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 life sciences, diagnostics and genomics, chemical analysis, communications and electronics industries.
Agilent Separation.
On September 19, 2013, Agilent announced plans to separate into two publicly traded companies, one comprising of the life sciences, diagnostics and chemical analysis businesses that will retain the Agilent name, and the other one that will be comprised of the electronic measurement business that will be renamed Keysight Technologies, Inc. (“Keysight”). Keysight was incorporated in Delaware as a wholly-owned subsidiary of Agilent on December 6, 2013. On November 1, 2014, we completed the distribution of 100% of the outstanding common shares of Keysight to Agilent stockholders who received one share of Keysight common stock for every two shares of Agilent held as of the close of business on the record date, October 22, 2014. The historical results of operations and the financial position of Keysight are included in the consolidated financial statements of Agilent and will be reported as discontinued operations beginning in the first quarter of 2015.
Acquisition of Dako A/S.
On
June 21, 2012
, we completed our acquisition of Dako A/S through the acquisition of 100% of the share capital of Dako A/S, a limited liability company incorporated under the laws of Denmark (“Dako”), under the share purchase agreement, dated
May 16, 2012
. As a result of the acquisition, Dako became a wholly-owned subsidiary of Agilent. The consideration paid was approximately
$2,143 million
, of which
$1,400 million
was paid directly to the seller and
$743 million
was paid to satisfy the outstanding debt of Dako. Agilent funded the acquisition using existing cash. The acquisition has been accounted for in accordance with the authoritative accounting guidance and the results of Dako are included in Agilent's consolidated financial statements from the date of acquisition. For additional details related to the acquisition of Dako, see Note 3, "Acquisitions".
Exit of Nuclear Magnetic Resonance Business.
During the fourth quarter of fiscal year 2014, we made the decision to cease the manufacture and sale of our nuclear magnetic resonance (“NMR”) product line within our life sciences and diagnostics segment. In connection with the exit from this business, we have recorded approximately
$68 million
in restructuring and other related costs. For additional details related to the exit of the NMR business see Note 14, "Restructuring and Exit of a Business".
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.
We previously recorded certain transaction tax receivables and payables on a gross basis within other current assets and other accrued liabilities, respectively, even though those balances were subject to the right of offset. During the fourth quarter of fiscal year 2014, we began recording transaction tax receivables and payables on a net basis to reflect this right of offset. If we had implemented previously, this change would have resulted in a reduction of other current assets and other accrued liabilities of
$50 million
from the amounts shown in our October 31, 2013 balance sheet. This correction had no impact on net income, cash flows or equity and is not considered material to our consolidated balance sheet.
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.
Use of estimates.
The preparation of financial statements in accordance with U.S. GAAP 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, valuation of goodwill and purchased intangible assets, inventory valuation, share-based compensation, retirement and post-retirement plan assumptions, restructuring 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) collectability 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.
Where software is licensed separately, revenue is recognized when the software is delivered and has 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 and software 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.
Revenue Recognition for Arrangements with Multiple Deliverables.
Our multiple-element arrangements are generally comprised of a combination of measurement instruments, installation or other start-up services, and/or software and/or support or services. Hardware and software elements are typically delivered at the same time and revenue is recognized upon delivery once title and risk of loss pass to the customer. Delivery of installation, start-up services and other services varies based on the complexity of the equipment, staffing levels in a geographic location and customer preferences, and can range from a few days to a few months. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. Revenue from the sale of software products that are not required to deliver the tangible product's essential functionality are accounted for under software revenue recognition rules which require vendor specific objective evidence ("VSOE") of fair value to allocate revenue in a multiple element arrangement. Our arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.
We have evaluated the deliverables in our multiple-element arrangements and concluded that they are separate units of accounting if the delivered item or items have value to the customer on a standalone basis and for an arrangement that includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. We allocate revenue to each element in our multiple-element arrangements based upon their relative selling prices. We determine the selling price for each deliverable based on a selling price hierarchy. The selling price for a deliverable is based on VSOE if available, third-party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available. Revenue allocated to each element is then recognized when the basic revenue recognition criteria for that element have been met.
We use VSOE of selling price in the selling price allocation in all instances where it exists. VSOE of selling price for products and services is determined when a substantial majority of the selling prices fall within a reasonable range when sold separately. TPE of selling price can be established by evaluating largely interchangeable competitor products or services in standalone sales to similarly situated customers. As our products contain a significant element of proprietary technology and the solution offered differs substantially from that of competitors, it is difficult to obtain the reliable standalone competitive pricing necessary to establish TPE. ESP represents the best estimate of the price at which we would transact a sale if the product or service were sold on a standalone basis. We determine ESP for a product or service by using historical selling prices which reflect multiple factors including, but not limited to customer type, geography, market conditions, competitive landscape, gross margin objectives and pricing practices. The determination of ESP is made through consultation with and approval by management. We may modify
or develop new pricing practices and strategies in the future. As these pricing strategies evolve in changes may occur in ESP. The aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements, which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement.
Deferred revenue.
Deferred revenue represents the amount that is allocated to undelivered elements in multiple element arrangements. We limit the revenue recognized to the amount that is not contingent on the future delivery of products or services or meeting other specified performance conditions.
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. The allowance for doubtful accounts as of October 31, 2014 and 2013 was not material. 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
2014
,
2013
and
2012
, 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. Under the fair value method, we recorded compensation expense for all share-based awards of
$98 million
in
2014
,
$88 million
in
2013
and
$76 million
in
2012
.
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, managing product rollovers and working with manufacturing to maximize recovery of excess inventory.
Warranty.
Our standard warranty terms typically extend for one to three years from the date of delivery. During the second fiscal quarter of 2013 typical standard warranty arrangements within our electronic measurement business were extended from one year to three years from the date of delivery. Prior to the change in standard warranty terms, we sold extended warranties of more than one year and less than three years which were deferred. Those existing warranties greater than one year and less than three years and previously classified as extended warranties are being amortized over the original period of the warranty. We will continue to sell extended warranties for terms beyond three years within the electronic measurement business. The impact has not been material to the segment or consolidated revenue of Agilent and the anticipated total increase to the warranty accrual as a result of the new arrangements will not be material to the consolidated balance sheet of Agilent. No changes were made to the standard and extended warranty terms within our other businesses. 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".
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.
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.
Under the authoritative guidance we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary. The accounting standard gives an entity the option to first assess qualitative factors to determine whether performing the two-step test is necessary. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e. greater than
50%
chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required. Otherwise, no further testing will be required.
The guidance includes examples of events and circumstances that might indicate that a reporting unit's fair value is less than its carrying amount. These include macro-economic conditions such as deterioration in the entity's operating environment or industry or market considerations; entity-specific events such as increasing costs, declining financial performance, or loss of key personnel; or other events such as an expectation that a reporting unit will be sold or a sustained decrease in the stock price on
either an absolute basis or relative to peers.
If it is determined, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, 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. We aggregate components of an operating segment that have similar economic characteristics into our reporting units. Agilent has three segments, life sciences and diagnostics, chemical analysis, and electronic measurement segments.
In fiscal year 2014, we assessed goodwill impairment for our four reporting units which consisted of two segments: chemical analysis and electronic measurement; and two reporting units under the life sciences and diagnostics segment. The first of these two reporting units related to our life sciences business and the second related to our diagnostics business. We performed a qualitative test for goodwill impairment of the four reporting units as of September 30, 2014. Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of these reporting units are greater than their respective carrying values. Each quarter we review the events and circumstances to determine if goodwill impairment is indicated. There was no impairment of goodwill during the years ended October 31, 2014, 2013 and 2012.
Purchased intangible assets consist primarily of acquired developed technologies, proprietary know-how, trademarks, and customer relationships and are amortized using the best estimate of the asset's useful life that reflect the pattern in which the economic benefits are consumed or used up or a straight-line method 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 condensed consolidated statement of operations in the period it is abandoned.
Agilent's indefinite-lived intangible assets are IPR&D intangible assets. The accounting guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the issued impairment testing guidance for goodwill and allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more-likely-than-not (i.e. greater than 50% chance) that the indefinite-lived intangible asset is impaired. An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value. We performed a qualitative test for impairment of indefinite-lived intangible assets as of September 30, 2014. Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of these indefinite-lived intangible assets is greater than their respective carrying values. Each quarter we review the events and circumstances to determine if impairment of indefinite-lived intangible asset is indicated. In the years ended October 31, 2014, 2013 and 2012, we recorded an impairment of
$4 million
,
$1 million
and
$1 million
, respectively due to the cancellation of certain IPR&D projects. In addition, in the year ended October 31, 2014, we also recorded
$12 million
of impairment of other intangibles due to the exit of our NMR business.
Advertising.
Advertising costs are generally expensed as incurred and amounted to
$57 million
in
2014
,
$44 million
in
2013
and
$50 million
in
2012
.
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 per share.
Basic net income per share is computed by dividing net income - 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 potential common shares outstanding during the period unless the effect is anti-dilutive. The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense, the tax benefits and shortfalls charged to additional paid-in capital 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, unamortized share-based compensation expense and tax benefits or shortfalls are assumed proceeds to be used to repurchase hypothetical shares. See Note 6, "Net Income Per Share".
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, 2014
, approximately
$2,397 million
of our cash and cash equivalents is held outside of the U.S. in our foreign subsidiaries. Under current tax laws, most of the cash could be repatriated to the U.S. but it would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. Our cash and cash equivalents mainly consist of short term deposits held at major global financial institutions, institutional money market funds, and similar short duration instruments with original maturities of 90 days or less. 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 maturities are greater than three months and their remaining maturities are one year or less.
Fair Value of Financial Instruments.
The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. The fair value of long-term equity investments is determined using quoted market prices for those securities when available. For those long-term equity investments accounted for under the cost or equity method, their carrying value approximates their estimated fair value. Equity method investments are reported at the amount of the company’s initial investment and adjusted each period for the company’s share of the investee’s income or loss and dividend paid. The fair value of our long-term debt, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy, exceeds the carrying value by approximately
$54 million
and
$112 million
as of
October 31, 2014
and 2013, respectively. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. See also Note 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 and demand deposit balances. These investments are categorized as cash and cash equivalents. 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. We have a comprehensive credit policy in place and credit exposure is monitored on an ongoing basis.
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. Credit evaluations are performed on 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 of combined accounts receivable as of
October 31, 2014
, or
2013
.
Derivative instruments.
Agilent is exposed to global foreign currency exchange rate and interest rate risks in the normal course of business. We enter into foreign exchange hedging contracts, primarily forward contracts and purchased options and, in the past, 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 qualify for 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, if any, mature at the same time as the maturity of the debt. In order to manage foreign currency exposures in a few limited jurisdictions 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 hedges, 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. 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
2014
,
2013
and
2012
was not material. Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the hedged or economically hedged item, primarily in operating activities.
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 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
year to
twenty
years. Certain leases contain renewal options for periods up to
six
years. In addition, we lease equipment to customers in connection with our diagnostics business using both capital and operating leases. As of October 31, 2014 and 2013 our life sciences and diagnostics segment has approximately
$8 million
and
$4 million
, respectively, of lease receivables related to capital leases and approximately
$33 million
and
$35 million
, respectively, of net assets for operating leases. We depreciate the assets related to the operating leases over their estimated useful lives.
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.
Restructuring and exit of NMR business.
The main components of expenses are related to workforce reductions, assets impairments and write-downs and special charges to inventory, which mainly relates to exiting of one of our businesses. Workforce reduction charges are accrued when payment of benefits that the employees are entitled to becomes probable and the amounts can be estimated. 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. 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 inventory written-down to net realizable value. 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.
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
$170 million
and
$158 million
as of
October 31, 2014
, and
2013
, respectively.
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 at the balance sheet date; 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 other comprehensive income (loss) in stockholders' equity.
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 non-monetary 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. Net gains or losses resulting from foreign currency transactions, including hedging gains and losses, are reported in other income (expense), net and was
$4 million
loss for fiscal year
2014
,
$6 million
loss for
2013
and
$19 million
loss for
2012
, respectively. The loss recorded for fiscal year
2012
includes
$14 million
of loss associated with the settlement of currency contracts entered into for the purchase of Dako.
2. NEW ACCOUNTING PRONOUNCEMENTS
In December 2011, the FASB issued guidance related to the enhanced disclosures that will enable the users of financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. The amendments require improved information about financial instruments and derivative instruments that are either offset or subject to enforceable master netting arrangements or similar agreement. The guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. We adopted this guidance in the first quarter of 2014. There was no impact to our consolidated financial statements due to the adoption of this guidance.
In February 2013, the FASB issued an amendment to the accounting guidance for reporting of amounts reclassified out of accumulated other comprehensive income. The amended guidance requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. The guidance is effective prospectively for annual reporting periods beginning after December 15, 2012 and interim periods within those years. We adopted this guidance in the first quarter of 2014 and have presented the requisite disclosures in the consolidated statement of comprehensive income and in the notes to the financial statements.
In March 2013, the FASB issued an amendment to the accounting guidance on foreign currency matters in order to clarify the guidance for the release of cumulative translation adjustment. The guidance requires that a parent deconsolidate a subsidiary or derecognize a group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) if the parent ceases to have a controlling financial interest in that group of assets. The guidance is effective for interim and annual periods beginning on or after December 15, 2013. We do not expect a material impact to our consolidated financial statements due to the adoption of this guidance.
In July 2013, the FASB issued an amendment to the accounting guidance related to the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The guidance requires an unrecognized tax benefit to be presented as a decrease in a deferred tax asset where a net operating loss, a similar tax loss, or a tax credit carryforward exists and certain criteria are met. This guidance is effective prospectively for annual periods beginning after December 15, 2013 and interim periods within those years. This guidance is consistent with our current practice.
In April 2014, the FASB issued amendments to the guidance on discontinued operations. The guidance changes the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, expenses of discontinued operations and of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The new guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. We are evaluating the impact of adopting this prospective guidance to our consolidated financial statements.
In May 2014, the FASB issued an amendment to the accounting guidance related to revenue recognition. The amendment was the result of a joint project between the FASB and the International Accounting Standards Board ("IASB") to clarify the principles for recognizing revenue and to develop common revenue standards for U.S. GAAP and International Financial Reporting Standards ("IFRS"). To meet those objectives, the FASB is amending the FASB Accounting Standards Codification and creating a new Topic 606, Revenue from Contracts with Customers, and the IASB is issuing IFRS 15, Revenue from Contracts with Customers. The new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those years. Early application is not permitted. We are evaluating the impact of adopting this guidance to our consolidated financial statements.
In June 2014, the FASB issued an amendment to the accounting guidance relating to share-based compensation to resolve what it saw as diverse accounting treatment of certain awards. With this amendment, the FASB has given explicit guidance to treat a performance target that could be achieved after the requisite service period as a performance condition that affects vesting rather than as a non-vesting condition that affects the grant-date fair value of an award. The new guidance is effective for annual periods beginning after December 15, 2015 and for the interim periods within those annual periods. Earlier adoption is permitted. We have evaluated the impact of adopting this prospective guidance to our consolidated financial statements and we believe this amendment to the accounting guidance is not applicable.
Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
3. ACQUISITIONS
Acquisition of Dako
On
June 21, 2012
, we completed the acquisition of Dako through the acquisition of 100% of share capital of Dako, a limited liability company incorporated under the laws of Denmark, under the share purchase agreement, dated
May 16, 2012
. As a result of the acquisition, Dako has become a wholly-owned subsidiary of Agilent. Accordingly, the results of Dako are included in Agilent's consolidated financial statements from the date of the acquisition. For the period from June 22, 2012 to October 31, 2012, Dako's net revenue was
$126 million
and net loss was
$37 million
. The acquisition of Dako and its portfolio is another step to increase our growth in several rapidly expanding areas of diagnostics, including anatomic pathology and molecular diagnostics, as well as strengthen our existing offerings with a focus on product development to help in the fight against cancer.
The consideration paid was approximately
$2,143 million
, of which
$1,400 million
was paid directly to the seller and
$743 million
was paid to satisfy outstanding debt. Agilent funded the acquisition using existing cash. In connection with the acquisition of Dako, Agilent entered into several foreign currency forward contracts to mitigate the currency exchange risk associated with the payment of the purchase price in Danish Krone and the repayment of debt in multiple currencies. The aggregate notional amount of the currencies hedged was
$1.7 billion
. These foreign exchange contracts did not qualify for hedge accounting treatment and were not designated as hedging instruments. The resulting loss on settlement, on the date of acquisition, was
$14 million
and was recorded in other income (expense) in the consolidated statement of operations for the year ended October 31, 2012.
The Dako acquisition was accounted for in accordance with the authoritative accounting guidance. The acquired assets and assumed liabilities were recorded by Agilent at their estimated fair values. Agilent determined the estimated fair values with the assistance of appraisals or valuations performed by third party specialists, discounted cash flow analyses, and estimates made by management. We expect to realize revenue synergies, leverage and expand the existing sales channels and product development resources, and utilize the assembled workforce. 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 Dako's net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction.
All goodwill was allocated to the life sciences and diagnostics segment. 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
$185 million
was established as a deferred tax liability for the future amortization of these intangibles and is included in "other long-term liabilities" in the table below.
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
June 21, 2012
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
11
|
|
|
|
Accounts receivable
|
|
|
96
|
|
|
|
Inventories
|
|
|
90
|
|
|
|
Other current assets
|
|
|
5
|
|
|
|
Property, plant and equipment
|
|
|
146
|
|
|
|
Long term investments
|
|
|
11
|
|
|
|
Intangible assets
|
|
|
738
|
|
|
|
Other assets
|
|
|
13
|
|
|
|
Goodwill
|
|
|
1,382
|
|
|
|
Total assets acquired
|
|
2,492
|
|
|
|
Accounts payable
|
|
|
(24
|
)
|
|
|
Employee compensation and benefits
|
|
|
(24
|
)
|
|
|
Other accrued liabilities
|
|
|
(47
|
)
|
|
|
Long-term debt
|
|
|
(43
|
)
|
|
|
Other long-term liabilities
|
|
|
(211
|
)
|
|
|
Net assets acquired
|
|
|
$
|
2,143
|
|
|
The fair value of cash and cash equivalents, accounts receivable, other current assets, accounts payable and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities.
The fair values for acquired inventory, property, plant and equipment, and intangible assets were determined with the input from third party valuation specialists.
The fair values of certain other assets, investments, long-term debt, and certain other long-term liabilities were determined internally using historical carrying values and estimates made by management.
Valuations of intangible assets acquired
The components of intangible assets acquired in connection with the Dako acquisition were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated
Useful Life
|
|
Developed product technology
|
|
$
|
287
|
|
|
|
8 - 9 yrs
|
|
Customer relationships
|
|
140
|
|
|
|
4 years
|
|
Tradenames and trademarks
|
|
128
|
|
|
|
12 years
|
|
Total intangible assets subject to amortization
|
|
555
|
|
|
|
|
|
In-process research and development
|
|
183
|
|
|
|
|
|
Total intangible assets
|
|
$
|
738
|
|
|
|
|
As noted above, the intangible assets, including in-process research and development, were valued with input from valuation specialists. The In-Process Research and Development was valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expecting to result from the projects, net of returns on contributory assets. The primary in-process project acquired relates to a major new product platform which was released and amortization began in the second quarter of fiscal 2013. Total costs to complete for all Dako In- Process Research and Development were estimated at approximately
$49 million
over time as of the close date.
Acquisition and integration costs directly related to the Dako acquisition totaled
$15 million
and
$15 million
for the years ended October 31, 2013 and 2012, respectively and were 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 Dako had been included in the company's condensed consolidated statements of operations as of the beginning of fiscal 2011(in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
2012
|
|
Net revenue
|
$
|
7,100
|
|
|
Net income
|
$
|
1,145
|
|
|
Net income per share — basic
|
$
|
3.29
|
|
|
Net income per share — diluted
|
$
|
3.24
|
|
The pro forma financial information assumes that the companies were combined as of November 1, 2010 and include business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, the impact on cost of sales due to the respective estimated fair value adjustments to inventory, changes to interest income for cash used in the acquisition, interest expense and currency losses associated with debt paid in connection with the acquisition and acquisition related transaction costs and tax related effects. The 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 2011.
The unaudited pro forma financial information for the year ended October 31, 2012 combines the historical results of Agilent for the year ended October 31, 2012 (which includes Dako after the acquisition date) and for Dako for the six months ended March 31, 2012 and the two months ended May 31, 2012.
4. SHARE-BASED COMPENSATION
Agilent accounts for share-based awards in accordance with the provisions of the 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. The ESPP allows eligible employees to contribute up to
ten percent
of their base compensation to purchase shares of our common stock at
85
percent of the closing market price at purchase date. 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.
Under our ESPP, employees purchased
1,604,406
shares for
$73 million
in
2014
,
1,454,724
shares for
$48 million
in
2013
and
1,405,774
shares for
$47 million
in
2012
. As of
October 31, 2014
, the number of shares of common stock authorized and available for issuance under our ESPP was
39,990,573
.
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, 2014
,
9,019,407
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 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 administered under the 2009 Stock Plan, 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 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 adjusted for expected dividend yield. Restricted stock units generally vest, with some exceptions, at a rate of
25 percent
per year over a period of
four years
from the date of grant.
In connection with the separation of Keysight Technologies on November 1, 2014 and in accordance with the Employee Matters Agreement we will make certain adjustments to the exercise price and number of our share-based compensation awards with the intention of preserving the intrinsic value of the awards prior to the separation. Exercisable and non-exercisable stock options will be converted to those of the entity where the employee is working post-separation. Restricted stock units awards and long-term performance plan grants will be adjusted to provide holders restricted stock units and long-term performance plan grants in the company that employs such employee following the separation. We believe these adjustments to our stock-based compensation awards will not have a material impact on compensation expense.
Impact of Share-based Compensation Awards
We have recognized compensation expense based on the estimated grant date fair value method under the 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,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Cost of products and services
|
$
|
23
|
|
|
$
|
20
|
|
|
$
|
16
|
|
|
Research and development
|
14
|
|
|
12
|
|
|
10
|
|
|
Selling, general and administrative
|
61
|
|
|
56
|
|
|
50
|
|
|
Total share-based compensation expense
|
$
|
98
|
|
|
$
|
88
|
|
|
$
|
76
|
|
At
October 31, 2014
and 2013 there was no share-based compensation capitalized within inventory. The windfall income tax benefit realized from the exercised stock options and similar awards recognized was
$1 million
in
2014
,
$2 million
in
2013
and
zero
in
2012
, respectively. In the third quarter of 2014, an out of period adjustment was recorded to reverse previously recognized windfall tax benefits in the amount of
$12 million
and was the result of the correction to the computation of a cash tax benefit realized in prior years. The correction is not considered material to current or prior periods. In addition, approximately
$11 million
of previously recognized windfall tax benefits was reversed due to the favorable settlement of a tax authority examination in first quarter of 2014. The weighted average grant date fair value of options, granted in
2014
,
2013
and
2012
was
$18.73
,
$12.18
and
$13.69
per share, respectively.
Included in the 2014 and 2013 expense is incremental expense for acceleration of share-based compensation related to the announced workforce reduction plan of
$1 million
and
$3 million
, respectively . In 2012, the expense for the acceleration of share-based compensation related to the announced workforce reduction plan was immaterial. Upon termination of the employees impacted by workforce reduction, the non-vested Agilent awards held by these employees immediately vests. Employees have a period of up to
three months
in which to exercise the Agilent options before such options are cancelled.
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. 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 adjusted for expected dividend yield. On January 17, 2012, the company's Board of Directors approved the initiation of quarterly cash dividends to the company's shareholders. The fair value of all the awards granted prior to the declaration of quarterly cash dividend was measured based on an expected dividend yield of 0%. The ESPP allows eligible employees to purchase shares of our common stock at
85
percent of the fair market value at the purchase date.
The following assumptions were used to estimate the fair value of employee stock options and LTPP grants.
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
Stock Option Plans:
|
|
|
|
|
|
|
Weighted average risk-free interest rate
|
1.69%
|
|
0.86%
|
|
0.88%
|
|
Dividend yield
|
1%
|
|
1%
|
|
0%
|
|
Weighted average volatility
|
39%
|
|
39%
|
|
38%
|
|
Expected life
|
5.8 years
|
|
5.8 years
|
|
5.8 years
|
|
LTPP:
|
|
|
|
|
|
|
Volatility of Agilent shares
|
36%
|
|
37%
|
|
41%
|
|
Volatility of selected peer-company shares
|
13%-57%
|
|
6%-64%
|
|
17%-75%
|
|
Price-wise correlation with selected peers
|
47%
|
|
49%
|
|
62%
|
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 all the years presented, 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.
In developing our estimated life of our employee stock options of
5.8
years for 2012 to 2014, we considered the historical option exercise behavior of our executive employees who were granted the majority of the options in the annual grants made which we believe is representative of future behavior.
Share-based Payment Award Activity
Employee Stock Options
The following table summarizes employee stock option award activity made to our employees and directors for
2014
:
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
|
(in thousands)
|
|
|
|
Outstanding at October 31, 2013
|
9,609
|
|
|
$
|
32
|
|
|
Granted
|
1,250
|
|
|
$
|
54
|
|
|
Exercised
|
(3,750
|
)
|
|
$
|
30
|
|
|
Cancelled/Forfeited/Expired
|
(99
|
)
|
|
$
|
41
|
|
|
Outstanding at October 31, 2014
|
7,010
|
|
|
$
|
36
|
|
Forfeited and expired options from total cancellations in
2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Options
Cancelled
|
|
Weighted
Average
Exercise Price
|
|
|
(in thousands)
|
|
|
|
Forfeited
|
60
|
|
|
$
|
49
|
|
|
Expired
|
39
|
|
|
$
|
29
|
|
|
Total Options Cancelled during 2014
|
99
|
|
|
$
|
41
|
|
The options outstanding and exercisable for equity share-based payment awards at
October 31, 2014
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
|
690
|
|
|
1.9
|
|
$
|
20
|
|
|
$
|
24,240
|
|
|
690
|
|
|
1.9
|
|
|
$
|
20
|
|
|
$
|
24,240
|
|
|
$25.01 - 30
|
466
|
|
|
4.9
|
|
$
|
29
|
|
|
12,032
|
|
|
466
|
|
|
4.9
|
|
|
$
|
29
|
|
|
12,032
|
|
|
$30.01 - 40
|
4,646
|
|
|
5.4
|
|
$
|
35
|
|
|
93,664
|
|
|
2,612
|
|
|
3.8
|
|
|
$
|
34
|
|
|
54,838
|
|
|
$40.01 - 50
|
6
|
|
|
7.4
|
|
$
|
45
|
|
|
59
|
|
|
3
|
|
|
7.4
|
|
|
$
|
45
|
|
|
29
|
|
|
$50.01 & over
|
1,202
|
|
|
9.1
|
|
$
|
54
|
|
|
$
|
2,054
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
7,010
|
|
|
5.7
|
|
$
|
36
|
|
|
$
|
132,049
|
|
|
3,771
|
|
|
3.6
|
|
|
$
|
31
|
|
|
$
|
91,139
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the company's closing stock price of
$55.28
at
October 31, 2014
, 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, 2014
was approximately
4 million
.
The following table summarizes the aggregate intrinsic value of options exercised and the fair value of options granted in
2014
,
2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Intrinsic Value
|
|
Weighted
Average
Exercise
Price
|
|
Per Share Value Using
Black-Scholes
Model
|
|
|
(in thousands)
|
|
|
|
|
|
Options exercised in fiscal 2012
|
$
|
38,188
|
|
|
$
|
23
|
|
|
|
|
|
Black-Scholes per share value of options granted during fiscal 2012
|
|
|
|
|
|
|
$
|
14
|
|
|
Options exercised in fiscal 2013
|
$
|
71,499
|
|
|
$
|
28
|
|
|
|
|
|
Black-Scholes per share value of options granted during fiscal 2013
|
|
|
|
|
|
|
$
|
12
|
|
|
Options exercised in fiscal 2014
|
$
|
98,075
|
|
|
$
|
30
|
|
|
|
|
|
Black-Scholes per share value of options granted during fiscal 2014
|
|
|
|
|
|
|
$
|
19
|
|
As of
October 31, 2014
, the unrecognized share-based compensation costs for outstanding stock option awards, net of expected forfeitures, was approximately
$12 million
which is expected to be amortized over a weighted average period of
2.2
years. The amount of cash received from the exercise of share-based awards granted was
$188 million
in
2014
,
$161 million
in
2013
and
$100 million
in
2012
. See Note 5, "Income Taxes" for the tax impact on share-based award exercises.
Non-vested Awards
The following table summarizes non-vested award activity in
2014
primarily for our LTPP and restricted stock unit awards:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Price
|
|
|
(in thousands)
|
|
|
|
Non-vested at October 31, 2013
|
3,546
|
|
|
$
|
37
|
|
|
Granted
|
1,358
|
|
|
$
|
54
|
|
|
Vested
|
(1,324
|
)
|
|
$
|
40
|
|
|
Forfeited
|
(104
|
)
|
|
$
|
42
|
|
|
Change in LTPP shares vested in the year due to performance conditions
|
(43
|
)
|
|
$
|
36
|
|
|
Non-vested at October 31, 2014
|
3,433
|
|
|
$
|
44
|
|
As of
October 31, 2014
, the unrecognized share-based compensation costs for non-vested restricted stock awards, net of expected forfeitures, was approximately
$56 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
$54 million
for
2014
,
$44 million
for
2013
and
$54 million
for
2012
.
5. INCOME TAXES
The domestic and foreign components of income before taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
U.S. operations
|
$
|
(117
|
)
|
|
$
|
39
|
|
|
$
|
45
|
|
|
Non-U.S. operations
|
763
|
|
|
820
|
|
|
998
|
|
|
Total income before taxes
|
$
|
646
|
|
|
$
|
859
|
|
|
$
|
1,043
|
|
The provision (benefit) for income taxes is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
U.S. federal taxes:
|
|
|
|
|
|
|
Current
|
$
|
12
|
|
|
$
|
24
|
|
|
$
|
6
|
|
|
Deferred
|
(11
|
)
|
|
48
|
|
|
(144
|
)
|
|
Non-U.S. taxes:
|
|
|
|
|
|
|
Current
|
260
|
|
|
77
|
|
|
41
|
|
|
Deferred
|
(117
|
)
|
|
(24
|
)
|
|
(22
|
)
|
|
State taxes, net of federal benefit:
|
|
|
|
|
|
|
Current
|
2
|
|
|
3
|
|
|
1
|
|
|
Deferred
|
(4
|
)
|
|
7
|
|
|
8
|
|
|
Total provision
|
$
|
142
|
|
|
$
|
135
|
|
|
$
|
(110
|
)
|
The income tax provision does 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
Deferred
Tax Assets
|
|
Deferred Tax
Liabilities
|
|
Deferred
Tax Assets
|
|
Deferred Tax
Liabilities
|
|
|
(in millions)
|
|
Inventory
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
Intangibles
|
—
|
|
|
154
|
|
|
—
|
|
|
214
|
|
|
Property, plant and equipment
|
40
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
Warranty reserves
|
27
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
Retiree medical benefits
|
—
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Pension benefits
|
166
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
Employee benefits, other than retirement
|
49
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
Net operating loss, capital loss, and credit carryforwards
|
209
|
|
|
—
|
|
|
263
|
|
|
—
|
|
|
Unrealized gains/losses on investments
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
Unremitted earnings of foreign subsidiaries
|
—
|
|
|
61
|
|
|
—
|
|
|
114
|
|
|
Share-based compensation
|
56
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
Deferred revenue
|
82
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
Other
|
21
|
|
|
13
|
|
|
36
|
|
|
3
|
|
|
Subtotal
|
682
|
|
|
242
|
|
|
578
|
|
|
331
|
|
|
Tax valuation allowance
|
(134
|
)
|
|
—
|
|
|
(85
|
)
|
|
—
|
|
|
Total deferred tax assets or deferred tax liabilities
|
$
|
548
|
|
|
$
|
242
|
|
|
$
|
493
|
|
|
$
|
331
|
|
The significant increase in 2014 as compared to 2013 for the deferred tax asset relating to pension benefits is due mainly to the tax effect of changes in pension plans recognized in other comprehensive income. The decrease in the deferred tax liability relating to intangible assets is due primarily to amortization of acquired intangible assets from Dako. The amortization expenses associated with acquired intangible assets are not deductible for tax purposes. In the fourth quarter we recorded a deferred tax asset and related full valuation allowance in the amount of
$43 million
for a previously unrecorded Capital Loss Carryover in Australia. The loss arose in 2001 and may be carried forward indefinitely. A valuation allowance is recorded because the Australian entity has limited ability to generate taxable capital gains. This correction is not considered material to current or prior periods.
Agilent records U.S. income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries' earnings are considered indefinitely reinvested outside the U.S. As of October 31, 2014 the Company recognized a
$61 million
deferred tax liability for the overall residual tax expected to be imposed upon the repatriation of unremitted foreign earnings that are not considered permanently reinvested. As of
October 31, 2014
, the cumulative amount of undistributed earnings considered indefinitely reinvested was
$5.7 billion
. No deferred tax liability has been recognized on the basis difference created by such earnings since it is our intention to utilize those earnings in the company’s foreign operations. Because of the availability of U.S. foreign tax credits, the determination of the unrecognized deferred tax liability on these earnings is not practicable.
The breakdown between current and long-term deferred tax assets and deferred tax liabilities was as follows for the years
2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Current deferred tax assets (included within other current assets)
|
$
|
160
|
|
|
$
|
115
|
|
|
Long-term deferred tax assets (included within other assets)
|
289
|
|
|
264
|
|
|
Current deferred tax liabilities (included within other accrued liabilities)
|
(6
|
)
|
|
(4
|
)
|
|
Long-term deferred tax liabilities (included within other long-term liabilities)
|
(137
|
)
|
|
(213
|
)
|
|
Total
|
$
|
306
|
|
|
$
|
162
|
|
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. In the fourth quarter of 2012, management concluded that the valuation allowance for most of Agilent's U.S. federal and state deferred
tax assets is no longer needed primarily due to the emergence from cumulative losses in recent years, the return to sustainable U.S. operating profits and the expectation of sustainable profitability in future periods. As of October 31, 2012, the cumulative positive evidence outweighed the negative evidence regarding the likelihood that most of the deferred tax asset for Agilent's U.S. consolidated income tax group will be realized. Accordingly, we recognized a non-recurring tax benefit of
$280 million
relating to the valuation allowance reversal. As of October 31, 2014, we continued to maintain a valuation allowance of
$134 million
until sufficient positive evidence exists to support reversal. The valuation allowance is mainly related to deferred tax assets for California R&D credits, net operating losses in the Netherlands and capital losses in Australia.
At
October 31, 2014
, we had federal net operating loss carryforwards of approximately
$8 million
and
zero
tax credit carryforwards. The federal net operating losses expire in years
beginning 2022 through 2026
. At
October 31, 2014
, we had state net operating loss carryforwards of approximately
$202 million
which expire in years
beginning 2015 through 2031
, if not utilized. In addition, we had net state tax credit carryforwards of
$31 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. At
October 31, 2014
, we also had foreign net operating loss carryforwards of approximately
$547 million
. Of this foreign loss,
$227 million
will expire in years beginning 2015 through 2022, if not utilized. The remaining
$320 million
has an indefinite life. Some of the foreign losses are subject to annual loss limitation rules. These annual loss limitations in the U.S. and foreign jurisdictions may result in the expiration or reduced utilization of the net operating losses.
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 benefit totals
$194 million
as of
October 31, 2014
and will be accounted for as a credit to shareholders' equity, if and when realized, through a reduction in income taxes payable. The Company recognized approximately
$46 million
as a credit to shareholders' equity for cumulative excess tax benefits related to stock and stock option plans that have been realized as of October 31, 2014.
The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Profit before tax times statutory rate
|
$
|
226
|
|
|
$
|
301
|
|
|
$
|
365
|
|
|
State income taxes, net of federal benefit
|
(6
|
)
|
|
7
|
|
|
8
|
|
|
Non-U.S. income taxed at different rates
|
(156
|
)
|
|
(162
|
)
|
|
(144
|
)
|
|
Change in unrecognized non-U.S. tax benefits
|
—
|
|
|
—
|
|
|
(68
|
)
|
|
Change in unrecognized U.S. tax benefits
|
(160
|
)
|
|
—
|
|
|
—
|
|
|
Repatriation of foreign earnings
|
149
|
|
|
—
|
|
|
—
|
|
|
Valuation allowances
|
49
|
|
|
(8
|
)
|
|
(280
|
)
|
|
Non-deductible costs related to the separation of Keysight
|
17
|
|
|
—
|
|
|
—
|
|
|
Transfer pricing adjustments for prior years
|
12
|
|
|
—
|
|
|
—
|
|
|
Other, net
|
11
|
|
|
(3
|
)
|
|
9
|
|
|
Provision for income taxes
|
$
|
142
|
|
|
$
|
135
|
|
|
$
|
(110
|
)
|
|
Effective tax rate
|
22
|
%
|
|
16
|
%
|
|
(11
|
)%
|
Agilent enjoys tax holidays in several different jurisdictions, most significantly in Singapore. 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. The Keysight entity in Singapore has not obtained a tax holiday to date. Accordingly, income tax expense has been recorded on its fourth quarter earnings at the statutory rate. As a result of the incentives, the impact of the tax holidays decreased income taxes by
$76 million
,
$127 million
, and
$122 million
in
2014
,
2013
, and
2012
, respectively. The benefit of the tax holidays on net income per share (diluted) was approximately
$0.23
,
$0.37
, and
$0.35
in
2014
,
2013
and
2012
, respectively.
For 2014, the effective tax rate was
22 percent
.The 22 percent effective tax rate is lower than the U.S. statutory rate primarily due to the mix of earnings in non-U.S. jurisdictions taxed at lower statutory rates; in particular Singapore where we enjoy tax holidays. In the fourth quarter we recorded an out of period tax expense of
$13 million
tax for corrections to U.S. deferred taxes. In the third quarter we recorded out of period adjustments consisting of a
$9 million
tax benefit related to the correction of the tax basis of land in the UK and a
$3 million
tax expense to correct tax related balance sheet accounts. In the second quarter we recorded an out of period adjustment to tax expense of approximately
$12 million
for correction of transfer pricing for tax years 2012 and 2013. These corrections are not considered material to current or prior periods. The effective tax rate increased by
6 percent
over
the previous year primarily due to lower earnings in non-US jurisdictions taxed a lower statutory rates, the out of period adjustments listed above and the impact of non-deductible costs related to the separation of Keysight of
$17 million
.
For 2013, the effective tax rate was
16
percent. The
16
percent effective tax rate is lower than the U.S. statutory rate primarily due to the mix of earnings in non-U.S. jurisdictions taxed at lower statutory rates; in particular Singapore where we enjoy tax holidays. The effective tax rate also included a
$12 million
out-of-period adjustment to increase tax expense, recognized in the second quarter of 2013, associated with the write off of deferred tax assets related to foreign tax credits incorrectly claimed in prior years.
For 2012, the effective tax was a benefit of
11
percent. The
11
percent effective tax rate benefit reflected tax on earnings in jurisdictions that had low effective tax rates and includes a
$280 million
tax benefit due to the reversal of a valuation allowance for most U.S. federal and state deferred tax assets. 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. In the fourth quarter of 2012, management concluded that the valuation allowance for most of Agilent's U.S. federal and state deferred tax assets was no longer needed primarily due to the emergence from cumulative losses in recent years, the return to sustainable U.S. operating profits and the expectation of sustainable profitability in future periods. As of October 31, 2012, the cumulative positive evidence outweighed the negative evidence regarding the likelihood that most of the deferred tax asset for Agilent's U.S. consolidated income tax group will be realized. Accordingly, the Company recognized a non-recurring tax benefit of
$280 million
relating to the valuation allowance reversal. The effective tax rate also included a non-recurring tax expense of
$88 million
relating to an increase in the overall residual U.S. tax expected to be imposed upon the repatriation of unremitted foreign earnings previously considered permanently reinvested. During the fourth quarter of 2012, the Company assessed the forecasted cash needs and the overall financial position of its foreign subsidiaries and determined that a portion of previously permanently reinvested earnings would no longer be reinvested overseas. The effective tax rate was also reduced by a
$68 million
tax benefit primarily associated with the recognition of previously unrecognized tax benefits and the reversal of the related interest accruals due to the reassessment of certain uncertain tax positions relating to foreign jurisdictions.
The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows for the years
2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Current income tax assets (included within other current assets)
|
$
|
99
|
|
|
$
|
42
|
|
|
Long-term income tax assets (included within other assets)
|
48
|
|
|
34
|
|
|
Current income tax liabilities (included within other accrued liabilities)
|
(151
|
)
|
|
(48
|
)
|
|
Long-term income tax liabilities (included within other long-term liabilities)
|
(289
|
)
|
|
(341
|
)
|
|
Total
|
$
|
(293
|
)
|
|
$
|
(313
|
)
|
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. 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. The ultimate resolution of tax uncertainties may differ from what is currently estimated, which could result in a material impact on income tax expense. 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.
The aggregate changes in the balances of our unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Balance, beginning of year
|
$
|
516
|
|
|
$
|
464
|
|
|
$
|
469
|
|
|
Additions for acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
Additions for tax positions related to the current year
|
47
|
|
|
53
|
|
|
56
|
|
|
Additions for tax positions from prior years
|
16
|
|
|
11
|
|
|
40
|
|
|
Reductions for tax positions from prior years
|
(144
|
)
|
|
(6
|
)
|
|
(90
|
)
|
|
Settlements with taxing authorities
|
(2
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
Statute of limitations expirations
|
(9
|
)
|
|
(3
|
)
|
|
(9
|
)
|
|
Balance, end of year
|
$
|
424
|
|
|
$
|
516
|
|
|
$
|
464
|
|
As of
October 31, 2014
, we had
$424 million
of unrecognized tax benefits of which
$405 million
, if recognized, would affect our effective tax rate.
We recognized a tax benefit of
$10 million
, a tax expense of
$5 million
and a tax benefit
$4 million
of interest and penalties related to unrecognized tax benefits in
2014
,
2013
and
2012
, respectively. Interest and penalties accrued as of
October 31, 2014
and
2013
were
$29 million
and
$39 million
, respectively.
In the U.S., tax years remain open back to the year 2008 for federal income tax purposes and the year 2000 for significant states. On January 29, 2014 we reached an agreement with the IRS for the tax years 2006 through 2007. The settlement resulted in the recognition of previously unrecognized tax benefits of
$160 million
, offset by a tax liability on foreign distributions of approximately
$148 million
principally related to additional foreign earnings that was recognized in conjunction with the settlement. Agilent's U.S. federal income tax returns for 2008 through 2011 are currently under audit by the IRS.
In connection with the settlement of the 2006-2007 IRS audit, we identified during the first quarter of fiscal year 2014 an overstatement of approximately
$65 million
in our long-term tax liabilities. The overstatement was recorded in 2008 as a cumulative effect of a change in accounting principle when we adopted Accounting Standard Codification 740-10, Income Taxes. Accordingly, we corrected the error by reducing long-term tax liabilities and increasing retained earnings by
$65 million
in the first quarter of fiscal 2014. The correction had no impact on net income or cash flows in any prior period and is not considered material to total liabilities or equity in any prior period.
In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2003. With these jurisdictions and the U.S., it is reasonably possible that there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitation or a tax audit settlement. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.
6. NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
$
|
504
|
|
|
$
|
724
|
|
|
$
|
1,153
|
|
|
Denominators:
|
|
|
|
|
|
|
Basic weighted average shares
|
333
|
|
|
341
|
|
|
348
|
|
|
Potential common shares — stock options and other employee stock plans
|
5
|
|
|
4
|
|
|
5
|
|
|
Diluted weighted average shares
|
338
|
|
|
345
|
|
|
353
|
|
The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense, the tax benefits or shortfalls charged to additional paid-in capital 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 and tax benefits or shortfalls collectively 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
2014
,
2013
and
2012
were
6 million
,
6 million
and
5 million
, respectively.
We exclude stock options with exercise prices greater than the average market price of our common stock from the calculation of diluted earnings per share because their effect would be anti-dilutive. For 2014, 2013 and 2012, options to purchase
1,500
,
4,200
and
436,500
shares respectively were excluded from the calculation of diluted earnings per share. In addition, we also exclude from the calculation of diluted earnings per share, stock options, ESPP, LTPP and restricted stock awards whose combined exercise price, unamortized fair value and excess tax benefits or shortfalls collectively were greater than the average market price of our common stock because their effect would also be anti-dilutive. For the year ended 2014, 2013 and 2012, options to purchase
383,200
,
18,300
and
1,544,600
shares respectively were excluded from the calculation of diluted earnings per share.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for income taxes was
$131 million
in
2014
,
$110 million
in
2013
, and
$86 million
in
2012
. Cash paid for interest was
$142 million
in
2014
,
$112 million
in
2013
and
$111 million
in
2012
.
8. INVENTORY
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Finished goods
|
$
|
585
|
|
|
$
|
552
|
|
|
Purchased parts and fabricated assemblies
|
487
|
|
|
514
|
|
|
Inventory
|
$
|
1,072
|
|
|
$
|
1,066
|
|
Inventory-related excess and obsolescence charges of
$79 million
were recorded in total cost of products in
2014
,
$48 million
in
2013
and
$30 million
in
2012
, 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-cancellable purchase commitments.
On November 1, 2014 we transferred approximately
$498 million
of inventory to Keysight.
9. PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Land
|
$
|
120
|
|
|
$
|
131
|
|
|
Buildings and leasehold improvements
|
1,341
|
|
|
1,330
|
|
|
Machinery and equipment
|
1,054
|
|
|
1,019
|
|
|
Software
|
410
|
|
|
398
|
|
|
Total property, plant and equipment
|
2,925
|
|
|
2,878
|
|
|
Accumulated depreciation and amortization
|
(1,824
|
)
|
|
(1,744
|
)
|
|
Property, plant and equipment, net
|
$
|
1,101
|
|
|
$
|
1,134
|
|
Asset impairments other than related to our exit of the NMR business were
zero
in
2014
,
$3 million
in
2013
and
zero
in
2012
. Asset impairments in connection with the exit of the NMR business were
$7 million
in 2014. Depreciation expenses were
$194 million
in
2014
,
$181 million
in
2013
and
$171 million
in
2012
.
For the year ended October 31, 2012 we recorded
$15 million
of accelerated depreciation related to a building classified as held and used. In accordance with the accounting guidance, it was determined that the building had been abandoned and an assessment was made of the remaining useful life of the building. The building was written down to its fair value. On April 30, 2014, Agilent entered into a binding sales contract with real estate developers to sell land in the U.K. The contract calls for proportionate transfers and payments of three separate land tracts totaling approximately
$34 million
in May 2014, November 2015 and November 2016. Under the authoritative accounting guidance the full accrual method will be used to account for these transactions and gains on the sales recognized at each sale and payment date. In the year ended October 31, 2014 we recognized
$11 million
gain on sale of land in respect of the first of three land tracts in selling, general and administrative expenses. The property transfers to Keysight at distribution and the two remaining future payments in November 2015 and November 2016 from the developers will become due to and collected by Keysight.
On November 1, 2014 approximately
$470 million
of net book value of property plant and equipment was transferred to Keysight.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
The goodwill balances at
October 31, 2014
,
2013
and
2012
and the movements in
2014
and
2013
for each of our reportable segments are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Diagnostics
|
|
Chemical
Analysis
|
|
Electronic
Measurement
|
|
Total
|
|
|
(in millions)
|
|
Goodwill as of October 31, 2012
|
$
|
1,807
|
|
|
$
|
751
|
|
|
$
|
467
|
|
|
$
|
3,025
|
|
|
Foreign currency translation impact
|
63
|
|
|
(10
|
)
|
|
(47
|
)
|
|
6
|
|
|
Goodwill arising from acquisitions
|
13
|
|
|
4
|
|
|
(1
|
)
|
|
16
|
|
|
Goodwill as of October 31, 2013
|
$
|
1,883
|
|
|
$
|
745
|
|
|
$
|
419
|
|
|
$
|
3,047
|
|
|
Foreign currency translation impact
|
(116
|
)
|
|
(5
|
)
|
|
(32
|
)
|
|
(153
|
)
|
|
Goodwill arising from acquisitions
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
Goodwill as of October 31, 2014
|
$
|
1,767
|
|
|
$
|
740
|
|
|
$
|
392
|
|
|
$
|
2,899
|
|
As of September 30, 2014, we assessed goodwill impairment for our reporting units and
no
impairment of goodwill was indicated.
The component parts of other intangible assets at
October 31, 2014
and
2013
are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
and Impairments
|
|
Net Book
Value
|
|
|
(in millions)
|
|
As of October 31, 2013:
|
|
|
|
|
|
|
Purchased technology
|
$
|
1,019
|
|
|
$
|
460
|
|
|
$
|
559
|
|
|
Trademark/Tradename
|
176
|
|
|
40
|
|
|
136
|
|
|
Customer relationships
|
401
|
|
|
215
|
|
|
186
|
|
|
Total amortizable intangible assets
|
$
|
1,596
|
|
|
$
|
715
|
|
|
$
|
881
|
|
|
In-Process R&D
|
35
|
|
|
—
|
|
|
35
|
|
|
Total
|
$
|
1,631
|
|
|
$
|
715
|
|
|
$
|
916
|
|
|
As of October 31, 2014:
|
|
|
|
|
|
|
Purchased technology
|
$
|
1,005
|
|
|
$
|
589
|
|
|
$
|
416
|
|
|
Trademark/Tradename
|
168
|
|
|
53
|
|
|
115
|
|
|
Customer relationships
|
400
|
|
|
282
|
|
|
118
|
|
|
Total amortizable intangible assets
|
$
|
1,573
|
|
|
$
|
924
|
|
|
$
|
649
|
|
|
In-Process R&D
|
18
|
|
|
—
|
|
|
18
|
|
|
Total
|
$
|
1,591
|
|
|
$
|
924
|
|
|
$
|
667
|
|
In 2014, we recorded additions to goodwill and intangible assets of
$5 million
and
$6 million
, respectively related to the acquisition of
one
business. During the year, we also recorded
$42 million
of foreign exchange translation impact decreasing the other intangibles. In addition, we transferred
$11 million
excluding currency movements from in-process R&D to purchased technology in the year ended
October 31, 2014
, as projects were completed. In 2014, we recorded
$12 million
of impairment of other intangibles due to the exit of the NMR business. In addition, we recorded
$4 million
,
$1 million
and
$1 million
of impairments of other intangibles related to the cancellation of in-process research and development projects during 2014, 2013 and 2012, respectively.
In 2013, we recorded additions to goodwill of
$16 million
related to the acquisition of
four
businesses. During the year, we also recorded
$5 million
of additions and adjustments to other intangibles mostly related to the same four businesses. We recorded
$25 million
of foreign exchange translation impact to other intangibles in 2013. The
$158 million
decrease in in-process R&D was largely due to the completion of projects in our life sciences and diagnostics segment.
Amortization of intangible assets was
$197 million
in
2014
,
$199 million
in
2013
, and
$136 million
in
2012
. Future amortization expense related to finite-lived existing purchased intangible assets is estimated to be
$173 million
in
2015
,
$147 million
for
2016
,
$101 million
for
2017
,
$67 million
for
2018
,
$51 million
for
2019
, and
$110 million
thereafter.
11. INVESTMENTS
Equity Investments
The following table summarizes the company's equity investments as of
October 31, 2014
and
2013
(net book value):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Long-Term
|
|
|
|
|
Cost method investments
|
$
|
40
|
|
|
$
|
44
|
|
|
Trading securities
|
48
|
|
|
51
|
|
|
Available-for-sale investments
|
35
|
|
|
25
|
|
|
Equity method investments
|
36
|
|
|
19
|
|
|
Total
|
$
|
159
|
|
|
$
|
139
|
|
Cost method investments consist of non-marketable equity securities and
two
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. Equity method investments are reported at the amount of the company’s initial investment and adjusted each period for the company’s share of the investee’s income or loss and dividend paid.
Investments in available-for-sale securities at estimated fair value were as follows as of
October 31, 2014
and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2014
|
|
October 31, 2013
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
|
|
(in millions)
|
|
Equity securities
|
|
15
|
|
|
20
|
|
|
—
|
|
|
35
|
|
|
15
|
|
|
10
|
|
|
—
|
|
|
25
|
|
|
|
|
$
|
15
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
35
|
|
|
$
|
15
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
25
|
|
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.
Amounts included in other income (expense), net for realized gains on the sale of available-for-sale securities and the appropriate share of loss on equity method investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Available-for-sale investments — realized gain
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
Equity method investments - share of losses
|
(7
|
)
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
Net unrealized gains on our trading securities portfolio were
$3 million
in
2014
,
$8 million
in
2013
and
$5 million
in
2012
.
Realized gains from the sale of cost method securities were
zero
for
2014
,
zero
for
2013
and
$2 million
for
2012
. Proceeds from the sale of cost method investments were
zero
in 2014 and $11 million in 2013.
Investments in Leases
In
February 2001
, we sold a parcel of surplus land in San Jose, California for
$287 million
in cash. In August 2001, we acquired a long-term leasehold interest in several municipal properties in southern California. In
2002
, we received
$237 million
in non-refundable prepaid rent related to the leasehold interests described above.
In
December 2011
, we terminated our leasehold interest in the municipal properties, received
$80 million
in cash and recognized a loss of approximately
$2 million
.
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.
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, 2014
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
October 31, 2014 Using
|
|
|
October 31,
2014
|
|
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)
|
$
|
1,751
|
|
|
$
|
1,751
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative instruments (foreign exchange contracts)
|
19
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Trading securities
|
48
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
Available-for-sale investments
|
35
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
1,853
|
|
|
$
|
1,834
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Derivative instruments (foreign exchange contracts)
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Deferred compensation liability
|
48
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
Financial assets and liabilities measured at fair value on a recurring basis as of
October 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
October 31, 2013 Using
|
|
|
October 31,
2013
|
|
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)
|
$
|
1,968
|
|
|
$
|
1,968
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative instruments (foreign exchange contracts)
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Trading securities
|
51
|
|
|
51
|
|
|
—
|
|
|
—
|
|
|
Available-for-sale investments
|
25
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
2,051
|
|
|
$
|
2,044
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Derivative instruments (foreign exchange contracts)
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Deferred compensation liability
|
51
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
57
|
|
|
$
|
—
|
|
Our money market funds, trading securities, 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 deferred compensation liability is 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.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Long-Lived Assets
For assets measured at fair value on a non-recurring basis, the following table summarizes the impairments included in net income for the years ended
October 31, 2014
,
2013
and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Long-lived assets held and used
|
$
|
23
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
Long-lived assets held for sale
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Long-lived assets held and used with a carrying amount of
$23 million
were written down to their fair value of
zero
, resulting in an impairment charge of
$23 million
, which was included in net income for
2014
. The impairment charge for 2014 includes $19 million relating to the exit of a business and $4 million related to various IPR&D projects that were written down to their fair value of zero. Long-lived assets held and used with a carrying amount of
$2 million
were written down to their fair value of
zero
, resulting in an impairment charge of
$2 million
, which was included in net income for
2013
. Long-lived assets held and used with
a carrying amount of
$1 million
were written down to their fair value of
zero
, resulting in an impairment charge of
$1 million
, which was included in net income for
2012
.
There were no impairments of long-lived assets held for sale in 2014. Long-lived assets held for sale with a carrying amount of
$3 million
were written down to their fair value of
$2 million
, resulting in an impairment charge of
$1 million
which was included in net income for 2013. There were no impairments of long-lived assets held for sale in 2012.
Fair values for the impaired long-lived assets were measured using level 2 and level 3 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.
Fair Value Hedges
We are 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 at fixed interest rates based on the market conditions at the time of financing. The fair value of our fixed rate debt changes when the underlying market rates of interest change, and, in the past, we have used interest rate swaps to 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. As of
October 31, 2014
, all interest rate swap contracts had either been terminated or had expired.
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, including interest receivable, upon termination was approximately
$43 million
and the amount to be amortized at
October 31, 2014
was
$3 million
. On
August 9, 2011
, we terminated
five
interest rate swap contracts related to our 2020 senior notes that represented the notional amount of
$500 million
. The asset value, including interest receivable, upon termination for these contracts was approximately
$34 million
and the amount to be amortized at
October 31, 2014
was
$22 million
. All deferred gains from terminated interest rate swaps are being amortized over the remaining life of the respective senior notes. On July 14, 2014 we prepaid our 2015 senior notes and amortized the remaining
$8 million
of deferred gain on the terminated interest rate swap related to those senior notes to other income (expense), net. On October 20, 2014 we prepaid
$500 million
out of
$600 million
principal of our 2017 senior notes and amortized
$14 million
of the total
$17 million
deferred gain on the terminated interest rate swap related to those senior notes to other income (expense), net. For more information see Note 19, "Long-term debt".
Cash Flow Hedges
We enter 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 fair 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 the forecasted transaction occurs. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive income will be reclassified to other income (expense) in the current period. Changes in the fair value of the ineffective portion of derivative instruments are recognized in other income (expense) in the consolidated statement of operations in the current period. We record the premium paid (time value) of an option on the date of purchase as an asset. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in other income (expense) over the life of the option contract. Ineffectiveness in 2014, 2013 and 2012 was not significant. For the year ended October 31, 2014, 2013 and 2012 gains and losses recognized in earnings due to de-designation of cash flow hedge contracts were not significant.
In July 2012, Agilent executed treasury lock agreements for
$400 million
in connection with future interest payments to be made on our 2022 senior notes issued on September 10, 2012. We designated the treasury lock as a cash flow hedge. The treasury lock contracts were terminated on September 10, 2012 and we recognized a deferred gain in accumulated other comprehensive income of
$3 million
to be amortized to interest expense over the life of the 2022 senior notes.
Other Hedges
Additionally, we enter 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 foreign currency gain or loss on the underlying assets or liabilities.
In connection with the acquisition of Dako, Agilent entered into several foreign currency forward contracts to mitigate the currency exchange risk associated with the payment of the purchase price in Danish Krone and the repayment of debt in multiple currencies. The aggregate notional amount of the currencies hedged was
$1.7 billion
. These foreign exchange contracts did not qualify for hedge accounting treatment and were not designated as hedging instruments. The resulting loss on settlement, on the date of acquisition, was
$14 million
and was recorded in other income (expense) in the consolidated statement of operations for the year ended October 31, 2012.
Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our 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.
A number 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. The counterparties to the derivative instruments may request collateralization, in accordance with derivative agreements, 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, 2014
, was
$2 million
. The credit-risk-related contingent features underlying these agreements had not been triggered as of
October 31, 2014
.
There were
127
foreign exchange forward contracts and
7
foreign exchange option contracts open as of
October 31, 2014
and designated as cash flow hedges. There were
220
foreign exchange forward contracts open as of
October 31, 2014
not designated as hedging instruments. The aggregated U.S. Dollar notional amounts by currency and designation as of
October 31, 2014
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
|
|
$
|
(37
|
)
|
|
$
|
—
|
|
|
$
|
207
|
|
|
British Pound
|
|
(20
|
)
|
|
—
|
|
|
48
|
|
|
Canadian Dollar
|
|
(34
|
)
|
|
—
|
|
|
(1
|
)
|
|
Australian Dollars
|
|
6
|
|
|
—
|
|
|
18
|
|
|
Malaysian Ringgit
|
|
91
|
|
|
—
|
|
|
15
|
|
|
Japanese Yen
|
|
(140
|
)
|
|
(50
|
)
|
|
(5
|
)
|
|
Other
|
|
(27
|
)
|
|
—
|
|
|
45
|
|
|
|
|
$
|
(161
|
)
|
|
$
|
(50
|
)
|
|
$
|
327
|
|
Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance. The gross fair values and balance sheet location of derivative instruments held in the consolidated balance sheet as of
October 31, 2014
and
2013
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Balance Sheet Location
|
|
October 31,
2014
|
|
October 31,
2013
|
|
Balance Sheet Location
|
|
October 31,
2014
|
|
October 31,
2013
|
|
(in millions)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
16
|
|
|
$
|
4
|
|
|
Other accrued liabilities
|
|
$
|
2
|
|
|
$
|
4
|
|
|
|
|
$
|
16
|
|
|
$
|
4
|
|
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
3
|
|
|
$
|
3
|
|
|
Other accrued liabilities
|
|
$
|
5
|
|
|
$
|
2
|
|
|
Total derivatives
|
|
$
|
19
|
|
|
$
|
7
|
|
|
|
|
$
|
7
|
|
|
$
|
6
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Fair Value Hedges
|
|
|
|
|
|
|
Gain on interest rate swap contracts, including interest accrual, recognized in interest expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gain (loss) on hedged item, recognized in interest expense
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
Gain recognized in accumulated other comprehensive income
|
$
|
13
|
|
|
$
|
10
|
|
|
$
|
7
|
|
|
Gain (loss) reclassified from accumulated other comprehensive income into cost of sales
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
$
|
8
|
|
|
Treasury Lock Agreements
|
|
|
|
|
|
|
Gain recognized in accumulated other comprehensive income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Gain (loss) recognized in other income (expense), net
|
$
|
(19
|
)
|
|
$
|
7
|
|
|
$
|
(34
|
)
|
The estimated net amount of existing loss at
October 31, 2014
that is expected to be reclassified from other comprehensive income to the cost of sales within the next twelve months is
$13 million
.
14. RESTRUCTURING AND EXIT OF NMR BUSINESS
Exit of Nuclear Magnetic Resonance ("NMR") Business.
During the fourth quarter of fiscal year 2014, we made the decision to cease the manufacture and sale of our NMR product line within our life sciences and diagnostics segment. The exit of the NMR business was primarily due to the lack of growth and profitability of the product line. In connection with the business exit, we have recorded approximately
$68 million
in restructuring and other related costs associated with the closure of NMR. These costs are comprised of severance and other personnel costs related to the workforce reduction of approximately
300
employees primarily located in the United Kingdom and California and non-cash charges related to intangible asset impairments and other asset write-downs including inventory. We expect to substantially complete these restructuring activities by the end of fiscal 2016. As of October 31, 2014, substantially all employees are pending termination under the above actions.
A summary of total “NMR” restructuring activity and other special charges is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
Reduction
|
Impairments of Building and Other Assets
|
Special Charges Related to Inventory and Others
|
Total
|
|
|
(in millions)
|
|
Balance as of October 31, 2013
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Income statement expense
|
16
|
|
19
|
|
33
|
|
68
|
|
|
Asset impairments/inventory charges
|
—
|
|
(19
|
)
|
(30
|
)
|
(49
|
)
|
|
Cash payments
|
(2
|
)
|
—
|
|
—
|
|
(2
|
)
|
|
Balance as of October 31, 2014
|
$
|
14
|
|
$
|
—
|
|
$
|
3
|
|
$
|
17
|
|
The restructuring and other special accruals related to the NMR closure, which totaled
$17 million
at October 31, 2014, are recorded in other accrued liabilities on the consolidated balance sheet. These balances reflect estimated future cash outlays.
Restructuring.
In the second quarter of 2013, in response to slow revenue growth due to macroeconomic conditions, we accrued for a targeted restructuring program that is expected to reduce Agilent's total headcount by approximately
450
regular employees, representing approximately
2 percent
of our global workforce. In the fourth quarter of fiscal year 2013, Agilent announced plans to separate the electronic measurement business from Agilent which was completed on November 1, 2014. As a result, approximately
50
employees from the targeted restructuring plan have been redeployed within the company, reducing the total headcount under this plan to
400
employees. The timing and scope of workforce reductions will vary based on local legal requirements. When completed, the restructuring program is expected to result in a reduction in annual cost of sales and operating expenses.
As previously announced, we are streamlining our manufacturing operations. As part of this action, we anticipate the reduction of approximately
250
positions to reduce our annual cost of sales.
Total headcount reductions from targeted restructuring and manufacturing streamlining will be approximately
650
positions. Within the U.S., we have substantially completed these restructuring activities. Internationally, we expect to complete these restructuring activities by the end of the first quarter of fiscal 2015. As of October 31, 2014, approximately
70
employees, including Keysight employees, are pending termination under the above actions.
A summary of total restructuring accrual activity is shown in the table below:
|
|
|
|
|
|
|
|
|
|
Workforce
Reduction
|
|
|
|
(in millions)
|
|
Balance as of October 31, 2012
|
$
|
—
|
|
|
|
Income statement expense
|
53
|
|
|
|
Cash payments
|
(29
|
)
|
|
|
Balance as of October 31, 2013
|
$
|
24
|
|
|
|
Income statement reversal
|
(4
|
)
|
|
|
Cash payments
|
(17
|
)
|
|
|
Balance as of October 31, 2014
|
$
|
3
|
|
|
The restructuring reversal of
4 million
recorded during fiscal year 2014 related to approximately
50
employees that had been redeployed within the company as a result of the separation announcement. The restructuring accruals, which totaled
$3 million
at
October 31, 2014
, are recorded in other accrued liabilities on the consolidated balance sheet. These balances reflect estimated future cash outlays.
A summary of the charges in the consolidated statement of operations resulting from the NMR closure and restructuring plan is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
October 31,
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Cost of products and services
|
$
|
45
|
|
|
$
|
19
|
|
|
Research and development
|
4
|
|
|
9
|
|
|
Selling, general and administrative
|
15
|
|
|
25
|
|
|
Total restructuring, asset impairments and other special charges
|
$
|
64
|
|
|
$
|
53
|
|
15. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS
General.
Substantially all of our employees are covered under various defined benefit and/or defined contribution retirement plans. Additionally, we sponsor post-retirement health care benefits for our eligible U.S. employees.
Agilent provides U.S. employees, who meet eligibility criteria under the Agilent Technologies, Inc. Retirement Plan or the Keysight Technologies, Inc. Retirement Plan (together, the "RP"), 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 and Keysight Retirement Plans is reduced by any amounts due to the eligible employee under the Agilent and Keysight defined contribution Deferred Profit-Sharing Plans (together, the "DPSP"), which were closed to new participants as of November 1993.
As of
October 31, 2014
and
2013
, the fair value of plan assets of the DPSP was
$520 million
and
$552 million
, respectively. Note that the projected benefit obligation for the DPSP equals the fair value of plan assets.
In addition to the DPSP, in the U.S., Agilent and Keysight each maintain a Supplemental Benefits Retirement Plan ("SBRP"), supplemental unfunded non-qualified defined benefit plans to provide benefits that would be provided under the RP but for limitations imposed by the Internal Revenue Code. The RP and the SBRP comprise the "U.S. Plans" in the tables below.
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.
401(k) defined contribution plan
. Eligible Agilent U.S. employees may participate in the Agilent Technologies, Inc. 401(k) Plan. Beginning on August 1, 2014, Keysight U.S. employees became eligible to participate in the Keysight Technologies, Inc. 401(k) Plan. Enrollment in the Agilent or Keysight 401(k) Plans 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. Effective November 1, 2014, new employees, new transfers to the U.S. payroll and rehires will be eligible for an enhanced 6 percent employer match in the Agilent 401(k) Plan (see
Plan Amendments
below). 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 employer expense included in income from operations was
$27 million
in
2014
,
$25 million
in
2013
and
$25 million
in
2012
.
Post-retirement medical benefit plans.
In addition to receiving retirement benefits, Agilent U.S. employees who meet eligibility requirements as of their termination date may participate in the Agilent Technologies, Inc. Health Plan for Retirees. Beginning on August 1, 2014, Keysight U.S. employees may participate in the Keysight Technologies Inc. Health Plan for Retirees. Eligible retirees who were less than age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for a fixed amount which can be utilized to pay for either sponsored plans and/or individual medicare plans. Eligible retirees who were at least age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service currently choose from managed-care, indemnity options or individual medicare plans, with the company subsidization level or stipend dependent on a number of factors including eligibility and length of service. See
Plan Amendments
below for changes to these benefits.
Plan Amendments.
Effective November 1, 2014, Agilent’s U.S. defined benefit retirement plan will be closed to new entrants including new employees, new transfers to the U.S. payroll and rehires. These employees will instead be eligible for an
enhanced 6% employer match in the Agilent 401(k) plan. In addition, any new employee hired on or after November 1, 2014, will not be eligible to participate in the retiree medical plans upon retiring. Current eligible employees will continue to participate in the U.S. defined benefit retirement plan and retiree medical programs in place today and will remain eligible for the 401(k) plan with the current
4 percent
employer match. Retirees will maintain the retirement benefits and retiree medical benefits they are eligible for today
.
On April 1, 2011, changes to the Agilent Technologies, Inc. Health Plan for Retirees were approved. Effective January 1, 2012, employees who were at least age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for fixed dollar subsidies and stipends. Grandfathered retirees receive a fixed monthly subsidy toward pre-65 premium costs (subsidy capped at 2011 levels) and a fixed monthly stipend post-65. The subsidy amounts will not increase.
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, 2014
,
2013
and
2012
, components of net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
U.S. Post-Retirement Benefit Plans
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
2014
|
|
2013
|
|
2012
|
|
2014
|
|
2013
|
|
2012
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Net periodic benefit cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost — benefits earned during the period
|
$
|
46
|
|
|
$
|
44
|
|
|
$
|
40
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
33
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
Interest cost on benefit obligation
|
34
|
|
|
24
|
|
|
27
|
|
|
74
|
|
|
68
|
|
|
74
|
|
|
12
|
|
|
12
|
|
|
15
|
|
|
Expected return on plan assets
|
(64
|
)
|
|
(51
|
)
|
|
(46
|
)
|
|
(118
|
)
|
|
(97
|
)
|
|
(92
|
)
|
|
(22
|
)
|
|
(20
|
)
|
|
(19
|
)
|
|
Amortization of net actuarial loss
|
1
|
|
|
13
|
|
|
7
|
|
|
48
|
|
|
55
|
|
|
42
|
|
|
14
|
|
|
18
|
|
|
16
|
|
|
Amortization of prior service benefit
|
(12
|
)
|
|
(12
|
)
|
|
(12
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(35
|
)
|
|
(35
|
)
|
|
(35
|
)
|
|
Total periodic benefit cost (benefit)
|
$
|
5
|
|
|
$
|
18
|
|
|
$
|
16
|
|
|
$
|
39
|
|
|
$
|
61
|
|
|
$
|
56
|
|
|
$
|
(28
|
)
|
|
$
|
(21
|
)
|
|
$
|
(20
|
)
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
$
|
86
|
|
|
$
|
(122
|
)
|
|
$
|
69
|
|
|
$
|
173
|
|
|
$
|
(85
|
)
|
|
$
|
214
|
|
|
$
|
12
|
|
|
$
|
(57
|
)
|
|
$
|
22
|
|
|
Amortization of net actuarial loss
|
(1
|
)
|
|
(13
|
)
|
|
(7
|
)
|
|
(48
|
)
|
|
(55
|
)
|
|
(42
|
)
|
|
(14
|
)
|
|
(18
|
)
|
|
(16
|
)
|
|
Prior service cost (benefit)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service benefit
|
12
|
|
|
12
|
|
|
12
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
35
|
|
|
35
|
|
|
35
|
|
|
Foreign currency
|
—
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
2
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total recognized in other comprehensive (income) loss
|
$
|
97
|
|
|
$
|
(123
|
)
|
|
$
|
74
|
|
|
$
|
96
|
|
|
$
|
(137
|
)
|
|
$
|
168
|
|
|
$
|
33
|
|
|
$
|
(40
|
)
|
|
$
|
41
|
|
|
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss
|
$
|
102
|
|
|
$
|
(105
|
)
|
|
$
|
90
|
|
|
$
|
135
|
|
|
$
|
(76
|
)
|
|
$
|
224
|
|
|
$
|
5
|
|
|
$
|
(61
|
)
|
|
$
|
21
|
|
Funded status.
As of
October 31, 2014
and
2013
, 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
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value — beginning of year
|
$
|
782
|
|
|
$
|
654
|
|
|
$
|
2,045
|
|
|
$
|
1,801
|
|
|
$
|
288
|
|
|
$
|
261
|
|
|
Actual return on plan assets
|
64
|
|
|
133
|
|
|
180
|
|
|
267
|
|
|
18
|
|
|
47
|
|
|
Employer contributions
|
30
|
|
|
30
|
|
|
72
|
|
|
89
|
|
|
1
|
|
|
1
|
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Benefits paid
|
(39
|
)
|
|
(35
|
)
|
|
(62
|
)
|
|
(49
|
)
|
|
(23
|
)
|
|
(21
|
)
|
|
Currency impact
|
—
|
|
|
—
|
|
|
(130
|
)
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
Fair value — end of year
|
$
|
837
|
|
|
$
|
782
|
|
|
$
|
2,108
|
|
|
$
|
2,045
|
|
|
$
|
284
|
|
|
$
|
288
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation — beginning of year
|
$
|
763
|
|
|
$
|
771
|
|
|
$
|
2,199
|
|
|
$
|
2,117
|
|
|
$
|
307
|
|
|
$
|
343
|
|
|
Service cost
|
46
|
|
|
44
|
|
|
36
|
|
|
36
|
|
|
3
|
|
|
4
|
|
|
Interest cost
|
34
|
|
|
24
|
|
|
74
|
|
|
68
|
|
|
12
|
|
|
12
|
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Plan amendment
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Actuarial (gain) loss
|
85
|
|
|
(41
|
)
|
|
236
|
|
|
85
|
|
|
10
|
|
|
(31
|
)
|
|
Benefits paid
|
(39
|
)
|
|
(35
|
)
|
|
(62
|
)
|
|
(49
|
)
|
|
(23
|
)
|
|
(21
|
)
|
|
Currency impact
|
—
|
|
|
—
|
|
|
(140
|
)
|
|
(59
|
)
|
|
—
|
|
|
—
|
|
|
Benefit obligation — end of year
|
$
|
889
|
|
|
$
|
763
|
|
|
$
|
2,344
|
|
|
$
|
2,199
|
|
|
$
|
309
|
|
|
$
|
307
|
|
|
Overfunded (underfunded) status of PBO
|
$
|
(52
|
)
|
|
$
|
19
|
|
|
$
|
(236
|
)
|
|
$
|
(154
|
)
|
|
$
|
(25
|
)
|
|
$
|
(19
|
)
|
|
Amounts recognized in the consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
70
|
|
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Employee compensation and benefits
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Retirement and post-retirement benefits
|
(50
|
)
|
|
(13
|
)
|
|
(306
|
)
|
|
(214
|
)
|
|
(25
|
)
|
|
(19
|
)
|
|
Net asset (liability)
|
$
|
(52
|
)
|
|
$
|
19
|
|
|
$
|
(236
|
)
|
|
$
|
(154
|
)
|
|
$
|
(25
|
)
|
|
$
|
(19
|
)
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses
|
$
|
77
|
|
|
$
|
(8
|
)
|
|
$
|
621
|
|
|
$
|
525
|
|
|
$
|
118
|
|
|
$
|
119
|
|
|
Prior service costs (benefits)
|
(55
|
)
|
|
(67
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
(149
|
)
|
|
(183
|
)
|
|
Total
|
$
|
22
|
|
|
$
|
(75
|
)
|
|
$
|
617
|
|
|
$
|
521
|
|
|
$
|
(31
|
)
|
|
$
|
(64
|
)
|
In connection with the separation of Keysight Technologies on November 1, 2014, Agilent transferred certain liabilities and assets of the U.S. and Non-U.S. defined benefit pension plans, and U.S. Post-Retirement Benefit Plans to similar plans created for Keysight Technologies employees as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Defined
Benefit Plans
|
|
Non-U.S. Defined
Benefit Plans
|
|
U.S. Post-Retirement
Benefit Plans
|
|
|
(in millions)
|
|
Fair value of plan assets transferred to Keysight
|
$
|
491
|
|
|
$
|
1,318
|
|
|
$
|
187
|
|
|
Benefit obligation transferred to Keysight
|
$
|
514
|
|
|
$
|
1,429
|
|
|
$
|
206
|
|
The amounts in accumulated other comprehensive income expected to be recognized by Agilent (excluding Keysight plans) as components of net expense during 2015 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)
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
(12
|
)
|
|
Amortization of actuarial net loss (gain)
|
$
|
3
|
|
|
$
|
27
|
|
|
$
|
6
|
|
Investment policies and strategies as of
October 31, 2014
,
2013
and
2012
.
In the U.S., target asset allocations for our retirement and post-retirement benefit plans 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. 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 37 to 60 percent to equities, from 40 to 60 percent to fixed income investments, and from zero to 6 percent to real estate investments and from zero to 7 percent to cash, 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, 2014
and
2013
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 a global portfolio of corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-backed securities, derivative instruments 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. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.
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. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.
Other Investments - Other investments includes property based pooled vehicles which invest in real estate. Market net asset values are regularly published in the financial press or on corporate websites and so these investments are classified as Level 2. Other investments also includes partnership investments where, due to their private nature, 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.
The following tables present the fair value of U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of
October 31, 2014
and
2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2014 Using
|
|
|
October 31,
2014
|
|
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
|
$
|
9
|
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Equity
|
668
|
|
|
156
|
|
|
512
|
|
|
—
|
|
|
Fixed Income
|
145
|
|
|
40
|
|
|
105
|
|
|
—
|
|
|
Other Investments
|
15
|
|
|
1
|
|
|
—
|
|
|
14
|
|
|
Total assets measured at fair value
|
$
|
837
|
|
|
$
|
199
|
|
|
$
|
624
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2013 Using
|
|
|
October 31,
2013
|
|
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
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Equity
|
616
|
|
|
191
|
|
|
425
|
|
|
—
|
|
|
Fixed Income
|
139
|
|
|
17
|
|
|
122
|
|
|
—
|
|
|
Other Investments
|
19
|
|
|
2
|
|
|
—
|
|
|
17
|
|
|
Total assets measured at fair value
|
$
|
782
|
|
|
$
|
211
|
|
|
$
|
554
|
|
|
$
|
17
|
|
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
2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31.
|
|
|
2014
|
|
2013
|
|
Balance, beginning of year
|
$
|
17
|
|
|
$
|
21
|
|
|
Realized gains/(losses)
|
(1
|
)
|
|
4
|
|
|
Unrealized gains/(losses)
|
2
|
|
|
(2
|
)
|
|
Purchases, sales, issuances, and settlements
|
(4
|
)
|
|
(6
|
)
|
|
Transfers in (out)
|
—
|
|
|
—
|
|
|
Balance, end of year
|
$
|
14
|
|
|
$
|
17
|
|
The following tables present 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, 2014
and
2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
October 31, 2014 Using
|
|
|
October 31,
2014
|
|
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
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Equity
|
217
|
|
|
51
|
|
|
166
|
|
|
—
|
|
|
Fixed Income
|
53
|
|
|
14
|
|
|
39
|
|
|
—
|
|
|
Other Investments
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Total assets measured at fair value
|
$
|
284
|
|
|
$
|
68
|
|
|
$
|
208
|
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2013 Using
|
|
|
October 31,
2013
|
|
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
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
Equity
|
220
|
|
|
68
|
|
|
152
|
|
|
—
|
|
|
Fixed Income
|
52
|
|
|
6
|
|
|
46
|
|
|
—
|
|
|
Other Investments
|
11
|
|
|
1
|
|
|
—
|
|
|
10
|
|
|
Total assets measured at fair value
|
$
|
288
|
|
|
$
|
77
|
|
|
$
|
201
|
|
|
$
|
10
|
|
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
2014
and
2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31,
|
|
|
2014
|
|
2013
|
|
Balance, beginning of year
|
$
|
10
|
|
|
$
|
12
|
|
|
Realized gains/(losses)
|
(1
|
)
|
|
2
|
|
|
Unrealized gains/(losses)
|
1
|
|
|
(1
|
)
|
|
Purchases, sales, issuances, and settlements
|
(2
|
)
|
|
(3
|
)
|
|
Transfers in (out)
|
—
|
|
|
—
|
|
|
Balance, end of year
|
$
|
8
|
|
|
$
|
10
|
|
The following tables present 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, 2014
and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at
October 31, 2014 Using
|
|
|
October 31,
2014
|
|
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
|
$
|
10
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Equity
|
1,078
|
|
|
335
|
|
|
743
|
|
|
—
|
|
|
Fixed Income
|
974
|
|
|
37
|
|
|
937
|
|
|
—
|
|
|
Other Investments
|
46
|
|
|
—
|
|
|
25
|
|
|
21
|
|
|
Total assets measured at fair value
|
$
|
2,108
|
|
|
$
|
375
|
|
|
$
|
1,712
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2013 Using
|
|
|
October 31,
2013
|
|
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
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity
|
1,078
|
|
|
296
|
|
|
782
|
|
|
—
|
|
|
Fixed Income
|
919
|
|
|
24
|
|
|
895
|
|
|
—
|
|
|
Other Investments
|
38
|
|
|
—
|
|
|
38
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
2,045
|
|
|
$
|
330
|
|
|
$
|
1,715
|
|
|
$
|
—
|
|
For non-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 2014. 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
2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31,
|
|
|
2014
|
|
2013
|
|
Balance, beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
|
Realized gains/(losses)
|
—
|
|
|
—
|
|
|
Unrealized gains/(losses)
|
1
|
|
|
—
|
|
|
Purchases, sales, issuances, and settlements
|
—
|
|
|
—
|
|
|
Transfers in (out)
|
20
|
|
|
—
|
|
|
Balance, end of year
|
$
|
21
|
|
|
$
|
—
|
|
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, 2014
or
2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
|
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
|
$
|
889
|
|
|
$
|
837
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
U.S. defined benefit plans where fair value of plan assets exceeds PBO
|
—
|
|
|
—
|
|
|
748
|
|
|
782
|
|
|
Total
|
$
|
889
|
|
|
$
|
837
|
|
|
$
|
763
|
|
|
$
|
782
|
|
|
Non-U.S. defined benefit plans where PBO exceeds or is equal to the fair value of plan assets
|
$
|
1,865
|
|
|
$
|
1,559
|
|
|
$
|
1,697
|
|
|
$
|
1,482
|
|
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds PBO
|
479
|
|
|
549
|
|
|
502
|
|
|
563
|
|
|
Total
|
$
|
2,344
|
|
|
$
|
2,108
|
|
|
$
|
2,199
|
|
|
$
|
2,045
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO
|
|
|
|
ABO
|
|
|
|
U.S. defined benefit plans where ABO exceeds the fair value of plan assets
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
U.S. defined benefit plans where the fair value of plan assets exceeds ABO
|
812
|
|
|
837
|
|
|
716
|
|
|
782
|
|
|
Total
|
$
|
826
|
|
|
$
|
837
|
|
|
$
|
730
|
|
|
$
|
782
|
|
|
Non-U.S. defined benefit plans where ABO exceeds or is equal to the fair value of plan assets
|
$
|
1,795
|
|
|
$
|
1,559
|
|
|
$
|
1,533
|
|
|
$
|
1,380
|
|
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds ABO
|
468
|
|
|
549
|
|
|
590
|
|
|
665
|
|
|
Total
|
$
|
2,263
|
|
|
$
|
2,108
|
|
|
$
|
2,123
|
|
|
$
|
2,045
|
|
Contributions and estimated future benefit payments.
During fiscal year
2015
, we expect to contribute
$15 million
to the U.S. defined benefit plans,
$25 million
to plans outside the U.S., and
$1 million
to the Post-retirement Medical Plans. The following table presents expected future benefit payments for the next 10 years for the Agilent plans only.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Defined
Benefit Plans
|
|
Non-U.S. Defined
Benefit Plans
|
|
U.S. Post-Retirement
Benefit Plans
|
|
|
(in millions)
|
|
2015
|
$
|
30
|
|
|
$
|
23
|
|
|
$
|
8
|
|
|
2016
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
8
|
|
|
2017
|
$
|
26
|
|
|
$
|
27
|
|
|
$
|
8
|
|
|
2018
|
$
|
28
|
|
|
$
|
28
|
|
|
$
|
8
|
|
|
2019
|
$
|
30
|
|
|
$
|
29
|
|
|
$
|
8
|
|
|
2020 - 2024
|
$
|
177
|
|
|
$
|
185
|
|
|
$
|
39
|
|
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. The U.S. discount rates at
October 31, 2014
and
2013
were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. 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.
Assumptions used to calculate the net periodic cost in each year were as follows:
|
|
|
|
|
|
|
|
|
|
|
For years ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
U.S. defined benefit plans:
|
|
|
|
|
|
|
Discount rate
|
4.00-4.50%
|
|
3.25%
|
|
4.50%
|
|
Average increase in compensation levels
|
3.50%
|
|
3.50%
|
|
3.50%
|
|
Expected long-term return on assets
|
8.00%
|
|
8.00%
|
|
8.00%
|
|
Non-U.S. defined benefit plans:
|
|
|
|
|
|
|
Discount rate
|
1.50-4.00%
|
|
1.50-4.50%
|
|
2.00-5.50%
|
|
Average increase in compensation levels
|
2.50-3.25%
|
|
2.50-3.00%
|
|
2.50-3.25%
|
|
Expected long-term return on assets
|
4.00-6.50%
|
|
4.00-6.50%
|
|
4.00-6.50%
|
|
U.S. post-retirement benefits plans:
|
|
|
|
|
|
|
Discount rate
|
4.00-4.25%
|
|
3.50%
|
|
4.75%
|
|
Expected long-term return on assets
|
8.00%
|
|
8.00%
|
|
8.00%
|
|
Current medical cost trend rate
|
8.00-9.00%
|
|
9.00%
|
|
9.00%
|
|
Ultimate medical cost trend rate
|
3.50%
|
|
3.50%
|
|
4.50%
|
|
Medical cost trend rate decreases to ultimate rate in year
|
2028
|
|
2027
|
|
2026
|
Assumptions used to calculate the benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
As of the Years Ending October 31,
|
|
|
2014
|
|
2013
|
|
U.S. defined benefit plans:
|
|
|
|
|
Discount rate
|
4.00%
|
|
4.50%
|
|
Average increase in compensation levels
|
3.50%
|
|
3.50%
|
|
Non-U.S. defined benefit plans:
|
|
|
|
|
Discount rate
|
1.50-4.00%
|
|
1.75-4.25%
|
|
Average increase in compensation levels
|
2.50-3.25%
|
|
2.50-3.25%
|
|
U.S. post-retirement benefits plans:
|
|
|
|
|
Discount rate
|
3.75-4.00%
|
|
4.25%
|
|
Current medical cost trend rate
|
8.00%
|
|
9.00%
|
|
Ultimate medical cost trend rate
|
3.50%
|
|
3.50%
|
|
Medical cost trend rate decreases to ultimate rate in year
|
2028
|
|
2028
|
Health care trend rates do not have a significant effect on the total service and interest cost components or on the post-retirement benefit obligation amounts reported for the U.S. Post-Retirement Benefit Plan for the year ended
October 31, 2014
.
16. GUARANTEES
Standard Warranty
We accrue for standard warranty costs based on historical trends in warranty charges as a percentage of net product shipments. 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. The standard warranty accrual balances are held in other accrued and other long-term liabilities on our consolidated balance sheet. Our standard warranty terms typically extend between one and three years from the date of delivery, depending on the product.
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,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Balance as of October 31, 2013 and 2012
|
$
|
69
|
|
|
$
|
60
|
|
|
Accruals for warranties including change in estimates
|
90
|
|
|
92
|
|
|
Settlements made during the period
|
(78
|
)
|
|
(83
|
)
|
|
Balance as of October 31, 2014 and 2013
|
$
|
81
|
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for warranties due within one year
|
60
|
|
|
48
|
|
|
Accruals for warranties due after one year
|
21
|
|
|
21
|
|
|
Balance as of October 31, 2014 and 2013
|
$
|
81
|
|
|
$
|
69
|
|
Indemnifications to Keysight
In connection with the separation of Keysight from Agilent on November 1, 2014 we agreed to indemnify Keysight and its affiliates against certain damages and expenses that might occur in the future. These indemnifications cover a variety of liabilities, including, but not limited to, employee, tax and environmental matters. The agreements containing these indemnifications have been previously disclosed as exhibits to our current report on Form 8-K filed on August 1, 2014. In our opinion, the fair value of these indemnification obligations was not material as of
October 31, 2014
.
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 and expenses that it might incur in the future. The continuing indemnifications primarily cover damages and expenses 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 connection with the separation of Keysight from Agilent, Keysight assumed the indemnification obligations to Avago. In our opinion, the fair value of these indemnification obligations was not material as of
October 31, 2014
.
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. On July 4, 2011, Verigy announced the completion by Advantest Corporation of its acquisition of Verigy. Verigy will operate as a wholly-owned subsidiary of Advantest and our indemnification obligations to Verigy should be unaffected. In connection with the separation of Keysight from Agilent, Keysight assumed the indemnification obligations to Verigy. In our opinion, the fair value of these indemnification obligations was not material as of
October 31, 2014
.
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 indemnification obligations was not material as of
October 31, 2014
.
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 ("VSEA") 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. On November 10, 2011, Applied Materials announced that it had completed the acquisition of VSEA, which is now a wholly-owned subsidiary of Applied Materials; our indemnification obligations to VSEA should be unaffected. In our opinion, the fair value of these indemnification obligations was not material as of
October 31, 2014
.
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 indemnification obligations was not material as of
October 31, 2014
.
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 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, 2014
.
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 indemnification obligations was not material as of
October 31, 2014
.
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, 2014
were
$57 million
for
2015
,
$47 million
for
2016
,
$34 million
for
2017
,
$22 million
for
2018
,
$13 million
for
2019
and
$33 million
thereafter. Future minimum sublease income under leases at
October 31, 2014
was
$7 million
for
2015
,
$5 million
for
2016
,
$3 million
for
2017
, and
$0 million
thereafter. We expect that with the separation of Keysight from Agilent on November 1, 2014 that future minimum lease payments will reduced by approximately $52 million and sub-lease income will increase by approximately $50 million over the periods presented above. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. Total rent expense was
$93 million
in
2014
,
$90 million
in
2013
and
$84 million
in
2012
.
Contingencies:
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 currently believe are reasonably possible of having a material impact to our business, consolidated financial condition, results of operations or cash flows.
On March 4, 2013, we made a report to the Inspector General of the Department of Defense (“DOD IG”) regarding pricing irregularities relating to certain sales of electronic measurement products to U.S. government agencies. We conducted an investigation with the assistance of outside counsel and approached the DOD IG with a proposed methodology for resolving possible overcharges to U.S. government purchasers resulting from these sales and discussed the matter with the Department of Justice (“DOJ”). On October 31, 2014, the Company resolved the matter with the DOJ with a settlement for an amount that was not material to Agilent's financial condition, results of operations or cash flows.
As part of routine internal audit activities, the Company determined that certain employees of Agilent's subsidiaries in China did not comply with the Company's Standards of Business Conduct and other policies. Based on those findings, the Company has initiated an internal investigation, with the assistance of outside counsel, relating to certain sales of our products through third party intermediaries in China. The internal investigation included a review of compliance by our employees in China with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations. On September 5, 2013, the Company voluntarily contacted the United States Securities and Exchange Commission (“SEC”) and United States Department of Justice (“DOJ”) to advise both agencies of this internal investigation. On September 15, 2014, the Company received a letter from the SEC’s Division of Enforcement stating that its investigation had been completed and that the Division of Enforcement did not intend to recommend any enforcement action against the Company by the SEC. On September 24, 2014, the Company received a letter from DOJ stating that DOJ had closed its inquiry into the matter, citing the Company’s voluntary disclosure and thorough investigation.
18. SHORT-TERM DEBT
Credit Facilities
On
September 15, 2014
, Agilent entered into a credit agreement with a financial institution which provides for a
$400 million
five-year
unsecured credit facility (the “Agilent Facility”) that will expire on
September 15, 2019
. The Agilent Facility
replaced the previous credit facility (“old credit facility”) and provides for amounts to be borrowed for general corporate purposes. For the year ended October 31, 2014, we borrowed
$50 million
under the old credit facility and repaid
$50 million
by October 31, 2014. As of October 31, 2014 the company has
no
borrowings outstanding under the Agilent facility. We were in compliance with the covenants for the credit facilities during the year ended October 31, 2014.
On
September 15, 2014
, Keysight, a wholly owned subsidiary of Agilent, entered into a credit agreement with a financial institution which provides for a
$300 million
five-year
unsecured credit facility (the “Keysight Facility”) that will expire on
November 1, 2019
and provides for amounts to be borrowed for general corporate purposes. The credit agreement was initially guaranteed by Agilent. The guarantee terminated upon the completion of the separation of Keysight from Agilent on November 1, 2014. As of October 31, 2014 the company has
no
borrowings outstanding under the Keysight facility. We were in compliance with the covenants for the credit facility during the year ended October 31, 2014.
As a result of the Dako acquisition, we have a credit facility in Danish Krone equivalent of
$9 million
with a Danish financial institution. As of
October 31, 2014
the company had
no
borrowings outstanding under the facility.
Short- Term Loan
On
July 10, 2014
, a wholly owned subsidiary of Agilent in India entered into a short-term loan agreement with a financial institution, which provides up to
$50 million
of unsecured borrowings. On July 25, 2014, we borrowed
$35 million
against the loan agreement at an interest rate of
9.95 percent
per annum. The loan was repaid during the year and as of October 31, 2014, no balance was outstanding against this loan agreement.
19. LONG-TERM DEBT
Senior Notes
The following table summarizes the company's long-term senior notes and the related interest rate swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2014
|
|
October 31, 2013
|
|
|
Amortized
Principal
|
|
Swap
|
|
Total
|
|
Amortized
Principal
|
|
Swap
|
|
Total
|
|
|
(in millions)
|
|
2015 Senior Notes
|
$
|
—
|
|
|
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
12
|
|
|
$
|
512
|
|
|
2017 Senior Notes
|
100
|
|
|
3
|
|
|
103
|
|
|
599
|
|
|
22
|
|
|
621
|
|
|
2019 Senior Notes
|
500
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2020 Senior Notes
|
499
|
|
|
22
|
|
|
521
|
|
|
498
|
|
|
26
|
|
|
524
|
|
|
2022 Senior Notes
|
399
|
|
|
—
|
|
|
399
|
|
|
399
|
|
|
—
|
|
|
399
|
|
|
2023 Senior Notes
|
598
|
|
|
—
|
|
|
598
|
|
|
597
|
|
|
—
|
|
|
597
|
|
|
2024 Senior Notes
|
599
|
|
|
—
|
|
|
599
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
2,695
|
|
|
$
|
25
|
|
|
$
|
2,720
|
|
|
$
|
2,593
|
|
|
$
|
60
|
|
|
$
|
2,653
|
|
2015 Senior Notes
On July 14, 2014, we settled the redemption of the outstanding aggregate principal amount of our 5.5% senior notes (“2015 senior notes”) due September 14, 2015, that had been called for redemption on June 12, 2014. The redemption price of approximately
$528 million
included the
$500 million
principal amount and a
$28 million
prepayment penalty, computed in accordance with the terms of the 2015 senior notes as the present value of the remaining scheduled payments of principal and unpaid interest. The prepayment penalty less full amortization of previously deferred interest rate swap gain of approximately
$8 million
together with
$1 million
of amortization of debt issuance costs and discount was disclosed in other income (expense), net in the condensed consolidated statement of operations. We also paid accrued and unpaid interest of
$9 million
on the 2015 senior notes up to but not including the redemption date.
2017 Senior Notes
In
October 2007
, the company issued an aggregate principal amount of
$600 million
in senior notes ("2017 senior notes"). The 2017 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 1st and November 1st 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, including interest receivable, upon termination was approximately
$43 million
and the amount to be amortized at
October 31, 2014
was
$3 million
. The gain is being deferred and amortized to interest expense over the remaining life of the 2017 senior notes.
On October 20, 2014, we settled the redemption of
$500 million
of the $600 million outstanding aggregate principal amount of our 2017 senior notes due November 1, 2017 that had been called for redemption on September 19, 2014. The redemption price of approximately
$580 million
included a
$80 million
prepayment penalty computed in accordance with the terms of the 2017 senior notes as the present value of the remaining scheduled payments of principal and unpaid interest related to $500 million partial redemption. The prepayment penalty less partial amortization of previously deferred interest rate swap gain of approximately
$14 million
together with
$2 million
of amortization of debt issuance costs and discount was disclosed in other income (expense), net in the condensed consolidated statement of operations. We also paid accrued and unpaid interest of
$15 million
on the 2017 senior notes up to but not including the redemption date.
2020 Senior Notes
In
July 2010
, the company issued an aggregate principal amount of
$500 million
in senior notes ("2020 senior notes"). The 2020 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 15th and July 15th of each year, payments commenced on
January 15, 2011
.
On
August 9, 2011
, we terminated our interest rate swap contracts related to our 2020 senior notes that represented the notional amount of
$500 million
. The asset value, including interest receivable, upon termination for these contracts was approximately
$34 million
and the amount to be amortized at
October 31, 2014
was
$22 million
. The gain is being deferred and amortized to interest expense over the remaining life of the 2020 senior notes.
2022 Senior Notes
In
September 2012
, the company issued an aggregate principal amount of
$400 million
in senior notes ("2022 senior notes"). The 2022 senior notes were issued at
99.80%
of their principal amount. The notes will mature on
October 1, 2022
, and bear interest at a fixed rate of
3.20%
per annum. The interest is payable
semi-annually
on April 1st and October 1st of each year, payments commenced on
April 1, 2013
.
2023 Senior Notes
In
June 2013
, the company issued aggregate principal amount of
$600 million
in senior notes ("2023 senior notes"). The 2023 senior notes were issued at
99.544%
of their principal amount. The notes will mature on
July 15, 2023
and bear interest at a fixed rate of
3.875%
per annum. The interest is payable
semi annually
on January 15th and July 15th of each year and payments will commence
January 15, 2014
.
Keysight 2019 and 2024 Senior Notes
On
October 6, 2014
Keysight announced that it had agreed to sell
$500 million
of
3.30%
senior notes due 2019 ("2019 senior notes") and
$600 million
of
4.55%
senior notes due 2024 ("2024 senior notes"). The transaction closed on October 15, 2014. Each series of notes initially were guaranteed on an unsecured, unsubordinated basis by Agilent. The guarantees terminated upon the completion of the separation of Keysight from Agilent on November 1, 2014.
All notes issued are unsecured and rank equally in right of payment with all of Agilent's other senior unsecured indebtedness.
Other debt
As of
October 31, 2014
, and as a result of the Dako acquisition, we have mortgage debts, secured on buildings in Denmark, in Danish Krone equivalent of
$42 million
aggregate principal outstanding with a Danish financial institution. The loans have a variable interest rate based on 3 months Copenhagen Interbank Rate ("Cibor") and will mature on
September 30, 2027
. Interest payments are made in
March, June, September and December of each year
.
20. STOCKHOLDERS' EQUITY
Stock Repurchase Program
On
January 16, 2013
, our board of directors approved a share-repurchase program (the "2013 repurchase program"). The 2013 repurchase program authorized the use of up to
$500 million
to repurchase shares of the company's common stock in open market transactions. On May 14, 2013, we announced that our board of directors authorized an increase of
$500 million
to the 2013 repurchase program bringing the cumulative authorization to
$1 billion
. As of October 31, 2014, there were
no
remaining amounts to be repurchased under the 2013 program.
On
November 22, 2013
we announced that our board of directors had authorized a new share repurchase program effective upon the conclusion of the company's
$1 billion
repurchase program. The new program is designed to reduce or eliminate dilution resulting from issuance of stock under the company's employee equity incentive programs to target maintaining a weighted average share count of approximately
335 million
diluted shares.
For the year ended
October 31, 2014
, we repurchased
4 million
shares for
$200 million
. For the year ended
October 31, 2013
we repurchased approximately
20 million
shares for
$900 million
. For the year ended
October 31, 2012
we repurchased
5 million
shares for
$172 million
. All such shares and related costs are held as treasury stock and accounted for using the cost method.
Cash Dividends on Shares of Common Stock
During the year ended
October 31, 2014
, cash dividends of
$0.528
per share, or
$176 million
were declared and paid on the company's outstanding common stock. During the year ended
October 31, 2013
, cash dividends of
$0.46
per share, or
$156 million
were declared and paid on the company's outstanding common stock. During the year ended
October 31, 2012
, cash dividends of
$0.30
per share, or
$104 million
were declared and paid on the company's outstanding common stock. On November 20, 2014, we declared a quarterly dividend of
$0.10
per share of common stock, or approximately
$34 million
which will be paid on
January 28, 2015
to shareholders of record as of the close of business on
January 6, 2015
. The timing and amounts of any future dividends are subject to determination and approval by our board of directors.
Accumulated other comprehensive income
The following table summarizes the components of our accumulated other comprehensive income as of October 31, 2014 and 2013, net of tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Unrealized gain on equity securities, net of $(3) and $(2) of tax expense for 2014 and 2013, respectively
|
$
|
17
|
|
|
$
|
7
|
|
|
Foreign currency translation, net of $(86) and $(94) of tax expense for 2014 and 2013, respectively
|
156
|
|
|
425
|
|
|
Unrealized losses on defined benefit plans, net of tax benefit of $145 and $64 for 2014 and 2013, respectively
|
(516
|
)
|
|
(341
|
)
|
|
Unrealized gains (losses) on derivative instruments, net of tax expense of $(7) and $(2) for 2014 and 2013, respectively
|
9
|
|
|
—
|
|
|
Total accumulated other comprehensive income (loss)
|
$
|
(334
|
)
|
|
$
|
91
|
|
Changes in accumulated other comprehensive income by component and related tax effects for the years ended October 31, 2014 and 2013 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit pension cost and post retirement plan costs
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
Foreign currency translation
|
|
Prior service credits
|
|
Actuarial Losses
|
|
Unrealized gains (losses) on derivatives
|
|
Total
|
|
|
|
(in millions)
|
|
As of October 31, 2012
|
|
$
|
—
|
|
|
$
|
424
|
|
|
$
|
319
|
|
|
$
|
(856
|
)
|
|
$
|
2
|
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
9
|
|
|
(7
|
)
|
|
—
|
|
|
256
|
|
|
10
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
86
|
|
|
(13
|
)
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax (expense) benefit
|
|
(2
|
)
|
|
8
|
|
|
16
|
|
|
(114
|
)
|
|
1
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
7
|
|
|
1
|
|
|
(32
|
)
|
|
228
|
|
|
(2
|
)
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2013
|
|
$
|
7
|
|
|
$
|
425
|
|
|
$
|
287
|
|
|
$
|
(628
|
)
|
|
$
|
—
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
12
|
|
|
(277
|
)
|
|
—
|
|
|
(273
|
)
|
|
13
|
|
|
(525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified out of accumulated other comprehensive income
|
|
(1
|
)
|
|
—
|
|
|
(48
|
)
|
|
65
|
|
|
1
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax (expense) benefit
|
|
(1
|
)
|
|
8
|
|
|
16
|
|
|
65
|
|
|
(5
|
)
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
10
|
|
|
(269
|
)
|
|
(32
|
)
|
|
(143
|
)
|
|
9
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2014
|
|
$
|
17
|
|
|
$
|
156
|
|
|
$
|
255
|
|
|
$
|
(771
|
)
|
|
$
|
9
|
|
|
$
|
(334
|
)
|
Reclassifications out of accumulated other comprehensive income for the years ended October 31, 2014 and 2013 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about accumulated other
|
|
Amounts Reclassified
|
Affected line item in
|
|
comprehensive income components
|
|
from other comprehensive income
|
statement of operations
|
|
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on equity securities
|
|
$
|
1
|
|
|
$
|
—
|
|
|
Other income (expense), net
|
|
|
|
1
|
|
|
—
|
|
|
Total before income tax
|
|
|
|
—
|
|
|
—
|
|
|
Provision for income tax
|
|
|
|
1
|
|
|
—
|
|
|
Total net of income tax
|
|
|
|
|
|
|
|
|
|
Unrealized gains and (losses) on derivatives
|
|
(1
|
)
|
|
13
|
|
|
Cost of products
|
|
|
|
(1
|
)
|
|
13
|
|
|
Total before income tax
|
|
|
|
—
|
|
|
(3
|
)
|
|
(Provision)/benefit for income tax
|
|
|
|
(1
|
)
|
|
10
|
|
|
Total net of income tax
|
|
Net defined benefit pension cost and post retirement plan costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial net loss
|
|
(65
|
)
|
|
(86
|
)
|
|
|
|
Prior service benefit
|
|
48
|
|
|
48
|
|
|
|
|
|
|
(17
|
)
|
|
(38
|
)
|
|
Total before income tax
|
|
|
|
(2
|
)
|
|
7
|
|
|
(Provision)/benefit for income tax
|
|
|
|
(19
|
)
|
|
(31
|
)
|
|
Total net of income tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(19
|
)
|
|
$
|
(21
|
)
|
|
|
Amounts in parentheses indicate reductions to income and increases to other comprehensive income.
Reclassifications of prior service benefit and actuarial net loss in respect of retirement plans and post retirement pension plans are included in the computation of net periodic cost (see Note 15 "Retirement Plans and Post Retirement Pension Plans").
21. SEGMENT INFORMATION
Description of segments.
We are a measurement company providing core bio-analytical and electronic measurement solutions to the life sciences, diagnostics and genomics, chemical analysis, communications and electronics industries. Agilent has three business segments comprised of the life sciences and diagnostics business, the chemical analysis business and the electronic measurement business. The
three
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 operating segments.
A description of our
three
reportable segments is as follows:
Our life sciences and diagnostics business provides application-focused solutions that include reagents, instruments, software, consumables, and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products, as well as enable customers in the clinical and life sciences research areas to interrogate samples at the molecular level. Key product categories include: liquid chromatography systems, columns and components; liquid chromatography mass spectrometry systems; laboratory software and informatics systems; laboratory automation and robotic systems; dissolution testing; nucleic acid solutions; Nuclear Magnetic Resonance, Magnetic Resonance Imaging, and X-Ray
Diffraction systems; services and support for the aforementioned products; immunohistochemistry ; In Situ Hybridization; Hematoxylin and Eosin staining; special staining, DNA mutation detection; genotyping; gene copy number determination; identification of gene rearrangements; DNA methylation profiling; gene expression profiling; next generation sequencing target enrichment; and automated gel electrophoresis-based sample analysis systems. We also collaborate with a number of major pharmaceutical companies to develop new potential pharmacodiagnostics, also called companion diagnostics, with the potential of identifying patients most likely to benefit from a specific targeted therapy.
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 (GC) systems, columns and components; gas chromatography mass spectrometry (GC-MS) systems; inductively coupled plasma mass spectrometry (ICP-MS) instruments; atomic absorption (AA) instruments; inductively coupled plasma optical emission spectrometry (ICP-OES) instruments; molecular spectroscopy instruments; software and data systems; vacuum pumps and measurement technologies; services and support for our 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. Beginning in fiscal year 2014, we created the order fulfillment and supply chain organization (“OFS”) to centralize all order fulfillment and supply chain operations in our life sciences and diagnostics and chemicals analysis businesses. Similarly we created the order fulfillment and infrastructure (“OFI”) organization to centralize all order fulfillment and supply organizations and operations within our electronic measurement business. Both OFS and OFI provide resources for manufacturing, engineering and strategic sourcing to our respective businesses. In general, OFS and OFI employees are dedicated to specific businesses and the associated costs are directly allocated to those businesses.
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, acquisition and integration costs, one-time and pre-separation costs, non-cash amortization and other items as noted in the reconciliations below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Diagnostics
|
|
Chemical
Analysis
|
|
Electronic
Measurement
|
|
Total
Segments
|
|
|
(in millions)
|
|
Year ended October 31, 2014:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,372
|
|
|
$
|
1,676
|
|
|
$
|
2,933
|
|
|
$
|
6,981
|
|
|
Income from operations
|
$
|
376
|
|
|
$
|
387
|
|
|
$
|
559
|
|
|
$
|
1,322
|
|
|
Depreciation expense
|
$
|
74
|
|
|
$
|
31
|
|
|
$
|
89
|
|
|
$
|
194
|
|
|
Share-based compensation expense
|
$
|
33
|
|
|
$
|
23
|
|
|
$
|
42
|
|
|
$
|
98
|
|
|
Year ended October 31, 2013:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,300
|
|
|
$
|
1,594
|
|
|
$
|
2,888
|
|
|
$
|
6,782
|
|
|
Income from operations
|
$
|
377
|
|
|
$
|
355
|
|
|
$
|
544
|
|
|
$
|
1,276
|
|
|
Depreciation expense
|
$
|
71
|
|
|
$
|
27
|
|
|
$
|
83
|
|
|
$
|
181
|
|
|
Share-based compensation expense
|
$
|
26
|
|
|
$
|
21
|
|
|
$
|
38
|
|
|
$
|
85
|
|
|
Year ended October 31, 2012:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
1,984
|
|
|
$
|
1,559
|
|
|
$
|
3,315
|
|
|
$
|
6,858
|
|
|
Income from operations
|
$
|
295
|
|
|
$
|
338
|
|
|
$
|
751
|
|
|
$
|
1,384
|
|
|
Depreciation expense
|
$
|
57
|
|
|
$
|
31
|
|
|
$
|
83
|
|
|
$
|
171
|
|
|
Share-based compensation expense
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
37
|
|
|
$
|
76
|
|
The following table reconciles reportable segments' income from operations to Agilent's total enterprise income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in millions)
|
|
Total reportable segments' income from operations
|
$
|
1,322
|
|
|
$
|
1,276
|
|
|
$
|
1,384
|
|
|
Restructuring and business exit related costs
|
(64
|
)
|
|
(53
|
)
|
|
—
|
|
|
Acceleration of depreciation for held and used assets
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
Asset Impairments
|
(4
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
Transformational programs
|
(29
|
)
|
|
(19
|
)
|
|
(25
|
)
|
|
Amortization of intangibles
|
(197
|
)
|
|
(199
|
)
|
|
(136
|
)
|
|
Acquisition and integration costs
|
(12
|
)
|
|
(29
|
)
|
|
(74
|
)
|
|
Acceleration of share-based compensation expense related to workforce reduction
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|
One-time and pre-separation costs
|
(191
|
)
|
|
(5
|
)
|
|
—
|
|
|
Other
|
7
|
|
|
(14
|
)
|
|
(14
|
)
|
|
Interest Income
|
9
|
|
|
7
|
|
|
9
|
|
|
Interest Expense
|
(113
|
)
|
|
(107
|
)
|
|
(101
|
)
|
|
Other income (expense), net
|
(81
|
)
|
|
8
|
|
|
16
|
|
|
Income before taxes, as reported
|
$
|
646
|
|
|
$
|
859
|
|
|
$
|
1,043
|
|
Major customers.
No customer represented 10 percent or more of our total net revenue in
2014
,
2013
or
2012
.
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 and other assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Diagnostics
|
|
Chemical
Analysis
|
|
Electronic
Measurement
|
|
Total
Segments
|
|
|
(in millions)
|
|
As of October 31, 2014:
|
|
|
|
|
|
|
|
|
Assets
|
$
|
4,312
|
|
|
$
|
1,815
|
|
|
$
|
1,976
|
|
|
$
|
8,103
|
|
|
Capital expenditures
|
$
|
77
|
|
|
$
|
33
|
|
|
$
|
95
|
|
|
$
|
205
|
|
|
As of October 31, 2013:
|
|
|
|
|
|
|
|
|
Assets
|
$
|
4,291
|
|
|
$
|
1,756
|
|
|
$
|
1,997
|
|
|
$
|
8,044
|
|
|
Capital expenditures
|
$
|
77
|
|
|
$
|
30
|
|
|
$
|
88
|
|
|
$
|
195
|
|
The following table reconciles segment assets to Agilent's total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2014
|
|
2013
|
|
|
(in millions)
|
|
Total reportable segments' assets
|
$
|
8,103
|
|
|
$
|
8,044
|
|
|
Cash, cash equivalents and short-term investments
|
3,028
|
|
|
2,675
|
|
|
Prepaid expenses
|
241
|
|
|
198
|
|
|
Investments
|
159
|
|
|
139
|
|
|
Long-term and other receivables
|
124
|
|
|
162
|
|
|
Other
|
(824
|
)
|
|
(532
|
)
|
|
Total assets
|
$
|
10,831
|
|
|
$
|
10,686
|
|
The other category primarily represents the difference between how segments report deferred taxes and intangible assets at the initial purchased amount.
The following table presents summarized information for net revenue and long-lived assets by geographic region. Revenues from external customers are generally attributed to countries based upon the location of the Agilent sales representative. 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 rest of Asia and Europe.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
China
|
|
Japan
|
|
Rest of the
World
|
|
Total
|
|
|
(in millions)
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
Year ended October 31, 2014
|
$
|
2,070
|
|
|
$
|
1,133
|
|
|
$
|
595
|
|
|
$
|
3,183
|
|
|
$
|
6,981
|
|
|
Year ended October 31, 2013
|
$
|
2,043
|
|
|
$
|
1,131
|
|
|
$
|
628
|
|
|
$
|
2,980
|
|
|
$
|
6,782
|
|
|
Year ended October 31, 2012
|
$
|
2,218
|
|
|
$
|
1,078
|
|
|
$
|
716
|
|
|
$
|
2,846
|
|
|
$
|
6,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
Japan
|
|
Rest of the
World
|
|
Total
|
|
|
(in millions)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
October 31, 2014
|
$
|
597
|
|
|
$
|
180
|
|
|
$
|
656
|
|
|
$
|
1,433
|
|
|
October 31, 2013
|
$
|
601
|
|
|
$
|
187
|
|
|
$
|
658
|
|
|
$
|
1,446
|
|
QUARTERLY SUMMARY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 31,
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
|
(in millions, except per share data)
|
|
2014
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
1,679
|
|
|
$
|
1,731
|
|
|
$
|
1,766
|
|
|
$
|
1,805
|
|
|
Gross profit
|
883
|
|
|
899
|
|
|
914
|
|
|
897
|
|
|
Income from operations
|
218
|
|
|
210
|
|
|
229
|
|
|
174
|
|
|
Net income
|
$
|
195
|
|
|
$
|
139
|
|
|
$
|
147
|
|
|
$
|
23
|
|
|
Net income per share — Basic:
|
$
|
0.59
|
|
|
$
|
0.42
|
|
|
$
|
0.44
|
|
|
$
|
0.07
|
|
|
Net income per share — Diluted:
|
$
|
0.58
|
|
|
$
|
0.41
|
|
|
$
|
0.43
|
|
|
$
|
0.07
|
|
|
Weighted average shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
333
|
|
|
333
|
|
|
334
|
|
|
334
|
|
|
Diluted
|
338
|
|
|
337
|
|
|
338
|
|
|
338
|
|
|
Cash dividends per common share
|
$
|
0.132
|
|
|
$
|
0.132
|
|
|
$
|
0.132
|
|
|
$
|
0.132
|
|
|
Range of stock prices on NYSE
|
$ 49.84-61.22
|
|
|
$ 51.96-60.46
|
|
|
$ 53.66-59.58
|
|
|
$ 49.80-59.40
|
|
|
2013
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
1,680
|
|
|
$
|
1,732
|
|
|
$
|
1,652
|
|
|
$
|
1,718
|
|
|
Gross profit
|
880
|
|
|
891
|
|
|
856
|
|
|
908
|
|
|
Income from operations
|
217
|
|
|
213
|
|
|
236
|
|
|
285
|
|
|
Net income
|
$
|
179
|
|
|
$
|
166
|
|
|
$
|
168
|
|
|
$
|
211
|
|
|
Net income per share — Basic:
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.50
|
|
|
$
|
0.64
|
|
|
Net income per share — Diluted:
|
$
|
0.51
|
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
0.63
|
|
|
Weighted average shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
347
|
|
|
345
|
|
|
339
|
|
|
331
|
|
|
Diluted
|
352
|
|
|
349
|
|
|
343
|
|
|
336
|
|
|
Cash dividends per common share
|
$
|
0.22
|
|
|
$
|
—
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
Range of stock prices on NYSE
|
$ 35.45-45.55
|
|
|
$ 40.19-45.66
|
|
|
$ 41.24-47.47
|
|
|
$ 45.32-53.47
|
|
