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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(MARK ONE) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For the quarterly period ended July 31, 2022 
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For transition period from              to        
 Commission File Number: 001-15405
 AGILENT TECHNOLOGIES, INC.
(Exact Name of registrant as specified in its charter)
Delaware   77-0518772
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 
5301 Stevens Creek Blvd.,
Santa Clara, California 95051
(Address of principal executive offices)

Registrant’s telephone number, including area code: (800) 227-9770  

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Trading Symbol Name of each Exchange on which registered
Common Stock, $0.01 par value A New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
 Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No    
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No   

As of August 24, 2022, the registrant had 296,040,570 shares of common stock, $0.01 par value per share, outstanding.


AGILENT TECHNOLOGIES, INC.
TABLE OF CONTENTS
 
      Page
Number
 
3
 
3
   
3
4
   
5
   
6
7
   
9
 
 
 
 
 
 
 
 
Item 6.
Exhibits
   

2

PART I— FINANCIAL INFORMATION
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
 
Three Months Ended Nine Months Ended
  July 31, July 31,
  2022 2021 2022 2021
Net revenue:        
Products $ 1,306  $ 1,188  $ 3,773  $ 3,510 
Services and other 412  398  1,226  1,149 
Total net revenue 1,718  1,586  4,999  4,659 
Costs and expenses:        
Cost of products 558  521  1,633  1,534 
Cost of services and other 221  213  656  618 
Total costs 779  734  2,289  2,152 
Research and development 116  113  348  325 
Selling, general and administrative 412  403  1,215  1,230 
Total costs and expenses 1,307  1,250  3,852  3,707 
Income from operations 411  336  1,147  952 
Interest income — 
Interest expense (19) (21) (61) (60)
Other income (expense), net 12  (41) 19 
Income before taxes 397  327  1,049  912 
Provision for income taxes 68  63  163  144 
Net income $ 329  $ 264  $ 886  $ 768 
Net income per share:    
Basic $ 1.10  $ 0.87  $ 2.95  $ 2.52 
Diluted $ 1.10  $ 0.86  $ 2.94  $ 2.50 
Weighted average shares used in computing net income per share:        
Basic 298  303  300  305 
Diluted 299  306  301  307 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

Three Months Ended Nine Months Ended
  July 31, July 31,
  2022 2021 2022 2021
Net income $ 329  $ 264  $ 886  $ 768 
Other comprehensive income (loss):
Unrealized gain (loss) on derivative instruments, net of tax expense (benefit) of $1, $1, $8 and $(1)
—  26  (4)
Amounts reclassified into earnings related to derivative instruments, net of tax expense (benefit) of $(3), $1, $(5) and $5
(8) (14) 14 
Foreign currency translation, net of tax expense of $0, $0, $0 and $0
(29) (17) (110) 27 
Net defined benefit pension cost and post retirement plan costs:
Change in actuarial net loss, net of tax expense of $2, $3, $7 and $11
11  19  32 
Change in net prior service benefit, net of tax expense of $0, $0, $0 and $0
(1) —  (1) (1)
Other comprehensive income (loss) (29) (2) (80) 68 
Total comprehensive income $ 300  $ 262  $ 806  $ 836 


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

4

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except par value and share amounts)
(Unaudited)
  July 31,
2022
October 31,
2021
ASSETS    
Current assets:    
Cash and cash equivalents $ 1,071  $ 1,484 
Short-term investments 91 
Accounts receivable, net 1,345  1,172 
Inventory 1,010  830 
Other current assets 258  222 
Total current assets 3,690  3,799 
Property, plant and equipment, net 1,054  945 
Goodwill 3,948  3,975 
Other intangible assets, net 849  981 
Long-term investments 194  185 
Other assets 749  820 
Total assets $ 10,484  $ 10,705 
LIABILITIES AND EQUITY    
Current liabilities:    
Accounts payable $ 558  $ 446 
Employee compensation and benefits 389  493 
Deferred revenue 498  441 
Short-term debt 180  — 
Other accrued liabilities 277  328 
Total current liabilities 1,902  1,708 
Long-term debt 2,732  2,729 
Retirement and post-retirement benefits 176  220 
Other long-term liabilities 583  659 
Total liabilities 5,393  5,316 
Commitments and contingencies (Notes 9 and 12)
Total equity:    
Stockholders’ equity:    
Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding at July 31, 2022 and October 31, 2021
—  — 
Common stock; $0.01 par value; 2 billion shares authorized; 296 million shares at July 31, 2022 and 302 million shares at October 31, 2021 issued and outstanding
Additional paid-in-capital 5,311  5,320 
 Retained earnings 139  348 
Accumulated other comprehensive loss (362) (282)
Total stockholders' equity 5,091  5,389 
Total liabilities and stockholders' equity $ 10,484  $ 10,705 

 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
Nine Months Ended
  July 31,
  2022 2021
Cash flows from operating activities:
Net income $ 886  $ 768 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 244  237 
Share-based compensation 99  88 
Deferred taxes 25  41 
Excess and obsolete inventory related charges 16  21 
Loss on extinguishment of debt 17 
Net (gain) loss on equity securities 60  (24)
Asset impairment charges — 
Change in fair value of contingent consideration (25) — 
Other non-cash expense, net 10 
Changes in assets and liabilities:    
Accounts receivable, net (233) (69)
Inventory (206) (115)
Accounts payable 110  46 
Employee compensation and benefits (98) 38 
Other assets and liabilities (33) (7)
Net cash provided by operating activities 864  1,044 
Cash flows from investing activities:    
Investments in property, plant and equipment (221) (126)
Payment to acquire equity securities (10) (15)
Payment in exchange for convertible note (1) (2)
Proceeds from sale of equity securities 22  — 
Acquisitions of businesses and intangible assets, net of cash acquired (18) (547)
Net cash used in investing activities (228) (690)
Cash flows from financing activities:    
Issuance of common stock under employee stock plans 55  52 
Payment of taxes related to net share settlement of equity awards (65) (74)
Payment of dividends (188) (177)
Issuance of senior notes and long-term loan 600  848 
Debt issuance costs —  (7)
Repayment of senior notes (609) (417)
Proceeds from commercial paper 940  1,492 
Repayment of commercial paper (760) (1,437)
Treasury stock repurchases (1,004) (652)
Net cash used in financing activities (1,031) (372)
Effect of exchange rate movements (22)
Net decrease in cash, cash equivalents and restricted cash (417) (12)
Cash, cash equivalents and restricted cash at beginning of period 1,490  1,447 
Cash, cash equivalents and restricted cash at end of period $ 1,073  $ 1,435 
Supplemental cash flow information:
Income tax paid, net $ 217  $ 164 
Interest payments $ 56  $ 53 
Net change in property, plant and equipment included in accounts payable and accrued liabilities-increase (decrease) $ $
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

AGILENT TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in millions, except number of shares in thousands)
(Unaudited)
  Common Stock   Accumulated
Other
Comprehensive
Loss
 
Three Months Ended July 31, 2022 Number
of
Shares
Par
Value
Additional
Paid-in
Capital
Retained Earnings Total Stockholders' Equity
Balance as of April 30, 2022 298,565  $ $ 5,292  $ 160  $ (333) $ 5,122 
Components of comprehensive income, net of tax:
Net income —  —  —  329  —  329 
Other comprehensive loss —  —  —  —  (29) (29)
Total comprehensive income           300 
Cash dividends declared ($0.210 per common share)
—  —  —  (62) —  (62)
Share-based awards issued, net of tax of $1
308  —  26  —  —  26 
Repurchase of common stock (2,673) —  (35) (288) —  (323)
Share-based compensation —  —  28  —  —  28 
Balance as of July 31, 2022 296,200  $ $ 5,311  $ 139  $ (362) $ 5,091 
  Common Stock   Accumulated
Other
Comprehensive
Loss
 
Nine Months Ended July 31, 2022 Number
of
Shares
Par
Value
Additional
Paid-in
Capital
Retained Earnings Total Stockholders' Equity
Balance as of October 31, 2021 302,208  $ $ 5,320  $ 348  $ (282) $ 5,389 
Components of comprehensive income, net of tax:
Net income —  —  —  886  —  886 
Other comprehensive loss —  —  —  —  (80) (80)
Total comprehensive income           806 
Cash dividends declared ($0.630 per common share)             
—  —  —  (188) —  (188)
Share-based awards issued, net of tax of $65
1,323  —  (11) —  —  (11)
Repurchase of common stock (7,331) —  (97) (907) —  (1,004)
Share-based compensation —  —  99  —  —  99 
Balance as of July 31, 2022 296,200  $ $ 5,311  $ 139  $ (362) $ 5,091 
7

  Common Stock   Accumulated
Other
Comprehensive
Loss
 
Three Months Ended July 31, 2021 Number
of
Shares
Par
Value
Additional
Paid-in
Capital
Retained
Earnings (Accumulated Deficit)
Total Stockholders' Equity
Balance as of April 30, 2021 303,403  $ $ 5,271  $ (12) $ (452) $ 4,810 
Components of comprehensive income, net of tax:
Net income —  —  —  264  —  264 
Other comprehensive loss —  —  —  —  (2) (2)
Total comprehensive income           262 
Cash dividends declared ($0.194 per common share)             
—  —  —  (59) —  (59)
Share-based awards issued, net of tax of $1
296  —  24  —  —  24 
Repurchase of common stock (804) —  (10) (103) —  (113)
Share-based compensation —  —  22  —  —  22 
Balance as of July 31, 2021 302,895  $ $ 5,307  $ 90  $ (454) $ 4,946 
  Common Stock   Accumulated
Other
Comprehensive
Loss
 
Nine Months Ended July 31, 2021 Number
of
Shares
Par
Value
Additional
Paid-in
Capital
Retained Earnings Total Stockholders' Equity
Balance as of October 31, 2020 306,198  $ $ 5,311  $ 81  $ (522) $ 4,873 
Components of comprehensive income, net of tax:
Net income —  —  —  768  —  768 
Other comprehensive income —  —  —  —  68  68 
Total comprehensive income           836 
Cash dividends declared ($0.582 per common share)             
—  —  —  (177) —  (177)
Share-based awards issued, net of tax of $74
1,939  —  (22) —  —  (22)
Repurchase of common stock (5,242) —  (70) (582) —  (652)
Share-based compensation —  —  88  —  —  88 
Balance as of July 31, 2021 302,895  $ $ 5,307  $ 90  $ (454) $ 4,946 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. OVERVIEW, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Overview. Agilent Technologies, Inc. ("we," "Agilent" or the "company"), incorporated in Delaware in May 1999, is a global leader in life sciences, diagnostics and applied chemical markets, providing application focused solutions that include instruments, software, services and consumables for the entire laboratory workflow.

Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, these dates refer to our fiscal year and fiscal quarters.

New Segment Structure. In the first quarter of fiscal year 2022, we announced a change in organizational structure designed to enable our growth strategies and strengthen our focus on customers. Our chemistries and supplies business and our remarketed instruments business moved from our Agilent CrossLab business segment to our life sciences and applied markets business segment. Service revenue and cost of sales related to the previous acquisition of BioTek moved from our life sciences and applied markets business segment to our Agilent CrossLab business segment. Following this reorganization, we continue to have three business segments (life sciences and applied markets, diagnostics and genomics and Agilent CrossLab), each of which continues to comprise a reportable segment. We began reporting under this new structure with the Quarterly Report on Form 10-Q for the period ended January 31, 2022. Historical financial segment information has been recast to conform to this new presentation in our financial statements and accompanying notes. There was no change to our diagnostics and genomics business segment.

Basis of Presentation. We have prepared the accompanying financial data for the three and nine months ended July 31, 2022 and 2021 pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. have been condensed or omitted pursuant to such rules and regulations. The October 31, 2021 condensed balance sheet data was derived from audited financial statements but does not include all the disclosures required in audited financial statements by U.S. GAAP. The accompanying financial data and information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary for a fair statement of our condensed consolidated balance sheet as of July 31, 2022 and October 31, 2021, condensed consolidated statement of comprehensive income (loss) for the three and nine months ended July 31, 2022 and 2021, condensed consolidated statement of operations for the three and nine months ended July 31, 2022 and 2021, condensed consolidated statement of cash flows for the nine months ended July 31, 2022 and 2021 and condensed consolidated statement of equity for the three and nine months ended July 31, 2022 and 2021.

Use of Estimates. The preparation of condensed consolidated financial statements in accordance with GAAP in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, retirement and post-retirement benefit plan assumptions, valuation of goodwill and purchased intangible assets and accounting for income taxes.

9

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




Restricted Cash and Restricted Cash Equivalents. Restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. A reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheet follows:
  July 31, October 31,
  2022 2021
(in millions)
Cash and cash equivalents $ 1,071  $ 1,484 
Restricted cash included in other assets
Total cash, cash equivalents and restricted cash $ 1,073  $ 1,490 

Leases. As of July 31, 2022 and October 31, 2021, operating lease right-of-use assets where we are the lessee were $158 million and $178 million, respectively, and were included within other assets in the accompanying condensed consolidated balance sheet. The associated operating lease liabilities were $161 million and $182 million as of July 31, 2022 and October 31, 2021, respectively, and were included in other accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheet.

Variable Interest Entities. We make a determination upon entering into an arrangement whether an entity in which we have made an investment is considered a Variable Interest Entity (“VIE”). We evaluate our investments in privately held companies on an ongoing basis. We have determined that as of July 31, 2022 and October 31, 2021, there were no VIEs required to be consolidated in our consolidated financial statements because we do not have a controlling financial interest in any of the VIEs in which we have invested nor are we the primary beneficiary. We account for these investments under either the equity method or as equity investments without readily determinable fair value ("RDFV"), depending on the circumstances. We periodically reassess whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs and vice-versa, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.

As of July 31, 2022 and October 31, 2021, the total carrying value of investments and loans in privately held companies considered as VIEs was $82 million and $76 million respectively. The maximum exposure is equal to the carrying value because we do not have future funding commitments. The investments are included on the long-term investments line and the loans on the other current assets and other assets lines (depending upon tenure of loan) on the condensed consolidated balance sheet.

Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. The fair value of short-term and long-term equity investments which are readily determinable, and which are not accounted under the equity method are reported at fair value using quoted market prices for those securities when available with gains and losses included in net income. The fair value of long-term equity investments which are not readily determinable, and which are not accounted under the equity method are reported at cost with adjustments for observable changes in prices or impairments included in net income. The fair value of the term loans approximates its carrying value, and the fair value of our senior notes was $1,870 million with a carrying value of $2,132 million as of July 31, 2022. This compares to the fair value of our senior notes of $2,806 million with a carrying value of $2,729 million as of October 31, 2021. The change in the fair value over carrying value in the nine months ended July 31, 2022 is primarily due to increased market interest rates. The fair value was calculated from quoted prices which are primarily Level 1 inputs under the accounting guidance. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. These inputs, for example, interest rate yield curves, foreign exchange rates, and forward and spot prices for currencies are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. See also Note 9, "Fair Value Measurements" for additional information on the fair value of financial instruments and contingent consideration.


10

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




 2. NEW ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements
In January 2020, accounting guidance was issued that clarifies the accounting guidance for equity method investments, joint ventures, and derivatives and hedging. The guidance clarifies the interaction between different sections of the accounting guidance that could be applicable and which guidance should be applied in certain situations which should increase relevance and comparability of financial statement information. On November 1, 2021 we adopted this guidance which did not have a material impact on our condensed consolidated financial statements and disclosures.

In October 2021, the FASB issued an update to improve the accounting for acquired revenue contracts with customers in a business combination. The amendments require an acquirer to use the guidance in ASC 606, Revenue from Contracts with Customers, rather than using fair value, when recognizing and measuring contract assets and contract liabilities related to customer contracts assumed in a business combination. On November 1, 2021 we early adopted this guidance which did not have a material impact on our condensed consolidated financial statements and disclosures.

Accounting Pronouncements Not Yet Adopted
There were no additions to the new accounting pronouncements not yet adopted as described in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021.

Other amendments to GAAP in the U.S. that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements upon adoption.

3. REVENUE

The following table presents the company’s total revenue and segment revenue disaggregated by geographical region:
Three Months Ended July 31,
2022 2021
Life Sciences and Applied Markets Agilent CrossLab
Diagnostics and Genomics
Total Life Sciences and Applied Markets Agilent CrossLab
Diagnostics and Genomics
Total
(in millions)
Revenue by Region
Americas $ 336  $ 147  $ 188  $ 671  $ 289  $ 130  $ 187  $ 606 
Europe 210  94  103  407  218  94  111  423 
Asia Pacific 473  118  49  640  390  119  48  557 
Total $ 1,019  $ 359  $ 340  $ 1,718  $ 897  $ 343  $ 346  $ 1,586 
Nine Months Ended July 31,
2022 2021
Life Sciences and Applied Markets Agilent CrossLab
Diagnostics and Genomics
Total Life Sciences and Applied Markets Agilent CrossLab
Diagnostics and Genomics
Total
(in millions)
Revenue by Region
Americas $ 974  $ 416  $ 577  $ 1,967  $ 864  $ 376  $ 502  $ 1,742 
Europe 678  289  314  1,281  677  281  317  1,275 
Asia Pacific 1,239  366  146  1,751  1,160  346  136  1,642 
Total $ 2,891  $ 1,071  $ 1,037  $ 4,999  $ 2,701  $ 1,003  $ 955  $ 4,659 
11

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




The following table presents the company’s total revenue disaggregated by end markets and by revenue type:
Three Months Ended Nine Months Ended
July 31, July 31,
2022 2021 2022 2021
(in millions)
Revenue by End Markets
Pharmaceutical and Biopharmaceutical $ 643  $ 576  $ 1,834  $ 1,628 
Chemical and Energy 389  334  1,097  976 
Diagnostics and Clinical 234  242  718  691 
Food 151  143  446  449 
Academia and Government 139  138  426  423 
Environmental and Forensics 162  153  478  492 
Total $ 1,718  $ 1,586  $ 4,999  $ 4,659 
Revenue by Type
Instrumentation $ 737  $ 640  $ 2,074  $ 1,953 
Non-instrumentation and other 981  946  2,925  2,706 
Total $ 1,718  $ 1,586  $ 4,999  $ 4,659 

Revenue by region is based on the ship to location of the customer. Revenue by end market is determined by the market indicator of the customer and by customer type. Instrumentation revenue includes sales from instruments, remarketed instruments and third-party products. Non-instrumentation and other revenue include sales from contract and per incident services, our companion diagnostics and our nucleic acid solutions businesses as well as sales from spare parts, consumables, reagents, vacuum pumps, subscriptions, software licenses and associated services.

Contract Balances

Contract Assets

Contract assets (unbilled accounts receivable) primarily relate to the company's right to consideration for work completed but not billed at the reporting date. The unbilled receivables are reclassified to trade receivables when billed to customers. Contract assets are generally classified as current assets and are included in "Accounts receivable, net" in the condensed consolidated balance sheet. The balances of contract assets as of July 31, 2022 and October 31, 2021 were $273 million and $197 million, respectively.

Contract Liabilities

The following table provides information about contract liabilities (deferred revenue) and the significant changes in the balances during the nine months ended July 31, 2022:
Contract
Liabilities
(in millions)
Ending balance as of October 31, 2021 $ 519 
Net revenue deferred in the period 391 
Revenue recognized that was included in the contract liability balance at the beginning of the period (336)
Change in deferrals from customer cash advances, net of revenue recognized 39 
Currency translation and other adjustments (25)
Ending balance as of July 31, 2022 $ 588 

During the nine months ended July 31, 2021 revenue recognized that was included in the contract liability balance at October 31, 2020 was $322 million.

12

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




Contract liabilities primarily relate to multiple element arrangements for which billing has occurred but transfer of control of all elements to the customer has either partially or not occurred at the balance sheet date. This includes cash received from customers for products and related installation and services in advance of the transfer of control. Contract liabilities are classified as either current in deferred revenue or long-term in other long-term liabilities in the condensed consolidated balance sheet based on the timing of when we expect to complete our performance obligation.

Contract Costs

Incremental costs of obtaining a contract with a customer are recognized as an asset if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The change in total capitalized costs to obtain a contract was immaterial during the three and nine months ended July 31, 2022 and was included in other current and long-term assets on the condensed consolidated balance sheet. We have applied the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include the company's internal sales force compensation program, as we have determined that annual compensation is commensurate with annual sales activities.

Transaction Price Allocated to the Remaining Performance Obligations

We have applied the practical expedient in ASC 606-10-50-14 and have not disclosed information about transaction price allocated to remaining performance obligations that have original expected durations of one year or less.
The estimated revenue expected to be recognized for remaining performance obligations that have an original term of more than one year, as of July 31, 2022, was $382 million, the majority of which is expected to be recognized over the next 12 months. Remaining performance obligations primarily include extended warranty, customer manufacturing contracts, software maintenance contracts and revenue associated with lease arrangements.

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

We have two LTPP performance stock award programs, which are administered under the 2018 Stock Plan, for our executive officers and other key employees. Participants in our LTPP Total Stockholders’ Return (“TSR”) and LTPP Earnings Per Share (“EPS”) programs are entitled to receive shares of the company's stock after the end of a three-year period, if specified performance targets for the programs are met. The LTPP-TSR awards are generally designed to meet the criteria of a performance award with the performance metrics and peer group comparison based on the TSR set at the beginning of the performance period. The LTPP-EPS awards are based on the company’s EPS performance over a three-year period. The performance targets for the LTPP-EPS for year 2 and year 3 of the performance period are set in the first quarter of year 2 and year 3, respectively. All LTPP awards are subject to a one-year post-vest holding period.

The final LTPP award may vary from 0 percent to 200 percent of the target award. We consider the dilutive impact of these programs in our diluted net income per share calculation only to the extent that the performance conditions are expected to be met. Restricted stock units generally vest, with some exceptions, at a rate of 25 percent per year over a period of four years from the date of grant.

In fiscal year 2021, we resumed granting stock options. Stock options granted under the 2018 Stock Plan may be either "incentive stock options", as defined in Section 422 of the Internal Revenue Code, or non-statutory. Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant with a maximum contractual term of ten years. The exercise price for stock options is generally not less than 100 percent of the fair market value of our common stock on the date the stock award is granted. We issue new shares of common stock when employee stock options are exercised.
13

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




The impact on our results for share-based compensation was as follows:
 
Three Months Ended Nine Months Ended
July 31, July 31,
  2022 2021 2022 2021
  (in millions)
Cost of products and services $ $ $ 24  $ 21 
Research and development 11 
Selling, general and administrative 18  14  65  60 
Total share-based compensation expense $ 28  $ 23  $ 100  $ 90 
 
At July 31, 2022 and October 31, 2021, no share-based compensation was capitalized within inventory.
The following assumptions were used to estimate the fair value of awards granted.
 
Three Months Ended Nine Months Ended
July 31, July 31,
  2022 2021 2022 2021
Stock Option Plans:        
Weighted average risk-free interest rate 3.2% 0.9% 1.4% 0.5  %
Dividend yield 0.7% 0.6% 0.5% 0.7  %
Weighted average volatility 27% 26% 26% 26  %
Expected life 5.5 years 5.5 years 5.5 years 5.5 years
LTPP:
Volatility of Agilent shares 29% 30% 29% 30%
Volatility of selected peer-company shares
23%-81%
24%-57%
23%-81%
24%-57%
Pair-wise correlation with selected peers 41% 45% 41% 45%
Post-vest holding restriction discount for all executive awards 6.5% 6.8% 6.5% 6.8%
 
The fair value of share-based awards for our employee stock option awards was estimated using the Black-Scholes option pricing model. Shares granted under the LTPP (TSR) were valued using a Monte Carlo simulation model. The Monte Carlo simulation fair value model requires the use of highly subjective and complex assumptions, including the price volatility of the underlying stock.  For the volatility of our LTPP (TSR) grants, we used our own historical stock price volatility.  

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

We use historical volatility to estimate the expected stock price volatility assumption for employee stock option awards. In reaching the conclusion, we have considered many factors including the extent to which our options are currently traded and our ability to find traded options in the current market with similar terms and prices to the options we are valuing. In estimating the expected life of our options granted, we considered the historical option exercise behavior of our executives, which we believe is representative of future behavior.

The estimated fair value of restricted stock units and LTPP (EPS) awards is determined based on the market price of our common stock on the date of grant adjusted for expected dividend yield. The compensation cost for LTPP (EPS) reflects the cost of awards that are probable to vest at the end of the performance period.

All LTPP awards granted to our senior management employees have a one-year post-vest holding restriction. The estimated discount associated with post-vest holding restrictions is calculated using the Finnerty model. The model calculates the potential lost value if the employees were able to sell the shares during the lack of marketability period, instead of being required to hold the shares. The model used the same historical stock price volatility and dividend yield assumption used for the Monte Carlo simulation model and an expected dividend yield to compute the discount.

14

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




5.     INCOME TAXES

For the three and nine months ended July 31, 2022, our income tax expense was $68 million with an effective tax rate of 17.1 percent and $163 million with an effective tax rate of 15.5 percent, respectively. For the three months ended July 31, 2022, there were no significant discrete items. The income taxes for the nine months ended July 31, 2022 include the excess tax benefits from stock-based compensation of $18 million. For the nine months ended July 31, 2022, our effective tax rate and the resulting provision for income taxes were also impacted by the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $8 million.

Our calculation of income tax expense for the three and nine months ended July 31, 2022 is dependent in part on forecasts of full year results. The impact of COVID-19 on the economic environment is uncertain and may change these forecasts, which could impact tax expense.

For the three and nine months ended July 31, 2021, our income tax expense was $63 million with an effective tax rate of 19.3 percent and $144 million with an effective tax rate of 15.8 percent, respectively. The income taxes for the nine months ended July 31, 2021 include the excess tax benefits from stock-based compensation of $24 million. For the three and nine months ended July 31, 2021, our effective tax rate and the resulting provision for income taxes were also impacted by the expiration of various foreign statutes of limitations which resulted in the recognition of previously unrecognized tax benefits of $8 million and $24 million, respectively.

In the U.S., tax years remain open back to the year 2018 for federal income tax purposes and for significant states. In other major jurisdictions where the company conducts business, the tax years generally remain open back to the year 2012.

With these jurisdictions and the U.S., it is reasonably possible there could be significant changes to our unrecognized tax benefits in the next twelve months due to either the expiration of a statute of limitation or a tax audit settlement which will be partially offset by an anticipated tax liability related to unremitted foreign earnings, where applicable. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, management is unable to estimate the range of possible changes to the balance of our unrecognized tax benefits.

6. NET INCOME PER SHARE
 
The following is a reconciliation of the numerator and denominator of the basic and diluted net income per share computations for the periods presented below:
 
Three Months Ended Nine Months Ended
July 31, July 31,
  2022 2021 2022 2021
  (in millions)
Numerator:        
Net income $ 329  $ 264  $ 886  $ 768 
Denominator:
Basic weighted-average shares 298  303  300  305 
Potential common shares— stock options and other employee stock plans
Diluted weighted-average shares 299  306  301  307 
 
The dilutive effect of share-based awards is reflected in diluted net income per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense collectively are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair market value of the company's common stock can result in a greater dilutive effect from potentially dilutive awards.

We exclude stock options with exercise prices greater than the average market price of our common stock from the calculation of diluted earnings per share because their effect would be anti-dilutive. In addition, we exclude from the calculation of diluted earnings per share stock options, ESPP, LTPP and restricted stock awards whose combined exercise price and
15

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




unamortized fair value were greater than the average market price of our common stock because their effect would also be anti-dilutive.  

For the three and nine months ended July 31, 2022 and 2021, potential common shares excluded from the calculation of diluted earnings per share were not material.

7. INVENTORY
 
Inventory as of July 31, 2022 and October 31, 2021 consisted of the following:

  July 31,
2022
October 31,
2021
  (in millions)
Finished goods $ 545  $ 463 
Purchased parts and fabricated assemblies 465  367 
Inventory $ 1,010  $ 830 

8. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The following table presents goodwill balances and the movements for each of our reportable segments during the nine months ended July 31, 2022:
 
  Life Sciences and Applied Markets Diagnostics and Genomics Agilent CrossLab Total
  (in millions)
Goodwill as of October 31, 2021 $ 1,743  $ 1,964  $ 268  $ 3,975 
Foreign currency translation impact (11) (10) (6) (27)
Goodwill as of July 31, 2022 $ 1,732  $ 1,954  $ 262  $ 3,948 

In the first quarter of fiscal year 2022, we reorganized our operating segments and moved our chemistries and supplies business and our remarketed instruments business from our Agilent CrossLab business segment to our life sciences and applied markets business segment. As a result, we reassigned approximately $307 million of goodwill from our Agilent Crosslab business segment to our life sciences and applied markets business segment using the relative fair value allocation approach. In addition, we moved service revenue and cost of sales related to the previous acquisition of BioTek from our life sciences and applied markets business segment to our Agilent CrossLab business segment. As a result, we reassigned approximately $10 million of goodwill from our life sciences and applied markets segment to our Agilent Crosslab business segment using the relative fair value allocation approach. Goodwill balances as of October 31, 2021, have been recast to conform to this new presentation. There were no changes to our reporting units due to this reorganization. In addition, we performed a goodwill impairment test, and the results of the analysis indicated that the fair values for all three of our reporting units were in excess of their carrying values by substantial amounts; therefore, no impairment was indicated.


16

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)





The component parts of other intangible assets as of July 31, 2022 and October 31, 2021 are shown in the table below:
 
  Other Intangible Assets
  Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
  (in millions)
As of October 31, 2021      
Purchased technology $ 1,742  $ 972  $ 770 
Trademark/Tradename 196  133  63 
Customer relationships 357  228  129 
Backlog
Third-party technology and licenses 11 
Total amortizable intangible assets 2,314  1,344  970 
In-Process R&D 11  —  11 
Total $ 2,325  $ 1,344  $ 981 
As of July 31, 2022      
Purchased technology $ 1,735  $ 1,047  $ 688 
Trademark/Tradename 196  144  52 
Customer relationships 353  278  75 
Backlog
Third-party technology and licenses 32  23 
Total amortizable intangible assets 2,324  1,485  839 
In-Process R&D 10  —  10 
Total $ 2,334  $ 1,485  $ 849 

During the nine months ended July 31, 2022, there were no additions to goodwill. During the nine months ended July 31, 2022, we recorded $21 million of other intangible assets related to the acquisition of advanced artificial intelligence technology. During the nine months ended July 31, 2022, other intangible assets in total decreased $3 million due to the impact of foreign currency translation.

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

Each quarter we review the events and circumstances to determine if impairment of indefinite-lived intangible assets and goodwill is indicated. During the three and nine months ended July 31, 2022 and 2021 we did not identify any triggering events or circumstances which would indicate an impairment of goodwill or indefinite-lived intangible assets.

Amortization expense of intangible assets was $48 million and $150 million for the three and nine months ended July 31, 2022, respectively. Amortization expense of intangible assets was $54 million and $144 million for the three and nine months ended July 31, 2021, respectively.

Future amortization expense related to existing finite-lived purchased intangible assets for the remainder of fiscal year 2022 and for each of the next five fiscal years and thereafter is estimated below:
Estimated future amortization expense:
(in millions)
Remainder of 2022 $ 41 
2023 $ 143 
2024 $ 125 
2025 $ 100 
2026 $ 71 
2027 $ 69 
Thereafter $ 290 
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




9. FAIR VALUE MEASUREMENTS
 
The authoritative guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market and assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

The guidance establishes a fair value hierarchy that prioritizes the use of inputs used in valuation techniques into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

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

Level 2- applies to assets or liabilities for which there are inputs other than quoted prices included within level 1 that are observable, either directly or indirectly, for the asset or liability such as: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in less active markets; or other inputs that can be derived principally from, or corroborated by, observable market data.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
 
Financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2022 were as follows:
 
    Fair Value Measurement at July 31, 2022 Using
  July 31,
2022
Quoted Prices
 in Active
 Markets for
 Identical Assets
 (Level 1)
Significant
 Other
 Observable
 Inputs
 (Level 2)
Significant
 Unobservable
 Inputs
 (Level 3)
  (in millions)
Assets:        
Short-term        
Cash equivalents (money market funds) $ 479  $ 479  $ —  $ — 
Derivative instruments (foreign exchange contracts) 23  —  23  — 
Short-term investments - Equity securities with RDFV —  — 
Long-term
Trading securities 32  32  —  — 
Other investments 25  —  25  — 
Total assets measured at fair value $ 564  $ 511  $ 53  $ — 
Liabilities:        
Short-term
Derivative instruments (foreign exchange contracts) $ $ —  $ $ — 
Contingent consideration 66  —  —  66 
Long-term
Deferred compensation liability 32  —  32  — 
Contingent consideration —  — 
Total liabilities measured at fair value $ 107  $ —  $ 40  $ 67 

Financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2021 were as follows:
 
    Fair Value Measurement at October 31, 2021 Using
  October 31,
2021
Quoted Prices
 in Active
 Markets for
 Identical Assets
 (Level 1)
Significant
 Other
 Observable
 Inputs
 (Level 2)
Significant
 Unobservable
 Inputs
 (Level 3)
  (in millions)
Assets:        
Short-term        
Cash equivalents (money market funds) $ 919  $ 919  $ —  $ — 
Derivative instruments (foreign exchange contracts) —  — 
Short-term investments - Equity securities with RDFV 91  83 8 — 
Long-term
Trading securities 34  34  —  — 
Other investments 31  —  31  — 
Total assets measured at fair value $ 1,084  $ 1,036  $ 48  $ — 
Liabilities:        
Short-term
Derivative instruments (foreign exchange contracts) $ $ —  $ $ — 
Contingent consideration 62  —  —  62 
Long-term
Deferred compensation liability 34  —  34  — 
Contingent consideration 27  —  —  27 
Total liabilities measured at fair value $ 128  $ —  $ 39  $ 89 
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




Our money market funds and trading securities are generally valued using quoted market prices and therefore are classified within level 1 of the fair value hierarchy. Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets. Our deferred compensation liability is classified as level 2 because, although the values are not directly based on quoted market prices, the inputs used in the calculations are observable.

Short- term investments - equity securities with readily determinable fair value ("RDFV") are shares in marketable equity securities which are classified as level 1 in the fair value hierarchy as they are measured based on quotes in active markets. Equity securities with RDFV also include potential shares received from an equity investment in a company that went public and can vest under certain stock performance circumstances, and these have been classified as level 2 because the fair value was calculated using the Monte Carlo simulation method in which quoted market price and other observable inputs are used.

Other investments represent shares we own in a special fund that targets underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities. These shares have been classified as level 2 because, although the shares of the fund are not traded on any active stock exchange, each of the individual underlying securities are or can be derived from and hence we have a readily determinable value for the underlying securities, from which we are able to determine the fair market value for the special fund itself.

Trading securities, which are comprised of mutual funds, bonds and other similar instruments, other investments and deferred compensation liability are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. Certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in accumulated other comprehensive income (loss) within stockholders' equity. Realized gains and losses from the sale of these instruments are recorded in net income.

Gains and losses reflected in other income (expense), net for our equity investments with RDFV and equity investments without RDFV are summarized below:
Three Months Ended Nine Months Ended
July 31, July 31,
2022 2021 2022 2021
(in millions)
Net gain (loss) recognized during the period on equity securities $ $ $ (60) $ 24 
Less: net gain on equity securities sold during the period $ 12  $ —  $ 12  $ — 
Unrealized gain (loss) on equity securities $ (10) $ $ (72) $ 24 

Contingent Consideration. The fair value of the contingent consideration liability relates to milestone payments in connection with the acquisition of advanced artificial intelligence technology in February 2022 and the acquisition of Resolution Bioscience in April 2021.

Resolution Bioscience. The fair value of the potential future milestone payments, which is set to certain revenue and technical targets, was based on (i) the probability of achieving the relevant revenue targets and technical milestones and (ii) the timing of achieving such milestones, which are significant unobservable inputs, and has been classified as Level 3. We used the Monte Carlo simulation approach to estimate the fair value of the revenue component which resulted in a fair value of zero. The probability-weighted expected return method was used to estimate the fair value of the technical target component. Assumptions used in the calculations include probability of success, duration of the earn-out and discount rate. A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. As of July 31, 2022, the expected maximum earn-out period for the contingent payments does not exceed 2.4 years and potential future payments will not exceed $145 million.







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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




The contingent consideration liability is our only recurring Level 3 asset or liability. A summary of the Level 3 activity follows:

Three Months Ended Nine Months Ended
July 31, July 31,
2022 2021 2022 2021
(in millions)
Beginning balance $ 67  $ 96  $ 89  $ — 
Additions to contingent consideration (including measurement period adjustment) $ —  $ 14  $ $ 110 
Change in fair value (included within selling, general and administrative expenses) $ —  $ —  $ (25) $ — 
Ending balance $ 67  $ 110  $ 67  $ 110 

The fair value of the contingent consideration liability as of July 31, 2022 was estimated to be $67 million of which $66 million was recorded in other accrued liabilities and $1 million was recorded in other long-term liabilities on the condensed consolidated balance sheet. The net decrease in the fair value of the contingent consideration was primarily driven by a decline in the probability of achieving the revenue milestone related to our acquisition of Resolution Bioscience.

Impairment of Investments. There were no impairments of investments for the three and nine months ended July 31, 2022 and 2021.
 
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

For the three and nine months ended July 31, 2022, there were no impairments of long-lived assets held and used or long-lived assets held for sale. For the three months ended July 31, 2021, there were no impairments of long-lived assets held and used. For the nine months ended July 31, 2021, long-lived assets held and used with a carrying amount of $2 million were written down to fair value of zero, resulting in an impairment of $2 million. For the three and nine months ended July 31, 2021, there were no impairments of long-lived assets held for sale.

For the three and nine months ended July 31, 2022 and 2021, there were no impairments of non-marketable securities. For the three and nine months ended July 31, 2022, an unrealized gain of $2 million and $5 million, respectively, was included in net income as an adjustment to the carrying value of non-marketable securities without readily determinable fair value based on an observable market transaction. For both the three and nine months ended July 31, 2021, an unrealized gain of $11 million was included in net income as an adjustment to the carrying value of non-marketable securities without readily determinable fair value based on an observable market transaction. As of July 31, 2022 and October 31, 2021, the carrying amount of non-marketable equity securities without readily determinable fair values was $136 million and $120 million, respectively.

Fair values for the non-marketable securities included in long-term investments on the condensed consolidated balance sheet were measured using Level 3 inputs because they are primarily equity stock issued by private companies without quoted market prices. To estimate the fair value of our non-marketable securities, we use the measurement alternative to record these investments at cost and adjust for impairments and observable price changes (orderly transactions for the identical or a similar security from the same issuer) as and when they occur.

10. DERIVATIVES
 
We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of our risk management strategy, we use derivative instruments, primarily forward contracts and purchased options to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates.
 
Cash Flow Hedges
 
We enter into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance and are assessed for effectiveness against the underlying exposure every reporting period. For open contracts as of July 31, 2022, changes in the time value of the foreign exchange contract are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the foreign exchange contract. The changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss).
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




Amounts associated with cash flow hedges are reclassified to cost of sales in the condensed consolidated statement of operations when the forecasted transaction occurs. If it becomes probable that the forecasted transaction will not occur, the hedge relationship will be de-designated and amounts accumulated in other comprehensive income (loss) will be reclassified to other income (expense), net in the current period. Changes in the fair value of the ineffective portion of derivative instruments are recognized in other income (expense), net in the condensed consolidated statement of operations in the current period. We record the premium paid (time value) of an option on the date of purchase as an asset. For options designated as cash flow hedges, changes in the time value are excluded from the assessment of hedge effectiveness and are recognized in cost of sales over the life of the option contract. For the three and nine months ended July 31, 2022 and 2021, ineffectiveness and gains and losses recognized in other income (expense), net due to de-designation of cash flow hedge contracts were not significant.

In February 2016, Agilent executed three forward-starting pay fixed/receive variable interest rate swaps for the notional amount of $300 million in connection with future interest payments to be made on our 2026 senior notes issued on September 15, 2016. These derivative instruments were designated and qualified as cash flow hedges under the criteria prescribed in the authoritative guidance. The swap arrangements were terminated on September 15, 2016 with a payment of $10 million, and we recognized this as a deferred loss in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2026 senior notes. The remaining loss to be amortized related to the interest rate swap agreements at July 31, 2022 was $4 million.

In August 2019, Agilent executed treasury lock agreements for $250 million in connection with future interest payments to be made on our 2029 senior notes issued on September 16, 2019. We designated the treasury lock as a cash flow hedge. The treasury lock contracts were terminated on September 6, 2019, and we recognized a deferred loss of $6 million in accumulated other comprehensive income (loss) which is being amortized to interest expense over the life of the 2029 senior notes. The remaining loss to be amortized related to the treasury lock agreements at July 31, 2022 was $4 million.

Net Investment Hedges

We enter into foreign exchange contracts to hedge net investments in foreign operations to mitigate the risk of adverse movements in exchange rates. These foreign exchange contracts are carried at fair value and are designated and qualify as net investment hedges under the criteria prescribed in the authoritative guidance. Changes in fair value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income (loss) and are assessed for effectiveness against the underlying exposure every reporting period. If the company’s net investment changes during the year, the hedge relationship will be assessed and de-designated if the hedge notional amount is outside of prescribed tolerance with a gain/loss reclassified from other comprehensive income (loss) to other income (expense) in the current period. For the three and nine months ended July 31, 2022, ineffectiveness and the resultant effect of any gains or losses recognized in other income (expense) due to de-designation of the hedge contracts were not significant.

Other Hedges
 
Additionally, we enter into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in value of the derivative instruments are recognized in other income (expense), net in the condensed consolidated statement of operations, in the current period, along with the offsetting foreign currency gain or loss on the underlying assets or liabilities.
 
Our use of derivative instruments exposes us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. We do, however, seek to mitigate such risks by limiting our counterparties to major financial institutions which are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties.

A number of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. The counterparties to the derivative instruments may request collateralization, in accordance with derivative agreements, on derivative instruments in net liability positions.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of July 31, 2022, was not material. The credit-risk-related contingent features underlying these agreements had not been triggered as of July 31, 2022.
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)






There were 276 foreign exchange forward contracts open as of July 31, 2022 and designated as cash flow hedges. There were 173 foreign exchange forward contracts open as of July 31, 2022 and not designated as hedging instruments. There were 3 foreign exchange forward contracts open as of July 31, 2022 and designated as a net investment hedge.

The aggregated notional amounts by currency and designation as of July 31, 2022 were as follows:
  Derivatives 
Designated as
Cash Flow Hedges
Derivatives
Designated as
Net Investment Hedges
Derivatives
Not Designated as 
Hedging Instruments
  Forward
Contracts USD
Forward
Contracts USD
Forward
Contracts USD
Currency Buy/(Sell) Buy/(Sell) Buy/(Sell)
  (in millions)
Euro $ (72) $ (11) $ 22 
British Pound (67) — 
Canadian Dollar (50) —  (17)
Japanese Yen (96) —  (28)
Danish Krone —  —  37 
Korean Won (68) —  (16)
Singapore Dollar 33  —  26 
Chinese Yuan Renminbi (82) —  (76)
Taiwan Dollar —  —  (12)
Indian Rupee —  —  (9)
Other —  (8)
Totals $ (396) $ (11) $ (73)

Derivative instruments are subject to master netting arrangements and are disclosed gross in the balance sheet in accordance with the authoritative guidance. The gross fair values and balance sheet location of derivative instruments held in the condensed consolidated balance sheet as of July 31, 2022 and October 31, 2021 were as follows:

Fair Values of Derivative Instruments
Asset Derivatives Liability Derivatives
  Fair Value   Fair Value
Balance Sheet Location July 31,
2022
October 31, 2021 Balance Sheet Location July 31,
2022
October 31,
2021
(in millions)
Derivatives designated as hedging instruments:          
Cash flow hedges  
Foreign exchange contracts
Other current assets $ 19  $ Other accrued liabilities $ $
Derivatives not designated as hedging instruments:          
Foreign exchange contracts          
Other current assets $ $ Other accrued liabilities $ $
Total derivatives $ 23  $   $ $

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




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

Three Months Ended Nine Months Ended
July 31, July 31,
2022 2021 2022 2021
  (in millions)
Derivatives designated as hedging instruments:        
Cash Flow Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive loss $ $ $ 34  $ (5)
Loss reclassified from accumulated other comprehensive loss into interest expense $ (1) $ (1) $ (1) $ (1)
Gain (loss) reclassified from accumulated other comprehensive loss into cost of sales $ 12  $ (4) $ 20  $ (18)
Gain (loss) on time value of forward contracts recorded in cost of sales $   $ (1) $   $ (1)
Net Investment Hedges
Foreign exchange contracts:
Gain (loss) recognized in accumulated other comprehensive loss - translation adjustment $ —  $ $ $ (2)
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense) $   $ (3) $ (1) $ (4)

At July 31, 2022, the amount of existing net gain that is expected to be reclassified from accumulated other comprehensive income (loss) is $17 million. Within the next twelve months it is estimated that $16 million of gain included within the net amount of accumulated other comprehensive income (loss) will be reclassified to cost of sales in respect of cash flow hedges.
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AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




11. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

Components of net periodic costs (benefits). For the three and nine months ended July 31, 2022 and 2021, our net pension and post retirement benefit costs (benefits) were comprised of the following:
 
Three Months Ended July 31,
  U.S.
Pension Plans
Non-U.S.
Pension Plans
U.S. Post Retirement
Benefit Plans
  2022 2021 2022 2021 2022 2021
  (in millions)
Service cost—benefits earned during the period $ —  $ —  $ $ $ —  $
Interest cost on benefit obligation — 
Expected return on plan assets (6) (7) (10) (12) (1) (2)
Amortization:
Actuarial losses —  13  — 
Prior service credits —  —  —  —  (1) — 
Total net plan costs (benefits) $ (3) $ (3) $ $ 10  $ (1) $ — 
Nine Months Ended July 31,
  U.S.
Pension Plans
Non-U.S.
Pension Plans
U.S. Post Retirement
Benefit Plans
  2022 2021 2022 2021 2022 2021
  (in millions)
Service cost—benefits earned during the period $ —  $ —  $ 18  $ 18  $ —  $
Interest cost on benefit obligation 10  10 
Expected return on plan assets (20) (22) (33) (37) (4) (5)
Amortization:
Actuarial losses (gains) —  19  40  (1)
Prior service credits —  —  —  —  (1) (1)
Total net plan costs (benefits) $ (10) $ (9) $ 11  $ 27  $ (4) $ — 

The service cost component is recorded in cost of sales and operating expenses in the condensed consolidated statement of operations. All other cost components are recorded in other income (expense), net in the condensed consolidated statement of operations.

Employer contributions and expected future employer contributions for the remainder of the year were as follows:
Three Months Ended Nine Months Ended Employer Contributions
July 31, July 31, For Remainder of Year
2022 2021 2022 2021 2022
(in millions)
U.S. defined benefit plans $ —  $ —  $ —  $ —  $ — 
Non-U.S. defined benefit plans $ $ $ 13  $ 16  $

12. WARRANTIES AND CONTINGENCIES
 
Warranties
 
We accrue for standard warranty costs based on historical trends in actual warranty charges over the past 12 months. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost over the period. The standard warranty accrual balances are held in other accrued and other long-term liabilities on our condensed consolidated balance sheet. Our standard warranty terms typically extend to one year from the date of delivery, depending on the product.
25

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




 
A summary of the standard warranty accrual activity is shown in the table below:
 
  Nine Months Ended
July 31,
  2022 2021
  (in millions)
Standard warranty accrual, beginning balance $ 30  $ 32 
Accruals for warranties including change in estimates 38  41 
Settlements made during the period (37) (41)
Standard warranty accrual, ending balance $ 31  $ 32 
Accruals for warranties due within one year $ 30  $ 31 
Accruals for warranties due after one year
Standard warranty accrual, ending balance $ 31  $ 32 
 
Bank Guarantees

Guarantees consist primarily of outstanding standby letters of credit and bank guarantees and were approximately $39 million and $46 million as of July 31, 2022 and October 31, 2021, respectively. A standby letter of credit is a guarantee of payment issued by a bank on behalf of us that is used as payment of last resort should we fail to fulfill a contractual commitment with a third party. A bank guarantee is a promise from a bank or other lending institution that if we default on a loan, the bank will cover the loss.

Contingencies
 
We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, intellectual property, commercial, real estate, environmental and employment matters, which arise in the ordinary course of business. There are no matters pending that we currently believe are reasonably possible of having a material impact to our business, condensed consolidated financial condition, results of operations or cash flows.

13. SHORT-TERM DEBT
 
Credit Facilities
 
On March 13, 2019, we entered into a credit agreement with a group of financial institutions which, as amended, provided for a $1 billion five-year unsecured credit facility that will expire on March 13, 2024 and incremental term loan facilities in an aggregate amount of up to $500 million. On April 21, 2021, we entered into an incremental assumption agreement, pursuant to which the aggregate amount available for borrowing under the revolving credit facility was increased to $1.35 billion and the aggregate amount available for incremental facilities was refreshed to remain at $500 million. As of July 31, 2022, we had no borrowings outstanding under the credit facility and no borrowings under the incremental facilities. We were in compliance with the covenants for the credit facility during the nine months ended July 31, 2022.


Commercial Paper

Under our U.S. commercial paper program, the company may issue and sell unsecured, short-term promissory notes in the aggregate principal amount not to exceed $1.35 billion with up to 397-day maturities. At any point in time, the company intends to maintain available commitments under its revolving credit facility in an amount at least equal to the amount of the commercial paper notes outstanding. Amounts available under the program may be borrowed, repaid and re-borrowed from time to time. The proceeds from issuances under the program may be used for general corporate purposes. During the nine months ended July 31, 2022, we borrowed $940 million and repaid $760 million. As of July 31, 2022, we had borrowings of $180 million outstanding under our U.S. commercial paper program and had a weighted average annual interest rate of 2.43 percent.

26

AGILENT TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (Continued)




14. LONG-TERM DEBT
 
Senior Notes
 
The following table summarizes the company’s long-term senior notes:
 
  July 31, 2022 October 31, 2021
  Amortized
Principal
Amortized
Principal
(in millions)
2023 Senior Notes —  599 
2026 Senior Notes 299  298 
2029 Senior Notes