What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-12-18 compared with 2019-12-19 · 793 added, 542 removed, 1301 unchanged (51% of the section changed)

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

Index to Consolidated Financial Statements Page

Consolidated Financial Statements:

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Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2019.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2020 and the manner in which it accounts for revenue from contracts with customers in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded ACEA Biosciences (“ACEA”) and Lionheart Technologies LLC (“BioTek”) from its assessment of internal control over financial reporting as of October 31, 2019 because they were acquired by the Company in purchase business combinations during 2019.

We have also excluded ACEA and BioTek from our audit of internal control over financial reporting.

ACEA and BioTek are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 2% and less than 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended October 31, 2019.

Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Uncertain Tax Positions

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This in turn led to a high degree of auditor judgment, effort, and subjectivity in performing procedures to evaluate the timely identification and accurate measurement of uncertain tax positions.

Also, the evaluation of audit evidence available to support the tax liabilities for uncertain tax positions is complex and required significant auditor judgment as the nature of the evidence is often highly subjective, and the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company's uncertain tax positions related to the application of relevant tax laws.

Valuation of acquired developed product technology intangible assets - BioTek acquisition

As described in Notes 1 and 3 to the consolidated financial statements, in 2019 the Company completed the acquisition of BioTek for consideration of $1.17 billion, of which $387 million of developed product technology intangible assets were recorded.

Management estimated the fair value of the developed product technology using the multi-period excess earnings method under the income approach by discounting forecasted future cash flows directly related to products expecting to result from the projects, net of returns on contributory assets.

Management’s determination of the fair value of the developed product technology intangible assets acquired involved the use of significant estimates and assumptions related to revenue growth rates and the discount rates.

The principal considerations for our determination that performing procedures relating to the valuation of acquired developed product technology intangible assets in connection with the BioTek acquisition is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of acquired developed product technology intangible assets due to the significant amount of judgment by management when developing the estimate, (ii) significant audit effort was required in evaluating the significant assumptions relating to the estimate, such as the revenue growth rates and the discount rates, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the acquired developed product technology intangible assets and controls over the development of the assumptions related to the valuation of the acquired developed product technology intangible assets, including the revenue growth rates and the discount rates.

These procedures also included, among others, reading the purchase agreement, testing management’s process for estimating the fair value of the acquired developed technology intangible assets, testing the completeness, accuracy, and relevance of underlying data used in estimating the fair value of the acquired developed technology intangible assets, and evaluating the appropriateness of the valuation methods and the reasonableness of the significant assumptions, including the revenue growth rates and the discount rates.

Evaluating the reasonableness of the revenue growth rates involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s fair value estimate and certain significant assumptions, including the discount rates.

/s/ PricewaterhouseCoopers LLP

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Years Ended October 31,

2020 2019 2018

(in millions, except per

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

Services and other 1,346 1,286 1,168

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Cost of services and other 706 678 639

Total costs 2,502 2,358 2,234

Research and development 495 404 387

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

Net income $ 719 $ 1,071 $ 316

Net income per share:

Basic $ 2.33 $ 3.41 $ 0.98

Diluted $ 2.30 $ 3.37 $ 0.97

Weighted average shares used in computing net income per share:

Basic 309 314 321

Diluted 312 318 325

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

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Years Ended October 31,

2020 2019 2018

Net income $ 719 $ 1,071 $ 316

Other comprehensive income (loss):

Gain (loss) on derivative instruments, net of tax expense (benefit) of $( 3 ), $( 2 ) and $ 1

( 9 ) ( 4 ) 6

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

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Change in actuarial net loss, net of tax expense (benefit) of $ 0 , $( 25 ) and $( 3 )

( 5 ) ( 93 ) ( 7 )

Change in net prior service benefit, net of tax benefit of $( 1 ), $( 2 ) and $( 2 )

Other comprehensive income (loss)

( 6 ) ( 6 ) ( 6 )

Other comprehensive loss ( 8 ) ( 99 ) ( 62 )

Total comprehensive income $ 711 $ 972 $ 254

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Accounts receivable, net 1,038 930

Inventory 720 679

Other current assets 216 198

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Property, plant and equipment, net 845 850

Goodwill 3,602 3,593

Other intangible assets, net 831 1,107

Long-term investments 158 102

Other assets 776 611

Total assets $ 9,627 $ 9,452

LIABILITIES AND EQUITY

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Stockholders' equity:

Preferred stock;

$0.01 par value;

Preferred stock;$ 0.01 par value;

125 million shares authorized;

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2 billion shares authorized;

309 million shares at October 31, 2019 and 318 million shares at October 31, 2018 issued

306 million shares at October 31, 2020 and 309 million shares at October 31, 2019 issued and outstanding

Additional paid-in-capital 5,311 5,277

Accumulated deficit

Retained earnings (accumulated deficit) 81 ( 18 )

Accumulated other comprehensive loss ( 522 ) ( 514 )

Total stockholders' equity 4,873 4,748

Non-controlling interest

Total liabilities and equity

Total liabilities and stockholders' equity $ 9,627 $ 9,452

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

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Years Ended October 31,

2020 2019 2018

(in millions)

Cash flows from operating activities:

Net income $ 719 $ 1,071 $ 316

Adjustments to reconcile net income to net cash provided by operating activities:

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Asset impairment charges 99 — 21

Unrealized gain on equity securities, net ( 28 ) ( 1 ) —

Loss on extinguishment of debt — 9 —

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Accounts receivable, net ( 107 ) ( 106 ) ( 65 )

Inventory ( 68 ) ( 36 ) ( 83 )

Accounts payable 2 29 40

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Proceeds from the sale of property, plant and equipment 1 — 1

Proceeds from divestitures

Payment to acquire fair value investment ( 20 ) ( 23 ) ( 11 )

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Debt issuance costs ( 4 ) ( 4 ) —

Proceeds from commercial paper 420 — —

Repayment of commercial paper ( 345 ) — —

Repayment of finance leases ( 4 ) — —

Purchase of non-controlling interest — ( 4 ) —

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Interest payments $ 71 $ 80 $ 80

Non-cash change in investments in property, plant and equipment -increase (decrease)

Net change in property, plant and equipment included in accounts payable and accrued liabilities-increase (decrease) $ ( 1 ) $ ( 21 ) $ ( 5 )

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

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CONSOLIDATED STATEMENT OF EQUITY

Treasury Stock

Common Stock Accumulated

Comprehensive

Income/(Loss)

(Accumulated Deficit)

Total Stockholders' Equity

Value Additional

Capital Retained

(Accumulated Deficit) Total Stockholders' Equity Non-

Interest Total

(in millions, except number of shares in thousands)

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Components of comprehensive income, net of tax:

Other comprehensive income

Net income — — — 316 — 316 — 316

Other comprehensive loss — — — — ( 62 ) ( 62 ) — ( 62 )

Total comprehensive income 254 254

Cash dividends declared ($ 0.596 per common share)

Change in non-controlling interest

— — — ( 191 ) — ( 191 ) — ( 191 )

Share-based awards issued 2,176 — 25 — — 25 — 25

Repurchase of common stock ( 6,436 ) — ( 87 ) ( 335 ) ( 422 ) — ( 422 )

Retirement of treasury stock

Share-based compensation — — 70 — — 70 — 70

Balance as of October 31, 2018 317,715 $ 3 $ 5,308 $ ( 336 ) $ ( 408 ) $ 4,567 $ 4 $ 4,571

Effects of adoption of new accounting standards — — — 33 ( 7 ) 26 — 26

Components of comprehensive income, net of tax;

Net income — — — 1,071 — 1,071 — 1,071

Other comprehensive loss — — — — ( 99 ) ( 99 ) — ( 99 )

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Cash dividends declared ($ 0.656 per common share)

— — — ( 206 ) — ( 206 ) — ( 206 )

Purchase of non-controlling interest — — — — — — ( 4 ) ( 4 )

Share-based awards issued 1,792 — 40 — — 40 — 40

Repurchase of common stock ( 10,436 ) — ( 143 ) ( 580 ) — ( 723 ) — ( 723 )

Retirement of treasury stock

Share-based compensation — — 72 — — 72 — 72

Balance as of October 31, 2019 309,071 $ 3 $ 5,277 $ ( 18 ) $ ( 514 ) $ 4,748 $ — $ 4,748

Effects of adoption of new accounting standards

Components of comprehensive income, net of tax:

Net income — — — 719 — 719 — 719

Other comprehensive loss — — — — ( 8 ) ( 8 ) — ( 8 )

Total comprehensive income 711 711

Purchase of non-controlling interest

Cash dividends declared ($ 0.720 per common share)

— — — ( 222 ) — ( 222 ) — ( 222 )

Share-based awards issued 2,354 — 22 — — 22 — 22

Repurchase of common stock ( 5,227 ) — ( 71 ) ( 398 ) — ( 469 ) — ( 469 )

Retirement of treasury stock

Share-based compensation — — 83 — — 83 — 83

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The accompanying consolidated financial statements have been prepared by us pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC") and is in conformity with U.S.

Securities and Exchange Commission ("SEC") and are in conformity with U.S.

generally accepted accounting principles ("GAAP").

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Those policies are revenue recognition, valuation of goodwill and purchased intangible assets, inventory valuation, retirement and post-retirement plan assumptions and accounting for income taxes.

Retirement of Treasury Shares.

Upon the formal retirement of treasury shares, we deduct the par value of the retired treasury shares from common stock and allocate the excess of cost over par as a deduction to additional paid-in capital, based on the pro-rata portion of additional paid-in-capital, and the remaining excess as a deduction to retained earnings.

All retired treasury shares revert to the status of authorized but unissued shares.

Risks and Uncertainties.

We are subject to risks common to companies in the analytical instrument industry, such as global economic and financial market conditions, fluctuations in foreign currency exchange rates and fluctuations in customer demand, among others.

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.

In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide.

As a result, academic and research laboratories had temporarily closed in our second and third quarters and hospitals and testing laboratories had halted or reduced certain elective medical procedures, which had an adverse effect on our customers' business.

The COVID-19 pandemic has caused significant volatility and uncertainty in U.S.

and international markets, which could result in a prolonged economic downturn that could disrupt our business.

Revenue Recognition.

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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 Accounting Standard Codification Topic 606, Revenue from Contracts with Customers (“ASC 606’’).

See also Note 2, "New Accounting Pronouncements" and Note 4, "Revenue" for additional information on revenue recognition.

See also Note 4, "Revenue" for additional information on revenue recognition.

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.

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For products that include installation, if the installation meets the criteria to be considered a separate performance obligation, product revenue is recognized when control has passed to the customer, and recognition of installation revenue occurs once completed.

Product revenue, including sales to resellers and distributors is reduced for provisions for warranties, returns, and other adjustments in the period the related sales are recorded.

Product revenue, including sales to

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

resellers and distributors is reduced for provisions for warranties, returns, and other adjustments in the period the related sales are recorded.

Service revenue includes extended warranty, customer and software support including:

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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 840, Leases.

Standalone lease arrangements are outside the scope of ASC 606 and are therefore accounted for in accordance with ASC 842, Leases for 2020 and ASC 840, Leases for prior periods.

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.

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Contract liabilities are classified as either in current liabilities in deferred revenue or long-term in other long-term liabilities in the consolidated balance sheet based on the timing of when we expect to complete our performance obligation.

Sales taxes collected from customers and remitted to governmental authorities are not included in our revenue.

Shipping and Handling Costs.

Our shipping and handling costs charged to customers are included in net revenue, and the associated expense is recorded in cost of products for all periods presented.

Research and Development.

Costs related to research, design and development of our products are charged to research and development expense as they are incurred.

Advertising costs are generally expensed as incurred and amounted to $ 48 million in 2020, $ 36 million in 2019 and $ 41 million in 2018.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Taxes on Income.

Income tax expense or benefit is based on income or loss before taxes.

Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.

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

Net Income Per Share.

Basic net income per share is computed by dividing net income - the numerator - by the weighted average number of common shares outstanding - the denominator - during the period excluding the dilutive effect of stock options and other employee stock plans.

Diluted net income per share gives effect to all potential common shares outstanding during the period unless the effect is anti-dilutive.

The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units.

Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are assumed proceeds to be used to repurchase hypothetical shares.

See Note 7, "Net Income Per Share".

Cash, Cash Equivalents and Short-Term Investments.

We classify investments as cash equivalents if their original or remaining maturity is three months or less at the date of purchase.

Cash equivalents are stated at cost, which approximates fair value.

As of October 31, 2020, approximately $ 1,395 million of our cash and cash equivalents is held outside of the U.S.

by our foreign subsidiaries.

Our cash and cash equivalents mainly consist of short-term deposits held at major global financial institutions, institutional money market funds, and similar short duration instruments with original maturities of 90 days or less.

We continuously monitor the creditworthiness of the financial institutions and institutional money market funds in which we invest our funds.

We classify investments as short-term investments if their original maturities are greater than three months and their remaining maturities are one year or less.

Currently, we have no short-term investments.

Restricted Cash and Restricted Cash Equivalents.

Restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

A reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet follows:

2020 2019 2018

(in millions)

Cash and cash equivalents $ 1,441 $ 1,382 $ 2,247

Restricted cash included in other assets 6 6 7

Total cash, cash equivalents and restricted cash $ 1,447 $ 1,388 $ 2,254

Accounts Receivable, net.

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Accounts receivable are also recorded net of estimated product returns which are not material.

Shipping and Handling Costs.

Our shipping and handling costs charged to customers are included in net revenue, and the associated expense is recorded in cost of products for all periods presented.

Concentration of Credit Risk.

Financial instruments that potentially subject Agilent to significant concentration of credit risk include money market fund investments, time deposits and demand deposit balances.

These investments are categorized as cash and cash equivalents.

In addition, Agilent has credit risk from derivative financial instruments used in hedging activities and accounts receivable.

We invest in a variety of financial instruments and limit the amount of credit exposure with any one financial institution.

We have a comprehensive credit policy in place and credit exposure is monitored on an ongoing basis.

Credit risk with respect to our accounts receivable is diversified due to the large number of entities comprising our customer base and their dispersion across many different industries and geographies.

Credit evaluations are performed on customers requiring credit over a certain amount, and we sell the majority of our products through our direct sales force.

Credit risk is mitigated through collateral such as letter of credit, bank guarantees or payment terms like cash in advance.

No single customer accounted for more than 10 percent of accounts receivable as of October 31, 2020, or 2019.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of market value.

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Our excess inventory review process includes analysis of sales forecasts, managing product rollovers and working with manufacturing to maximize recovery of excess inventory.

Property, Plant and Equipment.

Property, plant and equipment are stated at cost less accumulated depreciation.

Additions, improvements and major renewals are capitalized;

maintenance, repairs and minor renewals are expensed as incurred.

When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from our general ledger, and the resulting gain or loss is reflected in the consolidated statement of operations.

Buildings and improvements are depreciated over the lesser of their useful lives or the remaining term of the lease and machinery and equipment over 3 years to 10 years.

We use the straight-line method to depreciate assets.

Capitalized Software.

We capitalize certain internal and external costs incurred to acquire or create internal use software.

Capitalized software is included in property, plant and equipment and is depreciated over 3 years to 5 years once development is complete.

We determine whether an arrangement is, or contains, a lease at inception.

Prior to November 1, 2019, for leases where we are the lessee, we accounted for operating lease payments by charging them to expense as incurred.

At the beginning of fiscal 2020, the company adopted new lease accounting guidance issued by the Financial Accounting Standards Board ("FASB").

The most significant change requires lessees to record the present value of operating lease payments as right-of-use ("ROU") assets and lease liabilities on the consolidated balance sheet.

Where we are the lessee, ROU assets represent the company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term.

Classification of operating lease liabilities as either current or non-current is based on the expected timing of payments due under our obligations.

As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment.

In order to determine the appropriate incremental borrowing rates, we have used a number of factors including the company's credit rating, the lease term and the currency swap rate.

The ROU asset also consists of any lease incentives received.

The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term.

Lease expense for operating leases with an initial term of more than twelve months is recognized on a straight-line basis over the lease term as an operating expense.

We have lease agreements which require payments for lease and non-lease components.

We have elected to account for these payments as a single lease component.

A portion of our revenue relates to lease arrangements where Agilent is the lessor.

Standalone lease arrangements are outside the scope of Accounting Standard Codification ("ASC") Topic 606, Revenue Contracts with Customers, and are therefore accounted for in accordance with ASC Topic 842, Leases.

Each of these contracts is evaluated as a lease arrangement, either as an operating lease or a sales-type finance 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.

See also Note 2, "New Accounting Pronouncements" and Note 10, "Leases" for additional information about the company’s leases.

Acquisitions.

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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 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.

Specifically, our determination of the fair value of the developed product technology and IPR&D acquired

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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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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Agilent's 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.

We performed a qualitative test for impairment of indefinite-lived intangible assets 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 these indefinite-lived intangible assets is greater than their respective carrying values.

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

During the year ended October 31, 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.

Share-Based Compensation.

For the years ended 2019 , 2018 and 2017 , we accounted for share-based awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our Employee Stock Purchase Plan ("ESPP") and performance share awards under Agilent Technologies, Inc.

Long-Term Performance Program ("LTPP") using the estimated grant date fair value method of accounting.

Under the fair value method, we recorded compensation expense for all share-based awards of $ 72 million in 2019 , $ 71 million in 2018 and $ 61 million in 2017 .

See Note 5, "Share-based Compensation" for additional information.

Retirement and Post-Retirement Plans.

Substantially all of our employees are covered under various defined benefit and/or defined contribution retirement plans.

Additionally, we sponsor post-retirement health care benefits for our eligible U.S.

Assumptions used to determine the benefit obligations and the expense for these plans are derived annually.

See Note 14, “Retirement plans and post-retirement pension plans” for additional information.

Taxes on Income.

Income tax expense or benefit is based on income or loss before taxes.

Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.

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

Our standard warranty terms typically extend for one year from the date of delivery.

We accrue for standard warranty costs based on historical trends in warranty charges as a percentage of net product revenue.

The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates.

Estimated warranty charges are recorded within cost of products at the time products are sold.

See Note 15, "Guarantees".

Advertising costs are generally expensed as incurred and amounted to $ 36 million in 2019 , $ 41 million in 2018 and $ 38 million in 2017 .

Research and Development.

Costs related to research, design and development of our products are charged to research and development expense as they are incurred.

Sales taxes collected from customers and remitted to governmental authorities are not included in our revenue.

Net Income Per Share.

Diluted net income per share gives effect to all potential common shares outstanding during the period unless the effect is anti-dilutive.

See Note 7, "Net Income Per Share".

Cash, Cash Equivalents and Short-Term Investments.

We classify investments as cash equivalents if their original or remaining maturity is three months or less at the date of purchase.

Cash equivalents are stated at cost, which approximates fair value.

As of October 31, 2019 , approximately $ 1,310 million of our cash and cash equivalents is held outside of the U.S.

by our foreign subsidiaries.

We continuously monitor the creditworthiness of the financial institutions and institutional money market funds in which we invest our funds.

We classify investments as short-term investments if their original maturities are greater than three months and their remaining maturities are one year or less.

Currently, we have no short-term investments.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Impairment of Long-Lived Assets.

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable.

When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows.

If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets.

During the year ended October 31, 2020 we recorded an impairment charge of long-lived assets including indefinite-lived in-process research and development of $ 98 million related to the shutdown of our sequencer development program in our diagnostics and genomics segment.

During fiscal year 2019, there were no impairments of other assets or intangible assets.

During fiscal year 2018, we recorded an impairment charge of $ 21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.

Variable Interest Entities.

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The company evaluates its investments in privately held companies on an ongoing basis.

We account for these investments under either the equity method or as equity investments without determinable fair value, depending on the circumstances.

We have determined that as of October 31, 2020 and 2019, there were no VIE's required to be consolidated in the company's consolidated financial statements because we do not have a controlling financial interest in any of the VIE's in which we have invested nor are we the primary beneficiary.

We account for these investments under either the equity method or as equity investments without readily determinable fair value, depending on the circumstances.

We periodically reassess whether we are the primary beneficiary of a VIE.

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We also reconsider whether entities previously determined not to be VIEs have become VIEs, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.

During the year ended October 31, 2016, Agilent made a preferred stock investment in Lasergen, Inc.

("Lasergen") for $ 80 million .

This investment in Lasergen was accounted for under the cost method.

Agilent’s initial ownership stake was 48 percent and included an option to acquire the remaining shares until March 2018.

During the year ended October 31, 2018, we exercised our option and acquired all of the remaining shares of Lasergen that we did not already own for an additional cash consideration of approximately $ 107 million .

The fair value remeasurement of our previous investment immediately before the acquisition

resulted in a net gain of $ 20 million and was recorded in other income.

During the year ended October 31, 2018, we exercised our option and acquired all of the remaining shares of Lasergen, Inc.

("Lasergen") that we did not already own for an additional cash consideration of approximately $ 107 million.

The fair value remeasurement of our previous investment immediately before the acquisition resulted in a net gain of $ 20 million and was recorded in other income.

Lasergen was previously considered a VIE.

As of October 31, 2019 and 2018 , we have no material VIE's.

As of October 31, 2020 and October 31, 2019, the total carrying value of investments and loans in privately held companies considered as VIEs was $ 67 million and $ 29 million respectively.

The maximum exposure is equal to the carrying value because we do not have future funding commitments.

The investments are included on the long-term investments line and the loans on the other current assets and other assets lines (depending upon tenure of loan) on the consolidated balance sheet.

Equity investments without readily determinable fair value consist of non-marketable equity securities (typically investments in privately-held companies).

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Prior to fiscal year 2019, both equity investments without determinable fair value and with determinable fair value were accounted for using cost method of accounting, measured at historical cost less other-than-temporary investment.

Trading securities, which is comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income.

Trading securities, which are comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liabilities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income.

Equity method investments are reported at the amount of the company’s initial investment and adjusted each period for the company’s share of the investee’s income or loss and dividend paid.

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The fair value of long-term equity investments which are not readily determinable, and which are not accounted under the equity method are reported at cost with adjustments for observable changes in prices or impairments included in net income.

The fair value of our senior notes, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy exceeds the carrying value by approximately $ 62 million as of October 31, 2019 and is lower than the carrying value by approximately $ 15 million as of October 31, 2018 .

The change in the fair value over carrying value in the year ended October 31, 2019 is primarily due to fluctuations in market interest rates.

The fair value of our senior notes, calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance fair value hierarchy exceeds the carrying value by approximately $ 162 million as of October 31, 2020 and approximately $ 62 million as of October 31, 2019.

The change in the fair value over carrying value in the year ended October 31, 2020 is primarily due to decreased market interest rates.

The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets.

These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

See also Note 13, "Fair Value Measurements" for additional information on the fair value of financial instruments.

Concentration of Credit Risk.

Financial instruments that potentially subject Agilent to significant concentration of credit risk include money market fund investments, time deposits and demand deposit balances.

These investments are categorized as cash and cash equivalents.

In addition, Agilent has credit risk from derivative financial instruments used in hedging activities and accounts receivable.

We invest in a variety of financial instruments and limit the amount of credit exposure with any one financial institution.

We have a comprehensive credit policy in place and credit exposure is monitored on an ongoing basis.

Credit evaluations are performed on customers requiring credit over a certain amount and we sell the majority of our products through our direct sales force.

Credit risk is mitigated through collateral such as letter of credit, bank guarantees or payment terms like cash in advance.

No single customer accounted for more than 10 percent of accounts receivable as of October 31, 2019 , or 2018 .

Our standard warranty terms typically extend for one year from the date of delivery.

We accrue for standard warranty costs based on historical trends in warranty charges.

The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost over the period.

Estimated warranty charges are recorded within cost of products at the time products are sold.

See Note 16, "Guarantees".

Employee Compensation and Benefits.

Amounts owed to employees, such as accrued salary, bonuses and vacation benefits are accounted for within employee compensation and benefits.

The total amount of accrued vacation benefit was $ 111 million and $ 115 million as of October 31, 2020, and 2019, respectively.

Retirement and Post-Retirement Plans.

Substantially all of our employees are covered under various defined benefit and/or defined contribution retirement plans.

Additionally, we sponsor post-retirement health care benefits for our eligible U.S.

Assumptions used to determine the benefit obligations and the expense for these plans are derived annually.

See Note 15, “Retirement plans and post-retirement pension plans” for additional information.

Retirement of Treasury Shares.

All retired treasury shares revert to the status of authorized but unissued shares.

Share-Based Compensation.

For the years ended 2020, 2019 and 2018, we accounted for share-based awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our Employee Stock Purchase Plan ("ESPP") and performance share awards under Agilent Technologies, Inc.

Long-Term Performance Program ("LTPP") using the estimated grant date fair value method of accounting.

Under the fair value method, we recorded compensation expense for all share-based awards of $ 84 million in 2020, $ 72 million in 2019 and $ 71 million in 2018.

See Note 5, "Share-based Compensation" for additional information.

Derivative Instruments.

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All derivatives are recognized on the balance sheet at their fair values.

For derivative instruments that are designated and qualify as a fair value hedge, changes in value of the derivative are recognized in the consolidated statement of operations in the current period, along with the offsetting gain or loss on the hedged item attributable to the hedged risk.

For derivative instruments that are designated and qualify as a cash flow hedges, changes in the value of the effective portion of the derivative instrument is recognized in comprehensive income (loss), a component of stockholders' equity.

For derivative instruments that are designated and qualify as a cash flow hedge, changes in the value of the effective portion of the derivative instrument are recognized in comprehensive income (loss), a component of stockholders' equity.

For derivative instruments that are designated and qualify as a net investment hedge, changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss).

Amounts associated with cash flow hedges are reclassified and recognized in income when either the forecasted transaction occurs or it becomes probable the forecasted transaction will not occur.

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Changes in the fair value of the ineffective portion of derivative instruments are recognized in earnings in the current period.

Ineffectiveness in 2019 , 2018 and 2017 was not material.

The impact of the ineffectiveness measurement in 2020, 2019 and 2018 was not material.

Cash flows from derivative instruments are classified in the statement of cash flows in the same category as the cash flows from the hedged or economically hedged item, primarily in operating activities.

Property, Plant and Equipment.

Property, plant and equipment are stated at cost less accumulated depreciation.

Additions, improvements and major renewals are capitalized;

maintenance, repairs and minor renewals are expensed as incurred.

Buildings and improvements are depreciated over the lesser of their useful lives or the remaining term of the lease and machinery and equipment over 3 years to 10 years .

We use the straight-line method to depreciate assets.

We lease buildings, machinery and equipment under operating and capital leases for original terms ranging generally from less than 1 year to 30 years .

Certain leases contain renewal options for periods up to 6 years .

In addition, we lease equipment to customers in connection with our diagnostics business using both capital and operating leases.

As of October 31, 2019 and 2018 our diagnostics and genomics segment has approximately $ 37 million and $ 32 million , respectively, of lease receivables related to capital leases and approximately $ 17 million and $ 20 million , respectively, of net assets for operating leases.

We depreciate the assets related to the operating leases over their estimated useful lives, typically five years.

Capitalized Software.

We capitalize certain internal and external costs incurred to acquire or create internal use software.

Capitalized software is included in property, plant and equipment and is depreciated over 3 years to 5 years once development is complete.

Impairment of Long-Lived Assets.

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable.

During 2019, there were no impairments of other assets or intangible assets.

During 2018, we recorded an impairment charge of $ 21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.

During 2017, there were no impairments of other assets or intangible assets.

Employee Compensation and Benefits.

Amounts owed to employees, such as accrued salary, bonuses and vacation benefits are accounted for within employee compensation and benefits.

The total amount of accrued vacation benefit was $ 115 million and $ 107 million as of October 31, 2019 , and 2018 , respectively.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Translation.

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Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued new revenue recognition guidance, ASC Topic 606, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance.

The objective of the new revenue standard is to significantly enhance comparability and clarify principles of revenue recognition practices across entities, industries, jurisdictions and capital markets.

Under the new guidance, there are specific criteria to determine if a performance obligation should be recognized over time or at a point in time.

On November 1, 2018, we adopted ASC 606 using the modified retrospective approach only to contracts not completed as of this date.

Results for reporting periods after November 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with ASC Topic 605, Revenue Recognition .

We recorded a net increase to beginning retained earnings of $ 23 million as of November 1, 2018 due to the cumulative impact of adopting ASC 606.

The impact to beginning retained earnings is primarily due to an increase in contract assets (unbilled accounts receivable), a reduction in inventory and a reduction in contract liabilities (deferred revenue).

The net increase in retained earnings and resulting changes in assets and liabilities was mainly driven by the change in timing of the recognition of revenue from the fulfillment of separate performance obligations as control transfers to the customer.

Had we continued to use the revenue recognition guidance in effect prior to fiscal year 2019, no material changes would have resulted to the consolidated statements of income, comprehensive income, or cash flows for the year ended October 31, 2019 .

As a result, comparisons of revenue and operating profit performance between periods are not materially affected by the adoption of this standard.

Refer to Note 1, "Overview and Summary of Significant Accounting Policies"for a description of the company’s revenue recognition policies and Note 4, "Revenue" for the disclosures required by the standard.

As of November 1, 2018, we elected to early adopt new accounting guidance which amends reporting comprehensive income to allow a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the deferred taxes previously recorded in AOCI that exceed the current federal tax rate of 21 percent resulting from the enacted corporate tax rate in the U.S.

Tax Cuts and Jobs Act ("the Tax Act").

The adoption of this guidance resulted in a reclassification of $ 7 million from AOCI to beginning retained earnings on our consolidated balance sheet.

As of November 1, 2018, we adopted new accounting guidance which eliminates the exception in ASC 740, Income Taxes against immediate recognition of income tax consequences of intra-entity transfers of assets other than inventory.

The amendment in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of period of adoption.

We recorded a net decrease in beginning retained earnings of $ 2 million as of November 1, 2018 due to removing unamortized tax expense previously deferred.

As of November 1, 2018, we adopted new accounting guidance which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments and also the related guidance which addresses technical corrections and improvements to this guidance.

The guidance requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income.

The total impact of adoption to our consolidated balance sheet was an increase of $ 7 million to long-term investments and a net increase of $ 5 million to beginning retained earnings.

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

Impact of Adopting New

Revenue Recognition Guidance

Tax Effects on Items in AOCI Guidance

Intra-Entity Tax Guidance

Investments Valuation Guidance

In February 2016, the FASB issued Accounting Standards Update No.

2016-02, Leases (Topic 842), which requires lessees to record most leases on the balance sheet as lease liabilities, initially measured at the present value of future lease payments, with a corresponding right-of-use asset.

The accounting applied by a lessor is largely unchanged from that applied under the prior accounting standard.

On November 1, 2019, we adopted the new accounting guidance using the modified retrospective method, by applying the transition approach, for all lease arrangements at the beginning of the period of adoption.

Results for reporting periods beginning November 1, 2019 are presented under the new accounting standard, while prior period amounts have not been restated.

The standard had a significant impact on the opening consolidated balance sheet as of November 1, 2019, but did not have a significant impact on the consolidated statement of operations or consolidated statement of cash flows for the year ended October 31, 2020 when compared to prior periods.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases remained substantially unchanged.

For leases that commenced before the effective date of the new accounting standard, we elected the permitted practical expedients to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) initial direct costs for any existing leases.

We also elected to exclude leases with a term of 12 months or less in the ROU assets and lease liabilities.

Adoption of the new guidance impacted the consolidated balance sheet as follows:

October 31, 2019 Impact of Adopting November 1, 2019

As Reported Lease Guidance As Adopted

(in millions)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Other current assets

Total current assets

Property, plant and equipment, net

Other intangible assets, net

Long-term investments

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

Employee compensation and benefits

Deferred revenue

Other assets $ 611 $ 192 $ 803

Other accrued liabilities $ 440 $ 48 $ 488

Total current liabilities

Long-term debt

Retirement and post-retirement benefits

Other long-term liabilities $ 473 $ 144 $ 617

Total liabilities

Total equity:

Stockholders’ equity:

Preferred stock;

$0.01 par value;

125 million shares authorized;

none issued and outstanding

Common stock;

$0.01 par value;

2 billion shares authorized;

318 million shares at October 31, 2018 issued

Additional paid-in-capital

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders' equity

Non-controlling interest

Total liabilities and equity

As of November 1, 2018, we adopted new accounting guidance which requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

A reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheet follows:

(in millions)

Cash and cash equivalents

Restricted cash included in other assets

Total cash, cash equivalents and restricted cash

As of November 1, 2018, we adopted new accounting guidance which requires employers that present a measure of operating income in their statements of operations to include only the service cost component of net periodic postretirement benefit cost in operating expenses.

The service cost component of net periodic pension and postretirement benefit cost should be presented in the same operating expense line items as other employee compensation costs arising from services rendered during the period.

The other components of net periodic pension and postretirement benefit costs, including interest costs, expected return on assets, amortization of prior service cost/credit and actuarial gains/losses, and settlement and curtailment effects, are to be included separately and outside of any subtotal of operating income.

The adoption of this guidance resulted in a reclassification of income from our income from operations to other income (expense), net on our consolidated statement of operations of approximately $ 10 million , $ 24 million and $ 34 million in the year ended October 31, 2019, 2018 and 2017, respectively.

As adoption is required to be on a retrospective basis, we have recast our historical consolidated statements of operations and segment information to conform to current year presentation.

On November 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers , using the modified retrospective approach only to contracts not completed as of this date.

New Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued guidance which amends the existing accounting standards for leases.

Consistent with existing guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification.

Under the new guidance, a lessee will be required to recognize right-of-use assets ("ROU") and lease liabilities on the balance sheet.

On November 1, 2019, we adopted the lease accounting guidance using the modified retrospective method for all lease arrangements at the beginning of the period of adoption.

Results for reporting periods beginning November 1, 2019 will be presented under the new accounting guidance, while prior period amounts will not be adjusted.

As of November 1, 2019, the new accounting guidance had a material impact on our consolidated balance sheet but is expected to have an insignificant impact on the consolidated net income and cash flows.

The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for capital leases remained substantially unchanged.

For leases that commenced before the effective date of adoption of the new accounting guidance, we elected the permitted practical expedients to not reassess the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing leases;

and (iii) capitalization of initial direct costs for any existing leases.

As a result of the cumulative impact of adopting the new accounting guidance we will record operating lease ROU assets around $ 195 million and operating lease liabilities of the same amounts, primarily related to real estate and automobile leases.

The accounting applied to lease arrangements in which we are the lessor is largely unchanged from that applied under the prior standard and will not have a significant impact to our consolidated balance sheet, net income or cash flows

In June 2016, the FASB issued new guidance to require a financial asset measured at amortized cost basis, such as accounts receivable, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

During 2018 and 2019, the FASB issued additional guidance and clarification.

The new guidance is effective for us beginning November 1, 2020.

We do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In January 2017, the FASB issued an amendment to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.

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Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

We do not expect to early adopt nor do we expect this guidance to have a material impact on our consolidated financial statements and disclosures.

We do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.

In August 2018, the FASB issued updates to improve the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement which eliminates certain disclosure requirements and modifies others.

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We currently do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.

In December 2019, the FASB issued new guidance to simplify the accounting for income taxes.

This guidance eliminates certain exceptions to existing guidance related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The guidance also improves consistent application by clarifying and amending existing guidance related to aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step up in the tax basis of goodwill.

The new guidance is effective for us beginning November 1, 2021, and for interim periods within that year.

Early adoption is permitted.

We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements and disclosures.

In January 2020, accounting guidance was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging.

The guidance clarifies the interaction between different sections of the accounting guidance that could be applicable and helps clarify which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information.

This guidance is effective for us beginning November 1, 2021, and for interim periods within that year.

Early adoption is permitted.

We do not expect that the adoption of this standard will have a material impact on our consolidated financial statements and disclosures.

In March 2020, the FASB issued an update for facilitation of the effects of reference rate reform on financial reporting.

This update provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in the guidance provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform.

When elected, the optional expedients for contract modifications are applied consistently for all eligible contracts or eligible transactions within the relevant Topic or Industry Subtopic in the FASB's Accounting Standards Codification.

The guidance was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR.

We are currently evaluating our contracts and we do not expect that the adoption of this guidance will have a material impact on our consolidated financial statements and disclosures.

Other amendments to GAAP in the U.S.

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On August 23, 2019 we completed the acquisition of privately-owned Lionheart Technologies LLC ("BioTek"), a leader in the design, manufacture and distribution of innovative life science instrumentation for $ 1.17 billion, under the merger agreement.

As a result of the acquisition, BioTek has become a wholly-owned subsidiary of Agilent.

Accordingly, the results of BioTek are included in Agilent's consolidated financial statements from the acquisition date.

For the period from August 24, 2019 to October 31, 2019 , BioTek’s net revenue was $ 35 million and net loss was $ 12 million .

As a result of the acquisition, BioTek became a wholly-owned subsidiary of Agilent.

Accordingly, the results of

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

BioTek are included in Agilent's consolidated financial statements from the acquisition date.

The acquisition of BioTek and its portfolio is another step to expand our position in the cell analysis market.

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Accounts receivable 28

Inventories 21

Other current assets 2

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The fair values of certain other assets, inventory, property, plant and equipment, investments, long-term debt, and certain other long-term liabilities were determined internally using historical carrying values and estimates made by management.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Valuations of intangible assets acquired

The components of intangible assets acquired in connection with the BioTek acquisition were as follows (in millions):

Developed product technology

Customer relationships

Tradenames and trademarks

Fair Value Estimated

Developed product technology $ 387 5 - 13 years

Customer relationships 202 3 - 8 years

Backlog 5 2 months

Tradenames and trademarks 43 10 years

Total intangible assets subject to amortization $ 637

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Order backlog was valued on a direct cash flow basis.

The primary in-process research and development project acquired relates to a next version of a product which will be released in 2020.

Total costs to complete for all BioTek in-process research and development were estimated at approximately $ 2 million as of the close date.

Acquisition and integration costs directly related to the BioTek acquisition totaled $ 4 million for the year ended October 31, 2019 and were recorded in selling, general and administrative expenses.

The primary in-process research and development project acquired relates to a next version of a product which was subsequently released to customers in 2020.

After release, the asset was moved to developed technology.

Acquisition and integration costs directly related to the BioTek acquisition totaled $ 12 million and $ 4 million for the year ended October 31, 2020 and 2019, respectively, and were recorded in operating expenses and cost of sales.

Such costs are expensed in accordance with the authoritative accounting guidance.

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The following represents the unaudited proforma operating results as if BioTek and ACEA had been included in the company's consolidated statements of operations as of the beginning of fiscal 2018 (in millions, except per share amounts):

Net revenue $ 5,308 $ 5,112

Net income $ 1,012 $ 210

Net income per share — basic $ 3.22 $ 0.65

Net income per share — diluted $ 3.18 $ 0.65

The unaudited proforma financial information assumes that the companies were combined as of November 1, 2017 and include business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, the impact on cost of sales due to the respective estimated fair value adjustments to inventory, changes to interest income for cash used in the acquisition, interest expense and currency losses associated with debt paid in connection with the acquisition and acquisition related transaction costs and tax related effects.

The unaudited proforma financial information assumes that the companies were combined as of November 1, 2017 and include business combination accounting effects from the acquisition including amortization charges from acquired intangible assets, the impact on cost of sales due to the respective estimated fair value adjustments to inventory, changes to interest income for cash used in the acquisition, interest expense associated with debt paid in connection with the acquisition and acquisition related transaction costs and tax related effects.

The proforma information as presented above is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2018.

The unaudited proforma financial information for the year ended October 31, 2019 combines the historical results of Agilent for the year ended October 31, 2019 (which includes BioTek and ACEA after the acquisition date) and for BioTek for the ten months ended August 23, 2019.

The unaudited proforma financial information for the year ended October 31, 2018 combines the historical results of Agilent and ACEA for the year ended October 31, 2018 and BioTek for the year ended December 31, 2018 (due to differences in reporting periods).

The unaudited proforma financial information for the year ended October 31, 2018 combines the historical results of

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Agilent and ACEA for the year ended October 31, 2018 and BioTek for the year ended December 31, 2018 (due to differences in reporting periods).

The following table presents the company’s total revenue and segment revenue disaggregated by geographical region:

Year Ended October 31, 2019

Life Sciences and Applied Markets

Diagnostics and Genomics

Agilent CrossLab

Life Sciences and Applied Markets Agilent CrossLab Diagnostics and Genomics Total

(in millions)

Revenue by Region

The following table presents the company’s total revenue disaggregated by end markets and by revenue type:

Year Ended October 31, 2020:

Americas $ 784 $ 667 $ 517 $ 1,968

Europe 540 532 371 1,443

Asia Pacific 1,068 701 159 1,928

Total $ 2,392 $ 1,900 $ 1,047 $ 5,339

Year Ended October 31, 2019:

Americas $ 692 $ 664 $ 505 $ 1,861

Europe 551 522 368 1,441

Asia Pacific 1,059 654 148 1,861

Total $ 2,302 $ 1,840 $ 1,021 $ 5,163

The following table presents the company’s total revenue disaggregated by end markets and by revenue type:

Years Ended October 31,

(in millions)

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Environmental and Forensics 601 615

Total $ 5,339 5,163

Revenue by Type

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Non-instrumentation and other 3,090 3,013

Total $ 5,339 5,163

Revenue by region is based on the ship to location of the customer.

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Instrumentation revenue includes sales from instruments, remarketed instruments and third-party products.

Non-instrumentation and other revenue includes sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.

Non-instrumentation and other revenue include sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Balances

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Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the consolidated balance sheet.

The balance of contract assets as of October 31, 2019 and as of November 1, 2018, the date of adoption of ASC 606, were $ 110 million and $ 57 million , respectively.

The balances of contract assets as of October 31, 2020 and 2019, were $ 153 million and $ 110 million, respectively.

The increase in unbilled receivables during the year ended October 31, 2020 is a result of recognition of revenue upon the transfer of the control to the customer.

In some instances, transfer of control is prior to invoicing the customers and excluding amounts transferred to trade receivables during the period amounted to $ 53 million .

Contract Liabilities

The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the year ended October 31, 2019 :

The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the years ended October 31, 2019 and 2020:

(in millions)

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Ending balance as of October 31, 2019 $ 386

Net revenue deferred in the period 347

Revenue recognized that was included in the contract liability balance at the beginning of the period ( 300 )

Change in deferrals from customer cash advances, net of revenue recognized 9

Currency translation and other adjustments 4

Ending balance as of October 31,2020 $ 446

Contract liabilities primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements to the customer has either partially or not occurred at the balance sheet date.

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Contract Costs

Incremental costs of obtaining a contract with a customer are recognized as an asset if it expects the benefit of those costs to be longer than one year.

Incremental costs of obtaining a contract with a customer are recognized as an asset if we expect the benefit of those costs to be longer than one year.

We have determined that certain sales incentive programs meet the requirements to be capitalized.

The change in total capitalized costs to obtain a contract was immaterial during the year ended October 31, 2019 and are included in other current and long-term assets on the consolidated balance sheet.

The changes in total capitalized costs to obtain a contract were immaterial during the years ended October 31, 2020 and 2019 and are included in other current and long-term assets on the consolidated balance sheet.

We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.

These costs include the company's internal sales force compensation program, as we have determined that annual compensation is commensurate with annual sales activities.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Transaction Price Allocated to the Remaining Performance Obligations

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SHARE-BASED COMPENSATION

Agilent accounts for share-based awards in accordance with the provisions of the accounting guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our ESPP and performance share awards granted to selected members of our senior management under the LTPP based on estimated fair values.

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

Description of Share-Based Plans

Employee Stock Purchase Plan.

Effective November 1, 2000, we adopted the ESPP.

The ESPP allows eligible employees to contribute up to ten percent of their base compensation to purchase shares of our common stock at 85 percent of the closing market price at purchase date.

Currently, there are 75 million shares authorized for issuance in connection with the ESPP.

Effective May 1, 2020, we adopted the 2020 Employee Stock Purchase Plan ("ESPP") which replaced our previous Employee Stock Purchase Plan.

The ESPP allows eligible employees to contribute up to 10 percent of their base compensation to purchase shares of our common stock at 85 percent of the closing market price at purchase date.

There are 31 million shares authorized for issuance in connection with the ESPP.

Under our ESPP, employees purchased 628,644 shares for $ 41 million in 2020, 603,488 shares for $ 37 million in 2019 and 558,116 shares for $ 32 million in 2018.

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The 2018 Plan has a term of ten years .

As of October 31, 2019 , 28,676,526 shares were available for future awards under the 2018 Stock Plan.

Stock options under the 2018 Stock Plan may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory.

As of October 31, 2020, 25,596,430 shares were available for future awards under the 2018 Plan.

Stock options under the 2018 Plan may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory.

Options were granted prior to November 1, 2015 and generally vest at a rate of 25 percent per year over a period of four years from the date of grant with a maximum contractual term of ten years .

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Agilent issues new shares of common stock when employee stock options are exercised.

Effective November 1, 2003, the Compensation Committee of the Board of Directors approved the LTPP, which is a performance stock award program administered under the 2018 Stock Plan, for the company's executive officers and other key employees.

Effective November 1, 2003, the Compensation Committee of the Board of Directors approved the LTPP, which is a performance stock award program administered under the 2018 Plan, for the company's executive officers and other key employees.

Participants in this program are entitled to receive unrestricted shares of the company's stock after the end of a three-year period if specified performance targets are met.

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Participants in this program are also entitled to receive unrestricted shares of the company's stock after the end of a three-year period if specified performance targets over the three-year period are met.

The performance target for grants made in 2016 were based on Operating Margin (“OM”) and the performance grants made in 2017, 2018 and 2019 were based on Earnings Per Share ("EPS").

In the case of LTPP-OM, the performance targets for all the three years of performance period were set at the time of grant.

The performance target for grants made beginning in 2017 and thereafter were based on Earnings Per Share ("EPS").

The performance targets for LTPP-EPS grants for year 2 and year 3 of the performance period are set in the first quarter of year 2 and year 3, respectively.

All LTPP awards granted after November 1, 2015, are subject to a one-year post-vest holding period.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based on the performance metrics, the final LTPP award may vary from zero to 200 percent of the target award.

The maximum contractual term for awards under the LTPP program is three years and the maximum award value for awards granted in 2017 and 2016 cannot exceed 300 percent of the grant date target value.

The maximum contractual term for awards under the LTPP program is three years .

We consider the dilutive impact of these programs in our diluted net income per share calculation only to the extent that the performance conditions are expected to be met.

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Years Ended October 31,

2020 2019 2018

(in millions)

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Total share-based compensation expense $ 84 $ 72 $ 71

At October 31, 2019 and 2018 there was no share-based compensation capitalized within inventory.

At October 31, 2020 and 2019, no share-based compensation was capitalized within inventory.

Valuation Assumptions

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

The estimated fair value of restricted stock unit awards, LTPP (OM) and LTPP (EPS) was determined based on the market price of Agilent's common stock on the date of grant adjusted for expected dividend yield and as appropriate, a discount related to the one-year post vesting.

The compensation cost for LTPP (OM) and LTPP (EPS) awards reflect the cost of awards that are probable to vest at the end of the performance period.

The estimated fair value of restricted stock unit awards and LTPP (EPS) was determined based on the market price of Agilent's common stock on the date of grant adjusted for expected dividend yield and as appropriate, a discount related to the one-year post vesting.

The compensation cost for LTPP (EPS) awards reflects the cost of awards that are probable to vest at the end of the performance period.

The following assumptions were used to estimate the fair value of awards granted.

Years Ended October 31,

2020 2019 2018

Volatility of Agilent shares 23 % 22 % 21 %

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For LTPP (TSR) grants in 2017 and thereafter, we used our own historical stock price volatility.

All LTPP awards granted to our executives have a one-year post-vest holding restriction.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

All LTPP awards granted have a one-year post-vest holding restriction.

The estimated discount associated with post-vest holding restrictions is calculated using the Finnerty model.

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The following table summarizes employee stock option award activity of our employees and directors for 2020.

Outstanding Weighted

Exercise Price

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Outstanding at October 31, 2019 1,445 $ 36

Exercised ( 575 ) $ 34

Outstanding at October 31, 2020 870 $ 37

The options outstanding and exercisable for equity share-based payment awards at October 31, 2020 were as follows:

Options Outstanding

Options Exercisable

Exercise Prices

(in thousands)

Options Outstanding Options Exercisable

Exercise Prices Number

Outstanding Weighted

Life Weighted

Price Aggregate

Exercisable Weighted

Life Weighted

Price Aggregate

(in thousands) (in years) (in thousands) (in thousands) (in years) (in thousands)

$ 25.01 - $ 30.00

228 1.7 $ 27 $ 17,192 228 1.7 $ 27 $ 17,192

$ 30.01 - $ 40.00

121 3.1 $ 39 7,586 121 3.1 $ 39 7,586

$ 40.01 - over

521 4.0 $ 41 31,883 521 4.0 $ 41 31,883

870 3.3 $ 37 $ 56,661 870 3.3 $ 37 $ 56,661

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the company's closing stock price of $ 102.09 at October 31, 2020, which would have been received by award holders had all award holders exercised their awards that were in-the-money as of that date.

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The following table summarizes the aggregate intrinsic value of options exercised in 2020, 2019 and 2018:

Intrinsic Value

Intrinsic Value Weighted

(in thousands)

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Options exercised in fiscal 2020 $ 30,481 $ 34

As of October 31, 2019 , the unrecognized share-based compensation costs for outstanding stock option awards, net of expected forfeitures, was zero .

As of October 31, 2020, the unrecognized share-based compensation cost for outstanding stock option awards, net of expected forfeitures, was zero .

The amount of cash received from the exercise of share-based awards granted was $ 60 million in 2020, $ 54 million in 2019 and $ 56 million in 2018.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Non-Vested Awards

The following table summarizes non-vested award activity in 2020 primarily for our LTPP and restricted stock unit awards.

Shares Weighted

(in thousands)

Non-vested at October 31, 2019 3,173 $ 60

Granted 1,091 $ 79

Vested ( 1,629 ) $ 52

Forfeited ( 115 ) $ 68

Change in LTPP shares in the year due to exceeding performance targets 298 $ 47

Non-vested at October 31, 2020 2,818 $ 70

As of October 31, 2019 , the unrecognized share-based compensation costs for non-vested restricted stock awards, net of expected forfeitures, was approximately $ 94 million which is expected to be amortized over a weighted average period of 2.2 years.

As of October 31, 2020, the unrecognized share-based compensation cost for non-vested restricted stock awards was approximately $ 95 million which is expected to be amortized over a weighted average period of 2.1 years.

The total fair value of restricted stock awards vested was $ 85 million for 2020, $ 69 million for 2019 and $ 58 million for 2018.

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Years Ended October 31,

2020 2019 2018

(in millions)

operations $ 54 $ 189 $ 169

operations 788 730 777

Total income before taxes $ 842 $ 919 $ 946

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Years Ended October 31,

2020 2019 2018

(in millions)

federal taxes:

Current $ 5 $ ( 191 ) $ 520

Deferred 4 — 51

Current 84 290 95

Deferred 24 ( 267 ) ( 22 )

State taxes, net of federal benefit:

Current 5 4 1

Deferred 1 12 ( 15 )

Total provision (benefit) $ 123 $ ( 152 ) $ 630

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The differences between the U.S.

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Years Ended October 31,

2020 2019 2018

(in millions)

4 unchanged sentences

Extension of the tax incentive in Singapore — ( 299 ) —

Excess tax benefits from stock-based compensation ( 18 ) ( 10 ) ( 18 )

Other, net 9 ( 15 ) ( 15 )

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

Effective tax rate 14.6 % ( 16.5 ) % 66.6 %

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.

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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 U.S.

Tax Cuts and Jobs Act (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.

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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.

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.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The significant components of deferred tax assets and deferred tax liabilities included on the consolidated balance sheet are:

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Deferred Tax Assets

Property, plant and equipment

Intangibles $ 153 $ 131

Pension benefits and retiree medical benefits 65 71

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Deferred revenue 22 38

Lease obligations 35 —

Deferred tax assets $ 556 $ 536

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Property, plant and equipment $ ( 19 ) $ ( 16 )

Right-of-use asset ( 35 ) —

Other ( 14 ) ( 7 )

Deferred tax liabilities $ ( 68 ) $ ( 23 )

Net deferred tax assets (liabilities) $ 356 $ 379

The increase in 2019 as compared to 2018 for the deferred tax asset and liabilities was primarily due to the benefit of $ 299 million related to the extension of the company’s tax incentive in Singapore.

Valuation allowances require an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

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Long-term deferred tax liabilities (included within other long-term liabilities) ( 24 ) ( 31 )

Total $ 356 $ 379

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The breakdown between current and long-term income tax assets and liabilities, excluding deferred tax assets and liabilities, was as follows:

4 unchanged sentences

Long-term income tax liabilities (included within other long-term liabilities) ( 323 ) ( 328 )

Total $ ( 291 ) $ ( 548 )

Uncertain Tax Positions

The aggregate changes in the balances of our gross unrecognized tax benefits including all federal, state and foreign tax jurisdictions are as follows:

2020 2019 2018

(in millions)

3 unchanged sentences

Reductions for tax positions from prior years — ( 2 ) ( 13 )

Settlements with taxing authorities

Statute of limitations expirations ( 17 ) ( 25 ) ( 26 )

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However, approximately $ 25 million of the unrecognized tax benefits were related to state income tax positions that, if recognized, would be in the form of a deferred tax asset that would likely not affect our effective tax rate due to a valuation allowance.

We recognized a tax expense of $ 9 million , a tax expense of $ 11 million and a tax benefit of $ 9 million of interest and penalties related to unrecognized tax benefits in 2019 , 2018 and 2017 , respectively.

We recognized tax expense of $ 8 million, $ 9 million and $ 11 million for interest and penalties related to unrecognized tax benefits in 2020, 2019 and 2018, respectively.

Interest and penalties accrued as of October 31, 2020 and 2019 were $ 45 million and $ 36 million, respectively.

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 the U.S., tax years remain open back to the year 2017 for federal income tax purposes and for significant states.

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

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Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NET INCOME PER SHARE

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Years Ended October 31,

2020 2019 2018

(in millions)

Net income $ 719 $ 1,071 $ 316

Denominators:

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

In 2019 , 2018 and 2017 , we issued approximately 2 million , 2 million and 3 million , of share-based awards, respectively.

For the years ended 2019 , 2018 and 2017 , the impact of the anti-dilutive potential common shares that were excluded from the calculation of diluted earnings per share was not material.

In 2020, 2019 and 2018, we issued share-based awards of approximately 2 million each year.

For the years ended 2020, 2019 and 2018, the impacts of the anti-dilutive potential common shares that were excluded from the calculation of diluted earnings per share were not material.

Inventory as of October 31, 2020 and 2019 consisted of the following:

(in millions)

1 unchanged sentence

Purchased parts and fabricated assemblies 303 263

Inventory $ 720 $ 679

Inventory-related excess and obsolescence charges of $ 28 million were recorded in cost of products in 2020, $ 19 million in 2019 and $ 26 million in 2018.

We record excess and obsolete inventory charges for both inventory on our site as well as inventory at our contract manufacturers and suppliers where we have non-cancelable purchase commitments.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment as of October 31, 2020 and 2019, consisted of the following:

(in millions)

Land $ 58 $ 57

Buildings and leasehold improvements 1,055 1,012

Machinery and equipment 579 546

Software 182 160

Total property, plant and equipment 1,874 1,775

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Property, plant and equipment, net $ 845 $ 850

There were no asset impairments in 2019 and 2017 and less than $ 1 million asset impairments in 2018 .

In 2020 we recorded $ 6 million in asset impairments related to the shutdown of our sequencer development program.

There were no asset impairments in 2019 and less than $ 1 million in asset impairments in 2018.

Depreciation expenses were $ 119 million in 2020, $ 111 million in 2019 and $ 102 million in 2018.

In 2019 we retired approximately $ 23 million of fully depreciated assets that were no longer in use.

In 2020 and 2019 we retired approximately $ 29 million and $ 23 million, respectively, of fully depreciated assets that were no longer in use.

As a lessee, we have various non-cancelable operating lease agreements for office space, warehouses, distribution centers, research and development facilities, manufacturing and production locations as well as vehicles, personal computers and other equipment.

Our real estate leases have remaining lease terms of one to thirty years, which represent the non-cancelable periods of the leases and include extension options that we determined are reasonably certain to be exercised.

We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from six months to twenty years.

Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms.

We often receive incentives from our landlords, such as rent abatement periods, which effectively reduce the total lease payments owed for these leases.

Vehicle, personal computer and other equipment operating leases have terms between three and five years.

Prior to the adoption of the new lease accounting standard, future minimum lease payments as of October 31, 2019 under non-cancelable leases with initial terms exceeding twelve months were as follows:

Operating Leases

(in millions)

Thereafter $ 56

The components of lease cost for operating leases were as follows:

Year Ended October 31, 2020

(in millions)

Operating lease cost $ 60

Short-term lease cost 1

Variable lease cost (a)

Sublease income ( 14 )

Total lease cost $ 61

(a) Variable lease cost includes cancelable leases, non-fixed maintenance costs and non-recoverable transaction taxes.

Total rent expense was $ 75 million in 2019 and $ 64 million in 2018.

Supplemental cash flow information related to leases was as follows:

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended October 31, 2020

(in millions)

Cash paid for amounts included in the amounts included in the measurement of lease liabilities:

Operating cash flow from operating leases $ 59

Non-cash right of use assets obtained in exchange for operating lease obligations $ 37

Supplemental balance sheet information related to leases was as follows:

Financial Statement Line Item October 31, 2020

(in millions, except lease term and discount rate)

Operating lease:

Right of use asset Other assets $ 175

Operating lease liabilities Other accrued liabilities $ 51

Operating lease liabilities Other long-term liabilities $ 127

Weighted average remaining lease term (in years)

Operating leases 7.9 years

Weighted average discount rate

Operating leases 2.1 %

Future minimum rents payable as of October 31, 2020 under non-cancelable leases with initial terms exceeding one year reconcile to lease liabilities included in the consolidated balance sheet as follows:

Operating Leases

(in millions)

Thereafter 49

Total undiscounted future minimum lease payments $ 197

amount of lease payments representing interest ( 19 )

Present value of future minimum lease payments $ 178

current liabilities ( 51 )

Long-term lease liabilities $ 127

As of October 31, 2020, we had no additional significant operating or finance leases that had not yet commenced.

As a lessor, we have contracts for equipment leased to customers in connection with our diagnostics business which include both operating-type lease and sales-type lease arrangements.

We account for the non-lease component under the revenue recognition ASC 606 guidance and the lease component under the leasing ASC 842 guidance.

Equipment lease revenue for operating lease agreements is recognized as visualization kits and reagents are shipped over the life of the lease, and the cost of customer leased equipment is recorded within property, plant and equipment, net in the consolidated balance sheet and depreciated over the equipment’s estimated useful life.

For an arrangement that has been classified as a sales-type lease, revenue is recognized when the transfer of control of the underlying leased asset has occurred and the net investment lease recorded which is calculated at the present value of the remaining lease payments due from the lessee.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue allocated to the lease income for both finance/sales-type lease and operating lease rental arrangements represents less than one percent of total net revenue in the year ended October 31, 2020.

As of October 31, 2020, the original cost and net book value of operating leased assets was $ 43 million and $ 12 million, respectively.

As of October 31, 2020, lease receivables related to sales-type leases were $ 44 million.

As of October 31, 2019, the original cost and net book value of operating leased assets was $ 49 million and $ 17 million, respectively.

As of October 31, 2019, lease receivables related to sales-type leases were $ 37 million.

GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents goodwill balances and the movements for each of our reportable segments during the years ended October 31, 2019 and 2020:

Life Sciences and Applied Markets

Diagnostics and Genomics

Agilent CrossLab

Life Sciences and Applied Markets Diagnostics and Genomics Agilent CrossLab Total

(in millions)

4 unchanged sentences

Foreign currency translation impact 3 5 1 9

Goodwill arising from acquisitions and adjustments

Goodwill as of October 31, 2020 $ 1,441 $ 1,599 $ 562 $ 3,602

As of September 30, 2019 , our annual impairment test date, we assessed goodwill impairment for our reporting units and no impairment was indicated.

As of September 30, 2020, our annual impairment test date, we assessed goodwill for triggering events and circumstances, including impacts due to COVID-19, and determined no impairment of goodwill was indicated for our reporting units.

The component parts of other intangible assets at October 31, 2019 and 2020 are shown in the table below:

Other Intangible Assets

and Impairments

Amount Accumulated

Amortization Net Book

(in millions)

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Purchased technology $ 1,413 $ 763 $ 650

Backlog 5 5 —

Trademark/Tradename 196 102 94

3 unchanged sentences

In-Process R&D 115 — 115

Total $ 2,086 $ 979 $ 1,107

As of October 31, 2020:

5 unchanged sentences

In-Process R&D 10 — 10

In 2019, we acquired two businesses, BioTek and ACEA, for a combined purchase price of approximately $ 1.4 billion .

See Note 3, "Acquisitions", for additional information.

During fiscal year 2019 , w e recorded additions to goodwill of $ 636 million and to other intangible assets of $ 744 million related to the acquisition of ACEA and BioTek.

Total $ 1,976 $ 1,145 $ 831

During fiscal year 2020, we recorded no additions to goodwill or to intangible assets.

During the year ended October 31, 2020 we moved $15 million of in-process research and development intangible assets to purchased technology on the completion of three projects.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During fiscal year 2019, w e recorded additions to goodwill of $ 636 million and to other intangible assets of $ 744 million related to the acquisition of ACEA Biosciences and BioTek.

In the second quarter of fiscal year 2019, we recorded a measurement period adjustment to goodwill of $ 11 million for deferred tax assets related to pre-acquisition net operating losses of Advanced Analytical Technologies, Inc.

The increase to other intangible assets due to foreign currency translation was not material in 2019.

During fiscal year 2018 , we recorded additions to goodwill of $ 381 million and to intangible assets of $ 262 million related to the acquisition of seven businesses.

During the year other intangible assets decreased $ 1 million , due to the impact of foreign exchange translation.

In general, for United States federal tax purposes, goodwill from asset purchases is amortizable however any goodwill created as part of a stock acquisition is not deductible.

In 2019 , there were no impairments of other intangible assets recorded.

During 2018 , we recorded an impairment charge of $ 21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.

In 2017 , there were no impairments of other intangible assets recorded.

In general, for United States federal tax purposes, goodwill from asset purchases is amortizable;

however, any goodwill created as part of a stock acquisition is not deductible.

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

There were no impairments of indefinite-lived intangible assets during fiscal year 2019 and 2018.

During fiscal years 2020 and 2019, there were no impairments of finite-lived intangible assets recorded.

During 2018, we recorded an impairment of $ 21 million related to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable.

During 2020, we also wrote-off the gross carrying amount of $ 17 million and the related accumulated amortization of fully amortized intangible assets which were no longer being used.

Amortization expense of intangible assets was $ 186 million in 2020, $ 128 million in 2019, and $ 110 million in 2018.

2 unchanged sentences

(in millions)

Thereafter $ 230

The following table summarizes the company's equity investments as of October 31, 2020 and 2019 (net book value):

3 unchanged sentences

Trading securities 30 30

Total $ 158 $ 102

Equity investments without readily determinable fair value (RDFV) consist of non-marketable equity securities issued by private companies.

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Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings.

During 2018, we acquired all of the remaining shares of Lasergen, Inc.

(Lasergen), for an additional cash consideration of approximately $ 107 million , an investment that was accounted for under the cost method in 2017 for approximately $ 80 million .

The fair value remeasurement of our previous investment immediately before the acquisition resulted in a net gain of $ 20 million and was recorded in other income.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our investments without RDFV are subject to periodic impairment review.

The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future value of the investment.

Net unrealized gains on our equity securities with RDFV were $ 3 million in 2019.

Net unrealized gains on our equity securities without RDFV were not material in 2019.

The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment.

We recorded a net unrealized loss on our equity securities with RDFV of $ 1 million in 2020 and a net unrealized gain of $ 3 million in 2019.

Net unrealized gains on our equity securities without RDFV were $ 27 million and $ 1 million in 2020 and 2019, respectively.

Upon adoption of new accounting guidance relating to financial instruments beginning fiscal year 2019, the gains and losses on such securities are recognized in other income (expense) and therefore not applicable in prior periods.

As of November 1, 2019, total impact of adoption of said accounting guidance to our consolidated balance sheet was an increase of $ 7 million to equity securities with RDFV (included within long-term investments) and a net increase of $ 5 million to beginning retained earnings.

As of November 1, 2019, total impact of adoption of this accounting guidance to our consolidated balance sheet was an increase of $ 7 million to equity securities with RDFV (included within long-term investments) and a net increase of $ 5 million to beginning retained earnings.

Net unrealized gains on our trading securities portfolio were $ 2 million in 2020, $ 3 million in 2019 and $ 1 million in 2018.

7 unchanged sentences

Level 1 — applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 — applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are

observable, either directly or indirectly, for the asset or liability such as:

Level 2 — applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as:

quoted prices for similar assets or liabilities in active markets;

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Level 3 — applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

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Identical Assets

(Level 1) Significant

(Level 2) Significant

(in millions)

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Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2019 were as follows:

Fair Value Measurement at October 31, 2018 Using

Fair Value Measurement

at October 31, 2019 Using

2019 Quoted Prices

Identical Assets

(Level 1) Significant

(Level 2) Significant

(in millions)

2 unchanged sentences

Trading securities 30 30 — —

Other investments 25 — 25 —

Total assets measured at fair value $ 851 $ 814 $ 37 $ —

4 unchanged sentences

Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets.

Our deferred compensation liability is classified as level 2 because, although the values are not directly based on quoted market prices, the inputs used in the calculations are observable.

Our deferred compensation liability is classified as level 2 because, although the values are not directly based on

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

quoted market prices, the inputs used in the calculations are observable.

Other investments represent shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities.

It has been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself.

Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive loss within stockholders' equity.

It has been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are or can be derived from and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself.

Trading securities, which are comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income.

Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) within stockholders' equity.

Realized gains and losses from the sale of these instruments are recorded in net income.

2 unchanged sentences

For assets measured at fair value on a non-recurring basis, the following table summarizes the impairments included in net income for the years ended October 31, 2020, 2019 and 2018:

2020 2019 2018

(in millions)

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Long-lived assets held for sale $ — $ — $ —

There were no impairments of long-lived assets held and used in 2019 and 2017.

For 2018, long lived assets held and used with a carrying amount of $ 21 million were written down to their fair value of zero , resulting in an impairment charge of $ 21 million , which relates to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable and was included in net income.

For the year ended October 31, 2020, long-lived assets held and used, including indefinite lived in-process research and development intangible assets, with a carrying amount of $ 98 million were written down to their fair value of zero , resulting in an impairment charge of $ 98 million related to the shutdown of our sequencer development program and other assets in our diagnostics and genomics segment.

There were no impairments of long-lived assets held and used in 2019.

For 2018, long lived assets held and used with a carrying amount of $ 21 million were written down to their fair value of zero , resulting in an impairment charge of $ 21 million, which relates to purchased intangible assets within the diagnostics and genomics segment that were deemed unrecoverable and were included in net income.

There were no impairments of long-lived assets held for sale in 2020, 2019 and 2018.

Fair values for the impaired long-lived assets during 2018 were measured using level 3 inputs.

To determine the fair value of long-lived assets in 2018, we used the income approach based on projected discounted cash flows expected to be generated by the long-lived assets over the remaining useful life.

For 2019, there were no impairments or material changes in non-marketable securities without readily determinable fair value.

As of October 31, 2019 and October 31, 2018, the carrying amount of non-marketable equity securities without readily determinable fair values was $ 47 million and $ 23 million , respectively.

Fair values for the impaired long-lived assets during 2020 and 2018 were measured using level 3 inputs.

To determine the fair value of long-lived assets in 2020 and 2018, we used the income approach based on projected discounted cash flows expected to be generated by the long-lived assets over the remaining useful life.

For the year ended October 31, 2020 and 2019, there were no impairments in non-marketable securities without readily determinable fair value.

For the year ended October 31, 2020 and 2019, a net unrealized gain of $ 27 million and $ 1 million, respectively, was included in net income as an adjustment to the carrying value of non-marketable equity securities without readily determinable fair value based on an observable market transaction.

As of October 31, 2020 and 2019, the carrying amount of non-marketable equity securities without readily determinable fair values was $ 103 million and $ 47 million, respectively.

Fair values for the non-marketable securities included in long-term investments on the consolidated balance sheet were measured using Level 3 inputs because they are primarily equity stock issued by private companies without quoted market prices.

To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and to adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when it occurs.

To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when they occur.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business.

As part of our risk management strategy, we use derivative instruments, primarily forward contracts purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

Fair Value Hedges

We are exposed to interest rate risk due to the mismatch between the interest expense we pay on our loans at fixed rates and the variable rates of interest we receive from cash, cash equivalents and other short-term investments.

We have issued long-term debt in U.S.

dollars at fixed interest rates based on the market conditions at the time of financing.

The fair value of our fixed rate debt changes when the underlying market rates of interest change, and, in the past, we have used interest rate swaps to change our fixed interest rate payments to U.S.

dollar LIBOR-based variable interest expense to match the floating interest income from our cash, cash equivalents and other short-term investments.

As of October 31, 2019 , all interest rate swap contracts had either been terminated or had expired.

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

On September 17, 2019, the 2020 senior notes were redeemed, and the remaining gain associated with the terminated interest rate swap contracts was realized.

As part of our risk management strategy, we use derivative instruments, primarily forward contracts and purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.

Cash Flow Hedges

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These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance and are assessed for effectiveness against the underlying exposure every reporting period.

For open contracts as of October 31, 2019 and entered into on or after November 1, 2018, changes in the time value of the foreign exchange contract are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the foreign exchange contract.

For open contracts as of October 31, 2020, changes in the time value of the foreign exchange contract are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the foreign exchange contract.

The changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss).

3 unchanged sentences

We record the premium paid (time value) of an option on the date of purchase as an asset.

For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the

life of the option contract.

For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the option contract.

For the years ended October 31, 2020, 2019 and 2018, ineffectiveness and gains and losses recognized in other income (expense), net due to de-designation of cash flow hedge contracts were not significant.

1 unchanged sentence

We designated the treasury lock as a cash flow hedge.

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.

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.

These derivative instruments were designated and qualified as cash flow hedges under the criteria prescribed in the authoritative guidance.

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.

1 unchanged sentence

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 which is being amortized to interest expense over the life of the 2029 senior notes.

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.

Net Investment Hedges

Starting in 2020, we enter into foreign exchange contracts to hedge net investments in foreign operations to mitigate the risk of adverse movements in exchange rates.

These foreign exchange contracts are carried at fair value and are designated and qualify as net investment hedges under the criteria prescribed in the authoritative guidance.

Changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss) and are assessed for effectiveness against the underlying exposure every reporting period.

If the company’s net investment changes during the year, the hedge relationship will be assessed and de-designated if the hedge notional amount is outside of prescribed tolerance with a gain/loss reclassified from other comprehensive income (loss) to other income (expense) in the current period.

As of October 31, 2020, we have 3 open forward contracts to sell euros to buy USD maturing in the first quarter of fiscal year 2021, and these are designated as a net investment hedge of the U.S.

parent's interest in foreign subsidiaries denominated in euro functional currency.

In the year ended October 31, 2020, the change in fair value of the net investment hedge resulted in

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

a net loss of $ 5 million recognized in accumulated other comprehensive income.

For the year ended October 31, 2020, ineffectiveness and the resultant effect of any gains or losses recognized in other income (expense) due to de-designation of the hedge contracts were not significant.

Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries.

10 unchanged sentences

There were 183 foreign exchange forward contracts open as of October 31, 2020 not designated as hedging instruments.

There were 3 foreign exchange forward contracts open as of October 31, 2020 and designated as a net investment hedge.

The aggregated notional amounts by currency and designation as of October 31, 2020 were as follows:

1 unchanged sentence

Cash Flow Hedges

Contracts USD

Derivatives Designated as

Net Investment Hedges Derivatives

Contracts USD Forward

Contracts USD

Currency Buy/(Sell) Buy/(Sell) Buy/(Sell)

(in millions)

Euro $ ( 59 ) $ ( 94 ) $ 17

British Pound ( 41 ) — 7

Canadian Dollar ( 33 ) — ( 7 )

Australian Dollar

Malaysian Ringgit

Japanese Yen ( 83 ) — ( 39 )

Korean Won ( 58 ) — ( 32 )

Singapore Dollar 12 — 23

1 unchanged sentence

Swedish Krona — — ( 10 )

Taiwan Dollar — — ( 14 )

India Rupee — — ( 15 )

$ ( 332 ) $ ( 94 ) $ ( 134 )

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance.

1 unchanged sentence

Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

Balance Sheet Location

Asset Derivatives Liability Derivatives

Fair Value Fair Value

Balance Sheet Location October 31,

2020 October 31,

2019 Balance Sheet Location October 31,

2020 October 31,

(in millions)

2 unchanged sentences

Foreign exchange contracts

Other current assets

Other accrued liabilities

Other current assets $ — $ 3 Other accrued liabilities $ 12 $ 2

Derivatives not designated as hedging instruments:

Foreign exchange contracts

Other current assets

Other accrued liabilities

Other current assets $ 2 $ 9 Other accrued liabilities $ 5 $ 4

Total derivatives $ 2 $ 12 $ 17 $ 6

The effect of derivative instruments for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our consolidated statement of operations were as follows:

The effects of derivative instruments for foreign exchange contracts designated as hedging instruments and not designated as hedging instruments in our consolidated statement of operations were as follows:

Years Ended October 31,

2020 2019 2018

(in millions)

1 unchanged sentence

Cash flow hedges

Foreign exchange contracts:

Loss on interest rate swaps recognized in other comprehensive income (loss) $ — $ ( 6 ) $ —

Loss reclassified from accumulated other comprehensive income into interest expense

Loss reclassified from accumulated other comprehensive income (loss) into interest expense $ ( 1 ) $ ( 1 ) $ ( 1 )

Gain (loss) recognized in accumulated other comprehensive income (loss) $ ( 12 ) $ — $ 7

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Gain (loss) on time value of forward contracts recorded in cost of sales $ 2 $ 2 $ —

Net investment hedges

Foreign exchange contracts:

Loss recognized in accumulated other comprehensive income (loss) $ ( 5 ) $ — $ —

Derivatives not designated as hedging instruments:

Gain (loss) recognized in other income (expense), net $ ( 1 ) $ 2 $ ( 2 )

At October 31, 2019 the estimated amount of existing net gain that is expected to be reclassified from accumulated other comprehensive income to cost of sales within the next twelve months is $ 4 million .

At October 31, 2020 the estimated amount of existing net loss that is expected to be reclassified from accumulated other comprehensive income (loss) to cost of sales within the next twelve months is $ 7 million.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

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– As of April 30, 2016, benefits under this plan were changed for Active employees who have not met the eligibility requirement - 55 years old with at least 15 years of Agilent service, as of April 30, 2016 - for the Retiree Medical Account (RMA) under the U.S.

Post Retirement Benefit Plan These employees will only be eligible for 50 percent of the current RMA reimbursement amount upon retirement.

Post Retirement Benefit Plan.

These employees will only be eligible for 50 percent of the current RMA reimbursement amount upon retirement.

401(k) Defined Contribution Plan .

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employees may participate in the Agilent Technologies, Inc.

Effective April 30, 2016, we began matching contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation.

We match contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation.

Effective May 1, 2016 until April 30, 2022, we will provide an additional transitional company contribution for certain eligible employees equal to 3 percent, 4 percent or 5 percent of an employee's annual eligible compensation due to the RP benefits being frozen.

1 unchanged sentence

The 401(k) Plan employer expense included in income from operations was $ 41 million in 2020, $ 39 million in 2019 and $ 37 million in 2018.

Japanese Welfare Pension Insurance Law .

In Japan, Agilent has employees' pension fund plans, which are defined benefit pension plans established under the Japanese Welfare Pension Insurance Law (JWPIL).

The plans are composed of (a) a substitutional portion based on the pay-related part of the old-age pension benefits prescribed by JWPIL (similar to social security benefits in the United States) and (b) a corporate portion based on a contributory defined benefit pension arrangement established at the discretion of the company.

During the year ended October 31, 2017 , Agilent received government approval and returned the substitutional portion of Japan's pension plan to the Japanese government, as allowed by the JWPIL.

The initial transfer resulted in a net gain of $ 32 million recorded in other income (expense), net in the consolidated statement of operations.

The net gain consisted of two parts - a gain of $ 41 million , representing the difference between the fair values of the Accumulated Benefit Obligation (ABO) settled of $ 65 million and the assets transferred from the pension trust to the government of Japan of $ 24 million , offset by a settlement loss of $ 9 million related to the recognition of previously unrecognized actuarial losses included in accumulated other comprehensive income.

In the first quarter of fiscal year 2018, after the Japanese government’s final review of our initial payment, we received a refund of $ 5 million which was recorded as a settlement gain.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Components of Net periodic cost.

7 unchanged sentences

For the years ended October 31, 2020, 2019 and 2018, components of net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of:

Pensions U.S.

Post-Retirement Benefit Plans

Plans Non-U.S.

2020 2019 2018 2020 2019 2018 2020 2019 2018

(in millions)

6 unchanged sentences

Total periodic benefit cost (benefit) $ ( 10 ) $ ( 8 ) $ ( 11 ) $ 34 $ 25 $ 16 $ ( 6 ) $ ( 7 ) $ ( 3 )

Curtailments and settlements

Settlement (gain) loss $ 4 $ — $ — $ — $ — $ ( 5 ) $ — $ — $ —

Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss

1 unchanged sentence

Amortization of net actuarial loss ( 3 ) ( 1 ) ( 1 ) ( 49 ) ( 34 ) ( 29 ) ( 4 ) ( 4 ) ( 8 )

Prior service cost (benefit)

Amortization of prior service benefit — — — — — — 7 8 8

Gain due to settlement

Loss due to settlement ( 4 ) — — — — — — — —

Foreign currency — — — 10 ( 3 ) 1 — — —

1 unchanged sentence

Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss $ 13 $ 42 $ ( 10 ) $ 15 $ 92 $ 32 $ 2 $ 2 $ ( 5 )

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Funded Status.

As of October 31, 2020 and 2019, the funded status of the defined benefit and post-retirement benefit plans was:

Benefit Plans

Benefit Plans Non-U.S.

Benefit Plans U.S.

Post-Retirement

Benefit Plans

2020 2019 2020 2019 2020 2019

(in millions)

5 unchanged sentences

Benefits paid ( 8 ) ( 19 ) ( 31 ) ( 29 ) ( 8 ) ( 6 )

Settlements ( 15 ) — — — — —

Currency impact — — 34 8 — —

2 unchanged sentences

Benefit obligation — beginning of year $ 491 $ 420 $ 1,067 $ 913 $ 94 $ 87

Service cost — — 24 20 1 —

Interest cost 15 18 8 14 3 4

Participants' contributions — — 1 1 — —

Plan amendment

Actuarial (gain) loss 28 74 ( 19 ) 143 4 9

Benefits paid ( 9 ) ( 21 ) ( 31 ) ( 29 ) ( 8 ) ( 6 )

Settlements ( 15 ) — — — — —

Currency impact — — 44 5 — —

2 unchanged sentences

Amounts recognized in the consolidated balance sheet consist of:

Other assets $ — $ — $ 123 $ 106 $ — $ 1

Employee compensation and benefits ( 1 ) ( 1 ) — — — —

4 unchanged sentences

Prior service costs (benefits) — — — — ( 5 ) ( 12 )

The amounts in accumulated other comprehensive income expected to be recognized by Agilent as components of net expense during 2020 are as follows:

Benefit Plans

Total $ 134 $ 115 $ 311 $ 330 $ 6 $ ( 2 )

The amounts in accumulated other comprehensive income (loss) expected to be recognized by Agilent as components of net expense during 2021 are as follows:

Benefit Plans Non-U.S.

Benefit Plans U.S.

Post-Retirement

2 unchanged sentences

Amortization of net prior service cost (benefit) $ — $ — $ ( 1 )

Amortization of actuarial net loss (gain)

Amortization of actuarial net loss $ 4 $ 52 $ 4

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Investment Policies and Strategies as of October 31, 2020 and 2019.

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Our DPSP 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.

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

The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk.

3 unchanged sentences

and earn performance rates of return in accordance with the benchmarks adopted for each asset class.

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.

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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Securities which have quoted prices in active markets are classified as Level 1 investments.

Other Investments - Other investments also includes partnership investments where, due to their private nature, pricing inputs are not readily observable.

Other Investments - Other investments also include partnership investments where, due to their private nature, pricing inputs are not readily observable.

Asset valuations are developed by the general partners that manage the partnerships.

3 unchanged sentences

The accounting guidance exempts investments using this practical expedient from categorization within the fair value hierarchy.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the fair value of U.S.

Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2020 and 2019.

Fair Value Measurement at October 31, 2019 Using

Fair Value Measurement

at October 31, 2020 Using

2020 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 1 $ — $ — $ — $ 1

Equity 357 77 — — 280

Fixed Income 79 39 — — 40

Other Investments 2 — — 2 —

1 unchanged sentence

(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

Fair Value Measurement at October 31, 2018 Using

Fair Value Measurement

at October 31, 2019 Using

2019 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 1 $ — $ — $ — $ 1

Equity 336 78 — — 258

Fixed Income 91 46 — — 45

Other Investments 4 — — 4 —

8 unchanged sentences

Balance, end of year $ 2 $ 4

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the fair value of U.S.

Post-Retirement Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2020 and 2019.

Fair Value Measurement at October 31, 2019 Using

Fair Value Measurement

at October 31, 2020 Using

2020 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 4 $ — $ — $ — $ 4

Equity 70 17 — — 53

Fixed Income 18 9 — — 9

Other Investments 1 — — 1 —

1 unchanged sentence

(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

Fair Value Measurement at October 31, 2018 Using

Fair Value Measurement

at October 31, 2019 Using

2019 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 3 $ — $ — $ — $ 3

Equity 69 18 — — 51

Fixed Income 21 11 — — 10

Other Investments 2 — — 2 —

8 unchanged sentences

Balance, end of year $ 1 $ 2

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the fair value of non-U.S.

Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2020 and 2019:

Fair Value Measurement at October 31, 2019 Using

Fair Value Measurement

at October 31, 2020 Using

2020 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 7 $ — $ 6 $ — $ 1

Equity 504 315 48 — 141

Fixed Income 434 102 238 — 94

Other Investments — — — — —

1 unchanged sentence

(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

Fair Value Measurement at October 31, 2018 Using

Fair Value Measurement

at October 31, 2019 Using

2019 Quoted Prices

Identical Assets

Not Subject to Leveling (1)

(Level 1) Significant

(Level 2) Significant

(Level 3) Not Subject to Leveling (1)

(in millions)

Cash and Cash Equivalents $ 1 $ — $ 1 $ — $ —

Equity 512 318 61 — 133

Fixed Income 398 98 213 — 87

Other Investments — — — — —

1 unchanged sentence

(1) Investments measured at the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets as of October 31, 2020 or 2019.

Fair Value of

Obligation Benefit

Fair Value of

Plan Assets Fair Value of

(in millions)

1 unchanged sentence

defined benefit plans where fair value of plan assets exceeds PBO — — — —

Total $ 510 $ 439 $ 491 $ 432

defined benefit plans where PBO exceeds or is equal to the fair value of plan assets $ 697 $ 425 $ 752 $ 490

defined benefit plans where fair value of plan assets exceeds PBO 397 520 315 421

Total $ 1,094 $ 945 $ 1,067 $ 911

defined benefit plans where ABO exceeds the fair value of plan assets $ 510 $ 439 $ 491 $ 432

defined benefit plans where the fair value of plan assets exceeds ABO — — — —

Total $ 510 $ 439 $ 491 $ 432

defined benefit plans where ABO exceeds or is equal to the fair value of plan assets $ 675 $ 425 $ 651 $ 418

defined benefit plans where fair value of plan assets exceeds ABO 387 520 381 493

Total $ 1,062 $ 945 $ 1,032 $ 911

Contributions and Estimated Future Benefit Payments.

During fiscal year 2020 , we do not expect to contribute to the U.S.

During fiscal year 2021, we expect to make no contributions to the U.S.

defined benefit plans and the Post-Retirement Medical Plans.

1 unchanged sentence

The following table presents expected future benefit payments for the next 10 years:

Benefit Plans

Benefit Plans Non-U.S.

Benefit Plans U.S.

Post-Retirement

1 unchanged sentence

(in millions)

2021 $ 33 $ 33 $ 8

2022 $ 31 $ 34 $ 8

2023 $ 33 $ 36 $ 7

2024 $ 34 $ 36 $ 7

2025 $ 33 $ 37 $ 7

2026 - 2030 $ 152 $ 192 $ 35

The assumptions used to determine the benefit obligations and expense for our defined benefit and post-retirement benefit plans are presented in the tables below.

2 unchanged sentences

Discount rates reflect the current rate at which pension and post-retirement obligations could be settled based on the measurement dates of the plans - October 31.

discount rates at October 31, 2019 and 2018 , were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio.

rates were generally

based on published rates for high-quality corporate bonds.

discount rates at October 31, 2020 and 2019, were determined based on the results of

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio.

rates were generally based on published rates for high-quality corporate bonds.

The range of assumptions that were used for the non-U.S.

2 unchanged sentences

For years ended October 31,

2020 2019 2018

defined benefit plans:

3 unchanged sentences

Discount rate 0.22 - 1.81 %

0.83 - 2.68 %

0.67 - 2.52 %

Average increase in compensation levels 2.25 - 3.00 %

2.25 - 3.25 %

2.00 - 3.25 %

Expected long-term return on assets 4.00 - 5.75 %

4.00 - 5.75 %

4.00 - 6.00 %

post-retirement benefits plans:

10 unchanged sentences

Discount rate 0.07 - 1.54 %

0.22 - 1.81 %

Average increase in compensation levels 2.00 - 3.00 %

2.25 - 3.00 %

post-retirement benefits plans:

6 unchanged sentences

Standard Warranty

We accrue for standard warranty costs based on historical trends in warranty charges as a percentage of net product shipments.

The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates.

Estimated warranty charges are recorded within cost of products at the time products are sold.

We accrue for standard warranty costs based on historical trends in actual warranty charges over the past 12 months.

The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost over the period.

The standard warranty accrual balances are held in other accrued and other long-term liabilities on our consolidated balance sheet.

Our standard warranty terms typically extend to one years from the date of delivery, depending on the product.

Our standard warranty terms typically extend to one year from the date of delivery, depending on the product.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A summary of the standard warranty accrual activity is shown in the table below.

The standard warranty accrual balances are recorded in other accrued liabilities.

(in millions)

Balance as of October 31, 2018 and 2017

Standard warranty accrual, beginning balance $ 32 $ 35

Accruals for warranties including change in estimates 49 54

Settlements made during the period ( 49 ) ( 57 )

Balance as of October 31, 2019 and 2018

Standard warranty accrual, ending balance $ 32 $ 32

Accruals for warranties due within one year $ 30 $ 32

Accruals for warranties due after one year 2 —

Standard warranty accrual, ending balance $ 32 $ 32

Bank Guarantees

Guarantees consist primarily of outstanding standby letters of credit and bank guarantees and were approximately $ 40 million as of October 31, 2019.

Guarantees consist primarily of outstanding standby letters of credit and bank guarantees and were approximately $ 43 million and $ 40 million as of October 31, 2020 and 2019, respectively.

A standby letter of credit is a guarantee of payment issued by a bank on behalf of us that is used as payment of last resort should we fail to fulfill a contractual commitment with a third party.

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From time to time, we indemnify customers, as well as our suppliers, contractors, lessors, lessees, companies that purchase our businesses or assets and others with whom we enter into contracts, against combinations of loss, expense, or liability arising from various triggering events related to the sale and the use of our products and services, the use of their goods and services, the use of facilities and state of our owned facilities, the state of the assets and businesses that we sell and other matters covered by such contracts, usually up to a specified maximum amount.

In addition, from time to time we also provide protection to these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations.

In addition, from time to time we also provide protection to these parties against claims related to

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

undiscovered liabilities, additional product liability or environmental obligations.

In our experience, claims made under such indemnifications are rare and the associated estimated fair value of the liability was not material as of October 31, 2020.

3 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Operating Lease Commitments:

We lease certain real and personal property from unrelated third parties under non-cancelable operating leases.

Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses.

Total rent expense was $ 75 million in 2019 , $ 64 million in 2018 and $ 57 million in 2017 .

Future non-cancelable minimum lease payments and future minimum lease income under operating leases at October 31, 2019 :

Future Minimum

Lease Payments

Future Minimum

(in millions)

Other Purchase Commitments.

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

For those contracts that are not cancelable without penalties, 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 were approximately $ 77 million .

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.

Approximately $ 23 million of the penalties for the new contracts will reduce over the next 13 years.

4 unchanged sentences

Credit Facilities

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.

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, 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 .

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.

Capital Leases

The company leases certain property and equipment under capital leases.

As of October 31, 2019, the current portion of the company’s capital lease obligations had an aggregate carrying value of $ 1 million .

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.

2020 Senior Notes

3 unchanged sentences

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 asset value, including interest receivable, upon termination for these contracts was

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

approximately $ 34 million.

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

2 unchanged sentences

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.

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 were 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.

2017 Senior Notes

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.

LONG-TERM DEBT

The following table summarizes the company's long-term senior notes and the related interest rate swaps:

October 31, 2019

October 31, 2018

The following table summarizes the company's long-term senior notes:

October 31, 2020 October 31, 2019

Principal Amortized

(in millions)

4 unchanged sentences

2030 Senior Notes 495 —

2020 Senior Notes

The 2020 senior notes were repaid in 2019, see Note 17, "Short-Term Debt".

Total $ 2,284 $ 1,786

2022 Senior Notes

4 unchanged sentences

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 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

8 unchanged sentences

The interest is payable semi-annually on March 22nd and September 22nd of each year and payments commenced March 22, 2017 .

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2029 Senior Notes

2 unchanged sentences

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.

2 unchanged sentences

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 non-current portion of the company’s capital lease obligations had an aggregate carrying value of $ 5 million to be paid over 12 years.

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 .

All outstanding notes listed above are unsecured and rank equally in right of payment with all of Agilent's other senior unsecured indebtedness.

STOCKHOLDERS' EQUITY

1 unchanged sentence

On May 28, 2015 we announced that our board of directors had approved a share repurchase program (the "2015 repurchase program").

The 2015 share repurchase program authorizes the purchase of up to $ 1.14 billion of our common stock at the company's discretion through and including November 1, 2018.

The 2015 repurchase program authorizes the purchase of up to $ 1.14 billion of our common stock at the company's discretion through and including November 1, 2018.

The 2015 repurchase program did not require the company to acquire a specific number of shares and could have been suspended or discontinued at any time.

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.

2 unchanged sentences

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.

Cash Dividends on Shares of Common Stock

2 unchanged sentences

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 .

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

3 unchanged sentences

Foreign currency translation, net of tax expense of $( 6 ) and $( 5 ) for 2020 and 2019, respectively

$ ( 194 ) ( 204 )

Unrealized losses (including prior service benefit) on defined benefit plans, net of tax benefit of $ 154 and $ 153 for 2020 and 2019, respectively

( 317 ) ( 306 )

Unrealized gains (losses) on derivative instruments, net of tax benefit of $ 6 and $ 3 for 2020 and 2019, respectively

Total accumulated other comprehensive loss $ ( 522 ) $ ( 514 )

Changes in accumulated other comprehensive income (loss) by component and related tax effects for the years ended October 31, 2019 and 2018 were as follows (in millions):

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in accumulated other comprehensive income (loss) by component and related tax effects for the years ended October 31, 2020 and 2019 were as follows:

Net defined benefit pension cost and post retirement plan costs

Foreign currency translation

Prior service credits

Actuarial Losses

Unrealized gains (losses) on derivatives

Foreign currency translation Prior service credits Actuarial Losses Unrealized gains (losses) on derivatives Total

(in millions)

As of October 31, 2018 $ ( 214 ) $ 134 $ ( 335 ) $ 7 $ ( 408 )

Other comprehensive income (loss) before reclassifications

Amounts reclassified out of accumulated other comprehensive income (loss)

Tax (expense) benefit

Other comprehensive income (loss)

As of October 31, 2018

Impact of adoption of new guidance on tax effects in accumulated other comprehensive income (loss) — 3 ( 9 ) ( 1 ) ( 7 )

1 unchanged sentence

Other comprehensive loss before reclassifications — — ( 157 ) ( 6 ) ( 163 )

Amounts reclassified out of accumulated other comprehensive income

Amounts reclassified out of accumulated other comprehensive income (loss) — ( 8 ) 39 ( 8 ) 23

Tax benefit 10 2 25 4 41

Other comprehensive income (loss) 10 ( 6 ) ( 93 ) ( 10 ) ( 99 )

As of October 31, 2019 $ ( 204 ) $ 131 $ ( 437 ) $ ( 4 ) $ ( 514 )

Other comprehensive income (loss) before reclassifications 11 — ( 66 ) ( 12 ) ( 67 )

Amounts reclassified out of accumulated other comprehensive income (loss) — ( 7 ) 61 2 56

Tax (expense) benefit ( 1 ) 1 — 3 3

Other comprehensive income (loss) 10 ( 6 ) ( 5 ) ( 7 ) ( 8 )

As of October 31, 2020 $ ( 194 ) $ 125 $ ( 442 ) $ ( 11 ) $ ( 522 )

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Reclassifications out of accumulated other comprehensive income (loss) for the years ended October 31, 2020 and 2019 were as follows (in millions):

Details about Accumulated Other

Comprehensive Income components

Amounts Reclassified

from Other Comprehensive Income

Affected line item in

Comprehensive Income components Amounts Reclassified

from Other Comprehensive Income Affected line item in

statement of operations

Unrealized gains and (losses) on derivatives

Cost of products and interest expense

Unrealized gains and (losses) on derivatives $ ( 2 ) $ 8 Cost of products and interest expense

( 2 ) 8 Total before income tax

2 unchanged sentences

Net defined benefit pension cost and post retirement plan costs:

Actuarial net loss

Other (income) expense

Prior service benefit

Other (income) expense

Actuarial net loss ( 61 ) ( 39 ) Other (income) expense

Prior service benefit 7 8 Other (income) expense

( 54 ) ( 31 ) Total before income tax

11 unchanged sentences

Other factors, including market separation and customer specific applications, go-to-market channels, products and services and manufacturing are considered in determining the formation of these operating segments.

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.

A description of our three reportable segments is as follows:

16 unchanged sentences

laboratory software for sample tracking;

information management and analytics;

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

management and analytics;

laboratory automation and robotic systems;

20 unchanged sentences

Charges are allocated to the segments, and the allocations have been determined on a basis that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.

In addition, we do not allocate amortization and impairment of acquisition-related intangible assets, pension curtailment or settlement gains, restructuring and transformational initiatives expenses, acquisition and integration costs, business exit and divestiture costs, special compliance costs, some nucleic acid solutions division ("NASD") site costs and certain other charges to the operating margin for each segment because management does not include this information in its measurement of the performance of the operating segments.Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, site consolidations, legal entity and other business reorganizations, in-sourcing or outsourcing of activities.

Transformational initiatives include expenses associated with targeted cost reduction activities such as manufacturing transfers, site consolidations, legal entity and other business reorganizations, in-sourcing or outsourcing of activities.

The following tables reflect the results of our reportable segments under our management reporting system.

1 unchanged sentence

These results are used, in part, by the chief operating decision maker in evaluating the performance of, and in allocating resources to, each of the segments.

The profitability of each of the segments is measured after excluding restructuring and asset impairment charges, transformational initiatives, investment gains and losses, interest income, interest expense, acquisition and integration costs, non-cash amortization and other items as noted in the reconciliations below.

Life Sciences and Applied Markets

Diagnostics and Genomics

Agilent CrossLab

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The profitability of each of the segments is measured after excluding items such as asset impairment charges, transformational initiatives, acquisition and integration costs, non-cash amortization of intangible assets related to business combinations, interest income, interest expense, and other items as noted in the reconciliations below.

Life Sciences and Applied Markets Diagnostics and Genomics Agilent CrossLab Total

(in millions)

4 unchanged sentences

Share-based compensation expense (1)

$ 35 $ 17 $ 29 $ 81

Year Ended October 31, 2019:

8 unchanged sentences

Share-based compensation expense $ 33 $ 14 $ 24 $ 71

(1) Share-based compensation expense in 2020 excludes amounts not allocated to the segments related to accelerated share-based compensation expense from workforce reduction and from our acquisition of BioTek.

The following table reconciles reportable segments' income from operations to Agilent's total enterprise income before taxes:

Years Ended October 31,

2020 2019 2018

(in millions)

3 unchanged sentences

Transformational initiatives ( 53 ) ( 44 ) ( 25 )

Acceleration of share-based compensation expense related to workforce reduction ( 2 ) — —

Asset impairments ( 99 ) — ( 21 )

Business exit and divestiture costs (primarily our NMR business)

Business exit and divestiture costs ( 2 ) — ( 9 )

NASD site costs — ( 12 ) ( 8 )

Special compliance costs — ( 2 ) ( 4 )

( 29 ) ( 30 ) ( 5 )

Interest Income 8 36 38

2 unchanged sentences

Income before taxes, as reported $ 842 $ 919 $ 946

(1) The other category primarily includes legal costs related to our pursuing our claim against a third party in addition to other miscellaneous adjustments and settlements.

(1) For the years ended October 31, 2020 and 2019, the other category primarily includes legal costs related to a claim we pursued against Twist Bioscience Corporation in addition to other miscellaneous adjustments.

(2) For the year ended October 31, 2020, other income (expense), net includes the settlement of a legal claim against Twist Bioscience Corporation.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Major Customers.

3 unchanged sentences

Unallocated assets primarily consist of cash, cash equivalents, the valuation allowance relating to deferred tax assets and other assets.

Life Sciences and Applied Markets

Diagnostics and Genomics

Agilent CrossLab

Life Sciences and Applied Markets Diagnostics and Genomics Agilent CrossLab Total

(in millions)

As of and for the Year Ended October 31, 2020:

Assets $ 3,143 $ 2,515 $ 1,375 $ 7,033

Capital expenditures $ 44 $ 34 $ 41 $ 119

As of and for the Year Ended October 31, 2019:

Assets $ 3,202 $ 2,620 $ 1,331 $ 7,153

Capital expenditures $ 59 $ 48 $ 48 $ 155

2 unchanged sentences

Total reportable segments' assets $ 7,033 $ 7,153

Cash, cash equivalents

Cash and cash equivalents 1,441 1,382

Prepaid expenses 106 94

Investments 158 102

Long-term and other receivables 114 100

The other category primarily includes deferred tax assets and overfunded pension assets which are not allocated to the segments.

Deferred tax assets 380 410

Right of use assets 175 —

Other 220 211

Total assets $ 9,627 $ 9,452

The other category primarily includes overfunded pension assets which are not allocated to the segments.

The following table presents summarized information for net revenue by geographic region.

Revenues from external customers are generally attributed to countries based upon the customer's location.

Revenues from external customers are generally attributed to countries based upon the customers' location.

States China (1)

(in millions)

4 unchanged sentences

The following table presents summarized information for long-lived assets by geographic region.

Long lived assets consist of property, plant, and equipment, long-term receivables and other long-term assets excluding intangible assets.

Long lived assets consist of property, plant, and equipment, right-of-use assets, long-term receivables and other long-term assets excluding intangible assets.

The rest of the world primarily consists of Asia and the rest of Europe.

AGILENT TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

States Germany Rest of the

(in millions)

4 unchanged sentences

Three Months Ended

January 31, April 30, July 31, October 31,

(in millions, except per share data)

Net revenue $ 1,357 $ 1,238 $ 1,261 $ 1,483

Gross profit 723 657 669 788

Income from operations 215 102 230 299

Net income 197 101 199 222

Net income per share — Basic $ 0.64 $ 0.33 $ 0.64 $ 0.72

1 unchanged sentence

Weighted average shares used in computing net income per share:

Basic 310 309 309 308

Diluted 313 312 312 311

Cash dividends per common share $ 0.180 $ 0.180 $ 0.180 $ 0.180

Net revenue $ 1,284 $ 1,238 $ 1,274 $ 1,367

Gross profit 707 669 692 737

Income from operations 250 216 225 250

Net income (loss)

Net income (loss) per share — Basic

Net income (loss) per share — Diluted

Net income 504 182 191 194

Net income per share — Basic $ 1.58 $ 0.57 $ 0.61 $ 0.63

Net income per share — Diluted $ 1.57 $ 0.57 $ 0.60 $ 0.62

Weighted average shares used in computing net income per share:

Basic 318 317 312 309

Diluted 322 321 316 313

Cash dividends per common share $ 0.164 $ 0.164 $ 0.164 $ 0.164

(1) 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 2018 quarterly gross profit and income from operations to reflect this new guidance.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data