Agilent Technologies Reports Second Quarter 2006 Results.PALO ALTO, Calif. -- Agilent Technologies Inc. (NYSE:A) today reported orders of $1.59 billion for the second fiscal quarter ended April 30, 2006, 21 percent above one year ago. Revenues during the quarter were $1.43 billion, 12 percent above last year. Second quarter GAAP income from continuing operations was $131 million, or $0.30 per diluted share, compared with $53 million, or $0.11 per share, in last year's second quarter. Included in GAAP results are $22 million of net charges related principally to the planned spinoff of Semiconductor Test Solutions (STS) and the reduction of Agilent's infrastructure costs. Excluding these charges and $25 million of non-cash stock compensation expenses, Agilent reported second quarter adjusted net income of $178 million, or $0.40 per share. On a comparable basis, the company earned $84 million, or $0.17 per share, one year ago.(1) "Agilent continued to deliver on its operating and strategic commitments during the second quarter of 2006," said Bill Sullivan, Agilent president and chief executive officer. "Both revenues and adjusted earnings per share were at the high end of our expectations. Preparations for a spinoff of STS are on schedule. As of mid-year, we have successfully reduced Agilent's global infrastructure to a level commensurate with a pure-play measurement company. Despite the separation and restructuring costs associated with these actions, Agilent generated approximately $300 million in cash from operating activities during the second quarter." Sullivan noted that gross margins remained at the highest level in five years, that inventories were below 100 Days On Hand for the first time, and that the company achieved a 24 percent Return on Invested Capital(2) during the quarter. "At this point," he said, "the fundamental strategic opportunity for this company is to leverage the robust operating model we've built through higher sustainable growth." Looking ahead, Agilent (including STS) expects third quarter fiscal 2006 revenues of $1.37 billion to $1.43 billion, up 10 to 15 percent from last year. Adjusted net income is expected to be in the range of $0.37 to $0.42 per share(3), roughly double last year's comparable earnings. Normal seasonality would suggest fourth quarter revenues roughly 5 percent above the third quarter and an increase in operating earnings of about $0.10 per share. Note: The segment results listed below are for the Bio-Analytical Measurement and Electronic Measurement groups. Because of the planned spinoff of STS, Agilent is not reporting separate STS segment results at this time.
Segment Results
Bio-Analytical Measurement(4)
($ millions except where noted)
Q2:F06 Q2:F05 Q1:F06
Orders 401 385 378
Revenues 372 344 373
Gross Margin, % 50% 49% 50%
Income from Operations 45 39 52
Segment Assets 925 721 802
Return On Invested Capital(2), % 21% 22% 28%
Bio-Analytical Measurement orders of $401 million were 4 percent above last year's very strong performance, and up 7 percent in local currency terms. Life Sciences orders were up 4 percent, with demand from traditional pharmaceutical customers down in the U.S., up modestly in Europe and up double digits in Asia compared to one year ago. Demand for proteomics and genomics products was up more than 20 percent from last year. Chemical Analysis orders also rose 4 percent, with fairly uniform strength across chemical and petrochemical firms, academic institutions and government agencies focused on improving food, air and water quality. Revenues of $372 million were up 8 percent from last year. Segment book-to-bill was 1.08, the seventh consecutive quarter above parity. Segment income from operations of $45 million was $6 million above last year. Gross margins improved by one point, while operating expenses for new product introductions and incremental investments moved in line with revenues. The second quarter's 12-percent operating margin was one point above last year, while segment Return On Invested Capital(2) fell one point to 21 percent due to the impact of acquisitions. During the quarter, the company purchased Yokogawa Electric Company's remaining 49-percent ownership of Yokogawa Analytical Systems (YAN) for $98 million.
Electronic Measurement(4)
($ millions except where noted)
Q2:F06 Q2:F05 Q1:F06
Orders 875 834 799
Revenues 867 836 794
Gross Margin, % 55% 53% 55%
Income from Operations 120 84 89
Segment Assets 2,213 2,397 2,248
Return On Invested Capital(2), % 23% 15% 18%
Electronic Measurement second quarter orders of $875 million were up 5 percent from last year; excluding the impact of a higher dollar, local currency orders were up 7 percent from one year ago. Communications test orders were up 2 percent, with strength in wireless partially offset by a 9-percent decline in wireline test orders. General purpose test orders were up 11 percent from one year ago, with sustained strength in Aerospace/Defense, across the oscilloscope product line, and in electronic manufacturing test. Revenues of $867 million were up 4 percent from last year. Second quarter income from operations of $120 million was up $36 million on a $31 million increase in revenue. Gross margin improved 2 points to 55 percent, and segment operating margin rose 4 points to 14 percent. ROIC(2) improved 8 points to 23 percent based on better operating margins and reductions in working capital. About Agilent Technologies Agilent Technologies Inc. (NYSE:A) is the world's premier measurement company and a technology leader in communications, electronics, life sciences and chemical analysis. The company's 20,000 employees serve customers in more than 110 countries. Agilent had net revenue of $5.1 billion in fiscal 2005. Information about Agilent is available on the Web at www.agilent.com. Agilent's management will present more details on its second quarter FY2006 financial results on a conference call with investors beginning at 1:30 p.m. (Pacific). This event will be webcast live in listen-only mode. Listeners may log on at www.investor.agilent.com and select "Q2 2006 Agilent Technologies Inc. Earnings Conference Call" in the "News & Events -- Calendar of Events" section. The webcast will remain available on the company's Web site for 90 days. A telephone replay of the conference call will be available from 3:30 p.m. (Pacific) today through May 22, 2006. The replay number is +1 888 286 8010, or international callers may dial +1 617 801 6888; enter pass code 69150406. Forward-Looking Statements This news release contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors created therein. The forward-looking statements contained herein include, but are not limited to, information regarding Agilent's future revenues, earnings and profitability; the pace of new product introductions and future demand for the Company's products and services; the planned spinoff of the Company's Semiconductor Test Solutions business, including the timing of the initial public offering of that business and completion of the spinoff; the Company's revenue and earnings (on a segment and consolidated basis); guidance for the third and fourth quarters of fiscal year 2006; and future demand for the Company's products and services. These forward-looking statements involve risks and uncertainties that could cause Agilent's results to differ materially from management's current expectations. Such risks and uncertainties include, but are not limited to, unforeseen changes in the strength of our customers' businesses; unforeseen changes in the demand for current and new products and technologies; changes in the planned spinoff of the Semiconductor Test Solutions business, including complications in connection with the separation of STS assets from the Company and difficulties or delays in the expected spinoff process due to market conditions or regulatory delays. In addition, other risks that Agilent faces in running its operations include the ability to execute successfully through business cycles while it continues to implement cost reductions; the ability to meet and achieve the benefits of its cost-reduction goals and otherwise successfully adapt its cost structures to continuing changes in business conditions; ongoing competitive, pricing and gross margin pressures; the risk that our cost-cutting initiatives will impair our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties on our operations, our markets and our ability to conduct business, the ability to improve asset performance to adapt to changes in demand; the ability to successfully introduce new products at the right time, price and mix, and other risks detailed in Agilent's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended Oct. 31, 2005. Forward-looking statements are based on the beliefs and assumptions of Agilent's management and on currently available information. Agilent undertakes no responsibility to publicly update or revise any forward-looking statement. (1) Adjusted net income and adjusted net income per share are non-GAAP measures. Adjusted net income is defined to exclude primarily the impacts of restructuring and asset impairment charges, business separation costs, non-cash stock-based compensation, intangible amortization as well as gains and losses from the sale of investments and disposals of businesses net of their tax effects. A reconciliation between adjusted net income and GAAP net income is set forth on page 5 of the attached tables along with additional information regarding the use of this non-GAAP measure. (2) Return On Invested Capital is a non-GAAP measure and is defined as income (loss) from operations less other (income) expense and taxes, annualized, divided by the average of the two most recent quarter-end balances of assets less net current liabilities. The reconciliation of ROIC can be found on page 6 of the attached tables, along with additional information regarding the use of this non-GAAP measure. (3) Adjusted net income per share as projected for Q306 and Q406 is a non-GAAP measure which excludes primarily the impacts of future restructuring and asset impairment charges, non-cash stock-based compensation, and intangibles amortization. Most of these excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy. Therefore, no reconciliation to GAAP amounts has been provided. Future amortization of intangibles is expected to be approximately $10 million per quarter. (4) Historical segment data have been restated to correspond to current presentation. NOTE TO EDITORS: Further technology, corporate citizenship and executive news is available on the Agilent news site at www.agilent.com/go/news.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Three Months
Ended
April 30,
--------------- Percent
2006 2005 Inc/(Dec)
------- ------- ---------
Orders $1,588 $1,315 21%
Net revenue $1,431 $1,278 12%
Costs and expenses:
Cost of products and services 699 638 10%
Research and development 197 189 4%
Selling, general and administrative 423 409 3%
------- -------
Total costs and expenses 1,319 1,236 7%
------- -------
Income from continuing operations 112 42 167%
Other income (expense), net 47 15 213%
------- -------
Income from continuing operations before
taxes and equity income 159 57 179%
Provision for taxes 28 19 47%
------- -------
Income from continuing operations before
equity income 131 38 245%
Equity income from Lumileds - 15 (100%)
------- -------
Income from continuing operations 131 53 147%
Income from and gain (loss) on sale of
discontinued operations, net (16) 42 (138%)
------- -------
Net income $115 $95 21%
======= =======
Net income per share-basic:
Income from continuing operations $0.30 $0.11
Income from and gain (loss) on sale
of discontinued operations, net (0.03) 0.08
------- -------
Net income per share- basic $0.27 $0.19
Net income per share-diluted:
Income from continuing operations $0.30 $0.11
Income from and gain (loss) on sale
of discontinued operations, net (0.04) 0.08
------- -------
Net income per share- diluted $0.26 $0.19
Weighted average shares used in computing
net income (loss) per share:
Basic 430 491
Diluted 442 496
Historical amounts were reclassified to conform with current period
presentation.
Income from continuing operations for the second quarter of fiscal
2006 includes pre-tax share-based compensation expense under SFAS No.
123(R) of $25 million related to employee stock options and employee
stock purchases.
The preliminary income statement is estimated based on our current
information.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Six Months
Ended
April 30,
--------------- Percent
2006 2005 Inc/(Dec)
------- ------- ---------
Orders $2,941 $2,491 18%
Net revenue $2,767 $2,490 11%
Costs and expenses:
Cost of products and services 1,356 1,259 8%
Research and development 386 364 6%
Selling, general and administrative 868 787 10%
------- -------
Total costs and expenses 2,610 2,410 8%
------- -------
Income from operations 157 80 96%
Other income (expense), net 95 35 171%
------- -------
Income from continuing operations before
taxes and equity income 252 115 119%
Provision for taxes 43 34 26%
------- -------
Income from continuing operations before
equity income 209 81 158%
Equity income from and gain on sale of
Lumileds 901 23 3817%
------- -------
Income from continuing operations 1,110 104 967%
Income from and gain on sale of discontinued
operations, net 1,821 94 1837%
------- -------
Net income $2,931 $198 1380%
======= =======
Net income per share-basic:
Income from continuing operations $2.46 $0.21
Income from and gain on sale of
discontinued operations, net 4.02 0.19
------- -------
Net income per share- basic $6.48 $0.40
Net income per share-diluted:
Income from continuing operations $2.40 $0.21
Income from and gain on sale of
discontinued operations, net 3.93 0.19
------- -------
Net income per share-diluted $6.33 $0.40
Weighted average shares used in computing net
income per share:
Basic 452 491
Diluted 463 496
Historical amounts were reclassified to conform with current period
presentation.
Income from continuing operations for the first six months of of
fiscal 2006 includes pre-tax share-based compensation expense under
SFAS No. 123(R) of $61 million related to employee stock options and
employee stock purchases.
The preliminary income statement is estimated based on our current
information.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
April October
30, 31,
2006 2005
------- -------
ASSETS
Current assets:
Cash and cash equivalents $2,657 $2,226
Short term investments - 25
Accounts receivable, net 845 753
Inventory 713 722
Other current assets 361 298
Current assets of discontinued operations - 423
------- -------
Total current assets 4,576 4,447
Property, plant and equipment, net 853 873
Goodwill and other intangible assets, net 481 362
Other assets 545 628
Restricted investments 1,602 22
Non-current assets of discontinued operations - 419
------- -------
Total assets $8,057 $6,751
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $422 $344
Employee compensation and benefits 510 542
Deferred revenue 293 247
Income and other taxes payable 389 474
Other accrued liabilities 170 179
Current liabilities of discontinued operations - 150
------- -------
Total current liabilities 1,784 1,936
------- -------
Long-term debt 1,500 -
Retirement and post-retirement benefits 308 383
Other long-term liabilities 391 351
------- -------
Total liabilities 3,983 2,670
------- -------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock; $0.01 par value; 125 million
shares authorized; none issued and outstanding - -
Common stock; $0.01 par value; 2 billion
shares authorized; 531 million shares at April 30,
2006 and 512 million shares at October 31,
2005 issued and outstanding 5 5
Treasury stock at cost; 105 million shares at
April 30, 2006 and 9 million shares at
October 31, 2005 (3,768) (290)
Additional paid-in capital 6,391 5,878
Retained earnings (accumulated deficit) 1,468 (1,463)
Accumulated other comprehensive loss (22) (49)
------- -------
Total stockholders' equity 4,074 4,081
------- -------
Total liabilities and stockholders' equity $8,057 $6,751
======= =======
The preliminary balance sheet is estimated based on our current
information.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
Six Three
months months
ended ended
April April
30, 30,
2006 2006
------- -------
Cash flows from operating activities:
Net income $2,931 $115
Less : Income from and gain (loss) on sale of
discontinued operations, net 1,821 (16)
------- -------
Income from continuing operations 1,110 131
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 89 48
Deferred taxes (19) (30)
Excess and obsolete inventory-related charges 35 13
Asset impairment charges 22 21
Net gain on sale of investments (9) -
Gain on sale and undistributed equity in net income
of Lumileds (901) -
Net gain on sale of assets (51) (52)
Share based compensation 61 25
In process R&D 2 2
Changes in assets and liabilities:
Accounts receivable (82) (69)
Inventory (25) 11
Accounts payable 84 39
Employee compensation and benefits (32) 75
Income taxes and other taxes payable (72) 28
Other current assets and liabilities 7 35
Other long-term assets and liabilities (58) 19
------- -------
Net cash provided by operating activities of
continuing operations(a): 161 296
Net cash provided by operating activities of
discontinued operations 7 -
------- -------
Net cash provided by operating activities 168 296
Cash flows from investing activities:
Investments in property, plant and equipment (105) (55)
Proceeds from the sale of property, plant and
equipment 89 87
Investment in equity securities (4) (2)
Proceeds from sale of Lumileds and other investments 960 -
Increase in restricted investments (1,580) (1)
Payment of loan receivable 50 -
Net proceeds from sale of discontinued operations 2,515 (16)
Proceeds from sale of short-term investments 25 -
Purchase of minority interest in Yokogawa Analytical
Systems (98) (98)
Acquisition of businesses and intangible assets, net
of cash acquired (24) (9)
------- -------
Net cash provided by (used in) investing activities of
continuing operations: 1,828 (94)
Net cash used in investing activities of discontinued
operations: (6) -
------- -------
Net cash provided by (used in) investing activities 1,822 (94)
Cash flows from financing activities:
Issuance of common stock under employee stock plans 448 213
Treasury stock repurchases (3,478) (487)
Proceeds from term facility 700 -
Repayment of term facility (700) -
Debt issuance costs (25) (1)
Cash distribution to minority interest in
consolidated partnership (16) (16)
Long-term debt 1,500 -
------- -------
Net cash used in financing activities of continuing
operations: (1,571) (291)
Effect of exchange rate movements 12 9
Net increase (decrease) in cash and cash equivalents 431 (80)
Cash and cash equivalents at beginning of period 2,226 2,737
------- -------
Cash and cash equivalents at end of period $2,657 $2,657
======= =======
(a) Cash payments included in operating activities:
Restructuring 91 41
Income tax payments 125 29
The preliminary cash flow statement is estimated based on our
current information.
AGILENT TECHNOLOGIES, INC.
ADJUSTED NET INCOME AND EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Three Months Ended
April 30,
2006 EPS 2005 EPS
----------- -----------
Net income per GAAP $115 $0.26 $95 $0.19
Less income from and gain (loss) on sale of
discontinued operations (16)(0.04) 42 0.08
----------- -----------
Income from continuing operations $131 $0.30 $53 $0.11
Non-GAAP adjustments:
Restructuring and asset impairment 66 0.15 2 -
Business disposal and infrastructure
reduction costs 40 0.09 - -
Gain on sale of assets (56)(0.13) (10)(0.02)
Equity income from and gain on sale of
Lumileds - - (15)(0.03)
Share-based compensation expense 25 0.06 - -
Donation to Agilent foundation - - 10 0.02
Unallocated SPG corporate charges - - 35 0.07
Other, principally other intangibles 3 - 14 0.03
Adjustment for taxes (31)(0.07) (5)(0.01)
----------- -----------
Adjusted net income $178 $0.40 $84 $0.17
=========== ===========
Six Months Ended
April 30,
2006 EPS 2005 EPS
------------- -----------
Net income per GAAP $2,931 $6.33 $198 $0.40
Less income from and gain (loss) on sale of
discontinued operations 1,821 3.93 94 0.19
------------- -----------
Income from continuing operations $1,110 $2.40 $104 $0.21
Non-GAAP adjustments:
Restructuring and asset impairment 104 0.22 7 0.01
Business disposal and infrastructure
reduction costs 65 0.14 - -
Gain on sale of assets (56)(0.12) (10)(0.02)
Equity income from and gain on sale of
Lumileds (901)(1.95) (23)(0.05)
Share-based compensation expense 61 0.13 - -
Donation to Agilent foundation - - 10 0.02
Unallocated SPG corporate charges 13 0.03 68 0.14
Other, principally other intangibles 3 0.01 13 0.03
Adjustment for taxes (67)(0.14) (14)(0.03)
------------- -----------
Adjusted net income $332 $0.72 $155 $0.31
============= ===========
We provide adjusted net income and adjusted net income per share
amounts in order to provide meaningful supplemental information
regarding our operational performance and our prospects for the
future. These supplemental measures exclude, among other things, the
impact of the sale of our businesses and investments from the results
of the sales of our products. Some of the exclusions, such as
impairments, may be beyond the control of management. Further, some
may be less predictable than revenue derived from our core businesses
(the day to day business of selling our products and services). These
reasons provide the basis for management's belief that the measures
are useful.
Our management uses non-GAAP measures to evaluate the performance of
our core businesses, to estimate future core performance and to
compensate employees. Since management finds this measure to be
useful, we believe that our investors benefit from seeing our results
"through the eyes" of management in addition to seeing our GAAP
results. This information facilitates our management's internal
comparisons to our historical operating results as well as to the
operating results of our competitors.
Our management recognizes that items such as restructuring charges and
sales of investments can have a material impact on our cash flows and
net income. Our GAAP financial statements including our statement of
cash flows portray those effects. Although we believe it is useful for
investors to see core performance free of special items, investors
should understand that the excluded items are actual expenses that
impact the cash available to us for other uses. To gain a complete
picture of all effects on the Company's profit and loss from any and
all events, management does (and investors should) rely upon the GAAP
income statement. The non-GAAP numbers focus instead upon the core
business of the company, which is only a subset, albeit a critical
one, of the Company's performance.
Readers are reminded that non-GAAP numbers are merely a supplement to,
and not a replacement for, GAAP financial measures. They should be
read in conjunction with the GAAP financial measures. It should be
noted as well that our non-GAAP information may be different from the
non-GAAP information provided by other companies.
The preliminary adjusted net income and EPS reconciliation is
estimated based on our current information.
AGILENT TECHNOLOGIES, INC.
Reconciliation of ROIC
(In millions)
(Unaudited)
Preliminary
BAS EMS Agilent BAS EMS BAS EMS
Numerator: Q2'06 Q2'06 Q2'06 Q1'06 Q1'06 Q2'05 Q2'05
Adjusted income
from operations $45 $120 $196 $52 $89 $39 $84
Less:
Taxes and Other
(income)/expense 12 24 40 15 15 11 12
----- ------- ------- ----- ------- ----- -------
Segment return 33 96 156 37 74 28 72
----- ------- ------- ----- ------- ----- -------
Segment return
annualized $132 $384 $624 $148 $296 $112 $288
===== ======= ======= ===== ======= ===== =======
Denominator:
Segment assets
(a) $925 $2,213 $3,505 $802 $2,248 $721 $2,397
Less:
Net current
liabilities
(b) 242 565 932 220 532 203 477
----- ------- ------- ----- ------- ----- -------
Invested
capital $683 $1,648 $2,573 $582 $1,716 $518 $1,920
----- ------- ------- ----- ------- ----- -------
Average
invested
capital $633 $1,682 $2,592 $532 $1,617 $510 $1,923
ROIC 21% 23% 24% 28% 18% 22% 15%
ROIC calculation:(annualized current quarter segment return)/(average
of the two most recent quarter-end balances of Segment Invested
Capital)
(a) Segment assets consist of inventory, accounts receivable, property
plant and equipment, gross goodwill and other intangibles, deferred
taxes and allocated corporate assets.
(b) Includes accounts payable, employee compensation and benefits,
other accrued liabilities and allocated corporate liabilities.
Note: Total Agilent segment return equals the sum of Agilent's
segments. See reconciliation between GAAP net income and adjusted net
income on Page 5.
Historical amounts were reclassified to conform with current period
presentation.
Return on invested capital (ROIC) is a non-GAAP measure that
management believes provides useful supplemental information for
management and the investor. ROIC is a tool by which we track how much
value we are creating for our shareholders. Management uses ROIC as a
performance measure for our businesses, and our senior managers'
compensation is linked to ROIC improvements as well as other
performance criteria. We believe that ROIC provides our management
with a means to analyze and improve their business, measuring segment
profitability in relation to net asset investments. We acknowledge
that ROIC may not be calculated the same way by every company. We
compensate for this limitation by monitoring and providing to the
reader a full GAAP income statement and balance sheet.
Readers are reminded that non-GAAP numbers are merely a supplement to,
and not a replacement for, GAAP financial measures. They should be
read in conjunction with the GAAP financial measures. It should be
noted as well that our non-GAAP information may be different from the
non-GAAP information provided by other companies.
The preliminary reconciliation of ROIC is estimated based on our
current information.
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