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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(MARK ONE) 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2019 
OR 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
FOR THE TRANSITION PERIOD FROM              TO        
 COMMISSION FILE NUMBER: 001-15405
 AGILENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
 
77-0518772
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)
 
 
 
5301 STEVENS CREEK BLVD.,
 
 
SANTA CLARA, CALIFORNIA
 
95051
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (408) 345-8886  
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
 
A
 
NEW YORK STOCK EXCHANGE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x  No  ¨
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
Emerging growth company ¨
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.  ¨    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x 

As of  May 23, 2019, the registrant had 315,993,352 shares of common stock, $0.01 par value per share, outstanding.


Table of Contents

AGILENT TECHNOLOGIES, INC.
TABLE OF CONTENTS
 
 
 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PART I
— FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
2019
 
2018
 
2019
 
2018
Net revenue:
 

 
 

 
 

 
 

Products
$
921

 
$
918

 
$
1,901

 
$
1,848

Services and other
317

 
288

 
621

 
569

Total net revenue
1,238

 
1,206

 
2,522

 
2,417

Costs and expenses:
 

 
 

 
 

 
 

Cost of products
400

 
403

 
814

 
789

Cost of services and other
169

 
160

 
332

 
315

Total costs
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 (benefit) for 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

 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3

Table of Contents

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

 
Three Months Ended
Six Months Ended
 
April 30,
April 30,
 
2019
 
2018
2019
 
2018
 
 
 
 
 
 
 
Net income (loss)
$
182

 
$
205

$
686

 
$
(115
)
Other comprehensive income (loss):
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments, net of tax expense (benefit) of $1, $1, $(1) and $(2)
3

 
4

(1
)
 
(3
)
Amounts reclassified into earnings related to derivative instruments, net of tax expense (benefit) of $0, $2, $(1) and $2

 
3

(4
)
 
3

Foreign currency translation, net of tax expense (benefit) of $0, $0, $(9) and $0
(25
)
 
(53
)
13

 
26

Net defined benefit pension cost and post retirement plan costs:
 
 
 
 
 
 
Change in actuarial net loss, net of tax expense of $2, $3, $6 and $5
6

 
7

12

 
13

Change in net prior service benefit, net of tax benefit of $(1), $0, $(1) and $(1)
(1
)
 
(2
)
(3
)
 
(3
)
Other comprehensive income (loss)
(17
)
 
(41
)
17

 
36

Total comprehensive income (loss)
$
165

 
$
164

$
703

 
$
(79
)


The accompanying notes are an integral part of these condensed consolidated financial statements.


4

Table of Contents

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except par value and share amounts)
(Unaudited)
 
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
3,112

 
2,973

Other intangible assets, net
538

 
491

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

Commitments and contingencies (Note 12)


 


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 accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
 
Six Months Ended
 
April 30,
 
2019
 
2018
 
 

 
 

Net income (loss)
$
686

 
$
(115
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
107

 
101

Share-based compensation
40

 
43

Deferred taxes
(272
)
 
(13
)
Excess and obsolete inventory related charges
7

 
17

Other non-cash expense, net
2

 
2

Changes in assets and liabilities:
 

 
 

Accounts receivable
(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
(46
)
 
26

Net cash provided by operating activities
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
)
Acquisitions 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
)
Purchase of non-controlling interest
(4
)
 

Proceeds from revolving credit facility

 
356

Repayment of debt and revolving credit facility

 
(251
)
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

 
 
 
 
Supplemental cash flow information:
 
 
 
Income tax paid, net
$
104

 
$
48

Interest payments
$
36

 
$
43

Non-cash changes in investments in property, plant and equipment - increase (decrease)
$
(23
)
 
$
(21
)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, except number of shares in thousands)
(Unaudited)
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
 
 
 
 
 
Three Months Ended April 30, 2019
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of January 31, 2019
317,533

 
$
3

 
$
5,324

 

 
$

 
90

 
$
(381
)
 
$
5,036

 
$

 
$
5,036

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
182

 

 
182

 

 
182

Other comprehensive loss

 

 

 

 

 

 
(17
)
 
(17
)
 

 
(17
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
165

 
 
 
165

Cash dividends declared ($0.164 per common share)

 

 

 

 

 
(52
)
 

 
(52
)
 

 
(52
)
Share-based awards issued, net of tax
381

 

 
10

 

 

 

 

 
10

 

 
10

Repurchase of common stock

 

 

 
(638
)
 
(50
)
 

 

 
(50
)
 

 
(50
)
Retirement of treasury stock
(629
)
 

 
(7
)
 
629

 
49

 
(42
)
 

 

 

 

Share-based compensation

 

 
16

 

 

 

 

 
16

 

 
16

Balance as of April 30, 2019
317,285

 
$
3

 
$
5,343

 
(9
)
 
$
(1
)
 
$
178

 
$
(398
)
 
$
5,125

 
$

 
$
5,125


 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
 
 
 
 
 
Six Months Ended April 30, 2019
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of October 31, 2018
317,715

 
$
3

 
$
5,308

 

 
$

 
$
(336
)
 
$
(408
)
 
$
4,567

 
$
4

 
$
4,571

Effects of adoption of new accounting standards

 

 

 

 

 
33

 
(7
)
 
26

 

 
26

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Net income

 

 

 

 

 
686

 

 
686

 

 
686

Other comprehensive income

 

 

 

 

 

 
17

 
17

 

 
17

Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
703

 
 
 
703

Change in non-controlling interest

 

 

 

 

 

 

 

 
(4
)
 
(4
)
Cash dividends declared ($0.328 per common share)             

 

 

 

 

 
(104
)
 

 
(104
)
 

 
(104
)
Share-based awards issued, net of tax
1,327

 

 
18

 

 

 

 

 
18

 

 
18

Repurchase of common stock

 

 

 
(1,766
)
 
(125
)
 

 

 
(125
)
 

 
(125
)
Retirement of treasury stock
(1,757
)
 

 
(23
)
 
1,757

 
124

 
(101
)
 

 

 

 

Share-based compensation

 

 
40

 

 

 

 

 
40

 

 
40

Balance as of April 30, 2019
317,285

 
$
3

 
$
5,343

 
(9
)
 
$
(1
)
 
$
178

 
$
(398
)
 
$
5,125

 
$

 
$
5,125




7

Table of Contents

 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
 
 
 
 
 
Three Months Ended April 30, 2018
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of January 31, 2018
322,684

 
$
3

 
$
5,320

 
(37
)
 
$
(3
)
 
$
(529
)
 
$
(269
)
 
$
4,522

 
$
4

 
$
4,526

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 

 
205

 

 
205

 

 
205

Other comprehensive loss

 

 

 

 

 

 
(41
)
 
(41
)
 

 
(41
)
Total comprehensive income
 

 
 

 
 

 
 

 
 

 
 

 
 

 
164

 
 
 
164

Cash dividends declared ($0.149 per common share)             

 

 

 

 

 
(48
)
 

 
(48
)
 

 
(48
)
Share-based awards issued, net of tax
342

 

 
9

 

 

 

 

 
9

 

 
9

Repurchase of common stock

 

 

 
(674
)
 
(46
)
 

 

 
(46
)
 

 
(46
)
Retirement of treasury stock
(711
)
 

 
(9
)
 
711

 
49

 
(40
)
 

 

 

 

Share-based compensation

 

 
12

 

 

 

 

 
12

 

 
12

Balance as of April 30, 2018
322,315

 
$
3

 
$
5,332

 

 
$

 
$
(412
)
 
$
(310
)
 
$
4,613

 
$
4

 
$
4,617


 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
 
 
 
 
 
Six Months Ended April 30, 2018
Number
of
Shares
 
Par
Value
 
Additional
Paid-in
Capital
 
Number
of
Shares
 
Treasury
Stock at
Cost
 
Retained
Earnings
(Accumulated Deficit)
 
Total Stockholders' Equity
 
Non-
Controlling
Interest
 
Total
Equity
Balance as of October 31, 2017
321,975

 
$
3

 
$
5,300

 

 
$

 
$
(126
)
 
$
(346
)
 
$
4,831

 
$
4

 
$
4,835

Components of comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 

 

 

 
(115
)
 

 
(115
)
 

 
(115
)
Other comprehensive income

 

 

 

 

 

 
36

 
36

 

 
36

Total comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
 

 
(79
)
 
 
 
(79
)
Cash dividends declared ($0.298 per common share)             

 

 

 

 

 
(96
)
 

 
(96
)
 

 
(96
)
Share-based awards issued, net of tax
1,688

 

 
7

 

 

 

 

 
7

 

 
7

Repurchase of common stock

 

 

 
(1,348
)
 
(93
)
 

 

 
(93
)
 

 
(93
)
Retirement of treasury stock
(1,348
)
 

 
(18
)
 
1,348

 
93

 
(75
)
 

 

 

 

Share-based compensation

 

 
43

 

 

 

 

 
43

 

 
43

Balance as of April 30, 2018
322,315

 
$
3

 
$
5,332

 

 
$

 
$
(412
)
 
$
(310
)
 
$
4,613

 
$
4

 
$
4,617


The accompanying notes are an integral part of these consolidated financial statements.


8

Table of Contents

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.
OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Overview. Agilent Technologies, Inc. ("we", "Agilent" or the "company"), incorporated in Delaware in May 1999, is a global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.

Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal quarters.

Basis of Presentation. We have prepared the accompanying financial data for the three and six months ended April 30, 2019 and 2018 pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. have been condensed or omitted pursuant to such rules and regulations. The October 31, 2018 condensed balance sheet data was derived from audited financial statements but does not include all the disclosures required in audited financial statements by U.S. GAAP. The accompanying financial data and information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair statement of our condensed consolidated balance sheet as of April 30, 2019 and October 31, 2018, condensed consolidated statement of comprehensive income (loss) for the three and six months ended April 30, 2019 and 2018, condensed consolidated statement of operations for the three and six months ended April 30, 2019 and 2018, condensed consolidated statement of cash flows for the six months ended April 30, 2019 and 2018 and condensed consolidated statement of equity for the three and six months ended April 30, 2019 and 2018.

Use of Estimates. The preparation of condensed consolidated financial statements in accordance with GAAP in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, share-based compensation, retirement and post-retirement benefit plan assumptions, goodwill and purchased intangible assets and accounting for income taxes.

Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. The fair value of long-term equity investments which are readily determinable, and which are not accounted under the equity method are reported at fair value using quoted market prices for those securities when available with gains and losses included in net income. The fair value of long-term equity investments which are not readily determinable, and which are not accounted under the equity method are reported at cost with adjustments for observable changes in prices or impairments included in net income. The fair value of our senior notes, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy, exceeds the carrying value by approximately $27 million and is lower than the carrying value by approximately $15 million as of April 30, 2019 and October 31, 2018, respectively. The change in the fair value over carrying value in the six months ended April 30, 2019 is primarily due to fluctuations in market interest rates. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. See also Note 9, "Fair Value Measurements" for additional information on the fair value of financial instruments.

Revenue Recognition.    We enter into agreements to sell products (hardware and/or software), services and other arrangements (multiple element arrangements) that include combinations of products and services.

We derive revenue primarily from the sale of analytical and diagnostics products and services. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606’’). See also Note 2, "New Accounting Pronouncements" and Note 3, "Revenue" for additional information on revenue recognition.

9

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


Revenue is recognized when control of the promised products or services is transferred to our customers and the performance obligation is fulfilled in an amount that reflects the consideration that we expect to be entitled to in exchange for those products or services, the transaction price. For equipment, consumables, and most software licenses sold by us, control transfers to the customer at a point in time. We use present right to payment, legal title, physical possession of the asset, and risks and rewards of ownership as indicators to determine the transfer of control to the customer. Where acceptance is not a formality, the customer must have documented their acceptance of the product or service. For products that include installation, if the installation meets the criteria to be considered a separate performance obligation, product revenue is recognized when control has passed to the customer, and recognition of installation revenue occurs once completed. Product revenue, including sales to resellers and distributors is reduced for provisions for warranties, returns, and other adjustments in the period the related sales are recorded.

Revenue from services includes extended warranty, customer and software support including: Software as a Service, post contract support, consulting including companion diagnostics, and training and education. Instrument service contracts and software maintenance contracts are typically annual contracts, which are billed at the beginning of the contract or maintenance period. These contracts are recognized on a straight-line basis to revenue over the service period, as a time-based measure of progress best reflects our performance in satisfying this obligation. There are no deferred costs associated with the service contract, as the cost of the service is recorded when the service is performed. Service calls are recognized to revenue at the time a service is performed.

We have sales from standalone software. These arrangements typically include software licenses and maintenance contracts, both of which we have determined are distinct performance obligations. We determine the amount of the transaction price to allocate to the license and maintenance contract based on the relative standalone selling price of each performance obligation. Software license revenue is recognized at the point in time when control has been transferred to the customer. The revenue allocated to the software maintenance contract is recognized on a straight-line basis over the maintenance period, which is the contractual term of the contract, as a time-based measure of progress best reflects our performance in satisfying this obligation. Unspecified rights to software upgrades are typically sold as part of the maintenance contract on a when-and-if-available basis.

Our multiple-element arrangements are generally comprised of a combination of instruments, installation or other start-up services, and/or software, and/or support or services. Hardware and software elements are typically delivered at the same time and revenue is recognized when control passes to the customer. Service revenue is deferred and recognized over the contractual period or as services are rendered and accepted by the customer. Our arrangements generally do not include any provisions for cancellation, termination, or refunds that would significantly impact recognized revenue.

For contracts with multiple performance obligations, we allocate the consideration to which we expect to be entitled to each performance obligation based on relative standalone selling prices and recognize the related revenue when or as control of each individual performance obligation is transferred to customers. We estimate the standalone selling price by calculating the average historical selling price of our products and services per country for each performance obligation. Stand-alone selling prices are determined at contract inception for each distinct good or service in the contract and then we allocate the transaction price in proportion to those standalone selling prices by performance obligations.

Certain of our revenue relate to lease arrangements. Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 840, Leases. Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type capital lease using the current lease classification guidance.
 2. NEW ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

There were no changes to the new accounting pronouncements not yet adopted as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 except for the following:

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance which amends the existing accounting standards for leases. Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize right-of-use assets and lease liabilities on the balance sheet. In July 2018, the FASB clarified two requirements in the new leases standard. The FASB decided to provide another transition method by allowing companies to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, the FASB decided to provide lessors with a practical expedient to not separate nonlease components from the associated lease component, similar to the expedient provided for lessees. In December 2018, the

10

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


FASB update clarified application of Accounting Standard Codification ("ASC") Topic 842, Leases. The new guidance is effective for us beginning November 1, 2019, and for interim periods within that year. Early adoption is permitted, and we will be required to adopt using a modified retrospective approach. We are evaluating the impact of this guidance on our consolidated financial statements and disclosures.


Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued new revenue recognition guidance, ASC Topic 606, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The objective of the new revenue standard is to significantly enhance comparability and clarify principles of revenue recognition practices across entities, industries, jurisdictions and capital markets. Under the new guidance, there are specific criteria to determine if a performance obligation should be recognized over time or at a point in time.

On November 1, 2018, we adopted ASC 606 using the modified retrospective approach only to contracts not completed as of this date. Results for reporting periods after November 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition.

We recorded a net increase to beginning retained earnings of $23 million as of November 1, 2018 due to the cumulative impact of adopting ASC 606. The impact to beginning retained earnings is primarily due to an increase in contract assets (unbilled accounts receivable), a reduction in inventory and a reduction in contract liabilities (deferred revenue). The net increase in retained earnings and resulting changes in assets and liabilities was mainly driven by the change in timing of the recognition of revenue from the fulfillment of separate performance obligations as control transfers to the customer.

Had we continued to use the revenue recognition guidance in effect prior to 2018, no material changes would have resulted to the consolidated statements of income, comprehensive income, or cash flows for the three and six months ended April 30, 2019. Refer to Note 1, for a description of the company’s revenue recognition policies and Note 3, "Revenue" for the disclosures required by the standard.

As of November 1, 2018, we elected to early adopt new accounting guidance which amends reporting comprehensive income to allow a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the deferred taxes previously recorded in AOCI that exceed the current federal tax rate of 21 percent resulting from the enacted corporate tax rate in the U.S. Tax Cuts and Jobs Act ("the Tax Act"). The adoption of this guidance resulted in a reclassification of $7 million from AOCI to beginning retained earnings on our condensed consolidated balance sheet.

As of November 1, 2018, we adopted new accounting guidance which eliminates the exception in ASC 740, Income Taxes against immediate recognition of income tax consequences of intra-entity transfers of assets other than inventory. The amendment in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of period of adoption. We recorded a net decrease in beginning retained earnings of $2 million as of November 1, 2018 due to removing unamortized tax expense previously deferred.

As of November 1, 2018, we adopted new accounting guidance which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments and also the related guidance which addresses technical corrections and improvements to this guidance. The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The total impact of adoption to our condensed consolidated balance sheet was an increase of $7 million to long-term investments and a net increase of $5 million to beginning retained earnings.



11

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


The following table summarizes the impacts of recently adopted accounting pronouncements on our condensed consolidated balance sheet as of November 1, 2018:

 
October 31,
2018
 
Impact of Adopting New
 
November 1,
2018
 
As Reported
 
Revenue Recognition Guidance
 
Tax Effects on Items in AOCI Guidance
 
Intra-Entity Tax Guidance
 
Investments Valuation Guidance
 
As Adopted
 
(in millions)
ASSETS
 

 
 
 
 
 
 
 
 
 
 

Current assets:
 

 
 
 
 
 
 
 
 
 
 

Cash and cash equivalents
$
2,247

 
$

 
$

 
$

 
$

 
$
2,247

Accounts receivable, net
776

 
24

 

 

 

 
800

Inventory
638

 
(10
)
 

 

 

 
628

Other current assets
187

 
3

 

 

 

 
190

Total current assets
3,848

 
17

 

 

 

 
3,865

Property, plant and equipment, net
822

 

 

 

 

 
822

Goodwill
2,973

 

 

 

 

 
2,973

Other intangible assets, net
491

 

 

 

 

 
491

Long-term investments
68

 

 

 

 
7

 
75

Other assets
339

 
(3
)
 

 
(2
)
 
(2
)
 
332

Total assets
$
8,541

 
$
14

 
$

 
$
(2
)
 
$
5

 
$
8,558

LIABILITIES AND EQUITY
 

 
 
 
 
 
 
 
 
 
 

Current liabilities:
 

 
 
 
 
 
 
 
 
 
 

Accounts payable
$
340

 
$

 
$

 
$

 
$

 
$
340

Employee compensation and benefits
304

 

 

 

 

 
304

Deferred revenue
324

 
(11
)
 

 

 

 
313

Other accrued liabilities
203

 

 

 

 

 
203

Total current liabilities
1,171

 
(11
)
 

 

 

 
1,160

Long-term debt
1,799

 

 

 

 

 
1,799

Retirement and post-retirement benefits
239

 

 

 

 

 
239

Other long-term liabilities
761

 
2

 

 

 

 
763

Total liabilities
3,970

 
(9
)
 

 

 

 
3,961

 
 
 
 
 
 
 
 
 
 
 
 
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; 318 million shares at October 31, 2018 issued
3

 

 

 

 

 
3

Additional paid-in-capital
5,308

 

 

 

 

 
5,308

Accumulated deficit
(336
)
 
23

 
7

 
(2
)
 
5

 
(303
)
Accumulated other comprehensive loss
(408
)
 

 
(7
)
 

 

 
(415
)
Total stockholders' equity
4,567

 
23

 

 
(2
)
 
5

 
4,593

Non-controlling interest
4

 

 

 

 

 
4

Total equity
4,571

 
23

 

 
(2
)
 
5

 
4,597

Total liabilities and equity
$
8,541

 
$
14

 
$

 
$
(2
)
 
$
5

 
$
8,558








12

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


As of November 1, 2018, we adopted new accounting guidance which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet follows:
 
April 30,
 
October 31
 
2019
 
2018
 
(in millions)
Cash and cash equivalents
$
2,155

 
$
2,247

Restricted cash included in other assets
6

 
7

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

 
$
2,254


As of November 1, 2018, we adopted new accounting guidance which requires employers that present a measure of operating income in their statements of operations to include only the service cost component of net periodic postretirement benefit cost in operating expenses. The service cost component of net periodic pension and postretirement benefit cost should be presented in the same operating expense line items as other employee compensation costs arising from services rendered during the period. The other components of net periodic pension and postretirement benefit costs, including interest costs, expected return on assets, amortization of prior service cost/credit and actuarial gains/losses, and settlement and curtailment effects, are to be included separately and outside of any subtotal of operating income. The adoption of this guidance resulted in a reclassification of income from our income from operations to other income (expense) on our consolidated statement of operations of approximately $3 million and $5 million in the three and six months ended April 30, 2019, respectively and approximately $5 million and $15 million in the three and six months ended April 30, 2018, respectively. As adoption is required to be on a retrospective basis, we have recast our historical condensed consolidated statements of operations and segment information to conform to current year presentation.

Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

3. REVENUE


The following table presents the company’s total revenue and segment revenue disaggregated by geographical region:
 
Three Months Ended April 30, 2019
 
Life Sciences and Applied Markets
 
Diagnostics and Genomics
 
Agilent CrossLab
 
Total
 
(in millions)
Revenue by Region
 
 
 
 
 
 
 
Americas
$
145

 
$
120

 
$
168

 
$
433

Europe
125

 
97

 
132

 
354

Asia Pacific
259

 
37

 
155

 
451

Total
$
529

 
$
254

 
$
455

 
$
1,238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended April 30, 2019
 
Life Sciences and Applied Markets
 
Diagnostics and Genomics
 
Agilent CrossLab
 
Total
 
(in millions)
Revenue by Region
 
 
 
 
 
 
 
Americas
$
313

 
$
229

 
$
324

 
$
866

Europe
289

 
188

 
260

 
737

Asia Pacific
534

 
72

 
313

 
919

Total
$
1,136

 
$
489

 
$
897

 
$
2,522

 
 
 
 
 
 
 
 

13

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)



The following table presents the company’s total revenue disaggregated by end markets and by revenue type:
 
 
Three Months Ended
 
Six Months Ended
 
April 30, 2019
 
April 30, 2019
 
(in millions)
Revenue by End Markets
 
 
 
Pharmaceutical and Biotechnology
$
371

 
$
762

Chemical and Energy
300

 
608

Diagnostics and Clinical
193

 
380

Food
114

 
243

Academia and Government
114

 
230

Environmental and Forensics
146

 
299

Total
$
1,238

 
$
2,522

 
 
 
 
Revenue by Type
 
 
 
Instrumentation
$
491

 
$
1,058

Non-instrumentation and other
747

 
1,464

Total
$
1,238

 
$
2,522


Revenue by region is based on the ship to location of the customer. Revenue by end market is determined by the market indicator of the customer and by customer type. Instrumentation revenue includes sales from instruments, remarketed instruments and third-party products. Non-instrumentation and other revenue includes sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.


Contract Balances

Contract Assets

Contract assets (unbilled accounts receivable) primarily relate to the company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are reclassified to trade receivables when billed to customers. Contracts assets are generally classified as current assets and are included in "Accounts receivable, net" in the condensed consolidated balance sheet.

The balance of contract assets as of April 30, 2019 and as of the date of adoption of ASC 606 were $86 million and $57 million, respectively. The increase in unbilled receivables during the six months ended April 30, 2019 is a result of recognition of revenue upon the transfer of the control to the customer. In some instances transfer of control is prior to invoicing the customers and excluding amounts transferred to trade receivables during the period amounted to $29 million.


14

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


Contract Liabilities

The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the six months ended April 30, 2019:

 
 
Contract
Liabilities
 
 
(in millions)
 
 
 
Ending balance as of October 31, 2018
 
$
367

Impact of adoption of new revenue recognition guidance
 
(11
)
Net revenue deferred in the period
 
224

Revenue recognized that was included in the contract liability balance at the beginning of the period
 
(191
)
Change in deferrals from customer cash advances, net of revenue recognized
 
2

Contract liabilities acquired in business combinations
 
2

Currency translation and other adjustments
 
1

Ending balance as of April 30, 2019
 
$
394


Contract liabilities primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements to the customer has either partially or not occurred at the balance sheet date. This includes cash received from customers for products and related installation and services in advance of the transfer of control. Contract liabilities are classified as either current in deferred revenue or long-term in other long-term liabilities in the condensed consolidated balance sheet based on the timing of when we expect to complete our performance obligation.

Contract Costs

Incremental costs of obtaining a contract with a customer are recognized as an asset if it expects the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The change in total capitalized costs to obtain a contract was immaterial during the period and are included in other current and long-term assets on the condensed consolidated balance sheet. We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the company's internal sales force compensation program, as we have determined that annual compensation is commensurate with annual sales activities.


Transaction Price Allocated to the Remaining Performance Obligations

We have applied the practical expedient in ASC 606-10-50-14 and have not disclosed information about transaction price allocated to remaining performance obligations that have original expected durations of one year or less.
 
The estimated revenue expected to be recognized for remaining performance obligations that have an original term of more than one year, as of April 30, 2019, was $174 million, the majority of which is expected to be recognized over the next 12 months. Remaining performance obligations primarily include extended warranty, customer manufacturing contracts, and software maintenance contracts and revenue associated with lease arrangements.

4.     SHARE-BASED COMPENSATION
 
Agilent accounts for share-based awards in accordance with the provisions of the authoritative accounting guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including restricted stock units, employee stock purchases made under our employee stock purchase plan (“ESPP”) and performance share awards granted to selected members of our senior management under the long-term performance plan (“LTPP”) based on estimated fair values.

Participants in the LTPP are entitled to receive shares of the company's stock after the end of a three-year period, if specified performance targets are met. Certain LTPP awards are generally designed to meet the criteria of a performance award with the

15

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


performance metrics and peer group comparison based on the Total Stockholders’ Return (“TSR”) set at the beginning of the performance period. Effective November 1, 2015, the Compensation Committee of the Board of Directors approved another type of performance stock award, for the company's executive officers and other key employees. Participants in this program are also entitled to receive shares of the company's stock after the end of a three-year period, if specified performance targets over the three-year period are met. The performance target for grants made beginning 2017 and later were based on Earnings Per Share ("EPS"). The performance targets for the LTPP-EPS grants for year 2 and year 3 of the performance period are set in the first quarter of year 2 and year 3, respectively. All LTPP awards granted after November 1, 2015, are subject to a one-year post-vest holding period.

The final LTPP award may vary from zero to 200 percent of the target award. The maximum award value for awards granted in 2017 cannot exceed 300 percent of the grant date target value. We consider the dilutive impact of these programs in our diluted net income per share calculation only to the extent that the performance conditions are expected to be met. Restricted stock units generally vest, with some exceptions, at a rate of 25 percent per year over a period of four years from the date of grant.
 
The impact on our results for share-based compensation was as follows:
 

Three Months Ended
Six Months Ended

April 30,
April 30,
 
2019

2018
2019

2018
 
(in millions)
Cost of products and services
$
4


$
3

$
9

 
$
10

Research and development
2


1

4

 
4

Selling, general and administrative
10


8

27

 
29

Total share-based compensation expense
$
16

 
$
12

$
40

 
$
43

 
At April 30, 2019 and October 31, 2018, there was no share-based compensation capitalized within inventory.
                                               
The following assumptions were used to estimate the fair value of awards granted.
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
2019
 
2018
 
2019
 
2018
LTPP:
 
 
 
 
 
 
 
Volatility of Agilent shares
22%
 
21%
 
22%
 
21%
Volatility of selected peer-company shares
15%-66%
 
14%-66%
 
15%-66%
 
14%-66%
Pair-wise correlation with selected peers
30%
 
32%
 
30%
 
32%
 
 
 
 
 
 
 
 
Post-vest holding restriction discount for all executive awards
5.0%
 
4.8%
 
5.0%
 
4.8%
 
Shares granted under the LTPP (TSR) were valued using a Monte Carlo simulations model. The Monte Carlo simulation fair value model requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock.  For the volatility of our LTPP (TSR) grants, we used our own historical stock price volatility.  

The ESPP allows eligible employees to purchase shares of our common stock at 85 percent of the price at purchase and uses the purchase date to establish the fair market value.

The estimated fair value of restricted stock units and LTPP (EPS) awards is determined based on the market price of Agilent’s common stock on the date of grant adjusted for expected dividend yield. The compensation cost for LTPP (EPS) reflects the cost of awards that are probable to vest at the end of the performance period.

All awards granted in 2016 and thereafter to our senior management employees have a one-year post-vest holding restriction. The estimated discount associated with post-vest holding restrictions is calculated using the Finnerty model (see table above). The model calculates the potential lost value if the employee were able to sell the shares during the lack of marketability period, instead of being required to hold the shares. The model used the same historical stock price volatility and dividend yield assumption used for the Monte Carlo simulations model and an expected dividend yield to compute the discount.


16

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


5.     INCOME TAXES

For the three and six months ended April 30, 2019, the company's income tax expense was $36 million with an effective tax rate of 16.5 percent and an income tax benefit of $220 million with an effective tax rate of (47.2) percent, respectively. For the six months ended April 30, 2019, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete benefit of $299 million related to the restructuring and extension of the company’s tax incentive in Singapore. The income tax provision for the three and six months ended April 30, 2019 also includes the excess tax benefits from stock-based compensation of $3 million and $7 million, respectively.

For the three and six months ended April 30, 2018, the company's income tax expense was $22 million with an effective tax rate of 9.7 percent and $575 million with an effective tax rate of 125.0 percent, respectively. The effective tax rate and the provision for income taxes were significantly impacted by a discrete charge of $533 million related to the enactment of the Tax Act. The income taxes provision for the three and six months ended April 30, 2018 also included the excess tax benefits from stock-based compensation of $7 million and $18 million, respectively.

2017 U.S. Tax Reform - Tax Cuts and Jobs Act

On December 22, 2017, the Tax Act was enacted into law. The Tax Act enacted significant changes affecting our fiscal year 2018, including, but not limited to, (1) reducing the U.S. federal corporate tax rate and (2) imposing a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that had not been previously taxed in the U.S.

The Tax Act also establishes new tax provisions affecting our fiscal year 2019, including, but not limited to, (1) creating a new provision designed to tax global intangible low-tax income (“GILTI”); (2) generally eliminating U.S. federal taxes on dividends from foreign subsidiaries; (3) eliminating the corporate alternative minimum tax (“AMT”); (4) creating the base erosion anti-abuse tax (“BEAT”); (5) establishing a deduction for foreign derived intangible income ("FDII"); (6) repealing the domestic production activity deduction; and (7) establishing new limitations on deductible interest expense and certain executive compensation.

GILTI: The Tax Act subjects a U.S. corporation to tax on its GILTI. U.S. GAAP allows companies to make an accounting policy election to either (1) treat taxes due on future GILTI inclusions in the U.S. taxable income as a current-period expense when incurred (“period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (“deferred method”). We have completed our analysis and elected to treat GILTI as a “current period cost”.

In the U.S., tax years remain open back to the year 2015 for federal income tax purposes and the year 2000 for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2001. There were no substantial changes from our 2018 Annual Report on Form 10-K to the status of the open tax years in the first six months of fiscal year 2019.

It is reasonably possible there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitation or a tax audit settlement. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits. The company will continue to assess the impact of the further guidance from federal and state tax authorities on its business and consolidated financial statements. Any future adjustments will be recognized as discrete income tax expense or benefit in the period the adjustments are determined.


17

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


6. NET INCOME PER SHARE
 
The following is a reconciliation of the numerator and denominator of the basic and diluted net income per share computations for the periods presented below:
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Numerator:
 

 
 

 
 

 
 

Net income (loss)
$
182

 
$
205

 
$
686

 
$
(115
)
Denominator:
 
 
 
 
 
 
 
Basic weighted-average shares
317

 
322

 
318

 
323

Potential common shares— stock options and other employee stock plans
4

 
4

 
4

 

Diluted weighted-average shares
321

 
326

 
322

 
323

 
The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense collectively are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair market value of the company's common stock can result in a greater dilutive effect from potentially dilutive awards.

We exclude stock options with exercise prices greater than the average market price of our common stock from the calculation of diluted earnings per share because their effect would be anti-dilutive. In addition, we exclude from the calculation of diluted earnings per share stock options, ESPP, LTPP and restricted stock awards whose combined exercise price and unamortized fair value were greater than the average market price of our common stock because their effect would also be anti-dilutive.  

For the three and six months ended April 30, 2019, no potential common shares were excluded from the calculation of diluted earnings per share. For the three months ended April 30, 2018, 96,800 potential common shares outstanding were excluded from the calculation of diluted earnings per share. For the six months ended April 30, 2018, the diluted net loss per share was the same as basic net loss per share as the effects of all 6.6 million potential common shares outstanding would have been anti-dilutive.

7. INVENTORY
 
 
April 30,
2019
 
October 31,
2018
 
(in millions)
Finished goods
$
401

 
$
386

Purchased parts and fabricated assemblies
256

 
252

Inventory
$
657

 
$
638



18

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)


8. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The following table presents goodwill balances and the movements for each of our reportable segments during the six months ended April 30, 2019:
 
 
Life Sciences and Applied Markets
 
Diagnostics and Genomics
 
Agilent CrossLab
 
Total
 
(in millions)
Goodwill as of October 31, 2018
$
803

 
$
1,607

 
$
563

 
$
2,973

Foreign currency translation impact

 
(2
)
 
(1
)
 
(3
)
Goodwill arising from acquisitions and adjustments
153

 
(11
)
 

 
142

Goodwill as of April 30, 2019
$
956

 
$
1,594

 
$
562

 
$
3,112


The components of other intangible assets as of April 30, 2019 and October 31, 2018 are shown in the table below:
 
 
Purchased Other Intangible Assets
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and Impairments
 
Net Book
Value
 
(in millions)
As of October 31, 2018
 

 
 

 
 

Purchased technology
$
947

 
$
683

 
$
264

Trademark/Tradename
151

 
88

 
63

Customer relationships
107

 
63

 
44

Third-party technology and licenses
28

 
19

 
9

Total amortizable intangible assets
1,233

 
853

 
380

In-Process R&D
111

 

 
111

Total
$
1,344

 
$
853

 
$
491

As of April 30, 2019