Agilent Technologies Inc. Reports Operating Results (10-Q)
Agilent Technologies Inc. has a market cap of $10.39 billion; its shares were traded at around $29.85 with a P/E ratio of 17.98 and P/S ratio of 2.32. A is in the portfolios of Richard Snow of Snow Capital Management, L.P., RS Investment Management, Chris Davis of Davis Selected Advisers, Robert Olstein of Olstein Financial Alert Fund, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Louis Moore Bacon of Moore Capital Management, LP, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors, PRIMECAP Management, John Keeley of Keeley Fund Management, Ron Baron of Baron Funds.
Highlight of Business Operations: Net revenue of $1,384 million and $3,868 million for the three and nine months ended July 31, 2010, respectively, increased 31 percent and 17 percent, respectively, from the same periods last year. The revenue increase (including an acquisition deferred revenue fair value adjustment) associated with the Varian acquisition less the revenue attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 8 percentage points and 1 percentage point of revenue increase in the three and nine months ended July 31, 2010, respectively, compared to the same periods last year. Excluding the Varian acquisition, sales of life sciences products into applied and academic and government markets increased strongly and sales into pharmaceutical markets increased modestly in the three and nine months ended July 31, 2010 compared to the same periods in 2009. Excluding the Varian acquisition, almost all end-markets grew across the chemical analysis business in the three and nine months ended July 31, 2010 when compared to the same periods in 2009. Within electronic measurement, general purpose markets continued to strengthen in the three and nine months ended July 31, 2010, compared to the same periods last year with increased performance being led by electronics and semiconductor businesses. Also within electronic measurement, communications test improved in the three months ending July 31, 2010 but was almost flat in the nine months ending July 31, 2010.
Net income for the three and nine months ended July 31, 2010 was $205 million and $392 million, respectively, compared to a loss of $19 million and a loss of $56 million for the corresponding periods last year. In the nine months ended July 31, 2010, we generated $345 million of cash from operations compared with $195 million generated in the same period last year.
On May 14, 2010, we completed our acquisition of Varian, Inc. (Varian), a leading supplier of scientific instrumentation and associated consumables for life science and chemical analysis market applications, by means of a merger of one of our wholly-owned subsidiaries with and into Varian such that Varian became a wholly-owned subsidiary of Agilent. The $1.5 billion total purchase price of Varian includes $52 cash per share of Varians outstanding common stock including vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varians non-vested restricted stock awards, non-vested performance shares, at 100 percent of target, and non-vested directors stock units were also paid at $52 per share. As part of the European Commissions merger approval and the Federal Trade Commission consent order, Agilent had previously committed to sell Varians laboratory gas chromatography (GC) business; Varians triple quadrupole gas chromatography-mass spectrometry (GC-MS) business; Varians inductively-coupled plasma-mass spectrometry (ICP-MS) business; and Agilents micro GC business. On May 19, 2010 we completed the sale of the Varian laboratory GC business, the triple quadrupole GC-MS business, the ICP-MS business and the Agilent micro GC business for approximately $42 million subject to post-closing adjustments. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. The Varian merger has been accounted for in accordance with the authoritative accounting guidance and the results of Varian are included in Agilents consolidated financial statements from the date of merger. We expect to realize operational and cost synergies, leverage the existing sales channels and product development resources, and utilize the assembled workforce. The company expects the combined entity to achieve significant savings in corporate and divisional overhead costs. The company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional products and capabilities. For additional details related to the acquisition of Varian, see Note 3, Acquisition of Varian.
Net revenue in the three and nine months ended July 31, 2010, was $1,384 million and $3,868 million, respectively, a 31 percent and 17 percent increase over the same periods last year. The revenue increase (including an acquisition deferred revenue fair value adjustment) associated with the Varian acquisition less the revenue attributable to our recently divested businesses (the network solutions and Hycor businesses) accounted for 8 percentage points and 1 percentage point of revenue increase in the three and nine months ended July 31, 2010, respectively, compared to the same periods last year. Net revenue from services and other increased 7 percent and 6 percent in three and nine months ended July 31, 2010, respectively, versus a 37 percent and 20 percent increase in product revenues. Excluding the Varian acquisition and our divestitures, service and other revenue increased 5 percent and 6 percent in the three and nine months ended July 31, 2010, respectively, compared to the same periods last year. Services and other revenue include revenue generated from servicing our installed base of products, warranty extensions and consulting.
For the three and nine months ended July 31, 2010, we recorded an income tax provision of $ 22 million and $57 million, respectively, compared to an income tax benefit of $22 million and $16 million, respectively, for the same periods last year. The income tax provision for the three and nine months ended July 31, 2010 includes a discrete tax expense netting to zero and $3 million, respectively. The net discrete expense relates primarily to tax settlements and lapses of statutes of limitation. The income tax benefits for the three and nine months ended July 31, 2009 include net discrete benefits of $25 million and $67 million, respectively, and are primarily associated with valuation allowance adjustments based on changes in other comprehensive income, lapses of statutes of limitation and tax settlements. Without considering interest and penalties, the tax expense reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions in which income tax expense or benefit continues to be offset by adjustments to valuation allowances. We intend to maintain partial or full valuation allowances in these jurisdictions until sufficient positive evidence exists to support the reversal of the valuation allowances.
Our U.S. federal income tax returns for 2000 through 2002 and 2003 through 2007 are under audit by the IRS which is normal for taxpayers subject to the IRSs Large and Mid-Sized Business examination procedures. In August 2007, we received a Revenue Agents Report (RAR) for 2000 through 2002. The RAR proposed several adjustments to taxable income. We disagreed with most of the proposed adjustments. In order to resolve the disagreements, representatives of Agilent met with the Appeals Office of the IRS. In April 2010, we reached resolution in principle with the Appeals Office on the last remaining significant proposed adjustment. Tax adjustments resulting from the Appeals Office agreements will be offset with net operating losses from subsequent years and tax credits. Federal deficiency interest for the intervening years is about $13 million, or $8 million net of federal tax benefit. This $8 million is reflected in our statements of operations.
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