Agilent Technologies, Inc., Form 10-K, 10/31/2001

Networking

Mobile

Computing and Printing

3 Com
Alcatel
Allied Telesyn International
Ciena
Cisco
Compaq
EMC
Hitachi
Huawei
Lucent
Nortel Networks
Tellabs
Tyco International

Motorola
Nokia
Samsung Electronics
Siemens
Sony/Ericsson

Hewlett-Packard
Logitech
Microsoft®

Address of principal executive offices: 395 Page Mill Road, Palo Alto, California 94306

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

The aggregate market value of the registrant’s common stock held by non-affiliates as of December 26, 2001 was approximately $10.54 billion. As of December 26, 2001, there were 463,695,160 outstanding shares of common stock, par value $0.01 per share. Shares of stock held by officers, directors and 5% or more shareholders have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Affymetrix is a U.S. registered trademark of Affymetrix Inc. Caliper is a U.S. registered trademark of Caliper Technologies Corp. LabChip is a registered trademark of Caliper Technologies Corp. in the U.S. and other countries. Microsoft is a U.S. registered trademark of Microsoft Corporation. Nortel Networks is a trademark of the Nortel Networks Corporation.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This report contains forward-looking statements including, without limitation, statements regarding trends and growth in the markets we sell into, our strategic direction, expenditures in research and development, anticipated completion of transactions, our liquidity position and our expected growth that involve risks and uncertainties. Our actual results could differ from the results contemplated by these forward-looking statements due to certain factors, including those discussed in Item 7 and elsewhere in this report.

Agilent Technologies, incorporated in Delaware in May 1999, is a global diversified technology company that provides enabling solutions to high growth markets within the communications, electronics and life sciences industries. We have three primary businesses:


	•	test and measurement, which provides test instruments, standard and customized test, measurement and monitoring instruments and systems for the design, manufacture and support of electronics and communications devices, and software for the design of high-frequency electronic and communications devices and networks;

	•	semiconductor products, which provides fiber optic communication devices and assemblies, components and integrated circuits for wireless, networking, computing and printing applications, image sensors and general-purpose opto-electronic components; and

	•	chemical analysis, which provides analytical instruments, systems and services for chromatography, spectroscopy and bio-instrumentation and consumables.

Prior to our initial public offering of 15.9 percent of our stock in November 1999, we were a wholly-owned subsidiary of Hewlett-Packard Company (“HP”). HP distributed the remaining 84.1 percent of our stock to its stockholders on June 2, 2000 in the form of a stock dividend.

Our test and measurement and semiconductor businesses share focus on growth opportunities in the communications and electronics sector, while our chemical analysis business focuses on growth opportunities in life sciences, as well as chemical analysis in the environmental, chemical, food and petrochemical markets. On August 1, 2001, Agilent completed the sale of its healthcare solutions business to Koninklijke Philips Electronics, N.V. pursuant to an Asset Purchase Agreement for a total purchase price of $1.7 billion, as more specifically discussed in Item 7 and Note 3, “Discontinued Operations,” to the consolidated financial statements included in Item 8 of this report.

On January 5, 2001, we acquired Objective Systems Integrators, Inc. for approximately $716 million. OSI was a leading provider of next-generation operations-support-system software for communications service providers and has become part of the test and measurement business. In January 2000, April 2000 and January 2001, we acquired Yokogawa Electric Corporation’s 25 percent equity interest in Agilent Technologies Japan, Ltd. for approximately $521 million. In addition to the OSI and Yokogawa acquisitions, we acquired several other companies since our incorporation that were not material. More information about these acquisitions is contained in Item 7 and Note 4, “Acquisitions and Dispositions,” to the consolidated financial statements included in Item 8 of this report.

In the fourth quarter of 2000, we entered into an asset purchase agreement with Tyco Capital Corporation pursuant to which we have sold them substantially all of our leasing portfolio over the course of the last five quarters. We also entered into a vendor financing arrangement with Tyco Capital whereby Tyco Capital will provide equipment financing and leasing services to our customers on a global basis. More information about these agreements is contained in Item 7 and Note 4, “Acquisitions and Dispositions,” to the consolidated financial statements included in Item 8 of this report. In February 2001, we sold a parcel of surplus land in San Jose, California for $287 million in cash.

We sell our products primarily through our direct sales force, but we also utilize distributors, resellers, telesales and electronic commerce. Of our total net revenue of $8.4 billion in the fiscal year ended October 31, 2001, we generated 40% in the United States and 60% internationally. As of October 31, 2001, we employed approximately 41,000 people worldwide. We have major research and development and manufacturing sites in California, Colorado, Delaware and Washington in the United States and in China, Germany, Japan, Malaysia, Singapore and the United Kingdom.

Our net revenue by business segment for each of the years ending October 31, 2001, 2000 and 1999 was:

More financial information about the business segments is contained in Note 18, “Segment Information,” of the consolidated financial statements included in Item 8 of this report. Hewlett-Packard accounted for 6.8% of our total net revenue in the fiscal year ended October 31, 2001, 6.5% in fiscal year 2000 and 10.0% in fiscal year 1999.

All of our businesses are supported by the technological expertise of Agilent Technologies Laboratories, one of the world’s foremost industrial research and development organizations. Agilent Technologies Laboratories works with our businesses in design, development and manufacturing engineering, and substantially all of its development staff are aligned with the research and development teams in our individual businesses.

Agilent Technologies Laboratories employs approximately 400 people. Approximately half of the research and technical professionals in Agilent Technologies Laboratories have doctoral degrees.

Our test and measurement business is a leader in providing test and measurement solutions to companies in the communications, electronics, semiconductor and related industries. We provide standard and customized solutions that are used in the design, development, manufacture, installation, deployment and operation of electronic equipment and systems and communications networks and services. These solutions include test and measurement instruments and systems, automated test equipment, communications network monitoring, management, and optimization tools and software design tools and associated services. Our solutions are employed by a wide range of industries, including:


	•	communications and network equipment designers and manufacturers, including providers of fiber optic, wireless and wireline components, products and systems;


	•	providers of communications services, including telecommunications, Internet and cellular service providers;

	•	designers and manufacturers of semiconductor products, including microprocessors, memory devices, Application Specific Integrated Circuits (ASICs), system-on-a-chip (SOC) devices, radio frequency and microwave integrated circuits and other types of integrated circuits; and

	•	designers and manufacturers of electronic equipment, including printed circuit board assemblies and electronic equipment, such as cellular handsets, personal digital assistants (PDAs), personal computers and avionics equipment.

Our test and measurement business employed approximately 21,000 people as of October 31, 2001. We serve customers in more than 110 countries and sell our products primarily through our direct sales force, as well as through resellers, distributors, telesales and electronic commerce. Our products are complemented by service and support offerings such as consulting, training, local solutions integration, and instrument calibration and repair. Our test and measurement business generated $5.4 billion in revenue in fiscal 2001, $6.1 billion in revenue in fiscal 2000 and $4.1 billion in revenue in fiscal 1999.

The market for our test and measurement products comprises three major customer groups:


	•	communications network equipment designers, manufacturers and service providers;

	•	electronic component and equipment designers and manufacturers; and

	•	semiconductor manufacturers and purchasers of semiconductors.

Network equipment manufacturers provide products to facilitate the transmission of voice and data traffic. This transmission may be in various forms, such as electronic signals over copper wire, optical signals over fiber cables, and radio frequency or microwave signals. The customers of the network equipment manufacturers are the communications service providers that deploy and operate the networks and services. These service providers require network equipment that enables their networks and services to operate at increasingly faster speeds while providing rapidly expanding capacity and superior reliability. To meet these demands, network component and equipment manufacturers require test and measurement instruments, systems and solutions for the development, production and installation of each new network technology.

Communications and Internet service providers also require a range of sophisticated test instruments and systems to evaluate network performance and to identify any sources of communications failure. Additionally, these customers require advanced software and systems, known as operations support systems, to monitor and manage the network infrastructure and services on a continuous, proactive basis to achieve either regulated or customer-specified service levels. Real-time monitoring of the network infrastructure also enables the implementation of additional services, such as fraud detection, which customers increasingly require of service providers. In addition, accurate monitoring enables service providers to bill more precisely for different types of network traffic.

The market for cellular telephony has increased in recent years, as the levels of wireless penetration in developed countries have grown rapidly. Many lesser-developed countries have decided to build wireless communications infrastructure to meet their nations’ needs for telephony, rather than invest in expensive wire-based infrastructure. To develop cellular telephone equipment, manufacturers require electronic design software and test instruments and systems for the development of high-frequency communications circuits, devices and systems. Cellular equipment manufacturers also require advanced, high-frequency test instruments and systems to develop, manufacture

and deploy cellular base stations for these wireless networks. In addition, the rapid growth of the cellular handset market has created a new market segment for automated test equipment to test cellular handsets on the factory floor. Further, as new standards evolve in the wireless industry, new test and measurement equipment and systems have to be developed to enable testing of the new standards in the research, design and development and later in the manufacturing and deployment phases.

We believe that in the last several years, producers of networking communications equipment have increased their use of contract manufacturers. Contract manufacturers require test solutions that are particularly well-suited for faster production and flexible for use in different applications. Recently, mobile phone and appliance producers have also begun to increase their use of contract manufacturers, including using contract manufacturers for functional test. This requires specialized test products and services to address the particular needs of these high-frequency products.

The electronics industry designs, develops and manufactures a wide range of products, including products produced in high volumes, such as computers, computer peripherals, communications devices such as wireless handsets and personal digital assistants, electronic components, printed circuit assemblies and consumer electronics. These components and printed circuit assemblies may be designed, developed and manufactured by electronic components companies, by original equipment manufacturers or by third-party contract manufacturers. For the development and timely commercialization of new technologies, original equipment manufacturers require state-of-the-art test instruments, systems and software design tools in order to design the products for efficient and cost-effective manufacturing and validate product performance in a variety of configurations and environments.

High volume manufacturers of electronics products, such as printed circuit board assemblies, require sophisticated automated test equipment to operate and perform highly accurate tests at speeds and volumes matching those of the production line. This equipment includes in-circuit testing systems, automated x-ray inspection systems and automated optical inspection systems, all of which examine the printed circuit assemblies for manufacturing defects. Manufacturers are also beginning to demand automated functional test systems, which test an electronic device as if it were in its final environment.

Electronics manufacturing also requires standardized test instruments, system components and complete solutions. Aerospace and defense are important markets for standardized electronic equipment because of the high electronic content of advanced defense systems and defense-related communications and surveillance equipment. We believe that defense purchasers are shifting from specialized test equipment to off-the-shelf test products and systems.

Semiconductor test systems are used by semiconductor designers, semiconductor manufacturers and electronic component manufacturers in the design, manufacture and testing of a wide variety of semiconductor products, including logic, memory, mixed analog and digital signal, and system-on-a-chip integrated circuits. Semiconductor test systems are sold to semiconductor manufacturers and assembly and test subcontractors to the semiconductor industry.

Demand for automated test equipment is driven primarily by the increased volume of semiconductor devices produced. Advances in semiconductor technology are also increasing demand for semiconductor test equipment. The development of increasingly faster and more complex semiconductor devices stimulates demand for testers capable of evaluating these high-speed devices. In addition, the continuing integration of functions, such as microprocessor, logic and memory, on a single integrated circuit has created a new category of device called system-on-a-chip. These devices require a new category of sophisticated and flexible automated test equipment.

Our test and measurement business pursues the following strategies to extend our global leadership position as the communications and electronics industries shift to new business models and value chains.

Our greatest focus is on providing product leadership and application-focused solutions to markets where wireless, Internet and computing technologies are converging. We have targeted our test and measurement products and services to enable our customers in this segment to bring their new technologies to market.

Agilent addresses the business and technology needs of players across the wireless and Internet communications value chain, from component manufacturers, network equipment manufacturers, and contract and design manufacturers to content providers, operators and service providers. A key success factor for this strategy is development of technologies and platforms that are reusable and leverageable, enabling us to deploy new solutions and systems faster.

Agilent’s product strategy is to introduce products and technologies that meet the business needs of our customers. Such products could give Agilent a market advantage by placing Agilent in the next generation of technology beyond what our competitors can offer.

A key component of our strategy is to make the customer experience a competitive advantage by achieving operational excellence in three areas: sales and support experience, whether contact is via the web, email, by telephone or in person; global manufacturing and supply chain management so that customers will receive high-quality products, when they need them; and product generation.

By engaging in collaborative, co-development relationships with wireless and Internet communications leaders such as Nokia, Ericsson and Motorola, component manufacturers such as Murata, contract manufacturers such as Solectron Corp., Flextronics International and SCI and service providers such as AT&T Wireless, Verizon Wireless, China Unicom and Vodafone, we are developing solutions that support next generation technologies and enable these leaders to maximize their performance and continue to lead their industry.

Our strategy is to leverage the technologies, platforms and knowledge we acquire from growing our core product categories into application-focused solutions, world-class systems and high-value services. These programs should dramatically increase our growth potential by building on and strengthening our customer relationships as we move up the value chain; and by creating a services-based annuity stream that offsets capital equipment cycles.

Our test and measurement business designs, develops and manufactures test and design products that range from single-unit electronic measurement devices priced under $1,000 to large scale integrated-circuit test solutions priced at $1 million and higher.

We provide test solutions for fiber optic, broadband wire-based, radio frequency and microwave communications networks and products.

Fiber Optics. Our products include optical signal and spectrum analysis instruments used by the industry’s leading equipment manufacturers to develop and manufacture reliable optical components. Our products also include network analyzers and high-speed bit-error rate testers that measure key transmission properties of high-speed optical and electrical signals.

Broadband and Data Networks. Our Internet Advisor product line helps to troubleshoot high-speed local area networks, wide area networks and asynchronous transfer mode networks. We also provide cable television test equipment.

Wireless Communications and Microwave. Our radio frequency and microwave test instruments assist in the design and production of cellular handsets and base stations, as well as satellite and aerospace defense systems. Examples of our radio frequency and microwave products include network analyzers, spectrum analyzers and signal sources.

Agilent’s solutions for installation test enable service providers to install, commission, and activate networks and services more quickly. For example, Agilent’s 10-Gigabit Field Transmission Test Set enables technicians to test 192 fiber optic channels simultaneously. Also, our standards-based unification platform allows simplification of operation support and systems by reducing the software integration costs of such systems.

Agilent offers a number of industry-proven monitoring systems such as AcceSS7 for Signaling System 7 (SS7) networks, AccessFIBRE, for fiber optic networks, NGN Analysis System for next-generation, mixed circuit- and packet-switched networks, and Firehunter for monitoring service level agreements by Internet service providers. We also market benchtop and handheld measurement devices such as lightwave multimeters, power meters and optical sources.

General Purpose Instrument. General purpose instruments are used principally by engineers in research and development laboratories, manufacturing, calibration and service for measuring voltage, current, frequency, signal pulse width and other standard electronics measurements. Examples of general purpose instruments include digitizing oscilloscopes, voltmeters and multimeters, frequency counters, bench and system power supplies, and function generators and waveform synthesizers.

Modular Instruments and Test Software. Our modular instruments and test software, including instruments incorporating the VXI bus and modular measurement system software, is used to dynamically configure and reconfigure test systems for designers and manufacturers of electronic devices.

Data Acquisition Devices. Data acquisition and control products include digital-to-analog converters that are attached to sensors to measure a wide range of physical data such as temperature, airplane wing strain and vibrations in cars, jet engines and power generation equipment.

Digital Design Products. These systems range from simple digital control circuits to complex, high-speed servers incorporating the latest microprocessor technology. Our digital design products include logic analyzers, logic-signal sources and data generators.

Automated In-Circuit Testing. Our leading in-circuit testers use a probe fixture that makes electrical contact with the circuit board. These systems make electrical measurements that identify quality defects such as bad and incorrect parts that affect electrical performance, and allow repair of the defects while it is still relatively inexpensive to make the diagnosis and repair.

Automated X-ray Inspection. Our leading x-ray inspection products provide a three-dimensional scan of printed circuit board assemblies to identify and isolate quality defects caused by the manufacturing process. Our products can look through a device to identify structural defects in soldering that are not identified by visual inspection and that may not be detected with in-circuit testing.

Automated Optical Inspection. Our automated optical inspection line of products enables automated visual inspection of printed circuit assemblies. These systems are able to locate, with a high degree of repeatability and reliability, misplaced and misaligned parts, gross solder defects and other process faults without the need for a human inspector.

Intelligent Test. Our AwareTest software enables customers to design test processes that avoid unnecessary test duplication. For example, an in-circuit test system will receive information about the faults that have already been detected by an x-ray inspection system and not repeat the test of that circuit.

We produce semiconductor test equipment to perform electrical functional testing of the operation of memory, logic, mixed signal, system-on-a-chip, and radio frequency integrated circuits. Our parametric test instruments and systems combine hardware technology and customizable system software, and are used to examine semiconductor wafers during the semiconductor manufacturing process. Our product development efforts are targeted at leading edge technologies, such as system-on-a-chip high-speed flash memory products and 300mm parametric inspection.

Our semiconductor test products test a variety of different circuit types. These devices are usually tested after final assembly, but the testing of some devices is most effective immediately after the production of the silicon wafer, when the wafers are sorted. We believe we are the industry leader in wafer-sort test solutions for flash memory devices, which retain data even when the power is turned off and that are critical for use in digital cameras, cellular phones, personal digital assistants and storage of portable digital audio files. Our flash memory test products can test as many as 36 devices in parallel, greatly improving test throughput and lowering test costs for our customers. Our system-on a chip can test not only multiple devices at a time, but also multiple functional elements on a given device at the same time.

Our high-frequency electronic design automation software tools are used by radio frequency integrated circuit design engineers to model, simulate and analyze communications product designs at the circuit and system levels.

We market our test and measurement solutions to customers across a broad array of industries. Several of our customers purchase products across several of our major product lines for their different business units.

A representative list of the customers of our test and measurement business follows:

We have a focused sales strategy to strengthen customer satisfaction. Our direct sales force is focused on identifying customer needs and recommending solutions involving the effective use and deployment of our equipment and systems. Some members of our direct sales force focus on global accounts, providing uniform services on a worldwide basis. Others focus on our more complex products such as our communications monitoring systems and our automated test equipment, where customers require intensive strategic consultation. Our sales force also specifically targets the contract manufacturer market by collaborating with original equipment manufacturers to specify that our test equipment be used by contract manufacturers, as well as marketing to contract manufacturers directly.

Our direct sales force consists of field engineers and systems engineers who often hold advanced degrees and who have in-depth knowledge of the customers’ business and technology needs. Some of our field engineers are account managers for our large accounts, and enhance our understanding of the future needs of these customers. Our systems engineers provide a combination of consulting, systems integration and application and software engineering services, and are instrumental in all stages of the sale, implementation and support of our complex systems and solutions. We also use value-added resellers to address specific market segments.

We concentrate our test and measurement manufacturing efforts primarily on final assembly and test of our products. To maximize our productivity and our ability to respond to market conditions, we use contract manufacturers for the production of printed circuit boards, sheetmetal fabrication, metal die casting, plastic molding and standard electronic components. We also manufacture proprietary devices and assemblies, such as x-ray tubes and high-frequency integrated circuits and devices, in our own foundries for competitive advantage.

The market for test and measurement equipment is highly competitive, and we expect this competition to increase. Our test and measurement business competes with a number of significant competitors in all our major product categories and across our targeted industries. In communications test, our primary competitors are Acterna, Anritsu, IFR Systems, Inc./ Marconi Communications Ltd., IXIA, Network Associates, Inc., Rhode & Schwartz, Spirent, Tektronix, Inc. and as well as INET Technologies, Inc. and Micromuse Inc. in the communications network monitoring market. In the semiconductor test market, we compete primarily against Advantest Corporation, Schlumberger Limited, Keithley Instruments and Teradyne. In the printed circuit board test market, a segment of

the electronics manufacturing market, we compete against GenRad, Inc. (acquired by Teradyne) and Teradyne, Inc. In the general purpose electronic test market, we compete against companies such as Fluke Corporation (a subsidiary of Danaher Corporation), Keithley Instruments, Inc., LeCroy Corporation, National Instruments Corporation and Tektronix.

Our semiconductor products business is a leading supplier of semiconductor components, modules and assemblies for high performance communications systems. We design, develop and manufacture products for the networking, wireless, computing and printing markets.


	•	fiber optic communications transceiver (transmitter/receiver) modules used for high speed data communications;

	•	controller integrated circuits for Fibre Channel (storage networking) applications

	•	infrared transceivers for mobile communications (IrDA);

	•	light-emitting diodes (LEDs) and displays;

	•	application specific integrated circuits (ASICs) to Hewlett-Packard for its scanners and printers; and

	•	CMOS image sensors used to capture images in Web cameras and as position sensors in computer mice.

As of October 31, 2001, our semiconductor products business had approximately 9,000 employees worldwide. Our semiconductor products business generated revenue of $1.9 billion in fiscal year 2001, $2.2 billion in fiscal year 2000 and $1.7 billion in fiscal year 1999.

We also provide general-purpose optoelectronic products such as LEDs and optocouplers that serve multiple markets including factory automation and transportation.

There is a continued evolution of networks both private (Local Area and Storage Area Networks) and public (Metro Area and Wide Area Networks) to higher speeds and greater bandwidth driven by the ongoing growth of data traffic. Business-to-consumer and business-to-business e-commerce, the ever expanding World Wide Web, the growing volume of e-mail traffic, the growth of streaming video and audio, the delivery of on-line services, and peer-to-peer communications are all generating ever greater volumes of electronic data that must be processed, moved and stored. As a result, both private and public network managers drive a continual process of upgrading their networks to higher speeds and increased scalability. Fiber optic transceivers and high-speed digital integrated circuits are the semiconductor technologies that help enable higher speed, higher performance networks.

We are a major supplier of fiber optic transceivers, which convert digital data into light signals for transmission, and convert light signals back into digital form on the receiving end of the communication. We market fiber optic transceivers for both short-range, local area and storage area

network applications and long-range, metro and wide area network applications to major telecommunications and data networking equipment vendors.

In high-speed digital integrated circuits we are the leading supplier of controller ICs for Fibre Channel. The Fibre Channel interconnect protocol, a standard for the transfer of information between computers and storage devices defined by the American National Standards Institute, is the leading technology for building storage area networks (SANs). In addition, we are a leading supplier of physical layer ICs which connect processing ICs, such as our Fibre Channel controllers, to fiber optic transceivers for data transmission. Finally, we are providing state-of-the-art ASICs and networking ICs for use in next-generation network switches.

As in networking, the driving trend in mobile communications is for higher speed, higher bandwidth connections to offer subscribers more digital services through their mobile phones. Already, products which realize the convergence of palm-top computing and mobile telephony are appearing on the market. We offer innovative wireless products such as our FBAR duplexers and E-pHEMT power amplifiers which are helping enable smaller, more functionally rich mobile telephones. In addition, we supply a wide range of radio frequency and microwave integrated circuits for use in both mobile telephones and mobile telephone infrastructure. We are developing digital camera solutions to be embedded in next-generation mobile phones and information appliances. Finally, we are the leading supplier of infrared transceiver products for short-range, point-to-point wireless communications to manufacturers of computers, printers, mobile telephones, digital cameras, personal digital assistants and pagers.

We are the leading supplier to Hewlett-Packard of ASICs for printers, workstations and servers. We provide precision motion control devices for inkjet-based printers and all-in-one products to both Hewlett-Packard and other printer manufacturers. In addition, we provide optical image sensor products and optical mice for leading PC peripheral manufacturers.

To service the needs of our customers in the communications and computer industries, the semiconductor products business pursues the following strategies:

We intend to continue to offer high-speed communications solutions that incorporate analog (optoelectronic or wireless), mixed-signal and digital integrated circuit technologies for next-generation network infrastructure and mobile communications systems.

We are focused on reducing the costs and improving the performance of the ASICs we provide to Hewlett-Packard by pursuing higher levels of device integration and employing advanced process technology.

We intend to continue to enter into strategic technology partnerships to gain access to intellectual property and advanced semiconductor manufacturing process technology.

We market optical transceivers, transmitters and receivers for high-speed data communications for Fast, Gigabit and 10-Gigabit Ethernet, Fibre Channel, and ATM/ SONET applications up to 2.5 gigabits per second (OC-48). In addition, we are developing transmission and switching products for dense wave division multiplexing (DWDM) optical transport applications.

We produce physical layer integrated circuits for high speed network switches and routers, devices that direct network traffic. We produce Fibre Channel protocol-based integrated circuits and subsystems for storage area networks. We are developing customer-specific ASIC solutions for next-generation data switching products.

We produce a broad family of radio frequency and microwave communications products, primarily integrated circuits for wireless communications products and infrastructure. Our latest products are the FBAR duplexer, a semiconductor based filter product, and E-pHEMT power amplifiers, a high power-added efficiency wireless transmitter solution. Both FBAR and E-pHEMT are targeted for current and future generation mobile phones.

We produce a full line of infrared products that enable short range, point-to-point wireless communication between portable and stationary devices, including notebook personal computers, cellular phones, personal digital assistants and digital cameras.

We provide core electronics chipsets that support central processing units for selected Hewlett-Packard workstations and servers. We provide printing ASICs which are the central processing ICs for Hewlett-Packard laser printers, inkjet printers and all-in-one products.

Our sensor products include color and monochrome still and video camera image capture solutions and intelligent optical sensors. Applications include webcams and optical mice for personal computers, and in the future, embedded cameras for next-generation mobile phones. We also produce optical motion control products used primarily for precision paper handling in inkjet printers and all-in-one products.

We manufacture and sell a broad range of LEDs, alphanumeric displays and optocouplers. LEDs are semiconductor devices that emit light when an electrical signal is applied. Optocoupler products are devices that provide both electrical insulation, for protection, and signal isolation, to prevent distortion of data, between differing electrical environments.

We are engaged in a global joint venture (Lumileds) with Philips Electronics. Lumileds develops, manufactures and sells LEDs, modules, products and systems for a broad spectrum of lighting

applications, including automotive lighting, high-brightness traffic signals, contour lighting and signs, outdoor illumination, and white LEDs for both indoor and outdoor applications.

We sell to a broad array of customers in the communications and computing industries. We sell to original equipment manufacturers directly, as well as contract manufacturers including Celestica, Flextronics, Jabil Circuit, Sanmina/SCI Systems and Solectron. Our top customers by market area, including customers purchasing through contract manufacturers and distributors, include the following:

Our semiconductor technology licensing and supply arrangements with Hewlett-Packard limit our ability to sell certain products to other companies. Through sales of ASICs, storage area networking components, and motion-control products, Hewlett-Packard accounted for approximately 31% of our semiconductor products revenue in fiscal year 2001, approximately 30% in fiscal year 2000, and approximately 37% in fiscal year 1999.

Our semiconductor sales organization consists of nearly 400 technical sales professionals that have responsibility for large, global accounts in three regional areas: the Americas, Europe and Asia Pacific. Our sales force has specialized product and service knowledge that enables it to sell specific offerings at key levels throughout a customer’s organization. In addition to our direct sales force, we generate approximately 25% of our revenue through our relationships with key electronic distributors, such as Arrow Electronics, Inc. and Avnet, Inc. on a worldwide basis, Future Electronics, Inc. in Europe and North America, Ryoyo Electro Singapore PTE, Ltd. and Tokyo Electric Power Company in Japan and SECOM Telecom for China. We also have a direct sales team which focuses on supporting the major contract manufacturers such as Celestica, Flextronics, Jabil Circuit, Sanmina/SCI and Solectron.

We also provide a broad range of products and applications-related information to customers and channel partners via the Internet.

The majority of our silicon and gallium arsenide wafer fabrication is done in the United States and Singapore, while our assembly and test operations are in Malaysia, Singapore and the United Kingdom. In addition to these facilities, we utilize a network of contract manufacturers throughout Asia for semiconductor fabrication and test.

Our manufacturing strategy has been to outsource more mature technologies while using our in-house manufacturing fabrication, assembly and test capabilities to develop new, leading edge products. Our production facilities have developed several quality-management processes designed to increase productivity. We have developed proprietary automated test systems, particularly in optical, light-emitting diode and microwave.

The markets for our semiconductor products are intensely competitive, and we expect competition to increase. Our ability to compete effectively depends on a number of factors, including:


	•	product reliability and performance in operation;

	•	price;

	•	power consumption;

	•	compliance with standards;

	•	product size and integration; and

	•	time to market.

In the fiber-optic products market, our principal competitors are Agere, Finisar, IBM and Infineon. In the market for high-speed digital ICs, our principal competitors are IBM, Texas Instruments, LSI Logic and Vitesse Semiconductor Corporation. Our principal competitors in RF wireless are Conexant, Hitachi, Infineon and RF Micro Devices. In the market for infrared products, our principal competitors are Vishay Intertechnology, Inc. and IBM. We compete with companies including LSI Logic, Motorola and STMicroelectronics for printer ASICs. Principal competitors in our LED businesses include Lite-on, Inc., Stanley Electronic Co., Ltd., Infineon and Toshiba.

Our chemical analysis business provides instrument solutions, consumables and services that enable customers to identify, quantify, analyze and test the atomic, molecular, physical and biological properties of substances and products. Our chemical analysis products and services are used by scientists, engineers and technicians working in disease and drug discovery, research and development, quality assurance, quality control and manufacturing.

Our six main product lines are chromatography, spectrometry, ICP-MS, bioresearch solutions and related consumables and services.

We employed approximately 3,500 people as of October 31, 2001 in our chemical analysis business. Our chemical analysis business generated revenue of $1.1 billion in fiscal year 2001, $1.0 billion in fiscal year 2000, and $1.0 billion in fiscal year 1999.

We estimate that the market niches that we serve represent approximately 30% of the total available analytical instrumentation market. Primarily, our chemical analysis business serves the following markets:


	•	chemical;

	•	environmental;

	•	pharmaceutical and biopharmaceutical; and

	•	bioagriculture and foods.

Our chemical analysis business encompasses the natural gas, petroleum refining, petrochemical and chemical markets. We sell gas and liquid chromatographs and gas and liquid chromatography-mass spectrometry products and solutions into these markets. Petroleum refiners use our measurement solutions to analyze crude oil composition and perform other raw material analysis, verify and improve refining processes, and ensure the overall quality of gasoline, fuels, lubricants and other products. Our gas chromatographs are used to monitor consistent quality in the natural gas delivered to consumers and industry. Petrochemical and chemical producers use our gas and liquid chromatography products to measure and control the quality of their finished products and to verify the environmental safety of their operations.

We develop and market analytical instrumentation for the environmental market for applications such as laboratory and field analysis and characterization of chemical pollutants in air, water, soils, solid waste, agriculture and food products. Environmental industry customers include all levels of government, the industrial and manufacturing sectors, engineering and consulting companies, commercial testing laboratories, colleges and universities. We believe there will be more demand for environmental instrumentation in the Asia-Pacific, Latin America and Eastern Europe regions, as these regions implement new and stricter environmental regulations.

Our analytical and life sciences-instrument solutions are used by pharmaceutical and biopharmaceutical companies in every phase of the drug development process. This includes research into the basic causes and understanding of disease, identification and development of new drugs, obtaining regulatory approval, manufacturing and distribution.

In order to maintain our leading position in the instrumentation solutions market, our strategy is as follows:

We will continue to focus resources on the development and growth of bio-instrumentation, consumables and services solutions that increase understanding of the genetic cause of diseases in order to speed the development and increase the efficacy of new drugs.

To address emerging markets in the Asia-Pacific, Latin America and Eastern Europe regions, we are broadening our worldwide distribution capabilities and developing less complex instrumentation with lower prices. Finally, we continue to develop gas and liquid chromatography and mass spectrometry products that are smaller and more portable to meet increasing demand for use of these instruments outside of centralized laboratories.

We seek to bring new products and technologies to market both through internal development and the strategic acquisition of technologies from third parties. We are expanding our programs to offer customers early access to products under development to ensure that these products are meeting customer needs. In addition, our development of modular hardware and software platforms allows us to bring new generations of products to market faster.

In addition to our internal efforts, we consider acquisitions to complement our current products, solutions and technologies and to accelerate our entry into strategic markets.

We intend to build strategic relationships to enable us to develop products and services that complement existing technologies and products in our target markets. For example, through our relationship with Caliper® Technologies Corporation, we are conducting joint research and development in microfluidics.

In addition, through our strategic alliances, we develop instruments that work with our partners’ products, enabling us to offer our customers a broader range of products and solutions.

A key factor in our target markets is the need for new products that increase productivity of the end customer. Our chemical analysis products, systems, consumables and services enable our customers to research the genetic bases of disease and enable the development, testing and use of new drugs and to analyze water, air and soil for monitoring and remediation; and to understand the properties of natural and man-made gases, liquids and chemically-based products. Our six main product lines, chromatography, spectrometry, ICP-MS, bio-instrumentation including microarrays and related consumables and services, are described below.

We produce gas chromatography systems, both portable and otherwise. Gas chromatographs are used to separate molecules of a gaseous mixture to determine the quantity and identity of the molecules present. A gas chromatograph can analyze gas samples as well as solids and liquids that can be converted to a gaseous state. Most gas chromatographs have the approximate size and appearance of a large microwave oven.

Our instruments are used in laboratories involved in research and development, quality assurance, quality control and routine testing. Our products are used to test the quality and safety of food, air and water; to develop cleaner-burning fuels and more effective pharmaceuticals; and to test for alcohol in blood, drugs in urine or explosive residues in crime scene evidence.

Liquid chromatographs are used to separate molecules of a liquid mixture to determine the quantity and identity of the molecules present. These instruments are modular in construction and can be configured to form instruments that perform specific analyses. Each module is about the size of a home videocassette recorder.

High-performance liquid chromatographs are an essential tool in the pharmaceutical industry for basic research, drug discovery, drug development and quality control of new drugs. Other industry groups that utilize high-performance liquid chromatographs include: life science research, chemical development and manufacturing, industry and government testing laboratories for safety, quality and nutritional content of foods and beverages, athlete monitoring for illegal drug use and environmental monitoring.

Mass spectrometers identify chemicals based on a chemical’s molecular mass and, in many cases, on characteristic patterns of fragment masses that result when a molecule is broken apart. Mass spectrometers can also be used to determine how much of a known chemical is present in a particular sample.

Mass spectrometer systems are typically used in combination with gas or liquid chromatographs in the pharmaceutical, life science, semiconductor and environmental industries. The combined instruments are used to study and refine the chemical structure of proteins and other biological molecules as well as new drug candidates, to determine the presence of impurities in semiconductors as they are manufactured, or to identify heavy metals and other pollutants in soil and water.

In December 1999 we announced the launch of a DNA microarray program for the life sciences that incorporates technologies from both Rosetta Inpharmatics (subsequently acquired by Merck) and Oxford Gene Technology, among others. This program is intended to enable researchers to access gene expression information.

Using our highly flexible inkjet manufacturing process, Agilent makes both oligonucleotide and cDNA microarrays. This inkjet process allows us to deposit very small volumes per spot without stopping or making contact with the slide, resulting in high-density arrays with highly uniform spot shape in a very short period of time.

In addition, our GeneArray microarray scanner allows a researcher to use GeneChip arrays designed by Affymetrix® to enable high-speed detection and characterization of large amounts of genetic information. More recently, Agilent introduced its next generation scanner designed for use with its own microarrays, as well as others. Consistent with Agilent’s standards-based platform approach, this scanner can image up to 48 industry standard 1” x 3” glass microarray slides, and have the data automatically exported in a text, tab-delimited, or XML-based GEML format.

The Agilent 2100 bioanalyzer instrument systems that we have developed through our relationship with Caliper® Technologies is the first integrated solution based on microfluidics and Caliper LabChip® technology for the analysis of a wide range of biological molecules including: DNA, RNA, proteins, and cells. Using miniature, integrated biochemical-processing systems etched into glass, the microchip allows the steps customarily performed in conventional instruments to be done using minute quantities of costly reagents in a fraction of the usual time.

We also offer a broad range of consumable products, which support our top ranked Liquid Chromatography (LC), Gas Chromatography (GC) and Mass Spectrometry (MS) and bioinstrumentation platforms. These consumable products include chemical and biological reagents, instrument replacement parts, brand specific chromatography columns, and consumable supplies to meet our customer’s analysis needs.

All of our products were designed to work together, and so customers can leverage their Agilent technology investment with precisely matched equipment, parts and supplies. Our offerings include both generic supplies, where we seek to distinguish our products on price, selection and customer loyalty, and proprietary parts developed by us, where we offer exclusive technology, optimal performance and functionality.

Agilent support services cover all of Agilent’s chemical and bioinstrumentation analysis hardware and software maintenance, troubleshooting, repair and compliance needs. Special services bundles have also been designed to meet the specific analysis instrument needs of various industries.

We sell our products and services to a broad array of customers in each of the markets we serve. Our top customers by market segment are the following:

Our sales and support delivery channels are aligned by our key markets to maximize market coverage and to optimize selling and support delivery efficiency. We market our products to our customers through our direct sales force, an inside-sales force, e-commerce, value-added resellers, manufacturers’ representatives and distributors.

We use our direct sales force to market our solutions to all of our pharmaceutical and biopharmaceutical accounts, large and medium-sized chemical customers and environmental accounts. We supplement our direct sales force with an inside-sales force and sales agents to provide broader geographic coverage and to cover smaller accounts. We also have an active value-added reseller program to augment our ability to provide more complete solutions to our customers. We sell our consumable products through distributors, telesales and electronic commerce.

We offer a wide range of startup, operational, educational and compliance support services for our chemical analysis measurement and data handling systems. We deliver our support services to customers in a variety of ways, including on-site assistance, return to us for repair or exchange, telephone support and self-diagnostic services provided over the Internet. Our support services limit the amount of time an instrument is out of service, provide increased system productivity, extend the instrument life and offer fast problem resolution. We also offer special industry-focused service bundles that are designed to meet the specific needs of hydrocarbon processing, environmental, pharmaceutical and biopharmaceutical customers to keep instruments fully operational and compliant with the respective industry requirements.

Our manufacturing strategy supports our diverse product range and customer-centric focus. We assemble highly configurable products to individual customer orders and make standard products to stock. We employ advanced manufacturing techniques and supply chain management systems to reduce costs and manufacturing cycle times. We selectively use partners to provide manufacturing capabilities outside our core competencies, such as the manufacture of printed circuit assemblies and the delivery of shipment logistics. We have manufacturing facilities in California and Delaware in the United States, China, Germany and Japan.

The markets for analytical instruments in which we compete are characterized by evolving industry standards and intense competition. Our principal competitors include Perkin Elmer Corp., Applied Biosystems, Inc., Affymetrix, Shimadzu Corporation, Thermo Electron, Inc. and Waters.

The analysis products and related consumables marketed by our chemical analysis business are subject to regulation in the United States by the Environmental Protection Agency under the Toxic Substances Control Act, and by government agencies in other countries under similar laws. The Toxic Substances Control Act regulations govern, among other things, the testing, manufacture, processing and distribution of chemicals, the testing of regulated chemicals for their effects on human health and safety and import and export of chemicals. The act prohibits persons from manufacturing any chemical in the United States that has not been reviewed by Environmental Protection Agency for its effect on health and safety, and placed on an Environmental Protection Agency inventory of chemical substances. Therefore, we must continually adapt our chemical analysis products to changing regulations. If we fail to comply with the notification, record-keeping and other requirements in the manufacture or distribution of our products, the Environmental Protection Agency can obtain an order from a court that would prohibit the further distribution or marketing of a product that does not comply or we could face fines, civil penalties or criminal prosecution.

Agilent believes that backlog is not a meaningful indicator of future business prospects due to the large volume of products delivered from our inventories, the shortening of product life cycles and the relative portion of net revenue related to our service and support businesses. Therefore, we believe that backlog information is not material to an understanding of our business.

Research and development expenditures were $1,349 million in 2001, $1,259 million in fiscal year 2000 and $879 million in fiscal year 1999, the vast majority of which was company-sponsored. We anticipate that we will continue to have significant research and development expenditures in order to maintain our competitive position with a continuing flow of innovative, high-quality products and services.

Our general policy has been to seek patent and other intellectual property protection for those inventions and improvements likely to be incorporated into our products and services or to give us a competitive advantage. While we believe that our patents and applications have value, in general no single patent is in itself essential. In addition, we cannot assure you that any of our proprietary rights will not be challenged, invalidated or circumvented, or that our rights will provide significant competitive advantages.

Our net revenue originating outside the United States, as a percentage of our total net revenue, was approximately 59.8% in fiscal year 2001, 57.4% in fiscal year 2000 and 57.4% in fiscal year 1999, the majority of which was from customers other than foreign governments. Approximately 20% of our international revenue in the last three years was derived from Japan. Long-lived assets located outside of the United States, as a percentage of our total long-lived assets, was approximately 43.7% in fiscal year 2001, 49.3% in fiscal year 2000 and 49.2% in fiscal 1999. Approximately 16.9% of our long-lived assets were located in Japan in fiscal year 2001 and approximately 13.7% in fiscal years 2000 and 1999.

Most of our sales in international markets are made by foreign sales subsidiaries. In countries with low sales volumes, sales are made through various representatives and distributors. However, we make certain sales in international markets directly from the United States.

Our international business is subject to risks customarily encountered in foreign operations, including interruption to transportation flows for delivery of parts to us and finished goods to our customers, changes in a specific country’s or region’s political or economic conditions, trade protection measures, import or export licensing requirements, unexpected changes in tax laws and regulatory requirements, difficulty in staffing and managing widespread operations, differing labor regulations and differing protection of intellectual property. We are also exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales and assets and liabilities denominated in currencies other than the United States dollar and may also become subject to interest rate risk inherent in any debt, investment and finance receivable portfolios we incur. The terrorist attacks on September 11, 2001 and the U.S. and international response could exacerbate these risks. For example, there may be an increased risk of political unrest in regions where we have significant manufacturing operations such as Southeast Asia.

However, we believe that our international diversification provides stability to our worldwide operations and reduces the impact on us of adverse economic changes in any single country. Financial information about our international operations is contained in Note 18, “Segment Information,” of the consolidated financial statements included in Item 8 of this report.

Our manufacturing operations employ a wide variety of semiconductors, electromechanical components and assemblies, and raw materials such as plastic resins and sheet metal. We purchase materials, supplies and product subassemblies from a substantial number of vendors. In order to secure components, we may enter into non-cancelable purchase commitments with vendors, or at times make advance payments to suppliers. Such commitments could impact our ability to adjust our inventory to declining market demands. Prior commitments of this type have resulted in an excess of parts as demand for our communications, semiconductor and electronics products has decreased. For example, in the year ended October 31, 2001 we recorded inventory-related charges of approximately $459 million. We could experience excess parts again and additional charges if demand continues to decrease. By contrast, during a market upturn, our results could be materially and adversely impacted if we cannot increase our parts supply quickly enough to meet increasing demand for our products. Certain parts may be available only from a single supplier or a limited number of suppliers. In addition, suppliers may discontinue certain components, extend lead times, limit supplies or increase price due to capacity constraints or other factors.

Our research and development, manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and worker health and safety to sites inside and outside the United States, even if not subject to regulation imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws; however, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws to our Company may not require our Company to incur significant expenditures. We are also regulated under a number of international, federal, state and local laws regarding recycling, product packaging and product content requirements. These laws are gradually becoming more stringent and may in the future cause us to incur significant expenditures.

Some of our operations are located on properties that are known to have subsurface contamination that is undergoing remediation by Hewlett-Packard. Hewlett-Packard has agreed to retain the liability for the contamination, perform the required remediation and indemnify us with respect to claims arising out of the contamination. The determination of the existence and cost of any additional contamination caused by us could involve costly and time-consuming negotiations and litigation. While we expect that Hewlett-Packard will meet its remediation and indemnification obligations in this regard, there can be no guarantee that it will do so. Under our agreement with Hewlett-Packard, Hewlett-Packard will have access to these properties to perform the remediation. Hewlett-Packard has agreed to minimize interference with on-site operations at those properties during the course of the remediation, but there can be no guarantee that our operations will not be interrupted or that we will not be required to incur unreimbursed costs associated with the remediation. Remediation could also harm on-site operations and the future use and value of the properties.

In addition, some of these properties are undergoing remediation by Hewlett-Packard under an order of an agency of the state in which the property is located. Although Hewlett-Packard has agreed to indemnify us with respect to that subsurface contamination, it is possible that one or more of the governmental agencies will require us to be named on any of these orders. The naming of our Company will not affect Hewlett-Packard’s obligation to indemnify us with regard to these matters.

We are liable and are indemnifying Hewlett-Packard for any contamination found at all facilities transferred to us by Hewlett-Packard excluding the properties undergoing remediation. In addition, we are indemnifying Hewlett-Packard for any liability associated with past non-compliance with environmental laws regulating ongoing operations at all properties transferred to us by Hewlett-Packard, as well as at sold or discontinued businesses that related to our businesses. While we are not aware of any material liabilities associated with such indemnified matters, there is no guarantee that such contamination or regulatory non-compliance does not exist, and will not expose us to material liability in the future.

We are being indemnified by Hewlett-Packard with respect to all environmental liabilities for which Hewlett-Packard accrued a reserve and we are not aware of any material and probable environmental liabilities being assumed by us which are not subject to the indemnity.

The names of our executive officers, and their ages, titles and biographies as of December 26, 2001, appear below. All officers are elected for one-year terms.

Edward W. Barnholt, 58, has served as our President and Chief Executive Officer and as a director since May 1999. Before being named our Chief Executive Officer, Mr. Barnholt served as General Manager of Hewlett-Packard’s Measurement Organization from 1998 to 1999, which included Hewlett-Packard’s Electronic Instrument Group, the Microwave and Communications Group, the Communications Test Solutions Group, the Automated Test Group, the Chemical Analysis Group, the Components Group and the Medical Products Group. From 1990 to 1998, he served as General Manager of Hewlett-Packard’s Test and Measurement Organization. He was elected a Senior Vice President of Hewlett-Packard in 1993 and an Executive Vice President in 1996. He is a director of KLA-Tencor Corporation.

Byron Anderson, 58, has served as our Senior Vice President, Electronic Products and Solutions since August 1999. Prior to assuming that position, Mr. Anderson served as a vice president of Hewlett-Packard since November 1995 and General Manager of the Microwave and Communications Group since September 1997. In January 1991, Mr. Anderson was named General Manager of Hewlett-Packard’s Communications Test Business Unit, which became the Communications Test Solutions Group in 1994.

Alain Couder, 55, has served as our Executive Vice President and Chief Operating Officer since February 2000. Prior to assuming this position, Mr. Couder served as President, Chairman and Chief Executive Officer at Packard Bell NEC from 1998 to 2000. Prior to joining Packard Bell NEC, Mr. Couder held several management positions from 1991 through 1998, including Chief Operating Officer in 1997 with Groupe Bull. From 1984 to 1991, Mr. Couder was a General Manager in the computer business at Hewlett-Packard Company in the United States and France.

Adrian T. Dillon, 47, has served as our Executive Vice President and Chief Financial Officer since December 2001. Prior to assuming this position, Mr. Dillon served as Executive Vice President and Chief Financial and Planning Officer of Eaton Corporation from April, 1997 to December, 2001. Mr. Dillon held various management positions at Eaton Corporation from 1979 to 1997.

William R. Hahn, 50, has served as our Senior Vice President, Corporate Relations since August 1999. Since October 1997, Mr. Hahn served as the Sector Controller of Hewlett-Packard’s Measurement Organization. From September 1995 to October 1997, he served as Operations Manager for Hewlett-Packard’s interactive broadband program. From May 1993 to September 1995, Mr. Hahn served as Vice President of Finance and Manufacturing and Chief Financial Officer at Aspect Communications.

Jean M. Halloran, 49, has served as our Senior Vice President, Human Resources since August 1999. Since 1997, Ms. Halloran served as Director of Corporate Education and Development for Hewlett-Packard. Prior to assuming this position, from 1993 to 1997, Ms. Halloran acted as human resources manager for Hewlett-Packard’s Measurement Systems Organization. Ms. Halloran joined Hewlett-Packard in 1980 in the Medical Products Group, where she held a variety of positions in human resources, manufacturing and strategic planning.

Dorothy D. Hayes, 51, has served as our Vice President and Controller since August 1999. Prior to assuming that position, since October 1989, Ms. Hayes held a number of positions at Hewlett-Packard. She served as Transition General Manager from March to July 1999, Director of Internal Audit from July 1997 to June 1999, Measurement Systems Organization Controller from February 1994 to July 1997, Components Group Controller from September 1993 to February 1996 and Corporate Financial Reporting Manager from October 1989 to September 1993.

Larry Holmberg, 55, has served as our Senior Vice President, Sales, Marketing and Customer Support since February 2001. Prior to assuming this position, Mr. Holmberg served as Vice President of Sales, Marketing and Field Operations for the Communications Solutions Group since February 1999. From October 1998 to January 1999, Mr. Holmberg served as a Communications Service Provider Region Manager of Hewlett-Packard Company for the Asia Region based in Hong Kong, the Region General Manager for the Test and Measurement Organizations of Hewlett-Packard Company for the Latin America from 1996 to 1998. Prior to rejoining Hewlett-Packard Company in 1996, Mr. Holmberg held various computer system sales and general management positions with Digital Equipment Corporation from 1977 to 1996. Mr. Holmberg also has served on numerous boards of industry associations and public and private technology organizations such as NM Technet, one of the first US Internet Service Providers, where he was a co-founder and Riotech, a national technology transfer organization, where he was Chairman of the Board.

Richard D. Kniss, 61, served as our Senior Vice President, Chemical Analysis Group from August 1999 to May 2001. Prior to assuming that position, since May 1995, Mr. Kniss was General Manager of Hewlett-Packard’s Chemical Analysis Group and was named a Vice President of Hewlett-Packard in June 1997. He served as General Manager of the Optical Communication Division from 1984 to 1995.

D. Craig Nordlund, 52, was named our Senior Vice President, General Counsel and Secretary in May 1999 and serves as an officer or director for a variety of Agilent subsidiaries. He is also a director of the Hewlett-Packard Employees Federal Credit Union. Mr. Nordlund served as Associate General Counsel and Secretary of Hewlett-Packard Company from 1987 to 1999.

Stephen H. Rusckowski, 44, served as our Senior Vice President, Healthcare Solutions from October 1999 until August 2001, at which time Mr. Rusckowski became an employee of Koninklijke Philips Electronics NV as part of the divestiture of Healthcare Solutions Group to Koninklijke Philips Electronics NV. Prior to assuming the position as Senior Vice President, Healthcare Solutions in October 1999, Mr. Rusckowski held a number of positions at Hewlett-Packard. He served as General Manager of the Cardiology Products Division from 1997 to 1999, General Manager of the Healthcare Information Management Division from 1996 to 1997 and General Manager of the Clinical Information Systems Division from 1994 to 1995. Mr. Rusckowski joined Hewlett-Packard in 1984. Mr. Rusckowski was nominated by Koninklijke Philips Electronics NV to the Board of Melquist.

Thomas A. Saponas, 52, has served as our Senior Vice President and Chief Technology Officer since August 1999. Prior to being named Chief Technology Officer, from June 1998 to April 1999, Mr. Saponas was Vice President and General Manager of Hewlett-Packard’s Electronic Instruments Group. Mr. Saponas has held a number of positions since the time he joined Hewlett-Packard. Mr. Saponas served as General Manager of the Lake Stevens Division from August 1997 to June 1998 and General Manager of the Colorado Springs Division from August 1989 to August 1997. In 1986, he was a White House Fellow in Washington, D.C.

John E. Scruggs, 60, has served as our Senior Vice President, Automated Test since August 1999. Prior to assuming that position, since January 1992, Mr. Scruggs was General Manager of the Automated Test Group of Hewlett-Packard within the Test and Measurement Organization. He was elected a Vice President of Hewlett-Packard in November 1996.

William P. Sullivan, 52, has served as our Senior Vice President, Semiconductor Products since August 1999. Prior to assuming that position, since February 1998, he served as Vice President and General Manager of Hewlett-Packard’s Components Group. In 1997, Mr. Sullivan became General Manager of the Communication Semiconductor Solutions Division. From 1995 to 1997, he was General Manager of the Optical Communication Division. From April 1991 to February 1995, Mr. Sullivan served as Research and Development Manager for the Optical Communication Division.

Chris Van Ingen, 55, has served as our Senior Vice President, Chemical Analysis Group since May 2001. Prior to assuming this position, since 1977, Mr. Van Ingen held a number of positions at Hewlett-Packard Company. He served as Chemical Analysis Group Sales and Marketing Manager since 1996 to April 2001, the Americas Marketing Center Manager from 1989 to 1996, Product Marketing Manager at Little Falls division from 1986 to 1989, Sales Support Manager at Little Falls division from 1984 to 1986.

Robert R. Walker, 51, served as our Executive Vice President and Chief Financial Officer from May 2000 to December 2001 and as our Senior Vice President and Chief Financial Officer since May 1999. During 1997 and 1998, Mr. Walker served as Vice President and General Manager of Hewlett-Packard’s Professional Services Business Unit. From 1993 to 1997, he led Hewlett-Packard’s information systems function. He became Chief Information Officer in 1995 and served in that position until 1997. Mr. Walker was named a Vice President of Hewlett-Packard in 1995. From 1975 to 1993, Mr. Walker held a variety of financial positions in Hewlett-Packard.

Thomas White, 44, has served as our Senior Vice President, Communications Solutions since August 1999. From 1997 to August 1999, Mr. White served as Vice President and General Manager of the Communications Solutions Group of Hewlett-Packard. From 1996 to 1997, he served as General Manager of the Computer Peripherals Bristol Division and, in 1994, he served as General Manager for the Telecommunications Systems Division, South Queensferry, Scotland.

Our corporate headquarters are located in Palo Alto, California. We operate Agilent Technologies Laboratories in Palo Alto, California, and we also have 34 manufacturing sites, including eleven

primary sites. Of the primary sites, five are located in the United States, and an additional six sites are located in China, Germany, Japan, Malaysia, Singapore and the United Kingdom.

As of October 31, 2001, we owned or leased a total of approximately 17 million square feet of space worldwide. Of that, we owned approximately 11 million square feet and leased the remaining 5 million. Agilent’s sales and support occupied a total of approximately 3 million square feet. Agilent’s manufacturing plants, research and development facilities and warehouse and administrative facilities occupied approximately 14 million square feet of space. Information about each of our businesses appears below:

Test and Measurement. Our test and measurement business has manufacturing and research and development facilities in Australia, Canada, China, Germany, Japan, Korea, Malaysia, Singapore, the United Kingdom and the United States, and marketing centers in Hong Kong, the Netherlands, Japan and the United States, and sales offices throughout the world.

Semiconductor Products. Our semiconductor products business operates eight manufacturing sites located in California and Colorado in the United States, Malaysia, Singapore and the United Kingdom. The majority of our silicon and gallium arsenide wafer fabrication is done in the United States and Singapore, while our assembly and test operations are in Malaysia, Singapore and the United Kingdom. We have a research and development facility in Italy. We have regional sales and customer support centers in Germany, Hong Kong, Japan, Singapore, the United Kingdom and the United States, and sales offices throughout the world.

Chemical Analysis. Our chemical analysis business has manufacturing facilities in California and Delaware in the United States, China, Germany and Japan. We have marketing centers in Germany, the United States and Singapore, and sales offices throughout the world.

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 against certain investment bank underwriters for Agilent’s initial public offering (“IPO”), Agilent, and various of Agilent’s officers and directors. The complaint alleges undisclosed and improper practices by the underwriters concerning the allocation of Agilent’s IPO shares, in violation of the federal securities laws, and seeks unspecified damages on behalf of persons who purchased our stock during the period from November 17, 1999 through December 6, 2000. Other actions have been

filed making similar allegations regarding the IPOs of more than 300 other companies. All of these lawsuits have been coordinated for pretrial purposes as In re Initial Public Offering Securities Litigation, Civil Action No. 21-MC-92. We believe we have meritorious defenses to the claims against us and will defend ourselves vigorously. Under our separation agreements with Hewlett-Packard, HP agreed to indemnify us for a substantial portion of IPO-related liabilities.

We are also involved in lawsuits, claims, investigations and proceedings, including patent, commercial and environmental matters, which arise in the ordinary course of business. Other than the matter described above, 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. There have been no material developments in the litigation previously reported in our Form 10-Q for the period ended July 31, 2001.

During the fourth quarter of fiscal 2001, there were no matters submitted to a vote of securities holders, through the solicitation of proxies or otherwise.

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York Stock Exchange with the ticker symbol “A.” For the 2000 and 2001 fiscal year, the New York Stock Exchange reported the high and low prices per quarter as follows:

As of December 26, 2001, there were 74,768 stockholders of record of common stock. The closing share price for Agilent common stock on December 26, 2001, as reported by the New York Stock Exchange, was $28.10.

We have not paid any dividends to date, and we currently intend to retain any future earnings to fund the development and growth of our business and, going forward, we do not anticipate paying any cash dividends in the foreseeable future. Under the First Amendment to Five Year Credit Agreement, dated as of November 19, 2001 and the Amendment to 364 Day Amended and Restated Credit Agreement, dated as of November 19, 2001, we are restricted from declaring or paying any dividends, other than shares of our common stock, unless our consolidated earnings before interest, income tax, depreciation and amortization is at least $200 million for the two quarters immediately prior to such declaration or payment.

On July 20, 2001, we issued 1,461,196 shares of Agilent common stock as consideration for all of the shares of Sirius Communications N.V. The shares were issued in reliance on Regulation S of the Securities Act of 1933, as amended.


(1)	Consolidated financial data and notes for all periods present Agilent’s healthcare solutions business as a discontinued operation. See Note 3 “Discontinued Operations” to the consolidated financial statements.

(2)	Loss from continuing operations for the year ended October 31, 2001 includes a pre-tax gain of $269 million relating to the sale of surplus land in California, a pre-tax restructuring charge of $154 million primarily relating to severance expenses and a pre-tax asset impairment charge of $74 million. Earnings from continuing operations for the year ended October 31, 1999 includes a pre-tax asset impairment charge of $51 million. See Note 12, “Restructuring and Asset Impairment,” to the consolidated financial statements. Earnings from continuing operations for the year ended October 31, 1998 includes a pre-tax restructuring charge of $155 million.

(3)	Consolidated statement of earnings data for the year ended October 31, 2001 and 2000 includes the impact of the sale of certain portions of our portfolio of lease assets to Tyco Capital Corporation. In 2001, net proceeds from this sales transaction were $287 million and we recognized $254 million in net revenue from continuing operations and $131 million in cost of products from continuing operations. In 2000, net proceeds from this sales transaction were $234 million and we recognized $197 million in net revenue from continuing operations and $83 million in cost of products from continuing operations. See Note 4, “Acquisitions and Dispositions,” to the consolidated financial statements.

(4)	The historical financial data from 1997 through 1999 was carved out from the historical financial information of Hewlett-Packard using the historical results of operations and historical bases of the assets and liabilities of the Hewlett-Packard businesses that comprise our company. We began accumulating retained earnings on November 1, 1999. Therefore, the historical financial data from 1997 through 1999 is not indicative of our future performance and does not reflect what our consolidated financial position and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report. The following discussion contains forward-looking statements including, without limitation, statements regarding the anticipated completion of transactions and our liquidity position and our expected overall growth that involve risks and uncertainties. Our actual results could differ materially from the results contemplated by these forward-looking statements due to certain factors, including those discussed below in “Factors That May Affect Future Results” and elsewhere in this Annual Report.

Our company, incorporated in Delaware in May 1999, is a global diversified technology organization that provides enabling solutions to high growth markets within the communications, electronics and life sciences industries. Prior to our initial public offering of 15.9 percent of our stock in November 1999, we were a wholly-owned subsidiary of Hewlett-Packard Company (“HP”). HP distributed the remaining 84.1 percent of our stock to its stockholders on June 2, 2000 in the form of a stock dividend.

Our fiscal year end is October 31. Unless otherwise stated, all years refer to our fiscal year.

The 2001 and 2000 consolidated financial statements reflect the results of operations, changes in cash flows, and the financial position of our businesses. We began accumulating retained earnings on November 1, 1999.

The 1999 consolidated financial statements were prepared using HP’s historical bases in the assets and liabilities and our historical results of operations. The 1999 consolidated financial statements include allocations of certain HP corporate expenses, including centralized research and development, legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other HP corporate and infrastructure costs. The expense allocations were determined on bases that HP and we considered to be a reasonable reflection of the utilization of services provided to us or the benefit received by us. Therefore, the financial information presented in this Annual Report for 1999 is not necessarily indicative of what our consolidated financial position, results of operations or cash flows would have been had we been a separate, stand-alone entity in 1999.

On August 1, 2001, we completed the sale of our healthcare solutions business to Koninklijke Philips Electronics, N.V. (“Philips”) pursuant to an Asset Purchase Agreement for a total purchase price of $1.7 billion. Philips paid initial proceeds of $1.6 billion to us on August 1, 2001, with further payments to follow pursuant to the terms of the Asset Purchase Agreement dated as of November 17, 2000, as amended and supplemented by the Amendment and Supplemental Agreement, dated as of August 1, 2001. The total purchase price is subject to adjustment based on the determination of the final purchased net assets and on our performance of certain services for Philips. Since August 1, 2001 we have received approximately $80 million of the $100 million purchase price holdback in additional proceeds from Philips. We expect to receive the remaining proceeds in 2002.

Our consolidated financial statements reflect our healthcare solutions business as discontinued operations in accordance with Accounting Principles Board Opinion No. 30 “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”). The financial position, results of operations and cash flows of our healthcare solutions business have been classified as

discontinued, and prior periods have been restated, including the reallocation of general overhead charges to our three remaining business segments. We recorded an after-tax gain of $646 million as a result of this transaction. We do not expect material adjustments to the gain when the determination of the final purchased net assets and the performance of certain services are complete.

We are restricted from competing in the development, manufacturing, selling or servicing of certain medical products for five years. For incremental fees, we have provided certain support services to Philips after August 1, 2001 and we will continue to provide those services in the future. A portion of these fees offset costs that include an element of fixed costs which are recognized in selling, general and administrative expenses.

In 2001, as a result of the economic downturn that has impacted many of the markets that we serve, we have taken steps to restructure our businesses. We have announced measures to cut discretionary costs, to reduce the size of our workforce and to reduce the number of sites that we occupy. On August 20, 2001, we announced a plan to reduce our workforce by approximately 4,000, or about nine percent, by the middle of 2002. In November 2001, we announced a further reduction of 4,000 jobs, combined with other measures designed to restore profitability in the latter half of 2002. The total cost of these plans is estimated to be $350 million, of which $154 million was recognized in 2001. Of this amount, $79 million was included in cost of products and services, $17 million was included in research and development expenses and $58 million was included in selling, general and administrative expenses. As of October 31, 2001, $65 million in severance benefits had been paid and the remainder of the restructuring liability is expected to be utilized during 2002. In the second half of 2001, we reduced our workforce by approximately 3,000 employees.

In June 2001 we recognized a $74 million asset impairment charge with respect to our decision to cancel the development of a software system for our customer support activities. We have entered into an agreement with HP to extend our use of their legacy customer support systems in place of the one that we were developing. The decision to continue the use of HP’s systems enabled us to reduce costs at a critical time, minimize disruption to our customers and businesses and to focus on our customers’ needs.

In 1999, we recognized an impairment loss of $51 million related to a building that was under construction to house manufacturing operations for eight-inch CMOS semiconductor wafers. At the time construction was stopped, only the building shell was complete; we concluded that the highest fair value to be realized from this building was based on selling it for use as an office or general use facility.

On January 5, 2001, we acquired Objective Systems Integrators, Inc. (“OSI”) for approximately $716 million. Of this total, $690 million was cash and the remainder represents the fair value of options granted. Using the purchase method of accounting, the purchase price was allocated to tangible and intangible assets including goodwill. The original goodwill balance of $593 million is being amortized over three years. The net book value of goodwill associated with this acquisition at October 31, 2001 was $432 million. OSI is a leading provider of next-generation operations-support-system software for communications service providers and has become part of the test and measurement business.

In July 1999, HP entered into an agreement with Yokogawa Electric Corporation (“Yokogawa”) to acquire Yokogawa’s 25 percent equity interest in Agilent Technologies Japan, Ltd. for approximately $521 million. In the initial step, which occurred in January 2000, we purchased approximately 10.4 percent of Agilent Technologies Japan, Ltd. shares from Yokogawa for approximately $206 million. In the second step, which occurred in April 2000, we purchased approximately 10.4 percent of additional Agilent Technologies Japan, Ltd. shares from Yokogawa for approximately $216 million. In

January 2001, we completed our acquisition of Yokogawa’s 25 percent equity interest in Agilent Technologies Japan, Ltd. by purchasing the remaining 4.2 percent interest for approximately $99 million. Of the total purchase price, $243 million was allocated to tangible assets and $278 million was attributed to goodwill which is being amortized over 10 years. The remaining net book value of goodwill associated with this acquisition was $240 million at October 31, 2001.

In addition to the OSI and Yokogawa acquisitions, we acquired several other companies during 2001, 2000, and 1999 which were not significant to our consolidated financial position, results of operations or cash flows. These acquisitions were accounted for under the purchase method. The results of operations of the acquired companies were included prospectively from the date of acquisition and the acquisition cost was allocated to the acquired tangible and identifiable intangible assets and liabilities based on fair market values at the date of acquisition. Residual amounts were recorded as goodwill. In-process research and development write-offs have not been significant. Goodwill is amortized on a straight-line basis over its estimated economic life, generally three to five years except as noted above.

The net book value of goodwill and other intangible assets was $1.1 billion at October 31, 2001 and $467 million at October 31, 2000.

In the fourth quarter of 2000, we entered into an asset purchase agreement with Tyco Capital Corporation (“Tyco Capital”) pursuant to which we have sold them substantially all of our leasing portfolio (“Tyco Capital sale”) over the course of the last five quarters. The impact on our consolidated cash flows and results of operations of the lease portfolio sale is shown below.

Our service revenues and cost of services were reduced in 2001 as our portfolio of operating leases was purchased by Tyco Capital. Correspondingly, product revenue and cost of products increased as a direct result of the Tyco Capital sale. We expect future operating lease revenue to be further reduced because we also entered into a vendor financing arrangement with Tyco Capital whereby Tyco Capital will provide equipment financing and leasing services to our customers on a global basis. This agreement has been in place since the fourth quarter of 2000. As a result of this agreement and the Tyco Capital sale our lease revenue and associated costs have declined. Lease revenues as a percentage of service revenues for each of the last three fiscal years were 5.1 percent in 2001, 23.5 percent in 2000 and 22.6 percent in 1999.

In February 2001, we sold a parcel of surplus land in San Jose, California for $287 million in cash, resulting in a pre-tax gain of approximately $269 million. In August 2001, we invested in the leasehold of several municipal properties in southern California for a total value of $289 million.

The sales of our products and services are dependent, to a large degree, on customers whose industries are subject to cyclical trends in the demand for their products. Shifts in the semiconductor market, electronics industry, computer industry and telecommunications markets, as well as rapidly shifting global economic conditions, have had and will have significant impacts on our businesses.

In 2001, an economic downturn reduced consumer and capital spending in many of the worldwide markets that we serve. It also has created an imbalance of supply and demand in the wireless and semiconductor manufacturing industries. We are uncertain as to how long and how severe the current downturn may be in these markets. In 2001, net revenue and net earnings were down 10 percent and 77 percent, respectively, compared to 2000. Substantially all of the impacts of this decline occurred in our test and measurement and semiconductor products businesses. Our earnings from continuing operations in 2000 declined 184 percent to a loss from continuing operations in 2001. Additionally, as a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our customers who often delay or accelerate purchases in reaction to variations in their businesses and in the economy. We expect some portions of our businesses to remain cyclical in the future. Given that a high proportion of our costs are fixed, variability in revenue as a result of these business cycles could disproportionately affect our quarterly and annual results.

Our revenue and operating results for 2000 compared to 1999 improved as a result of growth in the communications and electronics markets.

We sell our products in many countries and a portion of our net revenue and costs and expenses are denominated in foreign currencies, especially in the Japanese yen and the Euro. Our foreign currency exposures are hedged as part of our global risk management program, which is designed to minimize short-term exposure to foreign currency fluctuations. Movements in exchange rates net of our hedging activities had no material effect on our net revenues or operating expenses in the periods presented.

Effective November 1, 2000, we adopted Statement of Financial Account Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, and requires that all derivatives be recognized as either assets or liabilities on the balance sheet and carried at fair value. Changes in the fair value of the derivative instruments are recognized in earnings or stockholders’ equity, depending on the intended use of the instrument. The adoption of SFAS No. 133 in November 2000 resulted in a cumulative pre-tax reduction in earnings of $41 million ($25 million after-tax) primarily relating to the valuation of certain warrants to purchase securities and a pre-tax increase in other comprehensive income of $10 million.

We enter into certain foreign exchange contracts, primarily forwards and purchased options, to hedge exposures to changes in foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). During the fourth quarter of 2001, we adopted SAB 101 retroactive to the beginning of the fiscal year. The cumulative effect of the adoption, reflecting the deferral of net revenue and cost of products from October 31, 2000, resulted in a cumulative pre-tax reduction in earnings of $74 million ($47 million after tax). As a result of adopting SAB 101, delivery is considered to have occurred when title and risk of loss have transferred to the customer. For the fiscal year ended October 31, 2001, the net impact on 2001 net revenue, including amounts deferred at October 31, 2001, was an increase of $67 million of net revenue and $29 million of cost of products which were included in the cumulative effect adjustment. The results for the first three quarters of 2001 have been restated in accordance with SAB 101. Pro forma amounts for the periods beginning before November 1, 2000 have not been presented, as the effect of the change could not be reasonably determined.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. As a result of SFAS No. 141, all acquisitions completed after June 30, 2001 are accounted for using the purchase method of accounting. The adoption of SFAS No. 141 had no material impact on our consolidated financial statements. We plan to adopt SFAS No. 142 in the first quarter of 2003. SFAS No. 142 requires that goodwill resulting from acquisitions completed after June 30, 2001 not be amortized. Until we adopt the new standard, we will continue to amortize goodwill existing at June 30, 2001 and to test all goodwill for impairment using the current method, that uses an undiscounted cash flow test. After adoption, we will stop amortizing all goodwill and will begin to test goodwill for impairment pursuant to SFAS No. 142, that applies a fair-value-based test. We are assessing the further impacts of SFAS No. 142 on our consolidated financial position and results of operations.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” which addresses financial accounting and reporting for the impairment and disposal of long-lived assets. We will be required to adopt SFAS No. 144 no later than fiscal year 2003. We are currently assessing the impact of SFAS No. 144 and do not believe that it will have a material impact on our consolidated financial statements.


(a)	Services and other includes revenue generated from servicing our installed base of products, warranty extensions, consulting and operating lease revenue. Our operating lease revenue has decreased in 2001 as a result of the Tyco Capital sale, as described more fully above.

Excluding the Tyco Capital sale of $254 million in 2001 and $197 million in 2000, net revenue for 2001 decreased 11.2 percent compared to 2000 and net revenue for 2000 increased 34.2 percent compared to 1999. The decrease in net revenue for 2001 compared to 2000 related primarily to a slowdown in the telecommunications, semiconductor and computer industries, which has severely impacted our customers’ ability to purchase our products. The increase in net revenue for 2000 compared to 1999 was spurred by continued growth in net revenue from the communications and

electronics markets. This was especially due to the robust demand for our wireless, fiber-optics, networking and imaging components within our semiconductor products business and for most products throughout our test and measurement business. Increased demand in Asia also contributed to net revenue growth in 2000.

The decrease in domestic net revenue for 2001 compared to 2000 came primarily from our businesses which serve the communications and electronics markets. This slowdown has impacted our net revenue in the United States somewhat more severely than other parts of the world. In contrast, the increase in domestic net revenue for 2000 compared to 1999 came primarily from our businesses which serve the communications and electronics markets. The increase in international net revenue for 2000 compared to 1999 was primarily attributable to increased demand in Asia, particularly in Taiwan, Korea and Japan. There was minimal currency impact on net revenue growth in 2000.

The decrease in product revenue for 2001 compared to 2000 was primarily driven by a slowdown in communications and electronics markets. The net revenue growth in 2000 was primarily due to growth in our businesses which serve the communications and electronics markets, a strengthening of the semiconductor industry and increased demand in Asia. The decline in service revenue for 2001 is primarily the result of the Tyco Capital sale and the decline in service contract renewal rates. Generally, there is a lag between service revenue trends and product revenue trends. This lag occurs because service revenue is directly related to the size of our installed base of products not covered by warranty.

Excluding the Tyco Capital sale and restructuring charges of $79 million in 2001, cost of products and services as a percentage of net revenue for 2001 increased 10.1 percentage points compared to 2000. The increase was primarily attributable to decreased sales volume and increased charges for excess and obsolete inventory. During 2001, cost of products as a percentage of product revenue has increased due to these same factors mentioned above and higher discounts offered to our customers. Excluding the Tyco Capital sale in 2000 and the impairment charge of $51 million in 1999, cost of products and services as a percentage of net revenue in 2000 decreased 1.6 percentage points compared to 1999. The decrease in 2000 was primarily attributable to higher volumes in the test and measurement and semiconductor products businesses as well as a more profitable product mix in the semiconductor products business.

Research and development expenses increased in 2001 compared to 2000 as a result of continuing expenditures toward new product introductions. Our research and development efforts focus on potential new products covering a wide variety of technologies, none of which is individually significant to our operations.

Selling, general and administrative expenses increased in 2001 compared to 2000 primarily due to goodwill amortization relating to our 2001 acquisition of OSI. As a result of various cost-cutting initiatives in 2001, selling, general and administrative expenses before the effect of goodwill and

other intangible amortization, restructuring and asset impairment charges declined 12 percent compared to 2000.

General overhead costs of $88 million in 2001, $225 million in 2000 and $194 million in 1999 previously allocated to our healthcare solutions segment have been reallocated to each of the three remaining segments.

Excluding the Tyco Capital sale, we had a loss from operations of $901 million in 2001 compared to earnings from operations of $810 million in 2000 and $422 million in 1999. Excluding the restructuring charges and Tyco Capital sale, we had a loss from operations of $447 million in 2001 compared to earnings from operations of $925 million in 2000 and $463 million in 1999. The decrease in 2001 compared to 2000 was primarily due to the fact that net revenue declined much more rapidly than costs and expenses in the test and measurement and semiconductor businesses. Increased goodwill amortization related to recent acquisitions also contributed to the decrease. The decrease was partially offset by the performance of our chemical analysis business. The increase in 2000 compared to 1999 was primarily due to strong results in the test and measurement and semiconductor products businesses. These improved results were partially offset by flat performance from our chemical analysis business and additional on-going costs associated with operating on our own as an independent company.

Other income (expense), net increased $207 million to $301 million in 2001 from $94 million in 2000. The increase was primarily due to the sale of land in San Jose, California which resulted in a pre-tax gain of $269 million. The increase in other income (expense), net for 2001 compared to 2000 was partially offset by higher interest expense due to a higher average debt balance. Other income (expense), net increased $53 million to $94 million in 2000 from $41 million in 1999. The increase was primarily due to a pre-tax gain of $29 million related to the sale of equity investments that no longer supported our business strategies and interest income earned on the initial cash funding received from HP in 1999.

We sold assets related to portions of our businesses to third parties during 2001, 2000 and 1999. Gross proceeds from these dispositions were $13 million in 2001, immaterial in 2000 and $71 million in 1999. Gains from the dispositions, included in other income (expense), net in the consolidated statement of earnings, were $9 million in 2001, immaterial in 2000 and $50 million in 1999.

The effective tax rate for continuing operations in 2001 was 19 percent. For 2000 and 1999, the effective rate was 34 percent.

In 2001, the change in the tax rate for continuing operations is due to the tax benefits arising from the losses caused by the recent global economic downturn. This is offset by the impact of non-deductible goodwill from the acquisition of OSI. Taxes on the sale of our healthcare solutions

business are reflected in the gain from sale of discontinued operations. Our future effective tax rate will continue to be calculated using an estimate of our pre-tax income and will be subject to the impact of future profitability, the effects of business acquisitions and dispositions, as well as changes in the mix of our pre-tax earnings among jurisdictions with varying statutory rates.

In 2001, our management changed its measure of the profitability of each of the business segments to exclude goodwill and other intangible amortization and non-recurring items such as restructuring charges. These items have been excluded for all periods presented.

Our test and measurement business provides test instruments, standard and customized test, measurement and monitoring instruments and systems for the design, manufacture and support of electronics and communications devices and software for the design of high-frequency electronic and communications devices and networks.

Net revenue for 2001 decreased 11.1 percent compared to 2000. Excluding the Tyco Capital sale, total net revenue for 2001 declined 12.4 percent compared to 2000. The slowdown in the telecommunications and semiconductor industries was the main factor that caused the decline in net revenue for 2001. The slowdown was particularly sharp in the second half of 2001 as we became increasingly dependent on incoming orders which declined in virtually all of the product lines of our test and measurement businesses. Net revenue for 2000 increased 49.6 percent compared to 1999. The increase in 2000 was attributable to strong growth in the sales of our products to the optical, wireless and networking markets. In addition, third-party manufacturing contractors added capacity to meet demand and increased their purchases of our test and measurement products.

Excluding the Tyco Capital sale, net revenue from products for 2001 decreased 11.6 percent compared to 2000. The decrease in net revenue from products was primarily due to a slowdown in telecommunications and semiconductor industries. Net revenue from services and other for 2001 decreased 17.4 percent compared to 2000 primarily due to the Tyco Capital sale. In addition, certain customers have chosen not to renew their service contracts. Excluding the Tyco Capital sale, net revenue from products for 2000 increased 50.1 percent compared to 1999. The increase was primarily due to the growing communications market and the increased demand in Asia. Net revenue from services and other for 2000 increased 18.8 percent compared to 1999.

The following table shows the percentage point increase or decrease in our test and measurement business’ costs and expenses as a percentage of net revenue for 2001, 2000 and 1999.

Cost of products and services as a percentage of net revenue increased in 2001 compared to 2000 primarily due to increased charges for excess and obsolete inventory. Excluding the impacts of these charges, cost of products and services as a percentage of net revenue increased 5.4 percentage points in 2001 from 2000. Due to the fixed nature of our manufacturing costs, lower than anticipated manufacturing volumes contributed to the increase in cost of products and services as a percentage of net revenue.

The increase in research and development expenses as a percentage of net revenue in 2001 compared to 2000 was primarily due to our continuing expenditures toward new product introductions.

Loss from operations in 2001 was a result of reduced demand, which led to fewer sales and increased charges for excess and obsolete inventory. Excluding the Tyco Capital sale, loss from operations was $263 million compared to earnings from operations of $594 million in 2000 and $250 million in 1999. The increase in 2000 compared to 1999 resulted primarily from higher net revenue.

Our semiconductor products business provides fiber optic communications devices and assemblies, components and integrated circuits for wireless, networking, computing and printing applications, image sensors and general-purpose opto-electronic components.

The decrease in net revenue for 2001 compared to 2000 was primarily due to a sharp decline in demand for our semiconductor products. The global economic slowdown led to lower volumes in virtually all product lines of our semiconductor products business. Total net revenue for 2001 included $35 million of non-recurring royalty revenue relating to changes in our agreement with Adaptec Inc. The increase in 2000 compared to 1999 was the result of strong growth in all semiconductor products including wireless, networking and imaging components. Networking component growth was the result of growth in the sales of fiber-optic transceivers and high-speed networking products tailored for Metro Area Network (MAN), as well as storage area networking products and Gigabit Ethernet Local Area Network (LAN) applications. Imaging products for digital cameras and optical mice also achieved particularly strong growth in 2000. As a percentage of net revenue for the semiconductor products business, revenue from sales to HP, consisting primarily of

application-specific integrated circuits and motion control products, was 30.7 percent for 2001, 30.3 percent for 2000 and 37.0 percent for 1999.

In 2000, we expanded our existing joint venture relationship with Philips to develop our manufacturing of light-emitting diodes (“LED”) and transferred a portion of our LED business into the joint venture. LEDs are used for various lighting and display purposes. Since we do not have a majority ownership interest in the joint venture, the revenue, costs and expenses of the LED business transferred to the joint venture are no longer consolidated in our results. Instead, we record our portion of the joint venture’s net earnings or loss in other income (expense), net, which in 2000, was minimal. Adjusting the 1999 base for revenues relating to the LED business and our exit from the microprocessor business, net revenue growth for 2000 would have been 40.3 percent.

The following table shows the percentage point increase or decrease in our semiconductor products business’s costs and expenses as a percentage of its net revenue for 2001, 2000 and 1999.

The increase in cost of products as a percentage of net revenue in 2001 compared to 2000 was primarily due to increased inventory charges for excess and obsolete inventory as a result of reduced demand for our semiconductor products. In addition, due to the fixed nature of our manufacturing costs, lower than anticipated manufacturing volumes contributed to the increase in cost of products as a percentage of net revenue. Unfavorable mix and large shipments to single customers carrying deep discounts impacted cost of products as a percentage of net revenue unfavorably. Excluding the impacts of increased inventory charges, cost of products as a percentage of net revenue for 2001 increased 7.7 percentage points compared to 2000. Cost of products as a percentage of net revenue for 2000 decreased 3.2 percentage points compared to 1999. The decrease related primarily to increased volumes and a more favorable product mix.

The increase in research and development expenses as a percentage of net revenue in 2001 compared to 2000 was driven by a continued commitment to develop new products in the fiber optics, high-speed networking, and image position sensor businesses.

The loss from operations in 2001 compared to earnings from operations in 2000 resulted primarily from lower net revenue and higher cost of products and expenses as a percentage of net revenue. The increase in 2000 compared to 1999 resulted from higher net revenue and lower cost of products as a percentage of net revenue, partially offset by higher operating expenses.

Our chemical analysis business provides analytical instruments, systems and services for chromatography, spectroscopy, bio-instrumentation and consumables to the chemical and life science markets.

The increase in net revenue for 2001 compared to 2000 was the result of increased sales of our products in the life sciences market moderated by decreased sales of our products in our traditional chemical and petrochemical markets. Net revenue from products including liquid chromatography equipment, bioanalyzers and microarrays grew more than 19.6 percent in 2001 compared to 2000. Net revenue growth in 2000 as compared to 1999, was essentially flat as our products sold to the pharmaceutical and life sciences markets was partially offset by weakness in our traditional chemical and environmental markets. New product releases contributed to increased sales of our liquid chromatography and mass spectrometry products. Services and other revenue decreased slightly in 2001 compared to 2000 while it was flat in 2000 compared to 1999.

The following table shows the percentage point increase and decrease in our chemical analysis business costs and expenses as a percentage of its net revenue for 2001, 2000 and 1999.

Cost of products and services as a percentage of net revenue was relatively flat in 2001 compared to 2000. Additional depreciation expense related to increased spending in manufacturing capacity for microarrays was offset by cost controls and improved operational efficiencies. The increase in 2000 compared to 1999 was primarily due to start-up costs for life sciences products.

The decrease in selling, general and administrative expenses as a percentage of net revenue for 2001 compared to 2000 reflected our efforts to reduce cost structures and discretionary expenses. In 2000, the increase resulted primarily from increased life sciences research and development activities, higher infrastructure costs and branding expenses relating to operating on our own.

The increase in earnings from operations in 2001 compared to 2000 was primarily due to higher net revenue and reduced spending resulting from our cost reduction measures. In addition, operational efficiencies arising out of manufacturing centralization efforts begun in fiscal 2000 and increased volumes contributed to the increase. The decrease in earnings from operations in 2000 compared to 1999 was primarily due to higher infrastructure costs and branding expenses related to

the costs of operating on our own as well as planned research and development in life sciences to launch new products.

Our healthcare solutions business has been classified as a discontinued operation. The table below shows the results of our healthcare solutions business before general overhead allocations and net of the costs of divestiture. Results for the year ended October 31, 2001 include operations from November 1, 2000 to May 31, 2001, the measurement date in accordance with APB 30. The net loss from discontinued operations of $58 million for the two-month period following our May 31, 2001 measurement date has been included in the gain from sale of discontinued operations. The after-tax gain resulting from the sale of our healthcare solutions business including this loss was $646 million.

The following table shows the detailed results of operations of our discontinued healthcare solutions business for 2001, 2000 and 1999. These results are also included in our condensed consolidated statement of earnings as net earnings from discontinued operations for the years ended 2001, 2000 and 1999.


(a)	Includes operations from November 1, 2000 to May 31, 2001, the measurement date.

Our financial position remained strong at October 31, 2001, with cash and cash equivalents of $1,170 million.

Cash usage from our continuing operations was $114 million in 2001. We generated cash from continuing operations of $536 million in 2000 compared to $341 million in 1999. In 2001, accounts payable used cash of $480 million and income tax payable used cash of $472 million offset by a decrease in outstanding accounts receivable totaling $933 million. In 2000 and 1999, cash from continuing operations was primarily a result of net earnings. In addition, lower cash from continuing operations in 1999 resulted from a significant increase in accounts receivable due to particularly strong shipments in October 1999.

Net cash utilized for investing activities was $1,365 million for 2001 compared to $1,062 million for 2000 and $336 million for 1999. In all periods, capital expenditures for property, plant and equipment and business acquisitions, partially offset by proceeds from divestitures and the disposal of excess, unused or retired assets constituted substantially all of our cash used in investing activities. We used $904 million for acquiring several businesses and $881 million for investments in property, plant and equipment in 2001. We used $634 million in 2000 to pay for the first and second installments of the purchase of Yokagawa’s minority interest in Agilent Technologies Japan, Ltd. along with investments in several other companies. We purchased the remaining 4.2 percent of Agilent Technologies Japan, Ltd.’s shares owned by Yokogawa in January 2001. HP provided the

funding for the entire Yokogawa transaction in November 1999. In 2001, we sold the remaining portion of our portfolio of lease assets to Tyco Capital. Net proceeds from these sales transactions were $287 million.

We have two revolving credit facilities with no outstanding balances at the end of 2001. Those facilities are a $250 million facility that terminates on November 5, 2005 and a 364-day $250 million facility that terminated on November 2, 2001. In November 2001, we extended the latter facility to November 1, 2002. As of November 19, 2001, the revolving credit facilities were amended to reflect new debt covenants. In addition to these committed facilities, we have access to uncommitted credit lines through our banking partners.

On January 5, 2001, we acquired Objective Systems Integrators, Inc. for a total purchase price of $716 million. Of this total, $690 million was cash and the remainder represents the fair value of options granted.

In February 2001, we sold surplus land in San Jose, California for $287 million, net of transaction costs. In August 2001, we invested in the leasehold of several municipal properties in southern California for a total value of $289 million.

On August 1, 2001 we completed the sale of our healthcare solutions business to Philips and received approximately $1.6 billion in cash at that time. We have subsequently received approximately $80 million in proceeds relating to the sale. Cash flows from discontinued operations include the proceeds from the sale and cash used in the operations of the healthcare solutions business during the year up until the date of sale.

On November 27, 2001, we announced the closing of a private offering of $1.15 billion aggregate principal amount of 3 percent senior convertible debentures due 2021. We intend to use the net proceeds of the offering for working capital and general corporate purposes, and to fund potential acquisitions and restructuring costs. The debentures are convertible into our common stock at a conversion price of $32.22 per share. The debentures are redeemable at our option beginning in December 2004, and holders of the debentures have the ability to require us to repurchase the debentures, in whole or in part, on specified dates in 2006, 2011 and 2016.

Prior to November 1, 1999, cash receipts associated with our businesses were transferred to HP on a daily basis and HP provided funds to cover our disbursements. Accordingly, we reported no cash or cash equivalents at October 31, 1999 and 1998. In accordance with our separation agreement with HP, as of November 1, 1999, HP retained some of our assets and liabilities and transferred to us some of the assets and liabilities related to its business. In November and December 1999, HP made cash payments to us totaling $1.3 billion to fund our working capital and other needs of our operations as a separate, stand-alone entity. In addition, HP transferred approximately $0.5 billion to fund our acquisition of Yokogawa’s 25 percent minority interest in Agilent Technologies Japan, Ltd. The net proceeds of our initial public offering of $2.1 billion were received in November 1999 and immediately distributed to HP as a dividend.

Of the total $1.8 billion received from HP, $1.1 billion was classified as net cash provided by financing activities and $0.7 billion was classified among several categories as net cash provided by operating activities in the consolidated statement of cash flows for the year ended October 31, 2000.

Our liquidity is affected by many factors, some of which are based on the normal ongoing operations of our businesses and some of which arise from fluctuations related to global economies and markets. We believe that cash on hand plus the proceeds from our bond offering will be sufficient to satisfy our working capital, capital expenditure, research and development and restructuring requirements for the foreseeable future. However, we may require or choose to obtain additional debt or equity financing in the future. We cannot assure that additional financing, if needed, will be available on favorable terms.

The current economic downturn has resulted in reduced purchasing and capital spending in many of the markets that we serve worldwide. In particular, the communications, semiconductor and electronics industries are currently in a downward cycle characterized by diminished product demand, excess manufacturing capacity and the erosion of average selling prices.

We are uncertain how long the current downturn will last. The terrorist attacks on September 11, 2001 may exacerbate this downturn or cause it to linger. Any further decline in our customers’ markets or in general economic conditions would likely result in a further reduction in demand for our products and services and could harm our consolidated financial position, results of operations, cash flows and stock price. In addition, we may be required to secure additional debt or equity financing, and we cannot assure you that such financing will be available when required on acceptable terms.

Our semiconductor and test and measurement businesses have been experiencing lower revenues due to decreased or cancelled customer orders. Orders for our products and services have decreased in five of the past six quarters. To scale back our operations and decrease our expenses in response to this decrease in demand for our products and services and decrease in our revenue, we have reduced our workforce, frozen hiring, cut back significantly on our use of temporary workers and reduced discretionary spending. We also have initiated short-term facility closures to reduce production levels.

Earlier this year we announced our plan to reduce our workforce by approximately 4,000 people, or about 9 percent, by the middle of 2002. In addition, from May 1 to October 31 of this year, we instituted a 10 percent reduction in pay applicable to all employees globally, wherever legally permissible. The reduction in pay took effect via a 10 percent reduction in hours for certain employees, in accordance with local law. On November 15, 2001, we announced that we intend to further reduce our workforce by approximately 4,000 people. We also announced that we would reinstate the 10 percent pay reduction for approximately 2,000 of our senior managers starting from the first quarter fiscal 2002 and that we would effectively reduce the salaries of our other employees by 5 percent, wherever legally permissible, effective February 2002. In addition to these measures, we are continuing our initiatives to streamline our operations.

There are several risks inherent in our efforts to transition to a new cost structure. These include the risk that we will not be able to reduce expenditures quickly enough to restore profitability and may have to undertake further restructuring initiatives that would entail additional charges. In addition, there is the risk that cost-cutting initiatives will impair our ability to effectively develop and market products and remain competitive in the industries in which we compete. Each of the above measures could have long-term effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in our products, making it more difficult for us to respond to customers, limiting our ability to increase production quickly if and when the demand for our products increases and limiting our ability to hire and retain key personnel. These circumstances could cause our earnings to be lower than they otherwise might be.

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. Currently, we have excess manufacturing capacity as a result of the recent decrease in purchasing and capital spending in the communications, electronics and semiconductor industries. The fixed costs associated with excess manufacturing capacity have adversely affected, and may continue to adversely affect, our earnings. Conversely, if during a market upturn, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner, which in turn may have a negative effect on our earnings and overall business.

Our earnings could be harmed if we are unable to adjust our orders for parts to market fluctuations. In order to secure components for the production of products, we may 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 as demand for our communications, semiconductor and electronics products has decreased. For example, in the year ended October 31, 2001 we incurred a charge of approximately $459 million for inventory-related charges. If the demand for our products continues to decrease, we may experience an excess of parts again and be forced to incur additional charges. By contrast, during a market upturn, our results could be materially and adversely impacted if we cannot increase our parts supply quickly enough to meet increasing demand for our products. Certain parts may be available only from a single supplier or a limited number of suppliers. In addition, suppliers may cease manufacturing certain components that are difficult to substitute without significant reengineering of our products. Suppliers may also extend lead times, limit supplies or increase prices due to capacity constraints or other factors.

Given the nature of the markets in which we participate, we cannot reliably predict future revenue and profitability. As demand for our products has decreased in recent periods, our quarterly sales and operating results have become highly dependent on the volume and timing of orders received during the quarter, which are difficult to forecast. The reduction in the backlog of our orders also has significantly affected our ability to efficiently plan production and inventory levels, which has led to fluctuations in operating results. In addition, a significant portion of our operating expenses is relatively fixed in nature due to our significant sales, research and development and manufacturing costs. If we cannot adjust spending quickly enough to compensate for a revenue shortfall, this may magnify the adverse impact of a revenue shortfall on our results of operations. Fluctuations in our operating results may cause volatility in the price of our common stock and the debentures.

We are in the process of implementing new information systems to eventually replace our current systems, which are largely based on legacy systems that we created when we were a part of Hewlett-Packard. We may not be successful in implementing these new systems and transitioning data. As a part of this effort, we are implementing new enterprise resource planning software applications to manage our business operations. Failure to smoothly and successfully implement this and other systems could temporarily interrupt our operations and adversely impact our ability to run

our business. In addition, any failure or significant downtime in our legacy or new information systems could prevent us from taking customer orders, shipping products or billing customers and could harm our business.

We generally sell our products in industries that are characterized by rapid technological changes, frequent new product and service introductions and changing industry standards. 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 product and service offerings will depend on several factors, including our ability to:


	•	properly identify customer needs;

	•	innovate and develop new technologies, services and applications;

	•	successfully commercialize new technologies in a timely manner;

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

	•	differentiate our offerings from our competitors’ offerings;

	•	price our products competitively; and

	•	anticipate our competitors’ announcements of new products, services or technological innovations.

Since 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 substantial portion of our total revenue. In addition, many of our manufacturing facilities and suppliers are located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:


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

	•	changes in foreign currency exchange rates;

	•	changes in a specific country’s or region’s political or economic 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; and

	•	unexpected changes in regulatory requirements.

The terrorist attacks on September 11, 2001 and the U.S. and international response could exacerbate these risks. For example, there may be an increased risk of political unrest in regions such as Southeast Asia, where we have significant manufacturing operations. This could disrupt our ability to manufacture products or important parts as well as cause interruptions and/or delays in our ability to transport products to our customers or parts to other locations for continued

manufacture and assembly. Any such delay or interruption could have an adverse effect on our results of operations.

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. Although the labor market has changed dramatically within the past year, and our attrition rate has dropped, there is still intense competition for certain highly technical specialties in geographic areas where we continue to recruit.

In the normal course of business, we frequently engage in discussions with third parties relating to possible acquisitions, strategic alliances, joint ventures and divestitures. As a result of such transactions, our financial results may differ from the investment community’s expectations in a given quarter. In addition, acquisitions and strategic alliances may require us to integrate a different company culture, management team and business infrastructure. We may have difficulty developing, manufacturing and marketing the products of a newly-acquired company in a way that enhances the performance of our combined businesses or product lines to realize the value from expected synergies. Depending on the size and complexity of an acquisition, our successful integration of the entity depends on a variety of factors, including:


	•	the retention of key employees;

	•	the management of facilities and employees in separate geographic areas;

	•	the retention of key customers; and

	•	the integration or coordination of different research and development, product manufacturing and sales programs and facilities.


	•	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.

All of these efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations and stock price could be negatively impacted.

Historically, our semiconductor products business has sold custom products to Hewlett-Packard and has engaged in product development efforts with divisions of Hewlett-Packard. For the twelve months ended October 31, 2001, Hewlett-Packard accounted for approximately 6.8 percent of our total net revenue and approximately 30.7 percent of our semiconductor products business’ net revenue.

We have a license agreement with Hewlett-Packard that covers integrated circuit technology used in custom integrated circuits for Hewlett-Packard’s printers, scanners and computers. The license agreement provides that, until November 2002 in some cases and until November 2009 in other cases, we are prohibited, with some exceptions, from using this integrated circuit technology for the development and sale of integrated circuits for use in inkjet products, printer products (including printer supplies, accessories and components), document scanners and computing products to third parties other than Hewlett-Packard.

Although we have entered into a supply agreement for the sale to Hewlett-Packard of custom integrated circuits used in printers, scanners and computers, the agreement does not require Hewlett-Packard to purchase a minimum amount of product from us. In the event that Hewlett-Packard reduces its purchases of our custom integrated circuits, we would be unable to address this reduction through sales of these kinds of integrated circuits for these types of products to other customers.

Some of our chemical analysis business’ products are used in conjunction with chemicals whose manufacture, processing, distribution and notification requirements are regulated by the United States 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.

Some of our properties are undergoing remediation by Hewlett-Packard for subsurface contaminations that were known at the time of our separation from Hewlett-Packard. Hewlett-Packard 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. The determination of the existence and cost of any additional contamination caused by us could involve costly and time-consuming negotiations and litigation. In addition, Hewlett-Packard will have access to our properties to perform remediation. While Hewlett-Packard 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 Hewlett-Packard will fulfill its indemnification or remediation obligations.

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

Our semiconductor and other manufacturing processes involve the use of substances regulated under various international, federal, state and local laws governing the environment. We may be subject to liabilities for environmental contamination, and these liabilities may be substantial. Although our policy is to apply strict standards for environmental protection at our sites inside and outside the United States, even if not subject to regulations imposed by foreign governments, we may not be aware of all conditions that could subject us to liability.

Our businesses are subject to various significant international, federal, state and local, health and safety, packaging, product content and labor 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 of other agencies such as the United States Federal Communications Commission. We also must comply with work safety rules. If we fail to adequately address any of these regulations, our businesses will be harmed.

Our chemical analysis products are used in the drug design and production processes to test compliance with the Toxic Substances Control Act, the Federal Food, Drug and Cosmetic Act and similar regulations. Therefore, we must continually adapt our chemical analysis products to changing regulations.

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.

Third parties may claim that we are infringing their intellectual property rights, and we may be found to infringe those intellectual property rights. While we do not believe that any of our products infringe the valid intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our technology, products and services.

Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert our management and key personnel from our business operations.

The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against development and sale of certain of our products.

We often rely on licenses of intellectual property useful for our businesses. We cannot assure you that these licenses will be available in the future on favorable terms or at all. In addition, our position with respect to the negotiation of licenses has changed as a result of our separation from Hewlett-Packard. In the past, as a part of Hewlett-Packard, we benefited from our access to Hewlett-Packard’s entire intellectual property portfolio when asserting counterclaims and negotiating cross-licenses with third parties. Our current patent cross-license agreement with Hewlett-Packard gives us only a limited right to sublicense a portion of Hewlett-Packard’s intellectual property portfolio. Accordingly, we may be unable to obtain agreements on terms as favorable as we may have been able to obtain if we could have sublicensed Hewlett-Packard’s entire intellectual property portfolio. Nothing restricts Hewlett-Packard from competing with us other than some restrictions on the use of patents licensed to Hewlett-Packard by us.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results.

Our pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of these patents or trademark registrations. In addition, our patents may not provide us a significant competitive advantage.

We may be required to spend significant resources to monitor and police our intellectual property rights. We may not be able to detect infringement and our competitive position may be harmed before we do so. In addition, competitors may design around our technology or develop competing technologies. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share.

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 location. We have significant facilities in areas with above average seismic activity, such as our production facilities, headquarters and Agilent Laboratories in California and our production facilities in Washington and Japan. 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. We self-insure against such losses and do not carry catastrophic insurance policies to cover potential losses resulting from earthquakes.

Our corporate headquarters, a portion of our research and development activities, other critical business operations and a certain number of our suppliers are located in California. California has experienced periodic power shortages. Power outages could cause disruptions to our operations and the operations of our suppliers, distributors, resellers and customers. We self-insure against such disruptions and do not carry catastrophic insurance policies to cover potential losses resulting from

power shortages or outages. In addition, California has recently experienced rising energy costs that could negatively impact our results.

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 United States dollar. Our exposure to exchange rate risks has been 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 loses on the derivative contracts hedging them. We do not currently and do not intend to utilize derivative financial instruments for speculative or trading purposes.

We performed a sensitivity analysis assuming a hypothetical 10% adverse movement in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of October 31, 2001 and 2000, the analysis indicated that theses hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Information regarding our directors appears under “Election of Directors” on pages 7-9 of our Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”), to be held February 22, 2002. That portion of the Proxy Statement is incorporated by reference into this report. Information regarding our executive officers appears in Item 1 of this report under “Executive Officers of the Registrant.”

Information about compliance with Section 16(a) of the Securities Exchange Act of 1934 appears under “Section 16(a) Beneficial Ownership Reporting Compliance” on page 12 of the Proxy Statement. That portion of the Proxy Statement is incorporated by reference into this report.

Information about compensation of our named executive officers appears under “Executive Compensation” on pages 12-21 of the Proxy Statement. Information about compensation of our directors appears under “Director Compensation Arrangements and Stock Ownership Guidelines” on page 6 of the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.

Information about security ownership of certain beneficial owners and management appears under “Common Stock Ownership of Certain Beneficial Owners and Management” on pages 10-12 of

the Proxy Statement. Those portions of the Proxy Statement are incorporated by reference into this report.

See Index to Exhibits. The Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

(i) Form 8-K dated August 15, 2001 reporting under Item 2 “Acquisition or Disposition of Assets” the completion of the sale of Agilent’s Healthcare Solutions Group (“HSG”) to Koninklijke Philips Electronics N.V. (“Philips”). Also reporting under Item 7 “Financial Statements and Exhibits” pro forma financial information, agreements and a press release relating to the sale of HSG to Philips

(ii) Form 8-K dated August 22, 2001 reporting under Item 5 “Other Events” Agilent’s third quarter results.

Agilent Technologies’ management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this report. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect the effects of certain estimates and judgments made by management.

Management maintains an effective system of internal control that is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization. The system is continuously monitored by direct management review and by internal auditors who conduct audits throughout the company. We select and train qualified people who are provided with and expected to adhere to Agilent Technologies’ standards of business conduct. These standards, which set forth strong principles of business ethics and conduct, are a key element of our control system.

Our consolidated financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants. Their audits were conducted in accordance with auditing standards generally accepted in the United States of America, and included a review of financial controls and tests of accounting records and procedures as they considered necessary in the circumstances.

The Audit and Finance Committee of the Board of Directors, which consists of outside directors, meets regularly with management, the internal auditors and the independent accountants to review accounting, reporting, auditing and internal control matters. The committee has direct and private access to both the internal auditors and the independent accountants.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of earnings, cash flows and stockholders’ equity present fairly, in all material respects, the financial position of Agilent Technologies, Inc. and its subsidiaries at October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in the notes to the consolidated financial statements, the company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” and changed its method of revenue recognition as of November 1, 2000.

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

Agilent Technologies, Inc. (Agilent), incorporated in Delaware in May 1999, is a global technology leader in communications, electronics and life sciences. Prior to Agilent’s initial public offering of 15.9 percent of its stock in November 1999, Agilent was a wholly-owned subsidiary of Hewlett-Packard Company (“HP”). HP distributed the remaining 84.1 percent of Agilent’s stock to its stockholders on June 2, 2000 in the form of a stock dividend.

On August 1, 2001 Agilent completed the sale of its healthcare solutions business to Koninklijke Philips Electronics, N.V. The results of the healthcare solutions business are presented as discontinued operations for all periods in the consolidated financial statements included herein. See Note 3 “Discontinued Operations”.

Agilent’s fiscal year end is October 31. Unless otherwise stated, all years and dates refer to Agilent’s fiscal year.

The consolidated 1999 financial information was prepared using HP’s historical bases in the assets and liabilities and the historical results of operations of Agilent. Agilent began accumulating retained earnings on November 1, 1999.

Basis of presentation. The accompanying financial data has been prepared by Agilent pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain amounts in the consolidated balance sheet, statement of earnings and statement of cash flows for 2000 and 1999 have been reclassified to conform to the presentation in 2001.

Principles of consolidation. The consolidated financial statements include the accounts of Agilent and its wholly- and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in Agilent’s consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition. Revenue from product sales, net of trade discounts and allowances, is recognized once delivery has occurred provided that persuasive evidence of an arrangement exists, the price is fixed or determinable, and collectibility is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. For sales that include customer-specified acceptance criteria, revenue is recognized after the acceptance criteria have been met. For products that include installation, revenue for the entire arrangement is recognized once the installation is complete, unless the installation is considered to be a separate element, in which case the revenue relating to installation is deferred. Provisions are established for estimated costs that may be incurred for product warranties. Revenue from services, including operating leases, is recognized over the contractual period or as services are rendered and accepted by the customer.

Shipping and handling costs. Agilent’s shipping and handling costs charged to its customers are included in net revenue and the associated expense is recorded in total costs for all periods presented.

Goodwill and purchased intangible assets. Goodwill and purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the economic lives of the respective assets, generally three to ten years. Goodwill

resulting from acquisitions completed after June 30, 2001 has not been amortized in accordance with the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”.

Advertising. Advertising costs are expensed as incurred and amounted to $115 million in 2001, $178 million in 2000, and $117 million in 1999.

Taxes on earnings. Income tax expense is based on earnings before taxes. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Prior to June 3, 2000, Agilent’s operating results were included in HP’s consolidated U.S. and state income tax returns and in tax returns of certain HP foreign subsidiaries. The provision for taxes in Agilent’s consolidated financial statements for 1999 was determined on a separate return basis.

Net (loss) earnings per share. Basic net (loss) earnings per share is computed by dividing net (loss) earnings (numerator) by the weighted average number of common shares outstanding (denominator) during the period excluding the dilutive effect of stock options and other employee stock plans. Diluted net (loss) earnings per share gives effect to all potentially dilutive common stock equivalents outstanding during the period. In computing diluted net (loss) earnings per share, the average stock price for the period is used in determining the number of shares assumed to be purchased from the proceeds of stock option exercises. Diluted net loss per share for 2001 excludes the potentially dilutive effect of common stock equivalents as their effect is antidilutive.

Cash and cash equivalents. Agilent classifies investments as cash equivalents if their original maturity is three months or less. Cash equivalents are stated at cost, which approximates fair value.

Fair value of financial instruments. The carrying values of certain of the Company’s financial instruments, including cash and cash equivalents, accrued compensation, and other accrued liabilities, approximate fair value because of their short maturities. The fair values of investments are determined using quoted market prices for those securities or similar financial instruments.

Concentration of credit risk. Agilent sells the majority of its products through its direct sales force. No single customer accounted for 10 percent or more of the combined accounts receivable balance at October 31, 2001 and 2000. Credit risk with respect to accounts receivable is generally diversified due to the large number of entities comprising Agilent’s customer base and their dispersion across many different industries and geographies. Agilent performs ongoing credit evaluations of its customers’ financial condition, and requires collateral, such as letters of credit and bank guarantees, in certain circumstances.

Derivative instruments. Agilent enters into foreign exchange contracts, primarily forward contracts and purchased options, to hedge exposures to changes in foreign currency exchange rates. These contracts are designated at inception as hedges of the related foreign currency exposures, which include committed and anticipated foreign currency sales and assets and liabilities that are denominated in currencies other than the U.S. dollar. To achieve hedge accounting, contracts must reduce the foreign currency exchange rate risk otherwise inherent in the amount and duration of the hedged exposures and comply with established risk management policies; hedging contracts generally mature within three to six months. Agilent does not use derivative financial instruments for speculative or trading purposes.

When hedging sales-related exposure, foreign exchange contract expirations are set so as to occur in the same month the hedged shipments occur, allowing realized gains and losses on the contracts to be recognized in net revenue in the same periods in which the related revenues are recognized. When hedging balance sheet exposure, realized gains and losses on foreign exchange

contracts are recognized in other income (expense), net in the same period as the realized gains and losses on remeasurement of the foreign currency denominated assets and liabilities occur. The gains and losses, which have not been material, are included in cash flows from operating activities in the consolidated statement of cash flows.

Agilent may also, from time to time, acquire warrants to purchase securities of other companies as part of strategic relationships.

Inventory. Inventory is valued at standard cost which approximates actual cost computed on a first-in, first-out basis, not in excess of market value.

Property, plant and equipment. Property, plant and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized; maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss is reflected in operations. Depreciation is provided using accelerated methods, principally over fifteen to forty years for buildings and improvements and three to ten years for machinery and equipment, including equipment leased to customers under operating leases. Depreciation of leasehold improvements is provided using the straight-line method over the life of the asset or the term of the lease or the asset, whichever is shorter.

Capitalized software. Agilent capitalizes certain internal and external costs incurred to acquire or create internal use software in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”. Capitalized software is included in property, plant, and equipment under machinery and equipment and is amortized over its useful life when development is complete.

Impairment of long-lived assets. Agilent continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances are present, Agilent assesses 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 future cash flows is less than the carrying amount of those assets, Agilent recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.

Foreign currency translation. Agilent uses the U.S. dollar as its functional currency. Foreign currency assets and liabilities are remeasured into U.S. dollars at current exchange rates except for inventory, property, plant and equipment, other assets and deferred revenue which are remeasured at historical exchange rates. Revenue and expenses are generally translated at average exchange rates in effect during each period, except for those expenses related to balance sheet amounts that are remeasured at historical exchange rates. Gains or losses from foreign currency remeasurement are included in consolidated net earnings. The effect of foreign currency exchange rate fluctuations on Agilent’s cash and cash equivalents denominated in foreign currencies was not material.

Recent accounting pronouncements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, “Business Combination” and SFAS No. 142, “Goodwill and Other Intangible Assets”. As a result of SFAS No. 141, all acquisitions completed after June 30, 2001 are accounted for using the purchase method of accounting. The adoption of SFAS No. 141 had no material impact on Agilent’s consolidated financial statements. Agilent plans to adopt SFAS No. 142 in the first quarter of 2003. SFAS No. 142 requires that goodwill resulting from acquisitions completed after June 30, 2001 not be amortized. Until Agilent adopts the new standard, Agilent will continue to amortize goodwill existing at June 30, 2001 and to test all goodwill for impairment using the current method, that uses an undiscounted cash flow test. After adoption, Agilent will stop amortizing all goodwill

and will begin to test goodwill for impairment pursuant to SFAS No. 142, that applies a fair-value-based test. Agilent is assessing the further impacts of SFAS No. 142 on its consolidated financial position and results of operations.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” which addresses financial accounting and reporting for the impairment and disposal of long-lived assets. Agilent will be required to adopt SFAS No. 144 no later than fiscal year 2003. Agilent is currently assessing the impact of SFAS No. 144 and does not believe that it will have a material impact on its consolidated financial position, results of operations or cash flows.

On August 1, 2001, Agilent completed the sale of its healthcare solutions business to Koninklijke Philips Electronics, N.V. (“Philips”) pursuant to an Asset Purchase Agreement for a total purchase price of $1.7 billion. Philips paid initial proceeds of $1.6 billion to Agilent on August 1, 2001, with further payments to follow pursuant to the terms of the Asset Purchase Agreement dated as of November 17, 2000, as amended and supplemented by the Amendment and Supplemental Agreement, dated as of August 1, 2001 (collectively, the “Asset Purchase Agreement”). The total purchase price is subject to adjustment based on the determination of the final purchased net assets and Agilent’s performance of certain services for Philips. Since August 1, 2001 Agilent has received approximately $80 million of the $100 million purchase price holdback in additional proceeds from Philips. Agilent expects to receive the remaining proceeds in 2002.

Agilent’s consolidated financial statements reflect its healthcare solutions business as discontinued operations in accordance with Accounting Principles Board Opinion No. 30 “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB 30”). The financial position, results of operations and cash flows of Agilent’s healthcare solutions business have been classified as discontinued, and prior periods have been restated, including the reallocation of general overhead charges to Agilent’s three remaining reporting segments. Agilent recorded an after-tax gain of $646 million as a result of this transaction. Agilent does not expect material adjustments to the gain when the determination of the final purchased net assets and the performance of certain services are complete.

The following table shows the results of operations of Agilent’s healthcare solutions business.


(a)	Includes operations from November 1, 2000 to May 31, 2001, the measurement date.

The following table shows the components of the gain on sale of discontinued operations.

The following table shows the component assets and liabilities of Agilent’s net investment in discontinued operations.

Certain notes to these consolidated financial statements have been restated to reflect Agilent’s presentation of discontinued operations. Generally, information in the notes has been restated where amounts were included in net earnings from, or net investment in, discontinued operations.

On January 5, 2001, Agilent acquired Objective Systems Integrators, Inc. (“OSI”) for approximately $716 million. Of this total, $690 million was cash and the remainder represents the fair value of options granted. Using the purchase method of accounting, the purchase price was allocated to tangible and intangible assets including goodwill. The original goodwill balance of $593 million is being amortized over 3 years. The net book value of goodwill associated with this acquisition at October 31, 2001 was $432 million. OSI is a leading provider of next-generation operations-support-system software for communications service providers and has become part of Agilent’s test and measurement business.

In July 1999, HP entered into an agreement with Yokogawa Electric Corporation (“Yokogawa”) to acquire Yokogawa’s 25 percent equity interest in Agilent Technologies Japan, Ltd. for approximately $521 million. In the initial step, which occurred in January 2000, Agilent purchased approximately 10.4 percent of Agilent Technologies Japan, Ltd. shares from Yokogawa for approximately $206 million. In the second step, which occurred in April 2000, Agilent purchased approximately 10.4 percent of additional Agilent Technologies Japan, Ltd. shares from Yokogawa for approximately $216 million. In January 2001, Agilent completed its acquisition of Yokogawa’s 25 percent equity interest in Agilent Technologies Japan, Ltd. by purchasing the remaining 4.2 percent interest for approximately

$99 million. Of the total purchase price, $243 million was allocated to tangible assets and $278 million was attributed to goodwill which is being amortized over 10 years. The remaining net book value of goodwill associated with this acquisition was $240 million at October 31, 2001.

In addition to the OSI and Yokogawa acquisitions, Agilent acquired several other companies during 2001, 2000, and 1999 which were not significant to its consolidated financial position, results of operations or cash flows. These acquisitions were accounted for under the purchase method of accounting. The results of operations of the acquired companies were included prospectively from the date of acquisition and the acquisition cost was allocated to the acquired tangible and identifiable intangible assets and liabilities based on fair values at the date of acquisition. Residual amounts were recorded as goodwill. In-process research and development write-offs have not been significant. Goodwill is amortized on a straight-line basis over its estimated economic life, generally three to five years except as noted above.

The net book value of goodwill and other intangible assets was $1.1 billion at October 31, 2001 and $467 million at October 31, 2000.

Unaudited pro forma statement of earnings information has not been presented because the effects of these acquisitions were not material on either an individual or an aggregated basis.

Dispositions. In the fourth quarter of 2000, Agilent entered into an asset purchase agreement with Tyco Capital Corporation (“Tyco Capital”) pursuant to which Agilent has sold them substantially all of its leasing portfolio (“Tyco Capital sale”) over the course of the last five quarters. The impact on Agilent’s consolidated cash flows and results of operations of the lease portfolio sale is shown below.

Agilent also entered into a vendor financing arrangement with Tyco Capital whereby Tyco Capital will provide equipment financing and leasing services to Agilent’s customers on a global basis. This agreement has been in place since the fourth quarter of 2000.

In addition to the Tyco Capital sale and the sale of the healthcare solutions business, Agilent sold assets related to portions of its businesses to third parties during 2001, 2000, and 1999. Gross proceeds from these dispositions were $13 million in 2001, immaterial in 2000, and $71 million in 1999. Gains from the dispositions, included in other income (expense), net, in the consolidated statement of earnings, were $9 million in 2001, immaterial in 2000, and $50 million in 1999.

In December 1999, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). During the fourth quarter of 2001, Agilent adopted SAB 101 retroactive to the beginning of the fiscal year. The cumulative effect of the adoption resulted in a charge to fiscal 2001 net earnings of $47 million (net of income taxes of $27 million) or $0.10 per basic and diluted share. As a result of adopting SAB 101, delivery is considered to have occurred when title and risk of loss have transferred to the customer. For the fiscal year ended October 31, 2001, the net impact on 2001 revenues including amounts deferred at October 31, 2001 was an increase of $67 million of revenue and $29 million of cost of

products which were included in the cumulative effect adjustment. The results for the first three quarters of 2001 have been restated in accordance with SAB 101. Pro forma amounts for the periods beginning before November 1, 2000 have not been presented, as the effect of the change could not reasonably be determined.

Effective November 1, 2000, Agilent adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, and requires that all derivatives be recognized as either assets or liabilities on the balance sheet and carried at fair value. Changes in the fair value of the derivative instruments are recognized in earnings or stockholders’ equity, depending on the intended use of the instrument.

If derivative instruments are designated and qualify as a fair value hedge, changes in value of the derivative are recognized in earnings in the current period, along with the offsetting gain or loss on the hedged item attributable to the hedged risk. If derivative instruments are designated and qualify as a cash flow hedge, changes in the value of the effective portion of the derivative instrument are recognized in other comprehensive income, a component of stockholders’ equity. These amounts are reclassified and recognized in earnings when either the forecasted transaction occurs or it becomes probable the forecasted transaction will not occur. Changes in the fair value of the ineffective portion of derivative instruments are recognized in earnings in the current period. Ineffectiveness in 2001 was not significant.

Agilent enters into certain foreign exchange contracts, primarily forwards and options, to hedge exposures to changes in foreign currency exchange rates. Agilent does not use derivative financial instruments for speculative or trading purposes.

Agilent may also, from time to time, invest in warrants to purchase securities of other companies as strategic investments.

The adoption of SFAS No. 133 on November 1, 2000 resulted in a cumulative pre-tax reduction to income of $41 million ($25 million after tax) and a pre-tax increase in other comprehensive income of $10 million. During the year ended October 31, 2001, pre-tax gains of $6 million were recorded in other income from continuing operations related to the value of derivative transactions. Pre-tax gains of $1 million were recorded in other comprehensive income during 2001 related to derivative instruments. Discontinued operation results for the year ended October 31, 2001 include pre-tax losses of $1 million related to the value of derivative transactions. Net deferred gains and losses of $7 million related to hedging activities reported in accumulated comprehensive loss at October 31, 2001 are expected to be reclassified to earnings within 12 months.

The following is a reconciliation of the numerators and denominators of the basic and diluted net earnings per share computations for the periods presented below.

Options to purchase 63.7 million shares of common stock at a weighted average exercise price of $46 per share were outstanding during 2001 but were not included in the computation of diluted net earnings per share because the options were antidilutive for 2001. The options, which expire no later than 2010, were still outstanding at the end of 2001.

See Note 19 “Subsequent Events” for a discussion of Agilent’s senior convertible debentures, which may be dilutive in 2002.

Cash paid for income taxes in 2001 was $450 million and in 2000 was $546 million. No amounts were paid for income taxes in 1999 as HP made such payments on Agilent’s behalf. Cash paid for interest was $28 million in 2001 and was not material in 2000 and 1999.

Non-cash transactions in 2001 primarily related to the issuance of common stock under various employee stock plans in the amount of $26 million and acquisitions in the amount of $71 million.

Inventory-related charges of $459 million and $70 million were recorded in total cost of products in 2001 and 2000, respectively.

Agilent has sold substantially all of its portfolio of operating leases to Tyco Capital. See Note 4 “Acquisitions and Dispositions”. Equipment under operating leases was $23 million at October 31, 2001 and $201 million at October 31, 2000 and is included in machinery and equipment. Accumulated depreciation related to equipment under operating leases was $4 million at October 31, 2001 and $49 million at October 31, 2000. At October 31, 2001, minimum future rentals on noncancelable operating leases with original terms of one year or longer were not material.


(a)	The benefit for income taxes on continuing operations in 2001 includes $71 million tax benefit from operations, $16 million tax benefit from adoption of SFAS No. 133 and $27 million tax benefit from adoption of SAB 101.

The significant components of deferred tax assets, for which no valuation allowance was required, and deferred tax liabilities included on the consolidated balance sheet are:

The current portion of the net deferred tax asset is $494 million at October 31, 2001 and $304 million at October 31, 2000 and is included in other current assets.

Tax benefits of $11 million in 2001 and $16 million in 2000 associated with the exercise of employee stock options were recognized in stockholders’ equity.

The differences between the U.S. federal statutory income tax rate and Agilent’s effective tax rate are:

The domestic and foreign components of earnings from continuing operations before taxes are:

As a result of certain employment and capital investment actions undertaken by Agilent, income from manufacturing activities in certain countries is subject to reduced tax rates, and in some cases is wholly exempt from taxes, for tax years through 2010. The income tax benefits attributable to the tax status of these subsidiaries are estimated to be $37 million in 2001, $41 million in 2000, and $31 million in 1999.

Agilent has not provided for U.S. federal income and foreign withholding taxes on $871 million of non-U.S. subsidiaries’ undistributed earnings as of October 31, 2001 because such earnings are intended to be reinvested indefinitely. Where excess cash has accumulated in Agilent’s non-U.S. subsidiaries and it is advantageous for tax or foreign exchange reasons, subsidiary earnings are remitted.

In 2001, Agilent has taken steps to restructure its businesses as a result of the economic downturn that has impacted many of the markets that Agilent serves. Agilent has announced measures to cut discretionary costs, to reduce the size of its workforce and to reduce the number of sites that Agilent occupies. On August 20, 2001, Agilent announced a plan to reduce its workforce by approximately 4,000, or about nine percent, by the middle of next year. The total cost of this plan is estimated to be $175 million, of which $154 million was recognized this fiscal year. Of this amount, $79 million was included in cost of products and services, $17 million was included in research and development expenses and $58 million was included in selling, general and administrative expenses. As of October 31, 2001, $65 million in severance benefits had been paid and the remainder of the restructuring liability is expected to be utilized during 2002. In the second half of 2001, Agilent reduced its workforce by approximately 3,000 employees.

In June 2001 Agilent recognized a $74 million asset impairment charge with respect to its decision to cancel the development of a software system for Agilent’s customer support activities. Agilent has entered into an agreement with HP to extend its use of their legacy customer support systems in place of the one that Agilent was developing. The decision to continue the use of HP’s systems enabled Agilent to reduce costs at a critical time, minimize disruption to Agilent’s customers and businesses and to focus on Agilent’s customers’ needs.

In 1999, Agilent recognized an impairment loss of $51 million related to a building that was under construction to house manufacturing operations for eight-inch CMOS semiconductor wafers. At the time construction was stopped, only the building shell was complete; Agilent concluded that the highest fair value to be realized from this building was based on selling it for use as an office or general use facility.

Employee stock purchase plans. Prior to February 2, 2000, virtually all Agilent employees were able to contribute up to ten percent of their base compensation to the quarterly purchase of HP’s common stock under the Hewlett-Packard Stock Purchase Plan (the “HP Plan”). Under the provisions of the HP Plan, employee contributions to purchase shares were partially matched with shares contributed by HP. These matching shares generally vested over two years. After February 2, 2000, Agilent implemented the Agilent Technologies, Inc. Employee Stock Purchase Plan (the “Legacy Plan”) that was similar to the HP Plan and allowed eligible employees to contribute up to ten percent of their base compensation to the purchase of Agilent common stock. Under the provisions of the Legacy Plan, employee contributions were partially matched with shares contributed by Agilent. These matching shares also generally vested over two years. On June 2, 2000, all unvested matching shares of HP stock held by our employees were forfeited and replaced by Agilent common stock of equivalent value. Compensation expense for the matching provision for both the HP Plan and the Legacy Plan was measured using the fair value of shares on the date of purchase by HP for the HP Plan and by Agilent for the Legacy Plan and was recognized by Agilent over the two-year vesting period. Compensation expense under both plans was $28 million in 2001, $34 million in 2000 and $39 million in 1999. The amount in 1999 was allocated from HP. At October 31, 2001, 9,802,100

shares of Agilent common stock had been authorized for issuance under the Legacy Plan and 3,344,371 of these shares had been issued.

Effective October 31, 2000, purchases and contributions under the Legacy Plan ceased. All unvested matching shares under the Legacy Plan will maintain their original vesting terms based on the employee’s continued employment with Agilent. Vesting of these matching shares will be completed no later than October 31, 2002.

Effective November 1, 2000, Agilent adopted a new plan, the Agilent Technologies, Inc. Employee Stock Purchase Plan (the “Agilent 423(b) Plan”). Under the provisions of the Agilent 423(b) Plan, eligible employees may contribute up to 10 percent of their base compensation to purchase shares of Agilent common stock at 85 percent of the lower of the fair market value at the entry date or purchase date as defined by the Agilent 423(b) Plan. As of October 31, 2001, 35,000,000 shares of Agilent common stock were authorized for issuance under the Agilent 423(b) Plan and 1,828,674 of these shares have been issued.

Incentive compensation plans. Prior to November 1999, certain of Agilent’s employees participated in HP’s stock-based incentive compensation plans under which they received stock options and other equity based awards. On September 17, 1999, Agilent adopted the Agilent Technologies, Inc. 1999 Stock Plan (the “Agilent stock plan”) and subsequently reserved 67,800,000 shares of Agilent common stock for issuance under the plan. Stock options, stock appreciation rights, stock awards and cash awards may be granted under the Agilent stock plan. Options granted under the Agilent stock plan may be either “incentive stock options,” as defined in section 422 of the Internal Revenue Code, or non-statutory. Options generally vest at a rate of 25 percent per year over a period of four years from the date of grant. The exercise price for incentive stock options may not be less than 100 percent of the fair market value of the underlying Agilent stock on the date the stock award is granted.

At October 31, 2001, shares registered and available for option and restricted stock grants were 19,918,011. In February 2001, Agilent’s shareholders approved an additional 45,000,000 shares to be available for option and restricted stock grants. The stock based compensation expense related to Agilent employees’ discounted options, stock appreciation rights and restricted stock was $8 million in 2001, $24 million in 2000, and was not material in 1999. The amount for 1999 was allocated from HP.

Effective June 2000, a majority of the HP awards held by Agilent employees were converted to Agilent awards of equivalent value. The conversion of HP options into Agilent options was done in such a manner that (1) the aggregate intrinsic value of the options immediately before and after the exchange is the same, (2) the ratio of the exercise price per option to the market value per option is not reduced, and (3) the vesting provisions and options period of the replacement Agilent options are the same as the original vesting terms and option period of the HP options.

The following table summarizes option activity for the years ended October 31, 2001 and 2000:

The following table summarizes information about all options outstanding at October 31, 2001:

Pro forma information. Agilent has elected to follow the accounting provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” for stock-based compensation granted to Agilent employees. Accordingly, compensation expense is recognized only when options are granted with a discounted exercise price. Any compensation expense is recognized ratably over the associated service period, which is generally the option vesting term.

Pro forma net earnings and net earnings per share information, as required by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), has been determined as if Agilent had accounted for all employee stock options granted, including shares under the Agilent 423(b) Plan to Agilent employees under SFAS No. 123’s fair value method. The fair value of these options was

estimated at grant date using a Black-Scholes option pricing model with the following weighted-average assumptions:

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the four-year average vesting period of the options. The pro forma effect of recognizing compensation expense in accordance with SFAS No. 123 would have been to reduce Agilent’s reported net earnings by $503 million in 2001 and by $281 million in 2000 and $38 million in 1999. Had compensation expense been recorded by Agilent in accordance with SFAS No. 123, the effect would have been to reduce basic net earnings per share by $1.10 and $0.63 in 2001 and 2000, respectively, and diluted net earnings per share by $1.10 and $0.62 in 2001 and 2000, respectively. In comparison, the effect would have been to reduce both basic and diluted net earnings per share by $0.10 in 1999. These pro forma amounts include amortized fair values attributable to options granted after October 31, 1995 only, and therefore are not representative of future pro forma amounts. These amounts were calculated using all options granted to employees across all segments of Agilent’s business operations.

General. Substantially all of Agilent’s employees are covered under various Agilent defined benefit and defined contribution plans. Additionally, Agilent sponsors postretirement health care benefits and a death benefit under the Survivor Protection Plan to U.S. employees.

Sale of healthcare solutions business. In the United States, employees of the healthcare solutions business (“HSG employees”) were offered a choice of terminating and remaining in the Agilent Retirement Plan or terminating and taking a distribution from the Agilent Retirement Plan. In the funded status table below, amounts relating to settlements of HSG employees’ benefit obligations are treated as regular plan payments. Additionally, eligible HSG employees (i.e. those who qualified for retirement on August 1, 2001) were offered an opportunity to elect to receive benefits under the Agilent Continued Group Medical and SeniorMed Program. Generally, outside the United States, subject to local statutory or other practical limitations, HSG employees’ Projected Benefit Obligations — calculated in accordance with the Asset Purchase Agreement — were transferred to Philips along with an equal amount of assets. Amounts reported in this footnote reflect Agilent’s continuing operations excluding the healthcare solutions business, except where noted.

Spin-off from HP. On or before June 2, 2000, Agilent assumed responsibility for pension, deferred profit-sharing, 401(k) and other post retirement benefits from HP for current and former employees whose last work assignment prior to the distribution date was with Agilent. These current and former employees are collectively referred to as “Agilent Employees.” In the U.S., the Hewlett-Packard Company Retirement Plan and Deferred Profit-Sharing Plan Master Trust, was converted to the Group Trust for the Hewlett-Packard Company Deferred Profit-Sharing Plan and Retirement Plan and the Agilent Technologies, Inc. Deferred Profit-Sharing Plan and Retirement Plan

(the “Group Trust”) and a pro rata share of the assets of the Group Trust were assigned to the Agilent Retirement Plan Trust and the Agilent Deferred Profit-Sharing Trust. Outside the U.S., generally, a pro rata share of the HP pension assets, if any, were transferred or otherwise assigned to the Agilent entity in accordance with local law or practice. The pro rata share was in the same proportion as the projected benefit obligation for Agilent Employees was to the total projected benefit obligation of HP and Agilent combined. For all the periods presented, the consolidated financial statements include the trust assets, liabilities and expenses that were assigned to Agilent.

Pension and deferred profit-sharing plans. Worldwide pension and deferred profit-sharing costs included in earnings from continuing operations were $106 million in 2001, $69 million in 2000 and $111 million in 1999. The 1999 amount was an allocation from HP.

U.S. employees who meet eligibility criteria are provided benefits under Agilent’s Retirement Plan (“Retirement Plan”). Defined benefits are generally based on an employee’s average pay during the final five years of employment and length of service. For eligible service through October 31, 1993, the benefit payable under the defined benefit plan is reduced by any amounts due to the eligible employee under Agilent’s fixed and frozen defined contribution deferred profit-sharing plan (“DPSP”), which was closed to new participants in November 1993.

The combined status of the Retirement Plan and DPSP for U.S. Agilent Employees follows.

Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

Postretirement benefit plans. In addition to receiving pension benefits, eligible Agilent Employees may participate in Agilent’s Continued Group Medical and SeniorMed Program that provides benefits to U.S. retired employees. Substantially all of Agilent’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees. Once participating in the medical plan, retirees may choose from managed-care and indemnity options, with their contributions dependent on options chosen and length of service.

401(k) defined contribution plan. Agilent’s U.S. eligible employees may participate in the Agilent Technologies, Inc. 401(k) Plan (the “Agilent Savings Accumulation Plan” or “ASAP”), which was established as a supplemental retirement program. Assets and liabilities related to Agilent employees were transferred to Agilent by HP effective June 2, 2000. Beginning February 1, 1998, enrollment in TAXCAP/ ASAP became automatic for employees who meet eligibility requirements unless they decline participation. Under the ASAP program, Agilent matches contributions by employees up to a maximum of 4 percent of an employee’s annual compensation. Prior to November 1, 2000, the maximum combined contribution to the Legacy Plan and ASAP was 25 percent of an employee’s annual eligible compensation subject to certain regulatory and plan limitations. Beginning November 1, 2000, the maximum contribution to the Agilent 423(b) Plan and ASAP was 10 percent and 20 percent, respectively, of an employee’s annual eligible compensation subject to certain regulatory and plan limitations. Agilent’s expense included in earnings from continuing operations related to ASAP was $53 million in 2001, $48 million in 2000 and $44 million in 1999. The 1999 amount was an allocation from HP.

Components of net periodic cost. For the years ended October 31, 2001, 2000 and 1999, net pension and postretirement benefit costs for Agilent are comprised of:

Funded status. As of October 31, 2001 and 2000, the funded status of the defined benefit and postretirement benefit plans is:


**	The asset and pension obligation amounts that will be transferred to Philips for the sale of Agilent’s healthcare solutions business are subject to final adjustment. The final amounts to be transferred to Philips are not expected to be materially different from the estimated amounts.

Defined benefit plans whose benefit obligations are in excess of the fair value of the plan assets are:

The non-current portion of the liability for retirement and post retirement benefits plans is included in other liabilities and totaled $169 million at October 31, 2001 and $221 million at October 31, 2000.

Assumptions. The assumptions used to measure the benefit obligations and to compute the expected long-term return on assets for Agilent’s defined benefit and postretirement benefit plans are:

Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one-percentage point change in the assumed health care cost trend rates for the year ended October 31, 2001 would have the following effects:

Notes payable and short-term borrowings. Notes payable and short-term borrowings as of October 31, 2001 consisted of notes payable to banks of $4 million and the current portion of capitalized leases of $2 million dollars. The average interest rate for the notes payable to banks was 9.0 percent. For 2000, notes payable and short-term borrowings consisted of notes payable to banks of $106 million and other short-term debt of $4 million dollars.

Lines of Credit. Agilent has two revolving credit facilities with no outstanding balances at the end of 2001. Those facilities are a $250 million facility that terminates on November 5, 2005 and a 364-day $250 million facility that terminated on November 2, 2001. In November 2001, Agilent extended the latter facility to November 1, 2002. See Note 19 “Subsequent Events” for changes to debt arrangements after October 31, 2001. In addition to these committed facilities, Agilent has access to uncommitted credit lines through its banking partners.

Operating Lease Commitments: Agilent leases certain real and personal property from unrelated third parties under non-cancelable operating leases. Future minimum lease payments under leases at October 31, 2001 were $98 million for 2002, $86 million for 2003, $63 million for 2004, $52 million for 2005, $40 million for 2006 and $105 million thereafter. Certain leases require Agilent to pay property taxes, insurance and routine maintenance, and include escalation clauses. Rent expense was $100 million in 2001, $69 million in 2000 and $102 million in 1999.

Agilent is involved in lawsuits, claims, investigations and proceedings, including patent, commercial and environmental matters that arise in the ordinary course of business. There are no such matters pending that Agilent expects to be material in relation to its business, consolidated financial condition, results of operations or cash flows.

Description of segments. Agilent is a diversified technology company that provides enabling solutions to customers in high growth markets within the communications, electronics, and life science industries. The results of our healthcare solutions business, previously reported as a segment, are disclosed in Note 3 “Discontinued Operations” above.

Agilent organizes its business operations into three major groups — test and measurement, semiconductor products, and chemical analysis, each of which comprises a reportable segment. The segments were determined based primarily on how management views and evaluates Agilent’s operations. Other factors, including customer base, homogeneity of products, technology and delivery channels, were also considered in determining Agilent’s reportable segments.


	•	test and measurement, which provides test instruments, standard and customized test, measurement and monitoring instruments and systems for the design, manufacture and support of electronics and communications devices, and software for the design of high-frequency electronic and communications devices and networks. The test and measurement business includes operating segments that have been aggregated based on the similarity of the nature of their products and services, their production processes, their class of customers, their distribution methods and their economic characteristics;

	•	semiconductor products, which provides fiber optic communications devices and assemblies, components and integrated circuits for wireless, networking, computing and printing applications, image sensors and general-purpose opto-electronic components; and

	•	chemical analysis, which provides analytical instruments, systems and services for chromatography, spectroscopy, bio-instrumentation and consumables.

Segment revenue and profit. The accounting policies used to derive reportable segment results are generally the same as those described in Note 2, “Summary of Significant Accounting Policies.” In 2000 and 1999, internal revenue and earnings from continuing operations include transactions between segments that are intended to reflect an arm’s length transfer at the best price available for comparable external customers.

A significant portion of the segments’ expenses arise from shared services and infrastructure that Agilent (HP for 1999) has historically provided to the segments in order to realize economies of

scale and to efficiently use resources. These expenses include costs of centralized research and development, legal, accounting, employee benefits, real estate, insurance services, information technology services, treasury and other Agilent corporate (HP in 1999) infrastructure costs. These expenses are allocated to the segments and the allocations have been determined on a basis that Agilent considered to be a reasonable reflection of the utilization of services provided to or benefits received by the segments. A different result could be arrived at for any segment if costs were specifically identified to each segment.

In 2001, Agilent’s management changed its measure of the profitability of each of the business segments to exclude goodwill and other intangible amortization and certain non-recurring items included within “Corporate and Other.” Agilent also changed its definition of segment assets to include all assets, including an allocation of assets previously held at corporate. Information provided in respect of prior periods has been restated to reflect these changes.

The following tables reflect the results of Agilent’s reportable segments under Agilent’s management reporting system. These results are not necessarily a depiction that is in conformity with accounting principles generally accepted in the United States of America. The performance of each segment is measured based on several metrics, including (loss) earnings from operations. These results are used, in part, by management, in evaluating the performance of, and in allocating resources to, each of the segments.

Major Customers. No customer represented 10 percent or more of Agilent’s total net revenue in 2001 or 2000. In 1999 HP accounted for approximately 12 percent of Agilent’s total net revenue.

The equity investment totals disclosed for each segment represent equity method investments directly managed by the segment.

Total segment assets at October 31, 2000 excluded $698 million of assets allocated to the healthcare solutions business which were determined under Agilent’s management reporting system.

Net investment in discontinued operations at October 31, 2000 of $597 million was determined using accounting principles generally accepted in the United States of America.

On November 15, 2001, Agilent announced that it would eliminate an additional 4,000 jobs, which is approximately 10 percent of its workforce by the middle of 2002.

On November 19, 2001, Agilent’s revolving credit agreements were amended. Among other changes, the financial covenants were changed to limit the amount of debt that the company can have relative to the sum of shareholders’ equity and debt, to limit the amount of cash used for future acquisitions and to require certain minimum amounts of earnings before interest, tax, depreciation and amortization on a rolling four-quarter basis.

On November 27, 2001, Agilent announced the closing of a private offering of $1.15 billion aggregate principal amount of 3 percent senior convertible debentures due 2021. Agilent intends to use the net proceeds of the offering for working capital and general corporate purposes and to fund potential acquisitions and restructuring costs. The debentures are convertible into Agilent’s common stock at a conversion price of $32.22 per share. Consequently Agilent’s future diluted earnings per share may be reduced. The debentures are redeemable at Agilent’s option beginning in December 2004, and holders of the debentures have the ability to require Agilent to repurchase the debentures, in whole or in part, on specified dates in 2006, 2011 and 2016.

Pursuant to the requirements of Section 13 or 15(d) 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.


	BY	/s/ D. CRAIG NORDLUND



	D. Craig Nordlund
	Senior Vice President,
	General Counsel and Secretary

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints D. Craig Nordlund and Marie Oh Huber, or either of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

84 EX-10.7 3 f78349ex10-7.txt EXHIBIT 10.7 EXHIBIT 10.7 AGILENT TECHNOLOGIES, INC. EXCESS BENEFIT RETIREMENT PLAN SECTION 1. ESTABLISHMENT AND PURPOSE OF PLAN On the Distribution Date, Hewlett-Packard Company distributed to its shareholders its interest in the Company. In connection with this transaction, the Agilent Technologies, Inc. Excess Benefit Retirement Plan was established effective as of May 1, 2000 as a spin-off of the portion of the liabilities of the Hewlett-Packard Company Excess Benefit Retirement Plan attributable to Participants in this Plan. On and after May 1, 2000, all Participant's Plan Benefits shall be payable from this Plan rather than the Hewlett-Packard Company Excess Benefit Retirement Plan. The Plan is intended to provide supplemental retirement benefits to certain management and highly compensated employees equal to those benefits that are limited under the Deferred Profit Sharing Plan and/or Retirement Plan because of the limitations on contributions and benefits imposed by Section 415 of the Internal Revenue Code of 1986 (the "Code") and the limitation on compensation imposed by Section 401(a)(17) of the Code. This Plan is intended to be an unfunded excess benefit plan under Sections 3(36) and 4(b)(5) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan is also intended to be a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Company retains the right, as provided in Section 8, to amend or terminate the Plan at any time. The Plan is administered by the Compensation Committee of the Board of Directors of the Company, as provided in Section 7. SECTION 2. DEFINITIONS Certain capitalized words and phrases used in the text of the Plan shall have the meaning attributed to them in the DPSP or RP or the following meaning unless the text further specifies the meaning or from the context it clearly appears otherwise: (a) "Actual DPSP Account" means the amount in the separate account established for each Participant under the DPSP. (b) "Actual RP Benefit" means the benefit in fact determined under the RP as of the date when benefits are to be paid under the DPSP or RP. (c) "Committee" means the Compensation Committee of the Board of Directors of the Company; provided, that for purposes of Sections 5(b) and 9, with respect to any Participant other than a Participant who is an executive officer as defined under the Securities Exchange Act of 1934 and the regulations thereunder, Committee means the Executive Committee of the Board of Directors of the Company. 2 (d) "Distribution Date" means the date the Company is no longer a member of the Hewlett-Packard Company controlled group of corporations (within the meaning of section 1563(a) of the Code). (e) "DPSP" or "Deferred Profit Sharing Plan" means the Agilent Technologies, Inc. Deferred Profit Sharing Plan adopted and effective as of May 1, 2000, and as it may be amended from time to time. (f) "Participant" means any individual entitled to a Virtual DPSP Account under Section 4 or a Virtual Retirement Benefit under Section 5. (g) "Plan" means the Agilent Technologies, Inc. Excess Benefit Retirement Plan, as described herein and as it may be amended from time to time. (h) "RP" or "Retirement Plan" means the Agilent Technologies, Inc. Retirement Plan adopted and effective as of May 1, 2000, and as it may be amended from time to time. (i) "Virtual DPSP Account" means a bookkeeping account established under Section 4 to which is credited all investment earnings as provided in Section 4. (j) "Virtual Retirement Benefit" means the benefit payable to a Participant or Beneficiary determined under Section 5. (k) "Virtual RP Benefit" means the benefit determined under the RP based on the Annuity Value of the Actual DPSP Account, if applicable, but otherwise without regard to the limitations of Section 415 or Section 401(a)(17) of the Code. 3 SECTION 3. ELIGIBILITY AND PARTICIPATION (a) General Rule. Any individual who is participating in the DPSP and/or the RP and who by reason of the limitations of Section 415 or Section 401(a)(17) of the Code is unable to receive the formula contributions or benefits otherwise provided under the DPSP and/or RP shall automatically be a Participant in this Plan. (b) Termination of Participation. An individual shall cease to be a Participant as of the date he or she ceases to be an Employee, unless the individual is entitled to benefits hereunder, in which event his or her status as a Participant shall terminate on the earlier of the date of his or her death or the date no further amount is payable to the individual hereunder. SECTION 4. VIRTUAL DPSP ACCOUNTS A separate account, called a "Virtual DPSP Account," shall be maintained by the Committee for each Participant. The value of the Virtual DPSP Account as of May 1, 2000 shall equal the value of the Virtual DPSP Account each Participant had under the Hewlett-Packard Company Excess Benefit Retirement Plan on the business day preceding May 1, 2000. As of the last day of each Plan Year, or in the case of an Employee whose employment by the Affiliated Group has terminated and who has made claim for benefits under the DPSP, as of the Employee's Valuation Date (if other than the last day of the Plan Year), each Virtual DPSP Account shall be revalued. For purposes of valuation, the Virtual DPSP Account shall be deemed invested as the assets of the DPSP. 4 SECTION 5. VIRTUAL RETIREMENT BENEFIT (a) Determination of Benefit. The benefits payable under this Plan shall be determined as of the date when benefits are to be paid under the DPSP or RP. As of that date the Committee shall determine the Virtual RP Benefit and the Actual RP Benefit. As of the same date the Committee shall determine the Annuity Value of the Virtual DPSP Account, if any, in the same manner as the Annuity Value of the Actual DPSP Account, if any, is determined under the RP. The benefit payable under this Plan, if any, shall equal: (i) The greater of the Virtual RP Benefit or the Annuity Value of the Virtual DPSP Account; less (ii) The Actual RP Benefit. The benefit determined pursuant to the immediately preceding sentence shall be known as the Virtual Retirement Benefit. (b) Form and Time of Payment. The Participant's Virtual Retirement Benefit shall be converted to a lump sum benefit as of the date the Participant's DPSP or RP benefit is to be paid. The conversion shall be based on the same actuarial factors that would be used to convert an RP benefit from an annuity to a lump sum at the time of the conversion. Thereafter, the unpaid portion of such lump sum Virtual Retirement Benefit shall be credited with earnings (i) through May 31, 2000 as if it were a benefit invested in Fund B and (ii) on and after June 1, 2000, as if it were a benefit invested in Fund A under the DPSP, until it is paid out to the Participant under this Plan as set forth below in this Section 5(b). 5 Benefits are payable under this Plan in the form of a lump sum or annual installments at such time or times as the Committee shall determine in its sole discretion, subject to the following limitations: (i) If benefits are payable under the DPSP, no benefits shall be payable under this Plan until benefits are to be paid under the DPSP; (ii) The Committee may change the date a payment is to be made at any time before the date of the scheduled payment; (iii) Any annual installments shall be payable in January of the particular year; (iv) No lump sum may be payable later than January of the calendar year following the later of (A) the calendar year in which the Participant attains (or would have attained) age 70-1/2, or (B) the calendar year in which the Participant's employment by the Company terminates; provided, that the Committee may allow the unpaid balance to be paid in a lump sum after annual installment payments have commenced; (v) Annual installments must be 15 or fewer in number and commence no later than January of the calendar year following the later of (A) the calendar year in which the Participant attains (or would have attained) age 70-1/2, or (B) the calendar year in which the Participant's employment by the Company terminates; 6 (vi) The amount of each annual installment shall be determined by dividing the unpaid balance as of the last day of the prior Plan Year by the sum of the annual payments remaining to be made; and (vii) If at the time the Virtual Retirement Benefit is first determined under this Section 5 the lump sum equivalent of such benefit does not exceed one hundred fifty thousand dollars ($150,000.00), benefits shall be payable under this Plan as soon as administratively practicable after the date the Virtual Retirement Benefit is first determined and only in the form of a lump sum. If the Committee has not otherwise determined, benefits shall be payable in 15 annual installments commencing in January of the calendar year following the later of (A) the calendar year in which the Participant attains (or would have attained) age 70-1/2, or (B) the calendar year in which the Participant's employment by the Company terminates. In administering these payment provisions of the Plan, the Committee may allow Participants to elect the form and time of payment that they desire consistent with these rules, and the Committee may establish guidelines for its own use in determining what elections made pursuant to these rules shall be disapproved. However, such Participant elections and Committee guidelines shall not in any way limit the Committee's sole discretion to determine the form and time of payment of a Participant's Virtual Retirement Benefit consistent with the rules set forth in this Section 5(b) of the Plan. 7 (c) Death of Participant. If a Participant dies, without regard to whether he or she is employed by any member of the Affiliated Group at the time of death, his or her Beneficiary shall be the individual (or individuals) designated on the form prescribed by the Committee (or, in the absence of such a designation, his or her Beneficiary under the DPSP, or, in the absence of a DPSP benefit, his or her Beneficiary under the RP). Such Beneficiary shall be entitled to the unpaid portion (if any) of the Virtual Retirement Benefit determined under Section 5(a). The Beneficiary shall be subject to the rules of form and time of payment established under Section 5(b). SECTION 6. FUNDING POLICY AND METHOD Benefits and administrative expenses shall be paid as needed solely from the general assets of the Company. This Plan shall be unfunded within the meaning of Section 4(b)(5) of ERISA. No contributions are required or permitted from any Participant. SECTION 7. ADMINISTRATION The Plan shall be administered by the Committee. No member of the Committee shall become a Participant in the Plan. The Committee shall make such rules, interpretations and computations as it may deem appropriate, and any decision of the Committee with respect to the Plan, including (without limitation) any determination of eligibility to participate in the Plan and any calculation of benefits under the Plan shall be conclusive and binding on all persons. Those responsibilities of the Committee that do not involve the exercise of its discretion may be performed on behalf of the Committee by the Company through its employees. 8 SECTION 8. AMENDMENT AND TERMINATION OF THE PLAN The Company reserves the right to amend or terminate the Plan at any time by resolution of the Company's Board of Directors or by resolution of any proper delegatee of the Company's Board of Directors. Any amendment or termination of the Plan will not affect the entitlement of any Participant who terminates employment before the amendment or termination. All benefits to which any Participant may be entitled shall be determined under the Plan as in effect at the time the Participant terminates employment and shall not be affected by any subsequent change in the provisions of the Plan. Participants will be given notice prior to the discontinuance of the Plan or reduction of any benefits provided by the Plan. SECTION 9. GENERAL PROVISIONS (a) Choice of Law. This Plan, and all rights under this Plan, shall be interpreted and construed in accordance with the law of the State of California. (b) Assignment. The interest and property rights of any person in the Plan or in any payment to be made under the Plan shall not be subject to option nor be assignable either by voluntary or involuntary assignment or operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any act in violation of this Section 9(b) shall be void. (c) Number. Except as otherwise clearly indicated, the singular shall include the plural, and vice versa. 9 (d) Headings and Captions. The headings and captions herein are provided for reference and convenience only and shall not be considered part of the Plan nor shall they be employed in the construction of the Plan. (e) Competency to Handle Benefits. If, in the opinion of the Committee, any person becomes unable to properly handle any property distributable to such person under the Plan, the Committee may make any reasonable arrangement for the distribution of Plan benefits on such person's behalf as it deems appropriate. Payment to anyone described in this Section 9(e) will release the Company from all further liability to the extent of the payment made. (f) Severability of Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, and the Plan shall be construed and enforced as if such provision had not been included. (g) Tax Withholding. If any Federal or state tax withholding or payroll tax is required with respect to a Participant's Virtual Retirement Benefit, the Committee shall make appropriate arrangements with the Participant for satisfaction of such obligation. (h) No Employment Rights. Nothing in the Plan, nor any action of the Committee or the Company pursuant to the Plan, shall be deemed to give any person any right to remain in the employ of the Company or affect the right of the Company to terminate a person's employment at any time, with or without cause. 10 SECTION 10. EXECUTION To record the adoption of the Plan as set forth herein, the Company has caused its Chair of the Compensation Committee of the Board of Directors to affix the Company's name and seal hereto this____________day of__________, 2000. AGILENT TECHNOLOGIES, INC. By: ---------------------------------------- David M. Lawrence, M.D. Chair of the Compensation Committee of the Board of Directors 11 EX-10.13 4 f78349ex10-13.txt EXHIBIT 10.13 EXHIBIT 10.13 AGILENT TECHNOLOGIES, INC. 1999 STOCK PLAN (Restatement, effective September 17, 2001) 1. Purposes of the Plan. The purpose of this 1999 Stock Plan is to encourage ownership in the Company by key personnel whose long-term employment is considered essential to the Company's continued progress and, thereby, encourage recipients to act in the stockholder's interest and share in the Company's success. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Affiliate" means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant ownership interest as determined by the Administrator. (c) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. federal and state laws, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign jurisdiction where Awards are, or will be, granted under the Plan. (d) "Award" means a Cash Award, Stock Award, SAR, or Option granted in accordance with the terms of the Plan. (e) "Awardee" means the holder of an outstanding Award. (f) "Award Agreement" means a written or electronic agreement between the Company and an Awardee evidencing the terms and conditions of an individual Award. The Award Agreement is subject to the terms and conditions of the Plan. (g) "Board" means the Board of Directors of the Company. (h) "Cash Awards" means cash awards granted pursuant to Section 13 of the Plan. (i) "Code" means the United States Internal Revenue Code of 1986, as amended. (j) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (k) "Common Stock" means the common stock of the Company. (l) "Company" means Agilent Technologies, Inc., a Delaware corporation. (m) "Consultant" means any person, including an advisor, engaged by the Company or a Subsidiary to render services to such entity or any person who is an employee, advisor, director or consultant of an Affiliate. (n) "Director" means a member of the Board. (o) "Employee" means a regular employee of the Company or any Subsidiary, including Officers and Directors, who is treated as an employee in the personnel records of the Company or its Subsidiary for the relevant period, but shall exclude individuals who are classified by the Company or its Subsidiary as (A) leased from or otherwise employed by a third party, (B) independent contractors, or (C) intermittent or temporary, even if any such classification is changed retroactively as a result of an audit, litigation or otherwise. An Awardee shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or its Subsidiary or (ii) transfers between locations of the Company or between the Company, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (p) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (q) "Fair Market Value" means, as of any date, the average of the highest and lowest quoted sales prices for such Common Stock as of such date (or if no sales were reported on such date, the average on the last preceding day a sale was made) as quoted on the stock exchange or a national market system, with the highest trading volume, as reported in such source as the Administrator shall determine. (r) "Grant Date" means the date selected by the Administrator, from time to time, upon which Awards are granted to Participants pursuant to this Plan. (s) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (t) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (u) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (v) "Option" means a stock option granted pursuant to the Plan. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options. -2- (w) "Participant" means an Employee, Director or Consultant. (x) "Plan" means this 1999 Stock Plan, as restated effective September 17, 2000. (y) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of a Stock Award under Section 12 of the Plan. (z) "Share" means a share of the Common Stock, as adjusted in accordance with Section 15 of the Plan. (aa) "SAR" means a stock appreciation right granted pursuant to Section 11 of the Plan. (bb) "Stock Awards" means right to purchase or receive Common Stock pursuant to Section 12 of the Plan. (cc) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 15 of the Plan, the maximum aggregate number of Shares that may be issued under the Plan is 112,800,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. Preferred stock may be issued in lieu of Common Stock for Awards. If an Award expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto, if any, shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. The Plan may be administered by different Committees with respect to different groups of Participants. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Awards granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"), the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. -3- (iv) Other Administration. The Board may delegate to the Executive Committee of the Board (the "Executive Committee") the power to approve Awards to Participants who are not (A) subject to Section 16 of the Exchange Act or (B) at the time of such approval, "covered employees" under Section 162(m) of the Code. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to select the Participants to whom Awards may be granted hereunder; (ii) to determine the number of shares of Common Stock to be covered by each Award granted hereunder; (iii) to approve forms of agreement for use under the Plan; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when an Award may be exercised (which may or may not be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (v) to construe and interpret the terms of the Plan and Awards granted pursuant to the Plan; (vi) to adopt rules and procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized (A) to adopt the rules and procedures regarding the conversion of local currency, withholding procedures and handling of stock certificates which vary with local requirements, (B) to adopt sub-plans and Plan addenda as the Administrator deems desirable, to accommodate foreign tax laws, regulations and practice; (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans and Plan addenda; (viii) to modify or amend each Award, including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan, provided, however, that any such amendment is subject to Section 16(c) of the Plan and may not impair any outstanding Award unless agreed to in writing by the Awardee; (ix) to allow Awardees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Awardee to have Shares withheld for this purpose -4- shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (x) to authorize conversion or substitution under the Plan of any or all outstanding stock options held by optionees of an entity acquired by the Company (the "Conversion Options"). Any conversion or substitution shall be effective as of the close of the merger or acquisition. The Conversion Options may be Nonstatutory Stock Options or Incentive Stock Options, as determined by the Administrator. Unless otherwise determined by the Administrator at the time of conversion or substitution, all Conversion Options shall have the same terms and conditions as Options generally granted by the Company under the Plan; (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator; (xii) to make all other determinations deemed necessary or advisable for administering the Plan and any Award granted hereunder. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Awardees. 5. Eligibility. Awards may be granted to Participants, provided, however, that Incentive Stock Options may be granted only to Employees. 6. Limitations. (a) Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Awardee during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) For purposes of Incentive Stock Options, no leave of absence may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 91st day of such leave an Awardee's employment with the Company shall be deemed terminated for Incentive Stock Option purposes and any Incentive Stock Option held by the Awardee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option three (3) months thereafter. (c) No Participant shall have any claim or right to be granted an Award and the grant of any Award shall not be construed as giving a Participant the right to continue in the employ of the Company, its Subsidiaries or Affiliates. Further, the Company, its Subsidiaries and Affiliates expressly reserve the right, at any time, to dismiss a Participant at any time without liability or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder. -5- (d) The following limitations shall apply to grants of Options and SARs: (i) No Participant shall be granted, in any fiscal year of the Company, Options to purchase or SARs for more than 1,000,000 Shares. (ii) In connection with his or her initial service, a Participant may be granted Options to purchase or SARs for up to an additional 1,000,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 15. (iv) If an Option or SAR is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 15), the cancelled Option or SAR will be counted against the limits set forth in subsections (i) and (ii) above. (v) SARs to be granted under this Plan shall not exceed 5% of the total shares reserved for issuance under the Plan; (vi) No more than 10% of the total shares reserved for issuance under the Plan will constitute Stock Awards granted under this Plan; (vii) No more than 20% of the total shares reserved for issuance under the Plan will constitute Nonstatutory Stock Options, with an exercise price less than Fair Market Value on the Grant Date, granted under this Plan; and (viii) Nonstatutory Stock Option with an exercise price less than Fair Market Value on the Grant Date shall not be granted to any Officer. 7. Term of Plan. Subject to Section 21 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan. 8. Term of Award. The term of each Award shall be determined by the Administrator and stated in the Award Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the Grant Date or such shorter term as may be provided in the Award Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than seventy-five per cent (75%) of the Fair Market Value per Share on the -6- Grant Date. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the Grant Date. (iii) Notwithstanding the foregoing, at the Administrator's discretion, Conversion Options (as defined in Section 4(b)(x)) may be granted with a per Share exercise price of less than 75% of the Fair Market Value per Share on the Grant Date. (iv) Other than in connection with a change in the Company's capitalization (as described in Section 15(a), Options may not be repriced, replaced, regranted through cancellation or modified without shareholder approval if the effect of such repricing, replacement, regrant or modification would be to reduce the exercise price of such Incentive Stock Options or Nonstatutory Stock Options. (b) Vesting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the Grant Date. Acceptable forms of consideration may include: (i) cash; (ii) check or wire transfer (denominated in U.S. Dollars); (iii) other Shares which (A) in the case of Shares acquired upon exercise of an Option, have been owned by the Awardee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (v) any combination of the foregoing methods of payment; or (vi) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the respective Award Agreement. No Option may be exercised during any leave of absence other than an approved personal or medical leave with an employment guarantee upon return. An Option shall continue to vest during any authorized leave -7- of absence and such Option may be exercised to the extent vested upon the Awardee's return to active employment status. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, (ii) full payment for the Shares with respect to which the related Option is exercised, and (iii) with respect to Nonstatutory Stock Options, payment of all applicable withholding taxes due upon such exercise. Shares issued upon exercise of an Option shall be issued in the name of the Awardee or, if requested by the Awardee, in the name of the Awardee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares subject to an Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 15 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee, other than as a result of circumstances described in Sections 10(c), (d), (e) and (f) below, the Awardee's unvested Option shall terminate immediately upon the Awardee's termination. On the date of the Awardee's termination of employment, the Shares covered by the unvested portion of his or her Option shall revert to the Plan. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee, other than as a result of circumstances described in Sections 10(c), (d), (e) and (f) below, the Awardee's vested Option shall be exercisable for 3 months after the Awardee's termination, or if earlier, the expiration of the term of such Option. If the Awardee does not exercise his or her vested Option within the appropriate exercise period set forth above, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability or Retirement of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee as a result of the Awardee's total and permanent disability or retirement due to age, in accordance with the Company's or its Subsidiaries' retirement policy, all unvested Options shall immediately vest and the Awardee may exercise his or her Option within three (3) years of the date of such disability or retirement for a Nonstatutory Stock Option, within three (3) months of the date of such disability or retirement for an Incentive Stock Option, or if earlier, the expiration of the term of such Option. If the Awardee does not exercise his or her Option within the time specified herein, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan. -8- (d) Death of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee dies while an Employee, all unvested Options shall immediately vest and all Options may be exercised for one (1) year following the Awardee's death, or if earlier, the expiration of the term of such Option. The Option may be exercised by the beneficiary designated by the Awardee (as provided in Section 17), the executor or administrator of the Awardee's estate or, if none, by the person(s) entitled to exercise the Option under the Awardee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan. (e) Voluntary Severance Incentive Program and Workforce Management Program. If an Awardee ceases to be an Employee as a result of participation in the Company's or its Subsidiaries' voluntary severance incentive program approved by the Board or Executive Committee, all unvested Options shall immediately vest and all outstanding Options shall be exercisable for three (3) months following the Awardee's termination (or such other period of time as provided for by the Administrator) or if earlier, the expiration of the term of such Option. If, after termination, of Awardee's employment the Awardee does not exercise his or her Option within the time specified herein, the Option shall automatically terminate, and the Shares covered by such Option shall revert to the Plan. If an Awardee ceases to be an Employee as a result of participation in the Company's Workforce Management Program, all unvested Options or SARs granted after August 28, 2001, shall immediately vest and all outstanding Options or SARs shall be exercisable for three (3) months following the Awardee's termination or if earlier, the expiration of the term of such Option or SAR. If, after termination, of Awardee's employment the Awardee does not exercise his or her Option or SAR within the time specified herein, the Option or SAR shall automatically terminate, and the Shares covered by such Option or SAR shall revert to the Plan. (f) Divestiture. If an Employee ceases to be a Participant because of a divestiture of the Company, the Administrator may, in its sole discretion, make such Employee's outstanding Options fully vested and exercisable and provide that such Options remain exercisable for a period of time to be determined by the Administrator. The determination of whether a divestiture will occur shall be made by the Administrator in its sole discretion. If, after the close of the divestiture, the Awardee does not exercise his or her Option within the time specified herein, the Option shall automatically terminate and the shares covered by such Option shall revert to the Plan. (g) Buyout Provisions. At any time, the Administrator may, but shall not be required to, offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Awardee at the time that such offer is made. 11. SARs. (a) General. The Administrator may grant SARs to Participants subject to the terms and conditions not inconsistent with the Plan and determined by the Administrator. The terms and conditions shall be provided for in the Award Agreement which may be delivered in writing or -9- electronically. SARs shall be exercisable, in whole or in part, at such times as the Administrator shall specify in the Award Agreement. (b) Exercise. Upon the exercise of a SAR, in whole or in part, an Awardee shall be entitled to a cash payment in an amount equal to the difference between the Fair Market Value of a fixed number of shares of Common Stock covered by the exercised portion of the SAR on the date of such exercise, over the Fair Market Value of the Common Stock covered by the exercised portion of the SAR on the Grant Date; provided, however, that the Administrator may place limits on the aggregate amount that may be paid upon the exercise of a SAR. The Company's obligation arising upon the exercise of a SAR will be paid in cash. (c) Method of Exercise. A SAR shall be deemed to be exercised when written or electronic notice of such exercise has been given to the Company in accordance with the terms of the SAR by the person entitled to exercise the SAR. The SAR shall cease to be exercisable to the extent it has been exercised. (d) Termination of Employment. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee, other than as a result of circumstances described in Sections 11(e) and (f) below, the Awardee's unvested SAR, shall terminate immediately upon the Awardee's termination. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee, other than as a result of circumstances described in Sections 11(e) and (f) below, the Awardee's vested SAR shall be exercisable for 3 months after the Awardee's termination, or if earlier, the expiration of the term of such SAR. (e) Disability or Retirement of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee as a result of the Awardee's total and permanent disability or retirement due to age, in accordance with the Company's or its Subsidiaries' retirement policy, the Award shall immediately vest. The Awardee may exercise his or her SAR within three (3) three years following the Awardee's total and permanent disability or retirement or, if earlier, the expiration of the term of such SAR. If the Awardee fails to exercise his or her SAR within the specified time period, the SAR shall terminate. (f) Death of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee dies while an Employee, the SAR shall immediately vest and be exercisable for (1) one year following the Awardee's death or, if earlier, the expiration of the term of such SAR. The SAR may be exercised by the beneficiary designated by the Awardee (as provided in Section 17), the executor or administrator of the Awardee's estate or, if none, by the person(s) entitled to exercise the SAR under the Awardee's will or the laws of descent or distribution. If the SAR is not so exercised within the specified time period, the SAR shall terminate. (g) Buyout Provisions. At any time, the Administrator may, but shall not be required to, offer to buy out for a payment in cash or Shares, SAR previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Awardee at the time that such offer is made. -10- 12. Stock Awards. (a) General. Stock Awards may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan. After the Administrator determines that it will offer a Stock Award under the Plan, it shall advise the Awardee in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions related to the offer, including the number of Shares that the Awardee shall be entitled to receive or purchase, the price to be paid, if any, and, if applicable, the time within which the Awardee must accept such offer. The offer shall be accepted by execution of an Award Agreement in the form determined by the Administrator. The Administrator will require that all shares subject to a right of repurchase or forfeiture be held in escrow until such repurchase right or risk of forfeiture lapses. The grant or vesting of a stock award may be made contingent on achievement of performance conditions, including net order dollars, net profit dollars, net profit growth, net revenue dollars, revenue growth, individual performance, earnings per share, return on assets, return on equity, and other financial objectives, customer satisfaction indicators and guaranteed efficiency measures, each with respect to Agilent and/or an individual business unit. (b) Forfeiture. Unless the Administrator determines otherwise, the Award Agreement shall provide for the forfeiture of the unvested Restricted Stock upon the Awardee ceasing to be an Employee except as provided below in Sections 12(c), (d) and (e). To the extent that the Awardee purchased the Restricted Stock, the Company shall have a right to repurchase the unvested Restricted Stock at the original price paid by the Awardee upon Awardee ceasing to be a Participant for any reason, except as provided below in Sections 12(c), (d) and (e). (c) Disability or Retirement of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee ceases to be an Employee as a result of the Awardee's total and permanent disability or retirement due to age, in accordance with the Company's or its Subsidiaries' retirement policy, the Award shall continue to vest, provided the following conditions are met: (i) The Awardee shall not render services for any organization or engage directly or indirectly in any business which, in the opinion of the Administrator, competes with, or is in conflict with the interest of, the Company. The Awardee shall be free, however, to purchase as an investment or otherwise stock or other securities of such organizations as long as they are listed upon a recognized securities exchange or traded over-the-counter, or as long as such investment does not represent a substantial investment to the Awardee or a significant (greater than 10%) interest in the particular organization. For the purposes of this subsection, a company (other than a Subsidiary) which is engaged in the business of producing, leasing or selling products or providing services of the type now or at any time hereafter made or provided by the Company shall be deemed to compete with the Company; (ii) The Awardee shall not, without prior written authorization from the Company, use in other than the Company's business, any confidential information or material relating to the business of the Company, either during or after employment with the Company; (iii) The Awardee shall disclose promptly and assign to the Company all right, title and interest in any invention or idea, patentable or not, made or conceived by the Awardee -11- during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company and shall do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in foreign countries; and (iv) An Awardee retiring due to age shall render, as a Consultant and not as an Employee, such advisory or consultative services to the Company as shall be reasonably requested by the Board or the Executive Committee in writing from time to time, consistent with the state of the retired Awardee's health and any employment or other activities in which such Awardee may be engaged. For purposes of this Plan, the Awardee shall not be required to devote a major portion of time to such services and shall be entitled to reimbursement for any reasonable out-of-pocket expenses incurred in connection with the performance of such services. (d) Death of Awardee. Unless otherwise provided for by the Administrator in the Award Agreement, if an Awardee dies while an Employee, the Stock Award shall immediately vest and all forfeiture provisions and repurchase rights shall lapse as to a prorated number of shares determined by dividing the number of whole years since the Grant Date by the number of whole years between the Grant Date and the date that the Stock Award would have fully vested (as provided for in the Award Agreement). The vested portion of the Stock Award shall be delivered to the beneficiary designated by the Awardee (as provided in Section 17), the executor or administrator of the Awardee's estate or, if none, by the person(s) entitled to receive the vested Stock Award under the Awardee's will or the laws of descent or distribution. (e) Voluntary Severance Incentive Program. If an Awardee ceases to be an Employee as a result of participation in the Company's or its Subsidiaries' voluntary severance incentive program approved by the Board or Executive Committee, the Stock Award shall immediately vest and all forfeiture provisions and repurchase rights shall lapse as to a prorated number of shares determined by dividing the number of whole years since the Grant Date by the number of whole years between the Grant Date and the date that the Stock Award would have fully vested (as provided for in the Award Agreement). (f) Rights as a Shareholder. Unless otherwise provided for by the Administrator, once the Stock Award is accepted, the Awardee shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her acceptance of the Stock Award is entered upon the records of the duly authorized transfer agent of the Company. 13. Cash Awards. Cash Awards may be granted either alone, in addition to, or in tandem with other Awards granted under the Plan. After the Administrator determines that it will offer a Cash Award, it shall advise the Awardee in writing or electronically, by means of an Award Agreement, of the terms, conditions and restrictions related to the Cash Award. 14. Non-Transferability of Awards. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by the beneficiary designation, will or by the laws of descent or distribution and may be exercised, during the lifetime of the Awardee, only by the Awardee. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate. -12- 15. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number and kind of shares of Common Stock covered by each outstanding Award, and the number and kind of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number or kind of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Awardee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Option or SAR to be fully vested and exercisable until ten (10) days prior to such transaction. In addition, the Administrator may provide that any restrictions on any Award shall lapse prior to the transaction, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed transaction. (c) Merger or Asset Sale. In the event there is a change of control of the Company, as determined by the Board, the Board may, in its discretion, (A) provide for the assumption or substitution of, or adjustment to, each outstanding Award (B) accelerate the vesting of Options and SARs and terminate any restrictions on Cash Awards or Stock Awards and (C) provide for the cancellation of Awards for a cash payment to the Awardee. 16. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Award, unless mutually agreed otherwise between the Awardee and the Administrator, which agreement must be in writing and signed by the Awardee and the Company. Termination of the Plan shall not affect the Administrator's ability to -13- exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. 17. Designation of Beneficiary. (a) An Awardee may file a written designation of a beneficiary who is to receive the Awardee's rights pursuant to Awardee's Award or the Awardee may include his or her Awards in an omnibus beneficiary designation for all benefits under the Plan. To the extent that Awardee has completed a designation of beneficiary while employed with Hewlett-Packard Company, such beneficiary designation shall remain in effect with respect to any Award hereunder until changed by the Awardee. (b) Such designation of beneficiary may be changed by the Awardee at any time by written notice. In the event of the death of an Awardee and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Awardee's death, the Company shall allow the executor or administrator of the estate of the Awardee to exercise the Award, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may allow the spouse or one or more dependents or relatives of the Awardee to exercise the Award. 18. Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Award unless the exercise of such Option or Stock Award and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. 19. Inability to Obtain Authority. To the extent the Company is unable to or the Administrator deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, the Company shall be relieved of any liability with respect to the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 20. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 21. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months of the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. 22. Notice. Any written notice to the Company required by any provisions of this Plan shall be addressed to the Secretary of the Company and shall be effective when received. 23. Governing Law. This Plan and all determinations made and actions taken pursuant hereto shall be governed by the substantive laws, but not the choice of law rules, of the state of Delaware. 24. Unfunded Plan. Insofar as it provides for Awards, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are granted Awards of -14- Shares under this Plan, any such accounts will be used merely as a bookkeeping convenience. Except for the holding of Restricted Stock in escrow pursuant to Section 12, the Company shall not be required to segregate any assets which may at any time be represented by Awards, nor shall this Plan be construed as providing for such segregation, nor shall the Company nor the Administrator be deemed to be a trustee of stock or cash to be awarded under the Plan. Any liability of the Company to any Awardee with respect to an Award shall be based solely upon any contractual obligations which may be created by the Plan; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Administrator shall be required to give any security or bond for the performance of any obligation, which may be created by this Plan. -15- ADDENDUM TO THE AGILENT TECHNOLOGIES, INC. 1999 STOCK PLAN Pursuant to Section 4(b)(vi) of the Plan the following modifications to the Plan will apply in the countries as set forth below: AUSTRALIA Pursuant to Section 4(b)(vi) of the Plan the following modifications to the Plan will apply in Australia: (a) Purpose This Addendum (the "Australian Addendum") to the 1999 Stock Plan is hereby adopted to set out certain rules which, together with the provisions of the Plan which are not modified hereby, will govern the operation of the Plan with respect to Australian-resident employees of the Company. (b) Definitions Except as set forth below, capitalized terms used herein shall have the meaning ascribed to them in the Plan. In the event of any conflict between these provisions and the Plan, these provisions shall prevail. For the purposes of this Australian Addendum: "Agilent" means Agilent Technologies, Inc. or its duly authorized subsidiary; "Australian Participants" means all persons to whom an offer or invitation of options over shares of common stock in Agilent is made in Australia under the Plan; "Plan" means collectively the 1999 Stock Plan and the Australian Addendum; and (c) Form of Awards Non-statutory Stock Options to acquire common stock in Agilent are the only Awards that will be granted to Australian Participants. AUSTRIA Notwithstanding Section 3 herein, only newly issued shares will be issued to employees in Austria pursuant to the Plan. -16- BRAZIL All stock options granted in Brazil will only be exercisable using the cashless exercise method. Both full cashless exercise (proceeds remitted in cash) and partial cashless exercise (proceeds remitted in stock) may be permitted. Cash exercises are prohibited. CHINA All stock options granted in China will only be exercisable using the cashless exercise method. Only full cashless exercise (proceeds remitted in cash) will be permitted. Cash exercises are prohibited. FRANCE All options granted in France shall be subject to the additional terms and conditions of the Agilent Technologies, Inc. Sub-Plan for French Employees. INDIA All options granted in India shall be subject to the additional terms and conditions of the Agilent Technologies, Inc. India Cashless Stock Option Sub-Plan. ITALY Notwithstanding Section 3 herein, only newly issued shares will be issued to employees in Italy pursuant to the Plan. All stock options granted in Italy will only be exercisable using the cashless exercise method. Only full cashless exercise (proceeds remitted in cash) will be permitted. Cash exercises are prohibited. SWITZERLAND Notwithstanding Section 8 herein, options granted in Switzerland shall have a term of ten (10) years and six (6) months. -17- EX-10.14 5 f78349ex10-14.txt EXHIBIT 10.14 EXHIBIT 10.14 AGILENT TECHNOLOGIES, INC. DEFERRED COMPENSATION PLAN (AMENDED AND RESTATED AS OF NOVEMBER 1, 2001) SECTION 1. ESTABLISHMENT AND PURPOSE OF PLAN. The Agilent Technologies, Inc. Deferred Compensation Plan was adopted and established effective November 1, 1999 and has been amended from time to time. The Plan provides deferred compensation for a select group of management or highly compensated employees as established in Title I of ERISA. Effective November 1, 2001, the Plan is hereby amended and restated. The Plan is intended to be an unfunded and unsecured deferred compensation arrangement between the Participant and Agilent, in which the Participant agrees to give up a portion of the Participant's current compensation in exchange for Agilent's unfunded and unsecured promise to make a payment at a future date, as specified in Section 6. Agilent retains the right, as provided in Section 14, to amend or terminate the Plan at any time. Certain capitalized words used in the text of the Plan are defined in Section 22 in alphabetical order. SECTION 2. PARTICIPATION IN THE PLAN. Participation in General. All Eligible Employees on the U.S. payroll of Agilent are eligible to defer Base Pay or Bonus under the Plan if they have Base Pay, at the time of election as specified in Section 3.1.1, in excess of the Base Pay Threshold. SECTION 3. TIMING AND AMOUNTS OF DEFERRED COMPENSATION. Eligible Employees shall make elections to participate in the Plan, as follows: 3.1 Base Pay Deferrals 3.1.1 Timing of Base Pay Deferral. With respect to a deferral of Base Pay, an election to participate must be made on or before December 15, or such earlier date established by the Committee, of the calendar year preceding the calendar year with respect to which an election to defer Base Pay is made, in accordance with procedures established by the Committee. Notwithstanding the foregoing, a newly hired Eligible Employee may make an initial deferral election by the date the Committee specifies after the individual receives enrollment materials. Currently, the Committee has specified that for a newly hired Eligible Employee an initial deferral election must be made within 30 days of becoming an Eligible Employee. 3.1.2 Amount of Base Pay Deferral. The amount that will be deferred from Base Pay for an Eligible Employee is determined as follows: 3.1.2.1 The Eligible Employee will elect an annual whole dollar amount to be deferred from Base Pay. The minimum annual whole dollar amount of Base Pay that may be deferred is $6,000 per calendar year. The maximum annual whole dollar amount of Base Pay that may be deferred each calendar year is equal to the amount that Base Pay exceeds the Base Pay Threshold. 3.1.2.2 The annual whole dollar amount of Base Pay will be divided equally into the number of pay periods falling within the calendar year to which the election pertains (the "Pay Period Deferral Amount"). 3.1.2.3 The Pay Period Deferral Amount or parts thereof will be deferred to the extent that a Participant has cash compensation sufficient to cover the Pay Period Deferral Amount or parts thereof. 3.1.3 Suspension and Reinstatement of Deferral. In situations where a Participant's participation in the plan is suspended as described in Section 3.4, all deferrals cease. If the Participant is reinstated into the Plan during the same calendar year as the suspension, the per pay period Deferred Amount will be reinstated and deferred for the pay periods remaining in the calendar year. 3.2 Bonus Deferrals. 3.2.1 Timing of Bonus Deferral. Participants must make an election to defer a Bonus on or before December 15, or such earlier date established by the Committee, of the calendar year ending within the fiscal year to which the Bonus pertains, in accordance with any procedures established by the Committee. Notwithstanding the foregoing, an election to defer a Bonus payable for a period after the fiscal year begins may be amended or revoked at any time prior to the commencement of the period to which the Bonus relates, in accordance with any procedures established by the Committee. Notwithstanding the foregoing, a newly hired Eligible Employee may make an initial bonus deferral election by the date the Committee specifies after the individual receives enrollment materials. Currently, the Committee has specified that for a newly hired Eligible Employee an initial deferral election must be made within 30 days of becoming an Eligible Employee. 3.2.2 Amount of Bonus Deferral. An Eligible Employee may defer any portion, up to 100%, of any Bonus to which he or she may become entitled, so long as the deferral amount is expressed in terms of a whole percentage point. Once an election is made by an Eligible Employee to defer any portion or all of a Bonus, the appropriate dollar amount will be withheld from the Bonus when this amount would have otherwise been paid. 3.3 Effect of Taxes on Maximum Deferrals. Notwithstanding any provision herein to the contrary, Agilent may withhold Taxes from any cash payment made under the Plan or Bonus plan or arrangement, owing as a result of any deferral or payment hereunder, as Agilent deems appropriate in its sole discretion. If, with respect to the pay period within which a deferral, payment or Bonus is made under the Plan or Bonus plan or arrangement, the Participant receives insufficient actual cash compensation to cover such Taxes, then Agilent may withhold any remaining Taxes owing from the Participant's subsequent cash compensation received, until such Tax obligation is satisfied, or otherwise make appropriate arrangements with the Participant for satisfaction of such obligation. 3.4 Suspension. A Participant's participation in the Plan shall be suspended for any period during which he or she: (i) Is on a formal leave of absence without pay authorized by Agilent; (ii) Is on military leave, in accordance with Agilent's policy with respect to such leaves; or (iii) Ceases to qualify as an Eligible Employee but remains an Employee. However, during any such suspension period, the Participant's Accounts shall continue to share in the Plan, and such Participant may continue to make investment directions pursuant to Section 5 hereof. 3.5 End of Suspension. When a Participant returns from a suspension period during a calendar year in which an election for that Participant exists, the Pay Period Deferral Amount for any remaining pay periods will be deferred. Any amounts that would have been deferred during the suspension period if such suspension had not occurred will no longer be considered part of the election for Deferral Amounts. 3.6 Committee Discretion. Notwithstanding anything in this Section 3 to the contrary, the Committee shall have the discretion to modify the availability and timing of a valid deferral election under this Section 3, in any manner it deems appropriate; provided, however, that any alteration with respect to a Covered Officer must be consistent with the requirements for deductibility of compensation under section 162(m) of the Code. SECTION 4. DEFERRAL ACCOUNTS. 4.1 Crediting in General. Amounts deferred pursuant to Section 3 shall be credited to a Deferral Account in the name of the Participant. Deferred Amounts arising from deferrals of Base Pay shall be credited to a Deferral Account at least quarterly. Deferrals resulting from amounts credited to a Participant's Deferral Account from the deferral of Bonuses shall be credited to a Deferral Account as soon as practicable after the amount of the Bonus that would otherwise have been paid. The Participant's rights in the Deferral Account shall be no greater than the rights of any other unsecured general creditor of Agilent. Deferred Amounts and Earnings thereon invested hereunder shall for all purposes be part of the general funds of Agilent. Any payout to a Participant of amounts credited to a Participant's Deferral Account is not due, nor are such amounts ascertainable, until the Payout Commencement Date. 4.2 Hewlett-Packard Company Officers Early Retirement Plan Deferrals. A separate Deferral Account may be created or credited pursuant to the termination of the Hewlett-Packard Company Officers Early Retirement (OER) Plan, as restated effective October 31, 1999. Except as otherwise provided in this Section 4.2, an OER Deferral shall be forfeited in full, if the Termination Date of a Rollover Participant for whom the OER Deferral was created or credited occurs prior to April 1, 2001. There will be no new deferrals into the OER Deferral Account. Notwithstanding the foregoing, the OER Deferral of a Rollover Participant shall not be forfeited due to his or her Termination Date occurring prior to April 1, 2001, if the Rollover Participant has attained the age of 58 on or before March 31, 1999. This section is subject to the rules set forth in Section 6, Payout to the Participants, and Section 14, Amendment and Termination of the Plan. SECTION 5. EARNINGS ON THE DEFERRAL ACCOUNT. 5.1 Crediting in General. Amounts in a Participant's Deferral Account will be credited at least quarterly with Earnings until such amounts are paid out to the Participant under this Plan as set forth in Section 6. All Earnings attributable to the Deferral Account shall be added to the liability of and retained therein by Agilent. Any such addition to the liability shall be appropriately reflected on the books and records of Agilent and identified as an addition to the total sum owing the Participant. The Deferral Account of a Rollover Participant shall be credited with Earnings at the same time and accounted for in the same manner as the Deferral Account of a Participant (regardless of the Rollover Participant's eligibility to participate in the Plan), pro-rated to reflect the date on which the deferral account from a Rollover Plan is transferred into the Plan. 5.2 Hypothetical Investment Options. Except as otherwise provided in this Section 5.2, and subject to provisions of Section 4.1, the Committee may, in its discretion, offer Participants a choice among various Hypothetical Investment Options on which their Deferral Accounts may be credited. Such a choice is nominal in nature, and grants Participants no real or beneficial interest in any specific fund or property. Provision of a choice among Hypothetical Investment Options grants the Participant no ability to affect the actual aggregate investments Agilent may or may not make to cover its obligations under the Plan. Any adjustments Agilent may make in its actual investments for the Plan may only be instigated by Agilent, and may or may not bear a resemblance to the Participants' hypothetical investment choices on an account-by-account basis. The timing, allowance and frequency of hypothetical investment choices, and a Participant's ability to change how his or her Deferral Account is credited, is within the sole discretion of the Committee. 5.3 Investment Directions. A Participant may direct the deemed investment of the Participant's Deferred Amounts among the Hypothetical Investment Options, in the manner prescribed by Agilent at the time of enrollment or re-enrollment. Investment elections shall be in such minimum percentage amounts with respect to each Fund as permitted by Agilent. 5.4 Reinvestment Directions. On a daily basis, by instructing Agilent in the manner prescribed, a Participant may direct the reinvestment of the Participant's Deferral Accounts among the various Hypothetical Investment Options. A Participant shall specify the reinvestment amounts of the Participant's Deferred Account to be invested in such Hypothetical Investment Options. Reinvestment directions shall be in such minimum dollar or percentage amounts as permitted by Agilent. 5.5 No Investment Directions. In the event that the Participant fails to direct their investment, a Participant's Deferral Account shall be credited with the deemed return on investment in Vanguard Institutional Index 500 Fund. Covered Officers may not direct the investment of their Bonus Deferral Account. A Covered Officer's Bonus Deferral Account shall only be credited with the deemed return on investment in the Vanguard Institutional Index 500 Fund. 5.6 OER Deferral Fund. The Hypothetical Investment Option, which the Committee in its sole discretion has delineated as the option with respect to which OER Deferrals are credited, is a frozen fund, currently the Vanguard Balanced Fund. Participants will not have, among the Hypothetical Investment Options, the right to request that additional Deferral Account balances be credited in accordance with the deemed return on investment of the so delineated Hypothetical Investment Option described above. SECTION 6. PAYOUT TO THE PARTICIPANTS. 6.1 Termination After Retirement Date. If a Participant's Termination Date is on or after his or her Retirement Date and the Participant's Deferral Account balance is equal to or greater than $25,000 on the Retirement Date, the form and commencement of benefit may be made in accordance with the Participant's election and this Section 6.1. An election under this section is only valid if made before the date that is at least twelve (12) months prior to the Participant's Termination Date, and on or before the last day of the calendar year preceding the Termination Year. 6.1.1 Form of Payout. A Participant making a valid election under this Section 6.1 may elect to receive either (a) a single lump sum payout by January 15 of the year following the Termination Year, or (b) a payout in annual installments over a five (5) to fifteen (15) year period beginning on or before the January 15 following the Termination Year. 6.1.2 Commencement of Payout. A Participant making a valid election under this Section 6.1 may elect to further defer the Payout Commencement Date, under either the single lump sum or the annual installment election addressed in Section 6.1.1, by an additional one (1), two (2) or three (3) years beginning after the January 15 following the Termination Year. 6.1.3 Earnings on Deferral Accounts. Whatever the form of payout under Section 6, and whatever the timing of the Payout Commencement Date, the Deferral Account of a Participant shall continue to be credited with Earnings until all amounts in such an account are paid out to the Participant. 6.2 Default Form and Commencement of Payout. If a Participant's Termination Date is on or after his or her Retirement Date and a valid election under Section 6.1 is not made, and the Participant's Deferral Account balance is equal to or greater than $25,000 on the Retirement Date, then the Participant shall receive his or her payout in annual installments over the fifteen (15) year period beginning on or before January 15th following the Termination Year. If, however, such Deferral Account balance is less than $25,000 on the Retirement Date, then the Participant shall receive a single lump sum payout on or before January 15th following the Retirement Date. 6.3 Death of Participant. If a Participant dies and an election was made under Section 6.1, the Beneficiary will be paid according to the election even though the election was not made twelve (12) months or more prior to the Participant's death. If the Participant dies and no valid election was made, and the Participant's Deferral Account balance is equal to or greater than $25,000 on the date of death, then the Beneficiary will receive the payout in annual installments over the fifteen (15) year period beginning on or before January 15th in the calendar year following the year of the Participant's death. If, however, such Deferral Account balance is less than $25,000 on the date of death, then the Beneficiary shall receive a single lump sum on or before January 15th of the year following the year of death. 6.4 Termination Prior to Retirement Date. If the Participant's Termination Date precedes his or her Retirement Date, then the Participant will receive a single lump sum payout as soon as practicable after the Termination Date in accordance with procedures established by the Committee. 6.5 Committee Discretion. Notwithstanding anything in this Section 6 to the contrary, the Committee shall have the discretion to modify the availability and timing of a valid election under Section 6.1, and the timing, form and amount (e.g., payouts affected by a forfeiture under Section 4.2) of any payout, in any manner it deems appropriate; provided, however, that any alteration with respect to a Covered Officer must be consistent with the requirements for deductibility of compensation under section 162(m) of the Code. SECTION 7. HARDSHIP PROVISION. 7.1 Unforeseeable Emergencies. Neither the Participant nor his or her Beneficiary is eligible to withdraw amounts credited to a Deferral Account prior to the time specified in Section 6. However, such credited amounts may be subject to early withdrawal if an unforeseeable emergency occurs that is caused by an event beyond the Participant's or Beneficiary's control and would result in severe financial hardship to the individual if early withdrawal is not permitted. A severe financial hardship exists only when all other reasonably available financial resources have been exhausted. The Committee shall have sole discretion to determine whether to approve any hardship withdrawal, which amount will be limited to the amount necessary to meet the emergency. The Committee's decision is final and binding on all interested parties. 7.2 Waiting Period. If the Committee approves a hardship withdrawal, the Participant (1) may not defer Base Pay, as specified in Section 3, for the remainder of the calendar year within which the withdrawal is received, and (2) may not defer Bonuses, as specified in Section 3, for the remainder of the calendar year in which the hardship withdrawal is received SECTION 8. OTHER ACCESS TO DEFERRAL ACCOUNTS. 8.1 Unanticipated Needs. Neither the Participant nor his or her Beneficiary is eligible to withdraw amounts credited to a Deferral Account prior to the time specified in Section 6. However, such credited amounts may be subject to early withdrawal if an unanticipated need for funds occurs, other than a need specified in Section 7; provided, however, that the Participant permanently forfeits at least ten percent (10%) of the amount to be withdrawn. Additionally, unless otherwise determined by the Committee, withdrawals based on an unanticipated need for funds may be made no more than once each calendar year and the amount to be withdrawn must be equal to or greater than $25,000. 8.2 Waiting Period. If the Participant withdraws amounts credited to a Deferral Account under this section, he or she (1) may not defer Base Pay, as specified in Section 3, for the remainder of the calendar year within which the withdrawal is received, and (2) may not defer Bonuses, as specified in Section 3, for the remainder of the calendar year in which the hardship withdrawal is received. SECTION 9. DESIGNATION OF BENEFICIARY. The Participant shall, in accordance with procedures established by the Committee, (1) designate a Beneficiary hereunder, and (2) shall have the right thereafter to change such designation. Notwithstanding the foregoing, with respect to an employee who became a Plan Participant during the Transition Period, as described in Section 2.2, all existing beneficiary designations on file with the Agilent Plan shall be deemed and treated as designations under this Plan. In the case of a Participant's death, payment due under this Plan shall be made to the designated Beneficiary or, in the absence of such designation, by will or the laws of descent and distribution in the Participant's state of residence at the time of his or her death. SECTION 10. CHANGE IN CONTROL. 10.1 Discretion to Accelerate. In the event of a proposed change in control of Agilent, as defined below, the Committee shall have complete authority and discretion, but no obligation, to accelerate payments of both terminated and active Participants. 10.2 Proposed Change in Control. A "proposed change in control" shall mean (1) a tender offer by any person or entity, other than Agilent or an Agilent subsidiary, to acquire securities representing 40 percent or more of the voting power of Agilent or (2) the submission to Agilent's shareholders for approval of a transaction involving the sale of all or substantially all of the assets of Agilent or a merger of Agilent with or into another corporation. Notwithstanding the foregoing, neither the initial public offering of voting common stock in Agilent, nor the distribution by HP of shares of Agilent voting common stock in a transaction which qualifies under Section 355 of the Code, shall constitute a "proposed change in control" for purposes of this Section 10. 10.3 Request for Negotiation. The Committee may also ask the Board of Directors to negotiate, as part of any agreement involving the sale or merger of Agilent, or a sale of substantially all of Agilent's assets or a similar transaction, terms providing for protection of Participants and their interests in the Plan. SECTION 11. LIMITATION ON ASSIGNMENTS. Benefits under this Plan are not subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishments by creditors of the Participant or the Participant's Beneficiary and any attempt to do so shall be void. SECTION 12. ADMINISTRATION. 12.1 Administration by Committee. The Committee shall administer the Plan. No member of the Committee shall become a Participant of the Plan. The Committee shall have the sole authority to interpret the Plan, to establish and revise rules and regulations relating to the Plan and to make any other determinations that it believes necessary or advisable for the administration of the Plan. Decisions and determination by the Committee shall be final and binding upon all parties, including shareholders, Participants, Beneficiaries and other employees. The Committee may delegate its administrative responsibilities, as it deems appropriate. 12.2 Books and Records. Books and records maintained for the purpose of the Plan shall be maintained by the officers and employees of Agilent at its expense and subject to supervision and control of the Committee. SECTION 13. NO FUNDING OBLIGATION. Agilent is under no obligation to transfer amounts credited to the Participant's Deferral Account to any trust or escrow account, and Agilent is under no obligation to secure any amount credited to a Participant's Deferral Account by any specific assets of Agilent or any other asset in which Agilent has an interest. This Plan shall not be construed to require Agilent to fund any of the benefits provided hereunder nor to establish a trust for such purpose. Agilent may make such arrangements as it desires to provide for the payment of benefits, including, but not limited to, the establishment of a rabbi trust or such other equivalent arrangements as Agilent may decide. No such arrangement shall cause the Plan to be a funded plan within the meaning of Title I of ERISA, nor shall any such arrangement change the nature of the obligation of Agilent nor the rights of the Participants under the Plan as provided in this document. Neither the Participant nor his or her estate shall have any rights against Agilent with respect to any portion of the Deferral Account except as a general unsecured creditor. No Participant has an interest in his or her Deferral Account until the Participant actually receives the deferred payment. SECTION 14. AMENDMENT AND TERMINATION OF THE PLAN. Agilent, by action of the Committee, in its sole discretion may suspend or terminate the Plan or revise or amend it in any respect whatsoever; provided, however, that amounts already credited to Deferral Accounts will continue to be owed to the Participants or Beneficiaries and will continue to accrue Earnings and continue to be a liability of Agilent. Any amendment or termination of the Plan will not affect the entitlement of any Participant or the Beneficiary of a Participant who terminates employment before the amendment or termination. All benefits to which any Participant or Beneficiary may be entitled shall be determined under the Plan as in effect at the time the Participant terminates employment and shall not be affected by any subsequent change in the provisions of the Plan; provided, however, that Agilent reserves the right to change the basis of return on investment of the Deferral Account with respect to any Participant or Beneficiary. Participants or Beneficiaries will be given notice prior to the discontinuance of the Plan or reduction of any benefits provided by the Plan. SECTION 15. TAX WITHHOLDING. If Agilent concludes that Tax is owing with respect to any deferral of income or payment hereunder, Agilent shall withhold such amounts from any payments due the Participant, or otherwise make appropriate arrangements with the Participant or his or her Beneficiary for satisfaction of such obligation. SECTION 16. CHOICE OF LAW. This Plan, and all rights under this Plan, shall be interpreted and construed in accordance with ERISA and, to the extent not preempted, the law of the State of Delaware, unless otherwise stated in the Plan. SECTION 17. NOTICE. Any written notice to Agilent required by any of the provisions of this Plan shall be addressed to the chief personnel officer of Agilent or his or her delegate and shall become effective when it is received. SECTION 18. NO EMPLOYMENT RIGHTS. Nothing in the Plan, nor any action of Agilent pursuant to the Plan, shall be deemed to give any person any right to remain in the employ of Agilent or affect the right of Agilent to terminate a person's employment at any time and for any reason. SECTION 19. SEVERABILITY OF PROVISIONS. If any particular provision of this Plan is found to be invalid or unenforceable, such provision shall not affect any other provisions of the Plan, but the Plan shall be construed in all respects as if such invalid provision had been omitted. SECTION 20. ROLLOVERS FROM OTHER PLANS. 20.1 Discretion to Accept. The Committee shall have complete authority and discretion, but no obligation, to allow the Plan to create Deferral Accounts for Rollover Participants and credit such accounts with amounts to reflect the Rollover Participant's deferral account in a Rollover Plan. The amounts credited to such Deferral Accounts are fully subject to the provisions of this Plan. Reference in the Plan to such a crediting as a "rollover" or "transfer" of assets from a Rollover Plan is nominal in nature, and confers no additional rights upon a Rollover Participant other than those specifically set forth in the Plan. 20.2 Status of Rollover Participants. A Rollover Participant and his or her Beneficiary are fully subject to the provisions of this Plan, except as otherwise expressly set forth herein. A Rollover Participant who is not already a Participant in the Plan and is not otherwise eligible to participate in the Plan at the time of rollover, shall not be entitled to make any additional deferrals under the Plan unless and until he or she has becomes an Eligible Employee under the terms of the Plan. 20.3 Payment to Rollover Participants. If at the time of rollover or transfer, payments from a Rollover Participant's account in a Rollover Plan have already commenced from a Rollover Plan, he or she shall continue to receive such payments in accordance with the form and timing of payment provisions of such plan. If a Rollover Participant is not yet eligible to receive payments from the Rollover Plan at the time of the rollover or transfer, he or she is bound by the payout provisions of this Plan. SECTION 21. CODE SECTION 162(m). With respect to Covered Employees, this Plan is designed to satisfy the special requirements for performance-based compensation set forth in Section 162(m)(4)(C) of the Code, and the Plan shall be so construed. Furthermore, if a provision of the Plan as it relates to a Covered Officer causes a deferral or payment to fail to satisfy these special requirements, the Plan shall be deemed amended to satisfy the requirements to the extent permitted by law and subject to Committee approval. SECTION 22. DEFINITIONS. 22.1 Agilent means Agilent Technologies, Inc., a Delaware corporation, and any business entity within the Agilent consolidated group. 22.2 Base Pay means the annual base salary rate of cash compensation for employees on the U.S. payroll of Agilent, excluding bonuses, incentive compensation, commissions, overtime pay, Bonuses, severance payments, shift differential, payments under the Agilent Technologies, Inc. Disability Plan or the HP Income Protection Plan, the Agilent or HP Supplemental Income Protection Plan, or any other additional compensation. 22.3 Base Pay Threshold means the amount defined in Code Section 401(a)(17), as adjusted by the Secretary of the Treasury under Code Section 415(d), in effect on January 1st of the calendar year for which amounts are to be deferred. 22.4 Beneficiary means the person or persons designated by a Participant pursuant to Section 9, in accordance with and accepted by Agilent, to receive any amounts payable under the Plan in the event of the Participant's death. 22.5 Bonus shall have the same meaning as set forth in the Agilent Technologies, Inc. Performance-Based Compensation Plan for Covered Employees, as amended and restated effective November 1, 2001 and shall have the same meaning as "Variable Payment" and "Variable Pay" as set forth in the Agilent Technologies, Inc. Pay-For-Results Plan for Non-Covered Employees, effective November 1, 2001 (PFR Plan) or any other management bonus plan or arrangement that provides a bonus compensation opportunity to Eligible Employees as defined by the Committee from time to time. Bonus does not include any sales incentive compensation or commission 22.6 Code means the Internal Revenue Code of 1986, as amended from time to time. 22.7 Committee means the Compensation Committee of the Board of Directors of Agilent or its delegate. 22.8 Covered Officer shall have the same meaning as "covered employee" does under Code section 162(m). 22.9 Deferral Account means the account balance of a Participant in the Plan created from Deferred Amounts or from a credit to a Participant's account from a Rollover Plan, and the Earnings thereon prior to a payout to the Participant. 22.10 Deferred Amount means the amount the Participant elects to have deferred from Base Pay and/or a Bonus, pursuant to Section 3. 22.11 Distribution Date has the same meaning as this same defined term in the Master Separation and Distribution Agreement between HP and Agilent, effective August 12, 1999. 22.12 Earnings means the deemed return on investment (or charge on investment loss) allocated to a Participant's Deferral Account, based on the return of the Hypothetical Investment Options. 22.13 Eligible Employee means an employee on the U.S. payroll of Agilent who has a Base Pay rate at the time of election as specified in Section 3 equal to or in excess of the Base Pay Threshold. 22.14 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. 22.15 Hypothetical Investment Options means those options listed in Appendix A of this Plan. Said options are at the sole discretion of and subject to amendment or termination by the Committee. 22.16 HP means Hewlett-Packard Company, a Delaware corporation. 22.17 Participant means any individual who has a Deferral Account under the Plan or who is receiving or entitled to receive benefits under the Plan. The term Participant also refers to a Rollover Participant, except where expressly provided otherwise. 22.18 Payout Commencement Date means the date on which the payout to a Participant of amounts credited to his or her Deferral Account first commences. 22.19 Plan, unless preceded by (i) "HP", in which case the term refers to the Hewlett-Packard Company Deferred Compensation Plan, or (ii) "Rollover", in which case the terms refers to a Rollover Plan, means the Agilent Technologies, Inc. Deferred Compensation Plan. 22.20 Retirement Date means the date on which a Participant has met the definition of Retirement, as defined in the Retirement Plan. For this purpose, the Committee may, in its discretion, permit the years of service of a Rollover Participant to include the years of service with the employer for which a Rollover Participant worked immediately preceding employment with Agilent. 22.21 Retirement Plan means the Agilent Technologies, Inc. Retirement Plan as may be amended from time to time. 22.22 Rollover Participant means an individual with a Deferral Account in the Plan transferred from a Rollover Plan in accordance with the provisions of Section 19. The term Rollover Participant may also refer to an individual who has previously been a Participant in the Plan, or an existing Participant at the time of transfer. 22.23 Rollover Plan means- 22.23.1 The nonqualified deferred compensation plan of any other employing business entity within the HP consolidated group, until the Distribution Date; or 22.23.2 The Hewlett-Packard Company Officers Early Retirement Plan, to the extent a Deferral Account is created or added to for a Participant or Rollover Participant, due to the termination of this plan; or, 22.23.3 The nonqualified deferred compensation plan of a business entity acquired by Agilent through acquisition of a majority of the voting interest in, or substantially all of the assets of, such entity. 22.24 Tax or (Taxes) means any federal, state, local, or any other governmental income tax, employment tax, payroll tax, excise tax, or any other tax or assessment owing with respect to amounts deferred, any Earnings thereon, and any payments made to Participants or Beneficiaries under the Plan. 22.25 Termination Date means the date on which the Participant ceases to be an employee of Agilent. 22.26 Termination Year means the calendar year within which a Participant's Termination Date falls. 22.27 Transition Period means the period commencing with the beginning of Agilent's Payroll Date (as defined in the Master Separation and Distribution Agreement between HP and Agilent, effective August 12, 1999), and ending on the Distribution Date (as defined in the Master Separation and Distribution Agreement between HP and Agilent, effective August 12, 1999). SECTION 23. EXECUTION. IN WITNESS WHEREOF, Agilent has caused this Plan to be duly adopted by the undersigned this ___ day of ___________ 2001, effective November 1, 2001. AGILENT TECHNOLOGIES, INC. By: ---------------------------------------------------- D. Craig Nordlund, Senior Vice President, General Counsel and Secretary Agilent Technologies, Inc. APPENDIX A Hypothetical Investment Options as of January 1, 2002 Vanguard Institutional Index 500 Fund Vanguard Balanced Fund Spartan U.S. Equity Index Fund Fidelity Growth & Income Portfolio Fidelity Intermediate Bond Fund Fidelity Low-Priced Stock Fund Spartan Extended Market Index Fund Fidelity Contra Fund Fidelity Magellan Fund Institutional Money Market Fund ICAP Equity Portfolio Janus Aspen Series Worldwide Growth Portfolio MAS Mid-Cap Growth Fund PIMCO Total Return Fund Harbor Capital Appreciation Fund Domini Social Equity Fund Templeton Foreign Fund EX-21.1 6 f78349ex21-1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF AGILENT TECHNOLOGIES, INC. OCTOBER 2001

NON-U.S. SUBSIDIARY OF OBJECTIVE SYSTEMS INTEGRATORS, INC. Objective Systems Integrators, PTY LTD Australia Objective Systems Integrators, Pte Ltd Singapore Objective Systems Integrators B.V. The Netherlands Objective Systems Integrators, S.A. de C.V. Mexico NON-U.S. SUBSIDIARIES OF LUMILEDS LIGHTING INTERNATIONAL B.V. LumiLeds Lighting Deutschland GmbH Germany LumiLeds Lighting Italia S.r.L. Italy LumiLeds Lighting Netherlands B.V. Netherlands LumiLeds Lighting (Malaysia) Sdn. Bhd. Malaysia NON-U.S. SUBSIDIARY OF J&W SCIENTIFIC INCORPORATED J&W Scientific Products GmbH Germany NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES WORLD TRADE, INC. Agilent Technologies Australia Pty Ltd Australia Agilent Technologies (Barbados) Limited Barbados Agilent Tecnologias Chile Limitada Chile Agilent Technologies Colombia Ltda. Colombia Agilent Tecnologias de Costa Rica S.A. Costa Rica Agilent Technologies Hong Kong Limited Hong Kong Agilent Technologies Sales (Malaysia) Sdn. Bhd. Malaysia Agilent Technologies New Zealand Limited New Zealand Agilent Technologies Europe B.V. Netherlands Agilent Technologies Polska Sp.z.o.o. Poland Agilent Technologies Portugal, Unipessoal Limitada Portugal Agilent Technologies LLC Russia Agilent Technologies Taiwan Ltd. Taiwan Agilent Technologies (Thailand) Limited Thailand Agilent Technologies de Venezuela, S.R.L Venezuela NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES EUROPE B.V. Agilent Technologies Belgium S.A./N.V. Belgium Agilent Technologies Canada Inc. Canada Agilent Technologies Holding France Agilent Technologies UK Limited England & Wales Agilent Technologies India Pvt. Ltd. India Agilent Technologies Ireland Limited Ireland Agilent Technologies Israel Ltd. Israel Agilent Technologies Italia S.p.A. Italy Agilent Technologies Korea Limited Korea Agilent Technologies Microwave Products (M) Sdn. Bhd. Malaysia Agilent Technologies Mauritius Limited Mauritius Agilent Technologies Mexico, S.de R.L. de C.V. Mexico Agilent Technologies International B.V. Netherlands Agilent Technologies Netherlands Investments B.V. Netherlands Agilent Technologies Philippines Corporation Philippines Agilent Technologies Singapore (Sales) Pte Ltd Singapore Agilent Technologies Singapore Vision Operation Pte Ltd Singapore

Agilent Technologies Medical Products (Qingdao) Company Limited China Agilent Technologies S.ar.L. Switzerland Agilent Technologies Cervin S.ar.L. Switzerland Agilent Technologies Leman S.ar.L. Switzerland NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES BELGIUM S.A/N.V. Sirius Communications N.V. Belgium NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES INDIA PVT. LTD. Dynamic Digital Technology Private Limited India NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES HOLDING Agilent Technologies France France NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES NETHERLANDS INVESTMENTS B.V. Agilent Technologies Japan, Ltd. Japan Yokogawa Analytical Systems, Inc. Japan Agilent Technologies Netherlands B.V. Netherlands NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES MAURITIUS LIMITED Agilent Technologies Company Limited China Agilent Technologies Software Company Limited China Agilent Technologies Shanghai Analytical Products Co., Ltd. China Agilent Technologies Shanghai Company Limited China NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES LEMAN S.AR.L. Inversiones Agilent Technologies SRL Argentina Agilent Technologies Osterreich GmbH Austria Agilent Technologies Denmark A/S Denmark Agilent Technologies Schweiz AG Switzerland Agilent Technologies Finland Oy Finland NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES CERVIN S.AR.L Agilent Technologies Norway Holding AS Norway Agilent Technologies Holding Spain, S.L. Spain Agilent Technologies Holding Sweden AB Sweden NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES HOLDING SWEDEN AB Agilent Technologies Sweden AB Sweden NON-U.S. SUBSIDIARIES OF INVERSIONES AGILENT TECHNOLOGIES SRL Agilent Technologies Argentina SRL Argentina NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES HOLDING SPAIN, S.L. Agilent Technologies Spain, S.L. Spain

NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES S.AR.L. Agilent Technologies Cayman Islands Inc. Cayman Islands Agilent Technologies (Malaysia) Sdn. Bhd. Malaysia NON-U.S. SUBSIDIARIES OF AGILENT TECHNOLOGIES CAYMAN ISLANDS Agilent Technologies Coordination Center S.C./C.V. Belgium Agilent Technologies Singapore Pte. Ltd. Singapore NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES INTERNATIONAL B.V. Agilent Technologies Deutschland Holding GmbH Germany NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES DEUTSCHLAND HOLDING GMBH Agilent Technologies Deutschland GmbH Germany Agilent Technologies Deutschland Alpha GmbH Germany NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES DEUTSCHLAND GMBH Agilent Technologies Deutschland GmbH & Co. Immobilien KG Germany Agilent Technologies Sanigi B.V. Netherlands NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES UK LIMITED Agilent Finance Limited England BT&D Technologies Limited England Libra (Syscom) Limited Scotland NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES NORWAY HOLDING AS Agilent Technologies Norway AS Norway NON-U.S. SUBSIDIARY OF AGILENT TECHNOLOGIES IRELAND LIMITED MVT Ltd. Ireland

U.S. SUBSIDIARY OF MVT LTD. MVT, Inc. Delaware NON-U.S. SUBSIDIARY OF MVT LTD. MV Technology Limited Ireland MV Research Limited Ireland MVT (JPY) Limited Japan Grangecard Ireland

EX-23.1 7 f78349ex23-1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-64270) and the following Registration Statements on Form S-8 of Agilent Technologies, Inc. of our report dated November 15, 2001, except for Note 19 which is as of November 27, 2001, relating to the consolidated financial statements, which appears in this Form 10-K. Registration Statement No. 333-91121 Registration Statement No. 333-35016 Registration Statement No. 333-38080 Registration Statement No. 333-38194 Registration Statement No. 333-47024 /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California January 22, 2002 -----END PRIVACY-ENHANCED MESSAGE-----


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the fiscal year ended October 31, 2001

or

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

		For the transition period from to


Delaware		77-0518772
State or other jurisdiction of Incorporation or organization		I.R.S. Employer Identification No.


		Name of each exchange
Title of each class		on which registered

Common Stock par value $0.01 per share		New York Stock Exchange, Inc.


Document Description	10-K Part

Portions of the Proxy Statement for the Annual Meting of Stockholders (the “Proxy Statement”) to be held on February 22, 2002, and to be filed pursuant to Regulation 14A within 120 days after registrant’s fiscal year ended October 31, 2001 are incorporated by reference into Part III of this Report		III


PART I
	Item 1.Business
	Item 3.Legal Proceedings
	Item 4.Submission of Matters to a Vote of Security Holders
PART II
	Item 5.Market for the Registrant’s Common Equity and Related Stockholder Matters
	Item 6.Selected Financial Data
	Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A.Quantitative and Qualitative Disclosures About Market Risk
	Item 8.Financial Statements and Supplementary Data
	Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10.Directors and Executive Officers of the Registrant
	Item 11.Executive Compensation
	Item 12.Security Ownership of Certain Beneficial Owners and Management
	Item 13.Certain Relationships and Related Transactions
PART IV
	Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K
		CONSOLIDATED STATEMENT OF EARNINGS
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF CASH FLOWS
		CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX
Exhibit 10.7
Exhibit 10.13
Exhibit 10.14
Exhibit 21.1
Exhibit 23.1


		Page

PART I
Item 1	Business		2
Item 2	Properties		23
Item 3	Legal Proceedings		24
Item 4	Submission of Matters to a Vote of Security Holders		25
PART II
Item 5	Market for the Registrant’s Common Equity and Related Stockholder Matters		25
Item 6	Selected Financial Data		26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 7A	Quantitative and Qualitative Disclosures About Market Risk		48
Item 8	Financial Statements and Supplementary Data		48
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		48
PART III
Item 10	Directors and Executive Officers of the Registrant		48
Item 11	Executive Compensation		48
Item 12	Security Ownership of Certain Beneficial Owners and Management		48
Item 13	Certain Relationships and Related Transactions		49
PART IV
Item 14	Exhibits, Financial Statements Schedules, and Reports on Form 8-K		49
Exhibit Index			82


		2001		2000		1999

Test and measurement		$	5,432	$	6,108	$	4,082
Semiconductor products		$	1,850	$	2,213	$	1,722
Chemical analysis		$	1,114	$	1,040	$	1,026

	Total net revenue	$	8,396	$	9,361	$	6,830


	Communications Network Equipment Designers, Manufacturers and Service Providers


	Electronic Component and Equipment Designers and Manufacturers


	Address the Needs of the Wireless and Internet Communications Market


	Identify Customers’ Business and Technology Needs, Then Leverage Across the Value Chain


	Introduce Emerging Test Technologies to Accelerate Customer Progress


	Build a New Global Capability in Solutions, Systems and Services


	Communications Service Providers Installation, Maintenance and Operations Support Solutions


Alcatel Alsthom AMD ASE Test AT&T Bell Canada Enterprises The Boeing Company Cisco Ericsson Fujitsu Limited General Electric General Motors Hitachi Hewlett-Packard		IBM Infineon Technologies AG Intel Corporation Juniper LG Group Lockheed Martin Corporation Lucent Matsushita Electric Industrial Co. Mitsubishi Electronics America Motorola NEC Corporation Nippon Telephone & Telegraph Nokia		Nortel Networks^tmQualcomm, Inc. Siemens Solectron Sprint STATS THOMSON Multimedia, S.A. Toshiba Corporation Tyco International United States Air Force US WEST


	Satisfy Customers Through Operational Excellence


	Focus Intently on Leading Edge Customers


	High-Frequency Electronic Design Tools


	Networking


	•	Networking

	•	Mobile Communication

	•	Computing and Printing


	Apply our Broad Technology Base to Capture Demand for Higher-speed and Mobile Data Transmission


	Continue to be Hewlett-Packard’s Leading Supplier of ASICs


	Optical Image Sensors and Processors, and Optical Position Sensors


	Target High-Growth Opportunities Such as Gene Expression and Proteomics in the Pharmaceutical and Life Sciences Markets


Chemical	Environmental	Pharmaceutical

Du Pont De Nemours Co E.I	U.S. Federal Government	Merck & Co.
Bayer AG	Government of Korea	Roche Holdings
Basf AG	United States Army	AstraZeneca PLC
Monsanto Company	US Department of Agriculture	Aventis S.A.
Dow Chemical	Government of Australia	Glaxo Wellcome PLC
Boehringer Ingelheim	State of California	Novartis AG
Exxon Corporation	State of Georgia	SmithKline Beecham PLC
Akzo	State of Texas	Johnson & Johnson
		Pfizer
		Amgen


Site	Major Activity	Owned/Leased

Palo Alto, CA — Corporate Headquarters	Corporate Administration	Owned
Palo Alto, CA — Agilent Laboratories	Research & Development	Owned
Santa Clara, San Jose and Newark, CA	Manufacturing	Primarily Owned
Sonoma, CA	Manufacturing	Primarily Owned
Loveland, CO	Research and Development, Marketing, and Manufacturing	Primarily Owned
Wilmington, DE (Little Falls Area)	Manufacturing	Primarily Owned
Spokane, WA	Manufacturing	Primarily Owned
Shanghai, China	Manufacturing	Leased
Boeblingen, Germany	Research and Development, Marketing, and Manufacturing	Primarily Owned
Hachioji, Japan	Sales and Administration, Research and Development, Marketing, and Manufacturing	Owned
Penang, Malaysia	Manufacturing	Owned
Singapore	Manufacturing	Primarily Owned
South Queensferry, United Kingdom	Manufacturing	Primarily Owned


Fiscal 2000	High		Low

First Quarter (ended January 31, 2000)	$	79.25	$	40.00
Second Quarter (ended April 30, 2000)	$	159.00	$	71.00
Third Quarter (ended July 31, 2000)	$	100.75	$	40.75
Fourth Quarter (ended October 31, 2000)	$	63.00	$	38.80


Fiscal 2001	High		Low

First Quarter (ended January 31, 2001)	$	68.00	$	38.06
Second Quarter (ended April 30, 2001)	$	55.00	$	25.00
Third Quarter (ended July 31, 2001)	$	41.18	$	26.20
Fourth Quarter (ended October 31, 2001)	$	32.70	$	18.00



		Years Ended October 31,

		2001			2000		1999		1998		1997


		(In millions, except per share amounts)

		(Unaudited)
Consolidated Statement of Earnings Data(1, 2, 3, 4):
Net revenue		$	8,396		$	9,361	$	6,830	$	6,612	$	6,577
(Loss) earnings from continuing operations before taxes		$	(477	)	$	1,018	$	463	$	191	$	633
(Loss) earnings from continuing operations		$	(406	)	$	672	$	306	$	126	$	418
Net earnings from discontinued operations, net of taxes		$	6		$	85	$	206	$	131	$	125
Gain from the sale of discontinued operations, net of taxes		$	646			—		—		—		—
Earnings before cumulative effect of changes in accounting principles		$	246		$	757	$	512	$	257	$	543
Cumulative effect of adopting SFAS No. 133, net of taxes		$	(25	)		—		—		—		—
Cumulative effect of adopting SAB 101, net of taxes		$	(47	)		—		—		—		—
Net earnings		$	174		$	757	$	512	$	257	$	543
Net (loss) earnings per share — Basic:
	(Loss) earnings from continuing operations	$	(0.89	)	$	1.49	$	0.81	$	0.33	$	1.10
	Net earnings from discontinued operations	$	0.01		$	0.19	$	0.54	$	0.35	$	0.33
	Gain from the sale of discontinued operations	$	1.41			—		—		—		—
	Cumulative effect of adopting SFAS No. 133	$	(0.05	)		—		—		—		—
	Cumulative effect of adopting SAB 101	$	(0.10	)		—		—		—		—
	Net earnings	$	0.38		$	1.68	$	1.35	$	0.68	$	1.43
Net (loss) earnings per share — Diluted:
	(Loss) earnings from continuing operations	$	(0.89	)	$	1.48	$	0.81	$	0.33	$	1.10
	Net earnings from discontinued operations	$	0.01		$	0.18	$	0.54	$	0.35	$	0.33
	Gain from the sale of discontinued operations	$	1.41			—		—		—		—
	Cumulative effect of adopting SFAS No. 133	$	(0.05	)		—		—		—		—
	Cumulative effect of adopting SAB 101	$	(0.10	)		—		—		—		—
	Net earnings	$	0.38		$	1.66	$	1.35	$	0.68	$	1.43
Average shares used in computing basic net earnings per share			458			449		380		380		380
Average shares used in computing diluted net earnings per share			458			455		380		380		380



	October 31,

	2001		2000		1999		1998		1997


	(In millions)
Consolidated Balance Sheet Data(1, 4):
Working capital	$	2,797	$	2,476	$	1,275	$	1,010	$	937
Total assets	$	7,986	$	8,330	$	5,364	$	4,922	$	4,950
Stockholders’ equity	$	5,659	$	5,265	$	3,382	$	3,022	$	3,110


	Year Ended		Year Ended
	October 31, 2001		October 31, 2000

Net proceeds from Tyco Capital sale	$	287	$	234
Product revenue	$	254	$	197
Cost of products	$	131	$	83



		Years Ended October 31,
								2001 over 2000			2000 over 1999
		2001		2000		1999		% Change			% Change


		(In millions)
U.S.		$	3,373	$	3,992	$	2,912		(15.5	)%		37.1	%
International			5,023		5,369		3,918		(6.4	)%		37.0	%

	Total	$	8,396	$	9,361	$	6,830		(10.3	)%		37.1	%


	2001 over 2000			2000 over 1999
Increase/(decrease) as a % of Net Revenue	Ppts Change			Ppts Change

Cost of products and services		11.2			(0.9	)
Research and development		3.7			(2.2	)
Selling, general and administrative		(0.7	)		(2.3	)



	Years Ended October 31,

	2001(a)		2000		1999


	(In millions)
Net revenue	$	765	$	1,412	$	1,501
Costs and expenses		747		1,283		1,182

Earnings from discontinued operations		18		129		319
Other income (expense), net		3		17		5

Earnings from discontinued operations before taxes		21		146		324
Provision for taxes		15		61		118

Net earnings from discontinued operations	$	6	$	85	$	206


	Our operating results and financial condition could continue to be harmed if the industries into which we sell our products, such as the communications, electronics and semiconductor industries, remain depressed.


	*The actions we have taken in response to the recent slowdown in demand for our products and services could have long-term adverse effects on our business.*


	*As demand for our products does not match our manufacturing capacity, our earnings may continue to suffer.*


	*Failure to adjust our orders for parts due to changing market conditions could adversely affect our earnings.*