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 global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.
Basis of Presentation. The accompanying consolidated financial statements have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") and are 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.
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, retirement and post-retirement plan assumptions and accounting for income taxes.
Risks and Uncertainties. We are subject to risks common to companies in the analytical instrument industry, such as global economic and financial market conditions, fluctuations in foreign currency exchange rates and fluctuations in customer demand, among others.
Both our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide. As a result, academic and research laboratories had temporarily closed in our second and third quarters and hospitals and testing laboratories had halted or reduced certain elective medical procedures, which had an adverse effect on our customers' business. The COVID-19 pandemic has caused significant volatility and uncertainty in U.S. and international markets, which could result in a prolonged economic downturn that could disrupt our business.
Revenue Recognition. We enter into contracts to sell products, services or combinations of products and services. Products may include hardware or software and services may include one-time service events or services performed over time.
We derive revenue primarily from the sale of analytical and diagnostics products and services. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606’’). See also Note 4, "Revenue" for additional information on revenue recognition.
Revenue is recognized when control of the promised products or services is transferred to our customers and the performance obligation is fulfilled in an amount that reflects the consideration that we expect to be entitled in exchange for those products or services, the transaction price. For equipment, consumables, and most software licenses, control transfers to the customer at a point in time. We use present right to payment, legal title, physical possession of the asset, and risks and rewards of ownership as indicators to determine the transfer of control to the customer. Where acceptance is not a formality, the customer must have documented their acceptance of the product or service. For products that include installation, if the installation meets the criteria to be considered a separate performance obligation, product revenue is recognized when control has passed to the customer, and recognition of installation revenue occurs once completed. Product revenue, including sales to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
resellers and distributors is reduced for provisions for warranties, returns, and other adjustments in the period the related sales are recorded.
Service revenue includes extended warranty, customer and software support including: Software as a Service, post contract support, consulting including companion diagnostics, and training and education. Instrument service contracts and software maintenance contracts are typically annual contracts, which are billed at the beginning of the contract or maintenance period. Revenue for these contracts is recognized on a straight-line basis to revenue over the service period, as a time-based measure of progress best reflects our performance in satisfying this obligation. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. Service calls not included in a support contract are recognized to revenue at the time a service is performed.
We have sales from standalone software. These arrangements typically include software licenses and maintenance contracts, both of which we have determined are distinct performance obligations. We determine the amount of the transaction price to allocate to the license and maintenance contract based on the relative standalone selling price of each performance obligation. Software license revenue is recognized at the point in time when control has been transferred to the customer. The revenue allocated to the software maintenance contract is recognized on a straight-line basis over the maintenance period, which is the contractual term of the contract, as a time-based measure of progress best reflects our performance in satisfying this obligation. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on a when-and-if-available basis.
Our multiple-element arrangements are generally comprised of a combination of 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 when control passes to the customer. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. Our arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.
For contracts with multiple performance obligations, we allocate the consideration to which we expect to be entitled to each performance obligation based on relative standalone selling prices and recognize the related revenue when or as control of each individual performance obligation is transferred to customers. We estimate the standalone selling price by calculating the average historical selling price of our products and services per country for each performance obligation. Standalone selling prices are determined for each distinct good or service in the contract, and then we allocate the transaction price in proportion to those standalone selling prices by performance obligations.
A portion of our revenue relates to lease arrangements. Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842, Leases for 2020 and ASC 840, Leases for prior periods. Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type capital lease using the current lease classification guidance.
Deferred Revenue. Contract liabilities (deferred revenue) primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements (performance obligations) to the customer has either partially or not occurred at the balance sheet date. This includes cash received from customers for products and related installation and services in advance of the transfer of control. Contract liabilities are classified as either in current liabilities in deferred revenue or long-term in other long-term liabilities in the consolidated balance sheet based on the timing of when we expect to complete our performance obligation.
Sales Taxes. Sales taxes collected from customers and remitted to governmental authorities are not included in our revenue.
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.
Research and Development. Costs related to research, design and development of our products are charged to research and development expense as they are incurred.
Advertising. Advertising costs are generally expensed as incurred and amounted to $48 million in 2020, $36 million in 2019 and $41 million in 2018.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. See Note 6, "Income Taxes" for more information.
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 and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are assumed proceeds to be used to repurchase hypothetical shares. See Note 7, "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, 2020, approximately $1,395 million of our cash and cash equivalents is held outside of the U.S. by our foreign subsidiaries. Our cash and cash equivalents mainly consist of short-term deposits held at major global financial institutions, institutional money market funds, and similar short duration instruments with original maturities of 90 days or less. We continuously monitor the creditworthiness of the financial institutions and institutional money market funds in which we invest our funds.
We classify investments as short-term investments if their original maturities are greater than three months and their remaining maturities are one year or less. Currently, we have no short-term investments.
Restricted Cash and Restricted Cash Equivalents. Restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet follows:
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October 31,
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2020
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2019
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2018
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(in millions)
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|
|
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Cash and cash equivalents
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$
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1,441
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|
|
$
|
1,382
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|
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$
|
2,247
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|
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Restricted cash included in other assets
|
6
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|
|
6
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|
|
7
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|
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Total cash, cash equivalents and restricted cash
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$
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1,447
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|
|
$
|
1,388
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|
|
$
|
2,254
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Accounts Receivable, net. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Such accounts receivable have 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, 2020 and 2019 was not material. We do not have any off-balance-sheet credit exposure related to our customers. Accounts receivable are also recorded net of estimated product returns which are not material.
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. No single customer accounted for more than 10 percent of accounts receivable as of October 31, 2020, or 2019.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 3 years to 10 years. We use the straight-line method to depreciate assets.
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 3 years to 5 years once development is complete.
Leases. We determine whether an arrangement is, or contains, a lease at inception. Prior to November 1, 2019, for leases where we are the lessee, we accounted for operating lease payments by charging them to expense as incurred. At the beginning of fiscal 2020, the company adopted new lease accounting guidance issued by the Financial Accounting Standards Board ("FASB"). The most significant change requires lessees to record the present value of operating lease payments as right-of-use ("ROU") assets and lease liabilities on the consolidated balance sheet. Where we are the lessee, ROU assets represent the company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term. Classification of operating lease liabilities as either current or non-current is based on the expected timing of payments due under our obligations. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment. In order to determine the appropriate incremental borrowing rates, we have used a number of factors including the company's credit rating, the lease term and the currency swap rate. The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. Lease expense for operating leases with an initial term of more than twelve months is recognized on a straight-line basis over the lease term as an operating expense. We have lease agreements which require payments for lease and non-lease components. We have elected to account for these payments as a single lease component.
A portion of our revenue relates to lease arrangements where Agilent is the lessor. Standalone lease arrangements are outside the scope of Accounting Standard Codification ("ASC") Topic 606, Revenue Contracts with Customers, and are therefore accounted for in accordance with ASC Topic 842, Leases. Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type finance lease using the current lease classification guidance. In a lease arrangement that is a multiple-element arrangement that contains equipment leases and the supply of consumables, the revenue associated with the instrument rental is treated under the lease accounting standard ASC 842, whereas the revenue associated with the consumables, the non-lease component, is recognized in accordance with the ASC 606 revenue standard.
See also Note 2, "New Accounting Pronouncements" and Note 10, "Leases" for additional information about the company’s leases.
Acquisitions. Agilent accounts for the acquisition of a business using the acquisition method of accounting, and we allocate the fair value of the purchase price to the tangible assets acquired, liabilities assumed, and intangible assets acquired, including in-process research and development (“IPR&D”), based on their estimated fair values. The excess value of the cost of an acquired business over the fair value of the assets acquired and liabilities assumed is recognized as goodwill. The fair value of IPR&D is initially capitalized as an intangible asset with an indefinite life. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset’s estimated useful life.
Our determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions. Specifically, our determination of the fair value of the developed product technology and IPR&D acquired
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
involve significant estimates and assumptions related to revenue growth rates and discount rates. Our determination of the fair value of customer relationships acquired involved significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates. Our determination of the fair value of the tradename acquired involved the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates. The company believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use. Actual results could differ materially from these estimates.
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.
In fiscal year 2020, we assessed goodwill impairment for our three reporting units which consisted of three segments: life sciences and applied markets, diagnostics and genomics and Agilent CrossLab. We performed a qualitative test for goodwill impairment of the three reporting units, as of September 30, 2020, our annual impairment test date. Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of each reporting unit is greater than its respective carrying value. 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, 2020, 2019 and 2018.
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. IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter. When the IPR&D project is complete, it is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. If an IPR&D project is abandoned, Agilent will record a charge for the value of the related intangible asset to Agilent's consolidated statement of operations in the period it is abandoned.
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, 2020. Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair values of these indefinite-lived intangible assets are 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. During the year ended October 31, 2020, we recorded an impairment of in-process research and development of $90 million related to the shutdown of our sequencer development program in our diagnostics and genomics segment. During the year ended October 31, 2019 and 2018 there were no impairments of indefinite-lived intangible assets.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. During the year ended October 31, 2020 we recorded an impairment charge of long-lived assets including indefinite-lived in-process research and development of $98 million related to the shutdown of our sequencer development program in our diagnostics and genomics segment. During fiscal year 2019, there were no impairments of other assets or intangible assets. During fiscal year 2018, we recorded an impairment charge of $21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.
Variable Interest Entities. We make a determination upon entering into an arrangement whether an entity in which we have made an investment is considered a Variable Interest Entity (“VIE”). The company evaluates its investments in privately held companies on an ongoing basis. We have determined that as of October 31, 2020 and 2019, there were no VIE's required to be consolidated in the company's consolidated financial statements because we do not have a controlling financial interest in any of the VIE's in which we have invested nor are we the primary beneficiary. We account for these investments under either the equity method or as equity investments without readily determinable fair value, depending on the circumstances. We periodically reassess whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.
During the year ended October 31, 2018, we exercised our option and acquired all of the remaining shares of Lasergen, Inc. ("Lasergen") that we did not already own for an additional cash consideration of approximately $107 million. The fair value remeasurement of our previous investment immediately before the acquisition resulted in a net gain of $20 million and was recorded in other income. Lasergen was previously considered a VIE.
As of October 31, 2020 and October 31, 2019, the total carrying value of investments and loans in privately held companies considered as VIEs was $67 million and $29 million respectively. The maximum exposure is equal to the carrying value because we do not have future funding commitments. The investments are included on the long-term investments line and the loans on the other current assets and other assets lines (depending upon tenure of loan) on the consolidated balance sheet.
Investments. Equity investments without readily determinable fair value consist of non-marketable equity securities (typically investments in privately-held companies). These investments are accounted for using the measurement alternative at cost, and we adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) included in net income as and when it occurs. Equity investments with readily determinable fair value consist of shares we own in a special fund and are reported at fair value, with gains or losses resulting from changes in fair value included in net income. Prior to fiscal year 2019, both equity investments without determinable fair value and with determinable fair value were accounted for using cost method of accounting, measured at historical cost less other-than-temporary investment. Trading securities, which are comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liabilities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. 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. There are no equity method investments as of October 31, 2020 and 2019. The company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.
Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. The fair value of long-term equity investments which are readily determinable, and which are not accounted under the equity method are reported at fair value using quoted market prices for those securities when available with gains and losses included in net income. The fair value of long-term equity investments which are not readily determinable, and which are not accounted under the equity method are reported at cost with adjustments for observable changes in prices or impairments included in net income. The fair value of our senior notes, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy exceeds the carrying value by approximately $162 million as of October 31, 2020 and approximately $62 million as of October 31, 2019. The change in the fair value over carrying value in the year ended October 31, 2020 is primarily due to decreased market interest rates. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 13, "Fair Value Measurements" for additional information on the fair value of financial instruments.
Warranty. Our standard warranty terms typically extend for one year from the date of delivery. We accrue for standard warranty costs based on historical trends in warranty charges. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost over the period. Estimated warranty charges are recorded within cost of products at the time products are sold. See Note 16, "Guarantees".
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 $111 million and $115 million as of October 31, 2020, and 2019, respectively.
Retirement and Post-Retirement Plans. 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. Assumptions used to determine the benefit obligations and the expense for these plans are derived annually. See Note 15, “Retirement plans and post-retirement pension plans” for additional information.
Retirement of Treasury Shares. Upon the formal retirement of treasury shares, we deduct the par value of the retired treasury shares from common stock and allocate the excess of cost over par as a deduction to additional paid-in capital, based on the pro-rata portion of additional paid-in-capital, and the remaining excess as a deduction to retained earnings. All retired treasury shares revert to the status of authorized but unissued shares.
Share-Based Compensation. For the years ended 2020, 2019 and 2018, 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 $84 million in 2020, $72 million in 2019 and $71 million in 2018. See Note 5, "Share-based Compensation" for additional information.
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, interest rate swaps and interest rate locks 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, interest rate swaps mature at the same time as the maturity of the debt and interest rate locks mature at the same time as the issuance of 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 trading or speculative purposes.
All derivatives are recognized on the balance sheet at their fair values. For derivative instruments that are designated and qualify as a cash flow hedge, changes in the value of the effective portion of the derivative instrument are recognized in comprehensive income (loss), a component of stockholders' equity. For derivative instruments that are designated and qualify as a net investment hedge, changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss). 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 are disclosed gross in the balance sheet. Changes in the fair value of the ineffective portion of derivative instruments are recognized in earnings in the current period. The impact of the ineffectiveness measurement in 2020, 2019 and 2018 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.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 were $4 million loss for 2020, $7 million loss for 2019 and $3 million loss for 2018.
2. NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842), which requires lessees to record most leases on the balance sheet as lease liabilities, initially measured at the present value of future lease payments, with a corresponding right-of-use asset. The accounting applied by a lessor is largely unchanged from that applied under the prior accounting standard.
On November 1, 2019, we adopted the new accounting guidance using the modified retrospective method, by applying the transition approach, for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning November 1, 2019 are presented under the new accounting standard, while prior period amounts have not been restated. The standard had a significant impact on the opening consolidated balance sheet as of November 1, 2019, but did not have a significant impact on the consolidated statement of operations or consolidated statement of cash flows for the year ended October 31, 2020 when compared to prior periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged. For leases that commenced before the effective date of the new accounting standard, we elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. We also elected to exclude leases with a term of 12 months or less in the ROU assets and lease liabilities.
Adoption of the new guidance impacted the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2019
|
|
Impact of Adopting
|
|
November 1, 2019
|
|
|
As Reported
|
|
Lease Guidance
|
|
As Adopted
|
|
|
(in millions)
|
|
|
|
Other assets
|
$
|
611
|
|
|
$
|
192
|
|
|
$
|
803
|
|
|
Other accrued liabilities
|
$
|
440
|
|
|
$
|
48
|
|
|
$
|
488
|
|
|
Other long-term liabilities
|
$
|
473
|
|
|
$
|
144
|
|
|
$
|
617
|
|
On November 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective approach only to contracts not completed as of this date. Results for reporting periods after November 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued new guidance to require a financial asset measured at amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. During 2018 and 2019, the FASB issued additional guidance and clarification. The new guidance is effective for us beginning November 1, 2020. We do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In January 2017, the FASB issued an amendment to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The amendment also simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments are effective for us beginning November 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.
In August 2018, the FASB issued updates to improve the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement which eliminates certain disclosure requirements and modifies others. These amendments are effective for us beginning November 1, 2020, and for interim periods within that year with early adoption permitted. We currently do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.
In August 2018, the FASB issued updates to improve the effectiveness of disclosures for defined benefit plans under Accounting Standard Codification Topic 715-20. The amendments in this guidance remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. These amendments are effective for us beginning November 1, 2021, with early adoption permitted. We currently do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.
In December 2019, the FASB issued new guidance to simplify the accounting for income taxes. This guidance eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill. The new guidance is effective for us beginning November 1, 2021, and for interim periods within that year. Early adoption is permitted. We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements and disclosures.
In January 2020, accounting guidance was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging. The guidance clarifies the interaction between different sections of the accounting guidance that could be applicable and helps clarify which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information. This guidance is effective for us beginning November 1, 2021, and for interim periods within that year. Early adoption is permitted. We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements and disclosures.
In March 2020, the FASB issued an update for facilitation of the effects of reference rate reform on financial reporting. This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in the guidance provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. When elected, the optional expedients for contract modifications are applied consistently for all eligible contracts or eligible transactions within the relevant Topic or Industry Subtopic in the FASB's Accounting Standards Codification. The guidance was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. We are currently evaluating our contracts and we do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements and disclosures.
Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
3. ACQUISITIONS
Acquisition of BioTek and ACEA
On August 23, 2019 we completed the acquisition of privately-owned Lionheart Technologies LLC ("BioTek"), a leader in the design, manufacture and distribution of innovative life science instrumentation for $1.17 billion, under the merger agreement. As a result of the acquisition, BioTek became a wholly-owned subsidiary of Agilent. Accordingly, the results of
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BioTek are included in Agilent's consolidated financial statements from the acquisition date. The acquisition of BioTek and its portfolio is another step to expand our position in the cell analysis market.
The consideration paid was $1.17 billion. Agilent funded the acquisition using existing cash of $470 million and debt of $700 million.
The BioTek acquisition was accounted for in accordance with the authoritative accounting guidance. The acquired assets and assumed liabilities were recorded by Agilent at their estimated fair values. Agilent determined the estimated fair values with the assistance of appraisals or valuations performed by third party specialists, discounted cash flow analyses, and estimates made by management. We expect to realize revenue synergies, leverage and expand the existing sales channels and product development resources, and utilize the assembled workforce. These factors, among others, contributed to a purchase price in excess of the estimated fair value of BioTek’s net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction.
Goodwill acquired was allocated to our operating segments and reporting units as a part of the purchase price allocation. All goodwill was allocated to the life sciences and applied markets reporting unit.
Agilent’s acquisition of BioTek is treated as an asset purchase for tax purposes. The tax basis of the acquired assets equals the fair market value on acquisition date.
The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of August 23, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
10
|
|
|
|
Accounts receivable
|
|
|
28
|
|
|
|
Inventories
|
|
|
21
|
|
|
|
Other current assets
|
|
|
2
|
|
|
|
Property, plant and equipment
|
|
|
8
|
|
|
|
Intangible assets
|
|
|
641
|
|
|
|
Goodwill
|
|
|
483
|
|
|
|
Total assets acquired
|
|
$
|
1,193
|
|
|
|
Accounts payable
|
|
|
(4)
|
|
|
|
Deferred revenue
|
|
|
(5)
|
|
|
|
Employee compensation and benefits
|
|
|
(7)
|
|
|
|
Other accrued liabilities
|
|
|
(2)
|
|
|
|
Long-term debt
|
|
|
(4)
|
|
|
|
Net assets acquired
|
|
|
$
|
1,171
|
|
|
The fair value of cash and cash equivalents, accounts receivable, other current assets, accounts payable and other accrued liabilities were generally determined using historical carrying values given the short-term nature of these assets and liabilities.
The fair values for acquired intangible assets and deferred revenue were determined with the input from third party valuation specialists.
The fair values of certain other assets, inventory, property, plant and equipment, investments, long-term debt, and certain other long-term liabilities were determined internally using historical carrying values and estimates made by management.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Valuations of intangible assets acquired
The components of intangible assets acquired in connection with the BioTek acquisition were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Estimated
Useful Life
|
|
Developed product technology
|
|
$
|
387
|
|
|
|
5-13 years
|
|
Customer relationships
|
|
202
|
|
|
|
3-8 years
|
|
Backlog
|
|
5
|
|
|
|
2 months
|
|
Tradenames and trademarks
|
|
43
|
|
|
|
10 years
|
|
Total intangible assets subject to amortization
|
|
$
|
637
|
|
|
|
|
|
In-process research and development
|
|
4
|
|
|
|
|
|
Total intangible assets
|
|
$
|
641
|
|
|
|
|
As noted above, the intangible assets, including in-process research and development, were valued with input from valuation specialists. Agilent used variations of the income approach in determining the fair value of intangible assets acquired in the BioTek acquisition. Specifically, the developed product technology and in-process research and development were valued using the multi-period excess earnings method under the income approach by discounting forecasted cash flows directly related to the products expecting to result from the projects, net of returns on contributory assets. The company utilized the incremental cash flow method for determining the fair value of the customer relationships acquired, and the relief from royalty method to determine the fair value of the tradename. Order backlog was valued on a direct cash flow basis.
The primary in-process research and development project acquired relates to a next version of a product which was subsequently released to customers in 2020. After release, the asset was moved to developed technology.
Acquisition and integration costs directly related to the BioTek acquisition totaled $12 million and $4 million for the year ended October 31, 2020 and 2019, respectively, and were recorded in operating expenses and cost of sales. Such costs are expensed in accordance with the authoritative accounting guidance.
On November 14, 2018, we acquired 100 percent of the stock of ACEA Biosciences (“ACEA”), a developer of cell analysis tools, for $250 million. The financial results of ACEA have been included in our financial results from the acquisition date.
The following represents the unaudited proforma operating results as if BioTek and ACEA had been included in the company's consolidated statements of operations as of the beginning of fiscal 2018 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Net revenue
|
$
|
5,308
|
|
|
$
|
5,112
|
|
|
Net income
|
$
|
1,012
|
|
|
$
|
210
|
|
|
Net income per share — basic
|
$
|
3.22
|
|
|
$
|
0.65
|
|
|
Net income per share — diluted
|
$
|
3.18
|
|
|
$
|
0.65
|
|
The unaudited proforma financial information assumes that the companies were combined as of November 1, 2017 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 associated with debt paid in connection with the acquisition and acquisition related transaction costs and tax related effects. The proforma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2018.
The unaudited proforma financial information for the year ended October 31, 2019 combines the historical results of Agilent for the year ended October 31, 2019 (which includes BioTek and ACEA after the acquisition date) and for BioTek for the ten months ended August 23, 2019.
The unaudited proforma financial information for the year ended October 31, 2018 combines the historical results of
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Agilent and ACEA for the year ended October 31, 2018 and BioTek for the year ended December 31, 2018 (due to differences in reporting periods).
4. REVENUE
The following table presents the company’s total revenue and segment revenue disaggregated by geographical region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Applied Markets
|
|
Agilent CrossLab
|
|
Diagnostics and Genomics
|
|
Total
|
|
|
(in millions)
|
|
Year Ended October 31, 2020:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
784
|
|
|
$
|
667
|
|
|
$
|
517
|
|
|
$
|
1,968
|
|
|
Europe
|
540
|
|
|
532
|
|
|
371
|
|
|
1,443
|
|
|
Asia Pacific
|
1,068
|
|
|
701
|
|
|
159
|
|
|
1,928
|
|
|
Total
|
$
|
2,392
|
|
|
$
|
1,900
|
|
|
$
|
1,047
|
|
|
$
|
5,339
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2019:
|
|
|
|
|
|
|
|
|
Americas
|
$
|
692
|
|
|
$
|
664
|
|
|
$
|
505
|
|
|
$
|
1,861
|
|
|
Europe
|
551
|
|
|
522
|
|
|
368
|
|
|
1,441
|
|
|
Asia Pacific
|
1,059
|
|
|
654
|
|
|
148
|
|
|
1,861
|
|
|
Total
|
$
|
2,302
|
|
|
$
|
1,840
|
|
|
$
|
1,021
|
|
|
$
|
5,163
|
|
The following table presents the company’s total revenue disaggregated by end markets and by revenue type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Revenue by End Markets
|
|
|
|
|
|
Pharmaceutical and Biopharmaceutical
|
|
$
|
1,754
|
|
|
1,604
|
|
|
Chemical and Energy
|
|
1,154
|
|
|
1,199
|
|
|
Diagnostics and Clinical
|
|
787
|
|
|
785
|
|
|
Food
|
|
517
|
|
|
486
|
|
|
Academia and Government
|
|
526
|
|
|
474
|
|
|
Environmental and Forensics
|
|
601
|
|
|
615
|
|
|
Total
|
|
$
|
5,339
|
|
|
5,163
|
|
|
|
|
|
|
|
|
Revenue by Type
|
|
|
|
|
|
Instrumentation
|
|
$
|
2,249
|
|
|
2,150
|
|
|
Non-instrumentation and other
|
|
3,090
|
|
|
3,013
|
|
|
Total
|
|
$
|
5,339
|
|
|
5,163
|
|
Revenue by region is based on the ship to location of the customer. Revenue by end market is determined by the market indicator of the customer and by customer type. Instrumentation revenue includes sales from instruments, remarketed instruments and third-party products. Non-instrumentation and other revenue include sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contract Balances
Contract Assets
Contract assets (unbilled accounts receivable) primarily relate to the company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are reclassified to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the consolidated balance sheet. The balances of contract assets as of October 31, 2020 and 2019, were $153 million and $110 million, respectively. The increase in unbilled receivables during the year ended October 31, 2020 is a result of recognition of revenue upon the transfer of the control to the customer.
Contract Liabilities
The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the years ended October 31, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Liabilities
|
|
|
|
(in millions)
|
|
|
|
|
|
Ending balance as of October 31, 2018
|
|
$
|
367
|
|
|
Impact of adoption of new revenue recognition guidance
|
|
(11)
|
|
|
Net revenue deferred in the period
|
|
303
|
|
|
Revenue recognized that was included in the contract liability balance at the beginning of the period
|
|
(287)
|
|
|
Change in deferrals from customer cash advances, net of revenue recognized
|
|
5
|
|
|
Contract liabilities acquired in business combinations
|
|
9
|
|
|
Currency translation and other adjustments
|
|
—
|
|
|
Ending balance as of October 31, 2019
|
|
$
|
386
|
|
|
Net revenue deferred in the period
|
|
347
|
|
|
Revenue recognized that was included in the contract liability balance at the beginning of the period
|
|
(300)
|
|
|
Change in deferrals from customer cash advances, net of revenue recognized
|
|
9
|
|
|
|
|
|
|
Currency translation and other adjustments
|
|
4
|
|
|
Ending balance as of October 31,2020
|
|
$
|
446
|
|
Contract liabilities primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements to the customer has either partially or not occurred at the balance sheet date. This includes cash received from customers for products and related installation and services in advance of the transfer of control. Contract liabilities are classified as either current in deferred revenue or long-term in other long-term liabilities in the consolidated balance sheet based on the timing of when we expect to complete our performance obligation.
Contract Costs
Incremental costs of obtaining a contract with a customer are recognized as an asset if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The changes in total capitalized costs to obtain a contract were immaterial during the years ended October 31, 2020 and 2019 and are included in other current and long-term assets on the consolidated balance sheet. We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the company's internal sales force compensation program, as we have determined that annual compensation is commensurate with annual sales activities.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Transaction Price Allocated to the Remaining Performance Obligations
We have applied the practical expedient in ASC 606-10-50-14 and have not disclosed information about transaction price allocated to remaining performance obligations that have original expected durations of one year or less.
The estimated revenue expected to be recognized for remaining performance obligations that have an original term of more than one year, as of October 31, 2020, was $217 million, the majority of which is expected to be recognized over the next 12 months. Remaining performance obligations primarily include extended warranty, customer manufacturing contracts, and software maintenance contracts and revenue associated with lease arrangements.
5. SHARE-BASED COMPENSATION
Agilent accounts for share-based awards in accordance with the provisions of the accounting guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including restricted stock units, stock options, employee stock purchases made under our employee stock purchase plan and performance share awards granted to selected members of our senior management under the long-term performance plan ("LTPP") based on estimated fair values.
Description of Share-Based Plans
Employee Stock Purchase Plan. Effective May 1, 2020, we adopted the 2020 Employee Stock Purchase Plan ("ESPP") which replaced our previous Employee Stock Purchase Plan. The ESPP allows eligible employees to contribute up to 10 percent of their base compensation to purchase shares of our common stock at 85 percent of the closing market price at purchase date. There are 31 million shares authorized for issuance in connection with the ESPP.
Under our ESPP, employees purchased 628,644 shares for $41 million in 2020, 603,488 shares for $37 million in 2019 and 558,116 shares for $32 million in 2018. As of October 31, 2020, the number of shares of common stock authorized and available for issuance under our ESPP was 25,770,573. This excludes the number of shares of common stock to be issued to participants in consideration of the aggregate participant contributions totaling $22 million as of October 31, 2020.
Incentive Compensation Plans. On November 15, 2017 and March 21, 2018, the Board of Directors and the stockholders, respectively, approved the Agilent Technologies, Inc. 2018 Stock Plan (the "2018 Plan") which amends, including renaming and extending the term of, the Agilent Technologies, Inc. 2009 Stock Plan (the "2009 Plan"). The 2009 plan replaced the Agilent Technologies, Inc. Amended and Restated 1999 Stock Plan and 1999 Non-Employee Director Stock Plan. The 2018 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 2018 Plan has a term of ten years. As of October 31, 2020, 25,596,430 shares were available for future awards under the 2018 Plan.
Stock options under the 2018 Plan may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory. Options were granted prior to November 1, 2015 and generally vest at a rate of 25 percent per year over a period of four years from the date of grant with 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. Agilent issues new shares of common stock when employee stock options are exercised.
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 2018 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. Certain LTPP awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison based on the Total Stockholders’ Return (“TSR”) set at the beginning of the performance period. Effective November 1, 2015, the Compensation Committee of the Board of Directors approved another type of performance stock award for the company's executive officers and other key employees. Participants in this program are also entitled to receive unrestricted shares of the company's stock after the end of a three-year period if specified performance targets over the three-year period are met. The performance target for grants made beginning in 2017 and thereafter were based on Earnings Per Share ("EPS"). The performance targets for LTPP-EPS grants for year 2 and year 3 of the performance period are set in the first quarter of year 2 and year 3, respectively. All LTPP awards granted after November 1, 2015, are subject to a one-year post-vest holding period.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Based on the performance metrics, the final LTPP 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 these programs in our diluted net income per share calculation only to the extent that the performance conditions are expected to be met.
We also 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. All restricted stock units granted to our executives after November 1, 2015, are subject to a one-year post-vest holding period.
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,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Cost of products and services
|
$
|
21
|
|
|
$
|
18
|
|
|
$
|
16
|
|
|
Research and development
|
9
|
|
|
7
|
|
|
7
|
|
|
Selling, general and administrative
|
54
|
|
|
47
|
|
|
48
|
|
|
Total share-based compensation expense
|
$
|
84
|
|
|
$
|
72
|
|
|
$
|
71
|
|
At October 31, 2020 and 2019, no share-based compensation was capitalized within inventory.
Valuation Assumptions
For all periods presented, shares granted under the LTPP (TSR) were valued using a Monte Carlo simulation. 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 estimated fair value of restricted stock unit awards and LTPP (EPS) was determined based on the market price of Agilent's common stock on the date of grant adjusted for expected dividend yield and as appropriate, a discount related to the one-year post vesting. The compensation cost for LTPP (EPS) awards reflects the cost of awards that are probable to vest at the end of the performance period.
The following assumptions were used to estimate the fair value of awards granted.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
LTPP:
|
|
|
|
|
|
|
Volatility of Agilent shares
|
23%
|
|
22%
|
|
21%
|
|
Volatility of selected peer-company shares
|
15%-44%
|
|
15%-66%
|
|
14%-66%
|
|
Pair-wise correlation with selected peers
|
29%
|
|
30%
|
|
32%
|
|
|
|
|
|
|
|
|
Post-vest restriction discount for all executive awards
|
5.3%
|
|
5.0%
|
|
4.8%
|
Shares granted under the LTPP (TSR) were valued using a Monte Carlo simulation model. The Monte Carlo simulation fair value model requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock. For LTPP (TSR) grants in 2017 and thereafter, we used our own historical stock price volatility.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
All LTPP awards granted have a one-year post-vest holding restriction. The estimated discount associated with post-vest holding restrictions is calculated using the Finnerty model. The model calculates the potential lost value if the employee were able to sell the shares during the lack of marketability period instead of being required to hold the shares.
Share-Based Payment Award Activity
Employee Stock Options
The following table summarizes employee stock option award activity of our employees and directors for 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise Price
|
|
|
(in thousands)
|
|
|
|
Outstanding at October 31, 2019
|
1,445
|
|
|
$
|
36
|
|
|
|
|
|
|
|
Exercised
|
(575)
|
|
|
$
|
34
|
|
|
|
|
|
|
|
Outstanding at October 31, 2020
|
870
|
|
|
$
|
37
|
|
The options outstanding and exercisable for equity share-based payment awards at October 31, 2020 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$25.01 - $30.00
|
228
|
|
|
1.7
|
|
$
|
27
|
|
|
$
|
17,192
|
|
|
228
|
|
|
1.7
|
|
$
|
27
|
|
|
$
|
17,192
|
|
|
$30.01 - $40.00
|
121
|
|
|
3.1
|
|
$
|
39
|
|
|
7,586
|
|
|
121
|
|
|
3.1
|
|
$
|
39
|
|
|
7,586
|
|
|
$40.01- over
|
521
|
|
|
4.0
|
|
$
|
41
|
|
|
31,883
|
|
|
521
|
|
|
4.0
|
|
$
|
41
|
|
|
31,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870
|
|
|
3.3
|
|
$
|
37
|
|
|
$
|
56,661
|
|
|
870
|
|
|
3.3
|
|
$
|
37
|
|
|
$
|
56,661
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the company's closing stock price of $102.09 at October 31, 2020, 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, 2020 was approximately 0.9 million.
The following table summarizes the aggregate intrinsic value of options exercised in 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Intrinsic Value
|
|
Weighted
Average
Exercise
Price
|
|
|
(in thousands)
|
|
|
|
Options exercised in fiscal 2018
|
$
|
28,417
|
|
|
$
|
32
|
|
|
Options exercised in fiscal 2019
|
$
|
24,409
|
|
|
$
|
33
|
|
|
Options exercised in fiscal 2020
|
$
|
30,481
|
|
|
$
|
34
|
|
As of October 31, 2020, the unrecognized share-based compensation cost for outstanding stock option awards, net of expected forfeitures, was zero. The amount of cash received from the exercise of share-based awards granted was $60 million in 2020, $54 million in 2019 and $56 million in 2018.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-Vested Awards
The following table summarizes non-vested award activity in 2020 primarily for our LTPP and restricted stock unit awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Price
|
|
|
(in thousands)
|
|
|
|
Non-vested at October 31, 2019
|
3,173
|
|
|
$
|
60
|
|
|
Granted
|
1,091
|
|
|
$
|
79
|
|
|
Vested
|
(1,629)
|
|
|
$
|
52
|
|
|
Forfeited
|
(115)
|
|
|
$
|
68
|
|
|
Change in LTPP shares in the year due to exceeding performance targets
|
298
|
|
|
$
|
47
|
|
|
Non-vested at October 31, 2020
|
2,818
|
|
|
$
|
70
|
|
As of October 31, 2020, the unrecognized share-based compensation cost for non-vested restricted stock awards was approximately $95 million which is expected to be amortized over a weighted average period of 2.1 years. The total fair value of restricted stock awards vested was $85 million for 2020, $69 million for 2019 and $58 million for 2018.
6. INCOME TAXES
The domestic and foreign components of income before taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
U.S. operations
|
$
|
54
|
|
|
$
|
189
|
|
|
$
|
169
|
|
|
Non-U.S. operations
|
788
|
|
|
730
|
|
|
777
|
|
|
Total income before taxes
|
$
|
842
|
|
|
$
|
919
|
|
|
$
|
946
|
|
The provision for income taxes is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
U.S. federal taxes:
|
|
|
|
|
|
|
Current
|
$
|
5
|
|
|
$
|
(191)
|
|
|
$
|
520
|
|
|
Deferred
|
4
|
|
|
—
|
|
|
51
|
|
|
Non-U.S. taxes:
|
|
|
|
|
|
|
Current
|
84
|
|
|
290
|
|
|
95
|
|
|
Deferred
|
24
|
|
|
(267)
|
|
|
(22)
|
|
|
State taxes, net of federal benefit:
|
|
|
|
|
|
|
Current
|
5
|
|
|
4
|
|
|
1
|
|
|
Deferred
|
1
|
|
|
12
|
|
|
(15)
|
|
|
Total provision (benefit)
|
$
|
123
|
|
|
$
|
(152)
|
|
|
$
|
630
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The differences between the U.S. federal statutory income tax rate and our effective tax rate are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Profit before tax times statutory rate
|
$
|
177
|
|
|
$
|
193
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
Non-U.S. income taxed at different rates
|
(36)
|
|
|
(8)
|
|
|
(93)
|
|
|
Change in unrecognized tax benefits
|
(9)
|
|
|
(13)
|
|
|
(17)
|
|
|
|
|
|
|
|
|
|
Impact of the Tax Act
|
—
|
|
|
—
|
|
|
552
|
|
|
|
|
|
|
|
|
|
Extension of the tax incentive in Singapore
|
—
|
|
|
(299)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
(18)
|
|
|
(10)
|
|
|
(18)
|
|
|
Other, net
|
9
|
|
|
(15)
|
|
|
(15)
|
|
|
Provision (benefit) for income taxes
|
$
|
123
|
|
|
$
|
(152)
|
|
|
$
|
630
|
|
|
Effective tax rate
|
14.6
|
%
|
|
(16.5)
|
%
|
|
66.6
|
%
|
For 2020, the company's income tax expense was $123 million with an effective tax rate of 14.6 percent. For the year ended October 31, 2020, our effective tax rate and the resulting provision for income taxes were impacted by foreign income taxed at lower rates.
For 2019, the company's income tax benefit was $152 million with an effective tax rate of (16.5) percent. For the year ended October 31, 2019, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete benefit of $299 million related to the extension of the company’s tax incentive in Singapore.
As part of the business integration of some of our prior acquisitions, we undertook corporate restructurings in the fourth quarter of fiscal year 2019 that involved on-shoring certain intangible properties held by our foreign subsidiaries to the United States. These restructurings resulted in a cash tax liability of $231 million. These taxes generate tax attributes that will offset our transition tax liability which is included in other long-term liabilities in our consolidated balance sheet.
For 2018, the company's income tax expense was $630 million with an effective tax rate of 66.6 percent. For the year ended October 31, 2018, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete charge of $552 million related to the enactment of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) consisting of (1) an expense of $499 million of U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and (2) an expense of $53 million associated with the impact on deferred taxes resulting from the decreased U.S. corporate tax rate.
The company has negotiated 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. In December 2018, the tax holiday in Singapore was renegotiated and extended through 2027. As a result of the incentives, the impact of the tax holidays decreased income taxes by $71 million, $368 million, and $87 million in 2020, 2019, and 2018, respectively. The benefit of the tax holidays on net income per share (diluted) was approximately $0.23, $1.16, and $0.27 in 2020, 2019 and 2018, respectively. Of the $1.16 benefit of the tax incentives on net income per share (diluted) in 2019, $0.94 of the benefit relates to one-time items from the extension of the company’s tax incentive in Singapore.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The significant components of deferred tax assets and deferred tax liabilities included on the consolidated balance sheet are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
|
Intangibles
|
$
|
153
|
|
|
$
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits and retiree medical benefits
|
65
|
|
|
71
|
|
|
Employee benefits, other than retirement
|
31
|
|
|
34
|
|
|
Net operating loss, capital loss, and credit carryforwards
|
182
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
27
|
|
|
32
|
|
|
Deferred revenue
|
22
|
|
|
38
|
|
|
Lease obligations
|
35
|
|
|
—
|
|
|
Other
|
41
|
|
|
35
|
|
|
Deferred tax assets
|
$
|
556
|
|
|
$
|
536
|
|
|
Tax valuation allowance
|
(132)
|
|
|
(134)
|
|
|
Deferred tax assets, net of valuation allowance
|
$
|
424
|
|
|
$
|
402
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
$
|
(19)
|
|
|
$
|
(16)
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use asset
|
(35)
|
|
|
—
|
|
|
Other
|
(14)
|
|
|
(7)
|
|
|
Deferred tax liabilities
|
$
|
(68)
|
|
|
$
|
(23)
|
|
|
Net deferred tax assets (liabilities)
|
$
|
356
|
|
|
$
|
379
|
|
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. As of October 31, 2020, we continued to maintain a valuation allowance of $132 million until sufficient positive evidence exists to support reversal. The valuation allowance is primarily related to deferred tax assets for the states of California and Colorado, along with the net operating losses in the Netherlands and capital losses in the U.S. and Australia.
At October 31, 2020, we had federal, state and foreign net operating loss carryforwards of approximately $11 million, $530 million and $411 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2021. If not utilized, $123 million of the foreign net operating loss carryforwards will begin to expire in 2021. The remaining $288 million of the foreign net operating losses carry forward indefinitely. At October 31, 2020, we had federal and foreign capital loss carryforwards of $48 million and $118 million, respectively. If not utilized, the federal capital loss carryforwards will expire in 2022. The foreign capital losses carry forward indefinitely. At October 31, 2020, we had state tax credit carryforwards of approximately $83 million. The state tax credits carry forward indefinitely.
The breakdown between long-term deferred tax assets and deferred tax liabilities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Long-term deferred tax assets (included within other assets)
|
$
|
380
|
|
|
$
|
410
|
|
|
Long-term deferred tax liabilities (included within other long-term liabilities)
|
(24)
|
|
|
(31)
|
|
|
Total
|
$
|
356
|
|
|
$
|
379
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Current income tax assets (included within other current assets)
|
$
|
89
|
|
|
$
|
68
|
|
|
Long-term income tax assets (included within other assets)
|
6
|
|
|
4
|
|
|
Current income tax liabilities (included within other accrued liabilities)
|
(63)
|
|
|
(292)
|
|
|
Long-term income tax liabilities (included within other long-term liabilities)
|
(323)
|
|
|
(328)
|
|
|
Total
|
$
|
(291)
|
|
|
$
|
(548)
|
|
Uncertain Tax Positions
The aggregate changes in the balances of our gross unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Balance, beginning of year
|
$
|
206
|
|
|
$
|
214
|
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
Additions for tax positions related to the current year
|
6
|
|
|
7
|
|
|
27
|
|
|
Additions for tax positions from prior years
|
—
|
|
|
12
|
|
|
2
|
|
|
Reductions for tax positions from prior years
|
—
|
|
|
(2)
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
Statute of limitations expirations
|
(17)
|
|
|
(25)
|
|
|
(26)
|
|
|
Balance, end of year
|
$
|
195
|
|
|
$
|
206
|
|
|
$
|
214
|
|
As of October 31, 2020, we had $240 million of unrecognized tax benefits, including interest and penalties of which $215 million, if recognized, would affect our effective tax rate. However, approximately $25 million of the unrecognized tax benefits were related to state income tax positions that, if recognized, would be in the form of a deferred tax asset that would likely not affect our effective tax rate due to a valuation allowance.
We recognized tax expense of $8 million, $9 million and $11 million for interest and penalties related to unrecognized tax benefits in 2020, 2019 and 2018, respectively. Interest and penalties accrued as of October 31, 2020 and 2019 were $45 million and $36 million, respectively.
In the U.S., tax years remain open back to the year 2017 for federal income tax purposes and for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2009.
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 which will be partially offset by an anticipated tax liability related to unremitted foreign earnings, where applicable. 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.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. 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,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
$
|
719
|
|
|
$
|
1,071
|
|
|
$
|
316
|
|
|
Denominators:
|
|
|
|
|
|
|
Basic weighted average shares
|
309
|
|
|
314
|
|
|
321
|
|
|
Potential common shares — stock options and other employee stock plans
|
3
|
|
|
4
|
|
|
4
|
|
|
Diluted weighted average shares
|
312
|
|
|
318
|
|
|
325
|
|
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 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 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.
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. In addition, we exclude from the calculation of diluted earnings per share, stock options, ESPP, LTPP and restricted stock awards whose combined exercise price and unamortized fair value collectively were greater than the average market price of our common stock because their effect would also be anti-dilutive.
In 2020, 2019 and 2018, we issued share-based awards of approximately 2 million each year. For the years ended 2020, 2019 and 2018, the impacts of the anti-dilutive potential common shares that were excluded from the calculation of diluted earnings per share were not material.
8. INVENTORY
Inventory as of October 31, 2020 and 2019 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Finished goods
|
$
|
417
|
|
|
$
|
416
|
|
|
Purchased parts and fabricated assemblies
|
303
|
|
|
263
|
|
|
Inventory
|
$
|
720
|
|
|
$
|
679
|
|
Inventory-related excess and obsolescence charges of $28 million were recorded in cost of products in 2020, $19 million in 2019 and $26 million in 2018. We record excess and obsolete inventory charges for both inventory on our site as well as inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment as of October 31, 2020 and 2019, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Land
|
$
|
58
|
|
|
$
|
57
|
|
|
Buildings and leasehold improvements
|
1,055
|
|
|
1,012
|
|
|
Machinery and equipment
|
579
|
|
|
546
|
|
|
Software
|
182
|
|
|
160
|
|
|
Total property, plant and equipment
|
1,874
|
|
|
1,775
|
|
|
Accumulated depreciation and amortization
|
(1,029)
|
|
|
(925)
|
|
|
Property, plant and equipment, net
|
$
|
845
|
|
|
$
|
850
|
|
In 2020 we recorded $6 million in asset impairments related to the shutdown of our sequencer development program. There were no asset impairments in 2019 and less than $1 million in asset impairments in 2018. Depreciation expenses were $119 million in 2020, $111 million in 2019 and $102 million in 2018. In 2020 and 2019 we retired approximately $29 million and $23 million, respectively, of fully depreciated assets that were no longer in use.
10. LEASES
As a lessee, we have various non-cancelable operating lease agreements for office space, warehouses, distribution centers, research and development facilities, manufacturing and production locations as well as vehicles, personal computers and other equipment. Our real estate leases have remaining lease terms of one to thirty years, which represent the non-cancelable periods of the leases and include extension options that we determined are reasonably certain to be exercised. We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from six months to twenty years. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. We often receive incentives from our landlords, such as rent abatement periods, which effectively reduce the total lease payments owed for these leases. Vehicle, personal computer and other equipment operating leases have terms between three and five years.
Prior to the adoption of the new lease accounting standard, future minimum lease payments as of October 31, 2019 under non-cancelable leases with initial terms exceeding twelve months were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
(in millions)
|
|
2020
|
|
$
|
52
|
|
|
2021
|
|
$
|
41
|
|
|
2022
|
|
$
|
29
|
|
|
2023
|
|
$
|
21
|
|
|
2024
|
|
$
|
14
|
|
|
Thereafter
|
|
$
|
56
|
|
The components of lease cost for operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2020
|
|
|
|
(in millions)
|
|
Operating lease cost
|
|
$
|
60
|
|
|
Short-term lease cost
|
|
1
|
|
|
Variable lease cost (a)
|
|
14
|
|
|
Sublease income
|
|
(14)
|
|
|
Total lease cost
|
|
$
|
61
|
|
(a) Variable lease cost includes cancelable leases, non-fixed maintenance costs and non-recoverable transaction taxes.
Total rent expense was $75 million in 2019 and $64 million in 2018.
Supplemental cash flow information related to leases was as follows:
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2020
|
|
|
|
(in millions)
|
|
Cash paid for amounts included in the amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flow from operating leases
|
|
$
|
59
|
|
|
Non-cash right of use assets obtained in exchange for operating lease obligations
|
|
$
|
37
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Line Item
|
|
October 31, 2020
|
|
|
|
|
|
(in millions, except lease term and discount rate)
|
|
Assets:
|
|
|
|
|
|
Operating lease:
|
|
|
|
|
|
Right of use asset
|
|
Other assets
|
|
$
|
175
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating lease liabilities
|
|
Other accrued liabilities
|
|
$
|
51
|
|
|
Long-term
|
|
|
|
|
|
Operating lease liabilities
|
|
Other long-term liabilities
|
|
$
|
127
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|
|
|
|
|
Operating leases
|
|
|
|
7.9 years
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
Operating leases
|
|
|
|
2.1
|
%
|
Future minimum rents payable as of October 31, 2020 under non-cancelable leases with initial terms exceeding one year reconcile to lease liabilities included in the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
(in millions)
|
|
2021
|
|
$
|
54
|
|
|
2022
|
|
41
|
|
|
2023
|
|
28
|
|
|
2024
|
|
16
|
|
|
2025
|
|
9
|
|
|
Thereafter
|
|
49
|
|
|
Total undiscounted future minimum lease payments
|
|
$
|
197
|
|
|
Less: amount of lease payments representing interest
|
|
(19)
|
|
|
Present value of future minimum lease payments
|
|
$
|
178
|
|
|
Less: current liabilities
|
|
(51)
|
|
|
Long-term lease liabilities
|
|
$
|
127
|
|
As of October 31, 2020, we had no additional significant operating or finance leases that had not yet commenced.
As a lessor, we have contracts for equipment leased to customers in connection with our diagnostics business which include both operating-type lease and sales-type lease arrangements. We account for the non-lease component under the revenue recognition ASC 606 guidance and the lease component under the leasing ASC 842 guidance. Equipment lease revenue for operating lease agreements is recognized as visualization kits and reagents are shipped over the life of the lease, and the cost of customer leased equipment is recorded within property, plant and equipment, net in the consolidated balance sheet and depreciated over the equipment’s estimated useful life. For an arrangement that has been classified as a sales-type lease, revenue is recognized when the transfer of control of the underlying leased asset has occurred and the net investment lease recorded which is calculated at the present value of the remaining lease payments due from the lessee.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue allocated to the lease income for both finance/sales-type lease and operating lease rental arrangements represents less than one percent of total net revenue in the year ended October 31, 2020.
As of October 31, 2020, the original cost and net book value of operating leased assets was $43 million and $12 million, respectively. As of October 31, 2020, lease receivables related to sales-type leases were $44 million. As of October 31, 2019, the original cost and net book value of operating leased assets was $49 million and $17 million, respectively. As of October 31, 2019, lease receivables related to sales-type leases were $37 million.
11. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents goodwill balances and the movements for each of our reportable segments during the years ended October 31, 2019 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Applied Markets
|
|
Diagnostics and Genomics
|
|
Agilent CrossLab
|
|
Total
|
|
|
(in millions)
|
|
Goodwill as of October 31, 2018
|
$
|
803
|
|
|
$
|
1,607
|
|
|
$
|
563
|
|
|
$
|
2,973
|
|
|
Foreign currency translation impact
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
(5)
|
|
|
Goodwill arising from acquisitions
|
636
|
|
|
(11)
|
|
|
—
|
|
|
625
|
|
|
Goodwill as of October 31, 2019
|
$
|
1,438
|
|
|
$
|
1,594
|
|
|
$
|
561
|
|
|
$
|
3,593
|
|
|
Foreign currency translation impact
|
3
|
|
|
5
|
|
|
1
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill as of October 31, 2020
|
$
|
1,441
|
|
|
$
|
1,599
|
|
|
$
|
562
|
|
|
$
|
3,602
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020, our annual impairment test date, we assessed goodwill for triggering events and circumstances, including impacts due to COVID-19, and determined no impairment of goodwill was indicated for our reporting units.
The component parts of other intangible assets at October 31, 2019 and 2020 are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Book
Value
|
|
|
(in millions)
|
|
As of October 31, 2019:
|
|
|
|
|
|
|
Purchased technology
|
$
|
1,413
|
|
|
$
|
763
|
|
|
$
|
650
|
|
|
Backlog
|
5
|
|
|
5
|
|
|
—
|
|
|
Trademark/Tradename
|
196
|
|
|
102
|
|
|
94
|
|
|
Customer relationships
|
329
|
|
|
87
|
|
|
242
|
|
|
Third-party technology and licenses
|
28
|
|
|
22
|
|
|
6
|
|
|
Total amortizable intangible assets
|
$
|
1,971
|
|
|
$
|
979
|
|
|
$
|
992
|
|
|
In-Process R&D
|
115
|
|
|
—
|
|
|
115
|
|
|
Total
|
$
|
2,086
|
|
|
$
|
979
|
|
|
$
|
1,107
|
|
|
As of October 31, 2020:
|
|
|
|
|
|
|
Purchased technology
|
$
|
1,429
|
|
|
$
|
863
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
Trademark/Tradename
|
196
|
|
|
117
|
|
|
79
|
|
|
Customer relationships
|
330
|
|
|
158
|
|
|
172
|
|
|
Third-party technology and licenses
|
11
|
|
|
7
|
|
|
4
|
|
|
Total amortizable intangible assets
|
$
|
1,966
|
|
|
$
|
1,145
|
|
|
$
|
821
|
|
|
In-Process R&D
|
10
|
|
|
—
|
|
|
10
|
|
|
Total
|
$
|
1,976
|
|
|
$
|
1,145
|
|
|
$
|
831
|
|
|
|
|
|
|
|
|
During fiscal year 2020, we recorded no additions to goodwill or to intangible assets. During the year ended October 31, 2020 we moved $15 million of in-process research and development intangible assets to purchased technology on the completion of three projects.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During fiscal year 2019, we recorded additions to goodwill of $636 million and to other intangible assets of $744 million related to the acquisition of ACEA Biosciences and BioTek. In the second quarter of fiscal year 2019, we recorded a measurement period adjustment to goodwill of $11 million for deferred tax assets related to pre-acquisition net operating losses of Advanced Analytical Technologies, Inc. The increase to other intangible assets due to foreign currency translation was not material in 2019.
In general, for United States federal tax purposes, goodwill from asset purchases is amortizable; however, any goodwill created as part of a stock acquisition is not deductible.
During fiscal year 2020, we recorded an impairment of in-process research and development of $90 million in research and development expenses in the consolidated statement of operations which was related to the shutdown of our sequencer development program in our diagnostics and genomics segment. There were no impairments of indefinite-lived intangible assets during fiscal year 2019 and 2018. During fiscal years 2020 and 2019, there were no impairments of finite-lived intangible assets recorded. During 2018, we recorded an impairment of $21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.
During 2020, we also wrote-off the gross carrying amount of $17 million and the related accumulated amortization of fully amortized intangible assets which were no longer being used.
Amortization expense of intangible assets was $186 million in 2020, $128 million in 2019, and $110 million in 2018.
Future amortization expense related to existing finite-lived purchased intangible assets associated with business combinations for the next five fiscal years and thereafter is estimated below:
|
|
|
|
|
|
|
|
Estimated future amortization expense:
|
|
|
|
(in millions)
|
|
2021
|
$
|
174
|
|
|
2022
|
$
|
151
|
|
|
2023
|
$
|
109
|
|
|
2024
|
$
|
87
|
|
|
2025
|
$
|
70
|
|
|
Thereafter
|
$
|
230
|
|
12. INVESTMENTS
The following table summarizes the company's equity investments as of October 31, 2020 and 2019 (net book value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
|
|
|
|
|
Equity investments - without readily determinable fair value
|
$
|
103
|
|
|
$
|
47
|
|
|
Equity investments - with readily determinable fair value
|
25
|
|
|
25
|
|
|
Trading securities
|
30
|
|
|
30
|
|
|
|
|
|
|
|
Total
|
$
|
158
|
|
|
$
|
102
|
|
Equity investments without readily determinable fair value (RDFV) consist of non-marketable equity securities issued by private companies. These investments are accounted for using the measurement alternative at cost adjusting for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer). The adjustments are included in net income in the period in which they occur. Equity investments with RDFV consist of shares we own in a special fund and are reported at fair value, with gains or losses resulting from changes in fair value included in net income. Prior to fiscal year 2019, both equity investments without RDFV and with RDFV were accounted for using cost method of accounting, measured at historical cost less other-than-temporary impairment. Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our investments without RDFV are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment.
We recorded a net unrealized loss on our equity securities with RDFV of $1 million in 2020 and a net unrealized gain of $3 million in 2019. Net unrealized gains on our equity securities without RDFV were $27 million and $1 million in 2020 and 2019, respectively. Upon adoption of new accounting guidance relating to financial instruments beginning fiscal year 2019, the gains and losses on such securities are recognized in other income (expense) and therefore not applicable in prior periods. As of November 1, 2019, total impact of adoption of this accounting guidance to our consolidated balance sheet was an increase of $7 million to equity securities with RDFV (included within long-term investments) and a net increase of $5 million to beginning retained earnings.
Net unrealized gains on our trading securities portfolio were $2 million in 2020, $3 million in 2019 and $1 million in 2018.
13. 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.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at October 31, 2020 Using
|
|
|
October 31,
2020
|
|
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)
|
$
|
740
|
|
|
$
|
740
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative instruments (foreign exchange contracts)
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Trading securities
|
30
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
Other investments
|
25
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
797
|
|
|
$
|
770
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Derivative instruments (foreign exchange contracts)
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Deferred compensation liability
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
47
|
|
|
$
|
—
|
|
|
$
|
47
|
|
|
$
|
—
|
|
Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2019 Using
|
|
|
October 31,
2019
|
|
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)
|
$
|
784
|
|
|
$
|
784
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative instruments (foreign exchange contracts)
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Trading securities
|
30
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
Other investments
|
25
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
$
|
851
|
|
|
$
|
814
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
|
|
Derivative instruments (foreign exchange contracts)
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Long-term
|
|
|
|
|
|
|
|
|
Deferred compensation liability
|
30
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
Total liabilities measured at fair value
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
$
|
—
|
|
Our money market funds and trading securities 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
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
quoted market prices, the inputs used in the calculations are observable. Other investments represent shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities. It has been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are or can be derived from and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself.
Trading securities, which are comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) within 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, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Long-lived assets held and used
|
$
|
98
|
|
|
$
|
—
|
|
|
$
|
21
|
|
|
Long-lived assets held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the year ended October 31, 2020, long-lived assets held and used, including indefinite lived in-process research and development intangible assets, with a carrying amount of $98 million were written down to their fair value of zero, resulting in an impairment charge of $98 million related to the shutdown of our sequencer development program and other assets in our diagnostics and genomics segment. There were no impairments of long-lived assets held and used in 2019. For 2018, long lived assets held and used with a carrying amount of $21 million were written down to their fair value of zero, resulting in an impairment charge of $21 million, which relates to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable and were included in net income.
There were no impairments of long-lived assets held for sale in 2020, 2019 and 2018.
Fair values for the impaired long-lived assets during 2020 and 2018 were measured using level 3 inputs. To determine the fair value of long-lived assets in 2020 and 2018, we used the income approach based on projected discounted cash flows expected to be generated by the long-lived assets over the remaining useful life.
For the year ended October 31, 2020 and 2019, there were no impairments in non-marketable securities without readily determinable fair value. For the year ended October 31, 2020 and 2019, a net unrealized gain of $27 million and $1 million, respectively, was included in net income as an adjustment to the carrying value of non-marketable equity securities without readily determinable fair value based on an observable market transaction. As of October 31, 2020 and 2019, the carrying amount of non-marketable equity securities without readily determinable fair values was $103 million and $47 million, respectively.
Fair values for the non-marketable securities included in long-term investments on the consolidated balance sheet were measured using Level 3 inputs because they are primarily equity stock issued by private companies without quoted market prices. To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when they occur.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. DERIVATIVES
We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of our risk management strategy, we use derivative instruments, primarily forward contracts and purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.
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 and are assessed for effectiveness against the underlying exposure every reporting period. For open contracts as of October 31, 2020, changes in the time value of the foreign exchange contract are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the foreign exchange contract. The changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss). 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 (loss) will be reclassified to other income (expense), net in the current period. Changes in the fair value of the ineffective portion of derivative instruments are recognized in other income (expense), net 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 cost of sales over the life of the option contract. For the years ended October 31, 2020, 2019 and 2018, ineffectiveness and gains and losses recognized in other income (expense), net 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 13, 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 (loss) which is being amortized to interest expense over the life of the 2022 senior notes. The remaining gain to be amortized related to the treasury lock agreements at October 31, 2020 was less than $1 million.
In February 2016, Agilent executed three forward-starting pay fixed/receive variable interest rate swaps for the notional amount of $300 million in connection with future interest payments to be made on our 2026 senior notes issued on September 15, 2016. These derivative instruments were designated and qualified as cash flow hedges under the criteria prescribed in the authoritative guidance. The swap arrangements were terminated on September 15, 2016 with a payment of $10 million, and we recognized this as a deferred loss in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2026 senior notes. The remaining loss to be amortized related to the interest rate swap agreements at October 31, 2020 was $6 million.
In August 2019, Agilent executed treasury lock agreements for $250 million in connection with future interest payments to be made on our 2029 senior notes issued on September 16, 2019. We designated the treasury lock as a cash flow hedge. The treasury lock contracts were terminated on September 6, 2019 and we recognized a deferred loss of $6 million in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2029 senior notes. The remaining loss to be amortized related to the treasury lock agreements at October 31, 2020 was $5 million.
Net Investment Hedges
Starting in 2020, we enter into foreign exchange contracts to hedge net investments in foreign operations to mitigate the risk of adverse movements in exchange rates. These foreign exchange contracts are carried at fair value and are designated and qualify as net investment hedges under the criteria prescribed in the authoritative guidance. Changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss) and are assessed for effectiveness against the underlying exposure every reporting period. If the company’s net investment changes during the year, the hedge relationship will be assessed and de-designated if the hedge notional amount is outside of prescribed tolerance with a gain/loss reclassified from other comprehensive income (loss) to other income (expense) in the current period.
As of October 31, 2020, we have 3 open forward contracts to sell euros to buy USD maturing in the first quarter of fiscal year 2021, and these are designated as a net investment hedge of the U.S. parent's interest in foreign subsidiaries denominated in euro functional currency. In the year ended October 31, 2020, the change in fair value of the net investment hedge resulted in
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a net loss of $5 million recognized in accumulated other comprehensive income. For the year ended October 31, 2020, ineffectiveness and the resultant effect of any gains or losses recognized in other income (expense) due to de-designation of the hedge contracts were not significant.
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 instruments are recognized in other income (expense), net 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.
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, 2020, was $16 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of October 31, 2020.
There were 270 foreign exchange forward contracts open as of October 31, 2020 and designated as cash flow hedges. There were 183 foreign exchange forward contracts open as of October 31, 2020 not designated as hedging instruments. There were 3 foreign exchange forward contracts open as of October 31, 2020 and designated as a net investment hedge. The aggregated notional amounts by currency and designation as of October 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as
Cash Flow Hedges
|
|
Derivatives Designated as
Net Investment Hedges
|
|
Derivatives
Not
Designated
as Hedging
Instruments
|
|
|
|
Forward
Contracts USD
|
|
Forward
Contracts USD
|
|
Forward
Contracts USD
|
|
Currency
|
|
Buy/(Sell)
|
|
Buy/(Sell)
|
|
Buy/(Sell)
|
|
|
|
(in millions)
|
|
Euro
|
|
$
|
(59)
|
|
|
$
|
(94)
|
|
|
$
|
17
|
|
|
British Pound
|
|
(41)
|
|
|
—
|
|
|
7
|
|
|
Canadian Dollar
|
|
(33)
|
|
|
—
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japanese Yen
|
|
(83)
|
|
|
—
|
|
|
(39)
|
|
|
|
|
|
|
|
|
|
|
Korean Won
|
|
(58)
|
|
|
—
|
|
|
(32)
|
|
|
Singapore Dollar
|
|
12
|
|
|
—
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
Chinese Yuan Renminbi
|
|
(74)
|
|
|
—
|
|
|
(66)
|
|
|
|
|
|
|
|
|
|
|
Swedish Krona
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
Taiwan Dollar
|
|
—
|
|
|
—
|
|
|
(14)
|
|
|
India Rupee
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
Other
|
|
4
|
|
|
—
|
|
|
2
|
|
|
|
|
$
|
(332)
|
|
|
$
|
(94)
|
|
|
$
|
(134)
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
Balance Sheet Location
|
|
October 31,
2020
|
|
October 31,
2019
|
|
Balance Sheet Location
|
|
October 31,
2020
|
|
October 31,
2019
|
|
(in millions)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Other accrued liabilities
|
|
$
|
12
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
2
|
|
|
$
|
9
|
|
|
Other accrued liabilities
|
|
$
|
5
|
|
|
$
|
4
|
|
|
Total derivatives
|
|
$
|
2
|
|
|
$
|
12
|
|
|
|
|
$
|
17
|
|
|
$
|
6
|
|
The effects of derivative instruments for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our consolidated statement of operations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
Loss on interest rate swaps recognized in other comprehensive income (loss)
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
—
|
|
|
Loss reclassified from accumulated other comprehensive income (loss) into interest expense
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
|
Gain (loss) recognized in accumulated other comprehensive income (loss)
|
$
|
(12)
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
Gain (loss) reclassified from accumulated other comprehensive income (loss) into cost of sales
|
$
|
(1)
|
|
|
$
|
9
|
|
|
$
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on time value of forward contracts recorded in cost of sales
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
Net investment hedges
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
Loss recognized in accumulated other comprehensive income (loss)
|
$
|
(5)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
Gain (loss) recognized in other income (expense), net
|
$
|
(1)
|
|
|
$
|
2
|
|
|
$
|
(2)
|
|
At October 31, 2020 the estimated amount of existing net loss that is expected to be reclassified from accumulated other comprehensive income (loss) to cost of sales within the next twelve months is $7 million.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 defined benefits to U.S. employees who meet eligibility criteria under the Agilent Technologies, Inc. Retirement Plan (the "RP").
For eligible service through October 31, 1993, the benefit payable under the Agilent Retirement Plan is reduced by any amounts due to the eligible employee under the Agilent defined contribution Deferred Profit-Sharing Plan (the "DPSP"), which was closed to new participants as of November 1993.
As of October 31, 2020 and 2019, the fair value of plan assets of the DPSP was $123 million and $132 million, respectively. Note that the projected benefit obligation for the DPSP equals the fair value of plan assets.
Effective November 1, 2014, Agilent’s U.S. defined benefit retirement plan was closed to new entrants including new employees, new transfers to the U.S. payroll and rehires. As of April 30, 2016, benefits under the RP were frozen. Any pension benefit earned in the U.S. Plans through April 30, 2016 remained fully vested, and there are no additional benefit accruals after April 30, 2016.
Agilent also maintains a Supplemental Benefits Retirement Plan ("SBRP") in the U.S., which is a supplemental unfunded non-qualified defined benefit plan 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.
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.
–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.
–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.
–Any new employee hired on or after November 1, 2014, will not be eligible to participate in the retiree medical plans upon retiring.
–As of April 30, 2016, benefits under this plan were changed for Active employees who have not met the eligibility requirement - 55 years old with at least 15 years of Agilent service, as of April 30, 2016 - for the Retiree Medical Account (RMA) under the U.S. Post Retirement Benefit Plan. These employees will only be eligible for 50 percent of the current RMA reimbursement amount upon retirement.
401(k) Defined Contribution Plan. Eligible Agilent U.S. employees may participate in the Agilent Technologies, Inc. 401(k) Plan. We match contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation. Effective May 1, 2016 until April 30, 2022, we will provide an additional transitional company contribution for certain eligible employees equal to 3 percent, 4 percent or 5 percent of an employee's annual eligible compensation due to the RP benefits being frozen. 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 $41 million in 2020, $39 million in 2019 and $37 million in 2018.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Components of Net periodic cost. The service cost component is recorded in cost of sales and operating expenses in the consolidated statement of operations. All other cost components are recorded in other income (expense), net in the consolidated statement of operations. 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 lifetime of participants using the corridor method. 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, 2020, 2019 and 2018, components of net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
U.S. Post-Retirement Benefit Plans
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Net periodic benefit cost (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost — benefits earned during the period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24
|
|
|
$
|
20
|
|
|
$
|
20
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Interest cost on benefit obligation
|
15
|
|
|
18
|
|
|
16
|
|
|
8
|
|
|
14
|
|
|
13
|
|
|
3
|
|
|
4
|
|
|
3
|
|
|
Expected return on plan assets
|
(28)
|
|
|
(27)
|
|
|
(28)
|
|
|
(47)
|
|
|
(43)
|
|
|
(46)
|
|
|
(7)
|
|
|
(7)
|
|
|
(7)
|
|
|
Amortization of net actuarial loss
|
3
|
|
|
1
|
|
|
1
|
|
|
49
|
|
|
34
|
|
|
29
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
Amortization of prior service benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(8)
|
|
|
(8)
|
|
|
Total periodic benefit cost (benefit)
|
$
|
(10)
|
|
|
$
|
(8)
|
|
|
$
|
(11)
|
|
|
$
|
34
|
|
|
$
|
25
|
|
|
$
|
16
|
|
|
$
|
(6)
|
|
|
$
|
(7)
|
|
|
$
|
(3)
|
|
|
Settlement (gain) loss
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
$
|
26
|
|
|
$
|
51
|
|
|
$
|
2
|
|
|
$
|
20
|
|
|
$
|
104
|
|
|
$
|
49
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
(2)
|
|
|
Amortization of net actuarial loss
|
(3)
|
|
|
(1)
|
|
|
(1)
|
|
|
(49)
|
|
|
(34)
|
|
|
(29)
|
|
|
(4)
|
|
|
(4)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
8
|
|
|
8
|
|
|
Loss due to settlement
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
(3)
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total recognized in other comprehensive (income) loss
|
$
|
19
|
|
|
$
|
50
|
|
|
$
|
1
|
|
|
$
|
(19)
|
|
|
$
|
67
|
|
|
$
|
21
|
|
|
$
|
8
|
|
|
$
|
9
|
|
|
$
|
(2)
|
|
|
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss
|
$
|
13
|
|
|
$
|
42
|
|
|
$
|
(10)
|
|
|
$
|
15
|
|
|
$
|
92
|
|
|
$
|
32
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
(5)
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Funded Status. As of October 31, 2020 and 2019, 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
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value — beginning of year
|
$
|
432
|
|
|
$
|
401
|
|
|
$
|
911
|
|
|
$
|
825
|
|
|
$
|
95
|
|
|
$
|
90
|
|
|
Actual return on plan assets
|
30
|
|
|
50
|
|
|
(2)
|
|
|
85
|
|
|
6
|
|
|
11
|
|
|
Employer contributions
|
—
|
|
|
—
|
|
|
32
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Benefits paid
|
(8)
|
|
|
(19)
|
|
|
(31)
|
|
|
(29)
|
|
|
(8)
|
|
|
(6)
|
|
|
Settlements
|
(15)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Currency impact
|
—
|
|
|
—
|
|
|
34
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
Fair value — end of year
|
$
|
439
|
|
|
$
|
432
|
|
|
$
|
945
|
|
|
$
|
911
|
|
|
$
|
93
|
|
|
$
|
95
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation — beginning of year
|
$
|
491
|
|
|
$
|
420
|
|
|
$
|
1,067
|
|
|
$
|
913
|
|
|
$
|
94
|
|
|
$
|
87
|
|
|
Service cost
|
—
|
|
|
—
|
|
|
24
|
|
|
20
|
|
|
1
|
|
|
—
|
|
|
Interest cost
|
15
|
|
|
18
|
|
|
8
|
|
|
14
|
|
|
3
|
|
|
4
|
|
|
Participants' contributions
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
28
|
|
|
74
|
|
|
(19)
|
|
|
143
|
|
|
4
|
|
|
9
|
|
|
Benefits paid
|
(9)
|
|
|
(21)
|
|
|
(31)
|
|
|
(29)
|
|
|
(8)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements
|
(15)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Currency impact
|
—
|
|
|
—
|
|
|
44
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Benefit obligation — end of year
|
$
|
510
|
|
|
$
|
491
|
|
|
$
|
1,094
|
|
|
$
|
1,067
|
|
|
$
|
94
|
|
|
$
|
94
|
|
|
Overfunded (underfunded) status of PBO
|
$
|
(71)
|
|
|
$
|
(59)
|
|
|
$
|
(149)
|
|
|
$
|
(156)
|
|
|
$
|
(1)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
123
|
|
|
$
|
106
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Employee compensation and benefits
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Retirement and post-retirement benefits
|
(70)
|
|
|
(58)
|
|
|
(272)
|
|
|
(262)
|
|
|
(1)
|
|
|
—
|
|
|
Total net asset (liability)
|
$
|
(71)
|
|
|
$
|
(59)
|
|
|
$
|
(149)
|
|
|
$
|
(156)
|
|
|
$
|
(1)
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gains) losses
|
$
|
134
|
|
|
$
|
115
|
|
|
$
|
311
|
|
|
$
|
330
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
Prior service costs (benefits)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(12)
|
|
|
Total
|
$
|
134
|
|
|
$
|
115
|
|
|
$
|
311
|
|
|
$
|
330
|
|
|
$
|
6
|
|
|
$
|
(2)
|
|
The amounts in accumulated other comprehensive income (loss) expected to be recognized by Agilent as components of net expense during 2021 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)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
Amortization of actuarial net loss
|
$
|
4
|
|
|
$
|
52
|
|
|
$
|
4
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment Policies and Strategies as of October 31, 2020 and 2019. 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 1 percent of the retirement and post-retirement plans consist 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 ranges from 24 percent to 60 percent to equities, from 38 percent to 65 percent to fixed income investments, and from zero to 25 percent to real estate, 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, 2020 and 2019 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. Portions of the cash and cash equivalent, equity, and fixed income investments are held in commingled funds that are valued using Net Asset Value (“NAV”) as the practical expedient. In addition, some of the investments valued using NAV as the practical expedient may have limits on their redemption to weekly or monthly and/or may require prior written notice specified by each fund.
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 13, "Fair Value Measurements".
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. Some of our cash and cash equivalents are held in commingled funds. Other cash and cash equivalents are classified as Level 1 investments.
Equity - Some equity securities consisting of common and preferred stock that are not traded on an active market are valued at quoted prices reported by investment dealers based on the underlying terms of the security and comparison to similar securities traded on an active market; these are classified as Level 2 investments. Securities which have quoted prices in active markets are classified as Level 1 investments.
Fixed Income - Some of the fixed income securities are not actively traded and are valued at quoted prices based on the terms of the security and comparison to similar securities traded on an active market; these are classified as Level 2 investments. Securities which have quoted prices in active markets are classified as Level 1 investments.
Other Investments - Other investments also include 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.
Agilent has adopted the accounting guidance related to the presentation of certain investments using the NAV practical expedient. The accounting guidance exempts investments using this practical expedient from categorization within the fair value hierarchy.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2020 Using
|
|
|
|
|
October 31,
2020
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
Cash and Cash Equivalents
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Equity
|
357
|
|
|
77
|
|
|
—
|
|
|
—
|
|
|
280
|
|
|
Fixed Income
|
79
|
|
|
39
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
Other Investments
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
439
|
|
|
$
|
116
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
321
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2019 Using
|
|
|
|
|
October 31,
2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
Cash and Cash Equivalents
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Equity
|
336
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
258
|
|
|
Fixed Income
|
91
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
Other Investments
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
432
|
|
|
$
|
124
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
304
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
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 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31.
|
|
|
2020
|
|
2019
|
|
Balance, beginning of year
|
$
|
4
|
|
|
$
|
6
|
|
|
Realized gains/(losses)
|
(3)
|
|
|
(1)
|
|
|
Unrealized gains/(losses)
|
2
|
|
|
1
|
|
|
Purchases, sales, issuances, and settlements
|
(1)
|
|
|
(2)
|
|
|
Transfers in (out)
|
—
|
|
|
—
|
|
|
Balance, end of year
|
$
|
2
|
|
|
$
|
4
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2020 Using
|
|
|
|
|
October 31,
2020
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
Cash and Cash Equivalents
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
Equity
|
70
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
Fixed Income
|
18
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
Other Investments
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
93
|
|
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
66
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2019 Using
|
|
|
|
|
October 31,
2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
Cash and Cash Equivalents
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Equity
|
69
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
Fixed Income
|
21
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
Other Investments
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
95
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
64
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
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 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
October 31,
|
|
|
2020
|
|
2019
|
|
Balance, beginning of year
|
$
|
2
|
|
|
$
|
4
|
|
|
Realized gains/(losses)
|
(1)
|
|
|
(1)
|
|
|
Unrealized gains/(losses)
|
1
|
|
|
—
|
|
|
Purchases, sales, issuances, and settlements
|
(1)
|
|
|
(1)
|
|
|
Transfers in (out)
|
—
|
|
|
—
|
|
|
Balance, end of year
|
$
|
1
|
|
|
$
|
2
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2020 Using
|
|
|
|
|
October 31,
2020
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
Cash and Cash Equivalents
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
Equity
|
504
|
|
|
315
|
|
|
48
|
|
|
—
|
|
|
141
|
|
|
Fixed Income
|
434
|
|
|
102
|
|
|
238
|
|
|
—
|
|
|
94
|
|
|
Other Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
945
|
|
|
$
|
417
|
|
|
$
|
292
|
|
|
$
|
—
|
|
|
$
|
236
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement
at October 31, 2019 Using
|
|
|
|
|
October 31,
2019
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Not Subject to Leveling (1)
|
|
|
(in millions)
|
|
|
|
Cash and Cash Equivalents
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Equity
|
512
|
|
|
318
|
|
|
61
|
|
|
—
|
|
|
133
|
|
|
Fixed Income
|
398
|
|
|
98
|
|
|
213
|
|
|
—
|
|
|
87
|
|
|
Other Investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
911
|
|
|
$
|
416
|
|
|
$
|
275
|
|
|
$
|
—
|
|
|
$
|
220
|
|
(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets as of October 31, 2020 or 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
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
|
$
|
510
|
|
|
$
|
439
|
|
|
$
|
491
|
|
|
$
|
432
|
|
|
U.S. defined benefit plans where fair value of plan assets exceeds PBO
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
510
|
|
|
$
|
439
|
|
|
$
|
491
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. defined benefit plans where PBO exceeds or is equal to the fair value of plan assets
|
$
|
697
|
|
|
$
|
425
|
|
|
$
|
752
|
|
|
$
|
490
|
|
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds PBO
|
397
|
|
|
520
|
|
|
315
|
|
|
421
|
|
|
Total
|
$
|
1,094
|
|
|
$
|
945
|
|
|
$
|
1,067
|
|
|
$
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO
|
|
|
|
ABO
|
|
|
|
U.S. defined benefit plans where ABO exceeds the fair value of plan assets
|
$
|
510
|
|
|
$
|
439
|
|
|
$
|
491
|
|
|
$
|
432
|
|
|
U.S. defined benefit plans where the fair value of plan assets exceeds ABO
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
510
|
|
|
$
|
439
|
|
|
$
|
491
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. defined benefit plans where ABO exceeds or is equal to the fair value of plan assets
|
$
|
675
|
|
|
$
|
425
|
|
|
$
|
651
|
|
|
$
|
418
|
|
|
Non-U.S. defined benefit plans where fair value of plan assets exceeds ABO
|
387
|
|
|
520
|
|
|
381
|
|
|
493
|
|
|
Total
|
$
|
1,062
|
|
|
$
|
945
|
|
|
$
|
1,032
|
|
|
$
|
911
|
|
Contributions and Estimated Future Benefit Payments. During fiscal year 2021, we expect to make no contributions to the U.S. defined benefit plans and the Post-Retirement Medical Plans. We expect to contribute $22 million to plans outside the U.S. The following table presents expected future benefit payments for the next 10 years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Defined
Benefit Plans
|
|
Non-U.S. Defined
Benefit Plans
|
|
U.S. Post-Retirement
Benefit Plans
|
|
|
(in millions)
|
|
2021
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
8
|
|
|
2022
|
$
|
31
|
|
|
$
|
34
|
|
|
$
|
8
|
|
|
2023
|
$
|
33
|
|
|
$
|
36
|
|
|
$
|
7
|
|
|
2024
|
$
|
34
|
|
|
$
|
36
|
|
|
$
|
7
|
|
|
2025
|
$
|
33
|
|
|
$
|
37
|
|
|
$
|
7
|
|
|
2026 - 2030
|
$
|
152
|
|
|
$
|
192
|
|
|
$
|
35
|
|
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, 2020 and 2019, were determined based on the results of
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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,
|
|
|
2020
|
|
2019
|
|
2018
|
|
U.S. defined benefit plans:
|
|
|
|
|
|
|
Discount rate
|
3.25%
|
|
4.50%
|
|
3.75%
|
|
Expected long-term return on assets
|
7.00%
|
|
7.00%
|
|
7.00%
|
|
Non-U.S. defined benefit plans:
|
|
|
|
|
|
|
Discount rate
|
0.22-1.81%
|
|
0.83-2.68%
|
|
0.67-2.52%
|
|
Average increase in compensation levels
|
2.25-3.00%
|
|
2.25-3.25%
|
|
2.00-3.25%
|
|
Expected long-term return on assets
|
4.00-5.75%
|
|
4.00-5.75%
|
|
4.00-6.00%
|
|
U.S. post-retirement benefits plans:
|
|
|
|
|
|
|
Discount rate
|
3.00%
|
|
4.25%
|
|
3.50%
|
|
Expected long-term return on assets
|
7.00%
|
|
7.00%
|
|
7.00%
|
|
Current medical cost trend rate
|
6.25%
|
|
6.00%
|
|
6.00%
|
|
Ultimate medical cost trend rate
|
4.50%
|
|
3.50%
|
|
3.50%
|
|
Medical cost trend rate decreases to ultimate rate in year
|
2029
|
|
2029
|
|
2029
|
Assumptions used to calculate the benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of the Years Ending October 31,
|
|
|
2020
|
|
2019
|
|
U.S. defined benefit plans:
|
|
|
|
|
Discount rate
|
2.75%
|
|
3.25%
|
|
Non-U.S. defined benefit plans:
|
|
|
|
|
Discount rate
|
0.07-1.54%
|
|
0.22-1.81%
|
|
Average increase in compensation levels
|
2.00-3.00%
|
|
2.25-3.00%
|
|
U.S. post-retirement benefits plans:
|
|
|
|
|
Discount rate
|
2.50%
|
|
3.00%
|
|
Current medical cost trend rate
|
6.25%
|
|
6.25%
|
|
Ultimate medical cost trend rate
|
4.50%
|
|
4.50%
|
|
Medical cost trend rate decreases to ultimate rate in year
|
2029
|
|
2029
|
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, 2020.
16. GUARANTEES
Standard Warranty
We accrue for standard warranty costs based on historical trends in actual warranty charges over the past 12 months. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost over the period. 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 to one year from the date of delivery, depending on the product.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the standard warranty accrual activity is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Standard warranty accrual, beginning balance
|
$
|
32
|
|
|
$
|
35
|
|
|
Accruals for warranties including change in estimates
|
49
|
|
|
54
|
|
|
Settlements made during the period
|
(49)
|
|
|
(57)
|
|
|
Standard warranty accrual, ending balance
|
$
|
32
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals for warranties due within one year
|
$
|
30
|
|
|
$
|
32
|
|
|
Accruals for warranties due after one year
|
2
|
|
|
—
|
|
|
Standard warranty accrual, ending balance
|
$
|
32
|
|
|
$
|
32
|
|
Bank Guarantees
Guarantees consist primarily of outstanding standby letters of credit and bank guarantees and were approximately $43 million and $40 million as of October 31, 2020 and 2019, respectively. A standby letter of credit is a guarantee of payment issued by a bank on behalf of us that is used as payment of last resort should we fail to fulfill a contractual commitment with a third party. A bank guarantee is a promise from a bank or other lending institution that if we default on a loan, the bank will cover the loss.
Indemnifications in Connection with Transactions
In connection with various divestitures, acquisitions, spin-offs and other transactions, we have agreed to indemnify certain parties, their affiliates and/or other related parties against certain damages and expenses that might occur in the future. These indemnifications may cover a variety of liabilities, including, but not limited to, employee, tax, environmental, intellectual property, litigation and other liabilities related to the business conducted prior to the date of the transaction. In our opinion, the fair value of these indemnification obligations was not material as of October 31, 2020.
Indemnifications to Officers and Directors
Our corporate bylaws 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 bylaws 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 bylaws 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, 2020.
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
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 2020.
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, 2020.
17. COMMITMENTS AND CONTINGENCIES
Other Purchase Commitments. Typically, we can cancel contracts with professional services suppliers without penalties. For those contracts that are not cancelable without penalties, there are termination fees and costs or commitments for continued spending that we are obligated to pay to a supplier under each contact's termination period before such contract can be cancelled. Our contractual obligations with these suppliers under "other purchase commitments" were approximately $85 million. Approximately $23 million of the penalties for the new contracts will reduce over the next 13 years.
Contingencies: We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, intellectual property, commercial, real estate, environmental and employment 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.
18. SHORT-TERM DEBT
Credit Facilities
On March 13, 2019, we entered into a credit agreement with a group of financial institutions which provides for a $1 billion five-year unsecured credit facility that will expire on March 13, 2024. For the year ended October 31, 2020, we borrowed $798 million and repaid $913 million under the credit facility. As of October 31, 2020, the company had no borrowings outstanding under the credit facility. On August 7, 2019, we entered into an amendment to the credit agreement, which provides for a $500 million short-term loan facility that was used in full to complete the BioTek acquisition and which was repaid in full as of October 31, 2020. On October 21, 2019, we entered into a second amendment to the credit agreement, which refreshed the amount available for additional incremental term loan facilities under the credit agreement to permit additional incremental facilities of up to $500 million. We had no borrowings under the additional incremental facilities as of October 31, 2020. On April 17, 2020, we entered into a third amendment to the credit agreement which provides the company with the option to request the consent of the applicable class of lenders to extend the maturity date of revolving borrowings and swingline loans for an additional period of one year and of the 2019 incremental term loans for an additional period of up to 364 days. We were in compliance with the covenants for the credit facility during the year ended October 31, 2020.
Commercial Paper
In May 2020, we established a U.S. commercial paper program, under which the company may issue and sell unsecured, short-term promissory notes in the aggregate principal amount not to exceed $1.0 billion with up to 397-day maturities. At any point in time, the company intends to maintain available commitments under its revolving credit facility in an amount at least equal to the amount of the commercial paper notes outstanding. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The proceeds from issuances under the program may be used for general corporate purposes. As of October 31, 2020, borrowings outstanding under our U.S. commercial paper program had a weighted average annual interest rate of 0.17 percent and a weighted average remaining maturity of approximately five days. We had borrowings of $75 million outstanding under the U.S. commercial paper program as of October 31, 2020.
2020 Senior Notes
On July 13, 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 were scheduled to mature on July 15, 2020, and bear interest at a fixed rate of 5.00% per annum.
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
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
approximately $34 million. The gain was deferred and amortized to interest expense over the remaining life of the 2020 senior notes.
On September 17, 2019, we repaid the $500 million outstanding aggregate principal amount of our 2020 senior notes due July 15, 2020 that were called for redemption on August 16, 2019. The redemption price of approximately $512 million included a $12 million prepayment penalty. The redemption price was computed in accordance with the terms of the 2020 senior notes as the present value of the remaining scheduled payments of principal and unpaid interest related to the redemption. The prepayment penalty plus amortization of the previously deferred interest swap gain of $4 million and amortization of previously deferred debt issuance costs and discount of $1 million were recorded in other income (expense), net in the consolidated statement of operations. We also paid accrued and unpaid interest of $4 million on the 2020 senior notes up to but not including the redemption date.
19. LONG-TERM DEBT
Senior Notes
The following table summarizes the company's long-term senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
|
October 31, 2019
|
|
|
Amortized
Principal
|
|
|
|
|
|
Amortized
Principal
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Senior Notes
|
$
|
400
|
|
|
|
|
|
|
$
|
399
|
|
|
|
|
|
|
2023 Senior Notes
|
598
|
|
|
|
|
|
|
597
|
|
|
|
|
|
|
2026 Senior Notes
|
298
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
2029 Senior Notes
|
493
|
|
|
|
|
|
|
492
|
|
|
|
|
|
|
2030 Senior Notes
|
495
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Total
|
$
|
2,284
|
|
|
|
|
|
|
$
|
1,786
|
|
|
|
|
|
2022 Senior Notes
On September 13, 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 and payments commenced on April 1, 2013.
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 13, 2012. The treasury lock contracts were terminated on September 10, 2012 and we recognized a deferred gain in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2022 senior notes. The remaining gain to be amortized related to the treasury lock agreements at October 31, 2020 was less than $1 million.
2023 Senior Notes
On June 21, 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 commenced January 15, 2014.
2026 Senior Notes
On September 22, 2016, the company issued aggregate principal amount of $300 million in senior notes ("2026 senior notes"). The 2026 senior notes were issued at 99.624% of their principal amount. The notes will mature on September 22, 2026 and bear interest at a fixed rate of 3.05% per annum. The interest is payable semi-annually on March 22nd and September 22nd of each year and payments commenced March 22, 2017.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In February 2016, Agilent executed three forward-starting pay fixed/receive variable interest rate swaps for the notional amount of $300 million in connection with future interest payments to be made on our 2026 senior notes issued on September 15, 2016. The swap arrangements were terminated on September 15, 2016 with a payment of $10 million, and we recognized this as a deferred loss in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2026 senior notes. The remaining loss to be amortized related to the interest rate swap agreements at October 31, 2020 was $6 million.
2029 Senior Notes
On September 16, 2019, the company issued an aggregate principal amount of $500 million in senior notes ("2029 senior notes"). The 2029 senior notes were issued at 99.316% of their principal amount. The notes will mature on September 15, 2029, and bear interest at a fixed rate of 2.75% per annum. The interest is payable semi-annually on March 15th and September 15th of each year and payments commenced on March 15, 2020.
In August 2019, Agilent executed treasury lock agreements for $250 million in connection with future interest payments to be made on our 2029 senior notes issued on September 16, 2019. We designated the treasury lock as a cash flow hedge. The treasury lock contracts were terminated on September 6, 2019 and we recognized a deferred loss of $6 million in accumulated other comprehensive income which is being amortized to interest expense over the life of the 2029 senior notes. The remaining loss to be amortized related to the treasury lock agreements at October 31, 2020 was $5 million.
2030 Senior Notes
On June 4, 2020, we issued an aggregate principal amount of $500 million in senior notes ("2030 senior notes"). The 2030 senior notes were issued at 99.812% of their principal amount. The 2030 senior notes will mature on June 4, 2030, and bear interest at a fixed rate of 2.10% per annum. The interest is payable semi-annually on June 4th and December 4th of each year and payments commenced on December 4, 2020.
All outstanding notes listed above are unsecured and rank equally in right of payment with all of Agilent's other senior unsecured indebtedness.
20. STOCKHOLDERS' EQUITY
Stock Repurchase Program
On May 28, 2015 we announced that our board of directors had approved a share repurchase program (the "2015 repurchase program"). The 2015 repurchase program authorizes the purchase of up to $1.14 billion of our common stock at the company's discretion through and including November 1, 2018. The 2015 repurchase program did not require the company to acquire a specific number of shares and could have been suspended or discontinued at any time. During the year ended October 31, 2018, we repurchased and retired approximately 6.4 million shares for $422 million under this authorization. As of October 31, 2018, we had remaining authorization to repurchase up to $188 million of our common stock under this program which expired on November 1, 2018.
On November 19, 2018 we announced that our board of directors had approved a new share repurchase program (the "2019 repurchase program") designed, among other things, to reduce or eliminate dilution resulting from issuance of stock under the company's employee equity incentive programs. The 2019 share repurchase program authorizes the purchase of up to $1.75 billion of our common stock at the company's discretion and has no fixed termination date. The 2019 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time. During the year ended October 31, 2019, we repurchased and retired 10.4 million shares for $723 million under this authorization. During the year ended October 31, 2020, we repurchased and retired approximately 5.2 million shares for $469 million under this authorization. As of October 31, 2020, we had remaining authorization to repurchase up to $558 million of our common stock under this program.
Cash Dividends on Shares of Common Stock
During the year ended October 31, 2020, cash dividends of 0.720 per share, or $222 million were declared and paid on the company's outstanding common stock. During the year ended October 31, 2019, cash dividends of 0.656 per share, or $206 million were declared and paid on the company's outstanding common stock. During the year ended October 31, 2018, cash dividends of 0.596 per share, or $191 million were declared and paid on the company's outstanding common stock.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 18, 2020 we declared a quarterly dividend of $0.194 per share of common stock, or approximately $59 million which will be paid on January 27, 2021 to shareholders of record as of the close of business on January 5, 2021. The timing and amounts of any future dividends are subject to determination and approval by our board of directors.
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of our accumulated other comprehensive income (loss) as of October 31, 2020 and 2019, net of tax effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
|
|
|
|
|
Foreign currency translation, net of tax expense of $(6) and $(5) for 2020 and 2019, respectively
|
$
|
(194)
|
|
|
(204)
|
|
|
Unrealized losses (including prior service benefit) on defined benefit plans, net of tax benefit of $154 and $153 for 2020 and 2019, respectively
|
(317)
|
|
|
(306)
|
|
|
Unrealized gains (losses) on derivative instruments, net of tax benefit of $6 and $3 for 2020 and 2019, respectively
|
(11)
|
|
|
(4)
|
|
|
Total accumulated other comprehensive loss
|
$
|
(522)
|
|
|
$
|
(514)
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in accumulated other comprehensive income (loss) by component and related tax effects for the years ended October 31, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defined benefit pension cost and post retirement plan costs
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
Prior service credits
|
|
Actuarial Losses
|
|
Unrealized gains (losses) on derivatives
|
|
Total
|
|
|
|
|
|
(in millions)
|
|
As of October 31, 2018
|
|
|
|
$
|
(214)
|
|
|
$
|
134
|
|
|
$
|
(335)
|
|
|
$
|
7
|
|
|
$
|
(408)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of adoption of new guidance on tax effects in accumulated other comprehensive income (loss)
|
|
|
|
—
|
|
|
3
|
|
|
(9)
|
|
|
(1)
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of November 1, 2018
|
|
|
|
(214)
|
|
|
137
|
|
|
(344)
|
|
|
6
|
|
|
(415)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications
|
|
|
|
—
|
|
|
—
|
|
|
(157)
|
|
|
(6)
|
|
|
(163)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
|
|
—
|
|
|
(8)
|
|
|
39
|
|
|
(8)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit
|
|
|
|
10
|
|
|
2
|
|
|
25
|
|
|
4
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
10
|
|
|
(6)
|
|
|
(93)
|
|
|
(10)
|
|
|
(99)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2019
|
|
|
|
$
|
(204)
|
|
|
$
|
131
|
|
|
$
|
(437)
|
|
|
$
|
(4)
|
|
|
$
|
(514)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
11
|
|
|
—
|
|
|
(66)
|
|
|
(12)
|
|
|
(67)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified out of accumulated other comprehensive income (loss)
|
|
|
|
—
|
|
|
(7)
|
|
|
61
|
|
|
2
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax (expense) benefit
|
|
|
|
(1)
|
|
|
1
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
10
|
|
|
(6)
|
|
|
(5)
|
|
|
(7)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2020
|
|
|
|
$
|
(194)
|
|
|
$
|
125
|
|
|
$
|
(442)
|
|
|
$
|
(11)
|
|
|
$
|
(522)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassifications out of accumulated other comprehensive income (loss) for the years ended October 31, 2020 and 2019 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other
Comprehensive Income components
|
|
Amounts Reclassified
from Other Comprehensive Income
|
|
Affected line item in
statement of operations
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains and (losses) on derivatives
|
|
$
|
(2)
|
|
|
$
|
8
|
|
|
Cost of products and interest expense
|
|
|
|
(2)
|
|
|
8
|
|
|
Total before income tax
|
|
|
|
—
|
|
|
(2)
|
|
|
(Provision)/benefit for income tax
|
|
|
|
(2)
|
|
|
6
|
|
|
Total net of income tax
|
|
Net defined benefit pension cost and post retirement plan costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial net loss
|
|
(61)
|
|
|
(39)
|
|
|
Other (income) expense
|
|
Prior service benefit
|
|
7
|
|
|
8
|
|
|
Other (income) expense
|
|
|
|
(54)
|
|
|
(31)
|
|
|
Total before income tax
|
|
|
|
16
|
|
|
12
|
|
|
Benefit for income tax
|
|
|
|
(38)
|
|
|
(19)
|
|
|
Total net of income tax
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(40)
|
|
|
$
|
(13)
|
|
|
|
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 global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.
Agilent has three business segments comprised of the life sciences and applied markets business, diagnostics and genomics business and the Agilent CrossLab business each of which comprises a reportable segment. 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 applied markets business provides application-focused solutions that include instruments and software 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 and cellular level. Key product categories include: liquid chromatography ("LC") systems and components; liquid chromatography mass spectrometry ("LCMS") systems; gas chromatography ("GC") systems and components; gas chromatography mass spectrometry ("GCMS") systems; inductively coupled plasma mass spectrometry ("ICP-MS") instruments; atomic absorption ("AA") instruments; microwave plasma-atomic emission spectrometry ("MP-AES") instruments; inductively coupled plasma optical emission spectrometry ("ICP-OES") instruments; raman spectroscopy; cell analysis plate based assays; flow cytometer; real-time cell analyzer; cell imaging systems; microplate reader; laboratory software for sample tracking; information
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
management and analytics; laboratory automation and robotic systems; dissolution testing; vacuum pumps and measurement technologies.
Our diagnostics and genomics business is comprised of six areas of activity providing active pharmaceutical ingredients ("APIs") for oligo-based therapeutics as well as solutions that include reagents, instruments, software and consumables, which enable customers in the clinical and life sciences research areas to interrogate samples at the cellular and molecular level. First, our genomics business includes arrays for DNA mutation detection, genotyping, gene copy number determination, identification of gene rearrangements, DNA methylation profiling, gene expression profiling, as well as next generation sequencing ("NGS") target enrichment and genetic data management and interpretation support software. This business also includes solutions that enable clinical labs to identify DNA variants associated with genetic disease and help direct cancer therapy. Second, our nucleic acid solutions business provides equipment and expertise focused on production of synthesized oligonucleotides under pharmaceutical good manufacturing practices ("GMP") conditions for use as API in an emerging class of drugs that utilize nucleic acid molecules for disease therapy. Third, our pathology solutions business is focused on product offerings for cancer diagnostics and anatomic pathology workflows. The broad portfolio of offerings includes immunohistochemistry ("IHC"), in situ hybridization ("ISH"), hematoxylin and eosin ("H&E") staining and special staining. Fourth, we also collaborate with a number of major pharmaceutical companies to develop new potential pharmacodiagnostics, also known as companion diagnostics, which may be used to identify patients most likely to benefit from a specific targeted therapy. Fifth, the reagent partnership business is a provider of reagents used for turbidimetry and flow cytometry. Finally, our biomolecular analysis business provides complete workflow solutions, including instruments, consumables and software, for quality control analysis of nucleic acid samples. Samples are analyzed using quantitative and qualitative techniques to ensure accuracy in further genomics analysis techniques utilized in clinical and life science research applications.
The Agilent CrossLab business spans the entire lab with its extensive consumables and services portfolio, which is designed to improve customer outcomes. Most of the portfolio is vendor neutral, meaning Agilent can serve and supply customers regardless of their instrument purchase choices. Solutions range from chemistries and supplies to services and software helping to connect the entire lab. Key product categories in consumables include GC and LC columns, sample preparation products, custom chemistries, and a large selection of laboratory instrument supplies. Services include startup, operational, training and compliance support, software as a service, as well as asset management and consultative services that help increase customer productivity. Custom service and consumable bundles are tailored to meet the specific application needs of various industries and to keep instruments fully operational and compliant with the respective industry requirements.
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 legal, accounting, tax, real estate, insurance services, information technology services, treasury, order administration, other corporate infrastructure expenses and costs of centralized research and development. 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. In addition, we do not allocate amortization and impairment of acquisition-related intangible assets, pension curtailment or settlement gains, restructuring and transformational initiatives expenses, acquisition and integration costs, business exit and divestiture costs, special compliance costs, some nucleic acid solutions division ("NASD") site costs and certain other charges to the operating margin for each segment because management does not include this information in its measurement of the performance of the operating segments. Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, site consolidations, legal entity and other business reorganizations, in-sourcing or outsourcing of activities.
The following tables reflect the results of our reportable segments under our management reporting system. The performance of each segment is measured based on several metrics, including segment 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.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The profitability of each of the segments is measured after excluding items such as asset impairment charges, transformational initiatives, acquisition and integration costs, non-cash amortization of intangible assets related to business combinations, interest income, interest expense, and other items as noted in the reconciliations below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Applied Markets
|
|
Diagnostics and Genomics
|
|
Agilent CrossLab
|
|
Total
Segments
|
|
|
(in millions)
|
|
Year Ended October 31, 2020:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,392
|
|
|
$
|
1,047
|
|
|
$
|
1,900
|
|
|
$
|
5,339
|
|
|
Income from operations
|
$
|
548
|
|
|
$
|
192
|
|
|
$
|
516
|
|
|
$
|
1,256
|
|
|
Depreciation expense
|
$
|
43
|
|
|
$
|
39
|
|
|
$
|
37
|
|
|
$
|
119
|
|
|
Share-based compensation expense (1)
|
$
|
35
|
|
|
$
|
17
|
|
|
$
|
29
|
|
|
$
|
81
|
|
|
Year Ended October 31, 2019:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,302
|
|
|
$
|
1,021
|
|
|
$
|
1,840
|
|
|
$
|
5,163
|
|
|
Income from operations
|
$
|
542
|
|
|
$
|
185
|
|
|
$
|
475
|
|
|
$
|
1,202
|
|
|
Depreciation expense
|
$
|
41
|
|
|
$
|
35
|
|
|
$
|
35
|
|
|
$
|
111
|
|
|
Share-based compensation expense
|
$
|
33
|
|
|
$
|
14
|
|
|
$
|
25
|
|
|
$
|
72
|
|
|
Year Ended October 31, 2018:
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
2,270
|
|
|
$
|
943
|
|
|
$
|
1,701
|
|
|
$
|
4,914
|
|
|
Income from operations
|
$
|
543
|
|
|
$
|
173
|
|
|
$
|
388
|
|
|
$
|
1,104
|
|
|
Depreciation expense
|
$
|
38
|
|
|
$
|
33
|
|
|
$
|
31
|
|
|
$
|
102
|
|
|
Share-based compensation expense
|
$
|
33
|
|
|
$
|
14
|
|
|
$
|
24
|
|
|
$
|
71
|
|
(1) Share-based compensation expense in 2020 excludes amounts not allocated to the segments related to accelerated share-based compensation expense from workforce reduction and from our acquisition of BioTek.
The following table reconciles reportable segments' income from operations to Agilent's total enterprise income before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended October 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Total reportable segments' income from operations
|
$
|
1,256
|
|
|
$
|
1,202
|
|
|
$
|
1,104
|
|
|
Amortization of intangible assets related to business combinations
|
(184)
|
|
|
(125)
|
|
|
(105)
|
|
|
Acquisition and integration costs
|
(41)
|
|
|
(48)
|
|
|
(23)
|
|
|
Transformational initiatives
|
(53)
|
|
|
(44)
|
|
|
(25)
|
|
|
|
|
|
|
|
|
|
Acceleration of share-based compensation expense related to workforce reduction
|
(2)
|
|
|
—
|
|
|
—
|
|
|
Asset impairments
|
(99)
|
|
|
—
|
|
|
(21)
|
|
|
Business exit and divestiture costs
|
(2)
|
|
|
—
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
NASD site costs
|
—
|
|
|
(12)
|
|
|
(8)
|
|
|
Special compliance costs
|
—
|
|
|
(2)
|
|
|
(4)
|
|
|
Other (1)
|
(29)
|
|
|
(30)
|
|
|
(5)
|
|
|
Interest Income
|
8
|
|
|
36
|
|
|
38
|
|
|
Interest Expense
|
(78)
|
|
|
(74)
|
|
|
(75)
|
|
|
Other income (expense), net (2)
|
66
|
|
|
16
|
|
|
79
|
|
|
Income before taxes, as reported
|
$
|
842
|
|
|
$
|
919
|
|
|
$
|
946
|
|
(1) For the years ended October 31, 2020 and 2019, the other category primarily includes legal costs related to a claim we pursued against Twist Bioscience Corporation in addition to other miscellaneous adjustments.
(2) For the year ended October 31, 2020, other income (expense), net includes the settlement of a legal claim against Twist Bioscience Corporation.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Major Customers. No customer represented 10 percent or more of our total net revenue in 2020, 2019 or 2018.
The following table reflects segment assets and capital expenditures under our management reporting system. Segment assets include allocations of corporate assets, goodwill, net other intangibles and other assets. Unallocated assets primarily consist of cash, cash equivalents, the valuation allowance relating to deferred tax assets and other assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Sciences and Applied Markets
|
|
Diagnostics and Genomics
|
|
Agilent CrossLab
|
|
Total
Segments
|
|
|
(in millions)
|
|
As of and for the Year Ended October 31, 2020:
|
|
|
|
|
|
|
|
|
Assets
|
$
|
3,143
|
|
|
$
|
2,515
|
|
|
$
|
1,375
|
|
|
$
|
7,033
|
|
|
Capital expenditures
|
$
|
44
|
|
|
$
|
34
|
|
|
$
|
41
|
|
|
$
|
119
|
|
|
As of and for the Year Ended October 31, 2019:
|
|
|
|
|
|
|
|
|
Assets
|
$
|
3,202
|
|
|
$
|
2,620
|
|
|
$
|
1,331
|
|
|
$
|
7,153
|
|
|
Capital expenditures
|
$
|
59
|
|
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
155
|
|
The following table reconciles segment assets to Agilent's total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
|
Total reportable segments' assets
|
$
|
7,033
|
|
|
$
|
7,153
|
|
|
Cash and cash equivalents
|
1,441
|
|
|
1,382
|
|
|
|
|
|
|
|
Prepaid expenses
|
106
|
|
|
94
|
|
|
Investments
|
158
|
|
|
102
|
|
|
Long-term and other receivables
|
114
|
|
|
100
|
|
|
Deferred tax assets
|
380
|
|
|
410
|
|
|
Right of use assets
|
175
|
|
|
—
|
|
|
Other
|
220
|
|
|
211
|
|
|
Total assets
|
$
|
9,627
|
|
|
$
|
9,452
|
|
The other category primarily includes overfunded pension assets which are not allocated to the segments.
The following table presents summarized information for net revenue by geographic region. Revenues from external customers are generally attributed to countries based upon the customers' location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
China(1)
|
|
|
|
Rest of the
World
|
|
Total
|
|
|
(in millions)
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
Year Ended October 31, 2020
|
$
|
1,752
|
|
|
$
|
1,087
|
|
|
|
|
$
|
2,500
|
|
|
$
|
5,339
|
|
|
Year Ended October 31, 2019
|
$
|
1,619
|
|
|
$
|
1,019
|
|
|
|
|
$
|
2,525
|
|
|
$
|
5,163
|
|
|
Year Ended October 31, 2018
|
$
|
1,414
|
|
|
$
|
1,015
|
|
|
|
|
$
|
2,485
|
|
|
$
|
4,914
|
|
1.China also includes Hong Kong net revenue.
The following table presents summarized information for long-lived assets by geographic region. Long lived assets consist of property, plant, and equipment, right-of-use assets, long-term receivables and other long-term assets excluding intangible assets. The rest of the world primarily consists of Asia and the rest of Europe.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
Germany
|
|
Rest of the
World
|
|
Total
|
|
|
(in millions)
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
October 31, 2020
|
$
|
727
|
|
|
|
|
$
|
126
|
|
|
$
|
538
|
|
|
$
|
1,391
|
|
|
October 31, 2019
|
$
|
621
|
|
|
|
|
$
|
122
|
|
|
$
|
404
|
|
|
$
|
1,147
|
|
QUARTERLY SUMMARY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
January 31,
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
|
(in millions, except per share data)
|
|
2020
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
1,357
|
|
|
$
|
1,238
|
|
|
$
|
1,261
|
|
|
$
|
1,483
|
|
|
Gross profit
|
723
|
|
|
657
|
|
|
669
|
|
|
788
|
|
|
Income from operations
|
215
|
|
|
102
|
|
|
230
|
|
|
299
|
|
|
Net income
|
197
|
|
|
101
|
|
|
199
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share — Basic
|
$
|
0.64
|
|
|
$
|
0.33
|
|
|
$
|
0.64
|
|
|
$
|
0.72
|
|
|
Net income per share — Diluted
|
$
|
0.63
|
|
|
$
|
0.32
|
|
|
$
|
0.64
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
310
|
|
|
309
|
|
|
309
|
|
|
308
|
|
|
Diluted
|
313
|
|
|
312
|
|
|
312
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
$
|
0.180
|
|
|
$
|
0.180
|
|
|
$
|
0.180
|
|
|
$
|
0.180
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
1,284
|
|
|
$
|
1,238
|
|
|
$
|
1,274
|
|
|
$
|
1,367
|
|
|
Gross profit
|
707
|
|
|
669
|
|
|
692
|
|
|
737
|
|
|
Income from operations
|
250
|
|
|
216
|
|
|
225
|
|
|
250
|
|
|
Net income
|
504
|
|
|
182
|
|
|
191
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share — Basic
|
$
|
1.58
|
|
|
$
|
0.57
|
|
|
$
|
0.61
|
|
|
$
|
0.63
|
|
|
Net income per share — Diluted
|
$
|
1.57
|
|
|
$
|
0.57
|
|
|
$
|
0.60
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
318
|
|
|
317
|
|
|
312
|
|
|
309
|
|
|
Diluted
|
322
|
|
|
321
|
|
|
316
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
$
|
0.164
|
|
|
$
|
0.164
|
|
|
$
|
0.164
|
|
|
$
|
0.164
|
|