Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 001-15405
------------------------
AGILENT TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0518772
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
395 PAGE MILL ROAD, PALO ALTO, CALIFORNIA 94306
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 752-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock New York Stock Exchange, Inc.
par value $0.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock held by
non-affiliates as of December 26, 2000 was approximately $18.55 billion. As of
December 26, 2000, there were outstanding 456,366,381 shares of common stock,
par value $0.01 per share. Shares of stock held by officers, directors and 5% or
more shareholders have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT DESCRIPTION 10-K PART
-------------------- ---------
Portions of the Proxy Statement for the Annual Meeting of
Stockholders (the "Proxy Statement") to be held on February
23, 2001, and to be filed pursuant to Regulation 14A within
120 days after registrant's fiscal year ended October 31,
2000 are incorporated by reference into Part III of this
Report...................................................... III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 27
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 28
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 30
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 48
Item 8. Financial Statements and Supplementary Data................. 48
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 48
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 49
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 49
Exhibit Index......................................................... 52
i
3
FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this report or in the
pages from our Proxy Statement incorporated by reference into this report. The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K. This report contains forward-looking statements including, without
limitation, statements regarding the anticipated completion of transactions and
our liquidity position that involve risks and uncertainties. Our actual results
could differ materially from the results contemplated by these forward looking
statements due to certain factors, including those discussed below in Item 7 and
elsewhere in this report.
PART I
ITEM 1. BUSINESS.
OVERVIEW
BUSINESS
Agilent Technologies is a global diversified technology company that
provides enabling solutions to high growth markets within the communications,
electronics, healthcare and life sciences industries. The Company has four
primary businesses:
- test and measurement, which provides test instruments, standard and
customized test, measurement and monitoring instruments and systems for
the design, manufacture and support of electronics and communications
devices and software for the design of high-frequency electronic and
communications devices;
- semiconductor products, which provides fiber optic communications devices
and assemblies, integrated circuits for wireless applications,
application-specific integrated circuits, optoelectronics and image
sensors;
- healthcare solutions, which provides patient monitoring, ultrasound
imaging, cardiology products and systems and related services and
supplies; and
- chemical analysis, which provides analytical instruments, systems and
services for chromatography, spectroscopy and bio-instrumentation.
On March 2, 1999, Hewlett-Packard announced a plan to create a separate
company, subsequently named Agilent Technologies, Inc., that comprised
Hewlett-Packard's test and measurement, semiconductor products, healthcare
solutions and chemical analysis businesses, related portions of Hewlett-Packard
Laboratories, and associated infrastructure. Hewlett-Packard and we have entered
into various agreements related to certain interim and ongoing relationships
between the two companies. More information about the ongoing relationships with
Hewlett-Packard is contained in Item 7 of this report.
Our test and measurement and semiconductor businesses share focus on growth
opportunities in the communications sector, while our healthcare and chemical
analysis businesses share focus on growth opportunities in healthcare and life
sciences. On November 17, 2000, Agilent announced that Koninklijke Philips
Electronics, N.V. ("Philips") would acquire Agilent's healthcare solutions
business, as more specifically discussed below under "Healthcare Solutions" and
in Note 19, "Subsequent Events," to the consolidated financial statements
included in Item 8 of this report.
On October 13, 2000, we entered into a vendor financing agreement with The
CIT Group, Inc. ("CIT") whereby CIT will provide equipment financing and leasing
services to Agilent's customers on a global basis. CIT will be responsible for
all operations, services and funding related to financing and leasing. Under the
terms of the agreement, CIT established a wholly-owned subsidiary, Agilent
Financial Services, Inc. ("AFS") and is offering financing products to our
customers under this name. This arrangement is discussed below in Note 3,
"Acquisitions and Dispositions," to the consolidated financial statements
included in Item 8 of this report.
1
4
We sell our products primarily through our direct sales force, but we also
utilize distributors, resellers, telesales and electronic commerce. Of our total
net revenue of $10.8 billion in the fiscal year ended October 31, 2000, we
generated 44.2% in the United States and 55.8% internationally. As of October
31, 2000, we employed approximately 47,000 people worldwide. We have major
research and development and manufacturing sites in California, Colorado,
Delaware, Massachusetts, and Washington in the United States and in China,
Germany, Japan, Malaysia, Singapore and the United Kingdom.
Our net revenue by business segment for each of the years ending October
31, 2000, 1999 and 1998 was:
YEARS ENDED OCTOBER 31,
---------------------------
2000 1999 1998
------- ------ ------
(IN MILLIONS)
Test and measurement.................................... $ 6,108 $4,082 $4,100
Semiconductor products.................................. $ 2,213 $1,722 $1,574
Healthcare solutions.................................... $ 1,412 $1,501 $1,340
Chemical analysis....................................... $ 1,040 $1,026 $ 938
------- ------ ------
Total net revenue..................................... $10,773 $8,331 $7,952
======= ====== ======
More financial information about the business segments is contained in Note 18,
"Segment Information," of the consolidated financial statements included in Item
8 of this report. Hewlett-Packard accounted for 6.5% of our total net revenue in
the fiscal year ended October 31, 2000, 10.0% in fiscal year 1999 and 8.8% in
fiscal year 1998.
AGILENT TECHNOLOGIES LABORATORIES
All of our businesses are supported by the technological expertise of
Agilent Technologies Laboratories, one of the world's foremost industrial
research and development organizations. Agilent Technologies Laboratories
consists of those operations of Hewlett-Packard Laboratories that historically
conducted basic research in our focus areas. Agilent Technologies Laboratories
works with our businesses in design, development and manufacturing engineering,
and substantially all of its development staff are aligned with the research and
development teams in our individual businesses.
Agilent Technologies Laboratories is located primarily in Palo Alto,
California and employs approximately 500 people. Approximately half of the 300
technical professionals in Agilent Technologies Laboratories have doctoral
degrees and over 75% have some form of advanced degree. On average, 80 patents
have been issued annually to Agilent Technologies in recent years, based on
inventions made in Agilent Technologies Laboratories.
TEST AND MEASUREMENT
Our test and measurement business is a leader in providing test and
measurement solutions to companies in the communications, electronics,
semiconductor and related industries. We provide standard and customized
solutions that are used in the design, development, manufacture, installation,
deployment and operation of electronic equipment and systems. These solutions
include test and measurement instruments and systems, automated test equipment,
communications network monitoring, management, and optimization tools and
software design tools and associated services. Our solutions are employed by a
wide range of industries, including:
- communications and network equipment manufacturers, including providers
of fiber optic, wireless and wireline components, products and systems;
- providers of communications services, including telecommunications,
Internet and cellular service providers;
2
5
- designers and manufacturers of semiconductor products, including
microprocessors, memory devices, Application Specific Integrated Circuits
("ASICs"), radio frequency and microwave integrated circuits and other
types of integrated circuits; and
- designers and manufacturers of electronic equipment, including printed
circuit board assemblies and electronic equipment, such as cellular
handsets, personal computers and avionics equipment.
Our test and measurement business employed approximately 21,100 people as
of October 31, 2000. We serve customers in more than 110 countries and sell our
products primarily through our direct sales force, as well as through resellers,
distributors, telesales and electronic commerce. Our products are complemented
by service and support offerings such as consulting, training, local solutions
integration, and instrument calibration and repair. We have manufacturing and
research and development facilities in Australia, Canada, China, Germany, Japan,
Korea, Malaysia, Singapore, the United Kingdom and the United States. Our test
and measurement business generated $6.1 billion in revenue in fiscal 2000 and
$4.1 billion in both fiscal 1999 and 1998.
MARKETS
The market for our test and measurement products comprises three major
customer groups:
- communications network equipment manufacturers and service providers;
- electronic component and equipment manufacturers; and
- semiconductor manufacturers and purchasers of semiconductors.
Communications Network Equipment Manufacturers and Service Providers
Network equipment manufacturers provide products to facilitate the
transmission of voice and data traffic. This transmission may be in various
forms, such as electronic signals over copper wire, optical signals over fiber
cables, and radio frequency or microwave signals. The customers of the network
equipment manufacturers are the communications service providers that deploy and
operate the networks. These service providers require network equipment that
enables their networks to operate at increasingly faster speeds while providing
rapidly expanding capacity and superior reliability. To meet these demands,
network component and equipment manufacturers require test and measurement
instruments, systems and solutions for the development, production, installation
and operation of each new network technology.
Communications and Internet service providers also require a range of
sophisticated test instruments and systems to evaluate network performance and
to identify any sources of communications failure. Additionally, these customers
require advanced software and systems to monitor and manage the network
infrastructure on a continuous, proactive basis to achieve either regulated or
customer-specified service levels. Real-time monitoring of the network
infrastructure also enables the implementation of additional services, such as
fraud detection, which customers increasingly require of service providers.
The market for cellular telephony has increased dramatically in recent
years, as the levels of wireless penetration in developed countries have grown
rapidly. Many lesser-developed countries have decided to build wireless
communications infrastructure to meet their nations' needs for telephony, rather
than invest in expensive wire-based infrastructure. To develop cellular
telephone equipment, manufacturers require electronic design software and test
instruments and systems for the development of high-frequency communications
circuits, devices and systems. Cellular equipment manufacturers also require
advanced, high-frequency test instruments and systems to develop, manufacture
and deploy cellular base stations for these wireless networks. In addition, the
rapid growth of the cellular handset market has created a new market segment for
automated test equipment to test cellular handsets on the factory floor.
Further, as new standards evolve in the wireless industry, new test and
measurement equipment and systems have to be developed to enable testing of the
new standards in the research and development and later in the manufacturing and
deployment phases.
We believe that in the last several years, producers of networking
communications equipment have increased their use of contract manufacturers.
Contract manufacturers require test solutions that are
3
6
particularly well-suited for faster production and flexible for use in different
applications. Recently, mobile phone and appliance producers have also begun to
increase their use of contract manufacturers, including using contract
manufacturers for functional test. This requires specialized test products and
services to address the particular needs of these high-frequency products.
Electronic Equipment Manufacturers
The electronics industry designs, develops and manufactures a wide range of
products, including products produced in high volumes, such as computers,
computer peripherals, electronic components, printed circuit assemblies and
consumer electronics. These components and printed circuit assemblies may be
designed, developed and manufactured by electronic components companies, by
original equipment manufacturers or by third-party contract manufacturers. For
the development and timely commercialization of new technologies, original
equipment manufacturers require state-of-the-art test instruments, systems and
software design tools in order to design the products for efficient and
cost-effective manufacturing and validate product performance in a variety of
configurations and environments.
High volume manufacturers of electronics products, such as printed circuit
board assemblies, require sophisticated automated test equipment to operate and
perform highly accurate tests at speeds and volumes matching those of the
production line. This equipment includes in-circuit testing systems, automated
x-ray inspection systems and automated optical inspection systems, all of which
examine the printed circuit assemblies for manufacturing defects. Manufacturers
are also beginning to demand automated functional test systems, which test an
electronic device as if it were in its final environment.
Electronics manufacturing also requires standardized test instruments,
system components and complete solutions. Aerospace and defense are important
markets for standardized electronic equipment because of the high electronic
content of advanced defense systems and defense-related communications and
surveillance equipment. We believe that following recent reductions in defense
spending, defense purchasers are shifting from specialized test equipment to
off-the-shelf test products and systems.
Semiconductor Manufacturers
Semiconductor test systems are used by semiconductor designers,
semiconductor manufacturers and electronic component manufacturers in the
design, manufacture and testing of a wide variety of semiconductor products,
including logic, memory, mixed analog and digital signal, and system-on-a-chip
integrated circuits. Semiconductor test systems are sold to semiconductor
manufacturers and assembly and test subcontractors to the semiconductor
industry.
According to VLSI Research, the market for automatic test equipment for
semiconductor manufacturing was approximately $3.3 billion in 1998 and is
expected to grow at a compound annual rate of approximately 20% over the next
five years. Demand for this test equipment is driven primarily by the increased
volume of semiconductor devices produced. Advances in semiconductor technology
are also increasing demand for semiconductor test equipment. The development of
increasingly faster and more complex semiconductor devices stimulates demand for
testers capable of evaluating these high-speed devices. In addition, the
continuing integration of functions, such as microprocessor, logic and memory,
on a single integrated circuit has created a new category of device called
system-on-a-chip. These devices require a new category of sophisticated and
flexible automatic test equipment.
STRATEGY
Our test and measurement business pursues the following strategies to
extend our global leadership position as the communications and electronics
industries shift to new business models and value chains.
ADDRESS THE NEEDS OF THE WIRELESS AND INTERNET COMMUNICATIONS MARKET
Our greatest focus is on providing product leadership and
application-focused solutions to high-growth markets where wireless, Internet
and computing technologies are converging. We have targeted our test and
4
7
measurement products and services to enable our customers in this high-growth
segment to bring their new technologies to market.
IDENTIFY CUSTOMERS' BUSINESS AND TECHNOLOGY NEEDS, THEN LEVERAGE ACROSS THE
VALUE CHAIN
Agilent addresses the business and technology needs of players across the
wireless and Internet communications value chain, from component manufacturers,
network equipment manufacturers, and contract and design manufacturers to
content providers, operators and service providers. A key success factor for
this strategy is development of technologies and platforms that are reusable and
leverageable, enabling us to deploy new solutions and systems faster.
SATISFY CUSTOMERS THROUGH OPERATIONAL EXCELLENCE
A key component of our strategy is to make customer experience a
competitive advantage by achieving operational excellence in three areas: sales
and support experience, whether contact is via the web, email, by telephone or
in person; global manufacturing and supply chain management so that customers
will receive high-quality products, when they need them; and product generation.
FOCUS INTENTLY ON LEADING EDGE CUSTOMERS
By engaging in collaborative, co-development relationships with wireless
and Internet communications leaders such as Nokia, Ericsson and Motorola,
component manufacturers such as Murata, contract manufacturers such as Solectron
Corp., Flextronics International and SCI and service providers such as AT&T
Wireless, Verizon Wireless, China Unicom and Vodaphone, we are developing
solutions that support next generation technologies and enable these leaders to
maximize their performance and continue to lead their industry.
BUILD A NEW GLOBAL CAPABILITY IN SOLUTIONS, SYSTEMS AND SERVICES
Our strategy is to leverage the technologies, platforms and knowledge we
acquire from growing our core product categories into application-focused
solutions, world-class systems and high-value services. These programs will
dramatically increase our growth potential by building on and strengthening our
customer relationships as we move up the value chain; and by creating a
services-based annuity stream that offsets capital equipment cycles.
PRODUCTS
Our test and measurement business designs, develops and manufactures test
and design products that range from single-unit electronic measurement devices
priced under $1,000 to large scale integrated test solutions priced at $1
million and higher.
Communications Equipment Test Solutions
We provide test solutions for fiber optic, broadband wire-based, radio
frequency and microwave communications networks and products.
Fiber Optics. Our products include optical signal and spectrum analysis
instruments used by the industry's leading equipment manufacturers to develop
and manufacture reliable optical components. Our products also include network
analyzers and high-speed bit-error rate testers that measure key transmission
properties of high-speed optical and electrical signals.
Broadband and Data Networks. Our Internet Advisor product line helps to
troubleshoot high-speed local area networks, wide area networks and asynchronous
transfer mode networks. We also provide cable television test equipment.
Wireless Communications and Microwave. Our radio frequency and microwave
test instruments assist in the design and production of cellular handsets and
base stations, as well as satellite and aerospace defense
5
8
systems. Examples of our radio frequency and microwave products include network
analyzers, spectrum analyzers and signal sources.
Communications Service Test and Monitoring Solutions
Our acceSS7 product is designed to allow major communications service
providers that use the communications network protocol Signaling System 7 (SS7)
to monitor and analyze their signaling network traffic for network performance
and management, fraud management and billing of interconnecting service
providers. Similarly, our AccessFiber products and solutions perform fault
detection and monitor fiber optic communications networks. Our Firehunter
network management software solution provides performance monitoring, analysis
and reporting capabilities for Internet service providers.
We also market benchtop and handheld measurement devices such as lightwave
multimeters, power meters and optical sources.
Electronics Design and Manufacturing Solutions
General Purpose Instruments. General purpose instruments are used
principally by engineers in research and development laboratories,
manufacturing, calibration and service for measuring voltage, current,
frequency, signal pulse width and other standard electronics measurements.
Examples of general purpose instruments include digitizing oscilloscopes,
voltmeters and multimeters, frequency counters, bench and system power supplies,
and function generators and waveform synthesizers.
Modular Instruments and Test Software. Our modular instruments and test
software, including instruments incorporating the VXI bus and modular
measurement system software, is used to dynamically configure and reconfigure
test systems for designers and manufacturers of electronic devices.
Data Acquisition Devices. Data acquisition and control products include
digital-to-analog converters that are attached to sensors to measure a wide
range of physical data such as temperature, airplane wing strain and vibrations
in cars, jet engines and power generation equipment.
Digital Design Products. These systems range from simple digital control
circuits to complex, high-speed servers incorporating the latest microprocessor
technology. Our digital design products include logic analyzers, logic-signal
sources and data generators.
Automated In-Circuit Testing. Our in-circuit testers use a probe fixture
which makes electrical contact with the circuit board and enables electrical
measurements.
Automated X-ray Inspection. Our leading x-ray inspection products provide a
three-dimensional scan of printed circuit board assemblies to identify and
isolate quality defects caused by the manufacturing process. Using patented
techniques, our products can look through a device to identify structural
defects in soldering that are not identified by visual inspection and that may
not be detected with in-circuit testing.
Automated Optical Inspection. Our automated optical inspection line of
products enables automated visual inspection of printed circuit assemblies.
These systems are able to locate, with a high degree of repeatability and
reliability, misplaced and misaligned parts, gross solder defects and other
process faults without the need for a human inspector.
Intelligent Test. Our AwareTest Software enables customers to design test
processes that avoid unnecessary test duplication. For example, an in-circuit
test device will receive information about the faults that have already been
detected by an x-ray inspection system and not repeat the test of that circuit.
Semiconductor Automated Test Equipment
We produce semiconductor test equipment to perform electrical and
functional testing of the operation of memory, logic, mixed signal,
systems-on-a-chip, and radio frequency integrated circuits. Our parametric test
instruments and systems combine hardware technology and customizable system
software, and are used to
6
9
examine semiconductor wafers during the semiconductor manufacturing process. Our
product development efforts are targeted at leading edge technologies, such as
systems-on-a-chip and high-speed memory products.
Our semiconductor test products test a variety of different circuit types.
These devices are usually tested after final assembly, but the testing of some
devices is most effective immediately after the production of the silicon wafer,
when the wafers are sorted. We believe we are the industry leader in wafer-sort
test solutions for flash memory devices, which retain data even when the power
is turned off and that are critical for use in digital cameras, cellular phones,
personal digital assistants and storage of portable digital audio files. Our
flash memory test products can test as many as 36 devices in parallel, greatly
improving test throughput and lowering test costs for our customers.
High-Frequency Electronic Design Tools
Our high-frequency electronic design automation software tools are used by
radio frequency integrated circuit design engineers to model, simulate and
analyze communications product designs at the circuit and system levels.
CUSTOMERS
We market our test and measurement solutions to customers across a broad
array of industries. Several of our customers purchase products across several
of our major product lines for their different business units.
A representative list of the customers of our test and measurement business
follows:
Alcatel Alsthom Intel Corporation Nokia
ASE Test LG Group Qualcomm, Inc.
AT&T Lockheed Martin Corporation Samsung Electronics Co., Ltd.
Bell Canada Enterprises, Lucent Siemens
Inc. Matsushita Electric Solectron Corporation
(Nortel Networks Industrial Sprint
Corporation) Co., Ltd. THOMSON Multimedia, S.A.
The Boeing Company Mitsubishi Electronics Toshiba Corporation
Ericsson America, Inc. Tyco International Ltd.
Fujitsu Limited Motorola United States Air Force
General Electric NEC Corporation U S WEST, Inc.
General Motors Corporation Nippon Telephone & Telegraph
Hitachi, Ltd. Corporation
IBM
SALES, MARKETING AND SUPPORT
We have a focused sales strategy to strengthen customer satisfaction. Our
direct sales force is focused on identifying customer needs and recommending
solutions involving the effective use and deployment of our equipment and
systems. Some members of our direct sales force focus on global accounts,
providing uniform services on a worldwide basis. Others focus on our more
complex products such as our communications monitoring systems and our automated
test equipment, where customers require intensive strategic consultation. Our
sales force also specifically targets the contract manufacturer market by
collaborating with original equipment manufacturers to specify that our test
equipment be used by contract manufacturers, as well as marketing to contract
manufacturers directly.
Our direct sales force consists of field engineers and systems engineers
who often hold advanced degrees and who have in-depth knowledge of the
customers' business and technology needs. Some of our field engineers are
account managers for our large accounts, and enhance our understanding of the
future needs of these customers. Our systems engineers provide a combination of
consulting, systems integration and application and software engineering
services, and are instrumental in all stages of the sale, implementation and
support of our complex systems and solutions. We also use value-added resellers
to address specific market segments.
7
10
MANUFACTURING
We concentrate our test and measurement manufacturing efforts primarily on
final assembly and test of our products. To maximize our productivity and our
ability to respond to market conditions, we use contract manufacturers for the
production of printed circuit boards, sheetmetal fabrication, metal die casting,
plastic molding and standard electronic components. We also manufacture
proprietary devices and assemblies, such as x-ray tubes and high-frequency
integrated circuits and devices, in our own foundries for competitive advantage.
COMPETITION
The market for test and measurement equipment is highly competitive, and we
expect this competition to increase. We believe that the principal factors of
competition are:
- speed, accuracy and cost of test;
- breadth of product offerings;
- scalability and flexibility of products;
- ease of product use;
- ability to upgrade product platform;
- time to market of new technologies;
- adherence to industry standards;
- ability to support emerging industry protocols; and
- ability to provide localized service and support on a worldwide basis.
Our test and measurement business competes with a number of significant
competitors in all our major product categories and across our targeted
industries. In communications test, our primary competitors are Anritsu, IFR
Systems, Inc./Marconi Communications Ltd., Network Associates, Inc., Rhode &
Schwartz, Tektronix, Inc. and Wandel & Goltermann Technologies, Inc./Wavetek
Corporation, as well as INET Technologies, Inc. and Micromuse Inc. in the
communications network monitoring market. In the semiconductor test market, we
compete primarily against Advantest Corporation, Schlumberger Limited and
Teradyne. In the printed circuit board test market, a segment of the electronics
manufacturing market, we compete against GenRad, Inc. and Teradyne. In the
general purpose electronic test market, we compete against companies such as
Fluke Corporation (a subsidiary of Danaher Corporation), Keithley Instruments,
Inc., LeCroy Corporation, National Instruments Corporation and Tektronix.
We sell our products in several industries that are characterized by rapid
technological changes, frequent new product and service introductions and
evolving industry standards. Without the timely introduction of new products,
services and enhancements, our products and services will likely become
technologically obsolete over time, in which case our revenue and operating
results would suffer. The success of our new product and service offerings will
depend on several factors, including our ability to properly identify customer
needs, price our products competitively, innovate and develop new technologies
and applications, successfully commercialize new technologies in a timely
manner, manufacture and deliver our products in sufficient volumes on time, and
differentiate our offerings from our competitors' offerings.
SEMICONDUCTOR PRODUCTS
Our semiconductor products business is a leading supplier of semiconductor
components, modules and assemblies for high performance communications systems.
We design, develop and manufacture products for the networking, wireless, and
imaging markets.
8
11
We believe we are the leading provider of:
- fiber optic communications transceiver (transmitter/receiver) modules
used for high speed data communications;
- integrated circuits for storage area networks based on the Fibre Channel
protocol, a protocol for communications among storage area networks;
- infrared components for data communications (IrDA);
- Light emitting diodes (LEDs) and displays;
- ASICs to Hewlett-Packard for its scanners and printers; and
- CMOS image sensors used to capture images in digital cameras and as
position sensors in computer mice.
As of October 31, 2000, our semiconductor products business had
approximately 10,200 employees worldwide. We have eleven major design centers
and eight manufacturing sites around the world. Our semiconductor products
business generated revenue of $2.2 billion in fiscal year 2000, $1.7 billion in
fiscal year 1999 and $1.6 billion in fiscal year 1998.
MARKETS
Our semiconductor products business serves two markets:
- communications (its primary focus); and
- computing.
Communications
High-Speed Networking. The advent of the Internet as a communications
medium has dramatically increased business and consumer demand for high-speed,
reliable access to data and, as a result, has placed considerable stress on
existing communications networks. In data communications, speed is measured in
the number of bits of data per second that can be transmitted across the
network. Fiber optic cables can carry very large amounts of data in a small
space and are immune to electrical and magnetic interference.
We are a major supplier of fiber optic transceivers, which convert digital
data into light signals for transmission, and convert light signals back into
digital form on the receiving end of the communication. We market fiber optic
transceivers for both short-range, local area network applications and
long-range, wide area network applications to major telecommunications and data
networking equipment vendors such as Alcatel, Cisco Systems, Lucent and Nortel.
In addition, we supply high reliability solid-state lasers to major
telecommunications companies for ultra-long-distance applications. We are also a
major supplier of physical layer integrated circuits for high-speed networking
applications, which prepare data for transmission across fiber networks.
Storage Area Networking. As the volume of data that is being transmitted,
processed and stored in networked environments has increased, the market for
storage area network equipment, which connects computers and storage devices,
has grown dramatically. The increase in data transmission speeds across networks
has created a demand for high-speed and high-performance storage-to-server and
server-to-server connectivity. The Fibre Channel interconnect protocol, a
standard for the transfer of information between computers and storage devices
defined by the American National Standards Institute, was developed to meet this
growing demand. Fibre Channel supports the transfer of large amounts of data
within storage area networks at speeds of one gigabit per second and greater and
provides high transmission reliability. We supply a broad range of integrated
circuits, fiber optic components and systems to manufacturers of storage area
network systems utilizing the Fibre Channel protocol, such as Compaq, EMC
Corporation, Hitachi and NEC. We are aggressively pursuing new standards in the
storage networking area as they emerge. We have shown
9
12
early technology demonstrations of both the InfiniBand and IP SAN standards, and
plan to have products for both technologies as the market requires them.
Wireless Communications. Worldwide subscriber growth for wireless
communications has been increasing rapidly in recent years. The Strategis Group
anticipates that the worldwide market for cellular services will increase to
approximately 650 million subscribers by 2002 from approximately 300 million
subscribers in 1998. In addition, we supply a wide range of radio frequency and
microwave integrated circuits and devices to mobile telephone manufacturers and
vendors of equipment for the mobile telephone infrastructure to meet this
increasing demand. We supply infrared and radio frequency devices and modules
for short-range, point-to-point wireless communications to manufacturers of
computers, printers and consumer electronics products, such as mobile
telephones, digital cameras, personal digital assistants and pagers.
Imaging. Increasingly, images are used to enhance the content and context
of communications. Agilent's CMOS image sensors are used in high-volume digital
cameras to capture images and convert them to digital files. We have produced
over 15 million devices for cameras and for optical mice. Optical mice use
Agilent image sensors to take approximately 1500 pictures per second and compare
them sequentially to determine movement of the mouse.
Computing
We are the largest supplier to Hewlett-Packard of ASICs for printers,
workstations and servers. ASICs are semiconductors that are designed for a
unique, customer-specified application and typically replace a number of
discrete components resulting in improved performance, lower cost and high
reliability. We are also a world leader in LEDs, optocouplers, and motion
control devices for a variety of industrial and commercial products.
STRATEGY
To service the needs of our customers in the communications and computer
industries, the semiconductor products business pursues the following
strategies:
Apply our Broad Technology Base to Capture Demand for Higher-speed and Mobile
Data Transmission
High-speed communications solutions will increasingly require strength in
analog (optoelectronic or wireless), mixed-signal and digital integrated circuit
technologies. The semiconductor products business offers technology strength in
all these areas to develop and produce highly integrated solutions for next
generation networking, wireless and imaging systems.
Continue to be Hewlett-Packard's Leading Supplier of ASICs
We are focused on reducing the costs and improving the performance of the
ASICs we provide to Hewlett-Packard by pursuing higher levels of device
integration and employing advanced process technology. We have also begun to
increase sales of ASICs to purchasers other than Hewlett-Packard, in areas other
than workstations, servers and printers, particularly in the networking area.
Take Advantage of Technology Partnerships
We intend to continue to enter into strategic technology partnerships to
gain access to intellectual property and advanced semiconductor manufacturing
process technology.
10
13
PRODUCTS
Our major product areas include:
Fiber Optics
We market optical transceivers, transmitters and receivers for high-speed
local area network applications from 10 megabits per second to one gigabit per
second and higher, and wide area network applications at up to 2.5 gigabits per
second. We also produce solid-state lasers.
High-Speed Network Input-Output Circuits
We produce physical layer integrated circuits for high speed network
switches and routers, devices that direct network traffic. We produce Fibre
Channel protocol-based integrated circuits and subsystems for storage area
networks.
Radio Frequency and Microwave Communications Devices
We produce a broad family of radio frequency and microwave communications
products, primarily integrated circuits for wireless communications products and
infrastructure. Our products include integrated circuits, individual transistors
and diodes and amplifiers used in higher speed and higher frequency
applications.
Infrared Emitters, Detectors and Transceiver Modules
We produce a full line of infrared products that enable short range,
point-to-point wireless communication between portable and stationary devices,
including notebook personal computers, cellular phones, personal digital
assistants and digital cameras.
ASICs
We provide graphics chips, core electronics chipsets that surround central
processing units and microprocessors for Hewlett-Packard's workstations and
servers.
Optical Image Sensors and Optical Position Sensors
Our sensor products include color and monochrome still and video camera
image capture solutions and intelligent optical sensors. We also produce optical
position motion control products used primarily for motion control in printers
and small motors that require precise control.
LEDs and Optocouplers
We manufacture and sell a broad range of LEDs, alphanumeric displays and
optocouplers. LEDs are semiconductor devices that emit light when an electrical
signal is applied. Optocoupler products are devices that provide both electrical
insulation, for protection, and signal isolation, to prevent distortion of data,
between differing electrical environments.
Lighting Joint Venture
Pursuant to a global joint venture with Philips Electronics, we develop,
manufacture and sell LEDs, modules, products and systems for a broad spectrum of
lighting applications, including automotive lighting, high-brightness traffic
signals, contour lighting and signs, outdoor illumination, and white LEDs for
both indoor and outdoor applications.
11
14
CUSTOMERS
We sell to a broad array of customers in the communications and computing
industries. We sell to original equipment manufacturers directly, as well as
contract manufacturers including Celestica, Jabil Circuit, SCI Systems and
Solectron. Our top customers by product line, including customers purchasing
through contract manufacturers and distributors, include the following:
FIBER OPTICS HIGH-SPEED NETWORKING COMPONENTS WIRELESS
------------ -------------------------------- --------
Alcatel Cisco Systems Alcatel
Allied Telesyn International Compaq Computer Corporation Ericsson
Corp
Cabletron Systems, Inc. Data General Hyundai
Cisco Systems EMC Lucent
FORE Systems, Inc. Hewlett-Packard Motorola
IBM Hitachi Nokia
Lucent IBM Nortel
Motorola Interphase Corporation Qualcomm
Nortel NEC Samsung
Tellabs, Inc. 3Com Corporation Siemens
3Com Corporation
Tyco
Our semiconductor technology licensing and supply arrangements with
Hewlett-Packard limit our ability to sell to other companies. Through sales of
ASICs, storage area networking components, motion-control products and
microprocessors, Hewlett-Packard accounted for approximately 30% of our
semiconductor products revenue in fiscal year 2000, approximately 37% in fiscal
year 1999, and approximately 34% in fiscal year 1998.
SALES, MARKETING AND SUPPORT
Our semiconductor sales organization consists of nearly 400 professionals,
and is divided into four groups. These groups have responsibilities for large,
global accounts and three regional areas: the Americas, Europe and Asia Pacific.
We also have a direct sales team that has several years of experience in
servicing our customer relationship with Hewlett-Packard. Our sales force has
specialized product and service knowledge that enables it to sell specific
offerings at key levels throughout a customer's organization. In addition to our
direct sales force, we generate approximately 25% of our revenue through our
relationships with key electronic distributors, such as Arrow Electronics, Inc.
and Avnet, Inc. on a worldwide basis, EBV Electronik GmbH/ Wyle Electronics in
Europe and North America, Future Electronics, Inc. in Europe and North America,
and Ryoyo Electro Singapore PTE, Ltd. and Tokyo Electric Power Company in Japan.
We have also recently focused a sales effort to major contract manufacturers
such as Celestica, Jabil, SCI and Solectron.
We also provide a broad range of products and applications-related
information to customers and channel partners via the Internet.
MANUFACTURING
The majority of our silicon and gallium arsenide wafer fabrication is done
in the United States and Singapore, while our assembly and test operations are
in Malaysia, Singapore and the United Kingdom. In addition to these facilities,
we utilize a network of contract manufacturers throughout Asia for semiconductor
fabrication and test.
Our manufacturing strategy has been to outsource more mature technologies
while using our in-house manufacturing fabrication, assembly and test
capabilities to develop new, leading edge-products. Our production facilities
have developed several quality-management processes designed to increase
productivity. We have developed proprietary automated test systems, particularly
in optical, light-emitting diode and microwave.
12
15
COMPETITION
The markets for our semiconductor products are intensely competitive, and
we expect competition to increase. Our ability to compete effectively depends on
a number of factors, including:
- product reliability and performance in operation;
- price;
- power consumption;
- compliance with standards;
- product size and integration; and
- time to market
In the fiber-optic products market, our principal competitors are Tyco,
Lucent and Infineon. In the market for high-speed network components, our
principal competitors are Emulex Corporation, LSI Logic Corporation, QLogic
Corporation and Vitesse Semiconductor Corporation. Our principal competitors in
wireless communications are Motorola, NEC and Infineon. In the market for
infrared products, our principal competitors are Vishay Intertechnology, Inc.
and IBM. We compete with companies including LSI, IBM, Mitsubishi, Motorola and
NEC in the production of integrated circuits. Principal competitors in our LED
businesses include Lite-on, Inc., Stanley Electronic Co., Ltd., Infineon and
Toshiba.
HEALTHCARE SOLUTIONS
Our healthcare solutions business is a worldwide leader in electro-medical
clinical measurement and diagnostic solutions. Our products and systems enable
medical professionals to gather and analyze information in hospital intensive
care units and emergency rooms, outpatient clinics, doctors' offices, patients'
homes and other settings. Our products and services include patient monitoring
systems, imaging systems, external defibrillators, cardiology products and
related professional services and support, each aimed at helping our customers
improve the quality of patient care while decreasing their costs.
We market our products to professionals and institutions in more than 100
countries. We have sales offices in 33 countries and manufacturing sites in
California, Massachusetts and Washington in the United States, China and
Germany. As of October 31, 2000, the healthcare solutions business had
approximately 5,000 employees worldwide. Our healthcare solutions business
generated revenue of $1.4 billion in fiscal year 2000, $1.5 billion in fiscal
year 1999, and $1.3 billion in fiscal year 1998.
Agilent has recently signed an agreement with Philips to sell its
healthcare solutions business unit. The deal is expected to close in the first
half of 2001 after all the legal, regulatory and government requirements, and
other closing conditions, have been met. At that time, the business unit will
become part of Philips. Until then, the Healthcare solutions business and
Philips will operate independently and there will be no changes in operations or
in customer relationships.
MARKETS
The principal markets in which we participate are:
- patient monitoring;
- ultrasound imaging; and
- external defibrillator and cardiology products.
Patient Monitoring
Patient monitoring systems continuously assess a patient's vital signs,
such as heart rate, blood pressure and respiration rates, to enable very rapid
decision making in emergency and critical care environments. Our patient
monitoring systems are used in three major market segments: critical care,
anesthesia care and neonatal care. According to Frost & Sullivan, the worldwide
market for multi-functional patient monitoring
13
16
equipment totaled $5.3 billion in 1997, growing at a compound annual rate of
8.7% from 1994 to 1997. This market is forecasted to grow at a compound annual
rate of 11.5% from 1998 to 2003.
Patient monitoring equipment and services are also used in non-critical
care environments, as providers seek to reduce costs. These non-critical care
areas, which include non-intensive-care areas of hospitals, outpatient care
facilities and patients' homes, are expected to provide significant growth
opportunities for patient monitoring markets in the future.
Ultrasound Imaging
Ultrasound imaging systems enable medical professionals to view multiple
parts of the human anatomy with high-resolution images that are produced
non-invasively from sound waves. The ultrasound imaging equipment market
includes cardiovascular, radiology, obstetrical and general imaging equipment.
Within ultrasound imaging, our principal targeted market is cardiology
ultrasound imaging. Frost & Sullivan estimates that the global market for
cardiology ultrasound imaging equipment was approximately $768 million in 1998
and forecasts the cardiovascular imaging segment to grow at an annual rate of
approximately 6.8% over the next five years.
Cardiology Products
Our cardiology products business includes external defibrillators,
electrocardiographs and related information systems. External defibrillators are
devices that deliver an electrical shock designed to restart the heart of
victims of sudden cardiac arrest. Theta Corporation estimates the worldwide
external defibrillator market was approximately $425 million for 1998 and
forecasts a compound annual growth of 8% for the years 1998 through 2000. We
also sell electrocardiography equipment, which measures and displays information
about the electrical activity of the heart.
STRATEGY
Our healthcare solutions business focuses on creating and delivering new
products and services for the healthcare market, establishing and maintaining a
strong reputation with our customers and developing effective strategic
partnerships by pursuing the following strategies:
Bring New Technologies and Applications to Targeted Markets
In particular, we aim to bring new technologies to the patient monitoring
and imaging markets and expand our coverage in developed countries by delivering
cost-effective diagnostic and therapeutic tools. We are also focused on
developing new, low-cost applications of our existing products to expand our
presence in smaller hospitals and less-developed countries.
Target Medical Care Beyond the Hospital
The growth in outpatient services has increased demand for products that
can enable nurses, other clinicians and nonmedical professionals to provide care
outside of the hospital. We are also delivering cost-effective diagnostic and
therapeutic tools, which can decrease the cost of diagnosing and monitoring
patients. These tools are targeted at smaller hospitals, mobile clinics and
private offices.
Increase Presence in Emerging Systems Worldwide
We plan to expand our global presence by continuing to invest in the
development of low-cost, reliable, high-utility, diagnostic, monitoring and
therapy instruments designed to be easily supported in rural areas. We also work
with international financial organizations, such as the World Bank, to arrange
secured financing services for our customers in these regions.
14
17
Take Advantage of the Rapid Adoption of Information Technology, the Internet and
Industry Standards
We are working with medical professionals to deploy Internet-based
communication systems that link medical professionals and patients. We are also
currently leading several industry-wide efforts to create and promulgate
standards for communication and interoperability among disparate healthcare
systems.
Develop Point-of-Care Technologies
We intend to continue to enhance our patient monitoring capabilities by
developing alliances with other companies. These companies' biochemical sensors,
when integrated into our monitoring platforms, enable time-sensitive
measurements to be made quickly and accurately at a patient's bedside for faster
diagnosis and therapeutic intervention.
Focus on the Management and Treatment of Chronic Illnesses
We have recently begun to pursue opportunities focused on the ongoing
management and treatment of chronic illnesses.
PRODUCTS
Our products and services include patient monitoring, imaging systems,
cardiology products and related professional services.
Patient Monitoring
Our products range from critical-care bedside monitors, fetal monitoring
and remote-measurement systems to central station monitors, associated clinical
decision support systems and critical-care information-management systems. Our
clinical decision support and critical-care information-management systems are
scalable based on department protocols, severity of patient condition and
workflow requirements. Our solutions range from basic surveillance and
centralized alarms to very large system configurations that provide
comprehensive patient information-management support.
Our Agilent Information Center provides advanced real-time, patient data
analysis and surveillance solutions offering data at a central station. Our
CareVue clinical information system captures, stores and makes available data
that can be configured for comprehensive reports, and CareVue enables multiple
caregivers to analyze patient data.
Ultrasound Imaging
We offer three major ultrasound platforms: SONOS 5500, SONOS 4500 and
ImagePoint Hx. SONOS 5500 is a premium performance cardiovascular ultrasound
system used for both research and clinical applications, while SONOS 4500 is a
high-performance cardiovascular ultrasound system used primarily in the clinical
environment. ImagePoint Hx is a multispecialty product used in a broad range of
ultrasound applications to address the broad needs of physicians working in
smaller hospitals, mobile clinics and offices.
Our proprietary transducers enable the ultrasound system to optimize image
detail and penetration without making the operator switch transducers. Our
proprietary Acoustic Quantification, which automatically measures critical
characteristics of the beating heart, eliminates time-consuming manual
measurements.
We have developed EnConcert, which consists of a series of software
applications running on personal computer hardware. EnConcert allows clinicians
to review, measure, manage and archive images, reports and patient data related
to their ultrasound exams.
Cardiology Products
We develop and manufacture external defibrillators, electrocardiographs and
electrocardiogram information management systems. We produce both manual and
automatic external defibrillators, designed for both hospital and
out-of-hospital use. Our ForeRunner automatic external defibrillator is a
portable defibrillator
15
18
that is used by nonmedical professionals to deliver on-site defibrillation
following a cardiac event. Our electrocardiographs monitor the characteristics
of the heart's electrical activity to enable cardiology professionals to provide
accurate diagnoses and deliver care for cardiac patients.
CUSTOMERS
We provide products and services to a broad range of customers in the
industry. Within the last 12 months, 91% of the largest 2,000 hospitals in the
United States purchased our equipment and/or services. Outpatient clinics,
doctors' offices and public facilities, travel companies and entertainment
providers are also a growing part of our customer base.
A representative list of customers of our healthcare solutions business
follows:
Adventist Health System- Hawaiian Electric Utility Scripps Memorial Health
Sunbelt Intermountain Health Care System
Advocate Health Care International Military Sisters of Providence (WA)
American Airlines Johnson & Johnson St. John's Health System
AKH Wien, Vienna Kaiser Foundation Hospitals St. Joseph Health System (CA)
Assistance Publique -- Mayo Foundation Stanford Healthcare Services
Hospitaux De Paris Medical Center, Cairo, Egypt Sun Microsystems
Baptist Health System of Memorial Healthcare Systems Sutter Health California
South Florida Nebraska Methodist Health Healthcare Systems
Catholic Healthcare West System Tenet Healthcare Corporation
Cisco The Methodist Hospitals, Tri-State Health Initiative
Columbia/HCA Healthcare Inc. Tokyo General Hospital
Corporation Mount Sinai Health System United States Government
General Growth Properties New York Health Hospital
General Motors Promedica Health System
Quorum Health Group, Inc.
SALES, MARKETING AND SUPPORT
Our products and services are sold through both direct and indirect
channels. We have sales offices in 33 countries and more than 2,400 direct sales
and service personnel. Our sales strategy is to sell to and service our largest
accounts (hospital and corporate business) directly while employing third-party
distributors and manufacturer's representatives for smaller or more
geographically dispersed countries. Electronic commerce is also an integral and
growing element of our sales and distribution strategy.
In select instances we have also established distribution alliances with
complementary medical equipment manufacturers in order to leverage market
strength or bring a broader array of solutions to our customers.
Our professional services offerings include multivendor systems
integration, training and consulting to hospitals, outpatient facilities and
doctors' offices. Our technical specialists and clinical application specialists
provide installation, repair and training services to preserve and maximize
customer investments in our solutions. In addition, geographic response centers
and remote on-line support supplement on-site services. Finally, we provide
consulting, project management and technical implementation services to meet
customer needs for networking and integrating our solutions.
MANUFACTURING
The healthcare solutions business has four manufacturing locations:
Massachusetts and Washington in the United States, China and Germany. We
selectively use suppliers to provide manufacturing capabilities outside our core
competencies, such as the manufacture of printed circuit assemblies by
Celestica. We typically complete the final assembly and test of our medical
products and systems internally.
16
19
COMPETITION
The markets we address are highly competitive. Our competitors are diverse
and offer a variety of solutions directed at various segments of our medical
products and services markets. Our ability to compete effectively depends upon a
number of factors, including our ability to
- provide a complete set of high quality products for our customers;
- offer competitive prices;
- provide financing services;
- provide support and training; and
- innovate technologically.
Our competitors with broad product portfolios include GE Marquette Medical
Systems and Siemens Medical Systems, Inc. We also compete with other vendors in
specific markets. Our major competitors in patient monitoring include GE
Marquette Medical, Siemens Medical, Spacelabs Medical, Inc. and the Datex-
Ohmeda division of Instrumentarium Corporation. In the imaging systems business,
we compete with Acuson Corporation, Toshiba Medical Systems, Inc., GE Marquette
Medical, Siemens Medical and the ATL Ultrasound, Inc. division of Philips
Medical Systems International. Our competition in the external defibrillator
market comes primarily from Physio Control Corporation (a subsidiary of
Medtronic Inc.) and Zoll Medical Corporation.
GOVERNMENT REGULATION
The products developed and marketed by our healthcare solutions business
are subject to extensive regulation by the FDA and other regulatory bodies. FDA
regulations govern, among other things, the following product activities: design
and development, testing, including animal and human studies, labeling,
premarket clearance or approval, manufacturing, storage, advertising and
promotion, and sales and distribution.
In the United States, medical devices are classified on the basis of
controls deemed necessary to ensure their safety and effectiveness. Class I
devices are subject to general controls, such as labeling, premarket
notification, and adherence to the FDA's Quality System Regulations, which
incorporate current good manufacturing practices that are applicable to medical
devices. Class II devices are subject to general and special controls. Special
controls may include performance standards, postmarket surveillance, patient
registries and FDA guidelines. Most class III devices are controlled through the
premarket approval process to ensure their safety and effectiveness.
Prior to commercialization, premarket notification clearance generally must
be obtained for class I and II devices as well as certain class III devices for
which the FDA has not called for premarket approval ("Pre-Amendent" Class III
devises. For other class III devices, a premarket approval application is
required and must be supported by valid scientific evidence to demonstrate their
safety and effectiveness. The notification or application typically includes
results of bench and laboratory tests, when appropriate, results of animal tests
and clinical studies, a detailed description of the methods, facilities and
controls used to manufacture the device, and proposed labeling and advertising
literature.
Most medical devices marketed by the Agilent healthcare solutions business
are class II or "Pre-Amendment" class III devices, which currently require only
premarket clearance. The Agilent healthcare solutions business does not market
any class III device requiring premarket approval in the United States, but it
may do so in the future or the FDA may require by regulation that premarket
approval applications be submitted for our existing "Pre-Amendment" class III
devices.
Once clearance or approval is obtained, FDA oversight continues. We are
required to demonstrate and maintain compliance with the Quality System
Regulations for all our products. The FDA enforces the Quality System
Regulations through periodic inspections of our manufacturing operations and
those of our contract manufacturers. The Quality System Regulations relate to
product design, manufacture, testing and quality
17
20
assurance, as well as to the maintenance of records and documentation. We are
required to provide information to the FDA on deaths or serious injuries alleged
to have been associated with the use of our medical devices, as well as on
product malfunctions that could contribute to death or serious injury. The FDA
also restricts the promotion of products for unapproved or off-label uses.
If the FDA believes we are not in compliance with the Federal Food, Drug
and Cosmetic Act or its regulations it can detain or seize our products, order
or request a recall, seek an injunction against future violations, assess civil
penalties against us, and initiate criminal proceedings against us.
Compliance with other regulatory requirements is necessary to market our
medical devices outside the United States. These regulations vary from country
to country.
CHEMICAL ANALYSIS
Our chemical analysis business provides instrument systems that enable
customers to identify, quantify, analyze and test the atomic, molecular,
physical and biological properties of substances and products. Our chemical and
life sciences analysis products and services are used by scientists, engineers
and technicians working in disease and drug discovery, research and development,
quality assurance, quality control and manufacturing.
Our four main product lines are chromatography, spectroscopy,
bio-instrumentation and related consumables. We also provide service and
customer support for our products.
We employed approximately 3,700 people as of October 31, 2000 in our
chemical and life sciences analysis business. We have manufacturing and product
development centers in China, Germany, Japan and the United States and marketing
centers in Germany, the United States, and Singapore. Our chemical and life
sciences analysis business generated revenue of $1.1 billion in fiscal year
2000, $1.0 billion in fiscal year 1999, and $938 million in fiscal year 1998.
MARKETS
Strategic Directions International estimates that in 1998, worldwide
revenue in the analytical instrumentation market totaled approximately $15.9
billion. According to Strategic Directions International, growth of the overall
analytical instrumentation market between 1998 and 2001 is expected to be
approximately 8% annually. We estimate that our market represents approximately
30% of the total available analytical instrumentation market that we serve.
Primarily, our chemical analysis business serves the following markets:
- hydrocarbon processing;
- environmental; and
- pharmaceutical and biopharmaceutical.
Hydrocarbon Processing
The hydrocarbon processing industry encompasses the natural gas, petroleum
refining, petrochemical and chemical markets. We sell primarily gas
chromatographs and gas chromatography-mass spectrometry products and systems
into these markets. Petroleum refiners use our measurement solutions to analyze
crude oil composition and perform other raw material analysis, verify and
improve refining processes, and ensure the overall quality of gasoline, fuels,
lubricants and other products. Our gas chromatographs are used to monitor
consistent quality in the natural gas delivered to consumers and industry.
Petrochemical and chemical producers use our products to measure and control the
quality of their finished products and to verify the environmental safety of
their operations.
Environmental
We develop and market analytical instrumentation for the environmental
market for applications such as laboratory and field analysis and
characterization of chemical pollutants in air, water, soils, solid waste,
18
21
agriculture and food products. Environmental industry customers include all
levels of government, the industrial and manufacturing sectors, engineering and
consulting companies, commercial testing laboratories, colleges and
universities. We believe there will be more demand for environmental
instrumentation in the Asia-Pacific, Latin America and Eastern Europe regions,
as these regions implement new and stricter environmental regulations.
Pharmaceutical and Biopharmaceutical
Our analytical and life sciences-instrument solutions are used by
pharmaceutical and biopharmaceutical companies in every phase of the drug
development process. This includes research into the basic causes of disease,
identification and development of new drugs, obtaining regulatory approval,
manufacturing and distribution. Strategic Directions International estimates
that these companies will spend approximately $3.8 billion on analytical
instrumentation in 2002.
STRATEGY
In order to maintain our leading position in the analytical instrumentation
market, our strategy is as follows:
Target high-growth opportunities in the pharmaceutical and biopharmaceutical
markets
In fiscal year 2000, we formed a new Life Sciences Business Unit to address
opportunities in the pharmaceutical market. Through our strategic relationship
with Caliper Technologies, we have developed instrumentation that enables
chemical analysis procedures to be performed within the Caliper LabChip device.
We have recently begun marketing the LabChip device, which uses a technology
called microfluidics to manipulate minute quantities of various fluids.
We will continue to focus resources on the development of
bio-instrumentation that increases understanding of the genetic cause of
diseases in order to speed the development and increase the efficacy of new
drugs.
Focus on growth opportunities in current markets
To address emerging markets in the Asia-Pacific, Latin America and Eastern
Europe regions, we are broadening our worldwide distribution capabilities and
developing less complex instrumentation with lower prices. Additionally, in
order to differentiate our product offerings and increase our market share in
developed markets, we intend to continue to grow our portfolio of services and
consumable products, enabling us to offer our customers more complete solutions.
Finally, we continue to develop gas chromatography and mass spectroscopy
products that are smaller and more portable to meet increasing demand for use of
these instruments outside of centralized laboratories.
Bring new products and technologies to market faster
We seek to bring new products and technologies to market both through
internal development and the strategic acquisition of technologies from third
parties. We are expanding our programs to offer customers early access to
products under development to ensure that these products are meeting customer
needs. In addition, our development of modular hardware and software platforms
allows us to bring new generations of products to market faster.
In addition to our internal efforts, we consider acquisitions to complement
our current products, solutions and technologies and to accelerate our entry
into strategic markets.
Leverage strategic relationships and alliances
We intend to build strategic relationships to enable us to develop products
and services that complement existing technologies and products in our target
markets. For example, through our relationship with Caliper Technologies, we are
conducting joint research and development in microfluidics.
19
22
In addition, through our strategic alliances, we develop instruments that
work with our partners' products, enabling us to offer our customers a broader
range of products and solutions.
PRODUCTS
A key factor in our target markets is the need for new products that
increase productivity of the end customer. Our chemical and life sciences
analysis products, systems and services enable our customers to analyze water,
air and soil for monitoring and remediation; to understand the properties of
natural and man-made gases, liquids and chemically-based products; and to
advance knowledge of the genetic basis of disease and enable the development,
testing and use of new drugs. Our four main product lines, chromatography,
spectroscopy, bio-instrumentation and related consumables, are described below.
Gas Chromatography
We produce gas chromatography systems, both portable and otherwise. Gas
chromatographs are used to separate molecules of a gaseous mixture to determine
the quantity and identity of the molecules present. A gas chromatograph can
analyze gas samples as well as solids and liquids that can be converted to a
gaseous state. Most gas chromatographs have the approximate size and appearance
of a large microwave oven.
Our instruments are used in laboratories involved in research and
development, quality assurance, quality control and routine testing. Our
products are used to test the quality and safety of food, air and water; to
develop cleaner-burning fuels and more effective pharmaceuticals; and to test
for alcohol in blood, drugs in urine or explosive residues in crime scene
evidence.
Liquid Chromatography
Liquid chromatographs are used to separate molecules of a liquid mixture to
determine the quantity and identity of the molecules present. These instruments
are modular in construction and can be configured to form instruments that
perform specific analyses. Each module is about the size of a home videocassette
recorder.
High-performance liquid chromatographs are an essential tool in the
pharmaceutical industry for basic research, drug development and clinical trials
of new drugs. Other industry groups that utilize high-performance liquid
chromatographs include chemical development and manufacturing, industry and
government testing laboratories for safety, quality and nutritional content of
foods and beverages, athlete monitoring for illegal drug use and environmental
monitoring.
Mass Spectroscopy
Mass spectroscopy systems break molecules into their component parts and
analyze these parts. Our mass spectrometers range in size from that of a small
microwave oven to that of a medium-sized refrigerator.
Mass spectroscopy systems are typically used in combination with gas or
liquid chromatographs in the pharmaceutical, semiconductor and environmental
industries. The combined instruments are used to study and refine the chemical
structure of new drugs, to determine the presence of impurities in
semiconductors as they are manufactured, or to research the presence of heavy
metals and other unwanted substances in soil and water.
Bio-Instrumentation
In December 1999 we announced the launch of a DNA microarray program for
the life sciences that incorporates technologies from both Rosetta Inpharmatics
and OGT, among others. This program is intended to enable researchers to access
gene expression information. In addition, our GeneArray system allows a
researcher to use GeneChip arrays designed by Affymetrix to enable high-speed
detection and characterization of large amounts of genetic information.
20
23
The new Agilent 2100 bioanalyzer instrument systems that we have developed
through our relationship with Caliper Technologies integrate a large number of
chemical-analysis procedures onto a single chip. We develop and distribute
instrumentation that extracts and analyzes data from the microchip developed by
Caliper Technologies, using advanced microfluidics technology. Using miniature,
integrated chemical-processing systems etched into glass, silicon, quartz or
plastic, the microchip allows the steps customarily performed in conventional
instruments to be done using minute quantities of costly liquids in a fraction
of the usual time.
Consumables
We also offer consumable products, including chromatograph columns,
analytical reagents and other accessories and supplies used by our customers
during the analytical experimentation process. Columns are metal or glass tubes
containing various substances that are inserted into chromatographs to assist in
the process of separating compounds into their constituent parts. Reagents are
chemicals used to perform analysis on the resulting constituent parts. Other
accessories and supplies we provide range from rubber rings to syringes to
safety glasses.
Our offerings include both generic consumables, where we seek to
distinguish our products on price, selection and customer loyalty, and
proprietary consumables developed by us, where we offer exclusive technology,
performance and functionality.
CUSTOMERS
We sell our products and services to a broad array of customers in each of
the markets we serve. Our top customers by market segment are the following:
HYDROCARBON PROCESSING ENVIRONMENTAL PHARMACEUTICAL
---------------------- ------------- --------------
Du Pont De Nemours Co E.I U.S. Federal Government Merck & Co., Inc
Bayer AG Government of Korea Roche Holdings, Inc
Basf AG United States Army AstraZeneca PLC
Monsanto Company US Department of Agriculture Aventis S.A.
Dow Chemical Co. Government of Australia Glaxo Wellcome PLC
Boehringer Ingelheim State of California Novartis AG
Exxon Corporation State of Georgia SmithKline Beecham PLC
Akzo State of Texas Johnson & Johnson
Pfizer, Inc.
American Home Products
SALES, MARKETING AND SUPPORT
Our sales and support delivery channels are aligned by our key markets to
maximize market coverage and to optimize selling and support delivery
efficiency. We market our products to our customers through our direct sales
force, value-added resellers, manufacturers' representatives and distributors.
We use our direct sales force to market our products to all our
pharmaceutical and biopharmaceutical accounts, large and medium size hydrocarbon
processing customers and all environmental accounts. We supplement our direct
sales force with sales agents to provide broader geographic coverage and to
cover smaller accounts. We also have an active value-added reseller program to
augment our ability to provide more complete solutions to our customers. We sell
our consumable products through distributors, telesales and electronic commerce.
We offer a wide range of startup, operational, educational and compliance
support services for our chemical analysis measurement and data handling
systems. We deliver our support services to customers in a variety of ways,
including on-site assistance, return to us for repair or exchange, telephone
support and self diagnostic services provided over the Internet. Our support
services limit the amount of time an instrument is out of service, provide
increased system productivity, extend the instrument life and offer fast problem
21
24
resolution. We also offer special industry-focused service bundles that are
designed to meet the specific needs of hydrocarbon processing, environmental,
pharmaceutical and biopharmaceutical customers to keep instruments fully
operational and compliant with the respective industry requirements.
MANUFACTURING
Our manufacturing strategy supports our diverse product range and
customer-centric focus. We assemble highly configurable products to individual
customer orders and make standard products to stock. We employ advanced
manufacturing techniques and supply chain management systems to reduce costs and
manufacturing cycle times. We selectively use partners to provide manufacturing
capabilities outside our core competencies, such as the manufacture of printed
circuit assemblies and the delivery of shipment logistics. We have manufacturing
facilities in California and Delaware in the United States, China, Germany and
Japan.
COMPETITION
The markets for analytical instruments in which we compete are
characterized by evolving industry standards and intense competition. Our
principal competitors include Perkin Elmer Corp., Applied Biosystems, Inc.,
Shimadzu Corporation, Thermo Electron, Inc. and Waters.
Our ability to compete effectively depends upon a number of factors
including our ability to:
- produce high-quality and reliable products;
- introduce new technologies and products in a timely manner;
- provide favorable overall cost of ownership; and
- provide product and service solutions that complement and support our
main product lines.
GOVERNMENT REGULATION
The chemical analysis product and related consumables marketed by our
chemical and life sciences analysis business are subject to regulation in the
United States by the Environmental Protection Agency under the Toxic Substances
Control Act, and by government agencies in other countries under similar laws.
The Toxic Substances Control Act regulations govern, among other things, the
testing, manufacture, processing and distribution of chemicals, the testing of
regulated chemicals for their effects on human health and safety and import and
export of chemicals. The act prohibits persons from manufacturing any chemical
in the United States that has not been reviewed by Environmental Protection
Agency for its effect on health and safety, and placed on an Environmental
Protection Agency inventory of chemical substances. In addition, our chemical
analysis products are used in the drug design and production processes to test
compliance with the Toxic Substances Control Act, the Federal Food, Drug and
Cosmetic Act and similar regulations. Therefore, we must continually adapt our
chemical analysis products to changing regulations. If we fail to comply with
the notification, record-keeping and other requirements in the manufacture or
distribution of our products, the Environmental Protection Agency can obtain an
order from a court that would prohibit the further distribution or marketing of
a product that contains a chemical that is out of compliance or we could face
fines, civil penalties or criminal prosecution.
BACKLOG
Agilent believes that backlog is not a meaningful indicator of future
business prospects due to the large volume of products delivered from our shelf
inventories, the shortening of product life cycles and the relative portion of
net revenue related to our service and support businesses. Therefore, we believe
that backlog information is not material to an understanding of our business.
RESEARCH AND DEVELOPMENT
We sell our products in several industries that are characterized by rapid
technology changes, frequent new product and service introductions and evolving
industry standards. Without the timely introduction of new
22
25
products, services and enhancements, our products and services are likely to
become technologically obsolete over time, in which case revenue and operating
results would suffer. There can be no assurance that such new products and
services, if and when introduced, will achieve market acceptance. After the
products and services are developed, we must quickly manufacture and deliver
such products and services in sufficient volumes at acceptable costs to meet
demand.
Research and development expenditures were $1,258 million in fiscal year
2000, $997 million in fiscal year 1999, and $948 million in fiscal year 1998. We
anticipate that we will continue to have significant research and development
expenditures in order to maintain our competitive position with a continuing
flow of innovative, high-quality products and services.
INTELLECTUAL PROPERTY
Our general policy has been to seek patent and other intellectual property
protection for those inventions and improvements likely to be incorporated into
our products and services or to give us a competitive advantage. While we
believe that our patents and applications have value, in general no single
patent is in itself essential. In addition, we cannot assure you that any of our
proprietary rights will not be challenged, invalidated or circumvented, or that
our rights will provide significant competitive advantages.
INTERNATIONAL OPERATIONS
Our net revenue originating outside the United States, as a percentage of
our total net revenue, was approximately 55.8% in fiscal year 2000, 55.2% in
fiscal year 1999, and 54.4% in fiscal year 1998, the majority of which was from
customers other than foreign governments. Approximately 19% of our international
revenue in the last three years was derived from Japan.
Most of our sales in international markets are made by foreign sales
subsidiaries. In countries with low sales volumes, sales are made through
various representatives and distributors. However, we make certain sales in
international markets directly from the United States.
Our international business is subject to risks customarily encountered in
foreign operations, including changes in a specific country's or region's
political or economic conditions, trade protection measures, import or export
licensing requirements, the overlap of different tax structures, unexpected
changes in regulatory requirements, difficulty in staffing and managing
widespread operations, differing labor regulations and differing protection of
intellectual property. We are also exposed to foreign currency exchange rate
risk inherent in our sales commitments, anticipated sales and assets and
liabilities denominated in currencies other than the United States dollar and
may also become subject to interest rate risk inherent in any debt, investment
and finance receivable portfolios we incur.
We do a portion of our businesses in Korea and Japan, which have been
subject to increased economic instability in recent years. The recurrence of
weakness in these economies or weakness in other international economies could
have a significant negative effect on our future operating results. However, we
believe that our international diversification provides stability to our
worldwide operations and reduces the impact on us of adverse economic changes in
any single country. Financial information about our international operations is
contained in Note 18, "Segment Information," of the consolidated financial
statements included in Item 8 of this report.
MATERIALS
Our manufacturing operations employ a wide variety of semiconductors,
electromechanical components and assemblies, and raw materials such as plastic
resins and sheet metal. We believe that the materials and supplies necessary for
our manufacturing operations are presently available in the quantities required.
We purchase materials, supplies and product subassemblies from a substantial
number of vendors. For many of our products, we have existing alternate sources
of supply, or such sources are readily available. In certain instances, however,
we enter into non-cancelable purchase commitments with, or make advance payments
to, certain suppliers to ensure supply. Portions of our manufacturing operations
are dependent on the ability of
23
26
suppliers to deliver quality components, subassemblies and completed products in
time to meet critical manufacturing and distribution schedules. The failure of
suppliers to deliver these components, subassemblies and products in a timely
manner may adversely affect our operating results until alternate sources could
be developed. In addition, we periodically experience constrained supply of
certain component parts in some product lines as a result of strong demand in
the industry for those parts. Such constraints, if persistent, may adversely
affect our operating results. However, we believe that alternate suppliers or
design solutions could be arranged within a reasonable time so that material
long-term adverse impacts would be minimized.
ENVIRONMENTAL
Our research and development, manufacturing and distribution operations
involve the use of hazardous substances and are regulated under international,
federal, state and local laws governing health and safety and the environment.
We apply strict standards for protection of the environment and worker health
and safety to sites inside and outside the United States, even if not subject to
regulation imposed by foreign governments. We believe that our properties and
operations at our facilities comply in all material respects with applicable
environmental laws; however, the risk of environmental liabilities cannot be
completely eliminated and there can be no assurance that the application of
environmental and health and safety laws to our Company may not require our
Company to incur significant expenditures. We are also regulated under a number
of international, federal, state and local laws regarding recycling, product
packaging and product content requirements. These laws are gradually becoming
more stringent and may in the future cause us to incur significant expenditures.
Some of our operations are located on properties that are known to have
subsurface contamination that is undergoing remediation by Hewlett-Packard.
Hewlett-Packard has agreed to retain the liability for the contamination,
perform the required remediation and indemnify us with respect to claims arising
out of the contamination. The determination of the existence and cost of any
additional contamination caused by us could involve costly and time-consuming
negotiations and litigation. While we expect that Hewlett-Packard will meet its
remediation and indemnification obligations in this regard, there can be no
guarantee that it will do so. Under our agreement with Hewlett-Packard,
Hewlett-Packard will have access to these properties to perform the remediation.
Hewlett-Packard has agreed to minimize interference with on-site operations at
those properties during the course of the remediation, but there can be no
guarantee that our operations will not be interrupted or that we will not be
required to incur unreimbursed costs associated with the remediation.
Remediation could also harm on-site operations and the future use and value of
the properties.
In addition, some of these properties are undergoing remediation by
Hewlett-Packard under an order of an agency of the state in which the property
is located. Although Hewlett-Packard has agreed to indemnify us with respect to
that subsurface contamination, it is possible that one or more of the
governmental agencies will require us to be named on any of these orders. The
naming of our Company will not affect Hewlett-Packard's obligation to indemnify
us with regard to these matters.
We are liable and are indemnifying Hewlett-Packard for any contamination
found at all facilities transferred to us by Hewlett-Packard excluding the
properties undergoing remediation. In addition, we are indemnifying
Hewlett-Packard for any liability associated with past non-compliance with
environmental laws regulating ongoing operations at all properties transferred
to us by Hewlett-Packard, as well as at sold or discontinued businesses that
related to our businesses. While we are not aware of any material liabilities
associated with such indemnified matters, there is no guarantee that such
contamination or regulatory non-compliance does not exist, and will not expose
us to material liability in the future.
We are being indemnified by Hewlett-Packard with respect to all
environmental liabilities for which Hewlett-Packard accrued a reserve and we are
not aware of any material and probable environmental liabilities being assumed
by us which are not subject to the indemnity.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names of our executive officers, and their ages, titles and biographies
as of December 26, 2000, appear below. All officers are elected for one-year
terms.
24
27
EXECUTIVE OFFICERS:
Edward W. Barnholt, 57, Mr. Barnholt has served as our President and Chief
Executive Officer and as a director since May 1999. Before being named our Chief
Executive Officer, Mr. Barnholt served as General Manager of Hewlett-Packard's
Measurement Organization from 1998 to 1999, which included Hewlett-Packard's
Electronic Instruments Group, the Microwave and Communications Group, the
Communications Test Solutions Group, the Automated Test Group, the Chemical
Analysis Group, the Components Group and the Medical Products Group. From 1990
to 1998, he served as General Manager of Hewlett-Packard's Test and Measurement
Organization. He was elected a Senior Vice President of Hewlett-Packard in 1993
and an Executive Vice President in 1996. He is a director of KLA-Tencor
Corporation.
Byron Anderson, 57, has served as our Senior Vice President, Electronic
Products and Solutions since August 1999. Prior to assuming that position, Mr.
Anderson served as a vice president of Hewlett-Packard since November 1995 and
General Manager of the Microwave and Communications Group since September 1997.
In January 1991, Mr. Anderson was named General Manager of Hewlett-Packard's
Communications Test Business Unit, which became the Test Solutions Group in
1994.
Alain Couder, 54, Mr. Couder has served as our Executive Vice President and
Chief Operating Officer since February 2000. Prior to assuming this position,
Mr. Couder served as President, Chairman and Chief Executive Officer at Packard
Bell NEC from 1998 to 2000. Prior to joining Packard Bell NEC, Mr. Couder held
several management positions from 1991 through 1998, including Chief Operating
Officer in 1997 with Groupe Bull. From 1984 to 1991, Mr. Couder was a General
Manager in the computer business at Hewlett-Packard Company in the United States
and France.
William R. Hahn, 49, has served as our Senior Vice President,
Communications and Marketing since August 1999. Since October 1997, Mr. Hahn
served as the Sector Controller of Hewlett-Packard's Measurement Organization.
From September 1995 to October 1997, he served as Operations Manager for
Hewlett-Packard's interactive broadband program. From May 1993 to September
1995, Mr. Hahn served as Vice President of Finance and Manufacturing and Chief
Financial Officer at Aspect Communications.
Jean M. Halloran, 48, has served as our Senior Vice President, Human
Resources since August 1999. Since 1997, Ms. Halloran served as Director of
Corporate Education and Development for Hewlett-Packard. Prior to assuming this
position, from 1993 to 1997, Ms. Halloran acted as personnel manager for
Hewlett-Packard's Measurement Systems Organization. From 1990 to 1993, she acted
as group Personnel Manager for Hewlett-Packard's Medical Products Group. Ms.
Halloran joined Hewlett-Packard in 1980 in the Medical Products Group, where she
held a variety of positions in human resources, manufacturing and strategic
planning.
Dorothy D. Hayes, 50, has served as our Vice President and Controller since
August 1999. Prior to assuming that position, since October 1989, Ms. Hayes held
a number of positions at Hewlett-Packard. She served as Transition General
Manager from March to July 1999, Director of Internal Audit from July 1997 to
June 1999, Measurement Systems Organization Controller from February 1994 to
July 1997, Components Group Controller from September 1993 to February 1996 and
Corporate Financial Reporting Manager from October 1989 to September 1993.
Richard D. Kniss, 60, has served as our Senior Vice President, Chemical
Analysis Group since August 1999. Prior to assuming that position, since May
1995, Mr. Kniss was General Manager of Hewlett-Packard's Chemical Analysis Group
and was named a Vice President of Hewlett-Packard in June 1997. He served as
General Manager of the Optical Communication Division from 1984 to 1995.
D. Craig Nordlund, 51, was named our Senior Vice President, General Counsel
and Secretary in May 1999 and serves as an officer or director for a variety of
Agilent subsidiaries. Mr. Nordlund served as Associate General Counsel and
Secretary of Hewlett-Packard Company from 1987 to 1999. He is the immediate past
Chairman of the National American Society of Corporate Secretaries organization
and serves on the boards of the American Corporate Counsel Association, the
American Society of Corporate Secretaries, and the HP Employees Federal Credit
Union.
25
28
Stephen H. Rusckowski, 43, has served as our Senior Vice President,
Healthcare Solutions since October 1999. Prior to assuming that position, Mr.
Rusckowski held a number of positions at Hewlett-Packard. He served as General
Manager of the Cardiology Products Division from 1997 to 1999, General Manager
of the Healthcare Information Management Division from 1996 to 1997 and General
Manager of the Clinical Information Systems Division from 1994 to 1995. Mr.
Rusckowski joined Hewlett-Packard in 1984.
Thomas A. Saponas, 51, has served as our Senior Vice President and Chief
Technology Officer since August 1999. Prior to being named Chief Technology
Officer, from June 1998 to April 1999, Mr. Saponas was Vice President and
General Manager of Hewlett-Packard's Electronic Instruments Group. Mr. Saponas
has held a number of positions since the time he joined Hewlett-Packard. Mr.
Saponas served as General Manager of the Lake Stevens Division from August 1997
to June 1998 and General Manager of the Colorado Springs Division from August
1989 to August 1997. In 1986, he was a White House Fellow in Washington, D.C.
John E. Scruggs, 59, has served as our Senior Vice President, Automated
Test since August 1999. Prior to assuming that position, since January 1992, Mr.
Scruggs was General Manager of the Automated Test Group of Hewlett-Packard
within the Test and Measurement Organization. He was elected a Vice President of
Hewlett-Packard in November 1996.
William P. Sullivan, 51, has served as our Senior Vice President,
Semiconductor Products since August 1999. Prior to assuming that position, since
February 1998, he served as Vice President and General Manager of
Hewlett-Packard's Components Group. In 1997, Mr. Sullivan became General Manager
of the Communication Semiconductor Solutions Division. From 1995 to 1997, he was
General Manager of the Optical Communication Division. From April 1991 to
February 1995, Mr. Sullivan served as Research and Development Manager for the
Optical Communication Division.
Robert R. Walker, 50, has served as our Executive Vice President and Chief
Financial Officer since May 2000, and as our Senior Vice President and Chief
Financial Officer since May 1999. During 1997 and 1998, Mr. Walker served as
Vice President and General Manager of Hewlett-Packard's Professional Services
Business Unit. From 1993 to 1997, he led Hewlett-Packard's information systems
function. He became Chief Information Officer in 1995 and served in that
position until 1997. Mr. Walker was named a Vice President of Hewlett-Packard in
1995. From 1975 to 1993, Mr. Walker held a variety of financial positions in
Hewlett-Packard.
Thomas White, 43, has served as our Senior Vice President, Communications
Solutions since August 1999. From 1997 to August 1999, Mr. White served as Vice
President and General Manager of the Communications Solutions Group of
Hewlett-Packard. From 1996 to 1997, he served as General Manager of the Computer
Peripherals Bristol Division and, in 1994, he served as General Manager for the
Telecommunications Systems Division, South Queensferry, Scotland.
ITEM 2. PROPERTIES.
Our corporate headquarters are located in Palo Alto, California. We operate
Agilent Technologies Laboratories in Palo Alto, California, and we also have 35
manufacturing sites, including eleven primary sites. Of the primary sites, five
are located in the United States, and an additional six sites are located in
China, Germany, Japan, Malaysia, Singapore and the United Kingdom.
26
29
SITE MAJOR ACTIVITY OWNED/LEASED
---- -------------- ------------
Palo Alto, CA -- Corporate Headquarters........... Corporate Owned
Administration
Palo Alto, CA -- Agilent Laboratories............. Research & Development Owned
Santa Clara, San Jose and Newark, CA.............. Manufacturing Primarily Owned
Loveland, CO...................................... Manufacturing Primarily Owned
Wilmington, DE (Little Falls Area)................ Manufacturing Primarily Owned
Andover, MA....................................... Manufacturing Owned
Spokane, WA....................................... Manufacturing Primarily Owned
Qingdao, China.................................... Manufacturing Leased
Boeblingen, Germany............................... Manufacturing Primarily Leased
Hachioji, Japan................................... Manufacturing Owned
Penang, Malaysia.................................. Manufacturing Owned
Singapore......................................... Manufacturing Leased
South Queensferry, United Kingdom................. Manufacturing Primarily Owned
As of December 31, 2000, we owned or leased a total of approximately 196
million square feet of space worldwide. Agilent's sales and support occupy a
total of approximately 62.4 million square feet. Of that, we own approximately
9.3 million square feet and lease the remaining 53.1 million. Agilent's
manufacturing plants, research and development facilities and warehouse and
administrative facilities occupy approximately 133.5 million square feet of
space. Of that, approximately 92.1 million square feet was owned and the
remaining 41.4 million was leased. Information about each of our businesses
appears below:
Test and Measurement. Our test and measurement business has manufacturing
and research and development facilities in Australia, Canada, China, Germany,
Japan, Korea, Malaysia, Singapore, the United Kingdom and the United States, and
marketing centers in Hong Kong, the Netherlands, Japan and the United States,
and sales offices throughout the world.
Semiconductor Products. Our semiconductor products business operates eight
manufacturing sites located in California and Colorado in the United States,
Malaysia, Singapore and the United Kingdom. The majority of our silicon and
gallium arsenide wafer fabrication is done in the United States and Singapore,
while our assembly and test operations are in Malaysia, Singapore and the United
Kingdom. We have a research and development facility in Italy. We have regional
sales and customer support centers in Germany, Hong Kong, Japan, Singapore, the
United Kingdom and the United States, and sales offices throughout the world.
Healthcare Solutions. Our healthcare solutions business has five
manufacturing locations sited in California, Massachusetts and Washington in the
United States, China and Germany. We have marketing centers in Hong Kong, Japan,
Germany, California and Massachusetts, and sales offices throughout the world.
We have a development facility in Pennsylvania.
Chemical Analysis. Our chemical analysis business has manufacturing
facilities in California and Delaware in the United States, China, Germany and
Japan. We have marketing centers in Germany, the United States and Singapore,
and sales offices throughout the world.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in lawsuits, claims, investigations and proceedings,
including patent, commercial and environmental matters, which arise in the
ordinary course of business. There are no matters pending that we expect to be
material in relation to our business, consolidated financial condition, results
of operations or cash flows. There have been no material developments in the
litigation previously reported in our Form 10-K for the period ended October 31,
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 2000, there were no matters submitted
to a vote of securities holders, through the solicitation of proxies or
otherwise.
27
30
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our common stock is listed on the New York Stock Exchange with the ticker
symbol "A." Trading in our common stock began on November 18, 1999; as a result,
there was no historical stock price data for our 1999 fiscal year. For the 2000
fiscal year, the New York Stock Exchange reported the high and low prices per
quarter as follows:
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
--------- --------- --------- ---------
High............................... $79 1/4 $159 $100 3/4 $ 63
Low................................ $ 40 $ 71 $40 3/4 $38 13/16
As of December 26, 2000, there were 85,921 stockholders of record of common
stock. The closing share price for Agilent common stock on December 26, 2000, as
reported by the New York Stock Exchange, was $53.50. On November 23, 1999, we
paid Hewlett-Packard a dividend of the net proceeds of our initial public
offering of $2.1 billion. We currently intend to retain any future earnings to
fund the development and growth of our business and, going forward, we do not
anticipate paying any cash dividends in the foreseeable future.
We completed our initial public offering in November 1999. We registered
and sold shares of our common stock, par value $0.01 per share. The registration
statement under the Securities Act (Reg. No. 333-85249) for the offering became
effective on November 18, 1999.
28
31
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
(UNAUDITED)
YEARS ENDED OCTOBER 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF EARNINGS DATA (1,
2, 3):
Net revenue.................................. $10,773 $8,331 $7,952 $7,785 $7,379
Earnings from operations..................... $ 1,053 $ 741 $ 442 $ 870 $ 875
Net earnings................................. $ 757 $ 512 $ 257 $ 543 $ 542
Basic net earnings per share................. $ 1.68 $ 1.35 $ 0.68 $ 1.43 $ 1.43
Diluted net earnings per share............... $ 1.66 $ 1.35 $ 0.68 $ 1.43 $ 1.43
Average shares used in computing basic net
earnings per share......................... 449 380 380 380 380
Average shares used in computing diluted net
earnings per share......................... 455 380 380 380 380
OCTOBER 31,
----------------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
(IN MILLIONS)
CONSOLIDATED BALANCE SHEET DATA (1):
Working capital............................... $2,897 $1,857 $1,476 $1,408 $1,449
Total assets.................................. $8,425 $5,444 $4,987 $5,006 $4,720
Stockholders' equity.......................... $5,265 $3,382 $3,022 $3,110 $2,998
- -------------------------
(1) The historical financial information from 1996 through 1999 was carved out
from the historical financial information of Hewlett-Packard using the
historical results of operations and historical bases of the assets and
liabilities of the Hewlett-Packard businesses that comprise our company.
Therefore, the historical financial information from 1996 through 1999 is
not indicative of our future performance and does not reflect what our
financial position and results of operations would have been had we operated
as a separate, stand-alone entity during the periods presented.
(2) Consolidated statement of earnings data includes pre-tax restructuring
charges of approximately $21 million for the year ended October 31, 2000 and
$163 million for the year ended October 31, 1998. Consolidated statement of
earnings data for the year ended October 31, 1999 includes a pre-tax asset
impairment charge of $51 million relating to a building under construction
originally intended as a manufacturing facility for eight-inch CMOS
semiconductor wafers. See Note 11, "Restructuring, Asset Impairment and
Other Charges," of the consolidated financial statements.
(3) Consolidated statement of earnings data for the year ended October 31, 2000
includes the impact of the sale of certain portions of our U.S. portfolio of
lease assets to The CIT Group, Inc. Net proceeds from this sales transaction
were $234 million and we recognized $212 million in net revenue and $89
million in cost of products. See Note 3, "Acquisitions and Dispositions," of
the consolidated financial statements.
29
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K. The following discussion contains forward-looking
statements, including, without limitation, statements regarding the anticipated
completion of transactions and our liquidity position that involve risks and
uncertainties. Our actual results could differ materially from the results
contemplated by these forward-looking statements due to certain factors,
including those discussed below in "Factors That May Affect Future Results" and
elsewhere in this Annual Report on Form 10-K.
OVERVIEW
On March 2, 1999, Hewlett-Packard Company (Hewlett-Packard) announced a
plan to create a separate company, subsequently named Agilent Technologies, that
comprised Hewlett-Packard's test and measurement, semiconductor products,
healthcare solutions and chemical analysis businesses, related portions of
Hewlett-Packard Laboratories, and associated infrastructure. On November 1,
1999, we began operating as a separate, stand-alone company. On November 18,
1999, we launched our initial public offering of 72,000,000 shares of common
stock at $30 per share. After the completion of our initial public offering in
November 1999, Hewlett-Packard owned approximately 84.1% of our outstanding
common stock. On November 23, 1999, we paid the net proceeds of the offering of
$2.1 billion to Hewlett-Packard as a dividend. On April 7, 2000, Hewlett-Packard
announced that its board of directors had declared a stock dividend of all of
Hewlett-Packard's shares in us. The dividend was distributed on June 2, 2000 to
Hewlett-Packard shareholders of record as of May 2, 2000. The distribution was
made on the basis of 0.3814 of an Agilent share for each Hewlett-Packard common
share outstanding.
We were incorporated in Delaware in May 1999 as a wholly-owned subsidiary
of Hewlett-Packard. Our businesses historically were operated as internal units
of Hewlett-Packard. In November 1999, Hewlett-Packard transferred to us a
majority of the assets and liabilities relating to our businesses and also
provided us with cash funding of approximately $1.1 billion. Hewlett-Packard
retained some of our assets and liabilities including our accounts receivable
and accounts payable, accrued payroll and related items and taxes payable,
except deferred taxes, and tran