Agilent Technologies reports third quarter results below expectations

20-Aug-2002

PALO ALTO, Calif., August 19, 2002 - Agilent Technologies Inc. today reported orders of $1.46 billion and revenue of $1.39 billion for the quarter ended July 31, 2002. On an operating earnings-before-goodwill (EBG) basis, the company lost $143 million, or $0.31 per share. This compares with prior company expectations of an EBG loss of $0.10 to $0.20 per share on revenues of $1.50 to $1.60 billion.

After $95 million of non-cash goodwill and amortization charges and $78 million of restructuring expenses, the net third quarter loss was $228 million, or $0.49 per share.

"During the quarter, Agilent 'went live' with our new company-wide ERP system, which covers over 50 percent of Agilent's volume and virtually all of our financial processes," said Agilent President and Chief Executive Officer Ned Barnholt. "The disruptions associated with that new system have been more extensive than we expected.

"The good news is that, at this point, we believe the ERP implementation is stable, and we are confident we can meet anticipated customer requirements. Unfortunately, during the quarter we lost roughly a week's worth of normal production because of unexpected difficulties ramping the system, or roughly $105 million in revenues and $70 million in operating profits. Excluding this estimated impact, Agilent's third quarter EBG loss would have been about $0.22 per share on revenues of about $1.50 billion."

Barnholt noted that total net orders were 10 percent above one year ago despite the ERP-related difficulties and, after adjusting for that impact, were about flat with second quarter levels. Order cancellations were stable again in the third quarter at about $90 million and well below last year's $240 million. Balance sheet improvements also continued in the third quarter, with $90 million generated from lower working capital requirements. Capital spending, at $58 million, was down more than $200 million from last year.

"Operationally, we continue to drive toward profitability, and we are confident we will achieve the previously announced $1.2 billion in annualized savings from our restructuring programs by year-end," said Barnholt. "However, continued year-over-year growth in three of our businesses -- Life Sciences and Chemical Analysis, Semiconductor Test, and Semiconductor Products -- has been largely offset by continued declines in our businesses serving the wireline telecom markets. In every business, pricing pressures remain intense, impacting realized cost savings.

"Today, Agilent's quarterly cost structure is about $1.65 billion. We have plans to reduce costs by another $50 million per quarter by further reducing costs in those businesses most impacted by weak telecom markets, and by realizing savings from our ongoing IT systems investments. We will continue to make the new product investments that have been our growth engine for many years."

Segment Results

The third quarter performance of Test and Measurement (T&M) was impacted primarily by the difficulties surrounding our ERP implementation. Overall, orders were off $34 million, or 4 percent sequentially, and were up 1 percent from one year ago; adjusting for the ERP implementation, orders were about flat sequentially. Segment revenues were off $99 million from the second quarter, with $95 million of the shortfall attributable to ERP-related difficulties. Operating profits were off $61 million from the second quarter with all the shortfall related to the ERP.

Performance also varied markedly by business. Within T&M, orders in the Automated Test Group, serving the semiconductor test and manufacturing test markets, were up 8 percent sequentially and doubled from orders one year ago. ATG revenues were up 26 percent sequentially and up 23 percent from the prior year. This business, which was not affected by the ERP implementation, operated at a breakeven in the quarter compared to a significant operating loss one year ago.

The performance of Semiconductor Products was also impacted by ERP ramp difficulties. About $50 million of orders were pulled into the second quarter in anticipation of the implementation; otherwise, orders were about flat sequentially and 56 percent ahead of one year ago. Third quarter revenues were up $19 million sequentially but $30 million below one year ago, and reduced by about $10 million by the ERP implementation. On this adjusted basis, the third quarter book-to-bill was 1.08, the third consecutive quarter above 1.00. The third quarter operating loss of $24 million would have been about $5 million lower in the absence of ERP-related difficulties, and would have improved by $20 million compared to one year earlier despite $20 million lower revenues.

Life Sciences and Chemical Analysis turned in an excellent third quarter performance, with orders off seasonally by 5 percent but 7 percent higher than one year earlier. Both Life Sciences and Chemical Analysis showed year-to-year orders gains, with Life Sciences up 9 percent and Chemical Analysis advancing 6 percent. Overall revenues were up 5 percent sequentially. Operating profits were up sharply compared to both prior periods, reaching nearly 15 percent of revenues and a 28 percent return on invested capital.

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