UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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| For the fiscal year ended October 31, 2010 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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| For the transition period from to | ||
Commission File Number: 001-15405
Agilent Technologies, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0518772 | |
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State or other jurisdiction of
Incorporation or organization |
I.R.S. Employer
Identification No. |
Address of principal executive offices: 5301 Stevens Creek Blvd., Santa Clara, California 95051
Registrant's telephone number, including area code: (408) 553-7777
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock
par value $0.01 per share |
New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
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(Do not check if a smaller
reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The aggregate market value of the registrant's common equity held by non-affiliates as of April 30, 2010, was approximately $9.513 billion. Shares of stock held by officers, directors and 5 percent or more stockholders have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of November 30, 2010, there were 347,604,202 outstanding shares of common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
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Document Description
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10-K Part | |
| Portions of the Proxy Statement for the Annual Meeting of Stockholders (the "Proxy Statement") to be held on March 1, 2011, and to be filed pursuant to Regulation 14A within 120 days after registrant's fiscal year ended October 31, 2010 are incorporated by reference into Part III of this Report | III |
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This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings from our foreign subsidiaries, remediation activities, new product and service introductions, the ability of our products to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs, uncertainties relating to Food and Drug Administration ("FDA") and other regulatory approvals, the integration of our Varian acquisition and other transactions, our stock repurchase program, our transition to lower-cost regions, the existence, length or timing of an economic recovery that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A and elsewhere in this Form 10-K.
Overview
Agilent Technologies, Inc. ("we", "Agilent" or the "company"), incorporated in Delaware in May 1999, is the world's premier measurement company providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries.
For the fiscal year ended October 31, 2010, we have three business segments comprised of the electronic measurement business, the chemical analysis business and the life sciences business. These current business segments were formed, in the first quarter of 2010, from our then-existing businesses. At that time, the bio-analytical measurement segment which was reported in 2009 was separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009.
Our electronic measurement business addresses the communications, electronics and other industries. Our chemical analysis business focuses on the petrochemical, environmental, forensics and food safety industries. Our life sciences business focuses on the pharmaceutical, biotech, academic and government, bio-agriculture and food safety industries. In addition to our three businesses, we conduct centralized research through Agilent Technologies Laboratories ("Agilent Labs"). Each of our businesses, including Agilent Labs, is supported by our global infrastructure organization, which provides shared services in the areas of finance, information technology, legal, workplace services and human resources.
On May 14, 2010, we acquired Varian, Inc., a leading supplier of scientific instrumentation and associated consumables for life science and applied market applications, for a total cash purchase price of approximately $1.5 billion. Varian's products include analytical instruments, research products and related software, consumable products, accessories and services, as well as vacuum products and related services and accessories. The acquisition broadens Agilent's applications and
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solutions offerings in both of our chemical analysis and life sciences businesses. It expands Agilent's product portfolio into atomic and molecular spectroscopy; establishes a strong position in nuclear magnetic resonance, imaging and vacuum technologies; and strengthens our consumables portfolio. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. Varian's cash acquired at completion of the acquisition was approximately $226 million.
On May 1, 2010, we completed the sale of our Network Solutions Division ("NSD") of our electronic measurement business to JDS Uniphase Corporation. NSD included Agilent's network assurance solutions, network protocol test and drive test products. On February 2, 2010, the company sold Hycor Biomedical Inc., a subsidiary of Agilent and part of our life sciences business, to Linden LLC, a Chicago-based healthcare private equity firm. Hycor is a global manufacturer and marketer of in-vitro diagnostics products.
We sell our products primarily through direct sales, but we also utilize distributors, resellers, manufacturer's representatives, telesales and electronic commerce. Of our total net revenue of $5.44 billion for the fiscal year ended October 31, 2010, we generated 32 percent in the U.S. and 68 percent outside the U.S. As of October 31, 2010, we employed approximately 18,500 people worldwide. Our primary research and development and manufacturing sites are in California, Colorado and Delaware in the U.S. and in Australia, China, Germany, India, Italy, Japan, Malaysia, Singapore and the United Kingdom.
The net revenue, income from operations and assets by business segment, as they were structured, as of and for the fiscal year ended October 31, 2010 and for each of the past three years are shown in Note 21, "Segment Information", to our consolidated financial statements, which we incorporate by reference herein.
Electronic Measurement Business
Our electronic measurement business provides electronic measurement instruments and systems, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment, and microscopy products. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer's product lifecycle.
Our electronic measurement business employed approximately 8,000 people as of October 31, 2010. Our electronic measurement business generated $2.8 billion in revenue in fiscal 2010, $2.4 billion in revenue in fiscal 2009, and $3.6 billion in revenue in fiscal 2008.
Electronic Measurement Markets
Our electronic measurement products serve the following markets:
The Communications Test Market
We market our electronic measurement products and services to network equipment manufacturers ("NEMs"), handset manufacturers, and communications service providers, including the component manufacturers within the supply chain for these customers.
NEMs manufacture and sell products to facilitate the transmission of voice, data and video traffic. The NEMs' customers are the distributors of end-user subscriber devices, including wireless personal
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communication devices and set-top boxes, as well as communications service providers that deploy and operate the networks and services. To meet their customers' demands, NEMs require test and measurement instruments, systems and solutions for the development, production and installation of each network technology.
Communications service providers require reliable network equipment that enables new service offerings and allows their networks to operate at ever-increasing capacities. To achieve this, communications service providers require a range of sophisticated test instruments and systems to monitor and evaluate network performance and to identify any sources of communications failure.
Handset manufacturers require test and measurement products for the design, development, manufacture and repair of mobile handsets. These mobile handsets are used for voice, data and video delivery to individuals who connect wirelessly to the service provider's network. The handset manufacturers' primary customers are large and small service providers. The handset manufacturers require test and measurement products that enable technology development in conformance with the latest communications standards.
Component manufacturers design, develop and manufacture electronic components and modules used in network equipment and handsets. The component manufacturers require test and measurement products to verify that the performance of their components and modules meet the specifications of their NEM and handset customers.
The communications test market accounted for approximately 36 percent of revenue from our electronic measurement business in 2010.
The General Purpose Test Market
We market our general purpose test products and services to the electronics industry and other industries with significant electronic content such as the aerospace and defense, computer and semiconductor industries. These electronics and electronics-dependent industries design, develop and manufacture a wide range of products, including those produced in high volumes, such as computers, computer peripherals, electronic components, consumer electronics, enterprise servers, storage networks and automotive electronics. The components, printed circuit assemblies and functional devices for these products may be designed, developed and manufactured by electronic components companies, by original equipment manufacturers or by contract manufacturers.
For the development and timely commercialization of new technologies, manufacturers require state-of-the-art test instruments, systems and design software in order to design products for efficient and cost-effective manufacturing and to validate product performance in a variety of configurations and environments.
Customers use our general purpose test solutions in developing and manufacturing a wide variety of electronic components and systems. These customers' test requirements include testing the electrical parameters of digital, radio frequency, and microwave frequency components and assemblies; testing multiple parameters of the printed circuit boards used in almost every electronic device; testing of the final product; and testing of systems containing multiple electronic instruments. For semiconductor and board test applications, customers use our solutions in the design, development, manufacture, installation, deployment, and operation of semiconductor and printed circuit assembly fabrication.
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We address the biology, life sciences and material science markets by providing solutions such as the atomic force microscope, nano indenters and scanning electron microscope. For nanotechnology applications, customers use our products to study biological samples at the cellular and molecular level including imaging of DNA and proteins, and to study and research polymers, electrochemistry, and thin films.
The general purpose test market accounted for approximately 64 percent of revenue from our electronic measurement business in 2010.
Electronic Measurement Products
We divide our electronic measurement products into communications test products and general purpose test products.
Communications Test Products
We sell products and services applicable to a wide range of communications networks and systems including wireless communications and microwave networks, voice, broadband, data, and fiber optic networks. Test products include Electronic Design Automation ("EDA") software, vector and signal analyzers, signal generators, vector network analyzers, one box testers, oscilloscopes, logic and protocol analyzers, and bit-error ratio testers.
Our wireless communications and microwave network products include radio frequency and microwave test instruments and electronic design automation software tools. These products are required for the design and production of wireless network products, communications links, cellular handsets and base stations. We provide handheld products for the installation and maintenance of wireless networks. Our high-frequency electronic design automation software tools and instruments are used by radio frequency integrated circuit design engineers to model, simulate and analyze communications product designs at the circuit and system levels. Our customers are also applying this technology more frequently to model signal integrity problems in digital design applications as digital speeds continue to increase.
Our suite of fiber optic test products measure and analyze a wide variety of critical optical and electrical parameters in fiber optic networks and their components. Components which can be tested with Agilent solutions include source lasers, optical amplifiers, filters and other passive components. Test products include optical component analyzers, optical power meters, and optical spectrum analyzers.
General Purpose Test Products
We sell the following types of products into the general purpose test market: general purpose instruments, modular instruments and test software, digital test products, semiconductor and board test solutions, electronics manufacturing test equipment, atomic force microscopes and radio frequency and network surveillance solutions.
General purpose instruments are used principally by engineers in research and development laboratories, manufacturing, and calibration and service, for measuring voltage, current, frequency, signal pulse width, modulation and other complex electronics measurements. Our general purpose products include spectrum analyzers, network analyzers, signal generators, logic analyzers, digitizing oscilloscopes, voltmeters, multimeters, frequency counters, bench and system power supplies, function generators and waveform synthesizers.
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Modular instruments and test software are used by the designers and manufacturers of electronic devices as the building blocks of systems that can be configured for a wide variety of test applications, and changed as needed by a combination of modular hardware and software components. Examples include test systems for aviation systems maintenance and multi-function university labs.
Our digital test products are used by research and development engineers across a broad range of industries to validate the function and performance of their digital product and system designs. These designs include a wide range of products from simple digital control circuits to complex high speed systems such as computer servers and the latest generation gaming consoles. The test products offered include high-performance oscilloscopes, logic and serial protocol analyzers, logic-signal sources and data generators.
Our semiconductor and board test solutions enable customers to develop and test state of the art semiconductors, test and inspect printed circuit boards, perform functional testing, and measure position and distance information to the sub-nanometer level. We are one of the leading suppliers of parametric test instruments and systems used primarily to examine semiconductor wafers during the manufacturing process. Our in-circuit test system helps identify quality defects, such as faulty or incorrect parts, that affect electrical performance. Our laser interferometer measurement systems are based on precision optical technology and provide precise position or distance information for dimensional measurements.
Our atomic force microscopes ("AFM") are high-resolution imaging devices that can resolve features as small as an atomic lattice. An AFM allows researchers to observe and manipulate molecular and atomic level features. Our expanding portfolio of AFM products provides customers with reliable, easy-to-use tools for a wide range of nanotechnology applications, including semiconductor, data storage, polymers, materials science and life science studies.
Our surveillance systems and subsystems are used by defense and government engineers and technicians to detect, locate and analyze signals of interest. These signals may be transmitted via radio frequency signals or wire lines. The products offered include receivers for detecting radio frequency signals, probes for detecting wire line signals and software that enables the identification and analysis of these signals.
Electronic Measurement Customers
Agilent's electronic measurement customers include contract manufacturers of electronic products, handset manufacturers and network equipment manufacturers who design, develop, manufacture and install network equipment, service providers who implement, maintain and manage communication networks and services, and companies who design, develop, and manufacture semiconductors and semiconductor lithography systems. Our customers use our products to conduct research and development, manufacture, install and maintain radio frequency, microwave frequency, digital, semiconductor, and optical products and systems and conduct nanotechnology research. Many of our customers purchase solutions across several of our major product lines for their different business units.
We had approximately 15,000 customers for electronic measurement products in fiscal 2010 and no single customer represented greater than 4 percent of net revenue of the electronic measurement business.
The orders and revenues from many of the electronic measurement markets and product categories are seasonal, traditionally marked by lower business levels in the first quarter of the fiscal
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year and higher volumes in the fourth quarter of the fiscal year. This seasonality is particularly evident in products that we sell into the aerospace and defense industry, as well as those linked to consumer spending, which includes some of our communications test equipment. The seasonal impact of our business is tempered by the diversity of our electronic measurement products and customers, which span multiple industries.
Electronic Measurement Sales, Marketing and Support
We have a focused sales strategy, using a direct sales force, resellers, manufacturer's representatives and distributors to meet our customers' needs. Our direct sales force is focused on identifying customer needs and recommending solutions involving the effective use and deployment of our equipment, services, systems and capabilities. Some members of our direct sales force focus on global accounts, providing uniform services on a worldwide basis. Others focus on our more complex products such as our high-performance instruments, where customers require strategic consultation. Our sales force also engages with the contract manufacturer market by collaborating with original equipment manufacturers to specify our test equipment for contract manufacturer test applications, as well as marketing to contract manufacturers directly.
Our direct sales force consists of field engineers and systems engineers who have in-depth knowledge of the customers' business and technology needs. Our systems engineers provide a combination of consulting, systems integration and application and software engineering services and are instrumental in all stages of the sale, implementation and support of our complex systems and solutions.
To complement our direct sales force we have agreements with many channel partners around the world. These partners, including resellers, manufacturer's representatives, and distributors, serve Agilent's customers across a number of product lines and provide the same level of service and support expected from our direct channel. Consistent with our channel strategy, orders through partners are expanding at a faster rate than overall orders. Lower dollar transactions can also be served by our tele-sales and electronic commerce channels.
Our products typically come with standard warranties, and extended warranties are available at additional cost.
Electronic Measurement Manufacturing
We concentrate our electronic measurement manufacturing efforts primarily on final assembly and test of our products. To maximize our productivity and our ability to respond to market conditions, we use contract manufacturers for the production of printed circuit boards, sheet metal fabrication, metal die-casting, plastic molding and standard electronic components. We also manufacture proprietary devices and assemblies in our own fabrication facilities for competitive advantage. We have manufacturing facilities in Arizona, California and Colorado in the U.S. Outside of the U.S. we have manufacturing facilities in China, Germany, Japan, Malaysia and Switzerland.
We generally only manufacture products when we have received firm orders for delivery and do not generally hold large stocks of finished inventory.
Electronic Measurement Competition
The market for electronic measurement equipment is highly competitive. Our electronic measurement business competes with a number of significant competitors in all our major product categories and across our targeted industries. In the communications test market our primary
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competitors are Aeroflex Incorporated, Anritsu Corporation, Ansoft Corporation (a subsidiary of Ansys Corporation), Applied Wave Research, Inc., EXFO Electro-Optical Engineering, Inc., Rohde & Schwartz GmbH & Co. KG, Spirent plc and Tektronix, Inc. (a subsidiary of Danaher Corporation). In the general purpose test market, we compete against companies such as Aeroflex Incorporated, Bruker Corporation, Fluke Corporation (a subsidiary of Danaher Corporation), LeCroy Corporation, National Instruments Corporation, Rohde & Schwartz GmbH & Co. KG, Tektronix, Inc. (a subsidiary of Danaher Corporation), Teradyne, Inc., Test Research Inc., and Zygo Corporation.
Our electronic measurement business offers a wide range of products, and these products compete primarily on the basis of product quality and functionality, as well as performance and reliability.
Chemical Analysis Business
Our chemical analysis business provides application-focused solutions that include instruments, software, consumables and services that enable customers to identify, quantify and analyze the physical and chemical properties of substances and products. Our key product categories in chemical analysis include: gas chromatography, mass spectrometry, spectroscopy, vacuum technology, and consumables and services.
We employed approximately 4,000 people as of October 31, 2010 in our chemical analysis business. This business generated revenue of $1.2 billion in fiscal 2010, $0.8 billion in fiscal 2009 and $0.9 billion in fiscal 2008.
Chemical Analysis Markets
Within chemical analysis, we focus primarily on the following markets:
The Chemical & Energy Testing Market. The natural gas and petroleum refining markets use our products to measure and control the quality of their finished products and to verify the environmental safety of their operations. Petroleum refiners use our measurement solutions to analyze crude oil composition, perform raw material analysis, verify and improve refining processes and ensure the overall quality of gasoline, fuels, lubricants and other products. Our solutions are also used in the development, manufacturing and quality control of fine chemicals.
The Environmental Testing Market. Our instruments, software and workflow solutions are used by the environmental market for applications such as laboratory and field analysis of chemical pollutants in air, water, soil and solid waste. Environmental industry customers include all levels of government, the industrial and manufacturing sectors, engineering and consulting companies, commercial testing laboratories and colleges and universities.
The Forensics & Drug Testing Market. Drug testing and forensics laboratories use our instruments, software and workflow solutions for applications such as the analysis of evidence associated with crime, screening athletes for performance enhancing drugs, analyzing samples for recreational drugs, or with the detection and identification of biological and chemical warfare agents. This instrumentation is either used in static or mobile laboratories. Customers include local, state, federal, and international law enforcement agencies and health laboratories.
The Food Testing Market. Our instruments, software, and workflow solutions are used throughout the food production chain, including incoming inspection, new product development, quality control and assurance, and packaging. For example, our mass spectrometer portfolio, including triple quad liquid chromatography mass spectrometers, is used to analyze contaminants and residual
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pesticides in food. There is a significant food safety market involved in analyzing food for pathogen contamination, accurate verification of species type and evidence of genetically modified content. This testing is primarily done via PCR amplification of nucleic acid followed by electrophoresis, real time fluorescent or microarray detection. Additionally, bioagriculture industries seek to improve crops and foods by conducting research on these organisms, as well as testing for genetically modified content, using microarray and microfluidics solutions.
Chemical Analysis Products
A key factor in all of our chemical analysis markets is the need for new products that increase customer productivity and provide high quality data that enable decision-making by our customers. Our key product segments include:
Gas Chromatography Products
Agilent is the world's leading provider of gas chromatographs, both laboratory and portable models. A gas chromatograph ("GC") is used to separate any gas, liquid or solid that can be vaporized and then detect the molecules present to determine their identity and quantity. Agilent provides custom or standard analyzers configured for specific chemical analysis applications, such as detailed speciation of a complex hydrocarbon stream, calculation of gas calorific values in the field, or analysis of a new bio-fuel formulation. We also offer related software, accessories and consumable products for these and other similar instruments.
Mass Spectrometry Products
Mass spectrometry ("MS") is a technique for analyzing the individual chemical components of substances by ionizing them and determining their mass-to-charge ratios. Our MS products incorporate various technologies for measuring mass, including single-quadrupole, triple-quadrupole, and ion trap mass spectrometers. We combine our mass spectrometers with other instruments to create high-performance instruments such as gas chromatograph mass spectrometers ("GC/MS"), and inductively coupled plasma mass spectrometers ("ICP-MS"). We also offer related software, accessories and consumable products for these and other similar instruments.
Spectroscopy Products
Spectroscopy is a technique for analyzing the individual chemical components of substances based on the absorption or emission of electromagnetic radiation of specific wavelengths of light. Our spectroscopy instruments include atomic absorption ("AA") spectrometers, inductively coupled plasma-optical emissions spectrometers ("ICP-OES"), inductively coupled plasma-mass spectrometers ("ICP-MS"), fluorescence spectrophotometers, ultraviolet-visible ("UV-Vis") spectrophotometers, Fourier Transform infrared ("FT-IR") spectrophotometers, near-infrared ("NIR") spectrophotometers, Raman spectrometers and sample automation products. We also offer related software, accessories and consumable products for these and other similar instruments.
Vacuum Technology Products
Our vacuum technologies products are used to create, control, measure and test vacuum environments in life science, industrial and scientific applications where ultra-clean, high-vacuum environments are needed. This business was acquired in connection with our acquisition of Varian in 2010. Vacuum technologies' customers are typically OEMs that manufacture equipment for these applications. Products include a wide range of high and ultra-high vacuum pumps (diffusion, turbomolecular and ion getter), intermediate vacuum pumps (rotary vane, sorption and dry scroll), vacuum instrumentation (vacuum control instruments, sensor gauges and meters) and vacuum
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components (valves, flanges and other mechanical hardware). Its products also include helium mass spectrometry and helium-sensing leak detection instruments used to identify and measure leaks in hermetic or vacuum environments. In addition to product sales, we also offer a wide range of services including an exchange and rebuild program, assistance with the design and integration of vacuum systems, applications support and training in basic and advanced vacuum technologies.
Consumables and Services
We offer a broad range of consumable products, which support our technology platforms, including sample preparation consumables such as solid phase extraction ("SPE") and filtration products, self manufactured GC and LC columns, chemical standards, and instrument replacement parts. Consumable products also include scientific instrument parts and supplies such as filters and fittings for GC systems; xenon lamps and cuvettes for UV-Vis-NIR, fluorescence, FT-IR and Raman spectroscopy instruments; and graphite furnace tubes, hollow cathode lamps and specialized sample introduction glassware for our AA, ICP-OES and ICP-MS products. Other consumable products include on-site screening and laboratory-based kits for drugs of abuse testing ("DAT") on urine or saliva samples, such as in pre-employment screening, criminal justice and toxicology testing.
We offer a wide range of startup, operational, educational and compliance support services for our measurement and data handling systems. Our support services include maintenance, troubleshooting, repair and training for all of our chemical and bioinstrumentation analysis hardware and software products. Special service bundles have also been designed to meet the specific application needs of various industries.
Chemical Analysis Customers
We had over 23,000 customers for our chemical analysis business in 2010. No single customer represented greater than 3 percent of the net revenue of the chemical analysis business. A significant number of our chemical analysis customers are also customers of our life sciences business.
The chemical analysis business is susceptible to seasonality in its orders and revenues primarily based on U.S. government and large company budgets. The result is that our fourth fiscal quarter tends to deliver the strongest profits for this business. However, general economic trends, new product introductions and competition might overshadow this trend in any given year.
Chemical Analysis Sales, Marketing and Support
Our sales and support delivery channels are aligned by key markets. We market products to our customers through direct sales, electronic commerce, resellers, manufacturers' representatives and distributors. Additionally, we are optimizing our worldwide distribution capabilities to address high-growth opportunities such as the environmental and food safety markets in the Asia-Pacific region.
We use direct sales to market our solutions to our large- and medium-sized chemical customers and environmental accounts. Sales agents supplement direct sales by providing broader geographic coverage and coverage of smaller accounts. Our active reseller program augments our ability to provide more complete solutions to our customers. We sell our consumable products through distributors, telesales, electronic commerce and, as a result of our Varian acquisition direct sales.
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We deliver our support services to customers in a variety of ways, including on-site assistance with repair or exchange of returned products, telephone support and self-diagnostic services provided over the Internet. We also offer special industry-focused service bundles that are designed to meet the specific needs including those for hydrocarbon processing and environmental customers to keep instruments fully operational and compliant with the respective industry requirements. Our products typically come with standard warranties, and extended warranties are available for additional cost.
Chemical Analysis Manufacturing
Our manufacturing supports our diverse product range and customer-centric focus. We assemble highly configurable products to individual customer orders and make standard products to stock. We employ advanced manufacturing techniques and supply chain management systems to reduce costs and manufacturing cycle times. We selectively use third parties to provide some supply chain processes for manufacturing, warehousing and logistics. We have manufacturing facilities in California, Delaware, and Massachusetts in the U.S. Outside of the U.S., we have manufacturing facilities in Australia, China, Italy, Netherlands, Japan and the United Kingdom. We utilize just-in-time manufacturing and so typically do not maintain a high level of inventory.
Chemical Analysis Competition
The markets for analytical instruments in which we compete are characterized by evolving industry standards and intense competition. Our principal competitors in the chemical analysis arena include: Bruker Corporation, PerkinElmer Inc., Shimadzu Corporation and Thermo Fisher Scientific Inc. Agilent competes on the basis of product performance, reliability, support quality, applications expertise, global channel coverage and price.
Chemical Analysis Government Regulation
The analysis products and related consumables marketed by our chemical analysis business are subject to regulation in the U.S. by the Environmental Protection Agency ("EPA") under the Toxic Substances Control Act and by government agencies in other countries under similar laws. The Toxic Substances Control Act regulations govern, among other things, the testing, manufacture, processing and distribution of chemicals, the testing of regulated chemicals for their effects on human health and safety and import and export of chemicals. The Toxic Substances Control Act prohibits persons from manufacturing any chemical in the U.S. that has not been reviewed by EPA for its effect on health and safety, and placed on an EPA inventory of chemical substances. Therefore, we must continually adapt our chemical analysis products to changing regulations. If we fail to comply with the notification, record-keeping and other requirements in the manufacture or distribution of our products, the EPA can obtain an order from a court that would prohibit the further distribution or marketing of a product that does not comply or we could face fines, civil penalties or criminal prosecution.
Life Sciences Business
Our life sciences business provides application-focused technologies and solutions that include instruments, software, consumables and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Our key product categories include: liquid chromatography, mass spectrometry, microarrays, Polymerase Chain Reaction ("PCR") instrumentation, related bioreagents, electrophoresis, laboratory automation and robotics, software and informatics, Nuclear Magnetic Resonance ("NMR") and Magnetic Resonance Imaging ("MRI') systems, and, consumables and services.
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We employed approximately 4,300 people as of October 31, 2010 in our life sciences business. This business generated revenue of $1.5 billion in fiscal 2010, $1.2 billion in fiscal 2009 and $1.3 billion in fiscal 2008.
Life Science Markets
Our life sciences business focuses primarily on the following two markets:
The Pharma, Biotech, CRO & CMO Market. This market consists of "for-profit" companies who participate across the pharmaceutical value chain in the areas of therapeutic research, discovery & development, clinical trials, manufacturing and quality assurance and quality control. One sub-segment of this market is core and emerging pharmaceutical companies, or "Pharma". A second sub-segment includes biotechnology companies, or "biotech", contract research organizations, or "CROs", and contract manufacturing organizations, or "CMOs". Biotech companies and, to a somewhat lesser extent, CROs and CMOs typically participate in specific points in the Pharma industry value chain.
The Academic and Government Market. This market consists primarily of "not-for-profit" organizations and includes academic institutions, large government institutes and privately funded organizations. The academic and government research market plays an influential role in technology adoption and therapeutic developments for Pharma and molecular diagnostics companies. After decades of investment in basic biomedical research by government funding bodies, the focus has widened to include translational research — multidisciplinary scientific efforts directed at "accelerating therapy development". Notable are efforts by the National Institute of Health, the National Cancer Institute, the European Organisation for Research and the Treatment of Cancer (EORTC), the European Molecular Biology Laboratory (EMBL), the Genomics Institute of Singapore (GIS), the Wellcome Trust Sanger Institute, and the National Translational Cancer Research Network (NTRAC). In addition, large donations by private foundations are also fueling growth in this key market segment.
Life Science Measurement Products and Applications
A key factor in all of our life science measurement target markets is the need for new products that increase customer productivity and provide high quality data that enable decision-making by our customers. Our key product segments include:
Liquid Chromatography Products
A liquid chromatograph ("LC") or a high performance liquid chromatograph ("HPLC") is used to separate molecules of a liquid mixture to determine the quantity and identity of the molecules present. The Agilent LC portfolio is modular in construction and can be configured as analytical and preparative systems. These systems can be stepwise upgraded to highly sophisticated, automated workflow solutions such as method development, multi-method/walk-up, high-capacity/high-throughput or multi-dimensional LC and can be extended to application-based analyzers e.g. for bio-molecular separations, chiral analysis or size exclusion chromatograhy. As a leader in liquid chromatography, we continue to expand our application space with new HPLC columns, new services and diagnostics offerings and ongoing instrument and software product enhancements.
Mass Spectrometry Products
A mass spectrometer ("MS") identifies and quantifies chemicals based on a chemical's molecular mass and characteristic patterns of fragment ion masses that result when a molecule is broken apart. Liquid chromatography ("LC") is commonly used to separate compounds and introduce them to the
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MS system. The combined use of LC and MS ("LC/MS") is frequently used both to identify and quantify chemical compounds. Mass spectrometry is an important tool in analyzing small molecules and can also be used to characterize and quantify proteins and other biological entities. Agilent's LC/MS portfolio includes instruments built around five main analyzer types — single quadrupole, triple quadrupole, ion trap, time-of-flight ("TOF") and quadrupole time-of-flight ("QTOF"). We significantly expanded our mass spectrometry portfolio over the past three years with a focus on improving performance, reliability, and ease of use.
Microarray Products
Agilent is a leading provider of microarray-based, genomics research solutions. Our end-to-end solution includes reagents for sample preparation and microarray processing; hardware for sample QC and high-throughput microarray scanning; 60-mer oligo microarrays on industry-standard 1" × 3" glass slides for gene expression; comparative genomic hybridization ("CGH")/Copy Number variation ("CNV") analysis, microRNA, methylation, splice variants, and chromatin immunoprecipitation applications; custom microarray design services; and GeneSpring software products for data analysis. We also provide target enrichment products for next-generation sequencing platforms. In 2010, we released SureSelect™ XT Target Enrichment System, the first fully customizable liquid genome partitioning / enrichment sample prep system that enhances and accelerates nucleic acid sequencing experiment when used in front of "next generation" sequencing technologies.
PCR Instrumentation
The acquisition of Stratagene Corporation during fiscal 2007 provided an expansion of our life science tools offering with the addition of tools and instrumentation for implementing PCR. PCR is used by scientists studying genetics to amplify or replicate a small amount of DNA to enable further analysis of the genes. Our portfolio of PCR instrumentation, reagents and kits, coupled with our other products such as microarrays and target enrichment systems for next-generation sequencing, provides a broad set of workflow solutions to customers in the genomics marketplace.
Bioreagents
Bioreagents are the primary tools used by scientists in the life science market to interrogate cells, genes and proteins. These bioreagent products are used to conduct a variety of experiments necessary to understand both the form and function of biological entities. The acquisition of Stratagene Corporation provided an expansion of our Life Science tools offering with the addition of a portfolio of reagent products for Nucleic Acid Amplification (PCR) and quantitative real-time PCR (QPCR), Cloning, Mutagenesis, Cell Biology and other key life science applications. These reagent tools enable us to create a broad set of complete workflow solutions to meet customer needs across our life science markets.
Lab Automation and Robotics
The acquisition of Velocity11 during fiscal 2008 enabled us to offer a more comprehensive suite of workflow solutions to our life science customers with the addition of automated liquid handling and robotics that range from standalone instrumentation to bench-top automation solutions to large, multi-armed robotic systems. These solutions strengthened our offering of automated sample- preparation solutions across a broad range of applications. In fiscal 2009 we continued with our focus on automating laboratory processes by introducing the new Direct Drive Robot and VWorks Automation Control Software. The Direct Drive Robot advances high-throughput screening for drug-discovery research and can also be used in genomics applications, including DNA extraction and PCR sample preparation.
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Electrophoresis Products
Electrophoresis is used in many scientific and applied disciplines, such as food identification or protein quality control, to separate, quantify, enrich and purify biomolecules which differ in their electrical charge or polarity. Agilent is a world leading supplier of innovative electrophoretic separation solutions. The 2100 Bioanalyzer analyzes biomolecules or cells in microfluidic networks of channels and wells etched into glass chips. The 3100 OFFGEL Fractionator resolves proteins or peptides by isoelectric point with liquid-phase recovery.
Software and Informatics Products
We provide software for instrument control, data acquisition, data analysis, laboratory content and business process management, and informatics. Our software facilitates the regulatory-compliant use of instruments in pharmaceutical quality assurance/quality control environments. With OpenLab, Agilent has introduced a scalable, open architecture, that enables you to easily capture, analyze, and share scientific data throughout the lab and across the enterprise.
NMR and MRI systems
With the acquisition of Varian in 2010, Agilent has enriched its portfolio with NMR (Nuclear Magnetic Resonance), spectrometers, Magnetic Resonance Imaging (MRI) systems and X-ray diffractometers used in a variety of industries including academic and not-for-profit research, life sciences (pharma and biotech), and industrial companies. All of these technologies are utilized for basic and applied research, and NMR is also used in process development and manufacturing QA/QC.
Consumables and Services
We also offer a broad range of consumable products, which support our LC, and MS technology platforms. These consumable products include sample preparation products; self manufactured LC columns, instrument replacement parts, and consumable supplies to meet our customers' analysis needs. All of our products are designed to Agilent's specifications to improve and maximize the performance of our instruments.
We offer a wide range of startup, operational, educational and compliance support services for our measurement and data handling systems. Our support services include maintenance, troubleshooting, repair and training for all of our chemical and bioinstrumentation analysis hardware and software products. Special service bundles have also been designed to meet the specific application needs of various industries.
Life Sciences Customers
We had over 25,000 customers for our life sciences business in 2010. No single customer represented greater than 2 percent of the net revenue of the life sciences business. A significant number of our life sciences customers are also customers of our chemical analysis business.
The life sciences business is susceptible to seasonality in its orders and revenues primarily based on U.S. government and large pharmaceutical company budgets. The result is that our first and fourth fiscal quarters tend to deliver the strongest profits for this group. However, general economic trends, new product introductions and competition might overshadow this trend in any given year.
Life Sciences Sales, Marketing and Support
The life science channel focuses on the therapeutics customer base (Pharma, biotech, CRO, CMO and Generics and on emerging life sciences opportunities in academic and government life science
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research institutes. We market products to our customers through direct sales, electronic commerce, resellers, manufacturers' representatives and distributors. We use direct sales to market our solutions to all of our pharmaceutical and biopharmaceutical accounts. Sales agents supplement direct sales by providing broader geographic coverage and coverage of smaller accounts. Our active reseller program augments our ability to provide more complete solutions to our customers. We sell our consumable products through distributors, telesales, electronic commerce and direct sales.
We deliver our support services to customers in a variety of ways, including on-site assistance with repair or exchange of returned products, telephone support and self-diagnostic services provided over the Internet. We also offer special industry-focused service bundles that are designed to meet the specific needs of hydrocarbon processing, environmental, pharmaceutical and biopharmaceutical customers to keep instruments fully operational and compliant with the respective industry requirements. Our products typically come with standard warranties, and extended warranties are available for additional cost.
Life Sciences Manufacturing
Our manufacturing supports our diverse product range and customer-centric focus. We assemble highly configurable products to individual customer orders and make standard products to stock. We employ advanced manufacturing techniques and supply chain management systems to reduce costs and manufacturing cycle times. We selectively use third parties to provide some supply chain processes for manufacturing, warehousing and logistics. We have manufacturing facilities in California, Colorado, Texas and Delaware in the U.S. Outside of the U.S., we have manufacturing facilities in Australia, Germany, UK, Poland and Singapore. We utilize just-in-time manufacturing and so typically do not maintain a high level of inventory.
Life Sciences Competition
The markets for analytical instruments in which we compete are characterized by evolving industry standards and intense competition. Our principal competitors in the life sciences arena include: Affymetrix Inc., Bruker Corp., Danaher Corporation, Illumina, Inc., Life Technologies Corp., Thermo Fisher Scientific Inc. and Waters Corp. Agilent competes on the basis of product performance, reliability, support quality, applications expertise, global channel coverage and price.
Life Sciences Government Regulation
The analysis products and related consumables marketed by our life sciences business are subject to regulation in the U.S. by the Environmental Protection Agency ("EPA") under the Toxic Substances Control Act and by government agencies in other countries under similar laws. The Toxic Substances Control Act regulations govern, among other things, the testing, manufacture, processing and distribution of chemicals, the testing of regulated chemicals for their effects on human health and safety and import and export of chemicals. The Toxic Substances Control Act prohibits persons from manufacturing any chemical in the U.S. that has not been reviewed by EPA for its effect on health and safety, and placed on an EPA inventory of chemical substances. Therefore, we must continually adapt our chemical analysis products to changing regulations. If we fail to comply with the notification, record-keeping and other requirements in the manufacture or distribution of our products, the EPA can obtain an order from a court that would prohibit the further distribution or marketing of a product that does not comply or we could face fines, civil penalties or criminal prosecution.
Agilent Technologies Research Laboratories
Agilent Research Laboratories is our central research organization based in Santa Clara, California, with satellite offices in Beijing, China; Leuven, Belgium, and South Queensferry, Scotland.
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The Research Laboratories create competitive advantage through high-impact technology, driving market leadership and growth in Agilent's core businesses and expanding Agilent's measurement footprint into adjacent markets. At the cross-roads of the organization, the Research Labs are able to identify and enable synergies across Agilent's businesses to create competitive differentiation and compelling customer value.
The technical staff have advanced degrees that cover a wide range of scientific and engineering fields, including biology, chemistry, computer science, distributed measurement, electrical engineering, image processing, materials science, mathematics, nano/microfabrication, microfluidics, software, informatics, optics, physics, physiology and signal processing.
Global Infrastructure Organization
We provide support to our businesses through our global infrastructure organization. This support includes services in the areas of finance, legal, workplace services, human resources and information technology. These organizations are generally headquartered in Santa Clara, California, with services provided worldwide. As of the end of October 2010, our global infrastructure organization employed approximately 2,200 people worldwide, which includes the Agilent Labs researchers described above.
The following discussions of Research and Development, Backlog, Intellectual Property, Materials, Environmental, International Operations and Acquisition and Disposal of Material Assets include information common to each of our businesses.
Research and Development
Research and development ("R&D") expenditures were $612 million in 2010, $642 million in 2009 and $704 million in 2008, the vast majority of which was company-sponsored. We anticipate that we will continue to have significant R&D expenditures in order to maintain our competitive position with a continuing flow of innovative, high-quality products and services.
Backlog
On October 31, 2010, our unfilled orders for the electronic measurement business were approximately $830 million, as compared to approximately $670 million at October 31, 2009. On October 31, 2010, our unfilled orders for the chemical analysis business were approximately $250 million, as compared to approximately $160 million at October 31, 2009. Within our life sciences business, our unfilled orders were approximately $350 million on October 31, 2010 as compared to approximately $210 million at October 31, 2009. We expect that a large majority of the unfilled orders for all three businesses will be delivered to customers within six months. On average, our unfilled orders represent approximately three months' worth of revenues. In light of this experience, backlog on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.
Intellectual Property
We generate patent and other intellectual property rights covering significant inventions and other innovations in order to create a competitive advantage. While we believe that our licenses, patents and other intellectual property rights have value, in general no single license, patent or other intellectual property right is in itself material. In addition, our intellectual property rights may be challenged, invalidated or circumvented or may otherwise not provide significant competitive advantage.
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Materials
Our manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies and raw materials such as plastic resins and sheet metal. Our electronic measurement, chemical analysis and life sciences businesses all purchase materials from thousands of suppliers on a global basis. Some of the parts that require custom design work are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work. Our long-term relationships with suppliers allow us to proactively manage technology road maps and product discontinuance plans and monitor their financial health. Even so, some suppliers may still extend their lead times, limit supplies, increase prices or cease to produce necessary parts for our products. If these are unique components, we may not be able to find a substitute quickly or at all. To address the potential disruption in our supply chain, we use a number of techniques, including qualifying multiple sources of supply and redesign of products for alternative components. In addition, while we generally attempt to keep our inventory at minimal levels, we do purchase incremental inventory as circumstances warrant to protect the supply chain.
Environmental
Our R&D, manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and occupational health and safety to sites inside and outside the U.S., even if not subject to regulation imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws and occupational health and safety laws. However, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws to Agilent will not require us to incur significant expenditures. We are also regulated under a number of international, federal, state, and local laws regarding recycling, product packaging and product content requirements. The environmental, product content/disposal, and recycling laws are gradually becoming more stringent and may cause us to incur significant expenditures in the future.
Some of our operations are located on properties that are known to have subsurface contamination undergoing remediation by our former parent company, Hewlett-Packard Company ("HP"). As part of the initial separation agreement from HP in 1999, HP agreed to retain the liability for the contamination, perform the required remediation and indemnify us with respect to claims arising out of the contamination. The determination of the existence and cost of remediation of additional contamination caused by us, if any, could involve costly and time-consuming negotiations and litigation. While we expect that HP will meet its remediation and indemnification obligations in this regard, there can be no guarantee that it will do so. Under our agreement with HP, HP will have access to these properties to perform the remediation. HP has agreed to minimize interference with on-site operations at those properties during the course of the remediation, but there can be no guarantee that our operations will not be interrupted or that we will not be required to incur unreimbursed costs associated with the remediation. The remediation could also harm on-site operations and the future use and negatively affect the value and future use of the properties. Several of the sites under the initial separation agreement from HP have been sold.
In addition, some of these properties are undergoing remediation by HP under an order of an agency of the state in which the property is located. Although HP has agreed to indemnify us with respect to such subsurface contamination, it is possible that one or more of the governmental agencies will require us to be named on any of these orders. The naming of Agilent will not affect HP's obligation to indemnify us with regard to these matters.
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We are liable and are indemnifying HP for any contamination found at all facilities transferred to us by HP excluding the properties undergoing remediation. In addition, we are obligated to indemnify HP for liability associated with past non-compliance with environmental laws regulating ongoing operations, if any, at all properties transferred to us by HP, as well as at sold or discontinued businesses that are related to our businesses. While we are not aware of any material liabilities associated with such indemnified matters, there is no guarantee that such contamination or regulatory non-compliance does not exist, and will not expose us to material liability in the future.
We are being indemnified by HP with respect to all environmental liabilities for which HP accrued a reserve, and we are not aware of any material environmental liabilities assumed by us which are not subject to the indemnity.
As part of our acquisition of Varian in 2010, we assumed the liabilities of Varian, including Varian's costs and potential liabilities for environmental matters. One such cost is our obligation, along with the obligation of Varian Semiconductor Equipment Associates, Inc. ("VSEA") (under the terms of a Distribution Agreement between Varian, VSEA and Varian Medical Systems, Inc. ("VMS")) to each indemnify VMS for one-third of certain costs (after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities previously operated by Varian Associates, Inc. ("VAI") and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA") in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal (the "CERCLA sites"). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation, monitoring and/or remediation activities, in most cases under the direction of, or in consultation with, federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. Although any ultimate liability arising from environmental-related matters could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, could be material to our financial statements, the likelihood of such occurrence is considered remote. Based on information currently available and our best assessment of the ultimate amount and timing of environmental-related events, management believes that the costs of environmental-related matters are not reasonably likely to have a material adverse effect on our financial condition or results of operations.
We maintain a comprehensive Environmental Site Liability insurance policy which may cover certain clean-up costs or legal claims related to environmental contamination. This policy covers specified active, inactive and divested locations.
International Operations
Our net revenue originating outside the U.S., as a percentage of our total net revenue, was approximately 68 percent in fiscal 2010, 67 percent in fiscal 2009, and 68 percent in fiscal 2008, the majority of which was from customers other than foreign governments. Annual revenues derived from China were approximately 14 percent in fiscal 2010, 13 percent in fiscal 2009 and 11 percent in fiscal 2008. Approximately 10 percent of our revenue in fiscal 2010, 11 percent in fiscal 2009 and 12 percent in fiscal 2008 was derived from Japan. Revenues from external customers are generally attributed to countries based upon the location of the Agilent sales representative.
Long-lived assets located outside of the U.S., as a percentage of our total long-lived assets, was approximately 52 percent in fiscal year 2010, 51 percent in fiscal year 2009 and 48 percent in fiscal
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year 2008. Approximately 13, 16 and 14 percent of our long-lived assets were located in Japan in fiscal years 2010, 2009 and 2008, respectively.
Most of our sales in international markets are made by foreign sales subsidiaries. In countries with low sales volumes, sales are made through various representatives and distributors. However, we also sell into international markets directly from the U.S.
Our international business is subject to risks customarily encountered in foreign operations, including interruption to transportation flows for delivery of parts to us and finished goods to our customers, changes in a specific country's or region's political or economic conditions, trade protection measures, import or export licensing requirements, consequences from changes in tax laws and regulatory requirements, difficulty in staffing and managing widespread operations, differing labor regulations, differing protection of intellectual property and geopolitical turmoil, including terrorism and war. We are also exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales and expenses, and assets and liabilities denominated in currencies other than the local functional currency, and may also become subject to interest rate risk inherent in any debt we incur, or investment portfolios we hold. There may be an increased risk of political unrest in regions where we have significant manufacturing operations such as Southeast Asia. However, we believe that our international diversification provides stability to our worldwide operations and reduces the impact on us of adverse economic changes in any single country. Financial information about our international operations is contained in Note 21, "Segment Information", to our consolidated financial statements.
Acquisition and Disposal of Material Assets
On May 14, 2010, we completed our acquisition of Varian, Inc., a leading supplier of scientific instrumentation and associated consumables for life science and applied market applications, for a total cash purchase price of approximately $1.5 billion. Varian's products include analytical instruments, research products and related software, consumable products, accessories and services, as well as vacuum products and related services and accessories. The acquisition broadens Agilent's applications and solutions offerings in life sciences, environmental, and energy and materials. It also expands Agilent's product portfolio into atomic and molecular spectroscopy; establishes a leading position in nuclear magnetic resonance, imaging and vacuum technologies; and strengthens our consumables portfolio. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. Varian's cash acquired at completion of the acquisition was approximately $226 million.
Executive Officers of the Registrant
The names of our current executive officers and their ages, titles and biographies appear below:
Jean M. Halloran, 58, has served as our Senior Vice President, Human Resources since from August 1999. From 1997 to 1999, Ms. Halloran served as Director of Corporate Education and Development for Hewlett-Packard. Prior to assuming this position, from 1993 to 1997, Ms. Halloran acted as human resources manager for Hewlett-Packard's Measurement Systems Organization. Ms. Halloran joined Hewlett-Packard in 1980 in the Medical Products Group, where she held a variety of positions in human resources, manufacturing and strategic planning.
Didier Hirsch, 59, has served as our Senior Vice President and Chief Financial Officers since July 2010 and served as interim Chief Financial Officer from April 2010 to July 2010. Prior to that he served as Vice President, Corporate Controllership and Tax from November 2006 to July 20, 2010 and as Chief Accounting Officer from November 2007 to July 20, 2010. From April 2003 to October 2006, Mr. Hirsch
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served as Vice President and Controller. Prior to assuming this position, Mr. Hirsch served as Vice President and Treasurer from September 1999 to April 2003. Mr. Hirsch had joined Hewlett-Packard Company in 1989 as Director of Finance and Administration of Hewlett-Packard France. In 1993, he became Director of Finance and Administration of Hewlett-Packard Asia Pacific, and in 1996 Director of Finance and Administration of Hewlett- Packard Europe, Middle East, and Africa.
Marie Oh Huber, 49, has served as Senior Vice President, General Counsel and Secretary since September 2009 and serves as an officer or director for a variety of Agilent subsidiaries. She served as our Vice President, Deputy General Counsel and Assistant Secretary from June 2007 to September 2009, as our Vice President, Assistant General Counsel and Assistant Secretary from July 2002 to June 2007 and as our Assistant General Counsel and Assistant Secretary from May 1999 to July 2002. Ms. Huber served as an attorney and counsel for Hewlett-Packard Company from 1990 to May 1999. She is also a director of American Leadership Forum — Silicon Valley.
Michael R. McMullen , 49, has served as Senior Vice President, Agilent and President, Chemical Analysis Group since September 2009. From January 2002 to September 2009, he served as our Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to assuming this position, from March 1999 to December 2001, Mr. McMullen served as Country Manager for Agilent's China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to this position, Mr. McMullen served as our Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from July 1996 to March 1999.
Ronald S. Nersesian, 51, has served as Senior Vice President, Agilent and President, Electronic Measurement Group since March 2009. From February 2005 to February 2009, Mr. Nersesian served as our Vice President and General Manager of the Wireless Business Unit of the Electronics Measurement Group and from May 2002 to February 2005, as our Vice President and General Manager of the Design Validation Division. Prior to joining Agilent, Mr. Nersesian served in management positions with LeCroy Corporation from 1996 to 2002, including Senior Vice President and General Manager of the Digital Storage Oscilloscope Business.
Nicolas H. Roelofs, 52, has served as Senior Vice President, Agilent and President, Life Sciences Group since September 2009. From June 2006 to September 2009 he served as our Vice President and General Manager of the Life Sciences Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to joining Agilent, Mr. Roelofs served as Group Operations Officer of the Life Sciences Group of Bio-Rad Laboratories from January 2005 to May 2006. Prior to that, Mr. Roelofs served as Chief Operating Officer of Stratagene Corporation from September 2001 to December 2004.
William P. Sullivan, 60, has served as Agilent's President, Chief Executive Officer and a Director since March 2005. Before being named as Agilent's Chief Executive Officer, Mr. Sullivan served as Executive Vice President and Chief Operating Officer from March 2002 to March 2005. In that capacity, he shared the responsibilities of the president's office with Agilent's former President and Chief Executive Officer, Edward W. Barnholt. Mr. Sullivan also had overall responsibility for Agilent's Electronic Products and Solutions Group, the company's largest business group. Prior to assuming that position, Mr. Sullivan served as our Senior Vice President, Semiconductor Products Group, from August 1999 to March 2002. Before that, Mr. Sullivan held various management positions at Hewlett-Packard Company. Mr. Sullivan serves on the Board of the Children's Discovery Museum in San Jose, California, as well as on the Board of Directors of URS Corporation and Avnet, Inc.
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Investor Information
We are subject to the informational requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information may be read and copied by visiting the Public Reference Room of the SEC at 100 F Street N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.
You can access financial and other information at our Investor Relations website. The address is www.investor.agilent.com. We make available, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.
Our Amended and Restated Corporate Governance Standards, the charters of our Audit and Finance Committee, our Compensation Committee, our Executive Committee and our Nominating/Corporate Governance Committee, as well as our Standards of Business Conduct (including code of ethics provisions that apply to our principal executive officer, principal financial officer, principal accounting officer and senior financial officers) are available on our website at www.investor.agilent.com under "Corporate Governance". These items are also available in print to any stockholder in the United States and Canada who requests them by calling (877) 942-4200. This information is also available by writing to the company at the address on the cover of this Annual Report on Form 10-K.
Risks, Uncertainties and Other Factors That May Affect Future Results
Depressed general economic conditions may adversely affect our operating results and financial condition.
Our business is sensitive to changes in general economic conditions, both inside and outside the U.S. In the past two years, the world economy has been suffering an economic downturn, including an extreme disruption in worldwide financial markets beginning in 2008. We are unable to predict the strength and duration of an economic recovery. A continuing, and/or a return to, an economic downturn may adversely impact our business resulting in:
Our operating results and financial condition could be harmed if the markets into which we sell our products decline or do not grow as anticipated.
Visibility into our markets is limited. Our quarterly sales and operating results are highly dependent on the volume and timing of orders received during the fiscal quarter, which are difficult to
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forecast. In addition, our revenues and earnings forecasts for future fiscal quarters are often based on the expected seasonality or cyclicality of our markets. However, the markets we serve do not always experience the seasonality or cyclicality that we expect. Any decline in our customers' markets or in general economic conditions, including declines related to the current market disruptions described above, would likely result in a reduction in demand for our products and services. For example, we experienced weakness in almost all sectors during 2009 due to declines in market activity caused largely by the continued global economic downturn. The broader semiconductor market is one of the drivers for our electronic measurement business, and therefore, a decrease in the semiconductor market could harm our electronic measurement business. Also, if our customers' markets decline, we may not be able to collect on outstanding amounts due to us. Such declines could harm our consolidated financial position, results of operations, cash flows and stock price, and could limit our ability to sustain profitability. Also, in such an environment, pricing pressures could intensify. Since a significant portion of our operating expenses is relatively fixed in nature due to sales, research and development and manufacturing costs, if we were unable to respond quickly enough these pricing pressures could further reduce our gross margins.
The actions that we are taking to reduce costs could have long-term adverse effects on our business.
Since December 2008, we have announced and implemented significant restructuring activities in our global infrastructure organization and our electronic measurement segment. This restructuring program and regular ongoing evaluations of our cost structure, could have the effect of reducing our talent pool and available resources and, consequently, could have long-term effects on our business by decreasing or slowing improvements in our products, affecting our ability to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases, and limiting our ability to hire and retain key personnel. These circumstances could harm our consolidated financial position, results of operations, cash flows, and stock price, and could limit our ability to sustain profitability.
If we do not introduce successful new products and services in a timely manner, our products and services will become obsolete, and our operating results will suffer.
We generally sell our products in industries that are characterized by rapid technological changes, frequent new product and service introductions and changing industry standards. In addition, many of the markets in which we operate are seasonal and cyclical. Without the timely introduction of new products, services and enhancements, our products and services will become technologically obsolete over time, in which case our revenue and operating results would suffer. The success of our new products and services will depend on several factors, including our ability to:
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Dependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our ability to bring products to market and damage our reputation. Dependence on outsourced information technology and other administrative functions may impair our ability to operate effectively.
As part of our efforts to streamline operations and to cut costs, we have been outsourcing aspects of our manufacturing processes and other functions and will continue to evaluate additional outsourcing. If our contract manufacturers or other outsourcers fail to perform their obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could suffer. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, which may preclude us from fulfilling our customers' orders on a timely basis. The ability of these manufacturers to perform is largely outside of our control. In addition, we outsource significant portions of our information technology ("IT") function and other administrative functions. Since IT is critical to our operations, any failure to perform on the part of the IT providers could impair our ability to operate effectively. In addition to the risks outlined above, problems with manufacturing or IT outsourcing could result in lower revenues, unexecuted efficiencies, and impact our results of operations and our stock price. Much of our outsourcing takes place in developing countries and, as a result, may be subject to geopolitical uncertainty.
Failure to adjust our purchases due to changing market conditions or failure to estimate our customers' demand could adversely affect our income.
Our income could be harmed if we are unable to adjust our purchases to market fluctuations, including those caused by the seasonal or cyclical nature of the markets in which we operate. The sale of our products and services are dependent, to a large degree, on customers whose industries are subject to seasonal or cyclical trends in the demand for their products. For example, the consumer electronics market is particularly volatile, making demand difficult to anticipate. During a market upturn, we may not be able to purchase sufficient supplies or components to meet increasing product demand, which could materially affect our results. We are already seeing a shortage of parts for some of our products. In addition, some of the parts that require custom design are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work. Should a supplier cease manufacturing such a component, we would be forced to reengineer our product. In addition to discontinuing parts, suppliers may also extend lead times, limit supplies or increase prices due to capacity constraints or other factors. In order to secure components for the production of products, we may continue to enter into non-cancelable purchase commitments with vendors, or at times make advance payments to suppliers, which could impact our ability to adjust our inventory to declining market demands. Prior commitments of this type have resulted in an excess of parts when demand for our communications and electronics products has decreased. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges.
Our income may suffer if our manufacturing capacity does not match the demand for our products.
Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand does not meet our expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our segments, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner. This inability could materially and adversely limit our ability to improve our results. By contrast, if during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity would adversely affect our income.
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Economic, political and other risks associated with international sales and operations could adversely affect our results of operations.
Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue from international operations will continue to represent a majority of our total revenue. In addition, many of our employees, contract manufacturers, suppliers, job functions and manufacturing facilities are increasingly located outside the U.S. Accordingly, our future results could be harmed by a variety of factors, including:
We centralized most of our accounting processes to two locations: India and Malaysia. These processes include general accounting, cost accounting, accounts payable and accounts receivables functions. If conditions change in those countries, it may adversely affect operations, including impairing our ability to pay our suppliers and collect our receivables. Our results of operations, as well as our liquidity, may be adversely affected and possible delays may occur in reporting financial results.
In addition, although the majority of our products are priced and paid for in U.S. dollars, a significant amount of certain types of expenses, such as payroll, utilities, tax, and marketing expenses, are paid in local currencies. Our hedging programs reduce, but do not always entirely eliminate, within any given twelve month period, the impact of currency exchange rate movements, and therefore fluctuations in exchange rates, including those caused by currency controls, could impact our business operating results and financial condition by resulting in lower revenue or increased expenses. However, for expenses beyond that twelve month period, our hedging strategy does not mitigate our exposure. In addition, our currency hedging programs involve third party financial institutions as counterparties. These financial institutions, generally, have experienced and continue to experience significant adverse effects on their business from the current decline in general economic conditions and uncertainties in the global credit and equity markets. The weakening or failure of financial institution counterparties may adversely affect our hedging programs and our financial condition through, among other things, a reduction in available counterparties, increasingly unfavorable terms, and the failure of the counterparties to perform under hedging contracts.
Our business will suffer if we are not able to retain and hire key personnel.
Our future success depends partly on the continued service of our key research, engineering, sales, marketing, manufacturing, executive and administrative personnel. If we fail to retain and hire a sufficient number of these personnel, we will not be able to maintain or expand our business. The markets in which we operate are very dynamic, and our businesses continue to respond with
25
reorganizations, workforce reductions and site closures. We believe our pay levels are very competitive within the regions that we operate. However, there is also intense competition for certain highly technical specialties in geographic areas where we continue to recruit, and it may become more difficult to retain our key employees, especially in light of our ongoing restructuring efforts.
The impact of consolidation of competitors in the electronic measurement and life sciences markets is difficult to predict and may harm our business.
The electronic measurement and life sciences industries are intensely competitive and have been subject to increasing consolidation. For instance, in February 2010, Danaher Corporation completed its acquisition of the Life Sciences Instrumentation Businesses from MDS Inc. and Life Technologies Corp. Consolidation in the electronic measurement and life sciences industries could result in existing competitors increasing their market share through business combinations, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to compete successfully in an increasingly consolidated industry and cannot predict with certainty how industry consolidation will affect our competitors or us.
Our acquisitions, strategic alliances, joint ventures and divestitures may result in financial results that are different than expected.
In the normal course of business, we frequently engage in discussions with third parties relating to possible acquisitions, strategic alliances, joint ventures and divestitures, and generally expect to complete several transactions per year. For example, in fiscal 2009, we completed a number of acquisitions and divestitures. In May 2010, we closed our acquisition of Varian, Inc. and the sale of our Network Solutions Division. As a result of such transactions, our financial results may differ from our own or the investment community's expectations in a given fiscal quarter, or over the long term. Such transactions often have post-closing arrangements including but not limited to post-closing adjustments, transition services, escrows or indemnifications, the financial results of which can be difficult to predict. In addition, acquisitions, including the Varian acquisition, and strategic alliances may require us to integrate a different company culture, management team and business infrastructure. We may have difficulty developing, manufacturing and marketing the products of a newly acquired company in a way that enhances the performance of our combined businesses or product lines to realize the value from expected synergies. Depending on the size and complexity of an acquisition, our successful integration of the entity depends on a variety of factors, including:
In addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud. The integration of acquired businesses is likely to result in our systems and controls becoming increasingly complex and more difficult to manage. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. However, we cannot be certain that these measures will ensure that we design, implement and maintain adequate control over our financial processes and reporting in the future, especially in the context of acquisitions of other businesses. Any difficulties in the assimilation of acquired businesses into our control system could harm our operating results or cause us to fail to meet our financial reporting obligations. Inferior internal controls could also cause
26
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.
A successful divestiture depends on various factors, including our ability to:
In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other Agilent products. All of these efforts require varying levels of management resources, which may divert our attention from other business operations. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows and stock price could be negatively impacted.
If we do not achieve the contemplated benefits of our acquisition of Varian, Inc., our business and financial condition may be materially impaired.
We may not achieve the desired benefits from our acquisition of Varian. The acquisition involves the integration of Varian with the rest of our company. If we cannot successfully integrate Varian's operations, we may experience material negative consequences to our business, financial condition or results of operations. The integration of two businesses that have previously operated separately will be a costly and time-consuming process that will involve a number of risks, including, but not limited to:
27
Even if we are able to successfully integrate the operations of Varian, we may not be able to realize the cost savings, synergies and growth that we anticipate from the acquisition in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to:
As a result of these risks, the Varian acquisition may not contribute to our earnings as expected, we may not achieve expected cost synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of this transaction.
Environmental contamination from past operations could subject us to unreimbursed costs and could harm on-site operations and the future use and value of the properties involved and environmental contamination caused by ongoing operations could subject us to substantial liabilities in the future.
Some of our properties are undergoing remediation by the Hewlett-Packard Company ("HP") for subsurface contaminations that were known at the time of our separation from HP. HP has agreed to retain the liability for this subsurface contamination, perform the required remediation and indemnify us with respect to claims arising out of that contamination. HP will have access to our properties to perform remediation. While HP has agreed to minimize interference with on-site operations at those properties, remediation activities and subsurface contamination may require us to incur unreimbursed costs and could harm on-site operations and the future use and value of the properties. We cannot be sure that HP will continue to fulfill its indemnification or remediation obligations. In addition, the determination of the existence and cost of any additional contamination caused by us could involve costly and time-consuming negotiations and litigation.
We have agreed to indemnify HP for any liability associated with contamination from past operations at all other properties transferred from HP to us, other than those properties currently undergoing remediation by HP. While we are not aware of any material liabilities associated with any potential subsurface contamination at any of those properties, subsurface contamination may exist, and we may be exposed to material liability as a result of the existence of that contamination.
Our current and historical manufacturing processes involve, or have involved, the use of substances regulated under various international, federal, state and local laws governing the environment. As a result, we may become subject to liabilities for environmental contamination, and these liabilities may be substantial. While we have divested substantially all of our semiconductor related businesses to Avago and Verigy and regardless of indemnification arrangements with those parties, we may still become subject to liabilities for historical environmental contamination related to those businesses. Although our policy is to apply strict standards for environmental protection at our sites inside and outside the U.S., even if the sites outside the U.S. are not subject to regulations imposed by foreign governments, we may not be aware of all conditions that could subject us to liability.
28
As part of our acquisition of Varian, we assumed the liabilities of Varian, including Varian's costs and potential liabilities for environmental matters. One such cost is our obligation, along with the obligation of Varian Semiconductor Equipment Associates, Inc. ("VSEA") (under the terms of a Distribution Agreement between Varian, VSEA and Varian Medical Systems, Inc. ("VMS")) to each indemnify VMS for one-third of certain costs (after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities previously operated by Varian Associates, Inc. ("VAI") and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA") in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal (the "CERCLA sites"). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation, monitoring and/or remediation activities, in most cases under the direction of, or in consultation with, federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. Although any ultimate liability arising from environmental-related matters could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, could be material to our financial statements, the likelihood of such occurrence is considered remote. Based on information currently available and our best assessment of the ultimate amount and timing of environmental-related events, management believes that the costs of environmental-related matters are not reasonably likely to have a material adverse effect on our financial condition or results of operations.
Our customers and we are subject to various governmental regulations, compliance with which may cause us to incur significant expenses, and if we fail to maintain satisfactory compliance with certain regulations, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.
Our businesses are subject to various significant international, federal, state and local regulations, including but not limited to health and safety, packaging, product content, labor and import/export regulations. These regulations are complex, change frequently and have tended to become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy violations of these regulations. Any failure by us to comply with applicable government regulations could also result in cessation of our operations or portions of our operations, product recalls or impositions of fines and restrictions on our ability to carry on or expand our operations. In addition, because many of our products are regulated or sold into regulated industries, we must comply with additional regulations in marketing our products.
Our products and operations are also often subject to the rules of industrial standards bodies, like the International Standards Organization, as well as regulation by other agencies such as the U.S. Federal Communications Commission. We also must comply with work safety rules. If we fail to adequately address any of these regulations, our businesses could be harmed.
Some of our chemical analysis products are used in conjunction with chemicals whose manufacture, processing, distribution and notification requirements are regulated by the U.S. Environmental Protection Agency under the Toxic Substances Control Act, and by regulatory bodies in other countries with laws similar to the Toxic Substances Control Act. We must conform the manufacture, processing, distribution of and notification about these chemicals to these laws and adapt to regulatory requirements in all countries as these requirements change. If we fail to comply with these requirements in the manufacture or distribution of our products, then we could be made to
29
pay civil penalties, face criminal prosecution and, in some cases, be prohibited from distributing our products in commerce until the products or component substances are brought into compliance.
We are subject to laws and regulations, and failure to address or comply with these laws and regulations could harm our business by leading to a reduction in revenue associated with certain customers.
We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations might result in suspension of these contracts, or administrative penalties.
A number of our products from our life sciences and chemical analysis businesses are subject to regulation by the United States Food and Drug Administration ("FDA") and certain similar foreign regulatory agencies. In addition, a number of our products may be in the future subject to regulation by the FDA and certain similar foreign regulatory agencies. If we or any of our suppliers or distributors fail to comply with FDA and other applicable regulatory requirements or are perceived to potentially have failed to comply, we may face, among other things, adverse publicity affecting both us and our customers, investigations or notices of non-compliance, fines, injunctions, and civil penalties; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions; increased difficulty in obtaining required FDA clearances or approvals; seizures or recalls of our products or those of our customers; or the inability to sell our products.
Third parties may claim that we are infringing their intellectual property and we could suffer significant litigation or licensing expenses or be prevented from selling products or services.
From time to time, third parties may claim that one or more of our products or services infringe their intellectual property rights. We analyze and take action in response to such claims on a case by case basis. Any dispute or litigation regarding patents or other intellectual property could be costly and time-consuming due to the complexity of our technology and the uncertainty of intellectual property litigation and could divert our management and key personnel from our business operations. A claim of intellectual property infringement could force us to enter into a costly or restrictive license agreement, which might not be available under acceptable terms or at all, could require us to redesign our products, which would be costly and time-consuming, and/or could subject us to significant damages or to an injunction against development and sale of certain of our products or services. Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of intellectual property infringement. In certain of our businesses we rely on third party intellectual property licenses and we cannot ensure that these licenses will be available to us in the future on favorable terms or at all.
Third parties may infringe our intellectual property and we may suffer competitive injury or expend significant resources enforcing our rights.
Our success depends in large part on our proprietary technology. We rely on various intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we do not enforce our intellectual property rights successfully our competitive position may suffer which could harm our operating results.
30
Our pending patent applications, and our pending copyright and trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents, copyrights or trademarks. In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage.
We may need to spend significant resources monitoring our intellectual property rights and we may or may not be able to detect infringement by third parties. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. In some circumstances, we may choose to not pursue enforcement because an infringer has a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues. Furthermore, some of our intellectual property is licensed to others which allow them to compete with us using that intellectual property.
We are subject to ongoing tax examinations of our tax returns by the Internal Revenue Service and other tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our results of operations, financial condition and liquidity.
We are subject to ongoing tax examinations of our tax returns by the U.S. Internal Revenue Service and other tax authorities in various jurisdictions. We regularly assess the likelihood of adverse outcomes resulting from ongoing tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. Intercompany transactions associated with the sale of inventory, services, intellectual property and cost share arrangements are complex and affect our tax liabilities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. There can be no assurance that the outcomes from ongoing tax examinations will not have an adverse effect on our operating results and financial condition. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our operating results and financial condition.
If tax incentives change or cease to be in effect, our income taxes could increase significantly.
Agilent benefits from tax incentives extended to its foreign subsidiaries to encourage investment or employment. Several jurisdictions have granted Agilent tax incentives which require renewal at various times in the future. The incentives are conditioned on achieving various thresholds of investments and employment, or specific types of income. Agilent's taxes could increase if the incentives are not renewed upon expiration. If Agilent cannot or does not wish to satisfy all or parts of the tax incentive conditions, we may lose the related tax incentive and could be required to refund tax incentives previously realized. As a result, our effective tax rate could be higher than it would have been had we maintained the benefits of the tax incentives.
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Adverse conditions in the global banking industry and credit markets may adversely impact the value of our cash investments or impair our liquidity.
At the end of the 2010 fiscal year, we had cash and cash equivalents of approximately $2.6 billion invested or held in a mix of money market funds, time deposit accounts and bank demand deposit accounts. Disruptions in the financial markets may, in some cases, result in an inability to access assets such as money market funds that traditionally have been viewed as highly liquid. Any failure of our counterparty financial institutions or funds in which we have invested may adversely impact our cash and cash equivalent positions and, in turn, our results and financial condition.
We have outstanding debt and may incur other debt in the future, which could adversely affect our financial condition, liquidity and results of operations.
We currently have outstanding an aggregate principal amount of $2.1 billion in senior unsecured notes. We also are a party to a five-year senior unsecured revolving credit facility under which we may borrow up to $330 million. We may borrow additional amounts in the future and use the proceeds from any future borrowing for general corporate purposes, other future acquisitions, expansion of our business or repurchases of our outstanding shares of common stock.
Our incurrence of this debt, and increases in our aggregate levels of debt, may adversely affect our operating results and financial condition by, among other things:
Our current revolving credit facility imposes restrictions on us, including restrictions on our ability to create liens on our assets and the ability of our subsidiaries to incur indebtedness, and requires us to maintain compliance with specified financial ratios. Our ability to comply with these ratios may be affected by events beyond our control. In addition, the indenture governing our senior notes contains covenants that may adversely affect our ability to incur certain liens or engage in certain types of sale and leaseback transactions. If we breach any of the covenants and do not obtain a waiver from the lenders, then, subject to applicable cure periods, our outstanding indebtedness could be declared immediately due and payable.
Our results of operations, financial condition and liquidity could be adversely affected if our long-term leasehold counterparty becomes insolvent and the credit support on the leasehold transaction fails.
In February 2001, we sold a parcel of surplus land in San Jose, California for $287 million in cash. In August 2001, we completed a like-kind exchange by acquiring a long-term leasehold interest in several municipal properties in southern California for a total value of $289 million. In 2002, we received $237 million in non-refundable prepaid rent related to the leasehold interests described above. We contracted with a third party to provide credit protection for certain aspects of the transaction, including a future bankruptcy of the municipality. The current third party insurer is a subsidiary of American International Group Inc. ("AIG") which experienced a credit rating downgrade by Moody's Investors Service and Standard & Poor's and has been the recipient of U.S. federal government sponsored loans. If the municipality was to become insolvent and the credit support on
32
the transaction was to fail, our results of operations, financial condition and liquidity could be adversely affected.
We have substantial cash requirements in the United States while a majority of our cash is generated outside of the United States. The failure to maintain a level of cash sufficient to address our cash requirements in the United States could adversely affect our financial condition and results of operations.
Although cash generated in the United States covers normal operating requirements and debt service requirements, a substantial amount of additional cash is required for special purposes such as the satisfaction of our ongoing debt obligations, including our senior notes coming due in September 2012, the repurchases of our stock and acquisitions of third parties. Our business operating results, financial condition, and strategic initiatives could be adversely impacted if we were unable to address our U.S. cash requirements through (1) the efficient and timely repatriations of overseas cash or (2) other sources of cash obtained at an acceptable cost.
If we suffer a loss to our factories, facilities or distribution system due to catastrophe, our operations could be seriously harmed.
Our factories, facilities and distribution system are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made disasters. In particular, several of our facilities could be subject to a catastrophic loss caused by earthquake due to their locations. Our production facilities, headquarters and Agilent Technologies Laboratories in California, and our production facilities in Japan, are all located in areas with above-average seismic activity. If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in large expenses to repair or replace the facility. In addition, since we have consolidated our manufacturing facilities, we are more likely to experience an interruption to our operations in the event of a catastrophe in any one location. Although we carry insurance for property damage and business interruption, we do not carry insurance or financial reserves for interruptions or potential losses arising from earthquakes or terrorism. Also, our third party insurance coverage will vary from time to time in both type and amount depending on availability, cost and our decisions with respect to risk retention. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain third party insurance. If our third party insurance coverage is adversely affected, or to the extent we have elected to self-insure, we may be at a greater risk that our operations will be harmed by a catastrophic loss.
Item 1B.
Unresolved Staff Comments
None.
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Our corporate headquarters and Agilent Technologies Research Laboratories are located in Santa Clara, California. In total, with the addition of the Varian Inc. acquisition, we have 30 principle sites. Of these sites, 13 are located in the U.S. and the remaining 17 are located in Australia, China, India, Japan, Malaysia, Singapore, France, Germany, Italy, Netherlands, Poland and the United Kingdom. Many of our primary functions are conducted at multi-building campuses.
|
Site
|
Major Activity | Owned/Leased | ||
|---|---|---|---|---|
|
Americas: |
||||
|
Santa Clara, CA, U.S. |
Corporate Headquarters, Manufacturing, R&D, Marketing, Sales and Administration | Owned | ||
|
La Jolla, CA, U.S. |
R&D, Administration | Leased | ||
|
Lake Forest, CA, U.S. |
Manufacturing, Administration | Owned | ||
|
Santa Rosa, CA, U.S. |
Manufacturing, R&D, Marketing, Sales and Administration | Owned | ||
|
Walnut Creek, CA, U.S. |
Manufacturing, R&D, Administration | Owned | ||
|
Boulder, CO, U.S. |
Manufacturing, R&D | Leased | ||
|
Colorado Springs, CO, U.S. |
Manufacturing, R&D, Marketing, and Sales and Administration | Owned | ||
|
Loveland, CO, U.S. |
Manufacturing, R&D | Owned | ||
|
Ft. Collins, CO, U.S. |
Manufacturing | Leased | ||
|
Wilmington, DE, U.S. |
Manufacturing, R&D, and Administration | Owned | ||
|
Lexington, MA, U.S. |
Manufacturing | Owned | ||
|
Cary, NC, U.S. |
Manufacturing, Sales and Service | Leased | ||
|
Cedar Creek, TX |
Manufacturing, Administration | Owned | ||
|
Asia Pacific: |
||||
|
Melbourne, Australia |
Manufacturing | Owned | ||
|
Beijing, China |
R&D, Marketing, Sales and Administration | Owned* | ||
|
Chengdu, China |
Manufacturing, Administration | Owned* | ||
|
Shanghai, China |
Manufacturing, R&D | Leased | ||
|
Manesar, India |
R&D, Marketing, Sales and Administration | Owned* | ||
|
Hachioji, Japan |
Manufacturing, R&D, Marketing, and Sales and Administration | Owned | ||
|
Penang, Malaysia |
Manufacturing, R&D | Owned* | ||
|
Yishun, Singapore |
Manufacturing, R&D, Marketing, Sales and Administration | Owned* | ||
|
Europe: |
||||
|
Grenoble, France |
R&D | Owned |
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|
Site
|
Major Activity | Owned/Leased | ||
|---|---|---|---|---|
|
Boeblingen, Germany |
Manufacturing, R&D, and Marketing | Leased | ||
|
Waldbronn, Germany |
Manufacturing, R&D, Marketing, Sales and Administration | Owned | ||
|
Turin, Italy |
Manufacturing, R&D, Sales and Service | Owned | ||
|
Middelburg, Netherlands |
Manufacturing, Sales and Service | Owned | ||
|
Wroclaw, Poland |
Manufacturing, Administration | Leased | ||
|
Church Stretton, United Kingdom |
Manufacturing, R&D | Owned | ||
|
Craven Arms, United Kingdom |
Manufacturing, R&D | Leased | ||
|
Yarnton, United Kingdom |
Manufacturing, Sales, Service and R&D | Leased |
As of October 31, 2010, with the addition of the Varian Inc. acquisition we owned or leased a total of approximately 11.6 million square feet of space worldwide. Of that, we owned approximately 8.7 million square feet and leased the remaining 2.9 million square feet. Our sales and support facilities occupied a total of approximately 1.6 million square feet. Our manufacturing plants, R&D facilities and warehouse and administrative facilities occupied approximately 10.0 million square feet. Information about each of our businesses appears below:
Electronic Measurement Group. Our electronic measurement business has manufacturing and R&D facilities in China, Germany, Japan, Malaysia, Singapore, India and the U.S. Additionally, we have marketing centers in Germany, Hong Kong, Japan, the United Kingdom, and the U.S., and sales offices throughout the world.
Life Sciences Measurement. Our life science measurement business has manufacturing and R&D facilities in Australia, France, Germany, Poland, United Kingdom and the U.S. Additionally, we have marketing centers in Germany, Singapore and the U.S., and sales offices throughout the world.
Chemical Analysis Measurement. Our chemical analysis measurement business has manufacturing and R&D facilities in Australia, China, Italy, Japan, Netherlands, United Kingdom and the U.S. Additionally, we have marketing centers in Australia, Italy, Japan, Singapore and the U.S., and sales offices throughout the world.
In November 2001, a securities class action, Kassin v. Agilent Technologies, Inc., et al., Civil Action No. 01-CV-10639, was filed in United States District Court for the Southern District of New York (the "Court") against certain investment bank underwriters for our initial public offering ("IPO"), Agilent and various of our officers and directors at the time of the IPO. In 2003, the Court granted Agilent's motion to dismiss the claims against Agilent based on Section 10 of the Securities Exchange Act, but denied Agilent's motion to dismiss the claims based on Section 11 of the Securities Act. On June 14, 2004, papers formalizing a settlement among the plaintiffs, Agilent and more than 200 other issuer defendants and insurers were presented to the Court. Under the proposed settlement, plaintiffs' claims against Agilent and its directors and officers would be released, in exchange for a contingent payment (which, if made, would be paid by Agilent's insurer) and an assignment of certain potential
35
claims. However, class certification of plaintiffs' underlying action against the underwriter defendants was a condition of the settlement. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the Court's order certifying such a class in several "test cases" that had been selected by the underwriter defendants and plaintiffs. On January 5, 2007, plaintiffs filed a petition for rehearing to the full bench of the Second Circuit. On April 6, 2007, the Second Circuit issued an order denying rehearing but noted that plaintiffs are free to "seek certification of a more modest class." On June 25, 2007, the Court entered an order terminating the proposed settlement between plaintiffs and the issuer defendants based on a stipulation among the parties. Plaintiffs have amended their allegations and filed amended complaints in six "test cases" (none of which involve Agilent). Defendants in these cases have moved to dismiss the amended complaints. On March 26, 2008, the Court denied the defendants' motion to dismiss. The parties have again reached a global settlement of the litigation and filed a motion for preliminary approval of the settlement on April 2, 2009. Under the settlement, the insurers would pay the full amount of settlement share allocated to Agilent, and Agilent would bear no financial liability. Agilent, as well as the officer and director defendants who were previously dismissed from the action pursuant to tolling agreements, would receive complete dismissals from the case. On October 5, 2009, the Court entered an order granting final approval of the settlement. Certain objectors have appealed the Court's October 5, 2009 order to the Second Circuit Court of Appeals. That appeal is pending.
On August 5, 2009, a putative class action was filed in California Superior Court, County of Santa Clara, entitled Feivel Gottlieb Plan — Administrator Feivel Gottlieb Defined Benefit Pension Plan DTD 01-01-04 v. Garry W. Rogerson, et al., No. 1-09-CV-149132. The action was allegedly brought on behalf of a class of shareholders of Varian, Inc. ("Varian") against Varian, its board of directors, Agilent and Cobalt Acquisition Corp. ("Cobalt"), a wholly owned subsidiary of Agilent, in connection with the proposed acquisition of Varian. A similar action, entitled Stuart Kreisberg v. Garry W. Rogerson, et al. , No. 1-09-CV-149383, was filed in the same court on August 7, 2009. The actions were subsequently consolidated under the caption In re Varian, Inc. Shareholder Litigation , Lead Case No. 1-09-CV-149132, and a consolidated amended complaint was filed on August 14, 2009. The consolidated amended complaint is also filed on behalf of an alleged class of Varian shareholders against Varian, its directors, Agilent and Cobalt. The consolidated amended complaint alleges that Varian's directors breached their fiduciary duties in connection with the proposed acquisition and asserts, among other things, that the price and other terms are unfair, that Varian's directors have engaged in self-dealing, and that the disclosures in Varian's August 7, 2009 proxy filing are inadequate. Agilent and Cobalt are alleged to have aided and abetted the Varian directors' purported breaches of fiduciary duties. Plaintiffs seek injunctive and other relief, including attorneys' fees and costs. On August 19, 2009, another substantially similar putative class action, entitled Hawaii Laborers Pension Fund v. Varian, Inc., et al. , No. 1-09-CV-150234, was filed in the same court against Varian, its directors, and Agilent. Like the consolidated amended complaint, it asserts claims on behalf of a class of Varian shareholders, alleges that Varian's directors breached their fiduciary duties in connection with the proposed acquisition by, inter alia , failing to value Varian properly, agreeing to improper deal terms, engaging in self-dealing and making misleading disclosures, alleges that Agilent aided and abetted those purported breaches of fiduciary duties, and seeks injunctive and other relief (including attorneys' fees and costs). On September 25, 2009, the parties signed a memorandum of understanding to settle the class actions. The settlement provides, among other things, that: (i) Varian would make certain agreed-upon disclosures designed to supplement those contained in its definitive proxy statement filed on August 20, 2009; (ii) the litigation will be dismissed with prejudice as to all defendants; (iii) defendants believe the claims are without merit and continue to deny liability, but agree to settle in order to avoid the potential cost and distraction of continued litigation and to eliminate any risk of any delay to the acquisition; and (iv) plaintiffs' counsel may seek fees and costs of up to $625,000, subject to court approval. There is to be no payment of money to the alleged class members. The Santa Clara Superior Court preliminarily approved the settlement, whereupon the
36
Court notified the class of the settlement. One shareholder objected, but the Court found that the objection was not filed before the deadline set by the Court. After an October 1, 2010 hearing, the Santa Clara Superior Court issued its order providing final approval of the settlement on November 5, 2010. The Court made one change to the proposed settlement; the Court awarded plaintiffs' counsel attorney's fees in the amount of $476,600, rather than the $625,000 they had sought. We are now processing the settlement.
We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, patent, commercial and environmental matters, which arise in the ordinary course of business. There are no matters pending that we expect to be material in relation to our business, consolidated financial condition, results of operations or cash flows.
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Item 5.
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange with the ticker symbol "A". For the 2009 and 2010 fiscal years, the high and low sale prices per quarter as reported in the consolidated transaction reporting system for the New York Stock Exchange are as follows:
|
Fiscal 2009
|
High | Low | |||||
|---|---|---|---|---|---|---|---|
|
First Quarter (ended January 31, 2009) |
$ | 25.07 | $ | 14.76 | |||
|
Second Quarter (ended April 30, 2009) |
$ | 19.69 | $ | 12.02 | |||
|
Third Quarter (ended July 31, 2009) |
$ | 23.89 | $ | 17.26 | |||
|
Fourth Quarter (ended October 31, 2009) |
$ | 29.38 | $ | 23.14 | |||
|
Fiscal 2010 |
|
High |
|
Low |
|
||
|
First Quarter (ended January 31, 2010) |
$ | 31.77 | $ | 24.69 | |||
|
Second Quarter (ended April 30, 2010) |
$ | 37.43 | $ | 28.13 | |||
|
Third Quarter (ended July 31, 2010) |
$ | 36.89 | $ | 26.74 | |||
|
Fourth Quarter (ended October 31, 2010) |
$ | 35.33 | $ | 26.68 | |||
As of December 1, 2010, there were 41,457 common stockholders of record.
We have not paid any cash dividends to date, and we currently intend to retain any future income to fund the development and growth of our business and fund stock repurchases from time to time. Our management and Board of Directors continually evaluate our capitalization strategy.
38
ISSUER PURCHASES OF EQUITY SECURITIES
The table below summarizes information about the company's purchases, based on trade date; of its equity securities registered pursuant to Section 12 of the Exchange Act during the quarterly period ended October 31, 2010. The total number of shares of common stock purchased by the company during the year ended October 31, 2010 is 12,763,800.
|
Period
|
Total Number of
Shares of Common Stock Purchased (1) |
Weighted Average
Price Paid per Share of Common Stock (2) |
Total
Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum
Approximate Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Plans or Programs (in millions) |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||
|
Aug. 1, 2010 through
|
— | $ | — | — | $ | NA | |||||||
|
Sep. 1, 2010 through
|
456,300 |
$ |
31.15 |
456,300 |
$ |
NA |
|||||||
|
Oct. 1, 2010 through
|
1,100,000 |
$ |
33.96 |
1,100,000 |
$ |
NA |
|||||||
|
Total |
1,556,300 |
$ |
33.14 |
1,556,300 |
|||||||||
39
Item 6.
Selected Financial Data
SELECTED FINANCIAL DATA
(Unaudited)
|
|
Years Ended October 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||
|
|
(in millions, except per share data)
|
||||||||||||||||
|
Consolidated Statement of Operations Data: |
(1) | ||||||||||||||||
|
Net revenue |
$ | 5,444 | $ | 4,481 | $ | 5,774 | $ | 5,420 | $ | 4,973 | |||||||
|
Income from continuing operations before taxes and equity income |
$ | 692 | $ | 7 | $ | 815 | $ | 670 | $ | 627 | |||||||
|
Income (loss) from continuing operations |
$ | 684 | $ | (31 | ) | $ | 693 | $ | 638 | $ | 1,437 | ||||||
|
Income from and gain on sale of discontinued operations of our semiconductor products business, net of taxes |
— | — | — | — | 1,816 | ||||||||||||
|
Income from discontinued operations of our semiconductor test solutions business, net of taxes |
— | — | — | — | 54 | ||||||||||||
|
Net income (loss) |
$ | 684 | $ | (31 | ) | $ | 693 | $ | 638 | $ | 3,307 | ||||||
|
Net income (loss) per share — Basic: |
|||||||||||||||||
|
Income (loss) from continuing operations |
$ | 1.97 | $ | (0.09 | ) | $ | 1.91 | $ | 1.62 | $ | 3.33 | ||||||
|
Income from and gain on sale of discontinued operations of our semiconductor products business, net of taxes |
— | — | — | — | 4.21 | ||||||||||||
|
Income from discontinued operations of our semiconductor test solutions business, net of taxes |
— | — | — | — | 0.13 | ||||||||||||
|
Net income (loss) per share |
$ | 1.97 | $ | (0.09 | ) | $ | 1.91 | $ | 1.62 | $ | 7.67 | ||||||
|
Net income (loss) per share — Diluted: |
|||||||||||||||||
|
Income (loss) from continuing operations |
$ | 1.94 | $ | (0.09 | ) | $ | 1.87 | $ | 1.57 | $ | 3.26 | ||||||
|
Income from and gain on sale of discontinued operations of our semiconductor products business, net of taxes |
— | — | — | — | 4.12 | ||||||||||||
|
Income from discontinued operations of our semiconductor test solutions business, net of taxes |
— | — | — | — | 0.12 | ||||||||||||
|
Net (loss) income per share |
$ | 1.94 | $ | (0.09 | ) | $ | 1.87 | $ | 1.57 | $ | 7.50 | ||||||
|
Weighted average shares used in computing basic net income (loss) per share |
347 | 346 | 363 | 394 | 431 | ||||||||||||
|
Weighted average shares used in computing diluted net income (loss) per share |
353 | 346 | 371 | 406 | 441 | ||||||||||||
|
|
October 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||
|
|
(in millions)
|
|||||||||||||||
|
Consolidated Balance Sheet Data: |
(1) | |||||||||||||||
|
Cash and cash equivalents and short-term investments |
$ | 2,649 | $ | 2,493 | $ | 1,429 | $ | 1,826 | $ | 2,262 | ||||||
|
Working capital |
$ | 3,086 | $ | 2,838 | $ | 1,852 | $ | 2,008 | $ | 2,420 | ||||||
|
Long-term restricted cash and cash equivalents |
$ | 6 | $ | 1,566 | $ | 1,582 | $ | 1,615 | $ | 1,606 | ||||||
|
Total assets |
$ | 9,696 | $ | 7,612 | $ | 7,007 | $ | 7,554 | $ | 7,369 | ||||||
|
Long-Term Debt |
$ | 2,190 | $ | 2,904 | $ | 2,125 | $ | 2,087 | $ | 1,500 | ||||||
|
Stockholders' equity |
$ | 3,228 | $ | 2,506 | $ | 2,559 | $ | 3,234 | $ | 3,648 | ||||||
40
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in, and drivers of, the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings from our foreign subsidiaries, remediation activities, new product and service introductions, the ability of our products to meet market needs, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, savings and headcount reduction recognized from our restructuring programs, uncertainties relating to Food and Drug Administration ("FDA") and other regulatory approvals, the integration of our Varian acquisition and other transactions, our stock repurchase program, our transition to lower-cost regions, the existence, length or timing of an economic recovery that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Item 1A and elsewhere in this Form 10-K.
Overview and Executive Summary
Agilent is the world's premier measurement company, providing core electronic and bio-analytical measurement solutions to the communications, electronics, life sciences and chemical analysis industries. Our fiscal year end is October 31. Unless otherwise stated, all years and dates refer to our fiscal year.
In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment was separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement. All historical segment numbers have been recast to conform to this reporting structure in our financial statements.
On May 14, 2010, we completed the previously announced acquisition of Varian Inc. ("Varian") under the Merger Agreement, dated July 26, 2009. The results of Varian are included in Agilent's consolidated financial statements from the date of the merger. As part of the European Commission's merger approval and the Federal Trade Commission consent order, Agilent committed to sell Varian's laboratory gas chromatography ("GC") business; Varian's triple quadrupole gas chromatography-mass spectrometry ("GC-MS") business; Varian's inductively-coupled plasma-mass spectrometry ("ICP-MS") business; and Agilent's micro GC business. On May 19, 2010 we completed the sale of the Varian laboratory GC business, the triple quadrupole GC-MS business, the ICP-MS business and the Agilent micro GC business.
On May 1, 2010, we completed the sale of the Network Solutions Division ("NSD") of our electronic measurement business to JDS Uniphase Corporation ("JDSU"), a leading communications test and measurement company. NSD includes Agilent's network assurance solutions, network protocol test and drive test products.
41
On February 2, 2010, the company sold Hycor Biomedical Inc., a wholly-owned subsidiary, to Linden LLC, a Chicago-based healthcare private equity firm. Hycor is a global manufacturer and marketer of in vitro diagnostics products.
Agilent's total orders in 2010 were $5,744 million, an increase of 28 percent when compared to 2009. The increase in orders associated with the Varian acquisition less the orders attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 3 percentage points of order growth for the year ended October 31, 2010 when compared to 2009. Agilent's total orders in 2009 decreased 22 percent when compared to 2008 as the global economy remained depressed.
Agilent's net revenue of $5,444 million increased 21 percent when compared to 2009. The revenue increase associated with the Varian acquisition less the revenue attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 3 percentage points of revenue increase for the year ended October 31, 2010 when compared to 2009. Excluding the Varian acquisition and Hycor divestiture, sales of life sciences products into applied and academic and government markets increased strongly and sales into pharmaceutical markets increased more modestly for the year ended October 31, 2010 when compared to the prior year. Excluding the Varian acquisition, sales to all end-markets grew significantly across the chemical analysis business for the year ended October 31, 2010 when compared to 2009. Within electronic measurement, general purpose end-markets improved strongly in 2010 when compared to the prior year as a result of the recovery in the electronics and semiconductor businesses. Also within electronic measurement, the communications test businesses improved in the year ended October 31, 2010 when compared to the prior year with wireless R&D and wireless manufacturing reporting strong revenue growth in the year. Agilent's total net revenue in 2009 decreased 22 percent when compared to 2008 with each of our businesses experiencing a decline in revenue compared to the prior year due to the economic downturn.
Net income was $684 million in 2010, a net loss of $31 million in 2009 and net income of $693 million in 2008. In 2010, 2009 and 2008 we generated operating cash flows of $718 million, $408 million and $756 million, respectively. As of October 31, 2010 and 2009 we had cash and cash equivalents balances $2,649 million and $2,479 million, respectively.
Our 2009 restructuring program, the ("FY 2009 Plan"), announced in the first half of 2009, was conceived in response to deteriorating economic conditions and was designed to deliver sufficient savings to enable our businesses to reach their profitability targets throughout the cycle. Workforce reduction payments, primarily severance, were largely complete in fiscal year 2010. Lease payments should primarily be complete by the end of fiscal 2014, and payments to suppliers in connection with inventory should be complete in fiscal year 2011. As of October 31, 2010, a small number of employees within electronic measurement are pending termination under the FY 2009 Plan.
On May 14, 2010, we completed our acquisition of Varian, Inc. ("Varian"), a leading supplier of scientific instrumentation and associated consumables for life science and chemical analysis market applications, by means of a merger of one of our wholly-owned subsidiaries with and into Varian such that Varian became a wholly-owned subsidiary of Agilent. The $1.5 billion total purchase price of Varian included $52 cash per share of Varian's outstanding common stock including vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varian's non-vested restricted stock awards, non-vested performance shares, at 100 percent of target, and non-vested director's stock units were also paid at $52 per share. As part of the European Commission's merger approval and the Federal Trade Commission consent order, Agilent committed to sell Varian's laboratory gas chromatography ("GC") business; Varian's triple quadrupole gas
42
chromatography-mass spectrometry ("GC-MS") business; Varian's inductively-coupled plasma-mass spectrometry ("ICP-MS") business; and Agilent's micro GC business. On May 19, 2010 we completed the sale of the Varian laboratory GC business, the triple quadrupole GC-MS business, the ICP-MS business and the Agilent micro GC business for approximately $33 million. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. The Varian merger has been accounted for in accordance with the authoritative accounting guidance and the results of Varian are included in Agilent's consolidated financial statements from the date of merger. We expect to realize operational and cost synergies, leverage the existing sales channels and product development resources, and utilize the assembled workforce. The company expects the combined entity to achieve significant savings in corporate and divisional overhead costs. The company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities. For additional details related to the acquisition of Varian, see Note 3, "Acquisition of Varian".
Looking forward, while the economy remains uncertain, we continue to see numerous market opportunities and we believe Agilent is in a strong position to capitalize on them. We are focused on integrating Varian into Agilent throughout fiscal 2011 and our priority is to continue to drive revenue and cost synergies, as well as drive technology sharing between our businesses. We now believe that we will achieve $100 million in net savings as a result of the integration of Varian into Agilent.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our 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, investment impairments, share-based compensation, retirement and post-retirement plan assumptions, goodwill and purchased intangible assets, restructuring and asset impairment charges and accounting for income taxes.
Revenue recognition. We enter into agreements to sell products (hardware or software), services, and other arrangements (multiple element arrangements) that include combinations of products and services. Revenue from product sales, net of trade discounts and allowances, is recognized provided that persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Revenue is reduced for estimated product returns, when appropriate. For sales that include customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. For products that include installation, if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and recognition of installation revenue occurs when the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete. Revenue from services is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. When arrangements include multiple elements, we use verifiable objective evidence of fair value or vendor-specific objective evidence of fair value for software to allocate revenue to the elements and recognize revenue when the criteria for revenue recognition have been met for each element. The amount of product revenue recognized is affected by our judgments as to whether an arrangement includes multiple elements and if so, whether
43
fair value exists for those elements. Changes to the elements in an arrangement and the ability to establish fair value for those elements could affect the timing of the revenue recognition.
Inventory valuation. We assess the valuation of our inventory on a periodic basis and make adjustments to the value for estimated excess and obsolete inventory based upon estimates about future demand and actual usage. Such estimates are difficult to make under most economic conditions. The excess balance determined by this analysis becomes the basis for our excess inventory charge. Our excess inventory review process includes analysis of sales forecasts, managing product rollovers and working with manufacturing to maximize recovery of excess inventory. If actual market conditions are less favorable than those projected by management, additional write-downs may be required. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold to customers, resulting in lower cost of sales and higher income from operations than expected in that period.
Investment impairments. We recognize an impairment charge when the decline in the fair value of our equity and debt securities and our cost-method investments below their cost basis are judged to be other-than-temporary. Significant judgment is used to identify events or circumstances that would likely have a significant adverse effect on the future use of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
Share-based compensation. We account for share-based awards in accordance with the authoritative guidance. Under the authoritative guidance, share-based compensation expense is primarily based on estimated grant date fair value which generally uses the Black-Scholes option pricing model and is recognized on a straight-line basis. Our estimate of share-based compensation expense requires a number of complex and subjective assumptions including our stock price volatility, employee exercise patterns (expected life of the options), future forfeitures and related tax effects. We consider the historical option exercise behavior of our employees in estimating the expected life of our options granted, which we believe is representative of future behavior. In 2008 we used implied volatility of Agilent's publicly traded, similar priced stock options to estimate the expected stock price volatility assumption for employee stock option awards. From 2009, we have moved to historical volatility of Agilent's stock options over the most recent historical period equivalent to the expected life. In reaching this conclusion, we have considered many factors including the extent to which our options are currently traded and our ability to find traded options in the current market with similar terms and prices to the options we are valuing. A 10 percent increase in our estimated volatility from 38 percent to 48 percent for our most recent employee stock option grant would generally increase the value of an award and the associated compensation cost by approximately 22 percent if no other factors were changed.
In the first quarter of 2009, we revised our estimate of the expected life of our employee stock options from 4.6 years to 4.4 years. In revising this estimate, we considered the historical option exercise behavior of our employees. In the first quarter of 2009, we granted the majority of our employee stock options to executive employees and the review of our data indicated that our executive employees, on average, exercise their options at 4.4 years. There was no change to the expected life of our employee stock options in 2010. See Note 4, "Share-Based Compensation," to the consolidated financial statements for more information.
The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management
44
judgment. Although we believe the assumptions and estimates we have made are reasonable and appropriate, changes in assumptions could materially impact our reported financial results.
Retirement and post-retirement benefit plan assumptions. Retirement and post-retirement benefit plan costs are a significant cost of doing business. They represent obligations that will ultimately be settled sometime in the future and therefore are subject to estimation. Pension accounting is intended to reflect the recognition of future benefit costs over the employees' average expected future service to Agilent based on the terms of the plans and investment and funding decisions. To estimate the impact of these future payments and our decisions concerning funding of these obligations, we are required to make assumptions using actuarial concepts within the framework of accounting principles generally accepted in the U.S. Two critical assumptions are the discount rate and the expected long-term return on plan assets. Other important assumptions include the health care cost trend rate, expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfolio composition. We evaluate these assumptions at least annually.
The discount rate is used to determine the present value of future benefit payments at the measurement date — October 31 for both U.S. and non-U.S. plans. For 2010, the U.S. discount rates were based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. For 2009, the U.S. discount rates were determined by matching the expected plan benefit payments against an industry discount curve. The discount rate for non-U.S. plans was generally based on published rates for high quality corporate bonds and either remained unchanged or decreased. Lower discount rates increase present values and subsequent year pension expense; higher discount rates decrease present values and subsequent year pension expense.
The expected long-term return on plan assets is estimated using current and expected asset allocations as well as historical and expected returns. Plan assets are valued at fair value. A one percent change in the estimated long-term return on plan assets for 2010 would result in a $5 million impact on U.S. pension expense and a $16 million impact on non-U.S. pension expense.
The net periodic pension and post-retirement benefit costs recorded in operations excluding curtailments and settlements were $82 million in 2010, $103 million in 2009, and $15 million in 2008.
Goodwill and purchased intangible assets. Agilent reviews goodwill for impairment annually during our fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. We have aggregated components of an operating segment that have similar economic characteristics into our reporting units. We have three reporting units for goodwill impairment testing purposes: life sciences, chemical analysis and electronic measurement. We test goodwill for possible impairment by first determining the fair value of the related reporting unit and comparing this value to the recorded net assets of the reporting unit, including goodwill.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment, as our businesses operate in a number of markets and geographical regions. We determine the fair value of our reporting units based on an income approach, whereby we calculate the fair value of each reporting unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends, current budgets, operating plans and industry data. We evaluate the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, taking into account an appropriate control premium. We then compare the carrying value of our reporting units to the fair
45
value calculations based on the income approach. Estimates of the future cash flows associated with the businesses are critical to these assessments. The assumptions used in the fair value calculation change from year to year and include revenue growth rates, operating margins, risk adjusted discount rates and future economic and market conditions. Changes in these assumptions based on changed economic conditions or business strategies could result in material impairment charges in future periods.
The circumstances that could trigger a goodwill impairment could include, but are not limited to, the following items to the extent that management believes the occurrence of one or more would make it more likely than not that we would fail step 1 of the goodwill impairment test: significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, a portion of a reporting unit's goodwill has been included in the carrying amounts of a business that will be disposed or if our market capitalization is below our net book value.
The results of our test for goodwill impairment, as of September 30, 2010, showed that the estimated fair values of our life sciences, chemical analysis and electronic measurement reporting units exceeded their carrying values. A 1 percent increase in the discount rate lowered the fair value by approximately 15 percent. There was no impairment of goodwill during the year ended October 31, 2010. We continue to assess the overall environment to determine if we would trigger and fail step 1 of the goodwill impairment test.
Purchased intangible assets consist primarily of acquired developed technologies, proprietary know-how, trademarks, and customer relationships and are amortized using the straight-line method over estimated useful lives ranging from 6 months to 15 years. In process research and development ("IPR&D") is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, Agilent will record a charge for the value of the related intangible asset to Agilent's consolidated statement of operations in the period it is abandoned.
We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including purchased intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. We performed impairment analyses of purchased intangible assets in 2010 and recorded $13 million of impairment charges primarily related to a divested business.
Restructuring and asset impairment charges. The four main components of our restructuring plans are related to workforce reductions, the consolidation of excess facilities, asset impairments and special charges related to inventory. Workforce reduction charges are accrued when it is determined that a liability has been incurred, which is generally after individuals have been notified of their termination dates and expected severance payments. Plans to consolidate excess facilities result in charges for lease termination fees and future commitments to pay lease charges, net of estimated future sublease income. We recognize charges for consolidation of excess facilities generally when we have vacated the premises. These estimates were derived using the authoritative accounting guidance. We have also assessed the recoverability of our long-lived assets, by determining whether the carrying value of such assets will be recovered through undiscounted future cash flows.
46
Asset impairments primarily consist of property, plant and equipment and are based on an estimate of the amounts and timing of future cash flows related to the expected future remaining use and ultimate sale or disposal of buildings and equipment net of costs to sell. The charges related to inventory include estimated future inventory disposal payments that we are contractually obliged to make to our suppliers and reserves taken against inventory on hand. If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and asset impairment charges could be materially different, either higher or lower, than those we have recorded.
Accounting for income taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as interest and penalties related to uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.
Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. We consider evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income. At October 31, 2010, we provided a partial valuation allowance for our U.S. deferred tax assets and either a full or partial valuation allowance on certain foreign deferred tax assets. We intend to maintain a partial or full valuation allowance until sufficient positive evidence exists to support its reversal in the respective taxing jurisdiction.
We have not provided for all U.S. federal income and foreign withholding taxes on the undistributed earnings of some of our foreign subsidiaries because we intend to reinvest such earnings indefinitely. Should we decide to remit this income to the U.S. in a future period, our provision for income taxes may increase materially in that period.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result.
Adoption of New Pronouncements
See Note 2, "New Accounting Pronouncements," to the consolidated financial statements for a description of new accounting pronouncements.
Restructuring Costs, Asset Impairments and Other Charges
Our 2009 restructuring program, the ("FY 2009 Plan"), announced in the first half of 2009, was conceived in response to deteriorating economic conditions and was designed to deliver sufficient savings to enable our businesses to reach their profitability targets throughout the cycle. Workforce reduction payments, primarily severance, were largely complete in fiscal year 2010. Lease payments
47
should primarily be complete by the end of fiscal 2014, and payments to suppliers in connection with inventory should be complete in fiscal year 2011. As of October 31, 2010, a small number of employees within electronic measurement are pending termination under the FY 2009 Plan.
Foreign Currency
Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. We hedge revenues, expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short term and anticipated basis. We do experience some fluctuations within individual lines of the consolidated statement of operations and balance sheet because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities. Our hedging program is designed to hedge currency movements on a relatively short-term basis (rolling twelve month period). Therefore, we are exposed to currency fluctuations over the longer term.
Results from Operations
Orders and Net Revenue
|
|
Years Ended October 31, |
|
|
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
% Change |
2009 over 2008
% Change |
|||||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||||
|
|
(in millions)
|
|
|
||||||||||||||
|
Orders |
$ | 5,744 | $ | 4,486 | $ | 5,750 | 28 | % | (22 | )% | |||||||
|
Net revenue: |
|||||||||||||||||
|
Products |
$ | 4,464 | $ | 3,566 | $ | 4,804 | 25 | % | (26 | )% | |||||||
|
Services and other |
$ | 980 | $ | 915 | $ | 970 | 7 | % | (6 | )% | |||||||
|
Total net revenue |
$ | 5,444 | $ | 4,481 | $ | 5,774 | 21 | % | (22 | )% | |||||||
Agilent's total orders in 2010 were $5,744 million, an increase of 28 percent when compared to 2009. The increase in orders associated with the Varian acquisition less the orders attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 3 percentage points of order growth for the year ended October 31, 2010 when compared to 2009. Agilent's total orders in 2009 decreased 22 percent when compared to 2008 as the global economy remained depressed.
Agilent's net revenue of $5,444 million increased 21 percent when compared to 2009. The revenue increase associated with the Varian acquisition less the revenue attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 3 percentage points of revenue increase for the year ended October 31, 2010 when compared to 2009. Excluding the Varian acquisition and Hycor divestiture, sales of life sciences products into applied and academic and government markets increased strongly and sales into pharmaceutical markets increased more modestly for the year ended October 31, 2010 when compared to the prior year. Excluding the Varian acquisition, sales
48
to all end-markets grew significantly across the chemical analysis business for the year ended October 31, 2010 when compared to 2009. Within electronic measurement, general purpose end-markets improved strongly in 2010 when compared to the prior year being led by the recovery in the electronics and semiconductor businesses. Also within electronic measurement, the communications test businesses improved in the year ended October 31, 2010 when compared to the prior year with wireless R&D and wireless manufacturing reporting strong revenue growth in the year. For the year ended October 31, 2010 Agilent's segment revenue was $5,463 million, an increase of 22 percent when compared to 2009. Note 21 shows a reconciliation between segment revenue and net revenue.
Agilent's total net revenue in 2009 decreased 22 percent when compared to 2008 with each of our businesses experiencing a decline in revenue compared to the prior year due to the economic downturn.
Services and other revenue include revenue generated from servicing our installed base of products, warranty extensions and consulting. Services and other revenue increased 7 percent in 2010 as compared to 2009. The increase in services and other revenue associated with the Varian acquisition less the revenue attributable to the network solutions divestiture accounted for 1 percentage point of revenue increase in 2010. Services and other revenue decreased 6 percent in 2009 compared to 2008 with service and other revenue showing signs of relative stability compared with product revenue in 2009.
Backlog
On October 31, 2010, our unfilled orders for the life sciences business were approximately $350 million, as compared to approximately $210 million at October 31, 2009. On October 31, 2010, our unfilled orders for the chemical analysis business were approximately $250 million, as compared to approximately $160 million at October 31, 2009. On October 31, 2010, our unfilled orders for the electronic measurement business were approximately $830 million, as compared to $670 million at October 31, 2009. We expect that a large majority of the unfilled orders for all three businesses will be delivered to customers within six months. On average, our unfilled orders represent approximately three months' worth of revenues. In light of this experience, backlog on any particular date, while indicative of short-term revenue performance, is not necessarily a reliable indicator of medium or long-term revenue performance.
Costs and Expenses
|
|
Years Ended October 31, |
|
|
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||
|
Gross margin on products |
55.7 | % | 52.6 | % | 57.7 | % | 3 ppts | (5) ppts | |||||
|
Gross margin on services and other |
45.1 | % | 45.7 | % | 43.5 | % | (1) ppts | 2 ppts | |||||
|
Total gross margin |
53.8 | % | 51.1 | % | 55.4 | % | 3 ppts | (4) ppts | |||||
|
Operating margin |
10.3 | % | 1.0 | % | 13.8 | % | 9 ppts | (13) ppts | |||||
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|||
|
Research and development |
$ | 612 | $ | 642 | $ | 704 | (5)% | (9)% | |||||
|
Selling, general and administrative |
$ | 1,752 | $ | 1,603 | $ | 1,697 | 9% | (6)% | |||||
In 2010, total gross margin increased 3 percentage points in comparison to 2009. The benefits of business and infrastructure programs, lower restructuring costs, together with favorable volume impacts offset the unfavorable impact of the Varian acquisition (including fair value adjustments),
49
wage restoration, higher variable and incentive pay. Operating margins in 2010 increased 9 percentage points as compared to 2009.
In January 2009, we implemented wage reductions across the company in response to deteriorating economic conditions. Those wage levels were fully restored to all employees effective November 1, 2009.
Research and development expenditures have decreased 5 percent in 2010 compared to 2009. Increases in expenses due to the Varian acquisition, wage restoration, higher variable and incentive pay were more than offset by the impact of the divested businesses (the network solutions and Hycor businesses) and decreased restructuring expenses.
Selling, general and administrative expenses increased 9 percent during the year. Increased expenditure was due to the Varian acquisition, higher variable and incentive pay and wage restoration offset by the impact of decreased restructuring expenses and the divested businesses (the network solutions and Hycor businesses).
Gross inventory charges were $30 million in 2010, $54 million in 2009 and $24 million in 2008. Sales of previously written down inventory were $5 million in 2010, $8 million in 2009 and $6 million in 2008.
Our research and development efforts focus on potential new products and product improvements covering a wide variety of technologies, none of which is individually significant to our operations. We conduct five types of research and development: basic research, which contributes to the fundamental understanding of areas critical to our future; foundation technologies, which enables fundamental advances across all businesses; communications, which creates technologies to enable pervasive access to information; life sciences, which enables next-generation pharmaceuticals and improved patient outcomes; and measurement, which provides critical advances in test and measurement electronics and systems. Our research seeks to improve on various technical competencies in electronics such as compound semiconductor devices, digital imaging systems and microfabrication technologies; software, systems and solutions such as applied mathematics, knowledge management and measurement science; life sciences such as computational biology, molecular diagnostics and high-throughput measurements; and photonics, such as precision automation technology, optical switching and high-speed optical links. In each of these research fields, we conduct research that is focused on specific product development for release in the short-term as well as other research that is intended to be the foundation for future products over a longer time-horizon. Some of our product development research is designed to improve on the more than 20,000 products already in production, focus on major new product releases, and develop new product segments for the future. Due to the breadth of research and development projects across all of our businesses, there are a number of drivers of this expense.
For the year ended October 31, 2010 we recorded a $132 million gain on the sale of our network solutions business and $54 million of income in respect of a tax sharing settlement with Hewlett Packard Company.
At October 31, 2010, our headcount was approximately 18,500 compared to 16,800 in 2009 and 19,600 in 2008. The increase in our headcount in 2010, compared to 2009, was due to the Varian acquisition. The decrease in our headcount in 2009, compared to 2008, was due to our 2009 restructuring program.
50
Provision for Income Taxes
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Provision for income taxes |
$ | 8 | $ | 38 | $ | 122 | ||||
For 2010, the annual effective tax rate was 1 percent. The 1 percent effective tax rate includes a $101 million beneficial release of the U.K. valuation allowance, a $32 million current year increase in prior year tax reserves, and tax on earnings in jurisdictions that have low effective tax rates. Also included is a $17 million tax benefit related to a $54 million non-taxable settlement payment received in connection with a tax sharing agreement between Agilent and Hewlett Packard Company. Without considering interest and penalties, the rate reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions in which income tax expense or benefit continues to be offset by adjustments to valuation allowances. We intend to maintain a partial or full valuation allowance in these jurisdictions until sufficient positive evidence exists to support its reversal.
For 2009, the annual effective tax rate was 543 percent. The 543 percent effective tax rate reflects that our structure has a fixed component of tax and that on reduced profitability unusual tax rate results. The tax rate also includes tax on earnings in jurisdictions that have low effective tax rates. In addition, net tax benefits totaling $67 million relating primarily to the lapses of statutes of limitations and tax settlements in foreign jurisdictions are incorporated in the rate. Without considering interest and penalties, the rate reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions where we have recorded valuation allowances.
For 2008, the annual effective tax rate was 15 percent. The 15 percent effective tax rate includes a beneficial release of a portion of the U.S. federal and state valuation allowances which results in U.S. tax expense of nearly zero. It also includes tax on earnings in other jurisdictions that have low effective tax rates. Without considering interest and penalties, the provision for taxes was recorded for income generated in jurisdictions other than the Netherlands, Puerto Rico, Switzerland, the U.S., and the U.K. where we have recorded valuation allowances.
Agilent enjoys tax holidays in several different jurisdictions, most significantly in Singapore and Malaysia. The tax holidays provide lower rates of taxation on certain classes of income and require various thresholds of investments and employment or specific types of income in those jurisdictions. As a result of the incentives, the impact of the tax holidays decreased income taxes by $62 million, $14 million and $112 million in 2010, 2009 and 2008, respectively. The benefit of the tax holidays on net income per share (diluted) was approximately $0.18, $0.04 and $0.30 in 2010, 2009 and 2008, respectively.
During 2003, we established a valuation allowance for the deferred tax assets of the U.S. and certain entities in foreign jurisdictions. The valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. During 2007, we concluded that it is more likely than not that a significant portion of our U.S. federal deferred tax assets would be realized and reversed a portion of the valuation allowance. During 2008, we maintained a partial U.S. federal valuation allowance and concluded that a significant portion of our U.S. state deferred tax assets would be realized and reversed a portion of the valuation allowance. During 2009 and 2010, we continued to maintain the partial valuation allowances for U.S. federal and state deferred tax assets. We intend to maintain a partial or full valuation allowance in these jurisdictions until sufficient positive evidence exists to support its reversal. In 2010, after
51
consideration of all the available positive and negative evidence, we concluded that it is more likely than not that all of the U.K. deferred tax assets will be realized and reversed the entire valuation allowance.
In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S. and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due. If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. We include interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.
On August 31, 2010 we reached an agreement with the Internal Revenue Service ("IRS") for tax years 2000 through 2002. The adjustments were offset by applying available net operating losses and had no material impact on our Statement of Operations. Our U.S. federal income tax returns for 2003 through 2007 are under audit by the IRS. In December 2010, we reached an agreement with the IRS for tax years 2003-2005. In addition, Agilent and the IRS reached an agreement on transfer pricing issues covering years 2003-2007. Tax adjustments resulting from these agreements will be offset with net operating losses and tax credit carryforwards.
Global Infrastructure Organization
Agilent's global infrastructure organization ("GIO") remains a key component of our operating model. GIO, which includes IT, workplace services, human resources, legal, finance and other corporate functions, has reduced its cost structure over the past year in conjunction with the business restructuring that was completed. We will continue to efficiently manage and leverage our infrastructure resources to support our businesses in the coming year.
Segment Overview
Agilent is a measurement company providing core bio-analytical and electronic measurement solutions to the life sciences, chemical analysis, communications and electronics industries. Agilent has three primary businesses focused on the life sciences market, the chemical analysis market and the electronic measurement market.
In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment was separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises a reportable segment. The three new operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including technology and delivery channels, consumer-specific solutions and specialized manufacturing, are considered in determining the formation of these new operating segments.
All historical segment numbers have been recast to conform to this new reporting structure in our financial statements.
52
Life Sciences
Our life sciences business provides application-focused solutions that include instruments, software, consumables, and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Key product categories in life sciences include: DNA and RNA microarrays and associated scanner, software, and reagents; microfluidics-based sample analysis systems; liquid chromatography (LC) systems, columns and components; liquid chromatography mass spectrometry (LCMS) systems; capillary electrophoresis systems; laboratory software and informatics systems; bio-reagents and related products; laboratory automation and robotic systems, dissolution testing; Nuclear Magnetic Resonance (NMR) and Magnetic Resonance Imaging (MRI) systems along with X-Ray crystallography, and services and support for the aforementioned products.
Orders and Net Revenue
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
|
(in millions)
|
|
|
||||||||||||
|
Orders |
$ | 1,526 | $ | 1,234 | $ | 1,313 | 24% | (6)% | |||||||
|
Net revenue from products |
$ | 1,179 | $ | 964 | $ | 1,008 | 22% | (4)% | |||||||
|
Net revenue from services and other |
300 | 255 | 250 | 18% | 2% | ||||||||||
|
Total net revenue |
$ | 1,479 | $ | 1,219 | $ | 1,258 | 21% | (3)% | |||||||
Life sciences orders in 2010 increased 24 percent compared to 2009. Excluding the Varian acquisition and the Hycor divestiture, orders grew 15 percent year over year. Order results were led by strength in the LC, microarray, and automation portfolios, along with consumables and services. This helped to offset soft sales in bio-reagents. We saw solid performance in new products, such as the 1200 Infinity LC Series and SureSelect Target Enrichment System. Growth in consumables was especially driven by sales of LC columns. Geographically, excluding the impact of the Varian acquisition and the Hycor divestiture, orders grew 15 percent in the Americas, 4 percent in Europe, 12 percent in Japan, and 31 percent in other Asia Pacific during 2010 when compared to 2009. In 2009, orders declined 6 percent when compared to 2008, impacted by the significant downturn in the global economy although the business was able to sustain growth in key markets such as academic and government.
Life sciences revenues in 2010 increased 21 percent compared to 2009. Excluding the Varian acquisition and the Hycor divestiture, revenue grew 14 percent year over year. In addition, foreign currency movements for 2010 had a favorable currency impact of 2 percentage points compared to 2009. Revenue growth was led by the LC, LCMS, informatics, genomics, and consumables portfolios. Geographically, excluding the impact of the Varian acquisition and the Hycor divestiture, revenues grew 14 percent in the Americas, 7 percent in Europe, 18 percent in Japan, and 25 percent in other Asia Pacific during 2010 when compared to 2009. In 2009, revenue declined 3 percent when compared to 2008, impacted by the significant downturn in the global economy with mixed results across geographies.
We saw growth in the pharmaceutical and biotech, academic, government, food, and other applied markets. Governments are investing in improving testing capabilities, with growing demand for LC and LCMS technology, along with consumables. In the research space, demand for life science application solutions (genomics, metabolomics, and proteomics) is sustained. In the food market, interest in food safety remains with expanding opportunities on functional food testing using metabolomics studies. Other applied markets such as forensics, with interest in LCMS usage, are
53
gaining momentum. Next generation sequencing continues on an aggressive growth path and is capturing a large portion of funding in the genomics field and the SureSelect Target Enrichment System can help our customers improve the cost and process efficiency of next generation sequencing.
Looking forward, we expect sustained growth in the academic, government, pharmaceutical and biotech markets to drive further demand in our instruments, reagents, application solutions, and consumables products. In our life sciences sales channel coverage model, we are specifically adding capabilities to address life science applications expertise. The life sciences business also remains focused on expanding our application portfolio for our customers. We have a strong line of new product introductions coming to drive further order and revenue growth.
In addition, our strategic focus is to ensure the successful integration of Varian. With the acquisition of Varian, the life sciences business now has an expanded product portfolio, including complementary products in liquid chromatography, mass spectrometry, consumables, new offerings in dissolution testing, and magnetic resonance (NMR, MRI). Revenue synergies are expected with the expansion of our product portfolio and ability to offer new applications and solutions to life sciences customers. Cost synergies will result from leveraging our global infrastructure and our purchasing power.
Gross Margin and Operating Margin
The following table shows the life sciences business's margins, expenses and income from operations for 2010 versus 2009, and 2009 versus 2008.
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
Total gross margin |
53.5 | % | 54.2 | % | 53.1 | % | (1) ppt | 1 ppt | |||||||
|
Operating margin |
15.0 | % | 14.3 | % | 13.2 | % | 1 ppt | 1 ppt | |||||||
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development |
$ | 142 | $ | 131 | $ | 134 | 9% | (2)% | |||||||
|
Selling, general and administrative |
$ | 427 | $ | 356 | $ | 368 | 20% | (3)% | |||||||
|
Income from operations |
$ | 221 | $ | 174 | $ | 166 | 27% | 5% | |||||||
Gross margins for products and services in 2010 decreased 1 percentage point compared to 2009. Changes in 2010 were due to the impact of the Varian acquisition, wage restoration, higher variable pay and incentive pay, and higher shared corporate infrastructure expenses partially offset by favorable volume impact. Gross margins improved by 1 percentage point in 2009 compared to 2008 as wage reductions, lower variable pay, lower global infrastructure costs and favorable currency movements were partially offset by lower volume and higher discounts.
Research and development expenses in 2010 increased 9 percent compared to 2009. In addition to an increase related to the Varian acquisition, the increase was due to selective investments in new product introductions, wage restoration, higher variable pay and incentive pay partially offset by lower shared corporate infrastructure expenses and the impact of the Hycor divestiture. Research and development expenses declined 2 percent in 2009 compared to 2008. The decline was driven by wage reductions, lower variable pay, lower global infrastructure costs and favorable foreign currency movements partially offset by increase in discretionary spending.
Selling, general and administrative expenses in 2010 increased 20 percent compared to 2009. In addition to increases due to the Varian acquisition, increases resulted from the establishment and
54
staffing of the dedicated life sciences sales channel, higher commissions, wage restoration, higher variable pay and incentive pay, and higher shared corporate infrastructure expenses partially offset by the impact of the Hycor divestiture. Selling, general and administrative expenses declined 3 percent in 2009 compared to 2008. The decline was driven by wage reductions, lower variable pay, lower global infrastructure costs and foreign currency movements.
Operating margins for products and services in 2010 increased 1 percentage point compared to 2009. Operating margins improved by 1 percentage point in 2009 compared to 2008. Factors which led to operating margin variances for these periods are collectively highlighted in the above discussions on gross margins, research and development expenses, and selling, general and administrative expenses.
Income from Operations
Income from operations in 2010 increased by $47 million or 27 percent on a corresponding revenue increase of $260 million. The resultant year-over-year operating margin incremental was 18 percent. Operating margin incremental is measured by the increase in income compared to prior period from operations divided by the increase in revenue compared to the prior period. Income from operations in 2009 increased by $8 million or 5 percent compared to 2008 on a revenue decrease of $39 million due to the temporary wage and variable pay reduction.
Chemical Analysis
Our chemical analysis business provides application-focused solutions that include instruments, software, consumables, and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Key product categories in chemical analysis include: gas chromatography systems, columns and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry products; spectroscopy products; software and data systems; vacuum pumps and measurement technologies; services and support for the aforementioned products.
Orders and Net Revenue
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
|
(in millions)
|
|
|
||||||||||||
|
Orders |
$ | 1,224 | $ | 853 | $ | 962 | 43% | (11)% | |||||||
|
Net revenue from products |
$ | 954 | $ | 653 | $ | 726 | 46% | (10)% | |||||||
|
Net revenue from services and other |
246 | 191 | 211 | 29% | (9)% | ||||||||||
|
Total net revenue |
$ | 1,200 | $ | 844 | $ | 937 | 42% | (10)% | |||||||
Chemical analysis orders in 2010 increased 43 percent compared to 2009. Excluding the Varian acquisition, orders grew 17 percent year-over-year. Order results were led by solid performance in the gas chromatography ("GC"), gas chromatography mass spectrometry ("GC-MS"), inductively coupled plasma mass spectrometry ("ICP-MS"), and vacuum pump portfolios, along with services and consumables. Growth in the services and support business was driven by strong instrument orders. Geographically, excluding the impact of the Varian acquisition, orders grew 17 percent in the Americas, 9 percent in Europe, 21 percent in Japan, and 25 percent in other Asia Pacific during 2010 when compared to 2009. In 2009, orders declined 11 percent when compared to 2008, impacted by the significant downturn in the global economy although the business was able to sustain growth in the food safety and China markets.
55
Chemical analysis revenues for the 2010 increased 42 percent compared to 2009. Excluding the Varian acquisition, revenue grew 15 percent year-over-year. Revenue growth was led by the GC, GC-MS, ICP-MS, mid-range GC, and vacuum pump portfolios, along with consumables. Geographically, excluding the impact of the Varian acquisition, revenues grew 13 percent in the Americas, 8 percent in Europe, 24 percent in Japan, and 21 percent in other Asia Pacific during 2010 when compared to 2009. In 2009 revenue declined 10 percent when compared to 2008, impacted by the significant downturn in the global economy with declines in our main geographies, except for China.
We saw continued robust growth in the petrochemical, food, and environmental markets. The hydrocarbon processing industry within the petrochemical market is recovering from the recession. The food market remains strong for pesticide, veterinary medicine, and emerging applications worldwide. United States stimulus funding has prompted increased construction projects, leading to growth in air, water, and soil testing. China's government continues to invest in environmental protection and improvement, with emphasis on drinking water quality. European directives continue to be the major business drivers for environmental analysis in both the public and private sector, with emphasis on emissions testing for construction materials.
Looking forward, we look to strengthen our core business, drive growth, and build upon current success in customer satisfaction. We plan to strengthen our core business by expanding our mid-range portfolio with GC-MS and GC solutions, improving our gross margins, and driving customer intimacy. We intend to drive growth by focusing on the emerging food market and exceptional geographic growth opportunities in China. We also plan to expand our consumables business and high-end mass spectrometry portfolio.
In addition, our strategic focus is to ensure the successful integration of Varian. With the acquisition of Varian, the chemical analysis product portfolio now has new offerings in spectroscopy and vacuum technologies, complementary mass spectrometry products, and an expanded consumables portfolio. Revenue synergies are expected as a result of the new product portfolio and broader customer and geographic reach. Cost synergies will result from leveraging our global infrastructure and our purchasing power.
Gross Margin and Operating Margin
The following table shows the chemical analysis business's margins, expenses and income from operations for 2010 versus 2009, and 2009 versus 2008.
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
Total gross margin |
53.5 | % | 54.4 | % | 54.8 | % | (1) ppt | — | |||||||
|
Operating margin |
23.3 | % | 25.6 | % | 26.0 | % | (2) ppt | — | |||||||
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development |
$ | 68 | $ | 50 | $ | 54 | 36% | (8)% | |||||||
|
Selling, general and administrative |
$ | 294 | $ | 193 | $ | 215 | 52% | (10)% | |||||||
|
Income from operations |
$ | 279 | $ | 216 | $ | 244 | 29% | (12)% | |||||||
Gross margins for products and services in 2010 decreased 1 percentage point compared to 2009. The addition of the Varian portfolio drove the margin decline. Other factors impacting gross margins were higher variable pay and incentive pay, wage restoration, and higher shared corporate infrastructure expenses, offset by favorable volume impact and currency movements. Gross margins were relatively flat in 2009 compared to 2008 as lower volume and higher discounts were offset by
56
wage reductions, lower variable pay, lower global infrastructure costs and favorable currency movements.
Research and development expenses in 2010 increased 36 percent compared to 2009. In addition to an increase related to the Varian acquisition, the increase was due to wage restoration, higher variable pay and incentive pay, higher shared corporate infrastructure expenses, and higher discretionary spending. Research and development expenses declined 8 percent in 2009 compared to 2008. The decline was driven by wage reductions, lower variable pay, lower discretionary spending and favorable foreign currency movements.
Selling, general and administrative expenses in 2010 increased 52 percent compared to 2009. In addition to increases due to the Varian acquisition, increases resulted from increased commissions, wage restoration, higher variable pay and incentive pay and higher shared corporate infrastructure expenses. Selling, general and administrative expenses declined 10 percent in 2009 compared to 2008. The decline was driven by wage reductions, lower variable pay, lower global infrastructure costs and foreign currency movements.
Operating margins for products and services in 2010 decreased 2 percentage points compared to 2009. Operating margins were relatively flat in 2009 compared to 2008. Factors which led to operating margin variances for these periods are collectively highlighted in the above discussions on gross margins, research and development expenses, and selling, general and administrative expenses.
Income from Operations
Income from operations in 2010 increased by $63 million or 29 percent on a corresponding revenue increase of $356 million. The resultant year-over-year operating margin incremental was 18 percent. Income from operations in 2009 decreased by $28 million or 12 percent compared to 2008 on a corresponding revenue decrease of $93 million, a 30 percent year-over-year operating margin decremental.
Electronic Measurement
Our electronic measurement business provides electronic measurement instruments and systems, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment, and microscopy products. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer's product lifecycle.
Orders and Net Revenue
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
|
(in millions)
|
|
|
||||||||||||
|
Orders |
$ | 2,994 | $ | 2,399 | $ | 3,475 | 25% | (31)% | |||||||
|
Net revenue from products |
$ | 2,345 | $ | 1,949 | $ | 3,062 | 20% | (36)% | |||||||
|
Net revenue from services and other |
439 | 469 | 517 | (6)% | (9)% | ||||||||||
|
Total net revenue |
$ | 2,784 | $ | 2,418 | $ | 3,579 | 15% | (32)% | |||||||
Electronic measurement orders increased 25 percent in 2010, a significant improvement from the 31 percent decline in 2009 when overall demand was negatively impacted by broad economic
57
weakness. Foreign currency movements had a slightly favorable impact on the year-over-year growth rate. In our general purpose test business, growth was led by improvement in the computers and semiconductor market with solid performance in aerospace and defense and industrial applications. In our communications test business, strengthening wireless R&D and manufacturing related demand was partially offset by a decline in network monitoring associated with the divestiture of the network solutions business. On a geographic basis, 2010 orders increased 14 percent in the Americas, 19 percent in Europe, 29 percent in Japan and 45 percent in other Asia Pacific. Electronic measurement orders declined 31 percent in 2009 compared to 2008, as order trends deteriorated and then improved with the global economic recovery and strengthening demand, particularly in our general purpose segment.
Electronic measurement revenues grew 15 percent in 2010 compared to a 32 percent decline in 2009 due to a broad-based recovery across both general purpose and communications test markets. Foreign currency movements were slightly favorable, contributing to the year-over-year growth in 2010. Regionally, revenues from the Americas increased 8 percent, Europe grew 12 percent, Japan improved 7 percent and other Asia Pacific increased 32 percent compared to 2009. Revenue from products increased 20 percent year-over-year while service related revenue declined as a result of the divestiture of the network solutions business. Electronic measurement revenues declined 32 percent in 2009 compared to 2008, reflecting weakness across general purpose and communications test markets in all geographies.
General purpose test revenues, representing approximately 64 percent of electronic measurement revenues, reflected strength in the computers and semiconductor business, solid growth in aerospace and defense, and improvement in demand from industrial customers. Strength in the computers and semiconductor business reflected the growing demand for cell phones, computers and electronics. Aerospace and defense business growth was consistent with the focus in the United States on improving information management, with faster growth in surveillance and intelligence, and increased spending in Asia. Overall improvement in economic conditions contributed to more demand from customers with industrial or general purpose applications. General purpose test revenues, representing approximately 63 percent of electronic measurement revenue in 2009, reflected declines across all market segments with steeper declines in the computer and semiconductor and other general purpose test business.
Communications test revenues, representing approximately 36 percent of electronic measurement revenues, experienced growth in wireless R&D and manufacturing test, offset partially by a decline in network monitoring business resulting from the divestiture of the network solutions business. Wireless R&D grew as market conditions improved and targeted investments increased for high data rate applications, including long-term evolution (an emerging wireless standard). Wireless manufacturing business increased due to strong demand relating to Smartphones and 3G expansion. Performance in other communications test submarket reflected growth in broadband revenues offset by the unfavorable impact of the network solutions divestiture. Communications test revenues, representing approximately 37 percent of electronic measurement revenues in 2009, reflected weakness across all end markets, particularly wireless manufacturing.
Looking forward, we expect growth rates will moderate as a result of comparisons to stronger 2010 results, particularly for the general purpose test business. We expect continuing demand from our key market segments to support overall growth in the near term, subject to continuing economic expansion and stability in the semiconductor industry.
58
Gross Margin and Operating Margin
The following table shows the electronic measurement business's margins, expenses and income from operations for 2010 versus 2009 and 2009 versus 2008.
|
|
Years Ended October 31, |
|
|
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 over 2009
Change |
2009 over 2008
Change |
|||||||||||||
|
|
2010 | 2009 | 2008 | ||||||||||||
|
Total gross margin |
58.4 | % | 53.5 | % | 57.6 | % | 5 ppts | (4) ppts | |||||||
|
Operating margin |
15.7 | % | — | % | 13.3 | % | 16 ppts | (13) ppts | |||||||
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|||||
|
Research and development |
$ | 391 | $ | 425 | $ | 509 | (8)% | (17)% | |||||||
|
Selling, general and administrative |
$ | 798 | $ | 869 | $ | 1,076 | (8)% | (19)% | |||||||
|
Income from operations |
$ | 438 | $ | 1 | $ | 477 | 100% | (100)% | |||||||
Gross margins for products and services increased 5 percentage points year-over-year in 2010 due to higher volume, lower cost structure and favorable currency impact. Volume-adjusted gross margins improved relative to 2009 primarily due to savings from restructuring programs, favorable currency impact including hedging gains and lower infrastructure costs, which were partially offset by wage restoration and higher variable pay. Gross margins for products and services declined 4 percentage points year-over-year in 2009 compared to 2008 due primarily to the significant decline in revenue.
Research and development expenses in 2010 declined $34 million, or 8 percent, compared to 2009. This decline was driven primarily by savings from restructuring programs, lower infrastructure costs and spending reductions of which a portion related to the network solutions business divestiture that were partially offset by wage restoration, an increase in variable pay and the unfavorable year-over-year impact of currency movements. Research and development expenses in 2009 declined $84 million, or 17 percent, compared to 2008 due to lower variable pay, wage reductions, savings from restructuring, lower infrastructure costs and the favorable year-over-year impact of currency movements, which were offset by higher pension benefit expenses.
Selling, general and administrative expenses in 2010 decreased $71 million, or 8 percent, compared to 2009. Similar to R&D, year-over-year reductions in selling, general and administrative expenses were driven by savings from restructuring programs, lower infrastructure costs and reduced spending partly related to the network solutions business divestiture, which were partially offset by wage restoration and higher variable pay, unfavorable year-over-year impact of currency movements and higher commissions. Selling, general and administrative expenses in 2009 decreased $207 million, or 19 percent, compared to 2008 driven by lower variable pay, wage reductions, savings from restructuring, lower infrastructure costs, reduced commissions and the favorable year-over-year impact of currency movements, which were offset by higher pension benefit expenses.
Operating margins increased by 16 percentage points in 2010 compared to 2009 due to the combination of higher revenue volume and structural and operational expense reductions. Operating margins declined by 13 percentage points in 2009 compared to 2008 due to lower revenue volume that was partially offset by spending reductions.
59
Income from Operations
Income from operations increased by $437 million in 2010 compared to 2009 on a revenue increase of $366 million, a 119 percent year-over-year operating margin incremental that reflects the benefit of structural and operational expense reductions. The resultant year-over-year operating margin incremental is expected to moderate going forward as compares are made against relatively stronger 2010 results. Income from operations declined by $476 million in 2009 compared to 2008 on a revenue decrease of $1,161 million, a 41 percent year-over-year operating margin decremental as structural and operational expense reductions offset the unfavorable impact of lower revenue.
Financial Condition
Liquidity and Capital Resources
As of October 31, 2010, approximately 37 percent of our cash and cash equivalents is held in the U.S. and 40 percent is held in a centrally managed global cash pool outside the U.S. Most of the amounts held outside of the U.S. could be repatriated to the U.S. but, under current law, would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. Agilent has accrued for U.S. federal and state tax liabilities on the earnings of its foreign subsidiaries except when the earnings are considered indefinitely reinvested outside of the U.S. Repatriation could result in additional U.S. federal and state income tax payments in future years. We utilize a variety of financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.
Our financial position as of October 31, 2010 consisted of cash and cash equivalents of $2,649 million as compared to $2,479 million as of October 31, 2009.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $718 million in 2010 compared to $408 million provided in 2009 mainly due to improved operating results. We paid approximately $48 million in taxes in 2010 as compared to $113 million in the same period in 2009. In 2008, we generated $756 million in net cash provided by operating activities.
In 2010, accounts receivable used cash of $166 million as compared to cash provided of $193 million in 2009. Days' sales outstanding were 50 days in 2010 as compared to 46 days in 2009. Accounts payable provided cash of $113 million in 2010 as compared to cash used of $7 million in 2009. Cash used in inventory was $51 million in 2010 compared to cash provided of $47 million in 2009. Inventory day's on-hand decreased to 87 days in 2010 compared to 93 days in 2009.
We contributed $30 million and $37 million to our U.S. defined benefit plans in 2010 and 2009, respectively. We contributed $47 million and $71 million to our non-U.S. defined benefit plans in 2010 and 2009, respectively. We contributed $1 million to our U.S. post-retirement benefit plans in 2010 and 2009. Our non-U.S. defined benefit plans are generally funded ratably throughout the year. Total contributions in 2010 were $78 million or 28 percent less than 2009. Our annual contributions are highly dependent on the relative performance of our assets versus our projected liabilities, among other factors. We expect to contribute approximately $83 million to our U.S. and non-U.S. defined benefit plans during 2011.
Net Cash Used in Investing Activities
Net cash used in investing activities in 2010 was $1,174 million compared to $14 million used in 2009. In 2008, we used $399 million of net cash in the investing activities of operations.
60
Investments in property, plant and equipment were $121 million in 2010 and $128 million in 2009. Proceeds from sale of property, plant and equipment were $7 million in 2010 as compared to $1 million in 2009. In 2010, we invested $1,313 million in acquisitions of businesses and intangible assets compared to $2 million in 2009 which was primarily related to our acquisition of Varian. In 2008, we invested $172 million in acquisitions of businesses and purchase of intangible assets. In 2010, we did not purchase any investment securities as compared to $30 million in 2009. Proceeds from the sale of such securities in 2010 were $38 million as compared to $94 million in 2009. Proceeds from divestitures were $205 million in 2010, primarily our network solutions and Hycor businesses, compared to $45 million in 2009.
Net Cash Provided by Financing Activities
Net cash provided by financing activities in 2010 was $601 million compared to $657 million provided in 2009. In 2008, we used $774 million in financing activities.
Treasury stock repurchases
On November 19, 2009 our Board of Directors approved a share-repurchase program to reduce or eliminate dilution of basic outstanding shares in connection with issuances of stock under the company's equity incentive plans. The share-repurchase program does not require the company to acquire a specific number of shares and may be suspended or discontinued at any time. There is no fixed termination date for the new share-repurchase program. For the year ended October 31, 2010 we repurchased 13 million shares for $411 million using settlement date calculation.
Credit Facility
On May 11, 2007, we entered into a five-year credit agreement, which provides for a $300 million unsecured credit facility that will expire on May 11, 2012. On September 8, 2009, we entered into an Accession Agreement, increasing the credit facility from $300 million to $330 million. The company may use amounts borrowed under the facility for general corporate purposes. As of October 31, 2010 the company has no borrowings outstanding under the facility.
Short-term debt
We currently hold $1.5 billion of short-term debt (the "World Trade Debt") which was refinanced and the repayment date was extended to January 27, 2011. We satisfied the financing obligation of World Trade in its entirety on December 10, 2010 using the proceeds of our senior notes issued in July 2010 and existing cash on our balance sheet.
Long-term debt
On October 24, 2007, the company issued an aggregate principal amount of $600 million in senior notes. The senior notes were issued at 99.60% of their principal amount. The notes will mature on November 1, 2017, and bear interest at a fixed rate of 6.50% per annum. The interest is payable semi-annually on May 1 st and November 1 st of each year and payments commenced on May 1, 2008.
On November 25, 2008, we terminated two interest rate swap contracts associated with our 2017 senior notes that represented the notional amount of $400 million. The asset value upon termination was approximately $43 million and the amount to be amortized at October 31, 2010 was $35 million.
On September 9, 2009, Agilent issued two tranches of senior notes with an aggregate principal amount of $750 million, a $250 million tranche maturing in 2012 (the "2012 notes") and a $500 million tranche maturing in 2015 (the "2015 notes"). The 2012 notes were issued at 99.91% of their principal
61
amount, bear interest at a fixed rate of 4.45% per annum, and mature on September 14, 2012. The 2015 notes were issued at 99.69% of their principal amount, bear interest at a fixed rate of 5.50% per annum, and mature on September 14, 2015. Interest on both tranches is payable semi-annually on March 14th and September 14th of each year, and payments commenced on March 14, 2010.
On July 13, 2010, Agilent issued two tranches of senior notes with an aggregate principal amount of $750 million, a $250 million tranche maturing in 2013 (the "2013 notes") and a $500 million tranche maturing in 2020 (the "2020 notes"). The 2013 notes were issued at 99.82% of their principal amount, bear interest at a fixed rate of 2.50% per annum and mature on July 15, 2013. The 2020 notes were issued at 99.54% of their principal amount, bear interest at a fixed rate of 5.00% per annum, and mature on July 15, 2020. Interest on both tranches is payable semi-annually on January 15th and July 15th of each year, payments commencing on January 15, 2011.
Upon the closing of the offering of the 2012, 2015 and 2020 senior notes, we entered into interest rate swaps for the full aggregate notional amount of the aforementioned tranches, $1,250 million. Under the interest rate swaps, we will receive fixed-rate interest payments and will make payments based on the U.S. dollar LIBOR plus 253 basis points, 257.6 basis points and 179 basis points with respect to the 2015, 2012 and 2020 senior notes, respectively. The economic effect of these swaps will be to convert the fixed-rate interest expense on the senior notes to a variable LIBOR-based interest rate. The hedging relationship qualifies for the shortcut method of assessing hedge effectiveness, and consequently we do not expect any ineffectiveness during the life of the swap and any movement in the value of the swap would be reflected in the movement in fair value of the senior notes. At October 31, 2010, the fair value of the swaps was an asset of $61 million with a corresponding increase in carrying value of the senior notes.
On August 11, 2008, a consolidated wholly-owned subsidiary of Agilent, borrowed Indian Rupees equivalent to $15 million from Citibank N.A. to finance a capital project in India. On March 30, 2010 we paid off this debt completely.
On June 3, 2010, as a result of the Varian acquisition, the company also paid $14 million to satisfy an outstanding term loan of Varian with a U.S. financial institution which had a fixed interest rate of 6.7%. The $14 million payment of the term loan included an early termination fee of $2 million.
Off Balance Sheet Arrangements and Other
We have contractual commitments for non-cancelable operating leases. See Note 17 "Commitments and Contingencies", to our consolidated financial statements for further information on our non-cancelable operating leases.
Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets. Our cash balances are generated and held in many locations throughout the world. Local government regulations may restrict our ability to move cash balances to meet cash needs under certain circumstances. We do not currently expect such regulations and restrictions to impact our ability to pay vendors and conduct operations throughout our global organization.
Contractual Commitments
Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors.
62
The following table summarizes our total contractual obligations at October 31, 2010 for operations and excludes amounts recorded in our consolidated balance sheet (in millions):
|
|
Less than one
year |
One to three years | Three to five years | More than five years | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Operating leases |
$ | 57 | $ | 77 | $ | 36 | $ | 31 | ||||||
|
Commitments to contract manufacturers and suppliers |
749 | 8 | — | — | ||||||||||
|
Other purchase commitments |
23 | 32 | 12 | 4 | ||||||||||
|
Retirement plans |
83 | — | — | — | ||||||||||
|
Total |
$ | 912 | $ | 117 | $ | 48 | $ | 35 | ||||||
Operating leases. Commitments under operating leases relate primarily to leasehold property.
Commitments to contract manufacturers and suppliers. We purchase components from a variety of suppliers and use several contract manufacturers to provide manufacturing services for our products. During the normal course of business, we issue purchase orders with estimates of our requirements several months ahead of the delivery dates. However, our agreements with these suppliers usually provide us the option to cancel, reschedule, and adjust our requirements based on our business needs prior to firm orders being placed. Typically purchase orders outstanding with delivery dates within 30 days are non-cancelable. Therefore, only approximately 40 percent of our reported purchase commitments arising from these agreements are firm, non-cancelable, and unconditional commitments. We expect to fulfill all purchase commitments for inventory within one year.
In addition to the above mentioned commitments to contract manufacturers and suppliers, we record a liability for firm, non-cancelable, and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with our policy relating to excess inventory. As of October 31, 2010, the liability for our firm, non-cancelable and unconditional purchase commitments was $4 million, compared to same amount as of October 31, 2009. These amounts are included in other accrued liabilities in our consolidated balance sheet.
Other purchase commitments. These relate primarily to contracts with professional services suppliers. Purchase commitments are typically cancelable within a 90-day period without significant penalties.
Retirement Plans. Commitments under the retirement plans relate to expected contributions to be made to our U.S. and non U.S. defined benefit plans and to our post-retirement medical plans.
We had no material off-balance sheet arrangements as of October 31, 2010 or October 31, 2009.
63
On Balance Sheet Arrangements
The following table summarizes our total contractual obligations recorded in our consolidated balance sheet pertaining to long-term debt (in millions):
|
|
Less than one
year |
One to three years | Three to five years | More than five years | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
World Trade debt |
$ | 1,500 | $ | — | $ | — | $ | — | ||||||
|
Senior notes |
— | 500 | 500 | 1,100 | ||||||||||
|
Other debt |
1 | — | — | — | ||||||||||
|
Total |
$ | 1,501 | $ | 500 | $ | 500 | $ | 1,100 | ||||||
We have contractual obligations for interest payments on the above debts. Interest rates and payment dates are detailed in "Net Cash Provided by Financing Activities".
As of October 31, 2010, $430 million of taxes payable are included in other long-term liabilities. We are unable to accurately predict when these amounts will be paid or released.
64
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to foreign currency exchange rate risks inherent in our sales commitments, anticipated sales, and assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. We hedge future cash flows denominated in currencies other than the functional currency using sales forecasts up to twelve months in advance. Our exposure to exchange rate risks is managed on an enterprise-wide basis. This strategy utilizes derivative financial instruments, including option and forward contracts, to hedge certain foreign currency exposures with the intent of offsetting gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging them. We do not currently and do not intend to utilize derivative financial instruments for speculative trading purposes.
Our operations generate non-functional currency cash flows such as revenues, third party vendor payments and inter-company payments. In anticipation of these foreign currency cash flows and in view of volatility of the currency market, we enter into such foreign exchange contracts as are described above to manage our currency risk. Approximately 63 percent of our revenues in 2010, 62 percent of our revenues in 2009 and 65 percent of our revenues in 2008 were generated in U.S. dollars.
We performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of October 31, 2010 and 2009, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.
We are also exposed to interest rate risk due to the mismatch between the interest expense we pay on our loans at fixed rates and the variable rates of interest we receive from cash, cash equivalents and other short-term investments. We have issued long-term debt in U.S. dollars or foreign currencies at fixed interest rates based on the market conditions at the time of financing. We believe that the fair value of our fixed rate debt changes when the underlying market rates of interest change, and we may use interest rate swaps to modify such market risk. The interest rate swaps effectively change our fixed interest rate payments to U.S. dollar LIBOR-based variable interest expense to match the floating interest income from our cash, cash equivalents and other short term investments. By entering into these interest rate swaps we are also hedging the movements in the fair value of the fixed-rate debt on our balance sheet. However, not all of our fixed rate debt's fair value is hedged in this manner, and in the future we may choose to terminate previously executed swaps.
We performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in interest rates relating to the underlying fair value of our fixed rate debt. As of October 31, 2010, the sensitivity analyses indicated that a hypothetical 10 percent adverse movement in interest rates would result in an immaterial impact to the fair value of our fixed interest rate debt.
65
Item 8.
Financial Statements and Supplementary Data
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Agilent Technologies, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 8 present fairly, in all material respects, the financial position of Agilent Technologies, Inc. and its subsidiaries at October 31, 2010 and October 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 5 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions as of November 1, 2007.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PRICEWATERHOUSECOOPERS LLP
San Jose,
California
December 17, 2010
67
AGILENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
|
|
Years Ended October 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||
|
|
(in millions, except per
share data) |
||||||||||
|
Net revenue: |
|||||||||||
|
Products |
$ | 4,464 | $ | 3,566 | $ | 4,804 | |||||
|
Services and other |
980 | 915 | 970 | ||||||||
|
Total net revenue |
5,444 | 4,481 | 5,774 | ||||||||
|
Costs and expenses: |
|||||||||||
|
Cost of products |
1,976 | 1,692 | 2,030 | ||||||||
|
Cost of services and other |
538 | 497 | 548 | ||||||||
|
Total costs |
2,514 | 2,189 | 2,578 | ||||||||
|
Research and development |
612 | 642 | 704 | ||||||||
|
Selling, general and administrative |
1,752 | 1,603 | 1,697 | ||||||||
|
Total costs and expenses |
4,878 | 4,434 | 4,979 | ||||||||
|
Income from operations |
566 | 47 | 795 | ||||||||
|
Interest income |
20 | 29 | 113 | ||||||||
|
Interest expense |
(96 | ) | (88 | ) | (123 | ) | |||||
|
Gain on sale of network solutions business, net |
132 | — | — | ||||||||
|
Other income (expense), net |
70 | 19 | 30 | ||||||||
|
Income before taxes |
692 | 7 | 815 | ||||||||
|
Provision for income taxes |
8 | 38 | 122 | ||||||||
|
Net income (loss) |
$ | 684 | $ | (31 | ) | $ | 693 | ||||
|
Net income (loss) per share — Basic: |
$ | 1.97 | $ | (0.09 | ) | $ | 1.91 | ||||
|
Net income (loss) per share — Diluted: |
$ | 1.94 | $ | (0.09 | ) | $ | 1.87 | ||||
|
Weighted average shares used in computing net income (loss) per share: |
|||||||||||
|
Basic |
347 | 346 | 363 | ||||||||
|
Diluted |
353 | 346 | 371 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
68
AGILENT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
|
|
October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||||
|
|
(in millions, except
par value and share data) |
|||||||||
|
ASSETS |
||||||||||
|
Current assets: |
||||||||||
|
Cash and cash equivalents |
$ | 2,649 | $ | 2,479 | ||||||
|
Short-term restricted cash and cash equivalents |
1,550 | — | ||||||||
|
Short-term investments |
— | 14 | ||||||||
|
Accounts receivable, net |
869 | 595 | ||||||||
|
Inventory |
716 | 552 | ||||||||
|
Other current assets |
385 | 321 | ||||||||
|
Total current assets |
6,169 | 3,961 | ||||||||
|
Property, plant and equipment, net |
980 | 845 | ||||||||
|
Goodwill |
1,456 | 655 | ||||||||
|
Other intangible assets, net |
494 | 167 | ||||||||
|
Long-term restricted cash and cash equivalents |
6 | 1,566 | ||||||||
|
Long-term investments |
142 | 163 | ||||||||
|
Other assets |
449 | 255 | ||||||||
|
Total assets |
$ | 9,696 | $ | 7,612 | ||||||
|
LIABILITIES AND EQUITY |
||||||||||
|
Current liabilities: |
||||||||||
|
Accounts payable |
$ | 499 | $ | 307 | ||||||
|
Employee compensation and benefits |
395 | 336 | ||||||||
|
Deferred revenue |
358 | 285 | ||||||||
|
Short-term debt |
1,501 | 1 | ||||||||
|
Other accrued liabilities |
330 | 194 | ||||||||
|
Total current liabilities |
3,083 | 1,123 | ||||||||
|
Long-term debt |
2,190 | 2,904 | ||||||||
|
Retirement and post-retirement benefits |
477 | 498 | ||||||||
|
Other long-term liabilities |
710 | 573 | ||||||||
|
Total liabilities |
6,460 | 5,098 | ||||||||
|
Commitments and contingencies (Note 17) |
||||||||||
|
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; 579 million shares at October 31, 2010 and 566 million shares at October 31, 2009 issued |
6 | 6 | ||||||||
|
Treasury stock at cost; 233 million shares at October 31, 2010 and 220 million shares at October 31, 2009 |
(8,038 | ) | (7,627 | ) | ||||||
|
Additional paid-in-capital |
7,904 | 7,552 | ||||||||
|
Retained earnings |
3,444 | 2,760 | ||||||||
|
Accumulated other comprehensive loss |
(88 | ) | (185 | ) | ||||||
|
Total stockholder's equity |
3,228 | 2,506 | ||||||||
|
Non-controlling interest |
8 | 8 | ||||||||
|
Total equity |
3,236 | 2,514 | ||||||||
|
Total liabilities and equity |
$ | 9,696 | $ | 7,612 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
69
AGILENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
Years Ended October 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||||
|
|
(in millions)
|
||||||||||||
|
Cash flows from operating activities: |
|||||||||||||
|
Net income (loss) |
$ | 684 | $ | (31 | ) | $ | 693 | ||||||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|||||||||||||
|
Depreciation and amortization |
202 | 162 | 201 | ||||||||||
|
Share-based compensation |
66 | 71 | 82 | ||||||||||
|
Deferred taxes |
(109 | ) | 28 | (53 | ) | ||||||||
|
Excess and obsolete inventory-related charges |
30 | 54 | 24 | ||||||||||
|
Translation gain from liquidation of a subsidiary |
— | — | (25 | ) | |||||||||
|
Non-cash restructuring and asset impairment charges |
26 | 39 | 8 | ||||||||||
|
Net(gain) loss on sale of investments |
(2 | ) | — | 4 | |||||||||
|
Net (gain) loss on sale of assets and divestitures |
(127 | ) | (6 | ) | 2 | ||||||||
|
Net pension curtailment and settlement gains |
— | (16 | ) | — | |||||||||
|
Other |
— | 2 | (1 | ) | |||||||||
|
Changes in assets and liabilities: |
|||||||||||||
|
Accounts receivable, net |
(166 | ) | 193 | (44 | ) | ||||||||
|
Inventory |
(51 | ) | 47 | (14 | ) | ||||||||
|
Accounts payable |
113 | (7 | ) | (21 | ) | ||||||||
|
Employee compensation and benefits |
17 | (86 | ) | (10 | ) | ||||||||
|
Interest rate swap proceeds |
— | 43 | — | ||||||||||
|
Other assets and liabilities |
35 | (85 | ) | (90 | ) | ||||||||
|
Net cash provided by operating activities |
718 | 408 | 756 | ||||||||||
|
Cash flows from investing activities: |
|||||||||||||
|
Investments in property, plant and equipment |
(121 | ) | (128 | ) | (154 | ) | |||||||
|
Proceeds from the sale of property, plant and equipment |
7 | 1 | 14 | ||||||||||
|
Purchase of investment securities |
— | (30 | ) | (256 | ) | ||||||||
|
Proceeds from the sale of investment securities |
38 | 94 | 150 | ||||||||||
|
Proceeds from divestitures, net |
205 | 45 | — | ||||||||||
|
Change in restricted cash, cash equivalents and investments, net |
10 | 16 | 33 | ||||||||||
|
Purchase of minority interest |
— | (10 | ) | (14 | ) | ||||||||
|
Acquisitions of businesses and intangible assets, net of cash acquired |
(1,313 | ) | (2 | ) | (172 | ) | |||||||
|
Net cash used in investing activities |
(1,174 | ) | (14 | ) | (399 | ) | |||||||
|
Cash flows from financing activities: |
|||||||||||||
|
Issuance of common stock under employee stock plans |
299 | 71 | 211 | ||||||||||
|
Treasury stock repurchases |
(411 | ) | (157 | ) | (1,001 | ) | |||||||
|
Proceeds from credit facility |
— | 325 | 510 | ||||||||||
|
Repayment of credit facility |
— | (325 | ) | (510 | ) | ||||||||
|
Proceeds from long-term debt and senior notes |
747 | 748 | 16 | ||||||||||
|
Debt issuance costs |
(5 | ) | (5 | ) | — | ||||||||
|
Payment of long-term debts |
(29 | ) | — | — | |||||||||
|
Net cash provided by (used in) financing activities |
601 | 657 | (774 | ) | |||||||||
|
Effect of exchange rate movements |
25 | 23 | (4 | ) | |||||||||
|
Net increase (decrease) in cash and cash equivalents |
170 | 1,074 | (421 | ) | |||||||||
|
Cash and cash equivalents at beginning of year |
2,479 | 1,405 | 1,826 | ||||||||||
|
Cash and cash equivalents at end of year |
$ | 2,649 | $ | 2,479 | $ | 1,405 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
70
AGILENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF EQUITY
|
|
Common Stock | Treasury Stock |
|
|
|
|
|
|||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Accumulated
Other Comprehensive Income/(Loss) |
|
|
|
|||||||||||||||||||||||||||
|
|
Number
of Shares |
Par
Value |
Additional
Paid-in Capital |
Number
of Shares |
Treasury
Stock at Cost |
Retained
Earnings |
Total
Stockholders Equity |
Non-
Controlling Interests |
Total
Equity |
|||||||||||||||||||||||
|
|
(in millions, except number of shares in thousands)
|
|||||||||||||||||||||||||||||||
|
Balance as of October 31, 2007 |
551,122 | $ | 6 | $ | 7,117 | (180,741 | ) | $ | (6,469 | ) | $ | 2,172 | $ | 408 | $ | 3,234 | $ | 14 | $ | 3,248 | ||||||||||||
|
Components of comprehensive income: |
||||||||||||||||||||||||||||||||
|
Net income |
— | — | — | — | — | 693 | — | 693 | — | 693 | ||||||||||||||||||||||
|
Change in unrealized gain on investments |
— | — | — | — | — | — | (40 | ) | (40 | ) | — | (40 | ) | |||||||||||||||||||
|
Change in unrealized gain on derivative instruments |
— | — | — | — | — | — | (26 | ) | (26 | ) | — | (26 | ) | |||||||||||||||||||
|
Translation gain reclassified into earnings related to liquidation of a subsidiary |
— | — | — | — | — | — | (25 | ) | (25 | ) | — | (25 | ) | |||||||||||||||||||
|
Change in foreign currency translation |
— | — | — | — | — | — | (100 | ) | (100 | ) | — | (100 | ) | |||||||||||||||||||
|
Deferred taxes, primarily related to unrealized losses on investments and derivatives |
— | — | — | — | — | — | 13 | 13 | — | 13 | ||||||||||||||||||||||
|
Change in deferred net pension costs: |
— | |||||||||||||||||||||||||||||||
|
Net loss, including tax impact |
(409 | ) | (409 | ) | — | (409 | ) | |||||||||||||||||||||||||
|
Net prior service credit |
— | — | — | — | — | — | 1 | 1 | — | 1 | ||||||||||||||||||||||
|
Total comprehensive income |
107 | — | 107 | |||||||||||||||||||||||||||||
|
Net income attributable to non-controlling interests |
— | — | — | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||
|
Distributions to non-controlling interests |
— | — | — | — | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||||||
|
Adjustment to initially apply amendment to ASC 740, "Income Taxes" |
— | — | — | — | — | (74 | ) | — | (74 | ) | — | (74 | ) | |||||||||||||||||||
|
Share-based awards issued |
9,545 | — | 211 | — | — | — | — | 211 | — | 211 | ||||||||||||||||||||||
|
Repurchase of common stock |
— | — | — | (30,081 | ) | (1,001 | ) | — | — | (1,001 | ) | — | (1,001 | ) | ||||||||||||||||||
|
Share-based compensation |
— | — | 82 | — | — | — | — | 82 | — | 82 | ||||||||||||||||||||||
|
Balance as of October 31, 2008 |
560,667 | 6 | 7,410 | (210,822 | ) | (7,470 | ) | 2,791 | (178 | ) | 2,559 | 14 | 2,573 | |||||||||||||||||||
|
Components of comprehensive income: |
||||||||||||||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (31 | ) | — | (31 | ) | — | (31 | ) | |||||||||||||||||||
|
Change in unrealized loss on investments |
— | — | — | — | — | — | 6 | 6 | — | 6 | ||||||||||||||||||||||
|
Change in unrealized loss on derivative instruments |
— | — | — | — | — | — | 1 | 1 | — | 1 | ||||||||||||||||||||||
|
Losses reclassified into earnings related to derivative instruments |
— | — | — | — | — | — | 23 | 23 | — | 23 | ||||||||||||||||||||||
|
Change in foreign currency translation |
— | — | — | — | — | — | 157 | 157 | — | 157 | ||||||||||||||||||||||
|
Deferred taxes, primarily related to derivatives |
— | — | — | — | — | — | (6 | ) | (6 | ) | — | (6 | ) | |||||||||||||||||||
|
Change in deferred net pension costs: |
||||||||||||||||||||||||||||||||
|
Net loss, including tax impact |
— | — | — | — | — | — | (287 | ) | (287 | ) | — | (287 | ) | |||||||||||||||||||
|
Net prior service credit |
— | — | — | — | — | — | 99 | 99 | — | 99 | ||||||||||||||||||||||
|
Total comprehensive loss |
(38 | ) | — | (38 | ) | |||||||||||||||||||||||||||
|
Net income attributable to non-controlling interests |
— | — | — | — | — | — | — | — | 7 | 7 | ||||||||||||||||||||||
|
Distributions to non-controlling interests |
— | — | — | — | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||||||
|
Purchase of non-controlling interests |
— | — | — | — | — | — | — | — | (10 | ) | (10 | ) | ||||||||||||||||||||
|
Share-based awards issued |
5,400 | — | 71 | — | — | — | — | 71 | — | 71 | ||||||||||||||||||||||
|
Repurchase of common stock |
— | — | — | (9,097 | ) | (157 | ) | — | — | (157 | ) | — | (157 | ) | ||||||||||||||||||
|
Share-based compensation |
— | — | 71 | — | — | — | — | 71 | — | 71 | ||||||||||||||||||||||
|
Balance as of October 31, 2009 |
566,067 | $ | 6 | $ | 7,552 | (219,919 | ) | $ | (7,627 | ) | $ | 2,760 | $ | (185 | ) | $ | 2,506 | $ | 8 | $ | 2,514 | |||||||||||
71
AGILENT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF EQUITY — (Continued)
|
|
Common Stock | Treasury Stock |
|
|
|
|
|
|||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Accumulated
Other Comprehensive Income/(Loss) |
|
|
|
|||||||||||||||||||||||||||
|
|
Number
of Shares |
Par
Value |
Additional
Paid-in Capital |
Number
of Shares |
Treasury
Stock at Cost |
Retained
Earnings |
Total
Stockholders Equity |
Non-
Controlling Interests |
Total
Equity |
|||||||||||||||||||||||
|
|
(in millions, except number of shares in thousands)
|
|||||||||||||||||||||||||||||||
|
Balance as of October 31, 2009 |
566,067 | $ | 6 | $ | 7,552 | (219,919 | ) | $ | (7,627 | ) | $ | 2,760 | $ | (185 | ) | $ | 2,506 | $ | 8 | $ | 2,514 | |||||||||||
|
Components of comprehensive income: |
||||||||||||||||||||||||||||||||
|
Net income |
— | — | — | — | — | 684 | — | 684 | — | 684 | ||||||||||||||||||||||
|
Change in unrealized gain on investments |
— | — | — | — | — | — | 1 | 1 | — | 1 | ||||||||||||||||||||||
|
Change in unrealized loss on derivative instruments |
— | — | — | — | — | — | 4 | 4 | — | 4 | ||||||||||||||||||||||
|
Losses reclassified into earnings related to derivative instruments |
— | — | — | — | — | — | (7 | ) | (7 | ) | — | (7 | ) | |||||||||||||||||||
|
Change in foreign currency translation |
— | — | — | — | — | — | 70 | 70 | — | 70 | ||||||||||||||||||||||
|
Deferred taxes, primarily related to pensions |
— | — | — | — | — | — | 10 | 10 | — | 10 | ||||||||||||||||||||||
|
Change in deferred net pension costs: |
||||||||||||||||||||||||||||||||
|
Net gain |
— | — | — | — | — | — | 44 | 44 | — | 44 | ||||||||||||||||||||||
|
Net prior service cost |
— | — | — | — | — | — | (25 | ) | (25 | ) | (25 | ) | ||||||||||||||||||||
|
Total comprehensive income |
781 | — | 781 | |||||||||||||||||||||||||||||
|
Share-based awards issued |
12,760 | — | 288 | — | — | — | — | 288 | — | 288 | ||||||||||||||||||||||
|
Repurchase of common stock |
— | — | — | (12,764 | ) | (411 | ) | — | — | (411 | ) | — | (411 | ) | ||||||||||||||||||
|
Share-based compensation |
— | — | 64 | — | — | — | — | 64 | — | 64 | ||||||||||||||||||||||
|
Balance as of October 31, 2010 |
578,827 | $ | 6 | $ | 7,904 | (232,683 | ) | $ | (8,038 | ) | $ | 3,444 | $ | (88 | ) | $ | 3,228 | $ | 8 | $ | 3,236 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
72
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview. Agilent Technologies, Inc. ("we", "Agilent" or the "company"), incorporated in Delaware in May 1999, is a measurement company, providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries.
Acquisition of Varian, Inc. On May 14, 2010, we completed our acquisition of Varian, Inc. ("Varian"), a leading supplier of scientific instrumentation and associated consumables for life science and chemical analysis market applications, by means of a merger of one of our wholly-owned subsidiaries with and into Varian such that Varian became a wholly-owned subsidiary of Agilent. The $1.5 billion total purchase price of Varian included $52 cash per share of Varian's outstanding common stock including vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varian's non-vested restricted stock awards, non-vested performance shares, at 100 percent of target, and non-vested director's stock units were also paid at $52 per share. As part of the European Commission's merger approval and the Federal Trade Commission consent order, Agilent committed to sell Varian's laboratory gas chromatography ("GC") business; Varian's triple quadrupole gas chromatography-mass spectrometry ("GC-MS") business; Varian's inductively-coupled plasma-mass spectrometry ("ICP-MS") business; and Agilent's micro GC business. On May 19, 2010 we completed the sale of the Varian laboratory GC business, the triple quadrupole GC-MS business, the ICP-MS business and the Agilent micro GC business for approximately $33 million. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. The Varian merger has been accounted for in accordance with the authoritative accounting guidance and the results of Varian are included in Agilent's consolidated financial statements from the date of merger. We expect to realize operational and cost synergies, leverage the existing sales channels and product development resources, and utilize the assembled workforce. The company expects the combined entity to achieve significant savings in corporate and divisional overhead costs. The company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities. For additional details related to the acquisition of Varian, see Note 3, "Acquisition of Varian".
Sale of Network Solutions Division. On May 1, 2010, we completed the sale of the Network Solutions Division ("NSD") of our electronic measurement business to JDS Uniphase Corporation ("JDSU"), a leading communications test and measurement company. JDSU paid Agilent $160 million and we recorded a net gain on the sale of NSD of $132 million in fiscal 2010. NSD includes Agilent's network assurance solutions, network protocol test and drive test products. The results of operations of NSD were not significant to the income from operations of Agilent for the year ended October 31, 2010.
Sale of Hycor Biomedical, Inc. On February 2, 2010, the company sold Hycor Biomedical Inc., a wholly-owned subsidiary, to Linden LLC, a Chicago-based healthcare private equity firm. Hycor is a global manufacturer and marketer of in vitro diagnostics products.
Basis of presentation. The accompanying financial data has been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") and is in conformity with U.S. generally accepted accounting principles ("GAAP"). Our fiscal year end is October 31. Unless otherwise stated, all years and dates refer to our fiscal year.
73
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Management is responsible for the fair presentation of the accompanying consolidated financial statements, prepared in accordance with U.S. GAAP, and has full responsibility for their integrity and accuracy. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary to present fairly our consolidated balance sheet, statement of operations, statement of cash flows and statement of stockholders' equity for all periods presented.
Reclassifications. Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income.
Principles of consolidation. The consolidated financial statements include the accounts of the company and our wholly- and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Partially owned, non-controlled equity affiliates are accounted for under the equity method.
Use of estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our 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, investment impairments, share-based compensation, retirement and post-retirement plan assumptions, goodwill and purchased intangible assets, restructuring and asset impairment charges and accounting for income taxes.
Revenue recognition. We enter into agreements to sell products (hardware and/or software), services and other arrangements (multiple element arrangements) that include combinations of products and services.
We recognize revenue, net of trade discounts and allowances, provided that (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the price is fixed or determinable and (4) collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, for products, or when the service has been provided. We consider the price to be fixed or determinable when the price is not subject to refund or adjustments. We consider arrangements with extended payment terms not to be fixed or determinable, and accordingly we defer revenue until amounts become due. At the time of the transaction, we evaluate the creditworthiness of our customers to determine the appropriate timing of revenue recognition.
Product revenue. Our product revenue is generated predominantly from the sales of various types of test equipment. Product revenue, including sales to resellers and distributors, is reduced for estimated returns, when appropriate. For sales or arrangements that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones, revenue is recognized after the acceptance criteria have been met. For products that include installation, if the installation meets the criteria to be considered a separate element, product revenue is recognized upon delivery, and recognition of installation revenue is delayed until the installation is complete. Otherwise, neither the product nor the installation revenue is recognized until the installation is complete.
74
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Where software is licensed separately, revenue is recognized when the software is delivered and title and risk of loss have been transferred to the customer or, in the case of electronic delivery of software, when the customer is given access to the licensed software programs. We also evaluate whether collection of the receivable is probable, the fee is fixed or determinable and whether any other undelivered elements of the arrangement exist on which a portion of the total fee would be allocated based on vendor-specific objective evidence.
Service revenue. Revenue from services includes extended warranty, customer support, consulting, training and education. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. For example, customer support contracts are recognized ratably over the contractual period, while training revenue is recognized as the training is provided to the customer. In addition the four revenue recognition criteria described above must be met before service revenue is recognized.
Multiple element arrangements. We use verifiable objective evidence of fair value or vendor-specific objective evidence of fair value for software to allocate revenue to elements in multiple element arrangements. We recognize revenue for delivered elements only when delivered elements have stand alone value, fair value of undelivered elements are known and there are no customer negotiated refund or return rights affecting the revenue recognized for the delivered elements. If the criteria are not met, then revenue is deferred until such criteria are met or until the period(s) over which the last undelivered element is delivered. In the absence of fair value of a delivered element, we allocate revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements. The price charged when an element is sold separately generally determines fair value.
Deferred revenue. Amounts billed or collected in advance of the period in which the related product or service qualifies for revenue recognition are recorded as deferred revenue.
Accounts receivable, net. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Such accounts receivable has been reduced by an allowance for doubtful accounts, which is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on customer specific experience and the aging of such receivables, among other factors. We do not have any off-balance-sheet credit exposure related to our customers. Accounts receivable are also recorded net of product returns.
Share-based compensation. For the years ended 2010, 2009 and 2008, we accounted for share-based awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our Employee Stock Purchase Plan ("ESPP") and performance share awards under Agilent Technologies, Inc. Long-Term Performance Program ("LTPP") using the estimated grant date fair value method of accounting in accordance with the revised authoritative guidance. Under the fair value method, we recorded compensation expense for all share-based awards of $66 million in 2010, $71 million in 2009 and $82 million in 2008.
Inventory. Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of market value. We assess the valuation of our inventory on a periodic basis and make adjustments to the value for estimated excess and obsolete inventory based on estimates about future demand. The excess balance determined by this analysis becomes the basis for our excess inventory charge. Our excess inventory review process includes analysis of sales forecasts,
75
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
managing product rollovers and working with manufacturing to maximize recovery of excess inventory.
Taxes on income. Income tax expense or benefit is based on income or loss before taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.
Warranty. Our standard warranty terms typically extend for one year from the date of delivery. We accrue for standard warranty costs based on historical trends in warranty charges as a percentage of net product revenue . The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates. Estimated warranty charges are recorded within cost of products at the time products are sold. See Note 16, "Guarantees".
Shipping and handling costs. Our shipping and handling costs charged to customers are included in net revenue, and the associated expense is recorded in cost of products for all periods presented.
Goodwill and Purchased Intangible Assets. We review goodwill for impairment annually as of September 30 and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with the authoritative guidance. The circumstances that could trigger a goodwill impairment could include, but are not limited to, the following items to the extent that management believes the occurrence of one or more would make it more likely than not that we would fail the first step of the goodwill impairment test (as described in the next paragraph): significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, a portion of a reporting unit's goodwill has been included in the carrying amounts of a business that will be disposed or if our market capitalization is below our net book value.
The provisions of authoritative guidance require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. The second step (if necessary) measures the amount of impairment by applying fair-value-based tests to the individual assets and liabilities within each reporting unit. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. Accordingly, we have aggregated components of an operating segment that have similar economic characteristics into our reporting units. At the time of an acquisition, we assign goodwill to the reporting unit that is expected to benefit from the synergies of the combination. For 2010, Agilent had three reporting units, which were the same as our operating segments: life sciences, chemical analysis and electronic measurement.
The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment, as our businesses operate in a number of markets and geographical regions. We determine the fair value of our reporting units based on an income approach, whereby we calculate the fair value of each reporting unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends, current budgets, operating plans and industry data. We evaluate the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, taking into account an
76
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
appropriate control premium. We then compare the carrying value of our reporting units to the fair value calculations based on the income approach noted above.
If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its goodwill carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit's assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. Estimates of the future cash flows associated with the businesses are critical to these assessments. Changes in these estimates based on changed economic conditions or business strategies could result in material impairment charges in future periods.
Purchased intangible assets consist primarily of acquired developed technologies, proprietary know-how, trademarks, and customer relationships and are amortized using the straight-line method over estimated useful lives ranging from 6 months to 15 years. In process research and development ("IPR&D") is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, Agilent will record a charge for the value of the related intangible asset to Agilent's consolidated statement of operations in the period it is abandoned.
Advertising. Advertising costs are expensed as incurred and amounted to $45 million in 2010, $36 million in 2009 and $45 million in 2008 for Agilent operations.
Research and development. Costs related to research, design and development of our products are charged to research and development expense as they are incurred.
Sales Taxes. Sales taxes collected from customers and remitted to governmental authorities are not included in our revenue.
Net income (loss) per share. Basic net income (loss) per share is computed by dividing net income (loss) — the numerator — by the weighted average number of common shares outstanding — the denominator — during the period excluding the dilutive effect of stock options and other employee stock plans. Diluted net income per share gives effect to all potentially dilutive common stock equivalents outstanding during the period. In computing diluted net income per share under the treasury stock method, the average stock price for the period is used in determining the number of shares assumed to be purchased from the proceeds of stock option exercises. The number of shares assumed to be purchased also considers the amount of unrecognized compensation cost for future service. As a result of the company's net loss in 2009, the computation of diluted net loss per share for 2009 excludes the diluted impact of all common stock equivalents outstanding. Diluted net income (loss) per share for fiscal years 2010, 2009 and 2008 excluded the potentially dilutive effect of 11 million, 29 million and 7 million options to purchase common stock, respectively, as their effect was antidilutive.
77
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash, cash equivalents and short term investments. We classify investments as cash equivalents if their original or remaining maturity is three months or less at the date of purchase. Cash equivalents are stated at cost, which approximates fair value.
As of October 31, 2010, approximately 37 percent of our cash and cash equivalents is held in the U.S. and 40 percent is held in a centrally managed global cash pool outside the U.S. The remainder is held by other Agilent entities throughout the world. Approximately 12 percent of our overall cash and cash equivalents is maintained in demand deposit accounts with global financial institutions of high credit quality and is available to be used in paying and receiving activities. The remainder is invested in institutional money market funds, short-term bank time deposits and similar short duration instruments with fixed maturities from overnight to three months. We continuously monitor the creditworthiness of the financial institutions and institutional money market funds in which we invest our funds.
We classify investments as short-term investments if their original or remaining maturities are greater than three months and their remaining maturities are one year or less.
Restricted cash and cash equivalents was $1.6 billion in 2010 and 2009 mostly held in commercial paper.
Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, short-term debt, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. Agilent determines the fair value of short-term and long-term investments in debt securities considering information obtained from independent pricing sources. The fair value of long-term equity investments is determined using quoted market prices for those securities when available. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. See also Note 12, "Fair Value Measurements" for additional information on the fair value of financial instruments.
Concentration of credit risk. Financial instruments that potentially subject Agilent to significant concentration of credit risk include money market fund investments, time deposits, commercial paper and demand deposit balances. These investments are categorized as cash and cash equivalents, restricted cash and cash equivalents and short-term and long-term investments. In addition, Agilent has credit risk from derivative financial instruments used in hedging activities and accounts receivable. We invest in a variety of financial instruments and limit the amount of credit exposure with any one financial institution. Credit risk with respect to our accounts receivable is diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographies. We have a comprehensive credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount and we sell the majority of our products through our direct sales force. Credit risk is mitigated through collateral such as letter of credit, bank guarantees or payment terms like cash in advance. Credit evaluation is performed by an independent team to ensure proper segregation of duties. No single customer accounted for more than 10 percent or more of combined accounts receivable as of October 31, 2010 and October 31, 2009.
78
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative instruments. Agilent is exposed to global market exchange rate and interest rate risks in the normal course of business. We enter into foreign exchange contracts, primarily forward contracts and purchased options and interest rate swaps to manage financial exposures resulting from changes in foreign currency exchange rates and interest rates. In the vast majority of cases, these contracts are designated at inception as hedges of the related foreign currency or interest exposures. Foreign currency exposures include committed and anticipated revenue and expense transactions and assets and liabilities that are denominated in currencies other than the functional currency of the subsidiary. Interest rate exposures are associated with the company's fixed-rate debt. For option contracts, we exclude time value from the measurement of effectiveness. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate and interest rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies; foreign exchange hedging contracts generally mature within twelve months and interest rate swaps mature at the same time as the maturity of the debt. In order to manage foreign currency exposures in a few limited jurisdictions, such as China, we may enter into foreign exchange contracts that do not qualify for hedge accounting. In such circumstances, the local foreign currency exposure is offset by contracts owned by the parent company. We do not use derivative financial instruments for speculative trading purposes.
All derivatives are recognized on the balance sheet at their fair values. For derivative instruments that are designated and qualify as a fair value hedge, changes in value of the derivative are recognized in the consolidated statement of operations in the current period, along with the offsetting gain or loss on the hedged item attributable to the hedged risk. For derivative instruments that are designated and qualify as a cash flow or net investment hedge, changes in the value of the effective portion of the derivative instrument is recognized in accumulated comprehensive income, a component of stockholders' equity. Amounts associated with cash flow hedges are reclassified and recognized in income when either the forecasted transaction occurs or it becomes probable the forecasted transaction will not occur. Amounts associated with net investment hedges are recognized only when the subsidiary is sold or liquidated. Derivatives not designated as hedging instruments are recorded on the balance sheet at their fair value and changes in the fair values are recorded in the income statement in the current period. Derivative instruments are subject to master netting arrangements and qualify for net presentation in the balance sheet. Changes in the fair value of the ineffective portion of derivative instruments are recognized in earnings in the current period. Ineffectiveness in 2010, 2009 and 2008 was not significant.
Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized; maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from our general ledger, and the resulting gain or loss is reflected in the consolidated statement of operations. Buildings and improvements are depreciated over the lesser of their useful lives or the remaining term of the lease and machinery and equipment over three to ten years. We currently use the straight-line method to depreciate assets.
Leases. We lease buildings, machinery and equipment under operating leases for original terms ranging generally from one to fifteen years. Certain leases contain renewal options for periods up to six years.
79
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalized software. We capitalize certain internal and external costs incurred to acquire or create internal use software. Capitalized software is included in property, plant and equipment and is depreciated over three to five years once development is complete.
Impairment of long-lived assets. We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.
Employee compensation and benefits. Amounts owed to employees, such as accrued salary, bonuses and vacation benefits are accounted for within employee compensation and benefits. The total amount of accrued vacation benefit was $ 142 million as of October 31, 2010 and $133 million as of October 31, 2009.
Foreign currency translation. We translate and remeasure balance sheet and income statement items into U.S. dollars. For those subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S. dollars using current exchange rates; revenue and expenses are translated using monthly exchange rates which approximate to average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of accumulated comprehensive loss in stockholders' equity. The cumulative translation adjustment balance at October 31, 2010 and 2009 was an unrealized gain of $460 million and $390 million, respectively.
For those subsidiaries that operate in a U.S. dollar functional environment, foreign currency assets and liabilities are remeasured into U.S. dollars at current exchange rates except for nonmonetary assets and capital accounts which are remeasured at historical exchange rates. Revenue and expenses are generally remeasured at monthly exchange rates which approximate average exchange rates in effect during each period. Gains or losses from foreign currency remeasurement are included in consolidated net income (loss). Net gains or losses resulting from foreign currency transactions, including hedging gains and losses, reported in other income (expense), net and were $1 million net loss for both fiscal years 2010 and 2009 and $4 million net gain for fiscal year 2008.
2. NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued guidance on measurements of fair value. The guidance defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. The guidance does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued authoritative guidance which allowed for the delay of the effective date of the authoritative guidance for nonfinancial assets and nonfinancial liabilities, except for certain items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Effective November 1, 2008, we adopted the measurement and disclosure requirements related to financial assets and financial liabilities. The adoption of the guidance for financial assets and financial liabilities did not have a material impact on the company's results of operations or the fair values of its financial
80
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
assets and liabilities. We adopted the provisions for nonfinancial assets and nonfinancial liabilities as of November 1, 2009 and there was no material impact on our consolidated financial statements.
In December 2007, the FASB issued amendments to the guidance for business combinations. The revised guidance provides the recognition and measurement requirements of identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also requires additional disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. As a result of adopting the amended guidance on November 1, 2009, approximately $6 million of business combination costs, previously capitalized, were recognized in net income for the three months ended January 31, 2010. In process research and development ("IPR&D") is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, Agilent will record a charge for the value of the related intangible asset to Agilent's consolidated statement of operations in the period it is abandoned.
In December 2007, the FASB issued new guidance on non-controlling interests in consolidated financial statements. The guidance requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This guidance was effective beginning November 1, 2009 and had no material impact on our consolidated financial statements.
In January 2010, the FASB issued guidance that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. The guidance is effective for interim and annual periods beginning after December 15, 2009, except for gross presentation of activity in level 3 which is effective for annual periods beginning after December 15, 2010, and for interim periods in those years. We adopted the guidance for new disclosures for fair value measurements and clarification for existing disclosure requirements as of February 1, 2010 and there was no material impact on our consolidated financial statements. We do not expect a material impact on our consolidated financial statements when we adopt the guidance for level 3 activity. See Note 12, "Fair Value Measurements" for additional information on the fair value of financial instruments.
In December 2008, the FASB issued amendments to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. The guidance requires detailed disclosures regarding the investment strategies, fair value measurements, and concentrations of risk of plan assets of a defined benefit pension or other postretirement plan. The authoritative guidance is effective for fiscal years ending after December 15, 2009 and will be applied prospectively. As required, the company has adopted the guidance effective October 31, 2010 (see Note 15, "Retirement Plans and Post Retirement Pension Plans"). The adoption of the amendments did not have a material impact to our consolidated financial statements.
In October 2009, the FASB amended revenue recognition guidance for arrangements with multiple deliverables. The guidance eliminates the residual method of revenue recognition and allows the use of management's best estimate of selling price for individual elements of an arrangement when vendor
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
specific objective evidence (VSOE), vendor objective evidence (VOE) or third-party evidence (TPE) is unavailable. This guidance should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Full retrospective application of the guidance is optional. We are still in the process of evaluating the impact of adopting this guidance but do not expect it to have a material impact on our consolidated financial statements.
In October 2009, the FASB issued guidance which amends the scope of existing software revenue recognition accounting. Tangible products containing software components and non-software components that function together to deliver the product's essential functionality would be scoped out of the accounting guidance on software and accounted for based on other appropriate revenue recognition guidance. This guidance should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Full retrospective application of the new guidance is optional. This guidance must be adopted in the same period that we adopt the amended accounting for arrangements with multiple deliverables described in the preceding paragraph. We are still in the process of evaluating the impact of adopting this guidance but do not expect it to have a material impact on our consolidated financial statements.
In April 2010, the FASB issued guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010, with early adoption permitted. We do not expect a material impact on our consolidated financial statements due to the adoption of this guidance.
3. ACQUISITION OF VARIAN
On May 14, 2010, we completed the previously announced acquisition of Varian through the merger of Varian and Cobalt Acquisition Corp., a direct wholly-owned subsidiary of Agilent (the "Purchaser") under the Merger Agreement, dated July 26, 2009. As a result of the merger, Varian has become a wholly-owned subsidiary of Agilent. Accordingly, the results of Varian are included in Agilent's consolidated financial statements from the date of the merger. For the period from May 15, 2010 to October 31, 2010, Varian's net revenue was $320 million.
The consideration paid was approximately $1,507 million, comprising $52 cash per share of Varian's outstanding common stock. We also paid $17 million to acquire Varian's vested in-the money stock options at $52 cash per share less their exercise price. In addition we paid $12 million for Varian's non-vested in-the-money stock options at $52 cash per share less their exercise price, Varian's non-vested restricted stock awards and non-vested performance shares, at 100 percent of target each at $52 cash per share. In accordance with the authoritative accounting guidance, settlement of the non-vested awards is considered to be for the performance of post combination services and is therefore stock-based compensation expensed immediately after acquisition. Agilent funded the acquisition using the proceeds from our September 2009 offering of senior notes and other existing cash.
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Varian merger 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 independent third party specialists, discounted cash flow analyses, quoted market prices where available, and estimates made by management. We expect to realize operational and cost synergies, leverage the existing sales channels and product development resources, and utilize the assembled workforce. The company expects the combined entity to achieve significant savings in corporate and divisional overhead costs. The company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of Varian'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. We do not expect the goodwill recognized to be deductible for income tax purposes. Any impairment charges made in the future associated with goodwill will not be tax deductible.
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, approximately $138 million was established as a deferred tax liability for the future amortization of these intangibles.
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 May 14, 2010 (in millions):
|
Cash and cash equivalents |
$ | 226 | ||
|
Accounts receivable |
138 | |||
|
Inventories |
170 | |||
|
Other current assets |
47 | |||
|
Property, plant and equipment |
126 | |||
|
Intangible assets |
417 | |||
|
Other assets |
13 | |||
|
Goodwill |
787 | |||
|
Total assets acquired |
1,924 | |||
|
Accounts payable |
(65 | ) | ||
|
Employee compensation and benefits |
(43 | ) | ||
|
Deferred revenue |
(30 | ) | ||
|
Other accrued liabilities |
(72 | ) | ||
|
Long-term debt |
(15 | ) | ||
|
Retirement and post-retirement benefits |
(18 | ) | ||
|
Other long-term liabilities |
(157 | ) | ||
|
Net assets acquired |
$ | 1,524 | ||
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.
83
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values for acquired inventory, property, plant and equipment, intangible assets, retirement and post-retirement benefits, and deferred revenue were determined with the assistance of valuations performed by independent valuation specialists.
The fair values of certain other assets, long-term debt, and certain other long-term liabilities were determined internally using discounted cash flow analyses and estimates made by management.
The company has completed its business combination accounting as of May 14, 2010.
Valuations of intangible assets acquired
The components of intangible assets acquired in connection with the Varian acquisition were as follows (in millions):
|
|
Fair Value | Estimated Useful Life | |||||
|---|---|---|---|---|---|---|---|
|
Developed product technology |
$ | 221 | 1-7 yrs | ||||
|
Customer relationships |
157 | 2-10 yrs | |||||
|
Tradenames and trademarks |
10 | 1.5 yrs | |||||
|
Order backlog |
9 | 0.5-1 yr | |||||
|
Total intangible assets subject to amortization |
397 | ||||||
|
In-process research and development |
20 | ||||||
|
Total intangible assets |
$ | 417 | |||||
Acquisition and integration costs directly related to the Varian merger totaled $102 million for the year ended October 31, 2010 and were substantially recorded in selling, general and administrative expenses. Such costs are expensed in accordance with the authoritative accounting guidance.
The following represents pro forma operating results as if Varian had been included in the company's condensed consolidated statements of operations as of the beginning of the fiscal years presented (in millions, except per share amounts):
|
|
2010 | 2009 | |||||
|---|---|---|---|---|---|---|---|
|
Net revenue |
$ | 5,871 | $ | 5,258 | |||
|
Net income (loss) |
$ | 648 | $ | (192 | ) | ||
|
Net income (loss) per share — basic |
$ | 1.87 | $ | (0.55 | ) | ||
|
Net income (loss) per share — diluted |
$ | 1.84 | $ | (0.55 | ) | ||
The pro forma financial information assumes that the companies were combined as of November 1, 2009 and 2008 and include business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, reduction in revenue and increase in cost of sales due to the respective estimated fair value adjustments to deferred revenue and inventory, decrease to interest income for cash used in the acquisition, increase in interest expense associated with debt issue to fund the acquisition, acquisition related transaction costs 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 2010 and 2009.
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The unaudited pro forma financial information for the year ended October 31, 2010 combine the historical results of Agilent for the year ended October 31, 2010 (which include Varian after the acquisition date) and the historical results of Varian for the six months ended April 2, 2010 and the period May 1, 2010 to May 14, 2010.
The unaudited pro forma financial information for the year ended October 31, 2009 combine the historical results of Agilent for the year ended October 31, 2009 and the historical results for Varian for the year ended October 2, 2009 (due to differences in reporting periods).
4. SHARE-BASED COMPENSATION
Agilent accounts for share-based awards in accordance with the provisions of the revised accounting guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our ESPP and performance share awards granted to selected members of our senior management under the LTPP based on estimated fair values.
Description of Share-Based Plans
Employee stock purchase plan. Effective November 1, 2000, we adopted the ESPP. Prior to November 1, 2008, under the provisions of the ESPP, eligible employees could contribute up to ten percent of their base compensation to purchase shares of our common stock at 85 percent of the lower of the fair market value at the entry date or the purchase date of each offering period, as defined by the ESPP. Effective November 1, 2008, the Compensation Committee of Board of Directors approved a change to our ESPP that eliminated the look back period. The ESPP will continue to allow eligible employees to purchase shares of our common stock at 85 percent of the purchase price, but only uses the purchase date to establish the fair market value. As of October 31, 2010, the number of shares of common stock authorized and available for issuance under our ESPP was 31,384,979. Shares authorized for issuance in connection with the ESPP are subject to an automatic annual increase of the lesser of one percent of the outstanding shares of common stock of Agilent on November 1, or an amount determined by the Compensation Committee of our Board of Directors. Under the terms of the ESPP, in no event shall the number of shares issued under the ESPP exceed 75 million shares.
Incentive compensation plans. On November 19, 2008 and March 11, 2009, the Compensation Committee of Board of Directors and the stockholders, respectively, approved the Agilent Technologies, Inc. 2009 Stock Plan (the "2009 Stock Plan") to replace the Company's 1999 Stock Plan and 1999 Stock Non-Employee Director Stock Plan and subsequently reserved 25 million shares of Company common stock that may be issued under the 2009 Plan, plus any shares forfeited or cancelled under the 1999 Stock Plan. The 2009 Stock Plan provides for the grant of awards in the form of stock options, stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), performance shares and performance units with performance-based conditions on vesting or exercisability, and cash awards. The 2009 Plan has a term of ten years. As of October 31, 2010, 23,937,201 shares were available for future awards under the 2009 Stock Plan.
Stock options granted under the 2009 Stock Plans may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory. Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant and generally have a maximum
85
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
contractual term of ten years. The exercise price for stock options is generally not less than 100 percent of the fair market value of our common stock on the date the stock award is granted.
Effective November 1, 2003, the Compensation Committee of the Board of Directors approved the LTPP, which is a performance stock award program under the 1999 and 2009 Stock Plans, for the company's executive officers and other key employees. Participants in this program are entitled to receive unrestricted shares of the company's stock after the end of a three-year period, if specified performance targets are met. LTPP awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison set at the beginning of the performance period. Based on the performance metrics the final award may vary from zero to 200 percent of the target award. The maximum contractual term for awards under the LTPP program is three years. We consider the dilutive impact of this program in our diluted net income (loss) per share calculation only to the extent that the performance conditions are met.
In March 2007, we began to issue restricted stock units under our share-based plans. The estimated fair value of the restricted stock unit awards granted under the Stock Plans is determined based on the market price of Agilent's common stock on the date of grant. Restricted stock units generally vest at a rate of 25 percent per year over a period of four years from the date of grant.
Impact of Share-Based Compensation Awards
We have recognized compensation expense based on the estimated grant date fair value method under the revised authoritative guidance. For all share-based awards we have recognized compensation expense using a straight-line amortization method. As the guidance requires that share-based compensation expense be based on awards that are ultimately expected to vest, estimated share-based compensation has been reduced for estimated forfeitures.
The impact on our results for share-based compensation was as follows:
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Cost of products and services |
$ | 14 | $ | 14 | $ | 17 | ||||
|
Research and development |
10 | 11 | 13 | |||||||
|
Selling, general and administrative |
42 | 46 | 52 | |||||||
|
Total share-based compensation expense |
$ | 66 | $ | 71 | $ | 82 | ||||
At October 31, 2010 there was no share-based compensation capitalized within inventory. Income tax benefit recognized in 2010, 2009 and 2008 in the statement of operations for share-based compensation was not material. The weighted average grant date fair value of options, granted in 2010, 2009 and 2008 was $9.81, $5.77 and $12.01 per share, respectively.
Included in the 2010 and 2009 expense is incremental expense for the acceleration of share-based compensation related to the announced workforce reduction plan was $2 million and $5 million respectively. Upon termination of the employees impacted by workforce reduction, the non-vested Agilent awards held by these employees immediately vest. Employees have a period of up to three months in which to exercise the Agilent options before such options are cancelled. In addition, in 2010, we reversed approximately $3 million of expense for the cancellation of non-vested awards related to the separation of a senior executive.
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Assumptions
For all periods presented, the fair value of share based awards for employee stock option awards was estimated using the Black-Scholes option pricing model. For all periods presented, shares granted under the LTPP were valued using a Monte Carlo simulation. As a result of the change in our ESPP effective November 1, 2008, no Black-Scholes assumptions were required in the valuation of awards granted under our current ESPP for 2010 and 2009. For 2008, the value of share-based awards for ESPP awards was estimated using the Black-Scholes option pricing model. The estimated fair value of restricted stock unit awards was determined based on the market price of Agilent's common stock on the date of grant.
The assumptions used to estimate the fair value of employee stock options granted, ESPP purchases and the LTPP were as follows:
|
|
Years Ended October 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||
|
Stock Option Plans: |
|||||||||||
|
Weighted average risk-free interest rate |
2.19 | % | 2.31 | % | 3.16 | % | |||||
|
Dividend yield |
0 | % | 0 | % | 0 | % | |||||
|
Weighted average volatility |
37 | % | 32 | % | 33 | % | |||||
|
Expected life |
4.40 yrs | 4.40 yrs | 4.60 yrs | ||||||||
|
ESPP: |
|||||||||||
|
Weighted average risk-free interest rate |
N/A | N/A | 2.93 | % | |||||||
|
Dividend yield |
N/A | N/A | 0 | % | |||||||
|
Weighted average volatility |
N/A | N/A | 31 | % | |||||||
|
Expected life |
N/A | N/A | 0.5-1 yrs | ||||||||
|
LTPP: |
|||||||||||
|
Volatility of Agilent shares |
39 | % | 33 | % | 27 | % | |||||
|
Volatility of selected peer-company shares |
20%-80 | % | 17%-62 | % | 17%-52 | % | |||||
|
Price-wise correlation with selected peers |
53 | % | 35 | % | 24 | % | |||||
Both the Black-Scholes and Monte Carlo simulation fair value models require the use of highly subjective and complex assumptions, including the option's expected life and the price volatility of the underlying stock. For 2010 and 2009 the expected stock price volatility assumption was determined using the historical volatility of Agilent's stock options over the most recent historical period equivalent to the expected life. For 2008, we used implied volatility of Agilent's publicly traded, similarly priced, stock options to estimate the expected stock price volatility assumption for employee stock option awards. Management believes that based on current data historical period estimates of volatility are more appropriate than implied volatility. In reaching this conclusion, we have considered many factors including the limited number of Agilent options currently traded and our limited ability to find traded options in the current market with similar terms and prices to the options we are valuing.
In the first quarter of 2009, we revised our estimate of the expected life of our employee stock options from 4.6 years to 4.4 years. In revising the estimate, we considered the historical option exercise behavior of our employees, which we believe is representative of future behavior. In the first quarter of 2009, we granted the majority of our employee stock options to executive employees and the
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
review of our data indicated that our executive employees, on average, exercise their options at 4.4 years. There was no change to the expected life of our employee stock options in 2010.
Share-Based Payment Award Activity
Employee Stock Options
The following table summarizes employee stock option award activity made to our employees and directors for 2010:
|
|
Options
Outstanding |
Weighted
Average Exercise Price |
|||||
|---|---|---|---|---|---|---|---|
|
|
(in thousands)
|
|
|||||
|
Outstanding at October 31, 2009 |
33,888 | $ | 28 | ||||
|
Granted |
1,717 | $ | 29 | ||||
|
Exercised |
(10,346 | ) | $ | 25 | |||
|
Cancelled/Forfeited/Expired |
(2,578 | ) | $ | 39 | |||
|
Plan Shares Expired |
(37 | ) | $ | 59 | |||
|
Outstanding at October 31, 2010 |
22,644 | $ | 28 | ||||
The plan shares expired per the above table represent cancelled options granted under the pre-spin Hewlett Packard stock option plan that are not added back to our available for grant options.
Forfeited and expired options from total cancellations in 2010 were as follows:
|
|
Options
Cancelled |
Weighted
Average Exercise Price |
|||||
|---|---|---|---|---|---|---|---|
|
|
(in thousands)
|
|
|||||
|
Forfeited |
385 | $ | 27 | ||||
|
Expired |
2,230 | $ | 41 | ||||
|
Total Options Cancelled at October 31, 2010 |
2,615 | $ | 39 | ||||
The options outstanding and exercisable for equity share-based payment awards at October 31, 2010 were as follows:
|
|
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Range of
Exercise Prices |
Number
Outstanding |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise Price |
Aggregate
Intrinsic Value |
Number
Exercisable |
Weighted
Average Remaining Contractual Life |
Weighted
Average Exercise Price |
Aggregate
Intrinsic Value |
|||||||||||||||||
|
|
(in thousands)
|
(in years)
|
|
(in thousands)
|
(in thousands)
|
(in years)
|
|
(in thousands)
|
|||||||||||||||||
|
$ 0 - 25 |
8,712 | 3.6 | $ | 20 | $ | 127,351 | 7,511 | 2.9 | $ | 20 | $ | 108,358 | |||||||||||||
|
$25.01 - 30 |
2,712 | 6.5 | $ | 29 | 16,768 | 1,150 | 3.1 | $ | 27 | 8,428 | |||||||||||||||
|
$30.01 - 40 |
10,827 | 4.4 | $ | 33 | 24,326 | 10,167 | 4.3 | $ | 33 | 23,924 | |||||||||||||||
|
$40.01 & over |
393 | 0.1 | $ | 56 | 0 | 393 | 0.1 | $ | 56 | 0 | |||||||||||||||
|
|
22,644 | 4.3 | $ | 28 | $ | 168,445 | 19,221 | 3.6 | $ | 28 | $ | 140,710 | |||||||||||||
88
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the company's closing stock price of $34.80 at October 29, 2010, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of that date. The total number of in-the-money awards exercisable at October 31, 2010 was approximately 17 million.
The following table summarizes the aggregate intrinsic value of options exercised and the fair value of options granted in 2010, 2009 and 2008:
|
|
Aggregate
Intrinsic Value |
Weighted
Average Exercise Price |
Value Using
Black-Scholes Model |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in thousands)
|
|
|
|||||||
|
Options exercised in fiscal 2008 |
$ | 62,955 | $ | 26 | ||||||
|
Black-Scholes value of options granted during fiscal 2008 |
$ | 12 | ||||||||
|
Options exercised in fiscal 2009 |
$ | 7,836 | $ | 20 | ||||||
|
Black-Scholes value of options granted during fiscal 2009 |
$ | 6 | ||||||||
|
Options exercised in fiscal 2010 |
$ | 72,325 | $ | 25 | ||||||
|
Black-Scholes value of options granted during fiscal 2010 |
$ | 10 | ||||||||
As of October 31, 2010, the unrecognized share-based compensation costs for outstanding stock option awards, net of expected forfeitures, was approximately $10 million which is expected to be amortized over a weighted-average period of 2.5 years. The amount of cash received from the exercise of share-based awards granted was $299 million in 2010, $71 million in 2009 and $211 million in 2008. See Note 5, "Provision for Income Taxes" for the tax impact on share-based award exercises.
Non-vested Awards
The following table summarizes non-vested award activity in 2010 primarily for our LTPP and restricted stock unit awards:
|
|
Shares |
Weighted
Average Grant Price |
|||||
|---|---|---|---|---|---|---|---|
|
|
(in thousands)
|
|
|||||
|
Non-vested at October 31, 2009 |
3,092 | $ | 30 | ||||
|
Granted |
1,612 | $ | 30 | ||||
|
Vested |
(1,175 | ) | $ | 31 | |||
|
Forfeited |
(263 | ) | $ | 29 | |||
|
FY2007 LTPP Incremental Issuance |
18 | $ | 29 | ||||
|
Non-vested at October 31, 2010 |
3,284 | $ | 29 | ||||
As of October 31, 2010, the unrecognized share-based compensation costs for non-vested restricted stock awards, net of expected forfeitures, was approximately $37 million which is expected to be amortized over a weighted-average period of 2.3 years. The total fair value of restricted stock awards vested was $35 million for 2010, $25 million for 2009 and $40 million for 2008.
89
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. PROVISION FOR INCOME TAXES
The provision for income taxes is comprised of:
|
|
Years Ended October 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||
|
|
(in millions)
|
||||||||||
|
U.S. federal taxes: |
|||||||||||
|
Current |
$ | (40 | ) | $ | (20 | ) | $ | 39 | |||
|
Deferred |
37 | 26 | (33 | ) | |||||||
|
Non-U.S. taxes: |
|||||||||||
|
Current |
145 | 20 | 114 | ||||||||
|
Deferred |
(141 | ) | 6 | (3 | ) | ||||||
|
State taxes, net of federal benefit: |
|||||||||||
|
Current |
12 | 10 | 22 | ||||||||
|
Deferred |
(5 | ) | (4 | ) | (17 | ) | |||||
|
Total provision |
$ | 8 | $ | 38 | $ | 122 | |||||
The income tax provisions do not reflect potential future tax savings resulting from excess deductions associated with our various share-based award plans.
The significant components of deferred tax assets and deferred tax liabilities included on the consolidated balance sheet are:
|
|
Years Ended October 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||||||||
|
|
Deferred
Tax Assets |
Deferred Tax
Liabilities |
Deferred
Tax Assets |
Deferred Tax
Liabilities |
||||||||||
|
|
(in millions)
|
|||||||||||||
|
Inventory |
$ | 84 | $ | — | $ | 76 | $ | — | ||||||
|
Intangibles |
— | 132 | — | 7 | ||||||||||
|
Property, plant and equipment |
4 | 16 | 19 | 72 | ||||||||||
|
Warranty reserves |
14 | 1 | 11 | 1 | ||||||||||
|
Retiree medical benefits |
43 | 2 | 44 | 1 | ||||||||||
|
Other retirement benefits |
83 | 49 | 98 | 50 | ||||||||||
|
Employee benefits, other than retirement |
213 | — | 192 | — | ||||||||||
|
Net operating loss, capital loss, and credit carryforwards |
392 | — | 248 | — | ||||||||||
|
Unremitted earnings of foreign subsidiaries |
— | 88 | — | 53 | ||||||||||
|
Share-based compensation |
51 | — | 54 | — | ||||||||||
|
Deferred revenue |
93 | 2 | 284 | — | ||||||||||
|
Other |
51 | 3 | 41 | 3 | ||||||||||
|
Subtotal |
1,028 | 293 | 1,067 | 187 | ||||||||||
|
Tax valuation allowance |
(527 | ) | — | (684 | ) | — | ||||||||
|
Total deferred tax assets or deferred tax liabilities |
$ | 501 | $ | 293 | $ | 383 | $ | 187 | ||||||
90
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The breakdown between current and non-current deferred tax assets and deferred tax liabilities was as follows for the years 2010 and 2009:
|
|
Years Ended October 31, | ||||||
|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | |||||
|
|
(in millions)
|
||||||
|
Current deferred tax assets (included within other current assets) |
$ | 99 | $ | 139 | |||
|
Long-term deferred tax assets (included within other assets) |
190 | 47 | |||||
|
Current deferred tax liabilities (included within other accrued liabilities) |
(10 | ) | (3 | ) | |||
|
Long-term deferred tax liabilities (included within other long-term liabilities) |
(71 | ) | 13 | ||||
|
Total |
$ | 208 | $ | 196 | |||
The consolidated balance sheet reflects the allocation of the valuation allowance based on the pro-rata portion of gross current and non-current deferred tax assets in each jurisdiction where a valuation allowance is required. During 2003, we established valuation allowances for the deferred tax assets of the U.S. and certain entities in foreign jurisdictions. The valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. During 2007, we concluded that it is more likely than not that a significant portion of our U.S. federal deferred tax assets would be realized and reversed a portion of the valuation allowance. During 2008, we maintained a partial U.S. federal valuation allowance and concluded that a significant portion of our U.S. state deferred tax assets would be realized and reversed a portion of the valuation allowance. During 2009 and 2010, we continued to maintain the partial valuation allowances for U.S. federal and state deferred tax assets. We intend to maintain a partial or full valuation allowance in these jurisdictions until sufficient positive evidence exists to support reversal. In 2010, after consideration of all the available positive and negative evidence, we concluded that it is more likely than not that all of the U.K. deferred tax assets will be realized and reversed the entire valuation allowance.
At October 31, 2010, we had federal net operating loss carryforwards of approximately $26 million and tax credit carryforwards of approximately $162 million. The federal net operating losses expire in years beginning 2015 through 2027, and the federal tax credits begin to expire in 2018, if not utilized. At October 31, 2010, we had state net operating loss carryforwards of approximately $74 million which expire in years beginning 2013 through 2030, if not utilized. In addition, we had state tax credit carryforwards of $46 million that do not expire. All of the federal and some of the state net operating loss carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. These annual loss limitations may result in the expiration or reduced utilization of the net operating losses. At October 31, 2010, we also had foreign net operating loss carryforwards of approximately $510 million. Of this foreign loss, $335 million will expire in years beginning 2011 through 2024, if not utilized. The remaining $175 million has an indefinite life. Some of the foreign losses are subject to annual loss limitation rules.
91
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The authoritative guidance prohibits recognition of a deferred tax asset for excess tax benefits related to stock and stock option plans that have not yet been realized through reduction in income taxes payable. Such unrecognized deferred tax benefits totaled $161 million as of October 31, 2010 and will be accounted for as a credit to shareholders' equity, if and when realized through a reduction in income taxes payable.
The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Profit before tax times statutory rate |
$ | 242 | $ | 2 | $ | 285 | ||||
|
State income taxes, net of federal benefit |
4 | 6 | 5 | |||||||
|
Non-U.S. income taxed at different rates |
(66 | ) | (24 | ) | (118 | ) | ||||
|
Research credits |
(1 | ) | (7 | ) | (7 | ) | ||||
|
Hewlett Packard tax sharing agreement adjustment |
(17 | ) | — | |||||||
|
Nondeductible goodwill |
— | 2 | — | |||||||
|
Nondeductible employee stock purchase plan expense |
1 | 2 | 3 | |||||||
|
Other, net |
7 | 11 | 18 | |||||||
|
Valuation allowances |
(162 | ) | 46 | (64 | ) | |||||
|
Provision for income taxes |
$ | 8 | $ | 38 | $ | 122 | ||||
|
Effective tax rate |
1 | % | 543 | % | 15 | % | ||||
The domestic and foreign components of income (loss) earnings before taxes are:
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
U.S. operations |
$ | 163 | $ | (226 | ) | $ | (100 | ) | ||
|
Non-U.S. operations |
529 | 233 | 915 | |||||||
|
Total income from operations |
$ | 692 | $ | 7 | $ | 815 | ||||
For 2010, the annual effective tax rate was 1 percent. The 1 percent effective tax rate includes a $101 million beneficial release of the U.K. valuation allowance, a $32 million current year increase in prior year tax reserves, and tax on earnings in jurisdictions that have low effective tax rates. Also included is a $17 million tax benefit related to a $54 million non-taxable settlement payment received in connection with a tax sharing agreement between Agilent and Hewlett Packard Company. Without considering interest and penalties, the rate reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions in which income tax expense or benefit continues to be offset by adjustments to valuation allowances. We intend to maintain a partial or full valuation allowances in these jurisdictions until sufficient positive evidence exists to support its reversal.
For 2009, the annual effective tax rate was 543 percent. The 543 percent effective tax rate reflects that our structure has a fixed component of tax and that on reduced profitability unusual tax rate results. The tax rate also includes tax on earnings in jurisdictions that have low effective tax rates. In addition, net tax benefits totaling $67 million relating primarily to the lapses of statutes of limitations
92
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and tax settlements in foreign jurisdictions are incorporated in the rate. Without considering interest and penalties, the rate reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions where we have recorded valuation allowances.
For 2008, the annual effective tax rate was 15 percent. The 15 percent effective tax rate includes a beneficial release of a portion of the U.S. federal and state valuation allowances which results in U.S. tax expense of nearly zero. It also includes tax on earnings in other jurisdictions that have low effective tax rates. Without considering interest and penalties, the provision for taxes was recorded for income generated in jurisdictions other than the Netherlands, Puerto Rico, Switzerland, the U.S., and the U.K. where we have recorded valuation allowances.
Agilent records U.S. income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries' earnings are considered permanently reinvested outside the U.S. As of October 31, 2010, the cumulative amount of undistributed earnings considered permanently reinvested is $3,414 million. The determination of the unrecognized deferred tax liability on these earnings is not practicable. If management decides to remit these permanently reinvested earnings to the U.S. in a future period, our provision for income taxes may increase materially in that period.
During 2010 Agilent enjoyed tax holidays in several different jurisdictions, most significantly in Singapore, Malaysia, and Switzerland. However, in 2010 Agilent and the Swiss Authorities mutually agreed to exit the Swiss tax holiday. The impact of exiting this agreement does not have a material impact to the consolidated financial statements. The tax holidays provide lower rates of taxation on certain classes of income and require various thresholds of investments and employment or specific types of income in those jurisdictions. The tax holidays are due for renewal between 2015 and 2023. As a result of the incentives, the impact of the tax holidays decreased income taxes by $62 million, $14 million and $112 million in 2010, 2009 and 2008, respectively. The benefit of the tax holidays on net income per share (diluted) was approximately $0.18, $0.04 and $0.30 in 2010, 2009 and 2008, respectively.
We are subject to ongoing tax examinations of our tax returns by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. If our estimate of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.
We include interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations. As of October 31, 2010, we accrued and reported $53.8 million of interest and penalties relating to unrecognized tax benefits of which $5.4 million was recognized in 2010. As of October 31, 2009, we accrued and reported $41.1 million of interest and penalties relating to unrecognized tax benefits of which $(0.2) million was recognized in 2009.
93
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We adopted the authoritative guidance for uncertain tax positions on November 1, 2007. A 2010 and 2009 rollforward of our uncertain tax positions including all federal, state and foreign tax jurisdictions is as follows:
|
|
2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||
|
Balance, beginning of year |
$ | 930 | $ | 946 | ||||
|
Additions for acquisitions |
15 | 0 | ||||||
|
Additions for tax positions related to the current year |
46 | 18 | ||||||
|
Additions for tax positions from prior years |
75 | 34 | ||||||
|
Reductions for tax positions from prior years |
(284 | ) | (61 | ) | ||||
|
Settlements with taxing authorities |
(119 | ) | (0 | ) | ||||
|
Statute of limitations expirations |
(7 | ) | (7 | ) | ||||
|
Balance, end of year |
$ | 656 | $ | 930 | ||||
In the U.S., the tax years remain open back to the year 2000. In other major jurisdictions where we conduct business, the tax years generally remain open back to the year 2003. It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to lapses of statutes of limitation and tax audit settlements. As a result of uncertainties regarding the timing of the completion of tax audits in various jurisdictions and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.
On August 31, 2010 we reached an agreement with the Internal Revenue Service ("IRS") for tax years 2000 through 2002. The adjustments were offset by applying available net operating losses and had no material impact on our Statement of Operations. Our U.S. federal income tax returns for 2003 through 2007 are under audit by the IRS. In December 2010, we reached an agreement with the IRS for tax years 2003-2005. In addition, Agilent and the IRS reached an agreement on transfer pricing issues covering years 2003-2007. Tax adjustments resulting from these agreements will be offset with net operating losses and tax credit carryforwards.
6. NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the periods presented below. As a result of the company's net loss in 2009, the computation of diluted net loss per share for 2009 excludes the diluted impact of all common stock equivalents outstanding.
|
|
Years Ended October 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||
|
|
(in millions)
|
||||||||||
|
Numerator: |
|||||||||||
|
Net income (loss) |
$ | 684 | $ | (31 | ) | $ | 693 | ||||
|
Denominators: |
|||||||||||
|
Basic weighted average shares |
347 | 346 | 363 | ||||||||
|
Potentially dilutive common stock equivalents — stock options and other employee stock plans |
6 | — | 8 | ||||||||
|
Diluted weighted average shares |
353 | 346 | 371 | ||||||||
94
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The dilutive effect of share-based awards is reflected in diluted net income (loss) per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair market value of the company's common stock can result in a greater dilutive effect from potentially dilutive awards. The total number of share-based awards issued in 2010, 2009 and 2008 were 13 million, 5 million and 10 million, respectively.
The following table presents options to purchase shares of common stock, which were not included in the computation of diluted net income (loss) per share because they were anti-dilutive.
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
Options to purchase shares of common stock (in millions) |
11 | 29 | 7 | |||||||
|
Weighted-average exercise price |
$ | 34 | $ | 30 | $ | 42 | ||||
|
Average common stock price |
$ | 31 | $ | 20 | $ | 33 | ||||
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes was $48 million in 2010, $113 million in 2009 and $210 million in 2008. Cash paid for interest was $89 million in 2010 and $88 million in 2009 and 2008.
8. INVENTORY
|
|
October 31, | ||||||
|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | |||||
|
|
(in millions)
|
||||||
|
Finished goods |
$ | 338 | $ | 285 | |||
|
Purchased parts and fabricated assemblies |
378 | 267 | |||||
|
Inventory |
$ | 716 | $ | 552 | |||
Inventory-related excess and obsolescence charges of $30 million, $54 million and $24 million were recorded in total cost of products in 2010, 2009 and 2008, respectively. We record excess and obsolete inventory charges for both inventory on our site as well as inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments.
95
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. PROPERTY, PLANT AND EQUIPMENT, NET
|
|
October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||
|
|
(in millions)
|
|||||||
|
Land |
$ | 137 | $ | 97 | ||||
|
Buildings and leasehold improvements |
1,268 | 1,210 | ||||||
|
Machinery and equipment |
793 | 779 | ||||||
|
Software |
377 | 365 | ||||||
|
Total property, plant and equipment |
2,575 | 2,451 | ||||||
|
Accumulated depreciation and amortization |
(1,595 | ) | (1,606 | ) | ||||
|
Property, plant and equipment, net |
$ | 980 | $ | 845 | ||||
Asset impairments other than restructuring were $7 million in 2010 and zero and $1 million 2009 and 2008, respectively. Depreciation expenses were $124 million in 2010, $112 million in 2009 and $126 million in 2008.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
The goodwill balances at October 31, 2010 and 2009 and the movements in 2010 and 2009 for each of our reportable segments are shown in the table below:
|
|
Life Sciences |
Chemical
Analysis |
Electronic
Measurement |
Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
||||||||||||
|
Goodwill as of October 31, 2008 |
$ | 122 | $ | 156 | $ | 368 | $ | 646 | |||||
|
Foreign currency translation impact |
— | 1 | 25 | 26 | |||||||||
|
Divestitures |
— | (7 | ) | (15 | ) | (22 | ) | ||||||
|
Goodwill arising from acquisitions |
1 | 1 | 3 | 5 | |||||||||
|
Goodwill as of October 31, 2009 |
$ | 123 | $ | 151 | $ | 381 | $ | 655 | |||||
|
Foreign currency translation impact |
5 | 17 | 23 | 45 | |||||||||
|
Divestitures |
(1 | ) | (24 | ) | (13 | ) | (38 | ) | |||||
|
Goodwill arising from acquisitions |
184 | 603 | 7 | 794 | |||||||||
|
Goodwill as of October 31, 2010 |
$ | 311 | $ | 747 | $ | 398 | $ | 1,456 | |||||
96
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The component parts of other intangible assets at October 31, 2010 and 2009 are shown in the table below:
|
|
Other Intangible Assets | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
||||||||
|
|
(in millions)
|
||||||||||
|
As of October 31, 2009: |
|||||||||||
|
Purchased technology |
$ | 281 | $ | 170 | $ | 111 | |||||
|
Trademark/Tradename |
32 | 6 | 26 | ||||||||
|
Customer relationships |
85 | 55 | 30 | ||||||||
|
Total |
$ | 398 | $ | 231 | $ | 167 | |||||
|
As of October 31, 2010: |
|||||||||||
|
Purchased technology |
$ | 466 | $ | 176 | $ | 290 | |||||
|
Backlog |
12 | 12 | — | ||||||||
|
Trademark/Tradename |
39 | 13 | 26 | ||||||||
|
Customer relationships |
236 | 77 | 159 | ||||||||
|
Total amortizable intangible assets |
$ | 753 | $ | 278 | $ | 475 | |||||
|
In-Process R&D |
19 | — | 19 | ||||||||
|
Total |
$ | 772 | $ | 278 | $ | 494 | |||||
In 2010, we recorded $794 million of goodwill primarily relating to the Varian acquisition. The Varian acquisition is fully discussed in Note 3. Goodwill was reduced by $38 million due to divestitures of the network systems business and Hycor during 2010. We recorded $422 million of additions to other intangible assets and recorded $13 million of impairment charges to other intangible assets and reduced other intangible assets by $13 million primarily related to divestiture of the Hycor business.
In 2009, we recorded $5 million of goodwill primarily relating to the purchase of the remaining unowned portion of a joint venture. Goodwill was reduced by $22 million due to businesses that we divested during 2009 some of which had not been fully integrated into Agilent. We recorded zero additions to other intangibles and recorded $16 million of impairment charges to other intangibles primarily related to divested businesses.
Amortization of intangible assets was $76 million in 2010, $45 million in 2009, and $53 million in 2008. Future amortization expense related to existing purchased intangible assets is estimated to be $105 million in 2011, $85 million for 2012, $70 million for 2013, $61 million for 2014, $50 million for 2015, and $123 million thereafter.
97
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. INVESTMENTS
The following table summarizes the company's investments as of October 31, 2010 and 2009 (net book value):
|
|
October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||
|
|
(in millions)
|
|||||||
|
Short-Term |
||||||||
|
Available-for-sale investments |
$ | — | $ | 14 | ||||
|
Long-Term |
||||||||
|
Cost method investments |
$ | 80 | $ | 82 | ||||
|
Trading securities |
52 | 50 | ||||||
|
Available-for-sale investments |
10 | 31 | ||||||
|
Total |
$ | 142 | $ | 163 | ||||
Cost method investments consist of non-marketable equity securities and two special funds and are accounted for at historical cost. Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. Investments designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, included in stockholders' equity.
Investments in available-for-sale securities at estimated fair value were as follows as of October 31, 2010 and October 31, 2009:
|
|
October 31, 2010 | October 31, 2009 | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Estimated
Fair Value |
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Estimated
Fair Value |
|||||||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||||
|
Debt securities |
$ | — | $ | — | $ | — | $ | — | $ | 36 | $ | — | $ | — | $ | 36 | |||||||||
|
Equity securities |
4 | 6 | — | 10 | 4 | 5 | — | 9 | |||||||||||||||||
|
|
$ | 4 | $ | 6 | $ | — | $ | 10 | $ | 40 | $ | 5 | $ | — | $ | 45 | |||||||||
All of our investments, excluding trading securities, are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future value of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
98
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amounts included in other income (expense) for realized gains and losses on the sale of available-for-sale securities and other than temporary impairments were as follows:
|
|
Years Ended
October 31, |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Available-for-sale investments — realized gain (loss) |
$ | 2 | $ | 1 | $ | (4 | ) | |||
|
Other than temporary impairment on investments |
$ | — | $ | (9 | ) | $ | (6 | ) | ||
Net unrealized gains and losses on our trading securities portfolio were $6 million of unrealized gains in 2010, $6 million of unrealized losses in 2009 and $15 million of unrealized losses in 2008.
Realized gains from the sale of cost method securities were zero for 2010 and $1 million and zero realized gains for 2009 and 2008, respectively.
12. FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy
The guidance establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into three levels. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:
Level 1 — applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 — applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.
Level 3 — applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
99
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2010 were as follows:
|
|
|
Fair Value Measurement at
October 31, 2010 Using |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
October 31,
2010 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||
|
|
(in millions)
|
||||||||||||||
|
Assets: |
|||||||||||||||
|
Short-term |
|||||||||||||||
|
Cash equivalents (money market funds) |
$ | 1,600 | $ | 1,600 | $ | — | $ | — | |||||||
|
Derivative instruments (foreign exchange contracts) |
24 | — | 24 | — | |||||||||||
|
Restricted cash (commercial paper) |
1,550 | — | 1,550 | — | |||||||||||
|
Long-term |
|||||||||||||||
|
Trading securities |
52 | 52 | — | — | |||||||||||
|
Derivative instruments (interest rate contracts) |
61 | — | 61 | — | |||||||||||
|
Available-for-sale investments |
10 | 10 | — | — | |||||||||||
|
Total assets measured at fair value |
$ | 3,297 | $ | 1,662 | $ | 1,635 | $ | — | |||||||
|
Liabilities: |
|||||||||||||||
|
Short-term |
|||||||||||||||
|
Derivative instruments (foreign exchange contracts) |
$ | 22 | $ | — | $ | 22 | $ | — | |||||||
|
Long-term |
|||||||||||||||
|
Deferred compensation liability |
49 | — | 49 | — | |||||||||||
|
Total liabilities measured at fair value |
$ | 71 | $ | — | $ | 71 | $ | — | |||||||
Our money market funds, trading securities investments, and available-for-sale investments are generally valued using quoted market prices and therefore are classified within level 1 of the fair value hierarchy. Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets. Our commercial paper and deferred compensation liability are classified as level 2 because although the values are not directly based on quoted market prices, the inputs used in the calculations are observable.
Trading securities and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. Investments designated as available-for-sale and certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in stockholders' equity. Realized gains and losses from the sale of these instruments are recorded in net income.
100
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during 2010 and 2009:
|
|
2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||
|
Balance, beginning of period |
$ | 6 | $ | 19 | ||||
|
Realized losses related to amortization of premium |
(1 | ) | (2 | ) | ||||
|
Unrealized gains included in accumulated other comprehensive income |
— | 1 | ||||||
|
Realized losses related to investment impairments |
— | (4 | ) | |||||
|
Sales |
(3 | ) | (6 | ) | ||||
|
Transfers into level 3 |
— | 4 | ||||||
|
Transfers out of level 3 |
(2 | ) | (6 | ) | ||||
|
Balance, end of period |
$ | — | $ | 6 | ||||
|
Total losses included in net income attributable to change in unrealized losses relating to assets still held at the reporting date, reported in interest and other income, net |
$ | — | $ | (2 | ) | |||
Impairment of Investments. All of our investments, excluding trading securities, are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future value of the investment. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. There were no other than temporary impairments for investments during 2010 and we recognized $9 million of other-than-temporary impairments for investments in 2009. Fair values for the impaired investments for 2010 and 2009 were measured using both level 2 and level 3 inputs.
Assets and Liabilities Measured at Fair Value on a Non- Recurring Basis
Impairment of Long-Lived Assets. Long-lived assets held and used with a carrying amount of $42 million were written down to their fair value of $30 million, resulting in an impairment charge of $12 million, which was included in net income for 2010. Long-lived assets held for sale with a carrying amount of $30 million were written down to their fair value of $16 million, resulting in an impairment charge of $14 million, which was included in net income for 2010. Fair values for the impaired long-lived assets were measured using level 2 inputs.
13. DERIVATIVES
We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of risk management strategy, we use derivative instruments, primarily forward contracts, purchased options, and interest rate swaps, to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates and interest rates.
101
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Hedges
The company enters into fair value hedges to reduce the exposure of our debt portfolio to interest rate risk. We issue long-term senior notes in U.S. dollars based on market conditions at the time of financing. We use interest rate swaps to modify the market risk exposure in connection with fixed interest rate senior notes to U.S. dollar London inter-bank offered rate ("LIBOR")-based floating interest rate. Alternatively, we may choose not to swap fixed for floating interest rate or may terminate a previously executed swap. We designate and qualify these interest rate swaps as fair value hedges of the interest rate risk inherent in the debt. For derivative instruments that are designated and qualify as fair value hedges, we recognize the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, in interest expense, in the consolidated statement of operations. The fair value of the swaps is recorded on the consolidated balance sheet at each period end, with an offsetting entry in senior notes. As of October 31, 2010, there were 14 interest rate swap contracts designated as fair value hedges associated with our 2012, 2015 and 2020 senior notes. The notional amount of these interest rate swap contracts, receive-fixed/pay-variable, was $1,250 million. On November 25, 2008, we terminated two interest rate swap contracts associated with our 2017 senior notes that represented the notional amount of $400 million. The asset value upon termination was approximately $43 million and the amount to be amortized at October 31, 2010 was $35 million. The proceeds were recorded as operating cash flows and the gain is being deferred and amortized over the remaining life of the 2017 senior notes.
Cash Flow Hedges
The company also enters into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance. The changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income. Amounts associated with cash flow hedges are reclassified to cost of sales in the consolidated statement of operations when either the forecasted transaction occurs or it becomes probable that the forecasted transaction will not occur. Changes in the fair value of the ineffective portion of derivative instruments are recognized in cost of sales in the consolidated statement of operations in the current period.
Other Hedges
Additionally, the company enters into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in value of the derivative are recognized in other income (expense) in the consolidated statement of operations, in the current period, along with the offsetting gain or loss on the underlying assets or liabilities.
The company's use of derivative instruments exposes it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The company does, however, seek to mitigate such risks by limiting its counterparties to major financial institutions which are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties.
102
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
All of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. If our corporate credit rating were to fall below investment grade, the counterparties to the derivative instruments may request collateralization on derivative instruments in net liability positions.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of October 31, 2010, was approximately $8 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of October 31, 2010.
There were 90 foreign exchange forward contracts and 7 foreign exchange option contracts open as of October 31, 2010 and designated as cash flow hedges. There were 261 foreign exchange forward contracts open as of October 31, 2010 not designated as hedging instruments. The aggregated notional amounts by currency and designation as of October 31, 2010 were as follows:
|
|
Derivatives in
Cash Flow Hedging Relationships |
Derivatives
Not Designated as Hedging Instruments |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
Forward
Contracts |
Option
Contracts |
Forward
Contracts |
|||||||
| Currency | ||||||||||
| Buy/(Sell) | Buy/(Sell) | Buy/(Sell) | ||||||||
|
|
(in millions)
|
|||||||||
|
Euro |
$ | (20 | ) | $ | — | $ | 72 | |||
|
British Pound |
(18 | ) | — | 157 | ||||||
|
Canadian Dollar |
(31 | ) | 26 | |||||||
|
Australian Dollar |
38 | — | (40 | ) | ||||||
|
Malaysian Ringgit |
86 | — | 40 | |||||||
|
Japanese Yen |
(67 | ) | (110 | ) | (33 | ) | ||||
|
Other |
(2 | ) | — | 4 | ||||||
|
|
$ | (14 | ) | $ | (110 | ) | $ | 226 | ||
Derivative instruments are subject to master netting arrangements and qualify for net presentation in the balance sheet. The gross fair values and balance sheet location of derivative
103
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
instruments held in the consolidated balance sheet as of October 31, 2010 and October 31, 2009 were as follows:
| Fair Values of Derivative Instruments | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives | Liability Derivatives | |||||||||||||||
|
|
Fair Value |
|
Fair Value | |||||||||||||
| Balance Sheet Location |
October 31,
2010 |
October 31,
2009 |
Balance Sheet Location |
October 31,
2010 |
October 31,
2009 |
|||||||||||
|
(in millions)
|
||||||||||||||||
|
Derivatives designated as hedging instruments: |
||||||||||||||||
|
Fair value hedges |
||||||||||||||||
|
Interest rate contracts |
||||||||||||||||
|
Other assets |
$ | 61 | $ | 3 |
Other long-term liabilities |
$ | — | $ | — | |||||||
|
Cash flow hedges |
||||||||||||||||
|
Foreign exchange contracts |
||||||||||||||||
|
Other current assets |
$ | 13 | $ | 8 |
Other accrued liabilities |
$ | 15 | $ | 5 | |||||||
|
Other accrued liabilities |
— | — |
Other current assets |
— | 1 | |||||||||||
|
|
$ | 74 | $ | 11 | $ | 15 | $ | 6 | ||||||||
|
Derivatives not designated as hedging instruments: |
||||||||||||||||
|
Foreign exchange contracts |
||||||||||||||||
|
Other current assets |
$ | 11 | $ | 8 |
Other accrued liabilities |
$ | 7 | $ | 3 | |||||||
|
Other accrued liabilities |
— | — |
Other current assets |
— | 1 | |||||||||||
|
|
$ | 11 | $ | 8 | $ | 7 | $ | 4 | ||||||||
|
Total derivatives |
$ | 85 | $ | 19 | $ | 22 | $ | 10 | ||||||||
The effect of derivative instruments for interest rate swap contracts and for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our consolidated statement of operations were as follows:
|
|
Year Ended
October 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||
|
|
(in millions)
|
|||||||
|
Derivatives designated as hedging instruments: |
||||||||
|
Fair Value Hedges |
||||||||
|
Gain on interest rate swap contracts in interest expense |
$ | 21 | $ | 2 | ||||
|
Cash Flow Hedges |
||||||||
|
Gain recognized in accumulated other comprehensive income |
$ | 4 | $ | 1 | ||||
|
Gain (loss) reclassified from accumulated other comprehensive income into cost of sales |
$ | 7 | $ | (23 | ) | |||
|
Derivatives not designated as hedging instruments: |
||||||||
|
Gain (loss) recognized in other income (expense) |
$ |
(14 |
) |
$ |
82 |
|||
104
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated net amount of existing loss at October 31, 2010 that is expected to be reclassified from other comprehensive income to the cost of sales within the next twelve months is $1 million.
14. RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER SPECIAL CHARGES
Our 2005 restructuring program, announced in the fourth quarter of 2005, is largely complete. The remaining obligations under this and previous plans relate primarily to lease obligations that are expected to be satisfied over approximately the next year.
Our 2009 restructuring program, the ("FY 2009 Plan"), announced in the first half of 2009, was conceived in response to deteriorating economic conditions and was designed to deliver sufficient savings to enable our businesses to reach their profitability targets throughout the cycle. Workforce reduction payments, primarily severance, were largely complete in fiscal year 2010. Lease payments should primarily be complete by the end of fiscal 2014, and payments to suppliers in connection with inventory should be complete in fiscal year 2011. As of October 31, 2010, a small number of employees within electronic measurement are pending termination under the FY 2009 Plan.
Special charges in 2009 related to inventory include estimated future payments that we are contractually obliged to make to our suppliers in connection with future inventory purchases and inventory on hand written down. In both cases, actions taken under our FY 2009 Plan, including exiting lines of business, have caused the value of this inventory to decrease below its cost.
A summary of total restructuring activity and other special charges is shown in the table below:
|
|
Workforce
Reduction |
Consolidation
of Excess Facilities |
Impairment
of Building and Purchased Intangible Assets |
Special
Charges related to Inventory |
Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
||||||||||||||||
|
Balance as of October 31, 2007 |
$ | 1 | $ | 31 | $ | — | $ | — | $ | 32 | |||||||
|
Income statement expense |
— | (4 | ) | — | — | (4 | ) | ||||||||||
|
Cash payments |
(1 | ) | (17 | ) | — | — | (18 | ) | |||||||||
|
Balance as of October 31, 2008 |
$ | — | $ | 10 | $ | — | $ | — | $ | 10 | |||||||
|
Income statement expense |
202 | 18 | 27 | 20 | 267 | ||||||||||||
|
Asset impairments/inventory charges |
— | — | (27 | ) | (9 | ) | (36 | ) | |||||||||
|
Cash payments |
(153 | ) | (9 | ) | — | (10 | ) | (172 | ) | ||||||||
|
Balance as of October 31, 2009 |
$ | 49 | $ | 19 | $ | — | $ | 1 | $ | 69 | |||||||
|
Income statement expense |
39 | 19 | 6 | _ | 64 | ||||||||||||
|
Asset impairments/inventory charges |
_ | _ | (6 | ) | _ | (6 | ) | ||||||||||
|
Cash payments |
(80 | ) | (12 | ) | _ | _ | (92 | ) | |||||||||
|
Balance as of October 31, 2010 |
$ | 8 | $ | 26 | $ | — | $ | 1 | $ | 35 | |||||||
The restructuring and other special accruals for all plans, which totaled $35 million at October 31, 2010, are recorded in other accrued liabilities and other long-term liabilities on the consolidated balance sheet. These balances reflect estimated future cash outlays.
105
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the charges/(income) in the consolidated statement of operations resulting from all restructuring plans is shown below:
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Cost of products and services |
$ | 8 | $ | 77 | $ | — | ||||
|
Research and development |
3 | 35 | — | |||||||
|
Selling, general and administrative |
53 | 155 | (4 | ) | ||||||
|
Total restructuring, asset impairments and other special charges |
$ | 64 | $ | 267 | $ | (4 | ) | |||
15. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS
General. Substantially all of our employees are covered under various defined benefit and/or defined contribution pension plans. Additionally, we sponsor post-retirement health care benefits and a death benefit under the Agilent Survivor Protection Plan for our eligible U.S. employees.
Agilent provides U.S. employees, who meet eligibility criteria under the retirement plan, defined benefits which are based on an employee's base or target pay during the years of employment and on length of service. For eligible service through October 31, 1993, the benefit payable under the Agilent Retirement Plan is reduced by any amounts due to the eligible employee under our defined contribution Deferred Profit-Sharing Plan ("DPSP"), which was closed to new participants as of November 1993.
In addition, in the U.S., Agilent maintains the Supplemental Benefits Retirement Plan ("SBRP"), a supplemental unfunded non-qualified defined benefit plan to provide benefits that would be provided under the Retirement Plan ("RP") but for limitations imposed by the Internal Revenue Code. The RP and the SBRP comprise the "U.S. Plans".
As of October 31, 2010 and 2009, the fair value of plan assets of the DPSP for U.S. Agilent Employees was $516 million and $517 million, respectively. Note that the projected benefit obligation for the DPSP equals the fair value of plan assets.
Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and/or employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements. Our U.S. retirees who retired prior to January 1, 2005, are also covered by a lump sum death benefit that is part of the Agilent Survivor Protection Plan. In July 2004, the Agilent Survivor Protection Plan was revised to eliminate the $5,000 Retiree Survivor Benefit for all U.S. retirees who retire on or after January 1, 2005. See also Plan Amendments below.
401(k) defined contribution plan. Eligible U.S. employees may participate in the Agilent Technologies, Inc. 401(k) Plan (the "401(k) Plan"). Enrollment in the 401(k) Plan is automatic for employees who meet eligibility requirements unless they decline participation. Under the 401(k) Plan, we provide matching contributions to employees up to a maximum of 4 percent of an employee's annual eligible compensation. The maximum contribution to the 401(k) Plan is 50 percent of an employee's annual eligible compensation, subject to regulatory limitations. The 401(k) Plan expense
106
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
included in income from operations was $21 million in 2010, $23 million in 2009 and $26 million in 2008.
Post-retirement medical benefit plans. In addition to receiving pension benefits, our U.S. employees who meet eligibility requirements as of their termination date may participate in our Non-Medicare Medical Plan, and if eligible, the Medicare Medical Plan under the Agilent Health Plan. These two plans are the Post-Retirement Benefit Plans. Current U.S. employees may become eligible for these benefits, and the existing benefit obligation relates primarily to those employees. Eligible retirees may choose from managed-care and indemnity options, with the company subsidization level dependent on a number of factors including employment status as of January 1, 2005, the option chosen, and length of service.
Plan Amendments. On July 14, 2009 the Compensation Committee of the Board of Directors approved design changes to Agilent's U.S. Plans. Effective October 31, 2009, benefits under the previous U.S. Plans formula were frozen and all future benefit accruals for existing employees and new hires are calculated using the new formula. The new formula allocates a percentage of each month's eligible earnings to be payable as a lump sum at age 65 whereas the previous formula defined a monthly annuity payable at age 65. In addition, effective November 1, 2009, the $5,000 Retiree Survivor Benefit under the Agilent Survivor Protection Plan was discontinued.
Due to these plan amendments, we recorded gains of $117 million and $15 million in accumulated other comprehensive loss in 2009 for the U.S. Plans and U.S. post retirement benefit plans, respectively.
Components of net periodic cost. The company uses alternate methods of amortization as allowed by the authoritative guidance which amortizes the actuarial gains and losses on a consistent basis for the years presented. For U.S. Plans, gains and losses are amortized over the average future working lifetime. For most Non-U.S. Plans and U.S. Post-Retirement Benefit Plans, gains and losses are amortized using a separate layer for each year's gains and losses. For the years ended October 31, 2010, 2009 and 2008, our net pension and post-retirement benefit costs were comprised of:
In 2009, as a result of reductions in workforce, we recorded a $3 million curtailment gain and a $13 million curtailment gain in the income statement for the Non-U.S. Plans and U.S. Post-Retirement Benefit Plans, respectively.
107
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2010, due to reductions in workforce which impacted two non-U.S. plans, we recorded curtailment losses as required by authoritative guidance with no impact to the income statement.
Funded status. As of October 31, 2010 and 2009, the funded status of the defined benefit and post-retirement benefit plans was:
|
|
U.S. Defined
Benefit Plans |
Non-U.S. Defined
Benefit Plans |
U.S.
Post-Retirement Benefit Plans |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
|
(in millions)
|
|||||||||||||||||||
|
Change in fair value of plan assets: |
||||||||||||||||||||
|
Fair value — beginning of year |
$ | 482 | $ | 449 | $ | 1,475 | $ | 1,367 | $ | 251 | $ | 243 | ||||||||
|
Actual return on plan assets |
68 | 66 | 115 | 55 | 35 | 30 | ||||||||||||||
|
Employer contributions |
30 | 37 | 47 | 71 | 1 | 1 | ||||||||||||||
|
Participants' contributions |
— | — | 2 | 3 | — | — | ||||||||||||||
|
Benefits paid |
(42 | ) | (70 | ) | (57 | ) | (53 | ) | (24 | ) | (23 | ) | ||||||||
|
Currency impact |
— | — | 16 | 32 | — | — | ||||||||||||||
|
Fair value — end of year |
$ | 538 | $ | 482 | $ | 1,598 | $ | 1,475 | $ | 263 | $ | 251 | ||||||||
|
Change in benefit obligation: |
||||||||||||||||||||
|
Benefit obligation — beginning of year |
$ | 548 | $ | 584 | $ | 1,610 | $ | 1,372 | $ | 490 | $ | 358 | ||||||||
|
Service cost |
41 | 33 | 30 | 34 | 4 | 3 | ||||||||||||||
|
Interest cost |
27 | 43 | 72 | 73 | 26 | 29 | ||||||||||||||
|
Participants' contributions |
— | — | 2 | 3 | — | — | ||||||||||||||
|
Plan amendment |
— | (117 | ) | — | — | — | (15 | ) | ||||||||||||
|
Actuarial (gain) loss |
3 | 90 | 79 | 140 | 4 | 137 | ||||||||||||||
|
Benefits paid |
(44 | ) | (72 | ) | (57 | ) | (53 | ) | (22 | ) | (23 | ) | ||||||||
|
Curtailments |
— | (13 | ) | (9 | ) | (2 | ) | — | 1 | |||||||||||
|
Currency impact |
— | — | 15 | 43 | — | — | ||||||||||||||
|
Benefit obligation — end of year |
$ | 575 | $ | 548 | $ | 1,742 | $ | 1,610 | $ | 502 | $ | 490 | ||||||||
|
Overfunded (underfunded) status of PBO |
$ | (37 | ) | $ | (66 | ) | $ | (144 | ) | $ | (135 | ) | $ | (239 | ) | $ | (239 | ) | ||
|
Amounts recognized in the consolidated balance sheet consist of: |
||||||||||||||||||||
|
Other assets |
$ | — | $ | — | $ | 12 | $ | 27 | $ | — | $ | — | ||||||||
|
Employee compensation and benefits |
(2 | ) | (2 | ) | — | — | — | — | ||||||||||||
|
Retirement and post-retirement benefits |
(35 | ) | (64 | ) | (156 | ) | (162 | ) | (239 | ) | (239 | ) | ||||||||
|
Net asset (liability) |
$ | (37 | ) | $ | (66 | ) | $ | (144 | ) | $ | (135 | ) | $ | (239 | ) | $ | (239 | ) | ||
|
Amounts Recognized in Accumulated Other Comprehensive Income (loss): |
||||||||||||||||||||
|
Actuarial (gains) losses |
$ | 39 | $ | 70 | $ | 513 | $ | 494 | $ | 191 | $ | 217 | ||||||||
|
Prior service costs (benefits) |
(103 | ) | (114 | ) | (16 | ) | (16 | ) | (86 | ) | (100 | ) | ||||||||
|
Total |
$ | (64 | ) | $ | (44 | ) | $ | 497 | $ | 478 | $ | 105 | $ | 117 | ||||||
108
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amounts in accumulated other comprehensive income expected to be recognized as components of net expense during 2011 are as follows:
|
|
U.S. Defined
Benefit Plans |
Non-U.S. Defined
Benefit Plans |
U.S. Post-Retirement
Benefit Plans |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||||
|
Amortization of net prior service cost (benefit) |
$ | (12 | ) | $ | (2 | ) | $ | (14 | ) | |
|
Amortization of actuarial net loss (gain) |
$ | 4 | $ | 39 | $ | 15 | ||||
Investment policies and strategies as of October 31, 2010 and 2009. In the U.S., our Agilent Retirement Plan and post-retirement benefit target asset allocations are approximately 80 percent to equities and approximately 20 percent to fixed income investments. Our DPSP target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments. Approximately, 5 percent of our U.S. equity portfolio consists of limited partnerships. The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk. The safety and protection of principal is a primary concern, and we believe that a well-diversified investment portfolio will result in the highest attainable investment return (income plus capital appreciation) with the lowest overall risk. Specific investment objectives for the plans' portfolios are to: maintain and enhance the purchasing power of the plans' assets; achieve investment returns consistent with the level of risk being taken; and earn performance rates of return in accordance with the benchmarks adopted for each asset class. Outside the U.S., our target asset allocation is from 45 to 60 percent to equities, from 40 to 55 percent to fixed income investments, and from zero to 10 percent to real estate investments, depending on the plan. All plans' assets are broadly diversified. Due to fluctuations in equity markets, our actual allocations of plan assets at October 31, 2010 and 2009 differ from the target allocation. Our policy is to bring the actual allocation in line with the target allocation.
Equity securities include exchange-traded common stock and preferred stock of companies from broadly diversified industries. Fixed income securities include corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-backed securities and other. Other investments include a group trust consisting primarily of private equity partnerships as well as other investments. Portions of the cash and cash equivalent, equity, and fixed income investments are held in commingled funds.
Fair Value. The measurement of the fair value of pension and post-retirement plan assets uses the valuation methodologies and the inputs as described in Note 12.
Cash and Cash Equivalents — Cash and cash equivalents consist of short-term investment funds. The funds also invest in short-term domestic fixed income securities and other securities with debt-like characteristics emphasizing short-term maturities and quality. Cash and cash equivalents are classified as Level 1 investments except when the cash and cash equivalents are held in commingled funds, which have a daily net value derived from quoted prices for the underlying securities in active markets; these are classified as Level 2 investments.
Equity — Some equity securities consisting of common and preferred stock are held in commingled funds, which have daily net asset values derived from quoted prices for the underlying securities in active markets; these are classified as Level 2 investments.
109
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fixed Income — Some of the fixed income securities are held in commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 2 investments.
Other Investments — Due to the private nature of the partnership investments, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on proprietary appraisals, application of public market multiples to private company cash flows, utilization of market transactions that provide valuation information for comparable companies and other methods. Holdings of limited partnerships are classified as Level 3.
Real estate — Valuations are based on regular pricing notifications provided by each portfolio investment. A number of the notifications of the open ended holdings received are published in the financial press or on corporate websites; these are classified as Level 2.
The following table presents the fair value of U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2010.
|
|
|
Fair Value Measurement
at October 31, 2010 Using |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
October 31,
2010 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||
|
|
(in millions)
|
|||||||||||||
|
Cash and Cash Equivalents |
$ | 6 | $ | 1 | $ | 5 | $ | — | ||||||
|
Equity |
410 | 150 | 260 | — | ||||||||||
|
Fixed Income |
94 | 7 | 86 | 1 | ||||||||||
|
Other Investments |
28 | — | — | 28 | ||||||||||
|
Total assets measured at fair value |
$ | 538 | $ | 158 | $ | 351 | $ | 29 | ||||||
For U.S. Defined Benefit Plans assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during 2010:
|
|
Year Ended
October 31, 2010 |
||||
|---|---|---|---|---|---|
|
Balance, beginning of year |
$ | 32 | |||
|
Realized gains |
6 | ||||
|
Unrealized gains/(losses) |
— | ||||
|
Purchases, sales, issuances, and settlements |
— | ||||
|
Transfers in (out) |
(9 | ) | |||
|
Balance, end of year |
$ | 29 | |||
110
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the fair value of U.S. Post-Retirement Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2010.
|
|
|
Fair Value Measurement at
October 31, 2010 Using |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
October 31,
2010 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||
|
|
(in millions)
|
|||||||||||||
|
Cash and Cash Equivalents |
$ | 4 | $ | 2 | $ | 2 | $ | — | ||||||
|
Equity |
198 | 72 | 126 | — | ||||||||||
|
Fixed Income |
45 | 3 | 42 | — | ||||||||||
|
Other Investments |
16 | — | — | 16 | ||||||||||
|
Total assets measured at fair value |
$ | 263 | $ | 77 | $ | 170 | $ | 16 | ||||||
For U.S. Post-Retirement Benefit Plans assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during 2010:
|
|
Year Ended
October 31, 2010 |
||||
|---|---|---|---|---|---|
|
Balance, beginning of year |
$ | 19 | |||
|
Realized gains |
3 | ||||
|
Unrealized gains/(losses) |
— | ||||
|
Purchases, sales, issuances, and settlements |
— | ||||
|
Transfers in (out) |
(6 | ) | |||
|
Balance, end of year |
$ | 16 | |||
The following table presents the fair value of non-U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2010.
|
|
|
Fair Value Measurement at
October 31, 2010 Using |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
October 31,
2010 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Other Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||
|
|
(in millions)
|
|||||||||||||
|
Cash and Cash Equivalents |
$ | 31 | $ | 16 | $ | 15 | $ | — | ||||||
|
Equity |
922 | 342 | 580 | — | ||||||||||
|
Fixed Income |
633 | 39 | 594 | — | ||||||||||
|
Other Investments |
12 | 12 | — | — | ||||||||||
|
Total assets measured at fair value |
$ | 1,598 | $ | 409 | $ | 1,189 | $ | — | ||||||
For non-U.S. Defined Benefit Plans, there was no activity relating to assets measured at fair value using significant unobservable inputs (level 3) during fiscal year 2010.
111
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets as of October 31, 2010 or 2009.
|
|
2010 | 2009 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Benefit
Obligation |
|
Benefit
Obligation |
|
||||||||||
|
|
Fair Value of
Plan Assets |
Fair Value of
Plan Assets |
||||||||||||
|
|
PBO | PBO | ||||||||||||
|
|
(in millions)
|
|||||||||||||
|
U.S. defined benefit plans where PBO exceeds the fair value of plan assets |
$ | 575 | $ | 538 | $ | 548 | $ | 482 | ||||||
|
U.S. defined benefit plans where fair value of plan assets exceeds PBO |
— | — | — | — | ||||||||||
|
Total |
$ | 575 | $ | 538 | $ | 548 | $ | 482 | ||||||
|
Non-U.S. defined benefit plans where PBO exceeds or is equal to the fair value of plan assets |
$ | 1,669 | $ | 1,513 | $ | 1,152 | $ | 990 | ||||||
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds PBO |
73 | 85 | 458 | 485 | ||||||||||
|
Total |
$ | 1,742 | $ | 1,598 | $ | 1,610 | $ | 1,475 | ||||||
|
|
|
ABO |
|
|
|
ABO |
|
|
|
|||||
|
U.S. defined benefit plans where ABO exceeds the fair value of plan assets |
$ | 568 | $ | 538 | $ | 548 | $ | 482 | ||||||
|
U.S. defined benefit plans where the fair value of plan assets exceeds ABO |
— | — | — | — | ||||||||||
|
Total |
$ | 568 | $ | 538 | $ | 548 | $ | 482 | ||||||
|
Non-U.S. defined benefit plans where ABO exceeds or is equal to the fair value of plan assets |
$ | 1,602 | $ | 1,513 | $ | 716 | $ | 628 | ||||||
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds ABO |
70 | 85 | 799 | 847 | ||||||||||
|
Total |
$ | 1,672 | $ | 1,598 | $ | 1,515 | $ | 1,475 | ||||||
Contributions and estimated future benefit payments. During fiscal year 2011, we expect to contribute $32 million to the U.S. defined benefit plans, $51 million to plans outside the U.S., and zero
112
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to the Post-retirement Medical Plans. The following table presents expected future benefit payments for the next 10 years.
|
|
|
|
U.S. Post-Retirement
Benefit Plans |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
U.S. Defined
Benefit Plans |
Non-U.S. Defined
Benefit Plans |
Gross |
Medicare
Part D Subsidy |
Net | |||||||||||
|
|
(in millions)
|
|||||||||||||||
|
2011 |
$ | 45 | $ | 47 | $ | 26 | $ | (2 | ) | $ | 24 | |||||
|
2012 |
$ | 45 | $ | 48 | $ | 27 | $ | (2 | ) | $ | 25 | |||||
|
2013 |
$ | 46 | $ | 54 | $ | 30 | $ | (2 | ) | $ | 28 | |||||
|
2014 |
$ | 47 | $ | 54 | $ | 32 | $ | (3 | ) | $ | 29 | |||||
|
2015 |
$ | 47 | $ | 58 | $ | 34 | $ | (3 | ) | $ | 31 | |||||
|
2016 - 2020 |
$ | 209 | $ | 382 | $ | 188 | $ | (19 | ) | $ | 169 | |||||
Assumptions. The assumptions used to determine the benefit obligations and expense for our defined benefit and post-retirement benefit plans are presented in the tables below. The expected long-term return on assets below represents an estimate of long-term returns on investment portfolios consisting of a mixture of equities, fixed income and alternative investments in proportion to the asset allocations of each of our plans. We consider long-term rates of return, which are weighted based on the asset classes (both historical and forecasted) in which we expect our pension and post-retirement funds to be invested. Discount rates reflect the current rate at which pension and post-retirement obligations could be settled based on the measurement dates of the plans — October 31. For the non-U.S. plans, the measurement date was September 30 for 2008. The U.S. discount rates at October 31, 2010 were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. The U.S. discount rates at October 31, 2009 were determined by matching the expected plan benefit payments against an industry discount curve as well as reviewing the movement of industry benchmarks. The non-U.S. rates were generally based on published rates for high-quality corporate bonds. The range of assumptions that were used for the non-U.S. defined benefit plans reflects the different economic environments within various countries.
113
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assumptions used to calculate the net periodic cost in each year were as follows:
|
|
For years ended October 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | ||||||||
|
U.S. defined benefit plans: |
|||||||||||
|
Discount rate |
5.25 | % | 8.5 | % | 6.25 | % | |||||
|
Average increase in compensation levels |
3.5 | % | 3.5 | % | 3.5 | % | |||||
|
Expected long-term return on assets |
8.5 | % | 8.5 | % | 8.5 | % | |||||
|
Non-U.S. defined benefit plans: |
|||||||||||
|
Discount rate |
2.25-5.75 | % | 2.25-6.5 | % | 2.25-5.9 | % | |||||
|
Average increase in compensation levels |
2.5-3.75 | % | 2.5-4.0 | % | 2.5-4.0 | % | |||||
|
Expected long-term return on assets |
4.25-7.0 | % | 4.5-7.25 | % | 4.5-7.25 | % | |||||
|
U.S. post-retirement benefits plans: |
|||||||||||
|
Discount rate |
5.5 | % | 8.5 | % | 6.25 | % | |||||
|
Expected long-term return on assets |
8.5 | % | 8.5 | % | 8.5 | % | |||||
|
Current medical cost trend rate |
10.0 | % | 10.0 | % | 10.0 | % | |||||
|
Ultimate medical cost trend rate |
5.0 | % | 5.0 | % | 5.0 | % | |||||
|
Medical cost trend rate decreases to ultimate rate in year |
2019 | 2018 | 2013 | ||||||||
Assumptions used to calculate the benefit obligation were as follows:
|
|
As of the Years
Ending October 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | ||||||
|
U.S. defined benefit plans: |
||||||||
|
Discount rate |
5.0 | % | 5.25 | % | ||||
|
Average increase in compensation levels |
3.5 | % | 3.5 | % | ||||
|
Expected long-term return on assets |
8.25 | % | 8.5 | % | ||||
|
Non-U.S. defined benefit plans: |
||||||||
|
Discount rate |
2.0-5.25 | % | 2.25-5.75 | % | ||||
|
Average increase in compensation levels |
2.5-3.75 | % | 2.5-3.75 | % | ||||
|
Expected long-term return on assets |
4.0-6.75 | % | 4.25-7.0 | % | ||||
|
U.S. post-retirement benefits plans: |
||||||||
|
Discount rate |
5.5 | % | 5.5 | % | ||||
|
Expected long-term return on assets |
8.25 | % | 8.5 | % | ||||
|
Current medical cost trend rate |
10.0 | % | 10.0 | % | ||||
|
Ultimate medical cost trend rate |
4.75 | % | 5.0 | % | ||||
|
Medical cost trend rate decreases to ultimate rate in year |
2025 | 2019 | ||||||
114
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assumed health care trend rates could have a significant effect on the amounts reported for Post-retirement Medical Plans. A one percentage point change in the assumed health care cost trend rates for the year ended October 31, 2010 would have the following effects:
|
|
One Percentage
Point Increase |
One Percentage
Point Decrease |
|||||
|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
||||||
|
Effect on total service and interest cost components |
$ | 3 | $ | (3 | ) | ||
|
Effect on post-retirement benefit obligations |
$ | 51 | $ | (44 | ) | ||
16. GUARANTEES
Standard Warranty
A summary of the standard warranty accrual activity is shown in the table below. The standard warranty accrual balances are held in other accrued and other long-term liabilities.
|
|
October 31, | ||||||
|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | |||||
|
|
(in millions)
|
||||||
|
Balance as of October 31, 2009 and 2008 |
$ | 28 | $ | 29 | |||
|
Reserve acquired upon close of Varian acquisition |
13 | — | |||||
|
Accruals for warranties issued during the period |
57 | 44 | |||||
|
Changes in estimates |
(4 | ) | 6 | ||||
|
Settlements made during the period |
(49 | ) | (51 | ) | |||
|
Balance as of October 31, 2010 and 2009 |
$ | 45 | $ | 28 | |||
Indemnifications to Avago
In connection with the sale of our semiconductor products business in December 2005, we agreed to indemnify Avago, its affiliates and other related parties against certain damages that it might incur in the future. The continuing indemnifications primarily cover damages relating to liabilities of the businesses that Agilent retained and did not transfer to Avago, as well as pre-closing taxes and other specified items. In our opinion, the fair value of these indemnifications was not material as of October 31, 2010.
Indemnifications to Verigy
In connection with the spin-off of Verigy, we agreed to indemnify Verigy and its affiliates against certain damages which it might incur in the future. These indemnifications primarily cover damages relating to liabilities of the businesses that Agilent did not transfer to Verigy, liabilities that might arise under limited portions of Verigy's IPO materials that relate to Agilent, and costs and expenses incurred by Agilent or Verigy to effect the IPO, arising out of the distribution of Agilent's remaining holding in Verigy ordinary shares to Agilent's stockholders, or incurred to effect the separation of the semiconductor test solutions business from Agilent to the extent incurred prior to the separation on June 1, 2006. In our opinion, the fair value of these indemnifications was not material as of October 31, 2010.
115
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Indemnifications to Hewlett-Packard
We have given multiple indemnities to Hewlett-Packard in connection with our activities prior to our spin-off from HP for the businesses that constituted Agilent prior to the spin-off. These indemnifications cover a variety of aspects of our business, including, but not limited to, employee, tax, intellectual property and environmental matters. The agreements containing these indemnifications have been previously disclosed as exhibits to our registration statement on Form S-1 filed on August 16, 1999. In our opinion, the fair value of these indemnifications was not material as of October 31, 2010.
Indemnifications to Varian Medical Systems and Varian Semiconductor Equipment Associates
In connection with our acquisition of Varian, we are subject to certain indemnification obligations to Varian Medical Systems (formerly Varian Associates, Inc. ("VAI")) and Varian Semiconductor Equipment Associates in connection with the Instruments business as conducted by VAI prior to the Distribution (as described in Note 1 of Varian's Annual Report on Form 10-K filed on November 25, 2009). These indemnification obligations cover a variety of aspects of our business, including, but not limited to, employee, tax, intellectual property, litigation and environmental matters. Certain of the agreements containing these indemnification obligations are disclosed as exhibits to Varian's Annual Report on Form 10-K filed on November 25, 2009. In our opinion, the fair value of these indemnifications was not material as of October 31, 2010.
Indemnifications to Officers and Directors
Our corporate by-laws require that we indemnify our officers and directors, as well as those who act as directors and officers of other entities at our request, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to Agilent and such other entities, including service with respect to employee benefit plans. In addition, we have entered into separate indemnification agreements with each director and each board-appointed officer of Agilent which provide for indemnification of these directors and officers under similar circumstances and under additional circumstances. The indemnification obligations are more fully described in the by-laws and the indemnification agreements. We purchase standard insurance to cover claims or a portion of the claims made against our directors and officers. Since a maximum obligation is not explicitly stated in our by-laws or in our indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not made payments related to these obligations, and the fair value for these obligations was not material as of October 31, 2010.
Other Indemnifications
As is customary in our industry and as provided for in local law in the U.S. and other jurisdictions, many of our standard contracts provide remedies to our customers and others with whom we enter into contracts, such as defense, settlement, or payment of judgment for intellectual property claims related to the use of our products. From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and the use of our products and services, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount. In
116
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
addition, from time to time we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. In our experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability was not material as of October 31, 2010.
In connection with the sale of several of our businesses, we have agreed to indemnify the buyers of such business, their respective affiliates and other related parties against certain damages that they might incur in the future. The continuing indemnifications primarily cover damages relating to liabilities of the businesses that Agilent retained and did not transfer to the buyers, as well as other specified items. In our opinion, the fair value of these indemnifications was not material as of October 31, 2010.
17. COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments: We lease certain real and personal property from unrelated third parties under non-cancelable operating leases. Future minimum lease payments under operating leases at October 31, 2010 were $57 million for 2011, $47 million for 2012, $30 million for 2013, $19 million for 2014, $17 million for 2015 and $31 million thereafter. Future minimum sublease income under leases at October 31, 2010 was $6 million for 2011, $5 million for 2012, $3 million for 2013, $2 million for 2014 and $3 million thereafter. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Total rent expense, including charges relating to the consolidation of excess facilities was $89 million in 2010, $95 million in 2009 and $89 million in 2008.
Environmental Contingency: As part of our acquisition of Varian, we assumed the liabilities of Varian, including Varian's costs and potential liabilities for environmental matters. One such cost is our obligation, along with the obligation of Varian Semiconductor Equipment Associates, Inc. ("VSEA") (under the terms of a Distribution Agreement between Varian, VSEA and Varian Medical Systems, Inc. ("VMS")) to each indemnify VMS for one-third of certain costs (after adjusting for any insurance recoveries and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities previously operated by VAI and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA") in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal (the "CERCLA sites").
Various uncertainties make it difficult to estimate future costs for certain of these environmental-related activities, specifically external legal expenses, VMS' internal oversight costs, third-party claims and a former VAI facility where the likelihood and scope of further environmental-related activities are difficult to assess. As of October 31, 2010, it was nonetheless estimated that our future exposure for these environmental-related costs ranged in the aggregate from $1 million to $3 million.
117
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sufficient knowledge has been gained to be able to better estimate other costs for future environmental-related activities. As of October 31, 2010, it was estimated that our future costs for these environmental-related activities ranged in the aggregate from $2 million to $13 million. As to each of these ranges of cost estimates, it was determined that a particular amount within the range was a better estimate than any other amount within the range. Together, these amounts totaled $5 million at October 31, 2010. Because both the amount and timing of the recurring portion of these costs were reliably determinable, that portion is discounted at 4%, net of inflation. As of October 31, 2010, in total, we have accrued $5 million in respect of these environmental matters.
We are involved in lawsuits, claims, investigations and proceedings, including patent, commercial and environmental matters. There are no matters pending that we expect to be material in relation to our business, consolidated financial condition, results of operations or cash flows.
18. SHORT-TERM DEBT
Credit Facility
On May 11, 2007, we entered into a five-year credit agreement, which provides for a $300 million unsecured credit facility that will expire on May 11, 2012. On September 8, 2009, we entered into an Accession Agreement, increasing the credit facility from $300 million to $330 million. The company may use amounts borrowed under the facility for general corporate purposes. As of October 31, 2010 the company has no borrowings outstanding under the facility.
On August 17, 2009 the credit facility agreement was amended to provide additional financing flexibility in advance of the acquisition of Varian, Inc. The amendment allows for up to $1 billion of additional indebtedness, incurred during the period from August 17, 2009 through the closing of the acquisition, May 14, 2010, to be excluded from the leverage ratio covenant until March 1, 2011. It also temporarily reduces the basket for other secured financing we are permitted to incur from $300 million to $75 million during this period. The amendment also increases by $500 million the amount of repurchase obligations (such as those of Agilent Technologies World Trade, Inc., a consolidated wholly-owned subsidiary of Agilent ("World Trade")), that we are permitted to incur.
World Trade Debt
In January 2006, World Trade entered into a five-year Master Repurchase Agreement with a counterparty in which World Trade sold 15,000 Class A preferred shares of Agilent Technologies (Cayco) Limited ("Cayco") to the counterparty, having an aggregate liquidation preference of $1.5 billion. World Trade owns all of the outstanding common shares of Cayco, a separate legal entity.
In September 2008, Agilent and World Trade entered into an agreement (the "Lloyds Related Agreement") with Lloyds TSB Bank plc ("Lloyds"). Under the Lloyds Related Agreement, on November 17, 2008 (the "Effective Date"), Lloyds accepted the transfer by novation of all of the rights and obligations of the counterparty under a revised Master Repurchase Agreement. On the Effective Date, Lloyds paid $1.5 billion to the prior counterparty in consideration of the novation and World Trade's repurchase obligation was extended to January 27, 2011 (the "Extended Repurchase Date"). World Trade is obligated to make aggregate quarterly payments to Lloyds at a rate per annum, reset quarterly, with reference to LIBOR plus 175 basis points beginning on the Effective Date. We satisfied the financing obligation of World Trade in its entirety on December 10, 2010 using the proceeds of our senior notes issued in July 2010 and existing cash on our balance sheet.
118
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Short-Term Restricted Cash & Cash Equivalents
As of October 31, 2010, $1,550 million was reported as short-term restricted cash and cash equivalents in our consolidated balance sheet which is held in commercial paper maintained in connection with our World Trade repurchase obligation. This restricted cash, held by one of our wholly-owned subsidiaries, has been reclassified to cash and cash equivalents following the December 10, 2010 settlement of the World Trade repurchase obligation. As of October 31, 2009, $1,555 million of restricted cash and cash equivalents associated with our World Trade repurchase obligation was reported as long-term in our consolidated balance sheet.
19. LONG-TERM DEBT
Senior Notes
The following table summarizes the company's senior notes and the related interest rate swaps:
|
|
October 31, 2010 | October 31, 2009 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Discounted
Principal |
Swap | Total |
Discounted
Principal |
Swap | Total | |||||||||||||
|
|
(in millions)
|
||||||||||||||||||
|
2012 Senior Notes |
$ | 250 | $ | 6 | $ | 256 | $ | 250 | $ | 1 | $ | 251 | |||||||
|
2013 Senior Notes |
249 | — | 249 | — | — | — | |||||||||||||
|
2015 Senior Notes |
499 | 37 | 536 | 498 | 2 | 500 | |||||||||||||
|
2017 Senior Notes |
598 | 35 | 633 | 598 | 39 | 637 | |||||||||||||
|
2020 Senior Notes |
498 | 18 | 516 | — | — | — | |||||||||||||
|
Total |
$ | 2,094 | $ | 96 | $ | 2,190 | $ | 1,346 | $ | 42 | $ | 1,388 | |||||||
2012 Senior Notes
In September 2009, the company issued an aggregate principal amount of $250 million in senior notes. The senior notes were issued at 99.91% of their principal amount. The notes will mature on September 14, 2012, and bear interest at a fixed rate of 4.45% per annum. The interest is payable semi-annually on March 14 th and September 14 th of each year, payments commenced on March 14, 2010.
2013 Senior Notes
In July 2010, the company issued an aggregate principal amount of $250 million in senior notes. The senior notes were issued at 99.82% of their principal amount. The notes will mature on July 15, 2013, and bear interest at a fixed rate of 2.50% per annum. The interest is payable semi-annually on January 15 th and July 15 th of each year, payments commencing on January 15, 2011.
2015 Senior Notes
In September 2009, the company issued an aggregate principal amount of $500 million in senior notes. The senior notes were issued at 99.69% of their principal amount. The notes will mature on September 14, 2015, and bear interest at a fixed rate of 5.50% per annum. The interest is payable semi-annually on March 14 th and September 14 th of each year, payments commenced on March 14, 2010.
119
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017 Senior Notes
In October 2007, the company issued an aggregate principal amount of $600 million in senior notes. The senior notes were issued at 99.60% of their principal amount. The notes will mature on November 1, 2017, and bear interest at a fixed rate of 6.50% per annum. The interest is payable semi-annually on May 1 st and November 1 st of each year and payments commenced on May 1, 2008.
On November 25, 2008, we terminated two interest rate swap contracts associated with our 2017 senior notes that represented the notional amount of $400 million. The asset value upon termination was approximately $43 million and the amount to be amortized at October 31, 2010 was $35 million. The proceeds were recorded as operating cash flows and the gain is being deferred and amortized over the remaining life of the senior notes.
2020 Senior Notes
In July 2010, the company issued an aggregate principal amount of $500 million in senior notes. The senior notes were issued at 99.54% of their principal amount. The notes will mature on July 15, 2020, and bear interest at a fixed rate of 5.00% per annum. The interest is payable semi-annually on January 15 th and July 15 th of each year, payments commencing on January 15, 2011.
All notes issued are unsecured and rank equally in right of payment with all of Agilent's other senior unsecured indebtedness. The company incurred issuance costs of $5 million in connection with the 2017 senior notes, incurred $5 million in connection with the 2015 and 2012 senior notes and incurred $5 million in connection with 2013 and 2020 senior notes. These costs were capitalized in other assets on the consolidated balance sheet and the costs are being amortized to interest expense over the term of the senior notes.
Upon the closing of the offering of the 2015 and 2012 senior notes, we entered into interest rate swaps with an aggregate notional amount of $750 million. Also concurrent with issuing the 2020 senior notes in July 2010, we entered into interest rate swaps with an aggregate notional amount of $500 million. Under the interest rate swaps, we will receive fixed-rate interest payments and will make payments based on the U.S. dollar LIBOR plus 253 basis points, 257.6 basis points and 179 basis points with respect to the 2015, 2012 and 2020 senior notes, respectively. The economic effect of these swaps will be to convert the fixed-rate interest expense on the senior notes to a variable LIBOR-based interest rate. The hedging relationship qualifies for the shortcut method of assessing hedge effectiveness, and consequently we do not expect any ineffectiveness during the life of the swap and any movement in the value of the swap would be reflected in the movement in fair value of the senior notes. At October 31, 2010, the fair value of the swaps on 2015 and 2012 senior notes was an asset of $43 million and an asset of $18 million on 2020 senior notes with a corresponding increase in carrying value of the senior notes.
Other Debt
On August 11, 2008, a consolidated wholly-owned subsidiary of Agilent, borrowed Indian Rupees equivalent to $15 million from Citibank N.A. to finance a capital project in India. On March 30, 2010 the debt was repaid in full.
On June 3, 2010, as a result of the Varian acquisition, the company also paid $14 million to satisfy an outstanding term loan of Varian with a U.S. financial institution which had a fixed interest rate of 6.7%. The $14 million payment of the term loan included an early termination fee of $2 million.
120
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
20. STOCK REPURCHASE PROGRAM
On November 14, 2007, the Audit and Finance Committee of the Board of Directors approved a share repurchase program of up to $2 billion of Agilent's common stock over the next two years. On March 26, 2009, the company announced that it was suspending its share repurchase program until the end of the 2009 fiscal year. On November 15, 2009, the company's share repurchase program expired upon the termination of its two-year term. No shares were purchased under the November 14, 2007 share repurchase program during the year ended October 31, 2010.
On November 19, 2009 our Board of Directors approved a share-repurchase program to reduce or eliminate dilution of basic outstanding shares in connection with issuances of stock under the company's equity incentive plans. The share-repurchase program does not require the company to acquire a specific number of shares and may be suspended or discontinued at any time. There is no fixed termination date for the new share-repurchase program. For the year ended October 31, 2010, we repurchased 13 million shares for $411 million using settlement date calculation. All such shares and related costs are held as treasury stock and accounted for using the cost method.
21. SEGMENT INFORMATION
Description of segments. We are a measurement company, providing core bio-analytical and electronic measurement solutions to the life sciences, chemical analysis, communications and electronics industries. In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises a reportable segment. The three new operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and services and manufacturing are considered in determining the formation of these new operating segments. All historical segment numbers were recast to conform to this new reporting structure in our financial statements.
A description of our three reportable segments is as follows:
Our life sciences business provides application-focused solutions that include instruments, software, consumables, and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Key product categories in life sciences include: DNA and RNA microarrays and associated scanner, software, and reagents; microfluidics-based sample analysis systems; liquid chromatography (LC) systems, columns and components; liquid chromatography mass spectrometry (LCMS) systems; capillary electrophoresis systems; laboratory software and informatics systems; bio-reagents and related products; laboratory automation and robotic systems, dissolution testing; Nuclear Magnetic Resonance (NMR) and Magnetic Resonance Imaging (MRI) systems along with X-Ray Crystallography, and services and support for the aforementioned products.
121
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our chemical analysis business provides application-focused solutions that include instruments, software, consumables, and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Key product categories in chemical analysis include: gas chromatography systems, columns and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry products; spectroscopy products; software and data systems; vacuum pumps and measurement technologies; services and support for the aforementioned products.
Our electronic measurement business provides electronic measurement instruments and systems, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment, and microscopy products. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer's product lifecycle.
A significant portion of the segments' expenses arise from shared services and infrastructure that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources. These expenses, collectively called corporate charges, include costs of centralized research and development, legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses. Charges are allocated to the segments, and the allocations have been determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.
The following tables reflect the results of our reportable segments under our management reporting system. These results are not necessarily in conformity with U.S. GAAP. The performance of each segment is measured based on several metrics, including adjusted income from operations. These results are used, in part, by the chief operating decision maker in evaluating the performance of, and in allocating resources to, each of the segments.
The profitability of each of the segments is measured after excluding restructuring and asset impairment charges, investment gains and losses, interest income, interest expense, Varian
122
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquisition and integration costs, non-cash amortization and impairment of other intangibles and other items as noted in the reconciliations below.
|
|
Life Sciences |
Chemical
Analysis |
Electronic
Measurement |
Total
Segments |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||||||||
|
Year ended October 31, 2010: |
||||||||||||||
|
Total segment revenue |
$ | 1,479 | $ | 1,200 | $ | 2,784 | $ | 5,463 | ||||||
|
Varian acquisition deferred revenue fair value adjustment |
$ | (15 | ) | $ | (4 | ) | $ | — | $ | (19 | ) | |||
|
Total net revenue |
$ | 1,464 | $ | 1,196 | $ | 2,784 | $ | 5,444 | ||||||
|
Income from operations |
$ | 221 | $ | 279 | $ | 438 | $ | 938 | ||||||
|
Depreciation expense |
$ | 34 | $ | 24 | $ | 66 | $ | 124 | ||||||
|
Share-based compensation expense |
$ | 17 | $ | 13 | $ | 34 | $ | 64 | ||||||
|
Year ended October 31, 2009: |
||||||||||||||
|
Total net revenue |
$ | 1,219 | $ | 844 | $ | 2,418 | $ | 4,481 | ||||||
|
Income from operations |
$ | 174 | $ | 216 | $ | 1 | $ | 391 | ||||||
|
Depreciation expense |
$ | 27 | $ | 14 | $ | 71 | $ | 112 | ||||||
|
Share-based compensation expense |
$ | 18 | $ | 12 | $ | 36 | $ | 66 | ||||||
|
Year ended October 31, 2008: |
||||||||||||||
|
Total net revenue |
$ | 1,258 | $ | 937 | $ | 3,579 | $ | 5,774 | ||||||
|
Income from operations |
$ | 166 | $ | 244 | $ | 477 | $ | 887 | ||||||
|
Depreciation expense |
$ | 28 | $ | 13 | $ | 85 | $ | 126 | ||||||
|
Share-based compensation expense |
$ | 18 | $ | 13 | $ | 51 | $ | 82 | ||||||
The following table reconciles segment results to Agilent's total enterprise results from operations before taxes:
|
|
Years Ended October 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | 2008 | |||||||
|
|
(in millions)
|
|||||||||
|
Total reportable segments' income from operations |
$ | 938 | $ | 391 | $ | 887 | ||||
|
Restructuring related costs and asset impairment |
(84 | ) | (296 | ) | (28 | ) | ||||
|
Transformational programs |
(39 | ) | — | — | ||||||
|
Amortization of intangibles |
(77 | ) | (45 | ) | (53 | ) | ||||
|
Retirement plans net curtailment and settlement |
— | 16 | — | |||||||
|
Interest Income |
20 | 29 | 113 | |||||||
|
Interest Expense |
(96 | ) | (88 | ) | (123 | ) | ||||
|
Gain on sale of network solutions division, net |
132 | — | — | |||||||
|
Other income (expense), net |
70 | 19 | 30 | |||||||
|
Varian acquisition and integration costs |
(102 | ) | — | — | ||||||
|
Varian acquisition related fair value adjustments |
(51 | ) | — | — | ||||||
|
Other |
(19 | ) | (19 | ) | (11 | ) | ||||
|
Income from operations before taxes, as reported |
$ | 692 | $ | 7 | $ | 815 | ||||
Major customers. No customer represented 10 percent or more of our total net revenue in 2010, 2009 or 2008.
123
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents assets and capital expenditures directly managed by each segment. Unallocated assets primarily consist of cash, cash equivalents, accumulated amortization of other intangibles, the valuation allowance relating to deferred tax assets and other assets.
|
|
Life Sciences |
Chemical
Analysis |
Electronic
Measurement |
Total
Segments |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||||||||
|
As of October 31, 2010: |
||||||||||||||
|
Assets |
$ | 1,564 | $ | 1,635 | $ | 2,245 | $ | 5,444 | ||||||
|
Capital expenditures |
$ | 30 | $ | 15 | $ | 76 | $ | 121 | ||||||
|
As of October 31, 2009: |
||||||||||||||
|
Assets |
$ | 1,019 | $ | 463 | $ | 2,084 | $ | 3,566 | ||||||
|
Capital expenditures |
$ | 35 | $ | 16 | $ | 77 | $ | 128 | ||||||
The following table reconciles segment assets to Agilent's total assets:
|
|
October 31, | ||||||
|---|---|---|---|---|---|---|---|
|
|
2010 | 2009 | |||||
|
|
(in millions)
|
||||||
|
Total reportable segments' assets |
$ | 5,444 | $ | 3,566 | |||
|
Cash, cash equivalents and short-term investments |
4,199 | 2,493 | |||||
|
Prepaid expenses |
118 | 119 | |||||
|
Investments |
135 | 157 | |||||
|
Restricted cash and cash equivalents |
6 | 1,566 | |||||
|
Long-term and other receivables |
283 | 172 | |||||
|
Other, including valuation allowance |
(489 | ) | (461 | ) | |||
|
Total assets |
$ | 9,696 | $ | 7,612 | |||
Geographic Information
The following table presents summarized information for net revenue and long-lived assets by geographic region for continuing operations. Long lived assets consist of property, plant, and equipment, long-term receivables and other long-term assets excluding intangible assets. The rest of the world primarily consists of Southeast Asia and Europe.
|
|
United
States |
China | Japan |
Rest of the
World |
Total | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
||||||||||||||||
|
Net revenue: |
|||||||||||||||||
|
Year ended October 31, 2010 |
$ | 1,760 | $ | 744 | $ | 549 | $ | 2,391 | $ | 5,444 | |||||||
|
Year ended October 31, 2009 |
$ | 1,495 | $ | 598 | $ | 476 | $ | 1,912 | $ | 4,481 | |||||||
|
Year ended October 31, 2008 |
$ | 1,834 | $ | 642 | $ | 663 | $ | 2,635 | $ | 5,774 | |||||||
|
|
United
States |
Japan |
Rest of the
World |
Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
(in millions)
|
|||||||||||||
|
Long-lived assets: |
||||||||||||||
|
October 31, 2010 |
$ | 654 | $ | 180 | $ | 515 | $ | 1,349 | ||||||
|
October 31, 2009 |
$ | 583 | $ | 185 | $ | 416 | $ | 1,184 | ||||||
124
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
Three Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
January 31, | April 30, | July 31, | October 31, | ||||||||||
|
|
(in millions, except per share data)
|
|||||||||||||
|
2010 |
||||||||||||||
|
Net revenue |
$ | 1,213 | $ | 1,271 | $ | 1,384 | $ | 1,576 | ||||||
|
Gross profit |
660 | 711 | 725 | 834 | ||||||||||
|
Income from operations |
94 | 154 | 115 | 203 | ||||||||||
|
Net income |
$ | 79 | $ | 108 | $ | 205 | $ | 292 | ||||||
|
Net income per share — Basic: |
$ | 0.23 | $ | 0.31 | $ | 0.59 | $ | 0.84 | ||||||
|
Net income per share — Diluted: |
$ | 0.22 | $ | 0.31 | $ | 0.58 | $ | 0.83 | ||||||
|
Weighted average shares used in computing net income per share: |
||||||||||||||
|
Basic |
348 | 348 | 347 | 346 | ||||||||||
|
Diluted |
354 | 354 | 352 | 352 | ||||||||||
|
Range of stock prices on NYSE |
$ | 24.69-31.77 | $ | 28.13-37.43 | $ | 26.74-36.89 | $ | 26.68-35.33 | ||||||
|
2009 |
||||||||||||||
|
Net revenue |
$ | 1,166 | $ | 1,091 | $ | 1,057 | $ | 1,167 | ||||||
|
Gross profit |
589 | 530 | 539 | 634 | ||||||||||
|
Income (loss) from operations |
24 | (47 | ) | (1 | ) | 71 | ||||||||
|
Net income (loss) |
$ | 64 | $ | (101 | ) | $ | (19 | ) | $ | 25 | ||||
|
Net income (loss) per share — Basic: |
$ | 0.18 | $ | (0.29 | ) | $ | (0.06 | ) | $ | 0.07 | ||||
|
Net income (loss) per share — Diluted: |
$ | 0.18 | $ | (0.29 | ) | $ | (0.06 | ) | $ | 0.07 | ||||
|
Weighted average shares used in computing net income (loss) per share: |
||||||||||||||
|
Basic |
351 | 344 | 345 | 346 | ||||||||||
|
Diluted |
352 | 344 | 345 | 350 | ||||||||||
|
Range of stock prices on NYSE |
$ | 14.76-25.07 | $ | 12.02-19.69 | $ | 17.26-23.89 | $ | 23.14-29.38 | ||||||
125
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of October 31, 2010, pursuant to and as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of October 31, 2010, the company's disclosure controls and procedures, as defined by Rule 13a-15(e) under the Exchange Act, were effective and designed to ensure that (i) information required to be disclosed in the company's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, our management concluded that our internal control over financial reporting was effective as of October 31, 2010.
The effectiveness of our internal control over financial reporting as of October 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during Agilent's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
126
Item 10.
Directors, Executive Officers and Corporate Governance
Information regarding our directors appears under "Proposal No. 1 — Election of Directors" in our Proxy Statement for the Annual Meeting of Stockholders (the "Proxy Statement"), to be held March 1, 2011. That portion of the Proxy Statement is incorporated by reference into this report. Information regarding our executive officers appears in Item 1 of this report under "Executive Officers of the Registrant." Information regarding our Audit and Finance Committee and our Audit and Finance Committee's financial expert appears under "Audit and Finance Committee Report" and "Board Structure and Compensation" in our Proxy Statement. That portion of the Proxy Statement is incorporated by reference into this report.
There were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors. Information regarding our code of ethics (the company's Standards of Business Conduct) applicable to our principal executive officer, our principal financial officer, our controller and other senior financial officers appears in Item 1 of this report under "Investor Information." We will post amendments to or waivers from a provision of the Standards of Business Conduct with respect to those persons on our website at www.investor.agilent.com.
Compliance with Section 16(a) of the Exchange Act
Information about compliance with Section 16(a) of the Exchange Act appears under "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. That portion of the Proxy Statement is incorporated by reference into this report.
Item 11.
Executive Compensation
Information about compensation of our named executive officers appears under "Executive Compensation", "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement. Information about compensation of our directors appears under "Director Compensation" and "Compensation Committee Report" and "Stock Ownership Guidelines" in the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership of certain beneficial owners and management appears under "Common Stock Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. That portion of the Proxy Statement is incorporated by reference into this report.
127
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes information about our equity compensation plans as of October 31, 2010. All outstanding awards relate to our common stock.
|
Plan Category
|
Number of Securities
to be Issued upon Exercise of Outstanding Options, Warrants and Rights |
Weighted-average
Exercise Price of Outstanding Options, Warrants and Rights |
Number of Securities
Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
|||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
(a)
|
(b)
|
(c)
|
|||||||
|
Equity compensation plans approved by security holders (1)(2)(3) |
25,768,904 | $ | 28 | 55,322,180 | ||||||
|
Equity compensation plans not approved by security holders |
— | — | — | |||||||
|
Total |
25,768,904 | $ | 28 | 55,322,180 | ||||||
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Information about certain relationships and related transactions appears under "Related Person Transaction Policy and Procedures" in the Proxy Statement. Information about director independence appears under the heading "Board Structure and Compensation — Director Independence" in the Proxy Statement. Each of those portions of the Proxy Statement is incorporated by reference into this report.
Item 14.
Principal Accounting Fees and Services
Information about principal accountant fees and services as well as related pre-approval policies appears under "Fees Paid to PricewaterhouseCoopers" and "Policy on Audit and Finance Committee Preapproval of Audit and Permissible Non-Audit Services of Independent Registered Auditors" in the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.
128
Item 15.
Exhibits and Financial Statement Schedules
See Index to Consolidated Financial Statements under Item 8 on Page 66 of this report.
The following additional financial statement schedule should be considered in conjunction with our consolidated financial statements. All other schedules have been omitted because the required information is either not applicable or not sufficiently material to require submission of the schedule:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
| Column A | Column B | Column C | Column D | Column E | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Description |
Balance at
Beginning of Period |
Additions Charged to
Costs, Expenses or Other Accounts* |
Deductions** |
Balance at
End of Period |
|||||||||
|
|
(in millions)
|
||||||||||||
|
2010 |
|||||||||||||
|
Tax valuation allowance |
$ | 684 | $ | — | $ | (157 | ) | $ | 527 | ||||
|
2009 |
|||||||||||||
|
Tax valuation allowance |
$ | 621 | $ | 65 | $ | (2 | ) | $ | 684 | ||||
|
2008 |
|||||||||||||
|
Tax valuation allowance |
$ | 332 | $ | 312 | $ | (22 | ) | $ | 621 | ||||
129
Exhibits are incorporated herein by reference or are filed with this report as indicated below (numbered in accordance with Item 601 of Regulation S-K):
|
|
|
Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 2.1 | Master Separation and Distribution Agreement between Hewlett-Packard and Agilent Technologies, Inc., effective as of August 12, 1999. | S-1/A | 11/10/99 | 2.1 | ||||||||
| 2.2 | General Assignment and Assumption Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.2 | ||||||||
| 2.3 | Master Technology Ownership and License Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.3 | ||||||||
| 2.4 | Master Patent Ownership and License Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.4 | ||||||||
| 2.5 | Master Trademark Ownership and License Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.5 | ||||||||
| 2.6 | ICBD Technology Ownership and License Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.6 | ||||||||
| 2.7 | Employee Matters Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.7 | ||||||||
| 2.8 | Tax Sharing Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.8 | ||||||||
| 2.9 | Master IT Service Level Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.9 | ||||||||
| 2.10 | Real Estate Matters Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.10 | ||||||||
| 2.11 | Environmental Matters Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.11 | ||||||||
| 2.12 | Master Confidential Disclosure Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.12 | ||||||||
| 2.13 | Indemnification and Insurance Matters Agreement between Hewlett-Packard and Agilent Technologies, Inc. | S-1/A | 11/10/99 | 2.13 | ||||||||
| 2.14 | Non U.S. Plan. | S-1/A | 11/10/99 | 2.14 | ||||||||
130
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Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 2.15 | Share Purchase Agreement, dated as of August 12, 2005, by and among Agilent Technologies, Inc. and Agilent LED International, Philips Lumileds Holding B.V. and Koninklijke Philips Electronics N.V. | 8-K | 08/15/05 | 2.2 | ||||||||
| 2.16 | Agreement and Plan of Merger dated as of July 26, 2009, by and among Agilent Technologies, Inc., Cobalt Acquisition Corp. and Varian, Inc. | 10-Q | 09/04/09 | 2.1 | ||||||||
| 2.17 | Asset Purchase Agreement, dated February 10, 2010, by and between Agilent Technologies, Inc. and JDS Uniphase Corporation (pursuant to Item 601(b)(2) of Regulation S-K, schedules to the Asset Purchase Agreement have been omitted; they will be supplementally provided to the SEC upon request) | 10-Q | 3/10/10 | 2.1 | ||||||||
| 3.1 | Amended and Restated Certificate of Incorporation. | S-1 | 08/16/99 | 3.1 | ||||||||
| 3.2 | Amended and Restated Bylaws. | 8-K | 03/25/08 | 3.1 | ||||||||
| 4.1 | Preferred Stock Rights Agreement between Agilent Technologies, Inc. and Harris Trust and Savings Bank dated as of May 12, 2000. | 8-A12B/A | 05/24/00 | 1 | ||||||||
| 4.2 | Registration Rights Agreement between Agilent Technologies, Inc. and Credit Suisse First Boston Corporation, J.P. Morgan Securities, Inc. and Salomon Smith Barney, Inc, dated November 27, 2001. | 8-K | 11/27/01 | 99.3 | ||||||||
| 4.3 | Indenture, dated October 24, 2007, between Agilent Technologies, Inc. and the trustee for the debt securities. | S-3ASR | 10/24/07 | 4.01 | ||||||||
| 4.4 | Form of First Supplemental Indenture, dated as of October 29, 2007, between Agilent Technologies, Inc. and U.S. Bank National Association and Form of Global Note for Agilent Technologies, Inc. 6.50% Senior Notes due 2017. | 8-K | 10/26/07 | 4.01 | ||||||||
| 4.5 | Form of Second Supplemental Indenture, dated as of September 14, 2009, between Agilent Technologies, Inc. and U.S. Bank National Association and Form of Global Note for Agilent Technologies, Inc. 4.45% Senior Notes due 2012. | 8-K | 09/14/09 | 4.01 | ||||||||
131
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|
Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 4.6 | Form of Third Supplemental Indenture, dated as of September 14, 2009, between the Company and U.S. Bank National Association and Form of Global Note for Agilent Technologies, Inc. 5.50% Senior Notes due 2015. | 8-K | 09/14/09 | 4.02 | ||||||||
| 4.7 | Fourth Supplemental Indenture, dated as of July 20, 2010, between the Company and U.S. Bank National Association and Form of Global Note for the Company's 2.50% Senior Notes due 2013. | 8-K | 07/20/10 | 4.01 | ||||||||
| 4.8 | Fifth Supplemental Indenture, dated as of July 20, 2010, between the Company and U.S. Bank National Association and Form of Global Note for the Company's 5.00% Senior Notes due 2020. | 8-K | 07/20/10 | 4.02 | ||||||||
| 10.1 | Agilent Technologies, Inc. 1999 Stock Plan (Amendment and Restatement Effective November 14, 2006).* | 10-K | 12/22/06 | 10.8 | ||||||||
| 10.2 | Form of Award Agreement (U.S.) for grants under the Agilent Technologies, Inc. 1999 Stock Plan.* | 8-K | 11/12/04 | 10.1 | ||||||||
| 10.3 | Form of Award Agreement (Non-U.S.) for grants under the Agilent Technologies, Inc. 1999 Stock Plan.* | 8-K | 11/12/04 | 10.2 | ||||||||
| 10.4 | Form of Award Agreement (SAR) for grants under the Agilent Technologies, Inc. 1999 Stock Plan.* | 10-K | 12/21/04 | 10.37 | ||||||||
| 10.5 | Form of Award Agreement (restricted stock) for grants under the Agilent Technologies, Inc. 1999 Stock Plan.* | 10-K | 12/21/04 | 10.39 | ||||||||
| 10.6 | Agilent Technologies, Inc. 1999 Stock Plan Stock Award Agreement For Standard Awards Granted to Employees.* | 10-Q | 06/05/07 | 10.3 | ||||||||
| 10.7 | Agilent Technologies, Inc. 1999 Stock Plan Stock Award Agreement Under The Long-Term Performance Program.* | 10-Q | 06/05/07 | 10.7 | ||||||||
| 10.8 | Form of Amendment to the Form of Standard Long-Term Performance Program Award Agreement for awards granted under the Agilent Technologies, Inc. Stock Plan during FY07-09 and FY 08-10.* | 10-K | 12/19/08 | 10.22 | ||||||||
| 10.9 | Form of Standard Long-Term Performance Program Award Agreement for awards granted under the Agilent Technologies, Inc. 1999 Stock Plan.* | 10-K | 12/19/08 | 10.23 | ||||||||
132
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|
Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.10 | Form of Standard Stock Award Agreement for Restricted Stock Units granted under the Agilent Technologies, Inc. 1999 Stock Plan.* | 10-K | 12/19/08 | 10.24 | ||||||||
| 10.11 | Form of Stock Award Agreement for awards granted to New Executives under the Agilent Technologies, Inc. 1999 Stock Plan.* | 10-K | 12/19/08 | 10.25 | ||||||||
| 10.12 | Agilent Technologies, Inc. Employee Stock Purchase Plan (Amended and Restated, effective November 1, 2008).* | 10-Q | 09/05/08 | 10.1 | ||||||||
| 10.13 | Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan (Amended and Restated Effective November 14, 2007).* | 10-K | 12/21/07 | 10.23 | ||||||||
| 10.14 | Form of Stock Option Agreement for grants under the Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan.* | 8-K | 11/12/04 | 10.3 | ||||||||
| 10.15 | Form of Stock Option Award Agreement for grants under the Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan.* | 10-Q | 09/05/08 | 10.2 | ||||||||
| 10.16 | Agilent Technologies, Inc. 2009 Stock Plan.* | DEF14A | 01/27/09 | Appendix A | ||||||||
| 10.17 | Form of Stock Option Award Agreement under the 2009 Stock Plan for U.S. Employees (for awards made after October 31, 2010).* | X | ||||||||||
| 10.18 | Form of Stock Option Award Agreement under the 2009 Stock Plan for U.S. Employees.* | 10-K | 12/21/09 | 10.31 | ||||||||
| 10.19 | Form of Stock Option Award Agreement under the 2009 Stock Plan for non-U.S. Employees (for awards made after October 31, 2010).* | X | ||||||||||
| 10.20 | Form of Stock Option Award Agreement under the 2009 Stock Plan for non-U.S. Employees.* | 10-K | 12/21/09 | 10.32 | ||||||||
| 10.21 | Form of Stock Award Agreement for Standard Awards granted to Employees (for awards made after October 31, 2010).* | X | ||||||||||
| 10.22 | Form of Stock Award Agreement for Standard Awards granted to Employees.* | 10-K | 12/21/09 | 10.33 | ||||||||
| 10.23 | Form of New Executive Stock Award Agreement under the 2009 Stock Plan.* | 8-K | 03/25/09 | 10.4 | ||||||||
| 10.24 | Form of Non-Employee Director Stock Option Award Agreement under the 2009 Stock Plan.* | 8-K | 03/25/09 | 10.5 | ||||||||
133
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Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.25 | Form of Long-Term Performance Program Stock Award Agreement under the 2009 Stock Plan.* | 10-K | 12/21/09 | 10.36 | ||||||||
| 10.26 | Agilent Technologies, Inc. Supplemental Benefit Retirement Plan (Amended and Restated Effective January 1, 2005).* | 10-K | 12/21/07 | 10.25 | ||||||||
| 10.27 | Agilent Technologies, Inc. Long-Term Performance Program (Amended and Restated through November 1, 2005).* | 10-Q | 03/09/06 | 10.63 | ||||||||
| 10.28 | Agilent Technologies, Inc. 2005 Deferred Compensation Plan for Non-Employee Directors (Amended and Restated Effective November 18, 2009).* | 10-K | 12/21/09 | 10.39 | ||||||||
| 10.29 | Agilent Technologies, Inc. 2005 Deferred Compensation Plan (Amended and Restated Effective January 1, 2011).* | X | ||||||||||
| 10.30 | Agilent Technologies, Inc. 2005 Deferred Compensation Plan (Amended and Restated Effective October 28, 2009).* | 10-K | 12/21/09 | 10.40 | ||||||||
| 10.31 | Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees (Amended and Restated November 18, 2009).* | X | ||||||||||
| 10.32 | Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees (Amended and Restated December 18, 2008).* | 10-K | 12/19/08 | 10.34 | ||||||||
| 10.33 | Form of Indemnification Agreement entered into by Agilent Technologies, Inc. with each of its directors and board-appointed officers.* | S-1 | 08/16/99 | 10.9 | ||||||||
| 10.34 | Form of Amended and Restated Indemnification Agreement between Agilent Technologies, Inc. and Directors of the Company, Section 16 Officers and Board-elected Officers of the Company.* | 8-K | 04/10/08 | 10.1 | ||||||||
| 10.35 | Offer letter from Agilent Technologies, Inc. to Adrian T. Dillon as incoming Executive Vice President and Chief Financial Officer, dated November 6, 2001.* | 10-Q | 03/06/02 | 10.15 | ||||||||
| 10.36 | Separation Agreement and General Release between Agilent Technologies, Inc. and Patrick J. Byrne dated May 1, 2007.* | 8-K | 05/07/07 | 10.1 | ||||||||
| 10.37 | Form of Amended and Restated Change of Control Severance Agreement between Agilent Technologies, Inc. and the Chief Executive Officer.* | 8-K | 04/10/08 | 10.2 | ||||||||
134
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|
Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.38 | Form of Amended and Restated Change of Control Severance Agreement between Agilent Technologies, Inc. and Section 16 Officers (other than the Company's Chief Executive Officer).* | 8-K | 04/10/08 | 10.3 | ||||||||
| 10.39 | Form of Amended and Restated Change of Control Severance Agreement between Agilent Technologies, Inc. and specified executives of the Company.* | 8-K | 04/10/08 | 10.4 | ||||||||
| 10.40 | Form of New Section 16 Officer Change of Control Severance Agreement between Agilent Technologies, Inc. and Section 16 Officers (other than the Company's Chief Executive Officer) (for executives hired, elected or promoted after July 14, 2009).* | 8-K | 09/28/09 | 10.1 | ||||||||
| 10.41 | Form of New Executive Officer Change of Control Severance Agreement between Agilent Technologies, Inc. and specified executives of the Company (for executives hired, elected or promoted after July 14, 2009).* | 10-K | 12/21/09 | 10.50 | ||||||||
| 10.42 | Form of Change of Control Severance Agreement between Agilent Technologies, Inc. and certain other executive officers.* | 10-K | 12/21/07 | 10.79 | ||||||||
| 10.43 | Agilent Technologies, Inc. Indemnification Agreement between Agilent Technologies, Inc. and David B. Cooper, Jr., dated May 3, 2005.* | 8-K | 05/03/05 | 10.2 | ||||||||
| 10.44 | Agilent Technologies, Inc. Indemnification Agreement between Agilent Technologies, Inc. and Patrick J. Byrne.* | 8-K | 02/04/05 | 10.2 | ||||||||
| 10.45 | Summary of Compensation Arrangement between Agilent Technologies, Inc. and Adrian T. Dillon.* | 10-Q | 03/10/05 | 10.49 | ||||||||
| 10.46 | Summary of Compensation Arrangement between Agilent Technologies, Inc. and James G. Cullen, effective March 1, 2005.* | 8-K | 03/07/05 | 10.4 | ||||||||
| 10.47 | Summary of Compensation Arrangement between Agilent Technologies, Inc. and William P. Sullivan, effective March 1, 2005.* | 8-K | 03/07/05 | 10.2 | ||||||||
| 10.48 | Summary of Compensation Arrangement between Agilent and Each of the Non-Employee Directors.* | X | ||||||||||
135
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Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.49 | Separation Agreement and General Release between Agilent Technologies, Inc. and D. Craig Nordlund, dated as of May 28, 2009.* | 10-Q | 06/09/09 | 10.8 | ||||||||
| 10.50 | Settlement Agreement and General Release between Agilent Technologies, Inc. and Young K. Sohn.* | 10-Q | 03/10/05 | 10.53 | ||||||||
| 10.51 | Compromise Agreement and General Release with Thomas E. White, dated May 10, 2006.* | 8-K | 05/12/06 | 10.1 | ||||||||
| 10.52 | Asset Purchase Agreement, dated September 29, 2000, between Agilent Technologies, Inc. and CIT Group/Equipment Financing, Inc. | 10-Q | 03/19/01 | 10.10 | ||||||||
| 10.53 | Purchase and Sale Agreement dated February 1, 2001, between Agilent Technologies, Inc. and BEA Systems, Inc. | 10-Q | 06/14/01 | 10.11 | ||||||||
| 10.54 | Asset Purchase Agreement dated October 27, 2004 between Flextronics Sales and Marketing (A-P) Ltd. and Agilent Technologies, Inc. | 10-Q | 12/21/04 | 10.40 | ||||||||
| 10.55 | First Amendment to Asset Purchase Agreement, dated January 4, 2005, between Flextronics Sales and Marketing (A-P) Ltd. and Agilent Technologies, Inc. | 10-Q | 03/10/05 | 10.39 | ||||||||
| 10.56 | Second Amendment to the Asset Purchase Agreement dated February 3, 2005, between Flextronics Sales and Marketing (A-P) Ltd. and Agilent Technologies, Inc. | 10-Q | 06/06/05 | 10.40 | ||||||||
| 10.57 | Asset Purchase Agreement, dated as of August 14, 2005 by and between Agilent Technologies, Inc. and Argos Acquisition Pte. Ltd. | 8-K | 8/15/05 | 2.1 | ||||||||
| 10.58 | Master Separation and Distribution Agreement between Agilent Technologies, Inc. and Verigy Ltd., dated as of May 31, 2006. | 10-Q | 06/06/06 | 10.66 | ||||||||
| 10.59 | General Assignment and Assumption Agreement between Agilent Technologies, Inc. and Verigy Ltd., dated as of June 1, 2006. | 10-Q | 06/06/06 | 10.67 | ||||||||
| 10.60 | Intellectual Property Matters Agreement between Agilent Technologies, Inc., Verigy Ltd., and Verigy (Singapore) Pte. Ltd., dated as of June 1, 2006. | 10-Q | 06/06/06 | 10.68 | ||||||||
| 10.61 | Employee Matters Agreement between Agilent Technologies, Inc. and Verigy Ltd., dated as of June 1, 2006. | 10-Q | 06/06/06 | 10.69 | ||||||||
136
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Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.62 | Tax Sharing Agreement by and between Agilent Technologies, Inc. and Verigy Ltd., dated as of June 1, 2006. | 10-Q | 06/06/06 | 10.70 | ||||||||
| 10.63 | Transition Services Agreement by and between Agilent Technologies, Inc. and Verigy Ltd., dated as of June 1, 2006. | 10-Q | 06/06/06 | 10.71 | ||||||||
| 10.64 | Manufacturing Trademark License Agreement between Agilent Technologies, Inc. and Verigy Ltd. effective as of June 1, 2006. | 10-Q | 06/06/06 | 10.72 | ||||||||
| 10.65 | Five-Year Credit Agreement, dated May 11, 2007, by and among Agilent Technologies, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent. | 8-K | 05/14/07 | 10.1 | ||||||||
| 10.66 | First Amendment, dated as of March 3, 2008, to Five-Year Credit Agreement, dated May 11, 2007, by and among Agilent Technologies, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent. | 10-Q | 03/07/08 | 10.1 | ||||||||
| 10.67 | Second Amendment dated as of June 13, 2008 to Five-Year Credit Agreement, dated May 11, 2007, by and among Agilent Technologies, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent. | 8-K | 06/19/08 | 10.3 | ||||||||
| 10.68 | Third Amendment dated as of November 7, 2008 to Five-Year Credit Agreement, dated May 11, 2007, by and among Agilent Technologies, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent. | 10-K | 12/19/08 | 10.70 | ||||||||
| 10.69 | Fourth Amendment, dated May 11, 2007, to Five-Year Credit Agreement, dated May 11, 2007, by and among Agilent Technologies, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent. | 8-K | 08/24/09 | 10.5 | ||||||||
| 10.70 | Accession Agreement, dated September 8, 2009, by and among Agilent Technologies, Inc., Barclays Bank PLC, and JPMorgan Chase Bank, N.A., as administration agent. | 8-K | 09/11/09 | 10.1 | ||||||||
137
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Incorporation by Reference | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 10.71 | Master Repurchase Agreement and related Confirmation and Annex I, each dated as of November 17, 2008, between Agilent Technologies World Trade, Inc. and Lloyds TSB Bank plc. | 8-K | 11/18/08 | 99.2 | ||||||||
| 10.72 | Fourth Amended and Restated Guaranty of Agilent Technologies, Inc. dated as of November 17, 2008. | 8-K | 11/18/08 | 99.4 | ||||||||
| 10.73 | Underwriting Agreement, dated October 24, 2007, by and among Agilent Technologies, Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., on behalf of the several underwriters named therein. | 8-K | 10/26/07 | 1.01 | ||||||||
| 10.74 | Underwriting Agreement, dated September 9, 2009, by and among the Company, Barclays Capital Inc., Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC, on behalf of the several underwriters named therein. | 8-K | 09/14/09 | 1.01 | ||||||||
| 10.75 | Underwriting Agreement, dated July 13, 2010, by and among the Company, Banc of America Securities LLC, Barclays Capital Inc. and Credit Suisse Securities (USA) LLC, on behalf of the several underwriters named therein. | 8-K | 07/19/10 | 1.01 | ||||||||
| 10.76 | Related Agreement, dated as of September 22, 2008, among Lloyds TSB Bank plc, Agilent Technologies, Inc. and Agilent Technologies World Trade, Inc. | 8-K | 09/25/08 | 99.1 | ||||||||
| 10.77 | Novation Agreement dated as of November 17, 2008, by and among STEERS Repo Pass-Thru Trust, 2008-1, Lloyds TSB Bank plc and Agilent Technologies World Trade, Inc. | 8-K | 11/18/08 | 99.3 | ||||||||
| 10.78 | Amended and Restated Agilent Agreement dated as of November 17, 2008, by and among Agilent Technologies, Inc. and Agilent Technologies World Trade, Inc., in favor of each Designated Person. | 8-K | 11/18/08 | 99.5 | ||||||||
| 10.79 | Lease Agreement dated May 17, 2006 by and between Whisman Ventures, LLC, a California limited liability company and Agilent Technologies, Inc. | 10-Q | 09/06/06 | 10.73 | ||||||||
| 10.80 | English summary of lease between Shanghai WaiGaoQiao Free Trade Zone Dev. Co. Ltd. and Agilent dated June 29, 2001. | 10-K | 12/22/03 | 10.19 | ||||||||
138
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Incorporation by Reference | ||||||||||
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Exhibit
Number |
Description | Form | Date |
Exhibit
Number |
Filed
Herewith |
|||||||
| 11.1 | See Note 6, "Net Income (Loss) Per Share", to our Consolidated Financial Statements on page 94. | X | ||||||||||
| 12.1 | Computation of ratio of earnings to fixed charges. | X | ||||||||||
| 14.1 | See Investor Information in Item 1: Business on page 3 of this Annual Report on Form 10-K. | X | ||||||||||
| 21.1 | Significant subsidiaries of Agilent Technologies, Inc. as of October 31, 2010. | X | ||||||||||
| 23.1 | Consent of Independent Registered Public Accounting Firm. | X | ||||||||||
| 24.1 | Powers of Attorney. Contained in the signature page of this Annual Report on Form 10-K. | X | ||||||||||
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||||
| 101.INS | XBRL Instance Document. | X | ||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document. | X | ||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | X | ||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | X | ||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | X | ||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | X | ||||||||||
139
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AGILENT TECHNOLOGIES, INC. | ||||
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BY |
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/s/ MARIE OH HUBER Marie Oh Huber Senior Vice President, General Counsel and Secretary |
Date: December 17, 2010
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Marie Oh Huber and Stephen D. Williams, or either of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ WILLIAM P. SULLIVAN
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Director, President and Chief Executive
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December 17, 2010 | ||
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/s/ DIDIER HIRSCH
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Senior Vice President and Chief Financial
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December 17, 2010 |
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/s/ JAMES G. CULLEN
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Chairman of the Board of Directors |
December 17, 2010 |
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/s/ PAUL N. CLARK
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Director |
December 17, 2010 |
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/s/ ROBERT J. HERBOLD
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Director |
December 17, 2010 |
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/s/ KOH BOON HWEE
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Director |
December 17, 2010 |
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/s/ HEIDI FIELDS
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Director |
December 17, 2010 |
140
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Signature
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Title
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Date
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Director |
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/s/ A. BARRY RAND
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Director |
December 17, 2010 |
141
Exhibit 10.17
AGILENT TECHNOLOGIES, INC.
2009 STOCK PLAN
STOCK OPTION AWARD AGREEMENT FOR U.S. EMPLOYEES
THIS AGREEMENT, dated as of the date of grant (the “Grant Date”) indicated in your account maintained by the company providing administrative services in connection with the Plan (as defined below) (the “External Administrator”), between Agilent Technologies, Inc., a Delaware corporation (the “Company”), and you as an individual who has been granted a stock option pursuant to the Agilent Technologies, Inc. 2009 Stock Plan (the “Awardee”) is entered into as follows:
WITNESSETH:
WHEREAS, the Company has established the Agilent Technologies, Inc. 2009 Stock Plan, (the “Plan”), and a description of the terms and conditions of the Plan is set forth in the U.S. Plan prospectus (the “Prospectus”). A copy of the Prospectus is available at http://stockoptions.corporate.agilent.com and also on your External Administrator website. A copy of the Plan document can be viewed at http://stockoptions.corporate.agilent.com and will also be made available upon request; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) or its authorized delegate(s) determined that the Awardee shall be granted an option under the Plan as hereinafter set forth;
NOW THEREFORE, the parties hereby agree that the Company grants the Awardee an option (“Option”) to purchase the number of shares of the Company’s $0.01 par value voting Common Stock indicated in the Awardee’s External Administrator account subject to the terms and conditions set forth herein and in the Plan.
1. Governing Document . This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan shall prevail. Capitalized terms used and not otherwise defined herein are used with the same meanings as in the Plan.
2. Option Price . The Option price shall be equal to the Fair Market Value (as defined in the Plan document) of the underlying shares on the Grant Date, unless otherwise required by law. The Option price for this grant is indicated in the Awardee’s External Administrator account.
3. Non-Transferability of Option . This Option is not transferable by the Awardee except by will or the laws of descent and distribution. During the Awardee’s lifetime, only the Awardee can exercise this Option. This Option may not be transferred, assigned, pledged or hypothecated by the Awardee during his or her lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.
4. Vesting . So long as the Awardee retains status as an Awardee Eligible to Vest as such term is defined in the Plan, this Option will vest in whole or in part, in accordance with the following vesting schedule: 25% per year for 4 years .
An Awardee loses status as an Awardee Eligible to Vest when certain events occur, including but not limited to, termination of employment with the Company or transfer of employment from the Company. If an individual ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Sections 4(a), (b), (c) and (d) below, the Awardee’s unvested Option shall terminate immediately. If, for any reason, the Awardee does not exercise his or her vested Option within the appropriate exercise period set forth in Section 7 below, the Option shall automatically terminate, and the underlying shares covered by such Option shall revert to the Plan.
(a) Retirement of Awardee . If the Awardee ceases to be an Awardee Eligible to Vest as a result of the Awardee’s retirement, in accordance with the Company’s or its Subsidiary’s retirement policy, all unvested Options shall continue to vest in accordance with the vesting schedule set forth above.
(b) Disability of Awardee . If the Awardee ceases to be an Awardee Eligible to Vest as a result of the Awardee’s total and permanent disability, all unvested Options shall immediately vest.
(c) Death of Awardee . If the Awardee dies while an Employee or after Awardee’s retirement, in accordance with the Company’s or its Subsidiary’s retirement policy, all unvested Options shall immediately vest.
(d) Voluntary Severance Incentive Program . If the Awardee ceases to be an Awardee Eligible to Vest as a result of participation in the Company’s or its Subsidiary’s voluntary severance incentive program approved by the Board or Executive Committee, any unvested Option and/or SAR shall immediately vest.
5. Term of the Option . This Option will expire ten (10) years from the Grant Date, unless sooner terminated, forfeited, or canceled in accordance with the provisions of the Plan. This means that the Option must be exercised, if at all, on or before the expiration date. This expiration date is indicated in the Awardee’s External Administrator account. The Awardee is responsible for keeping track of this date and will not receive any prior notification of the expiration date from the Company.
6. Exercise of the Option . Options may be exercised in any manner permitted by the External Administrator, and will be subject to such administrator’s fees and procedures. The Company reserves the right to limit availability of certain methods of exercise as it deems necessary, including those limitations set forth in the Appendix to this Award Agreement.
7. Termination of Employment . Any unvested portion of the Option shall be terminated immediately when the Awardee ceases to be an Awardee Eligible to Vest, unless the Awardee ceases to be an Awardee Eligible to Vest due to the Awardee’s death, total and permanent disability, retirement or participation in the Company’s Workforce Management Program. Except as the Committee may otherwise determine, termination of the Awardee’s employment or service for any reason shall occur on the date such Awardee ceases to perform services for the Company or any Affiliate without regard to whether such Awardee continues thereafter to receive any compensatory payments therefrom or is paid salary thereby in lieu of notice of termination or, with respect to a member of the Board who is not also an employee of the Company or any Subsidiary, the date such Awardee is no longer a member of the Board.
All rights of the Awardee in this Option, to the extent that it has vested but has not been exercised, shall terminate on the earlier of the expiration date or three (3) months after the Awardee loses
status as an Awardee Eligible to Vest, except where the Awardee loses such status because of death, retirement or permanent and total disability. In the event of the Awardee’s death, his or her legal representative or designated beneficiary shall have the right to exercise the Awardee’s right under this Option. The representative or designee must exercise the Option before the earlier of the expiration date or one (1) year after the death of the Awardee, and shall be bound by the provisions of the Plan. In case of permanent and total disability, the Awardee retains rights in this Option until the earlier of the expiration date or three (3) years from the date thereof. In the case of retirement, the Awardee retains rights in this Option until the expiration date; provided that in the event of such Awardee’s death prior to the expiration date, his or her legal representative or designated beneficiary shall have the right to exercise the Awardee’s right under this Option before the earlier of the expiration date or one (1) year after the death of the Awardee as set forth above.
Notwithstanding any provision in the Plan to the contrary, if an Awardee terminates employment due to death, total and permanent disability, or due to participation in the Company’s Workforce Management Program, the Option shall vest in full and if an Awardee terminates employment due to retirement in accordance with the Company’s local retirement policy, the Option shall continue to vest in accordance with the vesting schedule set forth in Section 4 above.
In the event of a Change of Control of the Company (as defined in Section 18(c) of the Plan or any successor), the Option shall vest in full immediately prior to the closing of the transaction. The foregoing shall not apply where the Option is assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor; provided, however, that in the event of a Change of Control in which one or more of the successor or a parent or subsidiary of the successor has issued publicly traded equity securities, the assumption, conversion, replacement or continuation shall be made by an entity with publicly traded securities and shall provide that the holders of such assumed, converted, replaced or continued stock options shall be able to acquire such publicly traded securities.
8. Restrictions on Sale of Shares of Common Stock . The Company shall not be obligated to issue any shares of Common Stock pursuant to this Option unless the shares of Common Stock are at that time effectively registered or exempt from registration under the U.S. Securities Act of 1933, as amended, and, as applicable, local laws.
9. Responsibility for Taxes . Regardless of any action the Company or the Awardee’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax or other tax-related withholding (the “Tax-Related Items”), the Awardee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Awardee is and remains the Awardee’s responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Awardee’s liability for Tax-Related Items.
Prior to the relevant taxable event, the Awardee shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items withholding obligations of the Company and/or the Employer. In this regard, the Awardee authorizes the Company and/or the Employer, at their sole discretion to satisfy the obligations with regard to all applicable Tax-Related Items legally payable by one or a combination of the following: (1) withholding from the Awardee’s wages or other cash compensation paid to the Awardee by the
Company and/or the Employer; (2) withholding from proceeds of the sale of shares of Common Stock acquired upon exercise of the Option; (3) arranging for the sale of shares of Common Stock acquired upon exercise of the Option (on the Awardee’s behalf and at the Awardee’s discretion pursuant to this authorization); or (4) withholding in shares of Common Stock, provided that the Company only withholds the amount of shares of Common Stock necessary to satisfy the minimum withholding amount. If the obligation for the Awardee’s Tax-Related Items is satisfied by withholding a number of shares of Common Stock as described herein, the Awardee is deemed to have been issued the full number of shares of Common Stock subject to the Option, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of this Option.
Finally, the Awardee will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Awardee’s participation in the Plan or the Awardee’s purchase of shares of Common Stock that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the shares of Common Stock if the Awardee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this section.
10. Adjustment . The number of shares of Common Stock subject to this Option and the Option price of such shares may be adjusted by the Company from time to time pursuant to the Plan.
11. Nature of the Option . By accepting the grant of this Option, the Awardee acknowledges and agrees that:
(i) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;
(ii) the grant of an option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past;
(iii) all determinations with respect to any future option grants, including, but not limited to, the times when options shall be granted, the maximum number of shares subject to each option and the option price, will be at the sole discretion of the Company;
(iv) participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate the Awardee’s employment relationship at any time;
(v) participating in the Plan is voluntary;
(vi) the Option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of the Awardee’s employment contract, if any;
(vii) the Option and the shares of Common Stock acquired under the Plan are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or welfare or retirement benefits or similar payments, and in no event should be considered as compensation for, or relating in any way to, past services to the Company or the Employer;
(viii) in the event the Awardee is not an employee of the Company, the Option will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or Affiliate;
(ix) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
(x) if the underlying shares of Common Stock do not increase in value, the Option will have no value;
(xi) if the Awardee exercises the Option and acquires shares of Common Stock, the value of those shares of Common Stock acquired may increase or decrease in value, even below the Option price;
(xii) in consideration of the grant of the Option, no claim or entitlement to compensation or damages shall arise from termination of the Option or diminution in value of the Option or shares of Common Stock acquired under the Option resulting from termination of the Awardee’s employment by the Company or the Employer and the Awardee irrevocably releases the Company and the Employer from any such claim that may arise;
(xiii) the vesting of any Option ceases upon termination of employment with the Company or transfer of employment from the Company, or other cessation of eligibility to vest for any reason, except as may otherwise be explicitly provided in the Plan document or this Award Agreement;
(xiv) the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Awardee’s participation in the Plan, the exercise of the Option or the purchase or sale of shares of Common Stock under the Plan;
(xv) the Awardee is advised to consult with personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan; and
(xvi) the Awardee acknowledges that this Award Agreement is between the Awardee and the Company, and that the Employer is not a party to this Award Agreement.
12. Data Privacy . The Awardee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Awardee’s personal data as described in this document by and among, as applicable, the Company the Employer and the External Administrator for the exclusive purpose of implementing, administering and managing the Awardee’s participation in the Plan.
The Awardee hereby understands that the Company and the Employer hold certain personal information about the Awardee, including, but not limited to, the Awardee’s name, home address and telephone number, date of birth, social security number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Awardee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Awardee hereby understands that Data may be transferred to any third parties (including the External Administrator) assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Awardee’s country or elsewhere, such as outside the European Economic Area, and that the recipient’s country may have different data privacy laws and protections than the Awardee’s country. All such transfers of Data will be in accordance with the Company’s Privacy Policies and Guidelines. The Awardee hereby understands that the
Awardee may request a list with the names and addresses of any potential recipients of the Data by contacting the Awardee’s local human resources representative. The Awardee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Awardee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Awardee may elect to deposit any Common Stock acquired upon exercise of the Option. The Awardee hereby understands that refusing or withdrawing the Awardee’s consent may affect the Awardee’s ability to participate in the Plan. For more information on the consequences of the Awardee’s refusal to consent or withdrawal of consent, the Awardee understands that he or she may contact his or her human resources representative responsible for the Awardee’s country at the local or regional level.
13. No Rights Until Issuance . The Awardee shall have no rights hereunder as a shareholder with respect to any shares subject to this Option until the date that shares of Common Stock are issued to the Awardee upon exercise of the Option.
14. Recoupment . This Option is subject to the terms of the Agilent Technologies Executive Compensation Recoupment Policy in the form approved by the Committee as the date of grant (the “Policy”), if and to the extent that the Policy by its terms applies to the Option and the Awardee; and the terms of the Policy as of the date of grant are incorporated by reference herein and made a part hereof.
15. Administrative Procedures . The Awardee agrees to follow the administrative procedures that may be established by the Company and/or the External Administrator for participation in the Plan which may include a requirement that the shares issued upon vesting be held by the External Administrator until the Awardee disposes of such shares. The Awardee further agrees that the Company may determine the actual method of withholding for Tax-Related Items as described in Section 9 above. Awardee agrees to update the Company with respect to Awardee’s home address, contact information and any information necessary for the Company or one of its affiliates to process any required tax withholding or reporting related to this Option.
16. Entire Agreement; Amendment . The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Awardee with respect to the subject matter hereof, and may not be modified adversely to the Awardee’s interest except by means of a writing signed by the Company and the Awardee. Otherwise, this Option may be amended as provided in the Plan.
17. Governing Law and Venue . This Award Agreement is governed by and construed according to the internal substantive laws, but not the choice of law rules, of the State of Delaware as provided in the Plan. Any proceeding arising out of or relating to this Award Agreement or the Plan may be brought only in the state or federal courts located in the Northern District of California where this grant is made and/or to be performed, and the parties to this Award Agreement consent to the exclusive jurisdiction of such courts.
18. Binding Agreement; Interpretation . By accepting the grant of this Option evidenced hereby, the Awardee and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Award Agreement. The Awardee has reviewed the Prospectus and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to accepting the Option and fully understands all provisions of the Prospectus and Award Agreement. The Awardee agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and Award Agreement.
19. Language . The Awardee acknowledges that he or she may be executing part or all of the Award Agreement in English and agrees to be bound accordingly. If the Awardee has received this or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
20. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Option granted under (and participation in) the Plan or future awards that may be granted under the Plan by electronic means or to request the Awardee’s consent to participate in the Plan by electronic means. The Awardee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
21. Severability . The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
22. Acceptance and Rejection . This Award Agreement is one of the documents governing this Option, which the Awardee must accept or reject online through the External Administrator’s website.
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AGILENT TECHNOLOGIES, INC. |
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By |
/s/ William P. Sullivan |
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William P. Sullivan |
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President and Chief Executive Officer |
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By |
/s/ Marie Oh Huber |
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Marie Oh Huber |
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Senior Vice President, General Counsel and Secretary |
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PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS
Exhibit 10.19
AGILENT TECHNOLOGIES, INC.
2009 STOCK PLAN
STOCK OPTION AWARD AGREEMENT FOR NON-U.S. EMPLOYEES
THIS AGREEMENT, dated as of the date of grant (the “Grant Date”) indicated in your account maintained by the company providing administrative services in connection with the Plan (as defined below) (the “External Administrator”), between Agilent Technologies, Inc., a Delaware corporation (the “Company”), and you as an individual who has been granted a stock option pursuant to the Agilent Technologies, Inc. 2009 Stock Plan (the “Awardee”) is entered into as follows:
WITNESSETH:
WHEREAS, the Company has established the Agilent Technologies, Inc. 2009 Stock Plan, (the “Plan”), and a description of the terms and conditions of the Plan is set forth in the U.S. Plan prospectus (the “Prospectus”). A copy of the Prospectus is available at http://stockoptions.corporate.agilent.com and also on your External Administrator website. A copy of the Plan document can be viewed at http://stockoptions.corporate.agilent.com and will also be made available upon request; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) or its authorized delegate(s) determined that the Awardee shall be granted an option under the Plan as hereinafter set forth;
NOW THEREFORE, the parties hereby agree that the Company grants the Awardee an option (“Option”) to purchase the number of shares of the Company’s $0.01 par value voting Common Stock indicated in the Awardee’s External Administrator account subject to the terms and conditions set forth herein and in the Plan.
1. Governing Document . This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan shall prevail. Capitalized terms used and not otherwise defined herein are used with the same meanings as in the Plan.
2. Option Price . The Option price shall be equal to the Fair Market Value (as defined in the Plan document) of the underlying shares on the Grant Date, unless otherwise required by local law as noted on the Appendix. The Option price for this grant is indicated in the Awardee’s External Administrator account.
3. Non-Transferability of Option . This Option is not transferable by the Awardee except by will or the laws of descent and distribution. During the Awardee’s lifetime, only the Awardee can exercise this Option. This Option may not be transferred, assigned, pledged or hypothecated by the Awardee during his or her lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.
4. Vesting . So long as the Awardee retains status as an Awardee Eligible to Vest as such term is defined in the Plan, this Option will vest in whole or in part, in accordance with the following vesting schedule: 25% per year for 4 years .
An Awardee loses status as an Awardee Eligible to Vest when certain events occur, including but not limited to, termination of employment with the Company or transfer of employment from the Company. If an individual ceases to be an Awardee Eligible to Vest, other than as a result of circumstances described in Sections 4(a), (b), (c) and (d) below, the Awardee’s unvested Option shall terminate immediately. If, for any reason, the Awardee does not exercise his or her vested Option within the appropriate exercise period set forth in Section 7 below, the Option shall automatically terminate, and the underlying shares covered by such Option shall revert to the Plan.
(a) Retirement of Awardee . If the Awardee ceases to be an Awardee Eligible to Vest as a result of the Awardee’s retirement, in accordance with the Company’s or its Subsidiary’s retirement policy, all unvested Options shall continue to vest in accordance with the vesting schedule set forth above.
(b) Disability of Awardee . If the Awardee ceases to be an Awardee Eligible to Vest as a result of the Awardee’s total and permanent disability, all unvested Options shall immediately vest.
(c) Death of Awardee . If the Awardee dies while an Employee or after Awardee’s retirement, in accordance with the Company’s or its Subsidiary’s retirement policy, all unvested Options shall immediately vest.
(d) Voluntary Severance Incentive Program . If the Awardee ceases to be an Awardee Eligible to Vest as a result of participation in the Company’s or its Subsidiary’s voluntary severance incentive program approved by the Board or Executive Committee, any unvested Option and/or SAR shall immediately vest.
5. Term of the Option . This Option will expire ten (10) years from the Grant Date, unless sooner terminated, forfeited, or canceled in accordance with the provisions of the Plan. This means that the Option must be exercised, if at all, on or before the expiration date. This expiration date is indicated in the Awardee’s External Administrator account. The Awardee is responsible for keeping track of this date and will not receive any prior notification of the expiration date from the Company.
6. Exercise of the Option . Options may be exercised in any manner permitted by the External Administrator, and will be subject to such administrator’s fees and procedures. The Company reserves the right to limit availability of certain methods of exercise as it deems necessary, including those limitations set forth in the Appendix to this Award Agreement.
7. Termination of Employment . Any unvested portion of the Option shall be terminated immediately when the Awardee ceases to be an Awardee Eligible to Vest, unless the Awardee ceases to be an Awardee Eligible to Vest due to the Awardee’s death, total and permanent disability, retirement or participation in the Company’s Workforce Management Program. Except as the Committee may otherwise determine, termination of the Awardee’s employment or service for any reason shall occur on the date such Awardee ceases to perform services for the Company or any Affiliate without regard to whether such Awardee continues thereafter to receive any compensatory payments therefrom or is paid salary thereby in lieu of notice of termination or, with respect to a member of the Board who is not also an employee of the Company or any Subsidiary, the date such Awardee is no longer a member of the Board.
All rights of the Awardee in this Option, to the extent that it has vested but has not been exercised, shall terminate on the earlier of the expiration date or three (3) months after the Awardee loses
status as an Awardee Eligible to Vest, except where the Awardee loses such status because of death, retirement or permanent and total disability. In the event of the Awardee’s death, his or her legal representative or designated beneficiary shall have the right to exercise the Awardee’s right under this Option. The representative or designee must exercise the Option before the earlier of the expiration date or one (1) year after the death of the Awardee, and shall be bound by the provisions of the Plan. In case of permanent and total disability, the Awardee retains rights in this Option until the earlier of the expiration date or three (3) years from the date thereof. In the case of retirement, the Awardee retains rights in this Option until the expiration date; provided that in the event of such Awardee’s death prior to the expiration date, his or her legal representative or designated beneficiary shall have the right to exercise the Awardee’s right under this Option before the earlier of the expiration date or one (1) year after the death of the Awardee as set forth above.
Notwithstanding any provision in the Plan to the contrary, if an Awardee terminates employment due to death, total and permanent disability, or due to participation in the Company’s Workforce Management Program, the Option shall vest in full and if an Awardee terminates employment due to retirement in accordance with the Company’s or its Subsidiary’s retirement policy, the Option shall continue to vest in accordance with the vesting schedule set forth in Section 4 above.
In the event of a Change of Control of the Company (as defined in Section 18(c) of the Plan or any successor), the Option shall vest in full immediately prior to the closing of the transaction. The foregoing shall not apply where the Option is assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor; provided, however, that in the event of a Change of Control in which one or more of the successor or a parent or subsidiary of the successor has issued publicly traded equity securities, the assumption, conversion, replacement or continuation shall be made by an entity with publicly traded securities and shall provide that the holders of such assumed, converted, replaced or continued stock options shall be able to acquire such publicly traded securities.
8. Restrictions on Sale of Shares of Common Stock . The Company shall not be obligated to issue any shares of Common Stock pursuant to this Option unless the shares of Common Stock are at that time effectively registered or exempt from registration under the U.S. Securities Act of 1933, as amended, and, as applicable, local laws.
9. Responsibility for Taxes . Regardless of any action the Company or the Awardee’s employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax or other tax-related withholding (the “Tax-Related Items”), the Awardee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Awardee is and remains the Awardee’s responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Awardee’s liability for Tax-Related Items.
Prior to the relevant taxable event, the Awardee shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items withholding obligations of the Company and/or the Employer. In this regard, the Awardee authorizes the Company and/or the Employer, at their sole discretion to satisfy the obligations with regard to all applicable Tax-Related Items legally payable by one or a combination of the following: (1) withholding from the Awardee’s wages or other cash compensation paid to the Awardee by the
Company and/or the Employer; (2) withholding from proceeds of the sale of shares of Common Stock acquired upon exercise of the Option; (3) arranging for the sale of shares of Common Stock acquired upon exercise of the Option (on the Awardee’s behalf and at the Awardee’s discretion pursuant to this authorization); or (4) withholding in shares of Common Stock, provided that the Company only withholds the amount of shares of Common Stock necessary to satisfy the minimum withholding amount. If the obligation for the Awardee’s Tax-Related Items is satisfied by withholding a number of shares of Common Stock as described herein, the Awardee is deemed to have been issued the full number of shares of Common Stock subject to the Option, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of this Option.
Finally, the Awardee will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of the Awardee’s participation in the Plan or the Awardee’s purchase of shares of Common Stock that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to deliver the shares of Common Stock if the Awardee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this section.
10. Adjustment . The number of shares of Common Stock subject to this Option and the Option price of such shares may be adjusted by the Company from time to time pursuant to the Plan.
11. Nature of the Option . By accepting the grant of this Option, the Awardee acknowledges and agrees that:
(i) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;
(ii) the grant of an option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past;
(iii) all determinations with respect to any future option grants, including, but not limited to, the times when options shall be granted, the maximum number of shares subject to each option and the option price, will be at the sole discretion of the Company;
(iv) participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate the Awardee’s employment relationship at any time;
(v) participating in the Plan is voluntary;
(vi) the Option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of the Awardee’s employment contract, if any;
(vii) the Option and the shares of Common Stock acquired under the Plan are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or welfare or retirement benefits or similar payments, and in no event should be considered as compensation for, or relating in any way to, past services to the Company or the Employer;
(viii) in the event the Awardee is not an employee of the Company, the Option will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or Affiliate;
(ix) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
(x) if the underlying shares of Common Stock do not increase in value, the Option will have no value;
(xi) if the Awardee exercises the Option and acquires shares of Common Stock, the value of those shares of Common Stock acquired may increase or decrease in value, even below the Option price;
(xii) in consideration of the grant of the Option, no claim or entitlement to compensation or damages shall arise from termination of the Option or diminution in value of the Option or shares of Common Stock acquired under the Option resulting from termination of the Awardee’s employment by the Company or the Employer and the Awardee irrevocably releases the Company and the Employer from any such claim that may arise;
(xiii) the vesting of any Option ceases upon termination of employment with the Company or transfer of employment from the Company, or other cessation of eligibility to vest for any reason, except as may otherwise be explicitly provided in the Plan document or this Award Agreement;
(xiv) the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Awardee’s participation in the Plan, the exercise of the Option or the purchase or sale of shares of Common Stock under the Plan;
(xv) the Awardee is advised to consult with personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan; and
(xvi) the Awardee acknowledges that this Award Agreement is between the Awardee and the Company, and that the Employer is not a party to this Award Agreement.
12. Data Privacy . The Awardee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Awardee’s personal data as described in this document by and among, as applicable, the Company, the Employer and the External Administrator for the exclusive purpose of implementing, administering and managing the Awardee’s participation in the Plan.
The Awardee hereby understands that the Company and the Employer hold certain personal information about the Awardee, including, but not limited to, the Awardee’s name, home address and telephone number, date of birth, social security number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Awardee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). The Awardee hereby understands that Data may be transferred to any third parties (including the External Administrator) assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Awardee’s country or elsewhere, such as outside the European Economic Area, and that the recipient’s country may have different data privacy laws and protections than the Awardee’s country. All such transfers of Data will be in accordance with the Company’s Privacy Policies and Guidelines. The Awardee hereby understands that the
Awardee may request a list with the names and addresses of any potential recipients of the Data by contacting the Awardee’s local human resources representative. The Awardee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Awardee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Awardee may elect to deposit any Common Stock acquired upon exercise of the Option. The Awardee hereby understands that the Awardee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Awardee’s local human resources representative. The Awardee hereby understands, however, that refusing or withdrawing the Awardee’s consent may affect the Awardee’s ability to participate in the Plan. For more information on the consequences of the Awardee’s refusal to consent or withdrawal of consent, the Awardee understands that he or she may contact his or her human resources representative responsible for the Awardee’s country at the local or regional level.
13. No Rights Until Issuance . The Awardee shall have no rights hereunder as a shareholder with respect to any shares subject to this Option until the date that shares of Common Stock are issued to the Awardee upon exercise of the Option.
14. Recoupment . This Option is subject to the terms of the Agilent Technologies Executive Compensation Recoupment Policy in the form approved by the Committee as the date of grant (the “Policy”), if and to the extent that the Policy by its terms applies to the Option and the Awardee; and the terms of the Policy as of the date of grant are incorporated by reference herein and made a part hereof.
15. Administrative Procedures . The Awardee agrees to follow the administrative procedures that may be established by the Company and/or the External Administrator for participation in the Plan which may include a requirement that the shares issued upon vesting be held by the External Administrator until the Awardee disposes of such shares. The Awardee further agrees that the Company may determine the actual method of withholding for Tax-Related Items as described in Section 9 above. Awardee agrees to update the Company with respect to Awardee’s home address, contact information and any information necessary for the Company or one of its affiliates to process any required tax withholding or reporting related to this Option.
16. Entire Agreement; Amendment . The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Awardee with respect to the subject matter hereof, and may not be modified adversely to the Awardee’s interest except by means of a writing signed by the Company and the Awardee. Otherwise, this Option may be amended as provided in the Plan.
17. Governing Law and Venue . This Award Agreement is governed by and construed according to the internal substantive laws, but not the choice of law rules, of the State of Delaware as provided in the Plan. Any proceeding arising out of or relating to this Award Agreement or the Plan may be brought only in the state or federal courts located in the Northern District of California where this grant is made and/or to be performed, and the parties to this Award Agreement consent to the exclusive jurisdiction of such courts.
18. Binding Agreement; Interpretation . By accepting the grant of this Option evidenced hereby, the Awardee and the Company agree that this Option is granted under and governed by the terms and
conditions of the Plan and this Award Agreement. The Awardee has reviewed the Prospectus and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to accepting the Option and fully understands all provisions of the Prospectus and Award Agreement. The Awardee agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement.
19. Language . The Awardee acknowledges that he or she may be executing part or all of the Award Agreement in English and agrees to be bound accordingly. If the Awardee has received this or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
20. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Option granted under (and participation in) the Plan or future awards that may be granted under the Plan by electronic means or to request the Awardee’s consent to participate in the Plan by electronic means. The Awardee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
21. Severability . The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
22. Acceptance and Rejection . This Award Agreement is one of the documents governing this Option, which the Awardee must accept or reject online through the External Administrator’s website. In certain countries, the Awardee must also sign and return an executed Award Agreement to the Company’s Shareholder Records department, in addition to the online acceptance.
23. Appendix . Notwithstanding any provision herein, the Awardee’s participation in the Plan shall be subject to any special terms and conditions as set forth in the Appendix for the Awardee’s country of residence, if any. The Appendix constitutes part of this Award Agreement.
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AGILENT TECHNOLOGIES, INC. |
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/s/ William P. Sullivan |
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William P. Sullivan |
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President and Chief Executive Officer |
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/s/ Marie Oh Huber |
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Marie Oh Huber |
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Senior Vice President, General Counsel and Secretary |
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Accepted and agreed as to the foregoing: |
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AWARDEE |
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Signature |
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Date Employee Number |
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As of December 2007, a hard-copy signature is required in the following countries and must be returned to Agilent’s Shareholder Records Department, fax number (408) 345-8237: Brazil, Germany, India, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, Singapore, Spain, and Switzerland. France must use a country-specific award agreement.
Please fax all 5 pages of this Agreement (not the Appendix) to Shareholder Records, fax number: (408) 345-8237.
PRINT AND KEEP A COPY FOR YOUR RECORDS
THE ATTACHED APPENDIX IS A PART OF THIS AGREEMENT
APPENDIX
ADDITIONAL TERMS AND CONDITIONS OF THE
AGILENT TECHNOLOGIES, INC. 2009 STOCK PLAN
STOCK OPTION AWARD AGREEMENT
FOR NON U.S.-EMPLOYEES
This Appendix includes additional terms and conditions that govern the Option granted to the Awardee under the Plan if the Awardee resides in one of the countries listed herein. Certain capitalized terms used but not defined in this Appendix have the meanings set forth in the Plan and/or the Award Agreement.
This Appendix also includes information regarding exchange controls and certain other issues of which the Awardee should be aware with respect to the Awardee’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of November 2007. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Awardee not rely on the information in this Appendix as the only source of information relating to the consequences of the Awardee’s participation in the Plan because the information may be out of date at the time that the Awardee exercises the Option or sell shares of Common Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to the Awardee’s particular situation, and the Company is not in a position to assure the Awardee of a particular result. Accordingly, the Awardee is advised to seek appropriate professional advice as to how the relevant laws in the Awardee’s country may apply to his or her situation.
Finally, if the Awardee is a citizen or resident of a country other than the one in which the Awardee is currently working, the information contained herein may not be applicable to the Awardee.
BELGIUM
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Vesting . Notwithstanding the vesting schedule set forth in the Award Agreement, the Option will vest in whole or in part in accordance with the following schedule: 25% per year for 4 years.
Tax Considerations . A copy of the Grant Notification, Acceptance Form and Belgian Tax Undertaking Agreement in addition to this Award Agreement are available at http://stockoptions.corporate.agilent.com. The Awardee should consult his or her personal tax advisor with respect to completing the additional forms. The Awardee acknowledges that he or she must sign and return this Award Agreement and the additional forms in order for such documents to be effective.
The Awardee may choose to accept the Option within 60 days of the date of the offer or after 60 days of the date of the offer. This choice will affect the tax treatment of the offer as explained in the Belgian Grant documents.
The Awardee is required to report any taxable income attributable to the Option on his or her annual tax return. In addition, the Awardee is required to report any bank accounts opened and maintained
outside Belgium on his or her annual tax return.
BRAZIL
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Exchange Control Information . The Awardee is advised to consult his or her personal legal advisor to determine the exchange control requirements applicable to the Awardee’s particular circumstances. It is solely the Awardee’s responsibility to comply with these requirements.
CHINA
Cashless Exercise Restriction . Notwithstanding anything to the contrary in the Award Agreement or the Prospectus, due to legal restrictions in China, the cash exercise method is not available in China. This Option may only be exercised using the full cashless method such that all shares of Common Stock subject to the exercised Option will be sold immediately upon exercise and the proceeds of sale, less the Option price, any Tax-Related Items and any broker’s fees or commissions, will be remitted to the Awardee in cash only in accordance with any applicable exchange control laws and regulations and following the procedures established by the External Administrator. The Company reserves the right to provide the Awardee with additional methods of exercise depending on the development of local law.
Exchange Control Restriction . The Awardee understands and agrees that, due to exchange control laws in China, the Awardee may be required to immediately repatriate the proceeds from the cashless exercise to China. The Awardee further understands that such repatriation of the proceeds may need to be effected through a special exchange control account established by the Company or a Subsidiary or Affiliate and the Awardee hereby consents and agrees that the proceeds from the cashless exercise may be transferred to such special account prior to being delivered to the Awardee.
DENMARK
Additional Documents . A copy of the Employer Statement has also been provided to the Awardee in addition to this Award Agreement.
Exchange Control and Tax Information . Awardee may hold shares of Common Stock acquired under the Plan in a safety-deposit account ( e.g ., a brokerage account) with either a Danish bank or with an approved foreign broker or bank. If the shares of Common Stock are held with a foreign broker or bank, the Awardee is required to inform the Danish Tax Administration about the safety-deposit account. For this purpose, the Awardee must file a Form V ( Erklaering V ) with the Danish Tax Administration. Both the Awardee and the External Administrator or bank must sign the Form V. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the shares in the account. By signing the Form V, the Awardee authorizes the Danish Tax Administration to examine the account.
In addition, if the Awardee opens a brokerage account (or a deposit account with a U.S. bank), the brokerage account (or bank account, as applicable) will be treated as a deposit account because cash can be held in the account. Therefore, the Awardee must also file a Form K ( Erklaering K ) with the Danish Tax Administration. Both the Awardee and the External Administrator must sign the Form K. By signing the Form K, the External Administrator undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the content of the deposit account. By signing the Form K, the Awardee authorizes the Danish Tax Administration to examine the account.
If the Awardee uses the cashless method of exercise, the Awardee is not required to file a Form V because the Awardee will not hold any shares of Common Stock. However, if the Awardee opens a deposit account with a foreign broker or bank to hold the cash proceeds, the Awardee are required to file a Form K as described above.
FRANCE
See the specific Agilent Award Agreement for France.
GERMANY
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank (“Deutsche Bundesbank”). If the Awardee uses a German bank to transfer a cross-border payment in excess of €12,500 in connection with the purchase or sale of shares of Common Stock acquired under the Plan, the bank will make the report for the Awardee. In addition, the Awardee must report any receivables or payables or debts in foreign currency exceeding an amount of €5,000,000 on a monthly basis.
INDIA
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Exercise Restriction . Notwithstanding anything to the contrary in the Award Agreement, due to legal restrictions in India, the Awardee will not be permitted to pay the Option price by the cashless sell-to-cover method of exercise such that a certain number of shares of Common Stock subject to the exercised Option are sold immediately upon exercise and the proceeds of the sale remitted to the Company to cover the aggregate Option price, any Tax-Related Items and any broker’s fees or commissions and following the procedures established by the External Administrator. The Company reserves the right to provide the Awardee with this method of payment depending on the development of local law.
Fringe Benefit Tax . By accepting the grant of the Option and participating in the Plan, the Awardee consents and agrees to assume any and all liability for fringe benefit tax that may be payable by the Company and/or the Employer in connection with the Option. The Awardee further understands that the grant of the Option and participation in the Plan is contingent upon the Awardee’s agreement to assume liability for fringe benefit tax payable on the Option.
Further, by accepting the grant of the Option and participating in the Plan, the Awardee agrees that the Company and/or the Employer may collect the fringe benefit tax from the Awardee by any of the means set forth in the Responsibility for Taxes section of the Award Agreement or any other reasonable method established by the Company. The Awardee also agrees to execute any other consents or elections required to accomplish the foregoing, promptly upon request by the Company.
Exchange Control Restriction . The Awardee understands that the Awardee must repatriate any proceeds from the sale of shares of Common Stock acquired under the Plan and any dividends received in relation to the shares of Common Stock to India and convert the proceeds into local currency within 90 days of receipt. The Awardee must obtain a foreign inward remittance certificate (“FIRC”) from the bank where the Awardee deposits the foreign currency and maintain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation.
ISRAEL
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Shares must be Held with the External Administrator
The Company has designated a third-party to provide administrative services in connection with the Plan (the “External Administrator”). Pursuant to its authority under the Plan, the Company will require that the Awardee hold any shares issued to Awardee in connection with the exercise of the Option with the External Administrator until such time as the Awardee sells the shares. Until the Awardee decides to sell the shares issued to pursuant to the exercise of the Option, the Awardee cannot transfer the shares to an account with another broker or request that shares certificates be issued to the Awardee.
ITALY
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Cashless Exercise Restriction . Notwithstanding anything to the contrary in the Award Agreement or the Prospectus, due to legal restrictions in Italy, the cash exercise method is not available in Italy. This Option may only be exercised using the full cashless method such that all shares of Common Stock subject to the exercised Option will be sold immediately upon exercise and the proceeds of sale, less the Option price, any Tax-Related Items and any broker’s fees or commissions, will be remitted to the Awardee in cash only in accordance with any applicable exchange control laws and regulations and following the procedures established by the External Administrator. The Company reserves the right
to provide the Awardee with additional methods of exercise depending on the development of local law.
Data Privacy . This provision supplements the Data Privacy section of the Award Agreement:
The Awardee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of the Awardee’s personal data as described in this section of this Appendix by and among, as applicable, the Employer, the Company and any Subsidiary or Affiliate for the exclusive purpose of implementing, administering and managing the Awardee’s participation in the Plan.
The Awardee understands that the Employer, the Company and any Subsidiary or Affiliate hold certain personal information about the Awardee, including, but not limited to, the Awardee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company or any Subsidiary or Affiliate, details of all Options or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Awardee’s favor, for the exclusive purpose of implementing, managing and administering the Plan (“Data”).
The Awardee also understands that providing the Company with Data is necessary for the performance of the Plan and that the Awardee’s denial to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect the Awardee’s ability to participate in the Plan. The Controller of personal data processing is Agilent Technologies, Inc., with registered offices at 5301 Stevens Creek Boulevard, Santa Clara, California 95051, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is Agilent Technologies Italia S.p.A,, with registered offices at Centro Direzionale di Villa Fiorita , Via Piero Gobetti, 2/c , 20063 Cernusco s/N, Milano Italia.
The Awardee understands that Data will not be publicized, but it may be transferred to banks, other financial institutions or brokers involved in the management and administration of the Plan. The Awardee further understands that the Company and/or any Subsidiary or Affiliate will transfer Data among themselves as necessary for the purpose of implementing, administering and managing the Awardee’s participation in the Plan, and that the Company and/or any Subsidiary or Affiliate may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer of Data to a broker or other third party with whom the Awardee may elect to deposit any shares of Common Stock acquired under the Plan. Such recipients may receive, possess, use, retain and transfer Data in electronic or other form, for the purposes of implementing, administering and managing the Awardee’s participation in the Plan. The Awardee understands that these recipients may be located in or outside the European Economic Area, such as in the United States or elsewhere. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.
The Awardee understands that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.
The processing activity, including communication, the transfer of Data abroad, including outside of the European Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require the Awardee’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Plan. The Awardee understands that, pursuant to Section 7 of the Legislative Decree no. 196/2003, the Awardee has the right to, including but not limited to, access, delete, update, correct or stop, for legitimate reason, the Data processing. Furthermore, the Awardee is aware that Data will not be used for direct marketing purposes. In addition, Data provided can be reviewed and questions or complaints can be addressed by contacting the Awardee’s human resources representative in Italy.
Plan Document Acknowledgment . In accepting the grant of the Option, the Awardee acknowledges that he or she has received a copy of the Plan and the Award Agreement and has reviewed the Plan and the Award Agreement, including this Appendix, in their entirety and fully understands and accepts all provisions of the Plan and the Award Agreement, including this Appendix .
The Awardee further acknowledges that he or she has read and specifically and expressly approves the following sections of the Award Agreement: Non-Transferability of Option, Nature of the Option; Responsibility for Taxes; Entire Agreement; Amendment; Governing Law and Venue; Binding Agreement; Interpretation; Language; Electronic Delivery and the Data Privacy section included in this Appendix.
Exchange Control Information . The Awardee is required to report in his or her annual tax return: (a) any transfers of cash or shares of Common Stock to or from Italy exceeding €10,000 or the equivalent amount in U.S. dollars; and (b) any foreign investments or investments (including proceeds from the sale of shares of Common Stock acquired under the Plan) held outside of Italy exceeding €10,000 or the equivalent amount in U.S. dollars, if the investment may give rise to income in Italy. The Awardee is exempt from the formalities in (a) if the investments are made through an authorized broker resident in Italy, as the broker will comply with the reporting obligation on the Awardee’s behalf.
JAPAN
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
MALAYSIA
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Director Notification Requirement . If the Awardee is a director of a Malaysian Subsidiary or Affiliate of the Company, the Awardee is subject to certain notification requirements under the Malaysian Companies Act, 1965. Among these requirements is an obligation to notify the Malaysian Subsidiary or Affiliate in writing when the Awardee receives an interest ( e.g. , Options, shares of Common Stock) in the Company or any related companies. In addition, the Awardee must notify the Malaysian Subsidiary or Affiliate when the Awardee sells shares of Common Stock in the Company or any related company (including when the Awardee sells shares of Common Stock acquired under the
Plan). These notifications must be made within fourteen days of acquiring or disposing of any interest in the Company or any related company.
Exchange Control Information . The Awardee is advised to consult his or her personal legal advisor to determine the exchange control requirements applicable to the Awardee’s particular circumstances. It is solely the Awardee’s responsibility to comply with these requirements.
MEXICO
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Labor Law Policy and Acknowledgment . In accepting the grant of the Option, the Awardee expressly recognizes that Agilent Technologies, Inc., with registered offices at 5301 Stevens Creek Boulevard, Santa Clara, California 95051, United States of America, is solely responsible for the administration of the Plan and that the Awardee’s participation in the Plan and acquisition of shares of Common Stock do not constitute an employment relationship between the Awardee and Agilent Technologies, Inc. since the Awardee is participating in the Plan on a wholly commercial basis and the Awardee’s sole employer is Agilent Technologies Mexico, S. de R.L. de C.V., Blvd. Adolfo Lopez Mateos, No. 2009, 2nd Floor Colonia Los Alpes, Delegacion Alvario Obregón, Mexico D.F. 01010 (“Agilent-Mexico”). Based on the foregoing, the Awardee expressly recognizes that the Plan and the benefits that the Awardee may derive from participating in the Plan do not establish any rights between the Awardee and the Employer, Agilent-Mexico, and do not form part of the employment conditions and/or benefits provided by Agilent-Mexico and any modification of the Plan or its termination shall not constitute a change or impairment of the terms and conditions of the Awardee’s employment.
The Awardee further understands that his or her participation in the Plan is as a result of a unilateral and discretionary decision of Agilent Technologies, Inc.; therefore, Agilent Technologies, Inc. reserves the absolute right to amend and/or discontinue the Awardee’s participation at any time without any liability to the Awardee.
Finally, the Awardee hereby declares that the Awardee does not reserve to himself or herself any action or right to bring any claim against Agilent Technologies, Inc. for any compensation or damages regarding any provision of the Plan or the benefits derived under the Plan, and the Awardee therefore grants a full and broad release to Agilent Technologies, Inc., its Affiliates, branches, representation offices, its shareholders, officers, agents or legal representatives with respect to any claim that may arise.
Reconocimiento de Ausencia de Relación Laboral y Declaración de la Política . Aceptando la Opción, el Participante reconoce que Agilent Technologies, Inc. y sus oficinas registradas en 5301 Stevens Creek Boulevard, Santa Clara, California 95051 , U.S.A. , es el único responsable de la administración del Plan y que la participación del Participante en el mismo y la compra de Acciones no constituye de ninguna manera una relación laboral entre el Participante y Agilent Technologies , Inc., toda vez que la participación del Participante en el Plan deriva únicamente de una relación comercial con Agilent Technologies , Inc., reconociendo expresamente que el único empleador del Participante lo es Agilent Technologies Mexico, S. de R.L. de C.V., Blvd. Adolfo Lopez Mateos, No. 2009, 2nd Floor Colonia Los Alpes, Delegacion Alvario Obregón, Mexico D.F. 01010 (“Agilent-México”) . Derivado de lo anterior, el Participante expresamente reconoce que el Plan y los beneficios que pudieran derivar del mismo no
establecen ningún derecho entre el Participante y su empleador, Agilent -México, y no forman parte de las condiciones laborales y/o prestaciones otorgadas por Agilent -México, y expresamente el Participante reconoce que cualquier modificación al Plan o la terminación del mismo de manera alguna podrá ser interpretada como una modificación de los condiciones de trabajo del Participante.
Asimismo, el Participante entiende que su participación en el Plan es resultado de la decisión unilateral y discrecional de Agilent Technologies , Inc., por lo tanto, Agilent Technologies , Inc. se reserva el derecho absoluto para modificar y/o terminar la participación del Participante en cualquier momento, sin ninguna responsabilidad para el Participante.
Finalmente, el Participante manifiesta que no se reserva ninguna acción o derecho que origine una demanda en contra de Agilent Technologies , Inc., por cualquier compensación o daño en relación con cualquier disposición del Plan o de los beneficios derivados del mismo, y en consecuencia el Participante otorga un amplio y total finiquito a Agilent Technologies , Inc., sus Entidades Relacionadas, afiliadas, sucursales, oficinas de representación, sus accionistas, directores, agentes y representantes legales con respecto a cualquier demanda que pudiera surgir.
NETHERLANDS
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
RUSSIA
Shares must be Held with the External Administrator
The Company has designated a third-party to provide administrative services in connection with the Plan (the “External Administrator”). Pursuant to its authority under the Plan, the Company will require that the Awardee hold any shares issued to Awardee in connection with the exercise of the Option with the External Administrator until such time as the Awardee sells the shares. Until the Awardee decides to sell the shares issued to pursuant to the exercise of the Option, the Awardee cannot transfer the shares to an account with another broker or request that shares certificates be issued to the Awardee.
Exchange Control Information . If the Awardee remits funds out of Russia to purchase shares of Common Stock, the funds must be remitted from a foreign currency account opened in the Awardee’s name at an authorized bank in Russia. This requirement does not apply if the Awardee uses a cashless exercise such that some or all of the shares of Common Stock subject to the exercised Option will be sold immediately upon exercise and the proceeds of sale remitted to the Company to cover the aggregate Option price, any Tax-Related Items and any broker’s fees or commissions because in this case there is no remittance of funds out of Russia.
Regardless of what method of exercise the Awardee uses to purchase the shares of Common Stock, the Awardee must repatriate to Russia the proceeds from the sale of shares of Common Stock and any dividends received in relation to the shares within a reasonably short time of receipt. The sale
proceeds and dividends (if any) received must be initially credited to the Awardee through a foreign currency account opened in the Awardee’s name at an authorized bank in Russia.
The Awardee is not permitted to sell shares of Common Stock directly to a Russian legal entity or resident.
Securities Law Information . The Award Agreement, the Option, the Plan and all other materials you may receive regarding participation in the Plan do not constitute advertising or an offering of securities in Russia. The issuance of shares of Common Stock under the Plan has not and will not be registered in Russia and, therefore, the shares of Common Stock described in any Plan documents may not be offered or placed in public circulation in Russia.
In no event will shares of Stock acquired upon exercise of the Option be delivered to you in Russia; all shares of Stock acquired upon exercise of the Option will be maintained on your behalf outside of Russia.
SINGAPORE
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Securities Law Information . The grant of the Option is being made on a private basis and is, therefore, exempt from registration in Singapore.
Director Notification Requirement . Directors of a Singapore Subsidiary or Affiliate are subject to certain notification requirements under the Singapore Companies Act. Directors must notify the Singapore Subsidiary or Affiliate in writing of an interest (e.g., Options, shares of Common Stock, etc.) in the Company or any related companies within two days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest (e.g., when the shares of Common Stock are sold), or (iii) becoming a director.
SPAIN
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Labor Law Acknowledgement . This provision supplements the Nature of the Option section of the Award Agreement:
In accepting the Option, the Awardee acknowledges that the Awardee consents to participation in the Plan and has received a copy of the Plan.
The Awardee understands that the Company has unilaterally, gratuitously and discretionally decided to grant Options under the Plan to individuals who may be employees of the Company or its Related Entities throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant will not bind the Company or any of its Related Entities. Consequently, the Awardee understands that the Option is granted on the assumption and condition
that the Option and any shares of Common Stock acquired upon exercise of the Option shall not become a part of any employment contract (either with the Company or any of its Related Entities) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation) or any other right whatsoever. In addition, the Awardee understands that this grant would not be made to the Awardee but for the assumptions and conditions referred to above; thus, the Awardee acknowledges and freely accepts that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then any grant of or right to the Option shall be null and void.
Exchange Control Information . The Awardee must declare the purchase of shares of Common Stock to the Direccion General de Política Comercial y de Inversiones Extranjeras (the “DGPCIE”) of the Ministerio de Economia for statistical purposes. The Awardee must also declare ownership of any shares of Common Stock with the Directorate of Foreign Transactions each January while the shares of Common Stock are owned. In addition, if the Awardee wishes to import the ownership title of shares of Common Stock (i.e., Share certificates) into Spain, the Awardee must declare the importation of such securities to the DGPCIE.
When receiving foreign currency payments derived from the ownership of shares of Common Stock (i.e., dividends or sale proceeds), the Awardee must inform the financial institution receiving the payment of the basis upon which such payment is made. The Awardee will need to provide the institution with the following information: (i) the Awardee’s name, address, and fiscal identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment; (iv) the currency used; (v) the country of origin; (vi) the reasons for the payment; and (vii) further information that may be required.
SWITZERLAND
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Term of Option . This Option will expire ten (10) years and six (6) months from the Grant Date, unless sooner terminated, forfeited, or canceled in accordance with the provisions of the Plan.
The Awardee is responsible for keeping track of this date and will not receive any prior notification of the expiration date from the Company.
Securities Law Information . The offer of the Option is considered a private offering in Switzerland and is therefore not subject to registration in Switzerland.
TAIWAN
Exchange Control Information . The Awardee may acquire and remit foreign currency (including funds for the purchase of shares of Common Stock and proceeds from the sale of shares of Common Stock) up to US$5,000,000 per year without justification.
If the transaction amount is TWD500,000 or more in a single transaction, the Awardee must submit a
Foreign Exchange Transaction Form. If the transaction amount is US$500,000 or more in a single transaction, the Awardee must also provide supporting documentation to the satisfaction of the remitting bank.
UNITED KINGDOM
Hard Copy Signature Required . The Awardee acknowledges that he or she must sign and return this Award Agreement in order to accept the Option.
Responsibility for Taxes . This provision supplements the Responsibility for Taxes section of the Award Agreement:
If payment or withholding of the Tax-Related Items (including the Employer’s Liability, as defined below) is not made within 90 days of the event giving rise to the Tax-Related Items (the “Due Date”) or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003, the amount of any uncollected Tax-Related Items will constitute a loan owed by the Awardee to the Employer, effective on the Due Date. The Awardee agrees that the loan will bear interest at the then-current Official Rate of Her Majesty’s Revenue and Customs (“HMRC”), it will be immediately due and repayable, and the Company or the Employer may recover it at any time thereafter by any of the means referred to in the Responsibility for Taxes section of the Award Agreement. Notwithstanding the foregoing, if the Awardee is a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), the Awardee will not be eligible for such a loan to cover the Tax-Related Items. In the event that the Awardee is a director or executive officer and the Tax-Related Items are not collected from or paid by the Awardee by the Due Date, the amount of any uncollected Tax-Related Items will constitute a benefit to the Awardee on which additional income tax and national insurance contributions (including the Employer’s Liability, as defined below) will be payable. The Awardee will be responsible for reporting and paying any income tax and national insurance contributions (including the Employer’s Liability, as defined below) due on this additional benefit directly to HMRC under the self-assessment regime.
Joint Election . As a condition of the Awardee’s participation in the Plan and the exercise of the Option, the Awardee agrees to accept any liability for secondary Class 1 national insurance contributions (the “Employer’s Liability”) which may be payable by the Company and/or the Employer in connection with the Option and any event giving rise to Tax-Related Items. To accomplish the foregoing, the Awardee agrees to execute a joint election with the Company (the “Election”), the form of such Election being formally approved by HMRC, and any other consent or elections required to accomplish the transfer of the Employer’s Liability to the Awardee. The Awardee further agrees to execute such other joint elections as may be required between him or her and any successor to the Company and/or the Employer. If the Awardee does not enter into the Election when the Awardee accepts the Award Agreement, or if the Election is revoked at any time by HMRC, the Option will cease vesting and become null and void, and no shares of Common Stock will be acquired under the Plan, without any liability to the Company, the Employer and/or any Affiliate. The Awardee further agrees that the Company and/or the Employer may collect the Employer’s Liability by any of the means set forth in the Responsibility for Taxes section of the Award Agreement.
Exhibit 10.21
AGILENT TECHNOLOGIES, INC.
2009 Stock Plan
Stock Award Agreement (“Award Agreement”)
For Standard Awards Granted to Employees
Section 1. Grant of Stock Award . This Stock Award Agreement, dated as of the date of grant indicated in your account maintained by the company providing administrative services in connection with the Plan (as defined below) (the “External Administrator”), is entered into between Agilent Technologies, Inc. (the “Company”), and you as an individual who has been granted Restricted Stock Units (the “Awardee”) pursuant to the Agilent Technologies, Inc. 2009 Stock Plan (the “Plan”). This Stock Award represents the right to receive the number of shares of the Company’s $0.01 par value voting common stock indicated in the Awardee’s External Administrator account subject to the fulfillment of the conditions set forth below and pursuant to and subject to the terms and conditions set forth in the Plan. The Stock Award is an unfunded and unsecured promise by the Company to deliver shares in the future. Capitalized terms used and not otherwise defined herein are used with the same meanings as in the Plan.
Section 2. Vesting Period . So long as Awardee remains an Awardee Eligible to Vest, the Stock Award shall vest as to 25% of the shares beginning on the first anniversary of the date of grant stated in Section 1 above and another 25% on each subsequent anniversary of the date of grant so that the Stock Award is fully vested on the fourth anniversary of the date of grant.
Section 3. Nontransferability of Stock Award . This Stock Award shall not be transferable by Awardee otherwise than by will or by the laws of descent and distribution. The terms of this Stock Award shall be binding on the executors, administrators, heirs and successors of Awardee.
Section 4. Termination of Employment or Service .
(a) Any unvested Stock Award shall be forfeited immediately when the Awardee ceases to be an Awardee Eligible to Vest, unless the Awardee ceases to be an Awardee Eligible to Vest due to Awardee’s death, total and permanent disability, retirement or participation in the Company’s Workforce Management Program. Except as the Committee may otherwise determine, termination of Awardee’s employment or service for any reason shall occur on the date such Awardee ceases to perform services for the Company or any Affiliate without regard to whether such Awardee continues thereafter to receive any compensatory payments therefrom or is paid salary thereby in lieu of notice of termination or, with respect to a member of the Board who is not also an employee of the Company or any Subsidiary, the date such Awardee is no longer a member of the Board.
(b) Notwithstanding any provision in the Plan to the contrary, if an Awardee dies while an Employee or after Awardee’s retirement in accordance with the Company’s local retirement policy, the Stock Award shall immediately vest in full. The vested portion of the Stock Award shall be delivered to the executor or administrator of the Awardee’s
estate or, if none, by the person(s) entitled to receive the vested Stock Award under the Awardee’s will or the laws of descent or distribution.
(c) Notwithstanding any provision in the Plan to the contrary, if an Awardee terminates employment due to total and permanent disability or due to participation in the Company’s Workforce Management Program, the Stock Award shall vest in full.
(d) Notwithstanding any provision in the Plan to the contrary, if an Awardee terminates employment due to retirement in accordance with the Company’s local retirement policy, any unvested Stock Award will continue to vest under the vesting schedule set forth in Section 2 above. In addition, except as the Committee or its designee shall determine otherwise, if Awardee becomes eligible to retire or retires in accordance with the Company’s local retirement policy, the Stock Award shall immediately vest as to that portion of the shares necessary to satisfy any Tax-Related Items (as described in Section 7 below) in connection with such eligibility for retirement or retirement and such shares shall be used to satisfy such Tax-Related Items (either by withholding in shares or forcing the sale of shares pursuant to the authority in this Stock Award Agreement, at the Company’s sole discretion).
(e) In the event of a Change of Control of the Company (as defined in Section 18(c) of the Plan or any successor), the Stock Award shall vest in full immediately prior to the closing of the transaction. The foregoing shall not apply where the Stock Award is assumed, converted or replaced in full by the successor corporation or a parent or subsidiary of the successor; provided, however, that in the event of a Change of Control in which one or more of the successor or a parent or subsidiary of the successor has issued publicly traded equity securities, the assumption, conversion, replacement or continuation shall be made by an entity with publicly traded securities and shall provide that the holders of such assumed, converted, replaced or continued Stock Awards shall be able to acquire such publicly traded securities.
Section 5. Settlement of Stock Award . If, as of the date of grant, it is not possible for Awardee to retire in accordance with the Company’s local retirement policy during the vesting period described in Section 2 above, the Stock Award shall be automatically settled in shares of Common Stock upon vesting of the Stock Award. If, as of the date of grant, it is possible for Awardee to retire in accordance with the Company’s local retirement policy during the vesting period described in Section 2 above, the Stock Award shall be settled in shares of Common Stock on the normal vesting dates set forth in Section 2 above, subject to the accelerated vesting of a portion of the Stock Award as set forth in Section 4(d) above, which constitute fixed payment dates for purposes of Section 409A of the Code.
Section 6. Restrictions on Issuance of Shares of Common Stock . The Company shall not be obligated to issue any shares of Common Stock pursuant to this Stock Award unless the shares are at that time effectively registered or exempt from registration under the U.S. Securities Act of 1933, as amended, and, as applicable, local laws.
Section 7. Responsibility for Taxes . Regardless of any action the Company or Awardee’s employer (the “Employer”) takes with respect to any or all income tax, social
insurance, payroll tax or other tax-related withholding (the “Tax-Related Items”), Awardee acknowledges that the ultimate liability for all Tax-Related Items legally due by Awardee is and remains Awardee’s responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Award, including the grant and vesting of the Stock Award, the subsequent sale of shares of Common Stock acquired pursuant to the Stock Award and the receipt of any dividends or other distributions, if any; and (2) do not commit to structure the terms of the grant or any aspect of the Stock Award to reduce or eliminate Awardee’s liability for Tax-Related Items.
Awardee authorizes the Company and/or the Employer to, in the sole discretion of the Company and/or the Employer, withhold all applicable Tax-Related Items legally payable by Awardee from Awardee’s wages or other cash compensation paid to Awardee by the Company and/or the Employer, within legal limits, or from proceeds of the sale of shares of Common Stock. Alternatively, or in addition, if permissible under local law, the Company may in its sole discretion (1) sell or arrange for the sale of shares of Common Stock that Awardee acquires to meet the withholding obligation for Tax-Related Items, and/or (2) withhold in shares of Common Stock, provided that the Company only withholds the amount of shares of Common Stock necessary to satisfy the minimum withholding amount.
Finally, Awardee shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Awardee’s participation in the Plan or Awardee’s acquisition of shares of Common Stock that cannot be satisfied by the means previously described. The Company may refuse to deliver the shares of Common Stock if Awardee fails to comply with Awardee’s obligations in connection with the Tax-Related Items as described in this section.
Section 8. Adjustment . The number of shares of Common Stock subject to this Stock Award and the price per share, if any, of such shares may be adjusted by the Company from time to time pursuant to the Plan.
Section 9. Nature of the Award . By accepting this Stock Award, Awardee acknowledges that:
(1) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;
(2) the grant of the Stock Award is voluntary and occasional and does not create any contractual or other right to receive future grants of Stock Award, or benefits in lieu of Stock Awards, even if Stock Awards have been granted repeatedly in the past;
(3) all decisions with respect to future Stock Award grants, if any, will be at the sole discretion of the Company;
(4) participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate Awardee’s employment relationship at any time;
(5) participating in the Plan is voluntary;
(6) the Stock Award is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which is outside the scope of Awardee’s employment contract, if any;
(7) the Stock Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services to the Company or the Employer;
(8) in the event Awardee is not an employee of the Company, the Stock Award will not be interpreted to form an employment contract or relationship with the Company; and furthermore, the Stock Award will not be interpreted to form an employment contract with the Employer or any subsidiary or affiliate of the Company;
(9) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
(10) if Awardee accepts the Stock Award and obtains shares of Common Stock, the value of those shares of Common Stock acquired may increase or decrease in value;
(11) in consideration of the grant of the Stock Award, no claim or entitlement to compensation or damages shall arise from termination of the Stock Award or diminution in value of the Stock Award or shares of Common Stock acquired under the Stock Award resulting from termination of Awardee’s employment by the Company or the Employer and Awardee irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Award Agreement, Awardee shall be deemed irrevocably to have waived Awardee’s entitlement to pursue such claim;
(12) by accepting the grant of this Stock Award through the methods described in Section 21 below, the Awardee and the Company agree that this Stock Award is granted under and governed by the terms and conditions of the Plan and this Award Agreement, and the Awardee acknowledges that he or she agrees to accept as binding, conclusive and final all decisions or interpretations of the Company and/or the External Administrator upon any questions relating to the Plan and Award Agreement; and
(13) the Awardee acknowledges that this Award Agreement is between the Awardee and the Company, and that the Awardee’s local employer is not a party to this Award Agreement.
Section 10. Data Privacy. The Awardee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Awardee’s personal data as described in this document by and among, as applicable, the Company, the Employer and the
External Administrator for the exclusive purpose of implementing, administering and managing Awardee’s participation in the Plan.
Awardee hereby understands that the Company and the Employer hold certain personal information about the Awardee, including, but not limited to, Awardee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Stock Awards or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Awardee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”). Awardee hereby understands that Data may be transferred to any third parties (including the External Administrator) assisting in the implementation, administration and management of the Plan, that these recipients may be located in Awardee’s country or elsewhere, such as outside the European Economic Area, and that the recipient’s country may have different data privacy laws and protections than Awardee’s country. All such transfers of Data will be in accordance with the Company’s Privacy Policies and Guidelines. Awardee hereby understands that Awardee may request a list with the names and addresses of any potential recipients of the Data by contacting Awardee’s local human resources representative. Awardee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Awardee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom Awardee may elect to deposit any Common Stock acquired upon vesting of the Stock Award. Awardee hereby understands that Awardee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Awardee’s local human resources representative. Awardee hereby understands, however, that refusing or withdrawing the Awardee’s consent may affect the Awardee’s ability to participate in the Plan. For more information on the consequences of Awardee’s refusal to consent or withdrawal of consent, Awardee understands that he or she may contact his or her human resources representative responsible for Awardee’s country at the local or regional level.
Section 11. No Rights Until Issuance . Awardee shall have no rights hereunder as a shareholder with respect to any shares subject to this Stock Award until the date that shares of Common Stock are issued to the Awardee. The Committee in its sole discretion may substitute a cash payment in lieu of shares of Common Stock, such cash payment to be equal to the Fair Market Value of the Shares on the date that such Shares would have otherwise been issued under the terms of the Plan.
Section 12. Administrative Procedures . Awardee agrees to follow the administrative procedures that may be established by the Company and/or its designated broker for participation in the Plan which may include a requirement that the shares issued upon vesting be held by the Company’s designated broker until the Awardee disposes of such shares. Awardee further agrees that the Company may determine the actual method of withholding for Tax-Related Items as described in Section 7 above. Awardee agrees to update the Company with respect to Awardee’s home address, contact information and any information necessary for the
Company or one of its affiliates to process any required tax withholding or reporting related to this Stock Award.
Section 13. Governing Law and Venue . This Award Agreement shall be governed by and construed according to the laws of the State of Delaware without regard to its principles of conflicts of laws as provided in the Plan. Any proceeding arising out of or relating to this Award Agreement or the Plan may be brought only in the state or federal courts located in the Northern District of California where this grant is made and/or to be performed, and the parties to this Award Agreement consent to the exclusive jurisdiction of such courts.
Section 14. Amendment . This Stock Award may be amended as provided in the Plan.
Section 15. Language . If the Awardee has received this or any other document related to the Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.
Section 16. Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to the Stock Award granted under (and participation in) the Plan or future awards that may be granted under the Plan by electronic means or to request the Awardee’s consent to participate in the Plan by electronic means. The Awardee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
Section 17. Severability . The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
Section 18. Section 409A of the Code
(a) This Stock Award shall be administered, interpreted, and construed in a manner that does not result in the imposition on the Awardee of any additional tax, penalty, or interest under Section 409A of the Code. The preceding provision, however, shall not be construed as a guarantee any particular tax effect and the Company shall not be liable to the Awardee any payment made under this Stock Award that is determined to result in an additional tax, penalty, or interest under Section 409A of the Code, nor for reporting in good faith any payment made under any Award as an amount includible in gross income under Section 409A of the Code.
(b) “Termination of employment,” “resignation,” or words of similar import, as used in this Stock Award means for purposes of payments under this Award that are payments of deferred compensation subject to Section 409A of the Code, the Awardee’s “separation from service” as defined in Section 409A of the Code.
(c) To the extent any payment or settlement that is a payment of deferred compensation subject to Section 409A of the Code is contingent upon a “change in control,” such payment or settlement shall only occur if the event giving rise to the change in control would also constitute a change in ownership or effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, within the meaning of
Section 409A of the Code. The vesting of any Award shall not be affected by the preceding sentence.
(d) If a payment obligation under this Stock Award arises on account of the Awardee’s separation from service while the Awardee is a “specified employee” (as defined in Section 409A of the Code), any payment of “deferred compensation” (as defined under Treasury Regulation Section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue without interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after his or her death.
Section 19. Recoupment . This Stock Award is subject to the terms of the Agilent Technologies Executive Compensation Recoupment Policy in the form approved by the Committee as the date of grant (the “Policy”), if and to the extent that the Policy by its terms applies to the Stock Award and the Awardee; and the terms of the Policy as of the date of grant are incorporated by reference herein and made a part hereof.
Section 20. Entire Agreement . The Plan is incorporated herein by reference. The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Awardee with respect to the subject matter hereof, and may not be modified adversely to the Awardee’s interest except by means of a writing signed by the Company and the Awardee.
Section 21. Acceptance and Rejection . This Award Agreement is one of the documents governing this Stock Award, which the Awardee may accept or reject online through the External Administrator’s website. If the Awardee has not rejected this Stock Award by the time of the first vesting event, the Awardee will be deemed to have accepted this Stock Award, and the shares of Common Stock vested pursuant to the Stock Award will be issued and taxed accordingly.
Section 22. Plan Document Acknowledgment . The Awardee further acknowledges that he or she has read and specifically and expressly approves the following sections of the Award Agreement: Nontransferability of Stock Award; Restrictions on Issuance of Shares of Common Stock; Responsibility for Taxes; Nature of the Award; Data Privacy; No Rights Until Issuance; Governing Law and Venue; Language; Electronic Delivery and Entire Agreement.
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AGILENT TECHNOLOGIES, INC. |
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/s/ William P. Sullivan |
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William P. Sullivan |
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President and Chief Executive Officer |
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/s/ Marie Oh Huber |
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Marie Oh Huber |
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Senior Vice President, General Counsel and Secretary |
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Exhibit 10.29
AGILENT TECHNOLOGIES, INC.
2005 DEFERRED COMPENSATION PLAN
(Amended and Restated Effective January 1, 2011)
Section 1. Establishment and Purpose of Plan.
The Agilent Technologies, Inc. 2005 Deferred Compensation Plan has been amended and restated effective September 17, 2007; September 15, 2008; October 28, 2009; and most recently as of January 1, 2011. The Plan continues the program of deferred compensation embodied in the document for the Prior Plan in a manner designed to comply with the requirements of the American Jobs Creation Act of 2004. The rules of this Plan document, rather than those of the Prior Plan Document, will govern new deferrals. The Plan provides deferred compensation for a select group of management or highly compensated employees as established in Title I of ERISA.
The Plan is intended to be an unfunded and unsecured deferred compensation arrangement between the Participant and Agilent, in which the Participant agrees to give up a portion of the Participant’s current compensation in exchange for Agilent’s unfunded and unsecured promise to make a payment at a future date, as specified in Section 6. Agilent retains the right, as provided in Section 13, to amend or terminate the Plan at any time. Certain capitalized words used in the text of the Plan are defined in Section 19 in alphabetical order.
Section 2. Participation in the Plan.
2.1 All Eligible Employees are eligible to defer Base Pay, Bonus, LTPP Awards, or NES Awards under the Plan. In addition, the Committee may provide that company contributions may be made to the Plan for the benefit of a Participant under the terms and conditions as may be specified by Agilent, in any manner Agilent deems appropriate; provided, however, that any such contribution shall comply with Section 409A of the Code, and any contribution made with respect to a Covered Officer must be consistent with the requirements for deductibility of compensation under Section 162(m) of the Code.
Section 3. Timing and Amounts of Deferred Compensation.
Eligible Employees shall make elections to participate in the Plan, as follows:
3.1 Base Pay Deferrals .
(a) Timing of Base Pay Deferral . With respect to a deferral of Base Pay, an election to defer Base Pay must be made before December 31, or such earlier date established by the Committee, of the calendar year preceding the calendar year with respect to which the services associated with such Base Pay are performed, and in accordance with procedures established by the Committee. Base Pay deferral elections shall be irrevocable on the December 31 of the calendar year preceding the calendar year with respect to which such election pertains, or such earlier date as Agilent determines in its discretion. Notwithstanding the foregoing, a new Eligible Employee may make an initial deferral election by the date the Committee specifies
after the individual receives enrollment materials; provided, however, that such initial deferral election shall be made no later than the 30th day after the individual becomes an Eligible Employee.
(b) Amount of Base Pay Deferral . The percentage that will be deferred from Base Pay for an Eligible Employee is determined as follows:
(i) The Eligible Employee will elect an annual percentage to be deferred from Base Pay. The maximum annual percentage of Base Pay that may be deferred each calendar year is equal to one hundred percent of the amount that Base Pay exceeds the Eligibility Pay Threshold.
(ii) The percentage will be converted into an amount per pay period to be deferred and adjusted as necessary (the “Pay Period Deferral Amount”).
3.2 Bonus Deferrals .
(a) Timing of Bonus Deferral . An election to defer Bonuses must be made before December 31, or such earlier date established by the Committee, of the calendar year preceding the calendar year with respect to which the services relating to the Bonuses are performed, and in accordance with procedures established by the Committee. Bonus deferral elections shall be irrevocable on the December 31 of the calendar year preceding the calendar year with respect to which such election pertains, or such earlier date as Agilent determines in its discretion. Notwithstanding the foregoing, a Participant may elect to defer Bonuses that are Performance Based Compensation; provided, however, such election shall not be made later than six months prior to the end of the applicable performance period and such election shall be irrevocable as Agilent determines in its discretion as reflected in the election form. Notwithstanding the foregoing, a new Eligible Employee may make an initial bonus deferral election by the date the Committee specifies after the individual receives enrollment materials; provided, however, that such initial deferral election shall be made no later than the 30th day after the individual becomes an Eligible Employee and the election may only apply to compensation paid for services performed after the election.
(b) Amount of Bonus Deferral . The amount of any bonus an Eligible Employee may must be:
(i) No more than 95%, of any Bonus to which he or she may become entitled; and
(ii) Not more than the amount by which the sum of the Pay-For-Results Bonus, plus the Participant’s Base Pay for such calendar year, exceeds the Eligibility Pay Threshold.
The deferral amount must be expressed in terms of a whole percentage point. Once an election is made by an Eligible Employee to defer any portion of a Bonus, the appropriate dollar amount will be withheld from the Bonus when this amount would have otherwise been paid.
3.3 LTPP Award Deferrals and NES Award Deferrals .
(a) Timing of LTPP Award Deferral . Participants must make an election to defer an LTPP Award no later than 6 months before the end of the performance period so long as the LTPP Award meets the definition of Performance Based Compensation. If the LTPP Award does not meet the definition of Performance Based Compensation, the election to defer the LTPP Award must be made not later than: (i) December 31, or such earlier date established by the Committee, of the calendar year preceding the calendar year with respect to which the services associated with such LTPP Award are performed, and in accordance with procedures established by the Committee, or (ii) the 30 th day after the individual first becomes an Eligible Employee and the election may only apply to compensation paid for services performed after the election. LTPP Award deferral elections shall be irrevocable as Agilent determines in its discretion as reflected in the election form.
(b) Timing of NES Award Deferral . Participants must make an election to defer a NES Award no later than 6 months before the end of the performance period so long as the NES Award meets the definition of Performance Based Compensation. If the NES Award does not meet the definition of Performance Based Compensation, the election to defer the NES Award must be made not later than: (i) December 31, or such earlier date established by the Committee, of the calendar year preceding the calendar year with respect to which the services associated with such NES Award are performed, and in accordance with procedures established by the Committee, (ii) 30 days after the date of grant, provided that (1) the NES Award is subject to a forfeiture condition requiring the continued performance of services for a period of at least 12 months and (2) the election is made at least 12 months in advance of the earliest date at which the forfeiture condition could lapse, or (iii) the 30 th day after the individual first becomes an Eligible Employee and the election may only apply to compensation paid for services performed after the election. NES Award deferral elections shall be irrevocable as Agilent determines in its discretion as reflected in the election form.
(c) Amount of Deferral of LTPP Award . An Eligible Employee may defer any portion, up to 95%, of any LTPP Award to which he or she may become entitled, so long as the deferral amount is expressed in terms of a whole percentage point; provided, however, if the percentage results in a fractional share, the number of Shares deferred shall be rounded up to the nearest whole Share. Once an election is made by an Eligible Employee to defer any portion of an LTPP Award, the appropriate Shares will be withheld from the LTPP Award when the Shares would have otherwise have been distributed.
(d) Amount of Deferral of NES Award . An Eligible Employee may defer any portion, up to 95%, of any NES Award to which he or she may become entitled, so long as the deferral amount is expressed in terms of a whole percentage point; provided, however, if the percentage results in a fractional share, the number of Shares deferred shall be rounded up to the nearest whole Share. Once an election is made by an Eligible Employee to defer any portion of a NES Award, the appropriate Shares will be withheld from the NES Award when the Shares would have otherwise have been distributed.
3.4 Company Contributions . Notwithstanding anything provided in this Section 3 or otherwise in the Plan to the contrary, the Committee shall have the discretion to provide that company contributions may be made to the Plan for the benefit of a Participant under the terms
and conditions as may be specified by Agilent, in any manner Agilent deems appropriate; provided, however, that any such contribution shall comply with Section 409A of the Code.
Section 4. Crediting of Deferral Accounts.
Amounts deferred pursuant to Section 3 shall be credited to a Deferral Account in the name of the Participant. Deferred Amounts arising from deferrals of Base Pay shall be credited to a Participant’s Base Pay Deferral Account at least quarterly. Deferrals resulting from amounts credited to a Participant’s Bonus Deferral Account from the deferral of Bonuses shall be credited to a Bonus Deferral Account as soon as practicable after such Bonus would otherwise have been paid. Deferrals resulting from amounts credited to a Participant’s Deferral Account from the deferral of LTPP Awards or NES Awards shall be credited to a Participant’s LTPP Deferral Account or NES Deferral Account, as appropriate, as soon as practicable after such LTPP Award or NES Award would otherwise have been paid. Any dividends paid on Shares shall be credited to the LTPP Deferral Account or NES Deferral Account, as appropriate. The Participant’s rights in the Deferral Account shall be no greater than the rights of any other unsecured general creditor of Agilent. Deferred Amounts and Earnings thereon invested hereunder shall for all purposes be part of the general funds of Agilent. Any payout to a Participant of amounts credited to a Participant’s Deferral Account is not due, nor are such amounts ascertainable, until the Payout Commencement Date.
Section 5. Earnings on the Deferral Account.
5.1 Crediting in General . Amounts in a Participant’s Deferral Account will be credited at least quarterly with Earnings until such amounts are paid out to the Participant under this Plan as set forth in Section 6. All Earnings attributable to the Deferral Account shall be added to the liability of and retained therein by Agilent. Any such addition to the liability shall be appropriately reflected on the books and records of Agilent’s Consolidated Group and identified as an addition to the total sum owing the Participant. The Deferral Account of a Rollover Participant shall be credited with Earnings at the same time and accounted for in the same manner as the Deferral Account of a Participant (regardless of the Rollover Participant’s eligibility to participate in the Plan), pro-rated to reflect the date on which the deferral account from a Rollover Plan is transferred into the Plan.
5.2 Hypothetical Investment Options . Except as otherwise provided in this Section 5.2, and subject to provisions of Section 4, the Committee may, in its discretion, offer Participants a choice among various Hypothetical Investment Options on which their Deferral Accounts may be credited. Such a choice is nominal in nature, and grants Participants no real or beneficial interest in any specific fund or property. Provision of a choice among Hypothetical Investment Options grants the Participant no ability to affect the actual aggregate investments Agilent may or may not make to cover its obligations under the Plan. Any adjustments Agilent may make in its actual investments for the Plan may only be instigated by Agilent, and may or may not bear a resemblance to the Participants’ hypothetical investment choices on an account-by-account basis. The timing, allowance and frequency of hypothetical investment choices, and a Participant’s ability to change how his or her Deferral Account is credited, is within the sole discretion of the Committee.
5.3 Investment Directions . A Participant may direct the deemed investment of the Participant’s Deferred Amounts among the Hypothetical Investment Options, in the manner prescribed by Agilent at the time of enrollment or re-enrollment. Investment elections shall be in such minimum percentage amounts with respect to each such option as permitted by Agilent. Notwithstanding any other provision of the Plan to the contrary, all deferrals of non-cash LTPP Awards or NES Awards shall be deemed to be invested in Shares until such Shares are paid out in accordance with Section 6.
5.4 Reinvestment Directions . On a daily basis, by instructing a third party administrator that Agilent selects in its discretion in the manner prescribed, a Participant may direct the reinvestment of the Participant’s Deferral Accounts among the various Hypothetical Investment Options; provided, however, that certain reinvestments may be restricted by Agilent, the third party administrator or applicable law. A Participant shall specify the reinvestment amounts of the Participant’s Deferred Account to be invested in such Hypothetical Investment Options. Reinvestment directions shall be in such minimum dollar or percentage amounts as permitted by Agilent or the third party administrator. Notwithstanding any other provision of the Plan to the contrary, Participants may not direct the reinvestment of their deferral of non-cash LTPP Awards or NES Awards.
5.5 No Investment Directions . In the event that the Participant fails to direct his or her investment, a Participant’s Deferral Account shall be credited with the deemed return on investment in Vanguard Institutional Index Fund — Institutional Plus. Notwithstanding the foregoing, all deferrals of non-cash LTPP Awards or NES Awards shall be deemed to be invested in Shares.
Section 6. Payout to the Participants.
6.1 Termination . The form and commencement of benefit may be made in accordance with the Participant’s election at the time of deferral and this Section 6.1.
(a) Form of Payout .
(i) Prior to January 1, 2008 and if a Participant’s Aggregate Deferral Account Balance is equal to or greater than $25,000 on the Termination Date, a Participant making a valid election under this Section 6.1, and whose Termination Date occurs during the first six (6) months of the calendar year, may elect to receive either (a) a single lump sum payout in the first pay period in January of the year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning with the first pay period in January following the Termination Year. A Participant making a valid election under this Section 6.1, and whose Termination Date occurs during the second six (6) months of the calendar year, may elect to receive either (a) a single lump sum payout in the first pay period in January of the second year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning with the first pay period in January of the second year following the Termination Year. If, however, Participant’s Aggregate Deferral Account Balance is less than $25,000 on the Termination Date, then the Participant will receive a single lump sum payout at the first pay period in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar
year, payment of such lump sum will be made in the first pay period in January of the second year following the Termination Year.
(ii) On or after January 1, 2008 and if a Participant’s Aggregate Deferral Account Balance is equal to or greater than $25,000 on the Termination Date, a Participant making a valid election under this Section 6.1, and whose Termination Date occurs during the first six (6) months of the calendar year, may elect to receive either (a) a single lump sum payout in January of the year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning in the January following the Termination Year. A Participant making a valid election under this Section 6.1, and whose Termination Date occurs during the second six (6) months of the calendar year, may elect to receive either (a) a single lump sum payout in the July of the year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning in the July of the first year following the Termination Year. If, however, Participant’s Aggregate Deferral Account Balance is less than $25,000 on the Termination Date, then the Participant will receive a single lump sum payout in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar year, payment of such lump sum will be made in July following the Termination Year.
(iii) 2008 Special Payout Election on or before December 31, 2008 . Participants who are identified by the Committee, in its sole discretion, may make a special payment election for their Aggregate Deferral Account Balance in calendar year 2008; provided that the election is made no later than December 31, 2008. An election made pursuant to this subparagraph (iii) shall be irrevocable when made and shall be subject to any special administrative rules imposed by Agilent including rules intended to comply with section 409A of the Code, and shall not become effective until January 1, 2009. No election under this subparagraph (iii) shall (A) change the payment date of any distribution otherwise scheduled to be paid in 2008 or cause a payment to be paid in 2008, or (B) be permitted after December 31, 2008.
(b) Commencement of Payout . A Participant making a valid election under this Section 6.1 may elect a Payout Commencement Date, under either the single lump sum or the annual installment election addressed in Section 6.1(a), that is the date determined under Section 6.1(a) plus an additional one (1), two (2) or three (3) years.
(c) In-Service Distribution Date . With respect to Base Pay, Bonus, LTPP Awards or NES Awards earned after December 31, 2010, an Eligible Employee or Participant may elect pursuant to Section 3 of the Plan to defer Base Pay, Bonus, LTPP Awards or NES Awards to an In-Service Distribution Account. The Committee, in its sole discretion, may limit the number of In-Service Distribution Accounts that Participants may maintain under the Plan at any time. For each In-Service Distribution Account, the Participant must elect a single In-Service Distribution Date. A Participant may defer amounts from multiple calendar years into the same In-Service Distribution Account, provided the Participant does not defer an amount into an In-Service Distribution Account during a calendar year in which falls the In-Service Distribution Date for that In-Service Distribution Account. If an Eligible Employee or Participant elects to make deferrals to an In-Service Distribution Account, the amount deferred to
the In-Service Distribution Account will be paid to the Participant in a single lump sum payment on the earlier to occur of the applicable In-Service Distribution Date, death or Termination.
(d) Earnings on Deferral Accounts . Whatever the form of payout under Section 6, and whatever the timing of the Payout Commencement Date, the Deferral Account of a Participant shall continue to be credited with Earnings until all amounts in such an account are paid out to the Participant.
6.2 Default Form and Commencement of Payout .
(a) Prior to January 1, 2008, if a valid election under Section 6.1 is not made, and the Participant’s Aggregate Deferral Account Balance is equal to or greater than $25,000 on the Termination Date, then the Participant shall receive his or her payout in annual installments over the fifteen (15) year period beginning with the first pay period in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar year, payment of such annual installments will begin with the first pay period in January of the second year following the Termination Year. If, however, Participant’s Aggregate Deferral Account Balance is less than $25,000 on the Termination Date, then the Participant will receive a single lump sum payout at the first pay period in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar year, payment of such lump sum will be made in the first pay period in January of the second year following the Termination Year.
(b) On or after January 1, 2008, if a valid election under Section 6.1 is not made, and the Participant’s Aggregate Deferral Account Balance is equal to or greater than $25,000 on the Termination Date, then the Participant shall receive his or her payout in annual installments over the fifteen (15) year period beginning in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar year, payment of such annual installments will begin in July following the Termination Year. If, however, Participant’s Aggregate Deferral Account Balance is less than $25,000 on the Termination Date, then the Participant may receive a single lump sum payout in January following the Termination Year; provided, that if the Termination Date occurs within the second six months of the calendar year, payment of such lump sum will be made in July following the Termination Year.
6.3 Death of Participant .
(a) Prior to January 1, 2008 and if a Participant dies and a valid election was made under Section 6.1, the Beneficiary will be paid in the same manner as the Participant would have if he or she Terminated; the date of death shall be deemed the Termination Date. If the Participant dies and no valid election was made, and the Participant’s Deferral Account balance is equal to or greater than $25,000 on the date of death, then the Beneficiary will receive the payout in annual installments over the fifteen (15) year period beginning in January in the calendar year following the year of the Participant’s death. If, however, such Deferral Account balance is less than $25,000 on the date of death, then the Beneficiary shall receive a single lump sum in January of the year following the year of death.
(b) On or after January 1, 2008 and if a Participant dies and a valid election was made under Section 6.1, the Beneficiary will be paid in the same manner as the Participant would have if he or she Terminated; the date of death shall be deemed the Termination Date. If the Participant dies and no valid election was made, and the Participant’s Deferral Account balance is equal to or greater than $25,000 on the date of death, then the Beneficiary will receive the payout in annual installments over the fifteen (15) year period beginning in January in the calendar year following the year of the Participant’s death. If, however, such Deferral Account balance is less than $25,000 on the date of death, then the Beneficiary shall receive a single lump sum in January of the year following the year of death.
6.4 Special Rules for Participants with Deferrals of LTPP Awards or NES Awards . In the event that the payout of a Deferral Account includes payout under a Participant’s LTPP Deferral Account or NES Deferral Account, then the payout of an LTPP Deferral Account and/or NES Deferral Account shall be made subject to such rules and procedures as may be established by Agilent. However, any such rules and procedures shall not effect the form or commencement date of the benefit, unless otherwise required by law.
6.5 Special Rule for Director Service . A Participant will be deemed to have Terminated if he or she ceases to be an employee of an Employer, but is then a Director of Agilent.
6.6 Specified Employees . Notwithstanding any other Plan provision, no payment to a “specified employee” (as defined in Treasury Regulation § 1.409A-1(i)) shall commence earlier than six (6) months after the date of such individual’s Termination Date (except in the case of a Termination due to death). The commencement of a validly elected payment should be delayed to the day that is at least six (6) months after such Termination Date.
Section 7. Hardship Provision for Unforeseeable Emergencies.
Neither the Participant nor his or her Beneficiary is eligible to withdraw amounts credited to a Deferral Account prior to the time specified in Section 6. However, such credited amounts may be subject to early withdrawal if (1) an unforeseeable emergency occurs that is caused by a sudden and unexpected illness or accident of the Participant, the Participant’s spouse, the Beneficiary (if the Beneficiary is a natural person) or of a dependent (as defined in Section 152 of the Code without regard to Section 152(b)(1), (b)(2) or (d)(1)(B)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant’s control, (2) such circumstances would result in severe financial hardship to the individual if early withdrawal is not permitted, and (3) any other requirements established under the Code and regulations promulgated thereunder, are satisfied. A severe financial hardship exists only when all other reasonably available financial resources have been exhausted, including but not limited to (1) reimbursement or compensation by insurance or otherwise, (2) liquidation of the Participant’s assets, to the extent that liquidation of such assets would not itself cause severe financial hardship, or (3) cessation of deferrals under the Plan. Examples of what are not considered to be unforeseeable emergencies include the need to send a Participant’s child to college or the desire to purchase a home.
The Committee shall have sole discretion to determine whether to approve any withdrawal under this Section 7, which amount will be limited to the amount necessary to meet the emergency. The Committee’s decision is final and binding on all interested parties. A Participant who is then serving as a member of the Committee shall not vote on whether or not he or she is eligible for such a withdrawal under this Section 7.
Section 8. Designation of Beneficiary.
The Participant shall, in accordance with procedures established by the Committee, (1) designate a Beneficiary hereunder, and (2) shall have the right thereafter to change such designation. No Beneficiary designation shall be effective unless it is in writing, on the form required by Agilent and provided to the appropriate person at Agilent prior to the Participant’s death. Notwithstanding the foregoing, with respect to an employee who became a Plan Participant during the Transition Period, all existing beneficiary designations on file with the HP Executive Deferred Compensation Plan or the Prior Plan shall be deemed and treated as designations under this Plan; provided, however, the last valid beneficiary designation on file shall govern. In the case of a Participant’s death, payment due under this Plan shall be made to the designated Beneficiary or, in the absence of such designation, by will or the laws of descent and distribution in the Participant’s state of residence at the time of his or her death.
Section 9. Limitation on Assignments.
Except to comply with a domestic relations order defined under Treasury Regulation § 1.409A-3(j)(4)(ii), benefits under this Plan are not subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishments by creditors of the Participant or the Participant’s Beneficiary and any attempt to do so shall be void.
Section 10. Administration.
10.1 Administration by Committee . The Committee shall administer the Plan. Notwithstanding any provision of the Plan to the contrary, no member of the Committee shall be entitled to vote on any matter which would create a significant risk that such member could be treated as being in constructive receipt of some or all of his or her Deferral Account. The Committee shall have the sole authority to interpret the Plan, to establish and revise rules and regulations relating to the Plan and to make any other determinations that it believes necessary or advisable for the administration of the Plan. Decisions and determinations by the Committee shall be final and binding upon all parties, including shareholders, Participants, Beneficiaries and other employees. The Committee may delegate its administrative responsibilities, as it deems appropriate.
10.2 Claims and Appeals . The claims and appeals provisions for the Plan are set forth in the summary to the Plan that is provided to Participants.
10.3 Books and Records . Books and records maintained for the purpose of the Plan shall be maintained by the officers and employees of Agilent at its expense and subject to supervision and control of the Committee.
Section 11. No Funding Obligation.
Agilent’s Consolidated Group is under no obligation to transfer amounts credited to the Participant’s Deferral Account to any trust or escrow account, and Agilent’s Consolidated Group is under no obligation to secure any amount credited to a Participant’s Deferral Account by any specific assets of Agilent’s Consolidated Group or any other asset in which Agilent’s Consolidated Group has an interest. This Plan shall not be construed to require Agilent’s Consolidated Group to fund any of the benefits provided hereunder nor to establish a trust for such purpose. Agilent may make such arrangements as it desires to provide for the payment of benefits, including, but not limited to, the establishment of a grantor trust or such other equivalent arrangements as Agilent may decide. No such arrangement shall cause the Plan to be a funded plan within the meaning of Title I of ERISA, nor shall any such arrangement change the nature of the obligation of Agilent’s Consolidated Group nor the rights of the Participants under the Plan as provided in this document. Neither the Participant nor his or her estate shall have any rights against Agilent’s Consolidated Group with respect to any portion of the Deferral Account except as a general unsecured creditor. No Participant has an interest in his or her Deferral Account until the Participant actually receives the deferred payment.
Section 12. Amendment and Termination of the Plan.
Agilent, by action of the Committee, in its sole discretion may suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that amounts already credited to Deferral Accounts will continue to be owed to the Participants or Beneficiaries and will continue to accrue Earnings and continue to be a liability of Agilent. The Committee may, in its discretion, terminate the Plan in accordance with Section 409A of the Code and the regulations promulgated thereunder, for any reason including a Change in Control. Participants or Beneficiaries will be given notice prior to the discontinuance of the Plan or reduction of any benefits provided by the Plan. Notwithstanding any other provision of the Plan, Agilent may without Participant or Beneficiary consent amend the Plan or change the Plan’s administrative rules and procedures or modify the terms of a deferral election to comply with Section 409A of the Code.
Section 13. Tax Withholding.
Agilent’s Consolidated Group may withhold Taxes from any cash payment made or Shares distributed under the Plan or Bonus plan or arrangement, owing as a result of any deferral or payment hereunder, as Agilent deems appropriate in its sole discretion. If, with respect to the pay period within which a deferral, payment or Bonus is made under the Plan or Bonus plan or arrangement, or the Participant receives insufficient actual cash compensation to cover such Taxes, then Agilent’s Consolidated Group may withhold any remaining Taxes owing from the deferred amount or Participant’s subsequent cash compensation received, until such Tax obligation is satisfied, or otherwise make appropriate arrangements with the Participant or Beneficiary for satisfaction of such obligation.
Section 14. Applicable Law.
This Plan, and all rights under this Plan, shall be interpreted and construed in accordance with ERISA, as applicable, and, to the extent not preempted, the law of the State of California, unless otherwise stated in the Plan. This Plan is intended to comply, and shall be interpreted as necessary to comply, with Section 409A of the Code and the regulations promulgated thereunder. Any provision of the Plan that is noncompliant with Code Section 409A is void or deemed amended to comply with Code Section 409A. Agilent does not guarantee or warrant the tax consequences of any payment under this Plan and the Participants shall in all cases be liable for any taxes due with respect to the Plan.
Section 15. Notice.
Any written notice to Agilent required by any of the provisions of this Plan shall be addressed to the chief personnel officer of Agilent or his or her delegate and shall become effective when it is received.
Section 16. No Employment Rights.
Nothing in the Plan, nor any action of Agilent pursuant to the Plan, shall be deemed to give any person any right to remain in the employ of Agilent’s Consolidated Group or affect the right of Agilent to terminate a person’s employment at any time and for any reason.
Section 17. Severability of Provisions.
If any particular provision of this Plan is found to be invalid or unenforceable, such provision shall not affect any other provisions of the Plan, but the Plan shall be construed in all respects as if such invalid provision had been omitted.
Section 18. Rollovers from other Plans.
18.1 Discretion to Accept . The Committee shall have complete authority and discretion, but no obligation, to allow the Plan to create Deferral Accounts for Rollover Participants and credit such accounts with amounts to reflect the Rollover Participant’s deferral account in a Rollover Plan. The amounts credited to such Deferral Accounts are fully subject to the provisions of this Plan. Reference in the Plan to such a crediting as a “rollover” or “transfer” of assets from a Rollover Plan is nominal in nature, and confers no additional rights upon a Rollover Participant other than those specifically set forth in the Plan.
18.2 Status of Rollover Participants . A Rollover Participant and his or her Beneficiary are fully subject to the provisions of this Plan, except as otherwise expressly set forth herein. A Rollover Participant who is not already a Participant in the Plan and is not otherwise eligible to participate in the Plan at the time of rollover, shall not be entitled to make any additional deferrals under the Plan unless and until he or she has become an Eligible Employee under the terms of the Plan.
18.3 Payment to Rollover Participants . If at the time of rollover or transfer, payments from a Rollover Participant’s account in a Rollover Plan have already commenced from a
Rollover Plan, he or she shall continue to receive such payments in accordance with the form and timing of payment provisions of such plan. lf a Rollover Participant is not yet eligible to receive payments from the Rollover Plan at the time of the rollover or transfer, he or she is bound by the payout provisions of this Plan.
Section 19. Definitions.
19.1 Agilent means Agilent Technologies, Inc., a Delaware corporation.
19.2 Agilent’s Consolidated Group means Agilent or any business entity within the Agilent consolidated group
19.3 Aggregate Deferral Account Balance means the sum of the Deferral Account and any other plan or arrangement with respect to which deferrals of compensation are treated as having been deferred under a single nonqualified deferred compensation plan under Treasury Regulation § 1.409A-1(c)(2).
19.4 Base Pay means the annual base salary rate of cash compensation for employees on the U.S. payroll of Agilent, excluding bonuses, incentive compensation, commissions, overtime pay, Bonuses, severance payments, shift differential, payments under the Agilent Technologies, Inc. Disability Plan or any other additional compensation.
19.5 Base Pay Deferral Account means the sub-account of the Deferral Account that includes (i) the sum of amounts credited to Participant’s Base Pay Deferral Account under Section 4, plus (ii) amounts credited (net of amounts debited) in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Base Pay Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Base Pay Deferral Account.
19.6 Eligibility Pay Threshold means the amount defined in Section 401(a)(17) of the Code, as adjusted by the Secretary of the Treasury under Section 415(d) of the Code, in effect on January 1st of the calendar year for which amounts are to be deferred.
19.7 Beneficiary means the person or persons designated by a Participant pursuant to Section 8, in accordance with and accepted by Agilent, to receive any amounts payable under the Plan in the event of the Participant’s death.
19.8 Bonus shall have the same meaning as an “Award” as set forth in the Agilent Technologies, Inc. 2010 Performance-Based Compensation Plan for Covered Employees, as amended from time to time, a Pay-For-Results Bonus, or any other management bonus plan or arrangement that provides a bonus compensation opportunity to Eligible Employees as defined by the Committee from time to time. Bonus does not include any sales incentive compensation or commission.
19.9 Bonus Deferral Account means the sub-account of the Deferral Account that includes (i) the sum of amounts credited to Participant’s Bonus Deferral Account under Section 4, plus (ii) amounts credited (net of amounts debited) in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s Bonus Deferral Account, less (iii)
all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s Bonus Deferral Account.
19.10 Change in Control means the occurrence of any of the following events:
(a) The sale, exchange, lease or other disposition or transfer of all or substantially all of the consolidated assets of Agilent to a person or group (as such terms are defined or described in Treasury Regulation § 1.409A-3(i)(5)(v)(B)) which will continue the business of Agilent in the future; or
(b) A merger or consolidation involving Agilent in which a person or group (as such terms are defined or described in Treasury Regulation § 1.409A-3(i)(5)(v)(B)) acquires more than 75% of the total voting power of the outstanding voting securities of Agilent resulting from such transaction in substantially the same proportion as their ownership of the total voting power of the outstanding voting securities of Agilent immediately prior to such merger or consolidation; or
(c) The acquisition of ownership in which a person or group (as such terms are defined or described in Treasury Regulation § 1.409A-3(i)(5)(v)(B)) acquires during the 12-month period ending on the date of the most recent acquisition by such person or persons at least 30% of the total voting power of the outstanding voting securities of Agilent.
19.11 Code means the Internal Revenue Code of 1986, as amended from time to time.
19.12 Committee means the Compensation Committee of the Board of Directors of Agilent or its delegate(s).
19.13 Covered Officer shall have the same meaning as “covered employee” does under Section 162(m) of the Code.
19.14 Deferral Account means the account balance of a Participant in the Plan created from Deferred Amounts, any company contributions or from a credit to a Participant’s account from a Rollover Plan, and the Earnings thereon prior to a payout to the Participant.
19.15 Deferred Amount means the amount the Participant elects to have deferred from Base Pay and/or a Bonus, pursuant to Section 3, LTPP Award(s) the Participant elects to have deferred, NES Award(s) the Participant elects to have deferred, or company contributions.
19.16 Earnings means the deemed return on investment (or charge on investment loss) allocated to a Participant’s Deferral Account, based on the return of the Hypothetical Investment Options.
19.17 Eligible Employee means an employee on the U.S. payroll of Agilent’s Consolidated Group who has a Base Pay rate plus Pay-For-Results Bonus during the year in which the election is made as specified in Section 3 equal to or in excess of the Eligibility Pay Threshold and who Agilent notifies is eligible to participate in the Plan.
19.18 Employer means Agilent or any of its affiliates as determined under Treasury Regulation § 1.409A-1(h)(3).
19.19 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
19.20 Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
19.21 HP means Hewlett-Packard Company, a Delaware corporation.
19.22 Hypothetical Investment Options means those options listed in Appendix A of this Plan. Said options are at the sole discretion of and subject to amendment or termination by the Committee.
19.23 In-Service Distribution Account means a sub-account of the Deferral Account, which may include amounts from a Participant’s Base Pay Deferral Account, Bonus Deferral Account, LTPP Deferral Account and NES Award Account, that is payable on an In-Service Distribution Date.
19.24 In-Service Distribution Date means a Payout Commencement Date for a Participant’s In-Service Distribution Account, which date must be either January 1 or July 1 of a calendar year that follows the calendar year in which an amount was first deferred into the In-Service distribution Account.
19.25 LTPP means the Agilent Technologies, Inc. Long-Term Performance Plan, as it may be amended from time to time.
19.26 LTPP Award means any award to be delivered to a Participant at the end of a performance period under the terms of the LTPP.
19.27 LTPP Deferral Account means the sub-account of the Deferral Account that includes (i) the LTPP Awards credited to Participant’s LTPP Deferral Account under Section 4, plus (ii) amounts credited (net of amounts debited) in accordance with all the applicable crediting provisions of this Plan that relate to the Participant’s LTPP Deferral Account, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Participant’s LTPP Deferral Account.
19.28 NES means the New Executive Stock Award granted to an executive under the Agilent Technologies, Inc. 1999 Stock Plan, or any successor plan thereto.
19.29 NES Award means any award to be delivered to a Participant at the end of a performance period under the terms of the NES Agreement.
19.30 NES Deferral Account means the sub-account of the Deferral Account that includes (i) the NES Awards credited to the Participant’s NES Deferral Account under Section 4 plus (ii) amounts credited (net of amounts debited) in accordance with all applicable crediting provisions of this Plan that relate to the Participant’s NES Deferral Account, less (iii) all
distributions made to the Participant or his Beneficiary pursuant to this Plan that relate to the Participant’s NES Deferral Account.
19.31 Pay-For Results Bonus means “Variable Payment” and “Variable Pay” as set forth in the Agilent Technologies, Inc. Pay-For-Results Plan for Non-Covered Employees, as amended from time to time.
19.32 Participant means any individual who has a Deferral Account under the Plan or who is receiving or entitled to receive benefits under the Plan. The term Participant also refers to a Rollover Participant, except where expressly provided otherwise.
19.33 Payout Commencement Date means the date upon which a payment to a Participant of an amount credited to his or her Deferral Account first commences.
19.34 Performance Based Compensation means, as defined in Section 409A, compensation the amount of which, or entitlement to which, is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. Organizational or individual performance criteria are considered preestablished if established in writing by not later than 90 days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. At the time of the deferral election, in order for the election to be in compliance with Code Section 409A, (i) the Participant must perform services continuously for the period beginning on the later of the first day of the performance period or the date the performance criteria are established, and ending on the date of election with respect to the performance based compensation and (ii) the election must not be made after the amount of the performance based compensation becomes reasonably ascertainable.
19.35 Plan means the Agilent Technologies, Inc. 2005 Deferred Compensation Plan.
19.36 Prior Plan means the Agilent Technologies, Inc. Deferred Compensation Plan.
19.37 Rollover Participant means an individual with a Deferral Account in the Plan transferred from a Rollover Plan in accordance with the provisions of Section 18. The term Rollover Participant may also refer to an individual who has previously been a Participant in the Plan, or an existing Participant at the time of transfer.
19.38 Rollover Plan means the nonqualified deferred compensation plan of a business entity acquired by Agilent through acquisition of a majority of the voting interest in, or substantially all of the assets of, such entity.
19.39 Shares means shares of the common stock of Agilent.
19.40 Tax or (Taxes) means any federal, state, local, or any other governmental income tax, employment tax, payroll tax, excise tax, or any other tax or assessment owing with respect to amounts deferred, any Earnings thereon, or any payments made to Participants or Beneficiaries under the Plan.
19.41 Termination or Terminates means a separation from service within the meaning of Treasury Regulation § 1.409A-1(h). A Participant shall not be deemed to have separated from service if the Participant continues to provide services to an Employer at an annual rate that is fifty percent or more of the services rendered, on average, during the immediately preceding three full years of employment with the Employer (or if employed by the Employer less than three years, such lesser period); provided, however, that a separation from service will be deemed to have occurred if a Participant’s service with an Employer is reduced to an annual rate that is less than twenty percent of the services rendered, on average, during the immediately preceding three full years of employment with the Employer (or if employed by the Employer less than three years, such lesser period).
19.42 Termination Date means the date on which the Participant Terminates employment.
19.43 Termination Year means the calendar year within which a Participant’s Termination Date falls.
19.44 Transition Period means the period commencing with the beginning of Agilent’s Payroll Date, and ending on the Distribution Date (as such terms are defined in the Master Separation and Distribution Agreement between HP and Agilent, effective August 12, 1999).
Section 20. Execution.
IN WITNESS WHEREOF, Agilent has caused this amended and restated Plan to be duly adopted by the undersigned this 8 th day of October, 2010, effective as of January 1. 2011.
Agilent Technologies, Inc.
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By: |
/s/ Marie Oh Huber |
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Marie Oh Huber |
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Senior Vice President, General Counsel and Secretary |
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Agilent Technologies, Inc. |
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Exhibit 10.31
AGILENT TECHNOLOGIES, INC.
2010 PERFORMANCE-BASED COMPENSATION PLAN
FOR COVERED EMPLOYEES
(As Adopted on November 18, 2009)
1. PURPOSE
The purpose of the Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees (as amended from time to time, the “Plan”) is to reward and recognize eligible employees for their contributions towards the achievement by Agilent Technologies, Inc. (the “Company”) of certain Performance Goals (as defined below). The Plan is designed with the intention that the incentives paid hereunder to certain executive officers of the Company are deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder (the “Code”). However, the Company can not guarantee that awards under the Plan will qualify for exemption under Code Section 162(m) and circumstances may present themselves under which awards under the Plan do not comply with Code Section 162(m). The adoption of the Plan is subject to the approval of the Company’s shareholders.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) “Affiliate” shall mean (i) any entity that, directly or indirectly, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in either case, as determined by the Committee.
(b) “Award” means the amount of a cash incentive payable under the Plan to a Participant with respect to a Performance Period.
(c) “Board” means the Board of Directors of the Company, as constituted from time to time.
(d) “Committee” means the Compensation Committee of the Board or another Committee designated by the Board which is comprised of two or more “outside directors” as defined in Code Section 162(m).
(e) “Participant” means any employee of the Company or its Affiliates who is designated as a Participant (either by name or by position) by the Committee.
(f) “Performance Goal” means an objective formula or standard determined by the Committee with respect to each Performance Period based on one or more of the following criteria and any objectively verifiable adjustment(s) thereto permitted and pre-established by the Committee in accordance with Code Section 162(m): (i) pre-tax income or after-tax income; (ii) income or earnings including operating income, earnings before or after taxes, interest, depreciation and/or amortization; (iii) net income excluding amortization of intangible assets,
depreciation and impairment of goodwill and intangible assets and/or excluding charges attributable to the adoption of new accounting pronouncements; (iv) earnings or book value per share (basic or diluted); (v) return on assets (gross or net), return on investment, return on invested capital, or return on equity; (vi) return on revenues; (vii) cash flow, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, or cash flow in excess of cost of capital; (viii) economic value created; (ix) operating margin or profit margin; (x) stock price or total stockholder return; (xi) income or earnings from continuing operations; (xii) capital expenditures, cost targets, reductions and savings and expense management; and (xiii) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration or market share, geographic business expansion, objective customer satisfaction or information technology goals, and objective goals relating to divestitures, joint ventures, mergers, acquisitions and similar transactions, each with respect to the Company and/or one or more of its Affiliates or operating units.
(g) “Performance Period” means any period not exceeding 36 months as determined by the Committee, in its sole discretion. The Committee may establish different Performance Periods for different Participants, and the Committee may establish concurrent or overlapping Performance Periods.
3. ADMINISTRATION
The Plan shall be administered by the Committee, which shall have the discretionary authority to interpret the provisions of the Plan, including all decisions on eligibility to participate, the establishment of Performance Goals, the amount of Awards payable under the Plan, and the payment of Awards. The Committee shall also have the discretionary authority to establish rules under the Plan so long as such rules do not explicitly conflict with the terms of the Plan and any such rules shall constitute part of the Plan. The decisions of the Committee shall be final and binding on all parties making claims under the Plan.
4. ELIGIBILITY
Employees of the Company shall be eligible to participate in the Plan as determined at the sole discretion of the Committee.
5. AMOUNT OF AWARDS
(a) With respect to each Participant, the Committee will establish one or more Performance Periods, an individual Participant incentive target for each Performance Period and the Performance Goal(s) to be met during such Performance Period(s). In order to qualify as performance-based compensation, the establishment of the Performance Period(s), the applicable Performance Goals and the targets must occur in compliance with and to the extent required by the rules and regulations of Code Section 162(m).
(b) The maximum amount of any Awards that can be paid under the Plan to any Participant with respect to any 12-month performance cycle is $10,000,000.
(c) The Committee reserves the right, in its sole discretion, to reduce or eliminate the amount of an Award otherwise payable to a Participant with respect to any Performance Period.
The reduction of an Award otherwise payable to a Participant with respect to a Performance Period shall have no effect on the Award payable to any other Participant for such Performance Period.
6. PAYMENT OF AWARDS
Any distribution made under the Plan shall be made in cash and occur within a reasonable period of time after the end of the Performance Period in which the Participant has earned the Award; provided that no Award shall become payable to a Participant with respect to any Performance Period until the Committee has certified in writing that the terms and conditions underlying the payment of such Award have been satisfied. Notwithstanding the foregoing, in order to comply with the short-term deferral exception under Section 409A of the Code, payment shall occur no later than the 15 th day of the third month following the end of the Company’s taxable year in which the payment was earned.
7. CHANGES IN STATUS
(a) Except as may be otherwise determined by the Committee in its sole discretion, the payment of an Award with respect to all or a portion of a specific Performance Period, as applicable, requires that the employee be on the Company’s payroll in active service as of the end of such Performance Period unless the Participant is not in active service on the last day of the Performance Period due to retirement, workforce management, total and permanent disability or death, in which case the Participant will be eligible to receive a prorated Award for days worked with respect to the Performance Period to the extent that the relevant Performance Goals have been met. A Participant who becomes ineligible for this Plan after the start of the Performance Period is eligible to receive a prorated Award for days worked, except as provided in Section 7(b).
(b) A Participant will forfeit any Award for a Performance Period during which a Participant is involuntarily terminated for cause or voluntarily terminates his employment with the Company for reasons other than death, total and permanent disability, workforce management or retirement, at the age and service-year level set by the Company or the local law requirements where the Participant is employed.
8. RECOUPMENT
Any Award paid under the Plan is subject to the terms of the Agilent Technologies Executive Compensation Recoupment Policy, or any successor policy thereto, in the form approved by the Committee as the date of grant (the “Policy”), if and to the extent that the Policy by its terms applies to the Award and the Participant.
9. GENERAL
(a) TAX WITHHOLDING. The Company shall have the right to deduct from all Awards any federal, state or local income and/or payroll taxes required by law to be withheld with respect to such payments. The Company also may withhold from any other amount payable by the Company or any affiliate to the Participant an amount equal to the taxes required to be withheld from any Award.
(b) CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. Nothing in the Plan shall confer on any Participant the right to continued employment with the Company or any of its affiliates, or affect in any way the right of the Company or any affiliate to terminate the Participant’s employment at any time, and for any reason, or change the Participant’s responsibilities. Awards represent unfunded and unsecured obligations of the Company and a holder of any right hereunder in respect of any Award shall have no rights other than those of a general unsecured creditor to the Company.
(c) BENEFICIARIES. To the extent the Committee permits beneficiary designations, any payment of Awards under the Plan to a deceased Participant shall be paid to the beneficiary duly designated by the Participant in accordance with the Company’s practices. If no such beneficiary has been designated or survives the Participant, payment shall be made to the Participant’s legal representative. A beneficiary designation may be changed or revoked by a Participant at any time, provided the change or revocation is filed with the Committee prior to the Participant’s death.
(d) NONTRANSFERABILITY. A person’s rights and interests under the Plan, including any Award previously made to such person or any amounts payable under the Plan, may not be sold, assigned, pledged, transferred or otherwise alienated or hypothecated except, in the event of a Participant’s death, to a designated beneficiary as provided in the Plan, or in the absence of such designation, by will or the laws of descent and distribution.
(e) INDEMNIFICATION. Each person who is or shall have been a member of the Committee and each employee of the Company or an affiliate who is delegated a duty under the Plan shall be indemnified and held harmless by the Company from and against any loss, cost, liability or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action or failure to act under the Plan and against and from any and all amounts paid by him in satisfaction of judgment in any such action, suit or proceeding against him, provided such loss, cost, liability or expense is not attributable to such person’s willful misconduct. Any person seeking indemnification under this provision shall give the Company prompt notice of any claim and shall give the Company an opportunity, at its own expense, to handle and defend the same before the person undertakes to handle and defend such claim on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled, including under the Company’s Articles of Incorporation or By-Laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
(f) EXPENSES. The expenses of administering the Plan shall be borne by the Company.
(g) TITLES AND HEADINGS. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
(h) INTENT. The intention of the Company and the Committee is to administer the Plan in compliance with Code Section 162(m) so that the Awards paid under the Plan to Participants who are or may become subject to Code Section 162(m) will be treated as performance-based compensation under Code Section 162(m)(4)(C). If any provision of the Plan does not comply with the requirements of Code Section 162(m), then such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.
(i) GOVERNING LAW. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan, and any Award shall be determined in accordance with the laws of the State of California (without giving effect to principles of conflicts of laws thereof) and applicable federal law. No Award made under the Plan shall be intended to be deferred compensation under Code Section 409A and will be interpreted accordingly.
(j) AMENDMENTS AND TERMINATION. The Committee may terminate the Plan at any time, provided such termination shall not affect the payment of any Awards accrued under the Plan prior to the date of the termination. The Committee may, at any time, or from time to time, amend or suspend and, if suspended, reinstate, the Plan in whole or in part; provided , however , that any amendment of the Plan shall be subject to the approval of the Company’s shareholders to the extent required to comply with the requirements of Code Section 162(m), or any other applicable laws, regulations or rules.
Exhibit 10.48
Summary of Compensation Arrangement between Agilent and the Non-Employee Directors
Non-employee director Annual Compensation effective March 1, 2011
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Cash Retainer (1) |
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Equity Grant (2) |
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Committee Chair
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Audit Committee
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Non-employee director |
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$80,000, paid quarterly |
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$155,000 in value of a stock grant |
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$15,000 |
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$ |
10,000 |
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Non-Executive Chairman |
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$270,000, paid quarterly |
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$155,000 in value of a stock grant |
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Not eligible |
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$ |
10,000 |
(1) Each non-employee director may elect to defer all or part of the cash component of his or her annual retainer and committee chair premium under the deferred compensation plan sponsored by Agilent. Any cash compensation that is deferred can only be deferred into shares of Agilent common stock.
(2) The stock will be granted on the later of (i) March 1 and (ii) the first trading day after each Annual Meeting of Stockholders. The number of shares underlying the stock grant is determined by dividing $155,000 by the average fair market value of Agilent’s common stock over 20 consecutive trading days up to and including the day prior to the grant date. The stock grant vests immediately upon grant as compensation for services performed during the plan year. Voluntary deferral is available as an option for the non-employee directors.
(3) Non-employee directors (excluding the Non-Executive Chairman) who serve as the chairperson of a Board committee receive a “committee chair premium” of $15,000 in cash, paid at the beginning of each plan year.
(4) Non-employee directors (including the Non-Executive Chairman) who serve as a member of the Audit and Finance Committee receive an additional $10,000 in cash, paid at the beginning of each plan year.
A non-employee director who joins the Board of Directors after the start of the plan year will have his or her stock payment and cash payment and chair premium pro-rated based upon the remaining days in the plan year that the director will serve.
Ratio of Earnings to Fixed Charges
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October 31,
2010 |
October 31,
2009 |
October 31,
2008 |
October 31,
2007 |
October 31,
2006 |
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Earnings: |
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Add: |
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Income from continuing operations before taxes and equity income |
$ | 692 | $ | 7 | $ | 815 | $ | 670 | $ | 627 | ||||||||
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Fixed Charges |
126 | 120 | 153 | 115 | 106 | |||||||||||||
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Total |
$ | 818 | $ | 127 | $ | 968 | $ | 785 | $ | 733 | ||||||||
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Fixed Charges: |
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Interest expense |
94 | 87 | 106 | 86 | 65 | |||||||||||||
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Estimate of interest within rental expense |
30 | 32 | 30 | 24 | 37 | |||||||||||||
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Amortization of capitalized expenses related to indebtedness |
2 | 1 | 17 | 5 | 4 | |||||||||||||
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Total |
126 | 120 | 153 | 115 | 106 | |||||||||||||
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Ratio of earnings to fixed charges |
6.49 | 1.06 | 6.33 | 6.83 | 6.92 | |||||||||||||
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Organized
Under the Laws of |
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| Agilent Technologies Australia Pty Ltd. | Australia | |
| Agilent Technologies Australia (M) Pty Ltd. | Australia | |
| Agilent Technologies Research Corporation | California | |
| Agilent Technologies Canada Inc. | Canada | |
| Agilent Technologies Cayco Ltd. | Cayman Islands | |
| Agilent Technologies Cayman Islands, Inc. | Cayman Islands | |
| Agilent Technologies Shanghai Company Ltd. | China | |
| Agilent Technologies World Trade, Inc. | Delaware | |
| Varian Inc. | Delaware | |
| Agilent Technologies France S.A.S. | France | |
| Agilent Technologies Deutschland Alpha GmbH | Germany | |
| Agilent Technologies Deutschland GmbH | Germany | |
| Agilent Technologies Deutschland Holding GmbH | Germany | |
| Agilent Technologies Sales & Services GmbH & Co. KG | Germany | |
| Agilent Technologies International Private Ltd. | India | |
| Agilent Technologies Ireland Finance Ltd. | Ireland | |
| Agilent Technologies Ireland Ltd. | Ireland | |
| Varian S.p.A. | Italy | |
| Agilent Technologies Italia S.P.A. | Italy | |
| Agilent Technologies Japan Ltd. | Japan | |
| Agilent Technologies Luxco S.A.R.L. | Luxembourg | |
| Agilent Technologies Malaysia Sdn. Bhd. | Malaysia | |
| Agilent Technologies Microwave Products (M) Sdn. Bhd. | Malaysia | |
| Agilent Technologies Europe B.V. | Netherlands | |
| Agilent Technologies Netherlands B.V. | Netherlands | |
| Agilent Technologies Sanigi B.V. | Netherlands | |
| Varian B.V. | Netherlands | |
| Agilent Technologies Singapore (Holding) Pte Ltd. | Singapore | |
| Agilent Technologies Singapore (Sales) Pte Ltd. | Singapore | |
| Agilent Technologies Singapore (International) Pte Ltd. | Singapore | |
| Agilent Technologies Singapore Pte Ltd. | Singapore | |
| Agilent Technologies International S.A.R.L. | Switzerland | |
| Agilent Technologies Rhone S.A.R.L. | Switzerland | |
| Agilent Technologies UK Ltd. | United Kingdom | |
| Varian Polymer Laboratories Limited | United Kingdom |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-161799) and Form S-8 (333-158096, 333-157002, 333-150873, 333-116400, 333-88864, 333-47024, 333-38194, 333-38080, 333-35016 and 333-91121) of Agilent Technologies, Inc. of our report dated December 17, 2010 relating to the consolidated financial statements, financial statement schedule and effectiveness of internal control over financial reporting, which appears in this Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San
Jose, California
December 17, 2010
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William P. Sullivan, certify that:
| Date: December 17, 2010 |
/s/ WILLIAM P. SULLIVAN
William P. Sullivan Director, President and Chief Executive Officer |
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Didier Hirsch, certify that:
| Date: December 17, 2010 |
/s/ DIDIER HIRSCH
Didier Hirsch Senior Vice President and Chief Financial Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Agilent Technologies, Inc. (the "Company"), on Form 10-K for the period ended October 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William P. Sullivan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Date: December 17, 2010 |
/s/ WILLIAM P. SULLIVAN
William P. Sullivan Director, President and Chief Executive Officer |
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Agilent Technologies, Inc. (the "Company"), on Form 10-K for the period ended October 31, 2010, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Didier Hirsch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
| Date: December 17, 2010 |
/s/ DIDIER HIRSCH
Didier Hirsch Senior Vice President and Chief Financial Officer |