Document
 
 
 








UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): May 14, 2019
 
AGILENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-15405
 
77-0518772
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation)
 
File Number)
 
Identification No.)
 
5301 Stevens Creek Boulevard, Santa Clara, CA
 
95051
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code (408) 345-8886
 
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 

Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
 
TRADING SYMBOL(S)
 
NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $0.01 PAR VALUE
 
A
 
NEW YORK STOCK EXCHANGE


 
 
 



Item 2.02.              Results of Operations and Financial Condition.
 
The information in this Item 2.02 of Form 8-K and Exhibit 99.1 attached hereto is furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
 
On May 14, 2019, Agilent Technologies, Inc. (the “Company”) issued its press release announcing financial results for the second fiscal quarter ended April 30, 2019.  A copy of this press release is attached as Exhibit 99.1.
 
The Company provides non-GAAP financial information in order to provide meaningful supplemental information regarding its operational performance and to enhance its investors’ overall understanding of its core current financial performance and its prospects for the future.  The Company believes that its investors benefit from seeing its results “through the eyes” of management in addition to the GAAP presentation.  Management measures segment and enterprise performance using measures such as those that are disclosed in this release.  This information facilitates management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results.  Non-GAAP information allows for greater transparency to supplemental information used by management in its financial and operations decision making.  Historically, the Company has reported similar non-GAAP information to its investors and believe that the inclusion of comparative numbers provides consistency in its financial reporting.
 
This information is not in accordance with, or an alternative for, generally accepted accounting principles in the United States.  It excludes items, such as restructuring and amortization, that may have a material effect on the Company’s expenses and earnings per share calculated in accordance with GAAP.  Management monitors these items to ensure that expenses are in line with expectations and that the Company's GAAP results are correctly stated but does not use them to measure the ongoing operating performance of the Company.  The non-GAAP information the Company provides may be different from the non-GAAP information provided by other companies.
 
Additional explanation of non-GAAP information is provided in Exhibit 99.1.


Item 9.01.              Financial Statements and Exhibits.
 
(d) Exhibits
 
The following is furnished as an exhibit to this report and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended:
 
Exhibit No.
 
Description
 
 
 
 
Press release announcing financial results for the second fiscal quarter ended April 30, 2019
 
 
 


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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
AGILENT TECHNOLOGIES, INC.
 
 
 
 
 
By:
/s/ P. Diana Chiu
 
Name:
P. Diana Chiu
 
Title:
Vice President, Assistant General Counsel
and Assistant Secretary
 
 
 
 
 
 
 
Date: May 14, 2019
 







3

 
 
 
Exhibit


Exhibit 99.1
 Agilent Technologies Reports Second Quarter Fiscal Year 2019 Financial Results

Highlights:
Revenue of $1.24 billion represents 3 percent reported growth and 4 percent core revenue(1) growth
GAAP net income of $182 million and EPS of $0.57
Non-GAAP net income of $228 million or $0.71 per share(2), up 9 percent year-over-year
Full-year revenue outlook revised to $5.085 billion to $5.125 billion, with non-GAAP earnings guidance for the year maintained at $3.03 to $3.07 per share(3)

SANTA CLARA, Calif., May 14, 2019 - Agilent Technologies, Inc. (NYSE: A) today reported revenue of $1.24 billion for the second quarter ended April 30, 2019, up 3 percent year-over-year (up 4 percent on a core basis(1)).
On a GAAP basis, second-quarter net income was $182 million or $0.57 per share. This compares with $205 million and $0.63 per share in the second quarter of 2018. Non-GAAP net income(2) was $228 million or $0.71 per share during the quarter, compared with $212 million and $0.65 per share during the second quarter a year ago.
“While overall revenues were below our expectations, the story of our second quarter results is one where we demonstrated the resilience of Agilent’s business model,” said Mike McMullen, Agilent president and CEO. “Two of our three business units continued to deliver strong growth while the third was affected by soft market conditions. We generated EPS of $0.71, representing 9 percent growth, which was at the midpoint of our guidance.”
Financial Highlights
Life Sciences and Applied Markets Group
Second-quarter revenue of $529 million from Agilent’s Life Sciences and Applied Markets Group (LSAG) was down 1 percent year over year (down 1 percent on a core basis(1)). Demand in the environmental and forensics markets was strong, offset by weakness in the pharma and food markets. LSAG’s operating margin for the quarter was 20.3 percent.
Agilent CrossLab Group
Second-quarter revenue of $455 million from the Agilent CrossLab Group (ACG) grew 7 percent year over year (up 9 percent on a core basis(1)). Growth was broad-based across all regions, led by China. ACG’s operating margin for the quarter was 25.2 percent.
Diagnostics and Genomics Group
Second-quarter revenue of $254 million from Agilent’s Diagnostics and Genomics Group (DGG) grew 5 percent year over year (up 6 percent on a core basis(1)). Strength in the company’s pathology-related businesses and NASD led the group’s results. DGG’s operating margin for the quarter was 19.3 percent.


Third-Quarter and Full-Year Outlook
Agilent expects third-quarter 2019 revenue in the range of $1.225 billion to $1.245 billion. Third-quarter 2019 non-GAAP earnings are expected to be in the range of $0.71 to $0.73 per share(3).
For fiscal year 2019, the company is revising its full-year revenue guidance to a range of $5.085 billion to $5.125 billion while maintaining non-GAAP earnings guidance in the range of $3.03 to $3.07 per share(3).
Conference Call
Agilent’s management will present more details about its second-quarter fiscal year 2019 financial results on a conference call with investors today at 1:30 p.m. (Pacific Time). This event will be webcast live in listen-only

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mode. Listeners may log on at www.investor.agilent.com and select “Q2 2019 Agilent Technologies Inc. Earnings Conference Call” in the “News & Events - Calendar of Events” section. The webcast will remain available on the company’s website for 90 days.
Additional information regarding financial results can be found at www.investor.agilent.com by selecting “Financial Results” in the “Financial Information” section.
A telephone replay of the conference call will be available at approximately 4:30 p.m. (Pacific Time) after the call on May 14 and through May 21 by dialing (855) 859-2056 (or (404) 537-3406 from outside the United States) and entering passcode 3086626.
About Agilent Technologies
Agilent Technologies Inc. (NYSE: A) is a global leader in life sciences, diagnostics and applied chemical markets. With more than 50 years of insight and innovation, Agilent instruments, software, services, solutions and people provide trusted answers to customers' most challenging questions. The company generated revenues of $4.91 billion in fiscal 2018 and employs 15,550 people worldwide. Information about Agilent is available at www.agilent.com. To receive the latest Agilent news, subscribe to the Agilent Newsroom. Follow Agilent on LinkedInTwitter, and Facebook.
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 revenue and non-GAAP earnings guidance for the third quarter and full fiscal year 2019 and future amortization of intangibles. 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 its customers’ businesses; unforeseen changes in the demand for current and new products, technologies, and services; unforeseen changes in the currency markets; customer purchasing decisions and timing, and the risk that Agilent is not able to realize the savings expected from integration and restructuring activities. In addition, other risks that Agilent faces in running its operations include the ability to execute successfully through business cycles; 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 its cost-cutting initiatives will impair its ability to develop products and remain competitive and to operate effectively; the impact of geopolitical uncertainties and global economic conditions on its operations, its markets and its ability to conduct business; the ability to improve asset performance to adapt to changes in demand; the ability of its supply chain to adapt to changes in demand; the ability to successfully introduce new products at the right time, price and mix; the ability of Agilent to successfully integrate recent acquisitions; the ability of Agilent to successfully comply with certain complex regulations; and other risks detailed in Agilent’s filings with the Securities and Exchange Commission, including its quarterly report on Form 10-Q for the quarter ended January 31, 2019. 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) Core revenue growth excludes the impact of currency and acquisitions and divestitures within the past 12 months. Core revenue is a non-GAAP measure. A reconciliation between Q2 FY19 GAAP revenue and core revenue is set forth on page 6 of the attached tables along with additional information regarding the use of this non-GAAP measure. Core revenue growth rate as projected for Q3 FY19 and full fiscal year 2019 excludes the impact of currency and acquisitions and divestitures within the past 12 months. Most of the excluded amounts pertain to events that have not yet occurred and are not currently possible to estimate with a reasonable degree of accuracy and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided for the projection.
(2) Non-GAAP net income and non-GAAP earnings per share primarily exclude the impacts of non-cash intangibles amortization, transformational initiatives, acquisition and integration costs, pension settlement gain, Nucleic Acid Solutions Division (“NASD”) site costs and special compliance costs. Agilent also excludes any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or are not

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expected to occur again with any regularity or predictability including the impact of the 2017 Tax Act. A reconciliation between non-GAAP net income and GAAP net income is set forth on page 4 of the attached tables along with additional information regarding the use of this non-GAAP measure.
(3) Non-GAAP earnings per share as projected for Q3 FY19 and full fiscal year 2019 excludes primarily the impacts of non-cash intangibles amortization, transformational initiatives, acquisition and integration costs, pension settlement gain, Nucleic Acid Solutions Division (“NASD”) site costs and special compliance costs. Agilent also excludes any tax benefits or expenses that are not directly related to ongoing operations and which are either isolated or are not expected to occur again with any regularity or predictability. 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 and could differ materially. Therefore, no reconciliation to GAAP amounts has been provided. Future amortization of intangibles is expected to be approximately $26 million per quarter.
# # # # #
NOTE TO EDITORS: Further technology, corporate citizenship and executive news is available on the Agilent news site at www.agilent.com/go/news.
INVESTOR CONTACT:
Ankur Dhingra
+1 408-345-8948
ankur_dhingra@agilent.com

MEDIA CONTACT:
Tom Beermann
+1 408-553-2914
tom.beermann@agilent.com




3



AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
April 30
 
April 30
 
 
 
2019
 
2018 (a)
 
2019
 
2018 (a)
 
 
 
 
 
 
 
 
 
 
 
Net revenue
 
$
1,238

 
$
1,206

 
$
2,522

 
$
2,417

 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Cost of products and services
 
569

 
563

 
1,146

 
1,104

 
Research and development
 
99

 
92

 
201

 
186

 
Selling, general and administrative
 
354

 
341

 
709

 
688

 
Total costs and expenses
 
1,022

 
996

 
2,056

 
1,978

 
 
 
 
 
 
 
 
 
 
 
Income from operations
 
216

 
210

 
466

 
439

 
 
 
 
 
 
 
 
 
 
 
Interest income
 
10

 
10

 
20

 
19

 
Interest expense
 
(17
)
 
(19
)
 
(35
)
 
(39
)
 
Other income (expense), net
 
9

 
26

 
15

 
41

 
 
 
 
 
 
 
 
 
 
 
Income before taxes
 
218

 
227

 
466

 
460

 
 
 
 
 
 
 
 
 
 
 
Provision for (benefit from) income taxes
 
36

 
22

 
(220
)
 
575

 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
182

 
$
205

 
$
686

 
$
(115
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic
 
$
0.57

 
$
0.64

 
$
2.16

 
$
(0.36
)
 
Diluted
 
$
0.57

 
$
0.63

 
$
2.13

 
$
(0.36
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares used in computing net income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic
 
317

 
322

 
318

 
323

 
Diluted
 
321

 
326

 
322

 
323

 
 
 
 
 
 
 
 
 
 
 

(a)  Adjusted to include the impact of the adoption of ASU 2017-07 (pension expense reclassification) as of 11/1/2018. There is no impact to net income (loss) or net income (loss) per share.

The preliminary income statement is estimated based on our current information.


1



AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value and share amounts)
(Unaudited)
PRELIMINARY
 
 
April 30,
2019
 
October 31,
2018
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
2,155

 
$
2,247

Accounts receivable, net
 
819

 
776

Inventory
 
657

 
638

Other current assets
 
181

 
187

Total current assets
 
3,812

 
3,848

 
 
 
 
 
Property, plant and equipment, net
 
827

 
822

Goodwill and other intangible assets, net
 
3,650

 
3,464

Long-term investments
 
96

 
68

Other assets
 
637

 
339

Total assets
 
$
9,022

 
$
8,541

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

 
 
 
 
 
Current liabilities:
 
 

 
 

Accounts payable
 
$
314

 
$
340

Employee compensation and benefits
 
292

 
304

Deferred revenue
 
347

 
324

Other accrued liabilities
 
165

 
203

Total current liabilities
 
1,118

 
1,171

 
 
 
 
 
Long-term debt
 
1,798

 
1,799

Retirement and post-retirement benefits
 
229

 
239

Other long-term liabilities
 
752

 
761

Total liabilities
 
3,897

 
3,970

 
 
 
 
 
Total Equity:
 
 

 
 

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; 317 million shares at April 30, 2019 and 318 million shares at October 31, 2018, issued
 
3

 
3

Treasury stock at cost; 9 thousand shares at April 30, 2019 and zero shares at October 31, 2018
 
(1
)
 

Additional paid-in-capital
 
5,343

 
5,308

Retained earnings (accumulated deficit)
 
178

 
(336
)
Accumulated other comprehensive loss
 
(398
)
 
(408
)
Total stockholders' equity
 
5,125

 
4,567

Non-controlling interest
 

 
4

Total equity
 
5,125

 
4,571

Total liabilities and equity
 
$
9,022

 
$
8,541

 


The preliminary balance sheet is estimated based on our current information.

2



AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
PRELIMINARY
 
 
Six Months Ended
 
 
April 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 
Net income (loss)
 
$
686

 
$
(115
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
107

 
101

Share-based compensation
 
40

 
43

Excess and obsolete inventory related charges
 
7

 
17

Other non-cash expenses, net
 
2

 
2

Changes in assets and liabilities:
 
 
 
 
Accounts receivable, net
 
(17
)
 
(21
)
Inventory
 
(21
)
 
(34
)
Accounts payable
 
(8
)
 
(14
)
Employee compensation and benefits
 
(13
)
 
(7
)
Change in assets and liabilities due to Tax Act
 

 
533

Other assets and liabilities
 
(318
)
 
13

Net cash provided by operating activities (a)
 
465

 
518

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Investments in property, plant and equipment
 
(78
)
 
(108
)
Payment to acquire fair value investments
 
(18
)
 
(1
)
Payment in exchange for convertible note
 
(2
)
 
(2
)
Acquisition of businesses and intangible assets, net of cash acquired
 
(248
)
 
(7
)
Net cash used in investing activities
 
(346
)
 
(118
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Issuance of common stock under employee stock plans
 
33

 
36

Payment of taxes related to net share settlement of equity awards
 
(14
)
 
(29
)
Payment of dividends
 
(104
)
 
(96
)
Proceeds from revolving credit facility
 

 
356

Repayment of debt and revolving credit facility
 

 
(251
)
Purchase of non-controlling interest
 
(4
)
 

Treasury stock repurchases
 
(125
)
 
(93
)
Net cash used in financing activities
 
(214
)
 
(77
)
 
 
 
 
 
Effect of exchange rate movements
 
2

 
9

 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
(93
)
 
332

 
 
 
 
 
Cash, cash equivalents and restricted cash at beginning of period
 
2,254

 
2,686

 
 
 
 
 
Cash, cash equivalents and restricted cash at end of period
 
$
2,161

 
$
3,018

 
 
 
 
 
 
 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet:
 
 
 
 
 
 
 
   Cash and cash equivalents
 
$
2,155

 
$
3,011

   Restricted cash, included in other assets
 
$
6

 
$
7

   Total cash, cash equivalents and restricted cash
 
$
2,161

 
$
3,018

 
 
 
 
 
 
 
 
 
 
(a) Cash payments included in operating activities:
 
 
 
 
Income tax payments (refunds), net
 
$
104

 
$
48

Interest payments
 
$
36

 
$
43


The preliminary cash flow is estimated based on our current information.

3



AGILENT TECHNOLOGIES, INC.
NON-GAAP NET INCOME AND DILUTED EPS RECONCILIATIONS
(In millions, except per share amounts)
(Unaudited)
PRELIMINARY 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
April 30
 
April 30
 
 
 
2019
Diluted
EPS
 
2018
Diluted
EPS
 
2019
Diluted
EPS
 
2018
Diluted
EPS
 
GAAP net income (loss)
 
$
182

$
0.57

 
$
205

$
0.63

 
$
686

$
2.13

 
$
(115
)
$
(0.36
)
(b) 
Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible amortization
 
26

0.08

 
25

0.08

 
54

0.17

 
50

0.15

 
Business exit and divestiture costs
 


 
8

0.02

 


 
8

0.02

 
Transformational initiatives
 
9

0.03

 
5

0.02

 
14

0.04

 
9

0.03

 
Acquisition and integration costs
 
10

0.03

 
4

0.01

 
20

0.06

 
7

0.02

 
Pension settlement gain
 


 


 


 
(5
)
(0.02
)
 
NASD site costs
 
4

0.01

 
2

0.01

 
6

0.02

 
4

0.01

 
Special compliance costs
 
1


 
1


 
1


 
2

0.01

 
Other
 
5

0.02

 
(14
)
(0.04
)
 
6

0.02

 
(13
)
(0.04
)
 
Adjustment for Tax Reform
 


 


 


 
533

1.63

 
Tax benefit on intra-entity asset transfer
 


 


 
(299
)
(0.93
)
 


 
Adjustment for taxes (a)
 
(9
)
(0.03
)
 
(24
)
(0.08
)
 
(16
)
(0.04
)
 
(52
)
(0.14
)
 
Non-GAAP net income
 
$
228

$
0.71

 
$
212

$
0.65

 
$
472

$
1.47

 
$
428

$
1.31

(c) 

(a) The adjustment for taxes excludes tax benefits that management believes are not directly related to on-going operations and which are either isolated or cannot be expected to occur again with any regularity or predictability. For the three months ended April 30, 2019, management used a non-GAAP effective tax rate of 16.48%. For the six months ended April 30, 2019, management used a non-GAAP effective tax rate of 16.75%. In the same periods last year, management used a non-GAAP effective tax rate of 18%.

(b) GAAP diluted net loss per share was computed using 323 million weighted average diluted shares which excludes from consideration the anti-dilutive effects of all potential common shares outstanding.

(c) Non-GAAP diluted net income per share was computed using 326 million weighted average diluted shares which includes the dilutive effects of potential common shares outstanding.

We provide non-GAAP net income and non-GAAP 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, charges related to amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension settlement gain, NASD site costs, special compliance costs, adjustment for Tax Reform, and tax benefit on intra-entity asset transfer.

Business exit and divestiture costs include costs associated with business divestitures.

Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers including costs to move manufacturing due to new tariffs and tariff remediation actions, small site consolidations, legal entity and other business reorganizations, insourcing or outsourcing of activities. Such costs may include move and relocation costs, one-time termination benefits and other one-time reorganization costs. Included in this category are also expenses associated with company programs to transform our product lifecycle management (PLM) system, human resources and financial systems.

Acquisition and Integration costs include all incremental expenses incurred to effect a business combination. Such acquisition costs may include advisory, legal, accounting, valuation, and other professional or consulting fees. Such integration costs may include expenses directly related to integration of business and facility operations, the transfer of assets and intellectual property, information technology systems and infrastructure and other employee-related costs.

Pension settlement gain resulted from transfer of the substitutional portion of our Japanese pension plan to the government.

NASD site costs include all the costs related to the expansion of our manufacturing of nucleic acid active pharmaceutical ingredients incurred prior to the commencement of commercial manufacturing.

Special compliance costs include costs associated with transforming our processes to implement new regulations such as the EU's General Data Protection Regulation (GDPR), revenue recognition and certain tax reporting requirements.

Other includes certain legal costs and settlements in addition to other miscellaneous adjustments.

Adjustment for Tax Reform primarily consists of an estimated provision of $480 million for U.S. transition tax and correlative items on deemed repatriated earnings of non-U.S. subsidiaries and an estimated provision of $53 million associated with the decrease in the U.S. corporate tax rate from 35% to 21% and its impact on our U.S. deferred tax assets and liabilities. The taxes payable associated with the transition tax, net of tax attributes, on deemed repatriation of foreign earnings is approximately $440 million, payable over 8 years.

Tax benefit on intra-entity asset transfer relates to our operations in Singapore along with our application of the new accounting rules for income tax consequences of intra-entity transfer of assets as adopted on November 1, 2018.

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 amortization of intangibles can have a material impact on our cash flows and/or our 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 may 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 non-GAAP net income and diluted EPS reconciliation is estimated based on our current information.

4



AGILENT TECHNOLOGIES, INC.
SEGMENT INFORMATION
(In millions, except where noted)
(Unaudited)
PRELIMINARY
 
Life Sciences and Applied Markets Group
 
 
Q2'19
 
Q2'18
Revenues
 
$
529

 
$
537

Gross Margin, %
 
60.6
%
 
59.7
%
Income from Operations
 
$
107

 
$
113

Operating margin, %
 
20.3
%
 
21.0
%

Diagnostics and Genomics Group
 
 
Q2'19
 
Q2'18
Revenues
 
$
254

 
$
243

Gross Margin, %
 
54.8
%
 
54.8
%
Income from Operations
 
$
49

 
$
48

Operating margin, %
 
19.3
%
 
19.9
%
 
Agilent CrossLab Group
 
 
Q2'19
 
Q2'18
Revenues
 
$
455

 
$
426

Gross Margin, %
 
51.3
%
 
50.0
%
Income from Operations
 
$
115

 
$
96

Operating margin, %
 
25.2
%
 
22.5
%
 


Income from operations reflect the results of our reportable segments under Agilent's management reporting system which are not necessarily in conformity with GAAP financial measures. Income from operations of our reporting segments exclude, among other things, charges related to amortization of intangibles, business exit and divestiture costs, transformational initiatives, acquisition and integration costs, pension settlement gain, NASD site costs, and special compliance costs.

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 segment information is estimated based on our current information.

5



AGILENT TECHNOLOGIES, INC.
RECONCILIATION OF REVENUE BY SEGMENT EXCLUDING
ACQUISITIONS, DIVESTITURES AND THE IMPACT OF CURRENCY ADJUSTMENTS (CORE)
(In millions)
(Unaudited)
PRELIMINARY
 
 
Year-over-Year
 




 
 
 
 
 
GAAP
 
 
 
 
 
GAAP Revenue by Segment
Q2'19
Q2'18
Year-over-Year
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Life Sciences and Applied Markets Group
$
529

$
537

(1)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diagnostics and Genomics Group
254

243

5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agilent CrossLab Group
455

426

7%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agilent
$
1,238

$
1,206

3%
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP
(excluding Acquisitions and Divestitures)
 
Year-over-Year at Constant Currency (a)
 
 
Non-GAAP Revenue by Segment
Q2'19
Q2'18
Year-over-Year
% Change
 
Year-over-Year % Change
Percentage Point Impact from Currency
 
Current Quarter Currency Impact (b)
 
 
 
 
 
 
 
 
 
Life Sciences and Applied Markets Group
$
519

$
537

(3)%
 
(1)%
-2 ppts
 
$
(12
)
 
 
 
 
 

 
 
 
Diagnostics and Genomics Group
248

243

2%
 
6%
-4 ppts
 
(8
)
 
 
 
 
 
 
 
 
 
Agilent CrossLab Group
448

426

5%
 
9%
-4 ppts
 
(18
)
 
 
 
 
 
 
 
 
 
Agilent (Core)
$
1,215

$
1,206

1%
 
4%
-3 ppts
 
$
(38
)
 
 
 
 
 
 
 
 
 
 
.
We compare the year-over-year change in revenue excluding the effect of recent acquisitions and divestitures and foreign currency rate fluctuations to assess the performance of our underlying business.

(a) The constant currency year-over-year growth percentage is calculated by recalculating all periods in the comparison period at the foreign currency exchange rates used for accounting during the last month of the current quarter, and then using those revised values to calculate the year-over-year percentage change.

(b) The dollar impact from the current quarter currency impact is equal to the total year-over-year dollar change less the constant currency year-over-year change.

The preliminary reconciliation of GAAP revenue adjusted for recent acquisitions and divestitures and impact of currency is estimated based on our current information.

6