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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For 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 incorporation or organization) | | (IRS Employer Identification No.) |
5301 Stevens Creek Blvd.,
Santa Clara, California 95051
(Address of principal executive offices)
Registrant’s telephone number, including area code: (800) 227-9770
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Title of each Class | | Trading Symbol | | Name of each Exchange on which registered |
Common Stock, $0.01 par value | | | 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 ☒ 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 ☒ 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 | ☒ | | 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 ☒
As of August 22, 2024, the registrant had 287,327,671 shares of common stock, $0.01 par value per share, outstanding.
AGILENT TECHNOLOGIES, INC.
TABLE OF CONTENTS
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| Item 6. | Exhibits | |
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PART I— FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net revenue: | | | | | | | |
Products | $ | 1,121 | | | $ | 1,222 | | | $ | 3,455 | | | $ | 3,819 | |
Services and other | 457 | | | 450 | | | 1,354 | | | 1,326 | |
Total net revenue | 1,578 | | | 1,672 | | | 4,809 | | | 5,145 | |
Costs and expenses: | | | | | | | |
Cost of products | 491 | | | 784 | | | 1,486 | | | 1,890 | |
Cost of services and other | 232 | | | 230 | | | 704 | | | 705 | |
Total costs | 723 | | | 1,014 | | | 2,190 | | | 2,595 | |
Research and development | 127 | | | 118 | | | 368 | | | 367 | |
Selling, general and administrative | 395 | | | 407 | | | 1,171 | | | 1,241 | |
Total costs and expenses | 1,245 | | | 1,539 | | | 3,729 | | | 4,203 | |
Income from operations | 333 | | | 133 | | | 1,080 | | | 942 | |
Interest income | 19 | | | 13 | | | 56 | | | 34 | |
Interest expense | (22) | | | (24) | | | (64) | | | (73) | |
Other income (expense), net | 13 | | | 10 | | | 48 | | | 16 | |
Income before taxes | 343 | | | 132 | | | 1,120 | | | 919 | |
Provision for income taxes | 61 | | | 21 | | | 182 | | | 154 | |
Net income | $ | 282 | | | $ | 111 | | | $ | 938 | | | $ | 765 | |
| | | | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.97 | | | $ | 0.38 | | | $ | 3.21 | | | $ | 2.59 | |
Diluted | $ | 0.97 | | | $ | 0.38 | | | $ | 3.20 | | | $ | 2.58 | |
| | | | | | | |
Weighted average shares used in computing net income per share: | | | | | | | |
Basic | 290 | | | 294 | | | 292 | | | 295 | |
Diluted | 291 | | | 295 | | | 293 | | | 296 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
Net income | $ | 282 | | | $ | 111 | | | $ | 938 | | | $ | 765 | |
Other comprehensive income (loss): | | | | | | | |
| | | | | | | |
| | | | | | | |
Unrealized gain (loss) on derivative instruments, net of tax expense (benefit) of $0, $0, $(1) and $(5) | (3) | | | 2 | | | (3) | | | (13) | |
Amounts reclassified into earnings related to derivative instruments, net of tax expense (benefit) of $(1), $1, $(2) and $0 | (2) | | | 1 | | | (5) | | | — | |
Foreign currency translation, net of tax expense (benefit) of $0, $(1), $0 and $(2) | 13 | | | 9 | | | 10 | | | 87 | |
Net defined benefit pension cost and post retirement plan costs: | | | | | | | |
Change in actuarial net gain (loss), net of tax expense (benefit) of $(2), $0, $(4) and $0 | (2) | | | (1) | | | (6) | | | 3 | |
Change in net prior service benefit, net of tax expense of $0, $0, $0 and $0 | — | | | — | | | — | | | (1) | |
Other comprehensive income (loss) | 6 | | | 11 | | | (4) | | | 76 | |
Total comprehensive income | $ | 288 | | | $ | 122 | | | $ | 934 | | | $ | 841 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except par value and share data)
(Unaudited) | | | | | | | | | | | |
| July 31, 2024 | | October 31, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,779 | | | $ | 1,590 | |
| | | |
Accounts receivable, net | 1,227 | | | 1,291 | |
Inventory | 978 | | | 1,031 | |
Other current assets | 272 | | | 274 | |
Total current assets | 4,256 | | | 4,186 | |
Property, plant and equipment, net | 1,446 | | | 1,270 | |
Goodwill | 3,965 | | | 3,960 | |
Other intangible assets, net | 392 | | | 475 | |
Long-term investments | 186 | | | 164 | |
Other assets | 751 | | | 708 | |
Total assets | $ | 10,996 | | | $ | 10,763 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 497 | | | $ | 418 | |
Employee compensation and benefits | 309 | | | 371 | |
Deferred revenue | 524 | | | 505 | |
Short-term debt | 795 | | | — | |
Other accrued liabilities | 264 | | | 309 | |
Total current liabilities | 2,389 | | | 1,603 | |
Long-term debt | 2,137 | | | 2,735 | |
Retirement and post-retirement benefits | 96 | | | 103 | |
Other long-term liabilities | 471 | | | 477 | |
Total liabilities | 5,093 | | | 4,918 | |
Commitments and contingencies (Notes 9 and 12) | | | |
Total equity: | | | |
Stockholders’ equity: | | | |
Preferred stock; $0.01 par value; 125,000,000 shares authorized; none issued and outstanding at July 31, 2024 and October 31, 2023 | — | | | — | |
Common stock; $0.01 par value; 2,000,000,000 shares authorized; 287,529,636 shares at July 31, 2024 and 292,123,241 shares at October 31, 2023 issued and outstanding | 3 | | | 3 | |
Additional paid-in-capital | 5,458 | | | 5,387 | |
Retained earnings | 773 | | | 782 | |
Accumulated other comprehensive loss | (331) | | | (327) | |
Total stockholders' equity | 5,903 | | | 5,845 | |
| | | |
| | | |
Total liabilities and stockholders' equity | $ | 10,996 | | | $ | 10,763 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended |
| July 31, |
| 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 938 | | | $ | 765 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 188 | | | 209 | |
Share-based compensation | 103 | | | 97 | |
Deferred taxes | (8) | | | (69) | |
Excess and obsolete inventory related charges | 33 | | | 27 | |
Net (gain) loss on equity securities | (6) | | | 13 | |
Asset impairment charges | 8 | | | 277 | |
Change in fair value of contingent consideration | — | | | 1 | |
| | | |
Other non-cash (income) expense, net | 2 | | | 4 | |
Changes in assets and liabilities: | | | |
Accounts receivable, net | 67 | | | 113 | |
Inventory | 15 | | | (53) | |
Accounts payable | 78 | | | (117) | |
Employee compensation and benefits | (65) | | | (137) | |
Other assets and liabilities | (83) | | | 126 | |
Net cash provided by operating activities | 1,270 | | | 1,256 | |
| | | |
Cash flows from investing activities: | | | |
| | | |
Payments to acquire property, plant and equipment | (285) | | | (214) | |
| | | |
Proceeds from sale of equity securities | — | | | 5 | |
Payments to acquire equity securities | (5) | | | (3) | |
Proceeds from convertible note | — | | | 4 | |
Payments in exchange for convertible note | (11) | | | (11) | |
| | | |
Payments to acquire businesses and intangible assets, net of cash acquired | (3) | | | (51) | |
Net cash used in investing activities | (304) | | | (270) | |
| | | |
Cash flows from financing activities: | | | |
Proceeds from issuance of common stock under employee stock plans | 76 | | | 65 | |
Payments of taxes related to net share settlement of equity awards | (27) | | | (53) | |
Payments for repurchase of common stock | (815) | | | (495) | |
Payments of dividends | (206) | | | (199) | |
| | | |
Repayments of long-term debt | (180) | | | — | |
| | | |
Net proceeds from (repayments of) short-term debt | 375 | | | 20 | |
| | | |
| | | |
Payment for contingent consideration | — | | | (67) | |
Net cash used in financing activities | (777) | | | (729) | |
| | | |
Effect of exchange rate movements | — | | | 19 | |
| | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | 189 | | | 276 | |
| | | |
Cash, cash equivalents and restricted cash at beginning of period | 1,593 | | | 1,056 | |
Cash, cash equivalents and restricted cash at end of period | $ | 1,782 | | | $ | 1,332 | |
| | | |
Supplemental cash flow information: | | | |
Income tax paid, net of refunds received | $ | 284 | | | $ | 143 | |
Interest payments, net of capitalized interest | $ | 50 | | | $ | 60 | |
Net change in property, plant and equipment included in accounts payable and accrued liabilities-increase (decrease) | $ | — | | | $ | (20) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, except number of shares in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | | | Accumulated Other Comprehensive Loss | | | | | | |
Three Months Ended July 31, 2024 | Number of Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Equity | | | | |
Balance as of April 30, 2024 | 291,588 | | | $ | 3 | | | $ | 5,458 | | | $ | 1,090 | | | $ | (337) | | | $ | 6,214 | | | | | |
| | | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 282 | | | — | | | 282 | | | | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 6 | | | 6 | | | | | |
Total comprehensive income | | | | | | | | | | | 288 | | | | | |
| | | | | | | | | | | | | | | |
Cash dividends declared ($0.236 per common share) | — | | | — | | | — | | | (68) | | | — | | | (68) | | | | | |
Share-based awards issued, net of tax of $1 | 339 | | | — | | | 31 | | | — | | | — | | | 31 | | | | | |
Repurchase of common stock, including excise taxes | (4,397) | | | — | | | (59) | | | (531) | | | — | | | (590) | | | | | |
Share-based compensation | — | | | — | | | 28 | | | — | | | — | | | 28 | | | | | |
Balance as of July 31, 2024 | 287,530 | | | $ | 3 | | | $ | 5,458 | | | $ | 773 | | | $ | (331) | | | $ | 5,903 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | | | Accumulated Other Comprehensive Loss | | | | | | |
Nine Months Ended July 31, 2024 | Number of Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Equity | | | | |
Balance as of October 31, 2023 | 292,123 | | | $ | 3 | | | $ | 5,387 | | | $ | 782 | | | $ | (327) | | | $ | 5,845 | | | | | |
| | | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 938 | | | — | | | 938 | | | | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (4) | | | (4) | | | | | |
Total comprehensive income | | | | | | | | | | | 934 | | | | | |
| | | | | | | | | | | | | | | |
Cash dividends declared ($0.708 per common share) | — | | | — | | | — | | | (206) | | | — | | | (206) | | | | | |
Share-based awards issued, net of tax of $27 | 1,398 | | | — | | | 48 | | | — | | | — | | | 48 | | | | | |
Repurchase of common stock, including excise taxes | (5,991) | | | — | | | (80) | | | (741) | | | — | | | (821) | | | | | |
Share-based compensation | — | | | — | | | 103 | | | — | | | — | | | 103 | | | | | |
Balance as of July 31, 2024 | 287,530 | | | $ | 3 | | | $ | 5,458 | | | $ | 773 | | | $ | (331) | | | $ | 5,903 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | | | Accumulated Other Comprehensive Loss | | | | | | |
Three Months Ended July 31, 2023 | Number of Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Equity | | | | |
Balance as of April 30, 2023 | 295,261 | | | $ | 3 | | | $ | 5,360 | | | $ | 700 | | | $ | (282) | | | $ | 5,781 | | | | | |
| | | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 111 | | | — | | | 111 | | | | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 11 | | | 11 | | | | | |
Total comprehensive income | | | | | | | | | | | 122 | | | | | |
| | | | | | | | | | | | | | | |
Cash dividends declared ($0.225 per common share) | — | | | — | | | — | | | (66) | | | — | | | (66) | | | | | |
Share-based awards issued, net of tax of $1 | 298 | | | — | | | 29 | | | — | | | — | | | 29 | | | | | |
Repurchase of common stock, including excise taxes | (2,812) | | | — | | | (36) | | | (301) | | | — | | | (337) | | | | | |
Share-based compensation | — | | | — | | | 29 | | | — | | | — | | | 29 | | | | | |
Balance as of July 31, 2023 | 292,747 | | | $ | 3 | | | $ | 5,382 | | | $ | 444 | | | $ | (271) | | | $ | 5,558 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | | | Accumulated Other Comprehensive Loss | | | | | | |
Nine Months Ended July 31, 2023 | Number of Shares | | Par Value | | Additional Paid-in Capital | | Retained Earnings | | Total Stockholders' Equity | | | | |
Balance as of October 31, 2022 | 295,259 | | | $ | 3 | | | $ | 5,325 | | | $ | 324 | | | $ | (347) | | | $ | 5,305 | | | | | |
| | | | | | | | | | | | | | | |
Components of comprehensive income, net of tax: | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | 765 | | | — | | | 765 | | | | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 76 | | | 76 | | | | | |
Total comprehensive income | | | | | | | | | | | 841 | | | | | |
| | | | | | | | | | | | | | | |
Cash dividends declared ($0.675 per common share) | — | | | — | | | — | | | (199) | | | — | | | (199) | | | | | |
Share-based awards issued, net of tax of $53 | 1,405 | | | — | | | 11 | | | — | | | — | | | 11 | | | | | |
Repurchase of common stock, including excise taxes | (3,917) | | | — | | | (51) | | | (446) | | | — | | | (497) | | | | | |
Share-based compensation | — | | | — | | | 97 | | | — | | | — | | | 97 | | | | | |
Balance as of July 31, 2023 | 292,747 | | | $ | 3 | | | $ | 5,382 | | | $ | 444 | | | $ | (271) | | | $ | 5,558 | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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.
New Segment Structure. In the first quarter of fiscal year 2024, we announced a change in our operating segments to move our cell analysis business from our life sciences and applied markets segment to our diagnostics and genomics operating segment in order to further strengthen growth opportunities for both organizations. Following this reorganization, we continue to have three business segments comprised of life sciences and applied markets, diagnostics and genomics and Agilent CrossLab, each of which continues to comprise a reportable segment. We began reporting under this new structure beginning with the Quarterly Report on Form 10-Q for the period ended January 31, 2024. All historical financial segment information has been recast to conform to this new presentation in our financial statements and accompanying notes. There was no change to our Agilent CrossLab business segment.
Acquisition. On July 21, 2024 we signed an agreement to acquire BIOVECTRA, a leading specialized contract development and manufacturing organization for $925 million in cash. The acquisition is subject to certain customary closing conditions, including receipt of regulatory approvals. The financial results of BIOVECTRA will be included within our financial results from the date of the close, which is expected to occur before calendar year 2025.
Basis of Presentation. We have prepared the accompanying financial data for the three and nine months ended July 31, 2024 and 2023 pursuant to the rules and regulations of the U.S. 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, 2023 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, 2023.
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 July 31, 2024 and October 31, 2023, condensed consolidated statement of comprehensive income (loss) for the three and nine months ended July 31, 2024 and 2023, condensed consolidated statement of operations for the three and nine months ended July 31, 2024 and 2023, condensed consolidated statement of cash flows for the nine months ended July 31, 2024 and 2023 and condensed consolidated statement of equity for the three and nine months ended July 31, 2024 and 2023.
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, valuation of goodwill and purchased intangible assets, inventory valuation, retirement and post-retirement benefit plan assumptions and accounting for income taxes.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Restricted Cash and Restricted Cash Equivalents. Restricted cash and restricted cash equivalents are 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:
| | | | | | | | | | | |
| July 31, | | October 31, |
| 2024 | | 2023 |
| (in millions) |
Cash and cash equivalents | $ | 1,779 | | | $ | 1,590 | |
Restricted cash included in other assets | 3 | | | 3 | |
Total cash, cash equivalents and restricted cash | $ | 1,782 | | | $ | 1,593 | |
Leases. As of July 31, 2024 and October 31, 2023, operating lease right-of-use assets where we are the lessee were $178 million and $154 million, respectively, and were included within other assets in the accompanying condensed consolidated balance sheet. The associated operating lease liabilities were $184 million and $164 million as of July 31, 2024 and October 31, 2023, respectively, and were included in other accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheet.
Variable Interest Entities. We make a determination upon entering into an arrangement whether an entity in which we have made an investment is considered a Variable Interest Entity (“VIE”). We evaluate our investments in privately held companies on an ongoing basis. We have determined that as of July 31, 2024 and October 31, 2023, there were no VIEs required to be consolidated in our consolidated financial statements because we do not have a controlling financial interest in any of the VIEs in which we have invested nor are we the primary beneficiary. We account for these investments under either the equity method or as equity investments without readily determinable fair value ("RDFV"), depending on the circumstances. We periodically reassess whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs and vice-versa, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.
As of July 31, 2024 and October 31, 2023, the total carrying value of investments and loans in privately held companies considered as VIEs was $93 million and $82 million, respectively. The maximum exposure is equal to the carrying value because we do not have future funding commitments. The investments are included on the long-term investments line and the loans on the other current assets and other assets lines (depending upon tenure of loan) on the condensed consolidated balance sheet.
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. As of July 31, 2024 and October 31, 2023, the fair value of the term loan approximates its carrying value. As of July 31, 2024, the fair value of our senior notes was $1,905 million with a carrying value of $2,137 million. This compares to the fair value of our senior notes of $1,747 million with a carrying value of $2,135 million as of October 31, 2023. The change in the fair value compared to carrying value in the nine months ended July 31, 2024 is primarily due to decreased market interest rates. The fair value was calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance. 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 and contingent consideration.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
2. NEW ACCOUNTING PRONOUNCEMENTS
There were no additions 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, 2023.
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 condensed 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 July 31, |
| 2024 | | 2023 |
| Life Sciences and Applied Markets | | Agilent CrossLab
| | Diagnostics and Genomics
| | Total | | Life Sciences and Applied Markets | | Agilent CrossLab
| | Diagnostics and Genomics
| | Total |
| (in millions) |
Revenue by Region | | | | | | | | | | | | | | | |
Americas | $ | 251 | | | $ | 170 | | | $ | 205 | | | $ | 626 | | | $ | 270 | | | $ | 159 | | | $ | 238 | | | $ | 667 | |
Europe | 193 | | | 113 | | | 126 | | | 432 | | | 203 | | | 108 | | | 121 | | | 432 | |
Asia Pacific | 338 | | | 128 | | | 54 | | | 520 | | | 381 | | | 129 | | | 63 | | | 573 | |
Total | $ | 782 | | | $ | 411 | | | $ | 385 | | | $ | 1,578 | | | $ | 854 | | | $ | 396 | | | $ | 422 | | | $ | 1,672 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Nine Months Ended July 31, |
| 2024 | | 2023 |
| Life Sciences and Applied Markets | | Agilent CrossLab
| | Diagnostics and Genomics
| | Total | | Life Sciences and Applied Markets | | Agilent CrossLab
| | Diagnostics and Genomics
| | Total |
| (in millions) |
Revenue by Region | | | | | | | | | | | | | | | |
Americas | $ | 735 | | | $ | 501 | | | $ | 657 | | | $ | 1,893 | | | $ | 819 | | | $ | 467 | | | $ | 744 | | | $ | 2,030 | |
Europe | 605 | | | 335 | | | 376 | | | 1,316 | | | 649 | | | 309 | | | 363 | | | 1,321 | |
Asia Pacific | 1,042 | | | 382 | | | 176 | | | 1,600 | | | 1,203 | | | 388 | | | 203 | | | 1,794 | |
Total | $ | 2,382 | | | $ | 1,218 | | | $ | 1,209 | | | $ | 4,809 | | | $ | 2,671 | | | $ | 1,164 | | | $ | 1,310 | | | $ | 5,145 | |
| | | | | | | | | | | | | | | |
The following table presents the company’s total revenue disaggregated by end markets and by revenue type:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) |
Revenue by End Markets | | | | | | | |
Pharmaceutical | $ | 540 | | | $ | 592 | | | $ | 1,647 | | | $ | 1,843 | |
Chemicals and Advanced Materials | 356 | | | 378 | | | 1,110 | | | 1,162 | |
Diagnostics and Clinical | 242 | | | 241 | | | 709 | | | 730 | |
Food | 144 | | | 151 | | | 440 | | | 472 | |
Academia and Government | 128 | | | 146 | | | 417 | | | 451 | |
Environmental and Forensics | 168 | | | 164 | | | 486 | | | 487 | |
Total | $ | 1,578 | | | $ | 1,672 | | | $ | 4,809 | | | $ | 5,145 | |
| | | | | | | |
Revenue by Type | | | | | | | |
Instrumentation | $ | 556 | | | $ | 643 | | | $ | 1,734 | | | $ | 2,091 | |
Non-instrumentation and other | 1,022 | | | 1,029 | | | 3,075 | | | 3,054 | |
Total | $ | 1,578 | | | $ | 1,672 | | | $ | 4,809 | | | $ | 5,145 | |
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
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 include 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. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the condensed consolidated balance sheet. The balances of contract assets as of July 31, 2024 and October 31, 2023, were $244 million and $252 million, respectively.
Contract Liabilities
The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the nine months ended July 31, 2024:
| | | | | | | | |
| | Contract Liabilities |
| | (in millions) |
| | |
Ending balance as of October 31, 2023 | | $ | 616 | |
Net revenue deferred in the period | | 456 | |
Revenue recognized that was included in the contract liability balance at the beginning of the period | | (422) | |
Change in deferrals from customer cash advances, net of revenue recognized | | (8) | |
| | |
Currency translation and other adjustments | | 4 | |
Ending balance as of July 31, 2024 | | $ | 646 | |
During the nine months ended July 31, 2023 revenue recognized that was included in the contract liability balance at October 31, 2022 was $368 million.
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 we expect 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 three and nine months ended July 31, 2024, and was 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.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
The estimated revenue expected to be recognized for remaining performance obligations that have an original term of more than one year, as of July 31, 2024, was $344 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, software maintenance contracts and revenue associated with lease arrangements.
4. SHARE-BASED COMPENSATION
We account 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 employee stock options, 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.
We have two LTPP performance stock award programs, which are administered under the 2018 Stock Plan, for our executive officers and other key employees. Participants in our LTPP Total Stockholders’ Return (“TSR”) and LTPP Earnings Per Share (“EPS”) programs are entitled to receive shares of the company's stock after the end of a three-year period, if specified performance targets for the programs are met. The LTPP-TSR awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison based on the TSR set at the beginning of the performance period. The LTPP-EPS awards are based on the company’s EPS performance over a three-year period. The performance targets for the LTPP-EPS 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 are subject to a one-year post-vest holding period.
The final LTPP award may vary from 0 percent to 200 percent of the target award. 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.
Stock options granted under the 2018 Stock Plan may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory. Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant with a maximum contractual term of ten years. The exercise price for stock options is generally not less than 100 percent of the fair market value of our common stock on the date the stock award is granted. We issue new shares of common stock when employee stock options are exercised.
The impact on our results for share-based compensation was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) |
Cost of products and services | $ | 9 | | | $ | 8 | | | $ | 32 | | | $ | 28 | |
Research and development | 4 | | | 5 | | | 13 | | | 13 | |
Selling, general and administrative | 15 | | | 16 | | | 59 | | | 57 | |
Total share-based compensation expense | $ | 28 | | | $ | 29 | | | $ | 104 | | | $ | 98 | |
At July 31, 2024 and October 31, 2023, no share-based compensation was capitalized within inventory.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
The following assumptions were used to estimate the fair value of awards granted.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
Stock Option Plans: | | | | | | | |
Weighted average risk-free interest rate | 4.5% | | 3.8% | | 4.4% | | 3.9% |
Dividend yield | 0.7% | | 0.7% | | 0.8% | | 0.6% |
Weighted average volatility | 29% | | 29% | | 29% | | 28% |
Expected life | 5.5 years | | 5.5 years | | 5.5 years | | 5.5 years |
LTPP: | | | | | | | |
Volatility of Agilent shares | 28% | | 31% | | 28% | | 31% |
Volatility of selected peer-company shares | 16%-70% | | 22%-84% | | 16%-70% | | 22%-84% |
Pair-wise correlation with selected peers | 30% | | 42% | | 30% | | 42% |
| | | | | | | |
Post-vest holding restriction discount for all executive awards | 6.4% | | 7.1% | | 6.4% | | 7.1% |
The fair value of share-based awards for our employee stock option awards was estimated using the Black-Scholes option pricing model. Shares granted under the LTPP (TSR) were valued using a Monte Carlo simulation 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.
We use historical volatility to estimate the expected stock price volatility assumption for employee stock option awards. In reaching the conclusion, we have considered many factors including the extent to which our options are currently traded and our ability to find traded options in the current market with similar terms and prices to the options we are valuing. In estimating the expected life of our options granted, we considered the historical option exercise behavior of our executives, which we believe is representative of future behavior.
The estimated fair value of restricted stock units and LTPP (EPS) awards is determined based on the market price of our 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 LTPP awards granted 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. The model calculates the potential lost value if the employees 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 simulation model and an expected dividend yield to compute the discount.
5. INCOME TAXES
For the three and nine months ended July 31, 2024, our income tax expense was $61 million with an effective tax rate of 17.8 percent and $182 million with an effective tax rate of 16.3 percent, respectively. For the three months ended July 31, 2024, there were no significant discrete items. For the nine months ended July 31, 2024, our effective tax rate and the resulting provision for income taxes were impacted by the tax expense of $12 million related to the settlement of an audit in Singapore.
For the three and nine months ended July 31, 2023, our income tax expense was $21 million with an effective tax rate of 15.9 percent and $154 million with an effective tax rate of 16.8 percent, respectively. For the three and nine months ended July 31, 2023, our effective tax rate and the resulting provision for income taxes were impacted by the tax benefit of $63 million due to the asset impairment charge related to the shutdown of our Resolution Bioscience business. For the nine months ended July 31, 2023, our effective tax rate and the resulting provision for income taxes were also impacted by the excess tax benefits from stock-based compensation of $13 million along with the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $10 million.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
In the U.S., tax years remain open back to the year 2020 for federal income tax purposes and 2019 for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2014.
With these jurisdictions and the U.S., it is reasonably possible that some tax audits may be completed over the next twelve months. However, management is not able to provide a reasonably reliable estimate of the timing of any other future tax payments or change in unrecognized tax benefits, if any.
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 | | Nine Months Ended |
| July 31, | | July 31, |
| 2024 | | 2023 | | 2024 | | 2023 |
| (in millions) |
Numerator: | | | | | | | |
Net income | $ | 282 | | | $ | 111 | | | $ | 938 | | | $ | 765 | |
Denominator: | | | | | | | |
Basic weighted-average shares | 290 | | | 294 | | | 292 | | | 295 | |
Potential common shares— stock options and other employee stock plans | 1 | | | 1 | | | 1 | | | 1 | |
Diluted weighted-average shares | 291 | | | 295 | | | 293 | | | 296 | |
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 both the three and nine months ended July 31, 2024 and 2023, potential common shares excluded from the calculation of diluted earnings per share were not material.
7. INVENTORY
Inventory as of July 31, 2024 and October 31, 2023 consisted of the following:
| | | | | | | | | | | |
| July 31, 2024 | | October 31, 2023 |
| (in millions) |
Finished goods | $ | 538 | | | $ | 570 | |
Purchased parts and fabricated assemblies | 440 | | | 461 | |
Inventory | $ | 978 | | | $ | 1,031 | |
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 nine months ended July 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Life Sciences and Applied Markets | | Diagnostics and Genomics | | Agilent CrossLab | | Total |
| (in millions) |
Goodwill as of October 31, 2023 | $ | 1,579 | | | $ | 2,124 | | | $ | 257 | | | $ | 3,960 | |
Foreign currency translation impact | 3 | | | — | | | 2 | | | 5 | |
| | | | | | | |
Goodwill as of July 31, 2024 | $ | 1,582 | | | $ | 2,124 | | | $ | 259 | | | $ | 3,965 | |
In the first quarter of fiscal year 2024, we reorganized our operating segments and moved our cell analysis business from our life sciences and applied markets business segment to our diagnostics and genomics business segment. As a result, we reassigned approximately $168 million of goodwill from our life sciences and applied markets business segment to our diagnostics and genomics business segment using the relative fair value allocation approach. Goodwill balances as of October 31, 2023, have been recast to conform to this new presentation. As a result of the reorganization, there was no change to our reporting units. In addition, we performed a goodwill impairment test, and the results of the analysis indicated that the fair values for all three of our reporting units were in excess of their carrying values by substantial amounts; therefore, no impairment was indicated.
The component parts of other intangible assets as of October 31, 2023 and July 31, 2024 are shown in the table below:
| | | | | | | | | | | | | | | | | |
| Other Intangible Assets |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| (in millions) |
As of October 31, 2023 | | | | | |
Purchased technology | $ | 1,467 | | | $ | 1,093 | | | $ | 374 | |
Trademark/Tradename | 196 | | | 163 | | | 33 | |
Customer relationships | 149 | | | 112 | | | 37 | |
| | | | | |
Third-party technology and licenses | 34 | | | 13 | | | 21 | |
Total amortizable intangible assets | 1,846 | | | 1,381 | | | 465 | |
In-Process R&D | 10 | | | — | | | 10 | |
Total | $ | 1,856 | | | $ | 1,381 | | | $ | 475 | |
As of July 31, 2024 | | | | | |
Purchased technology | $ | 1,476 | | | $ | 1,151 | | | $ | 325 | |
Trademark/Tradename | 196 | | | 173 | | | 23 | |
Customer relationships | 149 | | | 121 | | | 28 | |
| | | | | |
Third-party technology and licenses | 33 | | | 17 | | | 16 | |
Total amortizable intangible assets | 1,854 | | | 1,462 | | | 392 | |
In-Process R&D | — | | | — | | | — | |
Total | $ | 1,854 | | | $ | 1,462 | | | $ | 392 | |
During the nine months ended July 31, 2024, there were no additions to goodwill. During the nine months ended July 31, 2024, we recorded $3 million in additions to other intangible assets related to an acquisition. During the nine months ended July 31, 2024, we reclassified $4 million of in-process research and development intangible assets to purchased technology upon the completion of a project. During the nine months ended July 31, 2024, there was no change to other intangibles due to the impact of foreign currency.
In general, for U.S. federal tax purposes, goodwill from asset purchases is amortizable; however, any goodwill created as part of a stock acquisition is not deductible.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Each quarter we review the events and circumstances to determine if impairment of indefinite-lived intangible assets and goodwill is indicated. During the three months ended July 31, 2024, we did not identify any triggering events or circumstances which would indicate an impairment of goodwill or indefinite-lived intangible assets. During the nine months ended July 31, 2024, we recorded an impairment of in-process research and development of $6 million in research and development in the condensed consolidated statement of operations related to a project in our life sciences and applied markets segment. During the nine months ended July 31, 2024 we did not identify any triggering events or circumstances which would indicate an impairment of goodwill.
During the three and nine months ended July 31, 2023, we did not identify any triggering events or circumstances which would indicate an impairment of goodwill or indefinite-lived intangible assets. During the three and nine months ended July 31, 2023, we recorded an impairment of finite-lived intangible assets of $258 million related to the shutdown of our Resolution Bioscience business in our diagnostics and genomics segment. Of the $258 million, $249 million was recorded in cost of sales and $9 million was recorded in selling general and administrative expenses on our condensed consolidated statement of operations in both the three and nine months ended July 31, 2023.
Amortization expense of intangible assets was $25 million and $78 million for the three and nine months ended July 31, 2024, respectively. Amortization expense of intangible assets was $39 million and $113 million for the three and nine months ended July 31, 2023, respectively.
Future amortization expense related to existing finite-lived purchased intangible assets for the remainder of fiscal year 2024 and for each of the next five fiscal years and thereafter is estimated below:
| | | | | |
Estimated future amortization expense: | |
(in millions) | |
Remainder of 2024 | $ | 23 | |
2025 | $ | 84 | |
2026 | $ | 55 | |
2027 | $ | 53 | |
2028 | $ | 46 | |
2029 | $ | 42 | |
Thereafter | $ | 89 | |
9. FAIR VALUE MEASUREMENTS
The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy
The guidance establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:
Level 1- applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2- applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.
Level 3- applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurement at July 31, 2024 Using |
| July 31, 2024 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in millions) |
Assets: | | | | | | | |
Short-term | | | | | | | |
Cash equivalents (money market funds) | $ | 1,185 | | | $ | 1,185 | | | $ | — | | | $ | — | |
Derivative instruments (foreign exchange contracts) | 9 | | | — | | | 9 | | | — | |
| | | | | | | |
Long-term | | | | | | | |
Trading securities | 43 | | | 43 | | | — | | | — | |
Other investments | 31 | | | — | | | 31 | | | — | |
| | | | | | | |
Total assets measured at fair value | $ | 1,268 | | | $ | 1,228 | | | $ | 40 | | | $ | — | |
Liabilities: | | | | | | | |
Short-term | | | | | | | |
Derivative instruments (foreign exchange contracts) | $ | |