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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(MARK ONE) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For the quarterly period ended April 30, 2020 
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For transition period from              to        
 Commission File Number: 001-15405
 AGILENT TECHNOLOGIES, INC.
(Exact Name of registrant as specified in its charter)
 
Delaware
 
 
 
77-0518772
 
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
5301 Stevens Creek Blvd.,
Santa Clara, California 95051
(Address of principal executive offices)

Registrant’s telephone number, including area code: (800) 227-9770  

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
 
Trading Symbol
 
Name of each Exchange on which registered
Common Stock, $0.01 par value
 
 
A
 
 
 
New York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No    
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No   

As of May 22, 2020, the registrant had 308,777,396 shares of common stock, $0.01 par value per share, outstanding.



AGILENT TECHNOLOGIES, INC.
TABLE OF CONTENTS
 
 
 
 
Page
Number
 
3
 
3
 
 
3
 
 
4
 
 
5
 
 
6
 
 
7
 
 
9
 
36
 
49
 
50
 
51
 
51
 
51
 
62
 
63
 
 
64

2


PART I
— FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
2020
 
2019
 
2020
 
2019
Net revenue:
 

 
 

 
 

 
 

Products
$
923

 
$
921

 
$
1,946

 
$
1,901

Services and other
315

 
317

 
649

 
621

Total net revenue
1,238

 
1,238

 
2,595

 
2,522

Costs and expenses:
 

 
 

 
 

 
 

Cost of products
417

 
400

 
871

 
814

Cost of services and other
164

 
169

 
344

 
332

Total costs
581

 
569

 
1,215

 
1,146

Research and development
197

 
99

 
301

 
201

Selling, general and administrative
358

 
354

 
762

 
709

Total costs and expenses
1,136

 
1,022

 
2,278

 
2,056

Income from operations
102

 
216

 
317

 
466

Interest income
3

 
10

 
6

 
20

Interest expense
(20
)
 
(17
)
 
(40
)
 
(35
)
Other income (expense), net
36

 
9

 
57

 
15

Income before taxes
121

 
218

 
340

 
466

Provision (benefit) for income taxes
20

 
36

 
42

 
(220
)
Net income
$
101

 
$
182

 
$
298

 
$
686

 
 
 
 
 
 
 
 
Net income per share:
 

 
 

 
 
 
 
Basic
$
0.33

 
$
0.57

 
$
0.96

 
$
2.16

Diluted
$
0.32

 
$
0.57

 
$
0.95

 
$
2.13

 
 
 
 
 
 
 
 
Weighted average shares used in computing net income per share:
 

 
 

 
 

 
 

Basic
309

 
317

 
310

 
318

Diluted
312

 
321

 
313

 
322

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Net income
$
101

 
$
182

 
$
298

 
$
686

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments, net of tax expense (benefit) of $0, $1, $0 and $(1)
2

 
3

 
3

 
(1
)
Amounts reclassified into earnings related to derivative instruments, net of tax expense (benefit) of $0, $0, $0 and $(1)
(1
)
 

 
(1
)
 
(4
)
Foreign currency translation, net of tax expense (benefit) of $0, $0, $0 and $(9)
(29
)
 
(25
)
 
(40
)
 
13

Net defined benefit pension cost and post retirement plan costs:
 
 
 
 
 
 
 
Change in actuarial net loss, net of tax expense of $2, $2, $5 and $6
12

 
6

 
18

 
12

Change in net prior service benefit, net of tax expense (benefit) of $(1), $(1), $0 and $(1)
(1
)
 
(1
)
 
(4
)
 
(3
)
Other comprehensive income (loss)
(17
)
 
(17
)
 
(24
)
 
17

Total comprehensive income
$
84

 
$
165

 
$
274

 
$
703



The accompanying notes are an integral part of these condensed consolidated financial statements.


4


AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except par value and share amounts)
(Unaudited)
 
April 30,
2020
 
October 31,
2019
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
1,324

 
$
1,382

Accounts receivable, net
886

 
930

Inventory
750

 
679

Other current assets
211

 
198

Total current assets
3,171

 
3,189

Property, plant and equipment, net
836

 
850

Goodwill
3,582

 
3,593

Other intangible assets, net
921

 
1,107

Long-term investments
141

 
102

Other assets
804

 
611

Total assets
$
9,455

 
$
9,452

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
333

 
$
354

Employee compensation and benefits
280

 
334

Deferred revenue
399

 
336

Short-term debt
700

 
616

Other accrued liabilities
233

 
440

Total current liabilities
1,945

 
2,080

Long-term debt
1,788

 
1,791

Retirement and post-retirement benefits
340

 
360

Other long-term liabilities
614

 
473

Total liabilities
4,687

 
4,704

Commitments and contingencies (Note 14)


 


Total equity:
 

 
 

Stockholders’ equity:
 

 
 

Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding

 

Common stock; $0.01 par value; 2 billion shares authorized; 308 million shares at April 30, 2020 and 309 million shares at October 31, 2019 issued
3

 
3

Additional paid-in-capital
5,288

 
5,277

Retained earnings (accumulated deficit)
15

 
(18
)
Accumulated other comprehensive loss
(538
)
 
(514
)
Total stockholders' equity
4,768

 
4,748

Total liabilities and equity
$
9,455

 
$
9,452


 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5


AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
 
Six Months Ended
 
April 30,
 
2020
 
2019
 
 

 
 

Net income
$
298

 
$
686

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
155

 
107

Share-based compensation
44

 
40

Deferred taxes
(3
)
 
(272
)
Excess and obsolete inventory related charges
9

 
7

Unrealized gain on equity securities
(27
)
 
(1
)
Asset impairment charges
99

 

Other non-cash expense, net
3

 
3

Changes in assets and liabilities:
 

 
 

Accounts receivable
25

 
(17
)
Inventory
(85
)
 
(21
)
Accounts payable
(10
)
 
(8
)
Employee compensation and benefits
(50
)
 
(13
)
Other assets and liabilities
(204
)
 
(46
)
Net cash provided by operating activities
254

 
465

 
 
 
 
Cash flows from investing activities:
 

 
 

Investments in property, plant and equipment
(67
)
 
(78
)
Payment to acquire fair value investments
(18
)
 
(18
)
Payment in exchange for convertible note
(3
)
 
(2
)
Acquisitions of businesses and intangible assets, net of cash acquired

 
(248
)
Net cash used in investing activities
(88
)
 
(346
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Issuance of common stock under employee stock plans
32

 
33

Payment of taxes related to net share settlement of equity awards
(33
)
 
(14
)
Payment of dividends
(111
)
 
(104
)
Purchase of non-controlling interest

 
(4
)
Proceeds from revolving credit facility
798

 

Repayment of revolving credit facility
(713
)
 

Repayment of finance lease
(4
)
 

Treasury stock repurchases
(186
)
 
(125
)
Net cash used in financing activities
(217
)
 
(214
)
 
 
 
 
Effect of exchange rate movements
(8
)
 
2

 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
(59
)
 
(93
)
 
 
 
 
Cash, cash equivalents and restricted cash at beginning of period
1,388

 
2,254

Cash, cash equivalents and restricted cash at end of period
$
1,329

 
$
2,161

 
 
 
 
Supplemental cash flow information:
 
 
 
Income tax paid, net
$
286

 
$
104

Interest payments
$
39

 
$
36

Non-cash changes in investments in property, plant and equipment - increase (decrease)
$
(8
)
 
$
(23
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6


AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, except number of shares in thousands)
(Unaudited)
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
Three Months Ended April 30, 2020
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of January 31, 2020
310,048

 
$
3

 
$
5,293

 

 
$

 
$
73

 
$
(521
)
 
$
4,848

 
$

 
$
4,848

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
101

 

 
101

 

 
101

Other comprehensive loss

 

 

 

 

 

 
(17
)
 
(17
)
 

 
(17
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
84

 
 
 
84

Cash dividends declared ($0.18 per common share)

 

 

 

 

 
(55
)
 

 
(55
)
 

 
(55
)
Share-based awards issued, net of tax of $0
58

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

 
(1,663
)
 
(126
)
 

 

 
(126
)
 

 
(126
)
Retirement of treasury stock
(1,663
)
 

 
(22
)
 
1,663

 
126

 
(104
)
 

 

 

 

Share-based compensation

 

 
17

 

 

 

 

 
17

 

 
17

Balance as of April 30, 2020
308,443

 
$
3

 
$
5,288

 

 
$

 
$
15

 
$
(538
)
 
$
4,768

 
$

 
$
4,768


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
Six Months Ended April 30, 2020
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of October 31, 2019
309,071

 
$
3

 
$
5,277

 

 
$

 
$
(18
)
 
$
(514
)
 
$
4,748

 
$

 
$
4,748

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Net income

 

 

 

 

 
298

 

 
298

 

 
298

Other comprehensive loss

 

 

 

 

 

 
(24
)
 
(24
)
 

 
(24
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
274

 
 
 
274

Cash dividends declared ($0.36 per common share)             

 

 

 

 

 
(111
)
 

 
(111
)
 

 
(111
)
Share-based awards issued, net of tax of $33
1,761

 

 
(1
)
 

 

 

 

 
(1
)
 

 
(1
)
Repurchase of common stock

 

 

 
(2,389
)
 
(186
)
 

 

 
(186
)
 

 
(186
)
Retirement of treasury stock
(2,389
)
 

 
(32
)
 
2,389

 
186

 
(154
)
 

 

 

 

Share-based compensation

 

 
44

 

 

 

 

 
44

 

 
44

Balance as of April 30, 2020
308,443

 
$
3

 
$
5,288

 

 
$

 
$
15

 
$
(538
)
 
$
4,768

 
$

 
$
4,768



7


 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
Three Months Ended April 30, 2019
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of January 31, 2019
317,533

 
$
3

 
$
5,324

 

 
$

 
$
90

 
$
(381
)
 
$
5,036

 
$

 
$
5,036

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
182

 

 
182

 

 
182

Other comprehensive loss

 

 

 

 

 

 
(17
)
 
(17
)
 

 
(17
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
165

 
 
 
165

Purchase of non-controlling interest

 

 

 

 

 

 

 

 

 

Cash dividends declared ($0.164 per common share)             

 

 

 

 

 
(52
)
 

 
(52
)
 

 
(52
)
Share-based awards issued, net of tax of $1
381

 

 
10

 

 

 

 

 
10

 

 
10

Repurchase of common stock

 

 

 
(638
)
 
(50
)
 

 

 
(50
)
 

 
(50
)
Retirement of treasury stock
(629
)
 

 
(7
)
 
629

 
49

 
(42
)
 

 

 

 

Share-based compensation

 

 
16

 

 

 

 

 
16

 

 
16

Balance as of April 30, 2019
317,285

 
$
3

 
$
5,343

 
(9
)
 
$
(1
)
 
$
178

 
$
(398
)
 
$
5,125

 
$

 
$
5,125


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss
 
 
 
 
 
 
Six Months Ended April 30, 2019
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of October 31, 2018
317,715

 
$
3

 
$
5,308

 

 
$

 
$
(336
)
 
$
(408
)
 
$
4,567

 
$
4

 
$
4,571

Effects of adoption of new accounting standards
 
 
 
 
 
 
 
 
 
 
$
33

 
$
(7
)
 
$
26

 
 
 
$
26

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
686

 

 
686

 

 
686

Other comprehensive income

 

 

 

 

 

 
17

 
17

 

 
17

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
703

 
 
 
703

Purchase of non-controlling interest

 

 

 

 

 

 

 

 
(4
)
 
(4
)
Cash dividends declared ($0.328 per common share)             

 

 

 

 

 
(104
)
 

 
(104
)
 

 
(104
)
Share-based awards issued, net of tax of $14
1,327

 

 
18

 

 

 

 

 
18

 

 
18

Repurchase of common stock

 

 

 
(1,766
)
 
(125
)
 

 

 
(125
)
 

 
(125
)
Retirement of treasury stock
(1,757
)
 

 
(23
)
 
1,757

 
124

 
(101
)
 

 

 

 

Share-based compensation

 

 
40

 

 

 

 

 
40

 

 
40

Balance as of April 30, 2019
317,285

 
$
3

 
$
5,343

 
(9
)
 
$
(1
)
 
$
178

 
$
(398
)
 
$
5,125

 
$

 
$
5,125

The accompanying notes are an integral part of these condensed consolidated financial statements.

8


AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.
OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Overview. Agilent Technologies, Inc. ("we", "Agilent" or the "company"), incorporated in Delaware in May 1999, is a global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.

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 quarters.

Basis of Presentation. We have prepared the accompanying financial data for the three and six months ended April 30, 2020 and 2019 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. have been condensed or omitted pursuant to such rules and regulations. The October 31, 2019 condensed balance sheet data was derived from audited financial statements but does not include all the disclosures required in audited financial statements by U.S. GAAP. The accompanying financial data and information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended October 31, 2019.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair statement of our condensed consolidated balance sheet as of April 30, 2020 and October 31, 2019, condensed consolidated statement of comprehensive income (loss) for the three and six months ended April 30, 2020 and 2019, condensed consolidated statement of operations for the three and six months ended April 30, 2020 and 2019, condensed consolidated statement of cash flows for the six months ended April 30, 2020 and 2019 and condensed consolidated statement of equity for the three and six months ended April 30, 2020 and 2019.

Use of Estimates. The preparation of condensed consolidated financial statements in accordance with GAAP in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, retirement and post-retirement benefit plan assumptions, valuation of goodwill and purchased intangible assets and accounting for income taxes.

Risks and Uncertainties. We are subject to risks common to companies in the analytical instrument industry, such as global economic and financial market conditions, fluctuations in foreign currency exchange rates and fluctuations in customer demand, among others.

Both our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide. As a result, hospitals and testing laboratories have halted certain elective medical procedures, which had an adverse effect on our customers' business. In the latter part of our second quarter, the academia and government markets revenue was negatively affected by delays in installations due to laboratory closures in Europe and the Americas. The chemical and energy market has also been negatively impacted by the global slowdown in economic activity associated with measures put in place to slow the pandemic. The COVID-19 pandemic has caused significant volatility and uncertainty in U.S. and international markets, which could result in a prolonged economic downturn that could disrupt our business.

Variable Interest Entities. We make a determination upon entering into an arrangement whether an entity in which we have made an investment is considered a Variable Interest Entity (“VIE”). The company evaluates its investments in privately held companies on an ongoing basis. We have determined that as of April 30, 2020 and October 31, 2019, there were no VIE's required to be consolidated in the company’s consolidated financial statements because we do not have a controlling financial interest in any of the VIE’s that we have invested in nor are we the primary beneficiary. We account for these investments under either the equity method or as equity investments without determinable fair value, depending on the circumstances. We periodically reassess whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired the power to

9

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)







direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.

As of April 30, 2020 and October 31, 2019, the total carrying value of investments and loans in privately held companies considered as VIE’s was $60 million and $29 million respectively. The maximum exposure is equal to the carrying value because we do not have future funding commitments. The investments are included on the long-term investments line and the loans on the other current assets and other assets lines (depending upon tenure of loan) on the condensed consolidated balance sheet.

Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. The fair value of long-term equity investments which are readily determinable, and which are not accounted under the equity method are reported at fair value using quoted market prices for those securities when available with gains and losses included in net income. The fair value of long-term equity investments which are not readily determinable, and which are not accounted under the equity method are reported at cost with adjustments for observable changes in prices or impairments included in net income. The fair value of our senior notes, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy, exceeds the carrying value by approximately $104 million and $62 million as of April 30, 2020 and October 31, 2019, respectively. The change in the fair value over carrying value in the six months ended April 30, 2020 is primarily due to decreased market interest rates. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. See also Note 11, "Fair Value Measurements" for additional information on the fair value of financial instruments.

Restricted Cash and Restricted Cash Equivalents. Restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet follows:
 
April 30,
 
October 31
 
2020
 
2019
 
(in millions)
Cash and cash equivalents
$
1,324

 
$
1,382

Restricted cash included in other assets
5

 
6

Total cash, cash equivalents and restricted cash
$
1,329

 
$
1,388



Leases. We determine whether an arrangement is, or contains, a lease at inception. Prior to November 1, 2019, for leases where we are the lessee, we accounted for operating lease payments by charging them to expense as incurred. At the beginning of fiscal 2020, the company adopted new lease accounting guidance issued by the Financial Accounting Standards Board ("FASB"). The most significant change requires lessees to record the present value of operating lease payments as right-of-use ("ROU") and lease liabilities on the condensed consolidated balance sheet. Where we are the lessee, ROU assets represent the company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term. Classification of operating lease liabilities as either current or non-current is based on the expected timing of payments due under our obligations. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment. In order to determine the appropriate incremental borrowing rates, we have used a number of factors including the parent's credit rating, the lease term and the currency swap rate. The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. Lease expense for operating leases with an initial term of more than twelve months is recognized on a straight-line basis over the lease term as an operating expense. We have lease agreements which require payments for lease and non-lease components. We have elected to account for these payments as a single lease component.

A portion of our revenue relates to lease arrangements where Agilent is the lessor. Standalone lease arrangements are outside the scope of Accounting Standard Codification ("ASC") Topic 606, Revenue Contracts with Customers, and are therefore accounted for in accordance with ASC Topic 842, Leases. Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type capital lease using the current lease classification guidance.

10

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)








   See also Note 2, "New Accounting Pronouncements" and Note 9, "Leases" for additional information about the company’s leases.

 2. NEW ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

There were no changes to the new accounting pronouncements not yet adopted as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019 except for the following:

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. This guidance eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. The new guidance is effective for us beginning November 1, 2021, and for interim periods within that year. Early adoption is permitted. We are evaluating the impact of this guidance on our consolidated financial statements and disclosures.
In January 2020, accounting guidance was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging. The guidance clarifies the interaction between different sections of the accounting guidance that could be applicable and helps clarify which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information. This guidance is effective for us November 1, 2021, and for interim periods within that year. Early adoption is permitted. We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements and disclosures.

In March 2020, the FASB issued an update for facilitation of the effects of reference rate reform on financial reporting.  This new update provides the guidance needed to ease the process of migrating away from London Inter-bank Offered Rate ("LIBOR") and other interbank offered rates to new reference rates. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are evaluating the impact of this guidance on our consolidated financial statements and disclosures.

Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record most leases on the balance sheet as lease liabilities, initially measured at the present value of future lease payments, with a corresponding right-of-use asset. The accounting applied by a lessor is largely unchanged from that applied under the prior accounting standard.
On November 1, 2019, we adopted the new accounting guidance using the modified retrospective method, by applying the transition approach, for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning November 1, 2019 are presented under the new accounting standard, while prior period amounts have not been restated. The standard had a significant impact on the opening condensed consolidated balance sheet as of November 1, 2019, but did not have a significant impact on the condensed consolidated statement of operations or condensed consolidated statement of cash flows for the six months ended April 30, 2020 when compared to the same period in 2019. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. For leases that commenced before the effective date of the new accounting standard, we elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. We also elected to exclude leases with a term of 12 months or less in the ROU assets and lease liabilities.

11

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)







Adoption of the new guidance impacted the condensed consolidated balance sheet as follows:

 
October 31, 2019
 
Impact of Adopting
 
November 1, 2019
 
As Reported
 
Lease Guidance
 
As Adopted
 
(in millions)
Other assets
$
611

 
$
192

 
$
803

Other accrued liabilities
$
440

 
$
48

 
$
488

Other long-term liabilities
$
473

 
$
144

 
$
617



Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

3.     ACQUISITIONS

Acquisition of BioTek and ACEA

On August 23, 2019 we completed the acquisition of privately-owned Lionheart Technologies LLC ("BioTek"), a leader in the design, manufacture and distribution of innovative life science instrumentation for $1.17 billion, under the merger agreement. As a result of the acquisition, BioTek has become a wholly owned subsidiary of Agilent. Accordingly, the results of BioTek are included in Agilent's condensed consolidated financial statements from the acquisition date. The acquisition of BioTek and its portfolio is another step to expand our position in the cell analysis market.

The consideration paid was $1.17 billion. Agilent funded the acquisition using existing cash of $470 million and debt of $700 million.

The BioTek acquisition was accounted for in accordance with the authoritative accounting guidance. The acquired assets and assumed liabilities were recorded by Agilent at their estimated fair values. Agilent determined the estimated fair values with the assistance of appraisals or valuations performed by third party specialists, discounted cash flow analyses, and estimates made by management. We expect to realize revenue synergies, leverage and expand the existing sales channels and product development resources, and utilize the assembled workforce. These factors, among others, contributed to a purchase price in excess of the estimated fair value of BioTek’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 acquired was allocated to our operating segments and reporting units as a part of the purchase price allocation. All goodwill was allocated to the life sciences and applied markets reporting unit.

Agilent’s acquisition of BioTek is treated as an asset purchase for tax purposes. The tax basis of the acquired assets equals the fair market value on acquisition date.


12

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)







The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of August 23, 2019 (in millions):
Cash and cash equivalents
 
 
$
10

 
Accounts receivable
 
 
28

 
Inventories
 
 
21

 
Other current assets
 
 
2

 
Property, plant and equipment
 
 
8

 
Intangible assets
 
 
641

 
Goodwill
 
 
483

 
Total assets acquired
 
1,193
 

Accounts payable
 
 
(4
)
 
Deferred revenue
 
 
(5
)
 
Employee compensation and benefits
 
 
(7
)
 
Other accrued liabilities
 
 
(2
)
 
Long-term debt
 
 
(4
)
 
Net assets acquired
 
 
$
1,171

 


The fair value of cash and cash equivalents, accounts receivable, other current assets, accounts payable and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities.
 
The fair values for acquired intangible assets and deferred revenue were determined with the input from third party valuation specialists.
 
The fair values of certain other assets, inventory, property, plant and equipment, investments, long-term debt, and certain other long-term liabilities were determined internally using historical carrying values and estimates made by management.
 
Valuations of intangible assets acquired
 
The components of intangible assets acquired in connection with the BioTek acquisition were as follows (in millions):

 
Fair Value
 
Estimated
Useful Life
Developed product technology
 
$
387

 
 
5-13 years
Customer relationships
 
202

 
 
3-8 years
Backlog
 
5

 
 
2 months
Tradenames and trademarks
 
43

 
 
10 years
Total intangible assets subject to amortization
 
637

 
 
 
In-process research and development
 
4

 
 
 
Total intangible assets
 
$
641

 
 
 


As noted above, the intangible assets, including in-process research and development, were valued with input from valuation specialists. Agilent used variations of the income approach in determining the fair value of intangible assets acquired in the BioTek acquisition. Specifically, the developed product technology and in-process research and development were 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. The company utilized the incremental cash flow method for determining the fair value of the customer relationships acquired and the relief from royalty method to determine the fair value of the tradename. Order backlog was valued on a direct cash flow basis.

The primary in-process research and development project acquired relates to a next version of a product which was released in February 2020. The costs to complete the remaining BioTek in-process research and development is $2 million.

Acquisition and integration costs directly related to the BioTek acquisition totaled $2 million and $6 million for the three and six months ended April 30, 2020, respectively, and were recorded in selling, general and administrative expenses.

13

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)








On November 14, 2018, we acquired 100 percent of the stock of ACEA Biosciences (“ACEA”), a developer of cell analysis tools, for $250 million. The financial results of ACEA have been included in our financial results from the acquisition date.
 
The following represents the unaudited proforma operating results as if BioTek and ACEA had been included in the company's condensed consolidated statements of operations as of the beginning of fiscal 2019 (in millions, except per share amounts):

 
Three Months Ended April 30
Six Months Ended April 30
 
2019
2019
Net revenue
$
1,285

$
2,611

Net income
$
168

$
642

Net income per share — basic
$
0.53

$
2.20

Net income per share — diluted
$
0.52

$
1.99



The unaudited proforma financial information assumes that the companies were combined as of November 1, 2017 and includes business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, the impact on cost of sales due to the respective estimated fair value adjustments to inventory, changes to interest income for cash used in the acquisition, interest expense and currency losses associated with debt paid in connection with the acquisition and acquisition related transaction costs and tax related effects. The proforma 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 2018.
 
The unaudited proforma financial information for the three and six months ended April 30, 2019 combines the historical results of Agilent (which includes ACEA after the acquisition date), the first two weeks of fiscal year 2019 for ACEA, and BioTek for the three and six months ended April 30, 2019.
 
4. REVENUE


The following table presents the company’s total revenue and segment revenue disaggregated by geographical region:
 
Three Months Ended April 30
 
2020
 
2019
 
Life Sciences and Applied Markets
 
Agilent CrossLab
 
Diagnostics and Genomics
 
Total
 
Life Sciences and Applied Markets
 
Agilent CrossLab

 
Diagnostics and Genomics

 
Total
 
(in millions)
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
170

 
$
161

 
$
126

 
$
457

 
$
145

 
$
168

 
$
120

 
$
433

Europe
111

 
131

 
92

 
334

 
125

 
132

 
97

 
354

Asia Pacific
245

 
157

 
45

 
447

 
259

 
155

 
37

 
451

Total
$
526

 
$
449

 
$
263

 
$
1,238

 
$
529

 
$
455

 
$
254

 
$
1,238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
Six Months Ended April 30
 
2020
 
2019
 
Life Sciences and Applied Markets
 
Agilent CrossLab
 
Diagnostics and Genomics
 
Total
 
Life Sciences and Applied Markets
 
Agilent CrossLab
 
Diagnostics and Genomics
 
Total
 
(in millions)
Revenue by Region
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
379

 
$
328

 
$
244

 
$
951

 
$
313

 
$
324

 
$
229

 
$
866

Europe
278

 
264

 
184

 
726

 
289

 
260

 
188

 
737

Asia Pacific
507

 
327

 
84

 
918

 
534

 
313

 
72

 
919

Total
$
1,164

 
$
919

 
$
512

 
$
2,595

 
$
1,136

 
$
897

 
$
489

 
$
2,522

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


14

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)








The following table presents the company’s total revenue disaggregated by end markets and by revenue type:
 
 
Three Months Ended
 
Six Months Ended
 
April 30
 
April 30
 
2020
 
2019
 
2020
 
2019
 
(in millions)
 
 
 
 
Revenue by End Markets
 
 
 
 
 
 
 
Pharmaceutical and Biopharmaceutical
$
400

 
$
371

 
$
823

 
$
762

Chemical and Energy
267

 
300

 
579

 
608

Diagnostics and Clinical
200

 
193

 
394

 
380

Food
114

 
114

 
244

 
243

Academia and Government
115

 
114

 
256

 
230

Environmental and Forensics
142

 
146

 
299

 
299

Total
$
1,238

 
$
1,238

 
$
2,595

 
$
2,522

 
 
 
 
 
 
 
 
Revenue by Type
 
 
 
 
 
 
 
Instrumentation
$
491

 
$
491

 
$
1,084

 
$
1,058

Non-instrumentation and other
747

 
747

 
1,511

 
1,464

Total
$
1,238

 
$
1,238

 
$
2,595

 
$
2,522



Revenue by region is based on the ship to location of the customer. Revenue by end market is determined by the market indicator of the customer and by customer type. Instrumentation revenue includes sales from instruments, remarketed instruments and third-party products. Non-instrumentation and other revenue include sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.

Contract Balances

Contract Assets

Contract assets (unbilled accounts receivable) primarily relate to the company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are reclassified to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the condensed consolidated balance sheet.

The balance of contract assets as of April 30, 2020 and October 31, 2019 were $130 million and $110 million, respectively. The increase in unbilled receivables during the six months ended April 30, 2020 is a result of recognition of revenue upon the transfer of the control to the customer. In some instances, transfer of control is prior to invoicing the customers and excluding amounts transferred to trade receivables during the period amounted to $20 million.


15

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)







Contract Liabilities

The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the six months ended April 30, 2020:

 
 
Contract
Liabilities
 
 
(in millions)
 
 
 
Ending balance as of October 31, 2019
 
$
386

Net revenue deferred in the period
 
289

Revenue recognized that was included in the contract liability balance at the beginning of the period
 
(226
)
Change in deferrals from customer cash advances, net of revenue recognized
 
8

Currency translation and other adjustments
 
(5
)
Ending balance as of April 30, 2020
 
$
452


During the six months ended April 30, 2019 revenue recognized that was included in the contract liability balance at October 31, 2018 was $191 million.

Contract liabilities primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements to the customer has either partially or not occurred at the balance sheet date. This includes cash received from customers for products and related installation and services in advance of the transfer of control. Contract liabilities are classified as either current in deferred revenue or long-term in other long-term liabilities in the condensed consolidated balance sheet based on the timing of when we expect to complete our performance obligation.

Contract Costs

Incremental costs of obtaining a contract with a customer are recognized as an asset if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The change in total capitalized costs to obtain a contract was immaterial during the three and six months ended April 30, 2020 and are included in other current and long-term assets on the condensed consolidated balance sheet. We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the company's internal sales force compensation program, as we have determined that annual compensation is commensurate with annual sales activities.

Transaction Price Allocated to the Remaining Performance Obligations

We have applied the practical expedient in ASC 606-10-50-14 and have not disclosed information about transaction price allocated to remaining performance obligations that have original expected durations of one year or less.
 
The estimated revenue expected to be recognized for remaining performance obligations that have an original term of more than one year, as of April 30, 2020, was $204 million, the majority of which is expected to be recognized over the next 12 months. Remaining performance obligations primarily include extended warranty, customer manufacturing contracts, and software maintenance contracts and revenue associated with lease arrangements.

5.     SHARE-BASED COMPENSATION
 
Agilent 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, employee stock purchases made under our employee stock purchase plan and performance share awards granted to selected members of our senior management under the long-term performance plan (“LTPP”) based on estimated fair values.

Effective May 1, 2020, we adopted the Agilent Technologies, Inc. 2020 Employee Stock Purchase Plan (“ESPP”), which replaced our existing Employee Stock Purchase Plan. The ESPP allows eligible employees to contribute up to ten percent of their

16

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)







base compensation to purchase shares of our common stock at 85 percent of the closing market price at purchase date. There are 31 million shares authorized for issuance in connection with the ESPP.

Participants in the LTPP are entitled to receive shares of the company's stock after the end of a three-year period, if specified performance targets are met. Certain LTPP awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison based on the Total Stockholders’ Return (“TSR”) set at the beginning of the performance period. Effective November 1, 2015, the Compensation Committee of the Board of Directors approved another type of performance stock award for the company's executive officers and other key employees. Participants in this program are also entitled to receive shares of the company's stock after the end of a three-year period if specified performance targets over the three-year period are met. The performance target for grants made beginning 2017 and later were based on Earnings Per Share ("EPS"). The performance targets for the LTPP-EPS grants for year 2 and year 3 of the performance period are set in the first quarter of year 2 and year 3, respectively. All LTPP awards granted after November 1, 2015, are subject to a one-year post-vest holding period.

The final LTPP award may vary from 0 percent to 200 percent of the target award. We consider the dilutive impact of these programs in our diluted net income per share calculation only to the extent that the performance conditions are expected to be met. Restricted stock units generally vest, with some exceptions, at a rate of 25 percent per year over a period of 4 years from the date of grant.
 
The impact on our results for share-based compensation was as follows:
 

Three Months Ended
Six Months Ended

April 30,
April 30,
 
2020

2019
2020

2019
 
(in millions)
Cost of products and services
$
5


$
4

$
11

 
$
9

Research and development
2


2

5

 
4

Selling, general and administrative
11


10

29

 
27

Total share-based compensation expense
$
18

 
$
16

$
45