Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

 

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2008

 

OR

 

 

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

 

FOR THE TRANSITION PERIOD FROM          TO

 

 

COMMISSION FILE NUMBER:  001-15405

 

AGILENT TECHNOLOGIES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

DELAWARE

 

77-0518772

(STATE OR OTHER JURISDICTION OF

 

(IRS EMPLOYER

INCORPORATION OR ORGANIZATION)

 

IDENTIFICATION NO.)

 

 

 

5301 STEVENS CREEK BLVD.,

 

 

SANTA CLARA, CALIFORNIA

 

95051

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

(ZIP CODE)

 

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:   (408) 553-2424

 

(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.  YES   x    NO   o

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER, OR A SMALLER REPORTING COMPANY. SEE DEFINITIONS OF “LARGE ACCELERATED FILER,” “ACCELERATED FILER,” AND “SMALLER REPORTING COMPANY” IN RULE 12b-2 OF THE EXCHANGE ACT.

 

Large accelerated filer   x

 

Accelerated filer   o

 

Non-accelerated filer   o

 

Smaller reporting company o

 

 

 

 

(do not check if a
smaller reporting company)

 

 

 

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT).  YES   o    NO   x

 

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

 

CLASS

 

OUTSTANDING JULY 31, 2008

COMMON STOCK, $0.01 PAR VALUE

 

 357,541,353 SHARES

 

 

 



Table of Contents

 

AGILENT TECHNOLOGIES, INC.

TABLE OF CONTENTS

 

 

Page
Number

Part I.

Financial Information

 

 

 

3

 

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

Condensed Consolidated Statement of Operations

 

3

 

 

 

Condensed Consolidated Balance Sheet

 

4

 

 

 

Condensed Consolidated Statement of Cash Flows

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

Item 4.

 

Controls and Procedures

 

28

Part II.

Other Information

 

 

 

28

 

Item 1.

 

Legal Proceedings

 

28

 

Item 1A.

 

Risk Factors

 

29

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

Item 6.

 

Exhibits

 

38

Signature

 

39

Exhibit Index

 

40

 

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Table of Contents

 

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
July 31,

 

Nine Months Ended
July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

Net revenue:

 

 

 

 

 

 

 

 

 

Products

 

$

1,195

 

$

1,140

 

$

3,570

 

$

3,300

 

Services and other

 

249

 

234

 

723

 

674

 

Total net revenue

 

1,444

 

1,374

 

4,293

 

3,974

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of products

 

505

 

484

 

1,518

 

1,408

 

Cost of services and other

 

136

 

132

 

409

 

387

 

Total costs

 

641

 

616

 

1,927

 

1,795

 

Research and development

 

170

 

170

 

534

 

511

 

Selling, general and administrative

 

415

 

420

 

1,289

 

1,274

 

Total costs and expenses

 

1,226

 

1,206

 

3,750

 

3,580

 

Income from operations

 

218

 

168

 

543

 

394

 

Interest income

 

23

 

42

 

89

 

136

 

Interest expense

 

(31

)

(23

)

(90

)

(68

)

Other income (expense), net

 

5

 

3

 

16

 

7

 

Income before taxes

 

215

 

190

 

558

 

469

 

Provision for income taxes

 

46

 

5

 

96

 

11

 

Net income

 

$

169

 

$

185

 

$

462

 

$

458

 

 

 

 

 

 

 

 

 

 

 

Net income per share – basic:

 

$

0.47

 

$

0.47

 

$

1.27

 

$

1.15

 

Net income per share – diluted:

 

$

0.45

 

$

0.45

 

$

1.23

 

$

1.11

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in computing net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

362

 

392

 

365

 

400

 

Diluted

 

372

 

407

 

375

 

412

 

 

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

 

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AGILENT TECHNOLOGIES, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEET

(in millions, except par value and share amounts)

(Unaudited)

 

 

 

July 31,
2008

 

October 31,
2007

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

1,640

 

$

1,826

 

Short-term investments

 

29

 

 

Accounts receivable, net

 

761

 

735

 

Inventory

 

674

 

643

 

Restricted cash and cash equivalents

 

1,570

 

 

Other current assets

 

400

 

467

 

Total current assets

 

5,074

 

3,671

 

Property, plant and equipment, net

 

816

 

801

 

Goodwill

 

642

 

558

 

Other intangible assets, net

 

241

 

178

 

Restricted cash and cash equivalents

 

12

 

1,615

 

Long-term investments

 

251

 

194

 

Other assets

 

505

 

537

 

Total assets

 

$

7,541

 

$

7,554

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

293

 

$

323

 

Employee compensation and benefits

 

359

 

432

 

Deferred revenue

 

310

 

249

 

Income and other taxes payable

 

116

 

522

 

Short-term debt

 

1,711

 

 

Other accrued liabilities

 

105

 

137

 

Total current liabilities

 

2,894

 

1,663

 

Long-term debt

 

 

1,500

 

Senior notes

 

604

 

587

 

Retirement and post-retirement benefits

 

121

 

141

 

Other long-term liabilities

 

737

 

429

 

Total liabilities

 

4,356

 

4,320

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock; $0.01 par value; 125 million shares authorized; none issued and outstanding

 

 

 

Common stock; $0.01 par value; 2 billion shares authorized; 560 million shares at July 31, 2008 and 551 million shares at October 31, 2007 issued

 

6

 

6

 

Treasury stock at cost; 203 million shares at July 31, 2008 and 181 million shares at October 31, 2007

 

(7,219

)

(6,469

)

Additional paid-in-capital

 

7,383

 

7,117

 

Retained earnings

 

2,560

 

2,172

 

Accumulated other comprehensive income

 

455

 

408

 

Total stockholders’ equity

 

3,185

 

3,234

 

Total liabilities and stockholders’ equity

 

$

7,541

 

$

7,554

 

 

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

 

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AGILENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)

 

 

 

Nine Months Ended
July 31,

 

 

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

462

 

$

458

 

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

 

 

 

 

 

Depreciation and amortization

 

157

 

143

 

Share-based compensation

 

67

 

103

 

Deferred taxes

 

43

 

(29

)

Excess and obsolete inventory-related charges

 

15

 

13

 

Translation gain from liquidation of a subsidiary

 

(25

)

 

Asset impairment charges

 

4

 

8

 

Net loss (gain) on sale of investments

 

4

 

(2

)

Net loss (gain) on sale of assets

 

2

 

(13

)

Other

 

 

1

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

16

 

(9

)

Inventory

 

(38

)

(46

)

Accounts payable

 

(10

)

(14

)

Employee compensation and benefits

 

(74

)

(50

)

Income taxes and other taxes payable

 

(71

)

11

 

Other current assets and liabilities

 

43

 

23

 

Other long-term assets and liabilities

 

(97

)

(26

)

Net cash provided by operating activities

 

498

 

571

 

Cash flows from investing activities:

 

 

 

 

 

Investments in property, plant and equipment

 

(110

)

(115

)

Proceeds from sale of property, plant and equipment

 

14

 

12

 

Purchase of investments

 

(256

)

 

Proceeds from sale of investments

 

133

 

12

 

Change in restricted cash and cash equivalents, net

 

33

 

1

 

Purchase of minority interest

 

(14

)

 

Proceeds from sale of intangibles and assets, net

 

 

14

 

Acquisitions of businesses and intangible assets, net of cash acquired

 

(171

)

(311

)

Net cash used in investing activities

 

(371

)

(387

)

Cash flows from financing activities:

 

 

 

 

 

Issuance of common stock under employee stock plans

 

198

 

344

 

Proceeds from revolving credit facility

 

490

 

 

Repayment of revolving credit facility

 

(280

)

 

Repayment of debt

 

 

(4

)

Treasury stock repurchases

 

(750

)

(1,313

)

Net cash used in financing activities

 

(342

)

(973

)

 

 

 

 

 

 

Effect of exchange rate movements

 

29

 

13

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(186

)

(776

)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

1,826

 

2,262

 

Cash and cash equivalents at end of period

 

$

1,640

 

$

1,486

 

 

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

 

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AGILENT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. OVERVIEW

 

Agilent Technologies, Inc. (“we”, “Agilent” or the “company”), incorporated in Delaware in May 1999, is a measurement company, providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries.

 

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

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Reclassifications. Long-term investments as of October 31, 2007 have been reclassified from other assets to conform to the more detailed presentation used in 2008.

 

Basis of Presentation . We have prepared the accompanying financial data for the three and nine months ended July 31, 2008 and 2007 pursuant to the rules and regulations of the 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 following discussion should be read in conjunction with our 2007 Annual Report on Form 10-K.

 

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present our condensed consolidated balance sheet as of July 31, 2008 and October 31, 2007, condensed consolidated statement of operations for the three and nine months ended July 31, 2008 and 2007, and condensed consolidated statement of cash flows for the nine months ended July 31, 2008 and 2007.

 

The preparation of condensed consolidated financial statements in accordance with accounting principles generally accepted 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, investment impairments, share-based compensation, retirement and post-retirement plan assumptions, valuation of long-lived assets and accounting for income taxes.

 

3. NEW ACCOUNTING PRONOUNCEMENTS

 

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority and provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. FIN No. 48 is effective for fiscal years beginning after December 15, 2006, and was effective for Agilent on November 1, 2007.  See Note 5, “Provision for Taxes”, for additional information, including the effects of adoption on our condensed consolidated financial statements.

 

Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS No. 157”) is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 157 on our condensed consolidated financial statements. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP No. 157-1”) and FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”). FSP No. 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP No. 157-2 delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for certain items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We are currently evaluating the impact of SFAS No. 157 on our

 

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condensed consolidated financial statements for items within the scope of FSP No. 157-2 which will become effective for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years.

 

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” , (“SFAS No. 161”), which requires additional disclosures about objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and related interpretations, and how the derivative instruments and related hedged items affect our financial statements. SFAS No. 161 also requires disclosures about credit risk-related contingent features in derivative agreements.  SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008 and will be applied prospectively. We are currently evaluating the impact of SFAS No. 161 on our condensed consolidated financial statements.

 

In April 2008, the FASB issued FASB Staff Position No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3   amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”).  FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied prospectively. We are currently evaluating the impact of adopting FSP No. 142-3 on our condensed consolidated financial statements.

 

4. SHARE-BASED COMPENSATION

 

We follow the accounting provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123 (R)”), for share-based awards granted to employees and directors including employee stock option awards, restricted stock units, employee stock purchases made under our Employee Stock Purchase Plan (“ESPP”) and performance share awards under our Long-Term Performance Program (“LTPP”) using the estimated grant date fair value method of accounting in accordance with SFAS No. 123 (R).

 

The impact on our results for share-based compensation was as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

July 31,

 

July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

(in millions, except

 

(in millions, except

 

 

 

per share data)

 

per share data)

 

Cost of products

 

$

3

 

$

6

 

$

14

 

$

27

 

Research and development

 

3

 

4

 

11

 

18

 

Selling, general and administrative

 

12

 

17

 

42

 

58

 

Total share-based compensation expense

 

$

18

 

$

27

 

$

67

 

$

103

 

 

Share-based compensation capitalized within inventory at July 31, 2008 and 2007 was zero. The windfall tax benefit realized from exercised stock options and similar awards was immaterial for the three and nine months ended July 31, 2008 and 2007.

 

The following assumptions were used to estimate the fair value of the options granted, ESPP purchases and LTPP grants. During the three months ended July 31, 2008 we had no option or LTPP grants.

 

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Three Months Ended

 

Nine Months Ended

 

 

 

July 31,

 

July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

 

 

 

 

 

 

 

 

Stock Option Plans:

 

 

 

 

 

 

 

 

 

Weighted average risk-free interest rate

 

 

5.0

%

3.2

%

4.6

%

Dividend yield

 

 

0

%

0

%

0

%

Weighted average volatility

 

 

25

%

33

%

29

%

Expected life

 

 

4.6 yrs

 

4.6 yrs

 

4.6 yrs

 

 

 

 

 

 

 

 

 

 

 

ESPP:

 

 

 

 

 

 

 

 

 

Weighted average risk-free interest rate

 

1.7

%

5.1

%

2.9

%

4.8

%

Dividend yield

 

0

%

0

%

0

%

0

%

Weighted average volatility

 

30

%

23

%

31

%

31

%

Expected life

 

0.5 yrs

 

0.5-1.5 yrs

 

0.5-1 yr

 

0.5-2 yrs

 

 

 

 

 

 

 

 

 

 

 

LTPP:

 

 

 

 

 

 

 

 

 

Volatility of Agilent shares

 

 

30

%

27

%

31

%

Volatility of selected peer-company shares

 

 

15%-57

%

17%-52

%

15%-57

%

Price-wise correlation with selected peers

 

 

29

%

24

%

29

%

 

The fair value of share-based awards for employee stock option awards and employee stock purchases made under our ESPP was estimated using the Black-Scholes option pricing model. Shares granted under the LTPP were valued using a Monte Carlo simulation model. Both the Black-Scholes and Monte Carlo simulation fair value models require the use of highly subjective and complex assumptions, including the option’s expected life and the price volatility of the underlying stock. The estimated fair value of restricted stock unit awards is determined based on the market price of Agilent’s common stock on the date of grant.

 

The expected stock price volatility assumption for employee stock option awards and our employee stock purchases made under our ESPP was determined using the implied volatility for the three and nine months ended July 31, 2008 and 2007. We estimate the stock price volatility using the implied volatility of Agilent’s publicly traded, similarly priced, stock options. We have determined that implied volatility is more reflective of market conditions and a better indicator of expected volatility than using historical volatility or a combined method of determining volatility.

 

5. PROVISION FOR TAXES

 

We recorded $46 million and $96 million of income tax provision for the three and nine months ended July 31, 2008. The tax provision for the three and nine months ended July 31, 2008, includes a benefit of zero and $12 million, respectively, for effectively settled issues related to foreign audits. The tax provision for the three and nine months ended July 31, 2008, includes an expense of $7 million and $10 million, respectively, for interest and penalties. We recorded $5 million and $11 million of income tax provision for the three and nine months ended July 31, 2007. The tax provision for the three months ended July 31, 2007, includes a benefit of $30 million related to valuation allowance adjustments based on changes in other comprehensive income (“OCI”) items during the nine months ended July 31, 2007. The tax provision for the nine months ended July 31, 2007, includes the same valuation allowance adjustments for OCI items and a benefit of $50 million related to the reversal of a tax reserve for potential non-U.S. exposures where the statute of limitations expired. These benefits were treated as discrete events during the first and third quarters of fiscal 2007, respectively. The provision for taxes was recorded for income generated in jurisdictions other than the U.S., U.K., Puerto Rico and the Netherlands in which we have partial or full valuation allowances. We intend to maintain partial or full valuation allowances in the U.S., U.K., Puerto Rico and the Netherlands until sufficient positive evidence exists to support the reversal of the valuation allowances.

 

Effective at the beginning of the first quarter of 2008, we adopted FIN No. 48. FIN No. 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.

 

As a result of the implementation of FIN No. 48, we increased the liability for net unrecognized tax benefits by $74 million, and accounted for the increase as a cumulative effect of a change in accounting principle that resulted in a decrease to retained earnings of $74 million. The total amount of gross unrecognized tax benefits as of the date of adoption was $909

 

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million. We historically classified unrecognized tax benefits in current taxes payable, or as reductions to tax receivables or net deferred tax assets. As a result of adopting FIN No. 48, approximately $355 million of unrecognized tax benefits and related interest and penalties were reclassified to long-term income taxes payable from current taxes payable. Most of these gross unrecognized tax benefits would affect the effective tax rate, if realized.

 

We continue to include interest and penalties related to unrecognized tax benefits within the provision for income taxes on the condensed consolidated statement of operations. As of the date of adoption of FIN No. 48, we had accrued $35 million for the payment of interest and penalties relating to unrecognized tax benefits.

 

In the U.S. and other major jurisdictions where we conduct business, the tax years generally remain open back to the year 2000.  It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements.  However, due to the uncertainty regarding the timing of the completion of tax audits in various jurisdictions and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.

 

Our U.S. federal income tax returns for 2000 through 2002 have been under audit by the Internal Revenue Service (“IRS”). In August 2007, we received a Revenue Agent’s Report (“RAR”). In the RAR, the IRS proposes to assess a net tax deficiency, after applying available net operating losses from the years under audit and undisputed tax credits, for those years of approximately $405 million, plus penalties of approximately $160 million and interest. If the IRS were to fully prevail, our net operating loss and tax credits generated in recent years would be utilized earlier than they otherwise would have been, and our annual effective tax rate will have increased as a result. The RAR addresses several issues. One issue, however, relating to the use of Agilent’s brand name by our foreign affiliates, accounts for a majority of the claimed tax deficiency. We believe that the claimed IRS adjustment for this issue in particular is inconsistent with applicable tax laws and that we have meritorious defenses to this claim. Therefore, we have not included any tax for this item in our tax provision for 2007 or for the first three quarters of 2008. We have filed a formal protest and expect to meet with the Appeals Office of the IRS. In the protest, we have vigorously opposed the claim associated with Agilent’s brand name, and most of the other claimed adjustments proposed in the RAR. In April of 2008, we received a rebuttal to our formal protest, and after reviewing the IRS’s arguments, our assessment of the risks remains the same. The final resolution of the proposed adjustments is uncertain and may take several years. Based on current information, it is our opinion that the ultimate disposition of these matters is unlikely to have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

We are subject to ongoing tax examinations of our tax returns by the IRS and other tax authorities in various jurisdictions. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable judgments. If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the accrual of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

 

6. NET INCOME PER SHARE

 

The following is a reconciliation of the numerators and denominators 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,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

(in millions)

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

169

 

$

185

 

$

462

 

$

458

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic weighted-average shares

 

362

 

392

 

365

 

400

 

Potentially dilutive common stock equivalents

 

10

 

15

 

10

 

12

 

Diluted weighted-average shares

 

372

 

407

 

375

 

412

 

 

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 required by SFAS No. 123 (R).

 

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The following table presents options to purchase shares of common stock, which were not included in the computations of diluted net income per share because they were anti-dilutive.

 

 

 

Three Months Ended
July 31,

 

Nine Months Ended
July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

Options to purchase shares of common stock (in millions)

 

6

 

4

 

6

 

5

 

Weighted-average exercise price

 

$

45

 

$

50

 

$

45

 

$

47

 

Average common stock price

 

$

36

 

$

38

 

$

34

 

$

35

 

 

7. SHORT-TERM DEBT AND SHORT-TERM RESTRICTED CASH & CASH EQUIVALENTS

 

The following table summarizes the company’s short-term debt as of July 31, 2008:

 

 

 

July 31,
2008

 

 

 

(in millions)

 

World Trade debt

 

$

1,500

 

Credit facility

 

210

 

Other debt

 

1

 

Total short-term debt

 

$

1,711

 

 

World Trade Debt

 

In January 2006, Agilent Technologies World Trade, Inc., a consolidated wholly owned subsidiary of Agilent (“World Trade”), entered into a five-year Master Repurchase Agreement and related Confirmation (together, the “Repurchase Agreement”) with a counterparty pursuant to which World Trade sold 15,000 Class A preferred shares of one of its wholly owned subsidiaries to the counterparty, having an aggregate liquidation preference of $1.5 billion. (the “Purchased Securities”).  Subsequent to an amendment signed in December 2007, the $1.5 billion obligation of World Trade to repurchase the preferred shares has been classified as short-term debt on our condensed consolidated balance sheet.  In March 2008, World Trade received a notice of acceleration to obligate World Trade to repurchase the Purchased Securities on July 16, 2008. In June 2008, World Trade entered into an amendment to the Repurchase Agreement to extend the obligation of World Trade to repurchase the Purchased Securities from July 16, 2008 to November 17, 2008.

 

On August 7, 2008 World Trade entered into a further amendment to provide World Trade the right to accelerate the date of repurchase of all or any portion of the Purchased Securities from November 17, 2008 to October 20, 2008, provided that World Trade gives notice by September 15, 2008. World Trade is obligated to make quarterly payments to the counterparty at a rate per annum, reset quarterly, equal to the three-month London inter-bank offered rate (“LIBOR”) plus 52 basis points for the period through July 16, 2008 and 235 basis points for the period from July 17, 2008 through November 17, 2008. The amortization of debt issuance costs was $16 million for the nine months ended July 31, 2008.

 

Credit Facility

 

On May 11, 2007, we entered into a five-year credit agreement, which provides for a $300 million unsecured credit facility that will expire on May 11, 2012. As of July 31, 2008, we had an outstanding balance of $210 million on the credit facility and it has been classified as short-term debt in our condensed consolidated balance sheet.

 

On June 13, 2008, we entered into a Second Amendment to our five-year credit agreement.  Pursuant to the Second Amendment, the existence of the accelerated obligation of World Trade to repurchase the Purchased Securities by November 17, 2008 will constitute an event of default, unless Agilent shall have satisfied the obligation or entered into definitive principal documentation with one or more counterparties regarding a transaction which would satisfy the World Trade repurchase obligation on or prior to that date that is at least three business days prior to the date upon which the World Trade repurchase obligation is due. If a default were to occur under the credit agreement, the lenders could require Agilent to immediately repay any outstanding debt under the credit facility.

 

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Table of Contents

 

Short-Term Restricted Cash & Cash Equivalents

 

As of July 31, 2008, $1,570 million was reported as short-term restricted cash and cash equivalents on our condensed consolidated balance sheet. This amount consists of short-term restricted commercial paper maintained in connection with our World Trade debt obligations per the Repurchase Agreement mentioned above.

 

8. INVENTORY

 

 

 

July 31,
2008

 

October 31,
2007

 

 

 

(in millions)

 

Finished goods

 

$

330

 

$

313

 

Work in progress

 

44

 

44

 

Raw materials

 

300

 

286

 

Total inventory

 

$

674

 

$

643

 

 

9. 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, 2008:

 

 

 

Electronic
Measurement

 

Bio-
analytical
Measurement

 

Total

 

 

 

(in millions)

 

Goodwill as of October 31, 2007

 

$

317

 

$

241

 

$

558

 

Foreign currency translation impact

 

16

 

1

 

17

 

Goodwill arising from acquisitions

 

8

 

59

 

67

 

Goodwill as of July 31, 2008

 

$

341

 

$

301

 

$

642

 

 

The components of other intangibles as of July 31, 2008 and October 31, 2007 are shown in the table below:

 

 

 

Purchased Other Intangible Assets

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Book
Value

 

 

 

(in millions)

 

As of October 31, 2007:

 

 

 

 

 

 

 

Purchased technology

 

$

280

 

$

173

 

$

107

 

Trademark/tradename

 

31

 

1

 

30

 

Customer relationships

 

82

 

41

 

41

 

Total

 

$

393

 

$

215

 

$

178

 

As of July 31, 2008:

 

 

 

 

 

 

 

Purchased technology

 

$

364

 

$

199

 

$

165

 

Trademark/tradename

 

32

 

3

 

29

 

Customer relationships

 

100

 

53

 

47

 

Total

 

$

496

 

$

255

 

$

241

 

 

We recorded $67 million of goodwill and $103 million of other intangibles during the nine months ended July 31, 2008, related primarily to seven acquisitions and a purchase of the remaining unowned portion of a joint venture. The larger acquisition is described below.  Pro forma disclosures are not presented for these acquisitions, as they are not required.

 

On December 18, 2007, we completed the acquisition of Velocity11, a designer, manufacturer, and marketer of robotic solutions. The aggregate purchase price was approximately $111 million in cash used to purchase 100 percent of Velocity11’s outstanding common shares and vested common stock options that Velocity11 employees held on the close date.

 

Amortization of intangible assets was $14 million and $40 million for the three and nine months ended July 31, 2008 and $13 million and $29 million for the same periods in the prior year.  Future amortization expense related to existing purchased intangible assets is estimated to be $13 million for the remainder of 2008, $48 million for 2009, $43 million for 2010, $39 million for 2011, $31 million for 2012, $20 million for 2013 and $47 million thereafter.

 

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10. INVESTMENTS

 

The following table summarizes the company’s investments as of July 31, 2008 and October 31, 2007:

 

 

 

July 31,
2008

 

October 31,
2007

 

 

 

(in millions)

 

Short-Term

 

 

 

 

 

Available-for-sale investments

 

$

29

 

$

 

Long-Term

 

 

 

 

 

Cost method investments

 

$

20

 

$

24

 

Trading securities

 

62

 

72

 

Available-for-sale investments

 

169

 

98

 

Total

 

$

251

 

$

194

 

 

Cost method investments consist of non-marketable equity securities and are accounted for at historical cost. Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. Investments designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, included in stockholders’ equity.

 

Available-for-sale investments at estimated fair value were as follows as of July 31, 2008 and October 31, 2007:

 

 

 

July 31, 2008

 

October 31, 2007

 

 

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair
Value

 

 

 

(in millions)

 

Debt securities

 

$

120

 

$

 

$

(3

)

$

117

 

$

 

$

 

$

 

$

 

Equity securities

 

4

 

10

 

 

14

 

4

 

22

 

 

26

 

Other

 

61

 

6

 

 

67

 

55

 

17

 

 

72

 

 

 

$

185

 

$

16

 

$

(3

)

$

198

 

$

59

 

$

39

 

$

 

$

98

 

 

Other represents shares we own in two special funds that target underlying investments of approximately 40 percent in debt securities and 60 percent in equity securities.  These funds are held for employee benefits in Germany.

 

In February 2008, Agilent traded an externally managed short-term investment for the underlying securities of the investment and now manages those investments internally. The securities received were fixed income debt securities and are held as available-for-sale.  Agilent estimated the fair values based on quoted market prices or pricing models using current market rates. These estimated fair values may not be representative of actual values that could have been realized as of July 31, 2008 or that will be realized in the future.

 

Contractual maturities of available-for-sale debt securities were as follows at July 31, 2008:

 

 

 

Cost

 

Estimated Fair
Value

 

 

 

(in millions)

 

 

 

 

 

 

 

Due in less than 1 year

 

$

29

 

$

29

 

Due in 1-5 years

 

53

 

52

 

Due after 5 years

 

38

 

36

 

 

 

$

120

 

$

117

 

 

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Table of Contents

 

All of our investments, excluding trading securities, are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of the investment.

 

Charges related to other than temporary impairments were zero and $5 million for the three months ended July 31, 2008 and 2007, respectively. For the nine months ended July 31, 2008 and 2007, charges related to other than temporary impairments were $2 million and $7 million, respectively. These impairment charges were recorded in other income (expense), net in the condensed consolidated statement of operations.

 

Unrealized gains and losses on our trading securities portfolio were $2 million unrealized losses and $4 million unrealized gains for the three months ended July 31, 2008 and 2007, respectively. For the nine months ended July 31, 2008 and 2007, unrealized gains and losses on our trading securities were unrealized losses of $10 million and unrealized gains of $8 million, respectively. These amounts have been included in other income (expense), net in the condensed consolidated statement of operations.

 

Realized gains and losses from the sale of available-for-sale securities were zero for both the three months ended July 31, 2008 and 2007. Realized gains and losses from the sale of available-for-sale securities were $4 million of realized losses and $2 million of realized gains for the nine months ended July 31, 2008 and 2007, respectively. Realized gains and losses from the sale of cost method securities were immaterial for the three and nine months ended July 31, 2008 and 2007, respectively. These amounts have been included in other income (expense), net in the condensed consolidated statement of operations.

 

11. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

 

Components of net periodic costs. For the three and nine months ended July 31, 2008 and 2007, our net pension and post retirement benefit costs were comprised of the following:

 

 

 

Pensions

 

 

 

 

 

U.S. Plans

 

Non-U.S.
Plans

 

U.S. Post Retirement
Benefit Plans

 

 

 

Three Months Ended July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

 

 

(in millions)

 

Service cost—benefits earned during the period

 

$

9

 

$

10

 

$

10

 

$

9

 

$

1

 

$

1

 

Interest cost on benefit obligation

 

10

 

10

 

19

 

16

 

7

 

6

 

Expected return on plan assets

 

(14

)

(14

)

(28

)

(23

)

(8

)

(7

)

Amortization and deferrals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

(3

)

(1

)

5

 

8

 

 

1

 

Prior service cost

 

 

 

 

 

(3

)

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net plan (income) costs

 

$

2

 

$

5

 

$

6

 

$

10

 

$

(3

)

$

(1

)

 

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Table of Contents

 

 

 

Pensions

 

 

 

 

 

U.S. Plans

 

Non-U.S.
Plans

 

U.S. Post Retirement
Benefit Plans

 

 

 

Nine Months Ended July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

 

 

(in millions)

 

Service cost—benefits earned during the period

 

$

27

 

$

30

 

$

29

 

$

27

 

$

3

 

$

3

 

Interest cost on benefit obligation

 

29

 

30

 

57

 

48

 

21

 

20

 

Expected return on plan assets

 

(42

)

(42

)

(83

)

(69

)

(24

)

(21

)

Amortization and deferrals:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial (gain) loss

 

(9

)

(3

)

15

 

24

 

 

1

 

Prior service cost

 

 

 

 

 

(9

)

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net plan costs (income)

 

5

 

15

 

18

 

30

 

(9

)

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Curtailments and settlements

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net plan (income) costs

 

$

5

 

$

14

 

$

18

 

$

30

 

$

(9

)

$

(3

)

 

For the U.S. plans, because of lump sum payouts during the nine months ended July 31, 2007, we recorded a $1 million settlement gain in accordance with SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.

 

We contributed approximately zero and $2 million to our U.S. defined benefit plans during the three and nine months ended July 31, 2008 and zero and $8 million respectively, for the same periods in 2007. We contributed approximately $16 million and $35 million to our non-U.S. defined benefit plans during the three and nine months ended July 31, 2008 and $10 million and $26 million, respectively, for the same periods in 2007. We expect to contribute approximately $5 million to our non-U.S. defined benefit plans during the remainder of fiscal 2008.

 

12. WARRANTIES

 

We accrue for warranty costs in accordance with SFAS No. 5, “Accounting for Contingencies”, based on historical trends in warranty charges as a percentage of gross product shipments. The accrual is reviewed regularly and periodically adjusted to reflect changes in warranty cost estimates. Estimated warranty charges are recorded within cost of products at the time products are sold. Our warranty terms typically extend for one year from the date of delivery.

 

 

 

FY 2008

 

FY 2007

 

 

 

(in millions)

 

Beginning balance as of November 1,

 

$

29

 

$

29

 

Accruals for warranties issued during the period

 

38

 

42

 

Changes in estimates

 

 

(1

)

Settlements made during the period

 

(38

)

(41

)

Ending balance as of July 31,

 

$

29

 

$

29

 

 

13. RESTRUCTURING

 

Our FY2005 Plan, announced in the fourth quarter of 2005, is complete.  The remaining obligations under this and previous plans relate primarily to lease obligations that are expected to be satisfied over approximately the next four years.

 

A summary of restructuring activity for the nine months ended July 31, 2008 is shown in the table below:

 

 

 

Workforce
Reduction

 

Consolidation
of Excess
Facilities

 

Total

 

 

 

(in millions)

 

Ending balance as of October 31, 2007

 

$

1

 

$

31

 

$

32

 

Income statement expense

 

 

(4

)

(4

)

Cash payments

 

(1

)

(15

)

(16

)

Ending balance as of July 31, 2008

 

$

 

$

12

 

$

12

 

 

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Table of Contents

 

The restructuring accrual for all plans, which totaled $12 million as of July 31, 2008 and $32 million as of October 31, 2007, is recorded in other accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet and represents estimated future cash outlays.

 

In the first quarter of 2008, we reduced our estimated liability relating to the consolidation of excess facilities by $4 million due to changes in the underlying property markets. There were no charges in the condensed consolidated statement of operations for both the three months ended July 31, 2008 and the three months ended July 31, 2007 from all restructuring plans.

 

A summary of the charges in the condensed consolidated statement of operations resulting from all restructuring plans is shown below:

 

 

 

Nine Months Ended

 

 

 

July 31,

 

 

 

2008

 

2007

 

 

 

(in millions)

 

Cost of products

 

$

 

$

6

 

Research and development

 

 

1

 

Selling, general and administrative

 

(4

)

9

 

Total restructuring and asset impairment charges

 

$

(4

)

$

16

 

 

14. SENIOR NOTES

 

In October 2007, the company issued an aggregate principal amount of $600 million in senior notes. The senior notes were issued at 99.60% of their principal amount. The notes will mature on November 1, 2017, bear interest at a fixed rate of 6.50% per annum, payable semi-annually on May 1st and November 1st of each year, commencing on May 1, 2008. The senior notes are unsecured and will rank equally in right of payment with all of Agilent’s other senior unsecured indebtedness. The company incurred issuance costs of $5 million in connection with the senior notes which have been included in “Other assets” in the condensed consolidated balance sheet. These debt issuance costs are being amortized to interest expense over the term of the senior notes.

 

Upon the closing of the offering of the senior notes, we entered into interest rate swaps with an aggregate notional amount of $600 million. Under the interest rate swaps, we will receive fixed-rate interest payments and will make payments based on the six month US dollar LIBOR. The economic effect of these swaps will be to convert the fixed-rate interest expense on the senior notes to a variable LIBOR-based interest rate. The swaps are accounted for as a fair value hedge of the interest rate risk inherent in the senior notes and therefore the fair value of the swap will be recorded on our condensed consolidated balance sheet at each period end until maturity in 2017. In addition, as a result of the fair value hedge, the senior notes are reflected on our condensed consolidated balance sheet at fair value, reflecting the change in their value attributable to interest rate risk. The hedging relationship qualifies for the shortcut method of assessing hedge effectiveness, and consequently we do not expect any ineffectiveness during the life of the swap and any movement in the value of the swap would be reflected in the movement in fair value of the senior notes. At July 31, 2008, the fair value of the swap was an asset of $6 million. As a result, the carrying value of the senior notes now reflects the $6 million to reflect the increase in fair value attributable to interest rate risk.

 

15. COMPREHENSIVE INCOME

 

The following table presents the components of comprehensive income:

 

 

 

Three Months Ended
July 31,

 

 

 

2008

 

2007

 

 

 

(in millions)

 

Net income

 

$

169

 

$

185

 

Other comprehensive income:

 

 

 

 

 

Change in unrealized gain (loss) on investments

 

(5

)

22

 

Change in unrealized loss on derivative instruments

 

(6

)

(8

)

Foreign currency translation

 

(11

)

17

 

Change in deferred net pension cost

 

(2

)

 

Deferred taxes

 

2

 

(28

)

Comprehensive income

 

$

147

 

$

188

 

 

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Table of Contents

 

 

 

Nine Months Ended
July 31,

 

 

 

2008

 

2007

 

 

 

(in millions)

 

Net income

 

$

462

 

$

458

 

Other comprehensive income:

 

 

 

 

 

Change in unrealized gain (loss) on investments

 

(26

)

23

 

Change in unrealized gain (loss) on derivative instruments

 

2

 

(6

)

Translation gain reclassified into earnings related to liquidation of a subsidiary

 

(25

)

 

Foreign currency translation

 

103

 

62

 

Change in deferred net pension cost

 

(5

)

 

Deferred taxes

 

(2

)

(31

)

Comprehensive income

 

$

509

 

$

506

 

 

16. STOCK REPURCHASE PROGRAM

 

On November 14, 2007 the Audit and Finance Committee of the Board of Directors approved a share-repurchase program of up to $2 billion of Agilent’s common stock over a two year period. The following repurchases under the above program were completed in the periods presented below:

 

Three months ended

 

Number of
Common
Stock Repurchased

 

Amount of
Common
Stock Repurchased

 

 

 

(in millions)

 

January 31, 2008

 

6.6

 

$

237

 

April 30, 2008

 

8.3

 

263

 

July 31, 2008

 

7.0

 

250

 

Program to date as of July 31, 2008

 

21.9

 

$

750

 

 

All such shares and related costs are held as treasury stock and accounted for using the cost method. The remaining amount that is authorized under the plan is $1.25 billion.

 

17. SEGMENT INFORMATION

 

We are a measurement company, providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries. Agilent has two primary businesses — bio-analytical measurement and electronic measurement — each of which comprises a reportable segment. The segments were determined based primarily on how the chief operating decision maker views and evaluates our operations. Other factors, including customer base, homogeneity of products, technology and delivery channels, were also considered in determining our reportable segments.

 

A significant portion of the segments’ expenses arise from shared services and infrastructure that we have historically provided to the segments in order to realize economies of scale and to efficiently use resources. These expenses, collectively called corporate charges, include costs of centralized research and development, legal, accounting, real estate, insurance services, information technology services, treasury and other corporate infrastructure expenses. Charges are allocated to the segments, and the allocations have been determined on a basis that we considered to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.

 

Upon the adoption of SFAS No. 123 (R) in the first quarter of 2006, we included share-based compensation expense in our GAAP results but did not include such expense in our segment reporting. In the third quarter of 2008, we included share-based compensation expense in our segment results. All segment numbers have been reclassified to conform to the current period presentation.

 

The following tables reflect the results of our reportable segments under our management reporting system. These results are not necessarily in conformity with generally accepted accounting principles in the U.S. The performance of each segment is measured based on several metrics, including adjusted income from operations. These results are used, in part, by the chief operating decision maker in evaluating the performance of, and in allocating resources to, each of the segments.

 

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

 

 

 

Electronic
Measurement

 

Bio-analytical
Measurement

 

Total

 

 

 

(in millions)

 

Three months ended July 31, 2008:

 

 

 

 

 

 

 

Total net revenue

 

$

878

 

$

566

 

$

1,444

 

Segment income from operations

 

$

135

 

$

101

 

$

236

 

Three months ended July 31, 2007:

 

 

 

 

 

 

 

Total net revenue

 

$

874

 

$

500

 

$

1,374

 

Segment income from operations

 

$

116

 

$

82

 

$

198

 

 

 

 

Electronic
Measurement

 

Bio-analytical
Measurement

 

Total

 

 

 

(in millions)

 

Nine months ended July 31, 2008:

 

 

 

 

 

 

 

Total net revenue

 

$

2,614

 

$

1,679

 

$

4,293

 

Segment income from operations

 

$

340

 

$

276

 

$

616

 

Nine months ended July 31, 2007:

 

 

 

 

 

 

 

Total net revenue

 

$

2,527

 

$

1,447

 

$

3,974

 

Segment income from operations

 

$

279

 

$

223

 

$

502

 

 

The following table reconciles reportable segment results to Agilent’s total enterprise results from operations before taxes:

 

 

 

Three Months Ended
July 31,

 

Nine Months Ended
July 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

 

 

(in millions)

 

Total reportable segments’ income from operations

 

$

236

 

$

198

 

$

616

 

$

502

 

Restructuring and asset impairment

 

(5

)

(11

)

(23

)

(30

)

Donation to Agilent Foundation

 

 

 

 

(20

)

Net translation gain from liquidation of a subsidiary

 

 

 

11

 

 

Acceleration of debt issuance costs

 

(8

)

 

(13

)

 

Interest income

 

23

 

42

 

89

 

136

 

Interest expense

 

(23

)

(23

)

(77

)

(68

)

Other income (expense), net

 

5

 

3

 

5

 

7

 

Amortization of intangibles and other

 

(13

)

(19

)

(50

)

(58

)

Income from operations before taxes, as reported

 

$

215

 

$

190

 

$

558

 

$

469

 

 

In the three months ended April 30, 2008 we liquidated a subsidiary and recorded a net translation gain of $11 million which consists of $25 million cumulative translation gain offset by a $14 million loss on a net investment hedge.

 

The following table reflects segment assets under our management reporting system. Segment assets include allocations of corporate assets, including deferred tax assets, goodwill, other intangibles and other assets.

 

 

 

Electronic
Measurement

 

Bio-analytical
Measurement

 

Total

 

 

 

(in millions)

 

Assets:

 

 

 

 

 

 

 

As of July 31, 2008

 

$

2,090

 

$

1,549

 

$

3,639

 

As of October 31, 2007

 

$

2,025

 

$

1,307

 

$

3,332

 

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)

 

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends, seasonality, cyclicality and growth in the markets we sell into, our strategic direction, our future effective tax rate and tax valuation allowance, earnings from our foreign subsidiaries, remediation activities, new product and service introductions, changes to our manufacturing processes, the use of contract manufacturers, the impact of local government regulations on our ability to pay vendors or conduct operations, our liquidity position, our ability to generate cash from operations, growth in our businesses, our investments, the potential impact of adopting new accounting pronouncements, our financial results, our purchase commitments, our contributions to our pension plans, the selection of discount rates and recognition of any gains or losses for our benefit plans, our cost-control activities, our stock repurchase program, our transition to lower-cost regions, the existence or length of an economic recovery that involve risks and uncertainties, and the impact of an Internal Revenue Service (“IRS”) Revenue Agent’s Report (“RAR”) on our operations and financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to various factors, including those discussed below in “Risks, Uncertainties and Other Factors That May Affect Future Results” and elsewhere in this Form 10-Q.

 

Basis of Presentation

 

The financial information presented in this Form 10-Q is not audited and is not necessarily indicative of our future consolidated financial position, results of operations or cash flows. Our fiscal year-end is October 31, and our fiscal quarters end on January 31, April 30 and July 31. Unless otherwise stated, all dates refer to our fiscal year and fiscal periods.

 

Executive Summary

 

Agilent Technologies, Inc. (“we”, “Agilent” or the “company”) is the world’s premier measurement company, providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries. Agilent has two primary businesses focused on the electronic measurement market and the bio-analytical measurement market.

 

For the three and nine months ended July 31, 2008, total orders were $1.39 billion and $4.31 billion, respectively, an increase of  6 percent and 9 percent in comparison to the same periods last year.  Excluding the acquisitions of Stratagene and Velocity 11, which closed in June 2007 and December 2007, respectively, order growth was 4 percent and 7 percent for the three and nine months ended July 31, 2008, respectively, when compared to the same periods last year.

 

 Net revenue of $1.44 billion and $4.29 billion for the three and nine months ended July 31, 2008 was up 5 percent and 8 percent, respectively, when compared to the same periods last year. Excluding the acquisitions of Stratagene and Velocity11, revenue growth was 4 percent and 6 percent for the three and nine months ended July 31, 2008, respectively, when compared to 2007. The movement in currency accounted for approximately 4 percentage points of the revenue growth in both the three and nine months ended July 31, 2008 when compared to the same periods last year.

 

Net income for the three and nine months ended July 31, 2008 was $169 million and $462 million, respectively, and $185 million and $458 million for the corresponding periods last year.  For the three and nine months ended July 31, 2008, net interest income decreased $27 million and $69 million, respectively. The decrease in interest income is due to the decrease in interest rates and the increase in interest expense is due to the increase in debt compared to last year. For the three months ended July 31, 2007, the provision for income taxes includes a $30 million discrete tax benefit related to valuation allowance adjustments based on changes in other comprehensive income items. For the nine months ended July 31, 2007, the provision for income taxes also includes a benefit of $50 million related to the reversal of a tax reserve for potential non-U.S. exposures where the statute of limitations expired. The effect of currency movement had no net impact in the year-over-year comparison of net income in the three and nine months ended July 31, 2008.

 

In the nine months ended July 31, 2008, we generated $498 million of cash from operations compared with $571 million generated in the nine months of the prior year. The decrease in year-over-year operating cash was mainly driven by higher tax cash payments related to the transfer of intellectual property between affiliated entities and by lower interest income receipts and higher interest payments.

 

 Looking forward, our continued focus will be to grow revenue at a faster rate than the electronic measurement and bio-analytical markets, primarily through increasing market share, expanding our served market size with new products and

 

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channels and by complementary acquisitions. Our primary strategy is to pursue profitable growth by expanding our leadership in core/adjacent markets and seeking revenue growth opportunities.

 

Critical Accounting Policies and Estimates

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The preparation of condensed consolidated financial statements in conformity with GAAP in the U.S. requires management to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. 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, investment impairments, share-based compensation, retirement and post-retirement benefit plan assumptions, valuation of long-lived assets and accounting for income taxes. 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.

 

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements.

 

Share-based compensation . The expected stock price volatility assumption was determined using the implied volatility for our stock awards. We estimate the stock price volatility using the implied volatility of Agilent’s publicly traded, similarly priced, stock options. We have determined that implied volatility is more reflective of market conditions and a better indicator of expected volatility than using historical volatility or a combined method of determining volatility. In reaching this conclusion, we have considered many factors including the extent to which our options are traded and our ability to find traded options with similar terms and prices to the options we are valuing. A 10 percent point increase in our estimated volatility from 31 percent to 41 percent would generally increase the value of an award and the associated compensation cost by approximately 23 percent if no other factors were changed.

 

Goodwill and purchased intangible assets . No events occurred or circumstances changed during the nine months ended July 31, 2008 that required us to test goodwill or purchased intangibles for impairment.

 

Accounting for income taxes. Effective at the beginning of the first quarter of 2008, we adopted FIN No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN No. 48”). As a result of the implementation, we recognize liabilities for uncertain tax positions based on the two-step approach prescribed in the interpretation. The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes.  We reevaluate these uncertain tax positions on a quarterly basis.  This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity.  Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period. See Note 5, “Provision for Taxes”, for additional information, including the effects of adoption on our condensed consolidated financial statements.

 

Other critical accounting policies were unchanged in the three and nine months ended July 31, 2008.

 

Adoption of New Pronouncements

 

See Note 3, “New Accounting Pronouncements,” to the condensed consolidated financial statements for a description of new accounting pronouncements.

 

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Table of Contents

 

Foreign Currency

 

Our revenues, costs and expenses, and monetary assets and liabilities are exposed to changes in foreign currency exchange rates as a result of our global operating and financing activities. We hedge revenues, expenses and balance sheet exposures that are not denominated in the functional currencies of our subsidiaries on a short term and anticipated basis. We do experience some fluctuations within individual lines of the condensed consolidated statement of operations and balance sheet because our hedging program is not designed to offset the currency movements in each category of revenues, expenses, monetary assets and liabilities. Our hedging program is designed to hedge currency movements on a relatively short-term basis (rolling twelve month period). Therefore, we are exposed to currency fluctuations over the longer term.

 

Results from Operations

 

Orders and Net Revenue

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

 

 

(in millions)

 

 

 

 

 

Orders

 

$

1,387

 

$

1,308

 

$

4,312

 

$

3,958

 

6

%

9

%

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,195

 

$

1,140

 

$

3,570

 

$

3,300

 

5

%

8

%

Services and other

 

249

 

234

 

723

 

674

 

6

%

7

%

Total net revenue

 

$

1,444

 

$

1,374

 

$

4,293

 

$

3,974

 

5

%

8

%

 

Agilent orders increased 6 percent and 9 percent for the three and nine months ended July 31, 2008, respectively, compared to the same periods in 2007. The bio-analytical measurement business continued to deliver consistent order growth of 19 percent and 20 percent for the three and nine month periods ended July 31, 2008, respectively. Excluding Stratagene and Velocity11, orders grew 15 percent and 14 percent in the three and nine months ended July 31, 2008, respectively, when compared to the prior year. Electronic measurement orders decreased 2 percent and increased 2 percent, respectively, for the three and nine months ended July 31, 2008.

 

Agilent net revenue increased 5 percent and 8 percent for the three and nine months ended July 31, 2008, respectively, compared to the same periods last year. The bio-analytical measurement business achieved revenue growth of 13 percent and 16 percent for the three and nine months ended July 31, 2008, respectively, showing strong performance in both our chemical analysis and life sciences businesses.  Excluding Stratagene and Velocity11, revenues increased 10 percent and 11 percent for the three and nine months ended July 31, 2008, respectively, when compared to the prior year. The impact of currency movement accounted for an increase of 5 percentage points of revenue growth in both the three and nine months ended July 31, 2008, when compared to the prior year. Electronic measurement business revenues were flat and increased by 3 percent for the three and nine months ended July 31, 2008, respectively, compared with the same periods in the prior year. Currency movement contributed 3 percentage points of revenue growth for both the three and nine months ended July 31, 2008 when compared to the prior year. Our communications test business grew 9 percent in the three months ended July 31, 2008 with strength in R&D markets and the continuing recovery of handset manufacturing test. General purpose test revenues decreased 5 percent in the three months ended July 31, 2008, with weakness in the computer and semi-conductor test market and aerospace and defense was flat.

 

Services and other revenue include revenue generated from servicing our installed base of products, warranty extensions and consulting. Services and other revenue for the three and nine months ended July 31, 2008 increased 6 percent and 7 percent, respectively, as compared to the same periods last year.

 

Operating Results

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

Total gross margin

 

55.6

%

55.2

%

55.1

%

54.8

%

 

 

Operating margin

 

15.1

%

12.2

%

12.6

%

9.9

%

3

ppts

3

ppts

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

170

 

$

170

 

$

534

 

$

511

 

 

5

%

Selling, general and administrative

 

$

415

 

$

420

 

$

1,289

 

$

1,274

 

(1

)%

1

%

 

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Total gross margins for the three and nine months ended July 31, 2008 were flat when compared to the same periods last year. Excluding the impact of currency, gross margins increased by approximately 1 percentage point for both the three and nine months ended July 31, 2008 when compared to the same periods in 2007. Operating margins increased by 3 percentage points for both the three and nine months ended July 31, 2008 when compared with the same periods last year.

 

Research and development expenses were flat and increased 5 percent for the three and nine months ended July 31, 2008, respectively, compared to the same periods last year. The increase in expense due to currency movement was offset by cost savings in the three months ended July 31, 2008. We remain committed to bringing new products to the market, and have focused our development efforts on key strategic opportunities in order to align our business with available markets and position ourselves to capture market share.

 

Selling, general and administrative expenses decreased 1 percent and increased 1 percent for the three and nine months ended July 31, 2008, respectively, compared to the same period last year. Excluding the impact of currency, selling, general and administrative expenses decreased 5 percent and 3 percent for the three and nine months ended July 31, 2008, respectively, when compared to the same period last year.

 

At July 31, 2008, our headcount was approximately 19,560 as compared to approximately 19,390 at July 31, 2007. The increase in workforce is largely due to acquisitions.

 

General Infrastructure and Shared Services

 

Our global infrastructure organization (“GIO”) remains a key component of our operating model and has proactively taken action to fully prepare for potential economic disruptions. GIO, which includes finance, IT and workplace services has aggressively focused on ways to reduce expenses and leverage our infrastructure while continuing to develop the infrastructure to support our Asian business presence and integrate our recent acquisitions.

 

Provision for Income Taxes

 

For the three and nine months ended July 31, 2008, we recorded an income tax provision of $46 million and $96 million, respectively, compared to an income tax provision of $5 million and $11 million for the same periods last year. The tax provision for the three and nine months ended July 31, 2008, includes a benefit of zero and $12 million, respectively, for effectively settled issues related to foreign audits. The tax provision for the three and nine months ended July 31, 2008, includes an expense of $7 million and $10 million, respectively, for interest and penalties. The tax provision for the three months ended July 31, 2007, includes a benefit of $30 million related to valuation allowance adjustments based on changes in other comprehensive income (“OCI”) items during the nine months ended July 31, 2007. The tax provision for the nine months ended July 31, 2007, includes the same valuation allowance adjustments for OCI items and a benefit of $50 million related to the reversal of a tax reserve for potential non-U.S. exposures where the statute of limitations expired. These benefits were treated as discrete events during the first and third quarters of fiscal 2007. The provision for taxes was recorded for income generated in jurisdictions other than the U.S., U.K., Puerto Rico and the Netherlands in which we have partial or full valuation allowances. We intend to maintain partial or full valuation allowances in the U.S., U.K., Puerto Rico and the Netherlands until sufficient positive evidence exists to support the reversal of the valuation allowances.

 

For 2008, our current expectation of the annual effective tax rate is 17.5 percent. The income tax rate was 17 percent for the nine months ended July 31, 2008. Excluding the impact of quarterly discrete tax adjustments, we anticipate the full-year 2008 effective tax rate to be approximately 16.5 percent.  The overall tax rate reflects taxes in all jurisdictions except the U.S. and foreign jurisdictions in which income tax expense or benefit continues to be offset by adjustments to the valuation allowances. This tax rate may change over time as the amount or mix of income and taxes changes. Our effective tax rate is calculated using our projected annual pre-tax income or loss from continuing operations and is affected by research tax credits, the expected level of other tax benefits, the effects of business acquisitions and dispositions, the impact of changes to valuation allowances, changes in other comprehensive income, as well as changes in the mix of income and losses in the jurisdictions in which we operate that have varying statutory rates.

 

Effective at the beginning of the first quarter of 2008, we adopted FIN No. 48. FIN No. 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The first step is to evaluate each uncertain tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon ultimate settlement.

 

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As a result of the implementation of FIN No. 48, we increased the liability for net unrecognized tax benefits by $74 million, and accounted for the increase as a cumulative effect of a change in accounting principle that resulted in a decrease to retained earnings of $74 million. The total amount of gross unrecognized tax benefits as of the date of adoption was $909 million. We historically classified unrecognized tax benefits in current taxes payable, or as reductions to tax receivables or net deferred tax assets. As a result of adopting FIN No. 48, approximately $355 million of unrecognized tax benefits and related interest and penalties were reclassified to long-term income taxes payable from current taxes payable. Most of these gross unrecognized tax benefits would affect the effective tax rate, if realized.

 

We continue to include interest and penalties related to unrecognized tax benefits within the provision for income taxes on the condensed consolidated statement of operations. As of the date of adoption of FIN No. 48, we had accrued $35 million for the payment of interest and penalties relating to unrecognized tax benefits.

 

In the U.S. and other major jurisdictions where we conduct business, the tax years generally remain open back to the year 2000. It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements.  However, due to the uncertainty regarding the timing of the completion of tax audits in various jurisdictions and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.

 

Our U.S. federal income tax returns for 2000 through 2002 have been under audit by the IRS. In August 2007, we received a RAR. In the RAR, the IRS proposes to assess a net tax deficiency, after applying available net operating losses from the years under audit and undisputed tax credits, for those years of approximately $405 million, plus penalties of approximately $160 million and interest. If the IRS were to fully prevail, our net operating loss and tax credits generated in recent years would be utilized earlier than they otherwise would have been, and our annual effective tax rate will have increased as a result. The RAR addresses several issues. One issue, however, relating to the use of Agilent’s brand name by our foreign affiliates, accounts for a majority of the claimed tax deficiency. We believe that the claimed IRS adjustment for this issue in particular is inconsistent with applicable tax laws and that we have meritorious defenses to this claim. Therefore, we have not included any tax for this item in our tax provision for 2007 or for the first three quarters of 2008. We have filed a formal protest and expect to meet with the Appeals Office of the IRS. In the protest, we have vigorously opposed the claim associated with Agilent’s brand name, and most of the other claimed adjustments proposed in the RAR. In April of 2008, we received a rebuttal to our formal protest, and after reviewing the IRS’s arguments, our assessment of the risks remains the same. The final resolution of the proposed adjustments is uncertain and may take several years. Based on current information, it is our opinion that the ultimate disposition of these matters is unlikely to have a material adverse effect on our consolidated financial position, results of operations or liquidity.

 

For all U.S. and other tax jurisdictions, we recognize potential liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes and interest will be due. If our estimate of income tax liabilities proves to be less than the ultimate assessment, a further charge to expense would be required. If events occur and the accrual of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary .

 

Segment Overview

 

Agilent is the world’s premier measurement company providing core bio-analytical and electronic measurement solutions to the communications, electronics, life sciences and chemical analysis industries. Agilent has two primary businesses focused on the electronic measurement market and the bio-analytical measurement market.

 

Electronic Measurement

 

Our electronic measurement business provides standard and customized solutions that are used in the design, development, manufacture, installation, deployment and operation of electronic equipment and systems and communications networks and services. Our key product categories include: communications one-box testers, electronic design and simulation tools, digital and photonic test instruments, electronic manufacturing test solutions, internet protocol performance test solutions, logic and protocol analyzers, low-cost general purpose instruments, network analyzers, network assurance solutions, network protocol test solutions, oscilloscopes, semiconductor test solutions, signal sources, spectrum/signal analyzers, surveillance and aerospace defense solutions, and system components products.

 

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Table of Contents

 

Orders and Net Revenue

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

 

 

(in millions)

 

 

 

 

 

Orders

 

$

793

 

$

810

 

$

2,564

 

$

2,503

 

(2

)%

2

%

Net revenue

 

$

878

 

$

874

 

$

2,614

 

$

2,527

 

 

3

%

 

Orders for the three and nine months ended July 31, 2008, declined 2 percent and increased 2 percent, respectively, when compared to the same periods last year.  Our communications test business was driven by strength in wireless manufacturing and broadband R&D and manufacturing markets, while our general purpose test business declined due to weakness in semiconductor-related parametric test markets and the cancellation of an aerospace and defense order of $24 million.

 

Revenue for the three and nine months ended July 31, 2008, was flat and increased 3 percent, respectively, when compared to the same periods last year, as strength in the communications test market was offset by a decline in general purpose test.  Regionally, for the three months ended July 31, 2008, revenue from the Americas was flat, Europe grew 15 percent and Asia declined 5 percent from one year ago due to weakness in Japan.

 

General purpose test revenue of $495 million and $1,528 million for the three and nine months ended July 31, 2008, declined 5 percent and was flat, respectively, compared to the same periods last year.  Within general purpose test, aerospace and defense and other general purpose test markets were flat from one year ago, offset by a decline in the computer and semiconductor test market. Intelligence, surveillance and reconnaissance markets remained strong. The computer and semiconductor test markets were down compared to last year due to a sharp decline in the parametric test market, while digital test improved. Other general test markets were flat with particular caution in electronic manufacturing test markets.

 

Communications test revenues of $383 million and $1,086 million for the three and nine months ended July 31, 2008, increased 9 percent and 8 percent, respectively, compared to the same periods last year. Growth for the three months ended July 31, 2008, was driven by the wireless manufacturing test market, as well as broadband R&D and manufacturing test. Weakness in the communications test market was isolated to the network monitoring and installation and maintenance markets. Investment in the wireless R&D test market continues to focus on high-speed applications, as well as pre-conformance and interoperability test solutions.  A pause in demand for WiMax test solutions was offset by on-going demand for next generation cellular technologies test, such as long-term evolution (“LTE”). Strength in the broadband R&D and manufacturing test market continues to be driven by the convergence of an all internet protocol-based network for service delivery including video, voice, data, and mobile services.

 

Looking forward, we project modest growth in our electronic measurement business. This growth is expected to be driven by our customers’ expansion of wireless 3G coverage and services (high data rate, multi-media services supported by multi-functional handsets), emerging cellular technologies, and continued opportunities in broadband access, voice-over-internet-protocol and fiber-to-the-home, all fueled by consumer demand for video, voice, data converged services. We believe the aerospace and defense market’s overall long-term trend of spending growth in areas of signal intelligence, communications, surveillance and information warfare bodes well for long-term growth in test and measurement sales into this market. This growth potential could be mitigated by potential slowdowns in spending on new communications technologies, governmental budgetary shifts, continued contraction in the semiconductor test market and the current overall macro economic uncertainty in the U.S.

 

Operating Results

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

Gross margin

 

57.3

%

57.5

%

57.3

%

57.1

%

 

 

Operating margin

 

15.3

%

13.3

%

13.0

%

11.0

%

2

ppts

2

ppts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

118

 

$

124

 

$

375

 

$

377

 

(5

)%

(1

)%

Selling, general and administrative

 

$

251

 

$

262

 

$

784

 

$

787

 

(4

)%

 

 

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Gross margins were flat for the three and nine months ended July 31, 2008, compared to the same periods last year, as improvements in product mix and overhead costs were largely offset by the impact of foreign currency movements and competitive pressures.

 

Research and development expenses for the three and nine months ended July 31, 2008 declined 5 percent and 1 percent, respectively, compared to the same periods last year. This decline was driven largely by operational and discretionary spending reductions that exceeded the unfavorable year-over-year impact of currency movements.

 

Selling, general and administrative expenses for the three and nine months ended July 31, 2008, declined 4 percent and were flat, respectively, compared to the same periods last year.  Expenses in this period declined due to significant reductions in operational and discretionary spending, reflecting the structural savings delivered through cost reduction programs and expense controls.

 

Income from operations for the three and nine months ended July 31, 2008 increased $19 million and $61 million, respectively, while our operating margins for both periods improved 2 percentage points.  Structural savings and spending reductions compared to the same periods last year exceeded the unfavorable impact of currency movements.

 

Bio-analytical Measurement

 

Our bio-analytical measurement business provides application-focused solutions that include instruments, software, consumables and services that enable customers to identify, quantify and analyze the physical and biological properties of substances and products. Our key product categories include: microarrays, microfluidics, gas chromatography, liquid chromatography, mass spectrometry, laser interferometry and microscopy, software and informatics, and related consumables, reagents and services.

 

Orders and Net Revenue

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

 

 

(in millions)

 

 

 

 

 

Orders

 

$

594

 

$

498

 

$

1,748

 

$

1,455

 

19

%

20

%

Net revenue

 

$

566

 

$

500

 

$

1,679

 

$

1,447

 

13

%

16

%

 

Our bio-analytical measurement business continues to see sustained momentum with double-digit growth in orders and revenues on a quarter- and year-to-date basis.  Results were consistent with our normal seasonal patterns and reflected the strong demand across virtually all of our markets.

 

Orders for the three and nine months ended July 31, 2008 grew 19 percent and 20 percent, respectively, when compared to the same periods last year.  The Stratagene and Velocity11 acquisitions contributed 4 percentage points and 6 percentage points of the order growth for the three and nine months ended July 31, 2008, respectively, when compared to the same periods last year.  Foreign currency movements for the three and nine months ended July 31, 2008 accounted for 5 percentage points and 6 percentage points, respectively, of the growth in orders when compared to the same periods last year.  In our chemical analysis business, we continue to see strength from petrochemical and food safety markets.  In life sciences, we saw sustained demand from academic and government markets, offsetting a slowdown in pharmaceutical and biotechnology markets.

 

Revenues for the three and nine months ended July 31, 2008 grew 13 percent and 16 percent, respectively, compared to the same periods last year with solid results seen across both life sciences and chemical analysis end markets.  The Stratagene and Velocity11 acquisitions contributed 3 percentage points and 5 percentage points of the revenue growth for the three and nine months ended July 31, 2008, respectively, when compared to the same periods last year.  Foreign currency movements for the three and nine months ended July 31, 2008 accounted for 5 percentage points of the revenue growth in both periods when compared to last year.  Geographically, revenues were up 15 percent in the Americas, 5 percent in Europe, and 23 percent in Asia for the three months ended July 31, 2008 compared to the same periods last year.

 

Chemical analysis revenue of $319 million and $932 million for the three and nine months ended July 31, 2008, respectively, grew 10 percent in both periods compared to the same periods last year.  Chemical analysis continues to see strength from petrochemical and food safety market, and flat growth in environmental testing solutions.  High petrochemical profits continue to drive capital investments in both instrument replacements and upgrades.  Food testing also posted strong

 

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revenue growth in the three and nine months ended July 31, 2008.  Growth in this sector was driven by recent food safety issues in the U.S. causing updated regulations in China, Malaysia and India and by overall increases made to regulatory standards worldwide.  Environmental was relatively flat and forensics saw modest growth in the three months ended July 31, 2008. Material science is experiencing a decrease in sales into the semiconductor-related capital equipment market driven by weakness in the dynamic random access memory (“DRAM”) market.

 

Life sciences revenue of $247 million and $747 million for the three and nine months ended July 31, 2008, respectively, grew 18 percent and 25 percent compared to the same periods last year.  The Stratagene and Velocity11 acquisitions accounted for 8 percentage points and 13 percentage points of the growth for the three and nine months ended July 31, 2008, when compared to the same periods last year.   For the three and nine months ended July 31, 2008, we saw a slowdown in the pharmaceutical and biotech markets, while our academic and government markets grew at strong rates.  Our acquisition of Stratagene is bolstering our coverage in academia and government customer accounts.  Academic research is moving toward the use of high-end mass spectrometry instrumentation to answer complex biological questions and enhance research on proteins, peptides, and small molecules.  The market continues to see more partnerships and collaborations between not-for-profit organizations, big pharma and biotech.  In Asia Pacific, governments are investing in the modernization of their healthcare systems and improving the quality of pharmaceuticals they produce.

 

Looking forward, we expect our chemical analysis market growth to be driven by investments in food safety on a global basis and in environmental testing in China, India and selected Eastern European countries.  Our LC/MS and GC/MS systems are well positioned to address these market needs.  In life sciences we are uniquely positioned with our recent acquisitions to expand the range of our technology offering along the life sciences workflow. Workflow solutions can span from sample delivery and preparation through sample measurement to data analysis and management. In addition, our ongoing expansion of the liquid chromatography/mass spectroscopy (“LC/MS”) portfolio, augmented with focused R&D programs will enable Agilent to address the high-growth proteomics and metabolomics market needs.

 

Operating Results

 

 

 

Three Months Ended

 

Nine Months Ended

 

Year over Year Change

 

 

 

July 31,

 

July 31,

 

Three

 

Nine

 

 

 

2008

 

2007

 

2008

 

2007

 

Months

 

Months

 

Gross margin

 

54.6

%

53.8

%

53.8

%

53.1

%

1

ppt

1

ppt

Operating margin

 

17.8

%

16.5

%

16.4

%

15.4

%

1

ppt

1

ppt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

52

 

$

42

 

$

153

 

$

125

 

23

%

22

%

Selling, general and administrative

 

$

156

 

$

144

 

$

475

 

$

419

 

8

%

13

%

 

Gross margins improved by 1 percentage point for both the three and nine months ended July 31, 2008, compared to the same periods last year, as improvements in product mix and overhead costs were offset by the impact of foreign currency movements and competitive pressures.

 

Research and development expenses increased 23 percent and 22 percent, respectively, for the three and nine months ended July 31, 2008, compared to the same periods last year.  The Stratagene and Velocity11 acquisitions accounted for 10 percentage points and 12 percentage points of this increase in the three and nine months ended July 31, 2008, respectively, compared to the same periods last year.  Excluding Stratagene and Velocity11, the increase was driven by our investments in research and development facilities in life sciences and the impact of foreign currency movement.

 

Selling, general and administrative expenses increased 8 percent and 13 percent, respectively, for the three and nine months ended July 31, 2008 compared to the same periods last year.  The Stratagene and Velocity11 acquisitions accounted for 6 percentage points and 8 percentage points of this growth in the three and nine months ended July 31, 2008 compared with the same periods last year.  Modest growth in spending in the three and nine months ended July 31, 2008 was due to significant reductions in operational and discretionary spending, reflecting the structural savings delivered through cost reduction programs and expense controls.

 

Income from operations for the three and nine months ended July 31, 2008 increased $19 million and $53 million, respectively, while our operating margins for both periods improved 1 percentage point.  Structural savings and spending reductions compared to the same periods last year exceeded the unfavorable impact of currency movements.

 

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FINANCIAL CONDITION

 

Liquidity and Capital Resources

 

Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside of the United States. Most of the amounts held outside of the United States could be repatriated to the United States but, under current law, would be subject to United States federal income taxes, less applicable foreign tax credits. Repatriation of some foreign balances is restricted by local laws. Agilent has accrued for the United States federal tax liability on the earnings of its foreign subsidiaries except when the earnings are considered indefinitely reinvested outside of the United States. Repatriation could result in additional United States federal income tax payments in future years. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is that cash balances would remain outside of the United States and we would meet United States liquidity needs through ongoing cash flows, external borrowings, or both. We utilize a variety of financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed.

 

Our financial position as of July 31, 2008 consisted of cash and cash equivalents of $1,640 million as compared to $1,826 million as of October 31, 2007.

 

Net Cash Provided by Operating Activities

 

Net cash provided by operating activities was $498 million in the nine months ended July 31, 2008 compared to $571 million provided in the same period in 2007. We paid approximately $181 million in taxes in the nine months ended July 31, 2008 as compared to $63 million in the same period in 2007.  Higher tax payments in the nine months ended July 31, 2008 were primarily due to one-time taxes related to the transfer of intellectual property between affiliated entities. In addition, our net interest income decreased by $69 million in the nine months ended July 31, 2008 compared to the same period last year.  The decrease in interest income is due to the decrease in interest rates and the increase in interest expense is due to the increase in debt compared to the same period last year. Looking forward to the remainder of the year, we expect to generate sufficient cash from operations to fund our operating needs and investments in property, plant and equipment.

 

In the nine months ended July 31, 2008, accounts receivable provided cash of $16 million as compared to $9 million cash used in the same period in 2007. Agilent revenues increased by approximately 8 percent in the nine months ended July 31, 2008 as compared to the same period in 2007. Days’ sales outstanding decreased to 47 days as of July 31, 2008 from 48 days a year ago reflecting the continued improvement in receivables management. Accounts payable used cash of $10 million in the nine months ended July 31, 2008 compared to cash used of $14 million in the same period in 2007. Cash used for inventory was $38 million in the nine months ended July 31, 2008 compared to cash used of $46 million in the same period in 2007. Inventory days on-hand decreased to 95 days as of July 31, 2008 compared to 98 days as of the end of the same period last year reflecting the continued improvement in inventory management.

 

We contributed approximately $2 million to our U.S. defined benefit plans in the first nine months of 2008, compared to $8 million in the same period in 2007. We contributed approximately $35 million to our non-U.S. defined benefit plans in the first nine months of 2008 compared to $26 million in the same period of 2007. Our non-U.S. defined benefit plans are generally funded ratably throughout the year. Total contributions in the nine months ended July 31, 2008 were approximately $37 million or approximately 9 percent more than in the same period in 2007. Our annual contributions are highly dependent on the relative performance of our assets versus our projected liabilities, among other factors. We expect to contribute approximately $5 million to our non-U.S. defined benefit plans during the remainder of fiscal 2008. We do not expect to contribute to our U.S. defined plans during the remainder of fiscal 2008.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities in the nine months ended July 31, 2008 was $371 million compared to $387 million used in the same period of 2007. Investments in property, plant and equipment were $110 million in the nine months ended July 31, 2008 as compared to investments of $115 million in the same period in 2007. We expect that total capital expenditures for the current year will be $161 million compared to last year expenditures of $154 million. Proceeds from sale of property, plant and equipment were $14 million in the nine months ended July 31, 2008 as compared to $12 million in the same period of 2007. In the nine months ended July 31, 2008 we invested $171 million in acquisitions and intangible assets, net of cash acquired, primarily related to our acquisitions of Velocity11 and several other smaller acquisitions, compared to $311 million during the same period of 2007. Agilent also purchased the remaining minority interest in a joint venture for

 

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$14 million in the second quarter of 2008. In the nine months ended July 31, 2008, restricted cash and cash equivalents decreased by approximately $33 million compared to a decrease of $1 million in 2007.

 

In December 2007, the company reclassified a $255 million investment from cash equivalents to short-term investments. In February 2008, Agilent traded this externally managed short-term investment for the underlying securities of the investment and now manages those investments internally. During the nine months ended July 31, 2008, Agilent liquidated $131 million of these investments and realized net losses of $4 million. We also recognized an additional $3 million unrealized mark-to-market loss in stockholders’ equity. As of July 31, 2008, Agilent held approximately $117 million of these investments classified as short-term investments of $29 million and long-term investments of $88 million.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities for the nine months ended July 31, 2008 was $342 million compared to $973 million used in the same period of 2007.

 

In the first quarter of 2008, our board of directors authorized a new stock repurchase program of up to $2 billion. We repurchased approximately 22 million shares for $750 million during the first nine months of 2008, based on settlement date, as compared to approximately 37 million shares for approximately $1.3 billion during the same period in 2007 under a different program. We may borrow funds or enter into other financing transactions in order to complete the remainder of our share repurchases in this fiscal year and the next. Proceeds from the issuance of common stock under employee stock plans were $198 million in the first nine months of 2008 compared to $344 million during the same period in 2007.

 

In 2008, we reclassified our $1.5 billion debt from long-term to short-term in our condensed consolidated balance sheet and also reclassified our restricted cash. In January 2006, Agilent Technologies World Trade, Inc., a consolidated wholly owned subsidiary of Agilent (“World Trade”), entered into a five-year Master Repurchase Agreement and related Confirmation (together, the “Repurchase Agreement”) with a counterparty pursuant to which World Trade sold 15,000 Class A preferred shares of one of its wholly owned subsidiaries to the counterparty, having an aggregate liquidation preference of $1.5 billion. (the “Purchased Securities”).  Subsequent to an amendment signed in December 2007, the $1.5 billion obligation of our subsidiary to repurchase the preferred shares has been classified as short term debt on our condensed consolidated balance sheet.  In March 2008, World Trade received a notice of acceleration to obligate World Trade to repurchase the Purchased Securities on July 16, 2008. In June 2008, World Trade entered into an amendment to the Repurchase Agreement to extend the obligation of World Trade to repurchase the Purchased Securities from July 16, 2008 to November 17, 2008.

 

On August 7, 2008 World Trade entered into a further amendment to provide World Trade the right to accelerate the date of repurchase of all or any portion of the Purchased Securities from November 17, 2008 to October 20, 2008, provided that World Trade gives notice by September 15, 2008. World Trade is obligated to make quarterly payments to the counterparty at a rate per annum, reset quarterly, equal to the three-month London inter-bank offered rate plus 52 basis points for the period through July 16, 2008 and 235 basis points for the period from July 17, 2008 through November 17, 2008.

 

As of July 31, 2008, we had approximately $1.6 billion of unrestricted cash and $1.6 billion of restricted cash that could be used to repurchase or redeem the debt mentioned above. However, most of this cash is overseas and would need to be repatriated to the United States in order to be used to satisfy the repurchase obligation. Repatriation could result in additional U.S. federal income tax payments in future years.

 

On May 11, 2007, we entered into a five-year credit agreement, which provides for a $300 million unsecured credit facility that will expire on May 11, 2012. As of July 31, 2008, we had an outstanding balance of $210 million on the credit facility and it has been classified as short-term debt in our condensed consolidated balance sheet. On June 13, 2008, we entered into a Second Amendment to our five-year credit agreement.  Pursuant to the Second Amendment, the existence of the accelerated obligation of World Trade to repurchase the Purchased Securities by November 17, 2008 will constitute an event of default, unless Agilent shall have satisfied the obligation or entered into definitive principal documentation with one or more counterparties regarding a transaction which would satisfy the World Trade repurchase obligation on or prior to that date that is at least three business days prior to the date upon which the World Trade repurchase obligation is due. If a default were to occur under the credit agreement, the lenders could require Agilent to immediately repay any outstanding debt under the credit facility.

 

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Other

 

As a result of adopting FIN No. 48, $453 million of taxes payable are now included in other long-term liabilities as of July 31, 2008. We are unable to accurately predict when these amounts will be realized or released. There were no other substantial changes from our 2007 Annual Report of Form 10-K to our contractual commitments in the first half of fiscal year 2008. We have contractual commitments for non-cancelable operating leases. We have no other material non-cancelable guarantees or commitments.

 

On August 22, 2008 Fitch Ratings upgraded Agilent from “BBB-”to “BBB”. Fitch Ratings had initiated their coverage of Agilent on March 29, 2007 by assigning a rating to Agilent of “BBB-”.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to foreign currency exchange rate risks inherent in our sales commitments, anticipated sales, and assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. We hedge future cash flows denominated in currencies other than the functional currency using sales forecasts up to twelve months in advance. Our exposure to exchange rate risks is managed on an enterprise-wide basis. This strategy utilizes derivative financial instruments, including option and forward contracts, to hedge certain foreign currency exposures with the intent of offsetting gains and losses that occur on the underlying exposures with gains and losses on the derivative contracts hedging them. We do not currently and do not intend to utilize derivative financial instruments for speculative trading purposes.

 

Our operations generate non-functional currency cash flows such as revenues, third party vendor payments and inter-company payments. In anticipation of these foreign currency cash flows and in view of volatility of the currency market, we enter into such foreign exchange contracts as are described above to manage our currency risk. Approximately 67 percent and 66 percent of our revenues were generated in U.S. dollars during the third quarter of 2008 and 2007, respectively.

 

We performed a sensitivity analysis assuming a hypothetical 10 percent adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of July 31, 2008, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended July 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

In November 2001, a securities class action, Kassin v. Agilent Technologies, Inc., et al., Civil Action No. 01-CV-10639, was filed in United States District Court for the Southern District of New York (the “Court”) against certain investment bank underwriters for our initial public offering (“IPO”), Agilent and various of our officers and directors at the time of the IPO. In 2003, the Court granted Agilent’s motion to dismiss the claims against Agilent based on Section 10 of the Securities Exchange Act, but denied Agilent’s motion to dismiss the claims based on Section 11 of the Securities Act. On

 

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Table of Contents

 

June 14, 2004, papers formalizing a settlement among the plaintiffs, Agilent and more than 200 other issuer defendants and insurers were presented to the Court. Under the proposed settlement, plaintiffs’ claims against Agilent and its directors and officers would be released, in exchange for a contingent payment (which, if made, would be paid by Agilent’s insurer) and an assignment of certain potential claims. However, class certification of plaintiffs’ underlying action against the underwriter defendants was a condition of the settlement. On December 5, 2006, the Court of Appeals for the Second Circuit reversed the Court’s order certifying such a class in several “test cases” that had been selected by the underwriter defendants and plaintiffs. On January 5, 2007, plaintiffs filed a petition for rehearing to the full bench of the Second Circuit. On April 6, 2007, the Second Circuit issued an order denying rehearing but noted that plaintiffs are free to “seek certification of a more modest class.” On June 25, 2007, the Court entered an order terminating the proposed settlement between plaintiffs and the issuer defendants based on a stipulation among the parties. Plaintiffs have amended their allegations and filed amended complaints in six “test cases” (none of which involve Agilent).  Defendants in these cases have moved to dismiss the amended complaints.  On March 26, 2008, the Court denied the defendants’ motion to dismiss. Plaintiffs have also moved for class certifications in these test cases, which the defendants in these cases have opposed.  No hearing dates have been set for the class-certification motion. Discovery is also proceeding in these cases. It is uncertain if or when there will be any revised or future settlement. Under our separation agreements with Hewlett-Packard Company (“HP”), HP agreed to indemnify us for a substantial portion of IPO-related liabilities. If the litigation against Agilent continues, Agilent believes it has meritorious defenses and intends to defend the case vigorously. We believe the likelihood that Agilent will be required to pay any material amount is remote.

 

We are involved in lawsuits, claims, investigations and proceedings, including, but not limited to, patent, commercial and environmental matters, which arise in the ordinary course of business. There are no matters pending that we expect to be material in relation to our business, consolidated financial condition, results of operations or cash flows.

 

ITEM 1A.  RISK FACTORS

 

Risks, Uncertainties and Other Factors That May Affect Future Results

 

Our operating results and financial condition could be harmed if the markets into which we sell our products decline or do not grow as anticipated.

 

Visibility into our markets is limited. Our quarterly sales and operating results are highly dependent on the volume and timing of orders received during the fiscal quarter, which are difficult to forecast. In addition, our revenues and earnings forecasts for future fiscal quarters are often based on the expected seasonality or cyclicality of our markets. However, the markets we serve do not always experience the seasonality or cyclicality that we expect. Any decline in our customers’ markets or in general economic conditions would likely result in a reduction in demand for our products and services. The broader semiconductor market is one of the drivers for our electronic measurement business, and therefore, a decrease in the semiconductor market could harm our electronic measurement business. Also, if our customers’ markets decline, we may not be able to collect on outstanding amounts due to us. Such decline could harm our consolidated financial position, results of operations, cash flows and stock price, and could limit our ability to sustain profitability. Also, in such an environment, pricing pressures could intensify. Since a significant portion of our operating expenses is relatively fixed in nature due to sales, research and development and manufacturing costs, if we were unable to respond quickly enough these pricing pressures could further reduce our gross margins.

 

The actions that we have taken in order to reduce costs could have long-term adverse effects on our business.

 

We have completed our program to transition our company to a reduced cost structure. These reductions and regular ongoing evaluations of our cost structure, could have the effect of reducing our talent pool and available resources and, consequently, could have long-term effects on our business by decreasing or slowing improvements in our products, affecting our ability to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases and limiting our ability to hire and retain key personnel. These circumstances could cause our income to be lower than it otherwise might be and, as a result, adversely affect our stock price.

 

If we do not introduce successful new products and services in a timely manner, our products and services will become obsolete, and our operating results will suffer.

 

We generally sell our products in industries that are characterized by rapid technological changes, frequent new product and service introductions and changing industry standards. In addition, many of the markets in which we operate are seasonal and cyclical. Without the timely introduction of new products, services and enhancements, our products and services

 

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will become technologically obsolete over time, in which case our revenue and operating results would suffer. The success of our new products and services will depend on several factors, including our ability to:

 

·                   properly identify customer needs;

 

·                   innovate and develop new technologies, services and applications;

 

·                   successfully commercialize new technologies in a timely manner;

 

·                   manufacture and deliver our products in sufficient volumes on time;

 

·                   differentiate our offerings from our competitors’ offerings;

 

·                   price our products competitively;

 

·                   anticipate our competitors’ development of new products, services or technological innovations; and

 

·                   control product quality in our manufacturing process.

 

Dependence on contract manufacturing and outsourcing other portions of our supply chain may adversely affect our ability to bring products to market and damage our reputation. Dependence on outsourced information technology and other administrative functions may impair our ability to operate effectively.

 

As part of our efforts to streamline operations and to cut costs, we have been outsourcing aspects of our manufacturing processes and other functions and will continue to evaluate additional outsourcing. If our contract manufacturers or other outsourcers fail to perform their obligations in a timely manner or at satisfactory quality levels, our ability to bring products to market and our reputation could suffer. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, which may preclude us from fulfilling our customers’ orders on a timely basis. The ability of these manufacturers to perform is largely outside of our control. In addition, we outsource significant portions of our information technology (“IT”) function and other administrative functions. Since IT is critical to our operations, any failure to perform on the part of the IT providers could impair our ability to operate effectively. In addition to the risks outlined above, problems with manufacturing or IT outsourcing could result in lower revenues, unexecuted efficiencies, and impact our results of operations and our stock price. Much of our outsourcing takes place in developing countries and, as a result, may be subject to geopolitical uncertainty.

 

Failure to adjust our purchases due to changing market conditions or failure to estimate our customers’ demand could adversely affect our income.

 

Our income could be harmed if we are unable to adjust our purchases to market fluctuations, including those caused by the seasonal or cyclical nature of the markets in which we operate. The sale of our products and services are dependent, to a large degree, on customers whose industries are subject to seasonal or cyclical trends in the demand for their products. For example, the consumer electronics market is particularly volatile, making demand difficult to anticipate. During a market upturn, we may not be able to purchase sufficient supplies or components to meet increasing product demand, which could materially affect our results. In addition, some of the parts that require custom design are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work. Should a supplier cease manufacturing such a component, we would be forced to reengineer our product. In addition to discontinuing parts, suppliers may also extend lead times, limit supplies or increase prices due to capacity constraints or other factors. In order to secure components for the production of products, we may continue to enter into non-cancelable purchase commitments with vendors, or at times make advance payments to suppliers, which could impact our ability to adjust our inventory to declining market demands. Prior commitments of this type have resulted in an excess of parts when demand for our communications and electronics products has decreased. If demand for our products is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges.

 

Our income may suffer if our manufacturing capacity does not match the demand for our products.

 

Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand does not meet our expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our segments, we cannot increase our manufacturing

 

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capacity to meet product demand, we will not be able to fulfill orders in a timely manner. This inability could materially and adversely limit our ability to improve our results. By contrast, if during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity would adversely affect our income.

 

Economic, political and other risks associated with international sales and operations could adversely affect our results of operations.

 

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue from international operations will continue to represent a majority of our total revenue. In addition, many of our employees, contract manufacturers, suppliers, job functions and manufacturing facilities are increasingly located outside the U.S. Accordingly, our future results could be harmed by a variety of factors, including:

 

·                   interruption to transportation flows for delivery of parts to us and finished goods to our customers;

 

·                   changes in foreign currency exchange rates;

 

·                   changes in a specific country’s or region’s political, economic or other conditions;

 

·                   trade protection measures and import or export licensing requirements;

 

·                   negative consequences from changes in tax laws;

 

·                   difficulty in staffing and managing widespread operations;

 

·                   differing labor regulations;

 

·                   differing protection of intellectual property;

 

·                   unexpected changes in regulatory requirements; and

 

·                   geopolitical turmoil, including terrorism and war.

 

We centralized most of our accounting processes to two locations: India and Malaysia. These processes include general accounting, cost accounting, accounts payable and accounts receivables functions. If conditions change in those countries, it may adversely affect operations, including impairing our ability to pay our suppliers and collect our receivables. Our results of operations, as well as our liquidity, may be adversely affected and possible delays may occur in reporting financial results. In addition, although the majority of our products are priced and paid for in U.S. dollars, a significant amount of certain types of expenses, such as payroll, utilities, tax, and marketing expenses, are paid in local currencies. Our hedging programs reduce, but do not always entirely eliminate, within any given twelve month period, the impact of currency exchange rate movements, and therefore fluctuations in exchange rates, including those caused by currency controls, could impact our business operating results and financial condition by resulting in lower revenue or increased expenses. However, for expenses beyond that twelve month period, our hedging strategy does not mitigate our exposure.

 

Our business will suffer if we are not able to retain and hire key personnel.

 

Our future success depends partly on the continued service of our key research, engineering, sales, marketing, manufacturing, executive and administrative personnel. If we fail to retain and hire a sufficient number of these personnel, we will not be able to maintain or expand our business. The markets in which we operate are very dynamic, and our businesses continue to respond with reorganizations, workforce reductions and site closures. We believe our pay levels are very competitive within the regions that we operate. However, there is also intense competition for certain highly technical specialties in geographic areas where we continue to recruit, and it may become more difficult to retain our key employees.

 

The impact of consolidation of competitors in the test and measurement market is difficult to predict and may harm our business.

 

The test and measurement industry is intensely competitive and has been subject to increasing consolidation. For instance, in November 2007, Danaher Corporation, one of our competitors, completed the acquisition of Tektronix, Inc., another of our competitors. Consolidation in the test and measurement industry could result in existing competitors

 

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increasing their market share through business combinations, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to compete successfully in an increasingly consolidated industry and cannot predict with certainty how industry consolidation will affect our competitors or us.

 

Our acquisitions, strategic alliances, joint ventures and divestitures may result in financial results that are different than expected.

 

In the normal course of business, we frequently engage in discussions with third parties relating to possible acquisitions, strategic alliances, joint ventures and divestitures, and generally expect to complete several transactions per year. For example, last year we completed a number of acquisitions, including the acquisition of Stratagene Corporation in our third fiscal quarter. As a result of such transactions, our financial results may differ from our own or the investment community’s expectations in a given fiscal quarter, or over the long term. Such transactions often have post-closing arrangements including but not limited to post-closing adjustments, transition services, escrows or indemnifications, the financial results of which can be difficult to predict. In addition, acquisitions and strategic alliances may require us to integrate a different company culture, management team and business infrastructure. We may have difficulty developing, manufacturing and marketing the products of a newly acquired company in a way that enhances the performance of our combined businesses or product lines to realize the value from expected synergies. Depending on the size and complexity of an acquisition, our successful integration of the entity depends on a variety of factors, including:

 

·                   the retention of key employees;

 

·                   the management of facilities and employees in different geographic areas;

 

·                   the retention of key customers;

 

·                   the compatibility of our sales programs and facilities within those of the acquired company; and

 

·                   the compatibility of our existing infrastructure with that of an acquired company.

 

A successful divestiture depends on various factors, including our ability to:

 

·                   effectively transfer liabilities, contracts, facilities and employees to the purchaser;

 

·                   identify and separate the intellectual property to be divested from the intellectual property that we wish to keep; and

 

·                   reduce fixed costs previously associated with the divested assets or business.

 

Future impairment of the value of purchased assets and goodwill could have a significant negative impact on our future operating results. And, our inability to timely and effectively apply our systems of internal controls to an acquired business could harm our operating results or cause us to fail to meet our financial reporting obligations.

 

In addition, if customers of the divested business do not receive the same level of service from the new owners, this may adversely affect our other businesses to the extent that these customers also purchase other Agilent products. All of these efforts require varying levels of management resources, which may divert our attention from other business operations. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows and stock price could be negatively impacted.

 

Environmental contamination from past operations could subject us to unreimbursed costs and could harm on-site operations and the future use and value of the properties involved and environmental contamination caused by ongoing operations could subject us to substantial liabilities in the future.

 

Some of our properties are undergoing remediation by the Hewlett-Packard Company (“HP”) for subsurface contaminations that were known at the time of our separation from HP. HP has agreed to retain the liability for this subsurface contamination, perform the required remediation and indemnify us with respect to claims arising out of that contamination. HP will have access to our properties to perform remediation. While HP has agreed to minimize interference with on-site operations at those properties, remediation activities and subsurface contamination may require us to incur

 

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unreimbursed costs and could harm on-site operations and the future use and value of the properties. We cannot be sure that HP will continue to fulfill its indemnification or remediation obligations. In addition, the determination of the existence and cost of any additional contamination caused by us could involve costly and time-consuming negotiations and litigation.

 

We have agreed to indemnify HP for any liability associated with contamination from past operations at all other properties transferred from HP to us other than those properties currently undergoing remediation by HP. While we are not aware of any material liabilities associated with any potential subsurface contamination at any of those properties, subsurface contamination may exist, and we may be exposed to material liability as a result of the existence of that contamination.

 

Our current and historical manufacturing processes involve, or have involved, the use of substances regulated under various international, federal, state and local laws governing the environment. As a result, we may become subject to liabilities for environmental contamination, and these liabilities may be substantial. While we have divested substantially all of our semiconductor related businesses to Avago and Verigy and regardless of indemnification arrangements with those parties, we may still become subject to liabilities for historical environmental contamination related to those businesses. Although our policy is to apply strict standards for environmental protection at our sites inside and outside the U.S., even if the sites outside the U.S. are not subject to regulations imposed by foreign governments, we may not be aware of all conditions that could subject us to liability.

 

Our customers and we are subject to various governmental regulations, compliance with which may cause us to incur significant expenses, and if we fail to maintain satisfactory compliance with certain regulations, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties.

 

Our businesses are subject to various significant international, federal, state and local regulations, including but not limited to health and safety, packaging, product content, labor and import/export regulations. These regulations are complex, change frequently and have tended to become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy violations of these regulations. Any failure by us to comply with applicable government regulations could also result in cessation of our operations or portions of our operations, product recalls or impositions of fines and restrictions on our ability to carry on or expand our operations. In addition, because many of our products are regulated or sold into regulated industries, we must comply with additional regulations in marketing our products.

 

Our products and operations are also often subject to the rules of industrial standards bodies, like the International Standards Organization, as well as regulation by other agencies such as the U.S. Federal Communications Commission. We also must comply with work safety rules. If we fail to adequately address any of these regulations, our businesses could be harmed.

 

Some of our chemical analysis products are used in conjunction with chemicals whose manufacture, processing, distribution and notification requirements are regulated by the U.S. Environmental Protection Agency under the Toxic Substances Control Act, and by regulatory bodies in other countries with laws similar to the Toxic Substances Control Act. We must conform the manufacture, processing, distribution of and notification about these chemicals to these laws and adapt to regulatory requirements in all countries as these requirements change. If we fail to comply with these requirements in the manufacture or distribution of our products, then we could be made to pay civil penalties, face criminal prosecution and, in some cases, be prohibited from distributing our products in commerce until the products or component substances are brought into compliance.

 

We are subject to laws and regulations, and failure to address or comply with these laws and regulations could harm our business by leading to a reduction in revenue associated with these customers.

 

We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations that apply to companies doing business with the government. The laws governing government contracts differ from the laws governing private contracts. For example, many government contracts contain pricing terms and conditions that are not applicable to private contracts. We are also subject to investigation for compliance with the regulations governing government contracts. A failure to comply with these regulations might result in suspension of these contracts, or administrative penalties.

 

A number of our products from our bio-analytical measurement business are subject to regulation by the United States Food and Drug Administration (“FDA”) and certain similar foreign regulatory agencies. If we or any of our suppliers or distributors fail to comply with FDA and other applicable regulatory requirements or are perceived to potentially have failed to comply, we may face, among other things, adverse publicity affecting both us and our customers, investigations or

 

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notices of non-compliance, fines, injunctions, and civil penalties; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions, increased difficulty in obtaining required FDA clearances or approvals; seizures or recalls of our products or those of our customers or the inability to sell our products.

 

Third parties may claim that we are infringing their intellectual property and we could suffer significant litigation or licensing expenses or be prevented from selling products or services.

 

From time to time, third parties may claim that one or more of our products or services infringe their intellectual property rights.  We analyze and take action in response to such claims on a case by case basis.  Any dispute or litigation regarding patents or other intellectual property could be costly and time-consuming due to the complexity of our technology and the uncertainty of intellectual property litigation and could divert our management and key personnel from our business operations. A claim of intellectual property infringement could force us to enter into a costly or restrictive license agreement, which might not be available under acceptable terms or at all, or could subject us to significant damages or to an injunction against development and sale of certain of our products or services.  Our intellectual property portfolio may not be useful in asserting a counterclaim, or negotiating a license, in response to a claim of intellectual property infringement.  In certain of our businesses we rely on third party intellectual property licenses and we cannot ensure that these licenses will be available to us in the future on favorable terms or at all.

 

Third parties may infringe our intellectual property and we may suffer competitive injury or expend significant resources enforcing our rights.

 

Our success depends in large part on our proprietary technology. We rely on various intellectual property rights, including patents, copyrights, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we do not enforce our intellectual property rights successfully our competitive position may suffer which could harm our operating results.

 

Our pending patent applications, and our pending copyright and trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents, copyrights or trademarks. In addition, our patents, copyrights, trademarks and other intellectual property rights may not provide us a significant competitive advantage.

 

We may need to spend significant resources monitoring our intellectual property rights and we may or may not be able to detect infringement by third parties. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. In some circumstances, enforcement may not be available to us because an infringer has a dominant intellectual property position or for other business reasons. In addition, competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues. Furthermore, some of our intellectual property is licensed to others which allows them to compete with us using that intellectual property.

 

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We have received a Revenue Agent’s Report from the U.S. Internal Revenue Service for fiscal years 2000 through 2002 claiming a significant increase in our U.S. taxable income. An adverse outcome of this examination or any future examinations involving similar claims could have a material adverse effect on our results of operations, financial condition and liquidity.

 

Our U.S. federal income tax returns for 2000 through 2002 have been under audit by the Internal Revenue Service (“IRS”). In August 2007, we received a Revenue Agent’s Report (“RAR”). In the RAR, the IRS proposes to assess a net tax deficiency, after applying available net operating losses from the years under audit and undisputed tax credits, for those years of approximately $405 million, plus penalties of approximately $160 million and interest. If the IRS were to fully prevail, our net operating loss and tax credits generated in recent years would be utilized earlier than they otherwise would have been and our annual effective tax rate will have increased as a result. The RAR addresses several issues. One issue, however, relating to the use of Agilent’s brand name by our foreign affiliates, accounts for a majority of the claimed tax deficiency. We believe that the claimed IRS adjustment for this issue in particular is inconsistent with applicable tax laws and that we have meritorious defenses to this claim. Therefore, we have not included any tax for this item in our tax provision for 2007 or for the first three quarters of 2008. We have filed a formal protest and expect to meet with the Appeals Office. In the protest, we opposed the claim associated with Agilent’s brand name, and most of the other claimed adjustments proposed in the RAR, vigorously. In April of 2008, we received a rebuttal to our formal protest. The final resolution of the proposed adjustments is uncertain and may take several years. Based on current information, it is our opinion that the ultimate disposition of these matters is unlikely to have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, if the ultimate determination of taxes owed is in excess of the tax provisions we have recorded in connection with the proposed assessment, our results of operations, financial condition and liquidity could be adversely affected.

 

Our $1.5 billion repurchase obligation under our World Trade financing arrangement is due on November 17, 2008.  An alternative financing transaction or the use of cash currently outside of the United States to satisfy, in whole or in part, the repurchase obligation may result in higher costs to us which could have a material adverse effect.

 

On March 18, 2008, Agilent Technologies World Trade, Inc. (“World Trade”), a wholly-owned subsidiary of Agilent, received a notice from Merrill Lynch Capital Services, Inc. (“Merrill”) advising World Trade that it has accelerated to July 16, 2008 (the “Repurchase Date”) the obligation of World Trade to repurchase 15,000 Class A Preferred Shares of Agilent Technologies (Cayco) Limited, a wholly-owned subsidiary of Agilent, at a repurchase price of $1.5 billion.  On June 27, 2008 and August 7, 2008, Agilent, World Trade and Merrill entered into amendments to certain of the World Trade financing agreements, pursuant to which, among other things, the Repurchase Date was extended from July 16, 2008 to November 17, 2008.

 

We are required to satisfy the repurchase obligation on or before November 17, 2008.  As of July 31, 2008, we had approximately $1.6 billion of unrestricted cash and $1.6 billion of restricted cash that could be used to repurchase or redeem the Class A Preferred Shares.  However, most of this cash is overseas and would need to be repatriated to the United States in order to be used to satisfy the repurchase obligation.  We may pursue other financing transactions to satisfy the repurchase obligation.  However, in light of recent volatility in the financial markets and general economic conditions, there can be no assurance that an alternative financing transaction will be available to us on acceptable terms.  In any case, the costs associated with a repatriation and/or borrowing of additional funds could result in a material adverse impact to our business operating results and financial condition.

 

The repurchase obligation that is being accelerated relates to the Master Repurchase Agreement and related Confirmation dated March 17, 2008 between World Trade and a counterparty, which amended the original agreement dated January 27, 2006, as amended on December 7, 2007.  World Trade sold the Class A Preferred Shares to the counterparty for a total price of $1.5 billion, the amount of the aggregate liquidation preference. Prior to the acceleration, World Trade was obligated to repurchase the Class A Preferred Shares from the counterparty on January 27, 2011 for 100% of their aggregate liquidation preference, subject to Merrill’s right to accelerate that repurchase by written notice to us to a repurchase date to occur no earlier than 120 days from the date of any notice.

 

We have issued $600 million in a debt offering and entered into a credit facility and may incur other debt in the future, which could adversely affect our financial condition, liquidity and results of operations.

 

In October 2007, we issued $600 million in senior unsecured notes. In addition, in May 2007, we entered into a five-year senior unsecured revolving credit facility under which we may borrow up to $300 million. As of July 31, 2008, we had borrowed $210 million under the credit facility.  We may borrow in the future and use the proceeds from any future borrowing for general corporate purposes, future acquisitions, repurchases of our outstanding shares of common stock or

 

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expansion of our business.  As noted above, we may enter into an additional financing arrangement in order to satisfy our $1.5 billion repurchase obligation under our World Trade financing structure on or before November 17, 2008.

 

Our incurrence of this debt may adversely affect our operating results and financial condition by, among other things:

 

·                   increasing our vulnerability to downturns in our business, to competitive pressures and to adverse economic and industry conditions;

 

·                   requiring the dedication of a portion of our expected cash from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and acquisitions; and

 

·                   limiting our flexibility in planning for, or reacting to, changes in our business and our industry.

 

Our current revolving credit facility imposes restrictions on us, including restrictions on our ability to create liens on our assets and the ability of our subsidiaries to incur indebtedness, and requires us to maintain compliance with specified financial ratios.  Our ability to comply with these ratios may be affected by events beyond our control. In addition, our long-term non-convertible debt includes covenants that may adversely affect our ability to incur certain liens or engage in certain types of sale and leaseback transactions. If we breach any of the covenants under our long-term debt or our revolving credit facility and do not obtain a waiver from the lenders, then, subject to applicable cure periods, our outstanding indebtedness could be declared immediately due and payable.

 

An “event of default” will occur under the Five-Year Credit Agreement if our $1.5 billion repurchase obligation under our World Trade financing arrangement is not satisfied three business days prior to the date the obligation is due.  If an “event of default” occurred and we were no longer able to borrow under the Five-Year Credit Agreement, our ability to satisfy our cash requirements in the United States could be adversely affected.

 

On March 18, 2008, World Trade received a notice from Merrill advising World Trade that it has accelerated to July 16, 2008 the obligation of World Trade to repurchase 15,000 Class A Preferred Shares of Agilent Technologies (Cayco) Limited, a wholly-owned subsidiary of the Company, at a repurchase price of $1.5 billion.  On June 27, 2008 and August 7, 2008, Agilent, World Trade and Merrill entered into amendments to certain of the World Trade financing agreements, pursuant to which, among other things, the Repurchase Date was extended from July 16, 2008 to November 17, 2008.  Under the Company’s Five-Year Credit Agreement, dated May 11, 2007, as amended (the “Credit Agreement”) by and among the Company, the lenders who are a party to the agreement, and JPMorgan Chase Bank, N.A., as administration agent, if the World Trade repurchase obligation is not satisfied by at least three business days prior to the date the World Trade repurchase obligation is due, an “event of default” will occur under the Credit Agreement.  Also, in the event that we enter into an alternative financing arrangement to satisfy the World Trade repurchase obligation, we may be required to agree to terms in the new financing that could cause an “event of default” under the Credit Agreement.  If a default were to occur, our lenders could require us to immediately repay any outstanding debt and refuse to lend us additional amounts until the event of default were cured.

 

We have substantial cash requirements in the United States while a majority of our cash is generated outside of the United States. The failure to maintain a level of cash sufficient to address our cash requirements in the United States could adversely affect our financial condition and results of operations.

 

Although cash generated in the United States covers normal operating requirements, a substantial amount of additional cash is required for special purposes such as repurchases of our stock, acquisitions of third parties, and the refinancing of our $1.5 billion repurchase obligation related to our World Trade financing arrangement.  Our business operating results, financial condition, and strategic initiatives could be adversely impacted if we were unable to address our U.S. cash requirements through (1) the efficient and timely repatriations of overseas cash or (2) other sources of cash obtained at an acceptable cost.

 

If we suffer a loss to our factories, facilities or distribution system due to catastrophe, our operations could be seriously harmed.

 

Our factories, facilities and distribution system are subject to catastrophic loss due to fire, flood, terrorism or other natural or man-made disasters. In particular, several of our facilities could be subject to a catastrophic loss caused by

 

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earthquake due to their locations. Our production facilities, headquarters and Agilent Technologies Laboratories in California, and our production facilities in Washington and Japan, are all located in areas with above-average seismic activity. If any of these facilities were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue and result in large expenses to repair or replace the facility. In addition, since we have consolidated our manufacturing facilities, we are more likely to experience an interruption to our operations in the event of a catastrophe in any one location. Although we carry insurance for property damage and business interruption, we do not carry insurance or financial reserves for interruptions or potential losses arising from earthquakes or terrorism.

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES

 

The table below summarizes information about the Company’s purchases, based on trade date; of its equity securities registered pursuant to Section 12 of the Exchange Act during the quarterly period ended July 31, 2008.

 

Period

 

Total Number of
Shares of Common
Stock Purchased (1)

 

Weighted Average
Price Paid per Share of
Common Stock (2)

 

Total
Number of
Shares of Common
Stock Purchased as
Part of Publicly
Announced Plans or
Programs (1)

 

Maximum
Approximate Dollar
Value of Shares of
Common Stock that
May Yet Be
Purchased Under the
Plans or Programs
(in millions)

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

May 1, 2008 through May 31, 2008

 

462,338

 

$

36.27

 

462,338

 

$

1,483

 

Jun. 1, 2008 through Jun. 30, 2008

 

1,145,595

 

$

36.84

 

1,145,595

 

$

1,441

 

Jul. 1, 2008 through Jul. 31, 2008

 

5,392,978

 

$

35.40

 

5,392,978

 

$

1,250

 

Total

 

7,000,911

 

$

35.69

 

7,000,911

 

 

 

 


(1)                                 On November 14, 2007, the Audit and Finance Committee of the Board of Directors approved a share-repurchase program of up to $2 billion of Agilent’s common stock over the next two years through any one or a combination of a variety of methods, including open-market purchases, block trades, self tenders, accelerated share repurchase transactions or otherwise.

 

(2)                                 The weighted average price paid per shares of common stock does not include the cost of commissions.

 

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ITEM 6.  EXHIBITS

 

(a) Exhibits:

 

A list of exhibits is set forth in the Exhibit Index found on page 40 of this report.

 

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AGILENT TECHNOLOGIES, INC.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: September 5, 2008

By:

 /s/ Adrian T. Dillon

 

 

 Adrian T. Dillon

 

 

 Executive Vice President,

 

 

 Finance and Administration, Chief Financial Officer

 

 

 (Principal Financial Officer)

 

 

 

 

 

 

Dated: September 5, 2008

By:

 /s/ Didier Hirsch

 

 

 Didier Hirsch

 

 

 Vice President, Corporate Controllership and Tax

 

 

 (Principal Accounting Officer)

 

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AGILENT TECHNOLOGIES, INC.

 

EXHIBIT INDEX

 

Exhibit
Number

 

Description

10.1

 

Agilent Technologies, Inc. Employee Stock Purchase Plan (Amended and Restated, effective November 1, 2008).*

 

 

 

10.2

 

Form of Stock Option Award Agreement for grants under the Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan.*

 

 

 

10.3

 

Second Amendment to Five Year Credit Agreement, dated June 13, 2008, by and among Agilent, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administration agent.  Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed June 19, 2008.

 

 

 

10.4

 

Master Repurchase Agreement, dated as of March 17, 2008, between Agilent Technologies World Trade, Inc. and Steers Repo Pass-Thru Trust, 2008-1 and Annex I to the Master Repurchase Agreement dated June 27, 2008.  Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed July 2, 2008.

 

 

 

10.5

 

Third Amended and Restated Guaranty of Agilent Technologies, Inc., dated as of March 17, 2008.  Incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed July 2, 2008.

 

 

 

10.6

 

Fifth Amended and Restated Related Agreement, dated as of August 7, 2008, among Merrill Lynch Capital Services, Inc., Agilent Technologies, Inc. and Agilent Technologies World Trade, Inc.

 

 

 

10.7

 

Novation Agreement (including Confirmation), dated as of March 17, 2008, among Agilent Technologies World Trade, Inc., Belmont Funding LLC and Steers Repo Pass-Thru Trust, 2008-1.  Incorporated by reference to Exhibit 99.4 of the Company’s Current Report on Form 8-K filed July 2, 2008.

 

 

 

11.1

 

See Note 6, “Net Income Per Share”, to our Condensed Consolidated Financial Statements on page 9.

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 


*  Indicates management contract or compensatory plan, contract or arrangement.

 

40


Exhibit 10.1

 

AGILENT TECHNOLOGIES, INC.

EMPLOYEE STOCK PURCHASE PLAN

 

(Amended and Restated, Effective November 1, 2008)

 

1.                                       PURPOSE .

 

                                                The purpose of this Plan is to provide an opportunity for Employees of Agilent Technologies, Inc. (the “Corporation”) and its Designated Subsidiaries, to purchase Common Stock of the Corporation and thereby to have an additional incentive to contribute to the prosperity of the Corporation.  It is the intention of the Corporation that the Plan qualifies as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended.

 

2.                                       DEFINITIONS .

 

(a)                                   Board shall mean the Board of Directors of the Corporation.

 

(b)                                  Code shall mean the Internal Revenue Code of 1986, of the USA, as amended.  Any reference to a Section of the Code herein shall be a reference to any successor or amended Section of the Code.

 

(c)                                   Committee shall mean the committee appointed by the Board in accordance with Section 14 of the Plan.

 

(d)                                  Common Stock shall mean the Common Stock of the Corporation, or any stock into which such Common Stock may be converted.

 

(e)                                   Compensation shall mean an Employee’s base cash compensation, commissions and shift premiums paid on account of personal services rendered by the Employee to the Corporation or a Designated Subsidiary, which, effective as of November 1, 2005, shall be determined prior to deduction of deferrals of base pay under the Agilent Technologies, Inc. 2005 Deferred Compensation Plan, or any successor plan thereto, but shall exclude payments for overtime, incentive compensation, incentive payments and bonuses, with any modifications determined by the Committee.  The Committee shall have the authority to determine and approve all forms of pay to be included in the definition of Compensation and may change the definition on a prospective basis.

 

(f)                                     Corporation shall mean Agilent Technologies, Inc., a Delaware corporation.

 

(g)                                  Designated Subsidiary shall mean a Subsidiary that has been designated by the Committee as eligible to participate in the Plan with respect to its Employees.

 

1



 

(h)                                  Employee shall mean an individual classified as an employee (within the meaning of Code Section 3401(c) and the regulations thereunder) by the Corporation or a Designated Subsidiary on the Corporation’s or such Designated Subsidiary’s payroll records during the relevant participation period.  Employees shall not include individuals classified as independent contractors.

 

(i)                                      Entry Date shall mean the first Trading Day of the Offering Period or, for new Participants, the first Trading Day of their first Purchase Period.

 

(j)                                      Fair Market Value shall be the closing sales price for the Common Stock (or the closing bid, if no sales were reported) as quoted in The Wall Street Journal or such other source as the Committee deems reliable, on the date of determination if that date is a Trading Day, or if that day is not a trading day, for the last market Trading Day prior to the date of determination.

 

(k)                                   Offering Period shall mean the period of up to twenty-four (24) months during which an option granted pursuant to the Plan may be exercised.  Notwithstanding the foregoing, unless changed by the Committee, effective with respect to the first Offering Period commencing after November 1, 2008, “Offering Period” shall mean a period of approximately six (6) months.  After November 1, 2008, unless changed by the Committee, Offering Periods shall commence on the first Trading Day on or after November 1 and May 1 of each year and terminate on the last Trading Day, respectively, of the subsequent April and October.  The duration and timing of Offering Periods may be changed or modified by the Committee.

 

(l)                                      Participant shall mean a participant in the Plan as described in Section 5 of the Plan.

 

(m)                                Plan shall mean this Employee Stock Purchase Plan.

 

(n)                                  Purchase Date shall mean the last Trading Day of each Purchase Period.

 

(o)                                  Purchase Period shall mean the period of six (6) months commencing after one Purchase Date and ending with the next Purchase Date.  Purchase Periods may, run consecutively after the termination of the preceding Purchase Period. Notwithstanding the foregoing, subject to the Committee’s discretion to modify Offering and Purchase Periods, effective November 1, 2008, “Purchase Period” shall mean the six (6) month period commencing on the first day of an Offering Period and ending on the last day of such Offering Period.

 

(p)                                  Purchase Price shall mean eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Purchase Date, provided, however, that the Committee may elect with respect to future Offering Periods to establish the Purchase Price as eighty-five percent (85%) of the Fair Market Value of a share of Common Stock

 

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on the Entry Date or the Purchase Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Committee pursuant to Section 7.4.

 

(q)                                  Shareholder shall mean a record holder of shares entitled to vote shares of Common Stock under the Corporation’s by-laws.

 

(r)                                     Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, as described in Code Section 424(f).

 

(s)                                   Trading Day shall mean a day on which U.S. national stock exchanges and the New York Stock Exchange are open for trading.

 

3.                                       ELIGIBILITY .

 

Any Employee regularly employed by the Corporation or by any Designated Subsidiary on an Entry Date shall be eligible to participate in the Plan with respect to the Purchase Period commencing on such Entry Date, provided that the Committee may establish administrative rules requiring that employment commence some minimum period ( e.g. , one pay period) prior to an Entry Date to be eligible to participate with respect to the Purchase Period beginning on that Entry Date.  The Committee may also determine that a designated group of highly compensated Employees are ineligible to participate in the Plan so long as the excluded category fits within the definition of “highly compensated employee” in Code Section 414(q).  No Employee may participate in the Plan if immediately after an option is granted the Employee owns or is considered to own (within the meaning of Code Section 424(d)), shares of stock, including stock which the Employee may purchase by conversion of convertible securities or under outstanding options granted by the Corporation, possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or of any of its Subsidiaries.  All Employees who participate in the Plan shall have the same rights and privileges under the Plan except for differences which may be mandated by local law and which are consistent with Code Section 423(b)(5); provided, however, that Employees participating in a sub-plan adopted pursuant to Section 15 which is not designed to qualify under Code Section 423 need not have the same rights and privileges as Employees participating in the Code Section 423 Plan.  The Board may impose restrictions on eligibility and participation of Employees who are officers and directors to facilitate compliance with federal or state securities laws or foreign laws.

 

4.                                       OFFERING PERIODS .

 

Effective November 1, 2008, the Plan shall have Offering Periods of approximately six (6) months duration which shall commence on the first Trading Day on or after November 1 and May 1.  Each of these Offering Periods shall terminate with a Purchase Date on the last Trading Day, respectively, on or before April 30 and October 31.  Notwithstanding the foregoing, the Committee shall retain the authority to

 

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implement consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after the date twenty-four (24) months from the first date of the immediately preceding Offering Period, or on such other date as the Committee shall determine, and continuing thereafter for twenty-four (24) months or until terminated pursuant to Section 13 hereof.

 

The Committee shall have the authority to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without Shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter.

 

5.                                       PARTICIPATION .

 

5.1                                  An Employee who is eligible to participate in the Plan in accordance with Section 3 may become a Participant by completing and submitting, on a date prescribed by the Committee prior to an applicable Entry Date, a completed payroll deduction authorization and Plan enrollment form provided by the Corporation or by following an electronic or other enrollment process as prescribed by the Committee.  An eligible Employee may authorize payroll deductions at the rate of any whole percentage of the Employee’s Compensation, not to exceed ten percent (10%) of the Employee’s Compensation.  All payroll deductions may be held by the Corporation and commingled with its other corporate funds where administratively appropriate.  No interest shall be paid or credited to the Participant with respect to such payroll deductions.  The Corporation shall maintain a separate bookkeeping account for each Participant under the Plan and the amount of each Participant’s payroll deductions shall be credited to such account.  A Participant may not make any additional payments into such account.

 

5.2                                  Under procedures established by the Committee, a Participant may withdraw from the Plan during a Purchase Period, by completing and filing a new payroll deduction authorization and Plan enrollment form with the Corporation or by following electronic or other procedures prescribed by the Committee, prior to the fifth business day preceding the Purchase Date. If a Participant withdraws from the Plan during a Purchase Period, his or her accumulated payroll deductions will be refunded to the Participant without interest.  The Committee may establish rules limiting the frequency with which Participants may withdraw and re-enroll in the Plan and may impose a waiting period on Participants wishing to re-enroll following withdrawal.

 

5.3                                  A Participant may change his or her rate of payroll deductions at any time by filing a new payroll deduction authorization and Plan enrollment form or by following electronic or other procedures prescribed by the Committee.  If a Participant has not followed such procedures to change the rate of payroll deductions, the rate of payroll deductions shall continue at the originally elected rate throughout the Purchase Period and future Purchase Periods (including Purchase Periods of subsequent Offering Periods).  In accordance with Section 423(b)(8) of the Code, the Committee may reduce a Participant’s payroll deductions to zero percent (0%) at any time during a Purchase Period.

 

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6.                                       TERMINATION OF EMPLOYMENT .

 

In the event any Participant terminates employment with the Corporation or any of its Designated Subsidiaries for any reason (including death) prior to the expiration of a Purchase Period, the Participant’s participation in the Plan shall terminate and all amounts credited to the Participant’s account shall be paid to the Participant or, in the case of death, to the Participant’s heirs or estate, without interest.  Whether a termination of employment has occurred shall be determined by the Committee.  The Committee may also establish rules regarding when leaves of absence or changes of employment status will be considered to be a termination of employment, including rules regarding transfer of employment among Designated Subsidiaries, Subsidiaries and the Corporation, and the Committee may establish termination of employment procedures for this Plan which are independent of similar rules established under other benefit plans of the Corporation and its Subsidiaries.

 

7.                                       OFFERING .

 

7.1                                  Subject to adjustment as set forth in Section 10, the maximum number of shares of Common Stock which may be issued pursuant to the Plan shall be twenty-five (25) million shares plus an annual increase to be added on the first day of each fiscal year of the Corporation beginning in 2001, equal to one percent (1%) of the outstanding shares of the Corporation on such date or a lesser amount determined by the Committee, provided that the maximum number of shares of Common Stock that may be issued pursuant to the Plan shall be seventy-five (75) million.  If, on a given Purchase Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Corporation shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable.

 

7.2                                  Each Purchase Period shall be determined by the Committee.  Unless otherwise determined by the Committee, the Plan will operate with successive six (6) month Purchase Periods commencing at the beginning of each fiscal year half (November 1 and May 1).  The Committee shall have the power to change the duration of future Purchase Periods, without Shareholder approval, and without regard to the expectations of any Participants.

 

7.3                                  Each eligible Employee who has elected to participate as provided in Section 5.1 shall be granted an option to purchase that number of whole and fractional shares of Common Stock (not to exceed 5,000 shares) which may be purchased with the payroll deductions accumulated on behalf of such Employee during each Purchase Period at the purchase price specified in Section 7.4 below, subject to the additional limitation that no Employee participating in the Section 423 Plan shall be granted an option to purchase Common Stock under the Plan at a rate which exceeds U.S. twenty-five thousand dollars (U.S. $25,000) of the Fair Market Value of such Common Stock (determined at the time such option is granted) for each calendar year in which such

 

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option is outstanding at any time.  The foregoing sentence shall be interpreted so as to comply with Code Section 423(b)(8).

 

7.4                                  The Committee has the right to establish that the Purchase Price under each option shall be the lower of: (i) a percentage (not less than eighty-five percent (85%)) established by the Committee (“Designated Percentage”) of the Fair Market Value of the Common Stock on the Entry Date on which an option is granted, or (ii) the Designated Percentage of the Fair Market Value on the Purchase Date on which the Common Stock is purchased.  The Committee may change the Designated Percentage with respect to any future Offering Period, but not below eighty-five percent (85%), and the Committee may determine with respect to any prospective Offering Period that the option price shall be the Designated Percentage of the Fair Market Value of the Common Stock on the Purchase Date.  Notwithstanding the foregoing, however, unless the Committee exercises its discretion to change the manner in which the Purchase Price is determined, with respect to any Offering Period commencing on or after November 1, 2008, the Purchase Price shall equal eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on each Purchase Date.

 

8.                                       PURCHASE OF STOCK .

 

Upon the expiration of each Purchase Period, a Participant’s option shall be exercised automatically for the purchase of that number of whole and fractional shares of Common Stock which the accumulated payroll deductions credited to the Participant’s account at that time shall purchase at the applicable price specified in Section 7.4.  Notwithstanding the foregoing, the Corporation or its designee may make such provisions and take such action as it deems necessary or appropriate for the withholding of taxes and/or social insurance which the Corporation or its Designated Subsidiary is required by law or regulation of any governmental authority to withhold.  Each Participant, however, shall be responsible for payment of all individual tax liabilities arising under the Plan.

 

9.                                       PAYMENT AND DELIVERY .

 

As soon as practicable after the exercise of an option, the Corporation shall deliver to the Participant a record of the Common Stock purchased and the balance of any amount of payroll deductions credited to the Participant’s account not used for the purchase, except as specified below.  The Committee may permit or require that shares be deposited directly with a broker designated by the Committee or to a designated agent of the Corporation, and the Committee may utilize electronic or automated methods of share transfer.  The Committee may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures as it deems appropriate to permit tracking of disqualifying dispositions of such shares or for other purposes determined by the Committee.  The Corporation shall retain the amount of payroll deductions used to purchase Common Stock as full payment for the Common Stock and the Common Stock shall then be fully paid and non-assessable.  No Participant shall have any voting, dividend, or other Shareholder

 

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rights with respect to shares subject to any option granted under the Plan until the shares subject to the option have been purchased and delivered to the Participant as provided in this Section 9.

 

10.                                RECAPITALIZATION .

 

If after the grant of an option, but prior to the purchase of Common Stock under the option, there is any increase or decrease in the number of outstanding shares of Common Stock because of a stock split, stock dividend, combination or recapitalization of shares subject to options, the number of shares to be purchased pursuant to an option, the price per share of Common Stock covered by an option and the maximum number of shares specified in Section 7.1 may be appropriately adjusted by the Board, and the Board shall take any further actions which, in the exercise of its discretion, may be necessary or appropriate under the circumstances.

 

The Board’s determinations under this Section 10 shall be conclusive and binding on all parties.

 

11.                                MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS .

 

In the event of the proposed liquidation or dissolution of the Corporation, the Offering Period will terminate immediately prior to the consummation of such proposed transaction, unless otherwise provided by the Board in its sole discretion, and all outstanding options shall automatically terminate and the amounts of all payroll deductions will be refunded without interest to the Participants.

 

In the event of a proposed sale of all or substantially all of the assets of the Corporation, or the merger or consolidation of the Corporation with or into another corporation, then in the sole discretion of the Board, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor corporation, (2) a date established by the Board on or before the date of consummation of such merger, consolidation or sale shall be treated as a Purchase Date, and all outstanding options shall be exercised on such date, or (3) all outstanding options shall terminate and the accumulated payroll deductions will be refunded without interest to the Participants.

 

12.                                TRANSFERABILITY .

 

Options granted to Participants may not be voluntarily or involuntarily assigned, transferred, pledged, or otherwise disposed of in any way, and any attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect.  If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interests under the Plan, other than as permitted by the Code, such act shall be treated as an election by the Participant to discontinue participation in the Plan pursuant to Section 5.2.

 

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13.                                AMENDMENT OR TERMINATION OF THE PLAN .

 

13.1                            The Plan shall continue until November 1, 2020 unless otherwise terminated in accordance with Section 13.2.

 

13.2                            The Board may, in its sole discretion, insofar as permitted by law, terminate or suspend the Plan, or revise or amend it in any respect whatsoever, except that, without approval of the Shareholders, no such revision or amendment shall materially increase the number of shares subject to the Plan, other than an adjustment under Section 10 of the Plan.  Effective November 1, 2008, the Board has delegated its powers under this Section 13.2 to the Committee unless and until the Board revokes such delegation.

 

14.                                ADMINISTRATION .

 

The Board shall appoint a Committee consisting of at least two members who will serve for such period of time as the Board may specify and whom the Board may remove at any time.  The Committee will have the authority and responsibility for the day-to-day administration of the Plan, the authority and responsibility specifically provided in this Plan and any additional duty, responsibility and authority delegated to the Committee by the Board, which may include any of the functions assigned to the Board in this Plan.  The Committee may delegate to one or more individuals the day-to-day administration of the Plan.  The Committee shall have full power and authority to promulgate any rules and regulations which it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, to make factual determinations relevant to Plan entitlements and to take all action in connection with administration of the Plan as it deems necessary or advisable, consistent with the delegation from the Board.  Decisions of the Board and the Committee shall be final and binding upon all participants.  Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting of the Committee duly held.  The Corporation shall pay all expenses incurred in the administration of the Plan.  No Board or Committee member shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.

 

15.                                COMMITTEE RULES FOR FOREIGN JURISDICTIONS .

 

The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures.  Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements.

 

The Committee may also adopt sub-plans applicable to particular Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Code Section  

 

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423. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 7.1, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.

 

16.                                SECURITIES LAWS REQUIREMENTS .

 

The Corporation shall not be under any obligation to issue Common Stock upon the exercise of any option unless and until the Corporation has determined that: (i) it and the Participant have taken all actions required to register the Common Stock under the Securities Act of 1933, or to perfect an exemption from the registration requirements thereof; (ii) any applicable listing requirement of any stock exchange on which the Common Stock is listed has been satisfied; and (iii) all other applicable provisions of state, federal and applicable foreign law have been satisfied.

 

17.                                GOVERNMENTAL REGULATIONS .

 

This Plan and the Corporation’s obligation to sell and deliver shares of its stock under the Plan shall be subject to the approval of any governmental authority required in connection with the Plan or the authorization, issuance, sale, or delivery of stock hereunder.

 

18.                                NO ENLARGEMENT OF EMPLOYEE RIGHTS .

 

Nothing contained in this Plan shall be deemed to give any Employee the right to be retained in the employ of the Corporation or any Designated Subsidiary or to interfere with the right of the Corporation or Designated Subsidiary to discharge any Employee at any time.

 

19.                                GOVERNING LAW .

 

This Plan shall be governed by Delaware law, without regard to that State’s choice of law rules.

 

20.                                EFFECTIVE DATE .

 

This Plan became effective November 1, 2000.

 

21.                                REPORTS .

 

Individual accounts shall be maintained for each Participant in the Plan.  Statements of account shall be given to Participants at least annually.

 

22.                                DESIGNATION OF BENEFICIARY FOR OWNED SHARES .

 

With respect to shares of Common Stock purchased by the Participant pursuant to the Plan and held in an account maintained by the Corporation or its assignee on the

 

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Participant’s behalf, the Participant may be permitted to file a written designation of beneficiary.  The Participant may change such designation of beneficiary at any time by written notice.  Subject to local legal requirements, in the event of a Participant’s death, the Corporation or its assignee shall deliver such shares of Common Stock to the designated beneficiary.

 

Subject to local law, in the event of the death of a Participant and in the absence of a beneficiary validly designated who is living at the time of such Participant’s death, the Corporation shall deliver such shares of Common Stock to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Corporation), the Corporation in its sole discretion, may deliver (or cause its assignee to deliver) such shares of Common Stock to the spouse, dependent or relative of the Participant, or if no spouse, dependent or relative is known to the Corporation, then to such other person as the Corporation may determine.

 

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Exhibit 10.2

 

AGILENT TECHNOLOGIES, INC.

1999 NON-EMPLOYEE DIRECTOR STOCK PLAN

STOCK OPTION AWARD AGREEMENT

 

THIS AGREEMENT, dated as of the date of grant (the “Grant Date”) indicated in your account maintained by the company providing administrative services in connection with the Plan (as defined below) (the “External Administrator”), between Agilent Technologies, Inc., a Delaware corporation (the “Company”), and you as an individual who has been granted a stock option pursuant to the Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan (the “Awardee”) is entered into as follows:

 

WITNESSETH:

 

WHEREAS, the Company has established the Agilent Technologies, Inc. 1999 Non-Employee Director Stock Plan, as amended and restated effective (the “Plan”), and a description of the terms and conditions of the Plan is set forth in the U.S. Plan prospectus (the “Prospectus”).  A copy of each of the Plan document and Prospectus is available on your External Administrator website and will also be made available upon request; and

 

WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) or its authorized delegate(s) determined that the Awardee shall be granted an option under the Plan as hereinafter set forth;

 

NOW THEREFORE, the parties hereby agree that the Company grants the Awardee an option (“Option”) subject to the terms and conditions set forth herein and in the Plan to purchase the number of shares of the Company’s $0.01 par value voting Common Stock indicated in the Awardee’s External Administrator account, or if this Agreement is delivered in hardcopy, is set forth here:  Grant Date             ; Option price $              ; Number of shares               .

 

1.                     Governing Document .  This Option is granted under and pursuant to the Plan and is subject to each and all of the provisions thereof.  In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Award Agreement, the terms and conditions of the Plan shall prevail.  Capitalized terms used and not otherwise defined herein are used with the same meanings as in the Plan.

 

2.                     Option Price .  The Option price shall be equal to the Fair Market Value (as defined in the Plan document) of the underlying shares on the Grant Date, unless otherwise required by law.  The Option price for this grant is indicated in the Awardee’s External Administrator account.

 

3.                     Non-Transferability of Option .  This Option is not transferable by the Awardee except by will or the laws of descent and distribution. During the Awardee’s lifetime, only the Awardee can exercise this Option.  This Option may not be transferred, assigned, pledged or hypothecated by the Awardee during his or her lifetime, whether by operation of law or otherwise, and is not subject to execution, attachment or similar process.

 

4.                     Vesting .  Subject to accelerated vesting upon the occurrence of certain events as set forth in the Plan, this Option will vest in whole or in part, in accordance with the following vesting schedule:  This option is exercisable in four 25% increments with the first vesting date on the date of the annual shareholders meeting following the Grant Date, provided that the Director continues as a member of the Board. The second, third and fourth vesting dates shall be the dates six months, nine months and one year, respectively, following the Grant Date, provided the Director continues as a member of the Board of Directors of the Company on the vesting date.

 

5.                     Term of the Option .  This Option will expire ten (10) years from the Grant Date, unless sooner terminated, forfeited, or canceled in accordance with the provisions of the Plan.  This means that the Option must be exercised, if at all, on or before the expiration date.  This expiration date is indicated in the Awardee’s External Administrator account.  The Awardee is responsible for keeping track of this date and will not receive any prior notification of the expiration date from the Company.  All rights of the Awardee in this Option, to the extent that it has not been exercised, shall terminate effective upon the removal of the Director from the Agilent Board of Directors for Cause (as defined under Delaware law).

 

6.                     Exercise of the Option .  Options may be exercised in any manner permitted by the External Administrator, and will be subject to such administrator’s fees and procedures.  The Company reserves the right to limit availability of certain methods of exercise as it deems necessary, including those limitations set forth in any Appendix to this Award Agreement.

 

7.                     Death of Awardee .  All rights of the Awardee in this Option, to the extent that it has not been exercised, shall terminate upon the death of the Awardee, except as hereinafter provided.  The Awardee may, by written notice to the company, designate one or more persons, including his or her legal representative, who shall by reason of the

 

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Awardee’s death acquire the right to exercise all or a portion of the Awardee’s Option.  The person so designated must exercise the Option within the term of the Option as set forth in the Plan.  The person designated to exercise the Option after the Awardee’s death shall be bound by the provisions of the Plan.

 

8.                     Restrictions on Sale of Shares of Common Stock The Company shall not be obligated to issue any shares of Common Stock pursuant to this Option unless the shares of Common Stock are at that time effectively registered or exempt from registration under the U.S. Securities Act of 1933, as amended, and, as applicable, local laws.

 

9.                     Responsibility for Taxes .  Regardless of any action the Company takes with respect to any or all income tax, social insurance, payroll tax or other tax-related withholding (the “Tax-Related Items”), the Awardee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Awardee is and remains the Awardee’s responsibility and that the Company (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of the Option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Awardee’s liability for Tax-Related Items.

 

Prior to the relevant taxable event, the Awardee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items withholding obligations of the Company.  In this regard, the Awardee authorizes the Company, at its sole discretion to satisfy the obligations with regard to all applicable Tax-Related Items legally payable by one or a combination of the following: (1) withholding from the Awardee’s wages or other cash compensation paid to the Awardee by the Company; (2) withholding from proceeds of the sale of shares of Common Stock acquired upon exercise of the Option; (3) arranging for the sale of shares of Common Stock acquired upon exercise of the Option (on the Awardee’s behalf and at the Awardee’s discretion pursuant to this authorization); or (4) withholding in shares of Common Stock, provided that the Company only withholds the amount of shares of Common Stock necessary to satisfy the minimum withholding amount.  If the obligation for the Awardee’s Tax-Related Items is satisfied by withholding a number of shares of Common Stock as described herein, the Awardee is deemed to have been issued the full number of shares of Common Stock subject to the Option, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of this Option.

 

Finally, the Awardee will pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Awardee’s participation in the Plan or the Awardee’s purchase of shares of Common Stock that cannot be satisfied by the means previously described.  The Company may refuse to honor the exercise and refuse to deliver the shares of Common Stock if the Awardee fails to comply with his or her obligations in connection with the Tax-Related Items as described in this section.

 

10.               Adjustment .   The number of shares of Common Stock subject to this Option and the Option price of such shares may be adjusted by the Company from time to time pursuant to the Plan.

 

11.               Nature of the Option .  By accepting the grant of this Option, the Awardee acknowledges and agrees that:

 

(i)                            the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Award Agreement;

 

(ii)                         the grant of an option is a one-time benefit which does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past;

 

(iii)                      all determinations with respect to any future option grants, including, but not limited to, the times when options shall be granted, the maximum number of shares subject to each option and the option price, will be at the sole discretion of the Company;

 

(iv)                     participating in the Plan is voluntary;

 

(v)                        in the event the Awardee is not an employee of the Company, the Option will not be interpreted to form an employment contract or relationship with the Company, the Employer or any Subsidiary or Affiliate;

 

(vi)                     the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;

 

(vii)                  if the underlying shares of Common Stock do not increase in value, the Option will have no value;

 

(viii)               if the Awardee exercises the Option and acquires shares of Common Stock, the value of those shares of Common Stock acquired may increase or decrease in value, even below the Option price;

 

(ix)                       the vesting of any Option ceases upon termination of Director statues with the Company, or other cessation of eligibility to vest for any reason, except as may otherwise be explicitly provided in the Plan document or this Award Agreement;

 

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(x)                          the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Awardee’s participation in the Plan, the exercise of the Option or the purchase or sale of shares of Common Stock under the Plan;

 

(xi)                       the Awardee is advised to consult with personal tax, legal and financial advisors regarding participation in the Plan before taking any action related to the Plan.

 

12.             Data Privacy The Awardee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Awardee’s personal data as described in this document by and among, as applicable, the Company and the External Administrator  for the exclusive purpose of implementing, administering and managing the Awardee’s participation in the Plan.

 

The Awardee hereby understands that the Company and hold certain personal information about the Awardee, including, but not limited to, the Awardee’s name, home address and telephone number, date of birth, social security number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Awardee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”).  The Awardee hereby understands that Data may be transferred to any third parties (including the External Administrator) assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Awardee’s country or elsewhere, such as outside the European Economic Area, and that the recipient’s country may have different data privacy laws and protections than the Awardee’s country.  All such transfers of Data will be in accordance with the Company’s Privacy Policies and Guidelines.  The Awardee hereby understands that the Awardee may request a list with the names and addresses of any potential recipients of the Data by contacting the Awardee’s local human resources representative.  The Awardee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Awardee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Awardee may elect to deposit any Common Stock acquired upon exercise of the Option.  The Awardee hereby understands that refusing or withdrawing the Awardee’s consent may affect the Awardee’s ability to participate in the Plan.  For more information on the consequences of the Awardee’s refusal to consent or withdrawal of consent, the Awardee understands that he or she may contact his or her human resources representative responsible for the Awardee’s country at the local or regional level.

 

13.               No Rights Until Issuance .  The Awardee shall have no rights hereunder as a shareholder with respect to any shares subject to this Option until the date that shares of Common Stock are issued to the Awardee upon exercise of the Option.

 

14.               Administrative Procedures .   The Awardee agrees to follow the administrative procedures that may be established by the Company and/or the External Administrator for participation in the Plan which may include a requirement that the shares issued upon vesting be held by the External Administrator until the Awardee disposes of such shares.  The Awardee further agrees that the Company may determine the actual method of withholding for Tax-Related Items as described in Section 9 above.

 

15.               Entire Agreement; Amendment .  The Plan is incorporated herein by reference.  The Plan and this Award Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Awardee with respect to the subject matter hereof, and may not be modified adversely to the Awardee’s interest except by means of a writing signed by the Company and the Awardee.  Otherwise, this Option may be amended as provided in the Plan.

 

16.               Governing Law and Venue .  This Award Agreement is governed by and construed according to the internal substantive laws, but not the choice of law rules, of the State of Delaware as provided in the Plan.  Any proceeding arising out of or relating to this Award Agreement or the Plan may be brought only in the state or federal courts located in the Northern District of California where this grant is made and/or to be performed, and the parties to this Award Agreement consent to the exclusive jurisdiction of such courts.

 

17.               Binding Agreement; Interpretation .  By accepting the grant of this Option evidenced hereby, the Awardee and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Award Agreement.  The Awardee has reviewed the Prospectus and this Award Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to accepting the Option and fully understands all provisions of the Prospectus and Award Agreement.  The Awardee agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Award Agreement.

 

18.               Language .  The Awardee acknowledges that he or she may be executing part or all of the Award Agreement in English and agrees to be bound accordingly.  If the Awardee has received this or any other document related to the

 

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Plan translated into a language other than English and if the translated version is different than the English version, the English version will control.

 

19.               Electronic Delivery .  The Company may, in its sole discretion, decide to deliver any documents related to the Option granted under (and participation in) the Plan or future awards that may be granted under the Plan by electronic means or to request the Awardee’s consent to participate in the Plan by electronic means.  The Awardee hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

 

20.               Severability .  The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

 

21.               Acceptance and Rejection .  This Award Agreement is one of the documents governing this Option, which the Awardee may accept or reject online through the External Administrator’s website.  The Awardee may also accept this Option by signing a hard copy of the Award Agreement and returning it to the Company’s Shareholder Records department, fax number (408) 345-8237.

 

 

 

Agilent Technologies, Inc.

 

 

 

 

 

By

/s/ William P. Sullivan

 

 

William P. Sullivan

 

 

President and Chief Executive Officer

 

 

 

By

/s/ D. Craig Nordlund

 

 

D. Craig Nordlund

 

 

Senior Vice President, General Counsel and Secretary

 

 

 

Accepted By:

 

, Director Awardee

 

 

 

Print Name:

 

 

 

 

The Director hereby designates the following person(s) as the one(s) who may exercise this Option after his or her death as provided above:

 

 

Name:

 

 

Relationship:

 

 

 

Name:

 

 

Relationship:

 

 

 

The Director may change the above designation at his or her pleasure by filing with the Secretary of the Company a written notice of change.

 

PLEASE PRINT AND KEEP A COPY FOR YOUR RECORDS

 

4


Exhibit 10.6

 

EXECUTION COPY

 

FIFTH AMENDED AND RESTATED RELATED AGREEMENT

 

This Fifth Amended and Restated Related Agreement, dated as of August 7, 2008 (this “ Agreement ”), is made by and among MERRILL LYNCH CAPITAL SERVICES, INC., a corporation organized under the laws of the State of Delaware (“ Merrill Lynch ”), AGILENT TECHNOLOGIES, INC., a corporation organized under the laws of the State of Delaware (“ Agilent ”), and AGILENT TECHNOLOGIES WORLD TRADE, INC., a corporation organized under the laws of the State of Delaware (“ World Trade ”).

 

RECITALS

 

WHEREAS, Fenway Capital, LLC (“ Fenway ”) and World Trade were parties to that certain Master Repurchase Agreement, and the Confirmation and Annex I related thereto, in each case, dated as of January 27, 2006 (such master repurchase agreement, confirmation and annex, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, being collectively referred to as the “ Original Repo Agreement ”);

 

WHEREAS, in connection with the Original Repo Agreement, Agilent issued that certain Guaranty of Agilent Technologies, Inc., dated as January 27, 2006 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Original Agilent Guaranty ”), whereby Agilent agreed to guarantee the obligations of World Trade under the Original Repo Agreement;

 

WHEREAS, in connection with the Original Repo Agreement, Fenway entered into that certain Amended and Restated Institutional Custody and Escrow Agreement, dated as of February 10, 2006 with The Bank of New York, as custodian, pursuant to which the Purchased Securities were deposited in a custody account maintained by The Bank of New York for the benefit of Fenway;

 

WHEREAS, Merrill Lynch and Fenway entered into that certain ISDA Master Agreement and the confirmation and schedule related thereto, in each case, dated as of January 27, 2006 (such master agreement, confirmation and schedule being collectively referred to as the “ Original Liquidity Arrangement ”);

 

WHEREAS, Merrill Lynch, Agilent and World Trade entered into that certain Related Agreement dated as of January 27, 2006 (the “ Original Related Agreement ”) whereby Merrill Lynch, Agilent and World Trade agreed to certain matters with respect to the transactions contemplated by the Original Repo Agreement and the Original Liquidity Arrangement;

 

WHEREAS, Fenway assigned to Ebbets Funding PLC (“ Ebbets ”) all of Fenway’s rights, duties and obligations under the Original Repo Agreement and the Original Agilent Guaranty pursuant to that certain Novation Agreement among Fenway, Ebbets and World Trade dated as of September 10, 2007 (the “ First Repo Novation Agreement ”);

 

WHEREAS, pursuant to the terms of the First Repo Novation Agreement, Ebbets and World Trade entered into a new Master Repurchase Agreement, and the Confirmation and

 



 

Annex I related thereto, in each case, dated as of September 10, 2007 (such master repurchase agreement, confirmation and annex, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, being collectively referred to as the “ Ebbets Repo Agreement ”);

 

WHEREAS, in connection with the First Repo Novation Agreement and the Ebbets Repo Agreement, Agilent issued that certain Amended and Restated Guaranty of Agilent Technologies, Inc., dated as of September 10, 2007 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ First A&R Agilent Guaranty ”), whereby Agilent agreed to guarantee the obligations of World Trade under the Ebbets Repo Agreement;

 

WHEREAS, in connection with the Ebbets Repo Agreement, Ebbets entered into that certain Institutional Custody and Escrow Agreement, dated as of September 10, 2007, with The Bank of New York, as custodian (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Ebbets Custody Agreement ”), pursuant to which the Purchased Securities were deposited in a custody account maintained by The Bank of New York for the benefit of Ebbets;

 

WHEREAS, in connection with the Ebbets Repo Agreement, Merrill Lynch and Ebbets entered into that certain ISDA Master Agreement and the confirmation (the “ Ebbets LA Confirmation ”) and schedule related thereto, in each case, dated as of September 7, 2007 (such master agreement, the Ebbets LA Confirmation and such schedule being collectively referred to as the “ Ebbets Liquidity Arrangement ”);

 

WHEREAS, Merrill Lynch, Agilent and World Trade entered into that certain Amended and Restated Related Agreement dated as of September 10, 2007 (the “ First A&R Related Agreement ”) whereby Merrill Lynch, Agilent and World Trade agreed to certain matters with respect to the transactions contemplated by the Ebbets Repo Agreement and the Ebbets Liquidity Arrangement;

 

WHEREAS, Ebbets assigned to Belmont Funding LLC (“ Belmont ”) all of Ebbets’s rights, duties and obligations under the Ebbets Repo Agreement and the First A&R Agilent Guaranty pursuant to that certain Novation Agreement among Ebbets, Belmont and World Trade dated as of November 16, 2007 (the “ Second Repo Novation Agreement ”);

 

WHEREAS, pursuant to the terms of the Second Repo Novation Agreement, Belmont and World Trade entered into a new Master Repurchase Agreement, and the Confirmation and Annex I related thereto, in each case, dated as of November 16, 2007 (such master repurchase agreement, confirmation and annex, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, being collectively referred to as the “ Belmont Repo Agreement ”);

 

WHEREAS, in connection with the Second Repo Novation Agreement and the Belmont Repo Agreement, Agilent issued that certain Second Amended and Restated Guaranty of Agilent Technologies, Inc., dated as of November 16, 2007 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Second A&R Agilent Guaranty ”),

 

2



 

whereby Agilent agreed to guarantee the obligations of World Trade under the Belmont Repo Agreement;

 

WHEREAS, in connection with the Belmont Repo Agreement, Belmont entered into that certain Institutional Custody and Escrow Agreement, dated as of November 16, 2007, with The Bank of New York, as custodian (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Belmont Custody Agreement ”), pursuant to which the Purchased Securities were deposited in a custody account maintained by The Bank of New York for the benefit of Counterparty;

 

WHEREAS, in connection with the Belmont Repo Agreement, Merrill Lynch and Belmont entered into that certain ISDA Master Agreement and the confirmation (the “ LA Confirmation ”) and schedule related thereto, in each case, dated as of November 16, 2007 (such master agreement, the LA Confirmation and such schedule being collectively referred to as the “ Liquidity Arrangement ”);

 

WHEREAS, Merrill Lynch, Agilent and World Trade entered into that certain Amended and Restated Related Agreement dated as of November 16, 2007 (the “ Second A&R Related Agreement ”) whereby Merrill Lynch, Agilent and World Trade agreed to certain matters with respect to the transactions contemplated by the Repo Agreement and the Liquidity Arrangement, which Second A&R Related Agreement was amended and restated as of December 7, 2008 (the “ Third A&R Related Agreement ”);

 

WHEREAS, on March 17, 2008, a Liquidation Period End Date (as defined in the LA Confirmation) occurred and Merrill Lynch tendered in cash all amounts required to be paid to Belmont pursuant to the terms of the Liquidity Arrangement and, on March 19, 2008, Merrill Lynch delivered notification pursuant to the Third A&R Related Agreement to Agilent and World Trade of the foregoing occurrences and certain other matters;

 

WHEREAS, Belmont assigned to STEERS Repo Pass-Thru Trust, 2008-1 (“ Counterparty ”) all of Belmont’s rights, duties and obligations under the Belmont Repo Agreement and the Second A&R Agilent Guaranty pursuant to that certain Novation Agreement among Belmont, Counterparty and World Trade dated as of March 17, 2008 (the “ Third Repo Novation Agreement ”);

 

WHEREAS, pursuant to the terms of the Third Repo Novation Agreement, Counterparty and World Trade entered into a new Master Repurchase Agreement, and the Confirmation and Annex I related thereto, in each case, dated as of March 17, 2008 (such master repurchase agreement, confirmation and annex, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, being collectively referred to as the “ Repo Agreement ”);

 

WHEREAS, in connection with the Third Repo Novation Agreement and the Repo Agreement, Agilent issued that certain Third Amended and Restated Guaranty of Agilent Technologies, Inc., dated as of March 17, 2008 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Third A&R Agilent Guaranty ”), whereby Agilent agreed to guarantee the obligations of World Trade under the Repo Agreement;

 

3



 

WHEREAS, in connection with the Repo Agreement, Counterparty entered into that certain Institutional Custody and Escrow Agreement, dated as of June 27, 2008, with The Bank of New York, as custodian (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Custody Agreement ”), pursuant to which the Purchased Securities were deposited in a custody account maintained by The Bank of New York for the benefit of Counterparty;

 

WHEREAS, Merrill Lynch, Agilent and World Trade entered into that certain Amended and Restated Related Agreement dated as of June 27, 2008 (the “ Fourth A&R Related Agreement ”) whereby Merrill Lynch, Agilent and World Trade agreed to certain matters with respect to the transactions contemplated by the Repo Agreement;

 

WHEREAS, Merrill Lynch, Agilent and World Trade now wish to amend the Fourth A&R Related Agreement in the manner set forth herein;

 

NOW, THEREFORE, in consideration of the promises and mutual agreements contained herein, and of other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend and restate the Fourth A&R Related Agreement in its entirety as follows:

 

1.             Definitions .  All capitalized terms used but not otherwise defined herein shall have the meanings assigned thereto in the Repo Agreement.

 

2.             Accelerated Repurchase Date .  Agilent, World Trade and Merrill Lynch (x) acknowledge that on March 18, 2008 Merrill Lynch delivered a Merrill Lynch Acceleration Notice to World Trade pursuant to the Third A&R Related Agreement, which Merrill Lynch Acceleration Notice designated July 16, 2008 as the Related Agreement Accelerated Repurchase Date (as defined in the Third A&R Related Agreement) with respect to all of the Purchased Securities, (y) agree that World Trade is deemed to have promptly designated July 16, 2008 as the Accelerated Repurchase Date with respect to all of the Purchased Securities in accordance with the terms of the Belmont Repo Agreement and the Third A&R Related Agreement and (z) agree that, notwithstanding such Merrill Lynch Acceleration Notice, the Accelerated Repurchase Date and the Related Agreement Accelerated Repurchase Date with respect to all of the Purchased Securities shall be November 17, 2008, except as otherwise provided in this Section 2.  In addition, Merrill Lynch, Agilent and World Trade agree that World Trade shall have the right, by providing written notice to Merrill Lynch (a “ World Trade Acceleration Notice ”) no later than August 14, 2008, to designate September 19, 2008 as the Accelerated Repurchase Date with respect to all of the Purchased Securities.  In the event that World Trade shall not have designated September 19, 2008 as the Accelerated Repurchase Date in accordance with the preceding sentence, then World Trade shall have the right, by providing a World Trade Acceleration Notice to Merrill Lynch no later than September 15, 2008, to designate October 20, 2008 as the Accelerated Repurchase Date with respect to all of the Purchased Securities.  Agilent and World Trade agree that neither of them shall designate a Partial Accelerated Repurchase Date or an Accelerated Repurchase Date, nor otherwise voluntarily cause a Repurchase Date to occur, except in accordance with this Section 2 or as may be otherwise consented to by Merrill Lynch in its sole discretion.

 

4



 

3.             Assignment of the Counterparty’s Repo Rights and Obligations; Acceleration Instruction .  Agilent and World Trade jointly and severally agree that World Trade shall not (a) withhold consent to the assignment by the Counterparty of the Counterparty’s Repo Rights and Obligations to Merrill Lynch or any of its affiliates, or (b) unreasonably withhold consent to the assignment by the Counterparty of the Counterparty’s Repo Rights and Obligations to a third-party transferee selected by Merrill Lynch; provided , however , that Merrill Lynch shall neither cause nor permit the Repo Rights and Obligations to be assigned or syndicated to more than five third-party transferees and, provided , further , that Merrill Lynch shall neither cause nor permit the Repo Rights and Obligations to be assigned or syndicated to any transferee if such assignment or syndication would result in Agilent or World Trade becoming obligated both (i) to withhold amounts in respect of U.S. withholding tax and (ii) to gross-up or otherwise compensate Counterparty or any third-party transferee of Counterparty in respect of such U.S. withholding tax.  Agilent and World Trade acknowledge and agree that the sale, pledge or other transfer of securities or certificates issued by Counterparty (such securities or certificates, “ Trust Securities ”) shall not constitute an assignment or syndication of the Repo Rights and Obligations for purposes of this Section 3 or require the consent of Agilent or World Trade; provided that such sale, pledge or other transfer of the Trust Securities does not cause the Counterparty to no longer be considered a US person for U.S. federal income tax purposes.

 

Upon (x) the fulfillment of the requisite conditions set forth in clauses (A) and (B) of Subsection 2(f)(ii) of the Custody Agreement and (y) the designation in writing by Agilent or World Trade to Merrill Lynch of the information required to be provided by Merrill Lynch in the instructions described in clause (C) of such Subsection 2(f)(ii), Merrill Lynch shall, within one Business Day, deliver an MLCS Repurchase Notice (as defined in the Custody Agreement) and a related share transfer form, in each case, in conformity with the foregoing instructions, to The Bank of New York (or any replacement custodian under the Custody Agreement) pursuant to Subsection 2(f)(ii) of the Custody Agreement.

 

In addition, Merrill Lynch agrees not to cause, permit or consent to any amendment to or modification of Section 2(e) or (f) of the Custody Agreement without the written consent of Agilent or World Trade (such consent not to be unreasonably withheld).

 

4.             Expense Reimbursement .  Each of Agilent, World Trade and Merrill Lynch agrees that any and all expenses incurred by Merrill Lynch pursuant to Section 4(c) of the Custody Agreement shall be promptly reimbursed by Agilent upon presentation by Merrill Lynch of an itemized accounting thereof.

 

5.             Indemnification; Contribution .  Agilent and World Trade jointly and severally agree to indemnify and hold harmless Merrill Lynch and its affiliates, directors, officers, employees, agents and controlling persons (Merrill Lynch and each such other person being an “Indemnified Party”) from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party becomes subject under any applicable law, or otherwise related to or arising out of or in connection with (a) any transaction contemplated by this Agreement, and (b) any untrue statement or alleged untrue statement of a material fact contained in any information (whether oral or written) or documents furnished or made available by World Trade or Agilent or any of their affiliates in connection with any transaction contemplated pursuant to this Agreement or the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein not misleading, in light of the circumstances

 

5



 

under which they were made; provided , however , that neither Agilent nor World Trade shall be liable, in the case of this clause (b), to the extent that any such losses, claims, damages or liabilities arise out of or are based on such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information relating to Merrill Lynch (or the relevant affiliate thereof) furnished to Agilent or World Trade by Merrill Lynch expressly for use therein.  In no event shall Agilent or World Trade be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all Indemnified Parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.  Agilent and World Trade jointly and severally agree to promptly reimburse any Indemnified Party for all expenses (including reasonable counsel fees and expenses) as they are incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising from any of the matters referred to in the preceding sentence, whether or not such Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by or on behalf of World Trade or Agilent or the relevant issuer or whether or not resulting in any liability.  Neither Agilent nor World Trade shall be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there shall be a final judgment for the plaintiff, Agilent and World Trade jointly or severally agree to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment.  Agilent and World Trade further jointly and severally agree not to assert any claim against any Indemnified Party for consequential, punitive or exemplary damages on any theory of liability in connection with the transactions described in or contemplated by this Agreement.  Neither Agilent nor World Trade shall be liable to an Indemnified Party under clause (a) of the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is finally determined by a court of competent jurisdiction to have resulted primarily from such Indemnified Party’s bad faith, gross negligence or willful misconduct.

 

If the indemnification of an Indemnified Party provided for in this Agreement is for any reason held unenforceable, Agilent and World Trade jointly and severally agree to contribute to the losses, claims, damages or liabilities for which such indemnification is held unenforceable (a) in such proportion as is appropriate to reflect the relative benefits to World Trade and Agilent, on the one hand, and Merrill Lynch, on the other hand, of the relevant transaction contemplated pursuant to this Agreement, or (b) (but only if) the allocation provided for in clause (a) is for any reason prohibited by law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (a) but also World Trade and Agilent’s relative fault, on the one hand, and the relative fault of Merrill Lynch, on the other hand, as well as any other relevant equitable considerations.  Agilent and World Trade jointly and severally agree that for the purposes of this paragraph the relative benefits to World Trade and Agilent, on the one hand, and to Merrill Lynch, on the other hand, shall be deemed to be in the same proportion that the total value received or contemplated to be received by World Trade and/or Agilent in any transactions contemplated pursuant to this Agreement bears to the fees paid or to be paid to Merrill Lynch with respect to such transaction; provided , however , that, to the extent permitted by applicable law, in no event shall the Indemnified Parties be required to contribute in respect of a specific transaction an aggregate amount in excess of the fees actually paid in such transaction to Merrill Lynch.  The foregoing contribution agreement shall be in addition to any rights that any Indemnified Party may have at common law or otherwise.  No investigation or

 

6



 

failure to investigate by any Indemnified Party shall impair the foregoing indemnification and contribution agreement or any other right an Indemnified Party may have.

 

Agilent and World Trade jointly and severally agree that, without Merrill Lynch’s prior written consent, neither World Trade nor Agilent nor any of their affiliates or subsidiaries will settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification has been or could be sought under the indemnification provisions of this Agreement (whether or not Merrill Lynch or any other Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent (a) includes an unconditional written release, in form and substance satisfactory to Merrill Lynch and each Indemnified Party, from all liability arising out of such claim, action or proceeding and (b) does not include any statement as to, or an admission of, fault, culpability or failure to act by or on behalf of any Indemnified Party.

 

In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against Agilent or any of its subsidiaries or affiliates in which such Indemnified Party is not named as a defendant, World Trade and Agilent agree to reimburse such Indemnified Party for all reasonable expenses incurred by it in connection with such Indemnified Party’s appearing and preparing to appear as such a witness, including, without limitation, the fees and expenses of its legal counsel.

 

6.             Agilent/World Trade Payment Obligation .  (a) Agilent and World Trade jointly and severally agree to pay the Related Amount (as defined below) to Merrill Lynch or to an affiliate thereof designated by Merrill Lynch, in addition to any other amounts payable under the Repo Agreement, on each Related Amount Payment Date (as defined below) in accordance with payment instructions supplied by Merrill Lynch.  On or as soon as reasonably practicable following the last day of each Calculation Period (as defined below), Merrill Lynch shall notify Agilent and World Trade of the amount payable on the relevant Related Amount Payment Date (as defined below) and the related payment instructions (the date on which Merrill Lynch provides such notice, the “ Payment Amount Notice Date ”).

 

“Related Amount Payment Date” shall mean each March 19, June 19, September 19 and December 19, commencing on September 19, 2008 and ending on and including the Repurchase Date, or if such date is not a Business Day, the immediately succeeding Business Day; provided that if the related Payment Amount Notice Date has not occurred on or prior to the second Business Day prior to any such date, then the corresponding Related Amount Payment Date shall be the second Business Day following such Payment Amount Notice Date.

 

Related Amount” shall mean, in respect of each Related Amount Payment Date and the Calculation Period ending on the Period End Date immediately preceding such Related Amount Payment Date, an amount determined by Merrill Lynch equal to the excess, if any, of (i) the sum of the Daily Related Amount for each day during such Calculation Period over (ii) the Price Differential Payment in respect of such Calculation Period.

 

“Daily Related Amount ” shall mean, as of any date of determination, an amount equal to (a) the Related Notional Amount on such date multiplied by (b) the sum of the Base Rate in effect for such date and the applicable Related Spread, divided by (c) 360.

 

7



 

“Base Rate” shall mean, as of any date of determination, LIBOR.

 

“Related Spread” shall mean, as of any date of determination on or prior to July 16, 2008, 52 basis points and, as of any date of determination after July 16, 2008, 235 basis points.

 

“Related Notional Amount” shall mean, as of any date of determination, an amount equal to the outstanding balance of the Repurchase Price in effect under the Repo Agreement for such date.

 

“Calculation Period” shall mean each period from and including one Period End Date to but excluding the next following applicable Period End Date, except that (a) the initial Calculation Period will commence on and include June 14, 2008 and (b) the final Calculation Period will end on and exclude the Repurchase Date.

 

“Period End Date” shall mean each March 14, June 14, September 14 and December 14.

 

“LIBOR” with respect to any Calculation Period shall have the meaning assigned to such term in the Repo Agreement (for a Stated Price Differential Period coinciding with such Calculation Period).

 

(b)           [reserved]

 

(c)           Any unpaid amounts owing pursuant to this Section 6 shall accrue interest at the Default Rate (as defined below) from the applicable due dates.  For the avoidance of doubt, failure to make any payment required to be paid pursuant to this Section 6 on the applicable due date shall constitute a “Material Affiliate Event” within the meaning of the Second Amended and Restated Certification of Designations in respect of the Purchased Securities dated as of July 31, 2006 (as amended, restated, modified or supplemented from time to time, the “Certificate of Designations”) if such failure is not remedied during the period specified in clause (i) of the definition of “Material Affiliate Event” set forth in the Certificate of Designations.  “ Default Rate ” means LIBOR plus the Related Spread.  For purposes of determining the Default Rate, clause (b) of the definition of “Calculation Period” shall be disregarded.

 

7.             Termination .  This Agreement shall terminate and be of no further force or effect (except as to Section 5 hereof and unpaid amounts owing pursuant to Section 6 hereof) upon the earlier to occur of (a) the fifth anniversary of the date of the Original Related Agreement and (b) the date on which all of the Purchased Securities are repurchased by World Trade.

 

8.             Assignment of Counterparty’s Repo Rights and Obligations .  In the event that Merrill Lynch shall have arranged one or more third-party transferees for the assignment by the Counterparty to such third-party transferee(s) of all or a portion of the Counterparty’s Repo Rights and Obligations, Merrill Lynch, Agilent and World Trade shall enter into one or more new agreements substantially identical to this Agreement (except as otherwise agreed by the parties) but with respect to the Repo Rights and Obligations assigned to each such third-party, except that, with respect to each such new agreement, all references therein to the Counterparty shall denote the applicable third-party transferee rather than the Counterparty hereunder.

 

8



 

9.             No Inconsistent Agreements .  Neither World Trade nor Agilent has entered into, and neither World Trade nor Agilent will after the date of this Agreement enter into, any agreement which is inconsistent with the rights granted to Merrill Lynch in this Agreement or otherwise conflicts with the provisions hereof.  The rights granted to Merrill Lynch do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of World Trade’s and Agilent’s other issued and outstanding securities under any such agreements.

 

10.           Representations .  Each of the parties represents and warrants that (a) its execution and delivery of this Agreement have been duly authorized by all requisite action by such party and do not and will not (i) violate its relevant organizational documents or (ii) violate or conflict with any law applicable to it, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets, and (b) this Agreement has been duly executed by it and is enforceable against it.

 

11.           Notices and Other Communication .  Any notice or communication required or permitted to be given by any provision of this Agreement shall be in writing or by facsimile and shall be deemed to have been delivered, given, and received for all purposes (a) if delivered personally to the Person or to an officer of the Person to whom the same is directed, or (b) when the same is actually received (if during the recipient’s normal business hours if during a Business Day, or, if not, on the next succeeding Business Day), if sent by facsimile (followed by a hard copy of the same communication sent by certified mail, postage and charges prepaid), or by courier or delivery service or by mail, addressed as follows, or to such other address as such Person may from time to time specify by notice, (i) if to Agilent or World Trade, at the address of Agilent at 5301 Stevens Creek Blvd, Santa Clara, CA  95051, Facsimile No.: (408) 345-8958, Attention: Chief Financial Officer, Treasurer and General Counsel, with a copy to Ronald S. Gross, Esq., at Jones Day, 222 East 41st Street New York, New York 10017, Facsimile No.: (212) 755-7306 and (ii) if to Merrill Lynch, at its address at 4 World Financial Center, 18th Floor, New York, New York 10080, Facsimile No.: (646) 805-0218, Attention:  Swap Group, with a copy to GMI Counsel, Merrill Lynch, 4 World Financial Center, 12th Floor, New York, New York 10080, Facsimile No.: (212) 449-6993, Attention Swaps Legal.

 

12.           Severability .  If any term, provision, covenant, or condition of this Agreement, or the application thereof to any party or circumstance, shall be held to be invalid or unenforceable (in whole or in part) for any reason, the remaining terms, provisions, covenants, and conditions hereof shall continue in full force and effect as if this Agreement had been executed with the invalid or unenforceable portion eliminated, so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter of this Agreement and the deletion of such portion of this Agreement will not substantially impair the respective benefits or expectations of the parties to this Agreement.

 

13.           Entire Agreement .  This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof, and supersedes all oral communications and prior writings with respect hereto.

 

14.           Modification .  This Agreement shall not be amended or modified, except by an instrument in writing signed by each of the parties hereto.

 

9



 

15.           Governing Law .  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

16.           Consent to Jurisdiction; Waiver of Venue Objection; Service of Process.   EACH OF AGILENT AND WORLD TRADE HEREBY IRREVOCABLY SUBMITS TO AND ACCEPTS THE NONEXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED IN THE CITY OF NEW YORK OR THE COURTS OF THE STATE OF NEW YORK, IN EACH CASE, LOCATED IN THE BOROUGH OF MANHATTAN OF THE CITY OF NEW YORK, AND EACH OF AGILENT AND WORLD TRADE HEREBY IRREVOCABLY AGREES THAT ANY ACTION OR PROCEEDING AGAINST IT OR AGAINST ITS PROPERTY ARISING OUT OF OR RELATING TO THIS AGREEMENT (AN “ ACTION ”) MAY BE HEARD AND DETERMINED IN SUCH FEDERAL OR STATE COURT.  EACH OF AGILENT AND WORLD TRADE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT IT MAY EFFECTIVELY DO SO, ANY DEFENSE OR OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY DEFENSE OR OBJECTION TO VENUE BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE MAINTENANCE OF ANY ACTION IN ANY SUCH JURISDICTION.  EACH OF AGILENT AND WORLD TRADE HEREBY IRREVOCABLY AGREES THAT THE SUMMONS AND COMPLAINT OR ANY OTHER PROCESS IN ANY ACTION IN ANY JURISDICTION WITHIN THE UNITED STATES MAY BE SERVED BY MAILING (USING CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID) TO THE NOTICE ADDRESS FOR IT SET FORTH HEREIN OR BY HAND DELIVERY TO A PERSON OF SUITABLE AGE AND DISCRETION AT SUCH ADDRESS.  EACH OF AGILENT AND WORLD TRADE MAY ALSO BE SERVED IN ANY OTHER MANNER PERMITTED BY LAW, IN WHICH EVENT ITS TIME TO RESPOND SHALL BE THE TIME PROVIDED BY LAW.

 

17.           Waiver of Jury Trial .  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

18.           Counterparts .  This Agreement may be executed in counterparts, each of which will be deemed an original instrument and all of which together will constitute one and the same agreement.

 

Signatures follow on next page

 

10



 

IN WITNESS WHEREOF, the undersigned have executed this Agreement on behalf of the parties as of the date first above written.

 

 

 

AGILENT TECHNOLOGIES, INC.

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

AGILENT TECHNOLOGIES WORLD TRADE, INC.

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

 

MERRILL LYNCH CAPITAL SERVICES, INC.

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

11


Exhibit 31.1

 

CERTIFICATION PURSUANT TO

 SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, William P. Sullivan, certify that:

 

1. I have reviewed this Form 10-Q of Agilent Technologies, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 5, 2008

 

 

/s/ William P. Sullivan

 

William P. Sullivan

 

Director, President and Chief Executive Officer

 


Exhibit 31.2

 

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Adrian T. Dillon, certify that:

 

1. I have reviewed this Form 10-Q of Agilent Technologies, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 5, 2008

 

 

 /s/ Adrian T. Dillon

 

 Adrian T. Dillon

 

 Executive Vice President,

 

 Finance and Administration,

 

 Chief Financial Officer

 


Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Agilent Technologies, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William P. Sullivan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Date: September 5, 2008

 /s/ William P. Sullivan

 

 William P. Sullivan

 

 Director, President and Chief Executive Officer

 


Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Agilent Technologies, Inc. (the “Company”) on Form 10-Q for the period ended July 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Adrian T. Dillon, Executive Vice President, Finance and Administration, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Date:  September 5, 2008

 

 

 /s/ Adrian T. Dillon

 

 Adrian T. Dillon

 

 Executive Vice President,

 

 Finance and Administration,

 

 Chief Financial Officer