KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||
CONDENSED COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS | |||||||||||||
(In millions, except per share amounts) | |||||||||||||
(Unaudited) | |||||||||||||
PRELIMINARY | |||||||||||||
Three Months Ended |
|||||||||||||
January 31, | Percent | ||||||||||||
2015 | 2014 | Inc/(Dec) | |||||||||||
Orders | $ | 691 | $ | 699 | (1 | %) | |||||||
Net revenue | $ | 701 | $ | 671 | 4 | % | |||||||
Costs and expenses: | |||||||||||||
Cost of products and services | 318 | 299 | 6 | % | |||||||||
Research and development | 96 | 90 | 7 | % | |||||||||
Selling, general and administrative | 206 | 191 | 8 | % | |||||||||
Total costs and expenses | 620 | 580 | 7 | % | |||||||||
Income from operations | 81 | 91 | (11 | %) | |||||||||
Interest expense | (12 | ) | - | ─ | |||||||||
Other income (expense), net | 9 | 1 | 800 | % | |||||||||
Income before taxes | 78 | 92 | (15 | %) | |||||||||
Provision for income taxes | 8 | 18 | (56 | %) | |||||||||
Net income | $ | 70 | $ | 74 | (5 | %) | |||||||
Net income per share: | |||||||||||||
Basic | $ | 0.42 | $ | 0.44 | |||||||||
Diluted | $ | 0.41 | $ | 0.44 | |||||||||
Weighted average shares used in computing net income per share:(a) | |||||||||||||
Basic | 168 | 167 | |||||||||||
Diluted | 170 | 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 January 31, 2014 is calculated using the shares distributed on November 1, 2014.
The preliminary income statement is estimated based on our current information.
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KEYSIGHT TECHNOLOGIES, INC. | ||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||||||||
(In millions, except par value and share amounts) | ||||||||||||||
(Unaudited) | ||||||||||||||
PRELIMINARY | ||||||||||||||
January 31, | October 31, | |||||||||||||
2015 | 2014 | |||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 887 | $ | 810 | ||||||||||
Accounts receivable, net | 309 | 357 | ||||||||||||
Receivable from Agilent | 1 | 23 | ||||||||||||
Inventory | 491 | 498 | ||||||||||||
Deferred tax assets | 82 | 83 | ||||||||||||
Other current assets | 108 | 79 | ||||||||||||
Total current assets | 1,878 | 1,850 | ||||||||||||
Property, plant and equipment, net | 455 | 470 | ||||||||||||
Goodwill | 381 | 392 | ||||||||||||
Other intangible assets, net | 16 | 18 | ||||||||||||
Long-term investments | 59 | 63 | ||||||||||||
Long-term deferred tax assets | 135 | 163 | ||||||||||||
Other assets | 91 | 94 | ||||||||||||
Total assets | $ | 3,015 | $ | 3,050 | ||||||||||
LIABILITIES AND EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 158 | $ | 173 | ||||||||||
Payable to Agilent | 64 | 125 | ||||||||||||
Employee compensation and benefits | 146 | 167 | ||||||||||||
Deferred revenue | 176 | 175 | ||||||||||||
Income and other taxes payable | 60 | 72 | ||||||||||||
Other accrued liabilities | 82 | 57 | ||||||||||||
Total current liabilities | 686 | 769 | ||||||||||||
Long-term debt | 1,099 | 1,099 | ||||||||||||
Retirement and post-retirement benefits | 187 | 213 | ||||||||||||
Long-term deferred revenue | 66 | 69 | ||||||||||||
Other long-term liabilities | 59 | 131 | ||||||||||||
Total liabilities | 2,097 | 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; 168
million shares at January 31, 2015 |
2 | 2 | ||||||||||||
Additional paid-in-capital | 1,111 |
|
1,002 | |||||||||||
Retained earnings | 171 | 101 | ||||||||||||
Accumulated other comprehensive loss | (366 | ) | (336 | ) | ||||||||||
Total stockholders' equity | 918 | 769 | ||||||||||||
Total liabilities and equity | $ | 3,015 | $ | 3,050 | ||||||||||
The preliminary balance sheet is estimated based on our current information. | ||||||||||||||
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KEYSIGHT TECHNOLOGIES, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||
(In millions) | ||||||||
(Unaudited) | ||||||||
PRELIMINARY | ||||||||
Three Months | ||||||||
Ended | ||||||||
January 31, | ||||||||
2015 | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 70 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 23 | |||||||
Share-based compensation | 29 | |||||||
Excess tax benefit from share-based plans | (3 | ) | ||||||
Deferred taxes | (1 | ) | ||||||
Excess and obsolete inventory and inventory related charges | 10 | |||||||
Other non-cash expenses, net | (1 | ) | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable |
36 | |||||||
Inventory | (5 | ) | ||||||
Accounts payable | (13 | ) | ||||||
Payment to Agilent, net | (14 | ) | ||||||
Employee compensation and benefits | (22 | ) | ||||||
Other assets and liabilities | (17 | ) | ||||||
Net cash provided by operating activities (a) | 92 | |||||||
Cash flows from investing activities: | ||||||||
Investments in property, plant and equipment | (15 | ) | ||||||
Proceeds from sale of investment securities | 1 | |||||||
Net cash used in investing activities | (14 | ) | ||||||
Cash flows from financing activities: | ||||||||
Issuance of common stock under employee stock plans | 4 | |||||||
Excess tax benefit from share-based plans | 3 | |||||||
Net cash provided by financing activities | 7 | |||||||
Effect of exchange rate movements | (8 | ) | ||||||
Net increase in cash and cash equivalents | 77 | |||||||
Cash and cash equivalents at beginning of period | 810 | |||||||
Cash and cash equivalents at end of period | $ | 887 | ||||||
(a) Cash payments included in operating activities: | ||||||||
Restructuring payments | 1 | |||||||
Income tax payments, net | 14 | |||||||
The preliminary cash flow is estimated based on our current information. | ||||||||
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KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||||||||
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS | |||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
PRELIMINARY |
|||||||||||||||||||
Three Months Ended | |||||||||||||||||||
January 31, | |||||||||||||||||||
2015 | 2014 | ||||||||||||||||||
Net Income | Diluted EPS |
Net Income |
Diluted EPS |
||||||||||||||||
GAAP Net income | $ | 70 | $ | 0.41 | $ | 74 | $ | 0.44 | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||
Restructuring and other related costs | - | - | (3 | ) | (0.02 | ) | |||||||||||||
Intangible amortization | 2 | 0.01 | 2 | 0.01 | |||||||||||||||
Transformational initiatives | - | - | 1 | 0.01 | |||||||||||||||
Acquisition and integration costs | - | - | 1 | 0.01 | |||||||||||||||
Separation costs | 7 | 0.04 | 8 | 0.05 | |||||||||||||||
Share Based Compensation | 29 | 0.17 | 17 | 0.10 | |||||||||||||||
Other | (1 | ) | (0.01 | ) | - | - | |||||||||||||
Adjustment for taxes (a) | (11 | ) | (0.06 | ) | (1 | ) | (0.01 | ) | |||||||||||
Non-GAAP Net income | $ | 96 | $ | 0.56 | $ | 99 | $ | 0.59 |
(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 months ended January 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, acquisition and integration costs, transformational initiatives, 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 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.
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.
Transformational initiatives 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.
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.
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 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.
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KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||||
SEGMENT INFORMATION | |||||||||||||||
(In millions, except where noted) | |||||||||||||||
(Unaudited) | |||||||||||||||
PRELIMINARY | |||||||||||||||
Measurement Solutions | |||||||||||||||
Q1'15 | Q1'14 | Q4'14 | |||||||||||||
Orders | $ | 607 | $ | 607 | $ | 678 | |||||||||
Revenue | $ | 606 | $ | 574 | $ | 663 | |||||||||
Gross Margin, % | 57.6 | % | 57.8 | % | 57.6 | % | |||||||||
Income from Operations | $ | 107 | $ | 99 | $ | 144 | |||||||||
Customer Support and Services | |||||||||||||||
Q1'15 | Q1'14 | Q4'14 | |||||||||||||
Orders | $ | 84 | $ | 92 | $ | 82 | |||||||||
Revenue | $ | 95 | $ | 97 | $ | 99 | |||||||||
Gross Margin, % | 42.0 | % | 46.3 | % | 45.7 | % | |||||||||
Income from Operations | $ | 13 | $ | 19 | $ | 24 |
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, the impact of restructuring charges, transformational initiatives, 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.
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KEYSIGHT TECHNOLOGIES, INC. | |||||||||||||
RECONCILIATION OF ROIC | |||||||||||||
(In millions) | |||||||||||||
(Unaudited) | |||||||||||||
PRELIMINARY | |||||||||||||
KEYSIGHT | KEYSIGHT | KEYSIGHT | |||||||||||
Numerator: | Q1'15 | Q1'14 | Q4'14 | ||||||||||
Non-GAAP income from operations | $ | 120 | $ | 118 | $ | 168 | |||||||
Less: | |||||||||||||
Taxes and Other (income)/expense | 15 | 19 | 23 | ||||||||||
Quarterly return (a) | 105 | 99 | 145 | ||||||||||
Quarter return annualized | $ | 420 | $ | 396 | $ | 580 | |||||||
Denominator: | |||||||||||||
Segment assets (b) | $ | 1,805 | $ | 1,929 | $ | 1,976 | |||||||
Less: | |||||||||||||
Net current liabilities (c) | 462 | 508 | 498 | ||||||||||
Invested capital | $ | 1,343 | $ | 1,421 | $ | 1,478 | |||||||
Average invested capital | $ | 1,411 | $ | 1,441 | $ | 1,469 | |||||||
ROIC | 30 | % | 28 | % | 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 $96 million plus net interest expense after tax of $9 million for Q1'15, net income of $99 million plus net interest expense after tax of zero for Q1'14 and $143 million plus net interest expense after tax of $2 million for Q4'14. 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. When we complete a major acquisition, we may adjust invested capital for the relevant segment in the quarter when the acquisition occurred. We compensate for this limitation by monitoring and providing to the reader a full GAAP income statement and balance sheet.
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.
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