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ACQUISITIONS | 3 Months Ended
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Jan. 31, 2024
Business Combination and Asset Acquisition [Abstract] |
Business Combination Disclosure | 2. ACQUISITIONS On November 3, 2023, we acquired 50.6% of the share capital of ESI Group SA ("ESI Group") for $512 million, using existing cash. During January 2024, we completed the acquisition of the remaining share capital of ESI Group for $458 million, using existing cash. The company entered into put/call agreements valued at $7 million for certain ESI Group equity awards, subject to a holding period that may extend beyond the explicit vesting period, for the right to receive a cash payment equal to the public tender offer consideration of 155 euros per share. On January 26, 2024, ESI Group was delisted from Euronext Paris. For the period from November 3, 2023 to January 31, 2024, ESI Group's net revenue and net income attributable to Keysight shareholders was $68 million and $2 million, respectively. The ESI Group acquisition was accounted for in accordance with the authoritative accounting guidance. The acquired assets and assumed liabilities were recorded by Keysight at their estimated fair values. Keysight determined the estimated fair values with the assistance of valuations performed by third party specialists, discounted cash flow analysis, and estimates made by management. The acquisition of ESI Group expands our application layer portfolio with simulation capabilities that are critical to accelerate innovation in multiple end markets. These factors, among others, contributed to a purchase price in excess of the estimated fair value of ESI Group's net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction. Goodwill was assigned to the Communications Solutions Group ("CSG") and the Electronic Industrial Solutions Group ("EISG") reportable segments, based on the expected benefits and synergies that are likely to be realized from the ESI Group acquisition. We do not expect the goodwill recognized or any potential impairment charges in the future to be deductible for income tax purposes. A portion of the overall purchase price was allocated to acquired intangible assets. Amortization expense associated with acquired intangible assets is not deductible for tax purposes. Therefore, a deferred tax liability of approximately $104 million was established primarily for the future amortization of these intangibles and is included in "other long-term liabilities" in the table below. The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of November 3, 2023 (in millions):
Cash and cash equivalents | $ | 35 |
Short-term investments | 12
Accounts receivable | 28
Other current assets | 18
Property, plant and equipment | 4
Operating lease right-of-use assets | 8
Goodwill | 603
Other intangible assets | 494
Other assets | 3
Total assets acquired | 1,205 |
Accounts payable | (8) |
Employee compensation and benefits | (23) |
Deferred revenue | (14) |
Income and other taxes payable | (8) |
Operating lease liabilities | (3) |
Other accrued liabilities | (18) |
Debt | (24) |
Retirement and post-retirement benefits | (7) |
Long-term operating lease liabilities | (5) |
Other long-term liabilities | (118) |
Net assets acquired | $ | 977 |
The fair values of cash and cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, employee compensation and benefits, and deferred revenue were generally determined using historical carrying values given the short-term nature of these assets and liabilities. The fair value for intangible assets was determined with the input from third-party valuation specialists. The fair values of property, plant and equipment and certain other liabilities were determined internally using historical carrying values and estimates made by management. In connection with the acquisition and determination of the fair values of acquired assets and assumed liabilities, the company is in the process of obtaining additional information to refine its initial fair value estimates related to income taxes and intangible assets. We expect to finalize this allocation in the third quarter of fiscal year 2024. As additional information becomes available, we may revise the preliminary purchase price allocation during the remainder of the measurement period (which will not exceed 12 months from the acquisition date). Any such revisions or changes may be material. Valuation of Intangible Assets Acquired The components of intangible assets acquired in connection with the ESI Group acquisition were as follows (in millions):
| Estimated Fair Value |  | Estimated useful life
Developed technology | $ | 270 |  |  | 6 years
Customer relationships | 160 |  | 6 years
Backlog | 15 |  | 3 years
Trademarks/Tradename | 2 |  | 2 years
Total amortizable intangible assets | 447 |  |
In-process research and development | 47 |  |
Total intangible assets | $ | 494 |  |  |
As noted above, the intangible assets were valued with input from valuation specialists using the income approach, which includes the discounted cash flow, with and without, and relief from royalty methods. The in-process research and development was valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expecting to result from the projects, net of returns on contributory assets. A discount rate of 12% was used to value the research and development projects, adjusted to reflect additional risks inherent in the acquired projects. The primary in-process projects acquired relate to next generation products which will be released in the near future. Total costs to complete for all ESI Group in-process research and development were estimated at approximately $7 million as of the close date. Acquisition and integration costs directly related to the ESI Group acquisition are recorded in selling, general and administrative expenses and other income (expense), net, and were $14 million for the three months ended January 31, 2024. For the three months ended January 31, 2024, we incurred $5 million of acquisition-related compensation expense to redeem certain of ESI Group's outstanding unvested stock awards as of the date of the acquisition that were determined to relate to post-merger service periods. The following represents pro forma operating results as if ESI Group had been included in the company's consolidated statements of operations as of the beginning of fiscal 2023 (in millions, except per share amounts):
| Three Months Ended
| January 31,
| 2024 |  | 2023
Net revenue | $ | 1,259 |  |  | $ | 1,423 |
Net income | $ | 186 |  |  | $ | 250 |
Net income per share - Basic | $ | 1.07 |  |  | $ | 1.40 |
Net income per share - Diluted | $ | 1.06 |  |  | $ | 1.39 |
The unaudited pro forma financial information for the three months ended January 31, 2024 combines the historical results of Keysight and ESI Group for the three months ended January 31, 2024, assuming that the companies were combined as of November 1, 2022 and includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets and tax-related effects. The pro forma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2023.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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