Agilent Technologies, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended October 31, 2010. The filing also reports fourth-quarter results for the three months ended October 31, 2010. Agilent provides electronic measurement, chemical analysis and life sciences instruments, software, consumables and services.
Financial performance and position
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net revenue | $5.444 billion | $4.481 billion |
| Income (loss) from operations | $566 million | $47 million |
| Net income (loss) | $684 million | $(31) million |
| Diluted EPS | $1.94 | $(0.09) |
| Operating cash flow | $718 million | $408 million |
| Capital expenditures | $121 million | $128 million |
| Cash and cash equivalents at year-end | $2.649 billion | $2.479 billion |
| Working capital | $3.086 billion | $2.838 billion |
- Orders rose 28% to $5.744 billion. Product revenue increased 25% to $4.464 billion; services and other revenue increased 7% to $980 million.
- Total gross margin was 53.8%, up 3 percentage points; reported operating margin was 10.3%, versus 1.0% in FY2009.
- Segment revenue growth: electronic measurement $2.784 billion, up 15%; chemical analysis $1.200 billion, up 42%; life sciences $1.479 billion, up 21%. Acquired Varian revenue was included from May 14, 2010; segment revenue figures include reporting adjustments and may not sum directly to consolidated revenue.
- At October 31, balance-sheet short-term debt was $1.501 billion and long-term debt was $2.190 billion. The short-term balance included $1.5 billion of World Trade debt, repaid on December 10, 2010 with proceeds from July senior notes and existing cash. Senior unsecured notes had approximately $2.1 billion principal outstanding; the company also had an undrawn $330 million revolving facility.
- FY2010 investing cash outflow was $1.174 billion, principally reflecting $1.313 billion of acquisitions and intangible asset purchases, primarily Varian. Financing cash inflow was $601 million. Agilent repurchased approximately 13 million shares for $411 million.
- Fourth-quarter revenue was $1.576 billion, operating income $203 million, net income $292 million and diluted EPS $0.83.
Changes, transactions and unusual items
- Revenue rebounded from the 22% FY2009 decline, supported by economic recovery across electronics, semiconductor, communications test and analytical-instrument markets. FY2009 net loss reflected the downturn and substantial restructuring charges.
- Varian was acquired for approximately $1.507 billion cash. Agilent reported $320 million of Varian revenue after acquisition through year-end and $102 million of acquisition and integration costs. The acquisition added $787 million of goodwill and expanded life sciences and chemical analysis offerings.
- Agilent sold its Network Solutions Division for $160 million and recorded a $132 million gain. It also sold Hycor Biomedical. Regulatory conditions on the Varian deal led to divestitures of specified product lines for approximately $33 million.
- Net income benefited from a 1% effective tax rate, including a $101 million release of the U.K. deferred-tax valuation allowance and a $17 million tax benefit related to a $54 million HP tax-sharing settlement. Management maintained valuation allowances in certain other jurisdictions.
- FY2010 restructuring, asset impairment and other special charges were $64 million, compared with $267 million in FY2009. A further $13 million of intangible-asset impairment was recorded, primarily related to a divested business.
Outlook, risks and contingencies
- Management described the economy as uncertain and expected electronic measurement growth rates to moderate against strong FY2010 comparisons. Near-term demand was expected to depend on continued economic expansion and semiconductor-industry stability.
- Management prioritized Varian integration and revenue and cost synergies, and stated it expected $100 million in net savings from integration. It also anticipated growth from new products, expanded applications and broader geographic and customer reach. The filing does not provide a specific consolidated revenue or EPS forecast.
- Principal risks include economic and market cyclicality, order visibility, supply shortages and supplier commitments, reliance on contract manufacturers and outsourced IT, international and foreign-exchange exposure, and competition and product-development execution.
- Other significant exposures include Varian integration and assumed liabilities; environmental remediation and indemnities; regulatory and intellectual-property matters; tax audits, tax incentives and repatriation costs; and debt service and refinancing. Management said no pending legal matter was expected to be material; estimated Varian-related environmental costs accrued at year-end were $5 million.
- Most cash was held outside the U.S.; repatriation of certain foreign earnings could incur additional tax. The $1.5 billion World Trade obligation was supported by restricted cash at year-end and was subsequently repaid. Contractual commitments included $749 million of contract-manufacturer and supplier commitments due within one year, though only about 40% were firm, non-cancelable and unconditional.
Investor verification priorities
- Separate organic performance from Varian acquisition effects, divestitures, currency movements and purchase-accounting adjustments.
- Assess the durability of the FY2010 earnings rebound, including the $132 million divestiture gain, the unusually low tax rate and restructuring-related savings.
- Verify post-repayment liquidity, debt maturities and interest-rate exposure under swaps that convert certain fixed-rate notes to LIBOR-based variable rates.
- Track whether the stated $100 million Varian net savings target is achieved and whether integration costs, retention, customer effects or assumed liabilities alter expected returns.
- Review backlog conversion, supplier capacity and commitments, receivables and inventory trends, and the sustainability of segment margins amid the recovery.