Agilent Technologies, Inc. — FY2009 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended October 31, 2009; it is an annual report, not a standalone quarterly filing. Agilent provides electronic and bio-analytical measurement products and services, plus semiconductor and board test solutions. It reported three segments in FY2009 and planned to reorganize into electronic measurement, life sciences, and chemical analysis segments in FY2010. Revenue was 33% from the U.S. and 67% from outside the U.S.
Key financial metrics
| Metric | FY2009 | FY2008 |
|---|---|---|
| Net revenue | $4.481 billion | $5.774 billion |
| Operating income | $47 million | $795 million |
| Net income (loss) | ($31) million | $693 million |
| Diluted EPS | ($0.09) | $1.87 |
| Total gross margin | 51.1% | 55.4% |
| Operating margin | 1.0% | 13.8% |
| Operating cash flow | $408 million | $756 million |
| Cash and cash equivalents | $2.479 billion | $1.405 billion |
| Restricted cash | $1.566 billion | $1.582 billion |
| Working capital | $2.838 billion | $1.852 billion |
| Long-term debt and senior notes | $2.904 billion | $2.125 billion |
Fiscal Q4 2009 revenue was $1.167 billion, operating income was $71 million, and net income was $25 million. These quarterly figures are unaudited.
Material changes versus the prior comparable period
- Full-year revenue fell 22%; orders also fell 22%. Product revenue declined 26%, while services and other revenue declined 6%.
- Electronic measurement revenue fell 30%; communications test declined 39% and general purpose test 23%.
- Bio-analytical measurement revenue declined 6%: life sciences fell 5% and chemical analysis 7%. Food safety was a relative area of strength.
- Semiconductor and board test revenue declined 54%, reflecting depressed market conditions.
- Gross margin fell 4 percentage points and operating margin fell 12.8 percentage points. Operating cash flow decreased by $348 million.
- Headcount fell to approximately 16,800 from 19,600. The company recorded $267 million of FY2009 restructuring and other special charges; inventory-related charges were $54 million.
Outlook, risks, contingencies, and unusual items
- Management saw signs that markets may have reached the bottom, but expected a gradual near-term recovery and continuing uncertainty. It expected modest growth in major bio-analytical markets and near-term weakness in semiconductor and board test.
- The FY2009 restructuring plan was expected to produce approximately $525 million in annual operating savings and reduce regular positions by approximately 3,800. Most actions were completed by year-end; remaining actions were expected by the end of FY2010 Q2.
- Agilent had agreed to acquire Varian for an estimated $1.5 billion, subject to customary closing conditions and regulatory approvals. The acquisition was not yet completed as of the report date.
- A $1.5 billion World Trade repurchase obligation was due January 27, 2011. The company reported $1.566 billion of restricted cash, primarily held in commercial paper in connection with this obligation; much of its cash was held overseas, and repatriation could incur tax.
- FY2009’s reported effective tax rate was 543%, reflecting very low pretax income, fixed tax components, and tax benefits. The company maintained partial or full deferred-tax valuation allowances in several jurisdictions. Tax examinations remained ongoing.
- Key risks include prolonged economic weakness, demand and pricing pressure, inventory and supplier commitments, reliance on contract manufacturers and outsourced services, international and currency exposure, pension assumptions, and integration and financing risks for Varian. The filing reported no litigation expected to be material to the company’s business or financial results.
- The 2008 balance sheet was revised to correct deferred-tax classification; the revision did not affect earnings or cash flows. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether and when the Varian acquisition closed, its final financing and purchase price, and subsequent integration results.
- Actual realization and timing of the projected $525 million annual restructuring savings, including remaining cash charges and workforce actions.
- Liquidity available for the January 2011 $1.5 billion repurchase obligation, including restrictions, refinancing plans, and potential repatriation taxes.
- Whether demand recovery materialized across electronic measurement and semiconductor and board test, and whether backlog translated into revenue.
- Changes in tax valuation allowances, audit outcomes, pension funding requirements, and the effects of the FY2010 segment reorganization on comparability.