8/20/2003 - Agilent Technologies Inc. (NYSE: A) reported orders of $1.47 billion and revenue of $1.50 billion for the fiscal third quarter ended July 31, 2003. During the quarter, the company recognized a $1.4 billion non-cash charge required under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," and reported a GAAP net loss of $1.56 billion, or $3.28 per share. Excluding that charge, the company would have reported a loss from operations of $110 million, or $0.23 per share, which compares to a GAAP loss of $223 million, or $0.48 per share, one year ago.
Also excluding $99 million of net restructuring charges and intangibles amortization, Agilent reported a net loss for the third quarter of $11 million, or $0.02 per share, versus a loss on a comparable basis of $0.31 per share one year ago.
"We are encouraged by our third-quarter operating results," said Ned Barnholt, Agilent chairman, president and chief executive officer. "Orders and revenues came in at expectations, with earnings from operations near the top end of expectations. We are confident that we'll meet our commitment to achieve an operating breakeven cost structure of $1.45 billion and return to profitability in the fourth quarter of this year."
Agilent saw a continued rebound this quarter in semiconductor equipment orders, which reached their highest level in three years. Activity in the company's other segments remained roughly flat compared to the prior year.
"We made good progress in continuing to reduce our structural costs," Barnholt said. "These costs were reduced by nearly $100 million during the quarter, while worldwide headcount fell by an additional 2,400 during the last three months."
Continued progress was also reflected on the balance sheet. The company generated $38 million cash from working capital during the quarter despite sequentially higher revenues. Capital spending, at $62 million, remained below depreciation expense of $77 million. Net cash consumption was only $103 million despite $121 million of cash restructuring payments. The company ended the quarter with over $1.4 billion in cash and equivalents.
Looking ahead, Barnholt said, "We are seeing more evidence of a sustainable upturn in semiconductor capital equipment, and in the underlying semiconductor markets." Overall, the company anticipates a normal seasonal increase during the fiscal fourth quarter, with revenues in the range of $1.50 billion to $1.60 billion. Earnings before restructuring and amortization charges are expected to be in a range of an operating breakeven to $0.10 per share.
"Our fourth-quarter priority remains firmly focused on achieving a $1.45 billion operating breakeven cost structure, which will lay the foundation for sustained profitability in 2004," Barnholt said. "I am confident we will achieve this milestone while continuing to deliver the innovative new products to our customers that will ensure their, and our, long-term success."
Third-quarter Test and Measurement orders were down 4 percent from one year ago and were off 7 percent from the seasonally strong second quarter. By market segment, communications test orders were down 9 percent from last year largely because of continued weakness in wireline test coupled with a modest decline in wireless test. General purpose test orders were up 8 percent compared to last year because of renewed strength in aerospace and defense markets and rising demand for the new oscilloscope product line. Third-quarter revenues of $613 million were 18 percent above last year, when implementation of a new ERP system interrupted shipments. Sequentially, revenues were down 6 percent.
The cumulative benefits of aggressive restructuring were clearly evident in the operating results of this segment. The third-quarter operating loss of $69 million was improved by $34 million from three months earlier despite $39 million lower revenues. Compared to last year, the operating loss was reduced by $191 million on $92 million of increased revenues. It is anticipated that this segment will return to profitability in the fourth quarter of this year.
The rebound in the Automated Test segment continued in the third quarter, with orders of $251 million up 18 percent from last year to the highest levels since the fourth quarter of 2000. Sequentially, orders were up 15 percent, with both semiconductor test and manufacturing test participating in the increase. Revenues of $206 million were 6 percent above last year and up 35 percent sequentially. Semiconductor Test's third-quarter book-to-bill ratio of 1.29 was well ahead of the industry's June reading of 1.19. In the third quarter, this segment returned to profitability, with operating profits of $6 million compared to an operating loss of $5 million one year earlier and a loss of $37 million during the second quarter of this year.
Semiconductor Products' third-quarter orders of $358 million were down 7 percent from last year because of the continued sharp drop in the hardcopy ASIC business. Excluding hardcopy ASICs, segment orders were up 8 percent from one year ago. Total segment orders were off 15 percent from the seasonally strong second quarter. Revenues of $380 million were down 3 percent from last year and up 1 percent sequentially. Excluding the hardcopy ASIC business, revenues were up 10 percent, consistent with the year-to-year increase in worldwide semiconductor industry sales. Segment operating results benefited from better yields on new products, the shutdown of a facility and restructuring actions. The third-quarter segment loss of $8 million represented a $35 million improvement over second-quarter results on essentially flat revenues. Compared to last year, the operating loss was reduced by $30 million despite $10 million lower sales.
Life Sciences and Chemical Analysis orders and revenues showed some improvement from the generally flat trend of the past several quarters. Third-quarter orders of $293 million were up 8 percent from last year and up 5 percent sequentially. Life Sciences showed the most strength, with orders up 14 percent from last year and 10 percent sequentially while Chemical Analysis orders rose 4 percent from last year and were 1 percent ahead of the second quarter. Revenues of $303 million were 6 percent ahead of one year ago and the second quarter. Segment profits were about equal to one year ago. Compared to the second quarter, when spending is seasonally higher, operating profits were improved by $21 million on $17 million higher revenues.
Note on Non-Cash Charge Related to SFAS 109
In accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," Agilent recorded a non-cash charge of $1.4 billion to establish a valuation allowance, which essentially eliminates its net deferred tax assets. This adjustment will impact both GAAP tax expense and shareholders' equity on Agilent's financial statements but has no impact on the company's cash flow, liquidity or future prospects.
In large part because of Agilent's cumulative losses over the past few years in the United States and the United Kingdom, SFAS No. 109 requires that "greater weight be given to previous cumulative losses than the outlook for future profitability when determining whether deferred tax assets can be used." In essence, the company is now unable to reference forecasts of future operating profits to value its deferred tax assets for GAAP purposes. The company emphasized that the establishment of this allowance was done strictly for purposes of conformance with GAAP, and does not in any way reflect reduced confidence in its future prospects. In fact, the company remains confident it will be able to use the entirety of its deferred tax assets before expiration dates that range from 5 to 20 years.
This valuation allowance will be reviewed periodically after the company has achieved positive retained earnings, and could be reversed, partially or totally, when business results have sufficiently improved to support recognition of the deferred tax assets for GAAP purposes. Until that point, Agilent will record a near zero tax rate for GAAP reporting purposes.
About Agilent Technologies
Agilent Technologies Inc. (NYSE: A) is a global technology leader in communications, electronics, life sciences and chemical analysis. The company's 30,000 employees serve customers in more than 110 countries. Agilent had net revenue of $6 billion in fiscal year 2002. Information about Agilent is available on the Web at www.agilent.com.
More financial information about this quarter's earnings is available at www.investor.agilent.com. A telephone replay of the conference call will be available starting at 4:30 p.m. (PT) on Aug. 18 through Aug. 26 by dialing + 719 457 0820 and entering pass code 607246.
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