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CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the following ratings for Agilent Technologies, Inc. (Agilent) (NYSE: A):

--Issuer Default Rating (IDR) at 'BBB+';

--Senior unsecured revolving credit facility (RCF) at 'BBB+';

--Senior unsecured notes at 'BBB+'.

Fitch's actions affect approximately $2.6 billion of debt, including an undrawn $400 million RCF expiring 2016. The Rating Outlook is Stable.

The ratings and Stable Outlook reflect:

--Agilent's strengthened operating profile from the continued diversification of the company's revenue mix. Revenues from the company's Electronics Measurement Group (EMG) still constitute approximately half of consolidated revenues and well over half of consolidated operating income.

However, faster and more stable organic growth within markets served by Agilent's Life Sciences Group (LSG) and Chemical Analysis Group (CAG) should tip this balance over the intermediate term.

Fitch anticipates acquisitions are more likely in LSG and CAG, accelerating this portfolio shift. The fiscal 2010 acquisition of Varian, Inc. (Varian) added approximately $700 million of annual revenues to CAG and, to a lesser extent, LSG. Nonetheless, future acquisitions likely will be smaller in size and focused on technologies that can be leveraged by Agilent's global footprint.

EMG's profile has modestly strengthened as well, driven by Agilent's shift in focus to electronics design from manufacturing, which continues to be commoditized.

--Pre-dividend annual free cash flow should approach $1 billion over the intermediate term and range from $500 million to $1 billion through a typical business cycle. Fitch estimates annual free cash flow margins at 16.25% for the latest 12 months (LTM) ended Jan. 31, 2012, which exceeds peak levels in fiscal 2007 of approximately 15%, driven by stronger than expected sales growth and profitability.

Fitch also believes solid profitability and inventory reductions will support free cash flow in a downturn, as was the case during the recent recession when free cash flow margins declined to 6.2%.

--Agilent's conservative financial policies, which include limiting share repurchases to offsetting dilution from shares issued in connection with stock based compensation, maintaining consolidated cash levels at more than $1 billion, and managing total leverage (total debt to operating EBITDA) below 2 times (x). Fitch believes the ratings incorporate capacity for the company to fund acquisitions with a modest amount of incremental debt. This is more likely for domestic acquisitions given modest domestic cash levels.

Fitch believes positive rating actions could result from stronger annual free cash flow through the cycle, likely the result of market share consolidation and volume and restructuring driven operating profitability expansion.

Negative rating actions could occur if:

--Organic revenue growth or operating margins are meaningfully below targeted levels for a sustained period, suggesting a potential loss of technology leadership, the faster than anticipated commoditization of markets, or less robust growth within developing economies.

--Share buybacks and acquisitions meaningfully exceed annual free cash flow, which likely will require incremental borrowing due to significant cash levels overseas.

Fitch expects credit protection measures will remain near current levels, driven by expectations for only modest profitability expansion over the intermediate term and Fitch's belief that Agilent will refinance upcoming debt maturities. Fitch estimates total leverage was approximately 1.5x for the latest 12 months (LTM) ended Jan. 31, 2012. Total leverage should remain below 2x over the intermediate term. Interest coverage (operating EBITDA to gross interest expense) was approximately 16.4x for the LTM ended Jan. 31, 2012 and should remain well in excess of 10x.

The ratings are supported by:

--Leading market positions in faster growing and more stable life sciences and chemical analysis markets.

--Global footprint and substantial end market, customer, and technology platform diversification.

--Conservative financial policies with sufficient overall liquidity, as well as solid and growing annual FCF.

Ratings concerns include:

--Mature growth rates and trends toward reduced testing within certain electronic measurement markets.

--Substantial R&D requirements to maintain technology leadership.

--Potential for higher debt levels over time due to anticipated overseas cash build.

As of Jan. 31, 2012, Fitch believes Agilent's liquidity was solid and supported by:

--Approximately $3.6 billion of cash and cash equivalents, approximately $3.3 billion of which was located overseas;

--An undrawn $400 million senior unsecured RCF expiring Oct. 20, 2016.

Agilent's liquidity also is supported by expectations that the company will generate annual free cash flow of $500 million to $1 billion through a normalized business cycle. Agilent's FCF will be slightly reduced by the company's initiation of a $140 million annual dividend.

The ratings continue to contemplate Agilent using annual FCF for a combination of acquisitions and share repurchases. Acquisitions are anticipated to be relatively small in size, although Fitch believes could be substantial in aggregate, given Agilent's focus on growing in Life Sciences. Fitch expects the company will continue buying back shares to offset basic outstanding share dilution under the Nov. 19, 2009 share repurchase program, which has no fixed termination date or maximum number of shares to repurchase.

Total debt was approximately $2.1 billion as of Jan. 31, 2011 and consisted of:

--$250 million of 4.45% senior notes due Sept. 12, 2012;

--$250 million of 2.5% senior notes due July 15, 2013;

--$500 million of 5.5% senior notes due Sept. 14, 2015;

--$600 million of 6.5% senior notes due Nov. 1, 2017;

--$500 million of 5% senior notes due Nov. 15, 2020.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Nov. 24, 2009);

--'Evaluating Corporate Governance' (Dec. 12, 2007);

--'Liquidity Considerations for Corporate Issuers' (June 12, 2007);

--'Cash Flow Measures in Corporate Analysis - Amended' (Oct. 12, 2005).

Applicable Criteria and Related Research:

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229 ]

Evaluating Corporate Governance

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=657143 ]

Liquidity Considerations for Corporate Issuers

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666 ]

Cash Flow Measures in Corporate Analysis

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=243758 ]

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