Keysight Technologies Reports Second-Quarter 2015 Results

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, non-GAAP operating margin and non-GAAP net income per share exclude primarily the impacts of share-based compensation, separation costs, asset impairments and non-cash intangible amortization. Non–GAAP net income and non-GAAP net income per share also excludes 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, and non- GAAP operating margin and GAAP operating margin is set forth on page 5 and page 8 of the attached tables respectively, along with additional information regarding the use of this non-GAAP measure.

⁽²⁾ Non-GAAP earnings per share as projected for Q3FY15 excludes primarily the impacts of share-based compensation, separation 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.

⁽³⁾ Return on invested capital (ROIC) is a non-GAAP measure and is defined as income from operations less other (income) expense and taxes, annualized, divided by the average of the two most recent quarter-end balances of assets less net current liabilities. The reconciliation of ROIC can be found on page 7 of the attached tables, along with additional information regarding the use of this non-GAAP measure.

NOTE TO EDITORS: Further technology, corporate citizenship and executive news is available 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
	April 30,					Percent
		2015			2014	Inc/(Dec)

Orders	$	697		$	782	(11	%)


Net revenue	$	740		$	743	—

Costs and expenses:
Cost of products and services		324			328	(1	%)
Research and development		96			89	7	%
Selling, general and administrative		192			199	(4	%)
Total costs and expenses		612			616	(1	%)

Income from operations		128			127	1	%

Interest income		1			—	—
Interest expense		(11	)		—	—
Other income (expense), net		4			1	300	%

Income before taxes		122			128	(5	%)

Provision for income taxes		26			18	44	%

Net income	$	96		$	110	(13	%)


Net income per share:
Basic	$	0.57		$	0.66
Diluted	$	0.56		$	0.66

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 April 30, 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


	Six Months Ended
	April 30,					Percent
		2015			2014	Inc/(Dec)

Orders	$	1,388		$	1,481	(6	%)


Net revenue	$	1,441		$	1,414	2	%

Costs and expenses:
Cost of products and services		642			627	2	%
Research and development		192			179	7	%
Selling, general and administrative		398			390	2	%
Total costs and expenses		1,232			1,196	3	%

Income from operations		209			218	(4	%)

Interest income		1			—	—
Interest expense		(23	)		—	—
Other income (expense), net		13			2	550	%

Income before taxes		200			220	(9	%)

Provision for income taxes		34			36	(6	%)

Net income	$	166		$	184	(10	%)


Net income per share:
Basic	$	0.99		$	1.10
Diluted	$	0.97		$	1.10

Weighted average shares used in computing net income per share: ^(a)
Basic		168			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 April 30, 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


				April 30,			October 31,
					2015			2014
ASSETS

Current assets:
	Cash and cash equivalents			$	894		$	810
	Accounts receivable, net				353			357
	Receivable from Agilent				—			23
	Inventory				476			498
	Deferred tax assets				73			83
	Other current assets				131			79
		Total current assets			1,927			1,850

Property, plant and equipment, net					460			470
Goodwill					378			392
Other intangible assets, net					14			18
Long-term investments					67			63
Long-term deferred tax assets					126			163
Other assets					89			94
		Total assets		$	3,061		$	3,050

LIABILITIES AND EQUITY

Current liabilities:
	Accounts payable			$	178		$	173
	Payable to Agilent				—			125
	Employee compensation and benefits				173			167
	Deferred revenue				164			175
	Income and other taxes payable				51			72
	Other accrued liabilities				65			57
		Total current liabilities			631			769

Long-term debt					1,099			1,099
Retirement and post-retirement benefits					173			213
Long-term deferred revenue					64			69
Other long-term liabilities					58			131
		Total liabilities			2,025			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 April 30, 2015
		and 167 million shares at October 31, 2014, issued and outstanding			2			2
	Additional paid-in-capital				1,124			1,002
	Retained earnings				267			101
	Accumulated other comprehensive loss				(357	)		(336	)
		Total stockholders' equity			1,036			769
			Total liabilities and equity	$	3,061		$	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			Six Months
			Ended			Ended
			April 30,			April 30,
				2015			2015
Cash flows from operating activities:
	Net income		$	96		$	166

Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			23			46
	Share-based compensation			13			42
	Excess tax benefit from share-based plans			-			(3	)
	Deferred taxes			14			13
	Excess and obsolete inventory related charges			7			17
	Other non-cash expenses, net			2			1
	Changes in assets and liabilities:
		Accounts receivable		(41	)		(5	)
		Inventory		(8	)		(17	)
		Accounts payable		14			1
		Payment to Agilent, net		(14	)		(28	)
		Employee compensation and benefits		29			7
		Other assets and liabilities		(67	)		(80	)
Net cash provided by operating activities ^(a)				68			160

Cash flows from investing activities:
	Investments in property, plant and equipment			(16	)		(31	)
	Proceeds from sale of investment securities			—			1
Net cash used in investing activities				(16	)		(30	)

Cash flows from financing activities:
	Issuance of common stock under employee stock plans			4			8
	Excess tax benefit from share-based plans			—			3
	Return of Capital to Agilent			(49	)		(49	)
Net cash used in financing activities				(45	)		(38	)

Effect of exchange rate movements				—			(8	)

Net increase in cash and cash equivalents				7			84

Cash and cash equivalents at beginning of period				887			810

Cash and cash equivalents at end of period			$	894		$	894

	^(a) Cash payments included in operating activities:
		Income tax payments, net		(8	)		(22	)
		Interest payment		(24	)		(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										Six Months Ended
			April 30,										April 30,
			2015				2014						2015						2014
			Net Income		Diluted EPS		Net Income			Diluted EPS			Net Income			Diluted EPS			Net Income			Diluted EPS

GAAP Net income			$	96	$	0.56	$	110		$	0.66		$	166		$	0.97		$	184		$	1.10
	Non-GAAP adjustments:
		Restructuring and other related costs		-		-		-			-			-			-			(3	)		(0.02	)
		Intangible amortization		2		0.01		2			0.01			4			0.02			4			0.02
		Asset impairment		2		0.01		-			-			2			0.01			-			-
		Share Based Compensation		13		0.08		10			0.06			42			0.25			27			0.16
		Transformational initiatives		-		-		-			-			-			-			1			0.01
		Acquisition and integration costs		-		-		-			-			-			-			1			0.01
		Separation costs		5		0.03		17			0.10			12			0.07			25			0.15
		Other		1		0.01		1			0.01			-			-			1			0.01
		Adjustment for taxes ^(a)		1		-		(7	)		(0.04	)		(10	)		(0.06	)		(8	)		(0.05	)
Non-GAAP Net income			$	120	$	0.70	$	133		$	0.80		$	216		$	1.26		$	232		$	1.39

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