Keysight Technologies · 10-Q · Item 2 MD&A

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended October 31, 2025. This report contains forward-looking statements which include, but are not limited to predictions, future guidance, projections, beliefs, and expectations about the company’s trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, earnings from our foreign subsidiaries, remediation activities, new solution and service introductions, the ability of our solutions to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of government regulations on our ability to conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs and other cost saving initiatives, other regulatory approvals, the integration of our completed acquisitions and other transactions, and our transition to lower-cost regions.

The forward-looking statements involve risks and uncertainties that could cause Keysight’s results to differ materially from management’s current expectations. Such risks and uncertainties include, but are not limited to, the impact of global economic conditions such as inflation or potential recession, the impacts of increased trade tensions such as an imposition of or increase in tariffs and tightening of export control regulations, slowing demand for products or services, volatility in financial markets, reduced access to credit, changes in interest rates or currency exchange rates, the existence of political or economic instability, impacts of geopolitical tension and conflict in regions outside of the U.S., the impact of new and ongoing litigation, impacts related to net zero emissions commitments, and the impact of volatile weather caused by environmental conditions such as climate change.

Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including but not limited to those risks and uncertainties discussed in Part II Item 1A and elsewhere in this Form 10-Q. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law.

Basis of Presentation

The financial information presented in this Form 10-Q is not audited and is not necessarily indicative of our future consolidated financial position, results of operations, or cash flows. Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30, and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal quarter periods.

Overview and Executive Summary

Keysight Technologies, Inc. (“we,” “us,” “our,” “Keysight” or “the company”), incorporated in Delaware on December

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6, 2013, serves technology innovators as a mission-critical design enablement partner for the world’s most complex engineering challenges. By connecting market-leading design, emulation, and test solutions across the full lifecycle, Keysight helps engineering teams accelerate innovation, reduce risk, and bring new technologies to market on ever-shorter schedules. Customers across artificial intelligence (“AI”) infrastructure, communications, industrial automation, aerospace and defense, automotive, semiconductor, and general electronics rely on Keysight to bridge virtual design and physical reality, enabling confident decisions earlier.

We are committed to investing in research and development (“R&D”) and have focused our development efforts on strategic opportunities that align our business with available markets and position the company for growth. Our R&D investments focus on the development of first-to-market solutions with differentiated software and hardware, as well as improvements to existing software and hardware products to provide complete customer solutions addressing the evolving requirements of industries that we serve. T1We anticipate that we will continue to maintain R&D expenditures to deliver a continuous flow of innovative, high-quality customer solutions, products, and services.

Acquisition of Spirent Communications plc

T2In the fourth quarter of fiscal 2025, we acquired all of the outstanding common stock of Spirent Communications plc (“Spirent”) for $1,415 million, net of $127 million cash acquired, using existing cash. For the three and nine months ended July 31, 2026, our acquisition of Spirent resulted in incremental revenue of $61 million and $204 million, respectively. In our discussion of changes in our results of operations, we have qualitatively disclosed the impact of the Spirent acquisition.

U.S. government tariffs and IEEPA tariff refund claims and related customer surcharge refunds

Changes to U.S. tariff policy which resulted in broad-based increases in tariff rates, IEEPA tariff refund claims, and related customer surcharge refunds impacted our financial results for the three and nine months ended July 31, 2026. We continue to closely monitor and assess the potential impact of ongoing tariff actions, including the recently introduced Section 301 “forced labor” tariffs, on our results, and take steps across multiple vectors to reduce the impact. This multipronged mitigation approach spans our global manufacturing footprint and sourcing strategies, as well as pricing and cost actions.

In February 2026, the Supreme Court of the United States (“U.S. Supreme Court”) determined that certain tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”) were not authorized by law. Subsequent rulings by the U.S. Court of International Trade have directed the U.S. Customs and Border Protection to establish processes to effect refunds of certain tariffs previously collected. Based on these judicial determinations, during the nine months ended July 31, 2026, T3we recorded a receivable of $100 million within “other current assets” in the condensed consolidated balance sheet, representing recovery of tariffs previously paid and statutory interest accrued, with corresponding offsets of $93 million to “cost of sales,” $4 million to “selling, general and administrative,” and $3 million to “interest income” in the condensed consolidated statement of operations.

In addition, we recorded a $40 million liability within “other accrued liabilities” in the condensed consolidated balance sheet as a result of our decision to refund IEEPA tariff surcharges collected from our customers, with a corresponding reduction of revenue in the condensed consolidated statement of operations. During the three and nine months ended July 31, 2026, we received $37 million of refund proceeds, resulting in outstanding IEEPA tariff refund claims receivable of $64 million as of July 31, 2026. For additional information regarding the basis of accounting for tariff refund claims, see Note 1, “Overview and Summary of Significant Accounting Policies,” to the condensed consolidated financial statements. In our discussion of changes in our results of operations and segment overview, we have qualitatively disclosed the impact of the IEEPA tariff refund claims and related customer surcharge refunds.

The following table reflects the net impact of IEEPA tariff refund claims and related customer surcharge refunds on our reportable segments:

Nine Months Ended

CSG

EISG

Total

(in millions, except percentages)

increase / (decrease)

Revenue

$

$

(6)

$

Income from operations

$

$

$

Gross margin impact

Operating margin impact

For additional discussion of risks related to tariffs, trade relations, and tariff refund claims, see Part II Item 1A, Risk Factors.

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Total orders for the three and nine months ended July 31, 2026 were $2,091 million and $5,787 million, respectively, an increase of 56 percent and 48 percent, respectively, compared to the same periods last year. Foreign currency movements had an unfavorable impact of 1 percentage point and an immaterial impact, respectively, on the year-over-year change for the three and nine months ended July 31, 2026. Acquisitions had a favorable impact of 5 percentage points and 6 percentage points, respectively, on the year-over-year change for the three and nine months ended July 31, 2026. For the three and nine months ended July 31, 2026, orders increased across all regions.

Revenue for the three and nine months ended July 31, 2026 was $1,846 million and $5,163 million, respectively, an increase of 36 percent and 31 percent, respectively, compared to the same periods last year. Foreign currency movements had an immaterial impact and a favorable impact of 1 percentage point, respectively, on the year-over-year change for the three and nine months ended July 31, 2026. Acquisitions had a favorable impact of 6 percentage points and 7 percentage points, respectively, on the year-over-year change for the three and nine months ended July 31, 2026. For both periods, revenue increased in the Communications Solutions Group (“CSG”) and the Electronic Industrial Solutions Group (“EISG”).

Revenue from CSG and EISG represented 73 percent and 27 percent, respectively, of total revenue for the three months ended July 31, 2026. Revenue from CSG and EISG represented 72 percent and 28 percent, respectively, of total revenue for the nine months ended July 31, 2026.

Net income for the three and nine months ended July 31, 2026 was $397 million and $1,027 million, respectively, compared to $191 million and $617 million, respectively, for the same periods last year. The increase in net income for the three months ended July 31, 2026 was primarily driven by higher revenue and favorable mix, partially offset by incremental costs from acquired businesses, higher people-related costs, higher amortization of acquisition-related balances and higher net income tax expense. The increase in net income for the nine months ended July 31, 2026 was primarily driven by higher revenue, favorable mix, lower net income tax expense, and net IEEPA tariff refund claims, partially offset by incremental costs from acquired businesses, higher people-related costs, higher amortization of acquisition-related balances, net losses on equity investments, and the impact of ongoing tariffs.

Cash flows generated from operating activities were $1,379 million and $1,184 million, respectively, for the nine months ended July 31, 2026 and 2025. Refer to the “Financial Condition” section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.

Outlook

Our first-to-market solutions strategy enables customers to develop new technologies, accelerate innovation while providing a platform for Keysight's long-term growth. Our customers are expected to continue to make R&D investments in certain next-generation technologies and applications, including advancing 5G, early 6G, quantum computing, high-speed data center networks and infrastructure, non-terrestrial networks, AI, industrial internet of things, defense modernization, next generation electric vehicles, and autonomous vehicles. T4We continue to engage actively with our customers and closely monitor the macroeconomic environment, including tariffs, trade restrictions and tightening of export control regulations, monetary and fiscal policies, and geopolitical tensions. We remain confident in the long-term secular growth trends of our markets and our ability to outperform in a variety of market conditions.

Critical Accounting Policies and Estimates

During the nine months ended July 31, 2026, there were no material changes to the critical accounting estimates described in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025.

Adoption of New Accounting Pronouncements

See Note 1, “Overview and Summary of Significant Accounting Policies,” to the condensed consolidated financial statements for a description of new accounting pronouncements.

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Currency Exchange Rate Exposure

Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates due to our global operating, investing, and financing activities. We hedge revenues, expenses, and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short-term and anticipated basis. The results of these hedging activities are included in the condensed consolidated balance sheet and condensed consolidated statement of operations. We may experience some fluctuations within individual lines of the condensed consolidated balance sheet and condensed consolidated statement of operations because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, and monetary assets and liabilities.

Our cash flow hedging program is designed to hedge short-term currency movements based on a rolling period of up to twelve months. Therefore, we are exposed to currency fluctuations over the longer term. To the extent that we are required to pay for all, or portions, of an acquisition price in foreign currencies, we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the U.S. dollar cost of the transaction.

Results from Operations - Three and nine months ended July 31, 2026 and 2025

A summary of our results is as follows:

Three Months Ended

Nine Months Ended

Year-over-Year

Change

Three Months

Nine Months

(in millions, except percentages)

Revenue

$

$

$

$

Gross margin

%

%

%

%

4 ppts

3 ppts

Research and development

$

$

$

$

Percentage of revenue

%

%

%

%

(2) ppts

(1) ppt

Selling, general and administrative

$

$

$

$

Percentage of revenue

%

%

%

%

(2) ppts

(1) ppt

Other operating expense (income), net

$

(3)

$

(4)

$

$

Income from operations

$

$

$

$

Operating margin

%

%

%

%

8 ppts

5 ppts

Interest income

$

$

$

$

Interest expense

$

$

$

$

(7)%

Other income (expense), net

$

$

4

$

3

$

Income before taxes

$

$

$

$

Provision (benefit) for income taxes

$

$

$

$

Net income

$

$

$

$

Revenue

Revenue is recognized upon transfer of control of the promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Returns are recorded in the period received from the customer and historically have not been material.

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The following table presents the percentage change in revenue by geographic region for the three and nine months ended July 31, 2026 and the impact of foreign currency movements as compared to the same periods last year.

Year-over-Year Change

Three Months Ended

Nine Months Ended

Geographic Region

Actual

Currency Impact Favorable (Unfavorable)

Actual

Currency Impact Favorable (Unfavorable)

Americas

—

—

Europe

3 ppts

6 ppts

Asia Pacific

(2) ppts

(1) ppt

Total revenue

—

1 ppt

Refer to the “Segment Overview” section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information on changes in revenue during the three and nine months ended July 31, 2026.

Gross Margin, Operating Margin, and Income Before Taxes

Gross margin for the three months ended July 31, 2026 increased 4 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, and incremental gross margin impact from acquisitions, partially offset by higher people-related costs and higher amortization of acquisition-related balances. Gross margin for the nine months ended July 31, 2026 increased 3 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, net IEEPA tariff refund claims, and incremental gross margin impact from acquisitions, partially offset by higher amortization of acquisition-related balances, higher people-related costs, and the impact of ongoing tariffs.

R&D expense for both the three and nine months ended July 31, 2026 increased 25 percent compared to the same periods last year, primarily driven by incremental costs from acquired businesses, higher variable people-related costs, and continued investments in key growth opportunities in our end markets and leading-edge technologies.

Selling, general and administrative expense for both the three and nine months ended July 31, 2026 increased 26 percent compared to the same periods last year, primarily driven by incremental costs from acquired businesses, higher people-related costs, higher amortization of acquisition-related balances, and higher selling, marketing, and infrastructure costs, partially offset by lower acquisition and integration costs.

Other operating expense (income), net for the three and nine months ended July 31, 2026 was income of $3 million and $11 million, respectively, compared to income of $4 million and $15 million, respectively, for the same periods last year.

Operating margin for the three and nine months ended July 31, 2026 increased 8 percentage points and 5 percentage points, respectively, compared to the same periods last year, primarily due to gross margin gains and lower operating expenses as a percentage of sales.

Interest income for the three and nine months ended July 31, 2026 was $20 million and $54 million, respectively, compared to $31 million and $71 million, respectively, for the same periods last year and primarily relates to interest earned on our cash balances. Interest expense for the three and nine months ended July 31, 2026 was $26 million and $80 million, respectively, compared to $28 million and $68 million, respectively, for the same periods last year and primarily relates to interest on our senior notes.

Other income (expense), net for the three and nine months ended July 31, 2026 was income of $22 million and $3 million, respectively, compared to income of $4 million and $98 million, respectively, for the same periods last year. The increase in other income, net for the three months ended July 31, 2026 was primarily driven by lower net losses on derivative instruments and lower amortization of actuarial losses, partially offset by lower net gains on equity investments. The decrease in other income, net for the nine months ended July 31, 2026 was primarily driven by higher net losses on investments and higher net losses on derivative instruments, partially offset by lower amortization of actuarial losses.

T5As of July 31, 2026 and 2025, our headcount was approximately 16,600 and 15,500, respectively. The increase is primarily driven by acquisitions.

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Income Taxes

We calculate income taxes for interim reporting periods by applying the estimated annual effective tax rate to year-to-date results and adjusting for tax items that are discrete to each period.

The following table provides income tax details:

Three Months Ended

Nine Months Ended

(in millions, except percentages)

Income before taxes

$

$

$

$

Provision for income taxes

$

$

$

$

Effective tax rate

%

%

%

%

For the three and nine months ended July 31, 2026, we recorded income tax expense of $80 million and $66 million, respectively, resulting in an effective tax rate of 16.7 percent and 6.0 percent, respectively. For the three and nine months ended July 31, 2025, we recorded income tax expense of $50 million and $143 million, respectively, resulting in an effective tax rate of 20.8 percent and 18.8 percent, respectively. The effective tax rate is generally lower than the U.S. federal statutory rate of 21 percent primarily due to favorable tax rates on certain earnings from operations in lower tax jurisdictions, partially offset by U.S. tax on Global Intangible Low-Taxed Income (“GILTI”) inclusions and other taxes on foreign income.

For the three months ended July 31, 2026, we recorded net income tax expense of $12 million from discrete items, driven primarily by a valuation allowance recorded against the deferred tax asset related to California research tax credits now limited under state tax legislation and expense from unrecognized tax benefits. For the nine months ended July 31, 2026, we recorded net income tax benefits of $74 million from discrete items, driven by a $97 million net benefit from a favorable audit settlement and a $19 million release of reserves due to the expiration of the statute of limitations, including interest and penalties. These items were partially offset by a $15 million expense related to IEEPA tariff refund claims, $21 million expense from unrecognized tax benefits, and $6 million of other immaterial discrete items recorded for the period.

As of July 31, 2026 and October 31, 2025, our long-term income tax liabilities from unrecognized tax benefits were $194 million and $241 million, respectively. The decrease primarily reflected the release of $68 million of uncertain tax positions in connection with an audit settlement in January 2026 as well as a $12 million release of reserves due to the expiration of the statute of limitations, partially offset by current year increases.

Segment Overview

We have two reportable operating segments, CSG and EISG. The profitability of each of the segments is measured after excluding share-based compensation expense, amortization of acquisition-related balances, acquisition and integration costs, restructuring costs, interest income, interest expense, and other items.

A significant portion of the segments’ expenses arise from allocated corporate charges, expenses related to our centralized sales force, and global services, marketing, and technology functions that are provided to the segments in order to realize economies of scale and to efficiently use resources. Corporate charges include legal, accounting, real estate, insurance, information technology, treasury, and other corporate infrastructure expenses. Segment allocations are determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to, or benefits received by, the segments. Newly acquired businesses are not allocated these charges until integrated into our shared services and corporate infrastructure.

Communications Solutions Group

CSG serves customers spanning the global commercial communications and aerospace, defense, and government end markets. The group’s solutions consist of electronic design, emulation, and test software, instrumentation, systems, and related services. These solutions are used in the design, simulation, validation, manufacturing, installation, and optimization of communication systems in wireless, wireline (data center ecosystem), enterprise, and aerospace, defense, and government end markets. Our recent acquisition of Spirent adds wireless network test and assurance and positioning technology solutions to our portfolio, complementing our design, validation, and performance offerings to deliver end-to-end solutions to our customers.

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Revenue

Three Months Ended

Nine Months Ended

Year-over-Year

Change

Three Months

Nine Months

(in millions)

Total CSG revenue

$

$

$

$

Currency impact favorable (unfavorable)

—

1 ppt

Acquisition impact favorable (unfavorable)

7 ppts

8 ppts

CSG revenue for the three and nine months ended July 31, 2026 grew across all regions and in both the commercial communications and the aerospace, defense, and government end markets. The increase in revenue was primarily driven by T6demand in high-speed networks to support the growing need for AI capabilities and aerospace and defense solutions. Our customers continued their R&D spend in next-generation technologies and applications, including AI-driven data center expansion, ongoing 5G standards development and deployment, 400G/800G/1.6 terabit Ethernet, development of new communications technologies (e.g., 6G, Open Radio Access Networks, commercial non-terrestrial networks, quantum), high-speed networking, and major defense and government programs worldwide.

Our commercial communications end market revenue for the three and nine months ended July 31, 2026 increased 56 percent and 43 percent, respectively, compared to the same periods last year and represented 75 percent and 71 percent, respectively, of total CSG revenue. For both the three and nine months ended July 31, 2026, revenue grew across all regions. The year-over-year increase in revenue was primarily driven by our customers R&D spend in terabit solutions and expanding 400G/800G/1.6 terabit transceiver manufacturing capacity to meet rising demand for AI capabilities. We continued to see investments in high-speed networks due to increasing need for AI capabilities in the data center infrastructure ecosystem, which drove demand for our 400G/800G/1.6 terabit Ethernet solutions, both in R&D and manufacturing.

Our aerospace, defense, and government end market revenue for the three and nine months ended July 31, 2026 increased 14 percent and 19 percent, respectively, compared to the same periods last year and represented 25 percent and 29 percent, respectively, of total CSG revenue. For both the three and nine months ended July 31, 2026, revenue growth in the Americas and Europe was partially offset by a decline in Asia Pacific. The year-over-year increase in revenue was primarily driven by strong growth in radar and spectrum operations coupled with space and satellite solutions. We continue to see investments in defense modernization and emerging technologies.

Gross Margin and Operating Margin

Three Months Ended

Nine Months Ended

Year- over-Year

Change

Three Months

Nine Months

(in millions, except percentages)

Gross margin

%

%

%

%

4 ppts

4 ppts

Research and development

$

$

$

$

Selling, general and administrative

$

$

$

$

Other operating expense (income), net

$

(2)

$

(3)

$

(7)

$

Income from operations

$

$

$

$

Operating margin

%

%

%

%

8 ppts

5 ppts

Gross margin for the three months ended July 31, 2026 increased 4 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, and incremental gross margin impact from acquisitions, partially offset by higher people-related costs. Gross margin for the nine months ended July 31, 2026 increased 4 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, net IEEPA tariff refund claims, and incremental gross margin impact from acquisitions, partially offset by higher people-related costs and the impact of ongoing tariffs.

R&D expense for both the three and nine months ended July 31, 2026 increased 26 percent compared to the same periods last year, primarily driven by incremental costs from acquired businesses, higher variable people-related costs, and continued investments in key growth opportunities in our end markets and leading-edge technologies.

Selling, general and administrative expense for the three and nine months ended July 31, 2026 increased 31 percent and 33 percent, respectively, compared to the same periods last year, primarily driven by incremental costs from acquired businesses, higher people-related costs, and higher selling, marketing, and infrastructure costs.

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Other operating expense (income), net for the three and nine months ended July 31, 2026 was income of $2 million and $7 million, respectively, compared to income of $3 million and $11 million, respectively, for the same periods last year.

Operating margin for the three and nine months ended July 31, 2026 increased 8 percentage points and 5 percentage points, respectively, compared to the same periods last year, driven by gross margin gains and lower operating expenses as a percentage of sales.

Electronic Industrial Solutions Group

EISG serves customers across a diverse set of end markets focused on semiconductor solutions, general electronics, and automotive and energy. The group's solutions consist of electronic design, emulation, test and simulation software, instrumentation, systems, computer-aided engineering solutions, and related services. These solutions are used in the design, simulation, validation, manufacturing, installation, and optimization of electronic equipment.

Revenue

Three Months Ended

Nine Months Ended

Year-over-Year

Change

Three Months

Nine Months

(in millions)

Total EISG revenue

$

$

$

$

Currency impact favorable (unfavorable)

(1) ppt

1 ppt

Acquisition impact favorable (unfavorable)

4 ppts

5 ppts

EISG revenue for the three months ended July 31, 2026 grew across all regions. EISG revenue for the nine months ended July 31, 2026 increased in Asia Pacific and Europe, partially offset by a decline in the Americas. Revenue increased across all markets. The increase in revenue was driven by AI-driven demand for advanced semiconductor technologies and fabrication capacity, next-generation printed circuit board interconnects and capacitors, software-defined vehicles and autonomous driving, and digital health.

Gross Margin and Operating Margin

Three Months Ended

Nine Months Ended

Year-over-Year

Change

Three Months

Nine Months

(in millions, except percentages)

Gross margin

%

%

%

%

7 ppts

5 ppts

Research and development

$

$

$

$

Selling, general and administrative

$

$

$

$

Other operating expense (income), net

$

(1)

$

(2)

$

(3)

$

(5)

Income from operations

$

$

$

$

Operating margin

%

%

%

%

9 ppts

6 ppts

Gross margin for the three months ended July 31, 2026 increased 7 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, and incremental gross margin impact from acquisitions, partially offset by higher people-related costs. Gross margin for the nine months ended July 31, 2026 increased 5 percentage points compared to the same period last year, primarily driven by higher revenue volume, favorable mix, net IEEPA tariff refund claims, and incremental gross margin impact from acquisitions, partially offset by higher people-related costs and the impact of ongoing tariffs.

R&D expense for the three and nine months ended July 31, 2026 increased 16 percent and 20 percent, respectively, compared to the same periods last year, primarily driven by continued investments in key growth opportunities in our end markets and leading-edge technologies, incremental costs from acquired businesses, and higher variable people-related costs.

Selling, general and administrative expense for the three and nine months ended July 31, 2026 increased 13 percent and 15 percent, respectively, compared to the same periods last year, primarily driven by incremental costs from acquired businesses, higher people-related costs, and higher selling, marketing, and infrastructure costs.

Other operating expense (income), net for the three and nine months ended July 31, 2026 was income of $1 million and $3 million, respectively, compared to income of $2 million and $5 million, respectively, for the same periods last year.

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Operating margin for the three and nine months ended July 31, 2026 increased 9 percentage points and 6 percentage points, respectively, compared to the same periods last year, driven by gross margin gains and lower operating expenses as a percentage of sales.

Financial Condition

Liquidity and Capital Resources

Our liquidity is affected by many factors, including normal ongoing operations of our business and fluctuations due to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Under certain circumstances, U.S. and local government regulations may limit our ability to move cash balances to meet cash needs.

Overview of Cash Flows

Our key cash flow activities were as follows:

Nine Months Ended

(in millions)

Net cash provided by operating activities

$

$

Net cash used in investing activities

$

$

Net cash provided by (used in) financing activities

$

$

Operating Activities

Cash flows from operating activities can fluctuate significantly from period to period due to working capital needs, the timing of payments for income taxes, variable pay, pension funding, and other items that impact reported cash flows.

Net cash provided by operating activities increased $195 million during the nine months ended July 31, 2026 compared to the same period last year.

•Net income for the nine months ended July 31, 2026 increased by $410 million compared to the same period last year. Non-cash adjustments to net income increased by $277 million, primarily due to a $98 million increase in amortization, a $77 million increase in net unrealized losses on investments, a $52 million increase in share-based compensation expense, a $30 million decrease in deferred tax benefit, a $19 million increase in depreciation expense, and a $7 million increase in other non-cash expenses, partially offset by a $6 million gain on sale of investments.

•The aggregate change in accounts receivable, inventory, and accounts payable used net cash of $92 million during the first nine months of fiscal 2026, compared to net cash provided of $181 million in the same period last year. Cash flow generated from or used by the aggregate of accounts receivable, inventory, and accounts payable depends upon the cash conversion cycle, which represents the number of days between payments for raw materials and components and the collection of cash from customers. This cycle can be significantly impacted by the timing of shipments and purchases, as well as the timing of collections and payments in a period.

•The aggregate movements in other assets and liabilities used net cash of $101 million during the first nine months of fiscal 2026 compared to net cash provided of $118 million in the same period last year. This change was primarily driven by higher income and other tax payments, net of accruals, higher interest payments on senior notes, net of accruals, net IEEPA tariff refund claims receivable, and changes in derivative assets and liabilities, partially offset by an increase in deferred revenue, and changes in other assets and liabilities.

Investing Activities

Our investing activities primarily include investments in property, plant and equipment and acquisitions of businesses to support our strategy and growth.

Net cash used in investing activities was $135 million during the first nine months of fiscal 2026 compared to net cash used of $97 million in the same period last year. This change was primarily driven by a $30 million increase in cash used for acquisition activities, a $23 million increase in cash used for purchase of investments, and a $7 million increase in cash used for purchases of property, plant and equipment, partially offset by $22 million of proceeds from the sale of investments.

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Financing Activities

Our financing activities primarily include proceeds from issuance of common stock under employee stock plans, tax payments related to net share settlement of equity awards, issuances and repayment of debt and related costs, and treasury stock repurchases.

Net cash used in financing activities was $515 million during the first nine months of fiscal 2026 compared to net cash provided of $487 million in the same period last year. This change was primarily driven by $748 million of proceeds received in the previous year from the issuance of our 2030 Senior Notes, $242 million higher treasury stock repurchases, and a $21 million payment of acquisition-related consideration.

Treasury Stock Repurchases

On November 24, 2025, our board of directors approved a new stock repurchase program that replaced the prior program approved in March 2023. T7The new stock repurchase program authorizes the company to expend up to $1,500 million to repurchase outstanding shares of common stock of the company. As of July 31, 2026, $983 million remained available to the company for this purpose. See “Issuer Purchases of Equity Securities” in Part II Item 2 for additional information.

Debt

(in millions)

Senior Notes (par value)

$

$

Revolving Credit Facility

$

$

Senior Notes

There have been no changes to the principal, maturity, interest rates, and interest payment terms of our senior notes during the nine months ended July 31, 2026 as compared to the senior notes described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025.

Revolving Credit Facility

On April 21, 2026, we entered into a new credit agreement (the “Revolving Credit Facility”) that amended and restated our existing credit agreement dated July 30, 2021 (the “2021 Revolving Credit Facility”) in its entirety and provides for a $750 million five-year unsecured revolving credit facility that will expire on April 21, 2031. In addition, the Revolving Credit Facility permits the company, subject to certain customary conditions, on one or more occasions to request to increase the total commitments under the Revolving Credit Facility by up to $350 million in the aggregate. We are obligated to pay an annual facility fee of 0.09 percent for the Revolver Credit Facility.

Borrowings under the Revolving Credit Facility in U.S. Dollars bear interest at a rate equal to, at our option, (a) Term Benchmark Rate (primarily Secured Overnight Financing Rate or “SOFR”) plus a margin of 0.91 percent, or (b) the higher of (1) the prime rate, (2) the New York Federal Reserve Bank rate plus 0.5 percent, or (3) SOFR plus 1 percent. We may use amounts borrowed under the Revolving Credit Facility for general corporate purposes. As of July 31, 2026, we had no borrowings outstanding under the Revolving Credit Facility and were in compliance with its covenants.

See Note 10, “Debt,” for additional information.

Cash and cash requirements

Cash

(in millions)

Cash, cash equivalents and restricted cash

$

$

U.S.

$

$

Non-U.S.

$

$

Our cash and cash equivalents mainly consist of investments in institutional money market funds, short-term deposits held at major global financial institutions, and similar short duration instruments with original maturities of three months or less. We continuously monitor the creditworthiness of the financial institutions and money market fund asset managers with whom we invest our funds. We utilize a variety of funding strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. Most significant international locations have access to internal funding through an offshore cash pool for working capital needs. In addition, a few locations that are unable to access internal funding have access to temporary local overdraft and short-term working capital lines of credit.

Table of Contents

Cash requirements

We have cash requirements to support working capital needs, capital expenditures, business acquisitions, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations. We generally intend to use available cash and funds generated from our operations to meet these cash requirements. In the event that additional liquidity is required, we may also borrow under the Revolving Credit Facility and/or issue new debt.

Our total commitments to contract manufacturers and suppliers increased to $762 million as of July 31, 2026, compared to $487 million as of October 31, 2025. The increase was primarily driven by advance purchase orders placed to support fulfillment of a strong order backlog. As of July 31, 2026, we had non-cancellable purchase commitments that aggregated to approximately $704 million, of which the majority is for less than one year. See Note 13, “Commitments and Contingencies,” for additional information.

There were no other material changes to the cash requirements from our Annual Report on Form 10-K for the fiscal year ended October 31, 2025.

During the nine months ended July 31, 2026, we released $68 million of uncertain tax positions resulting from an audit settlement. We believe that we have an adequate provision for any adjustments that may result from tax examinations. However, the outcome of tax examinations cannot be predicted with certainty. Given the numerous tax years and matters that remain subject to examination in various tax jurisdictions, the ultimate resolution of current and future tax examinations could be inconsistent with management’s current expectations.

For the remainder of fiscal 2026, we do not expect to contribute to our U.S. defined benefit plans and U.S. post-retirement benefit plan, and expect to contribute $3 million to our non-U.S. defined benefit plans. The amounts we contribute depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates, and other factors. See Note 11, “Retirement Plans and Post-Retirement Benefit Plans,” for additional information.

We expect capital spending to be approximately $160 million in 2026, primarily for investments in capacity expansion and technology investments.

As of July 31, 2026, we believe our cash and cash equivalents, cash generated from operations, and our ability to access capital markets and credit lines will satisfy our cash needs for the foreseeable future both globally and domestically.