SHARE-BASED COMPENSATION

3 Months Ended

Jan. 31, 2024

Share-Based Payment Arrangement, Noncash Expense [Abstract]

4. 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,
		2024		2023
		(in millions)
Cost of products and services		$	8	$	9
Research and development		13		16
Selling, general and administrative		29		30
Total share-based compensation expense		$	50	$	55

For the three months ended January 31, 2024, the total share based compensation includes $5 million of ESI Group acquisition-related compensation to redeem certain outstanding unvested stock awards as of the date of the acquisition that were determined to relate to post-merger service periods. See Note 2, Acquisitions, for additional details. Share-based compensation capitalized within inventory was $4 million as of January 31, 2024 and 2023.

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,
		2024		2023
Volatility of Keysight shares		29	%	35	%
Volatility of S&P 500 Total Return index		18	%	25	%
Price-wise correlation with selected peers		69	%	75	%