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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