SHARE-BASED COMPENSATION

3 Months Ended

Jan. 31, 2023

Share-Based Payment Arrangement, Noncash Expense [Abstract]

3. SHARE-BASED COMPENSATION

Keysight accounts for share-based awards in accordance with the provisions of the authoritative accounting guidance, which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock units ("RSUs"), 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 (“LTP”) Program, based on estimated fair values. The impact of share-based compensation expense on our condensed consolidated statement of operations was as follows:


	Three Months Ended
	January 31,
	2023		2022
	(in millions)
Cost of products and services	$	9	$	8
Research and development	16		11
Selling, general and administrative	30		32
Total share-based compensation expense	$	55	$	51

Share-based compensation capitalized within inventory was $4 million and $3 million at January 31, 2023 and January 31, 2022, respectively.

Performance awards based on total shareholder return ("TSR") are valued using a Monte Carlo simulation model, which requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock. The valuation is done once every year in the first quarter at the time of annual grants. The estimated fair value of RSUs and the financial metrics-based performance awards (both operating margin and earnings per share) is determined based on the market price of Keysight’s common stock on the grant date. The compensation cost for financial metrics-based performance awards reflects the cost of awards that are probable to vest at the end of the performance period.

The following assumptions were used to estimate the fair value of TSR-based performance awards:


	Three Months Ended
	January 31,
		2023		2022
Volatility of Keysight shares		35	%	36	%
Volatility of S&P 500 Total Return index		25	%	23	%
Price-wise correlation with selected peers		75	%	67	%