Agilent Technologies Reports Third Quarter 2006 Results.PALO ALTO Palo Alto, city, California Palo Alto (păl`ō ăl`tō), city (1990 pop. 55,900), Santa Clara co., W Calif.; inc. 1894. Although primarily residential, Palo Alto has aerospace, electronics, and advanced research industries. , Calif. -- Agilent Technologies This article needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. Inc. (NYSE NYSE See: New York Stock Exchange :A) today reported orders of $1.42 billion for the third fiscal quarter ended July July: see month. 31, 2006, 10 percent above one year ago. Revenues during the quarter were $1.45 billion, 17 percent above last year. Third quarter GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $233 million, or $0.55 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with $54 million, or $0.10 per share, in last year's third quarter. Included in GAAP results are $86 million of charges related principally to the spinoff Spinoff A new, independent company created through selling or distributing new shares for an existing part of another company. Notes: Spinoffs may be done through a rights offering. of Verigy Verigy Ltd (NASDAQ: VRGY) is the semiconductor automatic test equipment business that was spun off from Agilent Technologies. History The company began doing business as Verigy on 2006-06-01. Market Listing Verigy announced its initial public offering of 8. Ltd. and the reduction of Agilent's infrastructure costs. Excluding these charges, $21 million of non-cash stock compensation expenses, and $145 million of net gains from the sale of assets and other items, Agilent (Agilent Technologies, Santa Clara, CA, www.agilent.com) The test and measurement subsidiary of HP. In 1999, HP split off the division that started the company into an independent subsidiary named Agilent Technologies. At the time, the $2. reported third quarter adjusted net income of $195 million, or $0.46 per share. On a comparable basis, the company earned $95 million, or $0.19 per share, one year ago.(1) "Agilent performed well in the third quarter of 2006," said Bill Sullivan, Agilent president and chief executive officer. "Revenues were above expectations because of 10 percent year-to-year growth in the continuing operations of Agilent and the sustained strength of Verigy. Adjusted earnings per share were four cents above the high end of our guidance, and more than double last year's results, because of higher-than-expected revenues and great operating discipline across the businesses." Sullivan noted that gross margins reached record levels during the quarter, and that the company's 27 percent Return on Invested Capital(2) also represented a new high. "During the quarter, we also brought Verigy to market via an initial public offering, and preparations for a fiscal year-end Fiscal Year-End The completion of a one-year, or 12-month, accounting period. Notes: The reason that a company's fiscal year often differs from the calendar year and does not close on Dec 31, is due to the nature of company's needs. spinoff of Verigy are on schedule." Sullivan added, "While remaining vigilant about the economic environment, Agilent's focus going forward is to leverage the robust operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. we've we've Contraction of we have. we've have built through higher sustainable growth." Looking ahead, Agilent (including Verigy) expects fourth quarter fiscal 2006 revenues of $1.48 billion to $1.53 billion, up 5 to 9 percent from last year. Adjusted net income is expected to be in the range of $0.50 to $0.55 per share(3), nearly double last year's comparable earnings. Segment Results
Bio-Analytical Measurement(4)
($ millions except where noted)
Q3:F06 Q3:F05 Q2:F06
------ ------ ------
Orders 387 348 401
Revenues 391 341 372
Gross Margin, % 54% 49% 50%
Income from Operations 60 42 45
Segment Assets 901 734 925
Return On Invested Capital(2), % 26% 27% 21%
Bio-Analytical Measurement gained momentum during the third quarter, reflecting the strength of its new product portfolio and a diversified diversified (di·verˑ·s , global customer base. Orders of $387 million were 11 percent above last year, and up about 10 percent in local currency terms. Life Sciences orders were up 13 percent, while Chemical Analysis orders were 10 percent above one year ago. Geographically ge·o·graph·ic also ge·o·graph·i·cal adj. 1. Of or relating to geography. 2. Concerning the topography of a specific region. ge , robust growth in Asia and Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). was balanced by single-digit growth in the Americas A·mer·i·cas , theSee America. due to ongoing weakness from traditional large pharmaceutical customers. Revenues of $391 million were 15 percent above last year as new product deliveries accelerated. Segment income from operations of $60 million was $18 million above last year. Gross margins improved by 5 points, while operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for acquisitions, new product introductions and incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. investments grew slightly ahead of revenues. The third quarter's 15 percent operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: was about 3 points better than last year and a new third-quarter high. Segment Return On Invested Capital(2) was about the same as last year due to the impact of acquisitions.
Electronic Measurement(4)
($ millions except where noted)
Q3:F06 Q3:F05 Q2:F06
------ ------ ------
Orders 838 807 875
Revenues 848 783 867
Gross Margin, % 58% 53% 55%
Income from Operations 125 77 120
Segment Assets 2,175 2,192 2,213
Return On Invested Capital(2), % 24% 15% 23%
Third quarter Electronic Measurement orders of $838 million were up 4 percent from last year. Communications test orders were up 2 percent, with wireless test up 5 percent due to strength in Asia / Pacific and in R&D test demand. Wireline test orders were down 13 percent due to continued softness in router router Portable electric power tool used in carpentry and furniture making that consists of an electric motor, a base, two handle knobs, and bits (cutting tools). A router can cut fancy edges for shelving, grooves for storm windows and weather stripping, circles and ovals test and operations support solutions. General purpose test orders were up 7 percent from one year ago, with particular strength across the oscilloscopes product line and in electronic manufacturing test. Revenues of $848 million were 8 percent above last year. Third quarter income from operations of $125 million was up $48 million on a $65 million increase in revenues. Gross margins improved 5 points to 58 percent, while segment operating expenses moved in line with revenues. Segment operating margin of 15 percent was 5 points above last year while ROIC ROIC Return On Invested Capital ROIC Return On Investment Capital ROIC Readout Integrated Circuit ROIC Resident Officer In Charge ROIC Regional Office Implementation Committee (2) improved 9 points to 24 percent based on better operating margins and reductions in working capital.
Verigy Ltd.
($ millions except where noted)
Q3:F06 Q3:F05 Q2:F06
------ ------ ------
Orders 199 145 312
Revenues 214 117 192
Gross Margin, % 50% 32% 48%
Income from Operations 44 (18) 29
Note: In the third quarter, Verigy, a subsidiary of Agilent comprised of its semiconductor test systems business, completed the initial public offering of a minority interest of 15 percent. Agilent intends to distribute the remaining 85 percent of Verigy shares to Agilent stockholders immediately prior to the close of its current fiscal year. After distribution, the related operating results of Verigy will be reflected as discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . For additional information on Verigy's standalone stand·a·lone adj. Self-contained and usually independently operating: a standalone computer terminal. results, which differ in certain respects from Agilent's presentation of Verigy as one of its segments, see Verigy's third quarter 2006 press release issued today at http://investor.verigy.com. 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 third 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 "Q3 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 August 21, 2006. The replay number is +1 888 286 8010, or international callers may dial +1 617 801 6888; enter pass code 24627398. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This news release contains forward-looking statements as defined in the Securities Exchange Act of 1934 and is subject to the safe harbors Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. created therein. The forward-looking statements contained herein include, but are not limited to, information regarding Agilent's future revenues, earnings and profitability (on a segment and consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: basis); the pace of new product introductions and future demand for the Company's products and services; the completion of the spinoff of the Company's Semiconductor Test Solutions business, Verigy Ltd.; and guidance for the fourth quarter of fiscal year 2006. 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; and changes in the planned spinoff of Verigy. In addition, other risks that Agilent faces in running its operations include the ability to execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution 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 im·pair tr.v. im·paired, im·pair·ing, im·pairs To cause to diminish, as in strength, value, or quality: an injury that impaired my hearing; a severe storm impairing communications. our ability to develop products and remain competitive and to operate effectively; the impact of geopolitical ge·o·pol·i·tics n. (used with a sing. verb) 1. The study of the relationship among politics and geography, demography, and economics, especially with respect to the foreign policy of a nation. 2. a. 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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 restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and asset impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges, business separation costs, non-cash stock-based compensation, retirement plan curtailment Curtailment The act of contracting or reducing operations of a company in the hope of bringing it financial or operational stability. This management technique is often used when a company has grown too fast and is unable to effectively manage its operations. gains, 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 annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. , divided by the average of the two most recent quarter-end balances of assets less net current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. . 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 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 Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. amortization. Most of these excluded amounts pertain to pertain to verb relate to, concern, refer to, regard, be part of, belong to, apply to, bear on, befit, be relevant to, be appropriate to, appertain 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 ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $10 million per quarter. (4) Historical segment data have been restated to correspond to current presentation. NOTE TO EDITORS: Further technology, corporate citizenship Corporate Citizenship The extent to which businesses are socially responsible in meeting legal, ethical and economic responsibilities placed on them by shareholders. The aim it to create higher standards of living and quality of life in the community in which it operates, while and executive news is available on the Agilent news site at www.agilent.com/go/news.
Page 1
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Three Months Ended
July 31,
--------------------- Percent
2006 2005 Inc/(Dec)
---------- ---------- ----------
Orders $1,424 $1,300 10%
Net revenue $1,453 $1,242 17%
Costs and expenses:
Cost of products and services 662 646 2%
Research and development 186 183 2%
Selling, general and administrative 463 378 22%
Gain on sale of Palo Alto
headquarters (65) - (100%)
---------- ----------
Total costs and expenses 1,246 1,207 3%
---------- ----------
Income from continuing operations 207 35 491%
Other income (expense), net 44 25 76%
---------- ----------
Income from continuing operations
before taxes and equity income 251 60 318%
Provision for taxes 18 19 (5%)
---------- ----------
Income from continuing operations
before equity income 233 41 468%
Equity income from Lumileds - 13 (100%)
---------- ----------
Income from continuing operations 233 54 331%
Income from and gain (loss) on sale of
discontinued operations, net (6) 50 (112%)
---------- ----------
Net income $227 $104 118%
========== ==========
Net income per share -- basic:
Income from continuing operations $0.57 $0.11
Income from and gain on sale of
discontinued operations, net (0.02) 0.10
---------- ----------
Net income per share --
basic $0.55 $0.21
Net income per share -- diluted:
Income from continuing operations $0.55 $0.10
Income from and gain on sale of
discontinued operations, net (0.01) 0.10
---------- ----------
Net income per share --
diluted $0.54 $0.20
Weighted average shares used in
computing net income (loss) per
share:
Basic 412 494
Diluted 421 499
Historical amounts were reclassified to conform with current period
presentation.
Income from continuing operations for the third quarter of fiscal 2006
includes pre-tax share-based compensation expense under SFAS No. 123R
of $21 million related to employee stock options and employee stock
purchases.
The preliminary income statement is estimated based on our current
information.
Page 2
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Nine Months Ended
July 31,
--------------------- Percent
2006 2005 Inc/(Dec)
---------- ---------- ----------
Orders $4,365 $3,791 15%
Net revenue $4,220 $3,732 13%
Costs and expenses:
Cost of products and services 2,018 1,905 6%
Research and development 572 547 5%
Selling, general and administrative 1,387 1,165 19%
Gain on sale of Palo Alto
headquarters and San Jose site (121) - (100%)
---------- ----------
Total costs and expenses 3,856 3,617 7%
---------- ----------
Income from operations 364 115 217%
Other income (expense), net 139 60 132%
---------- ----------
Income from continuing operations
before taxes and equity income 503 175 187%
Provision for taxes 61 53 15%
---------- ----------
Income from continuing operations
before equity income 442 122 262%
Equity income from and gain on sale of
Lumileds 901 36 2403%
---------- ----------
Income from continuing operations 1,343 158 750%
Income from and gain on sale of
discontinued operations, net 1,815 144 1160%
---------- ----------
Net income $3,158 $302 946%
========== ==========
Net income per share -- basic:
Income from continuing operations $3.07 $0.32
Income from and gain on sale of
discontinued operations, net 4.14 0.29
---------- ----------
Net income per share --
basic $7.21 $0.61
Net income per share -- diluted:
Income from continuing operations $3.00 $0.32
Income from and gain on sale of
discontinued operations, net 4.05 0.29
---------- ----------
Net income per share --
diluted $7.05 $0.61
Weighted average shares used in
computing net income per share:
Basic 438 492
Diluted 448 497
Historical amounts were reclassified to conform with current period
presentation.
Income from continuing operations for the first nine months of fiscal
2006 includes pre-tax share-based compensation expense under SFAS No.
123R of $82 million related to employee stock options and employee
stock purchases.
The preliminary income statement is estimated based on our current
information.
Page 3
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
July 31, October 31,
2006 2005
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $2,249 $2,226
Short term investments - 25
Accounts receivable, net 853 753
Inventory 705 722
Other current assets 412 298
Current assets of discontinued operations - 423
----------- -----------
Total current assets 4,219 4,447
Property, plant and equipment, net 822 873
Goodwill and other intangible assets, net 481 362
Other assets 602 628
Restricted cash and cash equivalents 1,605 22
Non-current assets of discontinued operations - 419
----------- -----------
Total assets $7,729 $6,751
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $425 $344
Employee compensation and benefits 422 542
Deferred revenue 292 247
Income and other taxes payable 381 474
Other accrued liabilities 159 179
Current liabilities of discontinued
operations - 150
----------- -----------
Total current liabilities 1,679 1,936
----------- -----------
Long-term debt 1,500 -
Retirement and post-retirement benefits 266 383
Other long-term liabilities 492 351
----------- -----------
Total liabilities 3,937 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; 534 million shares
at July 31, 2006 and 512 million shares
at October 31, 2005 issued 5 5
Treasury stock at cost; 125 million
shares at July 31, 2006 and 9 million
shares at October 31, 2005 (4,469) (290)
Additional paid-in capital 6,543 5,878
Retained earnings (accumulated deficit) 1,695 (1,463)
Accumulated other comprehensive income
(loss) 18 (49)
----------- -----------
Total stockholders' equity 3,792 4,081
----------- -----------
Total liabilities and
stockholders' equity $7,729 $6,751
=========== ===========
The preliminary balance sheet is estimated based on our current
information.
Page 4
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
Nine Three
months months
ended ended
July 31, July 31,
2006 2006
----------- -----------
Cash flows from operating activities:
Net income $3,158 $227
Less : Income from and gain (loss) on sale
of discontinued operations, net 1,815 (6)
----------- -----------
Income from continuing operations 1,343 233
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 134 45
Deferred taxes (9) 10
Excess and obsolete inventory-related
charges 44 9
Asset impairment charges 26 4
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 (111) (60)
Share based compensation 82 21
Pension curtailment and settlements (28) (28)
In process R&D 2 -
Changes in assets and liabilities:
Accounts receivable (90) (8)
Inventory (27) (2)
Accounts payable 89 5
Employee compensation and benefits (119) (87)
Income taxes and other taxes payable (80) (8)
Other current assets and liabilities (23) (30)
Other long-term assets and
liabilities (97) (39)
----------- -----------
Net cash provided by operating activities of
continuing operations (a): 226 65
Net cash provided by operating activities of
discontinued operations 7 -
----------- -----------
Net cash provided by operating activities 233 65
Cash flows from investing activities:
Investments in property, plant and
equipment (165) (60)
Proceeds from the sale of property, plant
and equipment 205 116
Investment in equity securities (5) (1)
Proceeds from sale of Lumileds and other
investments 966 6
Increase in restricted cash and cash
equivalents (1,583) (3)
Payment of loan receivable 50 -
Net proceeds from sale of discontinued
operations 2,509 (6)
Proceeds from sale of short-term
investments 25 -
Purchase of minority interest, primarily
Yokogawa Analytical Systems (104) (6)
Acquisition of businesses and intangible
assets, net of cash acquired (30) (6)
----------- -----------
Net cash provided by investing activities of
continuing operations: 1,868 40
Net cash used in investing activities of
discontinued operations: (6) -
----------- -----------
Net cash provided by investing activities 1,862 40
Cash flows from financing activities:
Issuance of common stock under employee
stock plans 513 65
Treasury stock repurchases (4,179) (701)
Net proceeds from sale of subsidiary stock 121 121
Proceeds from term facility 700 -
Repayment of term facility (700) -
Debt issuance costs (25) -
Cash distribution to minority interest in
consolidated joint venture (16) -
Long-term debt 1,500 -
----------- -----------
Net cash used in financing activities of
continuing operations: (2,086) (515)
Effect of exchange rate movements 14 2
Net increase (decrease) in cash and cash
equivalents 23 (408)
Cash and cash equivalents at beginning of
period 2,226 2,657
----------- -----------
Cash and cash equivalents at end of period $2,249 $2,249
=========== ===========
(a) Cash payments included in operating
activities:
Restructuring 136 43
Income tax payments 143 18
The preliminary cash flow statement is estimated based on our current
information.
Page 5
AGILENT TECHNOLOGIES, INC.
ADJUSTED NET INCOME AND EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
Three Months Ended
July 31,
2006 EPS 2005 EPS
-------------- --------------
Net income per GAAP $227 $0.54 $104 $0.20
Less income from and gain (loss) on sale
of discontinued operations (6) (0.01) 50 0.10
-------------- --------------
Income from continuing operations $233 $0.55 $54 $0.10
Non-GAAP adjustments:
Restructuring and asset impairment 40 0.10 35 0.07
Business disposal and infrastructure
reduction costs 46 0.10 - -
Gain on sale of Palo Alto
headquarters and San Jose site (65) (0.15) - -
Retirement plans curtailment gains (28) (0.07) - -
Gain on sale of assets - - - -
Equity income from and gain on sale
of Lumileds - - (13) (0.02)
Share-based compensation expense 21 0.05 - -
Donation to Agilent foundation - - - -
Income from Foreign Sales Corporation
Tax Study (13) (0.03) - -
Unallocated SPG corporate charges - - 32 0.06
Other, principally other intangibles 8 0.02 (1) -
Adjustment for taxes (47) (0.11) (12) (0.02)
-------------- --------------
Adjusted net income $195 $0.46 $95 $0.19
============== ==============
Nine Months Ended
July 31,
2006 EPS 2005 EPS
-------------- --------------
Net income per GAAP $3,158 $7.05 $302 $0.61
Less income from and gain (loss) on sale
of discontinued operations 1,815 4.05 144 0.29
-------------- --------------
Income from continuing operations $1,343 $3.00 $158 $0.32
Non-GAAP adjustments:
Restructuring and asset impairment 144 0.32 42 0.08
Business disposal and infrastructure
reduction costs 111 0.25 - -
Gain on sale of Palo Alto
headquarters and San Jose site (121) (0.27) - -
Retirement plans curtailment gains (28) (0.06) - -
Gain on sale of assets - - (10) (0.02)
Equity income from and gain on sale
of Lumileds (901) (2.01) (36) (0.07)
Share-based compensation expense 82 0.18 - -
Donation to Agilent foundation - - 10 0.02
Income from Foreign Sales Corporation
Tax Study (13) (0.03) - -
Unallocated SPG corporate charges 13 0.03 100 0.20
Other, principally other intangibles 11 0.02 12 0.02
Adjustment for taxes (114) (0.25) (26) (0.05)
-------------- --------------
Adjusted net income $527 $1.18 $250 $0.50
============== ==============
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.
Page 6
AGILENT TECHNOLOGIES, INC.
Reconciliation of ROIC
(In millions)
(Unaudited)
Preliminary
BAM EM Agilent
Numerator: Q3'06 Q3'06 Q3'06
------------------------------
Adjusted income from operations $60 $125 $231
Less:
Taxes and Other (income)/expense 16 27 56
------------------------------
Segment return 44 98 175
------------------------------
Segment return annualized $176 $392 $700
==============================
Denominator:
Segment assets (a) $901 $2,175 $3,429
Less:
Net current liabilities (b) $239 $543 $847
------------------------------
Invested capital $662 $1,632 $2,582
------------------------------
Average invested capital $673 $1,640 $2,577
ROIC 26% 24% 27%
BAM EM BAM EM
Numerator: Q2'06 Q2'06 Q3'05 Q3'05
-------------------- --------------------
Adjusted income from
operations $45 $120 $42 $77
Less:
Taxes and Other
(income)/expense 12 24 6 10
-------------------- --------------------
Segment return 33 96 36 67
-------------------- --------------------
Segment return annualized $132 $384 $144 $268
==================== ====================
Denominator:
Segment assets (a) $925 $2,213 $734 $2,192
Less:
Net current liabilities
(b) 242 565 188 430
-------------------- --------------------
Invested capital $683 $1,648 $546 $1,762
-------------------- --------------------
Average invested capital $633 $1,682 $532 $1,841
ROIC 21% 23% 27% 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: For Agilent's total return, 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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