Keysight Technologies sells the instruments, software, and services engineers use to design and test electronic products and communications networks. In its third fiscal quarter, ended July 31, 2026, demand for faster AI data-center connections helped lift operating profit to $461 million, nearly twice the year-earlier amount. The larger business also generated enough cash during the first nine months to fund capital spending and share repurchases while rebuilding its cash balance. The next challenge is delivering customers’ orders as supplier commitments rise, without treating tariff refunds and tax benefits as lasting sources of earnings.
Analysis period: third quarter and first nine months of fiscal 2026. Research cutoff: October 19, 2026, New York time; the subsequent operating announcement discussed below is dated October 12.
Source: Keysight’s September 2, 2026 Form 10-Q, consolidated statements, pp. 3–7, and management discussion, pp. 31–40.
1. Commercial communications supplied most of the sales growth
Commercial communications supplied nearly three-quarters of Keysight’s quarterly revenue increase. Customers building AI systems need connections that move more information between chips, servers, and network equipment. Keysight earns revenue by helping engineers check whether those connections work, both while products are being designed and when components enter manufacturing.
The filing identifies spending on 400-gigabit, 800-gigabit, and 1.6-terabit Ethernet testing as an important driver. These numbers describe progressively faster data connections. Customers were also expanding production capacity for transceivers, the components that send and receive signals across a network. That gives Keysight opportunities at two stages: developing the next product and testing more units of products already in production.
| Consolidated revenue by end market, USD millions | Third quarter 2025 | Third quarter 2026 | Increase |
|---|---|---|---|
| Commercial communications | 644 | 1,006 | 362 |
| Aerospace, defense, and government | 296 | 339 | 43 |
| Electronic industrial | 412 | 501 | 89 |
| Total | 1,352 | 1,846 | 494 |
Source: 2026 Form 10-Q, Note 3, p. 14, and segment discussion, pp. 35–37. The first two markets together form the Communications Solutions Group, or CSG; electronic industrial is the Electronic Industrial Solutions Group, or EISG. Commercial communications contributed 362 ÷ 494 = 73.3% of the increase; it is broader than AI-related sales.
The improvement extended beyond communications. Defense revenue benefited from radar, spectrum operations, space, and satellite work. EISG grew across semiconductor, general electronics, and automotive and energy markets. Management connected that growth to advanced semiconductor capacity, circuit-board connections, vehicle software and autonomous driving, and digital health. Quarterly revenue increased in all three geographic regions: the Americas, Europe, and Asia Pacific.
Acquisitions helped, but do not explain most of the increase. Keysight attributed six percentage points of company revenue growth to acquisitions and an immaterial effect to currency movements. Spirent alone contributed $61 million of quarterly revenue. Most of the sales increase therefore extended beyond the acquisition contribution. Management points to higher sales volume and a more profitable mix, but does not give a separate dollar effect from price changes.
Source: 2026 Form 10-Q, pp. 31–37.
The longer comparison matters because testing demand has been cyclical. Third-quarter revenue fell from $1,382 million in 2023 to $1,217 million in 2024, when industrial customers restrained spending. It then recovered to $1,352 million in 2025 before reaching $1,846 million in 2026. The current level exceeds the earlier peak in this comparison, although Keysight now owns more businesses. The history shows both the strength of the present expansion and how much sales can fall when customers restrain spending.
Sources: Keysight’s August 20, 2024 results, financial tables and EISG commentary; 2026 Form 10-Q, p. 3.
Customers placed $2,091 million of orders during the quarter, compared with $1,340 million a year earlier. Orders exceeded quarterly revenue by $245 million. Across the first nine months, orders exceeded revenue by $624 million. These comparisons support management’s decision to prepare for further deliveries. They do not establish a backlog balance: orders can change or be canceled, and revenue recognition follows delivery and contractual requirements.
Sources: Keysight’s August 18, 2026 results, orders table; 2026 Form 10-Q, pp. 32 and 44–45.
2. More sales produced better margins, even after allowing for tariff refunds
The operating improvement survives removal of the disclosed tariff-refund benefit. Keysight sold more products and reported a more profitable sales mix. Its research, sales, and administrative spending also increased, but more slowly than revenue. That left a larger portion of each sales dollar as profit.
For the quarter, revenue increased by $494 million while cost of sales increased by $112 million. The resulting $382 million increase in gross profit—sales less the cost of delivering products and services—more than covered the additional $62 million spent on research and development and $92 million on selling and administration. A $1 million reduction in other operating income completes the $227 million increase in operating profit.
Quarterly research spending reached $312 million, and management attributed the increase to acquired businesses, employee costs, and continuing investment in new technologies. Higher sales allowed the company to support that spending while improving profitability.
| Consolidated results, USD millions except margins and EPS | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Revenue | 1,352 | 1,846 | 3,956 | 5,163 |
| Operating profit | 234 | 461 | 659 | 1,116 |
| Operating margin, calculated | 17.3% | 25.0% | 16.7% | 21.6% |
| Net income | 191 | 397 | 617 | 1,027 |
| Diluted earnings per share, USD | 1.10 | 2.30 | 3.56 | 5.93 |
Source: 2026 Form 10-Q, pp. 3 and 33–35. Calculated margins divide the displayed operating profit by revenue; rounding can produce a 0.1-percentage-point difference from the company’s published margins.
Nine-month results need an additional distinction. Keysight recognized recovery of previously paid tariffs and related interest, while also deciding to refund tariff surcharges collected from customers. The customer refunds reduced revenue. The government refund claims reduced costs and added interest income. The net earnings benefit was therefore much smaller than the gross recovery recorded.
| Tariff-related earnings effect, USD millions | First nine months 2026 |
|---|---|
| Reduction in revenue for customer surcharge refunds | −40 |
| Reduction in cost of sales | +93 |
| Reduction in selling and administrative expense | +4 |
| Net increase in operating profit | +57 |
| Interest income | +3 |
| Net increase in pretax profit | +60 |
| Related income-tax expense | −15 |
| Net increase in after-tax profit, calculated | +45 |
Source: 2026 Form 10-Q, Notes 1 and 5, pp. 8 and 16, and management discussion, p. 31. This is the disclosed nine-month effect, not a third-quarter adjustment. It does not remove the costs of other ongoing tariffs.
Removing those entries gives calculated nine-month operating profit of $1,059 million on revenue of $5,203 million. The resulting 20.4% margin still exceeds the comparable reported 16.7% margin in 2025. This limited adjustment tests whether tariff recoveries explain the improvement; it does not create a measure of recurring profit or remove acquisition costs.
Taxes also amplified the nine-month net-income increase. The effective tax rate was 6.0%, compared with 18.8% a year earlier. A favorable audit settlement and expired tax-assessment periods produced benefits that outweighed several tax expenses. The net benefit from these separately recognized items was $74 million. In the third quarter alone, such items instead produced $12 million of net tax expense, and the effective rate was 16.7%. The nine-month rate is therefore a poor guide to the tax burden on future operating growth.
At the same time, income outside operations weakened over the nine months. Other income fell from $98 million to $3 million, reflecting investment and derivative results, while interest income declined and interest expense increased. Higher operating profit was strong enough to overcome those setbacks. Diluted weighted-average shares rounded to 173 million in both periods, so the large EPS increase came principally from higher earnings.
Source: 2026 Form 10-Q, Notes 5–6, pp. 16–17, and pp. 33–35. Calculation notes below reconcile the tax items and net-income change.
3. Cash generation strengthened, but collecting growing sales used more cash
The business funded capital spending and repurchases while adding $732 million to cash. Operating cash flow reached $1,379 million for the first nine months, up 16.5%. That increase was slower than net-income growth because more money remained tied up in customers’ unpaid balances and other payment timing differences.
Accounts receivable—the money customers owe for recorded sales—rose from $939 million to $1,067 million. The cash-flow statement shows receivables using $138 million of cash, compared with releasing $173 million a year earlier. This $311 million swing is the largest individual explanation for why higher profit did not translate into equally fast cash growth. More of the sales already recorded remained to be collected at the period end.
Some sales had also been recognized before Keysight was scheduled to send the invoice. These unbilled amounts, called contract assets, increased from $125 million to $167 million. They are included across receivables and other assets, so they must not be added again to the receivables balance.
Customers paying ahead of delivery partly helped finance the business. Deferred revenue, the obligation to supply products or services already billed in advance, increased from $884 million to $957 million. The related cash-flow movement contributed $64 million, compared with a $12 million use of cash in the prior period. Customer payments received ahead of delivery helped offset cash still awaiting collection on other sales.
Source: 2026 Form 10-Q, consolidated balance sheet and cash flows, pp. 5–6, and Note 3, pp. 14–15.
| Cash generated and allocated, USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Operating cash flow | 1,184 | 1,379 |
| Cash investment in property, plant, and equipment | 90 | 97 |
| Free cash flow, calculated | 1,094 | 1,282 |
| Cash share repurchases, including excise-tax payments | 278 | 520 |
| Cash remaining after those two uses | 816 | 762 |
Source: 2026 Form 10-Q, p. 6. Capital spending and repurchases are shown as positive uses. Free cash flow means operating cash flow less cash purchases of property, plant, and equipment. It is before acquisitions, financial investments, and financing transactions; it is not the increase in the cash balance.
The remaining cash covered additional acquisition payments and net financial investment purchases. Employee share-plan proceeds also supplied funds. No new debt was issued during the period, unlike the $748 million raised in the comparable 2025 period. Cash, including restricted amounts, increased from $1,890 million to $2,622 million. Of the ending balance, $17 million was restricted, leaving $2,605 million of cash and cash equivalents on the balance sheet.
Cash receipts and accounting gains should also remain separate. Keysight received $37 million of tariff refunds during the quarter, but still reported $64 million of tariff-refund receivables at July 31. It paid $127 million of income taxes and $90 million of interest during the nine months, both higher than a year earlier. The full profit-to-cash calculation below captures these timing effects without counting an accounting benefit as a second cash inflow.
Source: 2026 Form 10-Q, pp. 6 and 38–39; Notes 1 and 12, pp. 8 and 24–25.
4. Expansion is moving into supplier orders and a broader engineering portfolio
Keysight is committing more resources to deliver demand already visible in orders. Non-cancellable supplier commitments rose from $450 million at October 31, 2025 to $704 million at July 31, 2026. Management explicitly linked the increase to advance purchases needed to fulfill its strong backlog. Most commitments are expected to be fulfilled within one year.
The purpose is practical: secure components and manufacturing support before customers need finished equipment. The tradeoff is that supplier obligations are firmer than customer orders that can be delayed or canceled. If demand slows, Keysight could have to pay for components before it can turn them into customer cash.
Inventory itself was nearly unchanged at $1,047 million, compared with $1,050 million. Finished goods declined while parts and assemblies increased. Charges for excess or obsolete inventory were $29 million, similar to $30 million a year earlier. Together, these figures show that the larger future purchasing obligation is more significant than any current buildup of finished products.
Management expects about $160 million of fiscal 2026 capital spending, primarily for capacity expansion and technology investment. After $97 million paid through July, that plan implies roughly $63 million in the final quarter, subject to spending timing. Net property, plant, and equipment nevertheless fell from $795 million to $735 million. Depreciation, the expense for using buildings and equipment over time, was $116 million. The asset balance also reflects noncash changes, so the clearest evidence of the investment’s purpose is management’s stated plan to expand capacity and technology.
Source: 2026 Form 10-Q, pp. 5–6 and 40; Notes 12–13, pp. 24–25. Total supplier commitments, including cancellable amounts, were $762 million versus $487 million; the $704 million and $450 million figures above use the narrower non-cancellable scope.
The acquisitions pursue a related goal: help customers solve more engineering problems with Keysight products. Spirent adds wireless-network testing, assurance, and positioning capabilities. The Optical Solutions Group acquired from Synopsys expands optical-design software. Together with PowerArtist, the software purchases broaden the tools engineers can use to develop products before manufacturing begins.
The large purchases closed in October 2025, before this analysis period began. Spirent’s total consideration was $1,564 million, the revised Optical Solutions Group consideration was $580 million, and PowerArtist cost $26 million. The Spirent transaction also required selling its high-speed Ethernet, network-security, and channel-emulation businesses to Viavi for $399 million. Keysight therefore did not retain all of Spirent’s testing operations.
Those purchases brought an ongoing cost of using acquired technology. Net intangible assets fell from $1,304 million to $1,113 million, primarily through $196 million of amortization—the accounting expense that spreads the acquired assets’ cost over their useful lives. Goodwill, representing purchase value beyond separately identified net assets, rose by $38 million to $3,462 million, principally from acquisition-accounting adjustments. Goodwill and other intangibles together represented 38.4% of total assets. Their business value depends on retaining customers and keeping the acquired technology useful.
Source: 2026 Form 10-Q, Note 2, pp. 9–13, and Note 7, pp. 17–18. No goodwill impairment was recorded; a separate canceled development project incurred a $4 million intangible-asset impairment.
Management’s segment profit measures exclude several acquisition and employee costs. Those measures show both groups improving, but their combined quarterly profit of $613 million exceeds consolidated operating profit by $152 million. The reconciliation below keeps those costs visible. Expansion is contributing revenue; the reported accounts already bear substantial costs of integrating and using the acquired businesses.
Source: 2026 Form 10-Q, Note 15, pp. 28–30.
5. The next debt payment is manageable, but cash location matters
Keysight has substantial funding capacity for the $700 million debt payment due in April 2027. July cash and cash equivalents exceeded that principal payment, and the company renewed its $750 million bank credit line through April 2031, with no borrowings outstanding. These resources provide flexibility to fund expansion and repay or refinance the maturing notes.
However, most cash was outside the United States. The company reported $560 million of cash, including restricted amounts, in the United States and $2,062 million elsewhere. Management uses internal funding arrangements and local credit facilities to put money where needed, and notes that some regulations can limit transfers. The practical task is to arrange domestic funding in advance, rather than assume all worldwide cash is immediately available in one account.
| Bonds (senior notes) outstanding at July 31, 2026 | Principal, USD millions | Contractual coupon | Maturity |
|---|---|---|---|
| 2027 notes | 700 | 4.60% | April 6, 2027 |
| 2029 notes | 500 | 3.00% | October 30, 2029 |
| 2030 notes | 750 | 5.35% | July 30, 2030 |
| 2034 notes | 600 | 4.95% | October 15, 2034 |
| Total | 2,550 | — | — |
Sources: 2026 Form 10-Q, Notes 9–10, pp. 20–23, and pp. 39–40; 2025 Form 10-K, Note 11, pp. 93–94. The 10-Q confirms the notes’ principal, rates, and maturity terms were unchanged.
The notes’ contractual interest rates, called coupons, imply about $117 million of annual interest before swaps, debt-cost amortization, and other adjustments. During fiscal 2026, Keysight entered swap agreements that exchange fixed interest for floating interest on the $600 million 2034 issue. Thus, a fixed coupon on the bond does not make the company’s entire financing cost fixed.
The balance-sheet debt amount declined from $2,534 million to $2,517 million, but principal remained $2,550 million. The decline mainly reflects accounting for the interest-rate hedge, not repayment. Similarly, the $700 million increase in current debt is a move into the “due within one year” category, not new borrowing.
The credit agreement limits adjusted debt relative to an agreement-defined earnings measure to 3.5 times, with a conditional temporary increase to 4.0 times for qualifying acquisitions. This is a lender test using specified adjustments, not a ratio calculated from this quarter’s net income. Keysight reported compliance at July 31. The renewed facility supplies a funding option beyond the next bond maturity, while continued compliance preserves access to it.
Sources: 2026 Form 10-Q, Notes 9–10; April 21, 2026 credit agreement, Section 6.04, p. 82.
Operating obligations also consume cash. Amounts owed to suppliers rose from $355 million to $424 million, leaving more purchases to be paid for after the balance-sheet date. Lease liabilities fell from $244 million to $229 million, including $53 million due within one year; nine-month lease cash payments were $50 million. The latest detailed annual schedule, dated October 31, 2025, showed $274 million of future lease payments, before the accounting adjustment for payment timing, spread across subsequent years. That older schedule is not the July liability balance.
Total liabilities declined by $70 million despite higher supplier payables and deferred revenue. Other long-term liabilities fell by $117 million. Within them, reserves for uncertain income-tax positions fell from $241 million to $194 million, chiefly reflecting the audit settlement and expired assessment periods, partly offset by new reserves. Equity—the amount left after subtracting liabilities from assets—increased by $690 million. Accumulated profit and employee share-plan entries more than offset repurchases and accounting losses recorded separately from net income.
Sources: 2026 Form 10-Q, pp. 5–7, Notes 5, 12, and 14; 2025 Form 10-K, Note 10, pp. 92–93.
Keysight’s capital return took the form of repurchases; it does not currently pay a dividend. It bought about 1.845 million shares during the nine months and issued about 0.876 million shares under employee plans. The repurchased shares remain treasury stock, meaning the company holds them rather than having retired them. Repurchases more than offset issuance in the outstanding share count, but diluted average shares still rounded to the same level as a year earlier. With $983 million of authorization remaining and purchases discretionary, management retains the ability to redirect cash toward components, investment, or the maturity.
Source: 2026 Form 10-Q, statement of equity, p. 7; Notes 6 and 14, pp. 17 and 26; dividend policy, p. 55.
6. The technology opportunity is real, and competitors are pursuing it too
Keysight’s opportunity is to make increasingly complex networks work reliably across different suppliers’ equipment. This requires more than measuring raw speed. Chips, switches, and systems must exchange data without errors disrupting the larger AI installation.
On October 12, Keysight announced planned demonstrations with Broadcom and Alibaba Cloud at the Open Compute Project summit. These included testing a method that resends data locally when a link encounters an error, using both 1.6-terabit and 400-gigabit Ethernet implementations. The business significance is the company’s involvement in validating emerging network designs alongside chip and cloud-infrastructure developers. The announcement establishes a development collaboration, not a disclosed purchase amount or completed revenue contribution.
Source: Keysight’s October 12, 2026 announcement, demonstration descriptions and partner statements.
Viavi’s results show that competitors are also gaining business from data-center expansion. In its year ended June 27, 2026, Viavi reported stronger laboratory, production, and field-product demand associated with the data-center ecosystem, while wireless spending declined. The Spirent businesses bought from Keysight contributed $145 million of Viavi revenue. That is evidence of both a broader industry opportunity and a better-equipped competitor. It is not a like-for-like market-share comparison because the companies’ periods and product portfolios differ.
Source: Viavi’s fiscal 2026 Form 10-K, management discussion, pp. 31–32 and 42.
For the quarter ending October 31, Keysight’s August 18 outlook called for revenue of $1,930 million to $1,950 million. This is management’s forecast, not an observed result. The orders and supplier commitments support its direction. Achieving it requires customers to maintain delivery schedules and Keysight to obtain components, complete testing, and recognize the resulting sales.
Source: Keysight’s August 18, 2026 results, Outlook.
Trade restrictions could interfere with that process even while technical demand remains strong. Keysight states that it suspends business with customers or suppliers when sanctions require it. Its response to tariffs includes sourcing, manufacturing, pricing, and cost actions. Asia Pacific supplied $810 million of quarterly revenue, showing the importance of the wider region. The filing does not isolate revenue affected by individual trade restrictions.
Two legal matters also affect the interpretation of earnings and risk. Keysight is pursuing a $107 million U.S. tax-refund claim tied to deductions from an earlier Singapore restructuring. A July 2, 2026 partial court ruling favored the company, but further challenges or appeals remained possible. The tax benefit had already been recognized; an ultimate loss could require reversal and materially increase tax expense and liabilities. This claim is separate from the favorable audit settlement discussed earlier.
Centripetal patent litigation has moved favorably in several proceedings, including a final outcome leaving the U.S. International Trade Commission’s no-violation determination intact. Other patent appeals remain, including a European hearing scheduled for November 2026 in the filing. Keysight does not disclose a quantified loss range for these remaining matters. Favorable decisions reduce specific threats, but unresolved cases still carry potential damages or restrictions on products.
Source: 2026 Form 10-Q, Note 13, pp. 25–26; revenue geography, p. 14; tariff response, p. 31; risk factors, pp. 42–46 and 49–50. Legal status is the status described in that filing, not an assertion that every proceeding was rechecked through the research cutoff.
7. The business is stronger; delivering and collecting the next wave of orders is the test
Keysight’s improvement rests on expanding operating profit and cash generation, with enough liquidity to support its next commitments. Faster-network testing is the main incremental sales driver, while defense and industrial demand broaden the improvement. Acquisition contributions and tariff recoveries matter, but neither explains away the stronger operating results.
The company can invest in technology, arrange components, and address its approaching debt maturity from a stronger funding position. Its larger supplier commitments make delivery discipline more important, and rising receivables make customer collections more important. Continued conversion of network orders into profitable shipments and cash would strengthen this assessment. Cancellations, component bottlenecks, or a slowdown in customers’ network investment would weaken it because Keysight has committed resources before collecting the resulting sales. Future performance should therefore be judged on those operating steps, without relying on another favorable tax settlement or tariff recovery.
Reporting basis:
This analysis uses Keysight Technologies, Inc.’s unaudited consolidated U.S. GAAP Form 10-Q for the quarter ended July 31, 2026, filed September 2, 2026, accession 0001601046-26-000036, CIK 0001601046. The accounts include wholly and majority-owned subsidiaries and eliminate significant intercompany transactions. The fiscal year ends October 31.
The quarterly comparison is May 1–July 31, 2026 against May 1–July 31, 2025. The cumulative comparison is November 1, 2025–July 31, 2026 against November 1, 2024–July 31, 2025. Balance-sheet comparisons use July 31, 2026 and October 31, 2025. Dollar amounts are U.S. dollars; tables use millions unless specified otherwise.
The research cutoff is October 19, 2026, New York time. Financial actuals end July 31; the revenue outlook is dated August 18; the selected subsequent business announcement is dated October 12.
Sources: SEC filing identity and accession; 2026 Form 10-Q, cover and Note 1, p. 8; SEC company facts. XBRL checks matched the selected accession, U.S.-dollar units, and actual start/end dates for revenue, operating profit, net income, assets, liabilities, equity, operating cash flow, and capital spending. Calendar-frame labels were not used to define the fiscal quarter.
Calculation notes:
A. Earnings comparisons and the tax effect
Growth is the current amount divided by the comparable prior amount, minus one. From the displayed USD-million amounts, quarterly revenue growth is 1,846 ÷ 1,352 − 1 = 36.5%; operating-profit growth is 461 ÷ 234 − 1 = 97.0%. Nine-month revenue growth is 30.5%, operating-profit growth is 69.3%, and net-income growth is 66.5%. Calculations from rounded statement amounts can differ from management’s rounded percentages.
The USD 410 million increase in nine-month net income comprises USD 457 million more operating profit, USD 17 million less interest income, USD 12 million more interest expense, USD 95 million less other income, and USD 77 million less tax expense: 457 − 17 − 12 − 95 + 77 = 410.
The USD 74 million net discrete tax benefit comprises USD 97 million from the audit settlement plus USD 19 million from expired assessment periods, less USD 15 million of tariff-related tax expense, USD 21 million from uncertain tax positions, and USD 6 million of other items. The tariff-related tax expense is already inside this total and must not be counted twice in a combined adjustment.
The tariff-only operating comparison restores the USD 40 million revenue reduction and removes the USD 57 million operating-profit benefit: revenue 5,163 + 40 = 5,203; operating profit 1,116 − 57 = 1,059; margin 1,059 ÷ 5,203 = 20.4%. It leaves other tariff costs and all other reported items in place.
Source: 2026 Form 10-Q, pp. 3, 16, and 31–35.
B. Why segment profit is higher than reported company profit
The following bridge starts with reported company operating profit and adds back the costs omitted from management’s segment measures. All entries are before income tax. These exclusions help explain management’s view of the segments, but employee compensation and acquired-technology expenses remain costs of running the business.
| Operating-profit reconciliation, USD millions | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Consolidated GAAP operating profit | 234 | 461 | 659 | 1,116 |
| Add back share-based compensation | 32 | 47 | 131 | 182 |
| Add back amortization of acquisition-related balances | 33 | 72 | 100 | 218 |
| Add back acquisition and integration costs | 31 | 30 | 98 | 89 |
| Add back restructuring and other costs | 8 | 3 | 32 | 19 |
| Combined management segment operating profit | 338 | 613 | 1,020 | 1,624 |
Source: 2026 Form 10-Q, Note 15, p. 30. The segment measure retains the disclosed net tariff-refund benefit. This operating-profit bridge is not the earnings-release reconciliation of non-GAAP net income, which also covers items outside operations and taxes.
C. How profit became cash
The table separates accounting expenses without current-period cash payments from changes in customer collections, inventory, supplier payments, and other balances. Positive amounts add to operating cash; negative amounts reduce it.
| Profit-to-cash reconciliation, USD millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Net income | 617 | 1,027 |
| Depreciation and amortization | 201 | 318 |
| Share-based compensation cash-flow adjustment | 129 | 181 |
| Other noncash adjustments, net | −62 | 46 |
| Receivables, inventory, and supplier payables | 181 | −92 |
| Other operating assets and liabilities | 118 | −101 |
| Operating cash flow | 1,184 | 1,379 |
For 2026, the USD 46 million of other noncash adjustments comprises deferred tax benefit −28, inventory charges +29, investment-sale gain −6, unrealized investment loss +38, and other noncash expense +13. The comparable 2025 amounts are deferred tax benefit −58, inventory charges +30, investment-sale gain zero, unrealized investment gain −39, and other noncash expense +5, totaling −62.
The 2026 USD 92 million cash use from receivables, inventory, and payables is −138 − 26 + 72; the 2025 USD 181 million cash source is +173 − 21 + 29. Other operating balances are employee benefits, deferred revenue, income taxes payable, and other assets/liabilities: −20 + 64 − 63 − 82 = −101 in 2026, versus −8 − 12 + 42 + 96 = +118 in 2025. These cash-flow movements exclude acquisition effects and need not equal simple balance-sheet changes.
Cash, including restricted cash, reconciles as follows: opening USD 1,890 million + operating inflow 1,379 − investing outflow 135 − financing outflow 515 + currency effect 3 = closing USD 2,622 million. The comparable 2025 bridge is 1,814 + 1,184 − 97 + 487 + 9 = 3,397.
The 2026 investing outflow is capital spending 97 + acquisitions and intangible purchases 33 + investment purchases 27 − investment sales 22 = USD 135 million. Financing is employee-plan proceeds 68 − employee-award tax payments 41 − repurchases and excise-tax payments 520 − acquisition-related consideration 21 − debt issuance costs 1 = a USD 515 million outflow.
Source: 2026 Form 10-Q, p. 6 and Note 12, p. 24. Free cash flow uses cash capital spending; the additional USD 18 million of property purchases included in accounts payable at July 31 is not added to the cash-spending deduction.
D. The balance sheet and owners’ equity reconcile
At July 31, USD 11,921 million of assets equals USD 5,350 million of liabilities plus USD 6,571 million of equity. At October 31, 2025, the same check is 11,301 = 5,420 + 5,881. Thus, the USD 620 million increase in assets equals a USD 70 million liability decline plus a USD 690 million equity increase.
| Equity component, USD millions | October 31, 2025 | Nine-month change | July 31, 2026 |
|---|---|---|---|
| Common share capital | 2 | 0 | 2 |
| Additional paid-in capital | 2,851 | 207 | 3,058 |
| Retained earnings | 7,075 | 1,027 | 8,102 |
| Treasury shares, deducted from equity | −3,799 | −520 | −4,319 |
| Accumulated other comprehensive loss | −248 | −24 | −272 |
| Total equity | 5,881 | 690 | 6,571 |
Additional paid-in capital records amounts contributed through share transactions beyond the shares’ nominal legal value. It increased through USD 68 million of share issuance and USD 180 million of equity-statement share compensation, less USD 41 million of employee-award tax withholding. Retained earnings, the accumulated profits kept in the company, rose by net income. The USD 24 million other comprehensive loss comprises USD 4 million from currency translation, USD 6 million from pension-related entries, and USD 14 million from derivatives, using the filing’s net amounts. Those changes are separate from net income.
Goodwill reconciles as USD 3,424 million + acquisition-related additions 40 − currency translation 2 = 3,462. Other intangible assets reconcile as 1,304 + additions 5 + currency translation 4 − amortization 196 − impairment 4 = 1,113. Transfers between unfinished and completed development assets do not change the combined total.
Annual contractual note coupons are calculated as principal multiplied by coupon: USD 700 million × 4.60% + 500 × 3.00% + 750 × 5.35% + 600 × 4.95% = USD 117.025 million. This is a full-year contractual run rate before the financing adjustments described in Section 5, not a forecast of reported interest expense or cash interest payments.
Source: 2026 Form 10-Q, pp. 5–7 and Notes 7, 9, 10, and 14, pp. 17–23 and 26–27.
This report provides business and financial information for general educational purposes. It is not investment advice or a recommendation to transact in securities.