Edgar Filing: AGILENT TECHNOLOGIES INC

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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 APRIL 30, 2010

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 AT APRIL 30, 2010
COMMON STOCK, $0.01 PAR VALUE		348,062,907 SHARES

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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	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	36
Part II.	Other Information		36
	Item 1.	Legal Proceedings	36
	Item 1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
	Item 6.	Exhibits	47
Signature			48
Exhibit Index			49

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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 April 30,						Six Months Ended April 30,
	2010			2009			2010			2009
Net revenue:
Products	$	1,029		$	864		$	2,005		$	1,801
Services and other	242			227			479			456
Total net revenue	1,271			1,091			2,484			2,257
Costs and expenses:
Cost of products	431			436			852			889
Cost of services and other	129			125			261			249
Total costs	560			561			1,113			1,138
Research and development	150			170			299			339
Selling, general and administrative	407			407			824			803
Total costs and expenses	1,117			1,138			2,236			2,280
Income (loss) from operations	154			(47		)	248			(23		)
Interest income	3			6			6			20
Interest expense	(22		)	(23		)	(45		)	(46		)
Other income (expense), net	4			6			13			18
Income (loss) before taxes	139			(58		)	222			(31		)
Provision for income taxes	31			43			35			6
Net income (loss)	$	108		$	(101	)	$	187		$	(37	)

Net income (loss) per share — basic:	$	0.31		$	(0.29	)	$	0.54		$	(0.11	)
Net income (loss) per share — diluted:	$	0.31		$	(0.29	)	$	0.53		$	(0.11	)

Weighted average shares used in computing net income (loss) per share:
Basic	348			344			348			348
Diluted	354			344			354			348

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)

	April 30, 2010			October 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	2,646		$	2,479
Short-term restricted cash and cash equivalents	1,552			—
Short-term investments	11			14
Accounts receivable, net	669			595
Inventory	546			552
Other current assets	288			321
Total current assets	5,712			3,961
Property, plant and equipment, net	831			845
Goodwill	644			655
Other intangible assets, net	126			167
Long-term restricted cash and cash equivalents	11			1,566
Long-term investments	158			163
Other assets	285			255
Total assets	$	7,767		$	7,612
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	362		$	307
Employee compensation and benefits	346			336
Deferred revenue	311			285
Short-term debt	1,501			1
Other accrued liabilities	189			194
Total current liabilities	2,709			1,123
Long-term debt	1,393			2,904
Retirement and post-retirement benefits	483			498
Other long-term liabilities	550			573
Total liabilities	5,135			5,098
Total equity:
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; 576 million shares at April 30, 2010 and 566 million shares at October 31, 2009, issued	6			6
Treasury stock at cost; 228 million shares at April 30, 2010 and 220 million shares at October 31, 2009	(7,892		)	(7,627		)
Additional paid-in-capital	7,802			7,552
Retained earnings	2,947			2,760
Accumulated other comprehensive loss	(239		)	(185		)
Total stockholder’s equity	2,624			2,506
Non-controlling interest	8			8
Total equity	2,632			2,514
Total liabilities and equity	$	7,767		$	7,612

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)

	Six Months Ended April 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	187		$	(37	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	75			81
Share-based compensation	38			39
Deferred taxes	45			34
Excess and obsolete and inventory-related charges	13			41
Asset impairment charges	20			32
Loss on sale of assets and divestiture	4			—
Allowance for doubtful accounts	—			4
Other	—			4
Changes in assets and liabilities:
Accounts receivable	(93		)	203
Inventory	(17		)	13
Accounts payable	55			(58		)
Employee compensation and benefits	18			(108		)
Interest rate swap proceeds	—			43
Other assets and liabilities	(90		)	(137		)
Net cash provided by operating activities	255			154
Cash flows from investing activities:
Investments in property, plant and equipment	(54		)	(68		)
Proceeds from sale of property, plant and equipment	1			—
Purchase of investments	—			(30		)
Proceeds from sale of investments	8			62
Proceeds from divestiture, net of cash divested	20			—
Acquisitions of businesses and intangible assets, net of cash acquired	(12		)	(2		)
Change in restricted cash and cash equivalents, net	4			10
Net cash used in investing activities	(33		)	(28		)
Cash flows from financing activities:
Issuance of common stock under employee stock plans	224			27
Repayment of long-term debt	(15		)	—
Proceeds from revolving credit facility	—			325
Repayment of revolving credit facility	—			(325		)
Treasury stock repurchases	(265		)	(157		)
Net cash used in financing activities	(56		)	(130		)

Effect of exchange rate movements	1			(1		)

Net increase (decrease) in cash and cash equivalents	167			(5		)

Cash and cash equivalents at beginning of period	2,479			1,405
Cash and cash equivalents at end of period	$	2,646		$	1,400

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, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Acquisition of Varian, Inc. On May 14, 2010, we completed our acquisition of Varian, Inc. (“Varian”), a leading supplier of scientific instrumentation and associated consumables for life science and applied market applications, by means of a merger of one of our wholly-owned subsidiaries with and into Varian such that Varian became a wholly-owned subsidiary of Agilent. The $1.5 billion total purchase price of Varian includes $52 cash per share of Varian’s outstanding common stock including vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varian’s non-vested restricted stock awards, non-vested performance shares, at 100 percent of target, and non-vested director’s stock units were also paid at $52 per share. Varian’s cash acquired at completion of the acquisition was approximately $225 million. As part of the European Commission’s merger approval and the Federal Trade Commission consent order, Agilent had previously committed to sell Varian’s laboratory gas chromatography (“GC”) business; Varian’s triple quadrupole gas chromatography-mass spectrometry (“GC-MS”) business; Varian’s inductively-coupled plasma-mass spectrometry (“ICP-MS”) business; and Agilent’s micro GC business. On May 19, 2010 we completed the sale of the Agilent micro GC business and the Varian laboratory GC business, the triple quadrupole GC-MS business and the ICP-MS business for approximately $40 million subject to post-closing adjustments. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. The Varian merger will be accounted for in accordance with the authoritative accounting guidance. The initial accounting for the acquisition of Varian is incomplete. The acquired assets and assumed liabilities will be recorded by Agilent at their estimated fair values. Agilent will determine the estimated fair values with the assistance of valuations performed by independent third party specialists, discounted cash flow analyses, quoted market prices where available, and estimates made by management.

Sale of Network Solutions Division. On May 1, 2010, we completed the sale of the Network Solutions Division (“NSD”) of our electronic measurement business to JDS Uniphase Corporation (“JDSU”), a leading communications test and measurement company. JDSU paid Agilent $165 million which is subject to post-closing working capital and other adjustments. We anticipate recording a significant gain on the sale of NSD in the third quarter of fiscal 2010. NSD includes Agilent’s network assurance solutions, network protocol test and drive test products.

Basis of Presentation. We have prepared the accompanying financial data for the three and six months ended April 30, 2010 and 2009 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 2009 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 present fairly our condensed consolidated balance sheet as of April 30, 2010 and October 31, 2009, condensed consolidated statement of operations for the three and six months ended April 30, 2010 and 2009, and condensed consolidated statement of cash flows for the six months ended April 30, 2010 and 2009.

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

Reclassifications. Certain prior year financial statement amounts have been reclassified to conform to the current year presentation with no impact on previously reported net income.

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Segment Reporting Changes. In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment was separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises a reportable segment.

Fair Value of Financial Instruments. The carrying values of certain of our financial instruments including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, short-term debt, accrued compensation and other accrued liabilities approximate fair value because of their short maturities. Agilent determines the fair value of short-term and long-term investments in debt securities considering information obtained from independent pricing sources. The fair value of long-term equity investments is determined using quoted market prices for those securities when available. The fair value of our long-term debt approximates the carrying value. The fair value of foreign currency contracts used for hedging purposes is estimated internally by using inputs tied to active markets. See Note 8, “Fair Value Measurements” for additional information on the fair value of financial instruments.

Goodwill and Purchased Intangible Assets. We review goodwill for impairment annually during our fourth quarter and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with the authoritative guidance. The circumstances that could trigger a goodwill impairment could include, but are not limited to, the following items to the extent that management believes the occurrence of one or more would make it more likely than not that we would fail the first step of the goodwill impairment test (as described in the next paragraph): significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, a portion of a reporting unit’s goodwill has been included in the carrying amounts of a business that will be disposed or if our market capitalization is below our net book value.

The provisions of authoritative guidance require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. The second step (if necessary) measures the amount of impairment by applying fair-value-based tests to the individual assets and liabilities within each reporting unit. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. Accordingly, we aggregated components of operating segments with similar economic characteristics into our reporting units. At the time of an acquisition, we assign goodwill to the reporting unit that is expected to benefit from the synergies of the combination. The results of our test for goodwill impairment during our fourth quarter of 2009 showed that the estimated fair values of our previous reporting units which were electronic measurement, bio-analytical measurement, and semiconductor and board test, exceeded their carrying values. During 2010 we will assess for potential impairment of goodwill on our three new reporting units — life sciences, chemical analysis and electronic measurement. For these reporting unit changes, we applied the relative fair value method to determine the impact to the reporting units.

For the six months ended April 30, 2010, no impairments were recorded.

If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its goodwill carrying amount to measure the amount of impairment, if any. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit’s assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. Estimates of the future cash flows associated with the businesses are critical to these assessments. Changes in these estimates based on changed economic conditions or business strategies could result in material impairment charges in future periods.

Purchased intangible assets consist primarily of acquired developed technologies, proprietary know-how, trademarks, and customer relationships and is amortized using the straight-line method over estimated useful lives ranging from 1 to 15 years.

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2. NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance on measurements of fair value. The guidance defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP, and expands disclosures about fair value measurements. The guidance does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. In February 2008, the FASB issued authoritative guidance which allowed for the delay of the effective date of the authoritative guidance 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). Effective November 1, 2008, we adopted the measurement and disclosure requirements related to financial assets and financial liabilities. The adoption of the guidance for financial assets and financial liabilities did not have a material impact on the company’s results of operations or the fair values of its financial assets and liabilities. We adopted the provisions for nonfinancial assets and nonfinancial liabilities as of November 1, 2009 and there was no material impact on our consolidated financial statements.

In December 2007, the FASB issued amendments to the guidance for business combinations. The revised guidance provides the recognition and measurement requirements of identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also requires additional disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. As a result of adopting the amended guidance on November 1, 2009, approximately $6 million of business combination costs, previously capitalized, were recognized in net income for the three months ended January 31, 2010.

In December 2007, the FASB issued new guidance on non-controlling interests in consolidated financial statements. The guidance requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements. It also requires once a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This guidance was effective beginning November 1, 2009 and had no material impact on our consolidated financial statements.

In January 2010, the FASB issued guidance that requires new disclosures for fair value measurements and provides clarification for existing disclosure requirements. The guidance is effective for interim and annual periods beginning after December 15, 2009, except for gross presentation of activity in level 3 which is effective for annual periods beginning after December 15, 2010, and for interim periods in those years. We adopted the guidance for new disclosures for fair value measurements and clarification for existing disclosure requirements as of February 1, 2010 and there was no material impact on our consolidated financial statements. We do not expect a material impact on our consolidated financial statements when we adopt the guidance for level 3 activity. See Note 8, “Fair Value Measurements” for additional information on the fair value of financial instruments.

In April 2010, the FASB issued guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010, with early adoption permitted. We do not expect a material impact on our consolidated financial statements due to the adoption of this guidance.

3. SHARE-BASED COMPENSATION

Agilent accounts for share-based awards in accordance with the provisions of the revised accounting guidance which requires the measurement and recognition of compensation expense for all share-based compensation awards made to our 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 granted to selected members of our senior management under the long-term performance plan (“LTPP”) based on estimated fair values.

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

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2010		2009		2010		2009
	(in millions)
Cost of products and services	$	2	$	3	$	8	$	8
Research and development	2		2		6		6
Selling, general and administrative	9		13		24		25
Total share-based compensation expense	$	13	$	18	$	38	$	39

Included in the expense amount for the three months ended April 30, 2010 and April 30, 2009 is approximately $1 million and $3 million, respectively, of incremental expense for the acceleration of share-based compensation related to the announced workforce reduction plan. Upon termination of the employees impacted by workforce reduction, the non-vested Agilent awards held by these employees immediately vest. Employees have a period of up to three months in which to exercise the Agilent options before such options are cancelled. In addition, during the three months ended April 30, 2010, we reversed approximately $3 million of expense for the cancellation of non-vested awards related to the separation of a senior executive.

At April 30, 2010 there was no share-based compensation capitalized within inventory. The windfall tax benefit realized from exercised stock options and similar awards was not material for the three and six months ended April 30, 2010 and 2009.

The following assumptions were used to estimate the fair value of the options and LTPP grants.

	Three Months Ended				Six Months Ended
	April 30,				April 30,
	2010		2009		2010		2009

Stock Option Plans:
Weighted average risk-free interest rate	2.4	%	1.8	%	2.2	%	2.3	%
Dividend yield	0	%	0	%	0	%	0	%
Weighted average volatility	36	%	36	%	37	%	32	%
Expected life	4.4 yrs		4.4 yrs		4.4 yrs		4.4 yrs

LTPP:
Volatility of Agilent shares	39	%	33	%	39	%	33	%
Volatility of selected peer-company shares	21%-79	%	17%-62	%	20%-80	%	17%-62	%
Price-wise correlation with selected peers	53	%	35	%	53	%	35	%

The fair value of share-based awards for employee stock option awards 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 ESPP allows eligible employees to purchase shares of our common stock at 85 percent of the purchase price and uses the purchase date to establish the fair market value.

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

4. PROVISION FOR INCOME TAXES

For the three and six months ended April 30, 2010, we recorded an income tax provision of $31 million and $35 million, respectively, compared to an income tax provision of $43 million and $6 million, respectively, for the same periods last year. The income tax provision for the three and six months ended April 30, 2010 includes net discrete tax expense of $12 million and $3 million, respectively. The net discrete expense relates primarily to tax settlements, lapses of statutes of limitations and valuation allowance adjustments based on changes in other comprehensive income items. The income tax expense for the three and six months ended April 30, 2009 include net discrete benefits of zero and $42 million, respectively, and are primarily associated with lapses of statutes of limitations and tax settlements. Without considering interest and penalties, the 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 valuation

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allowances. We intend to maintain partial or full valuation allowances in these jurisdictions until sufficient positive evidence exists to support the reversal of the valuation allowances.

In the U.S., the tax years remain open to Internal Revenue Service (“IRS”) and state audits back to the year 2000. In other major jurisdictions where we conduct business, the tax years generally remain open to audit by local tax authorities back to the year 2003. As a result of audit activities, our disclosure of unrecognized tax benefits as of October 31, 2009 will change significantly during this fiscal year. Furthermore, it is reasonably possible that additional changes to our unrecognized tax benefits could be significant in the next twelve months due to lapses of statutes of limitation and tax audit settlements. As a result of uncertainties 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 and 2003 through 2007 are under audit by the IRS which is normal for taxpayers subject to the IRS’s Large and Mid-Sized Business examination procedures. In August 2007, we received a Revenue Agent’s Report (“RAR”) for 2000 through 2002. The RAR proposed several adjustments to taxable income. We disagreed with most of the proposed adjustments. In order to resolve the disagreements, representatives of Agilent met with the Appeals Office of the IRS. In April 2010, we reached resolution in principle with the Appeals Office on the last remaining significant proposed adjustment. Tax adjustments resulting from the Appeals Office agreements will be offset with net operating losses from subsequent years and tax credits. Federal deficiency interest for the intervening years is about $13 million, or $8 million net of federal tax benefit. This $8 million is reflected in our statements of operations.

5. NET INCOME (LOSS) PER SHARE

The following is a reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share computations for the periods presented below:

	Three Months Ended					Six Months Ended
	April 30,					April 30,
	2010		2009			2010		2009
	(in millions)
Numerator:
Net income (loss)	$	108	$	(101	)	$	187	$	(37	)
Denominators:
Basic weighted-average shares	348		344			348		348
Potentially dilutive common stock equivalents — stock options and other employee stock plans	6		—			6		—
Diluted weighted-average shares	354		344			354		348

The dilutive effect of share-based awards is reflected in diluted net income (loss) per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair market value of the company’s common stock can result in a greater dilutive effect from potentially dilutive awards.

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

	Three Months Ended April 30,				Six Months Ended April 30,
	2010		2009		2010		2009
Options to purchase shares of common stock (in millions)	4		33		12		33
Weighted-average exercise price	$	40	$	29	$	35	$	29
Average common stock price	$	33	$	16	$	31	$	17

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6. INVENTORY

	April 30, 2010		October 31, 2009
	(in millions)
Finished goods	$	274	$	285
Purchased parts and fabricated assemblies	272		267
Inventory	$	546	$	552

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents goodwill balances and the movements for each of our reportable segments during the six months ended April 30, 2010:

	Life Sciences			Chemical Analysis		Electronic Measurement			Total
	(in millions)
Goodwill as of October 31, 2009	$	123		$	151	$	381		$	655
Foreign currency translation impact	—			—		(15		)	(15		)
Divestitures	(1		)	—		—			(1		)
Goodwill arising from acquisitions	—			—		5			5
Goodwill as of April 30, 2010	$	122		$	151	$	371		$	644

The components of other intangibles as of April 30, 2010 and October 31, 2009 are shown in the table below:

	Purchased Other Intangible Assets
	Gross Carrying Amount		Accumulated Amortization and Impairments		Net Book Value
	(in millions)
As of October 31, 2009:
Purchased technology	$	281	$	170	$	111
Trademark/Tradename	32		6		26
Customer relationships	85		55		30
Total	$	398	$	231	$	167
As of April 30, 2010:
Purchased technology	$	249	$	156	$	93
Trademark/Tradename	29		9		20
Customer relationships	79		66		13
Total	$	357	$	231	$	126

We reduced goodwill by $1 million, due to a divestiture, during the three and six months ended April 30, 2010 and recorded zero and $5 million of goodwill relating to the purchase of two businesses during the three and six months ended April 30, 2010, respectively. We reduced other intangibles by $13 million, due to the same divestiture in the three months ended April 30, 2010 and in the six months ended April 30, 2010 we reduced other intangibles by $25 million including $12 million of impairments related to the same divestiture and recorded $3 million of additions related to acquisitions.

Amortization of intangible assets was $9 million and $19 million for the three and six months ended April 30, 2010 and $11 million and $23 million for the same periods in the prior year. Future amortization expense related to existing purchased intangible assets is estimated to be $16 million for the remainder of 2010 , $29 million for 2011, $24 million for 2012, $15 million for 2013, $11 million for 2014, $8 million for 2015, and $23 million thereafter.

8. FAIR VALUE MEASUREMENTS

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

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Fair Value Hierarchy

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of April 30, 2010 were as follows:

			Fair Value Measurement at April 30, 2010 Using
	April 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Assets:
Short-term
Cash equivalents (money market funds)	$	2,141	$	2,141	$	—	$	—
Available-for-sale investments	11		—		10		1
Derivative instruments (foreign exchange contracts)	18		—		18		—
Restricted cash (commercial paper)	1,552		—		1,552		—
Long-term
Trading securities	51		51		—		—
Derivative instruments (interest rate contracts)	10		—		10		—
Available-for-sale investments	30		11		19		—
Total assets measured at fair value	$	3,813	$	2,203	$	1,609	$	1

Liabilities:
Short-term
Derivative instruments (foreign exchange contracts)	$	10	$	—	$	10	$	—
Long-term
Deferred compensation liability	48		—		48		—
Total liabilities measured at fair value	$	58	$	—	$	58	$	—

Our money market funds, some publicly traded available-for-sale investments, and our trading securities investments are generally valued using quoted market prices and therefore are classified within level 1 of the fair value hierarchy. Our derivative financial instruments are classified within level 2, as there is not an active market for each hedge contract, but the inputs used to calculate the value of the instruments are tied to active markets. Most available-for-sale investments as well as our commercial paper are classified as level 2 because although the values are not directly based on quoted market prices, the inputs used in the calculations are observable. Marketable securities measured at fair value using level 3 inputs are comprised of asset-backed securities and corporate bonds within our available-for-sale investment portfolio. The values of these investments are determined based on models for which some of the inputs are not readily observable. Counterparty credit risk is evaluated when assigning levels to our financial instruments.

Trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized currently in net income. Investments designated as available-for-sale and certain derivative instruments are reported at fair value, with unrealized gains and losses, net of tax, included in stockholders’ equity. Realized gains and losses from the sale of these instruments are recorded in net income.

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For assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during the three and six months ended April 30, 2010 and 2009:

	Three Months Ended April 30,						Six Months Ended April 30,
	2010			2009			2010			2009
	(in millions)
Balance, beginning of period	$	3		$	16		$	6		$	19
Realized losses related to amortization of premium	(1		)	(1		)	(1		)	(2		)
Realized losses related to investment impairments	—			(1		)	—			(4		)
Sales	—			(3		)	(2		)	(6		)
Transfers into level 3	—			2			—			6
Transfers out of level 3	(1		)	—			(2		)	—
Balance, end of period	$	1		$	13		$	1		$	13
Total losses included in net income attributable to change in unrealized losses relating to assets still held at the reporting date, reported in interest and other income, net	$	(1	)	$	(1	)	$	(1	)	$	(2	)

Impairment of Investments. 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. We consider various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, forecasted recovery, the financial condition and near-term prospects of the investee, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. There were no other than temporary impairments for investments for the three months and six months ended April 30, 2010 and we recognized $2 million and $8 million of other than temporary impairments for investments for the three and six months ended April 30, 2009, respectively. Fair values for the impaired investments in the three and six months ended April 30, 2010 and 2009 were measured using both level 2 and level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Impairment of Long-Lived Assets. Long-lived assets held and used with a carrying amount of $1 million were written down to their fair value of zero, resulting in an impairment charge of $1 million, which was included in net income for the three months ended April 30, 2010. Long-lived assets held and used with a carrying amount of $29 million were written down to their fair value of $23 million, resulting in an impairment charge of $6 million, which was included in net income for the six months ended April 30, 2010. Impairments of long-lived assets held for sale were zero for the three months ended April 30, 2010. Long-lived assets held for sale with a carrying amount of $30 million were written down to their fair value of $16 million, resulting in an impairment charge of $14 million, which was included in net income for the six months ended April 30, 2010. These long-lived assets held for sale with a fair value of $16 million were sold during the second quarter. Fair value for the impairment of long-lived assets were measured using level 2 inputs.

9. DERIVATIVES

We are exposed to foreign currency exchange rate fluctuations and interest rate changes in the normal course of our business. As part of risk management strategy, we use derivative instruments, primarily forward contracts, purchased options, and interest rate swaps, to hedge economic and/or accounting exposures resulting from changes in foreign currency exchange rates and interest rates.

Fair Value Hedges

The company enters into fair value hedges to reduce the exposure of our debt portfolio to interest rate risk. We issue long-term senior notes in U.S. dollars based on market conditions at the time of financing. We use interest rate swaps to modify the market risk

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exposure in connection with fixed interest rate senior notes to U.S. dollar London inter bank offered rate (“LIBOR”)-based floating interest rate. Alternatively, we may choose not to swap fixed for floating interest rate or may terminate a previously executed swap. We designate and qualify these interest rate swaps as fair value hedges of the interest rate risk inherent in the debt. For derivative instruments that are designated and qualify as fair value hedges, we recognize the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, in interest expense, in the condensed consolidated statement of operations. The fair value of the swaps is recorded on the condensed consolidated balance sheet at each period end, with an offsetting entry in senior notes. As of April 30, 2010, there were 9 interest rate swap contracts designated as fair value hedges associated with our 2012 and 2015 senior notes. The notional amount of these interest rate swap contracts, receive-fixed/pay-variable, was $750 million. On November 25, 2008, we terminated the two remaining interest rate swap contracts associated with our 2017 senior notes that represented the notional amount of $400 million. The asset value upon termination was approximately $43 million. The proceeds were recorded as operating cash flows and the gain is being deferred and amortized over the remaining life of the 2017 senior notes.

Cash Flow Hedges

The company also enters into foreign exchange contracts to hedge our forecasted operational cash flow exposures resulting from changes in foreign currency exchange rates. These foreign exchange contracts, carried at fair value, have maturities between one and twelve months. These derivative instruments are designated and qualify as cash flow hedges under the criteria prescribed in the authoritative guidance. The changes in the value of the effective portion of the derivative instrument are recognized in accumulated other comprehensive income. Amounts associated with cash flow hedges are reclassified to cost of sales in the condensed consolidated statement of operations when either the forecasted transaction occurs or it becomes probable that the forecasted transaction will not occur. Changes in the fair value of the ineffective portion of derivative instruments are recognized in cost of sales in the condensed consolidated statement of operations in the current period.

Other Hedges

Additionally, the company enters into foreign exchange contracts to hedge monetary assets and liabilities that are denominated in currencies other than the functional currency of our subsidiaries. These foreign exchange contracts are carried at fair value and do not qualify for hedge accounting treatment and are not designated as hedging instruments. Changes in value of the derivative are recognized in other income (expense) in the condensed consolidated statement of operations, in the current period, along with the offsetting gain or loss on the underlying assets or liabilities.

The company’s use of derivative instruments exposes it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The company does, however, seek to mitigate such risks by limiting its counterparties to major financial institutions which are selected based on their credit ratings and other factors. We have established policies and procedures for mitigating credit risk that include establishing counterparty credit limits, monitoring credit exposures, and continually assessing the creditworthiness of counterparties.

All of our derivative agreements contain threshold limits to the net liability position with counterparties and are dependent on our corporate credit rating determined by the major credit rating agencies. If our corporate credit rating were to fall below investment grade, the counterparties to the derivative instruments may request collateralization on derivative instruments in net liability positions.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position as of April 30, 2010, was approximately $3 million. The credit-risk-related contingent features underlying these agreements had not been triggered as of April 30, 2010.

There were 123 foreign exchange forward contracts and 7 foreign exchange option contracts open as of April 30, 2010 and designated as cash flow hedges. There were 122 foreign exchange forward contracts open as of April 30, 2010 not designated as hedging instruments. The aggregated notional amounts by currency and designation as of April 30, 2010 were as follows:

	Derivatives in Cash Flow Hedging Relationships						Derivatives Not Designated as Hedging Instruments
	Forward Contracts			Option Contracts			Forward Contracts
Currency	Buy/(Sell)			Buy/(Sell)			Buy/(Sell)
	(in millions)
Euro	$	(71	)	$	—		$	199
British Pound	(17		)	—			145
Swiss Franc	(20		)	—			29
Malaysian Ringgit	93			—			19
Japanese Yen	(48		)	(64		)	(45		)
Other	(9		)	—			14
	$	(72	)	$	(64	)	$	361

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Derivative instruments are subject to master netting arrangements and qualify for net presentation in the balance sheet. The gross fair values and balance sheet location of derivative instruments held in the condensed consolidated balance sheet as of April 30, 2010 and October 31, 2009 were as follows:

Fair Values of Derivative Instruments
Asset Derivatives					Liability Derivatives
	Fair Value					Fair Value
Balance Sheet Location	April 30, 2010		October 31, 2009		Balance Sheet Location	April 30, 2010		October 31, 2009
(in millions)
Derivatives designated as hedging instruments:
Fair value hedges
Interest rate contracts
Other assets	$	10	$	3	Other long-term liabilities	$	—	$	—
Cash flow hedges
Foreign exchange contracts
Other current assets	$	14	$	8	Other accrued liabilities	$	4	$	5
Other accrued liabilities	—		—		Other current assets	—		1
	$	24	$	11		$	4	$	6
Derivatives not designated as hedging instruments:
Foreign exchange contracts
Other current assets	$	4	$	8	Other accrued liabilities	$	6	$	3
Other accrued liabilities	—		—		Other current assets	—		1
	$	4	$	8		$	6	$	4

Total derivatives	$	28	$	19		$	10	$	10

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

	Three Months Ended April 30,						Six Months Ended April 30,
	2010			2009			2010			2009
	(in millions)
Derivatives designated as hedging instruments:
Fair Value Hedges
Gain on interest rate swap contracts in interest expense	$	5		$	—		$	9		$	—
Cash Flow Hedges
Gain recognized in accumulated other comprehensive income	$	9		$	7		$	11		$	—
Gain (loss) reclassified from accumulated other comprehensive income into cost of sales	$	3		$	(10	)	$	3		$	(19	)
Derivatives not designated as hedging instruments:
Gain (loss) recognized in other income (expense)	$	(11	)	$	23		$	(23	)	$	25

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The estimated net amount of existing gains at April 30, 2010 that is expected to be reclassified from other comprehensive income to the cost of sales within the next twelve months is $10 million.

10. RESTRUCTURING COSTS, ASSET IMPAIRMENTS AND OTHER SPECIAL CHARGES

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

Our 2009 restructuring program, the (“FY 2009 Plan”), announced in the first half of 2009, was conceived in response to deteriorating economic conditions and was designed to deliver sufficient savings to enable our businesses to reach their profitability targets. We expect workforce reduction payments, primarily severance, to be largely complete by the end of fiscal year 2010. Lease payments should primarily be complete in approximately four years, and payments to suppliers in connection with inventory should be complete by the end of fiscal year 2010. As of April 30, 2010, approximately 150 employees within electronic measurement are pending termination under the FY 2009 Plan.

Special charges in 2009 related to inventory include estimated future payments that we are contractually obliged to make to our suppliers in connection with future inventory purchases and inventory on hand written down. In both cases, actions taken under our FY 2009 Plan, including exiting lines of business, had caused the value of this inventory to decrease below its cost.

A summary of total restructuring activity and other special charges is shown in the table below:

	Workforce Reduction			Consolidation of Excess Facilities			Impairment of Building and Purchased Intangible Assets			Special Charges related to Inventory		Total
	(in millions)
Balance as of October 31, 2009	$	49		$	19		$	—		$	1	$	69
Income statement expense	29			15			6			—		50
Asset impairments/inventory charges	—			—			(6		)	—		(6		)
Cash payments	(57		)	(6		)	—			—		(63		)
Balance as of April 30, 2010	$	21		$	28		$	—		$	1	$	50

The restructuring and other special accruals for all plans, which totaled $50 million at April 30, 2010, are recorded in other accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet. These balances reflect estimated future cash outlays.

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

	Three Months Ended April 30,				Six Months Ended April 30,
	2010		2009		2010		2009
	(in millions)
Cost of products and services	$	3	$	22	$	6	$	55
Research and development	—		17		1		21
Selling, general and administrative	13		47		43		58
Total restructuring, asset impairments and other special charges	$	16	$	86	$	50	$	134

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11. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

Components of net periodic costs. For the three and six months ended April 30, 2010 and 2009, 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 April 30,
	2010			2009			2010			2009			2010			2009
	(in millions)
Service cost—benefits earned during the period	$	10		$	7		$	8		$	8		$	1		$	1
Interest cost on benefit obligation	7			12			17			16			7			7
Expected return on plan assets	(10		)	(9		)	(21		)	(19		)	(5		)	(5		)
Amortization and deferrals:
Actuarial loss	1			—			7			8			4			1
Prior service cost	(3		)	—			—			—			(4		)	(3		)
Total net plan costs	$	5		$	10		$	11		$	13		$	3		$	1

	Pensions
	U.S. Plans						Non-U.S. Plans						U.S. Post Retirement Benefit Plans
	Six Months Ended April 30,
	2010			2009			2010			2009			2010			2009
	(in millions)
Service cost—benefits earned during the period	$	20		$	15		$	16		$	16		$	2		$	2
Interest cost on benefit obligation	14			24			35			32			14			14
Expected return on plan assets	(20		)	(19		)	(43		)	(39		)	(10		)	(10		)
Amortization and deferrals:
Actuarial loss	3			1			20			17			8			2
Prior service cost	(6		)	—			—			—			(8		)	(6		)
Total net plan costs	$	11		$	21		$	28		$	26		$	6		$	2

We contributed approximately $30 million to our U.S. defined benefit plans and $10 million to our non-U.S. defined benefit plans during the three months ended April 30, 2010 and $32 million and $22 million, respectively, for the six months ended April 30, 2010. We contributed approximately $37 million to our U.S. defined benefit plans and $12 million to our non-U.S. defined benefit plans during the three months ended April 30, 2009 and $38 million and $31 million, respectively, for the six months ended April 30, 2009. We do not expect to make additional contributions during the remainder of 2010 to our U.S. defined benefit plans. We expect to contribute $30 million to our non-U.S. defined benefit plans during the remainder of 2010.

As of April 30, 2010, due to the anticipated sale of a business and the related reduction in workforce, we recorded an immaterial curtailment loss in one non-U.S. plan as required by the authoritative guidance. In connection with the remeasurement of the pension obligation for this plan, we recorded a net increase in the funded status liability of $23 million on the balance sheet primarily due to higher expected projected benefit obligation partially offset by higher asset values. In the three months ended April 30, 2009, due to restructuring actions, we recorded a curtailment loss less than $1 million related to a non-U.S. plan as required by the authoritative guidance.

12. WARRANTIES

We accrue for standard warranty costs based on historical trends in warranty charges as a percentage of net 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. The standard warranty accrual balances are held in other accrued and other long-term liabilities on our condensed consolidated balance sheet. Our warranty terms typically extend for one year from the date of delivery.

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A summary of the standard warranty accrual activity is shown in the table below:

	FY 2010			FY 2009
	(in millions)
Beginning balance as of November 1,	$	28		$	29
Accruals for warranties issued during the period	26			23
Changes in estimates	(2		)	3
Settlements made during the period	(24		)	(26		)
Ending balance as of April 30,	$	28		$	29

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

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. On September 8, 2009, we entered into an Accession Agreement, increasing the credit facility from $300 million to $330 million. The company may use amounts borrowed under the facility for general corporate purposes. As of April 30, 2010 the company has no borrowings outstanding under the facility.

On August 17, 2009 the credit facility agreement was amended to provide additional financing flexibility in advance of the acquisition of Varian, Inc. The amendment allows for up to $1 billion of additional indebtedness, incurred during the period from August 17, 2009 through the closing of the acquisition, May 14, 2010, to be excluded from the leverage ratio covenant until March 1, 2011. It also temporarily reduces the basket for other secured financing we are permitted to incur from $300 million to $75 million during this period. The amendment also increases by $500 million the amount of repurchase obligations (such as those of Agilent Technologies World Trade, Inc., a consolidated wholly-owned subsidiary of Agilent (“World Trade”)), that we are permitted to incur.

World Trade Debt

In January 2006, World Trade entered into a five-year Master Repurchase Agreement with a counterparty in which World Trade sold 15,000 Class A preferred shares of Agilent Technologies (Cayco) Limited (“Cayco”) to the counterparty, having an aggregate liquidation preference of $1.5 billion. World Trade owns all of the outstanding common shares of Cayco, a separate legal entity.

In September 2008, Agilent and World Trade entered into an agreement (the “Lloyds Related Agreement”) with Lloyds TSB Bank plc (“Lloyds”). Under the Lloyds Related Agreement, on November 17, 2008 (the “Effective Date”), Lloyds accepted the transfer by novation of all of the rights and obligations of the counterparty under a revised Master Repurchase Agreement. On the Effective Date, Lloyds paid $1.5 billion to the prior counterparty in consideration of the novation and World Trade’s repurchase obligation was extended to January 27, 2011 (the “Extended Repurchase Date”). World Trade is obligated to make aggregate quarterly payments to Lloyds at a rate per annum, reset quarterly, with reference to LIBOR plus 175 basis points beginning on the Effective Date. We are currently considering a number of options to extend, reduce or eliminate the world trade debt.

Lloyds can accelerate the Extended Repurchase Date or cause redemption of the preferred Cayco shares only upon certain events of default, but neither World Trade nor Agilent has the right to accelerate the Extended Repurchase Date. The World Trade obligation of $1.5 billion is recorded and classified as a short-term debt on our condensed consolidated balance sheet.

Short-Term Restricted Cash & Cash Equivalents

As of April 30, 2010, $1,552 million was reported as short-term restricted cash and cash equivalents in our condensed consolidated balance sheet which is held in commercial paper maintained in connection with our World Trade debt obligation. As of October 31, 2009, $1,555 million of restricted cash and cash equivalents associated with our World Trade debt obligation was reported as long-term in our condensed consolidated balance sheet.

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14. LONG-TERM DEBT

Senior Notes

The following table summarizes the company’s senior notes:

	April 30,		October 31,
	2010		2009
	(in millions)
2017 Senior Notes	$	635	$	637
2015 Senior Notes	505		500
2012 Senior Notes	253		251
Total	$	1,393	$	1,388

2017 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, and bear interest at a fixed rate of 6.50% per annum. The interest is payable semi-annually on May 1st and November 1st of each year and payments commenced on May 1, 2008.

On November 25, 2008, we terminated the two remaining interest rate swap contracts associated with our 2017 senior notes that represented the notional amount of $400 million. The asset value upon termination was approximately $43 million. The proceeds were recorded as operating cash flows and the gain is being deferred and amortized over the remaining life of the senior notes.

2015 Senior Notes

In September 2009, the company issued an aggregate principal amount of $500 million in senior notes. The senior notes were issued at 99.69% of their principal amount. The notes will mature on September 14, 2015, and bear interest at a fixed rate of 5.50% per annum. The interest is payable semi-annually on March 14th and September 14th of each year, payments commenced on March 14, 2010.

2012 Senior Notes

In September 2009, the company also issued an aggregate principal amount of $250 million in senior notes. The senior notes were issued at 99.91% of their principal amount. The notes will mature on September 14, 2012, and bear interest at a fixed rate of 4.45% per annum. The interest is payable semi-annually on March 14th and September 14th of each year, payments commenced on March 14, 2010.

All notes issued are unsecured and 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 2017 senior notes and a total of $5 million in connection with the 2015 and 2012 senior notes. These costs were capitalized in other assets on the condensed consolidated balance sheet and the costs are being amortized to interest expense over the term of the senior notes.

Upon the closing of the offering of the 2015 and 2012 senior notes, we entered into interest rate swaps with an aggregate notional amount of $750 million. Under the interest rate swaps, we will receive fixed-rate interest payments and will make payments based on the U.S. dollar LIBOR plus 253 basis points and 257.6 basis points with respect to the 2015 and 2012 senior notes, respectively. 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 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 April 30, 2010, the fair value of the swaps on 2015 and 2012 senior notes was an asset of $10 million with a corresponding increase in carrying value of the senior notes.

Other Debt

On August 11, 2008, a consolidated wholly-owned subsidiary of Agilent, borrowed Indian Rupees equivalent to $15 million from Citibank N.A. to finance a capital project in India. On March 30, 2010 the debt was repaid in full.

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15. COMPREHENSIVE INCOME (LOSS)

The following table presents the components of comprehensive income (loss):

	Three Months Ended April 30,
	2010			2009
	(in millions)
Net income (loss)	$	108		$	(101	)
Other comprehensive income:
Change in unrealized gain and loss on investments	3			3
Change in unrealized gain and loss on derivative instruments	9			7
Reclassification of (gains) and losses into earnings related to derivative instruments	(3		)	10
Foreign currency translation	(27		)	(2		)
Change in deferred net pension cost	(16		)	(39		)
Deferred taxes	(4		)	(13		)
Comprehensive income (loss)	$	70		$	(135	)

	Six Months Ended April 30,
	2010			2009
	(in millions)
Net income (loss)	$	187		$	(37	)
Other comprehensive income:
Change in unrealized gain and loss on investments	4			(10		)
Change in unrealized gain and loss on derivative instruments	11			—
Reclassification of (gains) and losses into earnings related to derivative instruments	(3		)	19
Foreign currency translation	(54		)	22
Change in deferred net pension cost	(4		)	(30		)
Deferred taxes	(8		)	(11		)
Comprehensive income (loss)	$	133		$	(47	)

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 the next two years. On March 26, 2009, the company announced that it was suspending its share repurchase program until the end of the 2009 fiscal year. On November 15, 2009, the company’s share repurchase program expired upon the termination of its two-year term. No shares were purchased under the November 14, 2007 share repurchase program during the six months ended April 30, 2010.

On November 19, 2009 our Board of Directors approved a share-repurchase program to reduce or eliminate dilution in connection with issuances of stock under the company’s equity incentive plans. The share-repurchase program does not require the company to acquire a specific number of shares and may be suspended or discontinued at any time. There is no fixed termination date for the new share-repurchase program. For the three and six months ended April 30, 2010, we repurchased 5 million shares for $165 million and 8 million shares for $265 million, respectively, using settlement date calculation. All such shares and related costs are held as treasury stock and accounted for using the cost method.

17. SEGMENT INFORMATION

We are a measurement company, providing core bio-analytical and electronic measurement solutions to the life sciences, chemical analysis, communications and electronics industries. In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises a reportable segment. The three new operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including technology and delivery channels, consumer-specific solutions and specialized manufacturing, are considered in determining the formation of these new operating segments.

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The life sciences segment includes DNA microarrays and associated scanner, software, and reagents; microfluidics-based sample analysis systems; liquid chromatography systems, columns and components; liquid chromatography mass spectrometry systems; capillary electrophoresis systems; laboratory software and informatics systems; bio-reagents and related products; laboratory automation and robotic systems; services and support for the aforementioned products.

The chemical analysis segment includes gas chromatography systems, columns and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry products; spectroscopy analyzers; software and data systems; services and support for the aforementioned products.

The electronic measurement business includes standard and customized electronic measurement instruments and systems monitoring, management and optimization tools for communications networks and services, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment, communications networks and services, and microscopy products.

All historical segment numbers were recast to conform to this new reporting structure in our financial statements.

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 consider to be a reasonable reflection of the utilization of services provided to or benefits received by the segments.

The following tables reflect the results of our reportable segments under our management reporting system. These results are not necessarily in conformity with U.S. GAAP. 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.

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

	Life Sciences		Chemical Analysis		Electronic Measurement			Total
	(in millions)
Three months ended April 30, 2010:
Total net revenue	$	334	$	238	$	699		$	1,271
Segment income from operations	$	48	$	57	$	100		$	205
Three months ended April 30, 2009:
Total net revenue	$	298	$	200	$	593		$	1,091
Segment income (loss) from operations	$	44	$	45	$	(22	)	$	67

	Life Sciences		Chemical Analysis		Electronic Measurement			Total
	(in millions)
Six months ended April 30, 2010:
Total net revenue	$	674	$	482	$	1,328		$	2,484
Segment income from operations	$	103	$	124	$	158		$	385
Six months ended April 30, 2009:
Total net revenue	$	607	$	416	$	1,234		$	2,257
Segment income (loss) from operations	$	88	$	102	$	(28	)	$	162

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

	Three Months Ended April 30,						Six Months Ended April 30,
	2010			2009			2010			2009
	(in millions)
Total reportable segments’ income from operations	$	205		$	67		$	385		$	162
Restructuring and other related costs	(16		)	(86		)	(50		)	(128		)
Asset impairments	—			(9		)	(14		)	(23		)
Intangible amortization	(9		)	(12		)	(19		)	(24		)
Transformational programs	(6		)	—			(15		)	—
Interest income	3			6			6			20
Interest expense	(22		)	(23		)	(45		)	(46		)
Other income (expense), net	4			6			13			18
Varian acquisition and integration costs	(10		)	—			(27		)	—
Other	(10		)	(7		)	(12		)	(10		)
Income (loss) from operations before taxes, as reported	$	139		$	(58	)	$	222		$	(31	)

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. Unallocated assets primarily consist of cash, cash equivalents, accumulated amortization of other intangibles and the valuation allowance relating to deferred tax assets.

	Life Sciences		Chemical Analysis		Electronic Measurement		Total
	(in millions)
Assets:
As of April 30, 2010	$	1,107	$	527	$	2,284	$	3,918
As of October 31, 2009	$	1,019	$	463	$	2,084	$	3,566

18. SUBSEQUENT EVENTS

On May 14, 2010, we completed our acquisition of Varian, Inc. (“Varian”), a leading supplier of scientific instrumentation and associated consumables for life science and applied market applications, by means of a merger of one of our wholly-owned subsidiaries with and into Varian such that Varian became a wholly-owned subsidiary of Agilent. The $1.5 billion total purchase price of Varian includes $52 cash per share of Varian’s outstanding common stock including vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varian’s non-vested restricted stock awards, non-vested performance shares, at 100 percent of target, and non-vested director’s stock units were also paid at $52 per share. Varian’s cash acquired at completion of the acquisition was approximately $225 million. As part of the European Commission’s merger approval and the Federal Trade Commission consent order, Agilent had previously committed to sell Varian’s laboratory gas chromatography (“GC”) business; Varian’s triple quadrupole gas chromatography-mass spectrometry (“GC-MS”) business; Varian’s inductively-coupled plasma-mass spectrometry (“ICP-MS”) business; and Agilent’s micro GC business. On May 19, 2010 we completed the sale of the Agilent micro GC business and the Varian laboratory GC business, the triple quadrupole GC-MS business and the ICP-MS business for approximately $40 million subject to post-closing adjustments. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash. The Varian merger will be accounted for in accordance with the authoritative accounting guidance. The initial accounting for the acquisition of Varian is incomplete. The acquired assets and assumed liabilities will be recorded by Agilent at their estimated fair values. Agilent will determine the estimated fair values with the assistance of valuations performed by independent third party specialists, discounted cash flow analyses, quoted market prices where available, and estimates made by management.

On May 1, 2010, we completed the sale of the Network Solutions Division (“NSD”) of our electronic measurement business to JDS Uniphase Corporation (“JDSU”), a leading communications test and measurement company. JDSU paid Agilent $165 million which is subject to post-closing working capital and other adjustments. We anticipate recording a significant gain on the sale of NSD in the third quarter of fiscal 2010. NSD includes Agilent’s network assurance solutions, network protocol test and drive test products.

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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, and drivers of, 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, the ability of our products to meet market needs, 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, savings and headcount reduction recognized from our restructuring programs, the integration of our Varian acquisition and other transactions, our stock repurchase program, our transition to lower-cost regions, the existence, length or timing of an economic recovery that involve risks and uncertainties. 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 is the world’s premier measurement company, providing core bio-analytical and electronic measurement solutions to the life sciences, chemical analysis, communications and electronics industries.

For the three and six months ended April 30, 2010 there were continuing signs of a recovery in our key markets with strong total order and revenue growth compared to the same periods last year. Total orders for the three and six months ended April 30, 2010 were $1,346 million and $2,566 million, respectively, an increase of 31 percent and 20 percent, respectively, above the same periods last year. Foreign currency movements accounted for 3 percentage points and 4 percentage points of order growth in the three and six months ended April 30, 2010, respectively, compared to the same periods last year. Each of our operating businesses recorded order growth in the three and six months ended April 30, 2010, with electronic measurement making a strong recovery in the second quarter of this year.

Net revenue of $1,271 million and $2,484 million for the three and six months ended April 30, 2010 increased 16 percent and 10 percent, respectively, from the same periods last year. Foreign currency movements accounted for 3 percentage points of revenue increase in the three and six months ended April 30, 2010 compared to the same periods last year. Within life sciences, sales of life sciences products into applied markets continued to perform strongly and academic and government markets also increased revenue in the three and six months ended April 30, 2010 compared to the same periods in 2009. Almost all end-markets grew across the chemical analysis business in the three and six months ended April 30, 2010 when compared to the same periods in 2009. Within electronic measurement, general purpose markets continued to strengthen in the three and six months ended April 30, 2010, compared to the same periods last year with increased performance being led by an overall improvement in the economy with strength in electronics and semiconductor businesses. Also within electronic measurement, communications test remained weak overall in the three and six months ended April 30, 2010.

Net income for the three and six months ended April 30, 2010 was $108 million and $187 million, respectively, compared to a loss of $101 million and a loss of $37 million for the corresponding periods last year. In the six months ended April 30, 2010, we generated $255 million of cash from operations compared with $154 million generated in the same period last year.

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Looking forward, we continue to see signs of recovery in most of our key markets and we remain committed to delivering performance consistent with Agilent’s operating model. Following the successful close of the Varian acquisition, our strategy is to integrate Varian’s core systems and processes into Agilent, to capture revenue synergies with the addition of the Varian product portfolio and to drive cost synergies by leveraging Agilent’s operating model including global infrastructure and our purchasing power.

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, goodwill and purchased intangible assets, restructuring and asset impairment charges, and accounting for income taxes; certain of which are described below. 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. We estimate the stock price volatility using the historical volatility of Agilent’s stock options over the most recent historical period equivalent to the expected life of stock options. In reaching this conclusion, we have considered many factors including the extent to which our options are currently traded and our ability to find traded options in the current market with similar terms and prices to the options we are valuing. A 10 percent increase in our estimated historical volatility from 36 percent to 46 percent would generally increase the value of an award and the associated compensation cost by approximately 22 percent if no

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other factors were changed. In estimating the expected life of our options granted we considered the historical option exercise behavior of our employees, which we believe is representative of future behavior.

Goodwill and purchased intangible assets. Agilent reviews goodwill for impairment annually during our fourth quarter and whenever events or changes in circumstances indicate the carrying value may not be recoverable. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. We aggregated components of operating segments with similar economic characteristics into our reporting units. We reviewed three previous reporting units for goodwill impairment testing purposes: electronic measurement, bio-analytical measurement and semiconductor and board test. In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises an operating segment. During 2010 we will assess for potential impairment of goodwill on our three new reporting. For these reporting unit changes, we applied the relative fair value method to determine the impact to the reporting units.

The circumstances that could trigger a goodwill impairment could include, but are not limited to, the following items to the extent that management believes the occurrence of one or more would make it more likely than not that we would fail step 1 of the goodwill impairment test: significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, a portion of a reporting unit’s goodwill has been included in the carrying amounts of a business that will be disposed or if our market capitalization is below our net book value.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment, as our businesses operate in a number of markets and geographical regions. We determine the fair value of our reporting units based on an income approach, whereby we calculate the fair value of each reporting unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends, current budgets, operating plans and industry data. We evaluate the reasonableness of the fair value calculations of our reporting units by reconciling the total of the fair values of all of our reporting units to our total market capitalization, taking into account an appropriate control premium. We then compare the carrying value of our reporting units to the fair value calculations based on the income approach. Estimates of the future cash flows associated with the businesses are critical to these assessments. The assumptions used in the fair value calculation change from year to year and include revenue growth rates, operating margins, risk adjusted discount rates and future economic and market conditions. Changes in these assumptions based on changed economic conditions or business strategies could result in material impairment charges in future periods.

There was no impairment of goodwill during the three and six months ended April 30, 2010 or for the year ended October 31, 2009. We continue to assess the overall environment to determine if we would trigger and fail step 1 of the goodwill impairment test.

We continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets, including purchased intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. We impaired zero and $14 million of purchased intangibles and fixed assets in the three and six months ended April 30, 2010, respectively, related to a business which we divested in our second quarter of this year.

Accounting for income taxes. We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as interest and penalties related to uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.

Significant management judgment is also required in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as net operating losses or foreign tax credit carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that cannot be realized. We consider all available positive and negative evidence on a jurisdiction-by-jurisdiction basis when assessing whether it is more likely than not that deferred tax assets are recoverable. We consider evidence such as our past operating results, the existence of cumulative losses in recent years and our forecast of future taxable income. At April 30, 2010, we provided partial valuation allowances for our U.S. deferred tax assets and full or partial valuation allowances on certain foreign deferred tax assets. We intend to maintain partial or full valuation allowances until sufficient positive evidence exists to support reversal of a valuation allowance in a given taxing jurisdiction.

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We have not provided for all U.S. federal income and foreign withholding taxes on the undistributed earnings of some of our foreign subsidiaries because we intend to reinvest such earnings indefinitely. Should we decide to remit this income to the U.S. in a future period, our provision for income taxes may increase materially in that period.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax law and regulations in a multitude of jurisdictions. Although the guidance on the accounting for uncertainty in income taxes prescribes the use of a recognition and measurement model, the determination of whether an uncertain tax position has met those thresholds will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what is currently estimated, a material impact on income tax expense could result.

Adoption of New Pronouncements

See Note 2, “New Accounting Pronouncements,” to the condensed consolidated financial statements for a description of new accounting pronouncements.

Restructuring Costs, Asset Impairments and Other Charges

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				Six Months Ended				Year over Year Change
	April 30,				April 30,				Three		Six
	2010		2009		2010		2009		Months		Months
	(in millions)
Orders	$	1,346	$	1,026	$	2,566	$	2,141	31	%	20	%
Net revenue:
Products	$	1,029	$	864	$	2,005	$	1,801	19	%	11	%
Services and other	242		227		479		456		7	%	5	%
Total net revenue	$	1,271	$	1,091	$	2,484	$	2,257	16	%	10	%

Net revenue in the three and six months ended April 30, 2010, was $1,271 million and $2,484 million, respectively, a 16 percent and 10 percent increase over the same periods last year. Foreign currency movements accounted for 3 percentage points of revenue

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increase in the three and six months ended April 30, 2010 compared to the same periods last year. Net revenue from services and other increased 7 percent and 5 percent in three and six months ended April 30, 2010, respectively, versus a 19 percent and 11 percent increase in product revenues. Total revenue increased in each of our businesses in the three and six months ended April 30, 2010 when compared to the same periods in 2009 as signs of a recovery in most of our end markets observed towards the end of 2009 continued into the first and second quarters of 2010. Services and other revenue include revenue generated from servicing our installed base of products, warranty extensions and consulting.

Operating Results

	Three Months Ended						Six Months Ended						Year over Year Change
	April 30,						April 30,						Three		Six
	2010			2009			2010			2009			Months		Months
Total gross margin	55.9		%	48.6		%	55.2		%	49.6		%	7	ppts	6	ppts
Operating margin	12.1		%	(4.3		)%	10.0		%	(1.0		)%	16	ppts	11	ppts

(in millions)
Research and development	$	150		$	170		$	299		$	339		(12	)%	(12	)%
Selling, general and administrative	$	407		$	407		$	824		$	803		—		3	%

Total gross margins for the three and six months ended April 30, 2010 showed a 7 percentage point and a 6 percentage point increase, respectively, compared to the same periods last year. The benefits of business and infrastructure restructuring programs together with favorable volume impacts and currency movements offset the unfavorable impact of wage restoration, higher variable and incentive pay. Operating margins increased 16 percentage points and 11 percentage points for the three and six months ended April 30, 2010, respectively, compared to the same periods last year.

In January 2009, we implemented wage reductions across the company in response to deteriorating economic conditions. Wages were restored to previous levels for all employees effective November 1, 2009.

Research and development expenses decreased 12 percent for both the three and six months ended April 30, 2010 compared to the same periods last year. A significant proportion of the three and six month percentage decrease is the result of restructuring program expenses having been incurred in the three and six months ended April 30, 2009. In addition there were spending reductions as a result of the restructuring programs in this year which were partially offset by wage restoration, higher variable and incentive pay and unfavorable currency movements. We remain committed to invest in research and development by 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 were flat and increased 3 percent for the three and six months ended April 30, 2010, respectively, compared to the same period last year. Increased expenditure in the six months ended April 30, 2010 was due to the impact of higher variable pay and incentive pay and the wage restoration.

At April 30, 2010, our headcount was approximately 16,100 as compared to approximately 19,100 at April 30, 2009.

Global Infrastructure Organization

Our global infrastructure organization (“GIO”) remains a key component of our operating model. GIO, which includes finance, HR, legal, IT and workplace services, has significantly reduced its cost structure over the past year. We will continue to efficiently manage and leverage our infrastructure resources to support our businesses, integrate acquisitions and complete our divestitures in the coming year.

Provision for Income Taxes

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statutes of limitations and tax settlements. Without considering interest and penalties, the 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 valuation allowances. We intend to maintain partial or full valuation allowances in these jurisdictions until sufficient positive evidence exists to support the reversal of the valuation allowances.

At April 30, 2010, our estimate of the annual effective tax rate was 15 percent. The income tax rate for continuing operations was 22.3 percent and 15.7 percent for the three and six months ended April 30, 2010. The company determines its interim tax provision using an estimated annual effective tax rate methodology except in jurisdictions where the company anticipates or has a year-to-date ordinary loss for which no tax benefit can be recognized. In these jurisdictions, tax expense is computed based on an actual or discrete method. Our effective tax rate 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.

In the U.S., the tax years remain open to Internal Revenue Service (“IRS”) and state audits back to the year 2000. In other major jurisdictions where we conduct business, the tax years generally remain open to audit by local tax authorities back to the year 2003. As a result of audit activities, our disclosure of unrecognized tax benefits as of October 31, 2009 will change significantly during this fiscal year. Furthermore, it is reasonably possible that additional changes to our unrecognized tax benefits could be significant in the next twelve months due to lapses of statutes of limitation and tax audit settlements. As a result of uncertainties 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 in our unrecognized tax benefits that could occur in the next twelve months cannot be made.

Segment Overview

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

In the first quarter of 2010, we formed three new operating segments from our existing businesses. The bio-analytical measurement segment was separated into two operating segments — life sciences and chemical analysis. The electronic measurement segment recombined electronic measurement and semiconductor and board test, which were reported separately in 2009. Following this re-organization, Agilent has three businesses — life sciences, chemical analysis and electronic measurement — each of which comprises a reportable segment. The three new operating segments were determined based primarily on how the chief operating decision maker views and evaluates our operations. Operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance. Other factors, including technology and delivery channels, consumer-specific solutions and specialized manufacturing, are considered in determining the formation of these new operating segments.

All historical segment numbers have been recast to conform to this new reporting structure in our financial statements.

Life Sciences

Our life sciences 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. Key product categories in life sciences include: DNA microarrays and associated scanner, software, and reagents; microfluidics-based sample analysis systems; liquid chromatography systems, columns and components; liquid chromatography mass spectrometry systems; capillary electrophoresis systems; laboratory software and informatics systems; bio-reagents and related products; laboratory automation and robotic systems; services and support for the aforementioned products.

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Orders and Net Revenue

	Three Months Ended				Six Months Ended				Year over Year Change
	April 30,				April 30,				Three		Six
	2010		2009		2010		2009		Months		Months
	(in millions)
Orders	$	331	$	287	$	667	$	594	15	%	12	%
Net revenue	$	334	$	298	$	674	$	607	12	%	11	%

Life sciences orders for the three and six months ended April 30, 2010 increased 15 percent and 12 percent, respectively, when compared to the same periods last year, fueled by strength in the liquid chromatography (“LC”), microarray, and automation portfolios, along with consumables and services. Our recently released products, such as the 1290 Infinity LC and SureSelect Target Enrichment, performed well. Foreign currency movements for the three and six months ended April 30, 2010 accounted for 4 percentage points in both periods, of the growth in orders when compared to the same periods last year. Geographically, orders grew 20 percent in the Americas, 10 percent in Europe, 5 percent in Japan, and 19 percent in other Asia Pacific for the three months ended April 30, 2010 compared to the same period last year. Orders grew 11 percent in the Americas, 6 percent in Europe, 12 percent in Japan, and 23 percent in other Asia Pacific for the six months ended April 30, 2010 compared to the same period last year.

Life sciences revenues for the three and six months ended April 30, 2010 grew 12 percent and 11 percent, respectively, when compared to the same periods last year, led by growth in the LC and consumables portfolios. Foreign currency movements for the three and six months ended April 30, 2010 accounted for 4 percentage points of the revenue growth in each period compared to the same periods last year. Geographically, revenues grew 9 percent in the Americas, 4 percent in Europe, 27 percent in Japan, and 25 percent in other Asia Pacific for the three months ended April 30, 2010 compared to the same periods last year. Revenues grew 6 percent in the Americas, 6 percent in Europe, 23 percent in Japan, and 26 percent in other Asia Pacific for the six months ended April 30, 2010 compared to the same periods last year.

We saw growth in the academic, government, food, and other applied markets. While the pharmaceutical and biotechnology markets were relatively flat compared to last year, customers showed interest in new biological entity development and technology upgrades. In the academic and government markets, disease quantification proteomics/metabolomics and systems biology research gained more importance in China. Next generation sequencing continues on an aggressive growth path and is receiving funding priority by our customers. We are in a position to address this trend through genomics products, such as the SureSelect Target Enrichment System, which can help our customers improve the cost and process efficiency of next generation sequencing. Our new dedicated life sciences sales channel is also beginning to reap the benefits of penetrating the academic and government markets. In the food market, food safety testing is increasing due to issues with melamine in milk, bisphenol A in consumer products, as well as other recent incidents. In addition to food testing, other applied markets such as environmental testing, forensics, and pathogen detection are gaining momentum in solutions such as reagents, assays, and software for data analysis. This presents favorable opportunities for our product portfolios in these areas.

Looking forward, we expect growth in the food, environmental, and industrial markets to accelerate and drive further demand in our LC and liquid chromatography mass spectrometry instruments. In our new life sciences sales channel coverage model, we are specifically adding capabilities to address life science applications expertise. The life sciences business also remains focused on expanding our application portfolio for our customers. We are working to fill the gaps in our capabilities through R&D and product efforts.

With the acquisition of Varian, the life sciences business will have an expanded product portfolio, including complimentary products in liquid chromatography, mass spectrometry, consumables, and new offerings in dissolution testing and magnetic resonance (NMR, MRI). Revenue synergies are expected as result of the new product portfolio, and our ability to offer new applications and solutions to life sciences customers. Cost synergies will result from leveraging our global infrastructure and our purchasing power.

Operating Results

	Three Months Ended						Six Months Ended						Year over Year Change
	April 30,						April 30,						Three		Six
	2010			2009			2010			2009			Months		Months
Gross margin	55.0		%	54.7		%	54.7		%	54.6		%	—		—
Operating margin	14.2		%	14.6		%	15.3		%	14.4		%	—		1	ppt

(in millions)
Research and development	$	33		$	33		$	66		$	66		2	%	—
Selling, general and administrative	$	103		$	87		$	200		$	178		18	%	12	%

Gross margins for products and services for the three and six months ended April 30, 2010 were relatively flat compared to the same periods last year. For the three and six months ended April 30, 2010, increases in higher variable pay and incentive pay, the wage restoration and shared corporate infrastructure expenses were largely offset by favorable volume impact, currency movements, and product mix.

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Research and development expenses increased 2 percent for the three months ended April 30, 2010 compared to the same period last year. These expenses were relatively flat for the six months ended April 30, 2010 compared to the same period last year. The increase in the three months ended April 30, 2010 was due to the impact of the wage restoration and higher variable pay and incentive pay, partially offset by discretionary spending reductions. For the six months ended April 30, 2010, increases due to the impact of the wage restoration and higher variable pay and incentive pay were largely offset by discretionary spending reductions.

Selling, general and administrative expenses for the three and six months ended April 30, 2010 increased 18 percent and 12 percent, respectively, compared to the same periods last year. The increases in the three and six months ended April 30, 2010 were due to higher variable pay and incentive pay, higher commissions, the wage restoration, higher shared corporate infrastructure expenses, higher sales channel costs due to hiring and dedicated life sciences sales channel, partially offset by expense reductions due to a divestiture.

Operating margins for products and services for the three months ended April 30, 2010 were relatively flat compared to the same period last year. Operating margins for products and services for the six months ended April 30, 2010, increased 1 percentage point compared to the same period last year. Factors which led to operating margin variances for these periods are collectively highlighted in the above discussions on gross margins, research and development expenses, and selling, general and administrative expenses.

Income from Operations

Income from operations for the three and six months ended April 30, 2010, increased $4 million and $15 million, respectively, on a corresponding revenue increase of $36 million and $67 million. The resultant year-over-year operating margin incremental was 11 percent and 22 percent for these periods, respectively.

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Chemical Analysis

Our chemical analysis 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. Key product categories in chemical analysis include: gas chromatography systems, columns and components; gas chromatography mass spectrometry systems; inductively coupled plasma mass spectrometry products; spectroscopy analyzers; software and data systems; services and support for the aforementioned products.

Orders and Net Revenue

	Three Months Ended				Six Months Ended				Year over Year Change
	April 30,				April 30,				Three		Six
	2010		2009		2010		2009		Months		Months
	(in millions)
Orders	$	231	$	194	$	473	$	410	19	%	15	%
Net revenue	$	238	$	200	$	482	$	416	19	%	16	%

Chemical analysis orders for the three and six months ended April 30, 2010 increased 19 percent and 15 percent, respectively, when compared to the same periods last year, led by solid performance in the gas chromatography mass spectrometry (“GC/MS”), inductively coupled plasma mass spectrometry (“ICP-MS”), and mid-range GC portfolios, along with services and consumables. Growth in the services and support business was driven by good service contract connect rate to instruments, including repair contracts and multi-vendor services. Foreign currency movements for the three and six months ended April 30, 2010 accounted for 5 percentage points each of the growth in orders when compared to the same periods last year. Geographically, orders grew 21 percent in the Americas, 14 percent in Europe, 14 percent in Japan, and 24 percent in other Asia Pacific for the three months ended April 30, 2010 compared to the same period last year. Orders grew 9 percent in the Americas, 11 percent in Europe, 26 percent in Japan, and 21 percent in other Asia Pacific for the six months ended April 30, 2010 compared to the same period last year.

Chemical analysis revenues for the three and six months ended April 30, 2010 increased 19 percent and 16 percent, respectively, when compared to the same periods last year, led by growth in the GC-MS, ICP-MS, and mid-range GC portfolios, along with consumables. Foreign currency movements for the three and six months ended April 30, 2010 accounted for 5 percentage points and 3 percentage points, respectively, of the revenue growth compared to the same periods last year. Geographically, revenues grew 10 percent in the Americas, 8 percent in Europe, 46 percent in Japan, and 28 percent in other Asia Pacific for the three months ended April 30, 2010 compared to the same period last year. Revenues grew 3 percent in the Americas, 14 percent in Europe, 33 percent in Japan, and 26 percent in other Asia Pacific for the six months ended April 30, 2010 compared to the same periods last year.

We saw growth in the petrochemical, food, forensics, and environmental markets. The hydrocarbon processing industry within the petrochemical market is slowly recovering from the recession in most regions except Europe. China continues to execute its energy plan by building new downstream refining plants so growth remains strong in the region. The food market continues to remain robust especially in Europe and Asia Pacific, with growth in China fueled by demand in new regulations. The food market in the Americas continues to show significant strength with purchases of high end GC/MS products even in the absence of legislative mandates. In the environmental and forensics markets, global contract environment testing labs are cautious with capital budgets. However, European directives are driving investments in water quality analysis and waste water management. Also, spending in support of doping control for national and international sporting events remains strong.

Looking forward, we look to strengthen our core business and drive growth. We will strengthen our core business to extend our gas phase leadership by expanding our mid-range GC portfolio to meet customers’ needs. We will drive growth by focusing on the emerging food market and growth opportunities in China. With solid customer acceptance, recent new product introductions in the GC/MS and ICP-MS portfolios continue to drive good growth in food and environmental applications. We will also expand our high-end mass spectrometry portfolio and consumables business.

With the acquisition of Varian, the chemical analysis product portfolio will include new offerings in spectroscopy and vacuum technologies, complimentary mass spectrometry products, and an expanded consumables portfolio. Revenue synergies are expected as result of the new product portfolio and broader customer and geographic reach. Cost synergies will result from leveraging our global infrastructure and our purchasing power.

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Operating Results

	Three Months Ended						Six Months Ended						Year over Year Change
	April 30,						April 30,						Three		Six
	2010			2009			2010			2009			Months		Months
Gross margin	54.5		%	53.2		%	54.8		%	54.2		%	1	ppt	1	ppt
Operating margin	23.9		%	22.7		%	25.7		%	24.5		%	1	ppt	1	ppt

(in millions)
Research and development	$	14		$	13		$	27		$	26		7	%	2	%
Selling, general and administrative	$	59		$	48		$	113		$	97		23	%	16	%

Gross margins for products and services for the three and six months ended April 30, 2010 increased 1 percentage point each compared to the same periods last year. The increases in the three and six months ended April 30, 2010 were due to favorable volume impact, currency movements, and product mix partially offset by higher variable pay and incentive pay, the wage restoration, and higher shared corporate infrastructure expenses.

Research and development expenses for the three and six months ended April 30, 2010 increased 7 percent and 2 percent, respectively, compared to the same period last year. The increases in the three and six months ended April 30, 2010 were due to the impact of the wage restoration and higher variable pay and incentive pay, partially offset by discretionary spending reductions.

Selling, general and administrative expenses for the three and six months ended April 30, 2010 increased 23 percent and 16 percent, respectively, compared to the same periods last year. The increases in the three and six months ended April 30, 2010 were due to higher variable pay and incentive pay, shared corporate infrastructure expenses, commissions and sales expenses, increased marketing program expenses, the wage restoration and wage increases.

Operating margins for products and services for the three and six months ended April 30, 2010, increased 1 percentage point each compared to the same periods last year. Factors which led to operating margin variances for these periods are collectively highlighted in the above discussions on gross margins, research and development expenses, and selling, general and administrative expenses.

Income from Operations

Income from operations for the three and six months ended April 30, 2010, increased $12 million and $22 million, respectively, on a corresponding revenue increase of $38 million and $66 million. The resultant year-over-year operating margin incremental was 32 percent and 33 percent for these periods, respectively.

Electronic Measurement

Our electronic measurement business provides standard and customized electronic measurement instruments and systems monitoring, management and optimization tools for communications networks and services, software design tools and related services that are used in the design, development, manufacture, installation, deployment and operation of electronics equipment, communications networks and services, and microscopy products. Related services include start-up assistance, instrument productivity and application services and instrument calibration and repair. We also offer customization, consulting and optimization services throughout the customer’s product lifecycle.

Orders and Net Revenue

	Three Months Ended				Six Months Ended				Year over Year Change
	April 30,				April 30,				Three		Six
	2010		2009		2010		2009		Months		Months
	(in millions)
Orders	$	784	$	545	$	1,426	$	1,137	44	%	25	%
Net revenue	$	699	$	593	$	1,328	$	1,234	18	%	8	%

Electronic measurement orders for the three and six months ended April 30, 2010, increased 44 percent and 25 percent, respectively, when compared to the same periods last year. Foreign currency movements accounted for 2 percentage points of the year-over-year growth for the three and six months ended April 30, 2010. Improvement in economic conditions, particularly in the

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computer and semiconductor markets contributed to a relatively strong year-over-year growth. Orders increased in all regions year-over-year for the three months ended April 30, 2010, growing 41 percent in the Americas, 39 percent in Europe, 26 percent in Japan, and 63 percent in other Asia Pacific. For the six months ended April 30, 2010, orders in Americas grew 20 percent, Europe grew 22 percent, Japan was 8 percent higher, and other Asia Pacific increased 48 percent compared to the same period last year.

Electronic measurement revenues for the three and six months ended April 30, 2010, increased 18 percent and 8 percent, respectively, when compared to the same periods last year. Foreign currency movements accounted for 2 percentage points of the year-over-year growth in the three and six months ended April 30, 2010. Revenues increased in all regions for the three months ended April 30, 2010, with 16 percent growth year-over-year in the Americas, 17 percent in Europe, 9 percent in Japan, and 26 percent in other Asia Pacific. For the six months ended April 30, 2010, revenue in the Americas increased 6 percent, Europe increased 6 percent, Japan declined 9 percent, and other Asia Pacific grew 21 percent year-over-year.

General purpose test revenues of $480 million, representing approximately 69 percent of electronic measurement revenues, increased 31 percent for the three months ended April 30, 2010, compared to the same period last year. For the six months ended April 30, 2010, the general purpose business grew 22 percent year-over-year. In the three months ended April 30, 2010, strength in computers and semiconductor and other general purpose test business was offset slightly by a decrease in aerospace and defense. Strength in the computers and semiconductor business reflected increased demand for cell phones, computers, and electronics as consumer spending improved. Growth in other general purpose test markets reflected more technology related spending that outpaced overall economic growth. Aerospace and defense business reflected some slowing in the U.S. market although the focus on information management, with faster growth in surveillance and intelligence, remains an ongoing trend.

Communications test revenues of $219 million, representing approximately 31 percent of electronic measurement revenues, declined 3 percent compared to the same period last year. For the six months ended April 30, 2010, the communications business declined 14 percent year-over-year. Improvement in wireless manufacturing in the three months ended April 30, 2010, was offset by declines in wireless R&D and other communications test. Wireless manufacturing business improved due to strong demand for Smartphones, some expansion of handset manufacturing in Asia Pacific, and improvement in base station related spending. Wireless R&D decreased year-over-year but experienced sequential growth as market conditions improved with targeted investments for high data rate applications, particularly long-term evolution (an emerging wireless standard). Capital spending remains limited in the other communications test submarkets offset by modest improvement year-over-year in electronic design application business.

Looking forward, we expect the market recovery in electronics measurement to continue with sustained momentum in our general purpose test business and improvement in communications test.

Operating Results

	Three Months Ended						Six Months Ended						Year over Year Change
	April 30,						April 30,						Three		Six
	2010			2009			2010			2009			Months		Months
Gross margin	58.8		%	50.4		%	58.1		%	52.3		%	8	ppts	6	ppts
Operating margin	14.2		%	(3.7		)%	11.9		%	(2.3		)%	18	ppts	14	ppts

(in millions)
Research and development	$	101		$	106		$	201		$	224		(5	)%	(10	)%
Selling, general and administrative	$	210		$	215		$	412		$	449		(2	)%	(8	)%

Gross margins for products and services for the three and six months ended April 30, 2010, increased 8 percentage points and 6 percentage points, respectively, compared to the same periods last year. Volume-adjusted gross margins for the three months and six months ended April 30, 2010, improved 6 percentage points and 5 percentage points, respectively, as expense reductions from our restructuring plan, favorable currency, and lower infrastructure costs offset the unfavorable impact of the wage restoration and higher variable pay and incentive pay.

Research and development expenses for the three and six months ended April 30, 2010, decreased 5 percent and 10 percent, respectively, compared to the same periods last year. This decline was driven by savings from our restructuring plan and lower infrastructure costs offset by the wage restoration, higher variable pay and incentive pay, and the unfavorable impact of currency movement.

Selling, general and administrative expenses for the three and six months ended April 30, 2010, decreased 2 percent and 8 percent, respectively, compared to the same periods last year. Year-over-year reductions in SG&A were similar to R&D and driven by savings from restructuring programs and lower infrastructure costs, which were offset by the wage restoration, higher variable pay and incentive pay, higher commissions, and the unfavorable impact of currency movements.

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Operating margins for products and services for the three and six months ended April 30, 2010, increased 18 percentage points and 14 percentage points, respectively, compared to the same periods last year. The margin improvements resulting from higher volume, savings from our restructuring plan, and lower infrastructure costs were partially offset by the wage restoration, higher variable pay and incentive pay, higher commissions, and unfavorable year-over-year impact of currency movement on operating expenses.

Income from Operations

Income from operations for the three and six months ended April 30, 2010, increased $122 million and $186 million, respectively, on a corresponding revenue increase of $106 million and $94 million. The resultant year-over-year operating margin incremental of 115 percent and 198 percent for these periods, respectively, is expected to moderate going forward as compares are made against improved prior period results.

FINANCIAL CONDITION

Liquidity and Capital Resources

Our cash balances are held in numerous locations throughout the world, including substantial amounts held outside of the U.S. Most of the amounts held outside of the U.S. could be repatriated to the U.S. but, under current law, would be subject to U.S. federal and state income taxes, less applicable foreign tax credits. Agilent has accrued for U.S. federal and state tax liabilities on the earnings of its foreign subsidiaries except when the earnings are considered indefinitely reinvested outside of the U.S. Repatriation could result in additional U.S. federal and state income tax payments in future years. 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 April 30, 2010 consisted of cash and cash equivalents of $2,646 million as compared to $2,479 million as of October 31, 2009.

On May 14, 2010, we completed our acquisition of Varian and paid out approximately $1.5 billion in cash. The $1.5 billion total purchase price of Varian includes $52 cash per share of Varian’s outstanding common stock and the cashing out of vested and non-vested in-the-money stock options at $52 cash per share less their exercise price. Varian’s non-vested restricted stock awards, performance shares, at 100 percent of target and director’s stock units, were also paid out at $52 per share. Varian’s cash acquired at completion of the acquisition was approximately $225 million. We financed the purchase price of Varian using the proceeds from our September 2009 offering of senior notes and other existing cash.

We currently hold $1.5 billion of short-term debt repayable on January 27, 2011. We are currently considering a number of options to extend, reduce or eliminate the short-term debt.

On May 1, 2010, we completed the sale of the NSD of our electronic measurement business to JDSU. JDSU paid Agilent $165 million which is subject to post-closing working capital and other adjustments. We anticipate recording a significant gain on the sale of NSD in the third quarter of fiscal 2010. NSD includes Agilent’s network assurance solutions, network protocol test and drive test products.

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $255 million for the six months ended April 30, 2010 compared to cash provided of $154 million for the same period in 2009. In the six months ended April 30, 2010, we paid approximately $53 million under our variable pay programs, as compared to $109 million paid out during the same period of 2009. We paid approximately $26 million in taxes in the six months ended April 30, 2010 as compared to $58 million in the same period in 2009.

In the six months ended April 30, 2010, accounts receivable used cash of $93 million compared to cash provided of $203 million for the same period in 2009. Agilent revenues increased by approximately 10 percent in the six months ended April 30, 2010 as compared to the same period in 2009. Days’ sales outstanding at 47 days as of April 30, 2010 remained the same compared with a year ago. Accounts payable provided cash of $55 million for the six months ended April 30, 2010 compared to cash used of $58 million in the same period in 2009. Cash used for inventory was $17 million for the six months ended April 30, 2010 compared to cash provided of $13 million for the same period in 2009. Inventory days on-hand decreased to 88 days as of April 30, 2010 compared to 98 days as of the end of the same period last year.

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We contributed approximately $54 million to our defined benefit plans in the first six months of 2010 compared to $69 million in the same period of 2009. 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 $30 million to our defined benefit plans during the remainder of 2010.

Net Cash Used in Investing Activities

Net cash used in investing activities was $33 million for the six months ended April 30, 2010 compared to cash used of $28 million for the same period of 2009. Investments in property, plant and equipment were $54 million for the six months ended April 30, 2010 compared to $68 million in the same period of 2009. We expect that total capital expenditures for the current year will be approximately the same as last years’ expenditures which were $128 million for 2009. In the six months ended April 30, 2010 there were $12 million of business acquisitions and intangible assets, compared to $2 million invested during the same period of 2009. In the six months ended April 30, 2010, restricted cash and cash equivalents increased by $4 million compared to an increase of $10 million during the same period in 2009. Proceeds from a divestiture were $20 million in the six months ending April 30, 2010.

Net Cash Used in Financing Activities

Net cash used in financing activities for the six months ended April 30, 2010 was $56 million compared to cash used of $130 million in 2009.

On November 19, 2009 our Board of Directors approved a share-repurchase program to reduce or eliminate dilution in connection with issuances of stock under the company’s equity incentive plans. The share-repurchase program does not require the company to acquire a specific number of shares and may be suspended or discontinued at any time. There is no fixed termination date for the new share-repurchase program. For the six months ended April 30, 2010 we repurchased 8 million shares for $265 million using settlement date calculation.

We currently hold $1.5 billion of short-term debt which was refinanced and the repayment date was extended to January 27, 2011. We are currently considering a number of options to extend, reduce or eliminate the short-term debt.

As of April 30, 2010, we had approximately $2.6 billion of unrestricted cash and $1.6 billion of restricted cash. Our unrestricted cash was used to fund the acquisition of Varian and the residual amount of unrestricted cash and restricted cash could be used to repurchase or redeem the debt mentioned above. However, most of this cash is held overseas and would need to be repatriated to the U.S. in order to be used to satisfy the repurchase obligation. Repatriation could result in additional U.S. federal and state income tax payments in future years.

On September 9, 2009, Agilent Technologies, Inc. entered into an underwriting agreement with Barclays Capital Inc., Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC. Pursuant to the underwriting agreement, Agilent issued an aggregate principal amount of $250 million in senior notes (the “2012 notes”). The senior notes were issued at 99.91% of their principal amount. The notes will mature on September 14, 2012, and bear interest at a fixed rate of 4.45% per annum. The interest is payable semi-annually on March 14th and September 14th of each year, payments commenced on March 14, 2010. Agilent also issued an aggregate principal amount of $500 million in senior notes (the “2015 notes”). These senior notes were issued at 99.69% of their principal amount. The notes will mature on September 14, 2015, and bear interest at a fixed rate of 5.50% per annum. The interest is payable semi-annually on March 14th and September 14th of each year, payments commenced on March 14, 2010. Upon the closing of the offering of the 2012 and 2015 notes, we entered into interest rate swaps with an aggregate notional amount of $750 million. Under the

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interest rate swaps, we will receive fixed-rate interest payments and will make payments based on the U.S. dollar London inter-bank offered rate (“LIBOR”) plus 257.6 basis points and 253 basis points with respect to the 2012 and 2015 notes, respectively. 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.

Other

There were no other substantial changes from our 2009 Annual Report on Form 10-K to our contractual commitments in the first six months of 2010. We have contractual commitments for non-cancelable operating leases. We have no other material non-cancelable guarantees or commitments.

Other long-term liabilities include $365 million and $418 million of taxes payable as of April 30, 2010 and October 31, 2009, respectively. We are unable to accurately predict when these amounts will be realized or released.

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 64 percent and 62 percent of our revenues were generated in U.S. dollars during the second quarter of 2010 and 2009, 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 April 30, 2010 the analysis indicated that these hypothetical market movements would not have a material effect on our condensed 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 Interim 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 Interim 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 April 30, 2010 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 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

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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. The parties have again reached a global settlement of the litigation and filed a motion for preliminary approval of the settlement on April 2, 2009. Under the settlement, the insurers would pay the full amount of settlement share allocated to Agilent, and Agilent would bear no financial liability. Agilent, as well as the officer and director defendants who were previously dismissed from the action pursuant to tolling agreements, would receive complete dismissals from the case. On October 5, 2009, the Court entered an order granting final approval of the settlement. Certain objectors have appealed the Court’s October 5, 2009 order to the Second Circuit Court of Appeals. That appeal is pending.

On August 5, 2009, a putative class action was filed in California Superior Court, County of Santa Clara, entitled Feivel Gottlieb Plan — Administrator Feivel Gottlieb Defined Benefit Pension Plan DTD 01-01-04 v. Garry W. Rogerson, et al., No. 1-09-CV-149132. The action was allegedly brought on behalf of a class of shareholders of Varian, Inc. (“Varian”) against Varian, its board of directors, Agilent and Cobalt Acquisition Corp. (“Cobalt”), a wholly owned subsidiary of Agilent, in connection with the proposed acquisition of Varian. A similar action, entitled Stuart Kreisberg v. Garry W. Rogerson, et al., No. 1-09-CV-149383, was filed in the same court on August 7, 2009. The actions were subsequently consolidated under the caption In re Varian, Inc. Shareholder Litigation, Lead Case No. 1-09-CV-149132, and a consolidated amended complaint was filed on August 14, 2009. The consolidated amended complaint is also filed on behalf of an alleged class of Varian shareholders against Varian, its directors, Agilent and Cobalt. The consolidated amended complaint alleges that Varian’s directors breached their fiduciary duties in connection with the proposed acquisition and asserts, among other things, that the price and other terms are unfair, that Varian’s directors have engaged in self-dealing, and that the disclosures in Varian’s August 7, 2009 proxy filing are inadequate. Agilent and Cobalt are alleged to have aided and abetted the Varian directors’ purported breaches of fiduciary duties. Plaintiffs seek injunctive and other relief, including attorneys’ fees and costs. On August 19, 2009, another substantially similar putative class action, entitled Hawaii Laborers Pension Fund v. Varian, Inc., et al., No. 1-09-CV-150234, was filed in the same court against Varian, its directors, and Agilent. Like the consolidated amended complaint, it asserts claims on behalf of a class of Varian shareholders, alleges that Varian’s directors breached their fiduciary duties in connection with the proposed acquisition by, inter alia, failing to value Varian properly, agreeing to improper deal terms, engaging in self-dealing and making misleading disclosures, alleges that Agilent aided and abetted those purported breaches of fiduciary duties, and seeks injunctive and other relief (including attorneys’ fees and costs). On September 25, 2009, the parties signed a memorandum of understanding to settle the class actions. The settlement provides, among other things, that: (i) Varian would make certain agreed-upon disclosures designed to supplement those contained in its definitive proxy statement filed on August 20, 2009; (ii) the litigation will be dismissed with prejudice as to all defendants; (iii) defendants believe the claims are without merit and continue to deny liability, but agree to settle in order to avoid the potential cost and distraction of continued litigation and to eliminate any risk of any delay to the acquisition; and (iv) plaintiffs’ counsel may seek fees and costs of up to $625,000, subject to court approval. There is to be no payment of money to the alleged class members. The settlement is subject to execution and delivery of a stipulation of settlement and other definitive documentation, confirmatory discovery, the closing of the acquisition, notice to stockholders, and court approval.

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

Continued depressed general economic conditions and uncertainties in the global credit and equity markets may adversely affect our operating results and financial condition.

Our business is sensitive to changes in general economic conditions, both inside and outside the U.S. Worldwide financial markets have experienced extreme disruption in the past year, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades and declining valuations of investments. These disruptions are likely to have an ongoing adverse effect on the world economy. Although there are indications that the economic situation is beginning to turn, we are unable to predict how long the economic downturn will last and when and if the economic downturn has

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reversed. A continuing economic downturn and continuing financial market disruptions may adversely impact our business resulting in:

· reduced demand for our products realized by diminished new orders and increases in order cancellations;

· increased risk of excess and obsolete inventories;

· increased pressure on the prices for our products and services;

· greater difficulty in collecting accounts receivable;

· reduced access to the credit markets to meet short term cash needs in the U.S.; and

· greater risk of impairment to the value, and a detriment to the liquidity, of our investment portfolio.

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, including declines related to the current market disruptions described above, would likely result in a reduction in demand for our products and services. For example, we experienced weakness in almost all sectors during 2009 due to declines in market activity caused largely by the continued global economic downturn. 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 declines 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 are taking to reduce costs could have long-term adverse effects on our business.

Since December 2008, we have announced and implemented significant restructuring activities in our global infrastructure organization and our electronic measurement segment. This restructuring program 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 harm our consolidated financial position, results of operations, cash flows, and stock price, and could limit our ability to sustain profitability.

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 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;

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· 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. We are already seeing a shortage of parts for some of our products. 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 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;

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· 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. In addition, our currency hedging programs involve third party financial institutions as counterparties. These financial institutions, generally, have experienced and continue to experience significant adverse effects on their business from the current decline in general economic conditions and uncertainties in the global credit and equity markets. The weakening or failure of financial institution counterparties may adversely affect our hedging programs and our financial condition through, among other things, a reduction in available counterparties, increasingly unfavorable terms, and the failure of the counterparties to perform under hedging contracts.

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, especially in light of our ongoing restructuring efforts.

The impact of consolidation of competitors in the electronic measurement and life sciences markets is difficult to predict and may harm our business.

The electronic measurement and life sciences industries are intensely competitive and have been subject to increasing consolidation. For instance, in February 2010, Danaher Corporation completed its acquisition of the Life Sciences Instrumentation Businesses from MDS Inc. and Life Technologies Corp. Consolidation in the electronic measurement and life sciences industries could result in existing competitors 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.

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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, in fiscal 2009, we completed a number of acquisitions and divestitures. In May 2010, we closed our acquisition of Varian, Inc. and the sale of our Network Solutions Division. 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, including the Varian acquisition, 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 with those of the acquired company; and

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

In addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud. The integration of acquired businesses is likely to result in our systems and controls becoming increasingly complex and more difficult to manage. We devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002. However, we cannot be certain that these measures will ensure that we design, implement and maintain adequate control over our financial processes and reporting in the future, especially in the context of acquisitions of other businesses. Any difficulties in the assimilation of acquired businesses into our control system could harm our operating results or cause us to fail to meet our financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.

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.

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.

If we do not achieve the contemplated benefits of our acquisition of Varian, Inc., our business and financial condition may be materially impaired.

We may not achieve the desired benefits from our acquisition of Varian. The acquisition involves the integration of Varian with the rest of our company. If we cannot successfully integrate Varian’s operations, we may experience material negative consequences to our business, financial condition or results of operations. The integration of two businesses that have previously operated separately will be a costly and time-consuming process that will involve a number of risks, including, but not limited to:

· diversion of senior management’s attention from the management of daily operations to the integration of operations;

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· difficulties in the assimilation of different corporate cultures, practices and sales and distribution methodologies, as well as in the assimilation and retention of geographically dispersed, decentralized operations and personnel;

· the potential loss of key personnel who choose not to join the combined business;

· the potential loss of key customers who choose not to do business with the combined business;

· the risk of higher than anticipated costs in continuing support and development of acquired products;

· difficulties and unanticipated expenses related to the integration of facilities, departments, systems, including accounting systems, computer and other technologies, books and records and procedures, as well as in maintaining uniform standards, including internal accounting controls, procedures and policies;

· difficulties and uncertainties in achieving anticipated cost reductions and operational synergies; and

· the use of cash resources and increased capital expenditures on integration and implementation activities in excess of our current expectations, which could offset any such savings and other synergies resulting from the Varian acquisition and limit other potential uses of our cash, including stock repurchases and retirement of outstanding debt.

Even if we are able to successfully integrate the operations of Varian, we may not be able to realize the cost savings, synergies and growth that we anticipate from the acquisition in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to:

· the possibility that the acquisition may not further our business strategy as we expected;

· the fact that the acquisition will substantially expand our bio-analytical measurement business, and we may not experience anticipated growth in that market;

· our operating results or financial condition may be adversely impacted by liabilities that we assume in the acquisition or liabilities related to the acquisition, including claims from terminated employees, customers, former stockholders or other third parties;

· the risk of intellectual property disputes with respect to Varian’s products; and

· the risk that we may significantly increase our interest expense, leverage and debt service requirements, to the extent that we incur debt to pay for the acquisition.

As a result of these risks, the Varian acquisition may not contribute to our earnings as expected, we may not achieve expected cost synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of this transaction.

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 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.

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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.

As part of our acquisition of Varian, we assumed the liabilities of Varian, including Varian’s costs and potential liabilities for environmental matters. One such cost is our obligation, along with the obligation of Varian Semiconductor Equipment Associates, Inc. (“VSEA”) (under the terms of a Distribution Agreement between Varian, VSEA and Varian Medical Systems, Inc. (“VMS”)) to each indemnify VMS for one-third of certain costs (after adjusting for any insurance proceeds and tax benefits recognized or realized by VMS for such costs) relating to (a) environmental investigation, monitoring and/or remediation activities at certain facilities previously operated by Varian Associates, Inc. (“VAI”) and third-party claims made in connection with environmental conditions at those facilities, and (b) U.S. Environmental Protection Agency or third-party claims alleging that VAI or VMS is a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”) in connection with certain sites to which VAI allegedly shipped manufacturing waste for recycling, treatment or disposal (the “CERCLA sites”). With respect to the facilities formerly operated by VAI, VMS is overseeing the environmental investigation, monitoring and/or remediation activities, in most cases under the direction of, or in consultation with, federal, state and/or local agencies, and handling third-party claims. VMS is also handling claims relating to the CERCLA sites. Although any ultimate liability arising from environmental-related matters could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be material to our financial statements, the likelihood of such occurrence is considered remote. Based on information currently available and our best assessment of the ultimate amount and timing of environmental-related events, management believes that the costs of environmental-related matters are not reasonably likely to have a material adverse effect on our financial condition or results of operations.

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 certain 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.

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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 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, could require us to redesign our products, which would be costly and time-consuming, and/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, we may choose to not pursue enforcement 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 allow them to compete with us using that intellectual property.

We are subject to ongoing tax examinations of our tax returns by the Internal Revenue Service and other tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our results of operations, financial condition and liquidity.

We are subject to ongoing tax examinations of our tax returns by the U.S. Internal Revenue Service and other tax authorities in various jurisdictions. We regularly assess the likelihood of adverse outcomes resulting from ongoing tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. Intercompany transactions associated with the sale of inventory, services, intellectual property and cost share arrangements are complex and affect our tax liabilities. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. There can be no assurance that the outcomes from ongoing tax examinations will not have an adverse effect on our operating results and financial condition. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our operating results and financial condition.

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Adverse conditions in the global banking industry and credit markets may adversely impact the value of our cash investments or impair our liquidity.

At the end of our second quarter in fiscal 2010, we had cash and cash equivalents of approximately $2.6 billion invested or held in a mix of money market funds, time deposit accounts and bank demand deposit accounts. The recent disruptions in the financial markets have, in some cases, resulted in an inability to access assets such as money market funds that traditionally have been viewed as highly liquid. Any failure of our counterparty financial institutions or funds in which we have invested may adversely impact our cash and cash equivalent positions and, in turn, our results and financial condition. As of April 30, 2010, we also had $1.6 billion of restricted cash which is invested in a portfolio of highly rated, short term commercial paper. This restricted cash is invested in a diverse portfolio of commercial paper rated A-1+/P-1 with maturities of less than 100 days, in each case, at the time of purchase; however, a failure of the issuer of any such commercial paper may result in an adverse impact on the portfolio.

We have outstanding debt and may incur other debt in the future, which could adversely affect our financial condition, liquidity and results of operations.

We currently have outstanding an aggregate principal amount of $1,350 million in senior unsecured notes. We also are a party to a five-year senior unsecured revolving credit facility under which we may borrow up to $330 million. We may borrow additional amounts in the future and use the proceeds from any future borrowing for general corporate purposes, other future acquisitions, expansion of our business or repurchases of our outstanding shares of common stock. We may enter into additional financing arrangements in order to satisfy our $1.5 billion repurchase obligation of Agilent Technologies World Trade, which is scheduled to come due in January 2011.

Our incurrence of this debt, and increases in our aggregate levels of 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 an increased 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, acquisitions and stock repurchases; 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, the indenture governing our senior notes contains 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 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.

Our results of operations, financial condition and liquidity could be adversely affected if our long-term leasehold counterparty becomes insolvent and the credit support on the leasehold transaction fails.

In February 2001, we sold a parcel of surplus land in San Jose, California for $287 million in cash. In August 2001, we completed a like-kind exchange by acquiring a long-term leasehold interest in several municipal properties in southern California for a total value of $289 million. In 2002, we received $237 million in non-refundable prepaid rent related to the leasehold interests described above. We contracted with a third party to provide credit protection for certain aspects of the transaction, including a future bankruptcy of the municipality. The current third party insurer is a subsidiary of American International Group Inc. (“AIG”) which experienced a credit rating downgrade by Moody’s and Standard & Poor’s and has been the recipient of U.S federal government sponsored loans. If the municipality was to become insolvent and the credit support on the transaction was to fail, our results of operations, financial condition and liquidity could be adversely affected.

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 and debt service requirements, a substantial amount of additional cash is required for special purposes such as the Varian acquisition, the satisfaction of our $1.5 billion

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repurchase obligation of World Trade scheduled to come due in January 2011, the repurchases of our stock and acquisitions of other third parties. 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 earthquake due to their locations. Our production facilities, headquarters and Agilent Technologies Laboratories in California, and our production facilities in 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. Also, our third party insurance coverage will vary from time to time in both type and amount depending on availability, cost and our decisions with respect to risk retention. Economic conditions and uncertainties in global markets may adversely affect the cost and other terms upon which we are able to obtain third party insurance. If our third party insurance coverage is adversely affected, or to the extent we have elected to self-insure, we may be at a greater risk that our operations will be harmed by a catastrophic loss.

If tax incentives change or cease to be in effect, our income taxes could increase significantly.

Agilent benefits from tax incentives extended to its foreign subsidiaries to encourage investment or employment. Several jurisdictions including Singapore, Malaysia and Switzerland have granted Agilent tax incentives which require renewal at various times in the future. The incentives are conditioned on achieving various thresholds of investments and employment, or specific types of income. Agilent’s taxes could increase if the incentives are not renewed upon expiration. If Agilent cannot or does not wish to satisfy all or parts of the tax incentive conditions, we may lose the related tax incentive and could be required to refund tax incentives previously realized. As a result, our effective tax rate could be higher than it would have been had we maintained the benefits of the tax incentives.

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 April 30, 2010.

Period	Total Number of Shares of Common Stock Purchased (1)(2)	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)
Feb. 1, 2010 through Feb. 28, 2010	817,000	$	30.83	817,000	$	NA
Mar. 1, 2010 through Mar. 31, 2010	2,043,700	$	33.56	2,043,700	$	NA
Apr. 1, 2010 through Apr. 30, 2010	1,850,000	$	35.15	1,850,000	$	NA
Total	4,710,700	$	33.71	4,710,700	$	NA

(1)	On November 19, 2009 our Board of Directors approved a new share repurchase program to reduce or eliminate dilution in connection with issuances of stock under the company’s equity incentive plans. The new share repurchase program does not require the company to acquire a specific number of shares and may be suspended or discontinued at any time. There is no fixed termination date for the new share repurchase program.

(2)	The weighted average price paid per share 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 49 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: June 7, 2010	By:	/s/ Didier Hirsch
		Didier Hirsch
		Vice President, Corporate Controllership and Tax and Interim Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

Table of Contents

AGILENT TECHNOLOGIES, INC.

EXHIBIT INDEX

Exhibit Number		Description
11.1		See Note 5, “Net Income Per Share”, to our Condensed Consolidated Financial Statements on page 10.

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.

101.INS XBRL		Instance Document*

101.SCH XBRL		Schema Document*

101.CAL XBRL		Calculation Linkbase Document*

101.LAB XBRL		Labels Linkbase Document*

101.PRE XBRL		Presentation Linkbase Document*

* In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”