What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-12-18 compared with 2019-12-19 · 359 added, 366 removed, 441 unchanged (62% of the section changed)

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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.

Tax Cuts and Jobs Act of 2017 (the "Tax Act") and U.S.

and other tariffs, the impact of foreign currency movements, our hedging programs and other actions to offset the effects of tariffs and foreign currency movements, our future effective tax rate, tax valuation allowance and unrecognized tax benefits, the impact of local government regulations on our ability to pay vendors or conduct operations, our ability to satisfy our liquidity requirements, including through cash generated from operations, the potential impact of adopting new accounting pronouncements, indemnification, source and supply of materials used in our products, our sales, our purchase commitments, our capital expenditures, the integration and effects of our acquisitions and other transactions and our stock repurchase program and dividends, that involve risks and uncertainties.

This report contains forward-looking statements including, without limitation, statements regarding growth opportunities, including for revenue and our end markets, strength and drivers of the markets into which we sell, sales funnels, our strategic direction, new product and service introductions and the position of our current products and services, market demand for and adoption of our products, the ability of our products and solutions to address customer needs and meet industry requirements, our focus on differentiating our product solutions, improving our customers’ experience and growing our earnings, future financial results, our operating margin, mix, our investments, including in manufacturing infrastructure, research and development and expanding and improving our applications and solutions portfolios, expanding our position in developing countries and emerging markets, our focus on balanced capital allocation, our contributions to our pension and other defined benefit plans, impairment of goodwill and other intangible assets, the impact of foreign currency movements, our hedging programs and other actions to offset the effects of tariffs and foreign currency movements, our future effective tax rate, tax valuation allowance and unrecognized tax benefits, the impact of local government regulations on our ability to pay vendors or conduct operations, our ability to satisfy our liquidity requirements, including through cash generated from operations, the potential impact of adopting new accounting pronouncements, indemnification, source and supply of materials used in our products, our sales, our purchase commitments, our capital expenditures, the integration and effects of our acquisitions and other transactions, our stock repurchase program and dividends and the potential or anticipated direct or indirect impact of COVID-19 on our business that involve risks and uncertainties.

Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed in Part I Item 1A and elsewhere in this Form 10-K.

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("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.

COVID-19 Pandemic

Both our domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S.

and international markets.

Many countries, including the United States, implemented measures such as quarantine, shelter-in-place, curfew, travel and activity restrictions and similar isolation measures, including government orders and other restrictions on the conduct of business operations at different times.

Due to these measures, we experienced unpredictable reductions or increases in demand for certain of our products, disruptions or delays in shipments of certain materials or components of our products, and delays in installations and services due to the inability to access customer sites, primarily in the latter part of our second quarter.

As an essential business throughout the COVID-19 pandemic, we have remained open with our top priority being the health and safety of our employees, customers and community.

At every stage of the pandemic, we have taken decisive and appropriate precautions, including a mandatory work from home policy for all employees with the exception of manufacturing, distribution, and certain laboratory environments, as well as restrictions on all non-essential travel and visitors into our facilities.

At this time, our factories continue to operate around the world in accordance with the guidance issued by local, state and national government authorities.

Our digital workplace strategy and strategic technology investments have enabled us to provide modern connectivity and collaboration tools to our employees to meet remote working needs as this situation has escalated.

We have taken and continue to take proactive measures to ensure the health and safety of our global employee base.

We designed a multi-phase return-to-office process for the safe return of our employees to our sites.

We developed and implemented rigorous return-to-office protocols to promote a safe work environment in all locations for employees who have been working on-site throughout the pandemic and for employees who will be returning in the future, as well as, for the safety of all customer and vendor interactions.

At this time, the COVID-19 pandemic has not significantly impacted our manufacturing facilities or third parties to whom we outsource certain manufacturing processes, the distribution centers where our inventory is managed or the operations of our logistics and other service providers.

We continue working with our customers and suppliers to understand the existing and potential future negative impacts to our delivery and supply chain and take actions in an effort to mitigate such impacts.

The majority of the markets we serve, such as the pharmaceutical, biopharmaceutical, food, environmental and diagnostics and clinical markets, have continued to operate at various levels throughout the pandemic, and we continue working closely with

our customers to ensure their seamless operations.

From a customer-facing perspective, we continue leveraging digital demand generation activities, including virtual demonstrations across all regions, remote instrument repairs, virtual sales seminars, online product training, and rapid one-on-one communications over emails, phone and video conferencing.

Despite the economic challenges due to the COVID-19 pandemic, we ended fiscal year 2020 with revenue growth of 3 percent year over year with revenue growth from most of our key end markets.

In the latter part of the fiscal year, our Agilent CrossLab business began to see an increase in revenue for our on-demand services and installation services due to the re-opening of laboratories around the world, especially in Europe.

While we began to see elective medical procedures resume in the fourth quarter, revenue from our diagnostics and genomics business continues to be negatively impacted by the COVID-19 pandemic.

In our life sciences and applied markets business, we saw an increase in demand for some of our products for use in the COVID-19 testing, vaccine and therapeutic drug development.

We also benefited from our cost savings actions which included reduction in travel and non-essential spending.

The COVID-19 pandemic continues to be dynamic, and near-term challenges across the economy remain.

Although we anticipate there will be vaccines distributed widely in the near future, we expect continued volatility and unpredictability related to the impact of COVID-19 on our business results.

We continue to actively monitor the pandemic and we will continue to take appropriate steps to mitigate the adverse impacts on our business posed by the on-going spread of COVID-19.

2030 Senior Notes

On June 4, 2020, we issued an aggregate principal amount of $500 million in senior notes ("2030 senior notes").

The 2030 senior notes were issued at 99.812% of their principal amount.

The 2030 senior notes will mature on June 4, 2030, and bear interest at a fixed rate of 2.10% per annum.

The interest is payable semi-annually on June 4th and December 4th of each year and payments commenced on December 4, 2020.

In 2019, we acquired 100 percent of the stock of ACEA Biosciences Inc.

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The financial results of these businesses have been included in our financial results from the date of the close.

In 2018, we acquired seven businesses for a combined purchase price of approximately $536 million.

The largest of which was Advanced Analytical Technologies, Inc.

("AATI") for approximately $268 million in cash.

In 2017, we acquired two businesses for a combined purchase price of approximately $125 million in cash.

Actual Results

Agilent's net revenue of $5,339 million in 2020 increased 3 percent when compared to 2019.

Foreign currency movements for 2019 had an overall unfavorable impact on revenue of approximately 2 percentage points compared to 2018 .

Acquisitions in 2019 had an overall favorable impact of 2 percentage points when compared to 2018 .

Foreign currency movements for 2020 had an overall unfavorable impact on revenue of approximately 1 percentage point compared to 2019.

In 2020, acquisitions from 2019 had an overall favorable impact of 3 percentage points when compared to 2019.

Revenue in the life sciences and applied markets business increased 4 percent in 2020 when compared to 2019.

Foreign currency movements had an unfavorable impact on revenue of 2 percentage points in 2019 when compared to 2018 .

In 2020 acquisitions from 2019 had an overall favorable impact of 7 percentage points when compared to 2019.

Foreign currency movements had no overall impact on revenue in 2020 when compared to 2019.

Revenue in the diagnostics and genomics business increased 2 percent in 2020 when compared to 2019.

Foreign currency movements had an unfavorable impact on revenue of 3 percentage points in 2019 when compared to 2018 .

Foreign currency movements had an overall unfavorable impact on revenue of 1 percentage point in 2020 when compared to 2019.

Revenue in the Agilent CrossLab business increased 3 percent in 2020 when compared to 2019.

Foreign currency movements had an unfavorable impact on revenue of 3 percentage points in 2019 when compared to 2018 .

Foreign currency movements had an overall unfavorable impact on revenue of 1 percentage point in 2020 when compared to 2019.

Agilent's net revenue of $5,163 million increased 5 percent in 2019 when compared to 2018.

Foreign currency movements for 2018 had an overall favorable impact on revenue of approximately 2 percentage points compared to 2017 .

Acquisitions in 2018 had an overall favorable impact of 1 percentage point when compared to 2017 .

Foreign currency movements for 2019 had an overall unfavorable impact on revenue of approximately 2 percentage points compared to 2018.

In 2019, acquisitions from 2018 had an overall favorable impact of 2 percentage points when compared to 2018.

Revenue in the life sciences and applied markets business increased 1 percent in 2019 when compared to 2018.

Foreign currency movements had an overall favorable impact on revenue of 2 percentage point in 2018 when compared to 2017 .

Foreign currency movements had an overall unfavorable impact on revenue of 2 percentage points in 2019 when compared to 2018.

Revenue in the diagnostics and genomics business increased 8 percent in 2019 when compared to 2018.

Foreign currency movements had an overall favorable impact of 3 percentage points on revenue in 2018 when compared to 2017 .

Foreign currency movements had an overall unfavorable impact of 3 percentage points on revenue in 2019 when compared to 2018.

Revenue in the Agilent CrossLab business increased 8 percent in 2019 when compared to 2018.

Foreign currency movements had an overall favorable impact on revenue of 2 percentage points in 2018 when compared to 2017 .

Foreign currency movements had an overall unfavorable impact on revenue of 3 percentage points in 2019 when compared to 2018.

Net income was $719 million in 2020 compared to net income of $1,071 million and $316 million in 2019 and 2018, respectively.

Net income for the year ended October 31, 2019 was impacted by a discrete tax benefit of $299 million related to

restructuring and the extension of the company's tax incentive in Singapore.

Net income in 2020 was impacted by revenue declines in certain of our businesses associated with the COVID-19 pandemic and increased costs and expenses which included an impairment charge of $98 million related to the closure of our

sequencer development program.

Net income for the year ended October 31, 2019 was impacted by a discrete tax benefit of $299 million related to the extension of the company's tax incentives in Singapore.

Net income for the year ended October 31, 2018 was impacted by a discrete tax charge of $552 million related to the enactment of the Tax Act that was passed on December 22, 2017.

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During the year ended October 31, 2018, we repurchased and retired approximately 6.4 million shares for $422 million under this authorization.

During the year ended October 31, 2018 , we repurchased and retired approximately 6.4 million shares for $422 million under this authorization.

As of October 31, 2018, we had remaining authorization to repurchase up to $188 million of our common stock under this program which expired on November 1, 2018.

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The 2019 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time.

During the year ended October 31, 2019, we repurchased and retired 10.4 million shares for $723 million under this authorization.

During the year ended October 31, 2020, we repurchased and retired approximately 5.2 million shares for $469 million under this authorization.

As of October 31, 2019 , we had remaining authorization to repurchase up to $1.03 billion of our common stock under this program.

As of October 31, 2020, we had remaining authorization to repurchase up to $558 million of our common stock under this program.

During the year ended October 31, 2020, cash dividends of 0.720 per share, or $222 million were declared and paid on the company's outstanding common stock.

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During the year ended October 31, 2018, cash dividends of 0.596 per share, or $191 million were declared and paid on the company's outstanding common stock.

On November 20, 2019 we declared a quarterly dividend of $0.18 per share of common stock, or approximately $56 million which will be paid on January 22, 2020 to shareholders of record as of the close of business on December 31, 2019 .

On November 18, 2020 we declared a quarterly dividend of $0.194 per share of common stock, or approximately $59 million which will be paid on January 27, 2021 to shareholders of record as of the close of business on January 5, 2021.

The timing and amounts of any future dividends are subject to determination and approval by our board of directors.

Looking forward, we continue to focus on differentiating product solutions, improving our customers' experience, continued growth and earnings expansion.

We remain optimistic that we have the ability and resilience to manage any changing market conditions to deliver positive results in fiscal year 2020.

In addition, we remain focused on a balanced capital allocation through our dividend and share repurchase programs.

We expect foreign currency to negatively impact revenue for 2020 but we also anticipate the contribution from our recent acquisitions to partially offset the currency impact.

Looking forward, our top priority continues to be the health and safety of our employees, customers and community, as well as supporting our customers' operations.

We also remain focused on improving our customers’ experience, differentiating product solutions and productivity especially during these extraordinary times.

Our focus on meeting our customers’ needs supported several aspects of the COVID-19 research and testing along with therapeutic and vaccine development.

While uncertainties remain as the spread of COVID-19 begins to rise, we are cautiously optimistic that in the short-term our financial results can continue to improve as the global economy continues its path towards recovery.

Critical Accounting Policies and Estimates

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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 ASC 606.

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 in exchange for those products or services, the transaction price.

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 in exchange for those products or services, the transaction price.

For equipment, consumables, and most software licenses, control transfers to the customer at a point in time.

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Stand-alone selling prices are determined 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.

A portion of our revenue relate to lease arrangements.

A portion of our revenue relates to lease arrangements.

Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842, 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.

In a lease arrangement that is a multiple-element arrangement that contains equipment leases and the supply of consumables, the revenue associated with the instrument rental is treated under the lease accounting standard ASC 842, whereas the revenue associated with the consumables, the non-lease component, is recognized in accordance with the ASC 606 revenue standard.

Inventory Valuation.

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Two critical assumptions are the discount rate and the expected long-term return on plan assets.

Other important assumptions include, expected future salary

increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfolio composition.

Other important assumptions include, expected future salary increases, expected future increases to benefit payments, expected retirement dates, employee turnover, retiree mortality rates, and portfolio composition.

We evaluate these assumptions at least annually.

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In 2020, discount rates for the U.S.

plans decreased compared to the previous year.

For 2019 and 2018 , the discount rate for non-U.S.

plans was generally based on published rates for high quality corporate bonds and in 2019 , decreased compared to the previous year.

plans decreased compared to the previous year due to the decrease in the corporate bond rates.

For 2020 and 2019, the discount rates for non-U.S.

plans were generally based on published rates for high quality corporate bonds and in 2020, decreased marginally compared to the previous year.

If we changed our discount rate by 1 percent, the impact would be less than $1 million in U.S.

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Our Deferred Profit-Sharing Plan target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments.

Approximately 3 percent of our U.S.

equity portfolio consists of limited partnerships.

Outside the U.S., our target asset allocation ranges from 31 to 60 percent to equities, from 38 to 61 percent to fixed income investments, and from zero to 25 percent to real estate, depending on the plan.

Approximately 1 percent of the retirement and post-retirement plans consists of limited partnerships.

Outside the U.S., our target asset allocation ranges from 24 percent to 60 percent to equities, from 38 percent to 65 percent to fixed income investments, and from zero to 25 percent to real estate, depending on the plan.

All plans' assets are broadly diversified.

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pension expense.

For 2019 , actual return on assets was above expectations which, along with contributions during the year, decreased next year’s pension cost as well as resulting in an increase of the funded status at year end.

The net periodic pension and post-retirement benefit costs recorded were a $10 million expense in 2019 , $3 million benefit in 2018 and $15 million expense in 2017 .

The years ended October 31, 2018 and 2017 included a gain on curtailment and settlements of $5 million and $32 million, respectively.

The net periodic pension and post-retirement benefit costs recorded were a $22 million expense in 2020, $10 million expense in 2019 and $3 million benefit in 2018.

The year ended October 31, 2020 included a loss on settlement of $4 million.

The year ended October 31, 2018 included a settlement gain of $5 million.

Goodwill and Purchased Intangible Assets.

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The accounting standard gives an entity the option to first assess qualitative factors to determine whether performing the two-step test is necessary.

If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e.

greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required.

If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not (i.e., greater than 50% chance) that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required.

Otherwise, no further testing will be required.

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life sciences and applied markets, diagnostics and genomics and Agilent CrossLab.

We performed a qualitative test for goodwill

impairment of the three reporting units, as of September 30, 2019 .

We performed a qualitative test for goodwill impairment of the three reporting units as of September 30, 2020.

Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of each reporting unit is greater than its respective carrying value.

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Our determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions.

Specifically, our determination of the fair value of the developed product technology and in-process research and development ("IPR&D") acquired involve significant estimates and assumptions related to revenue growth rates and discount rates.

Our determination of the fair value of customer relationships acquired involved significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates.

Our determination of the fair value of the tradename acquired involved the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates.

Specifically, our determination of the fair value of the developed product technology and in-process research and development ("IPR&D") acquired involves significant estimates and assumptions related to revenue growth rates and discount rates.

Our determination of the fair value of customer relationships acquired involves significant estimates and assumptions related to revenue growth rates, discount rates, and customer attrition rates.

Our determination of the fair value of the tradename acquired involves the use of significant estimates and assumptions related to revenue growth rates, royalty rates and discount rates.

The company believes that the fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that marketplace participants would use.

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Our indefinite-lived intangible assets are IPR&D intangible assets.

The accounting guidance allows a qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the issued impairment testing guidance for goodwill and allows the option to first assess qualitative factors (events and circumstances) that could have affected the significant inputs used in determining the fair value of the indefinite-lived intangible asset to determine whether it is more-likely-than-not (i.e.

greater than 50% chance) that the indefinite-lived intangible asset is impaired.

An organization may choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to calculating its fair value.

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Based on the results of our qualitative testing, we believe that it is more-likely-than-not that the fair value of these indefinite-lived intangible assets is greater than their respective carrying values.

Each quarter we review the events and circumstances to determine if impairment of indefinite-lived intangible asset is indicated.

Each quarter we review the events and circumstances to determine if impairment of indefinite-lived intangible assets is indicated.

During fiscal year 2020, we recorded an impairment of in-process research and development of $90 million related to the shutdown of our sequencer development program in our diagnostics and genomics segment.

During the year ended October 31, 2019 and 2018 there were no impairments of indefinite-lived intangible assets.

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On a quarterly basis, we provide for income taxes based upon an estimated annual effective tax rate.

The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies.

The effective tax rate is highly dependent

upon the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies.

We monitor the changes in many factors and adjust our effective income tax rate on a timely basis.

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We include interest and penalties related to unrecognized tax benefits within the provision for income taxes on the consolidated statements of operations.

On December 22, 2017, the Tax Act was enacted into law.

The Tax Act significantly changed the existing U.S.

tax law and included numerous provisions that affect our business.

There were no substantial changes from our 2018 Annual Report on Form 10-K to the transition tax expenses amount.

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.

We have completed our analysis and elected to treat global intangible low-tax income ("GILTI") as “current period cost”.

See Note 6, "Income Taxes" for more details.

Adoption of New Pronouncements

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Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities.

The unfavorable effects of changes in foreign currency exchange rates has decreased revenue by approximately 2 percentage point for the year ended October 31, 2019 .

When movements in foreign currency exchange rates have a negative impact on revenue it will also have a positive impact on our costs and expenses.

The favorable effects of changes in foreign currency exchange rates has increased revenue by approximately 2 percentage points for the year ended October 31, 2018 .

When movements in foreign currency exchange rates have a positive impact on revenue it will also have a negative impact on our costs and expenses.

We calculate the impact of foreign currency exchange rates movements by applying the actual foreign currency exchange rates in effect during the last month of each quarter of the current year to both the applicable current and prior year periods.

Foreign currency movements for the year ended October 31, 2020 had an overall unfavorable impact on revenue of 1 percentage point when compared to the same period last year.

The unfavorable effects of changes in foreign currency exchange rates have decreased revenue by approximately 2 percentage points for the year ended October 31, 2019.

When movements in foreign currency exchange rates have a negative impact on revenue, they will also have a positive impact on our costs and expenses.

We calculate the impact of movements in foreign currency exchange rates by applying the actual foreign currency exchange rates in effect during the last month of each quarter of the current year to both the applicable current and prior year periods.

We hedge revenues, expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short term and anticipated basis.

We do experience some fluctuations within individual lines of the consolidated statement of operations and balance sheet because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities.

Our hedging program is designed to hedge currency movements on a relatively short-term basis (up to a rolling twelve-month period).

Therefore, we are exposed to currency fluctuations over the longer term.

Our hedging program is designed to hedge currency movements on a relatively short-term basis (up to a rolling thirteen-month period).

We may also hedge equity balances denominated in foreign currency on a long-term basis.

To the extent that we are required to pay for all, or portions, of an acquisition price in foreign currencies, we may enter into foreign exchange contracts to reduce the risk that currency movements will impact the U.S.

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Results from Operations

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions)

Products $ 3,993 $ 3,877 $ 3,746 3% 3%

Services and other $ 1,346 $ 1,286 $ 1,168 5% 10%

Total net revenue $ 5,339 $ 5,163 $ 4,914 3% 5%

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

% of total net revenue:

Services and other

Products 75 % 75 % 76 % — (1) ppt

Services and other 25 % 25 % 24 % — 1 ppt

Total 100 % 100 % 100 %

Agilent's net revenue of $5,339 million for the year ended October 31, 2020 increased 3 percent when compared to 2019.

Foreign currency movements for 2019 had an unfavorable impact of approximately 2 percentage points when compared to 2018 .

Foreign currency movements for 2020 had an unfavorable impact of approximately 1 percentage point when compared to 2019.

Agilent's net revenue of $5,163 million increased 5 percent in 2019 when compared to 2018.

Foreign currency movements for 2018 had a favorable impact of approximately 2 percentage points when compared to 2017 .

Foreign currency movements for 2019 had an unfavorable impact of approximately 2 percentage points when compared to 2018.

Product revenue includes revenue generated from the sales of our analytical instrumentation, software and consumables.

Revenue from products increased 3 percent for the year ended October 31, 2020, when compared to 2019.

Revenue in 2020 was impacted by the global COVID-19 pandemic within most of our product lines as customers curtailed equipment spending at various times when countries around the world were in the lockdown phase of the COVID-19 pandemic.

Growth was due to our cell analysis business, automation products and our nucleic acid solutions business.

The increase in the cell analysis business is primarily due to the contributions from our acquisitions and the increased demand for our products for use in COVID-19 testing and vaccine research.

Revenue from products increased 3 percent for the year ended October 31, 2019, when compared to 2018.

The growth in product revenue was impacted by increased sales within our cell analysis business, mainly due to contributions from our recent acquisitions.

In addition, product revenue growth was impacted by strong sales in our consumables and nucleic acid solutions businesses partially offset by revenue weakness in our liquid chromatography, gas chromatography, liquid chromatography mass spectrometry and spectroscopy products.

Revenue from products increased 10 percent for the year ended October 31, 2018 , when compared to 2017 .

The growth in product revenue was led by strong revenue growth from products within our spectroscopy, mass spectrometry and our consumables businesses.

Services and other revenue primarily consists of revenue generated from Agilent CrossLab services and services in the diagnostics and genomics business.

Some of the prominent services in the Agilent CrossLab business include repair and maintenance on multi-vendor instruments, compliance services and installation services.

Some of the prominent services in the diagnostics and genomics business include consulting services related to the companion diagnostics and nucleic acid businesses.

Services and other revenue increased 5 percent in 2020 as compared to 2019.

Services and other revenue increased 10 percent in 2019 as compared to 2018.

Services and other revenue consist of revenue generated from our three business segments:

Agilent CrossLab, diagnostics and genomics and our life science and applied markets businesses.

Some of the prominent services in the Agilent CrossLab business include repair and maintenance on multi-vendor instruments, compliance services and installation services.

Services in the diagnostics and genomics business include consulting services related to the companion diagnostics and nucleic acid businesses.

Services in the life science and applied markets business include repair and maintenance and installation services.

For the year ended October 31, 2020, the service revenue from the Agilent CrossLab business increased 4 percent when compared to the same period last year, with a 1 percentage point unfavorable currency impact.

This growth for the year ended October 31, 2020 is reflective of the resilience of the contracted service business throughout the year, as well as the recovery of the on-demand and installation service businesses in the latter half of 2020, as customer sites gradually reopened following their COVID-19 related closures earlier in the year.

Those site re-openings were fastest in China.

Services and other revenue in the Agilent CrossLab business increased 9 percent in 2019 as compared to 2018, with a 3 percentage point unfavorable currency impact.

Nearly all major service offerings from the Agilent CrossLab business contributed to the revenue growth across all geographic regions.

Services in the diagnostics and genomics business is increasing due to growth in service revenue throughout all our businesses.

Services and other revenue increased 9 percent in 2018 as compared to 2017 .

Services and other revenue increased in all major service categories within our Agilent CrossLab business.

Services in the diagnostics and genomics business is increasing due to growth in service revenue in our genomics and pathology businesses.

For the year ended October 31, 2020, the service revenue from the diagnostics and genomics business remained flat when compared to the same period last year.

Services in the diagnostics and genomics business in 2019 increased due to growth in service revenue throughout all our businesses when compared to 2018.

For the year ended October 31, 2020, the service revenue from the life sciences and applied markets business increased 28 percent when compared to the same period last year.

The increase in life sciences and applied markets service revenue is due to the additional service revenue within the cell analysis business due to the Lionheart Technologies LLC ("BioTek") acquisition.

Services and other revenue in the life sciences and applied markets business increased in 2019 as compared to 2018 due to the impact of acquisitions made in 2019.

Net Revenue By Segment

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions)

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Revenue in the life sciences and applied markets business increased 4 percent in 2020 when compared to 2019.

Foreign currency movements had an overall unfavorable impact on revenue of 2 percentage points in 2019 when compared to 2018 .

Acquisitions had an overall favorable impact on revenue growth of 4 percentage points and primarily impacted the pharmaceutical and academia and government markets when compared to the same period last year.

As a result, revenue growth was favorable within academia and government, moderate within the pharmaceutical and moderate within the environmental and forensics markets which was mostly offset by declines in revenue from the food market and to a lesser extent from the chemical and energy market when compared to the same period last year.

Foreign currency movements had no overall impact on revenue in 2020 when compared to 2019.

Acquisitions had an overall favorable impact on revenue growth of 7 percentage points and primarily impacted the overall growth in the pharmaceutical and academia and government markets.

Revenue growth within the life sciences and applied markets was driven by strong growth in the academia and government, the pharmaceutical and the diagnostics and clinical markets with moderate growth from the food market partially offset by declines in revenue within the environmental and forensics and chemical and energy markets.

Revenue in the life sciences and applied markets business increased 1 percent in 2019 when compared to 2018.

Foreign currency movements had an overall favorable impact of 2 percentage points in 2018 when compared to 2017 .

For the year ended October 31, 2018 , our performance within the life science and applied markets business was led by strong growth throughout the year in the pharmaceutical market.

Chemical and energy markets and the environmental and forensics markets continued to show strong growth when compared to 2017 .

Foreign currency movements had an overall unfavorable impact of 2 percentage points in 2019 when compared to 2018.

Acquisitions had an overall favorable impact on revenue growth of 4 percentage points and primarily impacted the pharmaceutical and academia and government markets when compared to 2018.

For the year ended October 31, 2019, revenue growth was favorable within academia and government, moderate within the pharmaceutical and the environmental and forensics markets which was mostly offset by declines in revenue from the food market and to a lesser extent from the chemical and energy market when compared to 2018.

Revenue in the diagnostics and genomics business increased 2 percent in 2020 when compared to 2019.

Foreign currency movements had an overall unfavorable impact on revenue of 1 percentage point in 2020 when compared to 2019.

Revenue growth within the diagnostics and genomics business was driven by strong growth in our nucleic acid solutions and biomolecular analysis businesses partially offset by declines in our genomics business.

Revenue in the diagnostics and genomics business increased 8 percent in 2019 when compared to 2018.

Foreign currency movements had an overall unfavorable impact on revenue of 3 percentage points in 2019 when compared to 2018.

Revenue growth within the diagnostics and clinical market and the pharmaceutical market continued to be strong led by performance from our nucleic acid solutions and biomolecular analysis businesses.

Revenue in the diagnostics and genomics business increased 10 percent in 2018 when compared to 2017 .

Foreign currency movements had an overall favorable impact on revenue of 3 percentage points in 2018 when compared to 2017 .

For the year ended October 31, 2018 , our performance within the diagnostics and genomics business was led by strong growth in our genomics, companion diagnostics and biomolecular analysis businesses.

Revenue in the Agilent CrossLab business increased 3 percent in 2020 when compared to 2019.

Foreign currency movements had an overall unfavorable impact on revenue of 3 percentage points in 2019 when compared to 2018 .

Our performance in the Agilent CrossLab business saw continued growth in all key end markets with strong growth in the pharmaceutical, academia and government and food markets.

Foreign currency movements had an overall unfavorable impact on revenue of 1 percentage point in 2020 when compared to 2019.

Revenue growth within Agilent CrossLab business was strong within the pharmaceutical and food markets which was partially offset by declines in the academia and government and clinical and diagnostics markets.

Revenue generated by Agilent CrossLab increased 8 percent in 2019 when compared to 2018.

Foreign currency movements had an overall favorable impact of 2 percent percentage points in 2018 when compared to 2017 .

Our performance in the Agilent CrossLab business saw continued growth in all key end markets with strong growth in the pharmaceutical and food markets.

Foreign currency movements had an overall unfavorable impact of 3 percentage points in 2019 when compared to 2018.

Our performance in the Agilent CrossLab business saw continued growth in all key end markets with strong growth in the pharmaceutical, academia and government and food markets compared to 2018.

Costs and Expenses

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions, except margin data)

Gross margin on products

Gross margin on services and other

Total gross margin

Gross margin on products 55.0 % 56.7 % 57.4 % (2) ppts (1) ppt

Gross margin on services and other 47.5 % 47.3 % 45.3 % — 2 ppts

Total gross margin 53.1 % 54.3 % 54.5 % (1) ppt —

Research and development $ 495 $ 404 $ 387 22% 5%

Selling, general and administrative $ 1,496 $ 1,460 $ 1,389 2% 5%

Operating margin

Total gross margin growth for the year ended October 31, 2019 was flat when compared to last year.

Total gross margins for the year ended October 31, 2019 reflects the impact of efficiency gains, lower inventory charges and favorable currency impact on costs offset by higher wages and variable pay, product mix, higher expenses related to tariffs and higher amortization expense of intangible assets.

Total gross margin growth for the year ended October 31, 2018 increased 1 percentage point when compared to the prior year.

Increases in total gross margins for the year ended October 31, 2018 reflects higher sales volume, favorable business mix, lower manufacturing material costs and lower amortization expense of intangible assets partially offset by higher wages and variable pay, an impairment of certain intangible assets and unfavorable currency movements.

Operating margin 15.8 % 18.2 % 18.4 % (2) ppts —

Total gross margin for the year ended October 31, 2020 decreased 1 percentage point when compared to 2019.

Gross margin declined due to the impacts of pricing pressure, higher intangible amortization expense, higher wages, net unfavorable currency impact and higher fixed costs related to the new manufacturing facility in Frederick, Colorado, partially offset by lower period and travel costs.

Total gross margin for the year ended October 31, 2019 was flat when compared to 2018.

Total gross margin reflects the impact of efficiency gains, lower inventory charges and favorable currency impact on costs offset by higher wages and variable pay, product mix, higher expenses related to tariffs and higher amortization expense of intangible assets.

Gross inventory charges were $28 million in 2020, $19 million in 2019 and $26 million in 2018.

Sales of previously written down inventory were $7 million in 2020, $6 million in 2019 and $8 million in 2018.

Research and development expenses increased 5 percent for the year ended October 31, 2019 when compared with last year.

Research and development expenses increased due to increased program spending on new products related to all of our businesses in addition to higher wages and variable pay and additional expenses related to acquired businesses partially offset by favorable currency movements when compared to spending in the same periods last year.

Research and development expenses increased 14 percent for the year ended October 31, 2018 when compared with 2017 .

Research and development expenses increased due to increased program spending on new products related to all of our businesses in addition to higher wages and variable pay, unfavorable currency movements and additional expenses related to acquired businesses when compared to spending in 2017.

Selling, general and administrative expenses increased 5 percent in 2019 compared to 2018 .

Selling, general and administrative expenses increase was due to increased wages and variable pay, higher commissions, higher legal expenses, higher acquisition and integration costs and higher transformation initiatives expenses partially offset by operational efficiencies and savings and favorable currency impact.

Research and development expenses increased 22 percent for the year ended October 31, 2020 when compared to 2019.

Research and development expenses increased primarily due to intangible and other asset impairments of $97 million related to the shutdown of our sequencer development program.

The increase is also due to higher wages and additional expenses related to our acquisition of BioTek partially offset by lower discretionary expenditures including lower travel costs and favorable currency impact.

Research and development expenses increased 5 percent for the year ended October 31, 2019 when compared to 2018.

Selling, general and administrative expenses increased 2 percent in 2020 when compared to 2019.

The increase in selling, general and administrative expenses was due to higher wages, higher intangible amortization expense and higher transformational initiative expenses, which was partially offset by lower discretionary expenditures including lower travel costs and favorable currency impact.

Selling, general and administrative expenses increased 5 percent in 2019 compared to 2018.

Selling, general and administrative expenses increase was due to higher wages and variable pay, higher commissions, increased corporate costs, higher share-based compensation expense, higher transformational initiative costs, an impairment of certain intangible assets and unfavorable currency movements.

Total operating margin was flat for the year ended October 31, 2019 , when compared to last year.

Operating margins was impacted by higher wages and variable pay, higher acquisition and integration costs, higher expenses related to tariffs and higher transformation initiatives expenses offset by operational efficiencies and savings and favorable currency impact.

Selling, general and administrative expenses increased due to increased wages and variable pay, higher commissions, higher legal expenses, higher acquisition and integration costs and higher transformation initiatives expenses partially offset by operational efficiencies and savings and favorable currency impact.

Total operating margin decreased 2 percentage points for the year ended October 31, 2020, when compared to 2019.

Operating margin declined due to intangible and other asset impairments, higher wages, higher intangible amortization expense and higher transformational initiative expenses partially offset by lower discretionary expenditures including lower travel costs and favorable currency impact.

Total operating margin was flat for the year ended October 31, 2019, when compared to 2018.

Operating margins was impacted by higher gross margins, lower acquisition and integration costs and lower amortization expense offset by increased wages and variable pay, an impairment of certain intangible assets, higher transformational initiative costs and the additional research and development and selling, general and administrative expenses related to our recent acquisitions.

Interest expense for the years ended October 31, 2019 , 2018 and 2017 was $74 million , $75 million and $79 million , respectively, and relates to the interest charged on our senior notes and the amortization of the deferred loss recorded upon termination of the forward starting interest rate swap contracts partially offset by the amortization of deferred gains recorded upon termination of interest rate swap contracts.

Total operating margin was impacted by higher wages and variable pay, higher acquisition and integration costs, higher expenses related to tariffs and higher transformation initiatives expenses offset by operational efficiencies and savings and favorable currency impact.

Interest income for the year ended October 31, 2020, 2019 and 2018 was $8 million, $36 million and $38 million, respectively.

The decrease in interest income in 2020 was primarily due to lower interest rates for our cash and cash equivalents.

Interest expense for the years ended October 31, 2020, 2019 and 2018 was $78 million, $74 million and $75 million, respectively, and relates to the interest charged on our senior notes, credit facilities, commercial paper and the amortization of the deferred loss recorded upon termination of the forward starting interest rate swap contracts partially offset by the amortization of deferred gains recorded upon termination of interest rate swap contracts.

At October 31, 2020, our headcount was approximately 16,400 compared to 16,300 in 2019.

1 unchanged sentence

For the year ended October 31, 2020, other income (expense), net includes income of $12 million related to the provision of site service costs to, and lease income from, Keysight Technologies, Inc.

("Keysight").

The costs associated with these services are reported within income from operations.

Other income (expense), net also includes net gains on the fair value of equity investments of approximately $27 million and income of $22 million related to the settlement of our legal claim against Twist Bioscience Corporation.

For the year ended October 31, 2019, other income (expense), net includes income of $12 million related to the provision of site service costs to, and lease income from, Keysight Technologies, Inc.

("Keysight") and $9 million loss on the extinguishment of debt.

For the year ended October 31, 2018, other income (expense), net includes the net gain of $20 million related to the step-up of our initial investment in Lasergen, $15 million of income related to a special one-time settlement with a third-party, a $5 million pension settlement gain related to the substitutional portion of the defined benefit pension plans established under the Japanese Welfare Pension Insurance Law and income of $12 million related to the provision of site service costs to, and lease income from, Keysight.

For the year ended October 31, 2017, other income (expense), net includes $32 million pension settlement gain related to the substitutional portion of the defined benefit pension plans established under the Japanese Welfare Pension Insurance Law and $12 million of income related to the provision of site service costs to and lease income from Keysight.

Years Ended October 31,

2020 2019 2018

(in millions)

Provision (benefit) for income taxes $ 123 $ (152) $ 630

For 2020, the company's income tax expense was $123 million with an effective tax rate of 14.6 percent.

For the year ended October 31, 2020, our effective tax rate and the resulting provision for income taxes were impacted by foreign income taxed at lower rates.

For 2019, the company's income tax benefit was $152 million with an effective tax rate of (16.5) percent.

1 unchanged sentence

For 2018, the company's income tax expense was $630 million with an effective tax rate of 66.6 percent.

For the year ended October 31, 2018, our effective tax rate and the resulting provision for income taxes were significantly impacted by the discrete charge of $552 million related to the enactment of the Tax Act as discussed below.

For 2017, the company’s income tax expense was $119 million with an effective tax rate of 14.8 percent .

Our effective tax rate is impacted by earnings realized in foreign jurisdictions with statutory tax rates lower than the federal statutory tax rate.

During the year, the company determined a portion of current year foreign earnings from its low tax jurisdictions would not be considered as indefinitely reinvested.

As such, a deferred tax liability for that portion of unremitted foreign earnings was accrued causing an increase in the annual tax expense.

Our annual effective tax rate also included tax benefits due to the settlement of an audit in Germany for the years 2005 through 2008 and the lapse of U.S.

statute of limitation for the fiscal years 2012 and 2013.

This benefit was offset by a deferred tax liability required for the tax expected upon repatriation of related unremitted foreign earnings that were not asserted as indefinitely invested outside the U.S.

Tax Cuts and Jobs Act (the “Tax Act”) consisting of (1) an expense of $499 million of U.S.

transition tax and correlative items on deemed repatriated earnings of non-U.S.

subsidiaries and (2) an expense of $53 million associated with the impact on deferred taxes resulting from the decreased U.S.

corporate tax rate.

The company has negotiated tax holidays in several different jurisdictions, most significantly in Singapore.

1 unchanged sentence

In December 2018, the tax holiday in Singapore was renegotiated and extended through 2027.

Other tax holidays are due for renewal in 2020.

As a result of the incentives, the impact of the tax holidays decreased income taxes by $71 million, $368 million, and $87 million in 2020, 2019, and 2018, respectively.

The benefit of the tax holidays on net income per share (diluted) was approximately $0.23, $1.16, and $0.27 in 2020, 2019 and 2018, respectively.

The increase in the benefit from 2018 to 2019 is primarily due to the Singapore restructuring and tax incentive modifications completed in 2019 in response to Singapore tax law changes.

Of the $1.16 benefit of the tax incentives on net income per share (diluted) in 2019, $0.94 of the benefit relates to one-time items from the Singapore restructuring.

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 established 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 domestic production activity deduction;

and (7) establishing new limitations on deductible interest expense and certain executive compensation.

ASC 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment.

However, the SEC staff issued Staff Accounting Bulletin 118 ("SAB 118") which allowed companies to record provisional amounts during a measurement period not extending beyond one year from the Tax Act enactment date.

For the year ended October 31, 2018, the company recognized income tax expense related to the Tax Act of $552 million which includes (1) an expense of $499 million of U.S.

transition tax and correlative items on deemed repatriated earnings of non-U.S.

subsidiaries and (2) an expense of $53 million associated with the impact on deferred taxes resulting from the decreased U.S.

corporate tax rate as described below.

Deemed Repatriation Transition Tax ("Transition Tax") :

The Transition Tax is based on the company’s total unrepatriated post-1986 earnings and profits ("E&P") of its foreign subsidiaries and the amount of non-U.S.

taxes paid (Tax Pools) on such earnings.

Historically, the company permanently reinvested a significant portion of these post-1986 E&P outside the U.S.

For the remaining portion, the company previously accrued deferred taxes.

Since the Tax Act required all foreign earnings to be taxed currently, the company recorded an income tax expense of $651 million for its one-time transition U.S.

federal tax and a benefit of $152 million for the reversal of related deferred tax liabilities.

The resulting $499 million net transition tax, reduced by existing tax credits, will be paid over 8 years in accordance with the election available under the Tax Act.

We have completed our accounting for charges related to the Transition Tax.

Reduction of U.S.

Federal Corporate Tax Rate :

The reduction of the corporate income tax rate requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment.

The amount recorded for the year ended October31, 2018 for the remeasurement due to tax rate change is $53 million .

We have completed our accounting for the measurement of deferred taxes.

The Tax Act subjects a U.S.

corporation to tax on its GILTI.

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”.

Indefinite Reinvestment Assertion:

Prior to the enactment of the Tax Act, the company had indefinite investment assertion on a significant portion of its undistributed earnings from foreign subsidiaries.

As a result of the enactment of the Tax Act, we have reevaluated our historic assertion and no longer consider these earnings to be indefinitely reinvested in our foreign subsidiaries.

The company has recorded a deferred tax liability of $10 million for foreign withholding taxes on repatriation of remaining undistributed earnings.

In the U.S., tax years remain open back to the year 2016 for federal income tax purposes and the year 2015 for significant states.

In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2009.

Of the $1.16 benefit of the tax incentives on net income per share (diluted) in 2019, $0.94 of the benefit relates to one-time items from the extension of the company’s tax incentive in Singapore.

With these jurisdictions and the U.S., it is reasonably possible that 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 which will be partially offset by an anticipated tax liability related to unremitted foreign earnings, where applicable.

2 unchanged sentences

Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management.

In accordance with the guidance on the accounting for uncertainty in income

taxes, for all U.S.

In accordance with the guidance on the accounting for uncertainty in income taxes, for all U.S.

and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due.

4 unchanged sentences

Through October 31, 2020, we have three business segments comprised of the life sciences and applied markets business, diagnostics and genomics business and the Agilent CrossLab business.

In 2019, we adopted new guidance related to the presentation of the net periodic pension and postretirement benefit cost.

See Note 2, "New Accounting Pronouncements" for more information.

As a result, we have recast our historical segment results to conform to this new presentation required under this guidance.

Life Sciences and Applied Markets

20 unchanged sentences

vacuum pumps and measurement technologies.

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions)

Net revenue $ 2,392 $ 2,302 $ 2,270 4% 1%

Life science and applied markets business revenue in 2020 increased 4 percent compared to 2019.

Foreign currency movements for 2019 had an overall unfavorable currency impact of 2 percentage points on revenue growth when compared to the same period last year.

Foreign currency movements for 2020 had no impact on revenue growth when compared to the same period last year.

Acquisitions had an overall favorable impact on revenue growth of 7 percentage points when compared to the same period last year.

Geographically, revenue increased 12 percent in the Americas with a 1 percentage point unfavorable currency impact, decreased 4 percent in Europe with a 3 percentage point unfavorable currency impact and decreased 2 percent in Asia Pacific with a 1 percentage point unfavorable currency impact.

From a product standpoint revenue was driven by strength in sales in our gas chromatography mass spectrometry, cell analysis primarily due to contributions from our recent acquisitions and informatics businesses which was offset by weakness in our liquid chromatography, gas chromatography, liquid chromatography mass spectrometry and spectroscopy products when compared to the same period last year.

End market revenue performance in 2019 were also mixed with the pharmaceutical, academia and government, diagnostics and clinical and forensics markets delivering strong revenue growth, environmental delivering moderate growth while chemical and energy markets decreased modestly, and food delivered weak results compared to the same period last year.

Geographically, revenue increased 13 percent in the Americas with a 1 percentage point unfavorable currency impact, decreased 2 percent in Europe with no currency impact and increased 1 percent in Asia Pacific with no currency impact.

In 2020, revenue increases in our automation, liquid chromatography mass spectrometry and cell analysis products from our acquisitions, primarily in the Americas, were partially offset by declines in other parts of the portfolio when compared to the same period last year.

End market revenue performance in 2020 was mixed with academia and government and diagnostics and clinical markets delivering strong growth and the pharmaceutical and food markets delivering moderate growth which was partially offset by chemical and energy and forensics and environmental markets.

In 2020, despite the unfavorable impact from COVID-19, revenue growth in the academia and government and pharmaceutical and diagnostics and clinical markets was primarily driven by strong performance of our cell analysis products from the Lionheart Technologies LLC ("BioTek") acquisition.

The growth in the diagnostics and clinical business was also due to the strength in liquid phase mass spectrometry and cell analysis products.

Life science and applied markets business revenue in 2019 increased 1 percent compared to 2018.

Foreign currency movements for 2018 had an overall favorable currency impact of 2 percentage points on revenue growth when compared to 2017 .

Geographically, revenue increased 8 percent in the Americas with no currency impact, increased 12 percent in Europe with a 5 percentage point favorable currency impact and increased 8 percent in Asia Pacific with a 1 percentage point favorable currency impact.

From a product standpoint liquid chromatography mass spectrometry, spectroscopy and cell analysis systems led with double digit growth.

Gas chromatography mass spectrometry and gas chromatography also posted strong results helped by growth in the chemical and energy markets.

End market performance in 2018 was led by pharmaceutical markets which were strong throughout the year.

Chemical and energy markets kept the momentum from 2017 and delivered strong growth.

Academic and government and environmental markets also delivered strong growth.

Food market contracted mainly driven by consolidations of governmental agencies in China.

Looking forward, despite short term uncertainties, we are optimistic about our long-term growth opportunities in the life sciences and applied markets as our broad portfolio of products and solutions are well suited to address customer needs.

We anticipate strong growth from our new product introductions and recent acquisitions as we continue to invest in expanding and improving our applications and solutions portfolio.

Foreign currency movements for 2019 had an overall unfavorable currency impact of 2 percentage points on revenue growth when compared to 2018.

Acquisitions had an overall favorable impact on revenue growth of 3 percentage points when compared to 2018.

From a product standpoint, revenue was driven by strength in sales in our gas chromatography mass spectrometry and cell analysis primarily due to contributions from our acquisitions and informatics businesses which was offset by weakness in our liquid chromatography, gas chromatography, liquid chromatography mass spectrometry and spectroscopy products when compared to 2018.

End market performance in 2019 was mixed with the pharmaceutical, academia and government, diagnostics and clinical and forensics markets delivering strong revenue growth, environmental delivering moderate growth while chemical and energy markets decreased modestly, and food delivered weak results compared to 2018.

Looking forward, despite short term uncertainties and the adverse effects of the COVID-19 pandemic, we are optimistic about our long-term growth opportunities in the life sciences and applied markets as our broad portfolio of products and solutions are well suited to address customer needs.

We anticipate growth from our new product introductions and acquisitions in the last couple of years as we continue to invest in expanding and improving our applications and solutions portfolio.

While we anticipate volatility in our markets, we expect continued growth across most end markets in the long term.

1 unchanged sentence

The following table shows the life sciences and applied markets business' margins, expenses and income from operations for 2020 versus 2019, and 2019 versus 2018.

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions, except margin data)

Total gross margin

Total gross margin 59.2 % 61.0 % 61.3 % (2) ppts —

Research and development $ 219 $ 216 $ 220 1% (1)%

Selling, general and administrative $ 650 $ 646 $ 630 1% 3%

Operating margin

Operating margin 22.9 % 23.5 % 23.9 % (1) ppt —

Income from operations $ 548 $ 542 $ 543 1% —

Gross margin decreased 2 percentage points in 2020 compared to 2019.

Gross margin declined due to the increased impact of pricing pressures and a net unfavorable impact from currency movements partially offset by favorable product mix and material cost savings.

Gross margin was flat in 2019 compared to 2018.

Gross margin was impacted by unfavorable mix and higher expenses related to tariffs which was offset by favorable currency impact.

Gross margin increased 1 percentage point in 2018 compared to 2017 .

The increase was due to increased volume and lower manufacturing material costs.

Research and development expenses decreased 1 percent in 2019 when compared to 2018 .

Research and development was impacted by lower discretionary spending and a favorable currency offset by additional expenses related to our recent acquisitions as well as higher wages and variable pay.

Research and development expenses increased 1 percent in 2020 when compared to 2019.

The increase in research and development was due to higher program funding in product development as well as wage and variable pay increases and unfavorable currency related effects.

Research and development expenses increased due to higher wages and additional expenses related to the BioTek acquisition partially offset by lower discretionary spending and favorable impact from foreign currency movements.

Research and development expenses decreased 1 percent in 2019 when compared to 2018.

Research and development decreased due to lower discretionary spending and a favorable currency offset by additional expenses related to acquisitions as well as higher wages and variable pay.

Selling, general and administrative expenses increased 1 percent in 2020 compared to 2019.

Selling, general and administrative expenses was impacted by higher wages and variable pay and additional expenses related to our recent acquisitions partially offset by operational savings and a favorable currency impact.

Selling, general and administrative expenses increased due to higher wages and additional expenses related to the BioTek acquisition partially offset by favorable impact from foreign currency movements and lower travel costs.

Selling, general and administrative expenses increased 3 percent in 2019 compared to 2018.

Selling, general and administrative expenses increased due to increased marketing and sales force investments as well as wages and variable pay increases, higher share-based compensation expense and unfavorable currency related effects.

Selling, general and administrative expenses were impacted by higher wages and variable pay and additional expenses related to our recent acquisitions partially offset by operational savings and a favorable currency impact.

Operating margin decreased 1 percentage point in 2020 compared to 2019.

Operating margin declined due to additional expenses related to our recent acquisitions and unfavorable gross margin due to pricing pressures partially offset by operational savings and favorable currency impact.

Operating margin was relatively flat in 2019 compared to 2018.

Operating margin reflects relatively flat revenue growth partially offset by an increase in selling, general and administrative expenses.

Operating margin increased 1 percentage points in 2018 compared to 2017 .

The increase in operating margin was a product of revenue growth and improved gross margin offset slightly by unfavorable currency impact.

Income from Operations

Income from operations in 2020 increased by $6 million or increased by 1 percent when compared to 2019 on a revenue increase of $90 million.

The increase in income from operations was mainly due to the impact of the BioTek acquisition.

Income from operations in 2019 decreased by $1 million or was relatively flat when compared to 2018 on a revenue increase of $32 million.

The decrease was due to the impact of our recent acquisitions.

Income from operations in 2018 increased by $73 million or 16 percent when compared to 2017 on a revenue increase of $189 million .

The increase was due to higher revenues and lower cost of sales on incremental revenues.

The decrease was due to the impact of acquisitions.

Diagnostics and Genomics

10 unchanged sentences

Samples are analyzed using quantitative and qualitative techniques to ensure accuracy in further genomics analysis techniques utilized in clinical and life science research applications.

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions)

Net revenue $ 1,047 $ 1,021 $ 943 2% 8%

Diagnostics and genomics business revenue in 2020 increased 2 percent compared to 2019.

Foreign currency movements for 2019 had an overall unfavorable impact on revenue growth of 3 percentage points when compared to the same period last year.

Geographically, revenue increased 17 percent in the Americas with a 1 percentage point unfavorable currency impact, was flat in Europe with a 4 percentage point unfavorable currency impact and increased 2 percent in Asia Pacific with a 2 percentage point unfavorable currency impact.

Foreign currency movements for 2020 had an overall unfavorable impact on revenue growth of 1 percentage point when compared to the same period last year.

Geographically, revenue increased 2 percent in the Americas with no currency impact, increased 1 percent in Europe with no currency impact and increased 7 percent in Asia Pacific with no currency impact.

The increase in the Americas was driven by strong performance in the nucleic acid solutions and reagent partnership businesses.

Revenue growth in the Americas was partly offset by a decline in the pathology and genomics business driven by the COVID-19 related reduction in routine and cancer testing, as well as the closure of academic and research laboratories.

In Europe, strong revenue from our biomolecular analysis business was partially offset by the COVID-19 related declines from our genomics business.

In Asia Pacific, revenue growth was driven by the pathology and biomolecular analysis businesses.

In 2020 revenue performance in the diagnostics and genomics business was led by strong revenue growth in the nucleic acid solutions and biomolecular analyses businesses.

This was partly offset by a COVID-19 related reduction in routine and cancer testing, as well as the closure of most academic and research laboratories.

The diagnostics and clinical research end markets remain strong long-term and growing driven by an aging population and lifestyle developments such as poor diet and physical inactivity.

Diagnostics and genomics business revenue in 2019 increased 8 percent compared to 2018.

Foreign currency movements for 2019 had an overall unfavorable impact on revenue growth of 3 percentage points when compared to 2018.

Geographically,

revenue increased 17 percent in the Americas with a 1 percentage point unfavorable currency impact, was flat in Europe with a 4 percentage point unfavorable currency impact and increased 2 percent in Asia Pacific with a 2 percentage point unfavorable currency impact.

The growth in Americas was driven by strong growth in our nucleic acid solutions, companion diagnostics and biomolecular analysis business.

In Europe we saw strong growth in the biomolecular analysis business offset by softness in the genomics business.

In Asia Pacific the growth was driven by our biomolecular analysis businesses and negatively impacted by softness in the genomics business.

Revenue growth in 2019 was led by strong revenue performance in our nucleic acid solutions, companion diagnostics and biomolecular analysis business.

In Asia Pacific the growth was driven by our biomolecular analysis business and negatively impacted by softness in the genomics business.

The revenue growth in 2019 was led by strong revenue performance in our nucleic acid solutions, companion diagnostics and biomolecular analysis business.

The diagnostics and clinical research market remains strong and growing driven by an aging population and unhealthy lifestyle developments such as poor diet and physical inactivity.

Diagnostics and genomics business revenue in 2018 increased 10 percent compared to 2017 .

Foreign currency movements for 2018 had an overall favorable impact on revenue growth of 3 percentage points when compared to the same period last year and acquisitions had an overall favorable impact on revenue growth of 2 percentage points when compared to the same period last year.

Geographically, revenue increased 11 percent in the Americas with a 1 percentage point unfavorable currency impact, increased 11 percent in Europe with a 6 percentage point favorable currency impact and increased 2 percent in Asia Pacific with a 1 percentage point favorable currency impact.

The growth in the Americas was supported by continued strength in our genomics business, strong growth in the companion diagnostic business and our biomolecular analysis business.

Europe results represented growth in our genomics and the biomolecular analysis business.

The performance in Americas and Europe were led by growth in sales in genomics (particularly target enrichment and arrays).

In Asia Pacific, our relatively smaller region, growth increased due to higher shipment volumes in China.

The revenue growth in 2018 was due to positive growth from all businesses and strength in Americas, Europe and China regions.

This was led by revenue growth in our arrays and next generation sequencing solution portfolio offering within the

genomics business mainly driven by SureSelect NGS target enrichment products, continued ramp in revenue growth in our reagent partnership business due to demand for our reagents and strength in our biomolecular analysis business consumables portfolio.

The end markets in diagnostics and clinical research remain strong and growing driven by an aging population and lifestyle.

Looking forward, we are optimistic about our growth opportunities in our end markets and continue to invest in expanding and improving our applications and solutions portfolio.

We remain positive about our growth in our end markets, as our OMNIS products, PD-L1 assays and SureFISH continue to gain strength with our customers in clinical oncology applications and our next generation sequencing target enrichment solutions continue to be adopted.

Market demand in the nucleic acid solutions business related to therapeutic oligo programs continues to be strong and, with our newly opened nucleic acid solutions production facility in Frederick, we are well positioned to serve more of the market demand.

Looking forward, although we see short-term impacts to routine and cancer testing due to COVID-19 which will affect our revenue growth, we are optimistic about our long-term growth opportunities in our end markets and continue to invest in expanding and improving our applications and solutions portfolio.

We remain positive about our growth in our end markets as our product portfolio around OMNIS, PD-L1 assays and SureFISH continue to gain strength with our customers in clinical oncology applications, and our next generation sequencing target enrichment solutions continue to be adopted.

Market demand in the nucleic acid solutions business related to therapeutic oligo programs continues, and with our newly opened and planned extension of our nucleic acid solutions production facility in Frederick, Colorado, we are well positioned to serve more of the market demand.

We will continue to invest in research and development and seek to expand our position in developing countries and emerging markets.

Gross Margin and Operating Margin

The following table shows the diagnostics and genomics business's margins, expenses and income from operations for 2019 versus 2018 , and 2018 versus 2017 .

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

The following table shows the diagnostics and genomics business' margins, expenses and income from operations for 2020 versus 2019, and 2019 versus 2018.

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions, except margin data)

Total gross margin

Total gross margin 51.9 % 54.7 % 56.3 % (3) ppts (2) ppts

Research and development $ 114 $ 125 $ 109 (9)% 15%

3 unchanged sentences

Gross margin decreased 3 percentage points in 2020 when compared to 2019.

Gross margin was impacted by unfavorable product mix and higher fixed costs related to the new manufacturing facility in Frederick, Colorado, partially offset by lower period and travel costs.

Gross margin decreased 2 percentage points in 2019 when compared to 2018.

The decrease in gross margin was driven by an unfavorable product mix and a higher fixed cost structure due to the addition of a second nucleic acid manufacturing facility that offset gains from higher sales volumes.

Gross margin increased 1 percentage point in 2018 when compared to 2017 , mainly driven from higher volumes were partially offset by higher wages and variable pay.

Research and development expenses decreased 9 percent in 2020 when compared to 2019.

Research and development expenses decreased due to the shutdown of our sequencer development program and a reduction in discretionary expenditures including travel costs.

Research and development expenses increased 15 percent in 2019 when compared to 2018.

The increase was due to additional expenses related to prior year's acquisitions, higher wages and variable pay and increased spending around the development of clinical applications and solutions.

Research and development expenses increased 22 percent in 2018 when compared to 2017 .

The increase was mainly due to additional expenses related to the acquisition of Lasergen, increase in wages and variable pay and unfavorable currency movements.

Selling, general and administrative expenses was flat in 2019 when compared to 2018 .

Selling, general and administrative expenses decreased 4 percent in 2020 when compared to 2019.

Selling, general and administrative expenses decreased due to a reduction in discretionary expenditures including travel costs partially offset by an increase in wages.

Selling, general and administrative expenses were flat in 2019 when compared to 2018.

Selling, general and administrative expenses were impacted by efficiency gains offsetting higher wages and variable pay.

Selling, general and administrative expenses increased 14 percent in 2018 when compared to 2017 .

Selling, general and administrative expenses increase was due to the additional expenses related to the acquisitions of Lasergen and AATI, increases in wages and variable pay and unfavorable currency movements.

Operating margin was flat in 2019 when compared to 2018 .

Operating margin was relatively flat in 2020 when compared to 2019.

Operating margin was aided by savings in operating expenses which were offset by gross margin decline.

Operating margin was relatively flat in 2019 when compared to 2018.

Operating margin was impacted by higher sales volume, offsetting the gross margin deterioration and the increase in research and development spending.

Operating margin decreased 1 percentage point in 2018 when compared to 2017 .

The decline in operating margin was due additional expenses related to the acquisitions of Lasergen and AATI.

Income from Operations

Income from operations in 2020 increased by $7 million or 3 percent when compared to 2019 on a revenue increase of $26 million.

The increase was due to higher volume partially offset by the gross margin percentage decline and higher research and development expenses.

The increase was driven by gains from higher volume and lower operating expenses more than offsetting the gross margin percentage decline.

Income from operations in 2019 increased by $12 million or 7 percent when compared to 2018 on a revenue increase of $78 million.

The increase was due to higher volumes partially offset by higher expenses related to the acquisitions.

The increase was due to higher volume partially offset by the gross margin percentage decline and higher research and development expenses.

Agilent CrossLab

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Custom service and consumable bundles are tailored to meet the specific application needs of various industries and to keep instruments fully operational and compliant with the respective industry requirements.

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions)

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Agilent CrossLab business revenue in 2020 increased 3 percent when compared to 2019.

Foreign currency movements for 2020 had an overall unfavorable impact of 1 percentage point when compared to 2019.

Geographically, revenue was flat in the Americas with a 1 percentage point unfavorable currency impact, increased 2 percent in Europe with a 1 percentage point favorable currency impact and increased 7 percent in Asia Pacific with a 1 percentage point unfavorable currency impact.

As a consequence of the COVID-19 related impact on global commerce in 2020, consumable sales growth has been low single digits in comparison to 2019 in most countries excluding China.

In addition, the COVID-19 related customer site closures have brought a temporary lull in our delivery of on-demand services and installation services, which has been recovering in the latter half of the year as customer labs reopen.

Consumable sales in China and the contracted service business across most regions have seen solid gains throughout 2020.

Among our major end markets, the pharmaceutical market and the food market generated the strongest revenue growth when compared to 2019.

Agilent CrossLab business revenue in 2019 increased 8 percent when compared to 2018.

Foreign currency movements for 2019 had an overall unfavorable impact of 3 percentage points when compared to 2018.

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Revenue growth in 2019 was driven broadly by our entire services and consumables portfolio.

Geographically, revenue increased 9 percent in the Americas with an 1 percentage point unfavorable currency impact, increased 5 percent in Europe with a 5 percentage points unfavorable currency impact and increased 10 percent in Asia Pacific with a 3 percentage points unfavorable currency impact.

In 2019 , Agilent CrossLab business saw strong revenue growth in all key end markets, except in the diagnostics and clinical market, when compared to the same periods last year.

Agilent CrossLab business revenue in 2018 increased 11 percent when compared to 2017 .

Foreign currency movements for 2018 had an overall favorable impact of 2 percentage points when compared to 2017.

Acquisitions in 2018 did not have a material impact on the revenue growth for 2018.

Revenue growth in 2018 was driven by the entire portfolio, including all consumables, all major service categories and remarketed instruments.

Geographically, revenue increased 7 percent in the Americas with no currency impact, increased 12 percent in Europe with a 6 percentage point favorable currency impact and increased 15 percent in Asia Pacific with a 2 percentage point favorable currency impact.

Agilent CrossLab business saw a broad based and sustained revenue growth in most key end markets throughout 2018 , especially from the pharmaceutical and food markets.

Looking forward, we anticipate strength in key end markets will continue to drive our revenue growth in the near term.

The Agilent CrossLab portfolio of products and service capabilities are well positioned to succeed in changing market conditions in our key end markets.

Geographically, the business is well diversified across all regions to swiftly take advantage of local market opportunities and to help hedge against market volatility in any one region.

Other factors for near term revenue growth include continued expansion of digital capabilities and leveraging of our deep understanding of customer work flows.

Geographically, revenue increased 9 percent in the Americas with a 1 percentage point unfavorable currency impact, increased 5 percent in Europe with a 5 percentage point unfavorable currency impact and increased 10 percent in Asia Pacific with a 3 percentage point unfavorable currency impact.

Agilent CrossLab business saw strong revenue growth in all key end markets, except in the diagnostics and clinical market, when compared to 2018.

Looking forward, the Agilent CrossLab portfolio of products and services capabilities is well positioned to continue to succeed in our key end markets.

With less predictable access to customer sites during the global COVID-19 pandemic, the business is taking advantage of digital and remote capabilities to offer services and consumables to customers.

Despite the current COVID-19 environment, we remain confident about the long-term growth opportunities as customer feedback remains very positive on the value Agilent CrossLab brings to customer labs.

Geographically, the business is well diversified across all regions to take advantage of local market opportunities as they reopen to commerce.

Gross Margin and Operating Margin

The following table shows the Agilent CrossLab business's margins, expenses and income from operations for 2019 versus 2018 and 2018 versus 2017 .

Years Ended October 31,

2019 over 2018

2018 over 2017 Change

The following table shows the Agilent CrossLab business' margins, expenses and income from operations for 2020 versus 2019 and 2019 versus 2018.

Years Ended October 31, 2020 over 2019

Change 2019 over 2018 Change

2020 2019 2018

(in millions, except margin data)

Total gross margin

Total gross margin 52.2 % 51.8 % 50.4 % — 1 ppt

Research and development $ 58 $ 58 $ 56 — 3%

Selling, general and administrative $ 417 $ 421 $ 413 (1)% 2%

Operating margin

Operating margin 27.2 % 25.8 % 22.8 % 1 ppt 3 ppts

Income from operations $ 516 $ 475 $ 388 9% 23%

Gross margin for products and services increased 1 percentage point in 2019 when compared to 2018 .

Gross margin was impacted by higher sales volume, combined with efficiency gains in the service delivery operation and efficiency gains in the logistics and manufacturing processes for the consumables business partially offset by higher wages and variable pay partly due to increased headcount.

Gross margin for products and services was relatively flat in 2020 when compared to 2019.

Gross margin benefited from lower service delivery costs which include travel, parts and labor as well as improved productivity in manufacturing in the consumables business.

Those operational gains were offset by a net unfavorable impact from currency movements.

Gross margin for products and services increased 1 percentage point in 2019 when compared to 2018.

Gross margin increase came primarily from higher sales volume.

Research and development expenses increased 3 percent in 2019 when compared to 2018 .

Research and development increased due to higher wages and variable pay and additional research and development expenditures from our prior year's acquisitions.

Gross margin was impacted by higher sales volume, combined with efficiency gains in the service delivery operation and in the logistics and manufacturing processes for the consumables business.

Some of those gains were offset by higher wages and higher variable costs and increased headcount.

Research and development expenses were relatively flat in 2020 when compared to 2019.

The higher wages and variable pay in research and development expenses were offset by lower travel costs and the reduction of other discretionary expenditures.

Research and development expenses increased 3 percent in 2019 when compared to 2018.

Research and development increase was primarily due to higher wages across the various research organizations, and due to increased headcount in the areas of software development, iLab development and customer training curriculum development.

Selling, general and administrative expenses increased 2 percent in 2019 when compared to 2018 .

Selling, general and administrative expenses were impacted by additional operating expenses from our prior year's acquisitions and overall higher wages and variable pay partially offset by a favorable impact from foreign currency movements.

Research and development increased due to higher wages and higher variable pay and additional research and development expenditures from acquisitions made in 2018.

Selling, general and administrative expenses decreased 1 percent in 2020 when compared to 2019.

Selling, general and administrative expenses decreased due to favorable currency movements, reduced travel and training by the sales organization, lower sales commissions, and a reduction in discretionary expenditures which were partially offset by higher wages.

Selling, general and administrative expenses increased 2 percent in 2019 when compared to 2018.

Selling, general and administrative expenses increased due to higher wages, higher variable pay, increased corporate infrastructure costs, and increased sales force investments.

Selling, general and administrative expenses were higher due to additional operating expenses from our acquisitions made in 2018, in addition to higher wages and higher variable pay.

Those increases were partially offset by a favorable impact from foreign currency movements.

Operating margin increased 1 percentage point in 2020 when compared to 2019.

The increase was primarily due to the growth in revenue while lowering service delivery and selling costs and the reduction of discretionary expenditures, partially offset by higher wages.

Operating margin increased 3 percentage points in 2019 when compared to 2018.

The increase in operating margin was driven by the higher sales volume, combined with efficiency gains across the service delivery operations, order fulfillment processes and other operations.

Operating margin increased 1 percentage point in 2018 when compared to 2017 .

The increase in operating margin was primarily due to higher sales volume.

Income from Operations

Income from operations in 2020 increased by $41 million or 9 percent when compared to 2019 on a revenue increase of $60 million.

The increase was primarily due to the growth in revenue while lowering service delivery and selling costs and the reduction of discretionary expenditures, partially offset by higher wages.

Income from operations in 2019 increased by $87 million or 23 percent when compared to 2018 on a revenue increase of $139 million.

The increase was driven by the higher sales volume, combined with efficiency gains across the service delivery operations, order fulfillment processes and other operations.

Financial Condition

Liquidity and Capital Resources

We believe our cash and cash equivalents, cash generated from operations, and ability to access capital markets and credit lines will satisfy, for at least the next twelve months, our liquidity requirements, both globally and domestically, including the following:

working capital needs, capital expenditures, business acquisitions, stock repurchases, cash dividends, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations.

Our sources and uses of cash were not materially impacted by COVID-19 to date.

We have not identified any material liquidity concerns as a result of the COVID-19 pandemic.

We will continue to monitor and assess the impact COVID-19 may have on our business and financial results.

Economic stimulus legislation was passed in many countries in response to COVID-19.

In March in the U.S., the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted to provide for tax relief and government loans, subsidies and other relief for entities in affected industries.

As of October 31, 2020, the CARES Act and other government benefits outside the U.S.

did not have a material impact on our consolidated financial statements and related disclosures.

Our financial position as of October 31, 2020 consisted of cash and cash equivalents of $1,441 million as compared to $1,382 million as of October 31, 2019.

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We utilize a variety of funding strategies to ensure that our worldwide cash is available in the locations in which it is needed.

As a result of the Tax Act, we are required to pay a one-time transition tax on deferred foreign income not previously subject to U.S.

federal income tax.

This is offset by tax attributes that results in a net tax payable of $200 million.

The first installment of $36 million was paid in the second quarter of 2019 and the remaining will be paid over the next seven years.

As part of the

business integration of some of our prior acquisitions, we undertook corporate restructurings in the fourth quarter of fiscal year 2019 that involved on-shoring certain intangible properties held by our foreign subsidiaries to the United States.

These restructurings resulted in a cash tax liability of $231 million which is payable in the first quarter of fiscal year 2020.

We may, from time to time, retire certain outstanding debt of ours through open market cash purchases, privately-negotiated transactions or otherwise.

Such transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $921 million in 2020 as compared to $1,021 million provided in 2019 and $1,087 million provided in 2018.

We paid approximately $118 million under our variable and incentive pay programs in 2019, as compared to a total of $103 million paid in 2018 and $91 million in 2017 .

Net cash paid for income taxes was approximately $159 million in 2019 , as compared to $102 million in 2018 and $63 million in 2017 .

For the year ended October 31, 2019 , the net change of zero in tax-related assets and liabilities related to the enactment of the U.S.

Tax Act compared to $552 million in the same period of 2018 , which primarily consisted of an estimated provision of $499 million of U.S.

We paid approximately $79 million under our variable and incentive pay programs in 2020, as compared to a total of $118 million in 2019 and $103 million in 2018.

The decrease in the amount for variable and incentive pay programs paid in 2020 is primarily due to changes made for certain incentive pay programs which are now paid annually versus semi-annually as was done in 2019 and 2018.

Net cash paid for income taxes was approximately $361 million in 2020 which included a one-time payment of $231 million related to the transfer of intellectual property compared to incomes taxes paid of $159 million in 2019 and $102 million in 2018.

For the years ended October 31, 2020 and 2019, the net change in tax related assets and liabilities due to the Tax Act was zero compared to $552 million in the same period of 2018.

In 2018, $552 million in tax-related assets and liabilities related to the enactment of the U.S.

Tax Act, which primarily consisted of an estimated provision of $499 million of U.S.

transition tax on deemed repatriated earnings of non-U.S.

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corporate income tax rate.

Deferred tax inflows were $29 million in 2020 compared to cash outflows of $255 million 2019, which included $266 million related to the extension of the company's tax incentive in Singapore, and cash outflows of $16 million in 2018.

In 2020, there was a net unrealized gain on fair value of equity investments of $28 million.

In 2020, there was an impairment charge of $99 million mainly related to the shutdown of our sequencer development program compared to impairment charges of zero in 2019, and $21 million in 2018.

For the years ended October 31, 2020, 2019 and 2018, other assets and liabilities used cash of $181 million, $43 million and $4 million, respectively.

The increase in cash usage for the year ended October 31, 2019 and October 31, 2017 in other assets and liabilities is primarily due to taxes.

The cash outflow in the year ended October 31, 2020 was largely the result of increased income tax payments, interest payments on senior notes and changes in deferred revenue.

Cash outflow for the year ended October 31, 2019 and 2018 in other assets and liabilities is primarily due to tax payments and interest on senior notes.

In 2020, the change in accounts receivable used cash of $107 million, $106 million in 2019, and $65 million in 2018.

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Cash used in inventory was $68 million in 2020, $36 million in 2019 and $83 million in 2018.

Inventory days on-hand decreased to 97 days in 2019 compared to 98 days in 2018 and increased compared to 95 days in 2017 .

Inventory days on-hand decreased to 93 days in 2020 compared to 97 days in 2019 and decreased compared to 98 days in 2018.

In the year ended October 31, 2020, we increased our inventory levels to meet our customer needs in response to the COVID-19 pandemic.

We made no contributions to our U.S defined benefit plans in 2020, 2019 and 2018.

We contributed $25 million to our U.S.

defined benefit plans in 2017 .

We contributed $21 million each year to our non-U.S.

defined benefit plans in 2019 , 2018 and 2017 , respectively.

We contributed $31 million in 2020 and $21 million each year in 2019 and 2018 to our non-U.S.

defined benefit plans, respectively.

We did not contribute to our U.S.

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defined benefit plans are generally funded ratably throughout the year.

Total contributions in 2019 were $21 million or equal to total contribution in 2018 .

The increase in 2020 mainly related to $12 million additional contribution in the Netherlands.

Our annual contributions are highly dependent on the relative performance of our assets versus our projected liabilities, among other factors.

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Investments in property, plant and equipment were $119 million in 2020, $155 million in 2019 and $177 million in 2018.

In 2019 we invested $1,408 million in acquisitions of businesses and intangible assets, net of cash acquired for the acquisition of two businesses compared to the acquisition of seven businesses for $516 million in 2018 and the acquisition of two businesses for $128 million in 2017 .

In 2019 there were approximately $23 million in purchases of fair value investments compared to $11 million outlay in 2018 and $1 million in 2017 .

In 2020 we made no acquisitions of businesses.

In 2019 we invested $1,408 million in acquisitions of businesses and intangible assets, net of cash acquired, for the acquisition of two businesses compared to the acquisition of seven businesses for $516 million in 2018.

In 2020 cash used to purchase fair value investments was $20 million compared to $23 million outlay in 2019 and $11 million in 2018.

Net Cash Used in Financing Activities

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During the year ended October 31, 2018, we repurchased and retired approximately 6.4 million shares for $422 million under this authorization.

During the year ended October 31, 2018 , we repurchased and retired approximately 6.4 million shares for $422 million under this authorization.

October 31, 2018 , we had remaining authorization to repurchase up to $188 million of our common stock under this program which expired on November 1, 2018.

As of October 31, 2018, we had remaining authorization to repurchase up to $188 million of our common stock under this program which expired on November 1, 2018.

On November 19, 2018 we announced that our board of directors had approved a new share repurchase program (the "2019 repurchase program") designed, among other things, to reduce or eliminate dilution resulting from issuance of stock under the company's employee equity incentive programs.

The 2019 share repurchase program authorizes the purchase of up to $1.75 billion of our common stock at the company's discretion and has no fixed termination date.

The 2019 repurchase program authorizes the purchase of up to $1.75 billion of our common stock at the company's discretion and has no fixed termination date.

The 2019 repurchase program does not require the company to acquire a specific number of shares and may be suspended, amended or discontinued at any time.

During the year ended October 31, 2019, we repurchased and retired 10.4 million shares for $723 million under this authorization.

During the year ended October 31, 2020, we repurchased and retired approximately 5.2 million shares for $469 million under this authorization.

As of October 31, 2019 , we had remaining authorization to repurchase up to $1.03 billion of our common stock under this program.

As of October 31, 2020, we had remaining authorization to repurchase up to $558 million of our common stock under this program.

For the years ended October 31, 2020, 2019 and 2018 cash dividends of $222 million, $206 million and $191 million were paid on the company's outstanding common stock, respectively.

The timing and amounts of any future dividends are subject to determination and approval by our board of directors.

Credit Facility

On March 13, 2019, Agilent entered into a credit agreement with a group of financial institutions which provides for a $1 billion five -year unsecured credit facility that will expire on March 13, 2024.

The credit facility replaces the existing credit facility which terminated on the closing date of the new facility.

For the year ended October 31, 2019 , we borrowed $305 million and repaid $190 million .

As of October 31, 2019 , the company had borrowings of $115 million outstanding under the credit facility.

We were in compliance with the covenants for the credit facility during the year ended October 31, 2019 .

On August 7, 2019, we entered into an amendment to the credit agreement, which provides for a $500 million short-term loan facility that was used in full to complete the BioTek acquisition and which is outstanding at October 31, 2019 .

Credit Facilities

On March 13, 2019, we entered into a credit agreement with a group of financial institutions which provides for a $1 billion five-year unsecured credit facility that will expire on March 13, 2024.

For the year ended October 31, 2020, we borrowed $798 million and repaid $913 million under the credit facility.

As of October 31, 2020, the company had no borrowings outstanding under the credit facility.

On October 21, 2019, we entered into a second amendment to the credit agreement, which refreshed the amount available for additional incremental term loan facilities under the credit agreement to permit additional incremental facilities of up to $500 million.

We had no borrowings under the additional incremental facilities as of October 31, 2020.

Short-term and Long-term Debt

On October 24, 2007 , the company issued an aggregate principal amount of $600 million in senior notes ("2017 senior notes").

On October 20, 2014, we settled the redemption of $500 million of the $600 million outstanding aggregate principal amount of our 2017 senior notes.

The 2017 senior notes were repayable within one year as of October 31, 2017 and were reclassified to short-term debt.

The remaining $100 million in 2017 senior notes matured and were paid in full on November 1, 2017.

On July 13, 2010 , the company issued an aggregate principal amount of $500 million in senior notes ("2020 senior notes").

The 2020 senior notes were issued at 99.54% of their principal amount.

The notes were scheduled to mature on July 15, 2020 , and bear interest at a fixed rate of 5.00% per annum.

The interest was payable semi-annually on January 15th and July 15th of each year and payments commenced on January 15, 2011.

On August 9, 2011 , we terminated our interest rate swap contracts related to our 2020 senior notes that represented the notional amount of $500 million .

The asset value, including interest receivable, upon termination for these contracts was approximately $34 million .

The gain was deferred and amortized to interest expense over the remaining life of the 2020 senior notes.

On September 17, 2019, we repaid the $500 million outstanding aggregate principal amount of our 2020 senior notes due July 15, 2020 that were called for redemption on August 16, 2019.

The redemption price of approximately $512 million included a $12 million prepayment penalty.

The redemption price was computed in accordance with the terms of the 2020 senior notes as the present value of the remaining scheduled payments of principal and unpaid interest related to the redemption.

The prepayment penalty plus amortization of the previously deferred interest swap gain of $4 million and amortization of previously deferred debt issuance costs and discount of $ 1 million was recorded in other income (expense) net in the consolidated statement of operations.

We also paid accrued and unpaid interest of $4 million on the 2020 senior notes up to but not including the redemption date.

On April 17, 2020, we entered into a third amendment to the credit agreement which provides the company with the option to request the consent of the applicable class of lenders to extend the maturity date of revolving borrowings and swingline loans for an additional period of one year and of the 2019 incremental term loans for an additional period of up to 364 days.

We were in compliance with the covenants for the credit facility during the year ended October 31, 2020.

Commercial Paper

In May 2020, we established a U.S.

commercial paper program, under which the company may issue and sell unsecured, short-term promissory notes in the aggregate principal amount not to exceed $1.0 billion with up to 397-day maturities.

At any point in time, the company intends to maintain available commitments under its revolving credit facility in an amount at least equal to the amount of the commercial paper notes outstanding.

Amounts available under the program may be borrowed, repaid and re-borrowed from time to time.

The proceeds from issuances under the program may be used for general corporate purposes.

As of October 31, 2020, borrowings outstanding under our U.S.

commercial paper program had a weighted average annual interest rate of 0.17 percent and a weighted average remaining maturity of approximately five days.

We had borrowings of $75 million outstanding under the U.S.

commercial paper program as of October 31, 2020.

Long-term Debt

2022 Senior Notes

On September 13, 2012, the company issued an aggregate principal amount of $400 million in senior notes ("2022 senior notes").

The 2022 senior notes were issued at 99.80% of their principal amount.

The notes will mature on October 1, 2022 , and

bear interest at a fixed rate of 3.20% per annum.

The notes will mature on October 1, 2022, and bear interest at a fixed rate of 3.20% per annum.

The interest is payable semi-annually on April 1st and October 1st of each year and payments commenced on April 1, 2013.

In July 2012, Agilent executed treasury lock agreements for $400 million in connection with future interest payments to be made on our 2022 senior notes issued on September 13, 2012.

The treasury lock contracts were terminated on September 10, 2012 and we recognized a deferred gain in accumulated other comprehensive income which is being amortized to interest expense over the life of the 2022 senior notes.

The remaining gain to be amortized related to the treasury lock agreements at October 31, 2019 was $1 million .

The treasury lock contracts were terminated on September 10, 2012 and we recognized a deferred gain in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2022 senior notes.

The remaining gain to be amortized related to the treasury lock agreements at October 31, 2020 was less than $1 million.

2023 Senior Notes

On June 21, 2013, the company issued aggregate principal amount of $600 million in senior notes ("2023 senior notes").

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The interest is payable semi-annually on January 15th and July 15th of each year and payments commenced January 15, 2014.

2026 Senior Notes

On September 22, 2016, the company issued aggregate principal amount of $300 million in senior notes ("2026 senior notes").

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In February 2016, Agilent executed three forward-starting pay fixed/receive variable interest rate swaps for the notional amount of $300 million in connection with future interest payments to be made on our 2026 senior notes issued on September 15, 2016.

The swap arrangements were terminated on September 15, 2016 with a payment of $10 million and we recognized this as a deferred loss in accumulated other comprehensive income which is being amortized to interest expense over the life of the 2026 senior notes.The remaining loss to be amortized related to the interest rate swap agreements at October 31, 2019 was $7 million .

The swap arrangements were terminated on September 15, 2016 with a payment of $10 million, and we recognized this as a deferred loss in accumulated other comprehensive income (loss) which is being amortized to interest expense over the

life of the 2026 senior notes.

The remaining loss to be amortized related to the interest rate swap agreements at October 31, 2020 was $6 million.

2029 Senior Notes

On September 16, 2019, the company issued an aggregate principal amount of $500 million in senior notes ("2029 senior notes").

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The notes will mature on September 15, 2029, and bear interest at a fixed rate of 2.75% per annum.

The interest is payable semi-annually on March 15th and September 15th of each year and payments commence on March 15, 2020 .

The interest is payable semi-annually on March 15th and September 15th of each year and payments commenced on March 15, 2020.

In August 2019, Agilent executed treasury lock agreements for $250 million in connection with future interest payments to be made on our 2029 senior notes issued on September 16, 2019.

The treasury lock contracts were terminated on September 6, 2019 and we recognized a deferred loss of $6 million in accumulated other comprehensive income which is being amortized to interest expense over the life of the 2029 senior notes.

We designated the treasury lock as a cash flow hedge.

The treasury lock contracts were terminated on September 6, 2019 and we recognized a deferred loss of $6 million in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2029 senior notes.

The remaining loss to be amortized related to the treasury lock agreements at October 31, 2020 was $5 million.

Capital Leases

The company leases certain property and equipment under capital leases.

As of October 31, 2019, the current and non-current portion of the company’s capital lease obligations had an aggregate carrying value of approximately $6 million.

2030 Senior Notes

On June 4, 2020, we issued an aggregate principal amount of $500 million in senior notes ("2030 senior notes").

The 2030 senior notes were issued at 99.812% of their principal amount.

The 2030 senior notes will mature on June 4, 2030, and bear interest at a fixed rate of 2.10% per annum.

The interest is payable semi-annually on June 4th and December 4th of each year and payments commenced on December 4, 2020.

Off Balance Sheet Arrangements and Other

We have contractual commitments for non-cancelable operating leases.

See Note 16, "Commitments and Contingencies", to our consolidated financial statements for further information on our non-cancelable operating leases.

Our liquidity is affected by many factors, some of which are based on normal ongoing operations of our business and some of which arise from fluctuations related to global economics and markets.

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Less than one

One to three years

Three to five years

More than five years

Operating leases

year One to three years Three to five years More than five years

Commitments to contract manufacturers and suppliers $ 541 $ 15 $ 1 $ —

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Transitional pension contributions to our U.S.

Operating Leases.

Commitments under operating leases relate primarily to leasehold property, see Note 16, "Commitments and Contingencies".

401(k) plan 6 3 — —

Total $ 654 $ 18 $ 1 $ —

Commitments to Contract Manufacturers and Suppliers.

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We expect to fulfill most of our purchase commitments for inventory within one year.

In addition to the above-mentioned commitments to contract manufacturers and suppliers, in the past we recorded a liability for firm, non-cancelable and unconditional purchase commitments for quantities in excess of our future demand forecasts consistent with our policy relating to excess inventory.

As of October 31, 2019 and 2018 , the liability for our firm, non-cancelable and unconditional purchase commitments was less than $1 million.

These amounts are included in other accrued liabilities in our consolidated balance sheet.

Other Purchase Commitments.

We have categorized "other purchase commitments" related to contracts with professional services suppliers.

Typically, we can cancel contracts without penalties.

For those contracts that are not cancelable without penalties, we are disclosing the termination fees and costs or commitments for continued spending that we are obligated to pay to a supplier under each contact's termination period before such contract can be cancelled.

Typically, we can cancel contracts with professional services suppliers without penalties.

For those contracts that are not cancelable without penalties, there are termination fees and costs or commitments for continued spending that we are obligated to pay to a supplier under each contact's termination period before such contract can be cancelled.

Our contractual obligations with these suppliers under "other purchase commitments" were approximately $85 million within the next year.

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Less than one

One to three years

Three to five years

More than five years

Credit facility

Short term loan

year One to three years Three to five years More than five years

Senior notes $ — $ 1,000 $ — $ 1,300

Commercial paper 75 — — —

Interest expense 69 126 67 117

Transition tax — 7 68 49

Capital leases

Operating leases 54 69 25 49

Total $ 198 $ 1,202 $ 160 $ 1,515

Other long-term liabilities as of October 31, 2020 and October 31, 2019 include $323 million and $328 million, respectively, related to long-term income tax liabilities.

Of these amounts, $199 million and $215 million related to uncertain tax positions as of October 31, 2019 and October 31, 2018 , respectively.

Of these amounts, $199 million related to uncertain tax positions as of both October 31, 2020 and October 31, 2019, respectively.

We are unable to accurately predict when these amounts will be realized or released.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis