10-QPeriod: Q1 FY2008

AGILENT TECHNOLOGIES, INC. Quarterly Report for Q1 Ended Jan 31, 2008

Filed March 7, 2008For Securities:A

Summary

Agilent Technologies, Inc. reported its fiscal first quarter results for the period ending January 31, 2008. The company demonstrated revenue growth, with total net revenue increasing by 9% year-over-year to $1.39 billion, driven by solid performance in both its Bio-analytical Measurement (up 15%) and Electronic Measurement (up 5%) segments. Orders also saw a healthy increase of 12% year-over-year. While revenue and orders showed positive trends, net income decreased to $120 million from $150 million in the prior year's quarter, largely attributed to a reduction in interest income and an increase in tax expense, partially due to the adoption of FIN 48 and discrete tax items. Operating cash flow significantly decreased to $4 million from $93 million in the prior year, influenced by changes in the timing of compensation payments and higher tax payments. The company also completed the acquisition of Velocity11 for approximately $111 million. Agilent's balance sheet reflects a strong cash position, though it also shows a notable increase in restricted cash and a reclassification of a $1.5 billion debt obligation to short-term due to an amendment in its repurchase agreement. The company also announced a new $2 billion stock repurchase program. Investors should note the ongoing IRS audit concerning tax years 2000-2002, which could have future implications.

Key Highlights

  • 1Total net revenue grew 9% to $1.39 billion, with Bio-analytical Measurement up 15% and Electronic Measurement up 5%.
  • 2Total orders increased by 12% year-over-year, indicating strong customer demand.
  • 3Net income decreased to $120 million from $150 million in the prior year's quarter, impacted by lower interest income and higher tax provisions.
  • 4Operating cash flow significantly declined to $4 million from $93 million, driven by compensation timing and higher tax payments.
  • 5Agilent acquired Velocity11 for $111 million to expand its robotic solutions offerings.
  • 6A new $2 billion stock repurchase program was authorized, demonstrating commitment to shareholder returns.
  • 7The company reclassified a $1.5 billion debt obligation to short-term due to an amendment in its repurchase agreement, alongside a significant increase in restricted cash.

Frequently Asked Questions

The decrease in net income from $150 million in Q1 2007 to $120 million in Q1 2008 was primarily due to a $15 million reduction in 'other income, net,' largely from lower interest income, and a significant increase in tax expense. The tax expense increase was partly due to the adoption of FIN 48 and discrete tax items, as well as the reversal of a tax reserve in the prior year's quarter.

Operating cash flow decreased from $93 million to $4 million mainly due to two factors: a $20 million shift in the timing of annual compensation payments (moving from Q2 2007 to Q1 2008) and an $88 million increase in tax payments. Higher tax payments were partly attributed to one-time taxes related to the transfer of intellectual property between affiliated entities.

Agilent reclassified a $1.5 billion long-term debt obligation related to its World Trade subsidiary as short-term. This was due to an amendment in its Master Repurchase Agreement. Concurrently, $1.578 billion of related restricted cash was also reclassified to current assets. This move reflects changes in the debt agreement terms and potential near-term repayment obligations, impacting the company's current liquidity presentation.

The IRS has issued a Revenue Agent's Report for tax years 2000-2002 proposing a net tax deficiency of approximately $405 million, plus penalties and interest. Agilent believes it has strong defenses against these claims, particularly concerning the use of its brand name by foreign affiliates, and has filed a formal protest. While the final resolution is uncertain and could take years, the company currently believes it will not have a material adverse effect on its financial position, results of operations, or liquidity.