shares distributed on November 1, 2014.
The preliminary income statement is estimated based on our current information.
Page 2

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
		July 31,				October 31,
		2015				2014
ASSETS
Current assets:
Cash and cash equivalents		$	1,000			$	810
Accounts receivable, net			313				357
Receivable from Agilent			-				23
Inventory			478				498
Deferred tax assets			73				83
Other current assets			119				79
Total current assets			1,983				1,850
Property, plant and equipment, net			462				470
Goodwill			372				392
Other intangible assets, net			12				18
Long-term investments			70				63
Long-term deferred tax assets			112				163
Other assets			86				94
Total assets		$	3,097			$	3,050
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	171			$	173
Payable to Agilent			-				125
Employee compensation and benefits			144				167
Deferred revenue			161				175
Income and other taxes payable			56				72
Other accrued liabilities			88				57
Total current liabilities			620				769
Long-term debt			1,099				1,099
Retirement and post-retirement benefits			160				213
Long-term deferred revenue			61				69
Other long-term liabilities			52				131
Total liabilities			1,992				2,281
Total Equity:
Preferred stock; $0.01 par value; 100 million shares authorized; none issued and outstanding			—				—
Common stock; $0.01 par value, 1 billion shares authorized; 169 million shares at July 31, 2015 and 167 million shares at October 31, 2014, issued and outstanding			2				2
Additional paid-in-capital			1,142				1,002
Retained earnings			337				101
Accumulated other comprehensive loss			(376	)			(336	)
Total stockholders' equity			1,105				769
Total liabilities and equity		$	3,097			$	3,050
The preliminary balance sheet is estimated based on our current information.
Page 3

KEYSIGHT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
		Three Months				Nine Months
		Ended				Ended
		July 31,				July 31,
		2015				2015
Cash flows from operating activities:
Net income		$	70			$	236
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			23				69
Share-based compensation			7				49
Excess tax benefit from share-based plans			(1	)			(4	)
Deferred taxes			2				15
Excess and obsolete inventory related charges			6				23
Other non-cash expenses, net			1				2
Changes in assets and liabilities:
Accounts receivable			36				31
Inventory			(8	)			(25	)
Accounts payable			—				1
Payment to Agilent, net			—				(28	)
Employee compensation and benefits			(25	)			(18	)
Retirement and post-retirement benefits			(8	)			(29	)
Other assets and liabilities			32				(27	)
Net cash provided by operating activities (a)			135				295
Cash flows from investing activities:
Investments in property, plant and equipment			(35	)			(66	)
Purchase of Investments			(7	)			(7	)
Proceeds from sale of investment securities			—				1
Net cash used in investing activities			(42	)			(72	)
Cash flows from financing activities:
Issuance of common stock under employee stock plans			15				23
Excess tax benefit from share-based plans			1				4
Return of Capital to Agilent			—				(49	)
Net cash provided by (used in) financing activities			16				(22	)
Effect of exchange rate movements			(3	)			(11	)
Net increase in cash and cash equivalents			106				190
Cash and cash equivalents at beginning of period			894				810
Cash and cash equivalents at end of period		$	1,000			$	1,000
(a) Cash payments included in operating activities:
Income tax payments, net			(14	)			(35	)
Interest payment			—				(24	)
The preliminary cash flow is estimated based on our current information.
Page 4

KEYSIGHT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
		Three Months Ended																Nine Months Ended
		July 31,																July 31,
		2015								2014								2015								2014
		Net Income				Diluted EPS				Net Income				Diluted EPS				Net Income				Diluted EPS				Net Income				Diluted EPS
GAAP Net income		$	70			$	0.41			$	107			$	0.64			$	236			$	1.38			$	291			$	1.74
Non-GAAP adjustments:
Restructuring and related costs			10				0.06				—				—				10				0.06				(3	)			(0.02	)
Intangible amortization			2				0.01				2				0.01				6				0.03				6				0.04
Asset impairment			1				0.01				—				—				3				0.02				—				—
Share Based Compensation			7				0.04				9				0.05				49				0.29				36				0.22
Transformational costs			1				0.01				—				—				1				0.01				1				0.01
Acquisition and integration costs			3				0.02				—				—				3				0.02				1				0.01
Separation costs			2				0.01				26				0.16				14				0.08				51				0.31
Other			—				—				(1	)			(0.01	)			—				—				—				—
Adjustment for taxes (a)			(2	)			(0.02	)			(10	)			(0.05	)			(12	)			(0.08	)			(18	)			(0.12	)
Non-GAAP Net income		$	94			$	0.55			$	133			$	0.80			$	310			$	1.81			$	365			$	2.19
Weighted average shares outstanding - diluted			172								167								171								167
(a) The adjustment for taxes excludes tax benefits that management believes are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the three and nine months ended July 31, 2015 and 2014, management uses a non-GAAP effective tax rate of 17% and 16% respectively that we believe to be indicative of on-going operations.
Historical amounts are reclassified to conform with current presentation.
We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance and our prospects for the future. These supplemental measures exclude, among other things, charges related to the amortization of intangibles, the impact of restructuring charges, asset impairment, acquisition and integration costs, transformational costs, share based compensation and separation costs. Some of the exclusions, such as impairments, may be beyond the control of management. Further, some may be less predictable than revenue derived from our core businesses (the day to day business of selling our products and services). These reasons provide the basis for management's belief that the measures are useful.
Restructuring and related costs include incremental expenses incurred in the period associated with publicly announced major restructuring programs, usually aimed at material changes in business and/or cost structure. Such costs may include one-time termination benefits, asset impairments, facility-related costs and contract termination fees. and other one time reorganization costs.
Intangible amortization include non-cash intangible amortization recognized in connection with acquisitions.
Asset impairments and write-downs include assets that have been written-down to their fair value.
Share-based compensation includes expense for all share-based payment awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our employee stock purchase plan (“ESPP”) and performance share awards granted to selected members of our senior management under the long-term performance plan (“LTPP”) based on estimated fair values.
Transformational costs include expenses incurred in the period associated with targeted cost reduction activities such as manufacturing transfers, small site consolidations, reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs.
Acquisition and Integration costs include all incremental expenses incurred to effect a business combination which have been expensed during the period. Such acquisition costs may include advisory, legal, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, information technology systems and infrastructure and other employee-related costs.
Separation costs include all incremental expenses incurred in order to effect the separation of Keysight from Agilent, including the cost of new hires specifically required to operate two separate companies. The intent is to only include in non-GAAP expenses what would not have been incurred if we had no plan to spin-off.
Our management uses non-GAAP measures to evaluate the performance of our core businesses, to estimate future core performance and to compensate employees. Since management finds this measure to be useful, we believe that our investors benefit from seeing our results “through the eyes” of management in addition to seeing our GAAP results. This information facilitates our management’s internal comparisons to our historical operating results as well as to the operating results of our competitors.
Our management recognizes that items such as amortization of intangibles, restructuring charges etc. can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our statement of cash flows portray those effects. Although we believe it is useful for investors to see core performance free of special items, investors should understand that the excluded items are actual expenses that may impact the cash available to us for other uses. To gain a complete picture of all effects on the company’s profit and loss from any and all events, management does (and investors should) rely upon the GAAP income statement. The non-GAAP numbers focus instead upon the core business of the company, which is only a subset, albeit a critical one, of the company’s performance.
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
The preliminary non-GAAP net income and diluted EPS reconciliation is estimated based on our current information.
Page 5

KEYSIGHT TECHNOLOGIES, INC.
SEGMENT INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
Measurement Solutions
		Q3'15				Q3'14				Q2'15
Orders		$	592			$	643			$	607
Revenue		$	564			$	656			$	638
Gross Margin, %			59.1	%			56.9	%			59.3	%
Income from Operations		$	104			$	133			$	136
Customer Support and Services
		Q3'15				Q3'14				Q2'15
Orders		$	93			$	79			$	90
Revenue		$	101			$	101			$	102
Gross Margin, %			42.7	%			46.4	%			43.8	%
Income from Operations		$	20			$	25			$	18
Income from operations reflect the results of our reportable segments under Keysight's management reporting system which are not necessarily in conformity with GAAP financial measures. Income from operations of our reporting segments exclude, among other things, charges related to the amortization of intangibles, share based compensation,the impact of restructuring charges, asset impairment, transformational costs, acquisition and integration costs and separation costs.
In general, recorded orders represent firm purchase commitments from our customers with established terms and conditions for products and services that will be delivered within six months.
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
The preliminary segment information is estimated based on our current information.
Page 6

KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF ROIC
(In millions)
(Unaudited)
PRELIMINARY
		KEYSIGHT				KEYSIGHT				KEYSIGHT
Numerator:		Q3'15				Q3'14				Q2'15
Non-GAAP income from operations		$	124			$	158			$	154
Less:
Taxes and Other (income)/expense			21				25				24
Quarterly return (a)			103				133				130
Quarterly return annualized		$	412			$	532			$	520
Denominator:
Segment assets (b)		$	2,029			$	1,963			$	1,838
Less:
Net current liabilities (c)			460				503				501
Invested capital		$	1,569			$	1,460			$	1,337
Average invested capital		$	1,453			$	1,431			$	1,333
ROIC			28	%			37	%			39	%
ROIC calculation:(annualized current quarter segment return)/(average of the two most recent quarter-end balances of Segment Invested Capital)
(a) Quarterly return is equal to non-GAAP net income of $94 million plus net interest expense after tax of $9 million for Q3'15, net income of $133 million plus net interest expense after tax of zero for Q3'14 and $120 million plus net interest expense after tax of $10 million for Q2'15. Please see "Non-GAAP Net Income and Diluted EPS Reconciliations" for a reconciliation of non-GAAP net income to GAAP net income.
(b) Segment assets consist of inventory, accounts receivable, property plant and equipment, gross goodwill and other intangibles, deferred taxes and allocated corporate assets.
(c) Includes accounts payable, employee compensation and benefits, deferred revenue, certain other accrued liabilities and allocated corporate liabilities.
Return on Invested Capital (ROIC) is a non-GAAP measure that management believes provides useful supplemental information for management and the investor. ROIC is a tool by which we track how much value we are creating for our shareholders. Management uses ROIC as a performance measure for our businesses, and our senior managers' compensation is linked to ROIC improvements as well as other performance criteria. We believe that ROIC provides our management with a means to analyze and improve their business, measuring segment profitability in relation to net asset investments. We acknowledge that ROIC may not be calculated the same way by every company.
Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
The preliminary reconciliation of ROIC is based on our current information.
Page 7

KEYSIGHT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE EXCLUDING THE IMPACT OF ACQUISITIONS AND CURRENCY ADJUSTMENTS
(in millions)
(Unaudited)
PRELIMINARY
		Year-over-Year
		NON GAAP REVENUE										Acquisitions			Currency Adjustments (a)				NON GAAP CORE REVENUE
								Year-over-Year																	Year-over-Year
Revenue by Segment		Q3'15			Q3'14			$ Change				Q3'15			Q3'15				Q3'15			Q3'14			$ Change
Measurement Solutions		$	564		$	656			-14	%		$	-		$	(22	)		$	586		$	656			-11	%
Customer Support and Services			101			101			0	%			1			(6	)			106			101			4	%
Keysight		$	665		$	757			-12	%		$	1		$	(28	)		$	692		$	757			-9	%
(a) We compare the year-over-year change in revenue excluding the effect of foreign currency rate fluctuations to assess the performance of our underlying business. To determine the impact of currency fluctuations, current period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the actual exchange rate in effect during the respective prior periods.
Non-GAAP Core revenue is defined as Non-GAAP revenue excluding the impact of currency and material acquisitions and divestitures that have closed within the past year.
The preliminary reconciliation of Non GAAP Core revenue is estimated based on our current information.
Page 8

« Previous Page 1 | 2 | 3  Next Page »