EX-99.3 3 a10-14893_1ex99d3.htm EX-99.3

Exhibit 99.3

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

On May 14, 2010, Agilent Technologies, Inc. (“Agilent”) completed its acquisition of all of the outstanding shares of common stock, par value $0.01 per share (the “Shares”), of Varian, Inc. (“Varian”), pursuant to an Agreement and Plan of Merger dated as of July 26, 2009 (the “Merger Agreement”), by and among Agilent, Varian and Cobalt Acquisition Corp., a direct, wholly-owned subsidiary of Agilent (“Purchaser”).

 

The consideration paid by Purchaser and Agilent for the Shares was approximately $1,507 million, comprising $52 cash per share of Varian’s outstanding common stock. The Purchaser and Agilent also paid $17 million to acquire Varian’s vested in-the money stock options at $52 cash per share less their exercise price. In addition the Purchaser and Agilent paid $12 million for Varian’s non-vested in-the-money stock options at $52 cash per share less their exercise price and Varian’s non-vested restricted stock awards and performance shares at 100 percent of target equal to $52 cash per share. In accordance with the authoritative accounting guidance, settlement of the non-vested awards is considered to be for the performance of post combination services and is therefore stock-based compensation expensed immediately after acquisition. Agilent funded the acquisition using the proceeds from our September 2009 offering of senior notes and other existing cash.

 

The following unaudited pro forma combined financial statements reflect the acquisition of Varian using the acquisition method of accounting. The pro forma adjustments are based upon available information and assumptions that Agilent believes are reasonable. The pro forma adjustments are preliminary and have been prepared to illustrate the estimated effect of the acquisition. Differences between these preliminary estimates (for example estimates as to the value of acquired property, plant and equipment as well as intangible assets) and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma combined financial statements and the combined companies’ future results of operations and financial position.

 

Agilent’s fiscal year ended October 31, 2009 and does not differ from Varian’s fiscal year ended October 2, 2009 by more than 93 days. As such the Securities and Exchange Commission (“SEC’) rules allow a combined presentation of these reporting periods for the purpose of pro forma financial information.

 

Agilent’s quarter ended January 31, 2010 does not differ from Varian’s quarter ended January 1, 2010 by more than 93 days. As such the SEC rules allow a combined presentation of these reporting periods for the purpose of pro forma financial information.

 

The unaudited pro forma combined balance sheet as of January 31, 2010 is presented as if our acquisition of Varian had occurred on January 31, 2010.

 

The unaudited pro forma combined consolidated statement of operations for the year ended October 31, 2009 and the three months ended January 31, 2010 illustrate the effect of the acquisition of Varian as if it had occurred on November 1, 2008. The unaudited pro forma combined consolidated statement of operations for the year ended October 31, 2009 combines the historical audited statement of operations of Agilent for the year ended October 31, 2009 and Varian’s historical audited statement of earnings for the year ended October 2, 2009. The unaudited pro forma combined consolidated statement of operations for the three months ended January 31, 2010 combines the historical unaudited statement of operations of Agilent for the three months ended January 31, 2010 and Varian’s historical unaudited statement of earnings for the three months ended January 1, 2010. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results of the companies. These unaudited pro forma condensed combined financial statements are prepared by management for informational purposes only in accordance with Article 11 of Securities and Exchange Commission Regulation S-X and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated operating results of Agilent. The unaudited pro forma combined financial statements do not reflect any operating efficiencies and/or cost savings that Agilent may achieve, or any additional expenses or costs of integration that it may incur, with respect to the combined companies as such adjustments are not factually supportable at this point in time. The detailed assumptions used to prepare the pro

 



 

forma financial information are contained in the notes to the unaudited pro forma combined financial statements, and such assumptions should be reviewed in their entirety.

 

The unaudited pro forma combined financial statements have been developed from and should be read in conjunction with (i) the historical audited consolidated financial statements for the year ended October 31, 2009 and notes thereto of Agilent contained in its Current Report on Form 8-K, dated July 13, 2010 (ii) the historical unaudited consolidated financial statements and notes thereto of Agilent contained in its Quarterly Report on Form 10-Q for the quarter ended January 31, 2010, (iii) Varian’s historical audited consolidated financial statements and accompanying notes contained in its Annual Report on Form 10-K for the fiscal year ended October 2, 2009, and (iv)  the historical unaudited consolidated financial statements and notes thereto of Varian contained in its Quarterly Reports on Form 10-Q for the quarter ended January 1, 2010.

 

The acquisition has been accounted for in conformity with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 805, Business Combinations (“ASC 805”). Accordingly, the consideration payment of $1,524 million, consisting of approximately (i) $1,507 million paid for the outstanding shares of common stock of Varian, and (ii) $17 million paid to holders of vested in-the-money options to purchase Varian common stock less their exercise price has been allocated on a preliminary basis to assets acquired and net liabilities assumed in connection with the acquisition based on their estimated fair values as of the completion of the acquisition. In addition payments have been made consisting of $3 million paid to holders of non-vested in-the-money options to purchase Varian common stock less their exercise price, $4 million for non-vested restricted stock awards, and $5 million for non-vested performance shares, at 100 percent of target.  In accordance with the authoritative accounting guidance settlement of the non-vested awards is considered to be for the performance of post combination services and is therefore stock-based compensation expense incurred after the close of the acquisition. These allocations reflect preliminary estimates that were available at the time of the preparation of this Current Report on Form 8-K/A.

 



 

AGILENT TECHNOLOGIES, INC.

 

PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET

 

(in millions)

 

(unaudited)

 

 

 

Historical

 

 

 

 

 

 

 

Agilent

 

Varian

 

 

 

 

 

 

 

January 31,
2010

 

January 1,
2010

 

Pro forma
Adjustments

 

Pro forma
Combined

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,481

 

$

229

 

$

(1,536

)[A]

$

1,174

 

Short-term restricted cash and cash equivalents

 

1,553

 

 

 

1,553

 

Short-term investments

 

12

 

 

 

12

 

Accounts receivable, net

 

628

 

148

 

 

776

 

Inventory

 

548

 

135

 

31

[B]

714

 

Other current assets

 

297

 

52

 

16

[C]

344

 

 

 

 

 

 

 

(21

)[I]

 

 

Total current assets

 

5,519

 

564

 

(1,510

)

4,573

 

Property, plant and equipment, net

 

837

 

110

 

29

[D]

976

 

Goodwill

 

657

 

216

 

509

[E]

1,382

 

Other intangible assets, net

 

148

 

27

 

392

[F]

567

 

Long-term restricted cash and cash equivalents

 

11

 

 

 

11

 

Long-term investments

 

154

 

6

 

(5

)[G]

155

 

Other assets

 

248

 

21

 

(10

)[I]

259

 

Total assets

 

$

7,574

 

$

944

 

$

(595

)

$

7,923

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

315

 

$

57

 

$

 

$

372

 

Employee compensation and benefits

 

271

 

38

 

 

309

 

Deferred revenue

 

300

 

76

 

(21

)[H]

355

 

Short-term debt

 

1,501

 

6

 

 

1,507

 

Other accrued liabilities

 

162

 

61

 

(5

)[C]

265

 

 

 

 

 

 

 

14

[E]

 

 

 

 

 

 

 

 

10

[I]

 

 

 

 

 

 

 

 

23

[J]

 

 

Total current liabilities

 

2,549

 

238

 

21

 

2,808

 

Long-term debt

 

1,410

 

13

 

 

1,423

 

Retirement and post-retirement benefits

 

491

 

21

 

 

512

 

Other long-term liabilities

 

526

 

24

 

94

[I]

644

 

Total liabilities

 

4,976

 

296

 

115

 

5,387

 

Total equity:

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

6

 

 

 

6

 

Treasury stock at cost

 

(7,727

)

 

 

(7,727

)

Additional paid-in-capital

 

7,673

 

372

 

(372

)[J]

7,673

 

Retained earnings

 

2,839

 

228

 

(263

)[J]

2,777

 

 

 

 

 

 

 

(27

)[I]

 

 

Accumulated other comprehensive income (loss)

 

(201

)

48

 

(48

)[J]

(201

)

 Total stockholder’s equity

 

2,590

 

648

 

(710

)

2,528

 

Non-controlling interest

 

8

 

 

 

8

 

Total equity

 

2,598

 

648

 

(710

)

2,536

 

Total liabilities and equity

 

$

7,574

 

$

944

 

$

(595

)

$

7,923

 

 

The accompanying notes are an integral part of the unaudited pro forma combined financial statements.

 



 

AGILENT TECHNOLOGIES, INC.

 

PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

 

(in millions, except per share amounts)

 

(unaudited)

 

 

 

Historical

 

 

 

 

 

 

 

Agilent

 

Varian

 

 

 

 

 

 

 

Year ended

 

 

 

 

 

 

 

October 31,
2009

 

October 2,
2009

 

Pro forma
Adjustments

 

Pro forma
Combined

 

Net revenue:

 

 

 

 

 

 

 

 

 

Products

 

$

3,566

 

$

676

 

$

 

$

4,242

 

Services and other

 

915

 

131

 

 

1,046

 

Total net revenue

 

4,481

 

807

 

 

5,288

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of products

 

1,692

 

378

 

35

[K]

2,105

 

Cost of services and other

 

497

 

74

 

 

571

 

Total costs

 

2,189

 

452

 

35

 

2,676

 

Research and development

 

642

 

57

 

 

699

 

Selling, general and administrative

 

1,603

 

233

 

41

[K]

1,870

 

 

 

 

 

 

 

(7

)[L]

 

 

Total costs and expenses

 

4,434

 

742

 

69

 

5,245

 

Income (loss) from operations

 

47

 

65

 

(69

)

43

 

Interest income

 

29

 

2

 

(4

)[M]

27

 

Interest expense

 

(88

)

(1

)

(18

)[N]

(107

)

Other income (expense), net

 

19

 

(6

)

 

13

 

Income (loss) from continuing operations before taxes

 

7

 

60

 

(91

)

(24

)

Provision (benefit) for income taxes

 

38

 

21

 

(39

)[O]

20

 

Income (loss) from continuing operations

 

$

(31

)

$

39

 

$

(52

)

$

(44

)

 

 

 

 

 

 

 

 

 

 

Income (loss) per share from continuing operations — basic:

 

$

(0.09

)

$

1.34

 

 

 

$

(0.13

)

Income (loss) per share from continuing operations — diluted:

 

$

(0.09

)

$

1.30

 

 

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing income (loss) per share from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

346

 

29

 

 

 

346

 

Diluted

 

346

 

30

 

 

 

346

 

 

The accompanying notes are an integral part of the unaudited pro forma combined financial statements.

 



 

AGILENT TECHNOLOGIES, INC.

 

PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS

 

(in millions, except per share amounts)

 

(unaudited)

 

 

 

Historical

 

 

 

 

 

 

 

Agilent

 

Varian

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

January 31,
2010

 

January 1,
2010

 

Pro forma
Adjustments

 

Pro forma
Combined

 

Net revenue:

 

 

 

 

 

 

 

 

 

Products

 

$

976

 

$

166

 

$

 

$

1,142

 

Services and other

 

237

 

35

 

 

272

 

Total net revenue

 

1,213

 

201

 

 

1,414

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of products

 

421

 

94

 

8

[K]

523

 

Cost of services and other

 

132

 

20

 

 

152

 

Total costs

 

553

 

114

 

8

 

675

 

Research and development

 

149

 

15

 

 

164

 

Selling, general and administrative

 

417

 

59

 

9

[K]

476

 

 

 

 

 

 

 

(9

)[L]

 

 

Total costs and expenses

 

1,119

 

188

 

8

 

1,315

 

Income (loss) from operations

 

94

 

13

 

(8

)

99

 

Interest income

 

3

 

1

 

 

4

 

Interest expense

 

(23

)

 

 

(23

)

Other income (expense), net

 

9

 

(1

)

 

8

 

Income (loss) from continuing operations before taxes

 

83

 

13

 

(8

)

88

 

Provision (benefit) for income taxes

 

4

 

5

 

(8

)[O]

1

 

Income from continuing operations after taxes

 

$

79

 

$

8

 

$

 

$

87

 

 

 

 

 

 

 

 

 

 

 

Net income per share from continuing operations — basic:

 

$

0.23

 

$

1.34

 

 

 

$

0.25

 

Net income per share from continuing operations — diluted:

 

$

0.22

 

$

1.30

 

 

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing income per share from continuing operations:

 

 

 

 

 

 

 

 

 

Basic

 

348

 

29

 

 

 

348

 

Diluted

 

354

 

29

 

 

 

354

 

 

The accompanying notes are an integral part of the unaudited pro forma combined financial statements.

 



 

Agilent Technologies, Inc.

 

Notes to Unaudited Pro Forma Combined Consolidated Financial Statements

 

1.     Background and Basis of Pro Forma Presentation

 

On May 14, 2010, we completed our acquisition of Varian. Varian designs, develops, manufactures, markets, sells and services scientific instruments (including analytical instruments, research products and related software, consumable products, accessories and services) and vacuum products (including related accessories and services). The acquisition broadens Agilent’s applications and solutions offerings in life sciences, environmental, and energy and materials. It also expands Agilent’s product portfolio into atomic and molecular spectroscopy; establishes a leading position in nuclear magnetic resonance, imaging and vacuum technologies; and strengthens its consumables portfolio. We expect to realize operational and cost synergies, leverage the existing sales channels and product development resources, and utilize the assembled workforce. These factors, among others, contributed to a purchase price in excess of the estimated fair value of Varian’s net identifiable assets acquired (see summary of net assets below), and, as a result, we have recorded goodwill in connection with this transaction.

 

The unaudited pro forma combined financial information was prepared based on the historical financial statements of Agilent and Varian.

 

Our acquisition of Varian has been accounted for in conformity with ASC 805 and uses the fair value concepts defined in Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 805 requires, among other things, that most assets acquired and liabilities assumed in an acquisition be recognized at their fair values as of the acquisition date and requires that fair value be measured based on the principles in ASC 820-10. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.

 

Under ASC 805, acquisition-related transaction costs (e.g., professional fees for legal, accounting, tax, due diligence, valuation and other related services, etc.) are not included as a component of consideration transferred, but are accounted for as expenses in the periods in which the costs are incurred.  Total acquisition-related transaction costs incurred by Varian and Agilent after January 1, 2010 and January 31, 2010, respectively, were approximately $14 million and $23 million, respectively, and are reflected in these unaudited pro forma combined financial statements as an increase to goodwill and a decrease to retained earnings, respectively, and an increase to liabilities.

 

Certain Varian financial statement amounts have been reclassified to conform to Agilent presentation with no impact to the previously reported net income (loss), total assets and total liabilities and equity.

 

2. Purchase Price Allocation

 

The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of May 14, 2010 as if the acquisition had occurred on January 31, 2010.

 

Cash and cash equivalents

 

$

229

 

Accounts receivable

 

148

 

Inventories

 

166

 

Other current assets

 

68

 

Property, plant and equipment

 

139

 

Intangible assets

 

419

 

Long-term investments

 

1

 

Other assets

 

21

 

Goodwill

 

725

 

Total assets acquired

 

1,916

 

Accounts payable

 

(57

)

Employee compensation and benefits

 

(38

)

Deferred revenue

 

(55

)

Short-term debt

 

(6

)

Other accrued liabilities

 

(80

)

Long-term debt

 

(13

)

Retirement and post-retirement benefits

 

(21

)

Other long-term liabilities

 

(122

)

Net assets acquired

 

$

1,524

 

 



 

The identifiable intangible assets of $419 million consist of $222 million of acquired developed product technology, $158 million of customer relationships, $20 million of in-process research and development, $10 million of tradenames/trademarks and $9 million of order backlog. These intangible assets will be amortized using a straight-line method over their expected useful lives ranging from 6 months to 10 years. The estimated goodwill reflected on this pro forma balance sheet is calculated as if the transaction had occurred as of the pro forma balance sheet date and therefore, will be different from the preliminary estimated goodwill reflected above based on the net assets acquired at closing. The goodwill recorded in connection with this transaction is not deductible for income tax purposes.

 

3. Pro forma financial statement adjustments

 

The following pro forma adjustments are included in our unaudited pro forma combined financial statements:

 

(A)

 

To reflect $1,536 million of cash paid in connection with the acquisition of Varian including $12 million attributable to the payment of non-vested awards.

(B)

 

To adjust Varian’s inventory to an estimated fair value of $166 million.

(C)

 

To adjust other current assets and other accrued liabilities to fair value for an amount due in respect of the transfer of a property lease.

(D)

 

To adjust Varian’s property, plant and equipment to an estimated fair value of $139 million.

(E)

 

To eliminate Varian’s historical goodwill of $216 million and record the preliminary estimate of goodwill for our acquisition of Varian of $725 million including $14 million of non-recurring acquisition-related transaction costs incurred by Varian after January 1, 2010.

(F)

 

To eliminate Varian’s historical intangible assets, net, of $27 million and record the preliminary estimate of intangible assets for our acquisition of Varian of $419 million.

(G)

 

To adjust Varian’s long-term investments to an estimated fair value of $1 million.

(H)

 

To reduce Varian’s deferred revenue to reflect the remaining future service obligation to an estimated fair value of $55 million.

(I)

 

To reflect a net $37 million reduction in US deferred taxes due to the partial release of Agilent’s pre-acquisition valuation allowance net of additional deferred tax liabilities related to a change in Varian’s unremitted earnings assertion and certain acquisition related identified tangible and intangible assets. The adjustment also reflects additional deferred tax liabilities of approximately $98 million related to certain foreign identifiable tangible and intangible assets.

 



 

(J)

 

To eliminate $648 million of Varian’s historical shareholders’ equity and to reflect the $23 million of non-recurring acquisition-related transaction costs incurred by Agilent after January 31, 2010 and $12 million of employee stock-based compensation expensed immediately after acquisition.

(K)

 

To record the difference in amortization of the preliminary fair value and historical amount of Varian’s intangible assets, net as follows:

 

 

 

 

 

Estimated

 

Pro forma
amortization
for the three
months
ended

 

Pro forma
amortization for

 

 

 

 

 

Useful Life

 

January 31,

 

the year ended

 

($ in millions)

 

Intangible Asset

 

(years)

 

2010

 

October 31, 2009

 

Developed Product Technology

 

$

222

 

1-7

 

$

10

 

$

41

 

Customer Relationships

 

158

 

2-10

 

7

 

27

 

In – Process R&D

 

20

 

 

 

 

Tradenames/ Trademarks

 

10

 

1.5

 

2

 

6

 

Order Backlog

 

9

 

0.5-1

 

 

9

 

 

 

$

419

 

 

 

19

 

83

 

 

 

 

 

 

 

 

 

 

 

Less amortization related to Varian’s pre-existing intangible assets

 

 

 

 

 

(2

)

(7

)

Pro forma adjustment

 

 

 

 

 

$

17

 

$

76

 

 

(L)

 

To eliminate non recurring transaction costs of $7 million for the year ended October 31, 2009 and $9 million in the three months ended January 31, 2010.

(M)

 

To record the estimated decrease of $4 million in interest income computed at the average yield of 0.843 percent for the year ended October 31, 2009 due to the reduction in cash used for the acquisition.

(N)

 

To record the estimated increase in interest expense of $18 million as if the issuance of senior notes occurred on November 1, 2008 and were outstanding for the whole year computed at the average yield of 2.765 percent for the year ended October 31, 2009.

(O)

 

To record the tax effect of the pro forma adjustments calculated at the applicable blended statutory rate. The adjustment also considers the decrease in taxes as a result of a change in Varian’s transfer pricing methodology.