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  • 1. Notice of 2005 Annual Meeting and Proxy Statement 2004 Annual Report to Stockholders 2004 Annual Report Consolidated Financial Statements

2. TABLE OF CONTENTSPageSelected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Managements Discussion and Analysis of Financial Condition and Results of Operations . . . 3 Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Consolidated Statement of Stockholders Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Quarterly Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3. SELECTED FINANCIAL DATA(Unaudited)Years Ended October 31,20042003 2002 20012000(in millions, except per share data) Consolidated Statement of Operations Data (1, 2, 3): Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,181 $ 6,056 $ 6,010 $8,396 $9,361 Income (loss) from continuing operations before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 440 (690) (1,547)(477) 1,018 Income (loss) from continuing operations . . . . . . . . . . . .349 (1,790) (1,022)(406) 672 Income from discontinued operations, net of taxes . . . . 6 85 Gain (loss) from the sale of discontinued operations, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)646 Income (loss) before cumulative effect of accounting changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349 (1,790) (1,032) 246 757 Cumulative effect of adopting SFAS No. 133, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) Cumulative effect of adopting SAB 101, net of taxes . . . (47) Cumulative effect of adopting SFAS No. 142 . . . . . . . . . . (268) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 349$(2,058) $(1,032) $ 174$ 757Net income (loss) per share Basic:Income (loss) from continuing operations . . . . . . . . $ 0.72 $ (3.78) $ (2.20) $ (0.89) $ 1.49Income from discontinued operations, net . . . . . . . . 0.010.19Gain (loss) from the sale of discontinuedoperations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02)1.41 Cumulative effect of adopting SFAS No. 133, net . . (0.05)Cumulative effect of adopting SAB 101, net . . . . . . .(0.10)Cumulative effect of adopting SFAS No. 142 . . . . . .(0.57) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 0.72 $ (4.35) $ (2.22) $ 0.38 $ 1.68Net income (loss) per share Diluted:Income (loss) from continuing operations . . . . . . . . $ 0.71 $ (3.78) $ (2.20) $ (0.89) $ 1.48Income from discontinued operations, net . . . . . . . . 0.010.18Gain (loss) from the sale of discontinuedoperations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02)1.41 Cumulative effect of adopting SFAS No. 133, net . . (0.05)Cumulative effect of adopting SAB 101, net . . . . . . .(0.10)Cumulative effect of adopting SFAS No. 142 . . . . . .(0.57) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 0.71 $ (4.35) $ (2.22) $ 0.38 $ 1.66Weighted average shares used in computing basic netincome (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . .483473 465458 449 Weighted average shares used in computing diluted netincome (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . .490473 465458 4551 4. October 31, 2004 2003 20022001 2000 (in millions) Consolidated Balance Sheet Data (1): Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,315 $1,607 $1,844 $1,170 $ 996 Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$2,706 $1,983 $2,899 $2,797 $2,476 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,056 $6,297 $8,203 $7,986 $8,330 Senior convertible debentures . . . . . . . . . . . . . . . . . . . . . . . .$1,150 $1,150 $1,150 $$ Stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,569 $2,824 $4,627 $5,659 $5,265(1) Consolidated financial data and notes for all periods present our healthcare solutions business as a discontinued operation. (2) Income from continuing operations for the year ended October 31, 2004 includes a pre-tax restructuring charge of $161 million, including a pre-tax asset impairment charge of $25 million. Loss from continuing operations for the year ended October 31, 2003 includes a pre-tax restructuring charge of $372 million, including a pre-tax asset impairment charge of $15 million, and a non-cash charge recorded during the third quarter of 2003 to establish a tax valuation allowance of $1.4 billion. The $1.4 billion included $0.4 billion of tax benefits recorded during the first six months of 2003 resulting in approximately $1.0 billion net tax provision recorded within provision for taxes for the year ended October 31, 2003; the valuation allowance essentially eliminated our net deferred tax assets. Loss from continuing operations for the year ended October 31, 2002 includes a pre-tax restructuring charge of $474 million including a pre- tax asset impairment charge of $163 million. Loss from continuing operations for the year ended October 31, 2001 includes a pre-tax gain of $269 million relating to the sale of surplus land in California, inventory charges of $460 million, a pre-tax restructuring charge of $154 million primarily relating to severance expenses and a pre-tax asset impairment charge of $74 million for our customer support software. (3) Consolidated statement of operations data for the year ended October 31, 2001 and 2000 includes the impact of the sale of our portfolio of lease assets to CIT Group Inc. (formerly known as Tyco Capital Corporation). In 2001, net proceeds from this sales transaction were $287 million and we recognized $254 million in net revenue from continuing operations and $131 million in cost of products from continuing operations. In 2000, net proceeds from this sales transaction were $234 million and we recognized $197 million in net revenue from continuing operations and $83 million in cost of products from continuing operations. 2 5. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends, cyclicality, seasonality and growth in the markets we sell into, our strategic direction, expenditures in research and development, contracts, remediation and indemnification, our future effective tax rate, new product introductions, product pricing, changes to our manufacturing processes, our liquidity position, our ability to generate cash from continuing operations, our image sensor technology and the sale of our camera module business, our expected growth, the potential impact of our adopting new accounting pronouncements, our financial results, revenue generated from international sales, our potential repatriation of earnings, the impact of our enterprise resource planning systems implementation, the impact of our variable cost structure, our obligations under and assumptions about our retirement and post-retirement benefit plans, our lease payment obligations, savings from our restructuring programs and the existence or length of an economic recovery that involve risks and uncertainties. Our actual results could differ from the results contemplated by these forward-looking statements due to certain factors, including those discussed in Item 7 and elsewhere in this report.OverviewAgilent, incorporated in Delaware in May 1999, is a global diversified technology organization that provides enabling solutions to markets within the communications, electronics, life sciences and chemical analysis industries. Prior to our initial public offering of 15.9 percent of our stock in November 1999, we were a wholly-owned subsidiary of Hewlett-Packard. Hewlett-Packard distributed the remaining 84.1 percent of our stock to its stockholders on June 2, 2000 in the form of a stock dividend.Our fiscal year end is October 31. Unless otherwise stated, all years and dates refer to our fiscal year.Reclassifications Amounts in the consolidated financial statements as of and for the years ended October 31, 2003 and October 31, 2002 have been reclassified to conform to the presentation used in 2004.Executive SummaryThe sales of our products and services are dependent, to a large degree, on customers whose industries are subject to cyclical trends in the demand for their products. Shifts in the semiconductor market, electronics industry, computer industry and telecommunications markets, as well as rapidly shifting global economic conditions, have had and will have significant impacts on our businesses.In those industry segments where we are a capital equipment provider, our revenue is dependent on the capital expenditure budgets and spending patte

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