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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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(Mark One)



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



For the quarterly period ended March 31, 2006



OR



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



For the transition period from  to



Commission File Number 000-25393



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VARIAN, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|Delaware                                                      |  | 77-0501995                      
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (IRS EmployerIdentification No.)
|                                                              | 
|3120 Hansen Way, Palo Alto, California                        |  | 94304-1030                      
|(Address of Principal Executive Offices)                      |  | (Zip Code)                      



(650)
213-8000

(Telephone Number)



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):



|                           |  |                    |  |                       
|-------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer  x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈



Indicate by check mark
whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Act).    Yes ̈No  x



The number of shares of the registrants common stock outstanding as of May 4, 2006 was 30,899,180.



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##### Table of Contents

VARIAN, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006



TABLE OF CONTENTS



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I   |  | Financial Information                                                                 |  |     
|         |  |                                                                                      
|Item 1.  |  | Financial Statements:                                                                 |  |     
|         |  |                                                                                      
|         |  | Unaudited Condensed Consolidated Statement of Earnings                                |  | 3   
|         |  |                                                                                      
|         |  | Unaudited Condensed Consolidated Balance Sheet                                        |  | 4   
|         |  |                                                                                      
|         |  | Unaudited Condensed Consolidated Statement of Cash Flows                              |  | 5   
|         |  |                                                                                      
|         |  | Notes to the Unaudited Condensed Consolidated Financial Statements                    |  | 6   
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 45  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 46  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 48  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 48  
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 48  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 48  



2



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##### Table of Contents

PART I

FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

(In thousands, except per share amounts)



|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | -------------------- | ------- | - | ---------------- | - | ------- | ------------- |  | - | ------------ | - |  | - | ------- | -
|                                                                                     |  | Fiscal Quarter Ended |         |   | Six Months Ended |  
|                                                                                     |  | March 31,2006        |         |   | April 1,2005     |   |         | March 31,2006 |  |   | April 1,2005 |  
|Sales                                                                                |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Products                                                                             |  | $                    | 179,217 |   |                  | $ | 170,581 |               |  | $ | 342,925      |   |  | $ | 335,227 |  
|Services                                                                             |  |                      | 30,409  |   |                  |   | 26,428  |               |  |   | 62,438       |   |  |   | 52,723  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Total sales                                                                          |  |                      | 209,626 |   |                  |   | 197,009 |               |  |   | 405,363      |   |  |   | 387,950 |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Cost of sales                                                                        |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Products                                                                             |  |                      | 96,181  |   |                  |   | 97,884  |               |  |   | 186,777      |   |  |   | 194,128 |  
|Services                                                                             |  |                      | 20,495  |   |                  |   | 15,198  |               |  |   | 39,715       |   |  |   | 29,232  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Total cost of sales                                                                  |  |                      | 116,676 |   |                  |   | 113,082 |               |  |   | 226,492      |   |  |   | 223,360 |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Gross profit                                                                         |  |                      | 92,950  |   |                  |   | 83,927  |               |  |   | 178,871      |   |  |   | 164,590 |  
|                                                                                     |  |                      |         |  
|Operating expenses                                                                   |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Selling, general and administrative                                                  |  |                      | 61,347  |   |                  |   | 55,583  |               |  |   | 117,923      |   |  |   | 109,484 |  
|Research and development                                                             |  |                      | 14,683  |   |                  |   | 14,233  |               |  |   | 28,622       |   |  |   | 27,073  |  
|Purchased in-process research and development                                        |  |                      |        |   |                  |   |        |               |  |   | 756          |   |  |   | 700     |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Total operating expenses                                                             |  |                      | 76,030  |   |                  |   | 69,816  |               |  |   | 147,301      |   |  |   | 137,257 |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Operating earnings                                                                   |  |                      | 16,920  |   |                  |   | 14,111  |               |  |   | 31,570       |   |  |   | 27,333  |  
|                                                                                     |  |                      |         |  
|Interest income (expense)                                                            |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Interest income                                                                      |  |                      | 880     |   |                  |   | 1,333   |               |  |   | 1,975        |   |  |   | 2,292   |  
|Interest expense                                                                     |  |                      | (504    | ) |                  |   | (558    | )             |  |   | (1,041       | ) |  |   | (1,129  | )
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Total interest income (expense), net                                                 |  |                      | 376     |   |                  |   | 775     |               |  |   | 934          |   |  |   | 1,163   |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Earnings from continuing operations before income taxes                              |  |                      | 17,296  |   |                  |   | 14,886  |               |  |   | 32,504       |   |  |   | 28,496  |  
|Income tax expense                                                                   |  |                      | 6,054   |   |                  |   | 5,061   |               |  |   | 11,603       |   |  |   | 6,927   |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Earnings from continuing operations                                                  |  |                      | 11,242  |   |                  |   | 9,825   |               |  |   | 20,901       |   |  |   | 21,569  |  
|                                                                                     |  |                      |         |  
|Discontinued operations (Note 5)                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Earnings from operations of disposed ElectronicsManufacturing business, net of taxes |  |                      |        |   |                  |   | 1,975   |               |  |   |             |   |  |   | 5,169   |  
|Gain on sale of Electronics Manufacturing business,net of taxes                      |  |                      |        |   |                  |   | 70,085  |               |  |   |             |   |  |   | 70,085  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Earnings from discontinued operations                                                |  |                      |        |   |                  |   | 72,060  |               |  |   |             |   |  |   | 75,254  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Net earnings                                                                         |  | $                    | 11,242  |   |                  | $ | 81,885  |               |  | $ | 20,901       |   |  | $ | 96,823  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Net earnings per basic share:                                                        |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Continuing operations                                                                |  | $                    | 0.36    |   |                  | $ | 0.28    |               |  | $ | 0.67         |   |  | $ | 0.62    |  
|Discontinued operations                                                              |  |                      |        |   |                  |   | 2.07    |               |  |   |             |   |  |   | 2.15    |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Net earnings                                                                         |  | $                    | 0.36    |   |                  | $ | 2.35    |               |  | $ | 0.67         |   |  | $ | 2.77    |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Net earnings per diluted share:                                                      |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Continuing operations                                                                |  | $                    | 0.36    |   |                  | $ | 0.28    |               |  | $ | 0.66         |   |  | $ | 0.60    |  
|Discontinued operations                                                              |  |                      |        |   |                  |   | 2.01    |               |  |   |             |   |  |   | 2.11    |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Net earnings                                                                         |  | $                    | 0.36    |   |                  | $ | 2.29    |               |  | $ | 0.66         |   |  | $ | 2.71    |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Shares used in per share calculations:                                               |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Basic                                                                                |  |                      | 30,892  |   |                  |   | 34,902  |               |  |   | 31,013       |   |  |   | 34,913  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  
|Diluted                                                                              |  |                      | 31,412  |   |                  |   | 35,687  |               |  |   | 31,649       |   |  |   | 35,673  |  
|                                                                                     |  |                      |         |   |                  |   |         |               |  |   |              |   |  |   |         |  



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)



|                                                                                                                                                       |  |               |         |                   |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | ----------------- | - | -------
|                                                                                                                                                       |  | March 31,2006 |         | September 30,2005
|ASSETS                                                                                                                                                 |  |               |         |                   |   |        
|                                                                                                                                                       |  |              
|Current assets                                                                                                                                         |  |               |         |                   |   |        
|Cash and cash equivalents                                                                                                                              |  | $             | 116,442 |                   | $ | 188,494
|Accounts receivable, net                                                                                                                               |  |               | 156,328 |                   |   | 154,525
|Inventories                                                                                                                                            |  |               | 134,165 |                   |   | 114,427
|Deferred taxes                                                                                                                                         |  |               | 25,453  |                   |   | 26,842 
|Prepaid expense and other current assets                                                                                                               |  |               | 15,813  |                   |   | 21,744 
|                                                                                                                                                       |  |               |         |                   |   |        
|Total current assets                                                                                                                                   |  |               | 448,201 |                   |   | 506,032
|Property, plant and equipment, net                                                                                                                     |  |               | 108,121 |                   |   | 102,290
|Goodwill                                                                                                                                               |  |               | 178,097 |                   |   | 149,934
|Intangible assets, net                                                                                                                                 |  |               | 40,038  |                   |   | 28,245 
|Other assets                                                                                                                                           |  |               | 13,439  |                   |   | 9,494  
|                                                                                                                                                       |  |               |         |                   |   |        
|Total assets                                                                                                                                           |  | $             | 787,896 |                   | $ | 795,995
|                                                                                                                                                       |  |               |         |                   |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                   |  |               |         |                   |   |        
|                                                                                                                                                       |  |              
|Current liabilities                                                                                                                                    |  |               |         |                   |   |        
|Current portion of long-term debt                                                                                                                      |  | $             | 2,500   |                   | $ | 2,500  
|Accounts payable                                                                                                                                       |  |               | 69,633  |                   |   | 61,435 
|Deferred profit                                                                                                                                        |  |               | 12,672  |                   |   | 11,587 
|Accrued liabilities                                                                                                                                    |  |               | 148,367 |                   |   | 165,626
|                                                                                                                                                       |  |               |         |                   |   |        
|Total current liabilities                                                                                                                              |  |               | 233,172 |                   |   | 241,148
|Long-term debt                                                                                                                                         |  |               | 26,250  |                   |   | 27,500 
|Deferred taxes                                                                                                                                         |  |               | 7,123   |                   |   | 5,888  
|Other liabilities                                                                                                                                      |  |               | 20,277  |                   |   | 21,937 
|                                                                                                                                                       |  |               |         |                   |   |        
|Total liabilities                                                                                                                                      |  |               | 286,822 |                   |   | 296,473
|                                                                                                                                                       |  |               |         |                   |   |        
|Commitments and contingencies (Notes 7, 8, 10, 11, 12, 13 and 14)                                                                                      |  |               |         |                   |   |        
|                                                                                                                                                       |  |              
|Stockholders equity                                                                                                                                   |  |               |         |                   |   |        
|Preferred stockpar value $0.01, authorized1,000 shares; issuednone                                                                                  |  |               |        |                   |   |       
|Common stockpar value $0.01, authorized99,000 shares; issued and outstanding30,717 shares at March 31, 2006 and 31,016
shares at September 30, 2005 |  |               | 297,031 |                   |   | 282,923
|Retained earnings                                                                                                                                      |  |               | 194,179 |                   |   | 202,318
|Accumulated other comprehensive income                                                                                                                 |  |               | 9,864   |                   |   | 14,281 
|                                                                                                                                                       |  |               |         |                   |   |        
|Total stockholders equity                                                                                                                             |  |               | 501,074 |                   |   | 499,522
|                                                                                                                                                       |  |               |         |                   |   |        
|Total liabilities and stockholders equity                                                                                                             |  | $             | 787,896 |                   | $ | 795,995
|                                                                                                                                                       |  |               |         |                   |   |        



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)



|                                                                                             |  |                  |         |   |              |   |         |  
|-------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                             |  | Six Months Ended |        
|                                                                                             |  | March 31,2006    |         |   | April 1,2005 |  
|Cash flows from operating activities                                                         |  |                  |         |   |              |   |         |  
|Net earnings                                                                                 |  | $                | 20,901  |   |              | $ | 96,823  |  
|Adjustments to reconcile net earnings to net cash provided by operating activities:          |  |                  |         |   |              |   |         |  
|Gain on sale of Electronics Manufacturing business                                           |  |                  |        |   |              |   | (70,085 | )
|Depreciation and amortization                                                                |  |                  | 12,388  |   |              |   | 14,317  |  
|Loss (gain) on disposition of property, plant and equipment                                  |  |                  | 258     |   |              |   | (44     | )
|Purchased in-process research and development                                                |  |                  | 756     |   |              |   | 700     |  
|Share-based compensation expense                                                             |  |                  | 4,422   |   |              |   | 265     |  
|Tax benefit from stock option exercises                                                      |  |                  | 3,242   |   |              |   | 3,500   |  
|Excess tax benefit from share-based compensation expense                                     |  |                  | (3,185  | ) |              |   |        |  
|Deferred taxes                                                                               |  |                  | (897    | ) |              |   | (3,000  | )
|Changes in assets and liabilities, excluding effects of acquisitions and divestitures:       |  |                  |         |   |              |   |         |  
|Accounts receivable, net                                                                     |  |                  | 2,909   |   |              |   | 15,872  |  
|Inventories                                                                                  |  |                  | (14,937 | ) |              |   | (802    | )
|Prepaid expenses and other current assets                                                    |  |                  | 3,833   |   |              |   | 4,420   |  
|Other assets                                                                                 |  |                  | 148     |   |              |   | (676    | )
|Accounts payable                                                                             |  |                  | 8,673   |   |              |   | (7,622  | )
|Deferred profit                                                                              |  |                  | 530     |   |              |   | (1,510  | )
|Accrued liabilities                                                                          |  |                  | (12,641 | ) |              |   | (21,579 | )
|Other liabilities                                                                            |  |                  | (255    | ) |              |   | (534    | )
|                                                                                             |  |                  |         |   |              |   |         |  
|Net cash provided by operating activities                                                    |  |                  | 26,145  |   |              |   | 30,045  |  
|                                                                                             |  |                  |         |   |              |   |         |  
|                                                                                             |  |                 
|Cash flows from investing activities                                                         |  |                  |         |   |              |   |         |  
|Proceeds from sale of property, plant and equipment                                          |  |                  | 634     |   |              |   | 391     |  
|Purchase of property, plant and equipment                                                    |  |                  | (7,924  | ) |              |   | (12,611 | )
|Purchase of businesses, net of cash acquired                                                 |  |                  | (68,529 | ) |              |   | (26,198 | )
|Proceeds from sale of short-term investments                                                 |  |                  |        |   |              |   | 35,000  |  
|Purchase of short-term investments                                                           |  |                  |        |   |              |   | (10,000 | )
|Proceeds from sale of Electronics Manufacturing business, net of transaction costs and taxes |  |                  |        |   |              |   | 189,946 |  
|                                                                                             |  |                  |         |   |              |   |         |  
|Net cash (used in) provided by investing activities                                          |  |                  | (75,819 | ) |              |   | 176,528 |  
|                                                                                             |  |                  |         |   |              |   |         |  
|                                                                                             |  |                 
|Cash flows from financing activities                                                         |  |                  |         |   |              |   |         |  
|Repayment of debt                                                                            |  |                  | (1,250  | ) |              |   | (5,856  | )
|Repurchase of common stock                                                                   |  |                  | (38,160 | ) |              |   | (33,590 | )
|Issuance of common stock                                                                     |  |                  | 15,563  |   |              |   | 10,244  |  
|Excess tax benefit from share-based compensation expense                                     |  |                  | 3,185   |   |              |   |        |  
|Transfers to Varian Medical Systems, Inc.                                                    |  |                  | (236    | ) |              |   | (621    | )
|                                                                                             |  |                  |         |   |              |   |         |  
|Net cash used in financing activities                                                        |  |                  | (20,898 | ) |              |   | (29,823 | )
|                                                                                             |  |                  |         |   |              |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                                 |  |                  | (1,480  | ) |              |   | 6,184   |  
|                                                                                             |  |                  |         |   |              |   |         |  
|Net (decrease) increase in cash and cash equivalents                                         |  |                  | (72,052 | ) |              |   | 182,934 |  
|Cash and cash equivalents at beginning of period                                             |  |                  | 188,494 |   |              |   | 159,982 |  
|                                                                                             |  |                  |         |   |              |   |         |  
|Cash and cash equivalents at end of period                                                   |  | $                | 116,442 |   |              | $ | 342,916 |  
|                                                                                             |  |                  |         |   |              |   |         |  



See accompanying Notes
to the Unaudited Condensed Consolidated Financial Statements.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note 1.    Unaudited Interim Condensed Consolidated Financial Statements



These unaudited interim condensed consolidated financial statements of Varian, Inc. and its subsidiary companies (collectively, the Company)
have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The September 30, 2005 balance sheet data was derived from audited financial statements, but
does not include all disclosures required in audited financial statements by U.S. GAAP. These unaudited interim condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2005 filed with the SEC. In the opinion of the Companys management, the unaudited interim condensed consolidated financial statements include all normal
recurring adjustments necessary to present fairly the information required to be set forth therein. The results of operations for the fiscal quarter and six months ended March 31, 2006 are not necessarily indicative of the results to be expected for
a full year or for any other periods.



The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.



Note 2.    Description of Business and Basis of Presentation



The Company designs, develops, manufactures, markets, sells and services scientific instruments (including related software,
consumable products, accessories and services) and vacuum products (and related accessories and services). These businesses primarily serve life science, industrial, academic and research customers.



Until April 2, 1999, the business of the Company was operated as the
Instruments Business of Varian Associates, Inc. (VAI). On that date, VAI distributed to the holders of its common stock one share of common stock of the Company and one share of common stock of Varian Semiconductor Equipment Associates,
Inc. (VSEA), which was formerly operated as the Semiconductor Equipment business of VAI, for each share of VAI (the Distribution). VAI retained its Health Care Systems business and changed its name to Varian Medical Systems,
Inc. (VMS). Transfers made to VMS under the terms of the Distribution are reflected as financing activities in the Unaudited Condensed Consolidated Statement of Cash Flows.



As described more fully in Note 5, the Company sold its Electronics Manufacturing business during the second quarter of
fiscal year 2005. In connection with the sale, the Company determined that this business should be accounted for as discontinued operations under U.S. GAAP. Consequently, the results of operations of the Electronics Manufacturing business have been
excluded from the Companys results from continuing operations for all periods presented and have instead been presented on a discontinued operations basis.



Note 3.    Summary of Significant Accounting Policies



Fiscal Periods. The Companys fiscal years reported are the 52-
or 53-week periods ending on the Friday nearest September 30. Fiscal year 2006 will comprise the 52-week period ending September 29, 2006, and fiscal year 2005 was comprised of the 52-week period ended September 30, 2005. The fiscal quarters and six
months ended March 31, 2006 and April 1, 2005 each comprised 13 weeks and 26 weeks, respectively.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Intangible Assets. In order to conform to the current-year presentation, cost of sales for the
fiscal quarter and six months ended April 1, 2005 have been revised to include amortization expense relating to certain acquisition-related intangible assets (acquired patents and core technology and existing technology) that had previously been
included in selling, general and administrative expenses. Amortization expense relating to these intangible assets was $1.1 million and $2.1 million in the fiscal quarter and six months ended March 31, 2006, respectively, and $1.0 million and $1.9
million in the fiscal quarter and six months ended April 1, 2005, respectively.



Stockholders Equity. In order to conform to the current-year presentation, the balances of common stock and retained earnings as of September 30, 2005 have been revised to include a portion of the cost of
common stock repurchased and retired prior to that date as a reduction of retained earnings. Previously, the entire cost of repurchased and retired common stock had been recorded as a reduction in the carrying value of common stock. This revision,
which increased common stock and decreased retained earnings by $176.7 million as of September 30, 2005, had no impact on the Companys results of operations, total stockholders equity or cash flows.



Comprehensive Income. A summary of the components of the
Companys comprehensive income follows:



|                                                                                               |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        
|---------------------------------------------------------------------------------------------- |  | -------------------- | ------ | ------------ | ---------------- | ------ | ------------- |  | - | ------------ | - |  | - | -------
|                                                                                               |  | Fiscal Quarter Ended |        |              | Six Months Ended
|                                                                                               |  | March 31,2006        |        | April 1,2005 |                  |        | March 31,2006 |  |   | April 1,2005
|(in thousands)                                                                                 |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        
|Net earnings                                                                                   |  | $                    | 11,242 |              | $                | 81,885 |               |  | $ | 20,901       |   |  | $ | 96,823 
|Other comprehensive income:                                                                    |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        
|Currency translation adjustment                                                                |  |                      | 2,889  |              |                  | (7,330 | )             |  |   | (4,417       | ) |  |   | 12,987 
|Minimum pension liability adjustment, net of tax of $478 in the six months ended April 1, 2005 |  |                      |       |              |                  |       |               |  |   |             |   |  |   | 1,116  
|                                                                                               |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        
|Total other comprehensive income                                                               |  |                      | 2,889  |              |                  | (7,330 | )             |  |   | (4,417       | ) |  |   | 14,103 
|                                                                                               |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        
|Total comprehensive income                                                                     |  | $                    | 14,131 |              | $                | 74,555 |               |  | $ | 16,484       |   |  | $ | 110,926
|                                                                                               |  |                      |        |              |                  |        |               |  |   |              |   |  |   |        



Share-Based
Compensation. Effective October 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. (SFAS) 123(R), Share-Based Payment, which
establishes the accounting for share-based awards and the inclusion of their fair value in net earnings in the respective periods the awards were earned. Prior to adoption of SFAS 123(R), the Company applied the intrinsic value method as prescribed
by Accounting Principles Board Opinion No. (APB) 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock compensation plans and provided the required pro forma disclosures of
SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148,Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement No. 123.



7



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The following table provides the earnings and earnings per share from continuing operations for the
fiscal quarter and six months ended April 1, 2005, as if the Company had elected to recognize compensation cost based on the fair value of options granted under its Omnibus Stock Plan (OSP) and shares issued under its Employee Stock
Purchase Plan (ESPP) as prescribed by SFAS 123:



|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---------------------------- | - | ------ | -
|                                                                                                                                            |  | Fiscal QuarterEndedApril 1,2005 |        |   | Six MonthsEnded April 1,2005 |  
|(in thousands, except per share amounts)                                                                                                    |  |                                 |        |   |                              |   |        |  
|Earnings from continuing operations:                                                                                                        |  |                                 |        |   |                              |   |        |  
|As reported                                                                                                                                 |  | $                               | 9,825  |   |                              | $ | 21,569 |  
|Add: Share-based compensation expense included in reported net earnings, net of related tax effects                                         |  |                                 | 139    |   |                              |   | 164    |  
|Deduct: Total share-based employee compensation expense determined under fair value-based method for all awards, net of related tax
effects |  |                                 | (1,974 | ) |                              |   | (3,237 | )
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|Pro forma                                                                                                                                   |  | $                               | 7,990  |   |                              | $ | 18,496 |  
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|Earnings per share from continuing operations:                                                                                              |  |                                 |        |   |                              |   |        |  
|Basic  as reported                                                                                                                         |  | $                               | 0.28   |   |                              | $ | 0.62   |  
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|Basic  pro forma                                                                                                                           |  | $                               | 0.23   |   |                              | $ | 0.53   |  
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|Diluted  as reported                                                                                                                       |  | $                               | 0.28   |   |                              | $ | 0.60   |  
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  
|Diluted  pro forma                                                                                                                         |  | $                               | 0.22   |   |                              | $ | 0.52   |  
|                                                                                                                                            |  |                                 |        |   |                              |   |        |  



8



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 4.    Share-Based Compensation



The Company elected to adopt SFAS 123(R) using the modified prospective
application method. Accordingly, during the fiscal quarter and six months ended March 31, 2006, the Company recorded share-based compensation cost that would have been recognized had the fair value method been applied since the effective date of
SFAS 123,and prior-year periods have not been restated. The effect on net earnings, net earnings per share and cash flows from operating activities and financing activities for the fiscal quarter and six months ended March 31, 2006 was as
follows:



|                                                                        |  |                                  |        |      |                              |   |        |     
|----------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- | ---------------------------- | - | ------ | ----
|                                                                        |  | Fiscal QuarterEndedMarch 31,2006 |        |      | Six MonthsEndedMarch 31,2006 |  
|(in thousands, except per share amounts)                                |  |                                  |        |      |                              |   |        |     
|Share-based compensation expense by award type:                         |  |                                  |        |      |                              |   |        |     
|Employee stock options                                                  |  | $                                | (1,955 | )    |                              | $ | (3,535 | )   
|Employee stock purchase plan                                            |  |                                  | (176   | )    |                              |   | (437   | )   
|Restricted (nonvested) stock                                            |  |                                  | (172   | )(1) |                              |   | (300   | )(1)
|Non-employee director stock units                                       |  |                                  | (150   | )(1) |                              |   | (150   | )(1)
|                                                                        |  |                                  |        |      |                              |   |        |     
|Total share-based compensation                                          |  |                                  | (2,453 | )    |                              |   | (4,422 | )   
|Tax effect on share-based compensation                                  |  |                                  | 858    |      |                              |   | 1,572  |     
|                                                                        |  |                                  |        |      |                              |   |        |     
|Effect on net earnings                                                  |  | $                                | (1,595 | )    |                              | $ | (2,850 | )   
|                                                                        |  |                                  |        |      |                              |   |        |     
|Effect on net earnings per share:                                       |  |                                  |        |      |                              |   |        |     
|Basic                                                                   |  | $                                | (0.05  | )    |                              | $ | (0.09  | )   
|                                                                        |  |                                  |        |      |                              |   |        |     
|Diluted                                                                 |  | $                                | (0.05  | )    |                              | $ | (0.09  | )   
|                                                                        |  |                                  |        |      |                              |   |        |     
|Effect of excess tax benefits from share-based compensation expense on: |  |                                  |        |      |                              |   |        |     
|Cash flows from operating activities                                    |  | $                                | (1,386 | )    |                              | $ | (3,185 | )   
|                                                                        |  |                                  |        |      |                              |   |        |     
|Cash flows from financing activities                                    |  | $                                | 1,386  |      |                              | $ | 3,185  |     
|                                                                        |  |                                  |        |      |                              |   |        |     

| | 
| | 

| | (1) | This expense would also have been recorded under the provisions of APB 25.
| | --- | --------------------------------------------------------------------------



As of October 1, 2005, the Company had an unrecorded deferred share-based compensation balance related to stock options of $6.7 million after estimated
forfeitures. In the Companys pro forma disclosures prior to the adoption of SFAS 123(R), the Company accounted for forfeitures upon occurrence. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised if necessary in
subsequent periods if actual forfeitures differ from those estimates.



During the six months ended March 31, 2006, the Company granted 532,950 stock options with a weighted-average grant-date fair value of $13.69. The total grant-date fair value of these options after estimated forfeitures was $6.2 million.



As of March 31, 2006, the unrecorded deferred share-based
compensation balance related to stock options was $9.1 million. This amount will be recognized as expense using the straight-line attribution method over an estimated weighted-average amortization period of 1.9 years.



9



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Share-based compensation expenses recorded during the fiscal quarter and six months ended March 31,
2006 have been included in the Companys unaudited condensed consolidated statement of earnings as follows:



|                                    |  |                                  |        |   |                              |   |        |  
|----------------------------------- |  | -------------------------------- | ------ | - | ---------------------------- | - | ------ | -
|                                    |  | Fiscal QuarterEndedMarch 31,2006 |        |   | Six MonthsEndedMarch 31,2006 |  
|(in thousands)                      |  |                                  |        |   |                              |   |        |  
|Cost of sales                       |  | $                                | (108   | ) |                              | $ | (197   | )
|Selling, general and administrative |  |                                  | (2,190 | ) |                              |   | (3,963 | )
|Research and development            |  |                                  | (155   | ) |                              |   | (262   | )
|                                    |  |                                  |        |   |                              |   |        |  
|Total                               |  | $                                | (2,453 | ) |                              | $ | (4,422 | )
|                                    |  |                                  |        |   |                              |   |        |  



Capitalizable
share-based compensation expense relating to inventory or deferred cost of sales (a component of deferred profit) was not significant at March 31, 2006.



Valuation Assumptions



The Company estimates the fair value of employee stock options granted under the OSP and shares issued under the ESPP using a Black-Scholes option-pricing
model, consistent with the provisions of SFAS 123(R), SEC Staff Accounting Bulletin No. (SAB) 107, Share-Based Payment, and the Companys prior-period pro forma disclosures of net earnings, including share-based compensation
(determined under a fair value method as prescribed by SFAS 123). The fair value of each option grant and each share issuance under the ESPP were estimated on the date of grant using the Black-Scholes model using the following weighted-average
assumptions:



|                          |  |                      |   |  |                  |   |  |               |   |  |              |  
|------------------------- |  | -------------------- | - |  | ---------------- | - |  | ------------- | - |  | ------------ | -
|                          |  | Fiscal Quarter Ended |   |  | Six Months Ended |  
|                          |  | March 31,2006        |   |  | April 1,2005     |   |  | March 31,2006 |   |  | April 1,2005 |  
|Employee stock options:   |  |                      |   |  |                  |   |  |               |   |  |              |  
|Expected dividend yield   |  | 0.0                  | % |  | 0.0              | % |  | 0.0           | % |  | 0.0          | %
|Risk-free interest rate   |  | 4.5                  | % |  | 3.6              | % |  | 4.5           | % |  | 3.6          | %
|Expected price volatility |  | 30                   | % |  | 40               | % |  | 30            | % |  | 40           | %
|Expected life (in years)  |  | 4.5                  |   |  | 4.1              |   |  | 4.5           |   |  | 4.1          |  
|                          |  |                      |   | 
|Employee stock purchases: |  |                      |   |  |                  |   |  |               |   |  |              |  
|Expected dividend yield   |  | 0.0                  | % |  | 0.0              | % |  | 0.0           | % |  | 0.0          | %
|Risk-free interest rate   |  | 3.5                  | % |  | 2.0              | % |  | 3.5           | % |  | 2.0          | %
|Expected price volatility |  | 30                   | % |  | 40               | % |  | 30            | % |  | 40           | %
|Expected life (in years)  |  | 0.3                  |   |  | 0.5              |   |  | 0.3           |   |  | 0.4          |  



Option-pricing models
require the input of highly subjective assumptions, including the options expected life and the expected price volatility of the underlying stock. The expected stock price volatility assumption was determined using a combination of historical
and implied volatility of the Companys common stock, with implied volatility based on the implied volatility of publicly traded options on the Companys common stock. Prior to the adoption of SFAS 123(R), the Company used only historical
volatility in deriving its expected volatility assumption. The Company believes that using a combination of historical and implied volatility is more reflective of current market conditions and a better indicator of expected future volatility.



10



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Omnibus Stock Plan



Effective April 2, 1999, the Company adopted the OSP under which shares of common stock can be issued to officers,
directors, consultants and key employees. The maximum number of shares of the Companys common stock available for awards under the OSP was initially 4,200,000 plus 4,512,000 shares granted in substitution for other options in connection with
the Distribution (described in Note 2). During fiscal year 2002, the Companys stockholders approved an amendment of the OSP to increase the number of shares of common stock reserved for issuance under the OSP by 1,000,000. During fiscal year
2005, the Companys stockholders approved an amendment of the OSP to increase the number of shares of common stock reserved for issuance under the OSP by an additional 5,000,000.



The OSP is administered by the Compensation Committee of the Companys Board of Directors. The exercise price for stock
options granted under the OSP may not be less than 100% of the fair market value at the date of the grant. Options granted are exercisable at the times and on the terms established by the Compensation Committee, but not later than ten years after
the date of grant. Options granted generally become exercisable in cumulative installments of one-third each year commencing one year following the date of grant.



At March 31, 2006, options with respect to 4,819,000 shares were available for grant under the OSP.



Option Activity Under the OSP



|                                  |  |                       |   |  |                               |      
|--------------------------------- |  | --------------------- | - |  | ----------------------------- | -----
|                                  |  | Shares (in thousands) |   |  | Weighted-AverageExercisePrice
|Outstanding at October 3, 2003    |  | 4,429                 |   |  | $                             | 20.65
|Granted                           |  | 567                   |   |  | $                             | 38.76
|Exercised                         |  | (1,310                | ) |  | $                             | 14.46
|Cancelled or expired              |  | (46                   | ) |  | $                             | 33.10
|                                  |  |                       |   |  |                               |      
|Outstanding at October 1, 2004    |  | 3,640                 |   |  | $                             | 25.54
|Granted                           |  | 512                   |   |  | $                             | 36.66
|Exercised                         |  | (806                  | ) |  | $                             | 18.01
|Cancelled or expired              |  | (100                  | ) |  | $                             | 37.21
|                                  |  |                       |   |  |                               |      
|Outstanding at September 30, 2005 |  | 3,246                 |   |  | $                             | 28.80
|Granted                           |  | 533                   |   |  | $                             | 41.82
|Exercised                         |  | (558                  | ) |  | $                             | 24.45
|Cancelled or expired              |  | (25                   | ) |  | $                             | 37.80
|                                  |  |                       |   |  |                               |      
|Outstanding at March 31, 2006     |  | 3,196                 |   |  | $                             | 31.66
|                                  |  |                       |   |  |                               |      



The intrinsic value of
the options exercised during the six months ended March 31, 2006 was $8.5 million.



11



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Outstanding and Exercisable Options at March 31, 2006



|                         |  |                     |  |                                            |  |                                |       |                |       |                                |   |      
|------------------------ |  | ------------------- |  | ------------------------------------------ |  | ------------------------------ | ----- | -------------- | ----- | ------------------------------ | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                       
|Range of Exercise Prices |  | Shares              |  | Weighted-AverageRemaining Contractual Life |  | Weighted-AverageExercise Price |       | Shares         |       | Weighted-AverageExercise Price
|                         |  | (in thousands)      |  | (in years)                                 |  |                                |       | (in thousands) |       |                               
|$8.25$11.84             |  | 397                 |  | 2.8                                        |  | $                              | 9.71  |                | 397   |                                | $ | 9.71 
|$11.84$27.57            |  | 462                 |  | 4.3                                        |  | $                              | 22.77 |                | 462   |                                | $ | 22.77
|$27.57$35.50            |  | 808                 |  | 5.6                                        |  | $                              | 33.03 |                | 795   |                                | $ | 33.03
|$35.50$54.94            |  | 1,529               |  | 6.8                                        |  | $                              | 39.33 |                | 601   |                                | $ | 38.46
|                         |  |                     |  |                                            |  |                                |       |                |       |                                |   |      
|Total                    |  | 3,196               |  | 5.6                                        |  | $                              | 31.66 |                | 2,255 |                                | $ | 28.27
|                         |  |                     |  |                                            |  |                                |       |                |       |                                |   |      



Restricted
(Nonvested) Stock.In November 2005 and November 2004, the Company granted under the OSP 27,500 shares and 24,850 shares, respectively, of restricted (nonvested) common stock to its executive officers. These shares, which were issued upon grant,
remain restricted for three years from the grant date and will vest only if the employee is still actively employed by the Company on the vesting date. The restricted stock granted during the first quarters of fiscal year 2006 and 2005 had an
aggregate value of $1.2 million and $0.9 million, respectively, representing the fair market value of the restricted shares on the dates of grant. These amounts are being recognized by the Company as share-based compensation expense ratably over
their respective three-year vesting periods. During the fiscal quarter and six months ended March 31, 2006, the Company recognized $172,000 and $300,000, respectively, in share-based compensation expense relating to restricted stock grants.
During the fiscal quarter and six months ended April 1, 2005, the Company recognized $75,000 and $115,000, respectively, in share-based compensation expense relating to restricted stock grants. The following table summarizes the activity of
restricted (nonvested) stock for the periods indicated:



|                                |  |                       |  |                                        |      
|------------------------------- |  | --------------------- |  | -------------------------------------- | -----
|                                |  | Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
|Nonvested at October 1, 2004    |  |                      |  |                                        |     
|Granted                         |  | 25                    |  | $                                      | 36.18
|                                |  |                       |  |                                        |      
|Nonvested at September 30, 2005 |  | 25                    |  | $                                      | 36.18
|Granted                         |  | 27                    |  | $                                      | 42.51
|                                |  |                       |  |                                        |      
|Nonvested at March 31, 2006     |  | 52                    |  | $                                      | 39.51
|                                |  |                       |  |                                        |      



As of March 31,
2006, there was $1.5 million of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the OSP. That expense is expected to be recognized over a weighted-average period of 1.2 years.



12



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Non-Employee Director Stock Units. Under the terms of the OSP, on the first business day
following each annual meeting of the Companys stockholders, each person then serving as a non-employee director is automatically granted stock units having an initial value of $25,000, which vest upon the directors termination of service
as a director and are paid out as soon as possible thereafter. Under the terms of the Stock Unit Agreement, the stock units will be paid out in shares. Each non-employee director who holds stock units will not have rights as a stockholder with
respect to the shares issuable under those stock units until such shares are paid out. The stock units are not transferable, except to the non-employee directors designated beneficiary or estate in the event of his or her death. During both
the fiscal quarter ended March 31, 2006 and the fiscal quarter ended April 1, 2005, the Company granted stock units with an aggregate value of $150,000 to the non-employee members of its Board of Directors (of which there were six) and
recognized the total value of $150,000 as stock-based compensation expense in each of those respective periods.



Employee Stock Purchase Plan.During fiscal year 2000, the Companys Board of Directors approved the ESPP for which the Company set aside
1,200,000 shares of common stock for issuance. In February 2003, the Companys stockholders approved the ESPP. Under the ESPP, eligible Company employees may set aside, through payroll deductions, between 1% and 10% of eligible compensation for
purchases of the Companys common stock. The participants purchase price is the lower of 85% of the stocks market value on the enrollment date or 85% of the stocks market value on the purchase date. Initially, enrollment dates
occurred every six months and purchase dates occurred each quarter. Beginning in October 2005, the Company reduced the length of each offering period under its ESPP from six months to three months.



During fiscal years 2005 and 2004 employees purchased approximately 119,000
shares for $3.9 million and 137,000 shares for $3.9 million, respectively. During the six months ended March 31, 2006, employees purchased approximately 65,000 shares for $1.9 million. As of March 31, 2006, a total of approximately 413,000
shares remained available for issuance under the ESPP.



Note
5.    Sale of Electronics Manufacturing Business and Discontinued Operations



In February 2005, the Company and Jabil Circuit, Inc. (Jabil) entered into an Asset Purchase Agreement (the Purchase Agreement)
providing for the sale of substantially all of the assets and liabilities of the Companys Electronics Manufacturing segment (the Electronics Manufacturing Business) to Jabil for $195.0 million in cash, subject to a post-closing
working capital adjustment, which was subsequently settled during the third quarter of fiscal year 2005 and resulted in the receipt of $6.6 million in additional purchase price by the Company. In March 2005, the Company completed the sale of the
Electronics Manufacturing Business (the Closing) and transferred substantially all of the assets and certain liabilities and obligations of the Electronics Manufacturing Business to Jabil. In addition, effective as of the Closing, the
Company and Jabil entered into a four-year Supply Agreement pursuant to which Jabil will continue to supply certain products to the Company that were manufactured by the Electronics Manufacturing Business for the Company as of the Closing.



The Company has determined that the disposed Electronics
Manufacturing Business should be accounted for as discontinued operations in accordance with SFAS 144, Accounting for the Disposal of or Impairment of Long-Lived Assets, and Emerging Issues Task Force (EITF) Issue No. 03-13,
Applying the Conditions in Paragraph 42 of SFAS 144 in Determining Whether to Report Discontinued Operations. Consequently, the results of operations of the Electronics Manufacturing Business have been excluded from the Companys results
from continuing operations for all periods presented and have instead been presented on a discontinued operations basis.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Sales by the disposed Electronics Manufacturing Business and the components of earnings from
discontinued operations for the fiscal quarters and six months ended March 31, 2006 and April 1, 2005 are presented below:



|                                                                                                                                     |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- | - | ------------ | ---------------- | ------ | ------------- |  | ------------ | - |  | - | ------ | -
|                                                                                                                                     |  | Fiscal Quarter Ended |   |              | Six Months Ended |       
|                                                                                                                                     |  | March 31,2006        |   | April 1,2005 |                  |        | March 31,2006 |  | April 1,2005 |  
|(in thousands)                                                                                                                       |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  
|Sales                                                                                                                                |  | $                    |  |              | $                | 35,327 |               |  | $            |  |  | $ | 80,245 |  
|                                                                                                                                     |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  
|Earnings from operations of disposed Electronics Manufacturing Business                                                              |  | $                    |  |              | $                | 3,202  |               |  | $            |  |  | $ | 8,337  |  
|Income tax expense                                                                                                                   |  |                      |  |              |                  | (1,227 | )             |  |              |  |  |   | (3,168 | )
|                                                                                                                                     |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  
|Earnings from operations of disposed Electronics Manufacturing Business, net of taxes                                                |  |                      |  |              |                  | 1,975  |               |  |              |  |  |   | 5,169  |  
|Gain on sale of Electronics Manufacturing Business, net of taxes of $42,955 in the fiscal quarter and six months ended April 1,
2005 |  |                      |  |              |                  | 70,085 |               |  |              |  |  |   | 70,085 |  
|                                                                                                                                     |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  
|Earnings from discontinued operations                                                                                                |  | $                    |  |              | $                | 72,060 |               |  | $            |  |  | $ | 75,254 |  
|                                                                                                                                     |  |                      |   |              |                  |        |               |  |              |   |  |   |        |  



The following table
presents the calculation of the gain on the sale of the Electronics Manufacturing Business recorded by the Company during the second quarter of fiscal year 2005:



|                                 |  |   |         |  
|-------------------------------- |  | - | ------- | -
|(in thousands)                   |  |   |         |  
|Proceeds from sale               |  | $ | 195,000 |  
|Transaction costs                |  |   | (5,054  | )
|                                 |  |   |         |  
|Net proceeds                     |  |   | 189,946 |  
|Net assets sold                  |  |   | (76,906 | )
|                                 |  |   |         |  
|Gain on sale before income taxes |  |   | 113,040 |  
|Income tax expense               |  |   | (42,955 | )
|                                 |  |   |         |  
|Gain on sale, net of taxes       |  | $ | 70,085  |  
|                                 |  |   |         |  



Note
6.    Balance Sheet Detail



|                        |  |               |         |                   |   |        
|----------------------- |  | ------------- | ------- | ----------------- | - | -------
|                        |  | March 31,2006 |         | September 30,2005
|(In thousands)          |  |               |         |                   |   |        
|Inventories             |  |               |         |                   |   |        
|Raw materials and parts |  | $             | 62,566  |                   | $ | 53,625 
|Work in process         |  |               | 21,744  |                   |   | 17,618 
|Finished goods          |  |               | 49,855  |                   |   | 43,184 
|                        |  |               |         |                   |   |        
|                        |  | $             | 134,165 |                   | $ | 114,427
|                        |  |               |         |                   |   |        



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 7.    Forward Exchange Contracts



The Company enters into foreign exchange forward contracts to minimize the
short-term impact of foreign currency fluctuations on assets and liabilities denominated in non-functional currencies. These contracts are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Gains and
losses on these contracts were substantially offset by transaction losses and gains on the underlying balances being hedged. During the fiscal quarter and six months ended March 31, 2006, net foreign currency losses relating to these arrangements
were $0.1 million and $0.2 million, respectively. During the fiscal quarter and six months ended April 1, 2005, net foreign currency losses relating to these arrangements were $0.4 million and $0.3 million, respectively. These amounts
were recorded in selling, general and administrative expenses.



From time to time, the Company also enters into foreign exchange forward contracts to minimize the impact of foreign currency fluctuations on forecasted transactions. These contracts are designated as cash flow hedges under SFAS 133. At
March 31, 2006, there were no outstanding foreign exchange forward contracts designated as cash flow hedges of forecasted transactions. During the fiscal quarters and six months ended March 31, 2006 and April 1, 2005, no foreign exchange gains or
losses from hedge ineffectiveness were recognized.



The
Companys foreign exchange forward contracts generally range from one to 12 months in original maturity. A summary of all foreign exchange forward contracts that were outstanding as of March 31, 2006 follows:



|                  |  |                   |        |                        |   |       
|----------------- |  | ----------------- | ------ | ---------------------- | - | ------
|                  |  | NotionalValueSold |        | NotionalValuePurchased
|(in thousands)    |  |                   |        |                        |   |       
|Euro              |  | $                 |       |                        | $ | 46,066
|Australian dollar |  |                   |       |                        |   | 25,884
|British pound     |  |                   | 24,240 |                        |   |      
|Japanese yen      |  |                   | 8,901  |                        |   |      
|Canadian dollar   |  |                   | 7,450  |                        |   |      
|Danish krona      |  |                   | 1,292  |                        |   |      
|Swiss franc       |  |                   |       |                        |   | 1,136 
|                  |  |                   |        |                        |   |       
|                  |  | $                 | 41,883 |                        | $ | 73,086
|                  |  |                   |        |                        |   |       



Note
8.    Acquisitions



IonSpec
Corporation. In February 2006, the Company acquired IonSpec Corporation (IonSpec) for $15.9 million in cash and assumed debt. Under the terms of the acquisition, the Company may become obligated to make additional purchase price
payments of up to $14.0 million over a three-year period, depending on the performance of the IonSpec business relative to certain financial targets. IonSpec designs, develops, manufactures, markets, sells and services Fourier Transform mass
spectrometry products for life science applications. IonSpec became part of the Scientific Instruments segment.



Of the total purchase price of $15.9 million, $14.5 million (including $1.9 million to pay down assumed debt) was paid at the closing of the acquisition.
The remaining $1.4 million was retained by the Company and will be settled (net of any indemnification claims) in two equal installments in February 2007 and February 2008.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Company has completed a preliminary allocation of the purchase price paid for the IonSpec
acquisition to the estimated fair value of assets acquired and liabilities assumed as follows:



|                              |  |                 |      |  
|----------------------------- |  | --------------- | ---- | -
|                              |  | AmountAllocated |     
|(in millions)                 |  |                 |      |  
|Accounts receivable           |  | $               | 1.3  |  
|Inventories                   |  |                 | 1.4  |  
|Deferred tax assets           |  |                 | 0.5  |  
|Property, plant and equipment |  |                 | 4.1  |  
|Goodwill                      |  |                 | 5.2  |  
|Identified intangible assets  |  |                 | 5.6  |  
|                              |  |                 |      |  
|Total assets acquired         |  |                 | 18.1 |  
|Liabilities assumed           |  |                 | (2.2 | )
|                              |  |                 |      |  
|Total consideration           |  | $               | 15.9 |  
|                              |  |                 |      |  



The purchase price
allocation for IonSpec is preliminary pending finalization of an intangible asset valuation and certain other matters, which are expected to be completed during the third quarter of fiscal year 2006. Upon completion of these matters, any necessary
adjustments will be made to the preliminary purchase price allocation and will result in corresponding adjustments to goodwill.



PL International Limited. In November 2005, the Company acquired PL International Limited (Polymer Labs) for $44.1 million in cash (net
of acquired cash). Under the terms of the acquisition, the Company may become obligated to make additional purchase price payments of up to $23.0 million over a three-year period, depending on the performance of the Polymer Labs business relative to
certain financial targets. Polymer Labs designs, develops, manufactures, markets, sells and services consumable products and instrumentation for advanced polymer analysis, including columns, standards and specialist chromatography systems dedicated
to gel permeation chromatography (GPC) analysis, and systems for process monitoring of polymeric materials. Polymer Labs became part of the Scientific Instruments segment.



Of the total purchase price of $44.1 million, $41.6 million was paid at the closing of the acquisition and $1.7 million was
paid in the second quarter of fiscal year 2006 to settle a net asset adjustment based on Polymer Labs balance sheet as of the date of completion of the acquisition. The remaining $0.8 million relates to transaction costs.



16



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Company has allocated the purchase price paid for the Polymer Labs acquisition to the estimated
fair value of assets acquired and liabilities assumed as follows:



|                                              |  |                 |      |  
|--------------------------------------------- |  | --------------- | ---- | -
|                                              |  | AmountAllocated |     
|(in millions)                                 |  |                 |      |  
|Accounts receivable                           |  | $               | 4.1  |  
|Inventories                                   |  |                 | 4.7  |  
|Deferred tax assets                           |  |                 | (0.6 | )
|Property, plant and equipment                 |  |                 | 3.9  |  
|Goodwill                                      |  |                 | 24.7 |  
|Identified intangible assets                  |  |                 | 10.7 |  
|                                              |  |                 |      |  
|Total assets acquired                         |  |                 | 47.5 |  
|Liabilities assumed                           |  |                 | (4.2 | )
|                                              |  |                 |      |  
|Net assets acquired                           |  |                 | 43.3 |  
|Purchased in-process research and development |  |                 | 0.8  |  
|                                              |  |                 |      |  
|Total consideration                           |  | $               | 44.1 |  
|                                              |  |                 |      |  



The amounts allocated
to identified intangible assets are based upon an analysis which utilized the income approach and the royalty savings approach to determine the fair value of significant identified intangible assets acquired in the transaction. The identified
intangible assets are being amortized using the straight-line method over their respective estimated useful lives (weighted average of 4.8 years). The amount allocated to in-process research and development (which was immediately expensed) related
to new products that were in the research and development stage at the time of the acquisition. A risk-adjusted discount rate of 14.5% was applied to cash flow projections to determine the present value of the different intangible assets including
the in-process research and development.



Both the IonSpec and
Polymer Labs acquisitions were accounted for using the purchase method of accounting. Accordingly, the unaudited condensed consolidated statement of earnings for the second quarter and first six months of fiscal year 2006 include the results of
operations of IonSpec and Polymer Labs since the completion dates of their respective purchases. Pro forma sales, earnings from operations, net earnings and net earnings per share have not been presented because the effects of these acquisitions
were not material.



Magnex Scientific Limited. In
connection with the acquisition of Magnex Scientific Limited (Magnex) in November 2004, the Company accrued but did not pay $6.0 million of the purchase price, such amount having been retained to secure the sellers indemnification
obligations. During the first six months of fiscal year 2006, $3.0 million of this amount was paid to the sellers. As of March 31, 2006, the Company continued to retain $3.0 million, which is due to be paid (in cash or in the form of notes payable
by the Company at the sellers election), net of any indemnification claims, in November 2006. In addition to this retained payment, the Company may become obligated to pay up to a maximum of $6.0 million in contingent purchase price
consideration that can be earned by the former Magnex shareholders over a three-year period ending in November 2007, depending on the performance of the Magnex business relative to certain financial targets. Of this amount, $1.0 million was earned,
recorded as additional goodwill and paid during the first six months of fiscal year 2006 for targets met for the first annual period which ended in November 2005.



Bear Instruments, Inc. During the first six months of fiscal year 2006, the Company accrued $1.4 million for the
final contingent consideration payment relating to the Bear Instruments, Inc. business (acquired in fiscal year 2001). This amount, which resulted in additional goodwill relating to this acquisition when it was accrued, was paid during the third
quarter of fiscal year 2006.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 9.    Goodwill and Other Intangible Assets



Changes in the carrying amount of goodwill for each of the Companys
reporting segments in the first six months of fiscal year 2006 were as follows:



|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|---------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------------ |  | - | ------- | -
|                                               |  | ScientificInstruments |         |   | VacuumTechnologies |   | TotalCompany | 
|(in thousands)                                 |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of September 30, 2005               |  | $                     | 148,968 |   |                    | $ | 966          |  | $ | 149,934 |  
|Fiscal year 2006 acquisitions (Note 8)         |  |                       | 29,946  |   |                    |   |             |  |   | 29,946  |  
|Contingent payments on prior-year acquisitions |  |                       | 2,386   |   |                    |   |              |  |   | 2,386   |  
|Foreign currency impacts and other adjustments |  |                       | (4,169  | ) |                    |   |             |  |   | (4,169  | )
|                                               |  |                       |         |   |                    |   |              |  |   |         |  
|Balance as of March 31, 2006                   |  | $                     | 177,131 |   |                    | $ | 966          |  | $ | 178,097 |  
|                                               |  |                       |         |   |                    |   |              |  |   |         |  



As required by SFAS
142, Goodwill and Other Intangible Assets, the Company performs an annual goodwill impairment assessment. This assessment is performed in the second quarter of each fiscal year. During the fiscal quarter ended March 31, 2006, the Company
completed its annual impairment test and determined that there was no impairment of goodwill.



The following intangible assets have been recorded and are being amortized by the Company:



|                            |  |                |        |                         |   |         |     |  |   |       
|--------------------------- |  | -------------- | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | March 31, 2006
|                            |  | Gross          |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                |        |                         |   |         |     |  |   |       
|Existing technology         |  | $              | 15,054 |                         | $ | (5,186  | )   |  | $ | 9,868 
|Patents and core technology |  |                | 28,335 |                         |   | (4,815  | )   |  |   | 23,520
|Trade names and trademarks  |  |                | 2,419  |                         |   | (1,088  | )   |  |   | 1,331 
|Customer lists              |  |                | 9,305  |                         |   | (5,098  | )   |  |   | 4,207 
|Other                       |  |                | 2,763  |                         |   | (1,651  | )   |  |   | 1,112 
|                            |  |                |        |                         |   |         |     |  |   |       
|Total                       |  | $              | 57,876 |                         | $ | (17,838 | )   |  | $ | 40,038
|                            |  |                |        |                         |   |         |     |  |   |       



|                            |  |                    |        |                         |   |         |     |  |   |       
|--------------------------- |  | ------------------ | ------ | ----------------------- | - | ------- | --- |  | - | ------
|                            |  | September 30, 2005
|                            |  | Gross              |        | AccumulatedAmortization |   |         | Net
|(in thousands)              |  |                    |        |                         |   |         |     |  |   |       
|Intangible assets           |  |                    |        |                         |   |         |     |  |   |       
|Existing technology         |  | $                  | 10,172 |                         | $ | (4,398  | )   |  | $ | 5,774 
|Patents and core technology |  |                    | 18,474 |                         |   | (3,517  | )   |  |   | 14,957
|Trade names and trademarks  |  |                    | 2,176  |                         |   | (922    | )   |  |   | 1,254 
|Customer lists              |  |                    | 9,305  |                         |   | (3,984  | )   |  |   | 5,321 
|Other                       |  |                    | 2,424  |                         |   | (1,485  | )   |  |   | 939   
|                            |  |                    |        |                         |   |         |     |  |   |       
|Total                       |  | $                  | 42,551 |                         | $ | (14,306 | )   |  | $ | 28,245
|                            |  |                    |        |                         |   |         |     |  |   |       



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Amortization expense relating to intangible assets was $1.9 million and $3.7 million during the
fiscal quarter and six months ended March 31, 2006, respectively. Amortization expense relating to intangible assets was $1.7 million and $3.2 million during the fiscal quarter and six months ended April 1, 2005, respectively. At March 31, 2006,
estimated amortization expense for the remainder of fiscal year 2006 and for each of the five succeeding fiscal years and thereafter follows:



|                                     |  |                                |       
|------------------------------------ |  | ------------------------------ | ------
|                                     |  | Estimated Amortization Expense
|(in thousands)                       |  |                                |       
|Six months ending September 29, 2006 |  | $                              | 3,990 
|Fiscal year 2007                     |  |                                | 7,387 
|Fiscal year 2008                     |  |                                | 6,571 
|Fiscal year 2009                     |  |                                | 5,592 
|Fiscal year 2010                     |  |                                | 5,271 
|Fiscal year 2011                     |  |                                | 2,708 
|Thereafter                           |  |                                | 8,519 
|                                     |  |                                |       
|Total                                |  | $                              | 40,038
|                                     |  |                                |       



Note
10.    Restructuring Activities



Summary of Restructuring Plans.During fiscal years 2005, 2004 and 2003, the Company committed to several restructuring plans in order to adjust its organizational structure, improve operational efficiencies and eliminate redundant
or excess costs resulting from acquisitions or dispositions during those periods.



The following table sets forth changes in the Companys restructuring liability relating to the foregoing plans during the first and second quarters of fiscal year 2006:



|                                               |  |                  |       |   |                    |   |       |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ------------------ | - | ----- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |       |   | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |       |   |                    |   |       |       |  |   |       |  
|Balance at September 30, 2005                  |  | $                | 1,002 |   |                    | $ | 1,692 |       |  | $ | 2,694 |  
|Cash payments                                  |  |                  | (432  | ) |                    |   | (158  | )     |  |   | (590  | )
|Foreign currency impacts and other adjustments |  |                  | (6    | ) |                    |   | 197   |       |  |   | 191   |  
|                                               |  |                  |       |   |                    |   |       |       |  |   |       |  
|Balance at December 30, 2005                   |  |                  | 564   |   |                    |   | 1,731 |       |  |   | 2,295 |  
|Cash payments                                  |  |                  | (170  | ) |                    |   | (184  | )     |  |   | (354  | )
|Foreign currency impacts and other adjustments |  |                  | (5    | ) |                    |   | (1    | )     |  |   | (6    | )
|                                               |  |                  |       |   |                    |   |       |       |  |   |       |  
|Balance at March 31, 2006                      |  | $                | 389   |   |                    | $ | 1,546 |       |  | $ | 1,935 |  
|                                               |  |                  |       |   |                    |   |       |       |  |   |       |  



Under these
restructuring plans, the Company has incurred $15.3 million in restructuring expense and $3.3 million in other costs which related primarily to employee retention and relocation costs and accelerated depreciation of assets disposed of upon the
closure of facilities.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Fiscal Year 2005 Plans. During the first quarter of fiscal year 2005, the Company undertook
certain restructuring actions to rationalize its Scientific Instruments field support administration in the United Kingdom following the completion of the Companys acquisition of Magnex. These actions were undertaken to achieve operational
efficiencies and eliminate redundant costs resulting from the acquisition, which involved the termination of approximately 20 employees, the consolidation of certain field support administrative functions previously located in the Companys
Walton, United Kingdom location to Magnexs location in Yarnton, United Kingdom and the closure of the Walton facility. Restructuring and other costs directly attributable to this plan have been recorded and included in selling, general and
administrative expenses.



The following table sets forth
changes in the Companys restructuring liability during the first and second quarters of fiscal year 2006 in connection with this plan:



|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | --- | - | ------------------ | - | ----- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |     |   | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at September 30, 2005                  |  | $                | 82  |   |                    | $ | 1,153 |       |  | $ | 1,235 |  
|Cash payments                                  |  |                  |    |   |                    |   | (104  | )     |  |   | (104  | )
|Foreign currency impacts and other adjustments |  |                  | (3  | ) |                    |   | 197   |       |  |   | 194   |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at December 30, 2005                   |  |                  | 79  |   |                    |   | 1,246 |       |  |   | 1,325 |  
|Cash payments                                  |  |                  | (36 | ) |                    |   | (154  | )     |  |   | (190  | )
|Foreign currency impacts and other adjustments |  |                  | 4   |   |                    |   | (1    | )     |  |   | 3     |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at March 31, 2006                      |  | $                | 47  |   |                    | $ | 1,091 |       |  | $ | 1,138 |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  



The Company incurred
$0.1 million in other costs relating directly to this restructuring plan during the second quarter of fiscal year 2006. This amount was comprised of employee retention and relocation costs, which will be settled in cash. Since the inception of this
plan, the Company has recorded $1.8 million in related restructuring expense and $0.6 million of other related costs.



During the third quarter of fiscal year 2005, the Company committed to a separate plan to reorganize, consolidate and eliminate certain activities. This
plan was undertaken due to the divestiture of the Companys Electronics Manufacturing Business, the result of which was that the Company had lower revenues and reduced infrastructure requirements after the divestiture. Management determined
that this required the Company to adjust its organization and reduce its cost structure. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative expenses.



Under this plan, certain administrative functions within the Companys
Corporate organization and Scientific Instruments segment were reorganized and consolidated. This involved changes in reporting structures, consolidation of certain activities and the elimination of employee positions. In addition, this plan
involved the elimination of employee positions in certain other operations to reduce the Companys cost structure. These activities were completed in the second quarter of fiscal year 2006.



The measures described above resulted in the elimination of a total of
approximately 70 employee positions, of which approximately 45 were in North America and approximately 20 were in Europe. The costs associated with this plan consist of one-time termination benefits and other related costs for employees in the
Corporate organization and the Scientific Instruments segment whose positions were eliminated.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The following table sets forth changes in the Companys restructuring liability during the first
and second quarters of fiscal year 2006 in connection with this plan:



|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|---------------------------------------------- |  | ---------------- | ---- | - | ------------------ | - | ----- |  | - | ---- | -
|                                               |  | Employee-Related |      |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at September 30, 2005                  |  | $                | 844  |   |                    | $ |      |  | $ | 844  |  
|Cash payments                                  |  |                  | (432 | ) |                    |   |      |  |   | (432 | )
|Foreign currency impacts and other adjustments |  |                  | 2    |   |                    |   |      |  |   | 2    |  
|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at December 30, 2005                   |  |                  | 414  |   |                    |   |      |  |   | 414  |  
|Cash payments                                  |  |                  | (134 | ) |                    |   |      |  |   | (134 | )
|Foreign currency impacts and other adjustments |  |                  | (10  | ) |                    |   |      |  |   | (10  | )
|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at March 31, 2006                      |  | $                | 270  |   |                    | $ |      |  | $ | 270  |  
|                                               |  |                  |      |   |                    |   |       |  |   |      |  



This amount will be
settled in cash. Since the inception of this plan, the Company has recorded $3.4 million in related restructuring expense and $0.4 million of other related costs.



Fiscal Year 2003 Plan. During fiscal year 2003, the Company undertook certain restructuring actions to improve
efficiency and more closely align employee skill sets and other resources with the Companys evolving product mix as a result of the Companys continued emphasis on NMR, mass spectroscopy and consumable products, with a bias toward life
science applications. In addition, actions were undertaken to create a more efficient consumable products operation. These actions primarily impacted the Scientific Instruments segment and involved the termination of approximately 160 employees
(principally in sales and marketing, administration, service and manufacturing functions), the closure of three sales offices and the consolidation of three consumable products factories into one in Southern California. Substantially all of these
activities were completed during fiscal year 2003 except for the termination of approximately 20 employees, which took place in the second and third quarters of fiscal year 2004 and the Southern California facility consolidation, which was initiated
in the third quarter of fiscal year 2003 and was substantially completed in the first quarter of fiscal year 2005. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative
expenses.



The following table sets forth changes in the
Companys restructuring liability relating to the foregoing plan during the first and second quarters of fiscal year 2006:



|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  
|---------------------------------------------- |  | ---------------- | -- | - | ------------------ | - | --- | ----- |  | - | --- | -
|                                               |  | Employee-Related |    |   | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |    |   |                    |   |     |       |  |   |     |  
|Balance at September 30, 2005                  |  | $                | 76 |   |                    | $ | 539 |       |  | $ | 615 |  
|Cash payments                                  |  |                  |   |   |                    |   | (54 | )     |  |   | (54 | )
|Foreign currency impacts and other adjustments |  |                  | (5 | ) |                    |   |    |       |  |   | (5  | )
|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  
|Balance at December 30, 2005                   |  |                  | 71 |   |                    |   | 485 |       |  |   | 556 |  
|Cash payments                                  |  |                  |   |   |                    |   | (30 | )     |  |   | (30 | )
|Foreign currency impacts and other adjustments |  |                  | 1  |   |                    |   |    |       |  |   | 1   |  
|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  
|Balance at March 31, 2006                      |  | $                | 72 |   |                    | $ | 455 |       |  | $ | 527 |  
|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  



Since the inception of
this plan, the Company has recorded $7.9 million in related restructuring expense and $2.3 million of other related costs.



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VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 11.    Warranty and Indemnification Obligations



Product Warranties. The Companys products are generally subject
to warranties. Liabilities for the estimated future costs of repair or replacement are established and charged to cost of sales at the time the related sale is recognized. The amount of liability to be recorded is based on managements best
estimates of future warranty costs after considering historical and projected product failure rates and product repair costs. Changes in the Companys estimated liability for product warranty during the six months ended March 31, 2006 and April
1, 2005 follow:



|                              |  |                  |        |   |              |   |        |  
|----------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                              |  | Six Months Ended |       
|                              |  | March 31,2006    |        |   | April 1,2005 |  
|(in thousands)                |  |                  |        |   |              |   |        |  
|Beginning balance             |  | $                | 10,723 |   |              | $ | 10,475 |  
|Charges to costs and expenses |  |                  | 915    |   |              |   | 3,792  |  
|Warranty expenditures         |  |                  | (1,308 | ) |              |   | (4,376 | )
|Acquired warranty liabilities |  |                  |       |   |              |   | 1,742  |  
|                              |  |                  |        |   |              |   |        |  
|Ending balance                |  | $                | 10,330 |   |              | $ | 11,633 |  
|                              |  |                  |        |   |              |   |        |  



Indemnification
Obligations. FASB Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires a guarantor to recognize a liability for
and/or disclose obligations it has undertaken in relation to the issuance of the guarantee. Under this guidance, arrangements involving indemnification clauses are subject to the disclosure requirements of FIN 45 only.



The Company is subject to certain indemnification obligations to VMS
(formerly VAI) and VSEA in connection with the Instruments business as conducted by VAI prior to the Distribution (described in Note 2). These indemnification obligations cover a variety of aspects of the Companys business, including, but not
limited to, employee, tax, intellectual property, litigation and environmental matters. The agreements containing these indemnification obligations are disclosed as exhibits to the Companys Annual Report on Form 10-K (see Exhibits 2.1, 10.1,
10.2 and 10.3). The estimated fair value of these indemnification obligations is not considered to be material.



The Company is subject to certain indemnification obligations to Jabil in connection with the Companys sale of its Electronics Manufacturing
Business to Jabil. These indemnification obligations cover certain aspects of the Companys conduct of the Electronics Manufacturing Business prior to its sale to Jabil, including, but not limited to, employee, tax, litigation and environmental
matters. The agreement containing these indemnification obligations is disclosed as an exhibit to the Companys Annual Report on Form 10-K (see Exhibit 10.5). The estimated fair value of these indemnification obligations is not considered to be
material.



The Companys By-Laws require it to indemnify
its officers and directors, as well as those who act as directors and officers of other entities at the request of the Company, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any
proceedings arising out of their services to the Company. In addition, the Company has entered into separate indemnity agreements with each director and officer that provide for indemnification of these directors and officers under certain
circumstances. The form of these indemnity agreements is disclosed as an exhibit to the Companys Annual Report on Form 10-K (see Exhibit 10.6). The indemnification obligations are more fully described in these indemnity agreements and the
Companys By-Laws (see Exhibit 3.2).



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



The Company purchases insurance to cover claims or a portion of any claims made against its directors
and officers. Since a maximum obligation is not explicitly stated in the Companys By-Laws or these indemnity agreements and will depend on the facts and circumstances that arise out of any future claims, the overall maximum amount of the
obligations cannot reasonably be estimated. Historically, the Company has not made payments related to these indemnification obligations and the estimated fair value of these indemnification obligations is not considered to be material.



As is customary in the Companys industry and as provided for in
local law in the U.S. and other jurisdictions, many of the Companys standard contracts provide remedies to customers and other third parties with whom the Company enters into contracts, such as defense, settlement or payment of judgment for
intellectual property claims related to the use of its products. From time to time, the Company also agrees to indemnify customers, suppliers, contractors, lessors, lessees and others with whom it enters into contracts, against loss, expense and/or
liability arising from various triggering events related to the sale and the use of the Companys products and services, the use of their goods and services, the use of facilities and other matters covered by such contracts, usually up to a
specified maximum amount. In addition, from time to time, the Company sometimes also agrees to indemnify these parties against claims related to undiscovered liabilities, additional product liability or environmental obligations. Claims made under
such indemnification obligations have been insignificant and the estimated fair value of these indemnification obligations is not considered to be material.



Note 12.    Debt and Credit Facilities



Credit Facilities. As of March 31, 2006, the Company and its subsidiaries had a total of $73.1 million in uncommitted and unsecured credit
facilities for working capital purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under these credit facilities as of March 31, 2006. Of the $73.1 million in uncommitted and unsecured credit
facilities, a total of $45.0 million was limited for use by, or in favor of, certain subsidiaries at March 31, 2006, and a total of $12.6 million of this $45.0 million was being utilized in the form of bank guarantees and short-term standby letters
of credit. These guarantees and letters of credit related primarily to advance payments and deposits made to the Companys subsidiaries by customers for which separate liabilities were recorded in the unaudited condensed consolidated financial
statements at March 31, 2006. No amounts had been drawn by beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.



Long-term Debt. As of March 31, 2006, the Company had $28.8 million in term loans outstanding, compared to $30.0 million at September 30, 2005.
As of both March 31, 2006 and September 30, 2005, fixed interest rates on the term loans ranged from 6.7% to 7.2%. The weighted-average interest rate on the term loans was 6.8% at both March 31, 2006 and September 30, 2005. The term loans contain
certain covenants that limit future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. The Company was in compliance with all restrictive covenants of the term loan
agreements at March 31, 2006.



The following table summarizes
future principal payments on borrowings under long-term debt outstanding as of March 31, 2006:



|                                          |  |                               |       |              |      |       |      |   |       |  |      |   |            |   |       |  |   |   |  |   |        |  |   |       
|----------------------------------------- |  | ----------------------------- | ----- | ------------ | ---- | ----- | ---- | - | ----- |  | ---- | - | ---------- | - | ----- |  | - | - |  | - | ------ |  | - | ------
|                                          |  | Six MonthsEndingSept. 29,2006 |       | Fiscal Years |      |      
|                                          |  |                               | 2007  |              | 2008 |       | 2009 |   | 2010  |  | 2011 |   | Thereafter |   | Total
|(in thousands)                            |  |                               |       |              |      |       |      |   |       |  |      |   |            |   |       |  |   |   |  |   |        |  |   |       
|Long-term debt(including current portion) |  | $                             | 1,250 |              | $    | 2,500 |      | $ | 6,250 |  | $    |  |            | $ | 6,250 |  | $ |  |  | $ | 12,500 |  | $ | 28,750
|                                          |  |                               |       |              |      |       |      |   |       |  |      |   |            |   |       |  |   |   |  |   |        |  |   |       



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 13.    Defined Benefit Retirement Plans



Net Periodic Pension Cost. The components of net periodic pension
cost relating to the Companys defined benefit retirement plans follow:



|                                                                  |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |        |  
|----------------------------------------------------------------- |  | -------------------- | ---- | - | ---------------- | - | ---- | ------------- |  | - | ------------ | - |  | - | ------ | -
|                                                                  |  | Fiscal Quarter Ended |      |   | Six Months Ended |  
|                                                                  |  | March 31,2006        |      |   | April 1,2005     |   |      | March 31,2006 |  |   | April 1,2005 |  
|(in thousands)                                                    |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |        |  
|Service cost                                                      |  | $                    | 329  |   |                  | $ | 289  |               |  | $ | 658          |   |  | $ | 578    |  
|Interest cost                                                     |  |                      | 527  |   |                  |   | 810  |               |  |   | 1,054        |   |  |   | 1,620  |  
|Expected return on plan assets                                    |  |                      | (419 | ) |                  |   | (806 | )             |  |   | (838         | ) |  |   | (1,612 | )
|Amortization of prior service cost and actuarial gains and losses |  |                      | 129  |   |                  |   | 50   |               |  |   | 258          |   |  |   | 100    |  
|Settlement loss                                                   |  |                      |     |   |                  |   |     |               |  |   |             |   |  |   | 1,477  |  
|                                                                  |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |        |  
|Net periodic pension cost                                         |  | $                    | 566  |   |                  | $ | 343  |               |  | $ | 1,132        |   |  | $ | 2,163  |  
|                                                                  |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |        |  



Defined Benefit
Pension Plan Settlement. During the six months ended April 1, 2005, the Company settled a defined benefit pension plan in Australia, which resulted in a settlement loss of $1.5 million. This loss offset a net curtailment gain of $1.2 million
relating to this pension plan recorded in the third and fourth quarters of fiscal year 2004.



Employer Contributions. During the six months ended March 31, 2006, the Company made contributions totaling $0.7 million to its defined benefit pension plans. The Company currently anticipates contributing an
additional $0.7 million to these plans in the second half of fiscal year 2006.



Note 14.    Contingencies



Environmental Matters. The Companys operations are subject to various federal, state and local laws in the U.S. as well as laws in other countries regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment. These regulations increase the costs and potential liabilities of the Companys operations. However, the Company does not currently anticipate that its compliance with these regulations will have a material
effect on the Companys capital expenditures, earnings, or competitive position



The Company and VSEA are each obligated (under the terms of the Distribution described in Note 2) to indemnify VMS for one-third of certain costs (after adjusting for any insurance proceeds and tax benefits recognized
or realized by VMS for such costs) relating to environmental matters. In that regard, VMS has been named by the U.S. Environmental Protection Agency or third parties as a potentially responsible party under the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, at nine sites where VAI is alleged to have shipped manufacturing waste for recycling, treatment, or disposal. In addition, VMS is overseeing and, as applicable, reimbursing third parties for
environmental investigation, monitoring and/or remediation activities, in most cases under the direction of, or in consultation with, federal, state and/or local agencies in the U.S. at certain current VMS or former VAI facilities. The Company and
VSEA are each obligated to indemnify VMS for one-third of these environmental investigation, monitoring and/or remediation costs (after adjusting for any insurance proceeds and taxes).



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



For certain of these sites and facilities, various uncertainties make it difficult to assess the
likelihood and scope of further environmental-related activities or to estimate the future costs of such activities if undertaken. As of March 31, 2006, it was nonetheless estimated that the Companys share of the future exposure for
environmental-related costs for these sites and facilities ranged in the aggregate from $1.3 million to $2.5 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies with each site and
facility, ranging up to approximately 14 years as of March 31, 2006. No amount in the foregoing range of estimated future costs is believed to be more probable of being incurred than any other amount in such range and the Company therefore had an
accrual of $1.3 million as of March 31, 2006.



As to certain
sites and facilities, sufficient knowledge has been gained to be able to better estimate the scope and certain costs of future environmental-related activities. As of March 31, 2006, it was estimated that the Companys share of the future
exposure for these environmental-related costs for these sites and facilities ranged in the aggregate from $3.5 million to $16.0 million (without discounting to present value). The time frame over which these costs are expected to be incurred varies
with each site and facility, ranging up to approximately 30 years as of March 31, 2006. As to each of these sites and facilities, it was determined that a particular amount within the range of certain estimated costs was a better estimate of the
future environmental-related cost than any other amount within the range and that the amount and timing of these future costs were reliably determinable. Together, these amounts totaled $6.5 million at March 31, 2006. The Company therefore had an
accrual of $4.4 million as of March 31, 2006, which represents the best estimate of its share of these future environmental-related costs discounted at 4%, net of inflation. This accrual is in addition to the $1.3 million described in the preceding
paragraph.



An insurance company has agreed to pay a portion of
certain of VAIs (now VMS) future environmental-related costs for which the Company has an indemnification obligation and the Company therefore has a long-term receivable of $1.1 million (discounted at 4%, net of inflation) in other
assets as of March 31, 2006, for the Companys share of such recovery. The Company has not reduced any environmental-related liability in anticipation of recoveries from third parties.



The Company believes that its reserves for the foregoing and other
environmental-related matters are adequate, but as the scope of its obligation becomes more clearly defined, these reserves may be modified and related charges against or credits to earnings may be made. Although any ultimate liability arising from
environmental-related matters could result in significant expenditures that, if aggregated and assumed to occur within a single fiscal year, would be material to the Companys financial statements, the likelihood of such occurrence is
considered remote. Based on information currently available and its best assessment of the ultimate amount and timing of environmental-related events, the Company believes that the costs of environmental-related matters are not reasonably likely to
have a material adverse effect on the Companys financial condition or results of operations.



Legal Proceedings. The Company is involved in pending legal proceedings that are ordinary, routine and incidental to its business. While the
ultimate outcome of these legal matters is not determinable, the Company believes that these matters are not reasonably likely to have a material adverse effect on the Companys financial condition or results of operations.



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 15.    Stock Repurchase Program



Stock Repurchase Program. In November 2005, the Companys Board
of Directors approved a stock repurchase program under which the Company is authorized to utilize up to $100 million to repurchase shares of its common stock. This repurchase program is effective through September 30, 2007. During the fiscal quarter
and six months ended March 31, 2006, the Company repurchased and retired 589,000 and 950,000 shares under this authorization at an aggregate cost of $22.9 million and $38.1 million, respectively. As of March 31, 2006, the Company had remaining
authorization to repurchase $61.9 million of its common stock under this program.



Note 16.    Income Taxes



The effective income tax rate was 35.0% and 35.7% for the fiscal quarter and six months ended March 31, 2006, respectively, compared to 34.0% and 24.3% for the fiscal quarter and six months ended April 1, 2005. The effective tax rates for
the six months ended March 31, 2006 and April 1, 2005 were impacted by in-process research and development charges of $0.8 million and $0.7 million, respectively. In addition, the tax rate for the first six months of fiscal year 2005 reflects a
discrete one-time reduction of income tax expense of $3.0 million, which resulted from a change in the treatment of foreign tax credits under new U.S. tax law enacted during that quarter.



Note 17.    Net Earnings Per Share



Basic earnings per share are calculated based on net earnings and the weighted-average number of shares of common stock
outstanding during the reported period. Diluted earnings per share is calculated by increasing the weighted-average number of common shares outstanding during the period by the number of additional shares of common stock that would have been
outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of potential common stock (including outstanding stock options, ESPP shares, non-employee director stock units and restricted stock) is reflected in
diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation as required by SFAS 123(R) in the fiscal quarter and six months ended March 31, 2006.



For the fiscal quarter and six months ended March 31, 2006, options to
purchase 675,000 and 659,000 shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive. For the fiscal quarter and six months ended April 1, 2005, options to purchase 157,000 and 199,000
shares, respectively, were excluded from the calculation of diluted earnings per share as their effect was anti-dilutive.



A reconciliation of weighted-average basic shares outstanding to weighted-average diluted shares outstanding follows:



|                                              |  |                      |  |                  |  |               |  |             
|--------------------------------------------- |  | -------------------- |  | ---------------- |  | ------------- |  | ------------
|                                              |  | Fiscal Quarter Ended |  | Six Months Ended
|                                              |  | March 31,2006        |  | April 1,2005     |  | March 31,2006 |  | April 1,2005
|(in thousands)                                |  |                      |  |                  |  |               |  |             
|Weighted-average basic shares outstanding     |  | 30,892               |  | 34,902           |  | 31,013        |  | 34,913      
|Net effect of dilutive potential common stock |  | 520                  |  | 785              |  | 636           |  | 760         
|                                              |  |                      |  |                  |  |               |  |             
|Weighted-average diluted shares outstanding   |  | 31,412               |  | 35,687           |  | 31,649        |  | 35,673      
|                                              |  |                      |  |                  |  |               |  |             



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 18.    Industry Segments



The Companys operations are grouped into two business segments:
Scientific Instruments and Vacuum Technologies. The Scientific Instruments segment designs, develops, manufactures, markets, sells and services equipment and related software, consumable products, accessories and services for a broad range of life
science and industrial applications requiring identification, quantification and analysis of the composition or structure of liquids, solids or gases. The Vacuum Technologies segment designs, develops, manufactures, markets, sells and services
vacuum products and related accessories and services used to create, contain, control, measure and test vacuum environments in a broad range of life science and industrial applications requiring ultra-clean or high-vacuum environments. These
segments were determined in accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information.



General corporate costs include shared costs of legal, tax, accounting, human resources, real estate, information technology, treasury, insurance and
other management costs. A portion of the indirect and common costs has been allocated to the segments through the use of estimates. Also, transactions between segments are accounted for at cost and are not included in sales. Accordingly, the
following information is provided for purposes of achieving an understanding of operations, but might not be indicative of the financial results of the reported segments were they independent organizations. In addition, comparisons of the
Companys operations to similar operations of other companies might not be meaningful.



|                       |  |                      |       |                  |   |               |  |              |       |  |   |      
|---------------------- |  | -------------------- | ----- | ---------------- | - | ------------- |  | ------------ | ----- |  | - | -----
|                       |  | Sales                |       | Sales           
|                       |  | Fiscal Quarter Ended |       | Six Months Ended
|                       |  | March 31,2006        |       | April 1,2005     |   | March 31,2006 |  | April 1,2005
|(in millions)          |  |                      |       |                  |   |               |  |              |       |  |   |      
|Scientific Instruments |  | $                    | 171.4 |                  | $ | 161.2         |  | $            | 332.7 |  | $ | 317.2
|Vacuum Technologies    |  |                      | 38.2  |                  |   | 35.8          |  |              | 72.7  |  |   | 70.8 
|                       |  |                      |       |                  |   |               |  |              |       |  |   |      
|Total segment sales    |  | $                    | 209.6 |                  | $ | 197.0         |  | $            | 405.4 |  | $ | 388.0
|                       |  |                      |       |                  |   |               |  |              |       |  |   |      



|                                                 |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |      |  
|------------------------------------------------ |  | -------------------- | ---- | - | ---------------- | - | ---- | ------------- |  | - | ------------ | - |  | - | ---- | -
|                                                 |  | Pretax Earnings      |      |   | Pretax Earnings  |  
|                                                 |  | Fiscal Quarter Ended |      |   | Six Months Ended |  
|                                                 |  | March 31,2006        |      |   | April 1,2005     |   |      | March 31,2006 |  |   | April 1,2005 |  
|(in millions)                                    |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |      |  
|Scientific Instruments                           |  | $                    | 14.0 |   |                  | $ | 12.6 |               |  | $ | 26.7         |   |  | $ | 23.8 |  
|Vacuum Technologies                              |  |                      | 7.2  |   |                  |   | 6.0  |               |  |   | 13.3         |   |  |   | 12.2 |  
|                                                 |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |      |  
|Total industry segments                          |  |                      | 21.2 |   |                  |   | 18.6 |               |  |   | 40.0         |   |  |   | 36.0 |  
|General corporate                                |  |                      | (4.3 | ) |                  |   | (4.5 | )             |  |   | (8.4         | ) |  |   | (8.6 | )
|Interest income                                  |  |                      | 0.9  |   |                  |   | 1.3  |               |  |   | 2.0          |   |  |   | 2.2  |  
|Interest expense                                 |  |                      | (0.5 | ) |                  |   | (0.5 | )             |  |   | (1.1         | ) |  |   | (1.1 | )
|                                                 |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |      |  
|Total pretax earnings from continuing operations |  | $                    | 17.3 |   |                  | $ | 14.9 |               |  | $ | 32.5         |   |  | $ | 28.5 |  
|                                                 |  |                      |      |   |                  |   |      |               |  |   |              |   |  |   |      |  



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##### Table of Contents

VARIAN, INC. AND SUBSIDIARY COMPANIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Note 19.    Recent Accounting Pronouncements



In November 2004, the FASB issued SFAS 151, Inventory Costs, an amendment
of ARB No. 43, Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges and require the allocation
of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Companys adoption of SFAS 151
in the first quarter of fiscal year 2006 did not have a material impact on its financial condition or results of operations.



In March 2005, the FASB issued FIN 47, Accounting for Conditional Asset Retirement Obligations, which clarified the guidance set forth in SFAS 143,
Accounting for Asset Retirement Obligations,relating to conditional asset retirement obligations.FIN 47 requires companies to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can
be reasonably estimated even though uncertainty exists about the timing and/or method of settlement. It also provides additional guidance for assessing whether sufficient information is available to make a reasonable estimate of the fair value of an
asset retirement obligation. The cumulative effect (if any) of initially applying FIN 47 is to be recorded as a change in accounting principle. The Company is required to adopt FIN 47 in the fourth quarter of fiscal year 2006. The Company is
currently evaluating the requirements of FIN 47 and is not yet able to determine whether its adoption will have a material impact on the Companys financial condition or results of operations.



In November 2005, the FASB issued FASB Staff Position (FSP) FAS
115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which addresses the determination as to when an investment in equity securities (including cost method investments) and debt
securities is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. FSP FAS 115-1 and FAS 124-1 nullifies certain requirements under EITF Issue No. 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments.The guidance in FSP FAS 115-1 and FAS 124-1 is effective for reporting periods beginning after December 15, 2005. The Companys adoption of FSP FAS 115-1 and FAS
124-1 in the second quarter of fiscal quarter 2006 did not have a material impact on the Companys financial position or results of operations.



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##### Table of Contents

Item 2.    Managements Discussion and Analysis of Financial Condition and Results of Operations



Caution Regarding Forward-Looking Statements



Throughout this Report, and particularly in this Item 2Managements Discussion and Analysis of Financial Condition and Results of
Operations, there are forward-looking statements that are based upon our current expectations, estimates, and projections, and that reflect our beliefs and assumptions based upon information available to us at the date of this Report. In some
cases, you can identify these statements by words such as may, might, will, should, expects, plans, anticipates, believes, estimates,
predicts, potential, or continue, and other similar terms. These forward-looking statements include those relating to anticipated gross profit margins, the future performance of recently acquired businesses, the
timing and amount of anticipated restructuring costs and related costs savings, anticipated costs of complying with the requirements of Section 404 of the Sarbanes-Oxley Act and anticipated capital expenditures.



We caution investors that forward-looking statements are only predictions,
based upon our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results,
performance or achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could cause our results to differ are discussed in Item 1ARisk Factors in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2005. We encourage you to read that section carefully.



Other risks and uncertainties that could cause actual results to differ materially from those in our forward-looking statements include, but are not
limited to, the following: whether we will succeed in new product development, release, commercialization, performance and acceptance; whether we can achieve continued growth in sales in both life science and industrial applications; risks arising
from the timing of shipments, installations and the recognition of revenues on certain magnetic resonance (MR) products, including nuclear magnetic resonance (NMR) and MR imaging systems and superconducting magnets, and on
fourier-transform mass spectrometers (FTMS); whether we can increase margins on newer MR and FTMS products; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in our product and
geographic markets; whether we will see continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see sustained or improved
market investment in capital equipment; whether we will see reduced demand from customers that operate in cyclical industries; the impact of any delay or reduction in government funding for research; our ability to successfully integrate
acquisitions; the actual cost of restructuring activities and their timing and impact on future costs; the timing and amount of discrete tax events; the timing and amount of share-based compensation expense; whether the actual cost of complying with
the requirements of Section 404 of the Sarbanes-Oxley Act will exceed our current estimates; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission. We disclaim any intent or obligation to update
publicly any forward-looking statements, whether in response to new information, future events or otherwise.



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##### Table of Contents

Results of Operations



Sale of Electronics Manufacturing Business and Discontinued Operations. During the second quarter of fiscal year 2005, we sold the business
formerly operated as our Electronics Manufacturing segment to Jabil Circuit, Inc. In connection with the sale, we determined that this business should be accounted for as discontinued operations in accordance with accounting principles generally
accepted in the United States. Consequently, the results of operations of the Electronics Manufacturing business have been excluded from our results from continuing operations for all periods presented and have instead been presented on a
discontinued operations basis. Earnings from discontinued operations are discussed separately below.



Second Quarter of Fiscal Year 2006 Compared to Second Quarter of Fiscal Year 2005



Segment Results



Our continuing operations are grouped into two reportable business segments: Scientific Instruments and Vacuum Technologies. The following table presents
comparisons of our sales and operating earnings for each of those segments and in total for the second quarters of fiscal years 2006 and 2005:



|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|------------------------------ |  | -------------------- | ----- | - | ------------ | ---- | - | ------------------ | - | ----- | --------- |  | ---- | - |  | - | ---- |  | ---- | -
|                               |  | Fiscal Quarter Ended |       |   |              |      |   |                   
|                               |  | March 31,2006        |       |   | April 1,2005 |      |   | Increase(Decrease) |  
|                               |  | $                    |       |   | % ofSales    |      |   | $                  |   |       | % ofSales |  |      | $ |  | % |     
|(dollars in millions)          |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Sales by Segment:              |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                    | 171.4 |   |              |      |   |                    | $ | 161.2 |           |  |      |   |  | $ | 10.2 |  | 6.3  | %
|Vacuum Technologies            |  |                      | 38.2  |   |              |      |   |                    |   | 35.8  |           |  |      |   |  |   | 2.4  |  | 6.8  |  
|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total company                  |  | $                    | 209.6 |   |              |      |   |                    | $ | 197.0 |           |  |      |   |  | $ | 12.6 |  | 6.4  | %
|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Operating Earnings by Segment: |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                    | 14.0  |   |              | 8.2  | % |                    | $ | 12.6  |           |  | 7.8  | % |  | $ | 1.4  |  | 11.1 | %
|Vacuum Technologies            |  |                      | 7.2   |   |              | 18.9 |   |                    |   | 6.0   |           |  | 16.7 |   |  |   | 1.2  |  | 20.6 |  
|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total segments                 |  |                      | 21.2  |   |              | 10.1 |   |                    |   | 18.6  |           |  | 9.4  |   |  |   | 2.6  |  | 14.1 |  
|General corporate              |  |                      | (4.3  | ) |              | (2.0 | ) |                    |   | (4.5  | )         |  | (2.3 | ) |  |   | 0.2  |  | 4.0  |  
|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total company                  |  | $                    | 16.9  |   |              | 8.1  | % |                    | $ | 14.1  |           |  | 7.2  | % |  | $ | 2.8  |  | 19.9 | %
|                               |  |                      |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  



Scientific
Instruments. The increase in Scientific Instruments sales was primarily attributable to higher sales volume across a broad range of mass spectrometers and other analytical instruments. In addition, PL International Limited (Polymer
Labs), which was acquired in November 2005, accounted for $5.2 million of the sales increase compared to the second quarter of fiscal year 2005.



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##### Table of Contents

Scientific Instruments operating earnings for the second quarters of fiscal years 2006 and 2005 include
restructuring and other related costs of $0.2 million and $1.7 million, respectively, acquisition-related intangible amortization of $1.9 million and $1.7 million, respectively, and amortization of $1.4 million and $1.6 million, respectively,
related to inventory written up in connection with the acquisitions of Magnex Scientific Limited (Magnex) in November 2004 and Polymer Labs in November 2005. In addition, operating earnings for the second quarter of fiscal year 2006
include the impact of share-based compensation expense of $0.8 million as a result of our adoption of SFAS 123(R) during the first quarter of fiscal year 2006. Excluding the impact of these items, the decrease in operating earnings as a percentage
of sales resulted primarily from integration activities related to the recent acquisitions of Polymer Labs and IonSpec Corporation (IonSpec). These recently acquired businesses negatively impacted the segments operating profit
margin by approximately 40 basis points in the second quarter of fiscal year 2006. We currently expect these businesses results to improve in the third quarter of fiscal year 2006 and thereafter as transition impacts subside. Higher sales
commissions on orders for products with higher commission rates also had an adverse impact on Scientific Instruments operating earnings during the second quarter of fiscal year 2006.



Vacuum Technologies. The Vacuum Technologies sales increase was primarily the result of higher sales volume of
products, particularly turbomolecular and rotary vane pumps, for life science applications. To a lesser extent, sales into industrial applications also contributed to the increase in sales compared to the prior-year quarter. The increase in sales
from these factors was offset somewhat by negative currency effects.



Vacuum Technologies operating earnings for the second quarter of fiscal year 2006 include the impact of share-based compensation expense of $0.3 million as a result of our adoption of SFAS 123(R) during the first quarter of fiscal year
2006. Excluding the impact of this amount, the increase in Vacuum Technologies operating earnings as a percentage of sales was primarily attributable to sales volume leverage (as the higher sales volume improved the absorption rate of fixed and
semi-variable costs) and reduced costs resulting from the consolidation of and process improvements in the segments vacuum pump exchange operations.



Consolidated Results



The following table presents comparisons of our sales and other selected consolidated financial results for the second quarters of fiscal years 2006 and
2005:



|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|----------------------------------------------------- |  | -------------------- | ----- | - | ------------ | ----- | - | ------------------ | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ----- | -
|                                                      |  | Fiscal Quarter Ended |       |   |              |       |   |                    |  
|                                                      |  | March 31,2006        |       |   | April 1,2005 |       |   | Increase(Decrease) |  
|                                                      |  | $                    |       |   | % ofSales    |       |   | $                  |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions, except per share data)          |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Sales                                                 |  | $                    | 209.6 |   |              | 100.0 | % |                    | $ | 197.0 |           |  | 100.0 | % |  | $ | 12.6 |   |  | 6.4   | %
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Gross profit                                          |  |                      | 93.0  |   |              | 44.4  |   |                    |   | 83.9  |           |  | 43.1  |   |  |   | 9.1  |   |  | 10.8  |  
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Operating expenses:                                   |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Selling, general and administrative                   |  |                      | 61.3  |   |              | 29.3  |   |                    |   | 55.6  |           |  | 28.7  |   |  |   | 5.7  |   |  | 10.4  |  
|Research and development                              |  |                      | 14.7  |   |              | 7.0   |   |                    |   | 14.2  |           |  | 7.2   |   |  |   | 0.5  |   |  | 3.2   |  
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Total operating expenses                              |  |                      | 76.0  |   |              | 36.3  |   |                    |   | 69.8  |           |  | 36.0  |   |  |   | 6.2  |   |  | 8.9   |  
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Operating earnings                                    |  |                      | 16.9  |   |              | 8.1   |   |                    |   | 14.1  |           |  | 7.2   |   |  |   | 2.8  |   |  | 19.9  |  
|Interest income                                       |  |                      | 0.9   |   |              | 0.4   |   |                    |   | 1.3   |           |  | 0.7   |   |  |   | (0.4 | ) |  | (34.0 | )
|Interest expense                                      |  |                      | (0.5  | ) |              | (0.2  | ) |                    |   | (0.5  | )         |  | (0.3  | ) |  |   |     |   |  |      |  
|Income tax expense                                    |  |                      | (6.1  | ) |              | (2.9  | ) |                    |   | (5.1  | )         |  | (2.6  | ) |  |   | (1.0 | ) |  | (19.6 | )
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Earnings from continuing operations                   |  | $                    | 11.2  |   |              | 5.4   | % |                    | $ | 9.8   |           |  | 5.0   | % |  | $ | 1.4  |   |  | 14.4  | %
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  
|Earnings per diluted share from continuing operations |  | $                    | 0.36  |   |              |       |   |                    | $ | 0.28  |           |  |       |   |  | $ | 0.08 |   |  |       |  
|                                                      |  |                      |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |  



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Sales. As discussed under the heading Segment Results above, sales by the Scientific
Instruments and Vacuum Technologies segments in the second quarter of fiscal year 2006 increased by 6.3% and 6.8%, respectively, compared to the prior-year quarter. Revenues for the second quarter of fiscal year 2005 do not include the revenues of
Polymer Labs, which was acquired in November 2005 and had $5.2 million in sales in the second quarter of fiscal year 2006.



Geographically, sales into North America of $78.6 million, Europe of $77.2 million, and the rest of the world of $53.8 million in the second quarter of
fiscal year 2006 represented (decreases) increases of (3.1%), 1.2%, and 35.8%, respectively, compared to the second quarter of fiscal year 2005. Polymer Labs, which was acquired in November 2005, contributed sales of $2.0 million in North America
and $2.6 million in Europe during the second quarter of fiscal year 2006.



Excluding Polymer Labs, the declines in North America and Europe compared to the prior-year period were primarily the result of lower sales of certain low-volume, high-value MR products into those regions. These lower
sales were largely offset by higher sales of similar products into other regions, particularly the Pacific Rim. We do not consider these geographic shifts to be indicative of any particular trend for MR products as a whole, but rather to be
reflective of the variability in results that these low-volume, high-value MR products can create.



Excluding Polymer Labs sales and sales of these low-volume, high-value MR products, sales into North America were slightly lower and sales into
Europe were slightly higher in the second quarter of fiscal year 2006.



The sales increase into the rest of the world was primarily driven by strong sales across a broad range of our information rich detection products into the Pacific Rim and Latin America.



Gross Profit. Gross profit for the second quarter of fiscal year 2006
reflects the impact of $1.1 million in amortization expense relating to acquisition-related intangible assets, $1.4 million in amortization expense related to inventory written up in connection with the Polymer Labs and Magnex acquisitions and
share-based compensation expense of $0.1 million. In comparison, gross profit for the second quarter of fiscal year 2005 reflects the impact of $1.0 million in amortization expense relating to acquisition-related intangible assets and $1.6 million
in amortization expense related to inventory written up in connection with the Magnex acquisition. Excluding the impact of these items, the gross profit percentage increased primarily as a result of lower sales of lower-margin high-field NMR systems
in the Scientific Instrument segment, which positively impacted gross profit margins by approximately 20 basis points. Sales volume leverage and reduced costs resulting from the consolidation of and process improvements in the pump exchange
operations (which in total had a positive impact of approximately 20 basis points) in our Vacuum Technologies segment also contributed to the increase in gross profit percentage. We currently expect our gross profit margins to continue at these
higher levels for the remainder of fiscal year 2006.



Selling, General and Administrative. Selling, general and administrative expenses for the second quarter of fiscal year 2006 included $0.8 million in amortization expense relating to acquisition-related intangible assets, $0.2
million in restructuring and other related costs and $2.2 million in share-based compensation expense. In comparison, selling, general and administrative expenses for the second quarter of fiscal year 2005 included $1.7 million in restructuring and
other related costs and $0.7 million in acquisition-related intangible amortization. Excluding the impact of these items, selling, general and administrative expenses were higher in both absolute dollars and as a percentage of sales in the second
quarter of fiscal year 2006 due to integration costs related to recent acquisitions (primarily Polymer Labs) and higher marketing costs. These higher costs were partially offset by lower costs of complying with the requirements of Section 404 of the
Sarbanes-Oxley Act.



Research and Development. Research
and development expenses for the second quarter of fiscal year 2006 reflect the impact of share-based compensation expense of $0.2 million. Excluding this item, the increase in research and development expenses in absolute dollars resulted primarily
from the acquisitions of Polymer Labs and IonSpec.



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##### Table of Contents

Restructuring Activities.



Fiscal Year 2005 Plans. During the first quarter of fiscal year 2005, we undertook certain restructuring actions to
rationalize our Scientific Instruments field support administration in the United Kingdom following the completion of our acquisition of Magnex. These actions were undertaken to achieve operational efficiencies and eliminate redundant costs
resulting from the acquisition which involved the termination of approximately 20 employees, the consolidation of certain field support administrative functions previously located in our Walton, United Kingdom location to Magnexs location in
Yarnton, United Kingdom and the closure of the Walton facility. Restructuring and other costs directly attributable to this plan have been included in selling, general and administrative expenses.



The following table sets forth changes in our restructuring liability during
the second quarter of fiscal year 2006 in connection with this plan:



|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | --- | - | ------------------ | - | ----- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |     |   | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at December 30, 2005                   |  | $                | 79  |   |                    | $ | 1,246 |       |  | $ | 1,325 |  
|Cash payments                                  |  |                  | (36 | ) |                    |   | (154  | )     |  |   | (190  | )
|Foreign currency impacts and other adjustments |  |                  | 4   |   |                    |   | (1    | )     |  |   | 3     |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at March 31, 2006                      |  | $                | 47  |   |                    | $ | 1,091 |       |  | $ | 1,138 |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  



We incurred $0.1
million in other costs relating directly to this restructuring plan during the second quarter of fiscal year 2006. This amount was comprised of employee relocation and retention costs, which will be settled in cash. Since the inception of this plan,
we have recorded $1.8 million in related restructuring expense and $0.6 million of other related costs.



During the third quarter of fiscal year 2005, we committed to a separate plan to reorganize, consolidate and eliminate certain activities. This plan was
undertaken due to the divestiture of our Electronics Manufacturing Business, the result of which was that we had lower revenues and reduced infrastructure requirements after the divestiture. We determined that this required us to adjust our
organization and reduce our cost structure. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative expenses.



Under this plan, certain administrative functions within our Corporate organization and Scientific Instruments segment were
reorganized and consolidated. This involved changes in reporting structures, consolidation of certain activities and the elimination of employee positions. In addition, this plan involved the elimination of employee positions in certain other
operations to reduce our cost structure. These activities were completed in the second quarter of fiscal year 2006.



The measures described above resulted in the elimination of a total of approximately 70 employee positions, of which approximately 45 were in North
America and approximately 20 were in Europe. The costs associated with this plan consist of one-time termination benefits and other related costs for employees in the Corporate organization and the Scientific Instruments segment whose positions were
eliminated.



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##### Table of Contents

The following table sets forth changes in our restructuring liability during the second quarter of fiscal
year 2006 in connection with this plan:



|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|---------------------------------------------- |  | ---------------- | ---- | - | ------------------ | - | ----- |  | - | ---- | -
|                                               |  | Employee-Related |      |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at December 30, 2005                   |  | $                | 414  |   |                    | $ |      |  | $ | 414  |  
|Cash payments                                  |  |                  | (134 | ) |                    |   |      |  |   | (134 | )
|Foreign currency impacts and other adjustments |  |                  | (10  | ) |                    |   |      |  |   | (10  | )
|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at March 31, 2006                      |  | $                | 270  |   |                    | $ |      |  | $ | 270  |  
|                                               |  |                  |      |   |                    |   |       |  |   |      |  



This amount will be
settled in cash. Since the inception of this plan, we have recorded $3.4 million in related restructuring expense and $0.4 million of other related costs.



Fiscal Year 2003 Plan. During fiscal year 2003, we undertook certain restructuring actions to improve efficiency and more closely align employee
skill sets and other resources with our evolving product mix as a result of our continued emphasis on NMR, mass spectroscopy and consumable products, with a bias toward life science applications. In addition, actions were undertaken to create a more
efficient consumable products operation. These actions primarily impacted the Scientific Instruments segment and involved the termination of approximately 160 employees (principally in sales and marketing, administration, service and manufacturing
functions), the closure of three sales offices and the consolidation of three consumable products factories into one in Southern California. Substantially all of these activities were completed during fiscal year 2003 except for the termination of
approximately 20 employees, which took place in the second and third quarters of fiscal year 2004 and the Southern California facility consolidation, which was initiated in the third quarter of fiscal year 2003 and was substantially completed in the
first quarter of fiscal year 2005. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative expenses.



The following table sets forth changes in our restructuring liability during the second quarter of fiscal year 2006 in
connection with this plan:



|                                               |  |                  |    |                    |   |     |       |  |   |     |  
|---------------------------------------------- |  | ---------------- | -- | ------------------ | - | --- | ----- |  | - | --- | -
|                                               |  | Employee-Related |    | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |    |                    |   |     |       |  |   |     |  
|Balance at December 30, 2005                   |  | $                | 71 |                    | $ | 485 |       |  | $ | 556 |  
|Cash payments                                  |  |                  |   |                    |   | (30 | )     |  |   | (30 | )
|Foreign currency impacts and other adjustments |  |                  | 1  |                    |   |    |       |  |   | 1   |  
|                                               |  |                  |    |                    |   |     |       |  |   |     |  
|Balance at March 31, 2006                      |  | $                | 72 |                    | $ | 455 |       |  | $ | 527 |  
|                                               |  |                  |    |                    |   |     |       |  |   |     |  



We expect to settle
all remaining employee-related liabilities by the end of fiscal year 2006, while facility-related payments are currently expected to run through fiscal year 2010. The non-cash portion of restructuring costs recorded in connection with these
restructuring actions was not significant, either in the aggregate or for any single fiscal period. Since the inception of this plan, we have recorded $7.9 million in related restructuring expense and $2.3 million in other related costs.



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##### Table of Contents

Restructuring Cost Savings. When they were initiated, each of the foregoing restructuring plans
was eventually expected to result in a reduction in annual operating expenses. The following table sets forth the estimated annual cost savings for each plan as well as where those cost savings were expected to be realized:



|                                                                                                                                                                                            |  |                               |                            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------------------------
|Restructuring Plan                                                                                                                                                                          |  | Estimated Annual Cost Savings
|Fiscal Year 2003 Plan (Scientific Instruments resource realignment including employee terminations, sales office closures and Southern
California consumable product factory consolidation) |  | $                             | 9.0 million - $11.0 million
|Fiscal Year 2005 Plan (Scientific Instruments United Kingdom field support administration)                                                                                                  |  |                               | $0.8 million - $1.2 million
|Fiscal Year 2005 Plan (Scientific Instruments and corporate administrative functions)                                                                                                       |  |                               | $4.5 million - $5.5 million



These estimated cost
savings are expected to primarily impact selling, general and administrative expenses and, to a lesser extent, cost of sales. Some of these cost savings have been and will continue to be reinvested in other parts of our business, for example, as
part of our continued emphasis on information rich detection and consumable products. In addition, unrelated cost increases in other areas of our operations have and could in the future offset some or all of these cost savings. Although it is
difficult to quantify with any precision our actual cost savings to date from these activities, many of which are still ongoing, we currently believe that the ultimate savings realized will not differ materially from our initial estimates.



Income Tax Expense.The effective income tax rate was
35.0% for the second quarter of fiscal year 2006, compared to 34.0% for the second quarter of fiscal year 2005.



Earnings from Continuing Operations. Earnings from continuing operations for the second quarter of fiscal year 2006 reflect the impact of $2.5
million in share-based compensation expense, $1.9 million in acquisition-related intangible amortization, $0.2 million in restructuring and other related costs, and $1.4 million in amortization related to inventory written up in connection with
recent acquisitions. Earnings from continuing operations for the second quarter of fiscal year 2005 reflect the impact of $1.7 million in restructuring and other related costs, $1.6 million in acquisition-related intangible amortization and $1.6
million in amortization related to inventory written up in connection with recent acquisitions. Excluding the impact of these items, the increase in earnings from continuing operations resulted primarily from higher revenues, improved gross profit
margins due primarily to sales volume leverage, a mix shift toward higher-margin products and lower Sarbanes-Oxley Section 404 compliance costs. The increase from these factors was partially offset by integration costs related to recent acquisitions
and higher marketing costs in the Scientific Instruments segment.



Earnings from Discontinued Operations. Earnings from discontinued operations for the second quarter of fiscal year 2005 include earnings of $2.0 million (net of tax) generated from the operations of the disposed Electronics
Manufacturing business in that period prior to its sale as well as the one-time book gain of $70.1 million (net of tax) on the sale transaction.



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##### Table of Contents

First Six Months of Fiscal Year 2006 Compared to First Six Months of Fiscal Year 2005



Segment Results



The following table presents comparisons of our sales and operating earnings
for each of those segments and in total for the first six months of fiscal years 2006 and 2005:



|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|------------------------------ |  | ---------------- | ----- | - | ------------ | ---- | - | ------------------ | - | ----- | --------- |  | ---- | - |  | - | ---- |  | ---- | -
|                               |  | Six Months Ended |       |   |              |      |   |                   
|                               |  | March 31,2006    |       |   | April 1,2005 |      |   | Increase(Decrease) |  
|                               |  | $                |       |   | % ofSales    |      |   | $                  |   |       | % ofSales |  |      | $ |  | % |     
|(dollars in millions)          |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Sales by Segment:              |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                | 332.7 |   |              |      |   |                    | $ | 317.2 |           |  |      |   |  | $ | 15.5 |  | 4.9  | %
|Vacuum Technologies            |  |                  | 72.7  |   |              |      |   |                    |   | 70.8  |           |  |      |   |  |   | 1.9  |  | 2.7  |  
|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total company                  |  | $                | 405.4 |   |              |      |   |                    | $ | 388.0 |           |  |      |   |  | $ | 17.4 |  | 4.5  | %
|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Operating Earnings by Segment: |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Scientific Instruments         |  | $                | 26.7  |   |              | 8.0  | % |                    | $ | 23.8  |           |  | 7.5  | % |  | $ | 2.9  |  | 11.9 | %
|Vacuum Technologies            |  |                  | 13.3  |   |              | 18.3 |   |                    |   | 12.1  |           |  | 17.2 |   |  |   | 1.2  |  | 9.7  |  
|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total segments                 |  |                  | 40.0  |   |              | 9.9  |   |                    |   | 35.9  |           |  | 9.3  |   |  |   | 4.1  |  | 11.2 |  
|General corporate              |  |                  | (8.4  | ) |              | (2.1 | ) |                    |   | (8.6  | )         |  | (2.2 | ) |  |   | 0.2  |  | 2.6  |  
|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  
|Total company                  |  | $                | 31.6  |   |              | 7.8  | % |                    | $ | 27.3  |           |  | 7.0  | % |  | $ | 4.3  |  | 15.5 | %
|                               |  |                  |       |   |              |      |   |                    |   |       |           |  |      |   |  |   |      |  |      |  



Scientific
Instruments. The increase in Scientific Instruments sales was primarily attributable to higher sales volume across a broad range of mass spectrometers and other analytical instruments. In addition, Polymer Labs accounted for $10.8 million of the
sales increase compared to the first six months of fiscal year 2005.



Scientific Instruments operating earnings for the first six months of fiscal years 2006 and 2005 reflect in-process research and development charges of $0.8 million and $0.7 million, respectively, acquisition-related intangible amortization
of $3.6 million and $3.1 million, respectively, restructuring and other related costs of $0.2 million and $2.9 million, respectively, and amortization of $3.3 million and $3.2 million, respectively, related to inventory written up in connection with
the acquisitions of Magnex and Polymer Labs. In addition, operating earnings for the first six months of fiscal year 2006 include the impact of share-based compensation expense of $1.8 million as a result of our adoption of SFAS 123(R) during the
first quarter of fiscal year 2006. Excluding the impact of these items, the increase in operating earnings as a percentage of sales resulted primarily from sales volume leverage and lower sales of lower-margin high-field NMR systems. The positive
impact of these factors was partially offset by integration activities related to the recent acquisitions of Polymer Labs and IonSpec, higher marketing costs for new product releases and sales commissions on orders for products with higher
commission rates.



Vacuum Technologies. The increase in
Vacuum Technologies sales was driven by higher sales volume of products, in particular turbomolecular pumps, rotary vane pumps and diffusion pumps, into both life science and industrial applications.



Vacuum Technologies operating earnings for the first six months of fiscal
year 2006 includes the impact of share-based compensation expense of $0.5 million as a result of our adoption of SFAS 123(R) during the first quarter of fiscal year 2006. Excluding the impact of this amount, the increase in Vacuum Technologies
operating earnings as a percentage of sales was primarily attributable to sales volume leverage and reduced costs from the consolidation of and process improvements in the segments vacuum pump exchange operations.



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##### Table of Contents

Consolidated Results



The following table presents comparisons of our sales and other selected consolidated financial results for the first six
months of fiscal years 2006 and 2005:



|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|----------------------------------------------------- |  | ---------------- | ----- | - | ------------ | ----- | - | ------------------ | - | ----- | --------- |  | ----- | - |  | - | ---- | - |  | ----- | --
|                                                      |  | Six Months Ended |       |   |              |       |   |                    |  
|                                                      |  | March 31,2006    |       |   | April 1,2005 |       |   | Increase(Decrease) |  
|                                                      |  | $                |       |   | % ofSales    |       |   | $                  |   |       | % ofSales |  |       | $ |  |   | %    |  
|(dollars in millions, except per share data)          |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Sales                                                 |  | $                | 405.4 |   |              | 100.0 | % |                    | $ | 388.0 |           |  | 100.0 | % |  | $ | 17.4 |   |  | 4.5   | % 
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Gross profit                                          |  |                  | 178.9 |   |              | 44.1  |   |                    |   | 164.6 |           |  | 42.4  |   |  |   | 14.3 |   |  | 8.7   |   
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Operating expenses:                                   |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Selling, general and administrative                   |  |                  | 117.9 |   |              | 29.1  |   |                    |   | 109.5 |           |  | 28.2  |   |  |   | 8.4  |   |  | 7.7   |   
|Research and development                              |  |                  | 28.6  |   |              | 7.1   |   |                    |   | 27.1  |           |  | 7.0   |   |  |   | 1.5  |   |  | 5.7   |   
|Purchased in-process research and development         |  |                  | 0.8   |   |              | 0.2   |   |                    |   | 0.7   |           |  | 0.2   |   |  |   | 0.1  |   |  | 8.0   |   
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Total operating expenses                              |  |                  | 147.3 |   |              | 36.3  |   |                    |   | 137.3 |           |  | 35.4  |   |  |   | 10.0 |   |  | 7.3   |   
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Operating earnings                                    |  |                  | 31.6  |   |              | 7.8   |   |                    |   | 27.3  |           |  | 7.0   |   |  |   | 4.3  |   |  | 15.5  |   
|Interest income                                       |  |                  | 2.0   |   |              | 0.5   |   |                    |   | 2.3   |           |  | 0.6   |   |  |   | (0.3 | ) |  | (13.8 | ) 
|Interest expense                                      |  |                  | (1.1  | ) |              | (0.3  | ) |                    |   | (1.1  | )         |  | (0.3  | ) |  |   |     |   |  |      |   
|Income tax expense                                    |  |                  | (11.6 | ) |              | (2.8  | ) |                    |   | (6.9  | )         |  | (1.8  | ) |  |   | (4.7 | ) |  | (67.5 | ) 
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Earnings from continuing operations                   |  | $                | 20.9  |   |              | 5.2   | % |                    | $ | 21.6  |           |  | 5.6   | % |  | $ | (0.7 | ) |  | (3.1  | )%
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   
|Earnings per diluted share from continuing operations |  | $                | 0.66  |   |              |       |   |                    | $ | 0.60  |           |  |       |   |  | $ | 0.06 |   |  |       |   
|                                                      |  |                  |       |   |              |       |   |                    |   |       |           |  |       |   |  |   |      |   |  |       |   



Sales. As
discussed under the heading Segment Results above, sales by the Scientific Instruments and Vacuum Technologies segments in the first six months of fiscal year 2006 increased by 4.9% and 2.7%, respectively, compared to the first six months of
fiscal year 2005. Revenues for the first six months of fiscal year 2005 do not include the revenues of Polymer Labs, which was acquired in November 2005 and had $10.8 million in sales in the first six months of fiscal year 2006.



Geographically, sales into North America of $159.6 million, Europe of $152.7
million, and the rest of the world of $93.1 million in the first six months of fiscal year 2006 represented increases (decreases) of 1.2%, (0.6%), and 21.6%, respectively, compared to the first six months of fiscal year 2005. Sales into North
America benefited from higher demand for vacuum products. The acquired Polymer Labs business also added sales of $3.9 million in North America and $6.3 million in Europe during the first six months of fiscal year 2006.



Excluding Polymer Labs, the declines in North America and Europe compared to
the prior-year period were primarily the result of lower sales of certain low-volume, high-value MR products into those regions. These lower sales were largely offset by higher sales of similar products into other regions, particularly the Pacific
Rim. We do not consider these geographic shifts to be indicative of any particular trend for MR products as a whole, but rather to be reflective of the variability in results that these low-volume, high-value MR products can create.



Excluding Polymer Labs sales and sales of these low-volume, high-value
MR products, sales into North America were slightly higher and sales into Europe were slightly lower during the first six months of fiscal year 2006.



The sales increase into the rest of the world was primarily driven by strong sales across a broad range of our information rich detection products into
the Pacific Rim and Latin America.



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Gross Profit. Gross profit for the first six months of fiscal year 2006 reflects the impact of
$2.1 million in amortization expense relating to acquisition-related intangible assets, $3.3 million in amortization expense related to inventory written up in connection with the Polymer Labs and Magnex acquisitions and share-based compensation
expense of $0.2 million. In comparison, gross profit for the first six months of fiscal year 2005 reflects the impact of $1.9 million in amortization expense relating to acquisition-related intangible assets and $3.2 million in amortization expense
related to inventory written up in connection with the Magnex acquisition. Excluding the impact of these items, the gross profit percentage increased primarily as a result of lower sales of lower-margin high-field NMR systems in the Scientific
Instrument segment, which positively impacted gross profit margins by approximately 30 basis points. Sales volume leverage and reduced costs from the consolidation of and process improvements in the pump exchange operations (which had a positive
impact of approximately 30 basis points) in our Vacuum Technologies segment also contributed to the increase in gross profit percentage.



Selling, General and Administrative. Selling, general and administrative expenses for the first six months of fiscal year 2006 included $1.6
million in amortization expense relating to acquisition-related intangible assets and $3.9 million in share-based compensation expense. In comparison, selling, general and administrative expenses for the first six months of fiscal year 2005 included
$2.9 million in restructuring and other related costs, $1.3 million in acquisition-related intangible amortization and a loss of $1.5 million relating to the settlement of a defined benefit pension plan. Excluding the impact of these items, selling,
general and administrative expenses were higher in absolute dollars and as a percentage of sales in the first six months of fiscal year 2006 due to integration activities related to recent acquisitions (primarily Polymer Labs) and increased
marketing costs in our Scientific Instruments segment for new product releases and sales commissions. The increase due to these factors was partially offset by lower costs of complying with the requirements of Section 404 of the Sarbanes-Oxley Act,
which were 0.2% of sales in the first six months of fiscal year 2006, compared to 0.5% of sales in the first six months of fiscal year 2005. For the full fiscal year 2006, we currently expect these Sarbanes-Oxley Section 404 compliance costs to be
at least 30% below the approximately $5 million cost incurred in fiscal year 2005.



Research and Development. Research and development expenses for the first six months of fiscal year 2006 reflect the impact of share-based compensation expense of $0.3 million. Excluding this item, the increase
in research and development expenses in absolute dollars was primarily due to our continued focus within the Scientific Instruments and Vacuum Technologies segments on new product development, with an increased emphasis on information rich detection
and consumables products, as well as the acquisitions of Polymer Labs and IonSpec.



Restructuring Activities.



Fiscal Year 2005 Plans. During the first quarter of fiscal year 2005, we undertook certain restructuring actions to rationalize our Scientific Instruments field support administration in the United Kingdom following the completion of
our acquisition of Magnex. These actions were undertaken to achieve operational efficiencies and eliminate redundant costs resulting from the acquisition which involved the termination of approximately 20 employees, the consolidation of certain
field support administrative functions previously located in our Walton, United Kingdom location to Magnexs location in Yarnton, United Kingdom and the closure of the Walton facility. Restructuring and other costs directly attributable to this
plan have been included in selling, general and administrative expenses.



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The following table sets forth changes in our restructuring liability during the first six months of
fiscal year 2006 in connection with this plan:



|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|---------------------------------------------- |  | ---------------- | --- | - | ------------------ | - | ----- | ----- |  | - | ----- | -
|                                               |  | Employee-Related |     |   | Facilities-Related |   |       | Total | 
|(in thousands)                                 |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at September 30, 2005                  |  | $                | 82  |   |                    | $ | 1,153 |       |  | $ | 1,235 |  
|Cash payments                                  |  |                  | (36 | ) |                    |   | (258  | )     |  |   | (294  | )
|Foreign currency impacts and other adjustments |  |                  | 1   |   |                    |   | 196   |       |  |   | 197   |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  
|Balance at March 31, 2006                      |  | $                | 47  |   |                    | $ | 1,091 |       |  | $ | 1,138 |  
|                                               |  |                  |     |   |                    |   |       |       |  |   |       |  



We incurred $0.2
million in other costs relating directly to this restructuring plan during the first six months of fiscal year 2006. This amount was comprised of employee relocation and retention costs, which will be settled in cash. Since the inception of this
plan, we have recorded $1.8 million in related restructuring expense and $0.6 million of other related costs.



During the third quarter of fiscal year 2005, we committed to a separate plan to reorganize, consolidate and eliminate certain activities. This plan was
undertaken due to the divestiture of our Electronics Manufacturing Business, the result of which was that we had lower revenues and reduced infrastructure requirements after the divestiture. We determined that this required us to adjust our
organization and reduce our cost structure. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative expenses.



Under this plan, certain administrative functions within our Corporate organization and Scientific Instruments segment were
reorganized and consolidated. This involved changes in reporting structures, consolidation of certain activities and the elimination of employee positions. In addition, this plan involved the elimination of employee positions in certain other
operations to reduce our cost structure. These activities were completed in the second quarter of fiscal year 2006.



The measures described above resulted in the elimination of a total of approximately 70 employee positions, of which approximately 45 were in North
America and approximately 20 were in Europe. The costs associated with this plan consist of one-time termination benefits and other related costs for employees in the Corporate organization and the Scientific Instruments segment whose positions were
eliminated.



The following table sets forth changes in our
restructuring liability during the first six months of fiscal year 2006 in connection with this plan:



|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|---------------------------------------------- |  | ---------------- | ---- | - | ------------------ | - | ----- |  | - | ---- | -
|                                               |  | Employee-Related |      |   | Facilities-Related |   | Total | 
|(in thousands)                                 |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at September 30, 2005                  |  | $                | 844  |   |                    | $ |      |  | $ | 844  |  
|Cash payments                                  |  |                  | (566 | ) |                    |   |      |  |   | (566 | )
|Foreign currency impacts and other adjustments |  |                  | (8   | ) |                    |   |      |  |   | (8   | )
|                                               |  |                  |      |   |                    |   |       |  |   |      |  
|Balance at March 31, 2006                      |  | $                | 270  |   |                    | $ |      |  | $ | 270  |  
|                                               |  |                  |      |   |                    |   |       |  |   |      |  



This amount will be
settled in cash. Since the inception of this plan, we have recorded $3.4 million in related restructuring expense and $0.4 million of other related costs.



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Fiscal Year 2003 Plan. During fiscal year 2003, we undertook certain restructuring actions to
improve efficiency and more closely align employee skill sets and other resources with our evolving product mix as a result of our continued emphasis on NMR, mass spectroscopy and consumable products, with a bias toward life science applications. In
addition, actions were undertaken to create a more efficient consumable products operation. These actions primarily impacted the Scientific Instruments segment and involved the termination of approximately 160 employees (principally in sales and
marketing, administration, service and manufacturing functions), the closure of three sales offices and the consolidation of three consumable products factories into one in Southern California. Substantially all of these activities were completed
during fiscal year 2003 except for the termination of approximately 20 employees, which took place in the second and third quarters of fiscal year 2004 and the Southern California facility consolidation, which was initiated in the third quarter of
fiscal year 2003 and was substantially completed in the first quarter of fiscal year 2005. Costs relating to restructuring activities recorded under this plan have been included in selling, general and administrative expenses.



The following table sets forth changes in our restructuring liability during
the first six months of fiscal year 2006 in connection with this plan:



|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  
|---------------------------------------------- |  | ---------------- | -- | - | ------------------ | - | --- | ----- |  | - | --- | -
|                                               |  | Employee-Related |    |   | Facilities-Related |   |     | Total | 
|(in thousands)                                 |  |                  |    |   |                    |   |     |       |  |   |     |  
|Balance at September 30, 2005                  |  | $                | 76 |   |                    | $ | 539 |       |  | $ | 615 |  
|Cash payments                                  |  |                  |   |   |                    |   | (84 | )     |  |   | (84 | )
|Foreign currency impacts and other adjustments |  |                  | (4 | ) |                    |   |    |       |  |   | (4  | )
|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  
|Balance at March 31, 2006                      |  | $                | 72 |   |                    | $ | 455 |       |  | $ | 527 |  
|                                               |  |                  |    |   |                    |   |     |       |  |   |     |  



We expect to settle
all remaining employee-related liabilities by the end of fiscal year 2006, while facility-related payments are currently expected to run through fiscal year 2010. The non-cash portion of restructuring costs recorded in connection with these
restructuring actions was not significant, either in the aggregate or for any single fiscal period. Since the inception of this plan, we have recorded $7.9 million in related restructuring expense and $2.3 million in other related costs.



Income Tax Expense.The effective income tax rate was 35.7% for the
first six months of fiscal year 2006, compared to 24.3% for the first six months of fiscal year 2005. These effective income tax rates were impacted by in-process research and development charges of $0.8 million and $0.7 million, respectively. In
addition, the tax rate for the first six months of fiscal year 2005 reflects a discrete, one-time reduction of income tax expense of $3.0 million, which resulted from a change in the treatment of foreign tax credits under new U.S. tax law enacted
during that quarter. Excluding the impact of the in-process research and development charges and the discrete item, the effective income tax rates for the first six months of fiscal years 2006 and 2005 were 35.0% and 34.0%, respectively.



Earnings from Continuing Operations. Earnings from continuing
operations for the first six months of fiscal year 2006 reflect the impact of $4.4 million in share-based compensation expense, $3.6 million in acquisition-related intangible amortization, $3.3 million in amortization related to inventory written up
in connection with recent acquisitions, an in-process research and development charge of $0.8 million and $0.2 million in restructuring and other related costs. Earnings from continuing operations for the first six months of fiscal year 2005 reflect
the impact of $3.1 million in acquisition-related intangible amortization, $3.2 million in amortization related to inventory written up in connection with recent acquisitions, an in-process research and development charge of $0.7 million,
restructuring and other related costs of $2.9 million, a settlement loss of $1.5 million relating to a defined benefit pension plan in Australia and a discrete, one-time reduction in income tax expense of $3.0 million resulting from a change in the
treatment of foreign tax credits under new U.S. tax law enacted during the period. Excluding the impact of these items, the increase in earnings from continuing operations resulted primarily from improved gross profit margins due to sales volume
leverage, a mix shift toward higher-margin products and lower Sarbanes-Oxley Section 404 compliance costs. The increase from these factors was partially offset by integration costs related to recent acquisitions and higher marketing costs in the
Scientific Instruments segment.



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Earnings from Discontinued Operations. Earnings from discontinued operations for the first six
months of fiscal year 2005 include earnings of $5.2 million (net of tax) generated from the operations of the disposed Electronics Manufacturing business in that period prior to its sale as well as the one-time book gain of $70.1 million (net of
tax) on the sale transaction.



Critical Accounting Policies



The accounting policies that we consider to be our most critical (those
that are most important to the portrayal of our financial condition and results of operations and that require our most difficult, subjective or complex judgments), the effects of those accounting policies applied and the judgments made in their
application are summarized in Item 7Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended September 30,
2005. As a result of our adoption of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. (SFAS) 123(R), Share-Based Payment, during the first quarter of fiscal year 2006, we also
consider our accounting policy relating to share-based compensation, which is set forth in Note 4 to the Unaudited Condensed Consolidated Financial Statements and summarized below, to be critical.



Share-based Compensation. SFAS 123(R) requires the measurement and
recognition of compensation expense for all share-based payment awards including employee stock options and shares issued under our employee stock purchase plan based on estimated fair values. Under SFAS 123(R), we estimate the value of share-based
payments on the date of grant using the Black-Scholes model, which was also used previously for the purpose of providing pro forma financial information as required under SFAS 123. The determination of fair value of share-based payment awards on the
date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of variables including the expected term of awards, expected stock price volatility and expected forfeitures.



Prior to the first quarter of fiscal year 2006, we used historical stock
price volatility in preparing our pro forma information under SFAS 123. Under SFAS 123(R), we use a combination of historical and implied volatility to establish the expected volatility assumption based upon our assessment that such information is
more reflective of current market conditions and a better indicator of expected future volatility. SFAS 123(R) also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Expected forfeitures, as well as the expected term of awards, were estimated based on historical experience. Future changes in these assumptions, our stock price or certain other factors could result in changes in our
share-based compensation expense in future periods.



Liquidity and Capital
Resources



We generated $26.1 million of cash from
operating activities in the first six months of fiscal year 2006, compared to $30.0 million generated in the first six months of fiscal year 2005. Operating cash flows in the first six months of fiscal 2006 exclude $3.2 million in excess tax
benefits from share-based compensation expense pursuant to SFAS 123(R). Operating cash flows in the first six months of fiscal year 2005 include cash flows provided by discontinued operations of $1.9 million. Excluding these items, cash from
operating activities did not change significantly as relative increases in accounts payable ($16.3 million) and accrued liabilities ($8.9 million) were offset by relative increases in accounts receivable ($13.0 million) and inventories ($14.1
million). The relative increase in accounts payable was primarily the result of higher inventory purchases and the timing of vendor payments, while the relative increase in accrued liabilities was driven by the timing and amount of income tax
payments. With respect to accounts receivable, the relative increase was primarily due to higher sales volume, while the relative increase in inventories was primarily the result of our transition to internally sourced magnets for our MR products,
new product launches and higher orders in the first six months of fiscal year 2006.



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We used $75.8 million of cash for investing activities in the first six months of fiscal year 2006, which
compares to $176.5 million generated from investing activities in the first six months of fiscal year 2005. The use of cash for investing activities during the first six months of fiscal year 2006 was primarily for the payment of $44.1 million and
$14.5 million related to the acquisitions of Polymer Labs and IonSpec, respectively, during the period as well as contingent and retained consideration payments totaling $9.9 million relating to prior-year acquisitions. Cash provided by investing
activities during the first six months of fiscal year 2005 related primarily to the pretax proceeds of $189.9 million from the sale of the Electronics Manufacturing business, partially offset by $26.2 million in payments made for the acquisition of
Magnex. In addition, we generated $35.0 million from the sale of short-term investments during the first six months of fiscal year 2005, which was partially offset by the purchase of short-term investments of $10.0 million. No purchases or sales of
short-term investments were made in first six months of fiscal year 2006.



We used $20.9 million of cash for financing activities in the first six months of fiscal year 2006, which compares to $29.8 million used in financing activities in the first six months of fiscal year 2005. The
decrease in cash used for financing activities was primarily due to the repayment of a long-term note payable ($4.6 million) during the first six months of fiscal year 2005 and the inclusion of $3.2 million of excess tax benefits from share-based
compensation expense pursuant to SFAS 123(R) in the first six months of fiscal year 2006. Higher expenditures to repurchase and retire common stock as a result of a continued effort to utilize excess cash to reduce the number of outstanding common
shares were offset by larger proceeds from the issuance of common stock due to higher stock option exercise volume during the first six months of fiscal year 2006.



As of March 31, 2006, we had a total of $73.1 million in uncommitted and unsecured credit facilities for working capital
purposes with interest rates to be established at the time of borrowing. No borrowings were outstanding under these credit facilities as of March 31, 2006. Of the $73.1 million in uncommitted and unsecured credit facilities, a total of $45.0 million
was limited for use by, or in favor of, certain subsidiaries at March 31, 2006, and a total of $12.6 million of this $45.0 million was being utilized in the form of bank guarantees and short-term standby letters of credit. These guarantees and
letters of credit related primarily to advance payments and deposits made to our subsidiaries by customers for which separate liabilities were recorded in the consolidated financial statements at March 31, 2006. No amounts had been drawn by
beneficiaries under these or any other outstanding guarantees or letters of credit as of that date.



As of March 31, 2006, we had $28.8 million in term loans outstanding, compared to $30.0 million at September 30, 2005. As of both March 31, 2006 and
September 30, 2005, fixed interest rates on the term loans ranged from 6.7% to 7.2%. The weighted-average interest rate on the term loans was 6.8% at both March 31, 2006 and September 30, 2005. The term loans contain certain covenants that limit
future borrowings and the payment of cash dividends and require the maintenance of certain levels of working capital and operating results. We were in compliance with all restrictive covenants of the term loan agreements at March 31, 2006.



In connection with the Magnex acquisition, we have accrued but
not yet paid a portion of the purchase price amounts that have been retained to secure the sellers indemnification obligations. As of March 31, 2006, retained amounts for the Magnex acquisition totaled $3.0 million, which is due to be paid (or
received in the form of notes payable by us at the sellers elections), net of any indemnification claims, in November 2006.



In connection with the IonSpec acquisition, we have accrued but not yet paid a portion of the purchase price that has been retained to secure the
sellers indemnification obligations. As of March 31, 2006, retained amounts for the IonSpec acquisition totaled $1.4 million, which is due to be paid, net of any indemnification claims, in equal installments in February 2007 and February 2008.



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As of March 31, 2006, up to a maximum of $42.0 million could be payable through February 2009 under
contingent consideration arrangements relating to acquired businesses. Amounts subject to these arrangements can be earned over the respective measurement period, depending on the performance of the acquired business relative to certain financial
targets. The following table summarizes key terms of outstanding contingent consideration arrangements as of March 31, 2006:



|                  |  |                                   |  |                    |  |                            
|----------------- |  | --------------------------------- |  | ------------------ |  | ---------------------------
|Acquired business |  | Remainingamountavailable(maximum) |  | Measurement period |  | Measurement period end date
|IonSpec           |  | $14.0 million                     |  | 3 years            |  | February 2009              
|Magnex            |  | $5.0 million                      |  | 3 years            |  | November 2007              
|Polymer Labs      |  | $23.0 million                     |  | 3 years            |  | November 2008              



In addition to the
above amounts, we accrued $1.4 million in the second quarter of fiscal year 2006 for the final contingent consideration payment relating to the Bear Instruments, Inc. business (acquired in fiscal year 2001). This amount was paid during the third
quarter of fiscal year 2006.



The Distribution Agreement
provides that we are responsible for certain litigation to which VAI was a party, and further provides that we will indemnify VMS and VSEA for one-third of the costs, expenses, and other liabilities relating to certain discontinued, former, and
corporate operations of VAI, including certain environmental liabilities (see Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements).



We had no material cancelable commitments for capital expenditures as of March 31, 2006. In the aggregate, we currently
anticipate that our capital expenditures will be between $14 million and $19 million during the remaining six months of fiscal year 2006.



On November 9, 2005, our Board of Directors approved a stock repurchase program under which we are authorized to utilize up to $100 million to repurchase
shares of common stock. This repurchase program is effective until September 30, 2007. As of March 31, 2006, we had remaining authorization to repurchase $61.9 million of our common stock under this program.



Our liquidity is affected by many other factors, some based on the normal
ongoing operations of the business and others related to the uncertainties of the industries in which we compete and global economies. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe that
cash generated from operations, together with our current cash balance and borrowing capability, will be sufficient to satisfy commitments for capital expenditures and other cash requirements for the next 12 months.



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Contractual Obligations and Other Commercial Commitments



The following table summarizes the amount and estimated timing of future
cash expenditures relating to principal payments on outstanding debt, minimum rentals due for certain facilities and other leased assets under long-term, non-cancelable operating leases, and minimum purchase commitments (net of deposits paid) under
long-term, non-cancelable vendor agreements as of March 31, 2006:



|                                           |  |                              |        |              |      |        |      |   |        |  |      |       |            |   |       |  |   |       |  |   |        |  |   |       
|------------------------------------------ |  | ---------------------------- | ------ | ------------ | ---- | ------ | ---- | - | ------ |  | ---- | ----- | ---------- | - | ----- |  | - | ----- |  | - | ------ |  | - | ------
|                                           |  | SixMonthsEndingSept. 29,2006 |        | Fiscal Years |      |       
|                                           |  |                              | 2007   |              | 2008 |        | 2009 |   | 2010   |  | 2011 |       | Thereafter |   | Total
|(in thousands)                             |  |                              |        |              |      |        |      |   |        |  |      |       |            |   |       |  |   |       |  |   |        |  |   |       
|Operating leases                           |  | $                            | 8,712  |              | $    | 7,807  |      | $ | 4,580  |  | $    | 2,996 |            | $ | 2,231 |  | $ | 1,620 |  | $ | 6,219  |  | $ | 34,165
|Long-term debt (including current portion) |  |                              | 1,250  |              |      | 2,500  |      |   | 6,250  |  |      |      |            |   | 6,250 |  |   |      |  |   | 12,500 |  |   | 28,750
|Purchase obligations, net of deposit paid  |  |                              | 2,076  |              |      |       |      |   |       |  |      |      |            |   |      |  |   |      |  |   |       |  |   | 2,076 
|                                           |  |                              |        |              |      |        |      |   |        |  |      |       |            |   |       |  |   |       |  |   |        |  |   |       
|Total contractual cash obligations         |  | $                            | 12,038 |              | $    | 10,307 |      | $ | 10,830 |  | $    | 2,996 |            | $ | 8,481 |  | $ | 1,620 |  | $ | 18,719 |  | $ | 64,991
|                                           |  |                              |        |              |      |        |      |   |        |  |      |       |            |   |       |  |   |       |  |   |        |  |   |       



In addition to the
non-cancelable contractual obligations included in the above table, we had cancelable commitments to purchase certain superconducting magnets intended for use with NMR systems totaling $3.2 million, net of deposits paid, as of March 31, 2006. In the
event that these commitments are canceled for reasons other than the suppliers default, we may be responsible for reimbursement of actual costs incurred by the supplier.



As of March 31, 2006, we did not have any off-balance sheet commercial commitments that could result in a significant cash
outflow upon the occurrence of some contingent event, except for contingent payments of up to a maximum of $42.0 million related to acquisitions as discussed under Liquidity and Capital Resources above, the specific amounts of which are not
currently determinable.



Recent Accounting Pronouncements



In November 2004, the FASB issued SFAS 151, Inventory Costs, an amendment
of ARB No. 43, Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation
of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Our adoption of SFAS 151 during the first
quarter of fiscal year 2006 did not have a material impact on our financial condition or results of operations.



In March 2005, the FASB issued Financial Interpretation No. (FIN) 47, Accounting for Conditional Asset Retirement Obligations, which
clarified the guidance set forth in SFAS 143, Accounting for Asset Retirement Obligations,relating to conditional asset retirement obligations.FIN 47 requires companies to recognize a liability for the fair value of a conditional
asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about the timing and/or method of settlement. It also provides additional guidance for assessing whether sufficient information is available to
make a reasonable estimate of the fair value of an asset retirement obligation. The cumulative effect (if any) of initially applying FIN 47 is to be recorded as a change in accounting principle. We are required to adopt FIN 47 in the fourth quarter
of fiscal year 2006. We are currently evaluating the requirements of FIN 47 and are not yet able to determine whether its adoption will have a material impact on our financial condition or results of operations.



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In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and FAS 124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which addresses the determination as to when an investment in equity securities (including cost method investments) and debt securities is considered
impaired, whether that impairment is other than temporary and the measurement of an impairment loss. FSP FAS 115-1 and FAS 124-1 nullifies certain requirements under EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments.The guidance in FSP FAS 115-1 and FAS 124-1 is effective for reporting periods beginning after December 15, 2005. Our adoption of FSP FAS 115-1 and FAS 124-1 in the second quarter of fiscal year 2006 did not
have a material impact on our financial position or results of operations.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



Foreign Currency Exchange Risk. We enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations
on assets and liabilities denominated in non-functional currencies. From time to time, we also enter into foreign exchange forward contracts to minimize the impact of foreign currency fluctuations on forecasted transactions. The success of our
hedging activities depends on our ability to forecast balance sheet exposures and transaction activity in various foreign currencies. To the extent that these forecasts are overstated or understated during periods of currency volatility, we could
experience unanticipated currency gains or losses. However, we believe that in most cases any such gains or losses would be substantially offset by losses or gains from the related foreign exchange forward contracts. We therefore believe that the
direct effect of an immediate 10% change in the exchange rate between the U.S. dollar and all other currencies is not reasonably likely to have a material adverse effect on our financial condition or results of operations.



At March 31, 2006, there were no outstanding forward contracts designated as
cash flow hedges of forecasted transactions. During the first six months of fiscal year 2006, no foreign exchange gains or losses from cash flow hedge ineffectiveness were recognized.



Our foreign exchange forward contracts generally range from one to 12 months in original maturity. A summary of all foreign
exchange forward contracts that were outstanding as of March 31, 2006 follows:



|                  |  |                   |        |                        |   |       
|----------------- |  | ----------------- | ------ | ---------------------- | - | ------
|                  |  | NotionalValueSold |        | NotionalValuePurchased
|(in thousands)    |  |                   |        |                        |   |       
|Euro              |  | $                 |       |                        | $ | 46,066
|Australian dollar |  |                   |       |                        |   | 25,884
|British pound     |  |                   | 24,240 |                        |   |      
|Japanese yen      |  |                   | 8,901  |                        |   |      
|Canadian dollar   |  |                   | 7,450  |                        |   |      
|Danish krona      |  |                   | 1,292  |                        |   |      
|Swiss franc       |  |                   |       |                        |   | 1,136 
|                  |  |                   |        |                        |   |       
|                  |  | $                 | 41,883 |                        | $ | 73,086
|                  |  |                   |        |                        |   |       



Interest Rate
Risk. We have no material exposure to market risk for changes in interest rates. We invest any excess cash primarily in short-term U.S. Treasury securities and money market funds, and changes in interest rates would not be material to our
financial condition or results of operations. We enter into debt obligations principally to support general corporate purposes, including working capital requirements, capital expenditures and acquisitions. At March 31, 2006, our debt obligations
had fixed interest rates.



Based upon rates currently available
to us for debt with similar terms and remaining maturities, the carrying amounts of long-term debt approximate their estimated fair values.



Although payments under certain of our operating leases for our facilities are tied to market indices, we are not exposed to material interest rate risk
associated with our operating leases.



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Debt Obligations.



Principal Amounts and Related Weighted-Average Interest Rates By Year of Maturity



|                                          |  |                              |       |   |              |      |       |   |      |   |       |      |  |   |      |   |  |            |       |   |       |   |   |   |  |   |        |   |  |   |        |  
|----------------------------------------- |  | ---------------------------- | ----- | - | ------------ | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | - |  | ---------- | ----- | - | ----- | - | - | - |  | - | ------ | - |  | - | ------ | -
|                                          |  | SixMonthsEndingSept. 29,2006 |       |   | Fiscal Years |      |       |   |     
|                                          |  |                              | 2007  |   |              | 2008 |       |   | 2009 |   |       | 2010 |  |   | 2011 |   |  | Thereafter |       |   | Total |  
|(dollars in thousands)                    |  |                              |       |   |              |      |       |   |      |   |       |      |  |   |      |   |  |            |       |   |       |   |   |   |  |   |        |   |  |   |        |  
|Long-term debt(including current portion) |  | $                            | 1,250 |   |              | $    | 2,500 |   |      | $ | 6,250 |      |  | $ |     |   |  | $          | 6,250 |   |       | $ |  |   |  | $ | 12,500 |   |  | $ | 28,750 |  
|Average interest rate                     |  |                              | 7.2   | % |              |      | 7.2   | % |      |   | 6.7   | %    |  |   |     | % |  |            | 6.7   | % |       |   |  | % |  |   | 6.7    | % |  |   | 6.8    | %



Defined Benefit
Retirement Plans. Most of our retirement plans, including all U.S.-based plans, are defined contribution plans. However, we also provide defined benefit pension plans in certain countries outside of the U.S. Our obligations under these defined
benefit plans will ultimately be settled in the future and are therefore subject to estimation. Defined benefit pension accounting under SFAS 87, Employers Accounting for Pensions, is intended to reflect the recognition of future
benefit costs over the employees estimated service periods based on the terms of the pension plans and the investment and funding decisions made by us.



For our defined benefit pension plans, we make assumptions regarding several variables including the expected long-term rate of return on plan assets and
the discount rate in order to determine defined benefit pension plan expense for the year. This expense is referred to as net periodic pension cost. We assess the expected long-term rate of return on plan assets and discount rate
assumption for each defined benefit plan based on relevant market conditions as prescribed by SFAS 87 and make adjustments to the assumptions as appropriate. On an annual basis, we analyze the rates of return on plan assets and discount rates used,
determine whether these rates are reasonable and, if necessary, adjust them. For rates of return, this analysis is based on a review of the nature of the underlying assets, the allocation of those assets and their historical performance relative to
the overall markets in the countries where the related plans are effective. Historically, our assumed asset allocations have not varied significantly from the actual allocations. Discount rates are based on the prevailing market long-term interest
rates in the countries where the related plans are effective. As of September 30, 2005, the estimated long-term rate of return on our defined benefit pension plan assets ranged from 0.5% to 6.5% (weighted-average of 5.2%), and the assumed discount
rate for our defined benefit pension plan obligations ranged from 2.0% to 5.1% (weighted-average of 4.6%).



If any of these assumptions were to change, our net periodic pension cost would also change. We incurred net periodic pension cost relating to our defined
benefit pension plans of $1.6 million in fiscal year 2005 (excluding a settlement loss), $2.7 million in fiscal year 2004 (excluding curtailment gains) and $2.3 million in fiscal year 2003, and expect our net periodic pension cost to be
approximately $2.3 million in fiscal year 2006. A one percent decrease in the weighted-average estimated return on plan assets or assumed discount rate would increase our net periodic pension cost for fiscal year 2006 by $0.9 million or $0.3
million, respectively. As of September 30, 2005, our projected benefit obligation relating to defined benefit pension plans was $46.1 million. A one percent decrease in the weighted-average estimated discount rate would increase this obligation by
$12.3 million.



|Item 4. | Controls and Procedures
|------- | -----------------------



Disclosure Controls and Procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the Exchange Act)) required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our Chief Executive Officer and the Chief Financial Officer have concluded that as of the end of the
period covered by this Quarterly Report on Form 10-Q (March 31, 2006), our disclosure controls and procedures were effective.



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Inherent Limitations on the Effectiveness of Controls. The Companys management, including
the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated,
can only provide reasonable, not absolute, assurance that the control systems objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the second quarter of our fiscal year 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II



OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------



SeeItem 1ARisk Factors presented in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005, which we encourage you to carefully consider.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



(c)Stock Repurchase Program.The following table summarizes information relating to our stock repurchases during the second quarter of fiscal year 2006:



|                                         |  |                   |  |                        |       |                                                                          |   |                                                                     |  |   |       
|---------------------------------------- |  | ----------------- |  | ---------------------- | ----- | ------------------------------------------------------------------------ | - | ------------------------------------------------------------------- |  | - | ------
|Fiscal Month                             |  | SharesRepurchased |  | Average PricePer Share |       | Total Value of SharesRepurchased asPart of PubliclyAnnounced Plan (1)(2) |   | Maximum Total Valueof Shares that May YetBe Purchased Underthe Plan
|(In thousands, except per share amounts) |  |                   |  |                        |       |                                                                          |   |                                                                     |  |   |       
|Balance  December 30, 2005              |  |                   |  |                        |       |                                                                          |   |                                                                     |  | $ | 84,756
|December 31, 2005  January 27, 2006     |  |                  |  | $                      |      |                                                                          | $ |                                                                    |  |   | 84,756
|January 28, 2006  February 24, 2006     |  | 358               |  |                        | 38.54 |                                                                          |   | 13,797                                                              |  |   | 70,959
|February 25, 2006  March 31, 2006       |  | 231               |  |                        | 39.31 |                                                                          |   | 9,072                                                               |  | $ | 61,887
|                                         |  |                   |  |                        |       |                                                                          |   |                                                                     |  |   |       
|Total shares repurchased                 |  | 589               |  | $                      | 38.84 |                                                                          | $ | 22,869                                                              |  |   |       
|                                         |  |                   |  |                        |       |                                                                          |   |                                                                     |  |   |       

---

|(1) | In November 2005, our Board of Directors approved a stock repurchase program under which we are authorized to utilize up to $100 million to repurchase shares of our common stock.
This repurchase program is effective through September 30, 2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes commissions on repurchases.
|--- | ------------------------------------



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



At our Annual Meeting of Stockholders held on February 2, 2006, our stockholders considered and voted on the election of two Class I directors to the
Board of Directors for three-year terms. The voting on each nominee for director was as follows:



Nominee Richard U. De Schutter: 25,176,056 votes for; 379,166 votes withheld

Nominee Allen J. Lauer: 25,466,803 votes for; 88,419 votes withheld



Pursuant to the rules of The Nasdaq Market, Inc., this election allowed brokers to vote without receipt of instructions from clients, so there were no
broker non-votes.



|Item 6. | Exhibits
|------- | --------



|(a) | Exhibits.
|--- | ---------



|           |  |                                                                                                     |  |                           |  |      |  |               |  |              
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---- |  | ------------- |  | -------------
|           |  |                                                                                                     |  | Incorporated by Reference |  |     
|ExhibitNo. |  | Exhibit Description                                                                                 |  | Form                      |  | Date |  | ExhibitNumber |  | FiledHerewith
|31.1       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |                           |  |      |  |               |  | X            
|           |  |                                                                                                     |  |                           | 
|31.2       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |                           |  |      |  |               |  | X            
|           |  |                                                                                                     |  |                           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |                           |  |      |  |               |  |              
|           |  |                                                                                                     |  |                           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |                           |  |      |  |               |  |              



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SIGNATURES



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



|                  |  |  |  |                           |  |                        |  |                                                            
|----------------- |  |  |  | ------------------------- |  | ---------------------- |  | -----------------------------------------------------------
|                  |  |  |  | VARIAN, INC. (Registrant)
|                  |  |  | 
|Date: May 9, 2006 |  |  |  | By:                       |  | /s/ G. EDWARD MCCLAMMY
|                  |  |  |  |                           |  |                        |  | G. Edward McClammy                                         
|                  |  |  |  |                           |  |                        |  | Senior Vice President, Chief Financial Officerand Treasurer
|                  |  |  |  |                           |  |                        |  | (Duly Authorized Officer andPrincipal Financial Officer)   



49